Monday, October 20, 2014

Focua and Leverage Part 384

I finished my last posting by telling you I would share what Debra and Chad Smith meant by "All benefits" when they stated that the first law of manufacturing is, " All benefits will be directly related to the speed of flow of information and materials."  The authors tell us that there is a caveat to this law in that all information and materials must be relevant to the market expectations or requirements.  So what did Debra and Chad mean by "all benefits"?

They tell us that all benefits will encompass the following:
  1. Service.  A system that flows well produces consistent and reliable results.  This includes meeting both delivery performance and quality.
  2. Revenue.  When service is consistently high, market share grows or, at a minimum, does not erode.
  3. Inventories. Raw and pack, work-in-process, and finished goods will be minimized and directly proportional to the amount of time it takes to flow between stages and through the total system.  The less time it takes to flow, the less the total inventory and inventory is captured money, a form of employed capital.
  4. Expenses.  When flow is poor, additional activity and expenses are incurred to close the gaps in flow.  Examples would be expedited freight, overtime, rework, cross-shipping, and unplanned partial ships. Most of these activities directly cause  cash to leave the organization and are indicative of an inefficient overall system.
  5. Cash. When flow is maximized, material that a company paid for is converted to cash at a relatively quick and consistent rate.  This makes cash flow much easier to manage and predict.  Additionally the expedite-related expenses previously mentioned are minimized.
The authors go on to ask an important question, "What happens when revenue is maximized and protected, inventory is minimized, and additional and/or unnecessary ancillary expenses are eliminated?"  The answer to this question is quite simply that return on investment (ROI) is high.  The true message here is that the best, sustainable way to achieve this high ROI is to promote and protect flow!

Debra and Chad explain that, "Once we realize the importance of flow, a few key principles emerge."
  1. "Time is the ultimate constraint.  Time is the most precious resource employed in the manufacturing process.  What we must always keep in mind is that the important time is the time it takes to move through the system."
  2. "The system must be well-defined and understood.  Clear definition about how materials and information should move will determine whether the system is even capable of maximizing flow."
  3. "Linkages or connections between points in the system must be smooth.  Materials and information need to smoothly pass from one point to the other.  The greater the friction at these points, the more flow is impeded."
From these three principles the authors explain that, "Putting these principles together gives us an elegant point.  A company's ability to better manage time and flow from a systemic perspective will determine their success in relation to ROI."

The more I read Demand Driven Performance Using Smart Metrics by Debra and Chad Smith, the more I believe this is the future of manufacturing and I applaud Debra and Chad for writing this book.  In my next posting, I will discuss how the authors view variability as well as the different types.

Today I received a message here on this blog from one of my followers.  The message was in the form of a question when the reader asked which book should I buy, Demand Driven Performance Using Smart Metrics by Debra and Chad Smith or Orlicky's Material Requirements Planning, Third edition by Carol Ptak and Chad Smith? This was a very difficult question to answer because I believe that everyone should read and practice the lessons in both books which is what I recommend.
Bob Sproull

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