Introduction to ASR in the Supply Chain


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Our discussion centered around Actively Synchronized Replenishment(ASR) a new way of thinking for supplying chain management. It provides an alternative demand driven approach for planning and controlling mature overflow and contrasted to the poor business results embedded in most traditional material requirements planning systems.

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Introduction to ASR in the Supply Chain

  1. 1. Business901 Podcast TranscriptionImplementing Lean Marketing Systems An Introduction to ASR – Actively Synchronized Replenishment Guest was Carol Ptak Related Podcast: In a Supply Chain, Where is more important than How Much!Carol Ptak is a Visiting Professor and Executive in residence at In a Supply Chain, Where is more important than How Much! Copyright Business901
  2. 2. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsPacific Lutheran University, a farmer and dog trainer. This is afteryears of experience in management at PeopleSoft and IBM Corpas well as many years of consulting expertise. At PeopleSoft, she developed the concept of Demand Driven Manufacturing, as an overall product and marketing strategy to align product development, market awareness, and demand generation. Her innovative approach is credited with significantly improving the company’s position in the manufacturing industry software market and earned her national recognition in publications such as CFO Magazine and the New York Times.She co-authored a chapter with Chad Smith in the Theory ofConstraints Handbook and has authored and co-authored bookssuch as Necessary but Not Sufficient: A Theory of ConstraintsBusiness Novel, The Quantum Leap: Next Generation and severalothers. She has been asked by McGraw-Hill and presentlyupdating Orlicky’s Material Requirements Planning.You can also purchase just this chapter: Integrated Supply Chain(Chapter 12 of Theory of Constraints Handbook).ASR Website: http://beyondMRP.comJoe Dager: This is Joe Dager, the host of the Business901podcast. Participating in the program today is Carol Ptak. Carolhas authored five books on MRP and ERP as well as a book jointlywritten with Dr. Goldratt. She is a past CEO of APICS, a formerVP for PeopleSoft, and a former director with IBM Global Services.She is currently the Executive-in-Residence at Pacific LutheranUniversity. In a Supply Chain, Where is more important than How Much! Copyright Business901
  3. 3. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsCarol authored one of the chapters in the "Theory of ConstraintsHandbook” discussing supply chain and how ASR, the acronymfor actively synchronized replenishment, will meet the currentmaterial synchronization challenges, a step beyond MRP.With that mouthful, Carol, could you start us by just brieflyintroducing yourself and then go into maybe what ASR actuallyis?Carol Ptak: You bet. Thank you so much. I appreciate theopportunity to talk with you today. First, I think the big thing isthat we have to look and say what has changed in ourenvironment? We all know that were in a recession, and a lot ofpeople have focused on the fact that the economic times rightnow are really bad. But what a lot of people are missing is thefact that in manufacturing and across the supply chain that theworld around us has fundamentally changed.Lets look at the software companies. I always look to thesoftware companies as, if you will, the lightning rod to tell uswhats going on in the industry, because they make their moneyby building applications that meet the need of the day.Lets look back at about 1996. The hot thing at that point in timewas what was called advanced planning and scheduling systems,APS. Why did software companies build those in 96? It wasbecause we had excess demand to the capacity that we had inmanufacturing. In other words, we could sell everything that wecould build.Well, now whats happened in the last 10 years? From 1996 to2006, what weve seen is that world has turned inside out andupside down. We had Eastern Europe that came up online inmanufacturing. We had China come on in a big way. TheAmerican manufacturing system became much more efficient. In a Supply Chain, Where is more important than How Much! Copyright Business901
  4. 4. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsWhat weve seen is that now across the world we have excesscapacity. When you add to that this whole advent of the Internetwhere when we get on the Internet, we expect to have anexperience like Amazon, where I order it and its going to tell meinstantly when Im going to get it.If you dont provide it at the price I want to pay and the time Iwant to pay, then Ill just go someplace else. Why can I do that?Thats because I have all this excess capacity out there.So what companies are seeing today is volatility like they havenever had to manage before, and at the same time, they nolonger have the reliability of understanding what the customersare going to demand and when theyre going to demand it,because customers are increasingly fickle.So what weve got is weve got this, if you will, the perfect stormthats come together of excess capacity. Weve got incredibleproduct variety. Think about our product life cycles. Theyregetting shorter and shorter and shorter. We also have thiscustomer craziness thats going on.The world that were trying to live in -- and it started about fouror five years ago -- is that we can no longer afford to build unlesssomebodys going to buy it, which is consistent with what Dr.Goldratts talked about with his concept of throughput.I worked with John Constanza on the rewrite of his book called"Demand Flow," and it was the next generation. As we looked atthat, we said how do we get this signal from the customer toproduction so that I can build as close as possible what thecustomer wants when they want it?What a novel concept, right? This is what lean has been all aboutis how do we make production flow? How do we identify what isthe value to the customer? Thats why we started to look at, andwe said, OK... In a Supply Chain, Where is more important than How Much! Copyright Business901
