Author: David Dehne

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Where to Start Your Lean Journey

There’s one sure-fire way to tell when someone has lived in Minneapolis long enough to be called a Minnesotan. No, it doesn’t involve rooting for the Vikings, though that helps. It’s when they can find their way around The Mall of America without a directory.

Built in 1992, The Mall of America still ranks as the largest in the US with more than 500 stores, just about every kind of restaurant you can imagine, and last but not least, the 7-acre Nickelodeon theme park. For the visitor, the first stop is one of the many directories, whether it’s to figure out the shortest path to your goal or to make plans for how you will spend the next several hours.

Planning Your Lean Journey

Like visitors to the Mall of America, manufacturers looking to apply Lean principles start in the same place. Their “directory” is the 8 types of waste identified in Lean:
- Overproduction – Manufacturing more than is needed to fill customer orders.
- Waiting – Time spent waiting for the resources or materials needed to complete the next step.
- Inventory – Excess material and WIP.
- Transportation – Unnecessary movement of material through the facility/supply chain.
- Over-processing – Taking more processing steps than are necessary.
- Motion – Unnecessary movement of people.
- Defects – Defective materials, WIP and finished goods. Can also include defects caused by obsolescence or expiration of materials.
- Workforce – Failure to leverage the skills, talent and knowledge of your workforce.
Electronic kanban (eKanban) are an easy way to tackle every one of these categories of waste. Here are a couple of recently published resources that can help you get started:

How SyncKanban Addresses the 8 Types of Waste in Lean

SyncKanban Gets Lean on Scrap

Measuring Your Progress

Shoppers at the mall might measure their progress by checking items off their shopping list. Lean practitioners need to be a little more sophisticated. Each of these types of waste has at least one metric associated with it. While there isn’t always a clear 1:1 correlation, the chart below shows just some of the most common metrics impacted when improvements are made.

For more details on several of these metrics as well as additional metrics you may find useful on your Lean journey, refer to our online and downloadable Metrics for Action Guide.

Remember, you don’t need to measure every one of these metrics. Instead, determine which of them are most meaningful to your organization and focus your efforts. You’ll also want to be sure you choose metrics for which you have systems that can deliver good data. It makes no sense to try to go Lean, only to add a bunch of manual steps just to get the data you need.

If your ERP systems are holding you back because they aren’t giving you the data you need, we may be able to help. Almost all of our customers implement SyncManufacturing, synchronized production planning, scheduling and execution software on top of their ERP systems. To learn more, download The Changing Role of ERP in Manufacturing.

The Lean Journey Often Starts with Inventory

For many manufacturers, it makes sense to start by focusing on excess inventory. If you remember the rocks and water analogy from your Lean training, you’ll recall that many manufacturers use excess inventory to cover all matter of issues.

Here are a few case studies of manufacturers who leveraged SyncKanban to help reduce excess inventory:

Dynisco: In 12 months, this instrumentation manufacturer saved almost $1B during implementation by right-sizing their inventory with SyncKanban.

Orbital ATK: Aerospace & Defense manufacturer replaces 16 replenishment systems with SyncKanban to reduce inventory levels by 30% and scrap by 90%.

Eager to get started? Browse the extensive catalogue of resources on our website, request a demo, or reach out to us directly. We’d be happy to answer any questions you have and help you plan your journey to Lean.
April 2, 2018
Efficiency vs. Productivity: Metrics that Matter…Until They Don’t

Measure efficiency and productivity against your REAL goal

I keep seeing the word efficiency in the manufacturing media. For someone who is a Constraints Management person, this is the equivalent of saying “Ni” to the Knights Who Say Ni (Monty Python reference, okay?) or like scratching your fingernails across a blackboard. It is one of those words that I think we should remove from the English language.

When we look at the organizations of today, words like efficiency and productivity get thrown around with little understanding of what is required to improve one of these measurements (metrics). If I change to improve efficiency, what are the positive results, and what are the negative results? Also unknown is the outcome to the organization as a whole. Let’s discuss why an efficiency metric is usually not the right metric and what a Lean manufacturing expert does when measuring true value in the supply chain.

