Table of Contents
What You Will Learn in This Chapter.........................................................1
So What Is the Problem?..............................................................................1
Six Reasons Why Companies Have Too Much Stock and Can’ t Deliver....3
Reason 1: The Customer Cannot Forecast Accurately............................3
Reason 2: Long Lead Times.....................................................................4
Reason 3: Big Batch Sizes and Big Shipment Quantities........................4
Reason 4: Material Shortages...................................................................6
Reason 5: Poor Factory Performance......................................................7
Reason 6: Poor Warehouse and Logistics Practices................................8
Summary......................................................................................................8
Key Points in Chapter 1...............................................................................9
What You Will Learn in This Chapter.......................................................11
What Is a Supply Chain?............................................................................12
The Most Important Supply Chain Metric: Delivery in Full on Time......13
Lead Time: The Key Driver of DIFOT...................................................... 15
Takt Time: Keeping Track of Whether You Are Keeping up with
Demand......................................................................................................17
Push, Pull, and Flow..................................................................................17
Understanding Your Supply Chain with a Value Stream Map..................19
Summary....................................................................................................25
Key Points in Chapter 2 .............................................................................27
What You Will Learn in This Chapter.......................................................29
The Promise of Forecasting.......................................................................29
Can We Tell the Future?.............................................................................30
Forecasting and the Weather.....................................................................31
Importance of Significance........................................................................32
Building a Forecast....................................................................................32
Forecasting Raw Material Requirements...................................................34
Low-Volume Products and Materials.........................................................36
Generating the Forecast.............................................................................36
Try Sensitivity Analysis..............................................................................37
Forecasting Tools.......................................................................................38
Demand Management: Maintaining the Forecast.....................................38
Key Points in Chapter 3.............................................................................39
What You Will Learn in This Chapter.......................................................41
Matching Capacity to Demand: The Foundation for On-Time Delivery..... 41
Cycle Time and Takt Time: Developing a Simple Rough-Cut
Capacity Model...........................................................................................43
More Advanced Capacity Models..............................................................45
Only Analyze Capacity at the Bottleneck Process....................................46
Sales and Operations Planning Process....................................................49
Demand Review.........................................................................................51
Supply Review............................................................................................52
Sales and Operations Planning Meeting...................................................53
Overview of S&OP....................................................................................55
Key Points in Chapter 4.............................................................................55
Sell It..........................................................................................57
What You Will Learn in This Chapter.......................................................57
Do You Need Inventory?...........................................................................57
The Other Finished Goods Strategy: Make-to-Order...............................58
Managing Your Finished Goods Strategy..................................................59
How Much Inventory Do You Need of Make-to-Stock Items?.................60
Calculating Safety Stock.............................................................................61
Avoiding the Knee-Jerk Response to a Shortage......................................64
Types of Pull Replenishment.....................................................................65
Kanban Cards.............................................................................................67
Other Forms of Pull Systems.....................................................................70
Virtual Kanban...........................................................................................71
Stock-Outs: A Leading Indicator of On-Time, In-Full Performance.........71
Inventory Record Accuracy........................................................................72
Managing Make-to-Order Supply to Achieve On-Time, In-Full
Delivery......................................................................................................72
Summary....................................................................................................74
Scheduling..................................................................................77
What You Will Learn in This Chapter.......................................................77
What to Do Next: The Planning Question................................................78
Typical Production Planning Scenario......................................................79
Managing Production Flow with a Pacemaker.........................................81
Finding the Correct Unit of Measure and Pitch Interval..........................82
Using a Load Leveling Box........................................................................82
How Long Should the Pitch Interval Be?..................................................84
Overview of Pacemakers and Pitch..........................................................86
Deciding What Product to Make Next at the Pacemaker.........................87
Understanding Your Product Mix and Building the Product Cycle.........87
Running the Cycle......................................................................................90
