Up, Down, Turn Around

When the economy is in a down cycle, business professionals basically know what to do: Reduce production, thin out inventories, cut back on expenses, and so on. If they are slow to react to the downward trend, it will take longer to consume existing inventories, and costs will be higher than people would like until employees can get them back in balance with sales.

Returning production and inventory to an up cycle often is the more difficult process. Once caught with extra inventories and expenses on the way down, people naturally are reluctant to ramp up costs during recovery. The impacts of this slow reaction time are shortages and lengthening lead times, which can lead to lost business. As existing customers become frustrated and seek better service elsewhere, more agile competitors can end up increasing market share.

The purpose of forecasting is to provide a view of demand against which team members can build an operating plan during the sales and operations planning process. If the demand projection is wrong -- in either direction -- the operating plan will not provide the right products, in the right quantities, at the right times. The business will be unable to deliver adequate customer service.   Consider these suggestions:

-- Weigh the risk of too much inventory and higher costs against the risk of losing sales and customers due to shortages and delays.  Measure or estimate the forecast error via a straightforward formula that calculates the proper amount of safety stock based on desired service levels and lead time (a factor of forecast accuracy).

-- Lead time is a critical element of forecast flexibility and having extra finished-goods inventory is not always effective. If an organization can make products on demand in a very short time, then the inventory buffer should be at the major assembly, module, or critical-component level.

-- Take into account your supply chain partners since their flexibility and responsiveness in the distribution network will have a direct bearing on your ability to respond to changing demand and forecast inaccuracies.

-- Finally, understand the risks associated with responding to an expected change in the business level and manage those risks appropriately. Keep a close eye on inventory, but don't ignore the impact of lead time on your ability to be flexible and responsive.

Read more about fostering flexibility and responsiveness during unpredictable times at www.daveturbide.com

A Capacity for Action

While this doesn’t seem logical, the “plan materials first, then check capacity” process has been with us since the 1960s, when MRP first was defined and computer resources were scarce and expensive.  Today, the computing power necessary to plan material and capacity simultaneously is readily available, as is the software to accomplish this feat in a relatively short period of time – mere seconds in many situations.  
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The Other ROI

When you bought and implemented your system, you were looking for (and hopefully measuring) the Return on Investment – ROI. Now that you have had the system in place for some time, wouldn’t you like to Re-energize Operational Improvements?   ...Keep Reading This Article on www.daveturbide.com

Cheaper, better, faster?

The subtitle of this blog is “…making products cheaper, better, faster”.  Not very elegant perhaps, but in line with the traditional mandate for manufacturing management. Of course, satisfying the customer is the ultimate goal, but manufacturers are driven to do so at the lowest practical cost; the highest quality within the limits of technology, equipment, budget and skill; and as quickly as possible to meet demand, reduce inventory, and increase responsiveness to changing markets.

Are there equivalent mandates for marketing?  Perhaps we should consider cheaper / better / faster here as well.
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“Indirect” Lean

Lean initiatives are not just for production and other ‘direct’ activities. Lean principles can be applied to ‘indirect’ costs and activities to good effect as well. And these efforts are definitely green.

At a recent meeting of our local APICS chapter, two gentlemen from BAE Systems here in New Hampshire presented on a “Lean Energy” program they conducted at multiple BAE facilities. The focus was on identifying waste and taking action to reduce or eliminate as much of that waste as was practical. Perhaps the most interesting aspect of their journey was the use of Lean techniques to make these improvements.

BAE had already applied Lean to their production processes and had a number of Lean-trained individuals to help in this process. They applied standard Lean tools like value stream mapping, A3, and Kaizen to the use of energy throughout several facilities, with great success.

This energy conservation initiative went beyond the typical steps of installing energy-saving light bulbs and beefing up the insulation around heated areas. They looked at all forms of energy usage and founds many opportunities to reduce waste and save the company a lot of money while at the same time improving performance in other areas.

One example concerned the compressed air system, which was used throughout the plant. They discovered that there were many, many small leaks that each individually was inconsequential but taken together constituted a significant misuse of the resource. They were able to avoid the purchase of a larger compressor and, in fact, reduce the load enough to extend the life of the existing system by several years – it had been needlessly overworked. The cost to fix the leaks was relatively minor.

Another striking example was efficiencies in the use of an oven. They added insulation, changed procedures to minimize heat loss and scheduled the oven more intelligently to maximize throughput and reduce the number of hours the oven had to be kept up to temperature, saving considerable energy.

They summarized their efforts this way:

• It was the right thing to do
• There was a definite direct pay-back
• It was virtually free with an immediate ROI
• It was a ‘fairly easy’ way to reduce energy costs and decrease demands on facilities and maintenance
• The Lean approach worked great – “If you know lean, this is easy. If you don’t know lean, it’s still easy.”
• It was unprecedented – not being done anywhere – but would be duplicated and expanded throughout BAE