Complex Manufacturers’ High Variability Problem & How to Solve It
Our focus in this post is not on tier one manufacturers which have fairly well known demand and very little variability, or stated another way, predominantly repetitive manufacturing processes.
The complex manufacturers, to whom we provide the greatest value, often experience significant variability in their demand; they typically engineer-to-order, make-to-order, or assemble-to-order.
We further characterize these complex manufacturers as:
with material requirements more than one or two levels deep
having complex routings
with more than one or two operations per routing
Many of these complex manufacturers use a variety of ERP (Enterprise Resource Planning) system platforms, and a wide variety of industry vertical software applications. Some of our clients in niche industries may use specialized ERP solutions, which basically functions the same way. In most cases, the ERP system doesn’t help in solving all on-going problems the manufacturer is facing.
Today, we still find many manufacturers using systems without the necessary tools that can handle schedule disruptions. They struggle in a manufacturing environment with numerous layers of complexity. Therefore, it is important to implement a production planning and scheduling solution that can dynamically manage a schedule in the face of on-going disruption.
Common disruptions in manufacturing are:
People don't show up for work
Customers change their mind
Material is bad
Parts are out of spec
Weather is brutal
Vendors fail to deliver
Machines break down
Murphy’s Law ("Anything that can go wrong will go wrong".)
These events happen all the time and they are a wake-up call to manufacturers trapped in old methods and thinking. Systems must handle the disruptions which are an everyday reality for every manufacturer.
The world has migrated toward mass customization as opposed to mass production. And mass customization means that everybody wants their part, their own color with their own configuration that will fit exactly their needs.
Complex manufacturers are under pressure to be more and more flexible and track more and more information on the shop floor. You’re making hundreds, if not thousands, of different parts at dozens of different work centers. Additionally, you have the headache of staffing more work centers along with the need to synchronize the flow of parts and operations.
What compounds the complexity, is the number of tasks that also needs to be managed within limited capacity. So, as your customers are demanding greater and greater levels of customization, the number of potential issues you run into grows exponentially. Fulfilling orders on-time, to customers with diverse supply chain dynamics has morphed into an extremely complex task.
Software Is Part of the Solution
As Marc Andreessen famously quipped in 2011, “software is eating the world.” Hyperbole? A bit. Yet, in many ways he was right as software is becoming increasingly integral to running a high-performance manufacturing environment.
If you have an increasingly complex manufacturing environment, at a minimum you need to track parts as they are generated for a growing number of companies. This is done by an MRP (Material Requirements Planning), MES (Manufacturing Execution System) or APS (Advanced Planning and Scheduling) system.
Whether you are using an MRP, MES, or APS system, you must meet the demands of multiple work orders (manufacturing orders or production orders). Tracking everything related to completing these orders makes manufacturing inherently complicated to manage. If the expected run rate was exactly the same every time, the level of complexity would be kept to a minimum. However expected run rates are never the same, though they are often defined within the software as being constant.
This is where an MRP application becomes so important.
Reducing Complexity Through Software
An MRP engine basically considers all the demands from different customers, sometimes hundreds of customers, requiring dozens, hundreds, or thousands of parts. The software application performs what is called an “MRP explosion” resulting in hundreds or thousands of work orders, providing a level-by-level view of how many parts have to be made or purchased to satisfy the existing demand.
The work orders are associated with the applicable paperwork and drawings, which are then sent in a job packet to the shop floor to be executed.
Improving Work Order Execution
Typically a complex manufacturing company generates work orders and purchase orders as follows:
An order is booked from a client.
The list of parts, quantities, and need-by dates is generated.
The work orders (WOs) and purchase orders (POs) become the source of supply in the system.
Companies will often generate a forecast that guarantees they are pre-purchasing or pre-making some of the necessary parts. That information becomes part of what is called the net production demand (NPD). The NPD goes through an MRP explosion as part of an ERP system (or sometimes as part of a scheduling system) and the output of the MRP explosion is the master list. The master list is the complete list of all purchase orders, work orders and requirements that will be necessary to satisfy the just placed order.
So execution at all the work centers, labor, and/or machine, is tracked using the ERP system directly. Sometimes there's a manufacturing execution system (MES) which requires employees on the shop floor to enter hours and pieces related to their work via barcode or manually into the system.
This information includes the number of parts and internal part number. In many instances, they’ll also enter the time it took to produce it. This provides a history of production rates for parts that will be produced again. Despite the high level of complexity involved, the ERP system provides visibility into all those parts, all the run rates, fills, and materials at any point in time.
Balancing Demand With Capacity
Given the red hot manufacturing economy in the US, many manufacturers are blessed with more demand than they can fulfill. Though it sounds like an ideal scenario, it is, however, a very dangerous game because accepting more demand than you have capacity for can cause enormous problems, particularly missing delivery dates, losing customers and revenue, and a host of cost issues that threaten profit performance.
The cost problems include large amounts of work in process (WIP). Throwing orders onto the shop floor (“Throwing it over the wall” as it’s called), in the hope that more work, pressure, and overtime will ensure more production will happen. It doesn’t.
Unfortunately, extensive studies have proven that the larger the backlog you put on a work center or a resource, be it the shop floor or office support activities, the less output is generated.
From Execution to Improved ROI
One of the immutable laws of physics and manufacturing is that there is a direct correlation between order lead-time and the amount of work in process (WIP). The more parts there are lying around, the longer the average lead-time.
Cycle time is obviously an important part of the lead time that you're quoting your customers. Today's complex manufacturing companies have a very difficult challenge, but also an opportunity; the way they manage the flow of parts on the shop door determines their short and long term financial viability, profitability, and ultimately success.
Obviously, the key for manufacturing companies is to maximize return on invested capital, i.e., fixed labor and machine resources. Accomplishing this objective is a huge step toward generating a compelling and positive ROI.
The Edge We Bring
On-Time Edge solutions maximize throughput and on-time delivery, which means we facilitate production in the right sequence and synchronize all components necessary for customer orders, with the minimum investment in capital, inventory, and operating expenses. The results are maximum output and on-time delivery at minimum costs.
The edge we bring gets sharper over time, leading to a sustainable competitive advantage in the marketplace. Faster and reliable delivery are fundamental to customer acquisition, retention, and growth.