making the most of what we’ve got · “whopping profit, increased profit reduction in costs...

Making The Most of What We’ve Got / 1

Making The Most of What We’ve Got Making The Most of What We’ve Got

Delivering Supply Chain ImprovementDelivering Supply Chain Improvement

The Institute of Operations Management

&

MLG Management Consultants

November 2010


Fundamental ChoiceFundamental Choice

� If our ERP system is not delivering what we expect:

� Get a new system

� Make better use of the one we already have

� Exploring the second option:

� Avoid high-cost / high-risk purchase & implementation

� Achieve benefits more quickly?


AgendaAgenda

� Introductions

� ERP success rates

� ERP good practice / best practice

� Performance measurement / KPIs

� Reasons for success / failure

� The problems to be fixed

� Putting things right

� Applying the lessons of Lean


What is ERP?What is ERP?

� Enterprise Resource Planning

� An integrated business system

� A manufacturing planning and control system

� A supply chain system

� A comprehensive, all-embracing business application

� e.g. Human resources, customer relationship management

Costing

Business Strategy, Corporate Objectives, Mission Statement, Culture ….

BusinessPlanning

Sales & OperationsPlanning

Master ProductionScheduling

Material RequirementsPlanning

Capacity RequirementsPlanning

Rough CutCapacity Planning

ResourcePlanning

PurchasingManagement

PurchaseLedger

Shop FloorControl, WIP

ManufacturingAccounting

SalesLedger

Input - OutputControl

GeneralLedger

PurchasingPlan

ManufacturingPlan

CapacityPlan

Demand ManagementForecasts

Customer OrdersSpares Orders

Warehouse OrdersInterplant OrdersOther Demand

1

2

3

4

5

6

7

I T E M M A S T E R , E T C .

I

N

V

E

N

T

O

R

Y

FiniteScheduling

EngineeringChangeControlComputerAidedDesign

HumanResources

PayrollSystems

ComputerAided

Manufacture

AutomatedStorage &RetrievalSystems

AutomatedGuidedVehicles

Planning

Execution

DRP

CUSTOMERS

SUPPLIERS

CashFlow

ActivityBasedCosting

EDIInternet

Optimisers

Real-timeTurboMRP

CustomerRelationshipManagement

FieldService

PlantMaintenance

Transport

Technical support : GUI, Database,Reporting Tools, Language, 4GL, ...

ExecutiveInformationSystems

AdvancedPlanning &Scheduling

QualitySystems

NewProduct

Introduction

PDM,EDM

Intra-Company, Multi-Plant

ToolManagementSystems

AssetRegister

SupplierRelationshipManagement

Enterprise Resource Planning, ERPEnterprise Resource Planning, ERP


ERP Success?ERP Success?

� Used to quote 90% failure rate

� Has this improved?

� 70-80% of ERP implementations

� Are late, and/or

� Over budget and/or

� Under perform against key metrics


Best in Class PerformanceBest in Class Performance

� 22% reduction in levels of inventory

� 97% inventory accuracy

� 96% manufacturing schedule compliance

� 98% on-time and complete shipments

� An average of 3.4 days to close a month

Source: ERP in Manufacturing 2010, Aberdeen Group


Benefits Achieved From ERP SuccessBenefits Achieved From ERP Success

� “Whopping profit, increased profit

� Reduction in costs

� Effective handling of orders

� Speedy delivery

� Greater sales

� Less owed to creditors

� Improved quality of work

� Less time taken for work, improved productivity

� Improved accountability, administration and control

� Inventory management”