Leveling the Product Mix...........................................................................91
Product Wheels..........................................................................................91
Summary....................................................................................................92
What You Will Learn in This Chapter.......................................................95
So Why Do Material Shortages Occur?.....................................................97
Deciding the Right Level of Material Inventory........................................98
Why Do Shortages Occur?.......................................................................100
Reducing the Replenishment Interval.....................................................100
Reducing Supplier Lead Time..................................................................103
Reducing Demand and Supply Variability..............................................106
Summary..................................................................................................107
What You Will Learn in This Chapter.....................................................109
Reducing the Lead Time in an International Supply Chain................... 111
Increasing Shipment Frequency and Reducing Variability..................... 111
Options When Your Monthly Demand Does Not Fill a Container........ 119
Managing Very Low-Volume Materials....................................................120
Does Importing Still Make Sense? Assessing the Total Cost..................121
Summary..................................................................................................123
Case Study: Importing of Custom Sheet Metal Components from
China to Australia....................................................................................124
What You Will Learn in This Chapter.....................................................127
Are There Any Good Suppliers out There?.............................................127
Understanding Your Supplier..................................................................128
Basic Rules for Working with Suppliers..................................................130
Be up Front from the Start...................................................................... 131
Establishing a Service Level Agreement..................................................132
Putting in a Firewall.................................................................................132
Relationships That Go beyond the Purchase Order...............................133
Importance of Metrics..............................................................................134
Managing Poor-Performing Suppliers......................................................136
Summary..................................................................................................138
What You Will Learn in This Chapter.....................................................139
What Is an ERP System?..........................................................................140
So What Is the Problem with ERP Systems?........................................... 141
The Right Time to Purchase an ERP System.......................................... 145
Selecting an ERP System.......................................................................... 145
Successfully Implementing Your ERP...................................................... 147
Ensure You Have Accurate Master Data................................................. 149
Keep Bill of Material Structures and Routings Simple............................ 149
Be Flexible about the Go-Live Date........................................................ 151
Focus Training and Support after Go-Live............................................. 151
Summary.................................................................................................. 151
What You Will Learn in This Chapter..................................................... 153
Why Do You Need a Distribution Network?........................................... 154
Key Elements of a Distribution Network................................................ 154
What Can Go Wrong in a Distribution Network?................................... 155
Designing Your Future State Distribution Network................................ 157
Determine Where You Will Hold Your Finished Goods........................ 159
Minimizing Freight Cost...........................................................................160
Calculating the Right Level of Inventory................................................. 161
Controlling Replenishment...................................................................... 162
Sales and Operations Planning in a Distribution Network....................163
Importance of Good Product Management in a Distribution Network.... 164
To 3PL or Not to 3PL?.............................................................................. 165
Summary.................................................................................................. 167
What You Will Learn in This Chapter.....................................................169
Addressing the Six Reasons for Poor On-Time, In-Full Delivery...........169
Measuring Supply Chain Performance.................................................... 171
Improving Your Supply Chain Metrics.................................................... 172
The Wrong Measures Drive the Wrong Behavior................................... 174
Bringing It All Together: The Industrial Chemicals Case Study............. 175
Getting Started on Transforming Your Delivery Performance............... 176
The Right Supply Chain Manager............................................................177
Do You Need a Consultant?.................................................................... 179
A Final Word............................................................................................ 179
Index...............................................................................................181
Foreword
Implementing operational excellence or Lean concepts within the “ four walls” of your organization is difficult enough. To implement them throughout the supply chain involves another set of challenges. Nevertheless, at some point it must be done. The benefits that a manufacturer or distributor will realize from Lean will be limited by the capabilities of its supply chain.
Working in collaborative and creative ways with supply chain partners will maximize the business results for all. Further, it has been said that a customer, current or prospective, is not just buying materials, parts, components, and the like. They are buying the capabilities of an entire supply chain. An organization can incorporate the performance of a strong supply chain in its value proposition when pursuing new customers or defending existing business against the competition. The long-term success of businesses that do just that will be better ensured in the face of ever-demanding customers.
