Tag: demand-driven manufacturing

Increase Throughput by Replacing Manufacturing Productivity and Efficiency Metrics with These Two KPIs
Manufacturing productivity is a useful metric for measuring the health of manufacturing at a national or global level because it tells us something about whether our factories, in general, are working or sitting idle. But at the level of the individual factory, productivity as a performance metric can be problematic. Before we travel too far down that path, however, perhaps we should start by defining what we mean by manufacturing productivity.

What is Manufacturing Productivity?

The Business Dictionary defines productivity as a measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs. Productivity is computed by dividing average output per period by the total costs incurred or resources (capital, energy, material, personnel) consumed in that period.

In short, the MBAs are defining productivity as a measure of how efficiently you are using resources, not how effectively you use them.

At a macro level, manufacturing productivity has been increasing for years. We’re producing more than ever. In large part, this reflects the level of automation in our factories. Automation helps us get more done, in less time, with fewer resources.

Productivity and Throughput Are Not the Same

To be clear, we’re not saying productivity is a bad thing. Just that seeking to increase productivity for the sake of the metric can lead to unintended consequences such as increased inventory levels. A better metric, and one that those of you raised on Lean manufacturing principles are no-doubt familiar with, is throughput.

But once again, we need to avoid defining the word the way the rest of the world does.

A straight dictionary definition defines throughput as the amount of material or items passing through a system or process. Lean adds a bit of an accounting wrinkle to that definition by looking at throughput as the net profit made from selling a product or service.

If it’s been awhile since your last accounting class, look at it this way:

You have a machine that produces ten pieces an hour. By the standard definition, those pieces are throughput. However, under Lean principles, those pieces are not throughput until they are converted into revenue (a.k.a. “sold”). Demand-Driven Manufacturing incorporates Lean theory, with special emphasis on this idea of throughput.

Productivity: Use with Caution!

If you’re measuring your factory or individual resources (employees, work centers, etc.) based on the standard dictionary definition of productivity (or throughput), don’t be surprised if you wind up with inflated inventory levels, missed delivery dates, and long lead times.

There are better ways of measuring productivity that take net revenue into account. For example, one analyst firm recommends a productivity metric that measures profit per hour. Not bad. However, to drive continuous improvement, metrics need to serve two purposes:
- Provide actionable input
- Provide that input while there’s still time to have an impact
Profit per hour doesn’t serve either of these well. Knowing that your profit per hour is X doesn’t really tell you much about how to get it to X+1. The danger in this is that employees and managers may see a focus on profit per hour as a mandate to “work faster,” and as we all know, this is not the same thing as working smarter.

The second problem with metrics like profit per hour is that they are lagging indicators, telling you only how you did in the past. They do nothing to predict future performance. Lagging indicators are how the executive team, the market, and investors look at performance, so it’s not a bad idea to monitor them. But on the shop floor, we also need metrics that will help us influence future performance.

There is one caveat I need to make about measuring productivity. If you’re measuring productivity of a constraint in a Demand-Driven Manufacturing environment, constraint productivity is a very useful metric. If you’re interested in learning more about this, we have a plethora of additional resources on our website regarding constraints management (Theory of Constraints).

If Not Manufacturing Productivity, Then What?

In our continuous improvement efforts, we need to leverage Pearson’s Law: That which is measured improves. That which is measured and reported improves exponentially. If we aren’t going to measure performance or productivity, at least not at the employee or non-constraint work center level, what are we going to measure?

Two metrics can be particularly useful at the work center level, especially in a Lean Manufacturing environment. These metrics support behaviors desired to drive flow and maximize throughput:

Schedule Adherence: Perform work in the order that maximizes global throughput. Schedule Adherence measures how effectively your employees work through orders in the queue. Are they sticking to the plan? Improved schedule adherence leads to better on-time delivery performance and decreased expediting.

Queue Turns: Maximize flow by working to turn queues as quickly as possible. In a typical manufacturing environment, 85-90% of cycle time is made up of the time materials spend in-queue, waiting to be processed. Queue turns measure how often the queue in front of a resource turns over in a given time period. More queue turns means less time waiting and lower cycle times.

