A Vertically Integrated Supply Chain Case · 2018-04-14 · the internal supply chain to include engineering and product development as well as operations and inventory management

TOCICO 2009 Conference

A Vertically Integrated Supply A Vertically Integrated Supply Chain Case

Presented By: Debra Smith Partner ConstraintsPresented By: Debra Smith Partner Constraints

1© 2009 TOCICO. All rights reserved.

Presented By: Debra Smith, Partner Constraints Presented By: Debra Smith, Partner Constraints Management GroupManagement GroupDate:Date: June 2009June 2009



Rowan Companies Inc.Rowan Companies Inc.TOCICO 2009 Conference

• Rowan - Parent Company Since 1994− Drilling Company

− Offshore and Land Rigs

− Corporate Offices in Downtown Houstonp

− Publically Traded Company on NYSE

− New President and CEO - W. Matt Ralls


LeTourneau Technologies Inc.LeTourneau Technologies Inc.Manufacturing FacilitiesManufacturing Facilities


• Longview, TX – Steel, Mining and Offshore ComponentsComponents


Steel ProductsTOCICO 2009 Conference

• Longview, TX

• Flexible and Responsive “mini-mill”

• Ability to Heat Treat Plate

• ISO Certified


All contents © 2008 LTI

Mining ProductsTOCICO 2009 Conference

• Longview, TX Plus Global Distribution

• L/D950; L1150; L1350; L1850; L2350

• World’s Only Electric Drive Loader

• World’s Largest Loader (L2350)





• Houston, TX – Drilling ProductsProducts


Drilling ProductsTOCICO 2009 Conference

• Houston TXHouston, TX

• Drilling Packages For Land And Offshore Rigs

Mudpump Top Drive Drawworks



LeTourneau Technologies Inc.LeTourneau Technologies Inc.Manufacturing Facilities.Manufacturing Facilities.


• Vicksburg, MS – Rig Construction


Offshore ProductsTOCICO 2009 Conference

• Longview, TX and Vicksburg, MSg , g,

• A fifty-year history of innovation in jack-up rig design, manufacturing, and fabrication.

• Turnkey jack-up rigs− Design

− Fabrication

S i− Service

− Parts





• Troutdale, OR – Forestry and Intermodal


Forestry/Intermodal Products


P tl d OR• Portland, OR

• Parts Supply From Longview and China

Log Stacker Wheel Changer Column Crane





• Dalian, China – Mining Products Assembly


LeTourneau Technologies Inc.LeTourneau Technologies Inc.Dealer NetworkDealer Network


• Operate on Six ContinentsOperate on Six Continents

• LTI-Owned Dealers

− America (Troutdale, Tucson, Gillette, Farmington, Elko)

− Australia

− Brazil

− Canada (Forestry Only)

− China

D b i (D illi S t O l )− Dubai (Drilling Systems Only)

− Singapore (Drilling Systems Only)

− Lafayette (Drilling Systems Only)


Lafayette (Drilling Systems Only)

• Partner With Other Dealers to Establish a Global Presence

Highly Integrated Internal Supply

TOCICO 2009 ConferenceInternal Supply

• Steel Plate

• Forgings

• Fabrication

• Machining

• Heat Treateat eat

• Gearing

• Electric Motors & Generators• Electric Motors & Generators

• Digital Control Systems

Final Machine Assembl



• Final Machine Assembly

Profitable Revenue GrowthTOCICO 2009 Conference

1,300 24

1,100

,

204 years - 5X Growth 6X RACE

700

900

ue, $

M

12

16

CE

, %We began August 2004

300

500

Rev

en

8

12

RA

CAugust 2004

100

300

4


-100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009B 0

External Intercompany RACE

Complex Supply ChainTOCICO 2009 Conference

FPC

C=Customer

DS

FP

C= Remote Location

CDS

SP CS-L/H MP C

COP

C


Very Complex EnvironmentTOCICO 2009 Conference

Longview Only

• BOM records 600,000

P t b 165 000• Part numbers 165,000

• Manufacturing orders per year 60,000

• Operations per year 290,000

• Number of drawings 500,000

• Demanding and complex technology applications

• International shipments to six continents


• Numerous regulatory agencies worldwide

Results from 8/04 LTI Exec Work Session


STo Be Model Statement:

“We need a Simple, Single, Synchronized Signal across all market segments to increase visibilityacross all market segments to increase visibility, velocity and flow.”

With that said where do we start? or how do you eat an elephant?

We started with what we had learned from our earlier work with vertically integrated supply chains


Supply Chain Lessons Learned ReviewTOCICO 2009 Conference

TOCICO CONFERENCE 2005

How to Systematically Tackle a Supply Chain

“Lessons Learned the Along the Way”


Synopsis of What We Learned

TOCICO 2009 ConferenceLearned

• There is always a market cycle change coming. Sometimes you trigger it and sometimes it just catches you but the change is comingcatches you but the change is coming.

• Until you have operated and managed your TOC System through: − an internal constraint− an external constraint due to an industry downturn − an external constraint due to an economic downturnan external constraint due to an economic downturn

You are at risk. If you do not address the possibility and prepare a plan of action you will get caught and the cycles will teach you a hard but necessary lesson.

