SCM Project Group 9, Section A Manuf acturing
Flow Management Process
With the competition intensifying day by day, the product life cycle is shorting very fast. In 80s industry acceptable time for new automobile development was around 6 years, but in late 90s it got reduced to 4years for all the automobile manufacturers. This went further down to 2.5 3 years in the recent past. With this reduced time-to-market periods the manufacturing facility and the supply chain network has to be upgraded to successfully run this product in the market. At the same time these new products have to be highly differentiated from the products in the existing portfolio. Both these factors force the production facility to be highly flexible and responsive to accommodate new products and varying demands from customers. For manufacturing to be smooth and efficient it is important that the mater ial moves continuously and in required sequence to the machines, which calls for a dedicated manufacturing flow management.
INTRODUCTION Manufacturing flow management is an integral part of the supply chain management process. It includes all activities which are essential to move products through the manufacturing set up and to obtain, implement, and manage manufacturing flexibility in the supply chain. In order to compete on the basis of manufacturing flexibility, planning and execution must extend beyond the four walls of the manufacturer. Increasingly all the firms are depending greatly on outsourcing. So to make our own manufacturing system responsive we have to make every link of the supply chain very agile. Manufacturing flow management (MFM) process has both broad level strategic implications and lower level day-to-day operations implications. The strategic portion of the MFM provides the structure for managing the process within the firm and across key chain members. The operational portion of the process represents the actualization of manufacturing flow management.
STRATEGIC M ANUFACTURING FLOW M ANAGEMENT PROCESS Strategy looks into broader aspects of supply chain considering the capability of the existing network and its response time. It consists of five sub-processes that integrate the manufacturing capability with the entire supply chain of the company. These processes are: -
Manufacturing Strategies
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Degree of manufacturing flexibility required
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Push/Pull Boundaries
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Manufacturing Constraints and Requirements
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Framework of Metrics
SCM Project Group 9, Section A 1.
Manuf acturing
Strategies:
To make organization more flexible and responsive a specialist team of MFM experts is made. This team will set broad guidelines for the improvement measures in the organization. These include concepts like TPM (Total Productive Maintenance), Kaizen, Lean manufacturing etc. Nissan the Japanese auto maker follow all these principles religiously. Being a Japanese company they
place high importance to operations. They try and remove the muda (Japanese term for waste) from the system and expect people to continuously improve their work area so as to work fast and efficiently. Ashok
Leyland has set MISSION GEMBA which has TPM as on e of its major objectives for less stoppages
during the production.
Some other key decisions taken in the organization as a part of developing strategy are: y
The five generic manufacturing strategies:
Based on the type of product and the volumes demanded, companies decide on which type of production method to be followed: -
Ship-to-stock
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Make-to-stock
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Assemble-to-Order
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Make-to-Order
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Buy-to-Order
These methods are arranged in the increasing order of customization and decreasing order of volume, so company map the product and volumes for their product and take decision. Nissan follows Assemble-to-Order. They have all their plants situated close to their major market and
they even insist their suppliers to be located near-by so as to reduce the lead time as much as possible. Ashok
Leyland on the other hand follows Make-to-Stock for most of its product, but for few of its
products like government and defense orders they follow Buy-to-Order as these are highly customized products.
y
Forecasting:
In any of the above manufacturing strategy it is very important that there is some preparedness before the actual order comes. Company should be aware of the upcoming trends in the market and should be well versed with the new technology in the industry. Most of the successful companies who survive the greatest changes of all time have experts working on the forecasting backed by a strong marketing feedback team who are closest to the customers.
Degree of manuf acturing flexibility required: When working in highly uncertain environment, the flexibility requirement of the manufacturing system 2.
depends on large number of factors. These include customers tolerance for waiting, suppliers manufacturing and logistics capability, the variations/fluctuation in demand across the year, complexity
SCM Project Group 9, Section A of the product and the in-house manufacturing capability of the company, etc. to decide on the degree of flexibility the company need to take following m ajor decisions y
Make Vs buy decision
Over the years companies have realized that to remain competitive and agile they need to be good and fast in delivering their products. This calls for concentrating only on your core competencies and outsourcing all those activities which can be done by a third party in a much faster and efficient way. Nissan has outsourced around 75% of its components which has helped them to bring down the cost to
the range of 7-9% over the period of time. To increase the reliability on these companies Nissan try to hold a significant share percentage in these companies and put one member in their board. Ashok Leyland has
outsourced around 60-65% of its components to suppliers spread across the country.
The company takes the decision of outsourcing after performing a thorough MBDA (Make or Buy Decision Analysis). These evaluate the extra cost that needs to be incurred developing the new supplier, the manufacturing and supplying capability, and the reliability and dependency factors.