  5. 5. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsWhen I was at PeopleSoft, we looked at this concept calleddemand-driven manufacturing. In fact, we coined that termthere. Its funny how many people have forgotten that, but thatwas actually a term that was coined at PeopleSoft. As a matter offact, Im sitting here in my office looking at some of the originalposters back when we did that.But in the day, we didnt have the technology...that was backbefore PeopleSoft was taken over by Oracle so that was back inthe, oh gosh, it would have been the 2002, 2003 time frame.So that leadership was already there back in the 03 time frame.And thats actually how I started the work with Demand FlowTechnologies, the DFT guys, the JCIT guys that was founded byJohn Costanza and thats actually how I got into to rewriting thebook, "Quantum Leap," was because of the PeopleSoftrelationship. And actually, PeopleSoft at the time purchased theDFT software, built it into our, our software company. And whydid we do that? Back to that lightning rod of the softwarecompanies, the software companies are going to try to deliverwhat the customers want. And I mean, come on, its all aboutLean. How do you do that?So many of the Lean zealots will say, "Oh, youve succeeded inLean we need to get rid of all the technology." Well its crazy. Imean what do we know? The closer you try to get to customerdemand, you need technology. How do you manage it when youget outside of your four walls? How do you manage signals tosuppliers and your suppliers suppliers and your customers andyour customers customers? You look at the Score model and itsa holistic view. How do you do that in a pull system when all thesystems youre dealing with are push?Joe: I think its a great description. I mean I havent heard itdescribed that well and that concise and I think one of the In a Supply Chain, Where is more important than How Much! Copyright Business901
  6. 6. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsproblems that Lean struggles with is getting outside of their fourwalls.Carol: Well absolutely, because how do you do thatcommunication? Because what have we always been taught thefirst question about inventory and whether youre a Lean personor a Drum, Buffer, Rope person or any of the other techniques,the first thing they ask about inventory is how much? How muchinventory do I need? That question fundamentally is incorrect.The first question you should ask about inventory is where? Thatjust usually sets people back on their heels. I had an opportunityto meet with one of the Apic certification committee heads overthe weekend, last weekend, and I hit him with that concept ofwere tuned to how much and the real question is, "Where?" andhe looked at me and he said, "Youre absolutely right," that its"Where?"Because when you think about it, what will the Lean zealots willtell us? "Inventory anywhere is a waste. So we need to eliminatethe waste." But, what do we know? We know that in a Lean line,you cant run a Lean line more than about 70% because thecumulative variability will catch up with you and youre going tobe starting and stopping the line. So you want the line to runsmooth. Well then the DBR guys are saying, "Well you need toput inventory at the drum."Then youve got the supply chain guys saying, "Well we need tohave inventory out there so that when we pull inventory that itsavailable." Well, it all really gets down to the same question of, is"Where do we put inventory?" Then a second question is, "Howmuch?"Joe: Thats what has made someone like FedEx successful. Theyput the entire inventory at this hub and pull from it with eachspoke. In a Supply Chain, Where is more important than How Much! Copyright Business901
  7. 7. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsCarol: Yeah, absolutely. When you think about, FedEx has thecapability of doing what? Assemble to order out of Memphis andthen delivering it by the next morning. Well why? They put theinventory at the hub. And why is it when we look atmanufacturing we lose that concept? Because if you think aboutit, now Im going to start to dive deep into the manufacturingstuff here, when we look at a bill of materials, what have wealways been taught? Classic APICS education says, "You willsafety stock at the finished goods level if you are a make thestock company to guard against variability of demand or if yourea make to order company youre going to safety stock at thecomponent level, at the purchase part level to guard againstvariability of supply."The reality is that if you can envision there are many bills ofmaterial out there that look like FedEx routing maps where theycome into a hub. Theres a common part there that we make abunch of them and we turn them into lots of different things andall the classic education would say you would never safety stockat an intermediary part because its a make part. What are youcrazy? I know I used to teach this stuff. I was the CEO of APICS,for crying out loud, so I know whats in their courseware; I put itthere.And the thing is, when you look at it, that hub, just like you saidwith FedEx, is exactly the right spot for the inventory to be.What?Joe: But the hub is dependent upon where the usability of thepart is. I mean, you could have several different hubs within yourmanufacturing organization.Carol: Absolutely spot-on. And thats the core behind activelysynchronized replenishment is it says, well, not only is it where isthe hub dependent within your four walls, but where is the hubdependent across your supply chain? In a Supply Chain, Where is more important than How Much! Copyright Business901
  8. 8. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: This is something that should be done company-wide? 20different manufacturing facilities, youre really should have a hubfor a certain part at one of these places.Carol: Absolutely, what we find is that when start to ask thequestion of "where?" what happens is that it causes us to reallylook totally differently at our whole process of planning inventory.So what ends up happening very frequently is that it institutesinventory where youve never stocked it before, but it eliminatesinventory where weve always kept it because thats the wayweve always done it. Think of some of the challenges that wevealways had in inventory. And its "How much do I put?" and thenthe secondary question was always "where?" instead of theopposite way that says "Where do I put it?" and then "Howmuch?"So we see companies that are instituting this conceptual change.Overall, initially the inventory goes up. But when we look veryquickly, in six to 12 months afterwards, not uncommon thatinventory goes down 70 to 80 percent, while, at the same time,on-time goes up dramatically. Its counterintuitive, isnt it?Joe: Yeah, it is. It is.Carol: Yeah. Because what we do is we sort of go, "OK, weresort of in this push me, pull you." We want to focus on this ideaof predictability. So I want to be able to forecast. And at thesame time, I want to be able to focus on my agility, myexecution. So I want to be in pure pull.Well, what do we know? Forecasting and pure pull are at absoluteopposite ends of the spectrum. So how do I do that? And thatswhere actively synchronized replenishment comes in is because itallows us to do both at the same time.Joe: Before we get too far into ASR, Ive got a couplesupply-chain questions. When people are looking at pull, theyre In a Supply Chain, Where is more important than How Much! Copyright Business901
