Tag: Demand Driven Manufacturing

FAQ: Is Demand-Driven Manufacturing the Same Thing as Lean?

Many of our customers don’t start out looking to implement Demand-Driven Manufacturing per se. Often, they’re focused on Lean Manufacturing or at least some element of it. In fact, customers often find out about us as they search for an eKanban or production scheduling solution that will work with their current ERP system.

However, at some point in the conversation, they will inevitably ask, “Is Demand-Driven Manufacturing the same thing as Lean Manufacturing?”

Demand-Driven Manufacturing isn’t synonymous with Lean or other related initiatives such as Theory of Constraints. Instead, it supports and is supported by them. To understand that, let’s look at basic definitions of each of these philosophies, including Demand-Driven Manufacturing, to see how they are related.

Demand-Driven Manufacturing enables a synchronized, closed loop between customer orders, production scheduling and manufacturing execution.

Demand-Driven Manufacturing is a manufacturing method that enables a synchronized, closed loop between customer orders, production scheduling and manufacturing execution – all while synchronizing the flow of materials and resources across the supply chain.

Another term commonly used for Demand-Driven Manufacturing is pull-based or demand-pull manufacturing. Instead of producing to what you think will happen (forecasts) or to maximize an efficiency metric like asset utilization, the only variable is actual demand, and all production is synchronized to it.

Both Lean Manufacturing and Theory of Constraints emphasize managing variability as part of a continuous improvement effort.

Lean Manufacturing focuses on the removal of waste from the production system; waste being defined as anything the customer isn’t willing to pay for. Pull manufacturing isn’t the same thing as Lean, but it is one of the five principles of Lean as defined by Womack and Jones in their landmark book Lean Thinking. So, at some point in your Lean journey, you should be replacing your push-based production scheduling approach with one that is pull- or demand-based.

On a side note, going from push to pull is almost impossible to do when your schedule is reliant on the push-based logic found in most ERP systems. (Most notably MRP and APS.) That’s why we developed Synchrono software, including SyncManufacturing, as web-based applications that can be easily used with your existing systems. For a more thorough discussion on push vs. pull, download our white paper The Next Generation of Planning and Scheduling Solutions.

Demand-Driven manufacturing is also one of the easiest and quickest elements of Lean Manufacturing to implement. Even though it’s number four on the list of five principles of Lean, you don’t have to get through numbers one through three before you can start realizing benefits such as reduced lead times and lower inventory levels.

Theory of Constraints (TOC) emphasizes increasing throughput. Be careful though. In the vernacular of TOC, throughput does not refer to production. Instead, throughput is the rate at which the organization generates money by producing finished goods that are sold. Excess inventory sitting in the warehouse is not counted. That tightly matches Lean philosophy in that Lean defines waste as anything the customer is not willing to pay for. Excess inventory and the storage and handling of it certainly falls into that category.

A constraint is defined as anything that limits throughput. Inside the facility, that is often a work center. Instead of managing the production capacity of every work center, TOC focuses on synchronizing production to the constraint. This is a vital component of Demand-Driven Manufacturing as well, and you can see how this works in this excerpt from one of our recent webinars.

I hope this discussion not only helped clarify the differences between these common manufacturing philosophies, but also highlighted how Demand-Driven Manufacturing can help you reach your goals regardless of which philosophy drives your organizational thinking. As always, we welcome your comments – and I’d be happy to answer any specific questions you might have. Just submit them below.

November 6, 2017
It’s Time to Revisit Vendor Managed Inventory

A few decades ago, Vendor Managed Inventory (VMI) was a hot topic. Many manufacturers saw it as a way to reduce inventory levels and costs. If they could get their suppliers to maintain ownership of raw materials or subcontracted components until consumed, inventory levels would naturally drop—on paper anyway. Because they were giving most, or all of their business to one supplier, they were also in a position to negotiate better terms. For the supplier, VMI was a win, too, because it allowed them to lock in the manufacturer’s business.

