Barriers to Implementing Flow Management

Serial rather than synchronous production Large batch sizes and inflexible production campaigns. Poorly defined procedures Poor communication and a Lack of information exchange Excessive periods of waiting High levels of re-work due to quality failures. Limited co-operation and co-ordination. Ambiguous goals High levels of non-value added activities. Outdated technology Excessive controls and few standards. Lack of synchronisation in materials movement

World class organisations banish waste and seek the zero loss environment through a highly integrated process of continuous improvement within and beyond themselves. Creating change - Visualising the Supply Chain Improving performance cannot be achieved through indiscriminate actions. Fundamental and sustainable improvement requires the understanding and prioritising of opportunities. To prioritise correctly demands understanding the current state supply chain and its failings. All too often this step is ignored and supply chain managers launch initiatives with the supply base and demand improvements in the same adversarial manner that has been used with suppliers in the past. Ten years of research, at Cardiff Business School, suggest the cause of under-performance in the supply chain results from the policies and rules set by the customer organisation. To assist professional managers, a portfolio of existing tools has been assembled to assess the current state. The Seven Value Stream Mapping Tools 1. Process Activity Mapping (PAM), 2. The Supply Chain Responsiveness Matrix (SCRM), 3. The Production Variety Funnel (PVF), 4. The Quality Filter Map (QFM), 5. Demand Amplification Chart (DAC), 6. Decision Point Analysis Chart (DPA), and, 7. The Physical Structure Map (PSM). 1. Process Activity Mapping (PAM) Process Activity Mapping involves managers in the physical process of following orders through the supply chain. In effect, the map is a written commentary as if the team were glued to an order. The mapping approach takes the form of a sequential list of activities, from the raw materials storage to the despatch of finished product to customers. Each activity is classified as either an operation, transportation, inspection, delay or storage activity of which operations represent the only form of value adding. Classifying Activity Steps 1. An Operational activity whereby the material is physically converted and these represent activities for which the customer would be willing to pay (Value Adding). 2. Transportation activities involve the movement of materials within the facility. 3. Inspection activities

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4. Delay activities occur 5. Storage activities are recorded when materials are placed in locations that are formally assigned as material buffers.

Process Activity Mapping

#

STEP

W
1 2 3 4

F L O

AREA

DIST TIME PEOPLE (M) (MIN)

O P E R A T I O N O

T R A N S P O R T T

I N S P E C T I

S T O R E

D E L A Y

COMMENTS

S D S D S D S D

O T I O T I O T I

TOTAL OPERATIONS PERCENTAGE OPERATIONS

When completing this map, the team will literally walk the supply chain following the order and the events that happen to it. Having completed the chart, all operations times are added up and the total time in the system is also calculated. Expressing the value added time as a percentage of total time gives the manager the percentage of value-adding in the current state system (usually less than 5% of total time). 2. Supply Chain Response Matrix On the horizontal axis the time it takes to plan and do activities is mapped and the vertical is the cumulative average amount of inventory at each stage (both expressed in days). The 'days' measure used is typically the amount of inventory expressed in sales days worth of product. The map is put together as a set of boxes so that for the supplier of a particular product there is 15 days physical stock and it takes 40 days to order parts on the supplier lead time. Next the receiving area has no inventory but it takes an amount of time to move the materials through the area (so nothing on the vertical axis but a small amount on the horizontal. The process is then followed and

Supply Chain Responsiveness Mapping

Cumulative Inventory 99.3

RETAIL STORE
PICKING OPERATION

Travel Despatch

Total : 142.3 Days

82.3

Main Store

0 15
Supplier

Packaging Work-In-Progress
Receiving

12

40

Cumulative Leadtime

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the result is a stack of boxes that represents the supply system for a part. From the illustration it is possible to see that most of the time that the product is in the system it is spent in the main store. What the mappers are looking for is boxes that are large (high time and high inventory). This map naturally draws the teams attention to the reasons why such high levels of stocks are held. 3. Production Variety Funnel The Production Variety Funnel is a technique designed to show the amount of product variety generated at each stage of the production process from a single input (New 1993, Macbeth & Ferguson, 1994). The graphic shows the point at which products are at the most generic form and the stages in the factory whereby the product becomes increasingly dedicated to a specific product. The chart also has a parallel line showing the lead time from each point to the customer and therefore the possibility of redeploying inventory buffers to allow the most flexibility of production (latter customisation) within a given customer lead time. The map is useful in identifying where and how much inventory needs to be deployed as well as indicating the ability for product rationalisation and its impact on the firm.