Cost vs. Throughput

Let’s start by looking at how people usually define productivity and efficiency in practice (from the TOC-ICO Dictionary). There’s a big difference between managing efficiency and productivity using traditional thinking and using Constraints Management thinking. If you are an Operations Manager, you “feel the heat” on these two competing deliverables every day.

Cost-world paradigm (page 35): The view that a system consists of a series of independent components, and the cost of the system is equal to the summation of the cost of all the sub-systems. This view focuses on reducing costs and judges actions and decisions by their local impact. Cost allocation is commonly used to quantify local impact.

Usage: In the cost-world paradigm, global impact is believed to be the sum of all local impacts.

Perspective: This paradigm is in conflict with the throughput-world paradigm, which claims that global improvement is NOT the sum of local improvement and that the use of cost allocation often results in incorrect decisions.

Throughput-world paradigm (page 123): The view that a system consists of a series of dependent variables that must work together to achieve the goal and whose ability to do so is limited by some system constraint. The unavoidable conclusion is that global improvement is the direct result of improvement at the constraint, and cost allocation is unnecessary and misleading. This paradigm conflicts with the cost-world paradigm.

Here’s how the terms efficiency and productivity set up a conflict for an Operations Manager:

Operations manager core conflict (page 86): The conflict is between judging the Operations Manager‘s performance according to the local impact of decisions and judging the manager‘s performance according to the global impact of the manager‘s actions. The operations manager is under constant pressure to reduce waste and the biggest waste in operations is viewed as idle time on a resource (person or equipment). In figure 1 below, the assumption on the B-D side is: A resource standing idle is a waste. Therefore, local efficiency is used to measure resources. The operations manager then looks for work (even if it‘s not needed now) to keep the resource busy. When work is increased on the shop floor, local efficiencies go up and top management is satisfied. BUT maximizing efficiencies results in increased work-in-process, which increases lead times and inhibits flow, thereby jeopardizing sales.

Figure 1 (Adapted from TOC-ICO Dictionary, Page 87)

Productivity vs. Efficiency

Sam Ashe-Edmunds of Demand Media explained this conundrum perfectly in his Small Business Chronicle blog post:

“Increased efficiency can hinder productivity and vice versa. In its simplest form, an explanation of productivity versus efficiency is the difference between quantity and quality. It’s not always possible to achieve 100 percent quality at maximum productivity levels. Finding the right combination of productivity and efficiency helps you optimize your output while minimizing losses.”

He goes on to say that “businesses often measure productivity by output during comparable time periods. For example, if you produce 1,000 units one week and 1,100 units the next, you are more productive the second week.” This example is a cost-world example. The demand is not factored into the evaluation of productivity. It is only productive if it turns into sales. Since most machines and processes are decoupled from actual demand, the Operations Manager builds to the plan provided by the ERP System, because they have nothing else to tell them otherwise. Unless they have been managing for some time, and they have built a level of intuition that is better than the formal system.

In this case, if the actual demand is 900, the Operations Manager would be thinking that they were doing GREAT! However, they are actually creating waste; as in one month they had 100 units of excess production, in the next month they had 200 units of excess production, or 300 units in excess inventory.

Since inventory is considered an asset on the company financial statements, the balance sheet looks good to the CFO, CEO and stockholders. However, an opportunity is lost during this scenario, especially if there are some other products that were not meeting their demand requirements. This is so important, but is not a traditional measurement that companies use. This “lost opportunity metric” is now something that Lean manufacturing experts try to keep at the top of the list.

In other cases, businesses measure productivity by comparing employees, locations or distribution methods. If Bob sells $10,000 worth of business during the month while Joe sells $9,000, Bob is more productive. If Bob sold $12,000 the month before, he’s still more productive than Joe this month, but less productive this month than he was last month. True, but this does not have any relationship between if the company is closer to the goal, or further from the goal. Something is missing.

