New Thoughts to the Supply Chain


Published on

Chad Smith is the co-founder and Managing Partner of Constraints Management Group (CMG), a services and technology company specializing in pull-based manufacturing, materials and project management systems for mid-range and large manufacturers. Chad has a wide range of experience in successfully applying pull-based systems within a diverse scope of organizations and industries.

Published in: Business
1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

New Thoughts to the Supply Chain

  1. 1. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsBringing New Thoughts to the Supply Chain thru MRPGuest was Chad Smith of the Constraints Management Group Related Podcast: Bringing New Thoughts to the Supply Chain thru MRP Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  2. 2. Business901 Podcast TranscriptionImplementing Lean Marketing Systems Chad Smith is the co-founder and Managing Partner of Constraints Management Group (CMG), a services and technology company specializing in pull-based manufacturing, materials and project management systems for mid-range and large manufacturers. Chad has a wide range of experience in successfully applying pull-based systems within a diverse scope of organizations and industries. Clients, past and present, include LeTourneau Technologies, Unilever,Boeing, Intel, Erickson Air-Crane, Siemens, IBM, The CharlesMachine Works (Ditch Witch) and Oregon Freeze Dry. Since the late 1990’s Chad and his partners at CMG have been at the forefront of developing and articulating the concepts behind Actively Synchronized Replenishment as well as building ASR compliant technology(Replenishment+®). Additionally, Chad is an internationallyrecognized expert in the application anddevelopment of the Theory of Constraints (TOC),getting his formal training at the Avraham Y.Goldratt Institute Academy and working under thetutelage of Dr. Eli Goldratt, author of The Goal, forseveral years.Chad is currently writing the third revised edition ofOrlicky’s Material Requirements Planning with Carol Ptak. It isthe first of a three book deal with McGraw-Hill. Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  3. 3. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsJoe Dager: Welcome everyone; this is Joe Dager, the host ofthe Business 901 podcast. With me today is Chad Smith. Chad isthe co-founder and managing partner of Constraints ManagementGroup. A services and technology company specializing in pullbased manufacturing and project management systems formid-range and large manufacturers.Chad is in the process of rewriting Orlickys "MaterialRequirements Planning" and is hidden away in a cabin somewheretoday. Id like to welcome you Chad and first tell me a little bit ofwhere youre hiding, because that sounds kind of exciting.Chad Smith: Thanks Joe. Im actually in a small fishing cabin onWhidbey Island in the Puget Sound. Just trying to get this bookwrapped up. Were very close. Both Carol and I are very close togetting this thing done, in the can, and through the first round ofedits.Were very excited. In fact, I just learned yesterday that Amazonhas actually posted the pre-order for the book. Theres a link outthere if you search on Orlickys MRP you can see actually the newcover of the book and you can go pre-order a copy.Joe: Why did McGraw-Hill come to Carol and you to write it?Chad: Its a pretty good question. Its actually a very interestingjourney that happened. The story goes back two, two and a halfyears ago. Carol and I have known each other, first of all, foryears. Probably since the late 90s when she was the CEO of theAPICS organization.My company was a little bit involved in APICS there. We weredoing some workshops with APICS and I got to know Carol verywell. It turns out that Carols from the same area of the countrythat I am. I kind of had a light bulb go off in my head and I said I Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  4. 4. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsneed to share with Carol some of the ideas that I have here andsome of the stuff weve done.I called her up and she happened to be teaching at PacificLutheran University which is about 15 minutes from my home. Idrove down, had about a two, three hour discussion with her.Showed her some things that we developed, some tools weddeveloped and some conceptual slides and a story about whatwed been working on.She got very excited because it turns out that she was workingon some of the same stuff. I was just approaching it from a littlebit different direction. What we did is we said; “Hey, the problemhere is weve got all these great ideas. Weve got solutions thatare actually in play in the industry right now that are working andgetting great results.”The problem is that the market really doesnt know how bad theproblem is. They dont really understand why MRP is failing. Whatthe real deficiencies are of MRP.That led us to write a white paper. We wrote a white paper inspring of 2008. We submitted it just on a whim to the APICSorganization saying, heres something that weve written. Are youinterested?We got an immediate response back from APICS saying can youcondense this a little bit for our magazine? We said sure, well dothat. We condensed it and little did we know that it turned outbeing the cover story for the July/August 2008 edition of theAPICS Magazine.That intrigued us. It told us, wait a minute, theres somethingpeople are resonating with what were writing here. APICSsponsored a webinar a couple of weeks later on a topic and 250companies signed-up. Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  5. 5. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsThree weeks later Carol spoke at the APICS conference in KansasCity and there were 350 - 400 people in the room. There wasstanding room only.We got pretty excited because what people told us was thereason why they got so interested in this was because of ourdepiction of the problem and the fact that the way we describedthe problem was exactly what they were experiencing. There justdidnt seem to be a fix out there in the industry.We spent the last couple of years articulating this. We were askedto write a chapter for another book that McGraw-Hill waspublishing. Based upon the strength of that chapter, the editorsof that book kicked it up to McGraw-Hill and said you really needto take a look at this. This deserves a whole book.We went round and round with McGraw-Hill a little bit becauseMcGraw-Hill was a little bit worried that people had never reallyheard of this concept, these new concepts. I agreed the bookmight not sell well because nobodys really heard of this newapproach to MRP.They came back and said; “We have this Orlicky book that needsto be updated. Would you like to do that?”From Carol and my perspective we were like, wow, yes,absolutely. Thats a perfect scenario for us. It allows our messageto get into the typical MRP user and even buyer of software sothat we can really demonstrate what the problem is and what thedirection of the solution is. How we can augment or how we canamend the MRP and ERP for the new century.Thats a long-winded answer there Joe. But, thats the storybehind it.Joe: Chad, MRPs been around for 50 years. It had to be prettyrelevant if people are still using it. Is it not? Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  6. 6. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsChad: First of all, the world is in love today with supply chainmanagement without really understanding MRPs place in supplychain management. I also think that a lot of people assume thatsomething thats 50 years old with all of the technology changesthat have occurred, may not still be relevant.The exact opposite is probably true. In this case, MRP is probablymore relevant than it was when it was developed in the 50s, 60s,and 70s. The reason why is that the manufacturing and globalsupply chain landscape has changed dramatically over the last 20years. Its a much more variable and volatile environment. Thenet effect is that we have more complex planning scenarios thanweve ever had before. Thats one of the driving factors behindthe need for a tool like MRP that manages the dependenciesinvolved in more complex scenarios.Lets not forget that these extended global supply chains areessentially archipelagos of different MRP systems. Whether MRPshould be relevant, it is relevant simply because it is still at theheart of every supply chain.In fact, I saw a survey that came out I believe in 2008. It saidthat 79 percent of buyers of ERP systems also still buy andimplement the MRP module associated with it.Its not going away any time soon nor should it. I think theimportant thing for people to understand is that when Carol and Iare doing this writing on MRP its not to bash MRP, its to simplyto say MRP needs to change and evolve because it plays anextremely important role in the productivity of any supply chain.Joe: I think one of your areas of expertise is demand drivenmanufacturing and it is very interesting that youre such aproponent of MRP when looking from that viewpoint. Because Ithink thats some leading-edge thinking there thats still sayingthis stuff is good? Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  7. 7. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsChad: Thats a great question, Joe. I think one of the reasonspeople make that assumption around MRP was that MRP wastypically implemented with push based tactics. This is the drive toa manufacturer’s forecast. That was the way it was typicallyimplemented. Unfortunately its the way it is still implementedand/or operated today in many cases. But it doesnt have to beimplemented in that way. Thats where people need to make theconceptual break and say, "MRP is not just a push based tool. Itcan be a demand driven or pull based tool as well".The problem is, that in order to move from a push based to a pullbased mode of operation, whether its planning, scheduling, orexecution, you are going to need some supplementary tools orfunctionalities in your MRP system that dont really exist very welltoday. Certainly they are not well understood. They are not in alot of MRP products. But MRP can be a demand driven system. Itjust needs to change a little bit.Joe: It can be compatible with the new wave of thinking,demand driven, lean, those types of philosophies andmethodologies.Chad: Absolutely. I think its actually kind of comical, the conflictthat has occurred between the MRP proponent and the leanproponent. In many cases you have lean proponents evenspecking out the computer system or the MRP system in their"solution". And whats interesting to note is that in mostmanufacturing environments with any sort of shared resourcesets across multiple lines of products that encounter any sort ofvariability, thats the exact opposite of what they should bedoing.You often get these two camps. One camp is preaching simplicity,simplicity, simplicity. Thatd be lean. The other camp is saying,"You know, I understand you guys want it simple. The problem iswe dont live in a simple world and MRP allows us to better see Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  8. 