PRODUCTION MANAGEMENT
CASE – 1
ERP brings visibility into Madras Cements’ business
Ramco’s e.Applications (ERP) helped Madras Cements streamline its information flow. It has resulted in efficient capacity planning and utilisation and helped eliminate wastage MCL had several ‘islands’ of systems (its own legacy applications) running across its three manufacturing plants and its corporate office in Chennai. In order to gain a competitive advantage, it had begun investing in computerising its payroll, finance, inventory, and invoicing systems in 1985. However over time every plant had its own systems, platforms, and processes. Due to a lack of integration and different reporting formats across plants, reports got delayed and accounts did not tally. The flow of information to the corporate office was not on time. Key information such as financial and production details were not uniformly available and there was a mismatch of information generated by production plants sent to the corporate office. This resulted in unnecessary delays in preparing a monthly accounts report.
Shopping for software inhouse
Once the management decided to go in for an ERP system, the first choice was Ramco Systems’ e.Applications. C V C Rao, general manager-Information Technology, Madras Cements, says, “Packages from other ERP vendors were not seriously considered as the top management felt that choosing a package from our own group company would ensure smoother implementation and better servicing. In case of any problem we would be able to fix it faster since the software is supplied by a group company.” It was also felt that implementing Ramco e.Applications would ensure smoother integration with other Ramco applications such as the real time system and open cost mining system used by MCL. e.Applications had a suite of Web-enabled products for the cement vertical. This version offered continuous process productions suite, productivity tools and reporting formats.
A phased implementation
The first phase of the implementation was undertaken in November 1999 and was completed in about eight months. The major task was to map existing processes across nine functional modules such as-finance, sales, logistics, CPP (Continuous Process Production), ore management systems, maintenance, customisations for sales and logistics and HR, and to create a standard set of ‘to be’ processes, and then test them. The team consisted of people from the plant and the corporate office. It took a month per module to map the existing processes and convert them into ‘to be’ processes. There were a few customisation problems. Rao explains, “Some of the processes within the ERP system had to be shrunk to handle the huge volume of invoices (six lakh per annum) being generated by MCL’s plants.” This was followed by a comprehensive training programme, which covered the basic overview of ERP as well as details about the impact of ERP on each of the nine e.Applications modules.
Advantage e.Applications
The implementation has streamlined transactions systems across plants. It has helped MCL develop an in-house MIS (Management Information System), which helps the management get information from its plants on a daily basis. There was a substantial improvement in capacity utilisation across the organisation. For instance, it was found that some costly mining equipment was under utilised.
After comprehensive analysis of mines, equipment and shift (labour) performance, 60 percent of heavy equipment has been withdrawn from operations due to poor performance and underutilisation. The number of shifts has been reduced from three to two and by continuous monitoring, production and processes have been synchronized
Questions
• How implementation of ERP benefited the organization?
CASE – 2
Materials Requirements Planning (MRP)
MRP is a planning tool geared specifically to assembly operations. The aim is to allow each manufacturing unit to tell its supplier what parts it requires and when it requires them. The supplier may be the upstream process within the plant or an outside supplier. Together with MRP II it is probably the most widely used planning and scheduling tool in the world. MRP was created to tackle the problem of ‘dependent demand’; determining how many of a particular component is required knowing the number of finished products. Advances in computer hardware made the calculation possible.
Master Production Schedule
The process starts at the top level with a Master Production Schedule (MPS). This is an amalgam of known demand, forecasts and product to be made for finished stock. The phasing of the demand may reflect the availability of the plant to respond. The remainder of the schedule is derived from the MPS. Two key considerations in setting up the MPS are the size of `time buckets’ and the `planning horizons’. A `time bucket’ is the unit of time on which the schedule is constructed and is typically daily or weekly. The `planning horizon’ is how far to plan forward, and is determined by how far ahead demand is known and by the lead times through the operation. There are three distinct steps in preparing an MRP schedule:
• exploding
• netting
• offsetting.
Exploding
Explosion uses the Bill of Materials (BOM). This lists how many, of what components, are needed for each item (part, sub assembly, final assembly, finished product) of manufacture. Thus a car requires five wheels including the spare. BOM’s are characterised by the number of levels involved, following the structure of assemblies and sub assemblies. The first level is represented by the MPS and is ‘exploded’ down to final assembly. Thus a given number of finished products is exploded to see how many items are required at the final assembly stage.
