combining lean and agility to manage demand uncertainty · sales: $2.5m orders: 82 gm%: 31% $ per...

JPK

Gro

up

June 14-15 • Boston, MA

Combining Lean and Agility to

Manage Demand Uncertainty

This session will explore methods to implement lean processeswhile still being agile enough to react to changes in demand

June 15, 1:00pm

View presentation online at:

https://jpkgroupsummits.com/attendee3

Richard Goyette

Principal Consultant at RIWGO Supply Chain Services

A strong proponent of integrating Lean Manufacturing principles with collaborative supplier

relationships, Rick has over 25 years experience in Supply Chain and Operations with

leading companies, such as Intel, Illinois Tool Works and Therm Fisher Scientific. In

February 2016 he founded Riwgo Supply Chain Services to help other small and mid-size

companies identify areas for improvement and drive process improvements in Supply

Chain and Inventory Management to help drive improvements to their bottom line.

Business Forecasting and Analytics Forum

BUSINESS FORECASTING AND ANALYTICS FORUMBoston, MA

June 14-15, 2016

Richard Goyette, C.P.MRIWGO Supply Chain Services

Explore the Lean and Agile supply strategies

and the potential to incorporate aspects of both strategies into a new model that can

provide benefits to both your company and your

customers.

© RIWGO Supply Chain Services

Lean is defined by the elimination of waste (muda)◦ Waste is anything does not add value to the

process, product, or service.

Anything the customer is unwilling to pay for.

◦ In a perfect system inventory would only exist at the point and time it is needed. Demand “pulls” the process.

Supply Chain is forecast driven, but activated by actual demand.


Agile Supply is defined as positioning all means of supply so that they can quickly adapt to changing situations.◦ Must be able to withstand market changes, demand

fluctuations, variable customer requirements, etc.

◦ Requires rapid flow of information from markets and customers throughout entire supply chain.

Market responsive versus forecast driven.

◦ In a perfect system, the customer can get exactly what they want at its’ required time.


AGILE

LEAN

HIGHLOWVOLUME

HIGH

VA

RIA

BIL

ITY


• Lean Supply Chains can function well when demand uncertainty is low and product variety is minimized.• Principle means to win an order is

lowest cost.


Agile Supply Chains can function well when production and fulfilment cycle times are short and materials are readily available.◦ Principle means to win an order is

customer value enhancement – Giving them exactly what they want.


Pull

ProductionKanban

5S/ Visual

Control

Poke Yoke

Leveling

SMEDCellular

Mfg

Jidoka

Standard

Operations

Line

Balancing

TPM


Lean:◦ Function well when demand uncertainty is low

and product variety is minimized.

“Any color you want, as long it is black”

Production is level loaded and slow to react to demand shifts.

Only as strong as it’s weakest link.

Heavily relies on historical information to set capacity, avoid overproduction, and prevent excess issues.

Missed opportunities!


Agile:◦ Agile Supply Chains can function well when

production and fulfilment cycle times are short and materials are readily available.

SKU Proliferation

Utilize inventory to buffer uncertainty

Large number of changeovers.

Higher costs

Missed opportunities!


Distinguishing Attributes Lean Supply Agile Supply

Typical Products Commodities, Consumer Electronics

Fashion GoodsConsumer Electronics

Marketplace Demand Predictable Volatile

Product Variety Low High

Product Lifecycle Long Short

Customer Drivers Cost Availability

Profit Margins Low High

Dominant Costs Physical Costs Marketability Costs

Stockout Penalties Long Term Contractual

Immediate and Volatile

Purchasing Policy Buy Materials Assign Capacity

Information Enrichment Highly Desirable Obligatory

Forecasting Mechanism Algorithmic Consultative

Source: Mason-Jones, Naylor, and Towill “Engineering the Leagile Supply Chain” 2000


•Time to Market

•Concept to Delivery

•Order Entry to Delivery

•Response to Market Forces

•Lead Time

•Design, Conversion, Eng. Delivery

•Materials, Inventory

•Design and Engineering

•Conversion

•Quality Assurance

•Distribution

•Administration

•Inventory

•Materials

•Customer Support

•Product Service

•Product Support

•Flex to Meet Customer Demands

•Flex. to Meet Market Changes

•Meeting Customer

Requirements

•Fitness for Use

•Process Integrity

•Minimum Variances

•Elimination of Waste

•Continuous Improvement

Quality Service

Lead

TimeCost


Agile Supply

1.Quality2.Cost3.Lead-Time

1. Service Level

Lean Supply

1.Quality2.Lead-Time3.Service Level

1. Cost

Market Qualifiers

Market Winners

Source: Mason-Jones, Naylor, and Towill “Engineering the Leagile Supply Chain” 2000


Leagile: A hybrid solution combining elements of both lean and agile supply systems to better meet the needs of the market AND the organization.


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% o

f T

ota

l D

em

an

d

% of Products

Pareto Distribution

Lean

Agile

• Linear Demand

• Standard Work• Pull Systems• Automation• Dedicated

Lines• Analytical

Based S&OP

• Customization• Quick

Response• Flexible

Production Lines

• Safety Stock• Consultative

S&OP


Customer ID Sum of Net Sales % of Total Cum Total Quad Class

689875 $2,870,983.00 18% 18% A

688769 $729,941.00 5% 23% A

688204 $670,000.00 4% 27% A

688125 $666,683.00 4% 32% A

689209 $538,000.00 3% 35% A

690135 $450,584.77 3% 38% A

688139 $420,040.00 3% 41% A

689375 $410,030.02 3% 43% A

…

.

…

.

…

.

…

.

