The impact of Customer Tolerance Time

January 4, 2012 Posted by Tony Lumb

Customer tolerance times are getting ever shorter. As consumers we know this – we want it now! But the same thinking is now prevalent across business to business transactions as well. Not just driven by impatience, but money as well. Customers cannot afford to hold large amounts of stock, they want it “just in time”.

Just in time is great if you have stable demand. Toyota and their supply chain have aimed at this stability for decades and done a great job, but the vast array of customer choice and fickle customer buying habits is putting huge pressure on even these stable supply chains.

Much more prevalent are customers who truly do not know what they want tomorrow, but they expect that whatever they want is delivered 100% on time – tomorrow!

I’ll illustrate this problem using the company I ran as Managing Director for eight years. In the automotive supply chain, actually a small part of the Toyota supply chain, but also supplier to many UK and European automotive plants. The name of the company and the parts it made are largely irrelevant to the explanation and I’ll keep this, and other examples I use in this blog anonymous.

When I joined the business in 1999 the standard internal manufacturing lead time was four weeks. A week in the primary machine intensive part of the process, two weeks in configuration and assembly, and a week in inspection packing and despatch. And that was on top of component lead times ranging from two to sixteen weeks.

And the customer tolerance time? Yes, you’ve guessed it. 24 hours – actually slightly shorter in some cases where we got tomorrows demand call at about 3pm for delivery at 10am the next day.

Add to this time frame huge fluctuations in specific mix of parts and you have a real problem – one that I honestly believe many manufacturers face.

So what to do? Well we used all the normal tactics. Hold stock. Use elaborate forecasting to try and crystal ball gaze what might be called for. Have plenty of work in progress of everything that might be needed – driven and pushed by the forecast.

And the result? Chaos! Stock coming out of our ears – always the wrong stuff not the right stuff. We kept having to find more and more storage space to put the things we didn’t need whilst tearing around trying to make the stuff we did need and didn’t have. Poor customer delivery performance, huge expedite costs both internally and externally. Don’t laugh but at one point we had eight taxis looping round delivering about 20 minutes of demand in each taxi. And as a result of all this we were losing money at an impossible to sustain rate.

But in all that noise it would be very easy to miss the true root cause of what was creating this chaos. We were simply taking far too long to make our parts compared to the customer tolerance time. Even without the purchased parts lead time we needed four weeks to make parts compared to the customer tolerance time of 24 hours. There was no way we could ever have held four weeks stock we simply didn’t have the space to do that, nor the money to invest.

I did steer the company out of this mess and the next few blog articles will expand on how I did that, and what lessons can be learned and hopefully used by anyone reading this blog.

To wet your appetite in the next few posts I am going to cover :

1 – Ways you can protect against volatility and variation in demand

2 – How to strategically split up internal and external supply flows to best protect against volatility and variation

3 – The impact of work in progress on your performance

4 – How to reduce your internal lead time

5- How do you know what to make – without a schedule or forecast!

I’ll make best efforts to post these in January 2012!