Netting
The next step is ‘netting’, in which any stock on hand is subtracted from the gross requirement determined through explosion, giving the quantity of each item needed to manufacture the required finished products.
Offsetting
The final step is ‘offsetting’. This determines when manufacturing should start so that the finished items are available when required. To do so a ‘lead time’ has to be assumed for the operation. This is the anticipated time for manufacturing.
The whole process is repeated for the next level in the BOM and so on until the bottom is reached. These will give the requirements and timings to outside suppliers.
There are three major assumptions made when constructing an MRP schedule:
• The first, and possibly the most important, is that there is sufficient capacity available. For this reason MRP is sometimes called infinite capacity scheduling.
• The second is that the lead times are known, or can be estimated, in advance.
• The third is that the date the order is required can be used as the starting date from which to develop the schedule.
Questions
• What is MRP schedule ,how it can achieve the set targets in SCM ?
CASE – 3
Just-in-Time originally encapsulated the logistics aspects of the Toyota Production System. Our current view of what it should encapsulate incorporates some of the principles of “leanness” because by itself and specifically detached from Kanban and continuous improvement it begins to loose its meaning. Also to implement these techniques without flexible, reliable processes and appropriate organisation is impossible. However at this point it begins to blur with agile manufacturing principles. This section should therefore be read in conjunction with these others and as a minimum JIT should include:
• Strategic Capacity Management for example the use of multiple small machines (rather than “efficient” expensive machines that have to be kept busy).
• Group Technology (Also commonly called “Cellular” manufacturing). This is based on the principle that segmented (possibly product focused) manufacture is much simpler, with less interference of material flows, than factories where similar processes are grouped together, such as heat treatment. This principle has also been applied to other processes where natural groups are formed to perform a complete process aligned to customer needs in manufacturing and other industries, and “category management” in procurement. However we have shown in some circumstances that the benefits of cellular manufacturing can be gained by creating virtual cells (without moving the plant). (See Business Process Reengineering / Organisational Redesign).
• Production smoothing, avoids the problems associated with poor demand tracking (See Demand Management) and unnecessary interference of the production schedule. In a recent consultancy assignment we established that whilst customer orders were highly volatile, the underlying demand was extremely stable. The volatility downstream in the supply chain was in fact being artificially induced by poor customer planning, resulting in late changes to the order schedule, to bring the orders back in line with the very stable underlying demand! However many companies experience cyclic or seasonal demand, where it is beneficial, and in some cases vital, to flex or move resources to respond to fluctuating demand, the alternative being to pre-build stock to a forecast to afford some production smoothness, at some risk and tying up of capital. A refinement of this process is, in addition, to use “Takt” times (See Previous Technique of the Week T021: “Takt Time, Measuring Throughput Time”) to set rates of production. I.e. the hourly rate of demand from customers (as opposed to coarser units of time and uncorrupted by planning parameters).
• Levelled schedules, bring more stability and regular patterns of production (See Previous Best Practice of the Week 005: Level Scheduling).
• Labour balancing when used in conjunction with Takt time (Previous Best Practice of the Week 046: “Using Takt Time to Manage Your Business”) highlights process / line imbalance from the cycle time of one operation to the next and indicates the need to balance the manning for each operation (and the opportunity to improve the slowest to achieve balance). There are some dangers here in achieving balance. (See the question at the end of this article.) This is the guiding principle of lean manufacturing where the problem would be permanently solved as opposed to the traditional approach of buffering the uncertainty with stock.
• Set-up reduction, which is based on the principle that small is beautiful as far as batch sizes are concerned and that what is required, is made that day without inflating batch sizes. (In the article Previous Technique of the Week T019: Avoiding Set Ups and Reducing Changeover Times (SMED) (and thereby reducing batch sizes)) we show that there is in fact much more to this than the set-up reduction techniques proposed by Shingo. But there are a number of techniques available to do this stated by Shingo. His SMED techniques give rise to the opportunity to reduce batch sizes by up to a factor of 50. It should be remembered however that this should be applied to the bottleneck first and maybe even stop there.
• Standard working. Defined by the operator, not the industrial engineer, it is a prescribed sequence of production steps done by one operator and balanced to the required rate of demand. It becomes the basis of understanding the job and therefore what can be improved. (Will be covered by a future article).
