The S

1
The SOP/Lean ConnectionMaking Lean work with
demand variability
AMETOTONTO2008 From Good to Great
October 20-24, 2008 Toronto, Canada
Bob StahlBill Kerber
2
Who are We?

• Bob Stahl
• Bill Kerber

3
The 4P Model of the Toyota Way
The Toyota Production System TPS is the basis
for much of the lean production movement that
has dominated manufacturing trends for the last
10 years or so. Jeffrey Liker The Toyota Way
Our Focus
4
Toyota Flow Model
Push
There is nothing illegal, immoral, or fattening
with this approach, but many (most) companies
cant afford, or simply cant follow, this
approach to creating linearity with very large
finished goods inventory. For Toyota, as we all
know, it has worked very very well!
Linearity
. . . many businesses in America are rushing to
a build-to-order model of production. They want
to make just what the customers want when they
want it -- the ultimate lean solution.
Unfortunately, customers are not predictable and
actual orders vary significantly from week to
week and month to month. Jeffrey Liker The
Toyota Way
Toyota Assembly
Customers
Schedule (to dealer orders/ forecast)
Demand Pull
FG Inv. Buffer
Variable Demand
5
LEIs Interpretation

• LEIs Seven Characteristics of a Lean Value
  Stream
• Takt
• Finished goods strategy
• Flow
• Pull where cant flow
• Scheduling at one point
• Pitch
• EPEI

James P. Womack Danie T. Jones
6
Master Schedule definition . . .

• The tool that balances demand and supply at the
  product level, as opposed to Executive SOP which
  balances demand and supply at the aggregated
  Product Family level. It is the source of
  customer order promising, via its
  Available-to-Promise capability, and contains the
  anticipated build schedule for the plant(s) in
  the form of the Master Production Schedule.

7
An Inconvenient Truth . . .(with apologies to Al
Gore)

• In general, when you try to apply the Toyota
  Production System TPS, the first thing you have
  to do is to even out or level the production.
• Leveling the production schedule may require some
  front-loading of shipments push to dealers or
  postponing delaying of shipments and you may
  have to ask some customers dealers to wait for
  a short period of time.
• Once the production level is more or less the
  same or constant for a month, you will be able to
  apply pull systems and balance the assembly line.
  
• But if production levels the output vary from
  day to day, there is no sense in trying to apply
  those other pull systems, because you simply
  cannot establish standardized work under such
  circumstances.

Fugio Cho Toyota President
8
Big Fat Question(s) . . .

• What if it impossible or unaffordable to have FG
  Inventory as a buffer?
• How do you do Lean, if not exactly the Toyota
  Way?
• Thats why were here!

9
Agenda . . .

• Introduction
• The many tools for improving effectiveness
• Lean focus versus SOP focus
• How does the Toyota Production System work?
• What are the problems?
• Market Forecast versus Production Leveling
• FG Inventory as the only buffer
• What are the solutions?
• Solve the Family Feud
• Buffer without Finished Goods Inventory
• Backlog buffer (Lead Time)
• Component Inventory - Postponement
• Flexible resources
• Questions and Answers.

10
The New World of Manufacturing
Best in Class

• High Quality
• Low Cost (Low Inventory)
• Customer Service
• Quick Response
• Reliability
• Wide Variety

Getting to AND . . . Diminishing OR
11
The Many Tools for Improving Effectiveness
Increase Reliability
Total Quality, Six Sigma, Poka-Yoke, ISO others
X
X
X
Sales Operations Planning, ERP, Kanban, VMI,
others
Lean Mfg., Just-In-Time, Quick Changeover
(SMED), Flow others
12
The Many Tools for Improving Effectiveness
Increase Reliability
X
Enhance Coordination
Reduce Waste Time
13
The Many Tools for Improving Effectiveness
Total Quality, Six Sigma, Poka-Yoke, ISO others
Increase Reliability
Sales Operations Planning, ERP, Kanban, VMI,
others
X
Lean Mfg., Just-In-Time, Quick Changeover
(SMED), Flow others
Enhance Coordination
Reduce Waste Time
Blur the boundaries
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Lean Executive SOP Do Different (Necessary)
Things

• Lean Manufacturing
• Lean is a basic approach to manufacturing that
  emphasizes/focuses on flow.
• It also has a focus on eliminating waste from
  processes
• Strong on execution
• Short future horizon
• Drives improvements to the operating environment
• Flow works best with stable and linear demand
• Executive SOP
• Tools for forward decision-making
• Strong on planning
• Long future horizon
• Balances demand and supply across the supply
  chain
• Executive Forum for establishing relevant
  strategy, policy, and risk
• Can be used in many different environments
• In a broad sense, they both get at culture!
• They work best when they work together!