The Efficiency Effect

Efficiency relates to the quality of your work, which might include creating output with less waste, using fewer resources or spending less money. If Bob sold $10,000 in May but spent $3,000 on travel expenses, while Joe sold $9,000 in May but did so over the phone, Joe is more efficient and creates a larger profit. This is a case in which increased efficiency justifies decreased productivity. True, but this does not have any relationship between if the company is closer to the goal, or further from the goal. Something is STILL missing. Many other unmeasured factors are not addressed, like if Bob is new to the company, and needs to build his clientele, or one of Bob’s customers is looking for help on a possible business expansion that requires input from Bob. Month-to-month measurements often hide some of the overall processes or factors not included in the number being measured. Maybe the next term will shed some new light?

Efficient Productivity

Some businesses measure productivity by including only quality output. For example, if a production plant produces 10,000 units in March and only 9,000 units in April, productivity in March is not necessarily higher. If the 10,000 units produced in March included 1,000 that were defective and couldn’t be sold and another 1,000 that came back for service, the productivity for the production plant in March is 8,000 units. If only 500 of April’s units were defective or returned, productivity in April is 8,500. Still true, but this does not have any relationship between if the company is closer to the goal, or further from the goal. These measurements have very little to do with how the company is really doing. They are only incomplete pieces, which are hidden from the people in the system who make the decisions –day-in and day-out. Only if the measure of input is related to the actual output will the measurements make logical sense. As long as part of the system measures in one way, and other areas measure in another way, these will create conflict and confusion.

Balancing Productivity with Efficiency

When you emphasize the quantity aspect of productivity, such as by paying bonuses on amounts produced or sold, you might encourage employees to be less careful. “If you tell me how you measure me, and you have a misleading measurement, what will you expect from me?”

This might not be a bad thing if your increased quality output outweighs the number of problems you have. For example, a production plant’s rush to increase output may increase defects and returns by 10 percent. However, working at that speed might allow the plant to increase quality units by 30 percent. When you put a premium on efficiency, and try to eliminate all problems, you might scare workers into slowing down enough to negate the incremental increase in quality you get with an exponential decrease in the quantity of work produced.

So, what should you measure when you’re deciding how productive your plant is and how efficient it can be? See Aligning Metrics to Strategy to read about how to get closer to your goals and next time, we’ll address metrics you can take immediate action on to improve performance.

March 26, 2018
Manufacturers Get Lean on Scrap with eKanban Software

Manufacturers Get Lean on Scrap with eKanban Software

The method of Lean Manufacturing is based on the relentless elimination of waste in manufacturing and ongoing continuous process improvement. For many, material scrap is an expensive form of waste; costing more than the material itself. Consider that hiding behind every dollar of scrapped inventory are several more dollars lost in storage, productivity, customer satisfaction and potential revenue…MORE

March 21, 2018
It’s Time: Manufacturers Need to Cut Ties with MRP and Spreadsheets

A few years ago, Aberdeen Group did a study that showed that 63% of “best in class” manufacturers still used spreadsheets for planning. With percentages this high, it’s probably safe to say that there is a lack of trust in planning tools like ERP and MRP even in the best-run companies.

Of course, spreadsheets come with their own set of issues. You may have a certain amount of confidence in the spreadsheets you’ve created, but what about those from your colleagues? Do you know what formulas they use to arrive at their conclusions? Where did they get their data? If the creator of the spreadsheet goes on vacation or worse – leaves the company – how quickly could a new planner take over their role using the existing planning tools and methodologies?

Spreadsheets also contain computational and data errors. Forbes published an article quoting “various studies” that put the rate of significant errors at 88%. Though no specific studies were named, you probably don’t need that extra level of validation. You know the spreadsheets you use have errors in them. Otherwise, why would you still be having such a hard time synchronizing inventory and production to demand?

