Tag: demand

Why Data-Driven Manufacturing is Not Enough

Occasionally, someone will mix up DDM (Demand-Driven Manufacturing) with another DDM acronym in our industry: Data-Driven Manufacturing. There are similarities. For example, executing demand-driven principles relies heavily on data and shop floor visibility. However, it doesn’t stop there.

In this post, we’ll take a look at Data-Driven Manufacturing and why it’s useful but not enough to help you reach your goals.

Data: It Is What It Is

One of the main problems with data is that it’s just data. It passes no judgment on whether the results you’re getting from the shop floor are good or bad. Nor does data provide guidance on how to use it to improve operations.

As an example, let’s say you’re monitoring the utilization rate for a new piece of equipment in which you recently invested several hundred thousand dollars. Suddenly, the utilization rate starts dropping. Is that good or is that bad?

The knee-jerk reaction you’ll probably get from your average, stressed-out production manager (or the CFO that signed off on the order for the equipment) is that it’s bad. However, to make that call, you need to put the data into context.

Maybe your new equipment is so efficient that it is no longer a constraint in the system. At the lower utilization rate, you are still producing product fast enough to meet demand. In that case, the drop in utilization rate isn’t a problem. In fact, if you can find profitable ways to use that extra capacity, such as taking on new business, then the drop in your utilization rate is actually an opportunity.

Trying to address the “problem” without putting it into its proper context could lead you to produce more than you need, which could lead to even greater problems like inflated inventory levels.

You’ve Got to Have the Right Principles

You often see continuous improvement talks or articles that promote the idea of the three levers of improvement: people, processes, and technology. To that, I’d like to add a fourth: principles.

I’m not talking about ethical principles as in “doing the right thing.” (Although that’s never a bad idea.) I’m talking about manufacturing principles such as Lean, Theory of Constraints (TOC), Flow. and Demand-Driven Manufacturing.

In the example I gave above, in making a judgment call on whether the drop in utilization of your expensive new equipment was good or bad, we put it into the context of Demand-Driven Manufacturing and TOC.

Creating Chaos

Many manufacturers take a principle-agnostic approach. They don’t necessarily discount that concepts like Lean, TOC, and Demand-Driven Manufacturing have something to offer, but they understand push manufacturing and MRP because that’s the context they’ve been using for years.

Instead of jumping wholeheartedly into something new – though most of the concepts behind Demand-Driven Manufacturing are hardly new as they’ve been around since at least the middle of the last century – they figure they’ll just take the best from all of these principles and combine them into a holistic approach to continuous improvement that is as unique as their organization.

Unfortunately, this just creates chaos in an environment that is already prone to chaos. Without common principles, senior management might issue an edict to improve productivity and efficiency, while shop floor managers initiate a pull-based skunkworks project. Individual work center operators see one thing from the CFO and the COO, but hear another from their manager. In the end, no one knows quite what their priorities should be.

If you’re still taking the agnostic approach, we can help. John Maher recently wrote a series of posts exploring the use of TOC, Lean, and Six Sigma in a demand-driven environment. In addition, we have a number of white papers that may prove useful such as our Kanban Series White Paper: Gaining Control: Exploring Push v. Pull Manufacturing. Finally, we also have a recorded presentation on YouTube explaining Theory of Constraints if you need a refresher on the concept.

And as always, I welcome your questions and comments. Either reach out to me directly or add them in the comment box below.

June 25, 2018
ERP is an Oxymoron

Have you ever had one of those moments when a thought hits you that is so obvious that you wonder why it never occurred to you before? I just decided that there couldn’t be a technology less aptly named than Enterprise Resource Planning, more commonly known as ERP.

Before I go into why, let me lay the groundwork so we’re all using the same terminology.

What is ERP?