For these reasons, On Time, In Full is an important work. Tim McLean provides an easy-to-follow practical approach to building a highly performing supply chain. Early chapters help the reader see through the complexity of a supply chain— the “ extended value stream” — and begin to consider how to improve it. The challenges of accurate forecasting, and how to mitigate what has been called the “ bullwhip” effect, are covered next. Inventory management and production scheduling practices are then reviewed. The author also addresses the important subject of international supply chains, which can often seem daunting. Together, the chapters represent a stepby- step approach that can be applied to any manufacturing or distribution business.
Don’ t fall into the trap of believing that you cannot affect significant change in your supply chain. Improvement is always possible. Instead of trying to influence suppliers through negotiations, consider working collaboratively with them in creative ways. The path to a “ Lean supply chain” will be different for different organizations. Let On Time, In Full be your guide. Begin analyzing your extended value stream and engaging key players, and see where the path leads. It could be the beginning of a great journey.
Acknowledgments
A lot of people helped me with the writing of this book. First, I would like to thank my family for their patience as I spent long hours on weekends completing the manuscript. In particular, I would like to thank my wife, Katerina, for her encouragement and her assistance in proofreading and editing the manuscript. I would also like to thank my publisher, Productivity Press, and their executive editor, Michael Sinocchi, for supporting me with this book and my first book, Grow Your Factory, Grow Your Profits. Many of the case studies through this book are the work of my colleagues at TXM, and I would especially like to acknowledge my business partner, Anthony Clyne; our China consulting director, Justin Tao; and senior consultant Greg Boek. It is their excellent work that is reflected in the case
studies in this book. I also particularly appreciate Anthony, Justin, Greg, and my other business partner, Ron Spiteri, for their advice and feedback about the many complex technical aspects of supply chain. It is always good to be able to road test the concepts with experienced experts before letting them loose on the general public in the form of a book. Anthony and Justin also provided many of the photographs used throughout the book.
Equally important are the customers who have supported us along the way and taken the leap of faith to accept our advice. I especially would like to acknowledge Phil and Leon Joyce at Larnec Doors in Swan Hill, Victoria, who have generously allowed their case study to be used in both of my books. As well, Peter Keech at Tasman Chemicals and Jane Chen and Ronny Zhou at Funwick Manufacturing in Kunshan, China, are greatly appreciated for their support.
Drew Locher generously provided a foreword and encouragement. It is an honor to have the author of four excellent books on Lean office processes and Lean product development and the winner of two Shingo awards contribute to this book. I also appreciate the support and ideas of another Shingo prize-winning author, Ian Glenday, whose work in repetitive flexible supply I reference in Chapters 6 and 8.
Finally, I would like to acknowledge all the supply chain experts who have gone before me and generously contributed their knowledge through their excellent books, some of which I have shared here. There is a lot to learn about supply chain. Hopefully, this book will just be the start and you will follow up the various references that I have provided in order to build up your expertise.
Introduction
The most fundamental requirement for a manufacturing or distribution business is to deliver to customers what they want, in the quantity they want, when and where they want it. It doesn’ t matter how good your product is, how much the customer likes your salesperson, or how slick your marketing campaign is. If your customers can’ t get what they want when they want it, they will get it elsewhere and your business is in serious trouble. I spend most of my days out in factories and warehouses and find that the simple problem of delivering on time, in full every day remains a major challenge for a huge proportion of businesses. This even happens in many cases where the company has the most advanced enterprise resource planning* software. The costs to business and the economy are mind boggling, with billions spent on expediting, overtime, breaking production schedules, scrapping excess stock, last-minute replenishment, empty shelves, and lost sales.
It would seem straightforward enough. You take an order, you pick the goods, and you ship them to the customer. For very small businesses, it is often as simple as that. However, for most businesses the reality is that they handle dozens or even hundreds of orders per day and hundreds or even thousands of transactions and material movements every day to meet those orders.