  9. 9. Business901 Podcast TranscriptionImplementing Lean Marketing Systemslooking at it, even though its supposed to be customer-driven,really, they pick a control point within the company. Is ASR stillbased on something like that?Carol: It is a control point, to a point. It would be probably adifferent kind of a control point than what the traditionalsupply-chain approach would be. And again, were always lookingfor that FedEx hub inside of a company. And that requires ananalysis of the bills of materials to understand, where is thatpotential buffer that I can put in there and dynamically size,based on our forecast, but thats OK, that I can put a smallinvestment in inventory and get a huge return on thatinvestment?Joe: Thats really kind of a central thought of what Dr. Goldrattexplained in, his latest book, "Isnt It Obvious?" isnt it?Carol: Its partly that, but it actually goes beyond what Eli talksabout. This is going to surprise you. It really goes back to whatJoe Orlicky wrote about when he did the original MRP book backin the 70s. If you go back and you read the original text of JoeOrlicky, who wrote the bible on MRP, you will see in there anextensive discussion about replenishment. That wholereplenishment discussion was taken out when George Plosslupdated the book in the 80s. But whats interesting is that--or atleast its interesting to me--I was approached by McGraw-Hill,and Chad and I were asked to update Orlickys book, and wesigned a three-book deal with McGraw-Hill to take Orlickysoriginal book, the Plossl update, and bring in the new rules forthese planning systems that allow companies to becomedemand-driven as they move forward. And what Chads and myplan is were bringing back a lot of the original text that Orlickywrote back in the 70s. The man was absolutely a genius.Joe: Hes kind of like the Deming of the supply chain. In a Supply Chain, Where is more important than How Much! Copyright Business901
  10. 10. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsCarol: He is. He passed away before he actually saw thetechnology be capable of doing the things that he talked aboutback in the day. He truly was the pioneer and the innovator. Andhe didnt understand how we were going to do it at the time, buthe knew that we had to. Like I said, if you back to the originaltext, and I still have the little orange book here, well see in therethat he talked extensively about replenishment. That was beforeGoldratt ever wrote the book, "The Goal."Joe: Its kind of like Jules Verne didnt understand how we weregoing to go that deep in the sea or that far to the Moon, but heexplained how to get there, just about.Carol: Absolutely and its funny because, think about, Joe, whatnormally happens in Lean. There are a lot of people that say, "InLean, you are successful in Lean if you get rid of your MRPsystem." How many times have you heard that?Joe: Oh, yes. You hear that fairly often.Carol: On one side, youre saying, "We need to ignore MRP. Youneed to produce totally to demand." Right? But on the other side,youve got your purchasing guys going, "Wah! Cant do that! Ivegot to utilize MRP because I have to have visibility to my totalrequirements, because my total lead time to get parts in here islonger than what the customers willing to wait, or what we referto as the customer tolerance time. So that means that I have tohave some visibility about, what are you going to do?" Lean isreally good. I always tell my students that its like landingairplanes at Chicagos OHare Airport. Its really easy to shufflethe schedule when theyre up there, but youve got to have theplan to get them in the air. You cant just say, "OK, weve got alanding strip available right now. OK, take off from Seattle." Well,no, it takes five hours and 12 minutes to get from Seattle toChicago. Now, the exact time when its going to arrive? Hey, weall know, you never know. It could be plus-minus, what, an hour? In a Supply Chain, Where is more important than How Much! Copyright Business901
  11. 11. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsExactly the second when its going to land? You dont. So you stillhave to plan. So youre in this "push me, pull you" again of youhave to produce to demand, and at the same time, you have topurchase long-lead parts. When you do both of those then youcan truly be agile to the market.So it sets us up in this conflict of "Im going to ignore MRP, or Imgoing to utilize MRP." And Ill have people say, "Well, weunplugged our formal system." I saw a lot of Lean guys outsaying, "Oh, were going to get rid of the systems. We dont needno stinking computer systems." Well, what they end up doing isthey drive them underground, and whatll end up happening isyour purchasing guys are using Excel spreadsheets to plan stuff.And if it walks like a duck and quacks like a duck, its still a duck!Its still MRP! But now youve complicated your IT landscape bypulling it into an Excel spreadsheet. Now youre created morecomplexity in a company, with the goal being you want to reducewaste.Joe: Its interesting how replenishment is the key term. Whatwere really looking at and were saying, instead of, when youthink of fulfillment or supply chain, its really zeroing in on thatword "replenishment."Carol: Replenishment, from the perspective that Orlickydiscussed back in the 70s, so that nobody gets confused,because theres a lot of different views of replenishment,including Elis last book, the understanding that we now have ofreplenishment is deeper than the "Isnt it obvious?" Thats apretty simple replenishment. What ASR does is theres a muchdeeper level. I just came back from the TOCICO Conference. Wehad quite a conversation about replenishment. Only a bunch ofTOC folks "Can we sit around and talk for four or five hours aboutreplenishment," but we can. In a Supply Chain, Where is more important than How Much! Copyright Business901
  12. 12. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: Give me the relationship between ASR and TOC becausetheyre looking at a hub. You look at that as your constraint?Explain that relationship a little bit.Carol: Thats a good question, Joe. Think about what Lean andTOC--and the pull mechanism is called drum-buffer-rope--bothhave in common. Whats the issue? Well, drum-buffer-ropeactivates resources when the drum, which is the constraint,works. So you dont release material any faster than the drumcan do its work. A Lean line can only work as quickly as the wholeprocess flows, right? Because what Lean does is it strips theinventory out such that the whole line then becomes theconstraint, if you will, so that the whole thing is either running orits out, its done. OK?So now, what do both have in common as an issue? How do I getthe materials? How do I enable material planning in this pullenvironment when everything on the materials side is in a pushworld? Thats really it.The difference between the TOC view and the Lean view is reallythe same. Theyre both pull techniques because, when you thinkabout it, if you take TOC, the drum-buffer-rope side, the buffer issized for the variability in the process. And what happens, whenyou take enough variability out of the process, drum-buffer-ropestarts to look a whole lot like a pull line, a Lean line. Becausethats the only reason the buffers there is because there is somekind of volatility that is causing that line to shut down, and thatscalled the constraint.Joe: So youre saying that, since youre living in a push world,you still have to stock that buffer, but you just have to stock...Carol: Well, were living in a pull world. Thats the problem. Thatreally is the core of the problem is we are living in a pull world. In a Supply Chain, Where is more important than How Much! Copyright Business901