Source: A survey of responses to internet search on ‘ERP success’, November 2010


AgendaAgenda

� Introductions









ERP Good Practice, Best PracticeERP Good Practice, Best Practice

� Commitment to excellence

� ERP complements other tools

� All plans are realistic

� Hierarchical

� Resolve conflict early

� Best balance of achieving business objectives and customer satisfaction

� Accountable demand and supply planning processes

� Ability to perform ‘what if?’ simulations

� Commitment to data accuracy and continuous improvement

� Measure performance, close the loop

� Ongoing personal development


Planning Demand and SupplyPlanning Demand and Supply

5432Year 1 = budget

Demand Planning

& Demand

Management

Forecasting- finished products- spares

Order servicing- finished products- spares

Warehouse ordersInterplant ordersOther demand

- prototype build- anticipation- hedge

Strategic and

Business

Planning

Executive Sales &

Operations

Planning

Master

Production

Scheduling

Resource

Planning

Rough Cut

Capacity

Planning

Material

Requirements

Planning

Capacity

Requirements

Planning


Planned Cost

Executing, Managing, ControllingExecuting, Managing, Controlling

Manufacturing

Plan

Capacity

Plan

Purchasing

Plan

Shop Floor Control

Work in Progress

Input Output

Control

Purchasing

Management

Purchase

Ledger

Manufacturing

AccountingSales Ledger

General

Ledger


Management by ExceptionManagement by Exception

� Action messages

� Expedite, delay, cancel, surplus stock

� Overloaded, underloaded resources

� Cost variances

� Late supply, shortages, arrears

� Appropriate management of safety stock

� Variation in lead times


Data ManagementData Management

� One integrated system

� Data accuracy

� Demand, the Master Production Schedule

� Inventory

� Open orders

� Planning parameters

� Order policies, lead times, safety stocks, shrinkage

� Routings

� Bills of material

� Data ownership

� Point of use


AgendaAgenda

� Introductions









Performance Measurement, KPIsPerformance Measurement, KPIs

� Strategic goals

� Growth, survival, vision, culture, competition, portfolio …

� Operational goals

� Customer service, assets, efficiency, lead times …

� Satisfying customer needs

� Value, consistency, reliability, sustainability …

� Competitive knowledge

� Audit


Contrast With HealthcareContrast With Healthcare

� Focus on reducing levels of heart disease

� Measurements based on the incidence within the population are valuable

� They report on whether Health Service practices and general lifestyle choices are working – or not

� Measuring number of heart attacks year-to-date is not the way to improve the health of the individual


Caring for the IndividualCaring for the Individual

� Measurements at the individual level include:

� Blood pressure

� Cholesterol level

� Body Mass Index

� If any of these is outside acceptable levels the individual is at risk

� The measurement acts as a warning of problems

� Also a pointer to the appropriate corrective action

� This is the role of a KPI


Supply Chain MeasurementsSupply Chain Measurements

� All improvement activities must be driven by measurements (KPIs)

� In the world of Supply Chain, KPIs abound

� Customer service – on-time delivery

� Typically ‘on-time in full’ (OTIF)

� Lead time to market

� Production on-time / manufacturing arrears

� Inventory levels / stock turn ratio

� All essential knowledge, but not pointers towards the improved future

� ‘Lagging’, rather than ‘leading’ KPIs


KPIs for Making The MostKPIs for Making The Most

� Recurring theme for this session

� KPIs must warn of failings in the plan

� Highlight potential late deliveries, missed invoice forecast, stock increases rather than history

� KPIs must point towards corrective action

� Remember the lesson of visual signals

� We can measure and analyse everything

� We can fill notice boards all over the business

� If we measure and report too much we will achieve nothing

� Sometimes we measure two things that both tell us the same thing


AgendaAgenda

� Introductions









� A lack of senior management commitment

� A failure to focus upon people

� Poor quality, inaccurate data, incorrectly structured

� Inadequate software

� Absence of a Sales and Operations Planning process

� Lack, or departure, of the sponsor

� Insufficient expert advice / consultancy help

� Treating it as an IT project, rather than a Business Improvement Project

� A lack of a full time project manager; should be user, not IT, for best results

� Too many software changes – changes not justified by real business need

� Insufficient generic education� Management team / Steering committee

� . . . and product training� Project, task teams

� Key Users

� 80 to 100 % of the workforce

� Train the trainer

� Insufficient time taken on planning

� Taking too long, and losing impetus

� Not running a Conference Room Pilot to check that the system achieves the new ways of working

� It not becoming THE company system

� The steering committee not accepting the responsibility

� Lack of strength in the project and task teams

� Setting unrealistic targets

� The lack of a solid, well balanced financial justification

� The lack of a clear, identifiable, measurable business objective for the project

� The failure to establish clear performance measures, and doing it early enough

� Not closing the loop

� Resistance to change

� Failing to focus ... too many projects ... flavour of the month

Why do ERP Implementations Fail?Why do ERP Implementations Fail?