Production Variety Funnel

Process Path
Materials Mixing Fermentation Conditioning

Filling & Packaging

Pack Size Can Height &Size Actual Gravity Brew Core High Gravity Brews

Variant & Lead Time Analysis

The product variety funnel draws the attention of the mappers to the point at which the product is at its most generic (before the sharp explosion of the fan). In the example above it may be that the beer company develops a process of packing to order to avoid packing product into one of 6 different configurations and attempting to outguess the customer. 4. Quality Filter Mapping Quality Filter Mapping identifies the quality performance throughout a supply chain and plots three different types of quality defect to show the relevance of each failure at each stage of the chain. The first of these is product defects and includes defects in materials produced that are not detected by in-line or end of line inspection routines and are therefore passed to customers (internal or external). These losses are physical

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and consume capacity for which no value is extracted. The second quality loss that is plotted concerns service defects. In the main these losses concern early/late deliveries as well as incorrect paperwork documentation and involve any problem that are caused to customers but not related to the physical product. The final form of quality loss concerns the scrap loss at each stage.

Quality Filter Mapping

1,000,000 100,000 10,000 1,000 100 10 1 Distributor Assembler 1st Tier 2nd Tier 3rd Tier Raw Materials
Scrap Defects

Defect Rate (PPM)

KEY
Product Defects Service Defects (Paperwork, Delivery etc)

This tool has many benefits not least in preventing a blanket approach to quality control but instead highlighting, for each stage, the priority of improvements which may not result from physical defects but problems with paperwork that slow the flow and progress of the product. 5. Demand Amplification Mapping Significant issues in supply chains arise from poorly performing information channels. For most supply chains these channels generate and amplify information especially demand for products. The demand amplification map is extremely powerful as the mapping team, reconfigure historic information concerning the forecast for products in a given period and compare it the actual. You also find that a small ripple of order book changes creates a huge bow wave of ordering from suppliers as is shown in the figure where the even lines show the forecast and actual sales and the wildly varying lines show production and purchasing. Overall, the company gets the customer facing process right but the manufacturing and purchasing departments are in chaos. This is one of the most enlightening maps and potentially solves the reason why the supply chain re

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Demand Amplification Charting

7 00 600

500

4 00 Un i ts 300 200 Fo recast 1 00 Sales P urch Rqd 0 1 3 5 7 9 11 P urch Act

13

15

17

19

21

23

25

P urch Rqd 27 29 31 33 35 Forecast 37 39 41 43

W e e ks

6. Decision Point Analysis Decision Point Analysis concerns the identification of critical points in the supply chain and the potential to work to customer demand rather than forecast. The Decision Point is the point in the value stream where actual demand-pull gives way to a forecast driven push. It is the point at which products stop being made due to actual demand and start being made against forecasts alone. The model shows the many different production system options, compares these with the lead times required by customers to find at which point inventory will be needed to allow this lead time to be offered. Behind this chart is a number of calculation of factory and asset efficiency to assess the reliability of this form of production system and the tool is tested using the demand amplification chart to assess the volatility placed on the different parts of the firm. It should be noted that at the decision point the main buffer lies and that to the left of this point then small batches can be employed to maintain cost efficiency whilst to the right everything flows against customer order.

Decision Point Analysis

Suppliers Raw Material WIP FGS Store 1

Store 2 Make to National Stock Make to Finished Stock

THE PULL THE PUSH

Assemble to Order Make to Order Purchase & Make to Order

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7. Physical Structure The Physical Structure Map provides a basic graphical representation of a particular value stream at an overview level. This knowledge is helpful in understanding what the industry looks like, how it operates and in particular in directing attention to areas that may not be receiving sufficient developmental attention. The technique has two parts showing the supply and the distribution tiering of the supply chain. The part relating to suppliers is further divided to show those suppliers of components, the supporting functions (tooling, capital equipment and office supplies) and the raw material suppliers. The distribution part of the map shows the supporting firms and the after-market-related vendors of spares. The size of each segment is determined by the number of registered vendors and suppliers of products, materials and services to show the size of the supply chain. Additional forms of this map have been used to depict the costs at each stage. The technique is used to quantify the supply chain and is useful in understanding the bigger picture and, should it be necessary, the impact of supplier rationalisation or centralised purchasing of certain materials or services.