  13. 13. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsCarol: So the push rules dont apply anymore. Think about thetechnology that were using at every company. Its like rings on atree. We were able to do advanced planning and schedulingbecause we had ERP, enterprise resource planning. We could doERP because we had MRP II, manufacturing resource planning.We could do MRP II because we had closed-loop MRP. That was ahuge deal, when we could put material and capacity together.When we got to MRP II, we added the financials. As I always tellmy students, "Good news is its integrated. Bad news is itsintegrated."Well, we could do closed-loop MRP because we had MRP, right? Imean, that was back in the 70s, and that was when we had tospec the software first and then wed implement it. I lovelistening to people complain now. Its like, yeah, back in the oldday, we had to write the spec first, write the software, and thenimplement it. But if you peel MRP back, it was BOMP andde-BOMP, back in the 50s. If you look back in the earliest days,the first MRP system was called a BOMP processor, was written atthe Castle Company up in Rochester, New York. Dick Ling wasone of the key architects. IBM was in the middle of it. And theywrote it in 8K of memory, because thats all we had.If you peel that back even further, whats at the center of BOMP?Inventory. What was the assumption? "Im going to have thisinventory everywhere." Its an inventory-driven system.Well, if you think about the fact that we now have more marketvolatility, we have excess capacity, and weve got these crazy,fickle customers, and our product variety has gone skyrocketingcrazy, whats at the center of all of our approaches today, all ofour business rules today, demand? The current systems, were allfighting. Whether youre Lean or youre TOC, everybodys fightingtheir systems, because the two underlying cores are very, verydifferent. In a Supply Chain, Where is more important than How Much! Copyright Business901
  14. 14. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: I have to agree with you, in theory. But the difficultyis--lets go back to the hub. Youre still basing your hub on aforecast, a guesstimate?Carol: Absolutely. But, if Im going to put a hub based on aforecast, and then Im going to monitor it based on agreen-yellow-red replenishment level, what we find is that theamount of inventory I carry is significantly less because my firstquestion was "Where do I put my inventory?" instead of "Howmuch?"Joe: So youre saying, since youre pulling from the hub, thatthe pull is spoked out to so many different sources that you havethe ability to react quickly, have a significant amount, monitorthat, and that makes that pull demand work.Carol: You bet. Think about a break well in a marina. You and Iwere talking about the ocean earlier. Where I used to live, I livedright on the ocean, but where we lived was on Puget Sound.Puget Sound is a very protected body of salt water out here inWashington State. The break walls we have in a marina, in otherwords to protect all of the hundreds and hundreds of veryexpensive boats in the marina in Puget Sound, theyre very, verysmall. Well why? Because, our waves dont get that tall. Now as Igo out to the ocean where weve got the big waves coming in, Imean the winter storms out here are just incredible, those breakwalls, its not uncommon to be fifty, sixty, seventy feet tall. Well,back to the volatility that a company sees. I need a break wallbut the more reliable my demand patterns are, smaller the breakwall, the less reliable, the bigger my break wall but I only needone break wall to protect.And thats what we see is that when we discover where to put theinventory, it protects hundreds and hundreds and hundreds ofboats. As opposed to the old days what we would do is that itwould have changed the docks, it would have caused the docks In a Supply Chain, Where is more important than How Much! Copyright Business901
  15. 15. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsfor each position where each boat was moored up rather thanputting in one break wall. And thats the difference.Joe: How do you make ASR work then, thru software?Carol: Well there is software thats required, but theres a lot ofdifferent software that could be ASR compliant but right now its,its a concept. Thats, as we discussed earlier, Im a thoughtleader and Ive been thinking about, back in the early 2000sabout how to enable companies to become demand driven, thatwas our vision at PeopleSoft, thats the reason we bought FACITof Demand Flow Technology, we built a lot of pull stuff in but thetechnology had not quite gotten there before Oracle took overPeopleSoft. I had a lot of people say, I was at the APICSInternational Conference in 2000, I think it was 2008, and theysaid, "OK Carol, what have you been doing for the last sevenyears?" And I said, "Well besides sitting on a tractor, Ive beensitting and thinking," and I presented it and I came into theAPICS International Conference expecting to see maybe twentyor thirty people in the room and I was shocked when I stood upto speak and there was four hundred people there.Describing this concept and several of the software companieswere very, very scared. Theyre going, "This is fundamentallydifferent." I said, "Yeah, I know." But its been interesting to havesome conversations with them. There is a tool that is ASRcompliant. There is a software company out there that does haveand ASR compliant tool but ASR, the concept ASR is just that itsjust a concept.Joe: Now, putting it into practice, what have you found thedifficulty?Carol: Probably the, the most difficult is when Chad and I spenttime with people describing this, weve done eight hour seminarson this, it takes us about five hours or the eight hours to describethe problem. Because most people dont understand how their In a Supply Chain, Where is more important than How Much! Copyright Business901
  16. 16. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsMRP systems work. Thats the biggest problem. Thats the reasonwe went to, we actually went to McGraw-Hill with a proposal towrite a book on ASR. They looked at the table of contents andthey said, "Gee, 60% of this books on MRP." We said, "Wellyeah, because youve got to understand the problem before youcan understand the solution." And they said, thats when theycame back to me and they said, "Well youve written about MRPand ERP and Lean and POC and would you consider takingOrlickys MRP book and updating that?" I was like, "Gee, thatslike being asked to write the next New Testament in the Bible, ofcourse, Id be honored."Thats probably the hardest part is that people do not understandhow the system works. Think about it Joe, you talked about this alittle while ago, in the old days, we had to specify the system,then we wrote the systems in house, then we implemented them.Well in the eighties, that became the time for commerciallyavailable software or commercial opt-in software were cut. Wellnow, today in a company, it is rare to find somebody that has adeep level of understanding about how MRP works. Even atsoftware companies they dont have a whole lot of people todaythat know how MRP works.Joe: Im trying to remember, it was probably mid-eighties that Itook an American Management course on MRP. And Im not evensure MRPII was around then or not, I think it probably was, but Ijust had a basic fundamental concept of MRP and really trying tofind software to implement it was difficult.Carol: It was, it was. And then it became, remember we went toclient server and then thats when the software companies allstarted to change because we had the first PC based MRP system,and Fourth Shift was the first software that could actually do MRPon a PC and I remember buying Fourth Shift before they evenhad an MRP module. But in todays software, the big softwarecompanies the numbers of people that can understand truly to a In a Supply Chain, Where is more important than How Much! Copyright Business901