8. Business901 Podcast TranscriptionImplementing Lean Marketing Systemssome of the complexities". Now, MRP in and of itself has becomean overly complex beast so to speak. The lean proponents kind ofsay, "well, you guys are dinosaurs wedded to obsolete technologyand youre making it more complex". The rejoinder of the MRPcrowd is saying, "Well, you guys are oversimplifying the issue".So you kind of have two ships passing in the night.In fact, the punch line is that theyre both right. MRP is toocomplex. It doesnt show you the visibility that you really need inthe demand driven world today. Nor is lean the answer toeverything in most manufacturing cases in this country where it isprobably a gross oversimplification of what you need to do to planmaterials and inventory effectively.There is a solution to both sides, but its going to require achange or an augmentation to the MRP logic to make it moredemand driven friendly and much more visible and bring it to alevel of simplicity where it is not oversimplification but it is anadequate level of visibility, simplicity, and elegance in order tomaintain control in the environment.Einstein had a great quote. He said that "any intelligent fool canmake things bigger and more complex. It takes a touch of geniusand a lot of courage to move in the opposite direction". But at thesame time he also said, "Everything should be made as simple aspossible and not simpler". What hes telling you is you will losecontrol in both cases if you make something overly complex or ifyou make something overly simple. To me, that describes in anutshell the conflict between todays MRP proponent and todayslean proponent. In both cases they lose control because one hassimply overcomplicated the issue and another has oversimplifiedit.Joe: So you wrote a chapter on integrated supply chain in theTheory of Constraints Handbook. How does that coincide with thetheory of constraints and the drum buffer rope type of Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  9. 9. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsphilosophy? How does that coincide with MRP and where you aresaying the ships are meeting each other? Where is TOC crossingthe path with that?Chad: Thats a good question, Joe. Ive spent a lot of time here,the last 15 years of my life, working predominantly in the Theoryof Constraints realm. Its just in the last few years where Ivepushed beyond Theory of Constraints. One of the reasons whythe Theory of Constraints isnt the end-all, be-all philosophy, noris lean, there are aspects of all of these demand driven types oftechniques that need to be incorporated and blended for acomplete solution.One of the things that we consistently saw over and over againwas when we went to put in a drum buffer rope schedulingsystem...and the same thing occurs in lean when they go andthey implement lean manufacturing on the floor. Lets just call itpull-based scheduling. There could be a pace setter, a drum, or aconstrained resource that they are scheduling around. Almost allthe time, in any sort of environment with scale and complexityand a decently sized bill of material, the real obstacle to makingthose types of pull-based scheduling techniques work effectivelyand sustainable in the environment, is the MRP system being ableto adequately support them.Lets be honest here, you need two things to manufactureeffectively. Youve got to have the capacity available, and youvegot to have the materials available. Unfortunately, a lot of times,both in TOC and lean implementations, the focus is on how toschedule capacity. Often times they have tremendous success.Cycle times are dropped or lead times are dramatically reduced.But without the material system in line with being able to supportthat, what often happens is you still have chronic and frequentshortages. Even though you can make something faster, youcant make it if you dont have the materials. Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  10. 10. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsWeve actually seen this occur over and over again. When peopleimplement lean or TOC and they do get these lead timereductions, they are still hamstrung by the fact that they cantget the materials on time. And they dont shut the factory down.They dont send everybody home. What they end up doing, isthey make the wrong stuff faster. Thats completely the oppositeof what we want to have happen.So if you really want to get the investment out of your leanmanufacturing techniques or your drum buffer rope system, youhave to have the MRP system with the ability to support iteffectively. Otherwise you risk squandering all of the potential ofthat type of implementation and all the time, effort, and moneythat went into putting in place.Joe: But is that just managing your buffer stock well?Chad: Well, I think thats...Joe: Is that an over simplification of it?Chad: Yeah. I think, Joe, youve just hit the oversimplificationside of things. I mean the idea of saying "lets just manage ourbuffer stock well," sure, that sounds great. The problem is, that ifyou have a bill of material, if you have hundreds of end items andthousands of child components, many of which are shared andyou might have a lot of different sub components andintermediate components, where do you buffer? Do you buffereverything? Well, in a lot of Lean and TOC environments theydsay "yeah, lets just have small buffers of everythingeverywhere".In some environments, its simply completely impractical from acash perspective, a space perspective, and from a controlperspective. Do you manage it with cards? I was actually in afactory four years ago in Portland, Oregon and they had over7000 cards at play on the floor at any one time. They would lose Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  11. 