The Problem Lies in the Basis of the Plan

Actually, spreadsheets are pretty powerful tools, even with the occasional error that creeps in. Likewise, MRP and ERP usually do exactly what they are supposed to do. They create time-phased material requirements and production plans based on the parameters entered into the system: forecasts, reorder points, capacity and so on. The calculations are so basic that even the most rudimentary software applications get them right.

The problem lies in the basis for the plans themselves. At the root of all production and material requirements plans lies the forecast, often generated by the sales or marketing department. Even when calculations are based on an analysis of historical data, it’s still a forecast. And, as we are all painfully aware, there is no such thing as an “accurate forecast.”

Not trusting what they’ve been handed, inventory and production planners use spreadsheets to massage the forecast data before it is entered into the system. Some of these comments might sound familiar:

“We always see a bump in demand for these items in June, so we need to increase production now.”

“I know sales has a quota on this new product, but I think they’re being overly optimistic. If we cut the requirements by about 10%, we can deal with it later if they actually manage to reach their quota.”

“I read in the news that there may be shortages of this material. Let’s order extra now so we can stay ahead of the problem.”

At the end of the day, the forecast is still a forecast, even with the wisdom of inventory and production planners added in. Unfortunately, the new forecast may not represent reality any better than the original forecast received from sales, and ERP and MRP have no choice but to translate those erroneous assumptions into equally flawed material requirements and production plans. In turn, these flawed plans translate into all sorts of issues: expediting orders, late nights, increased overtime, missed deadlines, angry salespeople, angrier customers, inflated inventory levels, blown budgets, tense meetings in the executive conference room and bland food diets to prevent your indigestion from turning into a full-blown ulcer.

Grounding Planning in Reality

Since there is no such thing as a crystal ball that shows future demand, manufacturers who want to break free from this vicious cycle need to replace forecast-based planning with reality-based planning. In short, ditch ERP, MRP and spreadsheets (at least for replenishment and production planning) once and for all.

The only way to do that is to synchronize production and material requirements to actual demand and supply as well as what is happening on the factory floor. It’s called Demand-Driven Manufacturing, and here’s a quick definition:

Demand–Driven Manufacturing is a method of manufacturing where production is based on actual customer orders (demand) rather than a forecast. This process is accelerated by technology that automates, digitizes data and connects every function within the demand-driven organization and to every layer of the supply chain.

We created an entire platform called the Synchrono® Demand-Driven Manufacturing Platform that sits on top of your current ERP system and synchronizes all elements of production to demand and supply. There is no need to rip out your current ERP or MRP applications; our tools use actual customer demand, supply status and the reality of the factory floor to synchronize production. The methods used, such as eKanban, Lean Six Sigma, Theory of Constraints, are no doubt familiar to you.

If this is the first time you’ve taken a close look at Demand-Driven Manufacturing, we have several resources which can help you build a solid foundation for discussions with others in your organization:

White paper: The Next Generation of Planning and Scheduling Solutions

White paper: How Technology Will Connect Your Enterprise and Create the Demand-Driven Manufacturing Factory of the Future – Today

White paper: Why Become More Demand-Driven? Responding to Customer Needs

We also produce a YouTube channel where you can access several educational podcasts and videos that explain some of these concepts in more depth.

As always, if you have questions, please add them in the comments below, or reach out to us directly. We would love to hear from you!

March 19, 2018
Manufacturing Metrics that Actually Matter (The Ones We Rely On)

Part one of a multi-part series to help you measure your production efforts wisely

LNS Research blogger Mark Davidson said, “When it comes to metrics, it’s often said that what gets measured gets done.”

I have found this to be true when working with many different manufacturers. Mark also writes: “Metrics that have the attention of business and manufacturing leaders tend to be those that get measured and improved upon by their employee teams.”

I agree– measurements do drive behavior. But are employees being rewarded for metrics that do not in turn reward demand-driven flow and the customer signal (both real and imagined)?