27017 $150,053.05 1% 78% A

27382 $149,000.00 1% 79% A

687987 $148,000.00 1% 80% B

689537 $142,383.00 1% 81% B

677227 $140,060.45 1% 82% B

687699 $132,173.22 1% 83% B

688092 $131,780.00 1% 84% B

26675 $131,567.00 1% 84% B

…

.

…

.

…

.

…

.

688560 $9,345.45 0% 98% B

683874 $7,656.00 0% 99% B

687293 $2,868.25 0% 99% B

683746 $972.20 0% 100% B

Customer Pareto

SKU Sum of Net Sales % of Total Cum Total Quad Class

ACUP-10695 $2,606,581.22 15% 15% A

TWEN-11841 $2,517,050.00 14% 29% A

ACCE-10184 $2,130,917.70 12% 41% A

BECH-66509 $1,553,293.00 9% 50% A

Vect-10696 $1,063,677.06 6% 56% A

XYCF-11842 $1,058,875.77 6% 62% A

SEVE-10185 $670,000.00 4% 65% A

APPE-66510 $629,588.02 4% 69% A

…

.

…

.

…

.

…

. A

Vect-14135 $329,526.00 2% 77% A

XYCF-15281 $304,526.00 2% 79% A

YPLO-16427 $279,526.00 2% 81% B

ONMI-17573 $254,526.00 1% 82% B

MICW-18719 $229,526.00 1% 83% B

…

.

…

.

…

.

…

. B

AQAU-66514 $36,983.00 0% 99% B

SPMM-10701 $35,237.00 0% 99% B

GEMM-11847 $30,669.00 0% 100% B

FORT-10190 $26,101.00 0% 100% B

ECON-66515 $21,533.00 0% 100% B

MICW-10702 $16,965.00 0% 100% B

Customer Pareto


Sales: $2.5M

Orders: 82

GM%: 31%

$ Per Inv:

$30.2K

Sales: $9.8M

Orders: 123

GM% 33.7%

$ Per Inv.

$79.3K

Sales: $.785M

Orders: 63

GM%: 29%

$ Per Inv:

$12.5K

Sales: $2.6M

Orders: 31

GM%: 26%

$ Per Inv:

$84.9K

A

B

AB

Product Classification

CustomerClassification

Perform Quad Analysis by crossing customer classification to SKU classifications.

Purchased Parts Inventory

Cost Per Unit Total

% of

Total

Parts

Active% of Total

ActiveInventory Value

% of Total

Inventory

Unit Cost <= $3 862 33% 725 34% $ 199,415 2%

Unit Cost $3>X<$10 508 20% 418 20% $ 197,563 2%

Unit Cost >=$10 1,219 47% 992 46% $ 9,807,508 96%

Total Inventoried Parts 2,589 2,135 $ 10,204,486

54% of all active purchased parts cost less than $10, yet only account for 4% of total inventory.

45% of all PO receipts and 50% of total transactions are related to parts that cost less than $10.

Resource allocation in nearly even between parts making up only 4% of Inventory valuation and the remaining 96%.

Frequency of PO receipts for low value parts makes it likely that shortages could occur that will impact ability to meet customer requirements.

Cost Per Unit Inventory

Transfers (*)

PO

Receipts

Total Inv

Trans.

Xaction

Per Part

Xaction Per

Active Part

(**)

PO Rec

Per Act

Part

Unit Cost < $3 13,880 3,608 17,488 20 24 5.0

Unit Cost $3>X<$10 8,840 4,618 13,458 26 32 11.0

Unit Cost >$10 19,962 10,253 30,215 25 30 10.3

Totals 42,681 18,479 61,160 24 29 8.7(*) = 50% of actual transactions to offset issue and receipt transaction

(**) = Active part = activity in last 12 months.

Plan for every part where resource allocation and return on effort is part of the consideration.


De-Coupling / Postponement: ◦ Utilize lean principles to produce to common level.

◦ Customize to final configuration.

◦ De-Coupling points can vary based on product and needs of company.

◦ Goal should be to push de-coupling point as close to completion of product as possible.

Incorporate postponement / de-coupling potential into design criteria.

Develop Flex Stations to minimize waste while providing for multiple manufacturing options.


Make to Order/ Standard Product

Product is completed to

established process from

start to finish.

•Custom products

•Make to Stock

Base Level Assembly

Utilize standard base

assembly and complete to

final configuration.

•Modular products

•Add-on configurations

•Higher complexity finished

configuration

End Stage Customization

Product is 90%+ complete

and is finished to order

•Custom covering

•Software programming

•Accessory kits

•Simple bolt on configurations.

Lean

Decoupling

Point 1

Lean

Decoupling

Point 2

Flex Points have multiple

configuration options that can be done in-line.


Cellular Manufacturing:◦ Establish Agile cells dedicated to high service level

requirements.

“Don’t Sweat the small stuff”◦ Expand stocking parameters of the non-trivial /

many items to offset uncertainty and best utilize resources.

Breadman

Kanban Systems

VMI


“Everything but the kitchen sink”◦ Include multiple options for final configuration with

the product to allow customer to configure to their needs.

Technology Based Solutions:◦ Software configurations

◦ 3D Printing

Plugs for multiple regions included,

limiting the need to adjust for specific

demand.


Upselling / Order Conversion◦ Monitor demand and create plans to incentivize

customers to purchase targeted products.

◦ Specials / Promotions

Outsourcing◦ Move production of non-core products to 3rd

parties.

Turnkey Finished Goods

Sub-Assemblies

◦ Partner with 3rd party distributors to hold stock to increase availability and mitigate inventory risk.


Richard Goyette

http://www.riwgo.com

[email protected]

https://www.linkedin.com/in/rickgoyette

http://www.riwgo.com/

mailto:[email protected]

https://www.linkedin.com/in/rickgoyette

combining lean and agility to manage demand uncertainty · sales: $2.5m orders: 82 gm%: 31% $ per...

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