2004, m. srinivasan building and managing the lean supply chain
TRANSCRIPT
2004, M.
Srinivasan
The Supply Chain
1st Tier, 2nd Tier, …, Suppliers
EnterpriseDistribution
ChannelsCustomers
The Supply Chain
2004, M.
Srinivasan
Develop Systems Thinking
Lean supply chain principle 1:
Improving the performance of every subsystem does not necessarily improve system performance. The sum of local optima does not equate to the global optimum. Improvements in subsystem performance must be gauged only through its impact on the whole system.
2004, M.
Srinivasan
Systems Thinking and the Theory of Constraints
“Find the essence of each situation, like a logger clearing a log jam. The pro climbs a tall tree, locates the key log, blows it, and lets the stream do the rest. An amateur would start at the edge of the jam and move all the logs, eventually moving the key log. Both approaches work, but the essence concept saves time and effort. Almost all problems have a key log if we learn to find it.”
-- Fred Smith
2004, M.
Srinivasan
The Business Ecosystem
Regulating Agencies
1st Tier, 2nd Tier, …, Suppliers
Competitors
Complementors Stakeholders
EnterpriseDistribution
ChannelsCustomers
The Supply Chain
2004, M.
Srinivasan
Dell’s Business Ecosystem
Customers: o Home & Home Office o Small Business (up to 400
employees) o Medium & Large Business
(over 400 employees) o State & Local Government o Federal Government o Education o Healthcare o ...........
Suppliers: o Phillips, Nokia,
Samsung, Sony, Acer
o SCI, Celestica o Seagate,
Maxtor, Western Digital, IBM
o Barcelona, HP o Hon Hai/Foxteq o Quanta,
Compal, Acer o ...........
Competitors: Compaq, IBM,
HP, Gateway, Toshiba, .......... Regulating agencies: US Government, state governments, Malaysian government, Chinese government, local governments.......
Complementors: Microsoft, digital device makers, Internet service providers, computer skills trainers, PC game developers ..........
Stakeholders: NASDAQ, Investors
Telephone service companies, financial institutes, third-party technical supporters, AD companies, ..........
Third-party logistics providers such as UPS, Caliber, transportation companies, ..........
Technology development
Status of the Economy
Culture ............
Other industries such as airline, automobile, energy, ..........
Dell
DELL: o Enterprise
systems (servers)
o Notebook computers
o Desktop computers
o ............
Direct sale
Close proximity to suppliers
2004, M.
Srinivasan
The Business Ecosystem
Lean supply chain principle 2:
Focus on improving the performance of the lean supply chain. However, do not ignore the supply chain’s business ecosystem.
2004, M.
Srinivasan
Steps to Build Lean Supply Chains
Develop a systems perspective Understand customers and their expectations Map the supply chain Benchmark best practices Design products and processes to manage
demand volatility Create flow across the supply chain Develop supply chain metrics
2004, M.
Srinivasan
Develop a Systems Perspective
For any decision you take consider the following. Does the decision:
Help you sell more products?
Help reduce investments in resources?
Help reduce payments/expenses?
2004, M.
Srinivasan
Understand Customer Value
Critical step: provide what the customer wants Providing the wrong product or service in an efficient
way is muda. Eg. Air travel An opportunity for kaikaku (dramatic change):
Rethink the delivery system on a product line basis with strong dedicated product teams
2004, M.
Srinivasan
Understanding Customer Value
Document the following:
Customer values in each segment (order qualifiers and order winners)
Delivery cycle/time expectations of customers in each segment
Identify market segments
2004, M.
Srinivasan
Market Segments: Example
0%
20%
40%
60%
%ag
e O
rder
s
StapleStock
DirectFreight
Seasonal
Product Type
Market Segmentation Graph
Market Segment
2004, M.
