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Operations: Top Reasons for Long Lead Times and What to Do About Them

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Long lead times remain one of the most vocalized challenges that orthopedic manufacturers face today. Customers, profits, plans and personnel are all negatively impacted by them. James Kwan has worked on the OEM and the supplier sides of orthopedics, and shared his ideas and successful experiences to help you optimally respond to lead times, reduce them and ultimately create and sustain an agile supply chain.

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Operations: Top Reasons for Long Lead Times and What to Do About Them

  1. 1. OPERATIONS: TOP REASONS FOR LONG LEAD-TIMES & WHAT TO DO ABOUT THEM James E. Kwan
  2. 2. DESCRIPTION Long lead times remain one of the most vocalized challenges that orthopedic manufacturers face today. Customer, profits, plans and personnel are all negatively impacted by them. SESSION OBJECTIVES MY OBJECTIVE Share with you my ideas and successful experiences to help you optimally respond to lead times, reduce them and ultimately create and sustain an agile supply chain TAKE-AWAYS  Understand industry challenges and opportunities  Gain best practices for small and mid-sized device companies and contract manufacturers  Learn how to nurture Quality-Speed-to-Market partnerships What is an AGILE Supply Chain?
  3. 3. AGILE SUPPLY CHAIN  AGILE SUPPLY CHAIN refers to the use of responsiveness, competency, flexibility, and quickness to manage how well a supply chain entity operates on a daily basis.  An AGILE SUPPLY CHAIN uses real-time data and updated information to leverage current operations and real-time data against demand forecast, which helps to improve the overall efficiency and productivity. AGILE SUPPLY CHAIN Virtual Process Integration Network Based Market Sensitive Market Sensitive  Supply chain is capable of reading and responding to real demand Virtual  Information-based supply chain, rather than inventory-based Network Based  Network based Virtual Market sensitive Process integration. The use of information technology to share data between buyers and suppliers is, in effect, creating a virtual supply chain
  4. 4. 1. Balance of Personal Experience & Industry Perspectives  1000+ years of experience from pre-OMTEC survey participants  Additional years of experience and perspective from audience participation and Q&A 2. Utilize a DMAIC Process Improvement Approach  There is an obvious problem with the process for most companies  There is potential to result in increased revenue, reduced cost and improved efficiency  There is collectable data, multiple options to improve and control lead times 3. Incorporate feedback from my Network & Personal Experience  Pre-OMTEC survey of OEM & CMO experts  15 OEM participants, 10 CMO participants, 5 Other  Validate trends, beliefs, best practice 4. Provide Recommendations & Discuss  Summarize Conclusions & Recommendations  Discuss Strategy, Information & Inventory and Supplier Relationships 5. Confirm that this Session has Met Your Expectations SESSION APPROACH
  5. 5. PRE-OMTEC SURVEY Survey Participants  All in the orthopedic industry  Small & Medium-Sized Companies  Owners/CEOs  C-Suite Executives  Supply Chain Experts/Consultants  Manufacturing/Technology Experts  Venture Capital Investor/Tech. Incubator
  6. 6. PARTICIPANTS’ “HOT” QUESTIONS Anticipated Questions 1. Why are lead-times increasing with suppliers? 2. Why does it matter? 3. What are the best practices? 4. How do they differ for OEMs and CMO organizations? 5. Other specific questions from audience?
  7. 7. QUALITY SPEED TO MARKET Where is your organization feeling the pain? (different solutions based on phase)
  8. 8. REASONS FOR LONG LEAD-TIMES? Demand Exceeds Capacity? OEMs Outsourcing More Mgmt./Policy Constraints Other ? Material Constraints Personnel Constraints Launch Schedule Compression Poor Planning Lack of Supplier Leverage Supplier Quality Make vs. Buy Strategy Supplier Relationships Mergers & Acquisitions Instruments?Implants? Cases & Trays?Customs/Specials?