Physical Structure Map

3rd
After Market Tiers

2nd 1st Assembler

Support

Distribution Tiers

Raw Material

1st 2nd 3rd

Support Supply Tiers

These seven tools provide a series of cross-sections of the organisation and its supply chain but they are not the only means of focusing improvements. Another valuable method, originated by Toyota Motor Corporation, is a visual mapping technique (for the internal value stream) that has become known as Learning to See. The technique shows graphically the total flow of material and information in a system. Starting at the top right of the page, mappers begin to draw the current state of the firm. This includes the customer factory and its requirements, the information channels to the production control of t he firm and how this information is transmitted to suppliers. From the production control section, the scheduling process is shown. For the physical flow of product, the map starts at the bottom left of the diagram and moves to finished products at the bottom right. This production sequence shows triangles of inventory and workstation data at each stage of the process.

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Steel Co.
500 tonnes

6 Week Forecast Weekly Fax

Production Control

90/60/30 Day Forecast Daily Order

State Street
18,400 pcs/mo 12,000 LH 6,400 RH

Coil 2 shifts

Weekly Schedule Daily Shipping Schedule

Tray = 20 off 2 shifts

Tues & Thurs

1 x Daily

Stamping

Spot Weld 1

Spot Weld 2

Assembly 1

Assembly 2

Shipping

I
Coils 5 Days
C/T = 1 sec C/O = 1 hour Uptime = 85% 27,600 sec av EPE 2Weeks

I
4600 LH 2400 RH
C/T = 39 sec C/O = 10 min Uptime = 100% 2 shifts 27,600 sec av

I
1100 LH 600 RH
C/T = 46 sec C/O = 10 min Uptime = 80% 2 shifts 27,600 sec av

I
1600 LH 850 RH
C/T = 62 sec C/O = 0 min Uptime = 100% 2 shifts 27,600 sec av

I
1200 LH 640 RH
C/T = 40 sec C/O = 0 min Uptime = 100% 2 Shifts 27,600 sec av

I
2700 LH 1440 RH

5 Days 1 Sec.

7.6 Days 39 Sec.

1.8 Days

2.7 Days 46 Sec. 62 Sec.

2 Days 40 Sec.

4.5 Days

Prodn Lead Time = 23.6 days VA Time = 188 sec

The time-line at the bottom shows the cycle time of each operation and the inventory held at each stage, this is similar to the process activity map, and is used to calculate the overall plant lead time and the value adding rate. To finish the map, the distribution systems to and from the factory are added. At this point the mappers have achieved a current state of the factory.

Steel Co.
500 tonnes

6 Week Forecast Daily Order

Production Control

90/60/30 Day Forecast Daily Order

State Street
18,400 pcs/mo 12,000 LH 6,400 RH

Coil 2 shifts

Daily Order

Tray = 20 off 2 shifts

coil coil
Daily Milk Round

20 20 20 20 tote
Cell

1 x Daily

Batch
Stamping

20 L R

OXOX
Shipping

Coils

Changeover
EPE 1 shift C/O < 10 min Takt = 60 sec C/O = 0 min Uptime = 100% 2 shifts Total work time < 168 sec.

