Implementing World Class Manufacturing

IMPLEMENTING WORLD
CLASS OPERATIONS
MANAGEMENT
DEVELOPING THE
INNOVATIVE FACTORY
Presented by Dr Ted Hutchin

Industrial Fellow
University of Nottingham Business School
ACHIEVING WORLD CLASS
MANUFACTURING
z To compete today any manufacturing company must be
fast and effective:
z It must be fast in terms of material through the production
facility
z It must be fast in terms of new product development
z It must be effective in terms of managing the money
z It must be effective in managing the people
z It cannot allow defects into the system
z It cannot allow waste to detract from performance
13/02/2006 www.constraintmanagement.co.uk 2
THE CURRENT SITUATION
z Lead times far too long
z Due date performance too low
z Too many defects
z Too many problems with suppliers
z Continual expediting
z Changing priorities – daily!
z New products late into the market
z Increasing difficulty in gaining new sales
THE BASICS
z With all these problems no wonder management finds
life so difficult!
z And which problem should we address first?
z There are simply too many fires, I just have to do the
best I can
z But is there a better way?

OUR SIMPLE MODEL OF
IMPROVEMENT
z Stop the:
z Fires
z Leakage of money and other scarce resources
z Knee jerk expediting
z Create the new model
z Implement the new model
z Check the performance of the model and upgrade if
necessary
WHERE TO START?
z Just how does the company make money?
z What does the supply chain look like
z How does material/services/information come to us?
z How long does it stay with us?
z How quickly can we process it through our system and
on to the client?
z Where does it get stuck most often?
THE CORE AREAS OF MANAGING THE
MANUFACTURING ENVIRONMENT
z Factory Management
z Plant layout
z Lean tools and techniques – addressing waste
z Process Flow analysis
z Process Management
z Quality systems such as six sigma
z Maintenance systems such as TPM
z Systems Management
z DBR production and inventory control
z CCPM for product development
z Material Management
z Material control
z Material Handling
z Constraint Management
z External constraints
z Management development
z Strategy development
THE BASIC STRUCTURE
OF THE MODEL
EXTENDING THE CORE AREAS
INTO THE WIDER PERSPECTIVE
z The five core areas are:
z Factory Management
z Process Management
z Systems Management
z Material Management
z Now we have to add three more for a comprehensive approach
to achieving the goal of the business
z Financial Management
z New Product Introduction
z Sales and Marketing
FACTORY MANAGEMENT
z This comprises a number of key elements including:
z Sales order processing
z Lean Thinking
z Work centre listing and sequencing
z Production schedule management
z Rough Cut Capacity
z 5S/Shop Floor Management
z Organisational structure and work load
z Team Dynamics
z Labour Management and Industrial Relations
z Local Improvement groups
PROCESS MANAGEMENT
z This includes the following:
z Process management/Plant layout
z Operational Ergonomics
z QA systems
z Six Sigma
z TQ/SPC
z Technical Infrastructure
z SMED
z Project Mgt
z TPM
MATERIAL MANAGEMENT
z This includes
z Material Handling
z Material Control
z Material release
z Replenishment
FINANCIAL MANAGEMENT
z This includes
z Profitability
z Cash Management
z Asset Management
z Revenue Stream Mapping
z Inventory turns and stock holding costs
z Throughput Accounting
NEW PRODUCT INTRODUCTION
z This includes the following
z Project Management
z Managing tasks
z Managing resources
z Managing time
z Design for Manufacture
z Concurrent Engineering
z Process Verification and Value Engineering
SALES AND MARKETING
z Niche Marketing of product or service
z Identification of market opportunities
z Competitor Analysis
z Market projections
z SWOT analysis
z Clusters and locality focused marketing
z Global market
z Appraisal
z Relevance
CONSTRAINT MANAGEMENT
z This includes the following:
z Drum – Buffer – Rope
z Critical Chain Project Management
z Team Management
z Replenishment
z Throughput Accounting
z Jonah Programme
z The shaded areas in each of the preceding pillars show
where TOC applications have a major role to play
CREATING THE VISION
z This is about knowing where to start

