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Capacity hunt program reveals huge hidden capacity

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Every organization, irrespective of the industry, has hidden capacity. The Capacity Hunt Program helps organizations in quickly identifying and revealing capacity without costly trade-offs and ...

Every organization, irrespective of the industry, has hidden capacity. The Capacity Hunt Program helps organizations in quickly identifying and revealing capacity without costly trade-offs and burn-outs.

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  • Very nice presentation. Covers the key issues beautifully. Keep it up!
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  • Check the full page blow up on Hidden Capacity:
    http://economictimes.indiatimes.com/features/corporate-dossier/get-more-out-of-less/articleshow/22540282.cms
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  • Prabhakaran;
    Thank you for the kind compliments. I look forward to talking with you soon.
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  • I attended the IDMA NCC meeting at Chennai and was quite impressed by your presentation. Had already spoke ur CEO and Edo about your book and the program. We may take it up further in the days to come and may call you. Prabhakaran, 9790915390.
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Capacity hunt program reveals huge hidden capacity Capacity hunt program reveals huge hidden capacity Presentation Transcript

  • Copyrights©2013CVMark.AllRightsReserved. Capacity Hunt Program Reveals Huge Hidden Capacity Aug 2013 Version 2.0
  • Copyrights©2013CVMark.AllRightsReserved. Reference • This presentation is a sequel to following presentations and is recommended to be read after one has gone through them. – What is Operations? – Take the Capacity Hunt Challenge 24-08-2013 2
  • Copyrights©2013CVMark.AllRightsReserved. The Challenge • Identify hidden capacity in less than 30 hours • Reveal Hidden Capacity in less than a Lead Time • Directly Link Operational Improvement to Revenues 24-08-2013 3
  • Copyrights©2013CVMark.AllRightsReserved. Ambience • First Phone Call mentions that the Organization is struggling to be Operationally Profit • Age of Organization: 30 years • It had undertaken several improvement programs but did not get desired results. • It also spent millions of dollars into capital investment, the ROI for which could never be justified. 24-08-2013 4
  • Copyrights©2013CVMark.AllRightsReserved. Symptoms High Inventory & WIP Firefighting and Chaos Heavy Overtime Poor On Time Deliveries Poor Operational Profit Loosing Market Share High Cost Base Poor Productivity Poor Yield Breakdowns Poor Utilization of Machines 24-08-2013 5
  • Copyrights©2013CVMark.AllRightsReserved. Methodology • The team presents operational performance • Sales team confirms that indeed demand for some products is higher than supply • The team – Follows the trail inside the factory to Identify the ‘one thing’ that Limits the Capacity – Identifies and Calibrates the Hidden Capacity – Draws up action plan to Activate the Hidden capacity – Agrees on a mechanism to harness Hidden capacity All in less than 30 hours24-08-2013 6
  • Copyrights©2013CVMark.AllRightsReserved. First Observation • Monthly Throughput = 130 (normalized units) • Throughput as per plan= 110 • Throughput actually sold < 100 24-08-2013 7
  • Copyrights©2013CVMark.AllRightsReserved. Step1- Prune the Long Tail 1% 100%10% 50% # Products Opportunity A B Long Tail Sales 24-08-2013 8
  • Copyrights©2013CVMark.AllRightsReserved. Step1- Prune the Long Tail • Overall 1000 SKUs • The list has not been revised for over 20 years • Reduced target SKUs to 700 • Results: – Lower Inventory + WIP (Work in Progress) – Less Change-overs (setups) – Uncluttered warehouse and shopfloor – Increase in Throughput (Capacity) = 15% – Increase in Revenue for the month = 12% 24-08-2013 9
  • Copyrights©2013CVMark.AllRightsReserved. Step-2 Reclassification of SKUs • Old Practice: SKUs which were infrequently supplied or suppliers were willing to wait longer, were stocked (Made to Stock), although there was no need to stock them. • Old Practice: SKUs which were in regular demand and had benefit of aggregation were made to order (MTO) resulting in changeovers, delays and expediting 24-08-2013 10
