supply chain simulation. course objectives to understand the relationship between erp / lean...

Supply ChainSupply ChainSimulationSimulation

Course ObjectivesCourse Objectives

To understand the relationship between ERP / Lean

Understand how these systems can be used to to enable the company to– achieve their performance objectives– move to a more pro-active management style

Recognise the responsibility and ownership issues to be faced by the team

3 © The Delos Partnership 2003

One of the best lessons children learn through video games is that standing still will get them killed quicker than anything

else


You are the new management team brought in to turn round this failing supply chain.

Your success (or otherwise) will be measured by 3 KPIs

You have 6 months to turn round the performance of your company…..Good Luck...

The Supply Chain SimulationThe Supply Chain SimulationCase StudyCase Study

Customer Customer ServiceService

Financial Financial PerformancePerformance Cycle TimeCycle Time


THE TRUE COSTTHE TRUE COST PERSPECTIVE PERSPECTIVE

Don’t be limited to thinking just about local Don’t be limited to thinking just about local cost efficienciescost efficiencies

Take a broad view of the entire supply chain to seek Take a broad view of the entire supply chain to seek improvements in:improvements in:

customer service

cycle time

financial performance

£


You will be expected to…

Raise customer service levels to 99%

Reduce cycle time (and therefore inventory) by 80%

Maintain/improve financial performance

The Supply Chain SimulationThe Supply Chain SimulationCase StudyCase Study


The ERP Problem...The ERP Problem...

“We have invested X00 M$ in our ERP implementation and we still cannot get any significant return”

“We’re hardly half way with our ERP implementation and our people talk about APS, when is this going to

end ?”

“Two years is way too long, how can we get significant results faster ?”

“We seem to be managing despite our systems not with them”

“We are data rich, and information poor ?”


……can lead to ERP frustration.can lead to ERP frustration.

Ambition

STOCKS LEVEL OBJECTIVE

0

5

10

15

20

25

30

35

40

Janvier Février Mars Avril Mai

ACTUAL

OBJECTIVE(min & max)

early win

frustrationgap


The ERP home truth…The ERP home truth…

FORECASTACTUAL

0

5

10

15

20

25

30


Cost of Goods

010

15

20

25

30


Service Level

ACTUAL

OBJECTIVE

Inventory Turns

0

5

10

15

20

25

30

35

40


ACTUAL

OBJECTIVE(min & max)

80% of ERP improvement comes from 20% of the ERP system...


Genuine culture change starts Genuine culture change starts with Education...with Education...

Last month, we’veblasted our production

record, and we’vemanaged to organise anextra train to Rotterdamto move the product. Theplant guys worked theirbottoms off to manage

that in time !

Heroculture

Programme wasachieved with almostperfect accuracy, our

departmentalperformance is at 98%,and we’ve experiencedno last minute changes

Watchmakerculture

“You are what you know”

The problem some times is not what you don’t know….but what you know, that “ain’t so”

Introducing the Supply Introducing the Supply Chain SimulatorChain Simulator

© The Delos Partnership 200320/04/23

The objective of this session is to introduce you to the Model The objective of this session is to introduce you to the Model company that we will be using during this business simulation company that we will be using during this business simulation

module. We will explain the Model company’s products, markets module. We will explain the Model company’s products, markets and resources.and resources.

WELCOME TO THE MODEL WELCOME TO THE MODEL COMPANYCOMPANY


The company buys in active ingredientThe company buys in active ingredient Active ingredient

store

ACTIVEACTIVE INGREDIENT INGREDIENT


The company buys in active ingredientThe company buys in active ingredient

Which is then dispensed for granulation, Which is then dispensed for granulation, compression and QAcompression and QA

Active ingredient

store

Formulation processes

FORMULATIONFORMULATION


The company buys in active ingredientThe company buys in active ingredient

Which is then dispensed for granulation, Which is then dispensed for granulation, compression and QAcompression and QA

Bulk formulated

store

To become intermediate tablets in the bulk To become intermediate tablets in the bulk formulated storeformulated store

Formulation processes

Active ingredient

store

BULK FORMULATED STOREBULK FORMULATED STORE


The bulk tablets are then dispensed to the The bulk tablets are then dispensed to the packing linespacking lines

Bulk formulated store

Packing

PACKINGPACKING


Packed product store

And after QA, packed product is stored ....And after QA, packed product is stored ....

.... ready for distribution to the depots.... ready for distribution to the depots

The bulk tablets are then dispensed to the The bulk tablets are then dispensed to the packing linespacking lines

Packing

Bulk formulated store

PACKED PRODUCT STOREPACKED PRODUCT STORE


There are four depotsThere are four depotsEach serving their local customersEach serving their local customers


Bulk formulatedstore

UK USA Spain Australia

DISTRIBUTIONDISTRIBUTION


Active ingredient storeThe active ingredients are Alpha and Beta.The active ingredients are Alpha and Beta.