15
Agenda . . .

• Introduction
• The many tools for improving effectiveness
• Lean focus versus SOP focus
• How does the Toyota Production System work?
• What are the problems?
• Market Forecast versus Production Leveling
• FG Inventory as the only buffer
• What are the solutions?
• Solve the Family Feud
• Buffer without Finished Goods Inventory
• Backlog buffer (Lead Time)
• Component Inventory - Postponement
• Flexible resources
• Questions and Answers.

16
Production Strategies

• Level - Most often associated with Make to Stock.
  To achieve a level production, a buffer against
  variable demand must be used.
• Chase - Most often Make to order. Also could be
  called variable capacity.
• Hybrid - A combination.

17
Toyota StrategyPart A
18
Toyota StrategyPart B
19
Why This Works?

• Toyotas high quality and market acceptance
  allows limited variety
• With a limited number of end items
• Schedule by end item
• Dont configure (finish) to order
• Alignment of markets and resources

20
Product Environment
Levels
of Parts
In this shape a few end items are made from
many parts, materials, and components. An
example would be an equipment manufacturer such
as automobiles, lawn mowers, capital equipment,
etc. This shape lends itself to making to
stock.
21
Product Environment
22
Toyota Flow Model
Push
Linearity
Toyota Assembly
Customers
Demand Pull
Schedule (to dealer orders/ forecast)
FG Inv. Buffer
Variable Demand
23
Demand-Supply Alignment(A second issue)
24
Takt Time . . .

• Takt is a German word for rhythm or meter. Takt
  is the rate of customer demand -- the rate at
  which the customer is buying product.
• . . . Takt can be used to set the pace of
  production.
• Continuous flow and takt time are most easily
  applied in repetitive manufacturing . . .
• Jeffrey Liker
• The Toyota Way

25
Takt time . . .

• Demand rate?
• or
• Production Rate?

26
Agenda . . .

• Introduction
• The many tools for improving effectiveness
• Lean focus versus SOP focus
• How does the Toyota Production System work?
• What are the problems?
• Market Forecasting versus Production Leveling
• FG Inventory as the only buffer
• What are the solutions?
• Solve the Family Feud
• Buffer without Finished Goods Inventory
• Backlog buffer (Lead Time)
• Component Inventory - Postponement
• Flexible resources
• Questions and Answers.

27
A primer on SOP . . .
Most Detail Aggregate Only Exac Config. .
.Precise Matl. . . People. . .Capital Equip . .
.Factory Space

• Lost in the woods- Detail
• Engage Top Management?
• Added Little Value outside the Planning Time
  Fence

28
The Four Fundamentals of SOP . . .

• How Much?
• Rates
• The Big Picture
• Families
• Strategy/Policy/Risk
• Monthly / 18 - 36 Mos
• Executive Resp.

• Which Ones?
• Timing/Sequence
• The Details
• Products/SKUs/Orders
• Tactics/Execution
• Weekly/Daily 1-3 Mos
• Middle Mgt. Resp.

Mix
Plan the Volume Schedule the Mix
29
Suicide Quadrant . . .
PTF
1 Suicide Quadrant
3 Building to Customer Demand
Detail
Horizon
30
Sales Operations Planning
Executive SOP
Volume
DemandPlanning
Supply Planning
Demand
Supply
Mix
31
Master Schedule definition . . .

• The tool that balances demand and supply at the
  product level, as opposed to Executive SOP which
  balances demand and supply at the aggregated
  Family level. It is the source of customer order
  promising, via its Available-to-Promise
  capability, and contains the anticipated build
  schedule for the plant(s) in the form of the
  Master Production Schedule.
• Sales Opertations Planning-The How To Handbook,
  3rd Edition
• Wallace Stahl, 2008

32
What is Executive SOP?

• Sales Operations Planning
• is a Executive Decision-Making Process
• toBalance Demand Supply
• (at the volume level)
• isThe forum for setting Relevant Strategy
  Policy
• and Integrates Financial Operating Plans
  (update/validate the Annual Business Plan)
• Top Managements Handle on the Business

33
The Family Feud . . .
Definition - Executive SOP Families A grouping
of end items whose similarity allow the markets
to be best anticipated, and enables resources to
be planned.
34
Forecasting
Inputs -- Process -- Output
Forecasts that are
1. Reasoned 2. Reasonable 3. Reviewed
Frequently 4. Represent Total Demand
Process
35
Forecasting
Inputs -- Process -- Output
Forecasts that are
1. Reasoned 2. Reasonable 3. Reviewed
Frequently 4. Represent Total Demand
Process
36
Executive SOP Focus
Volume
Market Centric
Shipments
POS
Mfg. Company
Markets
Customers
Customer Centric
Mix
37
The Family Feud . . .

