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Analyze and Optimize Your Supply Chain Operations for Higher Performance - OMTEC 2018

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The operations science pioneered through Factory Physics provides practical concepts to analyze and optimize supply chain operations. This presentation covers basic approaches for operations science to enhance your world, with all its variability in product mix, demand, people and processes. You will get applications of the science to apply immediately.

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Analyze and Optimize Your Supply Chain Operations for Higher Performance - OMTEC 2018

  1. 1. Strategy. Execution. Profit.Strategy. Execution. Profit. Offer for OMTEC participants We’ll do a free performance assessment proof of concept  You provide the data, we’ll build the model and show you your performance curve(s) and improvement opportunities • We will send you data templates to fill out • Pick a pilot process, data gathering should only take a few hours  Assessment scheduling depends on FPI capacity  If interested, send an email to espound@factoryphysics.com Production Inventory
  2. 2. Strategy. Execution. Profit.Strategy. Execution. Profit. Keep in Touch www.factoryphysics.com  Seminars,Webinars and White Papers available  Next webinar is June 28th at 12PM CDT (UTC -5) • Topic is Chapter 8 in Factory Physics for Managers • Leadership, Measures, and Culture Change • Link for registration: https://bit.ly/2lo3rBy
  3. 3. For further information contact: Ed Pound Factory Physics Inc. Email: pound@factoryphysics.com Phone: 979.846.7828 x151 www.factoryphysics.com 1) Login or become a member 2) White papers and slides available Call Factory Physics Inc. to: Improve your operations or supply chain quickly Train your people in practical science to sustain improvements
  4. 4. Strategy. Execution. Profit.Strategy. Execution. Profit. Agenda  Moving Into the Post-Lean Six Sigma Era: A Science of Supply Chain Operations • Operations Science: A 700 page textbook on one slide • Performance curves for your supply chain • Modern Management approaches and an alternative The following sections are not included in this pdf as they are teaching slides FPI uses for its workshops and client engagements. Summary of learning objectives are provided.  Variability and Utilization  Flow Performance  Inventory Performance
  5. 5. Strategy. Execution. Profit.Strategy. Execution. Profit. Variability and Utilization Learning Objectives  Explored the fundamental relationship between utilization and cycle time  Showed the relationship is highly practical but not widely understood—much confusion exists  Ran a dice game to derive the relationship  Learned the difference between accounting models and operations science models  Explored ways to work with Accounting and Finance to determine best operations science approach for company profitability. © 2018 Factory Physics Inc.
  6. 6. Strategy. Execution. Profit.Strategy. Execution. Profit. Flow Module Learning Objectives  Learned the basic measures of performance for a manufacturing line (Bottleneck Rate, Raw Process Time)  Checked your understanding on the basic relationship between WIP and Cycle Time  Scaled performance from “Best Case” to “Worst Case” and compare to “Marginal Case.”  Derived the Production Flow Performance Curves  Explored a case study
  7. 7. Strategy. Execution. Profit.Strategy. Execution. Profit. Inventory Module Learning Objectives  Described the science behind inventory optimization  Explained inventory optimization and a common error  Explored Multi-echelon Inventory Optimization  Demonstrated predictable inventory control  Recommended implementation practices  Worked Exercises  Modeling Performance Curves forYour Business
  8. 8. Strategy. Execution. Profit.Strategy. Execution. Profit. Conjectures and Refutations  Industry has suffered tremendously for lack of a science of operations  Vendors of Lean, Six Sigma,Theory of Constraints or technology have not provided a general science of operations  In many cases, vendors have increased confusion  Some background  Collect refutations  *See page 339-340 in Factory Physics for Managers for more discussion of conjecture and refutation © 2018 Factory Physics Inc.
  9. 9. Strategy. Execution. Profit.Strategy. Execution. Profit. What is Science?  “An object moving in a straight line will continue moving in a straight line until acted on by an outside force.” Newton’s First Law of Motion  Science is the process of making an observation about the behavior of nature and then relentlessly testing that observation to see if it holds up as a predictive law. • Also the body of knowledge gained through the process  Math is not the same as science. • Software isn’t either Photos by Thomas Quinn
  10. 10. A Simple Test How Good is Your Intuition? Can you predict the effects of gravity?