  9. 9. SURVEY: Reasons for Long Lead-Times Survey – Other Reasons A. Poor supplier relationship management B. Forecast volatility impacting raw material C. Mix of demand vs. capacity & OEM outsourcing D. Many new OEM companies needing CMOs E. Inconsistent demand, large peaks & valleys F. Relationships – OEM/CMO commitments G. Superficial partnerships b/w OEM/CMO Audience – Other thoughts? My Perspectives 1) Demand is high, but there is capacity out there 2) Effective planning minimizes capacity constraints 3) With true partnership LT challenges can be solved
  10. 10. SURVEY: Long Lead-Time Impact Survey – Other Reasons A. Not leveraging CMO core competencies B. Orders are not level-loaded C. Customer satisfaction Audience – Other thoughts? My Perspectives 1) Depends on size of OEM and options they have 2) CMOs are equally frustrated 3) Overall final customer is impacted 4) For new products depends on Phase 5) For legacy products depends on life cycle
  11. 11. WHAT TO DO ABOUT LONG LEAD-TIMES? SOURCE MAKE Vertical Integration Outsource Partners Supplier Management Strategy S&OP Project Management Quality Speed to Market PLAN It depends… Vendor Managed Inventory Supplier Collaboration …on your organization’s priorities & resources Policy Deliver on Commitments Satisfied Customers Company Success
  12. 12. DMAIC PROCESS IMPROVEMENT D Define the business problem, goal, potential resources, project scope Define M Objectively establish current baselines as the basis for improvement Measure A Identify, validate and select root cause for elimination Analyze I C Improve Control Identify, test and implement a solution to the problem Embed the changes and ensure sustainability Why use DMAIC?  Is there a problem & are processes involved?  Is there potential to improve revenue, efficiencies and reduce cost?  Can we collect and analyze data to evaluate solutions?
  13. 13. PROBLEM Severity:  Significant disruption to product availability Business Impact:  Revenue  Customer Satisfaction  Relationships Depts./Units Involved:  Supply Chain, Eng., Prog. Mgmt., Executive Mgmt. DMAIC - DEFINE Define GOAL Goal:  To have predictable supplier lead-times that eliminate backorders, project delays, etc. Business Objectives:  Sufficient inventory to stock sets (launches)  Enough inventory for sales replenishment  Safety stock for inaccuracies in sales forecasts RESOURCES  Supply Chain Interviews  Supplier Partners Interviews  OMTEC Survey  Other SCOPE  For today’s purposes to share perspectives/educate  Going forward what can you change in your world? Define the business problem, goal, potential resources, project scope TOOLS  Process Flowcharts  SIPOC Diagrams/Mapping  Voice of Customer/Supply Partners Questions:  What are your supply chain dynamics?  How do you manage your OEM capacity?  How do you leverage your CMO capacity?
  14. 14. DEFINE – Make vs. Buy  Michael Pfitzmann & Arvind Kaushal – “Make versus Buy: A Decision Framework,” Booz Allen Hamilton, 2006
  15. 15. DEFINE – SIPOC A SIPOC is a high-level view of a process. It stands for Suppliers, Inputs, Process, Outputs and Customers Supplier Input Process Output Customer Person/Organization That provides Input to a Process. Resource that is added to a Process by a Supplier. Series of steps where An Input converts to an Output. Resource that is the result of a Process. Person/Organization that receives product or services.  To give people who are unfamiliar with a process a high-level overview  To reacquaint people whose familiarity with process changes  To help people in defining a new process SIPOC is a tool that summarizes the inputs and outputs of one or more processes in table form.  Suppliers and customers may be internal or external to the organization that performs the process.  Inputs and outputs may be materials, services, or information.  The focus is on capturing the set of inputs and outputs rather than the individual steps in the process.
  16. 16. SURVEY: Vertical Integration of OEMs Survey – Other Reasons A. No additional comments B. N/A - CMO Audience – Other thoughts? My Perspectives 1) Stable legacy products – outsource if needed 2) New product development – vertically integrate 3) Balance volume & overhead absorption 4) Protect mfg./trade secrets/IP 5) Plan for surge capacity
  17. 17. SURVEY: Why use CMOs Survey – Other Reasons A. Blend of Quality, trust and communication B. Relationships – mutual dedication to success C. Brand. Reputation for quality, service & integrity Audience – Other thoughts? My Perspectives 1) Outsource for capacity & special processes 2) Keep new products inside if possible 3) Outsource legacy products to liberate capacity 4) CMOs possess unique competencies 5) CMO business models favor flexibility