Visual controls. Characteristic of JIT factories are simple visible controls, held locally where they are used to monitor key performance indicators and used as a spur to improvement. This is a deliberate attempt to give eyeball control rather than the over-sophistication provided by remote computer systems. Examples include:
• Standard container sizes replacing irregular sizes such that stockholding is a simple question of counting containers rather than the parts within them. The reorder point in this case is a chalk mark on the wall rather than it being hidden in a computer system and appearing on a reorder report the following morning.
• The graphs of quality, productivity, safety and delivery performance updated daily and discussed at the daily stand-up meeting.
• A small segregation area for quality defects kept deliberately small to ensure that problems are solved quickly and rejects are not allowed to accumulate.
• The flip chart to write down today’s problems while they are still fresh.
• Minimising inventory, Minimising Work in Process, and synchronising production by the use of replenishment systems such as Kanban. The principle of Kanban operation is extremely simple but there are a number a detailed considerations to make in design and implementation which are not trivial including:
• Positioning of buffers
• Buffer sizing
• Signalling mechanisms
• Prioritisation of signals
• Priming the system
• Accounting aspects
• Ongoing integrity of cell design
Summary
JIT can only be achieved by a combination of strategic capacity considerations, strategic supply chain management and detailed ways to make work flow using pull systems such as Kanban. This can only be achieved by a holistic view such as is given by Business Process Reengineering, followed by a focused approach to continuous improvement.
Questions
• Define JIT? List advantages for using JIT in a firm?
CASE-4
The Supply Train
This supply chain behaves as a train as follows:
• The supply chain is one train designed into tiers
• Side movement is constrained by rails which in this case is three aspects of control:
• Good rapid information flow. There is an uninterrupted flow of operational and development information between carriages in both directions
• Good uninterrupted flow of goods and services
• Coordinated inventory policy. Inventory is strategically positioned between carriages by design
• The carriages are connected with no commercial obstacles
• Administration between carriages is designed to be simple and mistake proof
• Changes are coordinated between carriages
• There is one demand signal from the front (tier 0)
In fact the relationships are actually a network where many-to-many relationships exist in a network between many customers and many suppliers. This makes integration more difficult.
Lean & Agile Supply Chains should be designed and maintained using the following 13 guiding principles:
1. Viability, risk, resilience, & contingency are managed strategically
2. Products are “virtually” allocated to processes (Creating vertically integrated segmented processes) (value chains)
3. Sales & Sales Initiatives Planning, Product Development / New Product Introduction Planning integrated into Supply Chain Management (SCM) Planning
4. Managed by a Development, Sales & Operations Management Process (DS&OM), reconciled to Business Plan (not just sales and operations planning)
5. Production policy is based on resource domination of demand from make-daily / sell-daily, Fixed Order Cycles (FOC) to Fixed Order Quantity (FOQ)
6. Batch size is determined by capacity or physical constraints, not EBQ
7. Manufacturing sequence is fixed within a period (not scheduled) (The predecessor of this technique was known as campaign processing. This process however relies on small campaign intervals.)
8. A replenishment pull (Kanban) system based on consumption
9. Buffers are determined by statistical variation in individual warehouse or customer demands to agreed service levels, recalculated regularly, and positioned strategically
10. Changeover times are reduced to where repeaters can be made < weekly
11. Operated to a fixed (weekly) cycle with timetable
12. Measured as a vertically integrated total supply train system
13. Measurement drives improvement
Lean & Agile supply chains can be achieved in seven steps:
1. Redefine the architecture of supply.
2. Weld the links together contractually in a much more cohesive way to remove the commercial obstacles.
3. Remove the obstacles to the free flow of information, both for development and operational demand needs.
4. Remove the obstacles to the smooth supply of goods by developing better logistics methods and systems.
5. Position stock strategically in the chain to accommodate known communications and logistics constraints (whilst continuing to remove the constraints afterwards) and then remove nearly (but not) all of the other stock.
6. Reduce Commercial Administration.
7. Behave like one entity, by co-ordinating change activity, appropriate measurement and management.
8. This approach has a significantly different emphasis to "lean manufacturing", and is described in overview below:
Questions
• How can a lean and agile supply chain achieved and what are its advantage?