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Categories: Manufacturing

TOC and Lean – what a partnership

December 13, 2011 Posted by ted

TOC and Lean – why they work better together than apart
It is becoming fashionable to question the results gained by many “lean” improvement projects.  Indeed Dan Jones has, in his recent newsletters argued strongly for a radical re-think of just how and where Lean is applied.  This is a message that is familiar to TOC practitioners around the world, and is not new to the either.  So perhaps it is reasonable to re-state the fact that TOC and Lean in partnership are much more
powerful than either alone.
In any type of organisation where there is flow through a series of dependent resources there are likely to be problems.  Think of it as a simepl sequence of five resources all in a line. Let’s call them R1 – R2 – R3 – R4 and finally R5.  Raw material enters at R1 and leaves as finished goods from R5. To make a product, the material flows through the sequence and,  assuming no mistakes or defects, comes out at R5. the other end and continues on the client.  Let’s then consider the common realit that each resource will have a different capacity – even those that are designed to be the same rarely are!
Now let’s considere that each resource is able to make 500 units in a normal day, except for resource 4 which can only make 250. (You might think this is rather a daft idea but apart from just wanting to use this as a device to make a point I do have to say that I have found stranger things in some companies I have visited!!)
Actually in some companies even this level of knowledge is missing altogether, but let’s leave that for the moment.
Now the usual way of trying to make plants efficient is that people and resources must be kept busy at all times, so material is released in line with the consumption of the first resource, in this case 500 units a day.  What will the impact of this be?
Well all resources except R4 will be very efficient, which means busy.  Material will however start to build up at R4.  Can you imagine
what will be happening as material continues to be released?  Before too long priorities will start to change as material cannot escape from the plant, schedules will start to be changed regularly, the shop floor will be taken up with more and more WIP, which will need to be moved around, more and more.  The overall lead time of the plant will start to grow and the due date performance will drop.  New and possibly extreme measures will be introduced to make sure that urgent orders are expedited quickly, thus adding to overall confusions and chaos in the plant – but we will be keeping our efficiencies up, our cost per part down etc.  There has to be a better way!
Lean talks about making flow a reality, pulling from the perspective of the market, making value flow, addressing those areas that are causing flow to be reduced or event stopped altogether.  TOC makes the same statements but with one key difference – focus on the one resources
that is having the greatest impact on flow – the constraint. Hence the application of the five steps of focusing:
  • 1. Identify the constraint
  • 2. Exploit the constraint
  • 3. Subordinate all other
    activities to the requirements of the constraint
  • 4. Elevate the constraintv
  • 5. If the constraint has been broken go back to step one
    • So what happens when we apply this to our simple company?  Well, from the data provided we can determinevthat the constraint is R4.  But what does this mean?  It means that if the company sells the products at a price of £1,000 for each product then the maximum that this company can make in one day is the capacity of the constraint times that sales value – so that means 250 x £1,000 = £ 250,000 per day.
    But is that what the company really makes?  Well no, we have to take off the variable costs that the product attracts – e.g. Raw Material or other purchased parts or services – and let’s assume that for our company that figure is 50%.  This means that the money retained by the company is the sales value minus the variable costs which is now £ 125,000.  This income, known in TOC as Throughput, is what the company gets to keep and use to pay for the all the fixed costs and deliver a profit that can be used to develop new products, or new markets, or whatever form of investment is required to keep the company successful.
    But does R4 always make 250 each and every day?  NO!  Capacity is lost due to things such as breakdowns, set-ups, material not available, defects, people missing and so on.  These are what we call capacity thieves.  And this is where lean comes in, for lean is excellent at addressing capacity thieves, usually in combination with rigourous quality tools such as DMAIC.  Now lean is being used just where it has the most impact to the bottom-line, due to the focusing power of TOC.
    So now we know where to focus – the constrained resource, and how to exploit it be making sure that it always achieves as close to it’s capability as possible, but what about the other resources? The next step is to make sure that all the other resources maintain the ability of R4 to keep working, if that resource stops the whole company stops. So now we need a robust schedule for shipping that is directly linked to the capability of R4, which means no more than 250 items can ever be shipped in one day, which means that no more than 250 items should ever be released at R1 in any one day. Think of the shipping schedule as the drum of the whole company, and tying that schedule to the capacity of the constraint and to the release of material at R1 as tying the rope we have the start of Drum – Buffer – Rope.  We use all our Lean and DMAIC tools first and foremost at the constraint, then also after the constraint, and at release, in order to make sure that R4 keeps going with zero defect parts at all times.
    We can now measure our shipping in terms of Due Date Performance in terms of On-Time, In-Full (OTIF) with zero defects as a given and watch our lead times come down.  Remember lead time is a function of the schedule and once that is robust we have lead times sales can believe in. We also have a measure for the release of material – what we call Physical Material Released On Time (PMROT) and this too is used to determine the capability of all our suppliers, both internal such as Engineering and external.  The buffer can now be set, using time as the measurement of the buffer. We can also remove all the usual efficiency and cost allocation measurements as they are now seen as driving the wrong behaviours throughout the whole of the plant. In execution we release in line with the buffer requirement and then measure progress through the plant.  If an order gets stuck it will quickly show up in the buffer status reports and these can be used to check whether there are more problems within the plant for which Lean and DMAIC are the appropriate tools. This is, by necessity only a brief overview of how TOC and Lean work together.  In our two day training programme – details of which can be found on our web site – we go through this in more detail thus enabling a real debate within any company as to how to use TOC and Lean in partnership.
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    The Coaching Quadrant