Schedule Adherence and Queue Turns are metrics that represent what working effectively in a production environment is all about.
August 6, 2018
Are Your Manufacturing Metrics Meaningless?

It seems not a week goes by when I don’t hear from someone in manufacturing: “You can’t manage what you can’t measure”. Of course, there is a lot of truth to that statement, but as someone who spends all day, every day, helping manufacturers gather real-time data for better operational performance, I believe the statement is incomplete. The axiom should be: “You can’t manage what you can’t measure consistently and accurately.”

Take the example of On Time Delivery (OTD). In any manufacturing environment, delivering what you promised when you promised is good business, so measuring this metric makes sense. However, as simple as this metric should be to measure, it can get complicated. Consider this scenario:

The Challenge with Measuring On-Time Delivery

Bob in sales promises a customer that their order will be shipped by the 15^th of the month. The factory comes back and says, given the current production load, there is no way we can get the order out the door until the 25^th. The order isn’t big enough, nor has the customer done enough business with the company, to warrant upending the production schedule to meet the promised delivery date. As a result, the factory’s understanding of the promise date is the 25^th, while Bob’s (and the customer’s) is the 15^th. Who’s right?

Let’s say the customer’s order history does warrant upending the production schedule, but that throws off the delivery date for several other orders. These customers are accommodating, so despite the chaos in the factory, the change doesn’t result in any lasting harm. If the factory then delivers these orders by the new promised delivery date, are they still “on time?” What if the customers whose orders were affected hadn’t been so accommodating?

Later that month, the factory manager is called on the carpet by the CEO because according to his monthly reports, the factory’s OTD rate is less than 50%! (The report IT creates for the CEO compares the original promised date against the actual delivery date.) The factory manager pulls out a spreadsheet showing the production schedule against actual delivery. According to his figures, the factory’s OTD rate is 95%. Not perfect, but darn good. Is the factory manager’s position defensible?

Making Manufacturing Metrics Meaningful Again

Let’s take a look at a few of the challenges presented in the above scenario and how Synchrono can help resolve them.

#1 One version of the truth – The factory manager’s spreadsheet is the type of “red flag” we look for when clients call us in to ask how they can improve operations. Spreadsheets in manufacturing almost always mean that people are working from different versions of reality. Not only is there a question of where the data comes from, but studies also show that a good portion of the spreadsheets used in business contain errors. Creating a common definition for key metrics and then letting a system, such as SyncView from Synchrono, serve that KPI up in a dashboard helps ensure everyone is working from the same version of the truth.

Related Post – It’s Time: Manufacturers Need to Cut Ties With MRP and Spreadsheets

#2 Bridging the Divide Between Production and Sales – In many facilities, the last thing the production scheduler wants to do is take time out of their day to negotiate with sales. Every call could mean a change to their carefully crafted schedule. For their part, sales is more interested in closing business. If they’re promising unrealistic dates, well, they can always ask for forgiveness later.

SyncManufacturing considers all resources when calculating capacity: materials, people, processes and equipment – and delivers a “capable to promise” date (CTPD) that the factory can meet given current supply and workload. Many Synchrono customers give sales access to this information during the sales process, eliminating unrealistic promised delivery dates or the need for sales to call the factory. In the example above, Bob would have been given a CTPD that he could reliably provide to his customer, making the issue of conflicting OTD metrics moot. Just as important, providing Bob with a CTPD prevents Bob – and the organization – from making a local decision that could have enterprise-wide impact. Along with CTPD verification, many SyncManufacturing software customers put a process in place where they talk through the options available when a customer request date cannot be met. This way, the organization can have a systematic discussion of what can be done, rather than making a decision in isolation that could have wide-spread ramifications.

#3 Synchronizing Resources to Demand – Finally, many of our customers have dramatically increased their on-time delivery rate through the synchronization of resources to demand. At Rex Materials Group, on-time shipments went from 50% to 98% in one facility. I should also mention that Synchrono helped RMG lower lead times as well. Many orders that used to take three to four weeks can now be delivered in less than five days. Some products even have a 24-hour turnaround. Orders can be shipped the next day with no extra effort.