Srinivasan
Customer Values in Each Segment
Staple stock (e.g., Stationery) Availability (qualifier), cost (winner)
Direct freight (e.g., Sony DSC-S30) Product design (qualifier), quality (winner)
Seasonal Convenience (qualifier), availability (winner)
2004, M.
Srinivasan
Map the Supply Chain
The set of all actions required to deliver the finished product or service to the customer
“Seeing the Whole” (Systems Thinking)
Systematic study of the value stream often reveals a staggering amount of muda Need to “map” the whole process, and identify value-added
and non-value added activities across the value stream
2004, M.
Srinivasan
Supply Chain Map: “As-Is”
Patient Telemonitoring System monitored by Office based Nurse
Physician’s Office
Admission RN or Therapist
Transcription
Medical Records
Outside Supplier
Clinical Staff Materials Management
Intake Coordinator
Hospital Discharge Staff Billing and
Collections
Clinical Supervisor
Visit Scheduler
Courier
Information flowPaper flowData flow
Supply deliveryAdds Value
Source of Waste
2004, M.
Srinivasan
Supply Chain Map: “To-Be”Patient Telemonitoring System
monitored by Office based Nurse
Outside Supplier
Clinical Staff
Materials Management
Hospital Discharge Staff
Billing and Collections
Clinical Supervisor/Case Manager
Intake Coordinator/ Scheduler
Physician or Physician’s Office
Information flow
Data flow
Supply delivery
Adds Value
Source of Waste
Medical Records
2004, M.
Srinivasan
CustomerSupplier
30 Days Firm
Schedule
ProductionPlanning
CentralSupplies
Monthly Faxof WeeklySchedules
Weekly Calls with Daily Schedules
InventoryManagement
SystemCAPSSystem
Blend CompoundPre-
FormPre-Cure
Press-Curing slab
Finish-ing
Pack
1.33
Days
900
seconds0
Days
0.26
Days
0.09
Days
0.09
Days
0.68
Days
0.54
Days
12
Days
18
seconds
5700
seconds
18810
seconds
4500
seconds
45
seconds
0.07
seconds
Bi-WeeklySchedule
Press-Curing DFM
FIFO
SalesWarehouse
Customer Demand: 4,560 units/day
RecordReceipt
To
Raw
Mat
eria
lSu
perm
arke
t
Value Added Time: 0.35 days; Production Lead Time 3.34 days; Value Added Ratio: 10.5%
Supply Chain Map: “As-Is”
2004, M.
Srinivasan
CustomerSupplier
30 Days Firm
Schedule
ProductionPlanning
CentralSupplies
Monthly Faxof WeeklySchedules
Weekly Calls with Daily Schedules
InventoryManagement
SystemCAPSSystem
Blend CompoundPre-
FormPre-Cure
Press-Curing slab
Finish-ing
0.03
Days
900
seconds0
Days
0.11
Days
0
Days
0.03
Days
0.13
Days
6
Days
18
seconds
1800
seconds
18810
seconds
4500
seconds
45
seconds
Bi-WeeklySchedule
Press-Curing DFM
FIFO
SalesWarehouse
Value Added Time: 0.30 days; Production Lead Time 0.60 days; Value Added Ratio: 50%
DailyOrders
RecordReceipt
Mixed-ModelBuild Schedule
To
Raw
Mat
eria
lSu
perm
arke
t
Customer Demand: 6,200 units/day
Supply Chain Map: “To-Be”
2004, M.