  17. 17. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsdepth MRP are, is a small handful. Even in the larger softwarecompanies. Theyve built on it again, like that tree growinganother ring.People are using it and theyre not complaining well then werenot going to pay any attention to it, and then you think about acompany the size of an Oracle or an SMP or a Microsoft MRPsystem, are they going to go in there and start buggering aroundwith whats going on in the MRP module? I dont think so. Thatson of a gun touches every corner of a system; theyre not goingto go screwing around in that. Theyre going, "Its working. Imgoing to leave it alone."Joe: I see such significant efforts by methodologies such as Leanand Six Sigma to improve in these areas and is that the wrongapproach for most?Carol: No, what were seeing, it was interesting when I was atthe last TOCICO Conference. Its the companies that embraceLean, Six Sigma and TOC together, are seeing several orders ofmagnitude better results than companies that are implementingeach one alone. The reason is that what TOC brings to the partyfor the Six Sigma guys is that where is that variability? Where isthe variability causing the impact to the overall throughput tobring focus to the Six Sigma folks so that they can come in andeliminate that variability because then if I can eliminate thevariability on the TOC model then inventory goes down. Thenunder the Lean side, then well how do I eliminate the non-dailyallotted activities? So, that its been sort of fun at Shelby to behonest cause Im sort of like a child of no world. My first bookwas "MRP and Beyond."Then, I wrote to ERP books but in between the two ERP books iswhen I wrote the TOC book with Eli. So I didnt belong to the MRPcommunity cause oh heavens, I actually wrote a TOC book with I In a Supply Chain, Where is more important than How Much! Copyright Business901
  18. 18. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsmean like, the head devil himself, right? I mean from an MRPperspective.Joe: What was the name of that book?Carol: That was called, "Necessary but not Sufficient," that Iwrote with Eli. Then after I wrote "Necessary but not Sufficient,"then I came back and rewrote the ERP book. I wrote the secondedition of my ERP book which was, the subtitle on that was,"Tools, Techniques and Applications for Integrating the SupplyChain." So where ERP was usually considered just within our fourwalls, that book takes a supply chain view. Well then after theERP book came out, the second edition of that came out, then Iwent over to PeopleSoft and got involved with the great folksover at JCIT and started talking to them about DFP and John justhated that. He used to wear an MRP button with a not symbolthrough it. Remember the red circle? With the red line?And he would wear that. And its like here they are, lets talk, ohmy God, theyre an MRP, ERP company at PeopleSoft and so wewanted to rewrite "Quantum Leap". And so we did. And so whenyou read "Quantum Leap," youre going to now see in "QuantumLeap the Next Generation," if you know TOC and you read thatbook, youre going to go, "Somebody with a TOC backgroundrewrote that book." But I was never fully accepted into the Leanworld because Id written the TOC book and I knew about MRP.So its fun to me now, and here we are in 2010, its like Ive beenan orphan of all worlds and now all of a sudden Im getting a lotof company. Cause people are seeing the synergy between thetools. We are living in this pull environment. We are living, bynecessity we have to become demand driven to survive.Thats what ASR is all about. It is how I can get into markets sothat I can build more quickly to demand with fewer resourcesinternally. In a Supply Chain, Where is more important than How Much! Copyright Business901
  19. 19. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsWhen you have the inventory place properly in a position where itcan be completed within my costumer tolerance time. So thinkabout how Dell computers assemble their computers. Everybodythinks that the Dell computers are made this order. They arereally not, they purchase their component to-stock and then theyhave a buffer of an assemble laborers, so then when you thenplace your order for Del computer which coincidentally all theconfigurations that you can do are the material that Dell currentlyhas on hand or coming. Then they assemble your computer toorder and get it out the way, how do they do that? Well theyhave a buffer of assembly labor that has got in this country. Andthen the parts would come in to buffers based on forecasts.Joe: One of the complaints about Dell I think always has beensure they run a negative inventory turns but they shifted theproblems to the venders. In ASR, are we not just shiftinginventory someplace else down the line.Carol: No, actually what we are doing is actually eliminating it.We are actually eliminating it and what we are replacing it with isspeed and its had the ability to be able to respond more quicklyto demand and be within costumers tolerance time. So actually itis true improvement because the inventory is truly gone I am notjust shifting this. Remember when Lean first started? What dideveryone do? Hey those are the Lean suppliers they bring us theinventory once a day. Then you go back to the supplierswarehouse and had a boatload of inventory.Is that truly Lean? I dont think so. So what happens is the bufferis that break wall, it eliminates that variability. If can eliminatethe variability upstream that I dont have to carry muchinventory. So in fact, what happens is there is a synergistic effectto my suppliers; my suppliers can carry this inventory. So notonly am I not shoving inventory at them, I am actually helpingthem improve their overall operation. In a Supply Chain, Where is more important than How Much! Copyright Business901