MLG ExperienceMLG Experience


Why do ERP Implementations Fail?Why do ERP Implementations Fail?

� A misconception of business expectations

� A lack of top-level leadership on the project

� Business processes not correctly redefined

� Impact of organisational change

� Vendor not managed effectively

� Over-promised, then under-delivered

� Weak project management, over-customised

� Integration of diverse applications harder than expected

Source: Is Your ERP Implementation in Trouble? CIO Update, 2010


ERP Implementation Success FactorsERP Implementation Success Factors

� Focus on business strategy and objectives

� Ensure there is commitment from the top

� Manage change effectively

� Take time to plan the project adequately

� Re-tool employees with relevant education and training

� Start cleansing data as early as possible

� Own your deployment

� Ensure you have suitable software

Source: A survey of responses to internet search on ‘ERP success’ November 2010


ConclusionsConclusions

� Common feeling / expression / theory / statistics that most ERP implementations fail

� Inadequate business benefits, late, over budget …

� There are best in class approaches

� There is a clear difference between success and failure

� Most companies do not make the most of what they’ve got

� Do we have any solutions?

� Over to my colleague, Ian Henderson


AgendaAgenda

� Introductions









Change for the BetterChange for the Better

� No apologies for repetition – measure!

� And use measurements to highlight areas for change, driving improvement actions

� Assess each aspect of Supply Chain process

� Strengths

� Weaknesses

� Opportunities

� Threats – perhaps

� Objective is better performance now

� Can’t ignore potential changes in external circumstances


Missing ElementsMissing Elements

Look for additional modules to implement?

Maybe

But what is the problem with performance?

Might it be poor use of the parts of the system that are already in use?

We must start with business processes


Supply Chain PerformanceSupply Chain Performance

� Key measurement = validity of plan

� Consider this as an assessment of your Master Production Schedule or load analysis at a constrained work centre

Capacity

Load

TimeToday


Validity of PlansValidity of Plans

� Plans don’t have arrears

� Unless we have a TARDIS

� Would we ’phone home to say that we were leaving work at 6pm and expected to be home at 5:50?

� So why manage a business any differently?

� Plans don’t have mismatches between load and capacity, demand and supply

� “I can only make 500 but my plan is for 1200”

� We change one or the other, or both until we have a plan

� A plan is what we intend to do

� Not what we would like to do had the world been different


Driving With an Invalid PlanDriving With an Invalid Plan

� Planning systems suck materials in to meet the plan

� Infeasible plan = excess inventory

� Plans based on infeasible load provide a wide choice for all areas of the operation

� People throughout the business can pick and choose their own version of the plan

� How often will all the different versions coincide?

� How do we generate billings / cash flow forecasts?

� Certainly not from the information that is driving production and procurement plans


What Do We Measure for Plan Validity?What Do We Measure for Plan Validity?

� Level of arrears?

� True, this is lagging rather than leading

� But if it starts to grow from minimal levels bells should ring

� In the early stages of decay root causes should be visible

� Forward load by period?

� An indicator of overloads?

� Number of occurrences of planned shipments more than 10% above the average?

� Not really meaningful – can anything measure at this level?


‘‘Engine Room’ of ERP SystemsEngine Room’ of ERP Systems

� Material Requirements Planning

� Explodes Master Production Schedule through bills of material to calculate requirements at each level

� ‘Stock projection’ determines when current supply plan requires amendment

� New orders

� Existing orders needing to be re-scheduled earlier, or later, or cancelled

� How do we measure the health of MRP?