From a manufacturer’s perspective, ERP was born with the addition of MRPII to the core financial functionality already found in existing systems. Pretty much all of these early systems provided modules for GL, AR, and AP. (Sometimes called “GLAPAR” in industry jargon.) Many of the early ERP solutions provided some procurement functionality as well as sales orders, though not many offered manufacturing-oriented functionality like the ability to configure products on the fly.

Sometime in the 80s, ERP vendors realized if they wanted to target the manufacturing sector, they needed to provide tools to help manufacturers deal with what is arguably their biggest issue: inventory. That’s when Material Requirements Planning (MRP) – a concept that had been around since the 50s – was codified in software form.

There is a belief that manufacturers are slow to adopt technology. I think it’s more that technology is slow to adopt manufacturing. Historically, ERP vendors have focused on manufacturing last, and many never quite get it right.

And that leads me back to my original premise: ERP is an oxymoron.

Garbage In/Garbage Out

As Trey Jordan recently wrote in his post Going Lean: Should You Replace Your ERP System? (insert link), ERP systems are great at collecting financial transactions from all over the enterprise. The E in ERP is just fine. My problem is with Resource and Planning.

In this post, I’m just going to look at inventory, since many ERP systems don’t even try to manage capacity. If you want to look at this from the capacity perspective, you might enjoy our white paper: The Next Generation of Planning and Scheduling Solutions.

The core resource planning tool in ERP systems is, of course, MRP. Put simply, MRP looks at future material requirements and works backward using inputs such as current inventory levels, order lead time, and so on to create time-based requirements for raw materials and components.

In theory, that makes perfect sense. If I want to make 100 widgets by the end of the month and it takes me two weeks to do it, I need to make sure I have the materials available by mid-month in order to reach my goal. If some of the materials required are subassemblies built in-house, then the system issues production orders so they will be available when needed as well.

The problem lies not in the algorithms, but in the inputs. Or to use a technology axiom that’s been around even longer than MRP: Garbage In/Garbage Out.

Where does the order for 100 widgets come from? The quick answer is the production schedule, but what are the inputs into that? In push-based manufacturing environments, the primary input into the production schedule is the sales forecast.

Therein lies the problem.

Sales forecasts are always inaccurate; the only question is by how much. I just Googled “sales forecast accuracy” and got 2 million hits, most of them having to do with why sales forecasts are always wrong. I skimmed a few of the results to see how accurate forecasts are on average, and the answer seems to be around 75%.

However, many of these articles and posts looked at forecasts from the perspective of the sales team: Did sales hit the numbers? A 100% accurate forecast from the perspective of the VP of Sales can still be wildly inaccurate from the perspective of production if the products sold were different than those forecasted.

Wisely, many manufacturers have learned not to trust the forecasts generated by sales. They hold weekly S&OP meetings to look sales leaders in the eye and review what’s in the forecast so they can adjust their production schedules based on what seems realistic and doable. These meetings can get tense. And, as much as the participants would like to apply proven processes to their S&OP meetings, they don’t do much to fix the core problem: Everyone is still guessing.

Manufacturing Demands a Different Approach

Maybe I should cut the ERP vendors a break. It’s not that their systems are coded poorly; it’s that they start with the wrong premise. That is, they were developed for push-based manufacturing, a generally accepted practice even though MRP has never been proven to provide the sustainable performance improvements manufacturers need.

The opposite of push-manufacturing is pull, where resources (including capacity) are synchronized to customer demand. Pull is a core element of manufacturing principles such as Lean Manufacturing and JIT Inventory Management, so many readers are probably familiar with it. We often used pull-manufacturing or pull-replenishment synonymously with Demand-Driven Manufacturing, though our software Platform also applies other core principles of Lean such as Theory of Constraints.

If you’re tired of dealing with an Enterprise Resource Planning application that does nothing to help you plan resources effectively, I encourage you to investigate Demand-Driven Manufacturing. Our website is filled with white papers, articles, on-demand product demonstrations, and case studies that can help you learn more. If you’re brand new to the concept, check out our YouTube video: What is Demand-Driven Manufacturing?

June 18, 2018