  20. 20. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: Can this work in small companies too?Carol: Absolutely, it is actually pretty quick in a small company,because it is much easier to find those decoupling points. Thebigger companies we have to do some what if analysis of "Whereis this." Chad right now is dealing some work with the companywhere they are taking a look at the analysis to those materialsafter bill had been buffered using ASR versus the traditional andwhat would the net resulting inventory be, so the six months theyare taking into do that analysis in the smaller company we wouldhave been done.Joe: That reduction takes place as you are monitoring. You aregetting smarter about the monitoring and reducing variability bywatching is the next step. You go through that process whathappens when you get caught? I mean what happens when thereis a fluctuation outside of your control that causes a spike orsomething. Does that upsets the system and do you short-circuitit or how do you handle that?Carol: No, what happens is that we all know about those orderspikes with come in. What we do we actually knowledge themand incorporate that into a one-time adjustment in the buffer,because what we do is first we decide is where we the inventoryis going to be. Now Ive got very specific control points and then Imonitor those buffers so instead of trying to manage everythingIm managing only those key things that I have to. If I know thatan order spike coming in you dont turn our back on it, it goesinto the plan. You say, I know I have got the spike coming inbecause usually those wacko order spikes come in with additionallead time to respond to them. So we dont allow just stick ourfigures in our eyes and hum we ignore it, OK we have got lot ofspike coming in and its here so let’s see what we have to do youplug it in and it plans for it.Joe: What types of companies are most adaptable to this? In a Supply Chain, Where is more important than How Much! Copyright Business901
  21. 21. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsCarol: Well it is usually the companies that have a lot ofvolatility that they are trying to manage. If the companies thatare have rebuilt the materials. One of the companies that actuallyimplemented this, is the company called LeTourneau, out ofTexas. They make the oil-drilling platforms. And theyve done agreat job with it. Theyve been able to implement it across theirsupply chain and have just gotten phenomenal results with it.Some of the idea was is that their inventory has skyrocketed.This is a company thats grown from about a $100-millioncompany to over 600 million, and their inventory has actuallyonly increased by a factor of like 50 percent over what theiroriginal start was. So management and inventory that onlyincreases by 50 percent, for a company whose revenue went up600 percent. So, I think thats pretty dramatic.The companies that really do best are companies that have areally highly repetitive build. That doesnt mean that it has to bea repetitive product. My last plant that I ran was an aerospacecompany, and we made all the overhead bins for the Boeing 737sand 757s. Well, wouldnt you think that those things would berepetitive? They all look alike, right? Theyre not. We built one of85, 000 different configurations every day.What we built today didnt look like yesterday, and it sure didntlook like tomorrow, because every airline has a different-colorinside, and the hole patterns that are on the back that attach it tothe fuselage are totally different. I was a Lean zealot at that pointin my career, and I was like, "Oh, were going to pull everything!Were not going to use no stinking MRP system!" Then I realizedthey only had a 10, 000-square-foot plant, and I had 85, 000different configurations to build. I had no space to hold the entireinventory.So I had to go do MRP. Thats actually where this thing allstarted, and this was back in the 90s. This was in the early 90swhen we were doing this. That was actually my very first APICS In a Supply Chain, Where is more important than How Much! Copyright Business901
  22. 22. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsInternational presentation that I ever did. It was in Montreal. Idid a presentation on "Yes You Can: An Aerospace Case Study."What we recognized is that the process that the bins go throughis repetitive. The product is not. So that sets up a whole differentdynamic. Our drum was the thermo-former, which is used tomake the face plates that go on the bin doors. That had to runtwo shifts, but the rest of the plant could run in one.And so heres a plant that I decided, I was all gung-ho, was goingto be a Lean plant. That was it. I mean, this was in the 90s.Womacks book was out. Costanzas book is out. Its all the hotrage. I ended up using TOC, Lean, Six Sigma, and MRP, in the90s. So it was crazy.So, an environment thats got that repetitiveness, thats either aproduct or process, especially in an environment that you getrewarded for shorter lead times, if your customers have a valueto you being able to deliver it more quickly, is a greatenvironment for ASR, especially those that use the samepurchased component. If I use component and use it in lots ofplaces or if I have a made component that I use in lots of places,this works really, really well.I I have really deep and complex bills, a lot of aerospacecompanies, not uncommon to get a 15 to 20-level-deep bill.Companies with really complex routing like a food processor.Oregon Freeze Dry has done a great job with ASR. They used touse MRP with the standard batch sizes. Their Mountain Housedivision, their sales increased by 20 percent, and theircustomer-fill rate went up to 99.6 percent, and they reduced theirinventory at the same time by 60 percent.This, again, is one of those counterintuitive things. You say,"Well, if Im going to increase sales, I need to increaseinventory." Well, no. Its just like LeTourneau. They went up by a In a Supply Chain, Where is more important than How Much! Copyright Business901
  23. 23. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsfactor of six, but their inventory only went up by about 40 to 50percent. You cant afford it. You just cant afford that inventory.Joe: Thats always my argument. In Marketing Concept, I arguetill Im blue in the face and everybody looks at me like Im crazy.To increase sales doesn’t mean you should add more people toyour marketing funnel.Carol: Exactly. Well, we can get into a whole thing on how to domarketing, too.Joe: I look at that because what Im sitting here thinking aboutis this. I keep going back, though, to a bigger picture of ASR,because I keep thinking, as Im walking through this shop, Imnot necessarily looking for the bottleneck. Im sitting here lookingfor the commonality, the things that are common within mystructure.Carol: You have hit it spot-on. I love you! Youre wonderful! Imsitting here with my hands stuck up in the air like touchdown.Youre exactly spot-on. This is not a TOC concept. And thats thehard part, that it came out in the TOC handbook, becauseeveryone goes, "Oh, it’s a TOC thing." No, its not. Actually, itsreally counter to... You expressed it perfectly. We arent lookingfor the constraints. Were looking for the commonality.Joe: If we had multiple lines, you could funnel three lines intoone point and manage that point effectively and then funnel themback out to the rest of the structure.Carol: Right. Its an enablement. It is the enablement, from thematerial perspective, for all the pull techniques that are outthere, whether it be Lean, whether it is TOC, drum-buffer-rope,simplified drum-buffer-rope. All those techniques, you always tripup on the materials. And youre right; youre looking for thecommonality, and then put the lever at the end. In a Supply Chain, Where is more important than How Much! Copyright Business901
