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.  
...Keep Reading This Article on www.daveturbide.com

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.
... Keep Reading This Article on www.daveturbide.com

“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

Past Articles

For those of you who may not know, there's lots of additional editorial that I've written for APICS magazine located at "Past Articles" on http://daveturbide.com/consulting-services/past-articles/

Most recently I wrote a two-part article on reverse logistics entitled Round and Round and a second one called Gold-Medal Reverse Logistics on achieving a winning supply chain program. Let me know what you think ... 

Living on the Edge

Just about everyone has heard of the "leading edge," that mythical place where technology is changing the way business has always been done. While it may be an exciting place to be, there is considerable risk in being a pioneer. After all, the guy out front in the battle is the most likely to collect bullets. Or, as a friend of mine likes to say, "The lead dog has to eat a lot of rocks." But, then, if you're not the lead dog, the scenery never changes. In the spirit of our ever-evolving language, here are several variations on the leading edge theme that may become commonplace as we head into the second decade of this century:

bleeding edge - not so new, but perhaps more accurate than ever. Yes, it's dangerous out there at the head of the pack. Many pioneers have found that the technology isn't really as advanced as they thought it was when they committed to the project. Unfortunately, most of the blood on the ground belongs to the poor customers who believed the engineers and sales reps. To be fair, the engineers sure thought it would all work. The sales reps trusted the engineers because they really didn't understand the technology, only the commission plan.

feeding edge - High-tech market leaders have to stay ahead of their competition. New technologies generate the high margins that feed the research and development that develops more new technologies. Once a product is no longer alone on this edge, margins drop as me-too products compete on price. The me-too’s don't have to fund the research that developed the product in the first place, so they can afford to sell for less.

fleeting edge - Now you see it, now you don't. It looked great in the ads and the press releases but by the time you call the vendor, it (either the product or the vendor) doesn't exist any more. Count your blessings. Someone else took the bullets.

greeding edge - From the customer's perspective, the high margins demanded for new-technology products may seem excessive. This is an edge vendors want to avoid.

needing edge - If there wasn't a need (at least in someone's mind) there wouldn't be any advancement in technology. If the technology doesn't develop quickly enough, there could be potential customers out there who can't get what they need at any price. Here's where greed (or enthusiasm) may overtake prudence, and hype overtakes reality. See bleeding edge.

pleading edge - Often associated with many of the other conditions mentioned above, the pleading can go in both directions. Customers beg for promised function, announced improvements or fixes, and implementation help. Vendors pray for miracles, understanding or more time.

reading edge - This is a first cousin to vaporware: you've read about it, but it doesn't exist yet. Maybe vendors have started promoting the product but are still months or more away from release. This is particularly common in the medical arena, where promising research results are published years before the necessary validation and approvals can be obtained.

weeding edge - It's rough being in the forefront. One misstep and the whole enterprise may go down the drain. High-tech companies come and go with alarming frequency. This Darwinian weeding out of the weaker contenders is also hard on the brave souls who put their trust in new products that end up as orphans. See bleeding edge.