11. Business901 Podcast TranscriptionImplementing Lean Marketing Systems25 to 30 of those cards per day. In fact, after a few months theydeemed it completely unmanageable and unworkable because intrying to get simple and visible, they made themselves a papernightmare.You look at a situation like that and you say, "Look, somethinghas to change". You cant simplify it down to that level. Youvegot to be able to have some sort of automated system that cankeep track of these buffers and can tell you where you should andshould not stock inventory. Stocking everywhere is a waste.Stocking nowhere is a waste. So somewhere in between youvegot to have the right blend of where to put inventory.In fact, this is a very, very big part of the book were writing now.If you look at the way that most APICS education is formulatedtoday or just the primary questions people are trying to answeraround inventory, there are always two questions, how much andwhen. In fact, those questions are secondary questions.The primary question about inventory should always be "where".Where should we place inventory to best protect ourselves, themarket, and our suppliers against variability. Once you answerthe where question, its much easier to answer how much andwhen. And by the way, the answer to the where question is noteverywhere and its not anywhere. Its somewhere in between.The more complex the environments are, the bigger the impactcan be to find the right places.Joe: Well, is that what youre calling the new normal then?Chad: The new normal is actually characterized by theheightened variability and volatility of the global manufacturingand supply landscapes. I believe the people that coined thephrase "new normal" were from Cambashi which is a researchfirm. Theyve basically said this level of variability and volatilitythat weve seen, particularly through the recent global meltdown;dont expect it to change anytime soon. In fact, its probably Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  12. 12. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsgoing to get more acute. The customer tolerance times aredropping dramatically. People expect it faster than ever. At thesame time, you see product structures that are much morecomplex and you see supply chains that are much more extendedor fragmented. All of that combines to the net effect of much,much more complex planning and supply scenarios. Thattranslates to the new normal.Joe: When I look at different books and different supply chainbooks, its like in the first paragraph I read "we work from thiscontrol point that we bring inside to reduce variability". Well, if Ihave a control point inside my organization I can reducevariability. Im that smart.The problem is, is my customers are all looking for shortenedcycles but theyre also looking for more customization. We needcustomization and shorter supply chain cycles or links. That, tome, is reality today. Am I wrong?Chad: No, you are exactly right. That, I guess, is why I cautionpeople that are in the Lean community or in the TOC communityto understand that the solution is not inward facing. It is outwardfacing. It is the interface or the integration between linkages inthe supply chain and that commonly occurs from the manufactureto distributor or manufacture to customer and then manufactureback to all its suppliers.Lets face it. Lets me real here, Global capacity is exceedingglobal demand right now. And so, looking for better schedulingtechniques inside of four walls. Instead of looking for bettersynchronization techniques across a supply chain or a productstructure, in my opinion is the wrong way to go.There is a pre-requisite order here to getting better. OK? Thepre-requisite order is step one, use stock positioning to decreaseor dampened the variability between the links in the chain. Steptwo then is once you dampened the variability that you are Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  13. 13. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsexperiencing from suppliers and customers or consumers, nowlook inward and say OK, now, that we have less external factorsimpacting us...What makes sense to improve our processes? Because if weimprove our processes, we get faster. It reduces the inventoryliability that we have to hold in order to protect ourselves againstthe variable demand or spikes in demand. In that way we canallow that strategy to work kind of hand in hand.The key is dampen the variability first then look inward, make awin there and then reduce the amount of working capital youhave to have to dampened variability.Joe: I think it is interesting because when everybody is talkingabout flow and the real experts that I find that I get theopportunity to even interview sometime. When they talk aboutflow, they talk about really managing the queue well, managinglike you are saying outside the four walls of whats going on. Thatis really the hand offs between the critical points and developingclarity and shorter cycles.Chad: Think of it as a baton passed off in a relay race. You onlyhave so much time to do it and its got to be done very precisely.If you dont, you are disqualified or you lose the race.Joe: When you are talking about this... This is what ASR is allabout then, correct?Chad: It really is. I mean ASR, Actively SynchronizedReplenishment, is the idea of how to dampen variability and to doit in a way that actually, in most cases, reduces the amount ofworking capital and increases service levels at the same time.And the real key behind it is that first question to ask. Wheredoes it make sense to put stock? Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  14. 14. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsIn more complex supply chains and in more complex productstructures, there is often a very good answer and an answer thatmaybe hidden or not available today using common MRPtechniques or simply just not asking the question where first.Joe: It sounds like its a perfect opportunity for software people.Why havent they just created a software package that manageall this and tells you the critical points?Chad: There are add-on providers that are beginning to wake upto the possibility here and are beginning to go down this road.The biggest obstacle I think theyre going to have is the tendencyfor a company that owns a major ERP system to want to just tryand do it inside their own ERP product. In fact, if you go to themajor ERP providers and say, "Hey, heres what I want to do. Iwant to put these techniques into play. Can you do that?" Theyllall say yes. And in most cases, a) they probably didnt listen toyou about what you really wanted, and b) they probably dontunderstand that in most cases they cant do it.Theres a dirty little secret here with big software - the major ERPproviders - about why they cant do it, but it distills down to acouple of different things. The first is that the people that reallyunderstand the way that MRP works, - and believe me, you needto understand the way that it works in order to fully appreciatewhat you need to do for the solution; what needs to change, whatneeds to stay - those people arent in big software anymore.In fact, when people like Joe Orlicky, Ollie Wight, George Plosslwere running around in the 50s, 60s and 70s defining the rulesof MRP, - that entire generation, the people that grew up, thatbuilt MRP systems from the ground up - that generation is gone.Theyre not with us anymore, or if they are still with us, theyreprobably disengaged to a large degree from industry. Today, thepeople that probably really understand the way that MRP worksare probably the users themselves. In fact, theyll be your senior Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  15. 15. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsplanners; they may even be a VP of Procurement or Purchasing.They understand how MRP works. They understand thework-arounds that needs to be put into place to make it work tofit their circumstances, but they dont reside in softwareanymore.What weve seen here in the last 25 to 30 years is a tremendousstagnation of MRP logic - it really hasnt progressed at all. So thelack of personnel in big software is preventing big software fromdealing with this issue. At the same time, big software is trying topush other types of "solutions". These would be things likeadvanced forecasting methods, or algorithms, or theyre trying tosimply put a band-aid on the symptoms with the assumption thatif we can predict better everything will get better. I think we canprobably slay that dragon pretty quickly, but people are buyingthis stuff.The other thing too is that you have to have people that not onlyknow MRP, but they also have to understand the newdemand-driven techniques together with their knowledge of MRP.And those people are pretty rare out there that understand bothwhat MRP does, what it does well, what it does not do well, whatneeds to change, in combination with people that understand thedemand-driven techniques to a great degree. You really need thatcombination of the two sets of intuition to be able to scope asolution out, and those people are few and far between, and theycertainly dont reside in big software.Joe: So if the software provider comes in here and all he talksabout is forecasting techniques, Im really going the wrongdirection there a little bit.Chad: In my opinion, yes. I guess the problem is, are you in-tune enough with what demand driven techniques are? Are youconvinced that its the right way to go for your business? Then ifyou understand it, if you know its the right way, if you believe Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  16. 16. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsits the right way for your business and you have a softwareprovider come in and begin to talk about forecasting, youve gotproblems. Because forecasting, even the most ardent supporterof forecasting techniques cannot argue with one thing, and that isfundamentally a forecast is a push, not a pull. Can it be a moreeducated push? Sure. But its a push none-the-less.If you are dedicated to demand driven techniques, the minuteyou introduce forecasting into your business, you are putting intwo conflicting modes of operation. You are planning by push.You are manufacturing by pull or youre operating by pull. Whatwe have seen over and over again is that the two conflictingmodes of operation do not work well together. They often resultin a misalignment between what the plant needs to make andwhat planning is providing for materials. The symptom of chronicand frequent shortages does continue.Joe: So in a demand driven... maybe we should just back upand you kind of explain some of the key points of demand drivenhere, manufacturing, demand driven organization so that wedont go too far down the path without really some real solidfooting.Chad: Right. Well, I think demand driven can be explainedsimply. All we are trying to do with demand driven is take ourasset base and more closely align it with actual consumption. Inorder to do that you have to think differently about how youprotect yourself and your market. That has everything to do withthe tools and the rules that you are going to bring to bearthrough your business. You cannot continue to use the old rulesthat have their roots grounded in a post-World War II consumersociety where it was push and promote. Youve got to strip out allthose old rules and tools and youve got come up with, or youvegot to integrate, new rules and tools that are going to allow youto be agile. Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  17. 17. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsYou know, agile, the word agility is a big buzz word these days,or flexibility. Agility is the ability to read and react quickly oradapt to what the market desires. In fact, if you look up thedefinition of agility in the APICS dictionary it basically describesthis Garden of Eden style world that nobody can argue with. Theproblem is, once again, our rules and our tools are not set upproperly to get there.Joe: I think thats interesting you say that because either youare in this push thing where were forecasting sales by demand.Weve seen that definition for fifty years or whatever. Then I alsosee this, like youre saying, maybe the agile definition or thisdefinition of a pull thing which is really unrealistic too becausetheres got to be, like you were saying before, thats anoversimplification of how we can run an organization. There hasto be something in between that works.Chad: Yeah. Thats a great observation you have, Joe. I thinkthe whole point of what were trying to do with ASR or what werecalling MRP 3.0 now is to say, "Let’s use some elements ofpredictability and some elements of agility to see if we can comeup with a sensible solution that protects us in the right place.In other words, we can store capacity in critical key areas thatbest protect us. And then watch what happens and replenishthose areas as actual consumption occurs.An analogy I would use is, if anybody out there has a home on awell system, you dont just pump straight out of the ground toyour faucet. In most wells, theres a tank where you maintain acharge to the well. So you can maintain pressure, you can getwater on demand.Youre not bringing up tons and tons of water out of the ground.Nor are you trying to forecast what youre going to be using twoweeks from today in terms of water supply. You have a buffer ofwater that is sufficient for your use typically within a certain Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  18. 18. Business901 Podcast TranscriptionImplementing Lean Marketing Systemswindow of time. And then that buffer of water is replenished as itis depleted. We locate strategically a position of inventory that issufficient to protect us, within a time period. Then we allow thatbuffer to be quickly replenished based upon how it is used.Joe: With that, youre managing the variability and volatility byhaving a buffer again. We go back to that. But, what you’resaying is that buffer needs to be strategically placed, so that itssupporting, maybe the right word is other processes, than justone-piece flow. Are we going against that Lean concept ofone-piece flow?Chad: I appreciate the goal, or the target to get to single pieceflow. I think that most people out there in manufacturing today,in most scenarios will say that target is, lets just say, at the veryleast, an extremely ambitious target for people.Joe: Well, its like the Holy Grail.Chat: Right.Joe: Its out there, but can you get it? Can you really find it?Chad: I think more than anything, would you rather have singlepiece flow, or would you rather always service your customerswith the least amount of disruptions and expedite related waste?I think sometimes we become so fixated on an objective, withoutunderstanding how that might affect our ability to service ourmarket.In some cases, the tactics we take to get to single piece flow maydisrupt our ability to service our customers in the short run. Ithink thats something that we always caution people with. Theobjective of the manufacturing system is to maximize the marketpotential, all right?Maximizing the market potential has a lot of different meanings.One of those meanings means we dont miss a sale. If that means Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  19. 19. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsthat the way we dont miss a sale is to maintain short lead times,then we have to think about how we maintain short lead times.Maybe the easiest way to maintain short lead times, or thequickest, most effective way to achieve short lead times, mayhave nothing to do with achieving one piece flow.Joe: I have a certain value stream for this product and in thatvalue stream there are certain queues in there, waiting forsupplies. My queues, I dont need to consider that how much asmuch as I need to know where to put the queues to feed theflows the best. Is that what youre saying?Chad: Absolutely, absolutely. And the queues should not resideeverywhere. Often times... for instance, Joe, you just brought upan interesting example. Lets just say we have two different valuestreams. Heres where we can all get a little confused sometimes.Its like the word "cost". If I say "cost" it means nine milliondifferent things to nine million different people. Lets just kind ofthink about when you say "value stream" what youre reallymeaning here.Inside manufacturing weve got two things that tell us how thingsare made. Weve got something called a bill of material, andweve got something called a routing, correct?Depending on how you do a value stream, you may hit aspects ofboth the bill of material and the routing, correct?What we really want to do is we want to look at the bill thematerial as just simply the components of what makes up anend-item, right? And the dependent nature and the prerequisitenature of those components where the routing depicts activityrun rates, things like that, as well as sequence.Whats important to note is that often times in a lot ofmanufacturing companies, maybe theyll have 100 end items and Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  20. 20. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsmaybe 1000 child components that go into those end items.Often times what happens is between those different end items,several of those child components are actually shared betweenthe end items. What we are really looking for are areas where thebills of material overlap where we can leverage inventorypositions between the most end items. Those become key orcritical areas to buffer in. Another critical factor might be; arethere areas of the facility or particular resources that cant affordto be disrupted either because they have limited capacity orbecause disrupting them means a very big quality issue? Thereare factors that we have to take into account that look at bill ofmaterial and in particular there is something called a matrix bill ofmaterial. Nobody uses matrix bills of material, but matrix bills ofmaterial will show you where there is overlap in the bills ofmaterial.Just because a child component is shared among parents doesntqualify it automatically as a good place to position inventory. Itshould also lie on the longest unprotected sequence in the bill ofmaterial. We are getting into the detail of how to answer thequestion, “where?" Depending on the environment, it can be afairly complex area but the answer could mean literally millions ofdollars.Joe: When youre sitting there with that "where" question, itsnot like there is just a five step formula that I go through and Ifind out where?Chad: Well, there are actually six critical factors that factor intoanswering the question, “where?” Depending on the environment,those differing factors will be more emphasized or lessemphasized. It just depends on the environment. Particularly itdepends on the product structure in the environment, maybe theamount of suppliers, the amount of long lead time components,the size of the routings, the complexity associated with theroutings. To answer the question where, like I said, there are six Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  21. 21. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsmain things to focus on, but the answer will vary betweenenvironments because every environment is a little different.Joe: You dont sit there and weight them such as, like a CTQtype thing and weight them accordingly?Chad: No. Any type of equation… you know, whats funny iswere writing this book, Im writing the solution side of it. Insteadof giving a precise formula, what Im doing is Im giving rangesbecause, if I were to give any precise formula, there would bemassive amounts of exceptions. The issue is can we provide arange? Can we show how the factors are important? Can wedescribe what environments they are important in? Then can wegive them a range that leads planners in the right direction to say"this is where you should be targeting, in between this and this"and then tell them why. Ultimately the planning personnel haveto account for their unique sets of circumstances. Were just kindof providing a guide.Joe: If someone wants to learn more about ASR, where wouldyou send them?Chad: There are a couple of places that they can look. One placeis on the web at Theres quite a bit of stuffthere. We answer some more questions in depth about ASR. Weeven look at some case studies, I believe. And then theres somewebinars associated with it too.The next thing is chapter 12 of the new Theory of ConstraintsHandbook goes into ASR, and I think one of the things peopleshouldnt be shy about or should understand is just because thischapter is in the Theory of Constraints Handbook what youll findvery quickly is that the chapter isnt about the theory ofconstraints, its about what I believe is a much broader topic, andthat is "how can we bring our planning rules and tools in line withdemand driven concepts," whether it wants to be lean or TOC. Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  22. 22. Business901 Podcast TranscriptionImplementing Lean Marketing SystemsYou know, Joe, sometimes I think the lean and the TOCcommunity just need to get over it, right. For whatever reason,there is this subtle perception that theyre in conflict. There is noconflict between the two. In fact, they have a common objectivein my opinion. The common objective is to figure out how to getplanning rules and tools that are going to enable them to be moresuccessful on the manufacturing floor. Thats what I think theyboth have in common in a big way.Joe: We should mention that your chapter, can be downloadedon Kindle individually on Amazon too, correct?Chad: That is true. I believe they charge a pretty nominal fee fora Kindle version. And then also, if you go on the McGraw Hillprofessional website, you can buy a pdf version of the chapteritself.Joe: Has this been implemented. Are there companies practicingthis now, or is this just all in theory?Chad: No, no. There are companies doing this. In fact, I thinkthats one of the great kinds of aspects behind what were doinghere and what were writing. Were able to draw off of severalexamples where weve actually put this into place and the kind ofresults. In some cases, honestly, people wont believe the results.The results have just been staggering in some cases.Joe: What has been the response to the implementation? Theresults always, of course, speak for themselves. Did people find itdifficult to implement or difficult to change their thoughtperspective to get this accomplished?Chad: The answer is, I think, to a varying degree. Change isalways difficult for organizations to deal with and certainly largerorganizations have some very difficult time with change. In somecases the change could be intuitive, it could make a lot ofcommon sense, but the other factors come into play, “well we Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  23. 23. Business901 Podcast TranscriptionImplementing Lean Marketing Systemsjust spent $30 million on this new software package so were notgoing against that.”Let’s think about what the impact of the organization is, if theimpact of the organization is several hundred million dollars infreed up working capital with better service levels, well then itmakes sense to do it.The answer to the question Joe is, it depends and in some casesweve had situations where people have been able to flip theswitch essentially in their thinking, in a matter of weeks, and inother cases its taken months. In one particular case Im dealingwith, it has been 18 months, and were just now beginning tocrack the political barriers involved with moving this company tothis type of solution. This company though is a global Fortune500 company. You can see that sometimes there is a little bit ofred tape associated with stuff like that.Joe: What do you think Joseph Orlicky would think of your thirdversion?Chad: Well first of all, and shame on me a little bit, maybe whenI first talked about the book I should have given my thoughts onOrlicky. Joe Orlicky in my opinion was a true visionary. Forlisteners right now that have not read that book, you would beastonished, how spot on he is even in todays environment. Iwould definitely recommend going and buying the first edition ofthat book and reading the first few chapters it really is mindboggling how visionary that guy was. I have a lot of respect forJoe Orlicky and I would like to think that he would look upon ourwork with a big smile.In particular the reason why I say that is, his whole reason forexplaining the need for MRP and a different way was that, whenrules and circumstances change youve got to adapt to it. Youcant continue to do the same thing over and over again when theenvironment is changing around you. Were taking that exact Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  24. 24. Business901 Podcast TranscriptionImplementing Lean Marketing Systemssame tactic in this new book, by saying look, the rules havechanged or the environment has changed and to continue tooperate with rules that dont fit the environment is kind of insane.So I think he would be happy, I hope he would be happy lets putit that way.Joe: Chad, how could someone get a hold of you if theyd like tocontact you?Chad: Really, on email is probably the best way. My emailaddress is It’s kind of aconfusing web site address but we have kind of a saying that saysbefore you buy the hardware, before you buy the software, makesure you have the right thought-ware loaded so, we have a website called would be a great way to get ahold of me.Joe: Id like to thank you very much Chad for this opportunity totalk to you, I learned a great deal I enjoyed it very much and ifthis broadcast be available in the Business901 web site and alsoon the Business901 iTunes store. So again, thank you Chad.Chad: Joe, thank you very much it was a pleasure. Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901
  25. 25. 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 thebox" thinking is unsurpassed. He has always delivered quickly, costeffectively and with ingenuity. A brilliant mind that is always a pleasure towork 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 Bringing New Thoughts to the Supply Chain thru MRP Copyright Business901