JamesHolt-TOC-Replenishment.ppt

WashingtonStateUniversity-2010,1,FundamentalExamReview,Applications:ReplenishmentSegment,TheTheoryofConstraints,/,JamesR.Holt,Ph.D.,PEProfessorEngineering&TechnologyManagement,Disclaimer:ThematerialintheseslidesweredevelopedovertimeandrepresentsDr.HoltspersonalviewsandapproachtoTOC.ItisnottheviewofWashingtonStateUniversitynorTOCICO.Itmaybedated,incompleteorabsolutelywrong.Whilethetextandfiguresinthispresentationarehelpfultofacilitateteachinganddiscussionofthesetopics,withoutthewordsthatgowiththeslides,thepresentationisnotcompleteandmaynotevenmakesense.Thismaterialismadeavailableinthepublicdomainasaservice.IndividualsmayusethismaterialasresourcestoteachtheirownTOCreviewseminarsaslongastheygivereferencetothesource.ThereisnopromisenorexpectationthatthesematerialsareeithernecessaryorsufficienttopassanyoftheTOCICOcertificationexams.AnyoneusingthesematerialsshouldcontinuetostudyfromthemanyothersourcesofexcellentTOCliteratureavailable.Inmanycases,commonknowledgeisincludedherewithoutreference.Ifyouwouldliketoimproveanyofthesefiles,pleasedoso.Yourcontributionwillbeincludedinfuturepostings.DrHolt.,WashingtonStateUniversity-2010,2,TOCICOSegmentedFundamentalsExam,FundamentalsCertificateMultipleChoiceExam(Identify,Exploit,Subordinate,Elevate,GotoStep1),FundamentalsCertificateofTOCPhilosophy,FundamentalsCertificateofTOCThinkingProcesses,FundamentalsCertificateofTOCApplications,FundamentalsCertificateofTOCFinance&Measures,InherentPotentialInherentSimplicityInherentWin-WinFiveFocusingStepsThreeQuestions,ConflictCloudNegativeBranchAmbitiousTarget,DBR,T,I,OEPQTypeProblem,ProjectManagement,Replenishment,WashingtonStateUniversity-2010,3,TOCReplenishmentDistributionSystem,UnlikeaFactory,thereisnosinglepersonmanagingRetailSystemsincludetimedelaybetweendemandcyclesProductionoccurstoforecastDeliverySystemsfocusonefficiency-Transferinlargebatches(longtimebetweenshipments)ErrorsinforecastaremagnifiedtenfoldToomuchofthewronginventory,toolittleoftherightMagnitudeofMissedSalesisnotKnown,WashingtonStateUniversity-2010,4,ForecastAccuracy,Now-Future,AccuracyofForecast,100%,EffectiveResponseZone,DeathResponseZone,WashingtonStateUniversity-2010,5,TraditionalPushingInventorytotheRetailStore,WashingtonStateUniversity-2010,6,LocateInventoryWhereitProvidesBestProtection,WashingtonStateUniversity-2010,7,SupplyChainProcesses,SupplyChainismadeupofmanyindependentlinks(BusinessesorBusinessUnits)IndividuallinksdonotprovideacompletedproductThereissignificantinterfaceproblemsTiming,Quality,Price,ValueLinksareincompetitionwitheachother/Leverageeachother,WashingtonStateUniversity-2010,8,TypicalSupplyChain,RawMaterials,Refine/Prepare,Produce,Transport,Distribute,Retail,Customer,WashingtonStateUniversity-2010,9,LongandShortDurationSupplyChains,DairyCows,Creamery,Deliver,Retail,Customer,Farmer,Cannery,Wholesale,Retail,Customer,WashingtonStateUniversity-2010,10,ComplexCombinations,BrakesTiresBumpersUpholsteryEngineTransmission,Manuf.Car,CarLotCarLotCarLot,WashingtonStateUniversity-2010,11,DedicatedChains,Mine,Smelter,RollingMill,Product,SteelSales,IndependentBusinessUnit,IndependentBusinessUnit,IndependentBusinessUnit,SingleFirm-TotallyOwnedIndustry-SoleSource,TransferPricesFixedbyPolicy,WashingtonStateUniversity-2010,12,CompetitiveChains,OilWell,Refinery,ChemicalPlant,ClothMill,DressFactory,Customer,TransferPricesatMarketPrices,WashingtonStateUniversity-2010,13,SupplyChainIssues,Inthefuture,competitionwillnolongerbebetweencompetitors,