If your manufacturing metrics need an overhaul, here are a few additional resources you might appreciate:

White paper: Metrics That Drive Action

Video: Visualizing Metrics in the Factory of the Future

May 7, 2018
What Sandpaper Will You Use? – Part One
What to Use to Get the Most of Your Demand-Driven Changes

Demand-driven manufacturing leaders are always refining their tools and tactics to ensure they’re spending their time wisely. This blog marks the first in a three-part series about using the tools of TOC, Six Sigma and Lean to help manufacturing leaders gain the most benefit from their demand-driven transformation.

Three in One

TOC, Lean, and Six-Sigma should all be part of the continuous improvement (CI) journey at your company – and knowing which tools are right for the job will help you realize your CI goals faster. And even though these three methodologies are not the end all, be all of continuous improvement, they offer proven frameworks and tool sets that are very effective at improving organizations.

During this discussion, I want to explain how the methodologies of TOC, Lean, and Six-Sigma work like sandpaper. TOC is the coarse, Lean is the medium, and Six-Sigma is the fine-grit sandpaper. The company is the board –or piece of wood in a particular state of roughness – and you have to know which paper to use, based on the state of the board. At Synchrono, we use all of these methodologies together—leveraging the right tools at the right time —and apply them strategically in our customers’ demand-driven transformation.

TOC to Start

I have never seen a more effective approach when you are just starting out than TOC. The methodology is all about understanding the entirety of the system and based on that, knowing where the leverage points are in the organization that, if affected, will bring about a rapid change to the entire system. It recognizes the interconnectedness and cause and effect of organizations, their people, resources, processes, and most important, policies.

When you first start a continuous improvement journey, the opportunities for improvement are great. They are everywhere within the organization and once the workers in the system have approval and the tools to change the system; they will do so with great effort. However, if we want to get the most out of these efforts, we need to focus these improvement efforts on the constraints/ leverage points of the organization to yield global results, not just localized effects. Said differently, we need to focus on the areas inhibiting enterprise performance, and I have not seen a more effective approach at doing this – and doing this quickly – than the TOC methodology.

Next time, I’ll talk about how to use TOC to pinpoint the changes necessary to get the most out of your continuous improvement efforts. Then, I’ll address the role of kaizen events and drill down into how Six Sigma – the finest grit of sandpaper – can refine your process change and ensure that each moving part works harmoniously together. Like many jobs, having the right tools makes all the difference in the world. The right methodologies, along with ongoing refinement, will steer your demand-driven environment towards embodying the best in form and function.

This is part one of a three-part series. Here are the links to the entire series.
- Part 1, What Sandpaper Will You Use?
- Part 2, Fast Results Using TOC for Demand-Driven Manufacturing
- Coming soon
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-John Maher

John’s passion for demand-driven manufacturing is equal to his interest in how this method improves the lives of employees within these environments. “I’m here to help, not to judge” comments John whose posts reflect why demand-driven matters and are based on his experience working in manufacturing environments and expertise in ERP, MRP, APS, supply chain, manufacturing planning and scheduling systems and constraints management.
April 9, 2018
Manufacturing Metrics that Actually Matter (The Ones We Rely On)

Part one of a multi-part series to help you measure your production efforts wisely

LNS Research blogger Mark Davidson said, “When it comes to metrics, it’s often said that what gets measured gets done.”

I have found this to be true when working with many different manufacturers. Mark also writes: “Metrics that have the attention of business and manufacturing leaders tend to be those that get measured and improved upon by their employee teams.”

I agree– measurements do drive behavior. But are employees being rewarded for metrics that do not in turn reward demand-driven flow and the customer signal (both real and imagined)?

In this set of blog posts, I want to discuss the different kinds of metrics we’re obsessed with as supply chain leaders and why the modern lean, demand-driven production manager needs to adjust or abolish some “old school” metrics altogether. But before we get into specifics, let me set up some of the environmental factors that have contributed to the current climate of “KPIs above all.”

The People’s KPIs?

Over the years, there has been a lot more attention placed upon measurements. Key Performance Indicators (KPIs) are meant to clarify how we measure what we measure and provide an underpinning for people in production to see how well they are working toward their goals.

However, the amount of responsibility and work content for most workers has grown at the same time, and left these workers with little ability to truly affect the measurements that are prevalent in today’s manufacturing environment. This erodes their ability to continue to complete the tasks that are being measured.