    December 12, 2011 Posted by ted

    The Coaching Quadrant

    Introduction
    Our passion is working with people and helping them on their journey.  To do that we use what we call the “Coaching Quadrant” which contains four key aspects of our coaching process, Healing, Reconciling, Sustaining and Guiding. These four aspects have been developed over many
    years and form the foundation of our work. There is no fixed starting point; that is determined through our use of the coaching cycle. Therefore the starting point for any coaching assignment can be anywhere within the Quad
    Healing and Restoring: this might seem an odd title but many of our coaching projects in the past have centred on the need to restore broken
    relationships, between individuals and between teams, and even between departments or divisions!  Clearly if relationships are broken to this extent then the first step is to seek out a way forward that restores these relationships and moves those affected to a situation where win-win is the dominant outcome of all negotiations and engagements throughout the organisation. This is also about addressing the issues that are causing discomfort for people within the organisation, the team, or sometimes within themselves.  Change itself can cause trauma, and once more we find ourselves helping people cope with the demands that change can create.
    Reconciling and Mediating: this aspect is very much where we set out to address the conflicts and issues that cause all manner of disputes.  These
    conflicts can be between people, between functions, and sometimes the conflict of subordinating to the changes being asked of the individual.  Of course there is overlap with other aspects of the Quad, but dealing with conflicts is a major aspect of our work, reconciling differences and helping to create a win-win solution that restores a healthy balance within the organisation and/or the team.
    Sustaining and Nurturing: this aspect is all about trying to help with the question “what happens now”?  For many people they find that the changes that take place are fully agreed, and any issues that arise as a result of the changes are overcome – but then there is this sense of “so what”?  The ability to sustain progress towards the goal is fundamental to any coaching activity.  I have used this in both Rugby and Sailing where even the best know that there is a need to maintain the current level of expertise and excellence, and
    then to move to the next level.  This applies to Olympic Sailors and International Rugby players as much as to anyone working in an organisation!  This is all about journey, walking alongside someone, perhaps even the team, to enable them to maintain progress for themselves.
    Guiding and Mentoring: this aspect is about helping people recognise the direction they are taking today and a check as to whether this is the right direction!  Many times we find people are working hard, but when you ask them about the goal they are striving to achieve, it becomes
    clear that they are working hard in the wrong direction!  They might even be putting in more and more hours in order to drive themselves in precisely the wrong direction, and perhaps also driving their team in the same manner.
    Guiding starts with discovering the goal, and the necessary conditions that must be achieved for the goal to be achieved.  Then, through a simple approach, we set out to determine if the current direction is the correct one.  This is part of being able to paint a compelling picture of what the future might, or should, look like.  This is where we ask, and try to help each person to answer the questions “what” and “why”.

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    Linking Belbin to the importance of Team Dynamics

    December 12, 2011 Posted by ted

    Leadership and Teams – linking Belbin and the team Dynamics approach

    Belbin:  Team roles and developing your people through the Leadership and Team Dynamics approach