itwillbebetweencompetitivesupplychains.Successfulsupplychainsmustrespondquicklytothechangingtastesofthefinalcustomer.ThestumblingbocktoFASTistheInformationSystemCurrentBusinesstoBusinesssoftwareoffersnearinstanttransferofdataBut,isdatawhatweneed?,WashingtonStateUniversity-2010,14,TOCSupplyChainMeasures,TOCSupplyChainModelExample:DairyFarmersCooperativeThefarmersowntheCoopIndividualsownthecowsIndividualssellmilktotheCoopTheCooprunstheCreameryTheCoopsellsthemilk,cheese,icecreamtothecustomersTheCoopkeeps5%profitTheotherprofitgoestothefarmersEveryonehassomeownershipinthesuccessofthechain.,WashingtonStateUniversity-2010,15,SharedRiskandProfit,MeasurestoPromoteSharedRisk/SharedProfitCurrentMeasures:Whatdidwedothatweshouldhavedone?Whatdidntwedothatweshouldnthavedone?,95%,2%,5%,98%,ShouldHave,ShouldntHave,Did,Didnt,WashingtonStateUniversity-2010,16,MoreSensitivity,Whilewehatenegatives,Itsbettertofocusonthem(sixsigma?),95%-96%1%gain,5%-4%20%gain,98%-99%1%gain,ShouldHave,ShouldntHave,Did,Didnt,2%-1%50%gain,WashingtonStateUniversity-2010,17,Whatdontwedo?,WhatDontWeDothatweshould?Deliverontime!(Qualityproblemsarereallydeliveryproblems)WhatDoweDothatweshouldnthavedone?Sloppy,in-effective,pooruseofresourcesCostoverruns,WashingtonStateUniversity-2010,18,MissedDelivery,Consider:Wemissed1%ofparts(10boltscountthesameas10engines)$1000inpartslateLatebyoneday?Noproblem.Lateby40days?DestroyedouroperationsWeneedValue(ThroughputThreatenedValue)WeneedTime(Dayslaterthanexpected)PeriodicDollar-Days:Sumof(Tthreatened)*(Dayslate)foralllateitemsovertheperiod.,WashingtonStateUniversity-2010,19,UseofThroughputDollar-Days,HavemultipleVendorsforeachpurchasedpart.GiveBestVendor(fewestdollardays)60%ofordersGivesnextbestVendor35%Sharelast5%betweenpoorvendors.,WashingtonStateUniversity-2010,20,But,WearesupposedtoShare!,WecaneasilyrateourvendorsonThroughputDollardays.Wecanratetheboltvendorthesameastheenginevendor.EithercanjeopardizethelossofT.But,Ifweaskthevendortowaitforourpaymentuntiltheprojectissoldatthefinalsale,howlongshouldtheywait?Longerisworse.(Boltvs.Engine?)Butwhataboutvolume?Ifyoutakemoreofmyproductisthatworseorbetter?Highvolumesarehighinvestment/riskforthevendor.,WashingtonStateUniversity-2010,21,InventoryDollarDays,Ifvendorandproducerareinthistogether,thevendormustdecideonwhichproduceristhebesttoworkwith(thesameastheproducerdecidingwhichvendortouse).ConsiderproducerAsellstenitemsperday.Butisholding$10,000ofvendorsTrulyVariableCostsparts.Andtheproducerssupplychainpaysontheaverageof10daysafterreceiptofthevendorsparts:(10*10,000=100,000InventoryDollarDays)ProducerBalsosellstenitemsperday.Butonlyholds$5,000inourTrulyVariableCostpartsandpaysontheaverageof6days:(6*5,000=30,000InventoryDollarDays),Whowouldyouratherdobusinesswith?,WashingtonStateUniversity-2010,22,Goalthenisto,ReduceThroughputDollarDaysSumof(allmissedpartstimesdayslate)fortheperiod.(valuedattheThroughputRateofthefinalproduct)DrivesupreliabilityandqualityFairforallvendorsReduceInventoryDollarDaysAverageInventoryTimesAverageDaysheld(valuedattheTrulyVariableCostrate)DrivesdowninventorySpeedsworkflowFairforallpurchasers,WashingtonStateUniversity-2010,23,Trustisonlygainedwhen,WecantrusteachotherandPROVEIT!,IDD,TDD,WashingtonStateUniversity-2010,24,MeasuresareAdditive,ThroughputDollarDaysforitemof$1000inT,2dayslate=2000TDD,1daylate=1000TDD,3dayslate=3000TDD,TotalSupplyChainEffectiveness6000TDD,Customer,LinkdoingVMI,WashingtonStateUniversity-2010,25,MeasuresareAdditive,InventoryDollarDays,$