Even when there is a specific measurement that makes sense for the supply chain, it may not be within the individual’s ability to affect all of the measurements that they are responsible for during production. There may be contradicting measurements, and there may be cases where during one part of the month the measurement is religiously followed, while during other parts of the month, they are breaking the rules because some other measurement has become a crisis.

Count the cost

In the last 20 years, the emphasis on reducing cost has also had a profound effect on the ability of workers, supervisors and managers to focus on results. I have seen countless improvement projects implemented. In the more aggressive organizations, I have seen leaders make budgetary and staffing cuts based on the cost/benefit analysis of a project. Perhaps this isn’t so bad, but at the same time, I see little or no verification of the results and actual performance. This state of affairs has us trying to do more work with fewer people, under increased pressure with fewer results.

Metrics for Action

In the next few posts, I would like to break down the operational metrics you’ll need to empower your workforce to get results—not to just behave according to flavor-of-the-month measurements. These Metrics for Action are not intended for overall business analysis. Instead, the intent here is to cut through the clutter of the all too often, and all too many, contradicting measurements and focus on the metrics that are going to provide insight to drive action. Action to improve flow, manage constraints, direct continuous improvement efforts and more. The goal is to provide real clarity around the elements that drive organizational excellence and enhance demand-driven results.

Before we begin, here’s why we should

Assuming is the worst: Most measurements used in manufacturing are derivatives of some other objective or assumption about the nature of manufacturing. These assumptions seemed important at the time because manufacturing software and information systems didn’t support a direct link between performance and measurement. They were very important “back in the day” because they provided a framework for decision-making in a time when there were few data elements to support the decision process. This was way better than the alternative of no decisions!

Put your money where your metrics are: If you trace these measurements to cash flow, you will find some interesting conflicts. In the past, having all the relevant data for making decisions created a great deal of measurements that act as a surrogate to actual performance. These types of measurements have been around for a long time. They have become so common that they are not even considered as obsolete, but as “the way we conduct business.”

Even with today’s incredible ability to collect and contextualize data, these seemingly monolithic measurements are still being used. To test if your Manufacturing KPIs are obsolete, check to see how the measurements can be tied back into cash flow. If there is no direct link to cash in, cash out, inventory or operating expense, then your measurement may be an assumed measurement.

Customer Centric If there is no data in your company’s systems measuring what your customers are actually buying directly, then you’re working with a derivative measurement. Derivative measurements were used to simplify the planning process because the units purchased by the customer were hard to track or hard to translate into workflow. Today, synchronized, demand-driven systems can capture your customer order information across the entire production process—from order to supplier to inventory to shipment. You have all of the data points you need—but you may be still tracking derivative side-effects rather than meaningful metrics from force of habit.

The unfortunate reality is that most manufacturing measurements are the results of learned behavior, hidden behind several layers of assumptions that are obsolete or counterproductive in today’s manufacturing company. Stay with me through our metrics journey to see how you can laser-in on the metrics that really matter—to you, and to your customers.

Resources for more information:

White paper: Demand-Driven Manufacturing Metrics that Drive Action

March 12, 2018
Time to Revisit Your Constraints

We talk a lot about constraints management in our work with customers who are implementing Demand-Driven Manufacturing (DDM) in their facilities. That’s because constraints management is fundamental for synchronizing the pace of production and keeping the demand (orders) flowing throughout the shop floor. But, our focus is naturally on physical constraints, e.g., that piece of equipment or workstation that is preventing you from delivering on time or offering shorter, more competitive lead times to your customers.

Not Everything is About Production

Those of you who have spent time studying the Theory of Constraints (TOC) in-depth understand that it’s not always all about the production process. Constraints can fall into one of four categories:

Physical – These are the constraints we focus on with technologies like CONLOAD™ that set the pace for production based on the capacity of the physical constraint.

Policy – These constraints dictate how work is performed. Sometimes you can do something about them (e.g., an old company policy that no longer makes sense), and sometimes you can’t (e.g., a regulation that still might not make sense but needs to be followed anyway).