    Many years ago I was given the opportunity to work with the Forensic Science Service and used that programme to pilot the link between the well-known and understood approach used by Meredith Belbin and his team roles analysis with our Leadership and Team Dynamics programme. Having researched this area for many years I was keen to know if it was possible to integrate the two approaches and enable people to better understand how they relate to others. I have for many years been of the opinion that if relationships can be improved at work, conflicts addressed and resolved, achieve a greater sense of team spirit, then results follow, and other relationships such as those at home are also improved. This seemed too good an opportunity to miss.
    An Overview of the Belbin Team Roles
    Are you a shaper or a plant?  Resource investigator or a monitor evaluator? No idea what I’m talking about? Then you have probably never come across Belbin’s team roles analysis, one of the most powerful tools around fro developing high performance teams. I first came across these descriptions many years ago and have long been a supporter of their use. Whether it was during my time tutoring with the Open University MBA programme, working with the EITB in industry or simply trying to understand the dynamics of a team I was a member of, this approach has always delivered.
    Using a simple question sheet that each member of the team fills in called “self-perception” it is possible to determine the key team roles we each have, which one dominate and perhaps which ones are missing? We start to see a profile of ourselves that perhaps we have been conscious of before, perhaps find a few answers as to why some people find me as prickly and others as supportive!  In addition to the self perception analysis it is also possible to ask each member of the team to assess each other member. In this way it is often discovered that although an individual might know that their preferred role is one thing, everyone else pushes them to a less dominant role, or even as I found in one case, a least preferred role.
    Whilst using the Belbin approach in combination with our Team Dynamics approach I was able to recognise certain matching within the team which did not bode well for the organisation. I had one example of a shaper whose boss was a completer finisher, a recipe for friction. OK the other way around, but in this case a real source of conflict and at times high levels of frustration.  Over time I was able to use Belbin to anticipate likely troublesome partnerships and advise people that there might be a better structure which avoided such conflicts, such friction, before it started.
    For more on Meredith Belbin’s work see:
    Belbin, R.M. (1983) Management teams Why they succeed or fail Heinemann.  U.K.
    Belbin, R.M. (1996)  The Coming Shape of Organisation Butterworth Heinemann  U.K.
    Belbin, R.M. (2004) Beyond the team Elsevier UK
    Key aspects of the Leadership and Team Dynamics programme and linking in with the Belbin Team Roles analysis
    Yet there are teams which exceed all expectation, and from them we can learn and use the techniques they use to improve the performance of our own team. This is, of course, a function of leadership and direction. So this 5 day programme focuses on both team leadership and the development of a highly focused team that truly performs.
    Obtaining balance within the team: this aspect applies both within the team itself and the relationships the team has with other teams, both inside the organisation and outside. It is about developing closer relationships, and often repairing them first.
    Making good team choices: this aspect is all about ensuring that the goals and objectives of the team are
    properly communicated and that the ability to understand the importance of the
    choices presented with respect to the goal and the necessary conditions is
    achieved.
    Making good team decisions: this is driven by the ability to make the right decisions, having made the right choice, and therefore is predicated by the need to understand the assumptions upon which decisions are made.
    Measuring team progress: without measurements we have no idea as to whether we are travelling in the right direction or in completely the wrong one. So we need to be able to determine those measures that work, measures that enhance the behaviours we want to see, and avoid those we do not. The measures must be seen to be fair and achievable – tough, perhaps – but still achievable.
    Understanding negative consequences: often we make decisions that result in unforeseen and negative outcomes, and often they do not come out of the blue: some people will have had intuition that such consequences might happen. This aspect of the programme is about tapping into that intuition and using it to carry out a powerful risk assessment and modification of the solution in order to achieve the positives and avoid the negatives
    Delegating: we cannot do everything ourselves – we have to learn how to delegate properly. Often team leaders find themselves doing what others within the team should be doing.
    Resolving conflicts: conflicts are almost a way of life; often they are resolved in a win-lose manner – which in turn leads to a depressing sequence of ever more conflicts to be resolved.
    One final thought, given my recent interest and further research into the whole area of personal focus and coaching, the ability to use the Thinking Process tools to unblock people must never be underestimated.  To watch people who had given up on their goals and aspirations discover that they can still dream, and often achieve those dreams is a wonderful sight and very moving.  There is far too much pain in many of the organisations I work with, pain that can and should be removed or avoided.  This does require thinking however and does not come easily. But it can be achieved through the focusing power of the TOC thinking Processes and the support and guidance of a good coach or mentor
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    The importance of reflection for any leader

    December 12, 2011 Posted by ted

    Thought for the month – reflection is key!
    In any change programme there is one step that almost everyone agrees must be done, and yet at the conclusion of the change project is often overlooked – a time of reflection! In many of our projects over the years we have encouraged the internal team, including the leader of the team, to take time out and reflect on the journey, write up the story of what happened, learn from the mistakes and use the newly found platform to grow the business.
    Did we have any problems and issues that arose during the journey that we did not anticipate at the start?  Have we changed our view on
    the goal, is it still the goal or perhaps we now feel there is a larger goal that now lies before us?  In the reflection process we invite those we are working with to keep a simple journal in order to help with this looking back, and thus quickly identify any constraints that appeared on the journey, and also the good points that were achieved. In taking people through this process we have found the following five steps to be of great value.
    1.
    Using the journal, each person describes the experience of the change programme and their own personal journey

    2.
    We invite them to describe their emotions during this time, anger, frustration, joy and so on.  Also to capture just when those emotions appeared and why.

