October 1997, Volume 3, No. 10
Demand-based Flow Manufacturing:
Keeping the Customers Satisfied
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October 1997, Volume 3, No. 10 Demand-based Flow Manufacturing: |
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The demand-based "pull" of material through production is in sharp contrast to the traditional "push" production process, which is driven by a schedule that often just pushes inventory into stock that may not reflect what customers want. Worse, "push" production typically cannot quickly adjust for sudden shifts in what customers want, resulting in longer cycle times and too much inventory. "Demand-based flow manufacturing is a supply chain management strategy that is customer-focused to fill orders promptly and accurately," explained Mike Donovan, president of R. Michael Donovan & Co. (Natick, Mass.), a management consulting firm. "This means that information AND material must be of high quality, synchronized and flowing at high velocity." Thanks to the more powerful system enablers in use today, demand-based flow manufacturing can achieve significant cost savings, Donovan observed. However, he thinks the main thrust of demand-based flow manufacturing should be revenue growth by developing an "easy-to-do-business-with" competitive strategy focused on customer service to increase marketshare. Also, demand-based flow manufacturing can be used in production environments involving highly complex and variable products, even engineered-to-order situations. "It doesn't have to be a highly repetitive, mass production environment to achieve synchronization and high velocity flow in information and material," Donovan noted. With demand-based flow manufacturing and today's systems technology, product complexity and variability don't pose the barrier they once did to creating an order fulfillment process having great flexibility — to build any model, having any options in much less cycle time than yesterday's batch and mass production systems could achieve. Today's marketplace requires high velocity supply chain performance. Customers can, and will, change suppliers when they're unable to get the goods they want in the response time they need them. The objective, according to Donovan, is to have the ability to get today's order produced and shipped without yesterday's orders being in the way and stopping the flow. There's another important difference: Demand-based flow manufacturing shifts the emphasis to flexibility and throughput, with total order-to-delivery cycle time reduced to the bare minimum — because the primary objective is always customer service. As a consequence, more far-reaching process, cultural and organizational changes are needed for successful implementation of demand-based flow manufacturing because there will be substantial reengineering of a number of business processes — not just "some" improvement of, say, inventory planning, but the entire order-to-delivery process. A company that can benefit from demand-based flow manufacturing is usually easy to spot. Inventory accumulates in buffer stocks, and is both a sign and a cause of excessive cycle time. There are serious balance and flow problems, with excessive inventories in subassemblies and/or raw materials and work-in-process being held up because of bottlenecks as well as poor information flow. Scheduling and re-scheduling in these environments is often a constant and unresolved nightmare. According to Donovan, today's demand-based flow manufacturing environment requires more enterprise-wide systems integration and a much higher level of information quality compared with the MRP era of the 1970s and '80s. Those manufacturers who are able to pull together all of the systems pieces — all of the isolated islands of the business — with demand-based flow manufacturing processes can cut their cycle times by at least 60% and usually much more. Demand-based flow manufacturing drives out the heavy costs resulting from imbalanced production schedules, excessive work-in-process (WIP) and WIP queues, and the high fixed overhead costs resulting from trying to manage "operations in chaos." Donovan cites the example of a leading company that succeeded in cutting cycle time by 80%, reducing required factory space by 50%, and cutting down rework by 90%. The average working capital needed to support the business dropped by over 50% over a two-year period, which allows for other investment opportunities. With demand-based flow manufacturing, equipment changeovers need to be reduced so you achieve better flow and balance of material through fabrication and assembly. In some cases, the company might need to reconfigure equipment by installing smaller machines in place of the old "monument" machines from the large batch, mass production days. "The capital cost can easily be justified in changeover times are cut by 90% — which is often possible with more agile equipment," Donovan observed. "Remember, it's not just labor and inventory costs that are saved by higher throughput and reduced cycle time. Customers are more satisfied and revenues are favorably impacted. That's where the money is." It is not at all unusual for demand-based flow manufacturing to deliver huge productivity gains, with dramatic decreases in cycle time and inventory. However, the advantages go beyond just these issues. Because the new system enablers can link together the entire enterprise, as well as the entire supply chain, administrative productivity improves with redundancies eliminated. Orders can be processed without adding layers of paperwork that often waits in queues, sometimes with unknown or uncertain priority. New administrative techniques can be used. For example, completed products can be backflushed to decrement inventory balances, allowing checks to be automatically cut and mailed to vendors based simply on that day or week's count of units consumed at your location but still owned by the vendor. It's a technique that can be successfully used to minimize working capital requirements and the vendor's days outstanding in accounts receivable can be less. Demand-based flow manufacturing is NOT achieved by just installing software. However, getting all the pieces of the puzzle to come together in the right way requires that the information flowing into and through the business be of very high quality — accurate and up-to-date at each step of the way. Advanced ERP systems, as well as electronic enterprise linkages, allow the productivity gains from improvements in inventory deployment and reduced cycle times to improve every function of the business. Also, improved process and information quality are aided by eliminating all of the human handoffs and interventions that just add confusion to the overall process. "When you have too many manual interventions and/or variations, the problem is not just one of cutting out non-valued added activity, but also the value-subtracting activity caused by errors which are errors that are often repeated every day," Donovan observed. In companies with poor customer service performance levels — say, fill rates as low as 75% to 85% — poor quality information is often one of the culprits. It's not uncommon to find that product specifications on orders are written up inaccurately, there are part numbering errors on the bills of material, inventory records are inaccurate, among other things. In many cases, manufacturers often rely on suppliers who don't get shipments out on time. Demand-based flow manufacturing requires close coordination with suppliers whose own processes and systems may need to be upgraded because if their performance is below par, that will affect the manufacturer's performance as well. "Demand-based flow manufacturing is only as good as its weakest link," Donovan said. He cited the case of a company whose service level at distribution centers improved from 77% to 88% as a result of traveling part of the way towards full demand-based flow manufacturing implementation. But so far the company has missed the chance of hitting a 98% or better service target because of one supplying plant that continues to operate under the old unreliable and less flexible "push" method of production. However, it's now clear, as a result of the much improved performance at the other plants, that a change in the poor performing plant to demand-based flow manufacturing is not only very desirable but inevitable. Why should you invest in demand-based flow manufacturing? This question, in one form or another, and management's answer will certainly set the direction. First, think of and use demand-based flow manufacturing as a competitive strategy for revenue and profit growth, and the decision to go forward will be much easier to make. Second, if your competitors get the jump on you in terms of response time, delivery performance, working capital, etc., how long will your company be able to compete? The worst position to be in is where you are constantly trying to catch up. The leaders always make more money. |
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