• Agreement on the strategic objective of the company assets:Why did we invest in them and what is their strategic objective and their relationship to eachWhy did we invest in them and what is their strategic objective and their relationship to each other?

− Define the supply chain.− Identify the truly scarce resource and or the most variable resource.

• Agree on the criteria for allocation decisions and who is responsible for the allocation of the g pscarce resource input.

• Our experience shows that getting control of the input source of variation and conflict causes immediate benefits throughout the supply chain. Everyone experiences the WIN.

• Do it quick and you have a measurable success that creates tremendous momentum to carry you through the rest of the supply chain implementation


you through the rest of the supply chain implementation

Synopsis of What We LearnedTOCICO 2009 Conference

How and where project management fits in our market niche (manufacturing and distribution companies).

• We spent the next two years integrating project management back into our existing client base and interfacing the manufacturing and engineering drums.

• Define the “rules” for control point subordination between the links inDefine the rules for control point subordination between the links in the internal supply chain to include engineering and product development as well as operations and inventory management.

• Understand portfolio management from an internal supply chain perspective and how to allocate investment and resource decisionsperspective and how to allocate investment and resource decisions between the links and their markets using pricing indifference modeling


LTI Implementation TimelineTOCICO 2009 Conference

2005 2006 2007

DBR (w/tech) SP

DBR (manual) and ASR CS-L DBR (w/tech) and ASR OP-VDBR (manual) and ASR CS L

CCPM OP

DBR (w/tech) and ASR OP V

2008 2009 2010

Lean CS-HDBR (w/tech) CS-L (881/884)

DBR (w/tech) CS-L (ALL)

Lean CS-L


DBR (w/tech) CS-H

“To Be” Model FlowTOCICO 2009 Conference

FPC

= Time Buffer

C=Customer

= Strategic Replenishment Buffers

DP

FP

C= Remote Location

CDPThe supply

chain drum

SP CS MP C

COP

C

S li


Suppliers

CCPM

October 2004 Begin – Steel Products

TOCICO 2009 ConferenceProducts

FPC

= Time Buffer

C=Customer

= ASR Buffer

DP

FP

C= Remote Location

CDPStrategic asset and

Major sourceOf variation

SP CS MP C

COP

C

S li


Suppliers

CCPM

Reducing the lead time at SG dramatically changes the sizing of the buffers at CS, MP, FP, DS & OP


A strategic buffer size is a function of both supply and demand.

g , , ,

MG

“Maximum” AggregatedExpected...

Shrink the time to reliably replenish &

The required inventoryto support the system

shrinks also

FP

CSDemandOrder Frequency Cycle

shrinks also

Order Frequency Cycle

SP

CSDP

12 – 14 weeks

SP In January ‘05 6 weeks

Today SP4.5 weeks

OP“Maximum” Timeto Reliably Replenish

&Frequency of Replenishment Steel Plate

B ff L l

“Maximum” Timeto Reliably Replenish

&Frequency of Replenishment


q y pBuffer Level

q y p

January 2005 – Component Supply and Mining Products


FPC

= Time Buffer

C=Customer

= ASR Buffer

DP

FP

C= Remote Location

January 2005Component Supply

and Mining Products

CDP

Implement strategic replenishment

SP CS MP C

ep e s e t

22 weeks

COP

C

S li

8 week


Suppliers

CCPM

August 2005 Offshore Products CCPMTOCICO 2009 Conference

FPC

= Time Buffer

C=Customer

= ASR Buffer

DS

FP

C= Remote Location

CDS August 2005

Offshore Products

SP CS MP C

COP

C

S li


Suppliers

CCPM

CCPM, DBR & Replenishment Solution for Offshore Products Supply Chain – Current Design


Leg Fabrication

Rig Kit

Sales

Structural Pipe

Fabrication= Project Time Buffer

St t i R l i h t B ff

Pipe Line

Electrical

Rig Kit

Sales

= Strategic Replenishment Buffer

= Drum Time Buffer

Sabine Pass (Final Assy)

Rowan and

Outside

Sales

VB Barge Assy

(Yard)

Sub-Fab

(Slab)Panel Fab

Panel Line

Assembly

Small Parts Fabrication

Purchasing

Production Control

Production Engineering

(VB)

Design Engineering

(LV) Assy) Sales(Yard)