In this set of blog posts, I want to discuss the different kinds of metrics we’re obsessed with as supply chain leaders and why the modern lean, demand-driven production manager needs to adjust or abolish some “old school” metrics altogether. But before we get into specifics, let me set up some of the environmental factors that have contributed to the current climate of “KPIs above all.”

The People’s KPIs?

Over the years, there has been a lot more attention placed upon measurements. Key Performance Indicators (KPIs) are meant to clarify how we measure what we measure and provide an underpinning for people in production to see how well they are working toward their goals.

However, the amount of responsibility and work content for most workers has grown at the same time, and left these workers with little ability to truly affect the measurements that are prevalent in today’s manufacturing environment. This erodes their ability to continue to complete the tasks that are being measured.

Even when there is a specific measurement that makes sense for the supply chain, it may not be within the individual’s ability to affect all of the measurements that they are responsible for during production. There may be contradicting measurements, and there may be cases where during one part of the month the measurement is religiously followed, while during other parts of the month, they are breaking the rules because some other measurement has become a crisis.

Count the cost

In the last 20 years, the emphasis on reducing cost has also had a profound effect on the ability of workers, supervisors and managers to focus on results. I have seen countless improvement projects implemented. In the more aggressive organizations, I have seen leaders make budgetary and staffing cuts based on the cost/benefit analysis of a project. Perhaps this isn’t so bad, but at the same time, I see little or no verification of the results and actual performance. This state of affairs has us trying to do more work with fewer people, under increased pressure with fewer results.

Metrics for Action

In the next few posts, I would like to break down the operational metrics you’ll need to empower your workforce to get results—not to just behave according to flavor-of-the-month measurements. These Metrics for Action are not intended for overall business analysis. Instead, the intent here is to cut through the clutter of the all too often, and all too many, contradicting measurements and focus on the metrics that are going to provide insight to drive action. Action to improve flow, manage constraints, direct continuous improvement efforts and more. The goal is to provide real clarity around the elements that drive organizational excellence and enhance demand-driven results.

Before we begin, here’s why we should

Assuming is the worst: Most measurements used in manufacturing are derivatives of some other objective or assumption about the nature of manufacturing. These assumptions seemed important at the time because manufacturing software and information systems didn’t support a direct link between performance and measurement. They were very important “back in the day” because they provided a framework for decision-making in a time when there were few data elements to support the decision process. This was way better than the alternative of no decisions!

Put your money where your metrics are: If you trace these measurements to cash flow, you will find some interesting conflicts. In the past, having all the relevant data for making decisions created a great deal of measurements that act as a surrogate to actual performance. These types of measurements have been around for a long time. They have become so common that they are not even considered as obsolete, but as “the way we conduct business.”

Even with today’s incredible ability to collect and contextualize data, these seemingly monolithic measurements are still being used. To test if your Manufacturing KPIs are obsolete, check to see how the measurements can be tied back into cash flow. If there is no direct link to cash in, cash out, inventory or operating expense, then your measurement may be an assumed measurement.

Customer Centric If there is no data in your company’s systems measuring what your customers are actually buying directly, then you’re working with a derivative measurement. Derivative measurements were used to simplify the planning process because the units purchased by the customer were hard to track or hard to translate into workflow. Today, synchronized, demand-driven systems can capture your customer order information across the entire production process—from order to supplier to inventory to shipment. You have all of the data points you need—but you may be still tracking derivative side-effects rather than meaningful metrics from force of habit.

The unfortunate reality is that most manufacturing measurements are the results of learned behavior, hidden behind several layers of assumptions that are obsolete or counterproductive in today’s manufacturing company. Stay with me through our metrics journey to see how you can laser-in on the metrics that really matter—to you, and to your customers.

Resources for more information:

White paper: Demand-Driven Manufacturing Metrics that Drive Action

March 12, 2018
The Future of the Organization is On Your Shoulders

Imagine this: You’re in a high-level planning meeting with senior leadership, when the CEO and CFO issue a clear mandate: Get inventory levels under control. The VP of Sales, never being one to hold back an opinion, steps in to argue that the organization needs to become more competitive if it’s to survive. Right now, your promised lead times are the longest in the industry – even longer considering how often your promised delivery dates are not met. Lowering inventory levels will only make things worse!