  24. 24. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: I got it solved.Carol: Youre done! Youre done! You got it! But Joe, itscounterintuitive, isnt it?Joe: It is.Carol: Its against everything that weve been taught. Its trulythat elegantly simple. It addresses this flip-flop that weve seen. Ilove going out to talk to executives, and they say, "Well, whenthings get back to the way they were..." I look at them and go,"Youre smoking dope!"Joe: Its never going to happen.Carol: "It is never going to get back to the way it was. What areyou, crazy?" Youve got to deal in this new world. If you dontbecome demand-driven, youre going to die!Joe: How many times you sat there and said, "This customerdoesnt really understand. He doesnt do that." It doesnt makeany difference. Hes still writing the check.Carol: Thats right, hes still the customer. We always had asaying when I was running the Steuben Group. We had what wecalled rule two. Rule two was "The customer isnt always right,but they still are always the customer."We were never allowed to speak negatively of the customer. Atthe end of the day, the only competitive advantage available to amanufacturing company today, theres only one, and that is toexploit what we can do uniquely, from an operational perspective,that provides value to the customer and a profit to ourselves.Thats it. Its that simple. You have to exploit what you can dooperationally, to provide value to the customer and a profit toyourself. In a Supply Chain, Where is more important than How Much! Copyright Business901
  25. 25. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsWhat ASR does is it enables an incredible, unique operationalcapability that you can then expand across your supply chain thatbenefits all the links in the supply chain. When I was at SCOR,the Supply Chain Council, and they would talk about, "Oh, thesupplier doesnt understand." No, the supplier doesnt see thebenefit. Who are you kidding? Companies will collaborate if andonly if they see the benefit to it. Theyre not going to do it justbecause theyre good corporate citizens.Theres no altruism in capitalism. Theyre going to get togetherbecause it benefits them. And so if I can show my supplier how,by instituting ASR across their supply chain, that theyre going tohave a higher fulfillment rate at a lower inventory, theyre goingto jump on board, of course. Theyd be stupid not to.Joe: Lets say ASR is implemented. Is there a difference in thetype of alerts or things like that, or the buffer status, that youhave within that central location, versus, lets say, typicalmanagement of inventories?Carol: Absolutely. Because what happens is, with a typicalmanagement of inventory, we never go back and look at theplanning factors: the lot size, order quantities, lead times and allthis. The second step of ASR is that theres dynamic, buffer-levelprofiling and maintenance. So its a closed-loop process. Itsreally a very Six Sigma process that says, as our variabilitycomes down, then we will tend to stay in the green, or what werefer to as "Over top of green," OTOG. And so, when you seethat, you then go back and you then resize that buffer, so wehave dynamic buffers. So it really is very consistent with the SixSigma approach. Im absolutely a W. Edwards Deming bigot. Iloved his stuff. I had a chance to meet him personally, that Iwasnt able to exploit, and I have been upset since that I nevergot the chance to meet the man personally. I am absolutely aDeming bigot. In a Supply Chain, Where is more important than How Much! Copyright Business901
  26. 26. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsAs you look at variability, and you start to understand variability,then what does that enable you to do? This drives people crazy.Ill close shop orders and allow the variances to just drop as youwould normally allow, then take those variances and put them inan SPC chart. Then, start to take a look at whats my varianceover time? That whole idea of looking at what is my variability,how predictable has my process become, allows us to be dynamicin our buffering.Then the buffers will change. Once the buffers change, now Ivegot that brake wall, so that I can enable the full base commandcenters. That is how I become truly commander of it.Joe: It keeps shrinking my inventories as time goes on.Carol: Right, without negatively impacting my operationalexecution. That is how Orga Freestrye has done it. I gave himsome numbers on the Mountain House Division. It is absolutelyphenomenal when you think about the ability to increase sales 20percent and fill rate went up from about 80 percent to 99.6percent with a 60 percent reduction in inventory. They also havean Industrial Ingredients Division, which is more made to order.They now have 100 percent on time delivery with a 60 percentreduction in their lead time and a 20 percent reduction in theirinventory.Joe: Those examples are in the TOC Handbook, are they not?Carol: Yes, they are. These are some folks that are allowing usto talk about them. Not everybody that has implemented willallow us to talk about it because they view it as their competitiveadvantage, and it truly is. But, it is only interesting when youthink about what other sorts of competitive advantage. When Iwas running the Steuben Group, they wanted an APICS tour. Mypresident was just livid. He said, "No, are you kidding?" Our littleAir Space Division was about 23 percent of the companysrevenue; we were about 85 percent of their profits and 92 In a Supply Chain, Where is more important than How Much! Copyright Business901
  27. 27. Business901 Podcast TranscriptionImplementing Lean Marketing Systemspercent of their cash flow. We were like the crown jewel. He said,"No, no, we cant allow them to come in because our competitorswill come in." I said, "Its OK." He said, "No, no, no." I said, "No,its OK." And we let our competitors come in.They had cameras, we let write down serial numbers, let themtake pictures of the shop, didnt care. We showed themeverything that we did. This was the Division we were running;TOC, Lean, Six Sigma, the whole bit in the same place. I said,"Well be OK." Within a year, we owned them, literally. They wentout of business and we bought them. They saw what we did andthey went back and tried to mimic us. They didnt understandwhy we were doing what we were doing.It is the same thing with Antoine; he didnt understand why I putthat inventory in that location. What is it buffering for me? Theconcepts are public domain. Its already out in the TOCHandbook. It will soon be out in Orlickys MRP 3.O. Its publicdomain.Thats the reason I write books, I hate writing books, my leastfavorite thing in the world to do. It probably sounds funny forsomebody that has written seven of them. I hate it, but its a wayto get the concepts out there, so that I dont have to go aroundthe world. Personally, I would much rather sit on my farm and siton my tractor.Joe: Is there something you would like to add about ASR that Idid not ask?Carol: No, I think you did a really good job of getting throughwhat was the history behind the change. Your intuition about thatstatement that you said, "Im not looking for the bottleneck, but Iam looking for the similarities", was spot-on. That is probably thebest articulation I have ever heard. People struggle with this andgo: "Huh? Its counterintuitive." In a Supply Chain, Where is more important than How Much! Copyright Business901