100*6days=600IDDandadds100TVC,TotalChain3400IDDon$500TVC,Customer,LinkdoingVMI,RMFloor=$100oftrulyvariablecosts(TVC),$200*4days=800IDDandadds200TVC,$400*5days=2000IDDandadds100TVC,WashingtonStateUniversity-2010,26,SupplyChainValuationofPossibleRoutes,IDD=40,TDD=1000,IDD=50,TDD=100,IDD=150,TDD=2000,IDD=90,TDD=10,IDD=280,TDD=600,IDD=80,TDD=200,IDD=120,TDD=2500,IDD=190,TDD=650,IDD=110,TDD=50,IDD=310,TDD=100,AlllinkscancarrypublicTDD&IDDRating.,IDD=740TDD=1100,IDD=730TDD=810,WashingtonStateUniversity-2010,27,TDDandIDD,EveryoneintheSupplyChainshouldknowtheTDDandIDDofallothermembers.Eachlinkhasthefreedomtochoosewhotheywilldobusinesswith.TDDreflectsReliabilityorDependability(cumulativefortheperiod)IDDreflectsInvestmentorFlowtime.(asnapshotvieworaverageoverperiod),WashingtonStateUniversity-2010,28,WithTDDandIDD,TrustbeginsSpeedbeginsWhenthereisasale,paymentsoccurthesameday.Everyoneinthesupplychainispaidtheirnegotiatedpercentage(orfloorifhigher).EveryonetriestoimprovetheofferingtothefinalcustomerProductquality/value/taste/functionSpeedandReliabilitybuildsMinimizelostsaleswhereeveryonelosestheirTrulyVariableCosts,WashingtonStateUniversity-2010,29,IfYouCanDoIt,YouWin!,MembersoftheSupplyChainexperience:IncreasedMarket(bettercustomersupport)ReducedInventoriesLessinvestmentHigherProfitsLessRiskSoonerpayment(totalflowtimeislessthanprevious“balanceduein90-120days”.Integrationcancomewithindividuallinksorwithgroups.Non-TOClinkscanplaytoo!,WashingtonStateUniversity-2010,30,SimpleMeasuresDriveBehavior,ThesetwomeasuresdrivethebehaviorwewantintheDistribution(andproduction)line:TDDSays,“Dontmissadelivery(avoidfailure).And,ifyoudo,fixitfast!”IDDSays,“DontletInventorysitaroundidleinplaceswhereitdoesnogood.QuicklymoveittowhereitprotectsTDDandthenreduceitbothinquantityandintimeheld.”TDDandIDDbecomeaDrillSargentMentality:MOVEIT!MOVEIT!MOVEIT!,WashingtonStateUniversity-2010,31,TDDandIDDHelpTrackDownProblems,ProcessABCDE,RM,FG,Capability79586parts/day,IfAcausedtheproblem,itshowsinAsmeasures,IfBcausedtheproblem,itshowsinBsmeasures.,WashingtonStateUniversity-2010,32,TheIDD(Inventoryheld*timeheld)tellshoweffectivetheDandETeamis!,AndWhatAboutDandE?,ProcessABCDE,RM,FG,Capability79586parts/day,Then,whatisthelogicalmeasureforDandE?,WashingtonStateUniversity-2010,33,TDD=EffectivenessinDeliveryIDD=Effectiveuseofresources(andtrackingimprovements),WhatiftheCustomeristheConstraint?,ProcessABCDE,RM,FG,Capability79586parts/day,Marketwants4partsperday,Westillusestrategicplacementofprotectiveinventoryinternally,WeprotectourdistributionwithFinishedGoods,PlaytheReplenishmentGame,Factory:AverageCapacity7perDayStore:AverageSales3.5perDayDeliveryTruck:InfiniteCapacity,Delivery6Days.,WashingtonStateUniversity-2010,34,Factory,Store,Truck,ConvertsRMtoFG,TransportsfromFactorytoStore,SellsFGtoCustomer,First,Set-uptheTraditionalReplenishmentMethod,AtInitialSet-up,theFactoryjustshippedlastweeksorderfromtheStore(shipped21items)TheFactoryhas10itemsleftintheFactoryandcarriestheInventoryontheTruckonitsbooks.StorePlacesordertofactoryforshipmenttoarriveintwoweeks.