  18. 18. DMAIC - MEASURE BASELINE  Current & past performance  Process map of supply chain  Supplier Management Metrics  Data collection Plan  Collect data  Personal experience  Pre-OMTEC Survey DATA  Historical Lead-Times  Implant lead-time by supplier  Instrument lead-time by supplier  Cases & trays lead-times  Cost of Quality  Total Cost of Acquisition  Etc. RESOURCES/TOOLS  Benchmarking  Measurement System Analysis  ERP/MRP  Supply Partners’ Data  S&OP/Integrated Planning  Forecasting Models  ABC Inventory Analysis  Process Mapping CONSIDERATIONS  Compare your data with suppliers  Breakdown L-T for PLAN-SOURCE-MAKE-DELIVER  Breakdown data for A, B & C Inventory Objectively establish current baselines as the basis for improvement Measure
  19. 19. MEASURE - ABC Inventory Management Inventories are not of equal value…so, lead-times have different business impact ABC Classification % of Inventory/Value Controls A items 20% of SKUs --- 70% of sales volume/value tight control B items 30% of SKUs --- 25% of sales volume/value moderate control C items 50% of SKUs --- 5% of sales volume/value simple controls  “A” items are very important. Because of the high value of “A” items, frequent value analysis is required.  “B” items are important but, less important than “A” items  “C” items are marginally important (except during new product launches) Need to choose an appropriate order pattern to avoid excess capacity and/or Stockouts & Backorders ABC Classification Order Pattern Safety Stock A items Continuously build/order minimal inventory B items Periodically build/order more inventory C items Seldom build/order most inventory (*note*) *note* - slow moving inventory leftover from launch
  20. 20. MEASURE – SCOR Assessment T1 T2 T3 T4 T5 Total Lead-Time (Total Cost of Acquisition)  Supply Chain Council – “SCOR - Supply Chain Operational Reference Model” – APICS/ASCM, 2018 Enable (Policies, Practice & Resources)
  21. 21. SURVEY: What CMOs Should Do Survey – Other Reasons A. Honor commitments B. N/A - CMO Audience – Other thoughts? My Perspectives 1) Be honest about capabilities & lead-times 2) Do thorough contract/PO review 3) Be insistent on key information needed 4) Full transparency as partners 5) Prototype capabilities & sub-contract control
  22. 22. SURVEY: What OEMs Should Do Survey – Other Reasons A. Establish realistic launch schedules B. Make commitments to CMO & develop relationship Audience – Other thoughts? My Perspectives 1) Be consistent and build relationships & trust 2) Share information & communicate constantly 3) Improve internal alignment with S&OP 4) Make investments to share risk/reward 5) Quality & capabilities over price
  23. 23. DMAIC - ANALYZE DATA REVIEW  Inspect data & sources  Consolidate and present data  Narrow down & verify root causes GOAL  To perform process analysis to determine the vital few causes of lost time, defects and waste in the process that creates longer lead times RESOURCES/TOOLS  Brainstorming  Time Analysis  Value-Added Analysis  Value Stream Mapping  Cause and Effect Diagrams VERIFICATION  Verify data through process analysis  Process observation & comparative analysis  Confirm root cause(s) Analyze Identify, validate and select root cause for elimination
  24. 24. ANALYZE – Cause & Effect Diagram MANAGEMENT LONG LEAD-TIMES MATERIALMACHINEENVIRONMENT PEOPLE METHOD Policy Practice Priorities Relationships Capacity Additive Mfg. Screw Machines Mill/Turn Coatings Plastic Metal Bandwidth Expertise Talent Cleaning/Pkg. HT/Anodizing Mfg./Assembly Market
  25. 25. ANALYZE – Value Chain Analysis
  26. 26. DMAIC - IMPROVE IDENTIFY  As many solutions as possible  Policy & Practice  Leadership & Alignment  Metrics/KPI Baselines TEST  Do mini testing cycles  Refine ideas  Collect stakeholder feedback TOOLS  PDCA  To-Be Process Maps  Weighted Criteria Matrix IMPLEMENT  Select the best solution  Plan the implementation  Training, documentation & communication Improve Identify, test and implement a solution to the problem
  27. 27. IMPROVE – Option Matrix TIME TO IMPLEMENT COMPLEXITY LESS MORE LOWHIGH ABC Inventory Mgmt. ‘A’ Product Focus/Strategies Shared Planning & Forecasting Mfg. Postponement Integrated Planning (S&OP) ‘B’ Product Focus/Strategies ‘C’ Product Focus/Strategies OEM owned tools & equipment at Supplier Agile Make vs. Buy Policies Agile Supplier Management Policy Design for Manufacturing & Quality Prototyping Capabilities Vertical Integration Investment Better Supplier/CMO Communication Shared Risk & Gainsharing Quality & Metrology Alignment EE Apprenticeship Programs Disaster Recovery Plans Cost of Quality Total Cost of Acquisition Talent Recruitment & Retention Product Obsolescence Vendor Managed Inventory Aligned Leadership & Dept. Objectives New Product Launch/Rollout Plans Process Control Practices
  28. 28. IMPROVE – Tailwinds/Headwinds FORCES SUPPORTING CHANGE FORCES OPPOSING CHANGE Strategic Supply Chain Improvements Tactical Supply Chain Improvements Awareness of Opportunity Impact on Sales Impact on COGS Lead-Time Reduction Impact on Agility Impact on Relationships Disagreement on Risk Cost of more Inventory Margin Erosion Policy/Practice Silo Management What do you want to change & How will you get it done?