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Organizational Flexibility and Production Flexibility
A company faced with fairly uncertainty of demand round the year need to decide on to what extent the company has to develop its base infrastructure for catering to the expected fluctuations in demand. It has to decide on various important parameters like the extra capacity of production facility to be built up, the robustness of supply chain network (both upstream and downstream), the manpower requirement during peak demands, various types of process to be developed to accommodate the variations in products required, etc. Nissan has global sourcing in place. They have suppliers present across countries and continents. In
such condition it is highly important that the company has effective communication with these suppliers to tackle the variability. Nissan has developed its own software called CATS which is implemented in all the plants of Nissan all round the world. This software connects customers (dealers) and suppliers at the same platform and hence avoids the information asymmetry across the value chain. Ashok
Leyland over the years of experience has developed an understanding of the demand cycle round
the year. The production planning department has also established empirical understanding on how the demand varies with the changing policies of government. At the same time they have taken into account the maximum capability of the suppliers. This provides them a computational model which is used to estimate the FGI they need to keep so that they can meet the demands in the peak seasons. They have 4 major warehouses across the country which helps them to maintain inventory of finished Goods. For co-coordinating among the suppliers they have implemented home grown ERP software system which places the order to the suppliers as soon as the production planning come up with the schedule for production for the next period. The company is implementing standardized SAP ERP in phases to make process more efficient
SCM Project Group 9, Section A 3.
Push/Pull Boundaries When a company decides on its strategy for manufacturing it takes conscience decision to supply the product on push or pull basis. Strategies like buy-to-order and Make-to-Order works on pull basis where the company starts the manufacturing process once the exact demand of the product with required specification comes to the company. In this the decoupling point (the point in the chain before which uncertainty prevails) lie at a very high upstream level (tire II level and above). Whereas strategies like made-to-stock and ship-to-stock are push strategies, in which company should be prepared for facing the sudden fluctuations in the demand patters and the decoupling point lie at a very low downstream level. Nissan has its decoupling point at its upstream level. It has a very efficient model of delivering the cars
in 7-10 days time, which gives company to start assembling the final vehicle of demanded configuration and colour after it receives the order at the dealer point. With its high volumes the company has high bargaining power with its suppliers. This has helped them to ask its supplier to set up Vendor Managed Inventories close to Nissans manufacturing locations. So the supplier needs to maintain the inventory considering the expected fluctuations in the demand. Ashok
Leyland follows make-to-stock strategy. For them it is difficult to supply the vehicle in a shorter
duration of time as that by Nissan as they have only two major manufacturing plants and they do not have enough volumes to force the vendors for VMIS. This makes the lead time very high and hence the decoupling point has to be at supplier point. This is more important for those cases where supplier has more bargaining power e.g. forging components, axels, Fuel Injection Pump, tyres, etc. For smaller components decoupling point is at the company itself.
4.
Manuf acturing Constraints and Requirements
For any manufacturing company the main issue that comes in fulfilling the demands from the customers is the capacity constraints. This constrained may not be restricted to OEMs facility only. The maximum volume that can be produced is restricted by the b ottleneck of the entire supply chain network of the product (Ranging from supplier to distribution channel). This constraint can be attributed to equipment and labor force available with the organization. Analysis of these constraints will help the company to take important decisions like activities to be outsourced and amount of inventories to be ke pt at various levels Raw material, WIP and finished goods. Ashok
Leyland keeps gauging the capacity of its suppliers on regular basis. For this they analyze the
supply patterns of the supplier for the last one year, in which they mark the maximum material the supplier (or a set of suppliers) has supplied for the last one y ear. Now they reduce that figure by 80% (to factor in the contingency plans), if that value is less than the projected volume of the future then the company look in for new suppliers. Otherwise they maintain the number of suppliers they have.
SCM Project Group 9, Section A 5.
Framework of Metrics For all the efforts made in all the previous steps the final result expected is the effective increase in sales. To make this happen a direct relation should be established between the actions taken at the various steps of supply chain and its effect on the final sales figure. To evaluate this, various measures are created in a company. These include inventory turnover ratio, fill rates, JPH improvement, etc. As many a time a large number of bottlenecks are faced at the distribution networks, metrics are made to identify the effectiveness of the network and its improvements. Ashok
Leyland has the list of items which has the issue of capacity constraints from the supplier side.
This is been raised in the monthly meetings of the plants. Once they are identified, individual sourcing managers are given the target of removing that supplier from the list of bottleneck supplier. This is added to their yearly KRA. These managers got to the respective suppliers and study their processes. With the help of their own company process experts they try to improve the process of the suppliers. Ashok
Leyland used to classify the suppliers under following categories: Strategic supplier; potentially
preferred; preferred; transactional. The relationship of the company with these suppliers was maintained in the decreasing order of preference in the given order. To classify these suppliers in these categories the key parameter used was number of parts per supplier and business value of the components.