Small Pipe Parts

FabricationSteel Plate Sale

s

Cutting Department

SP Manfactu

ring

Rig Kit

Sales 2 l i d ti h i


CS Manfactu

ring

Equip

Sales

s 2 year planning and execution horizon

H240C Program Project NetworkTOCICO 2009 ConferenceEGen Control Room

FabricationEGen Control Room

OutfittingEGen Control Room

VB Engineering

QuartersPre-outfitting Level

01


02

Quarters VBEngineering Level 01


Quarters OutfittingLevel 01


Yard SlabVB engineering

Heliport Fabrication

Heliport Piping LVEngineering

Heliport VBEngineering

Heliport LVQuarters Fabrication

Quarters LVEngineering


04

Quarters StructuralVB Engineering



Shake HouseFabrication

Shaker House LVEngineering

Shaker House VBEngineering

Shaker House PipingLV Engineering


03



Design engineering

Walk rig into riverWeld and Paintbottom hull

Ship rig for downriver operations

Secure cranes fordown river operations

Heliport Outfitting

Heliport LVEngineering

Hull Fabrication

Hull LV Engineering Hull VB Engineering

Leg FabricationHull Main Deck

Structural OutfittingVB Engineering

Hull Main DeckStructural Outfitting

LV Engineering

Misc Drawings LVEngineering

Port Aft CraneFabrication

Port Aft CraneOutfitting

Port Fwd CraneFabrication

Port Fwd CraneOutfitting

Shaker HouseOutfitting

Spud Can Legs VBEngineering

Starboard CraneFabrication

Starboard CraneOutfitting

Ship leg sections 5-13to Sabine Pass

Downriver fabricatinand ooutfittingbottom hull river operations

Receive Coast GuardandABS certificates

Ship constructionequipment,material and

tools to sabine pass

Drag Chain VBEngineering

Hull Electrical CableTray VB Engineering

Hull Machinery DeckOutfitting VBEngineering

Innerbottom PipingVB Engineering

Leg Piping LVEngineering

Hull Machinery DeckPiping VB

Engineering

Hull Machinery DeckPipingLV

Engineering Ptank Fabrication

Spud Can BowFabrication

Spud Can StarboardFabrication

Spud Can VBEngineering SubstructureSubstructure VB

Top Deck Piping VBEngieering

Vents LVEngineering

Yoke BowFabrication

Yoke StarboardYoke LV Engineering Yoke VB Engineering

and ooutfitting

Cantilever BeamOutfitting

Drill Floor LVEngineering

Hull Electrical Aidsto Navigation VB

Engineering

Hull Electrical LargePower VB

Engineering

Hull Electrical SafetyVB Engineering

Safe House & DFWalls Fabrication

Safe House & DFWalls VB

Engineering

Spud Can PortFabrication

Sub-base FabricationSub-base VBEngineering

FabricationEngineering

Yoke PortFabrication

Fabricationg g g g

Hull Main DeckStructural Outfitting

Hull Machinery DeckOutfitting

83 projects


Cantilever BeamFabrication

Cantilever Beam LVEngineering

Cantilever Beam VBEngineering

Elevated Pipe RackFabrication

Elevated Pipe RackVB Engineering

Elevated Pipe RackDrain Piping LV

Engineering

Hull Electrical SmallPower VB

Engineering

VB Engineering

Hull ElectricalWelding Systems VB

Engineering

12000 nodes600 p2p connections

Continuous ImprovementSPL Audit Model TOCICO 2009 Conference

AdministrativeFunction

SPL FunctionAudit Model

SPL Audit Model

Feedback- Portfolio Status

report

Heads

Feedback- Portfolio status

report

Accountability

Audit Model

Phase 1(Discovery)

SMarketRecommendations

(Strategic)

Strategic:- Capacity management- Process improvement- Sourcing- Buffer management- Inventory analysis- Portfolio management

p

Phase 2(Level 1-3 TP)

SPL SegmentHeads

(Strategic)- Business case- Justification- Buy-in process

o t o o a age e t

Global dashboard- Concerto- R+- DBR+ Execution Phase I Yes

No

?

Audit findings

Phase 3(Level 4 TP)

Phase 4(Choke)

- XA (Tactical)- SPL sponsor assignment- Local PM identification- Resource impact analysis- Priority- Charter/Scope

Train/EducateFacilitateMonitor

Accountability

Phase 5(Active Execution)


Execution Phase II- Resource allocation- Planning and scheduling- Execution management- Buffer management

( )

The 5 Questions Format At A Global Dashboard Level Integrating All Buffer Systems


g g y

• Our measures were refined and focused around (5 question• Our measures were refined and focused around (5 question thinking) and strategic buffer planning and execution.

− What is the condition of the buffer?

− Are trends better or worse?

− If worse – what is the Buffer Recovery Plan?y

− Is the Buffer Recovery Plan effective?

− What will change to make sure WE do not get into this spotWhat will change to make sure WE do not get into this spot again?

• Used to focus our audit approach


December 2007 – Component Supply and Mining Products


FPC

= Time Buffer

December 2007

C=Customer

= ASR Buffer

DP

FP

C= Remote Location

December 2007 Recombine Total Supply Chain into

CS-LC

DP

SP CS MP C

COP

C

S liOP


Suppliers

CCPM

April 2008– Component Supply and Mining Products


FPC

= Time Buffer April 2008 Implement DBR

C=Customer

= ASR Buffer

DP

FP

C= Remote Location

Implement DBR (w/tech) in

881/884—Source of All Drive System

CDP Components

SP CS MP C

COP

C

S liOP


Suppliers

CCPM

What Happens When Variation Hits?


Market, Internal and external process variation, over reactions & under reactions all cause schedule instability.

R Drum

R3

881 / 884

R1

Drum

R3

PP/SC

LONGVIEW

R1

Drum

R3

PP/SC

LGV Fi l

1 m 3PP/SC

LONGVIEW LGV Final

IT GETS PASSED ALONG!