  29. 29. SURVEY: Best Practices (OEM) Survey – Other Reasons A. Commitments & relationships Audience – Other thoughts? My Perspectives 1) Everything starts with a true partnership 2) Different tactics for ABC inventory key 3) Tightly coupled information = right inventory Survey – OEM Misc. Comments A. Focus on DFM w/manageable tolerances B. Better leadership/communication b/w depts. C. Shared risk with forecast commitments D. Linked information systems, focus on “A” items E. Minimize schedule changes, agreed upon plans F. Strong two-way partnership & communication
  30. 30. SURVEY: Best Practices (CMO) Survey – CMO Misc. Comments A. Predictable orders key to ensuring on-time delivery B. Reduce multiple redundant inspections C. Shorten planning frequency, accelerate hand-offs D. Design-for-Manufacturability (DFM) E. Reduction of machining operations F. Vendor-Managed-Inventory G. Shared risk & reward H. Forecasting is not enough I. Schedule compression/Laws of Physics Audience – Other thoughts? My Perspectives 1) Treat CMOs as partners and share perspectives 2) Communicate, plan, communicate, plan, communicate 3) DFM and product family strategies for CMO leverage
  31. 31. DMAIC - CONTROL CHANGES  Document  Create QS and/or SOPs  Process maps  Checklists  Etc. ENABLERS  Focus on “Forces for Change” & Change Agents  Celebrate wins, repeat SUSTAINABILITY  Value: Determine what steps are required (are of value) to the customer  Flow: Remove waste in the system to optimize the process to achieve a smoother pace  Pull: Ensure the process responds to customer demand (pull = want)  Perfection: Continuously pursue “perfection” in the process MANAGE & MONITOR  Metrics/KPIs  Response Plan Control Embed the changes and ensure sustainability
  32. 32.  SCOR Model – “Supply Chain Risk Perspective,” Supply Chain Council Customer Facing Supplier Facing COMPANY (OEM or CMO) GLOBAL ENVIRONMENT COMPANY’S ENVIRONMENT CUSTOMER’S ENVIRONMENTSUPPLIER’S ENVIRONMENT CustomersSuppliers Internal Facing • Relationship Risk • Supplier Performance Risk • Human Resource Risk • Supply Chain Disruption Risk • Supplier Environment Risk • Market Dynamic Risk • Disaster Risk • Political/Country Risk • Supplier Financial Risk • Regulatory Risk • Operational Risk • Technical Risk • Financial Risk • Legal/Regulatory Risk • Environmental Risk • HR/Health & Safety Risk • Political/Country Risk • Financial Risk • Distribution Risk • Relationship Risk • Market Risk • Brand/Reputation Risk • Product Liability Risk • Environmental Risk • Political/Country Risk CONTROL – Risk Management Single/Sole-Source Supplier? Business Continuity Risks? Financial Risk? Supplier Mix?
