Why Responsiveness Matters

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


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


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


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


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


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


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


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


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


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



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


Lessons from Tesco

SupplierSupplier RDCRDC StoreStoreNDCNDC

Continuous Continuous ReplenishmentReplenishment

FlowFlowThroughThrough

StoreStore


ProductionProduction

LeanLeanSchedulingScheduling

CustomCustomStoreStore

RangingRanging

LoyaltyLoyaltyCardCardDataData

HomeHomeShoppingShopping

MultiMulti--FormatFormat

ConvenienceConvenience


WarehouseWarehouse

PrimaryPrimaryDistributionDistribution

Continuous Continuous ReorderingReordering

ConsolidationConsolidationWarehousesWarehouses




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


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


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


Where and How to Flow?

Sequential PullSKUs Volume

Replenishment Pull


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


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


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




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


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


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


Why Responsiveness Matters: Getting Products to Customers

Quickly

Daniel T JonesChairman

Lean Enterprise Academy

Lean Logistics Conference Wroclaw, Poland 21 February 2006

Education

Why Responsiveness Matters