  • Copyrights©2013CVMark.AllRightsReserved. Step-2 Demand Based Classification MTO MTS Volume DemandVariability High High Low 24-08-2013 11
  • Copyrights©2013CVMark.AllRightsReserved. Step-2 Reclassification of SKUs • A large number of MTS converted into MTO and Some MTOs converted into MTS – Reduced Inventory – Released Money – Reduced Clutter – Increased Service Quality where matters • Increase in Throughput (Capacity) = 10% • Increase in Revenue = 8% 24-08-2013 12
  • Copyrights©2013CVMark.AllRightsReserved. Step-3 Stop Overproduction • Old Practice: In order to keep all the staff always engaged and keep utilization of plant high, several batches where produced even when they were not required in near term • Now: Strict Disciplines imposed and batches were produced only as per consumption from stocks (MTS) and confirmed sales order (MTO). No other system was allowed to create orders for production. – WIP and Inventory Reduced – Lead time reduced by 20% – Increase in Throughput (Capacity) by 12% – Increase in Revenue by 8% 24-08-2013 13
  • Copyrights©2013CVMark.AllRightsReserved. Made to Stock Products SKU A FG StockWIP in shop floor (Plant) Supply to the next node from Stock Replenishment order to fill the stock RM 24-08-2013 14
  • Copyrights©2013CVMark.AllRightsReserved. Made to Order Products 7 56 6 WIP in shop floor (Plant) 45 Confirmed Orders with Due Date 98 RM Customer Order Due Date Order 9A12-004 20-Apr-2012 Order 9A12-005 30 Apr-2012 Order 9A12-006 02-May-2012 Order 9A12-007 08-May-2012 Order 9A12-008 15-May-2012 Order 9A12-009 30-May-2012 Market (Customers) Customer Order List 24-08-2013 15
  • Copyrights©2013CVMark.AllRightsReserved. Step-4 Follow Single Priority System • Too many urgencies from too many directions confuse the staff in the plant with too many priority changes • Effect: – Chaos, firefighting, uncontrolled operations, 24x7 operations, overtime, high expediting, obsolescence – People work on orders that are not required now delaying orders that are required now. 24-08-2013 16
  • Copyrights©2013CVMark.AllRightsReserved. Poor Priorities cause Mismatches RM Stock WIP in shop floor A B B BA A A A A D D D D C C C C B Stock Situation in Ware House SKU B SKU C SKU D SKU A Wastage of Capacity: Items already full stocked in warehouse are being produced Late Deliveries: Items (A, C) needed urgently queue behind those (B, D) not required NOW. 24-08-2013 17
  • Copyrights©2013CVMark.AllRightsReserved. FG StockWIP in shop floor (Plant)RM Waiting for packing material, 120days Waiting for change parts, 70days Waiting for repair of coating machine, 70 days Waiting for License, 210 days Waiting for retest, 275 days Waiting for clearance from delivery team, 40days Sticking problem; waiting for product specialist, 140 days 24-08-2013 18
  • Copyrights©2013CVMark.AllRightsReserved. Step-4 Follow Single Priority System • Old Practice: There were multiple priorities leading batches left half way, the real urgent batches were left waiting • Now: Single Priority System led to delivering the orders that were required urgently by customers. – WIP and inventory reduced – Lead Time reduced by 20% – Increase in Throughput (Capacity) = 5% – Increase in Cash Revenue for the month = 15% 24-08-2013 19
  • Copyrights©2013CVMark.AllRightsReserved. FG FG FG Stock FG FG FG Stock Out Less Urgent More Urgent Basis of Single Priority System- MTS 24-08-2013 20
  • Copyrights©2013CVMark.AllRightsReserved. Time Elapsed Time left Due Date Time Elapsed Time left Time left Time Elapsed Time left More Urgent Orders Less Urgent Orders Order-A Order-B Order-C Order-D Time to deliver Order= 100% Basis of Single Priority System- MTO 24-08-2013 21
  • Copyrights©2013CVMark.AllRightsReserved. RED YELLOW GREEN MTS Products: Lower the Stock in Hand, Higher the Urgency (Priority) DesiredSystem StockLevel(100%) RED GREEN Less Stock in Hand- Urgent More Stock in Hand- Less Urgent MTS- Priority Grading MTS- Product1 MTS- Product2 A Simple yet Effective Priority System 24-08-2013 22
  • Copyrights©2013CVMark.AllRightsReserved. Due Date GREENMTO- Priority Grading YELLOW RED Start Date MTO Products: Shorter the Time Left for Due Date, Higher the Urgency (Priority) Lead Time 100% Time Elapsed Most Urgent Time Elapsed Less Urgent MTO- ORDER1 Urgent MTO- ORDER2 Less Urgent A Simple yet Effective Priority System 24-08-2013 23
