Learning from Experience V

Nov 11th, 2011 Eli Schragenheim will lead a workshop on Learning from Experience. The purpose is to learn how to understand the cause and effect (the why) of disturbing and unexpected results from our actions AND, more importantly to take and apply the important lessons we learn.

The stories in these posts are all about unexpected effects that someone has experienced and that he or she could not properly understand. With Eli, we will look at such problems (bring your own!) and analyse them.

If you are interested The Workshop (in English) will be at the hotel Schiller in Olching (near Munich) followed by the TOC4U Meeting (mostly German) on Saturday Nov. 12th. You can register here: Register or call +49 6252 795 3070 if you have problems with the German registration page.

 

Month End Panic

Have you experienced month-end pressure to get orders out the door? Top management puts pressure on the factory to ship and invoice as much as possible before the next month starts. It is done to meet the forecast – especially whenever month-to-date shipments are lagging behind expectations. In some businesses the month-end rush is a regular occurrence.

If shipments are slow during the first part of the month and the factory is regularly able to catch up at the end of the month something unusual must be happening. The first conclusion must be that there is enough orders available – if there is too few orders the factory could not catch up. If there is enough demand, why are factories slow at the start of a month and much faster towards the end? Can we learn something valuable from the phenomenon?

Is it just management pressure and management attention that does the trick? Management certainly influences the outcome, but factories probably have to operate quite differently tosatisfy management a month end.

At the start of a month, with little or no pressure from management, factories will work in a way that allows them to meet their efficiency targets. They will operate with big batches to minimize downtime for machine set-ups. While big batches make good-looking efficiency results, the big batches cause longer lead-times since following orders must wait until a big batch is finished. The effect slows down following orders also because future orders (even potential orders) are pulled forward – inventory of some products increases.

A batch of 1000 units takes ten times longer in a machine and will be transferred to the next machine that much later (after all making ten trips is that much more work). So, even within a big batch it takes longer for one unit to reach the shipping dock.

Big batches delay both the items within the batch and the orders that must wait while the batch is being processed. But, efficiency KPIs will apparently be good.

At month end efficiency can no longer be considered. Now the factory must ship and invoice customer orders. At this point the factory splits batches. The part of the batch with no immediate customer order associated with it must wait. The rest is pushed through the factory. Orders that can be shipped and invoiced are finished much sooner because there is no more waiting time for production orders that are not necessary yet.

Factories take a further step. Remaining batches with real (urgent) customer orders behind them are split into smaller ‘transfer’ batches. These smaller batches are transferred to the next machine as soon as they come out of the previous machine. They do not wait for the entire batch. Instead of transferring in batches of 1000, the factory transfers batches of 100 or even less. Orders are completed much more quickly – the longer the process the greater the effect.

By producing in smaller batches (only what is truly needed in the short term and by transferring partial batches from machine to machine (so-called ‘transfer batches’) factories are able to respond to management pressure and achieve the desired shipment numbers.

The question for management: Would it be better for the business as a whole to always operate according to the beginning of the month process or should the month-end process be adopted and applied all the time?

The start of the month process has long lead-times and leads to high inventories while the month-end process has short lead-times and low inventories. Could the month-end process be more stressful for employees?

What other benefits might there be if the month-end process becomes the standard?

Technorati Tags: Efficiency, Inventory, Policy, Production, Reliability, Speed, Theory of Constraints, TOC