  28. 28. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe: Yes. Part of my problem during the interview is that I wassitting there trying to relate it to Theory of Constraints, but I wasnot getting there.Carol: Well, it isnt there. It is just coincidental that it justhappens to be in there because ASR enables any pullmethodology, whether it is Lean or drum-buffer-rope, orsimplified drum-buffer-rope. It is really independent of the fullconcept that it is supporting. This is what the Lean guys havebeen waiting for.Joe: You moved the control point or you moved the -- Imcalling it the control point, which is really not the word. Youremoving the hub to a point of non-variability.Carol: Correct.Joe: Then you can manage the mura and the muri, and thatswhat makes it work, and the waste appears.Carol: Absolutely. But what appears is the significant waste.Theres the key, because waste, the whole muda thing, is definedas anything that customers are not willing to pay for. But if Ieliminate all muda, have I really impacted my bottom line? Allmuda is not muda. Some of it is going to cost me more to get ridof it than its costing me, so leave it there. I was in one companyonce. They toured me through, and they said, "Youre a leanperson." I thought, "OK, Ill be a lean person for you if you wantme to be a lean person." They said, "Because you wrote the bookwith Costanza." Its like, "Well, yeah, with Dean Gilliam andSteve. We updated the Quantum Leap book."But they said, "They wont allow us...""They," always got to love "they.""...They wont allow us take the space reduction that weve hadas a benefit to our lean implementation." In a Supply Chain, Where is more important than How Much! Copyright Business901
  29. 29. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsI went out there, and I said, "Show me." Honest to God, Joe,they had a chunk of their plant that they had police tape wrappedaround that said, "Do Not Cross." It was in a big empty spot.I said, "Thats not a benefit."They said, "But look at all the space we eliminated."I said, "Until you put something in it, you havent changed it."They were very disappointed. They said, "We thought youdunderstand."I said, "No, you dont understand. The purpose for continuousimprovement is to improve the bottom line of the business. Allchanges are not improvements. All improvements are changes."Joe: I agree, and I think thats what Dr. Goldratt always said.Youve got to focus on an improvement. Youve got to focus onmaking money.Carol: Absolutely.Joe: If its not making you any money, what good is doing theprocess?Carol: Thats why Id go into a Six Sigma plant, and they wouldsay, "We did 26 Sigma projects two years ago, and we did 100Six Sigma projects this year. Weve got 14 black belts, and thisnext year we expect to do 1,000 Six Sigma projects." Id look atthem, and Id go, "Hows your bottom line?" Theyre proud of howmany Six Sigma projects and how many black belts they haveinstead of saying, "And heres the improvement to our bottomline."Thats why this whole idea of ASR and TOC used in conjunctionwith Six Sigma turns your Six Sigma guys into heroes, absoluteheroes, because now you can rifle shoot them. You can target In a Supply Chain, Where is more important than How Much! Copyright Business901
  30. 30. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsthem exactly on those projects that when they reduce thevariability will be a commensurate improvement in the companysbottom line.Most Six Sigma guys, theyre out doing projects, and its likehiding their light underneath a bushel basket because theyre notworking on things that are significant to the true improvement ofthe company, which in my mind is bottom line. Its all thatmatters.Then they get all excited because they did the project. You go,"Great, you did the project. Wheres the benefit?"Joe: Id like to finish up by saying thank you very much, Carol.How could someone learn more about ASR? How do they goabout learning more ASR?Carol: The first thing is there will be a link available to thechapter. McGraw-Hill has really gotten into this idea of theelectronic book. The chapter on ASR is available as an electronicbook for download. We also have a website available where you can get some more information onASR. Then of course look out for the new book. Chad and I haveuntil the end of September to get this thing done, and it shouldbe published next year. Itll called, "Orlickys MRP 3.0."Were very excited about that. Now that Im done with hayseason, I need to get going on starting to write. Its all up in myhead; now Ive just got to get it out onto the computer.Joe: Id like to, again, thank you. I appreciate it. I had a greatconversation. The Business901 podcast is available on mywebsite, and also the Business901 iTunes store.Thank you, Carol.Carol: Thank you, Joe. Take care. In a Supply Chain, Where is more important than How Much! Copyright Business901
  31. 31. Business901 Podcast TranscriptionImplementing Lean Marketing Systems Joseph T. Dager Lean Six Sigma Black Belt Ph: 260-438-0411 Fax: 260-818-2022 Email: Web/Blog: Twitter: @business901 What others say: In the past 20 years, Joe and I have collaborated on many difficult issues. Joes ability to combine his expertise with "out of the box" thinking is unsurpassed. He has always delivered quickly, cost effectively and withingenuity. A brilliant mind that is always a pleasure to work with." James R.Joe Dager is President of Business901, a progressive company providingdirection in areas such as Lean Marketing, Product Marketing, ProductLaunches and Re-Launches. As a Lean Six Sigma Black Belt,Business901 provides and implements marketing, project and performanceplanning methodologies in small businesses. The simplicity of a singleflexible model will create clarity for your staff and as a result betterexecution. My goal is to allow you spend your time on the need versus theplan.An example of how we may work: Business901 could start with aconsulting style utilizing an individual from your organization or a virtualassistance that is well versed in our principles. We have capabilities toplug virtually any marketing function into your process immediately. Asproficiencies develop, Business901 moves into a coach’s role supporting theprocess as needed. The goal of implementing a system is that the processeswill become a habit and not an event. Business901 Podcast Opportunity Expert Status In a Supply Chain, Where is more important than How Much! Copyright Business901