• SOP Families -- In Executive SOP, Families are
  aggregate groups of products that are similar in
  the way that customers and/or markets view their
  use. Executive SOP Families are used to develop
  a reasoned and reasonable forecast based on
  market trends, grounded in intrinsic and
  extrinsic leading indicators.
• Lean Families -- In Lean Manufacturing, the term
  Families is used to mean the grouping of products
  that are manufactured by the same resources. This
  is often called a value stream. The idea is to
  create a synchronous flow in manufacturing that
  allows products to be produced at a uniform and
  linear market driven rate known as Takt Time.

38
Conclusion . . .

• Executive SOP families should be market
  determined
• Lean families should be manufacturing (process)
  determined
• They are different because they serve different
  purposes

39
Family Feud . . .When are they the same?
World Wide Widget Company
Supply
Demand
Typically NOT!
40
Non-Aligned to Markets
World Wide Widget Company
Supply
Demand
How, then, do you do Lean Takt time, etc?
41
Executive SOP Process
42
Exercise 1

• Determine the families for Executive SOP from
  the data provided.

43
Product/Process Matrix
Cant do it --- No market data provided
44
Market Drivers(Leading Indicators)

• Birth Rate
• Consumer confidence index
• Housing starts
• NASCAR TV ratings
• Price of gasoline

45
Correlation Data

• A correlation study revealed the following
  results (1.0 high correlation)
• Wagons Sleds Vehicles
• Housing Starts 0.5 0.4 0.2
• Birth Rate 0.8 0.75 0.4
• New Unemp. Claims -0.4 -0.6 -0.4
• Personal Income 0.5 0.4 0.6
• NASCAR Viewers -0.2 -0.3 0.7

46
SOP Families . . .

• What are the SOP Families?
• Wagons
• Sleds
• Vehicles

47
Families . . .

• SOP Families -- In Executive SOP, Families are
  aggregate groups of products that are similar in
  the way that customers and/or markets view their
  use. Executive SOP Families are used to develop
  a reasoned and reasonable forecast based on
  market trends, grounded in intrinsic and
  extrinsic leading indicators.
• Lean Families -- In Lean Manufacturing, the term
  Families is used to mean the grouping of products
  that are manufactured by the same resources. This
  is often called a value stream. The idea is to
  create a synchronous flow in manufacturing that
  allows products to be produced at a uniform and
  linear market driven rate known as Takt Time.

48
Determining Lean product families

• Create a Product Family Matrix
• Separate processes based on capability (ex. The
  machines are the same, but Part A can only be
  produced on this one.)
• Look at the Downstream processing steps
• Approximately 80 of the similar processing steps
• Custom products look Upstream at the
  fabrication steps
• Fill in Product Family Matrix with X

49
Product Process Matrix
50
Product/Process Matrix
51
Batch Manufacturing
Sand
Notch
?
Stock Room
?
?
A
?
B
C
Finished Goods
?
?
Paint Room
Plate
?
Packaging
Injection Mold
?
?
?
?
Die Cast
?
?
?
?
Deburr
Trim
Final Assembly
52
Exercise 2

• Determine the Lean product families based on the
  data given

53
Product/Process Matrix
54
Product/Process Matrix
55
Lean Process Flow
Die Cast
Deburr
Paint
Plate
A
Finished Goods
Final Assembly
Stockroom
B
Packaging
Trim
Sand
Paint
Notch
C
56
Lean Families . . .

• What are the Lean (Value Stream) Families?
• Plastic Toys
• Wooden Toys
• Die Cast Toys

57
Agenda . . .

• Introduction
• The many tools for improving effectiveness
• Lean focus versus SOP focus
• How does the Toyota Production System work?
• What are the problems?
• Market Forecasting versus Production Leveling
• FG Inventory as the only buffer
• What are the solutions?
• Solve the Family Feud
• Buffer without Finished Goods Inventory
• Backlog buffer (Lead Time)
• Component Inventory - Postponement
• Flexible resources
• Questions and Answers.

58
Solving the Family Feud
Lean
Exec. SOP
Typically NOT!
59
Non-Aligned to Markets
Lean
Exec. SOP
Plastic Toys
Wagons
Supply
Wooden Toys
Sleds
Demand
Die Cast Toys
Vehicles
Better than Job Shop! Rough Cut on Pacemaker
only!
60
Job Shop . . .
Market Families
Production Resources
61
Market Forecasts toLean Production
Lean
Exec. SOP
Plastic Toys
Wagons
70
30
100
Wooden Toys
Sleds
60
Die Cast Toys
Vehicles
40
62
Managing Assumptions . . .(Control Charts)
63
Demand Forecasts
64
Wooden Demand Rate
65
Rough-Cut Capacity Planning
66
Production Strategies

• Level - Most often associated with Make to Stock.
  To achieve a level production, a buffer against
  variable demand must be used.
• Chase - Most often Make to order. Also could be
  called variable capacity.
• Hybrid - A combination.