  33. 33. CONTROL – Product Strategy MARKET PENETRATION Trying to increase share of an existing market with an existing product. LOW RISK PRODUCT DEVELOPMENT Extending existing products within existing markets. MEDIUM RISK MARKET DEVELOPMENT Finding or creating new markets for existing products. MEDIUM RISK DIVERSIFICATION Creating new product lines or ranges for sale in new markets. HIGH RISK PRODUCT Present New NewPresent MARKET SUPPLYCHAINCOMPLEXITY NewPartnersCurrentPartners
  34. 34. • Long lead times driven by a number of variables depending on your companyD M A I C Identify, validate and select root cause for elimination  Use Cause & Effect, Value Chain and Force Field analyses to analyze data/options  Get more data if needed but, identify root cause(s) for long lead-times Objectively establish current baselines as the basis for improvement  Look at your incremental and aggregate lead-times for getting product to market  Utilize SCOR process and ABC inventory data to establish performance baselines DMAIC – Take Aways Identify, test and implement a solution to the problem  Select easy short-term solutions, build on success and continue with more difficult solutions  Options for improving lead times range from easy to complex Embed the changes and ensure sustainability  Look at both the CMO and OEM environment for risks & mitigation, establish metrics/KPIs  Control & risk management depends on improvements implemented & company Control Improve Analyze Define the business problem, goal, potential resources, project scope  Utilize SIPOC to define your inputs/outputs and opportunities for improvement  Take a close look at your Make vs. Buy and Supply Chain policies & practices Define Measure
  35. 35. SUMMARY RECOMMENDATIONS  STRATEGY  Know your customer and supply chain options, risks & opportunities  Construct a lean supply chain organization that eliminates waste, variability, uncertainty  Determine your product strategy & then design your supply chain strategy  INFORMATION & INVENTORY  Build tightly coupled information infrastructures (Mgmt., Marketing, Eng., Mfg., Logistics)  Build tightly coupled business processes (Collaborative Supply Chain)  Construct tightly coupled decision support systems  Utilize ABC inventory management analysis  Implement postponement & VMI  SUPPLIER RELATIONSHIPS & RISK MANAGEMENT  Leverage existing relationships, build stronger relationships  Establish true partnerships with mutual benefits/risks  Evaluation the entire spectrum of OEM & CMO risks & mitigate
  36. 36. RECOMMENDATIONS - Strategy STRATEGY EFFICIENT SUPPLY CHAINS (supply at lowest cost) RESPONSIVE SUPPLY CHAINS (respond quickly to demand) Product Design Maximize performance at lowest product cost Postpone differentiation w/modularity Pricing Lower Margins Higher Margins Manufacturing Lower costs via utilization of capacity Capacity flexibility Inventory Low Inventory Buffer Inventories Lead Time Reduce, but not at expense of costs Reduce even if costs high Supplier Based on quality & price Based on speed, flexibility, reliability, quality AGILE
  37. 37. RECOMMENDATIONS – Info & Inventory  Uncertainty is pervasive and degrades system performance in terms of operating costs and customer service levels so, reduce uncertainly through collaborative partnerships and communication!  Inventories are a consequence of system trade-offs and of the design and operation of the supply chain (capacity, inventory, service level) and should buffer unpredictable lead times  Operating policies must be designed carefully because not all customers and products behave in the same way nor should they be managed the same based on product lifecycle and demand  Strategic, tactical, operational decision making must be made jointly with your partners and must consider the effects of uncertainty explicitly. An “I” for and “I” • The less information you have, the more inventory you will need • The more information you have, the less inventory you will need • Customer service, inventories, and capacity utilization: pick any two and the third is determined • Reducing lead-times and system wide inventories without sacrificing customer service and operating costs (i.e., overtime, expediting, etc.) requires a fundamental change to supply chain practices  James A. Rappold, Phd. – “Supply Chain Leadership,” University of Wisconsin-Stout, February 19, 2007
  38. 38. RECOMMENDATIONS - Relationships  James A. Rappold, Phd. – “Supply Chain Leadership,” University of Wisconsin-Stout, February 19, 2007 N/A TYPE 1 Collaborators • Same as TYPE 2, except that parties are routinely involved in each other’s strategic, tactical and operational decisions TYPE 3 Coordinators • Demand and current inventory levels and inventory policies are shared, but otherwise deal at arm’s-length TYPE 2 Cooperators • Same as TYPE 3, except that parties are routinely apprised of upcoming changes by virtue of highly integrated business processes. TYPE 4 Communicators • Orders placed as a response to signals either from forecast or actual use • May be unwilling or unable to do otherwise N/A Level of Decision Systems Integration Level of Business Process Integration Level of Information Systems Integration What’s your relationship with your suppliers? What level of Information & Decision Systems Integration do you have?
  39. 39. CLOSE  Did I address all of the audience’s “hot” questions?  Were my perspectives helpful?  Did the survey data provide verification and context?  What didn’t we cover that should have been included?  Any other comments you’re willing to share? KEY TAKE-AWAYS 1. Find balance demand & choose the right options for different phases of a product’s lifecycle. 2. The best practice is to have real-time information for PLAN-SOURCE-MAKE-DELIVER processes. 3. Select suppliers who have the right competencies, motivation and commitment to a partnership. 4. Partnerships & relationships are CRITICAL for QSTM of both new and legacy products. 5. Use SCOR, DIMAIC and other tools for addressing and anticipating supply chain challenges.
  40. 40. THANK YOU! OPM Consulting, LLC James E. Kwan Owner & Principal Park City, UT Operational Project Management - Supply Chain Management - Organizational Performance Management

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