R1

Drum

R3

PP/SC

STEEL

AND we can’t recover-variation builds.

We must de-couple and buffer to


STEEL absorb variation.

Our Old SystemTOCICO 2009 Conference

Difficult is an understatement

We need to de-couple to break the

R1

Drum

R3

PP/SC

881 / 884We need to de-couple to break the variation.

R1

Drum

R3

PP/SC

LONGVIEW

R1

Drum

R3

PP/SC

LGV Final

C

The DBR buffers did not exist and our Replenishment buffers were constantly challenged

R1

Drum

R3

PP/SC

STEEL

REALITY: You are attempting to manage this entire chain of dependent events and their


dependent events and their VARIATION.

Establishing 881 & 884(DS) as the Longview Drum


DRUM for LONGVIEWA staging buffer at the rope

881 / 884DRUM for all of LTI

g g prelease gives the front ends their priorities The shipping buffer due

dates provides and synchronizes the backend

R1

Drum

R3

PP/SC

R1

Drum

R3

PP/SC

R1

Drum

R3

PP/SC

DRUM for all of LTI yschedule and priority dates

LONGVIEWC

LGV Final

This de-couples 881 / 884 from the

R1

Drum

R3

PP/SC

Decoupling with time buffers allows for Exploitation & Subordination across all

This de couples 881 / 884 from the variation that occurs in the rest of LGV


C

STEELExploitation & Subordination across all of Longview manufacturing!

Go Live 4/23/08 – 881/884 DBR+TOCICO 2009 Conference

16 000 hours of16,000 hours of backlog caught up in

10 weeks


Outcomes—881/884 ImplementationTOCICO 2009 Conference

• Visibility Enables Action Based On Buffer Status (M t i l Th h) f ll 1 illi f t(Material Through) for all 1 million square feet.

• 881/884 (Drive Systems) is no longer a bottleneck ( y ) gbut is now a control point drum directing actions and de-conflicting priorities.

• We met all of our market commitments and opportunities in 2008 without any increase in capital or laboror labor


January 2009– Component Supply and Mining Products


FPC

= Time BufferJanuary 2009

C=Customer

= ASR Buffer

DP

FP

C= Remote Location

January 2009 Implement upgrade to ASR compliant

technology for all of LTI

CDP LTI

SP CS MP C

COP

C

S liOP


Suppliers

CCPM

The Business Benefits of ASRTOCICO 2009 Conference

• Better Protect And Increase Flow with minimum i tinventory

• Create a Competitive Advantage

• Highly Improved On Time Delivery Performance

• “Right Size” Inventory

• Enable Better Execution allowing more flexibility g yto exploit your drums


ASR During Up-TurnTOCICO 2009 Conference

Our measures were refined and focused around (5 question thinking) and strategic buffer planning and executionstrategic buffer planning and execution.

− What is the condition of the buffer?

A t d b tt ?− Are trends better or worse?

− If worse – what is the Buffer Recovery Plan?

Is the Buffer Recovery Plan effective?

Process of on going

− Is the Buffer Recovery Plan effective?

− What will change to make sure WE do not get into this spot again?

improvement

• Improved availability of critical items

• Minimized the increase to inventory, expedite and overtime


• Steel Plate Replenishment Buffers decreased late deliveries

ASR During Up-TurnTOCICO 2009 Conference

Reports Are Designed To Alert Us To Trends

Planner Item Desc Code Jan Feb Mar

425 4109216 SPINDLE B04 0 6 3

5200 4109257 SHEAVE P05 0 0 0

MRP Alerts On Replenished

Parts Collected 5200 4109257 SHEAVE, P05 0 0 0

6300 4109259 BEARING C10 0 2 0

5500 4109676 RING BRU P04 0 0 0

6000 4109805 RETAINER D08 0 1 0

Parts Collected Daily and

Distributed WeeklyWeekly

Alert 2008

Planner Item Description Count Alert %Planner Item Description Count Alert %

6000 0021532 Nut Hx 1.0 1 2%

6000 0021534 Nut Hx 1.2 7 11%

6000 0021591 Bolt Hx 1. 61 92%

6000 0021641 Bolt Hx 3 5%

Spike Alert Warning History Collected Daily and Distributed Weekly


6000 0021641 Bolt Hx . 3 5%

6000 0021643 Bolt Hx . 51 77%

Quality Return Quality Return via Replenishment Fill Rates at LTI Longviewvia Replenishment Fill Rates at LTI Longview


80

100

60

80

Rat

e, %

20

40Fill

0Purchased Manufactured Steel Plate Total Target


2006 2007 2008 2009 1Q

ASR During Down-turnTOCICO 2009 Conference

• ASR Lead Time analyzer to review part selection across the BoMBoM

− Customer Tolerance Time− Replenished Lead Times

• Strategically reduce buffer sizes− Better inventory coverage with less investment

S f l d i t f th t− Safely reduce excess inventory from the up turn− Without compromising deliveries to the market.

