Lean Enterprise Academy www.leanuk.org1
Why Responsiveness Matters: Getting Products to Customers
Quickly
Daniel T JonesChairman
Lean Enterprise Academy
Lean Logistics Conference Wroclaw, Poland 21 February 2006
Lean Enterprise Academy www.leanuk.org2
The Problem
• Logistics like to fill trucks by keeping stocks in warehouses at either end
• Planners like to dream that they get best utilisation by planning, controlling and scheduling every shipment in every truck
• Operations like to create focused factories for each activity and to plan every product or batch through every step
• Finance likes to source these activities in the lowest cost location
Lean Enterprise Academy www.leanuk.org3
The Result• Long supply chains with many steps –
inventories everywhere - 300 plus days throughput for 3 hours of value creation
• Many decision points send chaotic orders upstream – constantly changing plans, extra inventories and capacity and endemic fire-fighting
• Optimising the pieces rather than the flow – poor utilisation of assets and trucks
• Poor availability and responsiveness and higher than necessary costs
Lean Enterprise Academy www.leanuk.org4
The Remedies
• The instinctive reaction is buy a better planning system – squeeze suppliers – and move to a lower cost location
• The right answer is to learn to see the whole value stream, to rethink the way it is planned and directed, to improve the performance of each activity and to synchronise them in line with demand
• And then to redesign the value stream to compress it in time and distance in the right location
Lean Enterprise Academy www.leanuk.org5
The Challenge
• Traditional logic and practice is not only fundamentally flawed
• It is also being challenged by two developments: -• Significant changes in consumer
behaviour and in retailing in the developed countries
• Intensified competition between low cost locations
• This creates opportunities and threats for Polish businesses
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Changing Consumption
• Consumption is also an ongoing process for solving consumer needs
• Managing household consumption is increasingly complex – with more choices, more decisions and more things
• Consumers are better informed and short of time – so they are demanding better availability and greater convenience
• Products have got better and cheaper –the next revolution is retailing and service
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Changing Retailing
• Every product is now being sold through supermarkets – clothing, pharma etc.
• Some lean retailers have begun a revolution in convenience retailing and home shopping
• Seven-Eleven in Japan• German Discounters• Tesco multiple formats in the UK
• Others are pioneering quick response• Zara, H&M, Benetton
• Availability and responsiveness are key
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Supply Chain Performance
• Levels of Fulfilment are poor in most systems: -• 98.5% service level means 55% fulfilment
for a basket of 40 items in the store• 80% availability for the shoe with 150 day
order window leads to 40% being remaindered
• 52% of consumers get the cars they wanted on time and 64% of service jobs are completed RFTOT
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Toyota’s Lean Strategy
“Brilliant process management is our strategy.
We get brilliant results from average people managing brilliant processes.
We observe that our competitors often get average (or worse) results from brilliant people managing broken
processes.”
Lean Thinking is Process Thinking
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Lessons from Toyota
• Toyota spent 30 years developing lean in house and spreading it up and down its supply chain
• The most impressive example is aftermarket parts distribution – supplying 500,000 SKUs to dealers
• It operates as a series of tight replenishment loops • Dealers call off parts from Distribution Centres every day• These shipments trigger daily orders to be picked up from
suppliers the next day• Most of whom can also make every part that is required in
a day every day• The result is the highest availability, lowest stock
levels and the smoothest order signals
Lean Enterprise Academy www.leanuk.org11
Lean Enterprise Academy www.leanuk.org12
0
50
100
150
200
250
39 42 45 48 51 1 4 7 10 13 16 19 22 25 28 31 34 37
Week No.