    3.
    The next step is to try and describe the images that come into your mind, either as you remember the emotion, or those that were present at the time. Some people find this difficult, but with help and some guidance such images are soon coming to the forefront of the mind

    4.
    The next step is to consider what insights have been gained as a result of the whole experience.  This applies to both good experiences and bad, successful and the not-so-successful programmes. This is where the organisation becomes a learning organisation, able to undertake quite major change programmes and understand the dynamic that such programmes bring to all the people within the organisation.

    5.
    The final step is to consider what actions have been completed and those that remain to be completed.  This is about understanding to the process of progress – are we still making progress towards the conclusion of the change programme or are we really stalled; only no-one is admitting it! Does the compelling picture require some upgrading?

    This is the final step of our coaching cycle, but it is certainly not the least. It closes the programme down, closes the change loop and represents a place where the dynamics of the change are captured, scrutinised and written down so that those who follow can see the journey, read the story and learn from it.

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    Improvements and Changes – not the same thing

    December 12, 2011 Posted by ted

    Improvements and Changes – not the same thing

    Recently I spoke with a senior manager who talk me he had been extremely effective in improving the performance of his organisation. He
    told me that Lean was the driving force, that his use of value stream mapping and identifying a wide range of problems and issues, all of which required attention, had led him to lead, or at least to encourage, projects that dealt with all of these issues and removed them. He told me that in all cases there had been a real and substantial improvement and that he was being considered for a higher position within his current organisation, and indeed was being head-hunted by other, larger, organisations. It all sounded wonderful until I asked him what the benefit of all his wonderful projects had been on the bottom-line.
    He had no understanding of the question. He could not answer this apparently simple question, indeed no-one had ever asked him such a
    question before, he had no terms of reference with which to frame an answer; and the reason for this inability? All his improvements where recognised by the dominant measurement system that only checked local improvements and ignored global. After a while, and some time checking more information, he was able to conclude that no such overall improvement had been achieved at all. They were all local, not one had a global impact.
    This story is one that even Dan Jones recognises as he laments the poor relationship between numerous lean projects and little or no
    improvement to the bottom-line.So what is going on? Well at one level, the impact of Lean and also DMAIC is that more and more people in senior positions are under pressure to deliver better performance with the same or less resources than before. They are under pressure to increase volume where possible, to increase the number of projects undertaken in new products or similar. They are under pressure to reduce costs, to reduce waste, to attack issues of broken flow, of late deliveries, of shipping defects, of absenteeism, of high levels of sickness and stress related illnesses, of all manner of problems and issues, and they must also do this before yesterday, or at least that is what it feels like.
    Of course some just give up, others shout a lot, others try to use the “successful” tools of the past, but the measurements don’t stack up. Today there is more focus on the global measures than before and less on the local, and when the results of the investment in “improvement” projects fail to materialise, well heads will have to roll!
    So what is to be done? Is the situation so dire that we might well give up and let our competitor nations simply eat our breakfast, lunch and dinner? Well…No. But to do something means having to stop doing the things we thought worked, and start doing the things we haven’t done
    yet! We have to change our beliefs about the local measurements we keep placing our trust and our futures to – such as local efficiencies, cost and profit allocations and a host of other measurements that should be consigned to the dustbin of measurement. We have to stop thinking that
    more of the same, indeed ever more of the same, will work tomorrow when it clearly doesn’t work today. Going ever more efficiently in the wrong direction remains the wrong direction! It would appear that not a lot of senior managers know that!