Srinivasan
UNDERWRITING 1Team 1
FLOW Available Minutes=450Arrivals/Day ServiceTime=Load
1.4 43.60 61.046.3 38.00 239.401.6 22.60 36.165.3 18.70 99.11
14.6 435.71
Utilization 0.97
DISTRIBUTION UNDERWRITING 2Number of Clerks= 4.00 Team 1
FLOW Available Minutes= 1800.00 FLOW Available Minutes=450Arrivals/Day ServiceTime Load Arrivals/Day ServiceTime=Load
From Agent RUNS 2.9 68.5 198.65 0.8 43.60 34.88RAPS 15 50 750 4.3 38.00 163.40RAINS 3.8 43.5 165.3 1.1 22.60 24.86
From Computer RERUNS 17.3 28 484.4 7 18.70 130.90Total 39 1598.35 13.2 354.04
Utilization 0.89 Utilization 0.79
UNDERWRITING 3Team 1
FLOW Available Minutes=450Arrivals/Day ServiceTime=Load
0.7 43.60 30.524.4 38.00 167.201.1 22.60 24.86
5 18.70 93.5011.2 316.08
Utilization 0.70
Released 1day prior to due date
Another kind of Supply Chain Map
2004, M.
Srinivasan
Benchmark Best Practices
Develop performance
metrics
Identify world class organizations; study
their operations strategies and tactics
2004, M.
Srinivasan
Benchmark Best Practices
Lean supply chain principle 3:
Focus on customer needs and process considerations when designing the product delivery system. Enterprises can gain tremendous competitive advantage through best-in-class practices that cut across industries.
2004, M.
Srinivasan
Designing Products and Processes: Coping With Demand Volatility
Can you smooth demand volatility? Key observation: Much of the demand volatility is self-
induced Sales promotions and rebates End-of-the-month syndrome (“Channel Stuffing”) Batching New product introductions …
2004, M.
Srinivasan
How Can We Reduce Demand Volatility?
Have no promotions Reduce lead times and produce in small lots
Exploit product structures Postponement strategies
Exploit commonality and delay commitment Aggregation
2004, M.
Srinivasan
How to Manage Demand Volatility: The RAP Principle
Raw
Material
Before
After
Sub-Assembly Final Assembly FinishedGoods
Fabrication
2004, M.
Srinivasan
How to Manage Demand Volatility: The RAP Principle
Lean supply chain principle 4:
Maximize external variety with minimal internal variety. It is desirable to maintain inventories in an undifferentiated form for as long as it is economically feasible to do so
2004, M.
Srinivasan
Managing Demand Variation
Lean supply chain principle 5:
Buffer the variation in demand with capacity, not inventory
As far as possible, avoid using inventory to buffer variation Less chances of misallocation Inventory seriously impedes flow
2004, M.
Srinivasan
“At-Once”Customers
“At-Lead-Time” Customers
“Beyond-Lead-Time”Customers
Per
cent
age
of O
rder
s
Lead Time= 3 to 5 weeks
Replenishment Lead TimeWk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 8
The Customer Time-Based Demand Profile
Product Delivery Strategies
2004, M.
Srinivasan
Build to stock (BTS) Finished goods made in anticipation of demand.
Customers’ orders are met from inventory
Assemble to order (ATO) Subassemblies produced according to forecast.
Required items are drawn from wip and assembled when orders are received. Very little finished goods inventory carried
Product Delivery Strategies: Product Structures
2004, M.
Srinivasan
Build to order (BTO) Products built in response to actual customer
orders. Usually these are standard products with a few options
Engineer to order (ETO) New product designed and produced in response
to specific customer needs. Lead times include relevant elements of engineering design and manufacturing
Product Delivery Strategies: Product Structures
2004, M.
Srinivasan
FGBuild to Stock
Customer LT
AssemblyAssemble-to-Order
Customer LT
Build-to-Order AssemblyRM
Customer LT
Product Structures: Resulting Lead Times
2004, M.
Srinivasan
Create Flow
CustomersFacilitySuppliers
Creating flow requires a systems perspective
Lack of flow results in inventory or work imbalance somewhere in the supply chain
Improved flow reduced lead times
To create flow, all processes should “row the boat” at the same pace – the concept of flow balance
2004, M.
Srinivasan
Creating Flow
Lean supply chain principle 6:
Use forecasts to plan and pull to execute. A system that reacts to pull signals will have less variation than a comparable system that adopts a push mode of operation.
To enhance flow, use pull signals for execution where possible