10/21/2013
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And what can we learn from our
own highway departments
Giving Cyclical Run
Strategies the Green
Light
Presenter
Steve Johanson
•President, Supply Chain Toolworks
•Experience in food and other CPG
manufacturing
•Develop methods and applications for
cyclical run strategy planning
10/21/2013
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Objectives
• Look outside and inside the manufacturing
world for lessons and inspiration
• Explore the impacts of variability on
production plans
• Understand the benefits and challenges of
cyclical production planning
What can we learn from our highway
systems?
A Story of Mathematics and
Politics
A Story of Mathematics and
Politics
Photo: FHWA
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Does this sound familiar?
• You have a large investment in manufacturing
facilities and equipment
• Your product portfolio changes and increases
in complexity
• You struggle to satisfy your demand with your
existing capacity
Highway Departments Empathize
Photo: SociologyIU9
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In the 1950’s President Eisenhower
bequeathed us our infrastructure
Photo: FHWA
A National Highway SystemA National Highway SystemWith High Capacity InfrastructureWith High Capacity InfrastructureDesigned to Meet the Designed to Meet the Needs of Travel and Needs of Travel and Commuting for the Commuting for the
FutureFuture
In the 1960s and 1970s Things
Changed
• People expanded the suburbs
• Logistics companies leveraged
truck delivery
• The system suffered from
chokepoints and
• People expanded the suburbs
• Logistics companies leveraged
truck delivery
• The system suffered from
chokepoints and
… And performance issues… And performance issues
Photo: FHWA
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Metropolitan Highway Authorities
Responded by Expanding
Photo: SFGate.com and FHWA
Adding LanesAdding LanesAdding RoutesAdding Routes
The Result…
Not enough increased
capacity – and a lot of
government debt
Not enough increased
capacity – and a lot of
government debt
Photo: FHWA
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Minneapolis found themselves in this
position in the 1990’s
Situation: They had enough lanes and corridors
to satisfy their peak demand
Complication: They had throughput issues
• Traffic jams
• Variability in travel times
• Accidents
Does this sound like rough cut capacity planningDoes this sound like rough cut capacity planning
What did they do?
Actions:
�Studied their “system” using statistical models
�Identified variability as the culprit
�Found a solution to their problem that was
�Economical
�Quickly implemented
�Utilizing existing technology
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Their solution was to set the frequency
of EVERY car entering the system EVERY
hour of the day, EVERY Day of the week
Photo: FHWA
How did it turnout?
• Throughput: + 14% in peak hours / + 9%
overall.
– Free capacity with very little capital investment!
• Reliability: ½ variability in travel time.
– Think reduction in safety stock or queue time!
• Safety: 26 % percent fewer crashes.
– Less scrap, less down time!
Source: “Twin Cities Ramp Meter Evaluation”, Minneapolis DOT 2001
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And the Net Benefit
Annual savings: $40 million
Capital cost: $3 Million
Comparatively, a project to expand a 9 mile
section of highway 31 in Michigan costs
$10.1MM
Source: “Twin Cities Ramp Meter Evaluation”, Minneapolis DOT 2001
Is Minneapolis still reaping this benefit
today?
. . . Let’s return to the story later
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How can we apply the lessons learned
to the manufacturing planning world?
Manufacturing:1. Demand signals
2.Sourcing3. Cycling
4. Sequencing
Buffer warehouse: 5. Safety stock(service levels)
Distribution center:8. Safety stock(service levels)
Deployment:6. Replenish mode7. Replenish cycle
What is a Cyclical Run Strategy
�A set of fixed production cycles and sequences
�An inventory policy of safety stock targets
�A playbook to allow for eventualities
�Capacity shortages and surpluses
�Unscheduled down time
�New product introductions
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What Makes Cyclic Run Strategies
Economical?
It targets variability:
�Demand and flows are smoothed
�Changeover costs are minimized
�Inventory stabilizes on targets
�Planning coordination is made easier
”When you fix your cycles, good things happen”
What return can I expect?
• 50 plant average annual savings of $1MM
• 10% to 50% reduction in overall inventory
– Safety stocks go up
– Cycle stocks stabilize
– The “other stuff” goes away
• Service levels and distressed numbers match goals
• Schedule adherence goes up
• Kaizan lists are reduced or reprioritized
• Discussions revolve around roadmaps rather than goals
Source: Supply Chain Toolworks, Inc.
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What is the fundamental change?
Time
Pro
du
ctio
n Q
ty
Time
Economic order quantity (EOQ)- Triggered by Inventory Level- Fixed quantity- Variable cycle
Economic production cycle (EPC)- Triggered by Production Calendar- Variable quantity- Fixed cycle EPC
EOQ
Pro
du
ctio
n Q
ty
Economic Order Quantity Vs.
Economic Production CycleEOQ
Fixed Order Quantity
EPC
Fixed Cycle
Pros - Easy to do
- ERP works that way
- Treat each SKU independently
- Predictability
- Rhythm
- Smoother Demand Signal
- Economical for complex changeovers
Cons - Random Schedule
- Math is usually wrong
(what is the correct changeover cost?)