    If we work in a flow environment, then simply changing our understanding the constraint in our flow means we already have more focus
    than before. Taking that forward by exploiting that constraint, ensuring that all other resources support the work of the constraint area and don’t try to over-produce when the constraint can’t handle the over-production, having gained control looking to elevate the constraint and thus grow the business, these steps have been around for quite a while under the heading of the Five Step of Focusing, which is central to the Theory of Constraints (TOC). Using the five steps of focusing contained with the TOC flow management process has always worked, challenges the measures we use, indeed changes them from silo to whole flow – what a revelation that is when it takes place. Some companies have moved
    from loss to profit just by changing the basis for making the decisions about which products to make in which volumes, pricing issues etc. They are able to make money if they change the dominant paradigm of decision-making measurement away from Cost to Throughput. Simply really, and yet so few companies bother to do it, preferring to lose money, and perhaps even shut up when they could actually, just by making better decisions, make money and be profitable. And when stuff gets stuck in the flow process? Use Lean and DMAIC to unblock it, get the flow moving again, perhaps faster and perhaps more of it.
    This is all very possible in almost all flow environments, if you change your thinking! Now through the fusion of TOC, Lean and DMAIC it is possible to make real, bottom-line improvements, which enables new products to be developed, new services to be offered, new markets opened up, the livelihood of all the staff secured, local communities growing; and nationally become strong, able to reduce our borrowing, be less dependent on others outside our country, pay off debts. I wonder if this is of any importance to those in higher authority? I wonder if this is of interest to our banking industry, our government, our trade unions and those who own the wherewithal of our nation?

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    A Passion for Manufacturing

    November 28, 2011 Posted by Tony Lumb

    I started in manufacturing back in 1984. I had a passion about it then and I still do, and whilst that has not changed pretty much everything else about manufacturing has.

    When I started work, lead times were in months, and even years on some of the things we did. Now they are in days. Market demand was fairly static, predictable, even forecast-able. Now it’s highly variable, fickle, and you don’t know what’s coming until it hits you.

    Then there’s the global changes to manufacturing location. I’ve seen company after company relocate their manufacturing operations to the far east only to struggle to meet the market demand with the much longer leadtimes. It might have worked 20 years ago, but customer demand tolerance is now so short can it work now? And that’s always assuming that customers still actually want what they thought they wanted when we ordered it three months ago!

    Then there’s all the initiatives – Lean, TPS, Six Sigma, Theory of Constraints (TOC). All trying to help us do more with less, faster, cheaper. But how do they all fit together? I’ve struggled as others have over the last 25 years to find the right tool to fix the right problems, and have found it  incredibly hard to bring all these apparently competing techniques together.

    Then of course there’s the computer systems that manufacturing is based on – good old MRP is still at the heart of all major ERP systems. But like you, I’ve spent many long nights implementing a ‘new’ MRP system to fix all the ills only to find it still as restrictive as the old system – more bells and whistles for certain, but truly better? Ask your planners!

    Now try and mix all these things together! MRP working in harmony with Lean? With TOC? Let the fights commence!

    But over the last five years I do think I’ve started to make some sense out of all this, and that’s why I decided to start this blog. There are changes afoot which just might bring all of the above together and present an opportunity for the revival of manufacturing in the UK – which I am still passionate about. It truly grieves me to see manufacturers going out of business at the rate we’ve seen over the last 20 years. We’ve relied for years on the ‘City’ to make GDP for us, but I’m not sure our impressive financial system is quite what it was 5 years ago!

    So I am going to share my thoughts over the coming weeks and months. I aim to write around once per fortnight so don’t expect daily! But over time I hope to be able to share some thoughts which might help people reading this blog. If I can provide answers great, but even if I can generate some discussion on what the right questions are that would be something at least.

    I’ve generated this blog as an integral part of my business website as I believe it is important to be transparent. I do work for a company that can provide teaching and coaching in manufacturing improvement – you can move to that site using the link at the top of this blog. But this blog is not a pseudo sales tool. I’m totally happy to provide information and support in order to help drive some change in UK manufacturing regardless. If you want help on your journey then you can find it out there – provided you know what questions to ask - and that’s perhaps the area I want to help the most.

    I’ve enabled comments so you can give me feedback – please do! as it’ll be a lonely place never knowing whether anyone is actually reading this. Feel free to disagree, agree, or even suggest topics I might write on. I’ll be happy to hear from you. The log-in to leave comments is there to prevent spammers – I will not use it to contact you other than via this blog. If you want to contact me for non-blog communication then you can find my details on our main website.

    Enjoy!

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