Weld Changeover

Waste Elimination
Prodn Lead Time = 4.5 days VA Time = 169 sec

1.5 Days 1 Sec.

1 Day

Weld Uptime

2 Days 168 Sec.

Having determined the current state of the factory and its flow processes, the next stage is to question the need to manufacture in this way and to find the flash points
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or barriers to progress (shown by the starburst symbol). These issues have been identified as changeover procedures at the major workstations. In the illustration the mapping team have found ways to collapse the lead-time for production and implement a pull system to connect cellular manufacturing. The method is very powerful and a good way of visualising the internal value stream and by default how stability within the firms value adding processes can be exploited with suppliers. Financial Models There are a number of financial approaches to mapping the health of a supply chain and directing effort to processes that need to be corrected or eliminated. These financial models have tended to include a rounded or total cost approach to the firm. One such approach is Prevention, Appraisal and Failure (PAF) quality analysis and this approach has obvious linkages to the quality filter map discussed earlier. The model is important, as any improvement in quality will lead to material flow and productivity gains. The approach is to assess the true costs of failing product (physical, labour time and other aspects) for the entire organisation per annum. The second stage is to compare these figures with the costs of inspection and other quality routines (essentially labour time alone) and then to cost the ideal state whereby quality is prevented at source. As supplier quality failure can amount to a huge sum then improvements in this cost centre can be used to justify and potentially fund the supply chain improvement projects. Other costing models tend to involve analyses and calculations of all key supply chain cost centres within the firm and the interrogation of these costs to find those that can be influenced by an improvement in supply chain performance. These costs include the costs of acquisitions (supply), operations, warehousing and environmental costs as primary drivers within the business to which other costs including maintenance or training can be added to provide a full picture of the firm. At the end of this cross-functional process of education lie the diagnostics and the targeting of change. These changes must affect measurable elements of performance if the process of improvement is to impact upon the commercial performance of the firm and its supply chain. Many of these measures are central to the mapping techniques explored and it is possible to predict changes to each measure in the short, medium and long term as a result. The maps will also have provided as a result of discussion a list of likely projects (that need to be justified and piloted with suppliers where necessary). Key Supply Chain Measures of Improvement Delivery performance Production flexibility Order fulfilment Total supply-chain performance and lead time management cost Fill rate (Make-to-stock) Perfect order fulfilment Value-added time Cash-to-cash cycle time Inventory days of supply Supply-chain response time Stock turns Warranty cost or returns processing cost

These commercial measures ensure that change is associated with improvement. The process will also generate a matrix that can be plotted using a matrix. During this stage of the preparation for change the team should look beyond the firm and

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investigate the practices of other benchmark firms not to replicate these practices but to understand the problems that they have been used to solve, why they were implemented and in what sequence. The Prioritisation Matrix Importance Effort Required Low Low The Easy but Insignificant High The Questionable projects The Strategic Issues High Low Hanging Fruit

The total population of projects must therefore be filtered to provide a rank order of which firms will find that material and information flow improvements will result initially from setting basic standards. These standards will cover quality and delivery standards and measures as well as standard routines concerning the exchange of information. The development of these standards will be important and they allow a certain amount of time for other issues to be addressed, not least, is the full-scale review of the purchases made from the supply base. This latter review will naturally include the determination of strategically important suppliers (those that dominate the purchasing budget or make products that are specific to the buying organisation). As a consequence of this activity, it will become increasingly clear that the firm needs to buy from the right type of supplier. These suppliers must be investigated in terms of their ability to meet and contribute to the fundamental changes in quality and delivery performance required and to develop with the buying organisation over the medium term (the ability to provide capabilities of high strategic value to the customer firm). These screening activities will require a standard approach and also the acceptance that certain suppliers may not make the grade. In parallel it must also be accepted (to move to the stage 3 or 4 position) that the total population of direct suppliers may reduce either by rationalisation or by redesigning the supply process (buying rather than making sub-assemblies from key suppliers).

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Areas of Supplier Screening

Company history, customer base and management capability of the firm. The level of acceptance at the supplier of the supply chain concept. Personnel capabilities and the investments made in people and training. An understanding of the cost structure of the product supplied. The development of a TQM approach at the firm. A pre-requisite for supply chain management and innovation. The process and technical capability of the assets employed. The environmental policies, standards and compliance of the supplier firm. The financial stability of the firm and its future investment plans in technology. Production and control systems and the ability to integrate these with the systems operated by the customer organisation. The supplier sourcing strategies adopted by the supplier (the management of the indirect supply chain) and including the procedures adopted to ensure good quality purchasing. Assessments of the long term potential of the supplier and its growth strategies.