• OutsourcingOutsourcing− Take advantage of open capacities in house− Bring long lead time parts back in to reduce lead time


− Carry less inventory− Meet customer tolerance times

The Objective Of In-SourcingTOCICO 2009 Conference

• Exploit our existing capacityExploit our existing capacity

• Capture the best cash flow

• RACE

Remember the only relevant information is what is ydifferent between the two alternatives in terms of cash flow.

− If one takes more set-up time but it is at a non-constraint then only the increase in inventory dollars necessary to cover the difference in total lead time is relevant in the cash flow analysis


analysis.

Longview PRT Blocking ConflictTOCICO 2009 Conference

E l it i t l it I llExploit internal capacity In-source all we can

Maximize ROI

Have the least cost product

Continue to outsource more to China


Information Necessary To Make Good Decisions Between Two Alternatives


• Total Cycle Time

• Key/Drum Resource Cycle Time

• Set Up Time Of Key/Drum Resource• Set Up Time Of Key/Drum Resource

• Minimum Batch External Order

• Minimum Batch For Internal Order

• Green Zone (Which Is The Minimum Batch Size For Any Replenished Item)


Replenished Parts With Outsourcing In The Part Routing


Days in ti dTotal days routing due

to outsourcing

Total days in routing


Part 526210 - by pulling in the 25 days and replacing it with 5 days internal reduces the inventory by 42 parts and a dollar value reduction of $12,000.

Potential NBRsTOCICO 2009 Conference

• There are vendors that are strategic for our future and we want to protect themand we want to protect them.

− Make clear rules we agree on as to why a vendor is strategic and designate certain vendors under those rules. P t t th d ith i f t th tProtect those vendors with some mix of parts that maximizes our objectives for cash, flow and OE reduction while protecting their “survival”.

• We will end up with numerous floating bottlenecks because we do not have a good scheduling tool.

− Use DBR technology for rough cut capacity planning toUse DBR technology for rough cut capacity planning to test the new batch sizes as we change them


LTILTI--Longview Inventory andLongview Inventory andOTD vs RevenueOTD vs Revenue


Replenishment has been successful but ASR is proving critical in the downturn

600

700

80

90

100

400

500

60

70

M$ %

200

300

30

40

50

100

200

10

20


0Dec '01 Dec '02 Dec '03 Dec '04 Dec '05 Dec '06 Dec '07 Dec '08

0

Longview Inv Longview OTD less LTI Steel Products Longview TR

ASR During Down-TurnTOCICO 2009 Conference

Charts Confirm We Are Taking The Corrective Action On Buffers Even Before The Inventory Follows:Buffers Even Before The Inventory Follows:

To-Stock Expected Costs to Actual - Warehouse 101

$80,000,000

$60,000,000

$70,000,000

$40,000,000

$50,000,000

$10 000 000

$20,000,000

$30,000,000


$10,000,000

Jun

Jul

Aug

Sep

Oct

Nov

Dec Ja

n

Feb

Mar

Apr

On Hand $ To-Stock Expected On Hand $ To-StockOn Order $ To-Stock Expected On Order $ To-Stock

Our Journey- OP LV and VB results updated


2010 2011 201220092008 2010 2011 201220092008

H241

H242

H243


Our Journey- OP LV and VB results


30% Project30% Projectcompression Mandated WIP

reduction Task completionrate didn’t decline

40% Resourcereduction (nocontractors)


QUESTIONS QUESTIONS TOCICO 2009 Conference


About [Presenter]About [Presenter]TOCICO 2009 Conference

Debra Smith, is a partner with , pConstraints Management Group, LLC.,An international partnership committed to assisting organizations achieve breakthrough results and sustainable, ongoing impro ements sing the Tho ghtongoing improvements using the Thought Process (TP) tools and application solutions offered through the Theory of Constraints (TOC0. Debra has extensive experience in public accounting financialexperience in public accounting financial management in Manufacturing companies, teaching at the University level and consulting in TOC.



TOCICO CONFERENCE 2005

How to Systematically Tackle a Supply Chain

“Lessons Learned the Along the Way”Presented By: Debra A Smith, Constraints Management Group, LLCPresented By: Debra A Smith, Constraints Management Group, LLC


Date: 11/16/2005Date: 11/16/2005

The First Opportunity - 1999TOCICO 2009 Conference

• A major manufacturer with a clear mandate from the top½ billi d ll i l ll• ½ billion dollars in sales revenue annually

• A single site of over 1 million square feet of manufacturing space • 2,000 employees• Global distribution with an exclusive, independent dealer base• Global supply chain (German engines, Italian forgings both long lead

time items)• Complex engineering (over 100,000 different parts, hydraulics, gears,

electronics and controls, circuit boards, steel structure, drive trains)• Horizontally integrated manufacturing – fabrication, machining,

bl l t i blassembly, electronics, assembly.• Complex engineering challenges and on-going new product

development and introduction.


What we did rightTOCICO 2009 Conference

• We identified the technology issues and created in-house software solutions that provided real time buffer management for execution, signals for managing all of the replenishment buffers and scheduling of all of the controlmanaging all of the replenishment buffers and scheduling of all of the control points between the links in the chain.

• Changed all of the accounting, reporting, floor measures and decision making reporting.