Paradigm – This is a way of thinking that gets in the way of meeting commitments, such as the COO’s resistance to outsourcing processes to other companies even if they can do it faster, better or cheaper than you can.

Market – Put simply, capacity exceeds demand. Remember, TOC emphasizes throughput (The rate at which the system generates “goal units,” Goldratt) and not productivity.

For some manufacturers, the real constraint over the last decade has been their market. Manufacturing production has seen its share of ups and downs in the last ten years. It wasn’t that our facilities couldn’t produce more, many manufacturers just didn’t have the orders to warrant increased production.

Shifting Your Paradigms

Early indications are that many of the market constraints on US manufacturers may be melting away in 2018 through 2020. (Along with a few policy constraints.) Manufacturing GDP is expected to slightly outpace GDP for all industries (2.5%) and grow by 2.8%. (Some analysts are predicting even higher numbers, but like our customers, we prefer to focus on more conservative estimates when doing mid-term forecasting.) The stock market is also at an all-time high, indicating strong investor confidence and more money for investment. Oil prices are expected to remain low, keeping the cost of manufacturing and transportation of goods to market in check.

In other words, it’s time to take your focus off the market constraints you can’t do much about and place it on the constraints that are within your control. If you have outdated policy or paradigm constraints, it’s time to rethink your thinking. If you have physical constraints – leverage them to set the optimal pace for uninterrupted production flow.

Time flies and so do great economies. Don’t let the best market in a decade pass you by without taking advantage of it. If your constraints are physical, here are a few resources that may help:

Video: Manage Manufacturing Constraints and Optimize Production Flow with CONLOAD

White Paper: Metrics That Drive Action

Case Study: GIW Industries

February 5, 2018
5 Keys to Manufacturing Transformation

Almost every manufacturer we talk to these days is in the process of implementing (or planning to implement) some sort of change in the way they approach operations: Theory of Constraints (TOC), Lean, Six Sigma, just to name a few. Our focus on demand-driven manufacturing tools and applications has given us a front-row seat to their efforts.

Related post: Is Demand Manufacturing Lean?

While the devil may be in the details, the most successful initiatives all have a few high-level elements in common:

#1 Strong Executive Sponsorship. Executive sponsorship needs to be more than simply signing the invoices. CEO, CFO, COO…everyone in the C-Suite needs to show an understanding of the goals of the effort and what it’s going to take to reach those goals. While they don’t necessarily have to paint a happy face on the change required, they must take a “no turning back” attitude when talking to the troops, some of whom might be in a position to sabotage the initiative either knowingly or unknowingly.

#2 Clear Objectives and Governance. Everyone in the organization must understand the goals of the project and why it is important to the organization. This is especially true of team leads and departmental heads who may not be executive sponsors, but who will be instrumental in ensuring change happens at the execution level. Having strong executive sponsors can help ensure that the objectives of the program are communicated clearly and that the initiative has that next level of support.

#3 Understandable KPIs. KPIs must be measurable and actionable. They must also be understandable. This is easier said than done as some long-time KPIs will need to be replaced with KPIs that may not make as much sense to someone who’s not yet been introduced to the new philosophy. For example, when implementing Theory of Constraints, efficiency no longer matters except at the constraint. To the individual who is always been measured by how much they produce, this can be a disconcerting concept.

Related Video: Manage Manufacturing Constraints and Optimize Production Flow

#4 Early Training. To head off misunderstandings and speed up the adoption of new concepts, project leads and those responsible for ensuring execution need to be trained early and thoroughly. This includes not only the what but also the why as they need to be prepared to provide full-throated support when the initiative is rolled out. Training should also be offered to individual workers, especially when new processes need to be followed, but that training should be targeted and focused.

#5 Change Management. Many of the elements we’ve covered so far are part of any successful change management program, so if you’ve covered these bases, you’ve made a good start. However, the most successful manufacturers understand that change is more a fact of life than it ever has been, and they make change management as much a “center of excellence” in their organization as whatever initiative they’re hoping to implement.

Now it’s your turn. I’d love to hear your stories about change and how you have worked to ensure the success of transformative initiatives in your organization. What challenges did you overcome? What best practices did you develop along the way? Add your thoughts below!

January 15, 2018

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