But VMI came with inherent risks to both the manufacturer and the supplier. On the supplier’s side of the equation, the risk lay in the manufacturer’s ability to forecast demand. Unless the contract between manufacturer and supplier had some sort of “shared responsibility” clause, the manufacturer had no incentive to minimize actual inventory levels. Safety stock and reorder point levels could be set high, with minimal risk. And if the forecast was overstated, the manufacturer didn’t need to worry about excess vendor-managed raw material or contracted-components inventory.

From the manufacturer’s point of view, the risk lay primarily in the reliability of the supplier. If the supplier didn’t hold up their end of the bargain or a shipment had material defects, the manufacturer risked a material shortage and significant production delays. While these problems could occur with any supplier, one of the visions of VMI was to reduce the headaches that come from managing supplier issues.

As a result, many manufacturers limited their use of VMI to Class C items that were relatively inexpensive and easily sourced. That way, high safety stock levels didn’t impact their balance sheet much, and supplier reliability issues had a minimal impact on production schedules.

Demand-Driven Manufacturing Technology Makes VMI Easier

The technologies our customers use to manage their internal Demand-Driven Manufacturing initiatives have the added benefit of making VMI feasible once again. Electronic Kanban (eKanban) software is a classic example.

Most readers of this blog are probably familiar with Kanban. They are the automated replenishment signals that are so vital to Lean and Demand-Driven Manufacturing environments. Kanban comes in multiple flavors such as the manufacturing Kanban that signals the need for internal replenishment of materials; the supplier Kanban that initiates replenishment from external suppliers or outsourced manufacturers; and a customer Kanban signals from the customer to the manufacturer for finished goods or replacement parts. Often tugger routes are introduced into the process to deliver materials as needed (regularly or on demand pull) from the warehouse to point of use.

The eKanban system enables real-time, electronic signaling. As materials are received into inventory, they are scanned into the system – and, they are scanned again when consumed. Upon consumption of a Kanban, a signal is sent to a supplier or contract manufacturer, bypassing the standard procurement process and shortening cycle times.

Demand-Driven Manufacturing Reduces the Risk of VMI

OK, so eKanban can make VMI more functionally feasible and efficient than it was twenty years ago, but what about the risks inherent in VMI?

That’s where Demand-Driven Manufacturing comes in.

Technically, implementing Kanban replenishment signals doesn’t automatically qualify your approach as Demand-Driven Manufacturing. You could be in a traditional manufacturing environment using reorder point planning (ROP) to trigger replenishment. For example, your bin sizes are based on ROP calculations that have little to do with actual demand. Since the signal comes from downstream consumption, some would consider this to be pull manufacturing, but it is not in the same way that Lean or Demand Driven environments consider “pull”. Pull is getting close to the actual demand signal; the more inflated the bin sizes, the further the process is from pull – and the larger the bullwhip the process will create.

In true pull-based or Demand-Driven Manufacturing, replenishment is based on actual demand or consumption. (And some buffer stock which we talked about here.) Projected and actual demand, demand variability, and supplier reliability are monitored and inventory is right-sized to meet these specific attributes of the item. The allows Demand-Driven manufacturers to continually adjust their Kanban Loop sizes so they are always in alignment with demand, supply expectations and actuals. As variability is removed and lead-times are reduced, the Kanban Loop adjusts to become one step closer to demand.

Demand-Driven Manufacturing makes VMI far more attractive for your suppliers. They understand that the signals they receive for replenishment aren’t based on some pie-in-the-sky forecast that will leave them sitting on tons of materials in the supply chain that they will eventually have to write off. And, it puts you in a better position to negotiate the kinds of service levels agreements (SLAs) you need to reduce the risks associated with supplier variability.

If you’d like to learn more about eKanban, here are a few additional resources:

White Paper: Gaining Control: Exploring Push vs. Pull Manufacturing

Article: Moving From a Manual to an eKanban System

Case Study: Continuous Improvement Immersion Plus the Right Tools Proves Profitable for Dynisc

January 8, 2017