The company introduced Supplier management Portal (www.vpr.ashokleyland.com). This used to track the performance of the supplier on regular basis. The various parameters that were measured in this were -
Percentage of rejections
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Value of rejection
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Number of delays in delivery
SCM Project Group 9, Section A Operational manuf acturing Flow Management Processes This is the application level of the strategy framed in the previous step. Despite the apparent similarity between the sub-processes of the operational processes and production functions there are key differences. These differences are brought by the strategic framework laid in the earlier step and the interaction of the sub-process with the other supply chain processes. There are 4 major sub- processes of the operational manufacturing flow management: -
Routing and Velocity through Manufacturing
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Manufacturing and Materials Planning
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Capacity and Demand Management
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Performance Management
Routing and Velocity through Manuf acturing Based on the various decisions taken in the strategy generic manufacturing strategy, outsourcing 1.
levels, inventory levels, make or buy decisions, etc. the demanded quantities are converted to Aggregate Production Plan. This is then distributed to various manufacturing facilities based on their capacity. The company also looks into the capacity of the suppliers to plan production levels. Subsequently Master production schedule is prepared which is then shared with all the manufacturing facilities and the suppliers of the company. Many companies apply various systems to maintain lowest inventory levels between different shops and between OEMs and suppliers. Some of them are included in the example below. Nissan & Ashok Leyland both build up the plants with just 2shifts in plan. So if the company needs to
build up a plant of 200,000 vehicles per annum then to calculate the speed of working of the machinery and the number of workers in the plant will be estimated considering the working time available in 2 rd
shifts of the day. This gives them the flexibility to use 3 shift for the production during peak demands and also provide sufficient time for the maintenance of the equipments which translates into an uptime of the order of 95% plus. The manpower problem is tackled by two basic methods: for various small peaks demands workers are paid overtime (1.5 times payment) to work extra time to meet these orders; When these demand become a regular increase in order then instead of directly recruitment company try and find out tasks which can be outsourced to various less expert organizations e.g.1. The movement of components rd
rd
inside the factory is been outsourced to a 3 party (called 3PL, 3 party logistics). 2. Assembly of doors rd
of the car is outsourced to a 3 party. These people work inside the factory but their management and labor are handled by a third party who has the competency to deal in such situations.
SCM Project Group 9, Section A 2.
Manuf acturing and Materials
Planning After the detailed MPS planners take cognizance of the capacity and constraints of the production and supply chain system and develop a Material Resource Plan. The production schedule is broken down to component levels and is then mapped with the identified bottlenecks. This is applied to both upstream and downstream networks. This has to be dynamic process where day-to-day unexpected constraints need to be considered (e.g. labor strikes, blockade in transportation, sudden material shortage, etc.). Ashok
Leyland have contingency plan in place for such unexpected stoppages. They have alternate
schedule ready if there is sudden bottleneck encountered and a particular type of component is not ready.
3.
Capacity and Demand Management Once the plan is ready manufacturing execution is of utmost importance. As the planning was done on forecast basis, the actual execution should always be on live variations in demand basis. Manufacturing team should always be in touch with the demand management team (or marketing team) to synchronize the gap between the capacity and demand. This is also applicable to managing the Ashok
Leyland has identified that in course of time the suppliers stopped supplying the parts in those
cases where we have more than one supplier. It was observed that only those lowest cost suppliers stop supplying the material. In such conditions a regular supplier monitoring is done through the vendor management portal which gives them the overall rating on their performance. In case of decreasing performance the sourcing team would visit the suppliers on regular basis to remove the bottlenecks and ensuring the continuous supply. At the same time marketing department keep track of the availability of the product of the competitors, if the competitors are ready with the product than the feedback goes to the production persons to cater to that specific customer. For those products if the competitors are also not ready with the product than the customer is allured for the lead-time period by using different offers. inventory of the products at various levels Raw Material, WIP & Finished Goods. The demand management team has to take more proactive measures when the demand exceeds the capacity constraints. They are the face of the company who can buy time for the company to cater the needs of the customers with high satisfaction levels.
4.
Perform ance Management As discussed in the previous section that for getting the best results one has to measure the performance of actions on regular basis. The manufacturing flow management team has to ensure that matrices are developed and monitored not only for internal activities but should also consider the entire supply chain as a whole. Based on these matrices proper actions need to be initiated to identify the improvement opportunities and / or problem root. A gap analysis between the expected outcome and the actual will guide us to formulate these action plans.
SCM Project Group 9, Section A It has to be ensured that the entire exercise should turn into a final output in terms of more satisfied customers and highly flexible suppliers. To evaluate this, the sourcing team is best suited for periodic Ashok
Leyland has multi-level parameters for evaluation, intertwined with each other to ensure the
proper outcome is measured and people / divisions responsible can be identified in case of outlying performances. These parameters are: -
Production review: this is a biweekly review where the actual production is compared with the MPS and various corrective measures, if req uired, are taken.
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Individual KRA review: in the beginning of the year each individual is supposed to frame his/her KRA for the year. At the end of each quarter review of the same is done and appraisals and feedbacks are provided
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Departmental KRA: As for an individual each department has to put in an yearly plan in line with the companys annual objectives. The output for the same is evaluated on monthly basis. The specific measures are defined differently for each department, e.g. for sourcing department they keep the targets in terms of reducing the cost of the components in percentage terms; they keep specific targets of upgrading the suppliers to a higher / quality levels.
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Supplier Evaluation: Fortnightly evaluation of the suppliers is done in terms of timely supply of material, quality of the material supplied and the capacity available with them. Each sourcing team member have to visit the facility of the supplier at regular intervals to support him in production process, material procurement and capacity build up plans.
assessment of the supplier-OEM flow efficiency and at the same time customer relationship manager is suited to gauge the customer satisfaction.