z Gaining consensus on the problem
z Gaining consensus on the direction of the solution
z Gaining consensus on the benefits of the solution
z Overcoming all the reservations of the team
z Making it happen
THE GOAL VIDEO
z Based on a true story in the USA
z Still a best-seller throughout the world and currently
selling at the rate of 30,000 copies per month in Japan
CONTINUOUS IMPROVEMENT
PROCESS – THE FIVE STEPS
z Step 1 – identify the system constraint: the constraint determines the speed/flow
of the entire process, improve the capability of the constraint and the whole plant is
more effective
z Step 2 – exploit the constraint: maximise the constraint schedule, make sure that
the proper volume/mix calculations have been done based on the contribution of
the time on the constraint
z Step 3 – subordinate all other operations to the constraint: otherwise the whole
system will choke with excess inventory, costs will go up, delivery performance will
go down, lead-time will increase, bottom-line will go down etc
z Step 4 – elevate the constraint: either increase the capability of the constraint or
keep the constraint where you want it to be and make sure that no other area will
become the constraint, and then elevate
z Step 5 – prevent inertia: go back to step 1
z Do not focus your people, time and money on a NON-CONSTRAINT operation within the
process. It will only increase WIP prior to the constraint and it will not improve the profitability of
the plant, in fact you will achieve the opposite.
The importance of the
revenue chain
Any strategy must operate within the concept
of a chain of co-ordinated elements from
supply to market
A consideration of the constraint within
the chain
z If the overall delivery of the product to the end user
comprises a chain then..
z There is always a weakest link
z Which means that the performance of the chain is
limited by the weakest link
z Which means that the only place to focus all the
attention of management is the weakest link
Measuring performance within the chain
z The importance of making money from supply chain
management, both short and long term
z The importance of satisfying market demand, both short
and long term
z The importance of satisfying the team, both short and
long term
Analysing the performance of the chain
z The first step must be to determine the location of the weakest link in the chain
z The second step is to ensure that the weakest link operates at the optimum level
z The third step is to align all other steps within the chain to the capability of the
weakest link
z Having gained control through the application of the first three steps, develop
more capacity for the weakest link
z Check that in increasing capacity at the weakest link, no other link has become
the weakest, if so, go back to the first step
Understanding the role of the chain
z Material flow
z Money flow
z Information flow
The primary flows of manufacturing
Key performance indicators
z Improving sales
z Increasing profit
z Reducing time to market
z Improving productivity
z Increasing shareholder value
z Improving market share
z Managing resources effectively
z Controlling costs
z Aligning decision-making
z Structured problem-solving
z And many more……………
Using a systems approach
z Systems analysis
z Using the map to determine the key inputs and outputs of the
manufacturing system
z Determine control functions to determine progress towards
the goal and enable proper use of remedial tools and
techniques
z Create the foundation for future growth
Mapping the chain
The TOC response: a case study
z Through the application of constraint management we set out to
achieve:
z Results! – the central focus of any improvement activity is bottom line in both
financial and non-financial terms.
z Decision Coordination – the speed and quality of decisions is major factor in
performance – this is where the proper application of software tools is so vital
z Throughput Emphasis – the move to global decision model from local “cost”
thinking
z Change management - managing transitions to better, new, modes of decision
making
z Enterprise analysis – Coherent, organisation-wide, process of problem analysis,
solution creation and validation, and implementation rooted in the Theory of
Constraints (TOC)
The Constraint Management
Difference
Lower
z Most solutions focus within a sub- purchase
system prices
Better plant
z This creates friction—waste— efficiency
everywhere else
z Information-oriented solutions fail to
change local decision models
z TOC integrates roles and decision
making based on system impact
z Ensures the same rigour and logical
process operates at all levels within
the organisation
Greater
Market
Share
Laws of Constraint Management
z All systems have constraints—which

dictate performance
Improvement Process
1. Identify (strategically select)
constraint
2. Exploit the constraint
X
3. Align/subordinate everything
else to support the constraints
4. Elevate the constraint
5. Prevent inertia – go back to
step 1
z Align decisions
Case Illustration
Retailers
Retailers
Vendors
Vendors DC’s
DC’s
Plants
Plants Logistics
Logistics
z Large inventories ~29 weeks

z High “misses to market”
z Product returns
z High Promotion Costs
z 11 plants, adding 2
z Unacceptable margins
System Friction Illustration
z Local efficiency objectives drove plant behavior
z Surge was “non-value-add” process
z Product Mix Caused constraint to oscillate
Manufacturing Plant
85+% 85+%
Raw Surge
Materials Mix Packaging
What happened next?
z They applied the theory of constraints/constraint management
thinking process tools to determine just what was happening
z They started with a list of current problems/issues and set out to
determine the cause of at least 80% of the problems – the core
problem
z The primary objective was to gain consensus on the nature and
impact of the problem
The core problem: the use of a local, & cost focused,
decision model
z The analysis confirmed the use of this model as leading to the following
elements:
z The use of the model as the primary means of control and decisions
z The model operated as if the links in the chain were independent
z The existing IT systems all supported and reported on local/ cost

performance
z The dominant decision mode was “hard wired” into organization
z The model was proving to be ineffective for addressing areas limiting

performance
Constraint Management Decision Coordination
Solution
z Recognise the interdependence of elements/functions throughout