• Aligned the engineering control point to subordinate to the operations drum• Aligned the engineering control point to subordinate to the operations drum for scheduling engineering use of the tooling.

• Created a consolidated scheduling and replenishment inventory management function to coordinate scheduling the electronics plant, the drill pipe plant, fabrication and machining with the assembly and shipping schedules.

• De-segregated all resources human and machine capital as well as inventory and stock (after market sales of parts and service was a critical business factor with incredibly high throughput).

• Identified and changed the necessary vendor policies and got the key vendors to tour as well as sit through presentations on why the changes werevendors to tour as well as sit through presentations on why the changes were a win-win.

• Identified the key conflict clouds that created push to the dealer base and changed the marketing policies.Met with the top ten dealers and developed the new replenishment system


• Met with the top ten dealers and developed the new replenishment system and dropped the 90 day order policy horizon to 14 days.

ResultsTOCICO 2009 Conference

• Three months from setting the strategic direction of the company we went live across the board.p y

• The first month they shipped 40% more than their previously record breaking month – They shipped everything that was in their backlog.

• The second month they shipped everything their dealers ordered 98%OTD. The dealers had been ordering five hoping for three (the good old beer game).

• Lead time Reduction: 90 days to 2 – 10 days (productLead time Reduction: 90 days to 2 10 days (product dependent).

• Inventory reductions in excess of $36M in just plant inventory ($86M to $50M direct cash effect).

• Major capital Investment deferment (200,000 sq ft. facility).• In-sourcing of several million dollars worth of business (direct

cash effect) was achieved by the third month.


They thought we were incredibly successful but …..


• Service and aftermarket parts keep the dealer connected to the customer (the average piece of equipment will generate its selling price in parts and ser ice e er 3 to 4 ears)service every 3 to 4 years).

• In the past five year window the product line had expanded so rapidly that the dealers had not been able to afford to stock all of the aftermarket components and the equipment in their yard. This resulted in the birth of the “will fitter” industrythe “will fitter” industry.

• We were so intent on getting the new DBR, Replenishment, accounting and information decision making systems in place we did not prepare the executive team and the dealers for the changes necessary to create the future market opportunitiesfuture market opportunities.

• We did not predict the dealers behavior when the inventory was converted to cash. The average dealer got a 2 to 3 million dollar windfall when the lead time and order policy time went from 90 days to 10 days.

• Most dealers chose not to re-invest that money back into their dealership to shore up service and recover the aftermarket parts business.

• Four months later the market tanked (demand fell to half and returned to the level before the fiber optic cable infrastructure boom).


p )

What we learned at the timeTOCICO 2009 Conference

• No matter what the president says do not let ANY senior executive skip the initial strategic sessions, especially the p g , p ysales and/or marketing executive.

• The chance you can make it up is very low and you will always be on the defensive and playing catch up!

• There is always a market cycle change coming. Sometimes you trigger it and sometimes it just catches you but the change is coming.

• Until you have operated and managed your TOC System• Until you have operated and managed your TOC System through: − an internal constraint− an external constraint due to an industry downturnan external constraint due to an industry downturn − an external constraint due to an economic downturn

you are at risk. If you do not address the possibility and prepare a plan of action you will get caught and the cycles will


p epa e a p a o act o you get caug t a d t e cyc esteach you a hard but necessary lesson.

What we learned for the futureTOCICO 2009 Conference

• Predict the three previous scenarios with your executive team d i i k h h i l iand at a minimum make sure that the implementation strategy

will account for recognizing they are a possibility. • Additionally get agreement on the necessary immediate

responses to put in place Even if it is as simple asresponses to put in place. Even if it is as simple as recognizing the shift in constraint focus and changing the pre-requisite order of our intermediate objectives.

• We developed the TOC decision making “rules” to teach how• We developed the TOC decision making rules to teach how to down size and survive a severe market downturn while protecting the company’s constraint and ability to “gear back up” fast.

• Software is an integral and necessary part of the solution. As much as we disliked the idea, technology tools were becoming a necessary part of our solution set.


For the next two years we learned how to integrate project management


• We learned how and where project management fits in our market niche (manufacturing and distribution companies).market niche (manufacturing and distribution companies).

• We spent the next two years integrating project management back into our existing client base and interfacing the manufacturing and engineering drums.

• We began to define the “rules” for control point subordination between the links in the internal supply chain to include engineering and product development as well as operations and inventory management. y g

• We BEGAN to understand portfolio management from an internal supply chain perspective and how to allocate investment and resource decisions between the links and their marketstheir markets.

EXAMPLE


2001 The next major learning opportunityTOCICO 2009 Conference

• Vertically integrated $1B wood products supply chain. y g p pp y

• 850k acres of timberlands owned and managed, 5 plywood mills, 2 particle board plants, 1 dimensional lumber sawmill and 1 engineered wood products (truss) plant.g p ( ) p

• 2700 people.

• There is only one resource input for every plant and product group - the LOG. It’s “abuse” is the major source of variation and waste from the supply side.