  • Copyrights©2013CVMark.AllRightsReserved. Process Order # Urgency Product N002543 Endangered Cetrizine 10mg N002570 Endangered Cetrizine 10mg N002556 Endangered Omeprazole 20mg N002577 Endangered Omeprazole 20mg N002523 Endangered Glimepiride 4mg N002554 Glimepiride 4mg N002588 Glimepride 4mg N002511 Simvastatin 80mg N002545 Cetrizine 10mg N002590 Cetrizine 5mg N002623 Omeprazole 40mg N002643 Omeprazole 40mg N002594 Glimepiride 4mg 24-08-2013 24 Visualization of Priorities of Work Orders
  • Copyrights©2013CVMark.AllRightsReserved. Step-5 Management By Constraint • Old Practice: The organization ran a large number of improvement projects which led to bad multitasking and thinning out of organization’s bandwidth. In fact, hardly any improvement project delivered higher revenue. • Now: The Constraint Resource was identified and organizational attention was increased on this. – Improved utilization of constraint by 20% – Lead Time reduction by 25% – Increase in Throughput (Capacity) = 20% – Increase in Revenue = 23% 24-08-2013 25
  • Copyrights©2013CVMark.AllRightsReserved. Too often we chase too many techniques LEAN SIX SIGMA BPR BSC ABC TQM OUT SOURCING AUTOMATION DIGITIZATION QBD TPM TPS SQC AGILE KANBAN ERP MRP 24-08-2013 26
  • Copyrights©2013CVMark.AllRightsReserved. Complexity of improvement • Take an example of a plant: – 500 resources – Involved in 100s activities – Producing over 1000 SKUs – 100s open process orders at any time • At any moment there are 100s of improvement initiatives. • Managers are bogged down with a long ‘to do list‘ to chase improvements. • Actually, management attention (the most critical and costly resource) is continuously diluted even if you use Pareto Principle. Q H PM S D Q H PM S D Q H PM S D Q H PM S D Q H PM S D Q H PM S D Q H PM S D Q H P M S D QH P M S D Q H PM S D Q H PM S D Q H PM S D Q H PM S D 2724-08-2013 D
  • Copyrights©2013CVMark.AllRightsReserved. Too many initiatives dilute management attention • Response time of organization becomes sluggish Number of Improvement projects ResponseTimetoexecutechange Brink of Chaos Chaos 28 • Making improvement in Business System becomes very complex • As a results failure rate of improvement projects >70% 24-08-2013
  • Copyrights©2013CVMark.AllRightsReserved. Improvement Projects have not lived upto expectations Measurement Crore Rupees Sales 100 110 Material Cost 40 44 Margin 60 66 Operational Expenses 40 47 Operational Profit 20 19 10% 5% 24-08-2013 29
  • Copyrights©2013CVMark.AllRightsReserved. Strategy for Growth • When there is overwhelming complexity and chaos, Focusing on the right thing is the right strategy. • Focusing mechanism called Theory of Constraints, TOC ideally suits this need. • Further, organizations need to improve the process of improvement itself rather trying to learn each and every new technique of improvement. 24-08-2013 30
  • Copyrights©2013CVMark.AllRightsReserved. Re-viewing Complexity 100 mn units/ month 100 Ton strong Chain 100 units / month capacity chain 24-08-2013 31
  • Copyrights©2013CVMark.AllRightsReserved. Strength of the chain is no stronger than the weakest link… Trying to improve each link is not necessary to improve strength of the chain… But improving the weakest link by 10% improves the strength of the whole chain by 10% 24-08-2013 32
  • Copyrights©2013CVMark.AllRightsReserved. Constraint in a Line Flow Coating 12 hrs Packing 10hrsRM 1 batch per 24 hrs Process Flow for Tablets Compression 24 hrs Blending 8 hrs 24-08-2013 33
  • Copyrights©2013CVMark.AllRightsReserved. Focusing on Constraints Improves Financial Performance Dramatically without Increasing expenses proportionately Measurement Crore, Rs Sales 100 110 Material Cost 40 44 Margin 60 66 Operational Expenses 40 40 Operational Profit 20 26 Sales Up by 10% Profit Up by 30% 24-08-2013 34
  • Copyrights©2013CVMark.AllRightsReserved. Managing by Constraint • Identifying Constraint is the first step • Managing the Constraint requires behavior change – Most of the constraints are not bottlenecks – They are constraints because of the way they are managed • Capacity of a plant is the capacity of its people to see hidden capacity. 24-08-2013 35
  • Copyrights©2013CVMark.AllRightsReserved. Constraint decides the Capacity • An hour lost at constraint is an hour lost for the complete line • Trying to improve anywhere than constraint does not take the organization any where • Organization must take decisions to exploit the constraint • Just decision is not enough, everybody in the organization must subordinate to the constraint. 24-08-2013 36
