Implementing ATO is much more difficult than moving a few tables on a manufacturing floor, changing a reporting relationship and declaring ATO accomplished. It will alter, redesign, eliminate, or even create numerous new processes, organizations, people and skill areas.

By Larry Sochocki, CPIM

The company had simply become accustomed to managing in a project fashion under tight monetary and inventory control. Financial troubles prevented Etec from investing in strategic inventory to reduce order fulfillment time. Its product fit the assemble-to-order (ATO) model well, since all six of the customer-specific options could be engineered to occur in the last few steps of the assembly process.

Also, as the company had recently gone public, it had funds to invest in the strategic inventory at the generic subassembly level. In ATO language, this strategic inventory is called "neck" inventory. The term "neck" is used because, if visually depicted, the "neck" is the point where all the subassemblies come together and the highest level of commonality exists. From the "neck" onward, greater product variation occurs due to customer-specific options configuring the unique product (see Figure 1).

Many companies that want to shorten their customer order delivery time could achieve great benefit from moving to an ATO strategy — especially in the high technology industry, where generic subassemblies compose many of the products. Using the ATO strategy, companies can add just a few customer-specific components at the end of the assembly process to make unique configurations.


Product Design and Bill of Material Structure
The first thing to investigate when looking at the ATO strategy is whether the product designs can handle it. Are the products composed of generic subassemblies or components that can be built according to a stable production schedule? Does the exact custom configuration need to be known immediately upon beginning production? In essence, how low in the bill of materials (BOM) do the customer-unique options enter into the products. If they enter very low, ATO is probably not going to work. But if the options are high in the BOM, then ATO might help reduce order fulfillment time. As long as the customer-specific options occur, or can be engineered to occur, late in the build cycle, ATO may be a good option to explore.

The other item to remember is that any new options policy must be communicated to the design group. Design options cannot occur early in the manufacturing cycle of the products. The design group needs to keep all the options at the end of the assembly process.


Forecasting
Those people in the organization performing the forecasting will probably dislike the ATO world. Instead of forecasting being "back of the envelope" or not done at all, they are going to have to be quite accurate about the number of machines to produce. Remember, the first half of the assembly process runs like a build-to-stock factory, forecasting the number of build-to-stock items.

The second thing the forecasters will hate is if the product has very long lead-time components used in the customer-specific configurations. If this is the case, forecast those customized configurations by percentage of total units produced and use planning BOMs with the forecasted percentages of the options. Use the forecasted percentages to purchase long lead-time items early so they do not slow down the otherwise efficient supply chain being designed.


Order Entry
Customer-configured options must appear on the order entry form. It helps tremendously if the order entry people can get the complete, firm customer configuration from the customer when they take the initial order. Incomplete orders kill an otherwise efficient supply chain and speedy manufacturing process.

One of the problems I have seen with some companies is multiple order entry points. Limit this to one. Do not allow manufacturing to take orders. Do not allow the president to take orders. Do not even allow the inventory manager to take orders, even if it is for a "machine down." All the orders should go through the same single order entry department.


Balancing Demand and Supply
The master production schedule should be compared to the complete statement of demand. Do this monthly (at a minimum), especially since markets change rapidly in the high technology industry. The president and senior vice presidents will want to assess production's capability to meet demand on a bimonthly basis to determine adjustments in supply capacity. When I speak of a complete statement of demand, I mean forecasted orders combined with firm orders. This is not particular to ATO, but should be done with whatever supply chain strategy is being used.


Production Planning Organization
The production planning organization has a large responsibility in regard to the conversion to ATO, as they are likely to be the organization that will perform the forecasting, or at least consolidate the forecasts and orders into the statement of demand.

This organization also produces the master production schedule and compares the master production schedule to the consolidated statement of demand. Smoothing and balancing the master production schedule becomes production planning's number one priority. Production planning runs rough-cut capacity planning to determine optimum plant usage and scheduling of production runs across facilities. They also run the MRP and send the recommended purchase requisitions to purchasing and the work orders to the production control department.

It is critical to determine whether the current organization can handle these responsibilities. If the current production planning organization has not or cannot perform the above-mentioned activities, enact a training plan immediately. APICS training would be a good jump start.

Organization of the manufacturing facilities determines whether the production planning organization will be centralized or decentralized. It is preferable to keep functions, from forecasting through purchasing, intact in the middle of the process. Move to either a completely decentralized model or a completely centralized one — not one that is half centralized and half decentralized.

A model that seems to work with several geographically dispersed manufacturing facilities is shown in Figure 2. This model works well with those companies that want site-based manufacturing to maintain control of their detailed shop floor scheduling and detailed capacity resource planning.

As Figure 2 illustrates, the centralized planning organization maintains responsibility for forecasting through the generation of work orders and purchase recommendations. The site-based production control personnel gain responsibility for choosing the specific priority of the work orders based on due dates. Production control also performs detailed shop-floor capacity management based on their intimate knowledge of the daily variation in key resources.