We started with the premise “No key” player escapes

TOCICO 2009 Conferenceplayer escapes

• We did the strategic thinking session with a team from across the t i l l b l th ti t ff Th t d b ienterprise one level below the executive staff. They created a buy-in

presentation of less than an hour that summarized their strategic analysis.

• We checked the presentation with small groups of people from each p g p p parea of the company

• We then put each vice president in a room alone with the team to review the presentation and got their buy-in and comments in private and their agreement to say what they thought in a meeting with all ofand their agreement to say what they thought in a meeting with all of the vice presidents.

• We then put the vice presidents in a room together and got them to agree to stand united behind the work in a meeting with the president.

• We then put everyone in the room with the president and the team to present their work and gain agreement to implement the enterprise wide solution set and top down education.


• Until the meeting with the president no one could predict what the president/owner’s reaction would be to the first key agreement point.

The first key agreement pointTOCICO 2009 Conference

Agreement on the strategic objective of the company assets:

Why did we invest in them and what is their strategic objective and their relationship to each other?objective and their relationship to each other?

No one was sure or even agreed if the owner had forests to support his manufacturing investment orforests to support his manufacturing investment or had manufacturing investments to have as an alternative avenue to make the most money from forestsforests.


Ye Old “Local-Global” ConflictTOCICO 2009 Conference

Manage manufacturing facilities as a profit center

Manage timber and timberland

as a profit center

Maximize our

profit center.center.

ROI in manufacturing

facilities.

Maximize our ROI in timber.

Maximize Tree Co ROI


Co ROI

If the input links can sell internal and external WATCH OUT!


• You must solve this cloud first and the solution of this cloudYou must solve this cloud first and the solution of this cloud will always involve the elimination of transfer pricing and the allocation of corporate overhead between plants, business groups and product lines.

• A definition of the strategic contribution metric for every link in the supply chain.

H t t i i th i t li k t th d it d t’• How strategic is the input link to the end item product’s throughput? This will determine the direction for the solution.

• Only when we understand and get agreement on this can you l k i d id if h i d fl l ilook at capacity and identify the pacing and flow control points and the necessary buffers.


Wood Products Internal Supply Chain Throughput Points Decision Model


ReplenishSell as green veneer Replenish

Engineered Wood Product

Pricing indifference

models

4

Peel & sell as dry veneer

ReplenishDry Veneer BufferSell as dry veneer

Purchased

ReplenishPlywood mills

Pricing indifference

models

5

4Peel & sell as green veneer

Peel log

Don't peel log Hold in inventory

dry veneer

Purchasegreen veneer

23

Sawmill

Sell logYesNo

1

Sell log

Sawmill Pricing indifference

models

LogInve ntory

Excess Logs?ode s


FeeLogs

Purchased/Contract

Logs

The steps we followed:TOCICO 2009 Conference

• Define the supply chain.e e t e supp y c a

• Identify the truly scarce resource and or the most variable resource.


Creating a demand driven schedule through the supply chain


g y

• Everyone agreed the true scarce resource and the major f i i h h h l h isource of variation throughout the supply chain was not

having the right log. The variation introduced into all of the plants by not having the right log, at the right time was the source of the major disruption and variation throughout the j p grest of the supply chain.

• The competition for the “right” log was fierce and they had failed to define what the “right” log really was (bad unit cost measures and local productivity measures). They were competing for the “wrong” log while the “right” log was sold or rotted.Th l t t th i ht l b ill d t• The only way to guarantee the right log can be milled was to sort all of the logs in all of the log yards by end product characteristic of the veneers they would produce.


The magnitude of the dilemma:TOCICO 2009 Conference

They operated the largest plywood plant in the world and on any typical summer day 160 log trucks delivered logs to the y yp y g gyard.

All of the plywood and the veneer plants had log yards.Logs were not graded or sold by what they would produce forLogs were not graded or sold by what they would produce for

an end item but by total volume of wood they would produce.

6,000 end item skus all with their own veneer formula.6,000 end item skus all with their own veneer formula.We needed to understand what characteristics different logs

types could be predicted to deliver when they were milled and then pre-sort the logs by the characteristic of the log. p g y g

Everyone also agreed that without this part of the solution we would fail to get the results we wanted.

Why?


Why?

The net-effects of variation on supply chainsTOCICO 2009 Conference

90%90% 90%90% 90%90% 90%90%

66%66%

xx== xx xx

CompSupplier Dist. CustomerCustomer

X period of timeX period of time

AssemblyComp.MFG

xx ==xx xx

90%90% 90%90% 90%90% 90%90% 66%66%

Th B llTh B ll Whi Eff tWhi Eff tThe BullThe Bull--Whip EffectWhip EffectOn both the demand and supply side, it is clear that the system variation is On both the demand and supply side, it is clear that the system variation is significantly higher than the variation of any one of the parts. The more parts, the significantly higher than the variation of any one of the parts. The more parts, the worse the effect.worse the effect.NonNon--Linear Transference RuleLinear Transference Rule


NonNon Linear Transference RuleLinear Transference RuleIt’s also clear that there is not a linear relationship between reductions in variation It’s also clear that there is not a linear relationship between reductions in variation in one part and the reduction in the system variation.in one part and the reduction in the system variation.