the revenue chain
z Employ the five step process of TOC
z Sharp focus on constraints
z Strategic Buffers
z Measure to motivate global performance
z Drive Local improvement processes accordingly
z Address Mindset constraints
Achieving Global Decision Coordination
z The sharp focus on constraints extended throughout the whole of the chain,
in particular new product development/project management and
production/replenishment
z All decision processes were now based on total system impact throughout the
chain
z This created an ability to cope with variability & change throughout the chain
z All functions were now aligned to this framework--including measures
z The IT systems were re-aligned to provide the needed data
Results
z Inventory cut from 29 to 4-6 weeks
z Misses to market eliminated
z Consolidated into 6 plants from 11, with no drop in
performance
z Cost per unit down dramatically
z Decision coordination process is now swift, focused, and
adaptive
Let’s see how well you do
with a simple plant?
First some input from yourselves!
z List the key problems you have to deal with each and
every day that prevent you from achieving the levels of
performance you, and your customers need
z When asked, give your top two or three
z Then we will consider a plant for you to work on!!
Production Example
P Q
P&Q $90/Unit
100
$ 100/Unit
50 Units/Week
Units/Week
D D
15 minutes/unit 5 minutes/Unit
Purchase C C B
Part 10 5 15
$ 5/Unit minutes/Unit minutes/unit minutes/unit
A B A
15 15 10
minutes/unit minutes/unit minutes/unit
Raw Material Raw Material Raw Material

1 2 3
$ 20/unit $ 20/unit $ 20/unit
The basic parameters of the plant
z The market demand for P is 100 units per week at a selling price of £ 90 per unit.
z The market demand for Q is 50 units per week at a selling price of £ 100 per unit.
z P is made by assembling one purchased component, one processed part from RM 1 and one
processed part from RM2.
z Q is made by assembling one processed part of RM 2 and one processed part of RM 3.
z There are four workers in the plant
z They work an 8 hour day and a five day week - without stopping!!
z Operating expense for the plant per week is £ 6,000. This does not include any raw
material purchased.
z What is the maximum net profit (minimum loss) this company is capable of earning per
week?
Where to start?
Given the complexity of the problem
what sorts of solutions are there?
The big three: solutions seeking a
problem?
z Lean
z 6 Sigma
The big three focus
z Lean – get lean, across the supply chain
z eliminate waste
z Six Sigma – get perfect, across the supply chain
z improve the process
z Constraint Mgt – get stronger throughout the whole
of the supply chain
z increase throughput, continually improving revenue
generation
Lean
z Get Lean
z Revenue stream mapping
z Cells
z Pull system
z Set-up reduction
z 5s/visual workplace
z Standardisation
z Kaizen
z Addressing the seven causes of waste
Six Sigma
z Get Perfect
z DMAIC (define, measure, analyse, improve, control)
z Analyse the process
z Strive for zero defects
z Statistical analysis tools
z Statistical Process Control
z Continuous improvement
z Process management
z Creative thinking
z Customer focus
Constraint Management
z Get Stronger
z Increase Throughput
z Five focusing steps
z Laws of constraint management
z Systemic thinking processes
z Systemic measures
z Work flow methods
z Drum – Buffer – Rope
z Critical Chain
z Replenishment
Common focus?
z Systemic approach
z Value
z Relationships
z Simplicity
z Flow
Organisational fitness
z Why choose?
z Synthesis of all three
z We can be Lean and Strong and Continuously Improving
z However, what about the financial measurement
environment that dominates manufacturing today?
Developing fast time to
market
The application of TOC in Production

Developing the solution – Simplified
Drum – Buffer - Rope
z Remember the five steps of focusing
z Develop a constraint schedule
z Implement a buffer system
z Release material in line with the buffer sizing
z Manage the system in line with the information from the
buffer management
DBR Described
Resource 1 Resource 2 Resource 3

400/day 400/day 200/day

Supply Mkt
600/day 250/day 500/day
Base
Resource 4 Resource 5
500/day 400/day
Developing the schedule
The release
schedule
for both
The
entry points
constraint
schedule
Resource 3
Resource 1 Resource 2 200/day
400/day 400/day The
Constraint

Supply Mkt
600/day 250/day 500/day
Base
Resource 4 Resource 5 The

500/day 400/day shipping
Schedule
Drum – Buffer – Rope completed
The Constraint Buffer
The constraint
schedule - this is
the DRUM
Resource 3 The Shipping Buffer
Resource 1 Resource 2 200/day
400/day 400/day The
Constraint