  11. 11. Strategy. Execution. Profit.Strategy. Execution. Profit. Operations Science Must Be Comprehensive High-Volume Low-Mix National Geographic Mega Factories: Coca Cola
  12. 12. Strategy. Execution. Profit.Strategy. Execution. Profit. © 2018 Factory Physics Inc. Low-Volume High-Mix Tricolite LV Switchgear Assembly Operations Science Must Be Comprehensive
  13. 13. Strategy. Execution. Profit.Strategy. Execution. Profit. © 2018 Factory Physics Inc. Service Operations – Patient Flow Jewish Healthcare Foundation Pittsburgh Regional Health Initiative Operations Science Must Be Comprehensive
  14. 14. Strategy. Execution. Profit.Strategy. Execution. Profit. © 2018 Factory Physics Inc. Service Operations – Product Development Design1st.com Operations Science Must Be Comprehensive
  15. 15. Strategy. Execution. Profit.Strategy. Execution. Profit. © 2018 Factory Physics Inc. Project Management Operations Science Must Be Comprehensive
  16. 16. Strategy. Execution. Profit.Strategy. Execution. Profit. About Factory Physics, Inc.  Core Competencies: • Wrote ‘the book’ on operations performance  IISE Book of theYear • Apply practical operations science through, education, consulting and software. • Accelerate teamwork. Reduce inventory and cost. Improve service. Achieve predictable results quickly.  Global Operations Based in U.S.A • Established in 2001 based on 22 years of research Better results with practical science. © 2018 Factory Physics Inc.
  17. 17. Strategy. Execution. Profit.Strategy. Execution. Profit. Hundreds of Millions of Dollars in Savings, Relentless Testing in Industry © 2018 Factory Physics Inc.
  18. 18. Operations Science “There’s nothing so practical as a good theory.” – Kurt Lewin © 2018 Factory Physics Inc.
  19. 19. Strategy. Execution. Profit.Strategy. Execution. Profit. What’s Perfect Performance?  Meet all demand instantly at minimum cost • 100% customer service always  Minimum Inventory and Maximum Capacity Utilization • As soon as product is produced, customer shows up. • As soon as raw material is needed, supplier shows up. • All labor and capacity are 100% utilized. Highest morale possible. Highest Possible Profitability and Cash Flow © 2018 Factory Physics Inc.
  20. 20. Strategy. Execution. Profit.Strategy. Execution. Profit. Practical Considerations High Profitability Low Costs Low Unit Costs Less Variability High Utilization Low Inventory Quality Product High Sales Many products Fast Response More Variability High Inventory Low Utilization Short Cycle Time High Customer Service High Throughput The Goal for Your Business The Goal for Your Business © 2018 Factory Physics Inc.
  21. 21. Strategy. Execution. Profit.Strategy. Execution. Profit. Practical Considerations High Profitability Low Costs Low Unit Costs Less Variability High Utilization Low Inventory Quality Product High Sales Many products Fast Response More Variability High Inventory Low Utilization Short Cycle Time High Customer Service High Throughput The Goal for Your Business The Goal for Your Business © 2018 Factory Physics Inc.Need a clear framework for understanding what questions to ask.
  22. 22. Strategy. Execution. Profit.Operations science describes your world plainly and comprehensively Two essential components Demand Transformation Two structural elements Stocks Flows Buffers develop when variability is present. Only three buffers: 1. Inventory 2. Time 3. Capacity Demand Stock Production Diagram Operations Science WIP Stock Point Transportation Flow Production Flow
  23. 23. Strategy. Execution. Profit. More variability in production— Less variability in net inventory  (15.00)  (10.00)  (5.00)  ‐  5.00  10.00  15.00 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 Prod Net Inv Target 9.5 units of installed capacity, need 8 units of safety stock. Inventory buffer (base case) Capacity buffer (base case) Time buffer (base case) 10 5 0 (5) (10) Production Net Inventory Capacity
  24. 24. Strategy. Execution. Profit. Low variability in production— High variability in net-inventory  (15.00)  (10.00)  (5.00)  ‐  5.00  10.00  15.00 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 Prod Net Inv 6.5 units of installed capacity, need12 units of safety stock. Target Inventory buffer (base case) Capacity buffer (base case) Time buffer (base case) 10 5 0 (5) (10)
  25. 25. Strategy. Execution. Profit.  (15.00)  (10.00)  (5.00)  ‐  5.00  10.00  15.00 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 Prod Net Inv 10 5 0 (5) (10) Abundant Capacity
  26. 26. Strategy. Execution. Profit.  (15.00)  (10.00)  (5.00)  ‐  5.00  10.00  15.00 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 Prod Net Inv 10 5 0 (5) (10) Less Capacity: more inventory, more backorders
  27. 27. Strategy. Execution. Profit.Strategy. Execution. Profit. Law: Pay Me Now or Pay Me Later  Variability will be buffered.  There are only three kinds of buffers: • Inventory—transform before demand • Lead Time—transform after demand • Extra Capacity—reduces inventory and lead time buffers © 2018 Factory Physics Inc.