Master Production Schedule
ATO requires a two-level master production schedule. One of the schedules must be a steady production rate schedule for the build-to-stock part of the manufacturing facility. The other schedule must be a finished assembly schedule for the customer configuration work. The second schedule will be much more difficult and require the planners with the greatest skill in the organization to coordinate it. These highly skilled planners will have to ensure that the manufacturing personnel with the right skills are available to meet the customer delivery schedule. In addition, the unique materials for the configuration and the unique machinery must be available at the right time to maximize utilization and meet the customer requested dates.


Material Requirements Planning
Each of the master production schedules generates a material requirements plan that is acted upon. It should go without saying, but every company using MRP should make sure there are accurate lead-time inputs for all "make" and "buy" parts. Although this step is not unique to adopting an ATO strategy, based on what I have seen, I feel it is necessary.


Production Control/Shop Floor Control
When converting to ATO, it is critical to spend a significant amount of time training the organization's personnel. Production control and shop floor control will need the most training and communication. Department and company heads should also be aware that production control personnel will probably be very concerned about job security, especially if moving to a centralized planning organization is in the works.

Bottom line: The production control department and the manufacturing supervisors must maintain the detailed scheduling of the shop floor as well as detailed capacity planning. In order to accomplish this, train the production control employees in any new capacity planning tools that may accompany the ATO transition. Take care to verify that the shop floor is being scheduled to a distinct set of "black and white" rules that do not have exceptions. Take the guess work out of shop floor control.


Capacity Planning
Two kinds of capacity planning should accompany any good supply chain strategy, particularly ATO.

1. Rough-cut capacity planning (RCCP) should be performed when making the master production schedule to verify key resource capacity at each of the facilities and to level load.

2. Detailed capacity requirements planning (CRP) should be performed when the work orders are scheduled to the shop floor on a daily basis. Utilize CRP to identify bottlenecks and perform "what-if" analyses to develop alternative resource loading and work order sequencing. Again, this is not unique to ATO, but should be done to make ATO fully effective in reducing customer order fulfillment cycle times.

Inventory Control
Desired service levels should drive the calculation of "neck" inventory levels in an ATO implementation. Maintain a certain number of generic subassemblies so when the exact customer order arrives, there is stock to build the order in the shortest amount of time. These calculations are perhaps the most time consuming; yet, they are a critical element in moving to an ATO supply chain strategy. Base inventory levels for generic subassemblies on historic variation in supply and demand. The calculations are difficult and require a statistics refresher for most people. Despite the pain of making these calculations, they will pay off with reliable service levels to the end-customers and shortened order fulfillment cycle times. These calculations will significantly aid in the accomplishment of the goal of moving to ATO. Finally, make sure to install a "review and refine" procedure to change the inventory levels as new variability in supply and variability in demand data becomes available.


Factory Layout
The manufacturing floor must support two distinct production areas. With ATO, one part of the manufacturing area (or maybe one manufacturing plant) will make the generic subassemblies. The other manufacturing area will perform customer configurations. Provide room for the "neck" inventory between the floors. Train and reward people differently. The schedules for each manufacturing area will be different. In essence, there will be two production areas where there was one before.

The manufacturing strategies that comprise ATO — build-to-stock and make-to-order — are the basis for operations in the two manufacturing areas. The generic subassembly manufacturing area will operate like a build-to-stock operation. There will be a steady, assembly line type of production to a very stable master production schedule. Structure the customer configuration area like a make-to-order operation, with each specific product receiving its unique parts and configuration. The size of the product and space of the manufacturing floor affect whether the product moves in assembly line fashion or sits in one place.


People and Training
The people, training and reward structures for the two manufacturing areas are different. In the build-to-stock area, the people will develop an assembly line mentality. Train them in consistency and speed. Divide the work into segments and make it repetitive. Each individual should perform the same work repeatedly, so that they move completely down the learning curve into the most efficient range. Reward the build-to-stock workers on the number of products produced. In the make-to-order area, highly trained and specialized workers are necessary to understand the particular intricacies of a customer's configuration. These technically trained individuals will understand how each different configuration has performance advantages and disadvantages.


Before Filling the Rx
Clearly, there are hundreds of pitfalls in moving from one supply chain strategy to ATO, but the rewards can be well worth the effort. The insights and warnings detailed above are intended to point out a few of the potential bumps in the road. Before swallowing the ATO pill, it is best to have a doctor or pharmacist who has seen the symptoms before and can verify that ATO is the right prescription.

At the end of the implementation lies reduced order fulfillment cycle times and larger customer orders; but getting there can be a trial. The journey is not for everyone; however, the competitors in second place have less to lose. They may have already visited their physician and are walking to the pharmacy right now to have their shorter supply chain prescription filled.

Copyright © 2020 by APICS — The Educational Society for Resource Management. All rights reserved.

Web Site © Copyright 2020 by Lionheart Publishing, Inc.
All rights reserved.


Lionheart Publishing, Inc.
2555 Cumberland Parkway, Suite 299, Atlanta, GA 30339 USA
Phone: +44 23 8110 3411 | br> E-mail:
Web: www.lionheartpub.com


Web Design by Premier Web Designs
E-mail: [email protected]