KPIs for MRPKPIs for MRP

� Volume of output?

� Action messages (re-schedule and cancel)

� New orders to be completed in less than lead time

� What do these messages mean?

� What happens when the volumes are excessive?


Misuse of MRPMisuse of MRP

Planners come to

work in state of dread

Volume of

messages too high to handle

IgnoreOperate in entirely

clerical modeChoice

Create / maintain plan as per MRP

recommendations

Create new orders from MRP, ignore

action messages

Supply plan at significant risk of

infeasibility

Some infeasibility, some won’t meet

higher-level plan

Result

Result


AgendaAgenda

� Introductions









Putting Things RightPutting Things Right

� Improvement initiatives – basic rules:

� Manageable level of change

� Three rocks half-way to the top of the hill?

� One rock at the top?

� Prioritise

� We have only one future – we can only define it once

� Separate ERP and Lean futures? Absolutely not!


Basics of Improvement ActionBasics of Improvement Action

� Review / redefine processes

� Basics of best practice

� Simple

� Management by exception

� ‘One-stop shopping’

� Parallel rather sequential tasks

� Examine problem areas

� Find issues of flawed planning information

� Root cause analysis

� Short-term fix and process correction for long-term solution


Master PlanMaster Plan

Absence of valid plan

Reworkplan

Maintain

valid plan

Develop &

Implement New Process

Sales &

OperationsPlanning

Master

ProductionScheduling

Remember key rule – management of

master plans is the management of change

Load

TimeToday

?


ExamplesExamples of Causes of Poor Plansof Causes of Poor Plans

� Inaccurate data

� Stock, works orders, purchase orders, lead times

� Overstated manufacturing lead times will not be evident as incorrect – self-fulfilling prophecies (creating excess levels of work in progress)

� Inappropriate policies

� Safety stocks and order sizing (batching) rules

� Yes, we do need safety stock

� Safety = buffer for potential problems

� Until the potential problems are eliminated . . .

� Batching may cause ‘lumpy’ plans

� Theoretical nonsense of Economic Order Quantities can cause more cost than it saves


OptionsOptions

1. Explore all the data in the system looking for anomalies / examples of bad planning

or

2. Start with MRP output and investigate messages

� e.g. Why is the system recommending that this order be pulled forward to next week?

� Get to root cause, establish a valid plan in the system for this item

� If the root cause will be applicable to other items, fix these at the same time

� If the root cause is a failing process, consider an exercise to address this process (i.e. prevent recurrence)

Option 2 seems eminently more sensible


Example Example –– ReRe--schedule Messageschedule Message

Parameterproblem

Reset

parameter

This itemnow fixed

Stock adjustment

Messagegone?

Yes

Can we meetnew date?

Yes

No Set the planfor the item

No

Parent leadtime increased

Parent itempulled forward

Set the plansfor the item’s

parents

Or any of a number of similar potential causes of this message


General Guide to ProblemGeneral Guide to Problem--SolvingSolving

� Better to start with the master plan (work downward)

� Working with components / materials is valuable but subsequent changes to the master plan may pass down more instability

� However, if a planner for component manufacturing is available, then use his / her skills

� Monitor reasons for problems

� Consider parallel initiatives (having identified an issue, we must seek to prevent further occurrences)

� e.g. Stock accuracy – cycle counting

� e.g. Mechanisms for New Part Introduction

� Remember earlier caveat about manageable work

� Drive benefits in one aspect, free resources for others


Vision Vision –– MRP Messages Under ControlMRP Messages Under Control

� “I have a dream”

� Planners come into work, look at the volume of messages, nod in satisfaction, make tea or coffee and set down to work with the plan . . .

� . . . leaving at night with everything once more in step

� Tomorrow’s volume of messages will be manageable

� How much can have happened between MRP runs?