Bulk formulated storeThe intermediate products are :The intermediate products are :A 50mg, A 100mg, A 200mgA 50mg, A 100mg, A 200mgB 50 mg, B 100mgB 50 mg, B 100mg


A50/20/UK, A50/20/USA50/20/UK, A50/20/USA100/20/UK, A100/20/USA100/20/UK, A100/20/USA100/40/AuA100/40/AuA200/20/SpA200/20/SpA200/40/UK, A200/40/US, A200/40/SpA200/40/UK, A200/40/US, A200/40/Sp

B50/20/USB50/20/USB50/40/USB50/40/USB100/20/SpB100/20/SpB100/40/US, B100/40/SpB100/40/US, B100/40/Sp

The packed products are :The packed products are :

PRODUCTSPRODUCTS


AIsupplier

AIstore

Formulation

Dispense Granulate Compress QA

Alpha

Beta

4 weeks

Alpha

Beta

4 weeks in batches of 120 drums

Bulk formulated

store

Packing

Dispense Packing QA

B100

B50

A200

A100

A50

B100

B50

A200

A100

A50


14end items

UKdepot

USAdepot

Spaindepot

Australiadepot

3 weeks in batches of 60 cartons

1 week 2 weeks 2 weeks 4 weeks

Customers

THE MODEL SUPPLY CHAINTHE MODEL SUPPLY CHAIN

In kilos In drums of 20000 tablets

In cartons of 1000 packs


Each of the six sessions represents a month. Each of the six sessions represents a month. During each session the teams use the Planner During each session the teams use the Planner to make their decisions about resources, to make their decisions about resources, schedules and plans for the coming month.schedules and plans for the coming month.

These decisions are then input to the Simulator These decisions are then input to the Simulator which emulates the running of the supply chain which emulates the running of the supply chain through that month.through that month.

Decisions

The model is composed of a planner and a simulatorThe model is composed of a planner and a simulator

PLANNER AND SIMULATORPLANNER AND SIMULATOR

The Planner

The Simulator

Results


The Simulator looks like this

We will look at the Simulator later. First let’s look more closely at the Planner.

SIMULATOR OVERVIEWSIMULATOR OVERVIEW


This is the Planner menu. Use it to select the data you want to

see and the decisions you want to enter.

FUNCTION SELECTION -1FUNCTION SELECTION -1


For instance, let’s look at the Product Demand screen by

selecting this button

FUNCTION SELECTION -2FUNCTION SELECTION -2


This screen shows the demand that will be placed on the packed product store in each

week of each month according to forecasts for shipments out to the depots.

This figure shows a planned shipment of 40 cartons of A200/20/Sp to the depot in

Spain in week 2 of month 2

PRODUCT DEMANDPRODUCT DEMAND


To check on the stock of material in the factory select the To check on the stock of material in the factory select the Factory Inventories button.Factory Inventories button.

Packed product is shipped and sold in cartons where a carton is 1000 packs. Intermediate bulk Packed product is shipped and sold in cartons where a carton is 1000 packs. Intermediate bulk formulated material is counted by the drum where a drum is 20000 tablets. Active ingredient is formulated material is counted by the drum where a drum is 20000 tablets. Active ingredient is counted by the kilo. Thus :counted by the kilo. Thus :

A carton of B100/40/US will contain 1000 packs. That will be 40,000 tablets A carton of B100/40/US will contain 1000 packs. That will be 40,000 tablets altogether, packed from 2 drums of B100mg intermediate product.altogether, packed from 2 drums of B100mg intermediate product.

Each drum of 20,000 B100mg tablets would contain 2 kg of Beta active ingredient Each drum of 20,000 B100mg tablets would contain 2 kg of Beta active ingredient

UNITSUNITS


Let’s enter a decision. Let’s put in 10 hours overtime in granulation for the first Let’s enter a decision. Let’s put in 10 hours overtime in granulation for the first week of the coming month. To do this select the Work Centre week of the coming month. To do this select the Work Centre Manning/Machines button on the Function Selection screen. This will display Manning/Machines button on the Function Selection screen. This will display the Manning/Machines sub menu .......the Manning/Machines sub menu .......

10 HOURS OVERTIME10 HOURS OVERTIME


Now push this button to select the main work centre....

....followed by this button to select granulation.

MANNING & MACHINES MANNING & MACHINES SUB-MENUSUB-MENU


Two shifts per day on one machine with no overtime

Enter 10 here for 10 hours overtime in week 1

MANNING & MANNING & MACHINES/GRANULATIONMACHINES/GRANULATION


Select Factory Inventories then Active Ingredients to find-Select Factory Inventories then Active Ingredients to find-- the current stock of Alpha active ingredient.- the current stock of Alpha active ingredient.- how many kilos of Beta currently in transit.- how many kilos of Beta currently in transit.