  • Copyrights©2013CVMark.AllRightsReserved. Baseline revenue Before After In Less than 60 days24-08-2013 37
  • Copyrights©2013CVMark.AllRightsReserved. Results of Capacity Hunt Program • Hidden Capacity Identified within 24 hrs • >60% Capacity Revealed in less than 60 days • Gross Capacity improved by 30% but Revenue increased by 60%... That’s improving direct impact of improving operations on Revenue in a non-linear way. • ….And More Benefits are still coming in; without taking too much risk and without costly trade-offs 24-08-2013 38
  • Copyrights©2013CVMark.AllRightsReserved. Remembering the Laws of Operations • Redefined the definition of Operations: – It is no more cost reduction, firefighting, – Nor it is about quality, safety and health. • Ever Improving Flow is the prime objective • Have a mechanism to know when not to produce • Install a Single Priority System • Must practice a focused mechanism to balance flow 24-08-2013 39
  • Copyrights©2013CVMark.AllRightsReserved. Operational Excellence is a Journey towards achieving Strategic Intent • There are different strategies for growth, sustainability and harmony • Every company has to make a choice • Consider that the world is only going to be more complex and chaotic • A choice, where you can make a difference not by 1%, nor by 5% but by over 20-30% • For some organizations Leveraging Operations is becoming a decisive competitive choice. Why not, if dramatic improvements can be obtained quickly and sustained without costly trade-offs and burn-outs. 24-08-2013 40
  • Copyrights©2013CVMark.AllRightsReserved. Reality • Constraint is not always a resource –It is often a policy • Recruitment policy, purchase policy, maintenance policy, training policy, CAPEX policy, cost control policy, travel policy, productivity policy • Sales, Product Development, Distribution, HR, Marketing, Finance, Strategy 24-08-2013 41
  • Copyrights©2013CVMark.AllRightsReserved. TOC Steps to Achieve Continuous + Radical Improvement Step 0. Identify the Goal of the System/Organization Step 0.5 Establish a way to measure progress to Goal Step 1. Identify the system’s constraint. Step 2. Exploit the system’s constraint. Step 3. Subordinate everything else to the above decision. Step 4. Elevate the system’s constraint. Step 5. If a constraint is broken, go back to Step 1. But don’t allow inertia to become a constraint. 24-08-2013 42
  • Copyrights©2013CVMark.AllRightsReserved. TOC is an improvement technique with cyclic progression Identify Discover Decide Analyze Subordinate Synchronize Elevate Expand 43 System Constraint 24-08-2013
  • Copyrights©2013CVMark.AllRightsReserved. The Process of ongoing improvement Ident ify Syste m Cons train t Explo it Cons train t Subo rdina te to Cons train t Eleva te Cons train t Ident ify Syste m Cons train t Explo it Cons train t Subo rdina te to Cons train t Eleva te Cons train t Ident ify Syste m Cons train t Explo it Cons train t Subo rdina te to Cons train t Eleva te Cons train t Ident ify Syste m Cons train t Explo it Cons train t Subo rdina te to Cons train t Eleva te Cons train t Time Performance 4424-08-2013
  • Copyrights©2013CVMark.AllRightsReserved. The Operating System Hesitation to Improvements Start Implementation Grasping Problem Direction to Solution System Design Setting War room Align Suppliers Poor Behavior Understanding Business Identifying the Core Improving Measurement Purpose Identifying Weakest link Leveraging Weakest Link Setting Operational Improvement Targets Blame Game Vicious Cycle Raw material Stock outs Failing in Purpose Irrational Measurement Leadership @ work Right Behavior People Attrition New Business Model Time Growth Copyrights2012©CVMarkConsulting.
  • Copyrights©2013CVMark.AllRightsReserved. Where to Find More Details? Or Call +91 94480 70081 or write to lolla@cvmark.com 24-08-2013 46
  • Copyrights©2013CVMark.AllRightsReserved. The Biggest Secret ! • Huge Capacity is hidden in organizations irrespective of the industry they belong to. – Pharmaceuticals – Manufacturing – Software Development – BPOs – Education Sector – Food and Grain Distribution Keep following http://time2change.co.in for the forthcoming whitepaper on the generic model of Revealing Hidden Capacity! 24-08-2013 47
  • Copyrights©2013CVMark.AllRightsReserved. Thank You! 24-08-2013 48