It's URGENT!!!!.....Its very URGENT!!!.......It's most URGENT!!!
These are typical phrases that float in shop-floor. I am amazed at priority setting - priority over a priority. I am unable to differentiate between urgent and very urgent. In any case, need is immediate. Any delay will lead to late delivery. However, this clearly demonstrates chaos that is prevalent on a shop floor. This is generated due to faulty functioning in both operations and sales. However none of members from these functions will agree to the faulty functioning. For them it's the way business done.
I want a sales/operations guy to ask to his customer, what is delivery/due date performance(DDP) of company. The obvious argument is why to bother a customer, we know it is around 90%. My assessment of DDP is on the basis of first committed date of delivery and not on the last negotiated delivery date. That is why I am asking to ask from customer, who will always surface out the problem of negotiating/extending delivery dates.
Now I want marketing/operations team to take sales data of last one year or more, and analyze %age of total SKUs/items accounting for around 80% sales by volume. It will always be around 20% of total SKUs/items produced during that period. This is nothing but famous Pareto principle. The variation in both the %ages might be in range of 10% (30% of total SKUs might be accounting for 70%of sales volume) but not more than that. Let us call these 20% SKUs that account for 80% of sales, as fast moving items.
At last, I want sales/operations team to visit their finished goods repository and analyze the inventory lying there. Logically if 20% of total SKUs (fast moving items) account for 80%of sales, then 80% of finished goods inventory should be of fast moving items. However, this will never be the case. In all of the cases (exceptions discounted), 80% of finished goods inventory will be of slow moving items.
Theory of Constraints(TOC), understands these problems but with a different paradigm. There two main reasons for above mentioned problems.
One reason is coupling effect between operations and distribution channel. Typically companies work on forecast of orders. Even if orders are firm; when a order is booked, it is sent to planning/operations department. The planning/operations department then collates all sales orders and schedules production orders, while optimizing capacity available simultaneously. Any abrupt change in real-time demand, order or order quantity creates ripples that disturbs the entire production process. Some productions orders are held in mid of process, some jump the Que, and some wait for parts to come. When such a situation happens on shop floor, everything turns out to be URGENT on some day or the other.
Theory of Constraints(TOC), suggests to create a buffer between operations and distribution that can take care of these ripples/variation. The buffer decouples the operations from distribution channel. If fast moving items account for around 80% of sales, we can create a buffer in form of finished goods inventory (based on calculation - Maximum consumption within given replenishment time, taking into account unreliability of supply) for each of fast moving items at Plant Warehouse.
Once buffer is put in place, there is no forecast based order for such items. Any dispatch of material from buffer, will trigger a production order. These production orders will not be batched or jump the que. They will follow a simple priority based on buffer management. We divide the buffer in three parts and assign them color to denote buffer penetration - Red (when finished goods inventory is less than 1/3 of buffer level), Yellow (when finished goods inventory is between 2/3 and 1/3 of buffer level) and Green (when finished goods inventory is greater than 2/3 of buffer level) . The production order (for fast moving items) on the shop floor is assigned a color that correspond to buffer penetration at Plant Warehouse. This entire system of functioning is known as Made to Availability (MTA) in parlance of TOC. At any given point in time, Red orders will be highest on priority and green orders will be lowest on priority. Everyone on the shop floor follows this principle and works Red order first.
The other reason of chos on shop-floor is due to tendency to release as many MTO orders (Made to Order: Production to happen only when firm order is received by customer) on shop floor, as possible. The slow moving items have to be produced only after receipt of firm order; however we need not release them on the shop floor as soon as we receive them. We need to set a priority system for such orders. We take existing lead time of MTO orders (from time sales orders enters the system to time it is dispached) and cut it by half. This is the buffer for MTO orders. We do not assign separate buffers for each SKU. We can assign different buffers to different class of SKUs and if difference between the buffers is 2-3 days, we assign a common buffer. The time of release of production order for MTO orders is decided as Delivery Date - Buffer. The order is not released on shop floor before the derived release date. The is known as Choke the Release in TOC parlance. To put priority system, we divide buffer in three parts and assign them color to denote buffer penetration - Red (when difference between delivery date and actual date is less than 1/3 of buffer), Yellow (when difference between delivery date and actual date is between 1/3 and 2/3 of buffer) and Green (when difference between delivery date and actual date is greater than 2/3 of buffer). The MTO production order on the shop floor is assigned a color that correspond to buffer penetration. At any given point in time, Red orders will be highest on priority and green orders will be lowest on priority. Everyone on the shop floor follows this principle and works Red order first.
If you follow above steps, I assure you that you will be able to insulate your shop-floor from market ripples.
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