Select Work Centre Data then Packing Packing to find -Select Work Centre Data then Packing Packing to find -- the packing processing rate in cartons per hour.- the packing processing rate in cartons per hour.- the average change over time on the packing lines.- the average change over time on the packing lines.

Select Financial Data then Packed Products to find -Select Financial Data then Packed Products to find -- the sales price of A100/40/Au- the sales price of A100/40/Au

Select Planning Parameters then Packing to find -Select Planning Parameters then Packing to find -- the packed product store safety stock for A50/20/US.- the packed product store safety stock for A50/20/US.- the reorder quantity for packing batches.- the reorder quantity for packing batches.

Select Load Versus Capacity profiles then Quality Assurance to find -Select Load Versus Capacity profiles then Quality Assurance to find -- how many planned hours of load for QA in week1, month 1.- how many planned hours of load for QA in week1, month 1.- how many shifts per day does QA work.- how many shifts per day does QA work.

Now its your turn. Use the Now its your turn. Use the Planner to answer the Planner to answer the following questions :following questions :

Business SimulationBusiness Simulation

Month OneMonth One


?

Month One Month One (and ongoing monthly cycle)(and ongoing monthly cycle)

What’s the What’s the problem?problem?

PlanPlan

DoDo

ReviewReview

Decide &Decide &Take ActionTake Action

Check performance during Check performance during simulationsimulation


The Supply Chain Challenge

•. To simulate running a supply chainfor 6 months to achieve high levels of customer service, short lead times and optimal financial performance.

•The team make decisions each month in pursuit of their objectives and then see the consequences played out by the simulator over the course of the “next month”

•The simulator runs for 6 monthly cycles.Learning builds over the 6 cycles as the simulator adds new concepts for the team to “try out”

•The simulator uses accelerated learning techniques as it takes the team through 6 turns of the “learning cycle”

•Month One•Importance of demand and supply planning •Impact of utilisation•Significance of ERP for medium/long term capacity planning

•Month Two•Importance of “Managing”’ the production schedule (MPS)•Impact of bottle-necks•Significance of an integrated inventory and capacity policies•Importance of developing “flow”

•Month Three•Impact of leverage stability where it exists (Runners/Repeaters/Strangers)•Significance of balancing capacity across the supply chain•Importance of building flexibility and responsiveness

•Month Four•Impact of right sizing campaign/batch sizes to meet demand, use Kanban/Reorder• Significance of lead time (it is a result of management policy not a parameter that can be set)

•Month FiveImportance of “Responding to what you can...Plan what you cannot”Impact of the Decoupling pointSignificance of postponement and forecasting at the intermediate level

Month Six: Play to Win

2 day facilitated simulation and

workshop taking the team through 6 months in the life of a supply

chain

The Supply Chain SimulatorThe Supply Chain SimulatorTitle Learning Objectives Topics Format


Key Message Key Message

Balance demand & supply– Know your demand, know your capacity

Use ERP for medium/long term capacity planning

Maintain capacity utilisation at less than 100%

Supply

Demand


Month TwoMonth Two


Month Two - What’s the problem?Month Two - What’s the problem?

We have a production schedule that is unrealistic and unachievable, based on a “wish list”, not an expectation.

So what ? - We know the plan is not achievable but we will get the work done eventually.


Benefits of a valid production Benefits of a valid production schedule?schedule?

Customers know what will happen (ATP - Available to Promise)

Purchase what we need when we need it

Formulate intermediate to match actual demand

Confidence

!The fastest way to increase inventory levels is to purchase raw materials etc

on the basis of unfeasible production schedules


The production schedule balancing act...The production schedule balancing act...

ConstantDemand

Variable

StableWhat the factory /supply chain wants

What the market does


Key Messages Key Messages

‘Manage’ the production schedule

Recognise different demand patterns (Runners/Repeaters/Strangers)

Understand your current capacity and flexibility

Manage accordingly and plan for improvement


Month ThreeMonth Three


Month Three - What’s the problem?Month Three - What’s the problem?

We are packing on time when the bulk formulated material is available but what good is a packing schedule when the bottleneck in manufacturing can’t supply to that schedule?


Key MessagesKey Messages

Balance capacity and develop flow

Manage the bottle-neck– Provide capacity

– Reschedule demand

– Make only what you really need

– Don’t make material earlier than is necessary

– Concentrate on what’s important (schedule at manufacturing)

Don’t increase lead times


Month FourMonth Four


Month Four - What’s the problem?Month Four - What’s the problem?