  28. 28. Strategy. Execution. Profit.Strategy. Execution. Profit. Of Physics and Factory Physics1 In 2014, Spearman published an application of physics to production/supply chain systems in POMS Journal standard deviation of production or throughput standard deviation of net inventory variance of demand Factory Physics Uncertainty Principle: 1 Can be downloaded at http://www.factoryphysics.com/factory-physics-3rd-edition © 2018 Factory Physics Inc.
  29. 29. Strategy. Execution. Profit.Strategy. Execution. Profit. Operations Science Definition  Operations science is knowledge of the general truths about converting material and labor into goods and services. It is concerned with the fundamental principles governing:  Operations science is also the practical analysis and application of those principals so operations become more: • effective with people and efficient in action • profitable • easily managed • Demand • Cost • Variability • Capacity(machines and people) • Inventory • Time (customer service)
  30. 30. Strategy. Execution. Profit. There are Fundamental Relationships  Little’s Law • Relates basic plant performance measures  VUT Equation • Quantifies queueing effects • Relates variability, capacity, and time buffers  • Drives inventory and service • Accounts for variability in demand AND supply e ea q t u ucc tUV                  12 CT 22 2222 TD dt   Variance of Replenishment Time Demand 𝐶𝑦𝑐𝑙𝑒 𝑇𝑖𝑚𝑒 𝑊𝐼𝑃 𝑇ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡 These should be as intuitive as the law of gravity.
  31. 31. Strategy. Execution. Profit. Performance Curves Exist for Flows Best combination of Revenue, Working Capital, and Response Time Throughput(units/day) CycleTime(days) Work in Process (units) 200 400 600 800 1,000 5 10 15 20 25 5 30 35 40 45 10 15 20 25
  32. 32. Strategy. Execution. Profit. Performance Curves Exist for Stock Points $200,000 $400,000 $600,000 $800,000 80% 85% 90% 95% 100% AverageOnHandInventory Fill Rate Set optimal RM, Kanban, and/or FG for desired customer service.
  33. 33. Strategy. Execution. Profit. Modern Operations Management Efforts Initiative Summary Lean/ Value Stream Mapping Eliminate waste, be like Toyota Six Sigma Eliminate variability and defects LeanSixSigma Combine Lean and Six Sigma Theory of Constraints Manage the constraint Demand Driven MRP Put inventory buffers in your BOMS and supply chains Advanced Planning and Optimization Get lots of data and create an “optimal” schedule that is soon obsolete Manufacturing Execution Systems Collect data about your operations
  34. 34. Strategy. Execution. Profit. Common Experience Subjective Opinions Managers often get caught in this fog because they don’t know operations science.
  35. 35. Strategy. Execution. Profit.Strategy. Execution. Profit. Common Results  Lean failure rates between 50% – 98% • Depending on the “expert” • IW 2007 – 98% of Lean efforts failed to achieve objectives  60% of Six Sigma efforts do not meet expected results • WSJ 2011  90% of megaprojects (>$1B) in construction have cost overruns greater than 50% • 2017 CATO Policy Report © 2018 Factory Physics Inc.
  36. 36. Strategy. Execution. Profit. Post Lean and Six Sigma: Use Operations Science to Gain Competitive Advantage. Initiative Summary Lean Eliminate waste, be like Toyota Six Sigma Eliminate variability and defects LeanSixSigma Combine Lean and Six Sigma Theory of Constraints Manage the constraint Demand Driven MRP Put inventory buffers in your supply chain Advanced Planning and Optimization Get lots of data and create an optimal, obsolete schedule Manufacturing Execution Systems Collect data about your operations Operations Science Tools Technology
  37. 37. Strategy. Execution. Profit.Strategy. Execution. Profit. A Vital Teaching Approach  WRONG “Let’s look at Lean, Six Sigma,TOC, software and operations science and then decide which one we will use.”  RIGHT “Let’s master the science of operations then apply the science so we use any initiative as productively as possible.” First approach is like saying, “Let’s look at accrual accounting, cash- basis accounting, accounting variances and basic math (+, -, x, ÷) and then decide which one we’ll use.” © 2018 Factory Physics Inc.
  38. 38. Strategy. Execution. Profit.Strategy. Execution. Profit. Conjecture Redux Industry has suffered tremendously because a science of operations has not been clearly defined and promoted. Implication: You master the science as a manager and you can quickly improve your supply chain operations.  Refutations? Note: For the OMTEC workshop, there were no refutations. © 2018 Factory Physics Inc.

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