Armed with standards, measures of performance improvement and a list of potential improvement projects (beginning with those related to quality and delivery processes rather than immediate cost reduction). The implementation process can begin and here too certain techniques are worth considering. The first activity is to understand the supply chain from the suppliers perspective (at the supplying site) and to engage, in a collaborative context, a process of finding the problems of trading using a cause and effect method of brainstorming with the senior management of the firms involved. For some companies the visit to the supplier will hold some startling findings and it has often been the case that the supplier is not a manufacturing site but a warehouse with the ability to offer very low lead times. This information is essential and will also include the vital few improvements that unlock the performance of the supplier. It will come as no surprise that most suppliers will complains that, as a customer, there is a lack of standards and that forecasts are inaccurate (neither of these activities requires capital expenditure). This information allows individual company relationship development but it is not ideal. The approach is a major drain upon the human resources of the customer so the next stage must be engaged that of group development. At the group stage, a selection or all suppliers are brought to the customer site and the day is spent detailing the business plan and strategies of the customer. The supply chain initiative is then related to the business plan explicitly by the directors of the customer site. During the day the suppliers should as a group engage in the same form of cause and effect analysis as was conducted with the pilot suppliers. The feedback from these sessions will confirm the implementation matrix designed after the initial mapping work. The remainder of the day should be spent touring the customer site to witness how the supplied materials are handled and how the manufacturing process works. The establishment of this club is a common feature of the world class Japanese automotive industry and a proven method of affecting the aggregate performance of the suppliers (the point at which the customer starts to see improvements in flow performance). To end the day, the customer organisation should restate or launch a new system of regular supplier measurement. To be effective these on-going measures should provide the supplier with feedback of their quality and delivery performance as well as the position of the supplier relative to the average performance of all suppliers. The latter activity is important and sets a target for the weaker suppliers to meet the average achieved. As these weak suppliers improve then so too does the average performance and now the customer firm has a

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self-sustaining and improving supply base. Another feature of the initial supplier day is to gain acceptance by the suppliers that the club should be continued and should meet regularly throughout the year and to be a main forum in exchanging improvement methods and practices. After all, every business represented at that the supplier day is, like it or not dependent upon every other supplier senior manager present. It is at this point that the stage 4 and lean organisation is being enacted. With every increase in the reliability of the internal supply chain and the improvements of the external systems of material flow that the new system offers the management of the customer firm to offer improvements to the next customer in the chain. These improvements can be offered (through marketing activities) as the result of a stable materials process and safe in the knowledge that the improvement will succeed. It is also the case that the customer may need to be taken through a joint mapping approach at the beginning of any improvement. Going to the customer in this manner is a delighter and cements the supply chain thought process by taking proactive steps to improve the customer relationship and to protect the customer account from the inevitable visits by rival companies seeking to sell their services. The objective of getting closer to the customer is to build the supply chain systems that output high performance and effectively lock in the customer business. The ultimate goal of the supplier firm is to protect the trading relationship such that even when the customer is presented with apparent price savings, the costs of changing the current material flow system and losing a continuously improving supplier outweighs the benefits of a slightly cheaper price. That concludes this introduction to supply chain management paper for Deloitte & Touche clients. It was written to provide a flavour of supply chain management and is just one in a series of such briefing papers examining manufacturing issues. The paper has presented the view that the supply chain is of strategic importance to all firms and that the modern approach involved collaboration within the factory (to lower the problems associated with a fragmented departmental approach to management). The paper has also explored the problematic issue of actually understanding the supply chain and how to prioritise improvements and has presented the view that supply chain management is an evolutionary approach based upon key commercial measures. The paper has also presented the view that collaboration includes information exchange and that no supplier can ever know enough about a customer in order to take full advantage and full improvement in the supply chain integration process. An implicit message contained in the paper is that supply chain management requires careful design and the responsibility for this action lies with the senior management of the firm. Nick Rich.

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Signposts for More Information

The following section represents a list of web sites and publications that are worthy of a visit if you wish to find out more about the lean approach and research undertaken in this area. Site Deloitte & Touche web site Lean Enterprise Research Centre web site Lean
About The Author

Reference www.deloitte.co.uk www.cf.ac.uk www.lean.org

Nick Rich is the Deloitte & Touche Senior Research Fellow at Cardiff Business Schools Lean Enterprise Research Centre (LERC). Nick was a founding member of LERC in 1994 and joined Professor Dan Jones and Professor Peter Hines as an expert in manufacturing and supply chain management. From 1994, Nick has worked with a wide range of manufacturing businesses from many different sectors and sizes of corporation. He has also spent extended periods of research in Japan, hosted by the Toyota Motor Corporation (TMC), the leading members of the Toyota supply chain and other major Japanese manufacturing conglomerates in the automotive, engineering and fastmoving consumer goods sectors. From these experiences, Nick has written a number of papers and books. He is currently developing a range of Executive Briefing papers for Deloitte & Touche clients. The series currently includes the Deloitte & Touche Manufacturing with a small e comparative survey of e-Business application in the UK and America as well as the Executive Guide to Supply Chain Management. These guides can be found on the Deloitte & Touche and web site shown above.

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