We are frequently making material we don’t need yet - delaying urgently required material while we make excess inventory

We need to reduce the order quantities in packing and manufacturing

but that may mean more change-overs, lower utilisation of plant and higher capacity requirements


Do Short Runs Mean Higher Costs?Do Short Runs Mean Higher Costs?

Lower UnitCost

Long Production Runs /High Utilisation

Cellular Structures

Team W

orking

Cross Training

Set up reduction

Integrated Inv & Capacity Policy

Mixed M

odel Scheduling

Design for ease of m

fg

75% Equipm

ent Effectiveness

Right Size Equipm

ent

Com

plexity Reduction

Tradional cost c

urve

Lean cost curve


Average Stock LevelAverage Stock Level

Safety stocks

Average stock level

Reorder quantity


Month FiveMonth Five


Month Five - Month Five - What’s the problemWhat’s the problem

Material takes too long to flow down the supply chain. It gets held up in stores and as work in progress.

We are planning to make material earlier than necessary- high inventory- low responsiveness


Wasted time/ UtilisationWasted time/ Utilisation

80%

50%

0%

Wastedtimeratio

10% 50% 100%

Utilisation


Value added timeValue added time

QUEUE QUEUE QUEUEOUTPUTOUTPUTINPUTINPUT

100 unitsper week

100 unitsper week

Work in progress = 700 units

Lead time = 7 weeks???


Key MessagesKey Messages

Most company supply chains are 95% wasted time and only 5% value added– It’s no accident– It’s planned that way

Best way to manage uncertainty is to reduce lead-time


Month SixMonth Six


The Eternal TriangleThe Eternal Triangle

Customer ServiceCustomer Service

InventoryInventory ?


The Eternal TriangleThe Eternal Triangle

Customer ServiceCustomer Service

InventoryInventory ResponsivenessReliabilityFlexibility

High service with low inventories can only be achieved through responsiveness, flexibility & reliability of supply


Key MessageKey Message

Planning is a necessary evil

– Respond to what you can

– Plan what you can’t

High

LowAISupply

Formulation Packing

Ease ofresponseto change

Forecastaccuracy

High

LowTomorrow Next Year

Forecastaccuracy

High

LowRunners Repeaters Strangers

DemandVariability

Runners

Repeaters

Strangers


Key MessageKey Message

Inventory, if any, should be held as far upstream and in as standard a form as practical

Work to make information and flexibility substitutes for inventory

View inventory as a result, not a process

Emphasis should be on manufacturing flexibility first, and on forecasting accuracy second

57 © The Delos Partnership 2003The Focal Point

Runners

Respond/ ExecuteRespond/ Execute

PlanPlan

The Focal PointThe Focal Point

Strangers

Push/Pull PullThe

Master

Schedule

Push PullThe

Master

Schedule

Pull PullThe

Master

Schedule

MasterProductionSchedule

RepeatersMaster

ProductionSchedule

MasterProductionSchedule


A virtuous circleA virtuous circle

Know your capacity

Get close to demand

Build flexibility & responsiveness

Improve Supply

Plan where you must

Respond where you can


1. Demand management is a single, integrated process, even though it includes many

subprocesses and crosses department, location, and company boundaries

2. Not all customers are created equal; segment customer demand to improve

responsiveness, establish planning guidelines, and manage exceptions

3. Integration of demand management processes should be a key element of customer

and supplier relationships

4. Demand management responses should be event-driven rather than schedule -

driven

5. Leverage technology to manage the flow of demand information throughout the

supply chain

6. Make sure the frequency, time horizon, and level of planning detail are appropriate to

the situation

Key Message Summary Key Message Summary


7. Make sure the demand management rules are consistent with the data used to plan

8. Reduce reliance on forecasting and increase use of customer schedules and

continuous replenishment

9. Emphasis should be on manufacturing flexibility first, and on forecasting accuracy

second

10. View inventory as a result, not a process

11. Inventory, if any, should be held as far upstream and in as standard a form as practical

12. Work to make information and flexibility substitutes for inventory

13. Use ERP for medium / long term planning - always balance demand & supply

Key Message SummaryKey Message Summary

##


14. Use pull techniques to manage the shop floor

15. Plan capacity at less than 100% utilisation

16. Reducing lead-time is the best way to manage uncertainty

17. Know your bottle-necks and manage to them. An hour lost at a bottle-neck is an hour

lost forever

18. If you plan 95% wasted time and long lead times don’t be surprised if you get them

19. Apply the right planning techniques to the right time fence(s)

20. Planning is a necessary evil - “Respond to what you can; Plan what you cannot”

(Runners, repeaters, strangers)

Key Message Summary Key Message Summary

supply chain simulation. course objectives to understand the relationship between erp / lean...

Documents

erp implementation

erp frustration

erp system

erp leanunderstand

erp improvement

entire supply chain

failing supply chain

company toachieve