Supply The release 600/day 250/day 500/day
Mkt
Base schedule
for both
entry points
Resource 4 Resource 5 The
500/day 400/day shipping
Schedule
The Assembly Buffer
So now let’s run our supply chain
this way
z Set up a constraint schedule
z Determine a buffer size
z Achieve subordination of the workforce
z Gain the results
Producing the MPS within DBR - summary
z Determine the constraint (using capacity analysis)
z Determine which components are routed through the constraint
z Use the contribution per constraint minute for each product to determine constraint
priorities
z Schedule any end items that do not contain components routed through the
constraint (free goods) evenly in the MPS
z Develop a material release schedule by scheduling backwards from the constraint
time. This time is the constraint buffer time (approximately equal to the current lead
time to the constraint)
z Develop the shipping schedule by scheduling forward from the constraint time plus
the shipping buffer. The same approach for sizing this buffer as that for the
constraint buffer.
Buffer management
z Buffer management drives the continuous improvement
actions
z Control charts measure the degree of control within the buffer
z Monthly review teams to drive new improvement projects
z Pareto analysis
z Scatter diagrams
z The application of the Deming methodology to root out
buffer violations which leads to a reduction of either the
buffer size, or an ability to increase the volume – or
both
DEMING
APPLIED
D - B - R: The benefits
z Reduced Lead Time
z High Due Date Performance
z Reduced levels of inventory
z Reduced expediting
z Capability for increasing sales significantly
z Fewer materials/parts shortages
z Improved bottom-line performance (typically within 6 - 8 weeks)
z See how this goes back to the problems we started with
Book list for further reading
z Goldratt, E.M. and Cox, J. 1987 The Goal Revised Ed. North River Press MA
z Goldratt, E.M.1997 Critical Chain North River Press MA
z Goldratt, E.M., Ptak, C. and Schragenheim, E. 2001 Necessary but not sufficient North River
Press MA
z Hutchin, T. 2001 Enterprise Focused Management: changing the face of project management
Thomas Telford London
z Hutchin, T. 2001 Unconstrained Organisations: managing sustainable change Thomas Telford
London
z Hutchin, T. 2002 Constraint Management within Manufacturing: optimising the global supply chain
Taylor and Francis London
z Umble, M.M. and Srikanth, M.L 1990 Synchronous Manufacturing APICS
z Stein, R.E. 1996 Re-Engineering the Manufacturing System Dekker
z Corbett, T. 1998 Throughput Accounting North River Press MA
z Smith, D. 2000 The Measurement Nightmare St Lucie Press Boca Raton
How to contact us
z If you want more information then contact ME at the
address below:
z 22 Digby Drive, Leicester Road Industrial Estate, Melton
Mowbray LE13 0RQ UK
z Tel. +44 (0) 1664 502860
z Fax +44 (0) 1664 502870
z E-mail Jmunn96@aol.com
z Web www.constraintmanagement.co.uk
Appendices
Calculating the result for P & Q?
z Taking P, 100 x (90-45) = £ 4,500
z Taking Q, 50 x (100-40) = £ 3,000
z Total = £ 7,500
z Less OE of £ 6,000 = £ 1,500
z Wrong!
Can we make what we set out to make?
z What is the available amount of time for each process?

z For A the total is 1500 (P) + 500 (Q) = 2000 minutes – no
problem
z For B the total is 1500 each for both P and Q = 3000 minutes
z We only have 2400 therefore we have a constraint
z C and D (1750) are well within capability
Volume and Mix calculation
z The basis for making our decisions
z Selling price – we get more for each Q
z Raw material – we spend less for each Q
z Time – P takes longer to make than Q
z Throughput – P = £ 45 and Q = £ 60
z Let’s focus on Q and use the remaining time for P
The new result in terms of net profit
z If we make all the Q’s we get £ 3,000
z With the remaining time for P (900 minutes which
equals 60 units) the income is £ 2,700.
z In total then we can earn £ 5,700
z Take away the OE and we are left with
z A LOSS OF £ 300!!
Using Throughput Accounting
z Base all decisions on the reality of the constraint.
z Income is a function of time on the constraint.
z P brings in £ 3 per minute on the constraint
z Q brings in £ 2 per minute on the constraint
z Let’s make all the Ps and use the remaining time for Qs
The new result
z Making all the Ps brings in £ 4,500
z The remaining time for Qs is 900 which means 30
z This gives us an income of £ 1,800
z The total is now £ 6,300
z This gives a profit of £ 300 per week!
z What would have happened to the plant with the earlier
results?

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IMPLEMENTING WORLD

Presented by Dr Ted Hutchin

z But is there a better way?

z This is about knowing where to start

z All systems have constraints—which

z Large inventories ~29 weeks

z The model operated as if the links in the chain were independent

z The existing IT systems all supported and reported on local/ cost

z The model was proving to be ineffective for addressing areas limiting

z Recognise the interdependence of elements/functions throughout

Raw Material Raw Material Raw Material

z Q is made by assembling one processed part of RM 2 and one processed part of RM 3.

z There are four workers in the plant

The application of TOC in Production

Resource 1 Resource 2 Resource 3

Resource 6 Resource 7 Resource 8

Resource 6 Resource 7 Resource 8

Resource 4 Resource 5 The

Resource 6 Resource 7 Resource 8

The Assembly Buffer

z What is the available amount of time for each process?

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