67
Primer on Takt Time . . .

• Sets the Beat in the form of pitch for
  production.
• Determines how many people work in assembly jobs.
• Provides the bar for operator balance charts
  for line balancing.
• For all of these, takt would be better
  represented by the production rate from SOP.

68
Demand versus Production Rate?

• Current Lean definition has Takt time as
  effective working time divided by demand rate
• In most circumstances, we would be better off
  making it effective working time divided by
  Production rate (from SOP plan)

69
People vs. Takt Time
Balanced Line
6 5 min
5 5 min
4 5 min
3 5 min
2 5 min
1 5 min
In
Time 480 min Units 16 Takt 30 min Operators
2
B
A
7 5 min
8 5 min
9 5 min
10 5 min
11 5 min
12 5 min
Out
Lead time 60 min
Balanced Line
6 5 min
5 5 min
4 5 min
3 5 min
2 5 min
1 5 min
In
Time 480 min Units 24 Takt 20 min Operators
3
C
B
A
7 5 min
8 5 min
9 5 min
10 5 min
11 5 min
12 5 min
Out
Lead time 60 min
70
Operator Balance Chart
Values in Bars Cycle Time Takt Time 1.78
Minutes
Example of Unbalanced Line
Takt Time
2.5
0.5
1.5
1.75
1.25
More Improevment
Takt Time
0.21
1.78
1.78
1.78
1.78
Better Improvement
Takt Time
1.78
1.78
1.78
1.78
Operator 1
Operator 2
Operator 3
Operator 4
Operator 5
71
Agenda . . .

• Introduction
• The many tools for improving effectiveness
• Lean focus versus SOP focus
• How does the Toyota Production System work?
• What are the problems?
• Market Forecasting versus Production Leveling
• FG Inventory as the only buffer
• What are the solutions?
• Solve the Family Feud
• Buffer without Finished Goods Inventory
• Backlog buffer (Lead Time)
• Component Inventory - Postponement
• Flexible resources
• Questions and Answers.

72
Make-to-Order Flow
Demand Pull
Schedule (to forecast/customer order)
73
Market Demands

• In this shape many end items are made out of a
  few sub assemblies or intermediates that are made
  out of many unique raw materials and parts.
• An example of this would be a pharmaceutical
  manufacturer with many package types from
  standard product (aspirin), personal computers,
  packaged chemicals
• This shape lends itself to a postponement
  strategy.

74
How Lean fits in Postponement
75
Finish-to-Order Flow(Postponement)
Demand Pull
Planning BOMs
Plant
Assembly
Customers
Suppliers
Standard Parts
Order Backlog
Schedule (to forecast)
Backlog Buffer
Variable Demand
Schedule (to Order)
76
Agenda . . .

• Introduction
• The many tools for improving effectiveness
• Lean focus versus SOP focus
• How does the Toyota Production System work?
• What are the problems?
• Market Forecasting versus Production Leveling
• FG Inventory as the only buffer
• What are the solutions?
• Solve the Family Feud
• Buffer without Finished Goods Inventory
• Backlog buffer (Lead Time)
• Component Inventory - Postponement
• Flexible resources
• Questions and Answers.

77
BOM Shape

• In this shape many end items are made from a
  few raw materials.
• An example would be an injection molding company
• This shape suggests a make to order strategy.

78
How Lean fits in

• Make to
• Order

You must make the lead time fit market
requirements!
79
Chase Strategy
Production Demand Inventory (Backlog)
80
This requires

• Cross training of everyone
• A way to know when to switch jobs during the
  workday (controlling flow)
• Adding or subtracting labor by using
• Temporary employees
• Overtime
• Subcontractors
• alternatively
• Staff for peak periods and work on improvements
  when slow

81
Conclusion

• SOP and Lean work best when they work together!

82
Agenda . . .

• Introduction
• The many tools for improving effectiveness
• Lean focus versus SOP focus
• How does the Toyota Production System work?
• What are the problems?
• Market Forecast versus Production Leveling
• FG Inventory as the only buffer
• What are the solutions?
• Solve the Family Feud
• Buffer without Finished Goods Inventory
• Backlog buffer (Lead Time)
• Component Inventory - Postponement
• Flexible resources
• Questions and Answers.

83
Thanks for Listening

• Bob Stahl
• RStahlSr_at_aol.com
• 508-226-0477
• Bill Kerber
• Bill_at_HighMixLean.com
• 609-781-4830