- You have to “Design” a Run Strategy
- Requires forethought and leadership
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Case: Frozen Dinner Manufacturer
EOQ + Dynamic EPC
CASE: Fruit and Nut Packaging Company
Case Study
Focus: Single packaging line
Portfolio: 43 SKUs
Drivers of complexity:
- Bag size changeovers (6 sizes)
- Color/flavor cleanup (4 flavor types)
- Allergen clean up (15 Allergen combinations)
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Case: Changeover Complexity
Characteristics:- Complex product portfolio
- Parametric changeovers
- Optimum solution is to be
found in “clustering”
Size Change
(180 min/$2,700)
Flavor Cleanup
(60 min / $1,120)
Allergen Cleanup Major
(60 min/$550)
Pack Change
(30 min/$360)
Label Change
(15 min)
Case: Allergen TreeAllergen rule: - If you add an allergen, it is a minor changeover (10-30 Min). - If you remove an allergen it is a major cleanup (60-100 Min)
None
Pnut
Pnut
Salt
Pnut
Salt
Pnut
Tnut
Pnut
Tnut
Pnut
Tnut
Dairy
Soy
Salt
Pnut
Tnut
Salt
Pnut
Tnut
Wheat
Dairy
Soy
Salt
SaltSoy
Soy
Salt
Soy
Salt
Tnut
Tnut
Dairy
Soy
Tnut
Salt
Tnut
Salt
Tnut
Soy
Tnut
Soy
Tnut
Wheat
Dairy
Soy
Salt
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CASE: How often do I run SKU
309020101110?Size Cluster(13 SKUs)
Flavor Cluster (6 SKUs)
Allergen Sequence(3 SKUs)
SKU: 309020101110 – Crnbery Nut 10/12
Size: 5.75_2.75
Flavor: Dark
Allergen: Tree Nut- Salt
Demand = 1.5 hours/Week
Picture of how you would break it
down
Cluster # SKUs Volume Changeover Costs Inventory
Holding Costs
EPC
1. Size Cluster 13 ### Sum of all Change
Costs
### 1 Week
2. Flavor 6 ### Sum of all Change
Costs
### 2 Week
3. Allergen
Cluster
3 ### Sum of all Change
Costs
#### 2 Week
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The Big Epiphany
After over 10 years of implementing cyclical run
strategies….
• Great benefit in having a predictable schedule
• Plants wanted to prove the method before reducing cycles
• Good idea to start with high safety stock targets and bleed off
over several cycles
50% of the benefit was in fixing the cycles…Not in getting the exactly correct cycle
Strategies to put into your playbook
• Flexible manufacturing
• “Flex SKU”
• “Job shop” time or “job shop” line
• Demand Shaping
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Critical Success Factors
1. Safety Stocks reflect all sources of variability
2. Capacity is not over committed
3. Cycles are followed
Critical Success Factor #1 – All sources of
variability are included in Safety Stock
Inventory Profile
Forecast Error
Trans Schedule Adherence
Service Level
Planning Lead Time
Mfg Time + Variability
Transit Mode/Time
Cycle Time
Ship Life
Mfg Schedule Adherence
Transit Time + Variability
Capacity Loading
Demand Variability
Supply Chain Performance
Supply Chain Decisions
Demand Environment
Constraints
Homework Assignment:
See how many of these factors are included in your safety stocks
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Critical Success Factor #2: Do not over-
commit capacity
The 100% loading hypothesis
“If my equipment can make 1,000 cases per week, can plan for it
to make 52,000 cases per year?”
No – week over week variability and changes in mix require flexibility and adjustment.
If you load lines to 100% of their effective capacity, you have no means to compensate for
variability
Critical Success Factor #2: Do not over-
commit capacity
Frozen Dinners Processing Line Loaded to 100% Capacity
0
50
100
150
200
250
Week
Capacity Shortage
Capacity Surplus
Production Time
Changeover Time
Scheduled Down Time
Random periods
of sequential
shortage
1 Week(168 hrs)
Homework Assignment:
See how rough cut capacity allows for weekly variability in demand
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50% 60% 70% 80% 90% 100%
Inv
en
tory
Capacity Commitment
Cycle StockTransportation Stock
Safety Stock:Lead time – Demand Side Variability – Supply Side Variability – Forecast Error
Safety Stock:- Trapped Capacity
Think of lean as balancing your
capacity and inventory
Safety Zone (Fill Rate > Target)
Lean Horizon
50% 60% 70% 80% 90% 100%
Inv
en
tory
Capacity Commitment
Finding that “lean horizon”R
ough
Cut
Cap
Pla
nnin
g
Simplified Safety Stock
Safety Zone (Fill Rate > Target)
Danger Zone (Fill Rate < Target)
Lean Horizon
It is disturbingly easy to find yourself here with all your systems saying it is OK
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Critical Success Factor #3: Following
the Cycle
The other Epiphany… Back to
Minneapolis
• The city executed their 100% metered ramp
strategy
• The city got the quantifiable results
• The city and population saved boatloads of
money…
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What did the drivers think?They hated it!!!
�They felt meters were inconvenient
�They waited at meters when traffic was
flowing freely
�They felt “big government” was oppressing
them
�Drivers did not emotionally connect meters to
shorter-predictable-safer commutesEnd Result: Politicians required meters to only operate at peak hours
—the effect of metered on ramps was marginalized
The lessons learned from breaking
cyclesInterfering with production cycles:
�Invalidates safety stock calculations
�Invalidates capacity calculations
�Adds variability to the system
�Adds cost
�Defeats the point of following cycles
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Conclusion
I encourage your organization to:
�Embrace cyclical planning at all leadership
levels
�Establish and track metrics for success—build
confidence
�Don’t cheat, even if it “feels” right—have faith
in your metrics
Questions?
Source: USHWA
Steve Johanson -- [email protected] -- 415.533.9275
10/21/2013
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Survey
www.tinyurl.com/lc3s3fm