(Dothatnow).,WashingtonStateUniversity-2010,35,Factory,Store,Truck,RMInfinite,Load21ItemsLoadedDay0,FG21Items,FG10,AtInitialSet-up,theStorejustreceiveditsorderfromtwoweeksagoandhas21itemstosellthisweek.,InitialProfitStatementsonDay0,Factorysold21tostore(putontruck)FactoryCalculatesSalesat$1peritemsold($21).FactorySubtractsCostsat$0.50perFGiteminInventory(10atFactoryand21onTruck=$15.50).FactoryhadNoMissedShipments.FactoryProfits=$21-15.50=$5.50.,WashingtonStateUniversity-2010,36,Factory,Store,Truck,Storesold21lastweekat$1peritemfor$21.Storehas21itemsinstock.Subtracting$0.50perFGitemsinInventorygivesinitialprofittoStoreof$11.50.Therewerewas1stock-outintheweekwithapenaltyof$10perunavailableitem.TotalStoreprofit=$11.50-10=$1.50.,TraditionalReplenishmentMethodFromDay1=6,Factory:RollstwoDiceforProductionStore:RollsOneDieforSalesFactorymovesRMtoFGaccordingtodotsonDiceinProduction.SalesmovesFGtoCustomeraccordingtodotsonDieforSales.,WashingtonStateUniversity-2010,37,Factory,Store,Truck,TruckmovescloserandclosertoStoreeachday.DeliveryoftruckoccursaftertheendofDay6andbeforeDay7,TraditionalReplenishmentMethodCalculateProfitsafterDay6,StoreReceivesTruckGoods(addstoInventory)StoreCalculatesSalesat$1peritemsold.StoreSubtractsCostsat$0.50periteminInventory.StoreOrdersItemsfornextweek.,WashingtonStateUniversity-2010,38,Factory,Store,Truck,FactoryReceivesOrderandloadsTruck.FactoryRecordsOrderasSalesat$1peritem.FactorySubtractsCostsat$0.50perIteminInventory.,TraditionalReplenishmentGameContinueDay6=12,StoreRollssingledieforsales.FactoryRollsTwoDieforProduction.,WashingtonStateUniversity-2010,39,Factory,Store,Truck,IfStoredoesnthaveItemtosell-Penalty$10peritem.FactorydoesnthaveItemtoship-Penalty$1peritem.,TraditionalReplenishmentMethodCalculateProfitsafterDay12,StoreReceivesTruckGoods(addstoInventory)StoreCalculatesSalesat$1peritemsold.StoreSubtractsCostsat$0.50periteminInventory.StoreOrdersItemsfornextweek.,WashingtonStateUniversity-2010,40,Factory,Store,Truck,FactoryReceivesOrderandloadsTruck.FactoryRecordsOrderasSalesat$1peritem.FactorySubtractsCostsat$0.50perIteminInventory.,Continuethesixdayweeksuntileveryoneunderstandshowthetraditionalsystemworks.,TOCReplenishmentMethodInitialSet-up,FactoryholdsFGinventoryof12.StoreHoldsFGInventoryof12.StoreOrdersDailyNumberSoldeachdayFactoryputstheorderonatruckandshipsittothestorethenextday.,WashingtonStateUniversity-2010,41,Factory,Store,ItstilltakessixdaystogetfromtheFactorytotheStore.Therearesixtrucksonroute(oneleavesthefactoryeachday,anearliertruckarrivesatthestoreeachday).Assumethesalesforthepreviousweekwere3itemsperday.Eachtruckonitswaythisweekhasthreetimesinit.,TOCMethodInitialProfitStatementsonDay0,Factorysold18tostorethepreviousweek(putontruck)for$18.FactoryCostsofInventory$0.50(12atFactoryand18onTruck)=$15.StorepaysFactory$3perweekforDailyDeliveryNoMissedShipments.FactoryProfits=$18-15+3=$6.,WashingtonStateUniversity-2010,42,Storesold18lastweekat$1peritemfor$18.Storehas12itemsinstockat$0.50for$6inInventory.Therewerewas0stock-outintheweek.StorepaidFactory$3fordailydelivery.TotalStoreprofit=$18-6-3=$9.0.,Factory,Store,TOCReplenishmentMethodFromDay1=6,Factory:RollstwoDiceforProductionbutonlyreplenishesto12.Store:RollsOneDieforSalesFactorymovesRMtoFGaccordingtodotsonDiceinProduction.SalesmovesFGtoCustomeraccordingtodotsonDieforSales.,WashingtonStateUniversity-2010,43,Eachday,theclosesttrucktotheStoredeliversitsload.AttheendofDay6,counttotalsalesforFactoryandStore.ReduceSalesbyInventoryCosts.Transfer$3fromStoretoFactoryforDailyDelivery,Factory,Store,ContinuethesixdayweeksuntileveryoneunderstandshowtheTOCReplenishmentMethodworks.,ReplenishmentS&T,ConsumerGoodsS&T/engrmgmt/holt/em534/SandTConsumerGoodsLevel4.ppt,WashingtonStateUniversity-2010,44,SupplyChainTypeProcesses,TheGoal:DeliveryofproducttotheFinalCustomerTheMeasure:Sales,On-TimeDelivery,MissedSales.TheConstraint:TheTimetoReplenish,Applieswheretimetopr