� Getting to this point is hard work

� Staying there is easy – or relatively easy

� Count / report numbers of messages – KPIs

� Spreadsheet / graph on the notice board from the start of the exercise

� Monitors MRP performance and master plan validity


AgendaAgenda

� Introductions









Lean: Review / Redefine ProcessesLean: Review / Redefine Processes

� Remember the choice in fixing the system:

1. Explore all the data in the system looking for anomalies / examples of bad planning

or

2. Start with MRP output and investigate messages

� We face similar options in looking at planning within the scope of the Supply Chain process

1. Map the process and assess / redefine

or

2. Use the results of fixing the planning data to highlight failings and re-define the future

� No right / wrong; option 2 begins to deliver improvement more quickly but option 1 may be better in some situations


In What Ways Is MRP Lean?In What Ways Is MRP Lean?

(Or in what ways should it be Lean?)

� It is a ‘pull’ system

� Driven by the Master Production Schedule

� Itself established by proposed despatches (sales) and a management decision-making process

� It is simple – a consistent plan throughout with a computer doing the number-crunching

� People freed up to use judgement

� Something a computer will never have

Yet since we first heard of ‘Just in Time’, significant numbers of apparently qualified people have felt the need to declare themselves members of either the JIT / Lean or MRP camp


How Has This Conflict Arisen?How Has This Conflict Arisen?

� We try to live with systems full of poor data

� The volumes of output previously discussed

� Resulting in work-rounds

� We introduce far too much complexity

� Batch quantities and safety rules that weaken credibility

� If people don’t believe the system then they work outside the system – for some, if not all, decisions

� If information is suspect we don’t have a plan!

� We use the system when simpler mechanisms are available

� Some areas of the operation may be better managed by what we now consider Lean tools

� The aim has to be SIMPLICITY


Seeking Simplicity (1)Seeking Simplicity (1)

� MRP can plan in-house manufacturing and purchased parts / raw materials

� Do we always want to manage in-house communications via MRP?

� How would we regard a business using MRP to maintain pipeline of raw materials and a kanban mechanism to trigger manufacture of in-house components?

� We would regard this as a business that has decided kanban is a better mechanism for in-house components

� However, kanban may not always be suitable

� ‘Topping up’ to a defined quantity has to be based on past usage rather than future (push rather than pull)


RealReal--Life ExampleLife Example

Assembly Line 1

Assembly Line 2

Sub Assembly Area

Kitting forFinal Assembly

� MRP was driving assembly lines and sub-assembly benches

� Problem was changes to plan – take a long time to feed through to sub-assembly area

� Other technology – – solved the problem

�� What is the other technology?What is the other technology?


Simplicity Simplicity –– RealReal--Life Example (2)Life Example (2)

� Make-to-order valve manufacturing:

General Machining

Assembly Test

Base / BonnetMachining

Despatch


Standard MRP ApproachStandard MRP Approach

� Forecast for all variants of products

� Set Master Production Schedule

� Acknowledge sales orders using ‘Available to Promise’

� Drive all component machining by MRP

� Maintains safety stock / applies batching logic

� Problems

� Variation within product range could mean that ‘type’ of product is available (ATP) when specific options may in fact require additional lead time

� Work content on key work centre (base / bonnet machining) might vary by week


SimplificationSimplification

� Use forecast to set overall plan

� With some ‘extra’ to allow for variance in size / metallurgy

� Set build plan around base / bonnet machining

� Variation by actual product but average 50 units per week –set ‘drumbeat’ (smoothed production: Heijunka)

� Recognised as the bottleneck for most of the time (despite Dr Goldratt’s teachings – not always)

� ‘Slot’ sales orders in line with plan

� Total for base / bonnet

� Specific for size and option as per forecast (i.e. materials should be available)

� Planner considers all specific variants for each order line before committing


One Further ProblemOne Further Problem

� Batching minimises set-ups in component machining

� Typically 2-3 weeks’ average use for spindles, 4-6 weeks’ worth for nozzles, etc.

� Work-to List for each work centre

� This is SILLY!!!