What is and how does variation impact a demand chain?

TOCICO 2009 Conferenceimpact a demand chain?

Your BusinessYour Business

ManagementManagement

OperationsOperations

There are Four Distinct Sources of Variation:There are Four Distinct Sources of Variation:1.1. Fluctuations in demandFluctuations in demand2.2. Fluctuations in supplyFluctuations in supply3.3. Random Events (Murphy) within our processesRandom Events (Murphy) within our processes4.4. SelfSelf--Imposed variations Imposed variations –– overover--reactions and underreactions and under--reactions in reactions in


ppwhat we decide to dowhat we decide to do

The steps we followed:TOCICO 2009 Conference

• Agree on the criteria for allocation decisions and g ee o t e c te a o a ocat o dec s o s a dwho is responsible for the allocation of the scarce resource input.

• Our experience shows that getting control of the input source of variation and conflict causes immediate benefits throughout the supply chain. g pp yEveryone experiences the WIN.

• Do it quick and you have a measurable success th t t t d t tthat creates tremendous momentum to carry you through the rest of the supply chain implementation.


Only now can we begin to tackle designing a Only now can we begin to tackle designing a system to schedule capacity to market pullsystem to schedule capacity to market pull

TOCICO 2009 ConferenceUnderlying assumption:

There is no way to match raw material availability, capacity

Schedule the plant forSchedule the

Schedule the plant to

and inventory to market demand.

Injection:Injection:the plant for maximum efficiency

plant to market demand only

the plant to raw material availability

jjWe have to find a way to centrally plan and We have to find a way to centrally plan and manage the enterprise. After the first steps manage the enterprise. After the first steps we have taken the door is wide open for it!we have taken the door is wide open for it!

Maximize our ROI in manufacturing

Maximize Throughput

Maximize our investment in

pp

facilitiesg p

dollars logs


Maximize RFP ROI

The Challenges to create a true Central Planning function


• The organization structure did not exist. No one authority or system had the knowledge and visibility to de-conflict and solvesystem had the knowledge and visibility to de-conflict and solve scarce resource contention or allocate orders between plants with available capacity.

• The software technology did not exist to support the concept• The software technology did not exist to support the concept.

• The management information system did not exist.

• We had to apply the concept of “segment your market not yourWe had to apply the concept of segment your market not your resources” across the enterprise not just a plant or any business/product group.

− A lathe is lathe, a dryer a dryer and a log in your yard can be aA lathe is lathe, a dryer a dryer and a log in your yard can be a veneer in my plywood plant tomorrow or a veneer in the truss plant tomorrow.


Supply Chain Central Planning Overview Strategic & Tactical Example

Central visibility of all replenishment buffers$’s in

orTOCICO 2009 Conference

CentralLog Buffer Central Dry

Veneer BufferCentral Finished Products Buffer

Central visibility of all replenishment buffers

$’s in or out

or out $’s

in

Lathes DryersSkinner

Saw

Patch

Detail SawPlywood Mills #1,2,3,4

Lathes Dryers

ywood s # , ,3,

Veneer Mill

Press

Billets

saw

Dryers

Engineered Wood

Sharp Chain

Saw Mill

Engineered Wood


Central visibility of capacity availability at the constraint resources for each plants.

Saw Mill

ResultsTOCICO 2009 Conference

• Reductions in inventory in excess of $50M (>35%).ROI from 5% (the past best ever was 4%) to 15% in 12 months 19% last• ROI from .5% (the past best ever was 4%) to 15% in 12 months, 19% last year.

• 20% Increased volume in plywood with 1.5 less plants (450 less employees) within the first six months.

• OTD from mid 40’s to mid 90’s (measured against a mixed product shipment).

• Lead time from 14 days to 2 days.The year after implementing they shipped 40% more throughput with 30%

less logs and one less plant (the plant was very old and set up for old growth timber the decision to scrap it vs. retool could finally be made because of the tremendous increase capacity unleashed)

Remember the scarce resource is the log and if they don’t cut it - it keeps getting bigger!

We took the concept of sorting logs to the forests and planned their cuts by the characteristics the forest harvest would deliver


by the characteristics the forest harvest would deliver.

What we learned at the timeTOCICO 2009 Conference

• We could no longer ignore software as part of our e cou d o o ge g o e so t a e as pa t o ouintegrated service offering.

• Integrating software into the solution set keeps the system from being circumvented or dismantled.

• You cannot afford to leave out any part of the supply chain if you want the organization to besupply chain if you want the organization to be sustainable in using TOC to manage from.

• We gained the confidence that we could manageWe gained the confidence that we could manage complex supply chain implementations like LeTourneau.


One more trial run before LeTourneauTOCICO 2009 Conference

• We incorporated everything we learned and i l t d f d t t f t i itimplemented a foundry to a two manufacturing sites to national distribution with software.

• Our current learning curve is with LeTourneau and it• Our current learning curve is with LeTourneau and it is steep.


Questions?TOCICO 2009 Conference


Documents

A Vertically Integrated Supply Chain Case · 2018-04-14 · the internal supply chain to include engineering and product development as well as operations and inventory management