The VP of Sales claims that, if service levels don’t improve, sales’ only recourse is going to be to offer deeper discounts even though margins are already paper thin. The CFO and the CEO declare, in no uncertain terms, that playing the pricing game is not an option.

The meeting ended with everyone looking at you, clearly expecting you to come up with a way to lower inventory levels, decrease lead times and improve on-time deliveries. Basically, the future of the organization is riding on your shoulders. No problem, right?

Right!

eKanban Saves the Day

Since senior leadership expects you to be Batman or Wonder Woman, it’s a good thing you’ve got a utility belt called Demand-Driven Manufacturing. On this belt are a number of utilities that can help manufacturers achieve what may seem like impossible (and conflicting) goals.

In today’s post, I want to focus on one of the easiest utilities to master: eKanban. Since eKanban also targets one of manufacturing’s biggest issues (excess inventory), this is where many manufacturing superheroes begin. (There are some other rather nifty tools on this utility belt, like constraints management, but it makes sense for a lot of manufacturing managers to tackle improvements in stages.)

As most manufacturers already know, Kanban is the visual inventory replenishment system that is fundamental to pull (demand-driven) manufacturing. When production is pulled through the factory based on actual orders, inventory levels go down because no more than is needed is produced.

eKanban is a more powerful version of Kanban as the visual signals are electronic instead of physical cards. Electronic signals can be sent upstream faster, and there are no cards to lose. It’s also easier to learn to use an eKanban system because there are typically fewer steps involved. One manufacturer we worked with reduced the number of steps in their replenishment process from 66 down to 6 by replacing their manual Kanban system with SyncKanban eKanban software from Synchrono^®.

SyncKanban further magnifies the benefit of eKanban by making the system even more responsive to actual demand. Whereas many eKanban systems still require the operator to set the number of Kanban signals in the system, SyncKanban automatically recalculates the optimal number of signals based on actual demand. If there are more orders than anticipated, the number of eKanban signals in the system goes up in real-time. If there are fewer orders, the number of eKanban signals goes down, ensuring no more is produced than is necessary to fill orders.

eKanban: Your Multi-Purpose Utility

While you’re delivering a big Kapow! to excess inventory, don’t be afraid to tackle other key performance metrics at the same time. eKanban can also help here because eKanban signals pull production through the facility based on actual orders. When work center C needs more of a subassembly built at work center B, a signal is sent for replenishment to workstation B. With work at every work center focused on only what is needed, queue times decrease and flow increases. On time deliveries often increase as well with SyncKanban because of the application’s ability to match flow to demand in real time.

One manufacturer was able to reduce inventory by 55% while also reducing leads times from 12 weeks to 2. Read the full story. Another manufacturer’s implementation of SyncKanban landed them on Supply and Demand Chain Executive’s 2017 list of 100 great supply chain projects. Learn more.

Be a Superhero in a Hurry

Clark Kent changed into Superman with a quick hop into a phone booth. If only it were that easy! Not only are phone booths in short supply these days, production management is a bit more complicated than donning a red and blue onesie and a cape.

Nevertheless, SyncKanban eKanban software is one of the easiest tools to implement, and many of our customers start seeing the positive impact of eKanban on inventory levels in less than 90 days. eKanban doesn’t even require the manufacturer to replace their ERP system. You can learn more about this in our paper The Changing Role of ERP in Manufacturing.

We have a ton of material about implementing eKanban on our website. One of the most popular is the white paper series on eKanban that starts with Gaining Control: Exploring Push v Pull. If you’re already convinced eKanban is the right tool to use and it’s just a matter of how to get started, you’ll enjoy the series of guests posts from one of our customers that starts with Real-World Advice for Getting Started on eKanban. You can also watch a demo of SyncKanban or request a free trial version on our website so you can explore the tool first hand.

March 5, 2018

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