Total RDC Stock EPOS Supplier Shipment
MARKETDEMAND
DEMANDAMPLIF-ICATION
SUPPLIERORDERS
Uncovering Amplification
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Lessons from Tesco
SupplierSupplier RDCRDC StoreStoreNDCNDC
Continuous Continuous ReplenishmentReplenishment
FlowFlowThroughThrough
StoreStore
FlowFlowThroughThrough
ProductionProduction
LeanLeanSchedulingScheduling
CustomCustomStoreStore
RangingRanging
LoyaltyLoyaltyCardCardDataData
HomeHomeShoppingShopping
MultiMulti--FormatFormat
ConvenienceConvenience
FlowFlowThroughThrough
WarehouseWarehouse
PrimaryPrimaryDistributionDistribution
Continuous Continuous ReorderingReordering
ConsolidationConsolidationWarehousesWarehouses
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Lean Enterprise Academy www.leanuk.org16
Rapid, Reflexive Replenishment
• Toyota distinguish between cognitive and reflexive decision making systems
• They separate capacity and materials planning from production and shipping instructions
• Lean, rapid, reflexive replenishment is based on four key principles:-• Only one scheduling point or pacemaker• Greatly increased frequency of replenishment• Replenish only exactly what was sold • Where possible compress the vale stream
The objective is to optimise the flow not each asset
Lean Enterprise Academy www.leanuk.org17
The Dynamics of Lean
To only one pacemaker
process
With just the rightStandard
Inventory of:-Cycle stock
Buffer stock andSafety stock
Uninterrupted flow back to the
customer’s point of use
No warehouses,only Cross-Docksand Mixed-model
Milk Runs
FIFOReflexive
Pull all the way back to raw materials
Every Product Every
Interval capability
Separate capacity planning from production
instructions
Production pulled from
every upstream step
Every step is:-ValuableCapableAvailableFlexible
and Adequate
Combine steps where you can
to flow
Demand signals direct from the
customer’s point of use
No createddemand
amplification
Levelled and released in
small quantities
Lean Enterprise Academy www.leanuk.org18
A Lean Factory
• How responsive could a factory be?• Guideline – less than 1 hour value creating time
should be completed within 1 day• By creating flow through your plant linking:
• Capable steps (6 Sigma)• Available equipment (TPM)• Adequate capacity (right sized equipment)• Flexible operations (Every Product Every Cycle)
• By eliminating short term plan changes by levelling the workload and moving to replenishment pull wherever possible
Lean Enterprise Academy www.leanuk.org19
Where and How to Flow?
Sequential PullSKUs Volume
Replenishment Pull
Lean Enterprise Academy www.leanuk.org20
Current State
44d55m
738
Steps
Time
Steel
DELTA STEEL
Stamping
GAMMA STAMPING
Warehouse Cross Dock
Wipers
BETA WIPERS
Assembly
Dist. Centre
Cross Dock
ALPHA MOTORS
Amplification
F E D C B A
%
40
30
20
10
0
F E D C B A
Quality & Deliveryppm
2000
1500
1000
500
0
F E C A
%
10
5
0
AssemblyWipersStamping
SteelDist. Centre
16d55m
398
Steps
Time
Amplification
F E D C B A
%
40
30
20
10
0
Quality & Deliveryppm
2000
1500
1000
500
0
F E C A
%
10
5
0
F E D C B A
DELTA STEEL
GAMMA STAMPING BETA WIPERS ALPHA MOTORS
Future State 2Flow and Pull between Plants
Time Time reduced reduced
from 44 to from 44 to 24 days24 days
Ideal StateValue Stream Compression
Dist. Centre
3d55m
308
Steps
Time
Amplification
F E D C B A
%
40
30
20
10
0
Quality & Deliveryppm
2000
1500
1000
500
0
F E C A
%
10
5
0
F E D C B A
Steel
EPSILON STEEL
Assembly
ALPHA MOTORSSUPPLIER PARK
WiperCell
StampingCell
Time reduced Time reduced from 24 to 3 from 24 to 3
daysdays
Across the Value Stream
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The Logic of Location
• Value stream compression eliminates storage at the plant, at the container port, customs delays, storage in DC, entire cost of the store, overstocks, lost sales, remaindering – touch labour a tiny fraction of costs
• Make customised products close to customers and make standard products within the region of sale – using trucks – not boats that always lead to planes
• No one has an adequate cost of location model across functions to make these decisions
Lean Enterprise Academy www.leanuk.org24
Where to Produce What
• Calculate “factory gate” costs at different locations • Germany, Romania and China?
• Calculate freight costs to supply the factory and to reach all your customers • Including all the expedited shipments!
• Add in all the overhead costs of:• Management and engineering time and travel• Quality (warranty costs etc.)• Extra inventories, lost sales, out-of-stocks, write-offs, etc.• Currency and country risks
Then decide what to make where – which might also change over the product life cycle
Lean Enterprise Academy www.leanuk.org25
Challenges for Poland
• Your advantage is being part of a growing market in Central Europe
• And being within trucking distance of Western Europe
• Companies here need to cooperate to reshape logistics systems, to consolidate loads and deliver to customers every day
• Little and often through cross docking operations works better than big batches
Lean Enterprise Academy www.leanuk.org26
Why Responsiveness Matters: Getting Products to Customers
Quickly
Daniel T JonesChairman
Lean Enterprise Academy
Lean Logistics Conference Wroclaw, Poland 21 February 2006