� Same number of finished products per week

� 50 products at a takt time of about 44 minutes

� Machining work centres with demand for varying quantities of components, and varying dates

� Driven by set-up times (always very spurious)

� ‘Saving’ from economic batching more than offset by interference / complication cost


Simplified MRPSimplified MRP

� Set all valve assembly / test and all component lead times to one week

� Set all due dates to Friday

� If making 50 valves in week 45, then make 50 sets of components in week 44

� The exact components for the 50 valves

� Removed ‘economic’ batch sizes (and made to order)

� Simple sequencing by team leaders and operators

� Started with disk guides on Monday morning

� Worked from smallest through to largest

� Moved onto spring washers, then screwed caps, . . .

� Sequencing minimised changeover times

� Didn’t need SMED-type activities until volumes grew


BenefitsBenefits

� Overloads caused by large batches of certain items were no longer an issue

� ‘Drumbeat’ concept applied to all areas of manufacturing

� No more excess inventory caused by large batches

� Everybody now felt more comfortable

� “I know why I am making 13 of these rings this week”


Simplification Simplification –– Eliminate WasteEliminate Waste

� Various Lean techniques (such as 5S, Quality Circles, SMED) have no impact on the way MRP / ERP is used

� Lean, in the broader sense, means eliminate waste

� Waste in planning systems comes from complexity

� Potential errors

� Delay in response

� Revisit processes looking for:

� Complexity

� Unnecessary steps or handovers

� Perhaps two people to carry out one task

� Delays from activities carried out in series rather than parallel

� e.g. Shop documentation to QA department for certification to beadded – and THEN to stores for commencement of kitting

� Examples of people wading through masses of reports

� The aim is to manage by exception


SummarySummary


Making The Most . . . Improvement StepsMaking The Most . . . Improvement Steps

� Re-establish the Master Production Schedule and manage change on an ongoing basis

� Supported by the development of a revised / new formal Sales & Operations Planning process

� Investigate anomalies in MRP output

� Fix data and policies

� Launch corrective action initiatives where appropriate

� Look for examples of over-complexity

� Simplify where possible

In other words, establish appropriate processes using a mixture of corrective action exercises and process review / refinement initiatives

What Does Good Look Like?What Does Good Look Like?

All key data is fully

integrated with other

systems; there is no

duplicated data entry.

Nearly all relevant key

data is within the ERP

system but some is also

maintained outside.

Steps are being taken to

centralise and integrate

key business data.

Data is scattered in

many disjointed

systems; double entry is

common.

Data management

Lessons are learnt daily

from the KPIs and

excellent adherence to

plan is maintained.

Daily activities are

driven by the well-laid

plans; adherence to plan

is good and is

continually improving.


sometimes driven by

plans but these are often

overridden by ‘urgent’

lists.


driven by shortage lists

and lots of shouting.

Executing, managing and controlling the plans

The right number of

relevant KPIs drive

ongoing continuous

improvement.

Relevant KPIs are in

place and are regularly

measured and reviewed.

Some KPIs are in place

but they are not

regularly measured or

reviewed.

There are no clear KPIs.Key Performance Indicators (KPIs)

Actions and exceptions

are under control with

daily review and actions

being taken.


are reviewed every day

and effort is focused on

trying to stay in control.


are reviewed every day

but there are too many

for all to be resolved.

There is irregular review

and action, often with

too many messages.

Response to system action messages and other exceptions

Senior management

drives planning via an

established Executive

Sales & Operations

Planning process.

There are realistic

demand and supply

plans, covering long,

medium and short term

horizons.

There is awareness that

demand, supply,

resource and financial

plans are needed and

should be realistic.

There are no clear

planning processes.Planning processes

All ERP users have a

good understanding of

integrated ERP.

Key people have a very

good understanding and

are training others.

Key people understand

how ERP supports

business processes.

Few people understand

the mechanisms and

logic driving ERP.

Understanding of ERP best practice

Operating with ERP ☺ ☺ ☺ ☺ ☺ ☺�

making the most of what we’ve got · “whopping profit, increased profit reduction in costs...

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