Why Responsiveness Matters

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by Daniel T Jones of the Lean Enteprirse Academy shown at the Lean Logistics Conference, Wroclaw Poland on 21st February 2006

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  • 1. Lean Enterprise Academy www.leanuk.org1 Why Responsiveness Matters: Getting Products to Customers Quickly Daniel T Jones Chairman Lean Enterprise Academy Lean Logistics Conference Wroclaw, Poland 21 February 2006

2. Lean Enterprise Academy www.leanuk.org2 The Problem Logistics like to fill trucks by keeping stocks in warehouses at either end Planners like to dream that they get best utilisation by planning, controlling and scheduling every shipment in every truck Operations like to create focused factories for each activity and to plan every product or batch through every step Finance likes to source these activities in the lowest cost location 3. Lean Enterprise Academy www.leanuk.org3 The Result Long supply chains with many steps inventories everywhere - 300 plus days throughput for 3 hours of value creation Many decision points send chaotic orders upstream constantly changing plans, extra inventories and capacity and endemic fire-fighting Optimising the pieces rather than the flow poor utilisation of assets and trucks Poor availability and responsiveness and higher than necessary costs 4. Lean Enterprise Academy www.leanuk.org4 The Remedies The instinctive reaction is buy a better planning system squeeze suppliers and move to a lower cost location The right answer is to learn to see the whole value stream, to rethink the way it is planned and directed, to improve the performance of each activity and to synchronise them in line with demand And then to redesign the value stream to compress it in time and distance in the right location 5. Lean Enterprise Academy www.leanuk.org5 The Challenge Traditional logic and practice is not only fundamentally flawed It is also being challenged by two developments: - Significant changes in consumer behaviour and in retailing in the developed countries Intensified competition between low cost locations This creates opportunities and threats for Polish businesses 6. Lean Enterprise Academy www.leanuk.org6 Changing Consumption Consumption is also an ongoing process for solving consumer needs Managing household consumption is increasingly complex with more choices, more decisions and more things Consumers are better informed and short of time so they are demanding better availability and greater convenience Products have got better and cheaper the next revolution is retailing and service 7. Lean Enterprise Academy www.leanuk.org7 Changing Retailing Every product is now being sold through supermarkets clothing, pharma etc. Some lean retailers have begun a revolution in convenience retailing and home shopping Seven-Eleven in Japan German Discounters Tesco multiple formats in the UK Others are pioneering quick response Zara, H&M, Benetton Availability and responsiveness are key 8. Lean Enterprise Academy www.leanuk.org8 Supply Chain Performance Levels of Fulfilment are poor in most systems: - 98.5% service level means 55% fulfilment for a basket of 40 items in the store 80% availability for the shoe with 150 day order window leads to 40% being remaindered 52% of consumers get the cars they wanted on time and 64% of service jobs are completed RFTOT 9. Lean Enterprise Academy www.leanuk.org9 Toyotas Lean Strategy Brilliant process management is our strategy. We get brilliant results from average people managing brilliant processes. We observe that our competitors often get average (or worse) results from brilliant people managing broken processes. Lean Thinking is Process Thinking 10. Lean Enterprise Academy www.leanuk.org10 Lessons from Toyota Toyota spent 30 years developing lean in house and spreading it up and down its supply chain The most impressive example is aftermarket parts distribution supplying 500,000 SKUs to dealers It operates as a series of tight replenishment loops Dealers call off parts from Distribution Centres every day These shipments trigger daily orders to be picked up from suppliers the next day Most of whom can also make every part that is required in a day every day The result is the highest availability, lowest stock levels and the smoothest order signals 11. Lean Enterprise Academy www.leanuk.org11 12. Lean Enterprise Academy www.leanuk.org12 0 50 100 150 200 250 39 42 45 48 51 1 4 7 10 13 16 19 22 25 28 31 34 37 Week No. Total RDC Stock EPOS Supplier Shipment MARKET DEMAND DEMAND AMPLIF- ICATION SUPPLIER ORDERS Uncovering Amplification 13. Lean Enterprise Academy www.leanuk.org13 Lessons from Tesco SupplierSupplier RDCRDC StoreStoreNDCNDC ContinuousContinuous ReplenishmentReplenishment FlowFlow ThroughThrough StoreStore FlowFlow ThroughThrough ProductionProduction LeanLean SchedulingScheduling CustomCustom StoreStore RangingRanging LoyaltyLoyalty CardCard DataData HomeHome ShoppingShopping MultiMulti-- FormatFormat ConvenienceConvenience FlowFlow ThroughThrough WarehouseWarehouse PrimaryPrimary DistributionDistribution ContinuousContinuous ReorderingReordering ConsolidationConsolidation WarehousesWarehouses 14. Lean Enterprise Academy www.leanuk.org14 15. Lean Enterprise Academy www.leanuk.org15 16. Lean Enterprise Academy www.leanuk.org16 Rapid, Reflexive Replenishment Toyota distinguish between cognitive and reflexive decision making systems They separate capacity and materials planning from production and shipping instructions Lean, rapid, reflexive replenishment is based on four key principles:- Only one scheduling point or pacemaker Greatly increased frequency of replenishment Replenish only exactly what was sold Where possible compress the vale stream The objective is to optimise the flow not each asset 17. Lean Enterprise Academy www.leanuk.org17 The Dynamics of Lean To only one pacemaker process With just the right Standard Inventory of:- Cycle stock Buffer stock and Safety stock Uninterrupted flow back to the customers point of use No warehouses, only Cross-Docks and Mixed-model Milk Runs FIFO Reflexive Pull all the way back to raw materials Every Product Every Interval capability Separate capacity planning from production instructions Production pulled from every upstream step Every step is:- Valuable Capable Available Flexible and Adequate Combine steps where you can to flow Demand signals direct from the customers point of use No created demand amplification Levelled and released in small quantities 18. Lean Enterprise Academy www.leanuk.org18 A Lean Factory How responsive could a factory be? Guideline less than 1 hour value creating time should be completed within 1 day By creating flow through your plant linking: Capable steps (6 Sigma) Available equipment (TPM) Adequate capacity (right sized equipment) Flexible operations (Every Product Every Cycle) By eliminating short term plan changes by levelling the workload and moving to replenishment pull wherever possible 19. Lean Enterprise Academy www.leanuk.org19 Where and How to Flow? Sequential PullSKUs Volume Replenishment Pull 20. Lean Enterprise Academy www.leanuk.org20 Current State 44d 55m 73 8 Steps Time Steel DELTA STEEL Stamping GAMMA STAMPING Warehouse Cross Dock Wipers BETA WIPERS Assembly Dist. Centre Cross Dock ALPHA MOTORS Amplification F E D C B A % 40 30 20 10 0 F E D C B A Quality & Delivery ppm 2000 1500 1000 500 0 F E C A % 10 5 0 AssemblyWipersStamping Steel Dist. Centre 16d 55m 39 8 Steps Time Amplification F E D C B A % 40 30 20 10 0 Quality & Delivery ppm 2000 1500 1000 500 0 F E C A % 10 5 0 F E D C B A DELTA STEEL GAMMA STAMPING BETA WIPERS ALPHA MOTORS Future State 2 Flow and Pull between Plants TimeTime reducedreduced from 44 tofrom 44 to 24 days24 days Ideal State Value Stream Compression Dist. Centre 3d 55m 30 8 Steps Time Amplification F E D C B A % 40 30 20 10 0 Quality & Delivery ppm 2000 1500 1000 500 0 F E C A % 10 5 0 F E D C B A Steel EPSILON STEEL Assembly ALPHA MOTORSSUPPLIER PARK Wiper Cell Stamping Cell Time reducedTime reduced from 24 to 3from 24 to 3 daysdays Across the Value Stream 21. Lean Enterprise Academy www.leanuk.org21 22. Lean Enterprise Academy www.leanuk.org22 23. Lean Enterprise Academy www.leanuk.org23 The Logic of Location Value stream compression eliminates storage at the plant, at the container port, customs delays, storage in DC, entire cost of the store, overstocks, lost sales, remaindering touch labour a tiny fraction of costs Make customised products close to customers and make standard products within the region of sale using trucks not boats that always lead to planes No one has an adequate cost of location model across functions to make these decisions 24. Lean Enterprise Academy www.leanuk.org24 Where to Produce What Calculate factory gate costs at different locations Germany, Romania and China? Calculate freight costs to supply the factory and to reach all your customers Including all the expedited shipments! Add in all the overhead costs of: Management and engineering time and travel Quality (warranty costs etc.) Extra inventories, lost sales, out-of-stocks, write-offs, etc. Currency and country risks Then decide what to make where which might also change over the product life cycle 25. Lean Enterprise Academy www.leanuk.org25 Challenges for Poland Your advantage is being part of a growing market in Central Europe And being within trucking distance of Western Europe Companies here need to cooperate to reshape logistics systems, to consolidate loads and deliver to customers every day Little and often through cross docking operations works better than big batches 26. Lean Enterprise Academy www.leanuk.org26 Why Responsiveness Matters: Getting Products to Customers Quickly Daniel T Jones Chairman Lean Enterprise Academy Lean Logistics Conference Wroclaw, Poland 21 February 2006