• Cognizant 20-20 Insights Flow Manufacturing: How to Achieve Superior Customer Response Flow manufacturing not only helps manufacturers achieve significant cost savings; it also helps boost revenue by enabling a deeper understanding of demand signals and customer response to tighter production cycles and on-time deliveries. Executive Summary In today’s globally-leveled playing field, forces such as consumer activism, demographic change and technological evolution are forcing industry leaders to continuously evaluate their strategies to achieve or retain competitive advantage. These forces are even stronger in the manufacturing industry, and they are exacerbated by the unintended consequences of accelerating globalization. For instance, as manufacturers work to improve performance in contextual areas such as marketing, service and technology, they inadvertently overlook the core function of their business — manufacturing — where competitors the world over are continuously making strides to increase capacity, cost efficiency, quality or some combination thereof. In the context of this white paper, “manufacturing” refers to the processes and entities that create and support products for customers. Manufacturing encompasses product development, design, production, production support and delivery. Manufacturing has changed radically over the last 20 years, and rapid changes are certain to continue for the foreseeable future. As globaliza- cognizant 20-20 insights | february 2013 tion has extended the supply chain — and the dual focus of business growth and cost reduction has led manufacturers to seek increased operational efficiency — numerous questions have emerged: • How can we become faster and more nimble while being the low-cost producer? • How can we satisfy the ever-changing expectations of customers for customized ordering and real-time tracking delivery at “Web speed?” • How can we implement high-velocity, quickresponse “order-to-delivery” processes to avoid losing business to faster-performing global competitors? Typical answers to the above questions have focused on keeping finished goods inventory in stock and increasing distribution channel efficiency. By having products at the ready, shipment to customers can accelerate. However, the downside of finished goods inventory is the large amount of working capital required to establish it, the risk of obsolescence or non-moving products and the cost of storage and logistics. In many cases, even with a large inventory of finished goods, industry leaders don’t always have what the customer really wants. As a result, more manufacturers are turning to demand-driven flow manufacturing techniques (see definition below) as a way to dramatically improve cycle time and delivery. Flow manufacturing can achieve significant cost savings in the form of reduced inventory costs and improved proUnlike traditional ductivity, but its more sigmanufacturing, flow nificant strategic advantage derived from revenuemanufacturing is isbuilding opportunities as characterized by customers respond more close alignment with favorably to short cycles on-time deliveries. As actual customer and such, flow manufacturers demand, single unit prefer to minimize manuflow, low WIP, facturing lead times and to customer orders low defects and build directly, eliminating the shorter lead time. need for finished goods. As this white paper will demonstrate, almost every type of manufacturer can benefit from flow manufacturing methods; already, many are reaping significant benefits on several levels — financial, behavioral, strategic and tactical. While there are subtle differences in how flow manufacturing is applied to discrete and process manufacturing, both types of manufacturers can benefit from these techniques. A host of benefits, such as accelerated response time, minimized inventory, increased productivity, improved quality, elevated employee morale and reduced capital investment, have been realized by companies that adopt flow manufacturing techniques. Flow Manufacturing Overview Flow manufacturing is a strategy with roots dating to the early 1980s; it came of age in the U.S. with the advent of just-in-time production concepts. Throughout the early 1980s, U.S. manufacturers in major industries were in a state of panic over the loss of world market share to foreign companies, primarily those based in Japan. Steel, electronics and automobiles were the most visible industries suffering losses, sometimes declining 25% to 35% from historical heights. Such precipitous losses resulted in a surge of U.S. business leaders visiting Japan to learn about flat organization structures, dependent-demand scheduling, Kaizen, use of teams and a quality discipline that transformed into total quality control (TQC) and, later, total quality management (TQM) in the U.S.2 cognizant 20-20 insights During the 1980s, TQM and just-in-time became the manufacturing strategies of the decade, and from these concepts evolved flow manufacturing, synchronous manufacturing, continuous flow manufacturing and lean manufacturing. The common driver for these new strategies is the imperative to reduce cycle time, eliminate waste and replace independent demand-driven scheduling with dependent-demand scheduling. Flow Manufacturing Defined Flow manufacturing is a methodology in which parts are pulled through the manufacturing process to produce a product that has a firm customer demand. Demand-driven “pull” of material through production contrasts with the traditional “push” production process that stocks inventory in locations that may not reflect customer requirements. Unlike discrete manufacturing, where goods are manufactured in batch production mode, flow manufacturing is usually based on a single-unit production philosophy. Flow manufacturing is in direct opposition to traditional mass or batch production approaches, which are characterized by the use of economic order quantities (EOQ), high-capacity utilization, high-resource utilization, efficiency, zero idle time and high inventory. On the other hand, pure flow manufacturing is primarily (often solely) driven by customer demand and is characterized by single unit flow, low work in progress (WIP), low defects and shorter lead time. As such, applying flow manufacturing techniques helps manufacturers adhere to a “build-to-ship” philosophy, with a focus on high on-time delivery and quick customer fulfillment rates. Flow manufacturers may choose to regulate production line output to closely match the current mix and volume of customer demand. With a flow line designed to build product at a formulated TAKT time (or the frequency with which products need to move down the line in order to meet the demand at capacity), the flow manufacturer can regulate the rate of the line. The desired rate is identified each day based on that day’s customer orders. The rate of production is adjusted by changing labor resources on the line (i.e., adding or removing people), not by changing the physical design of the line itself. The ability to change output rate daily, driven by changes in customer order requirements, is a powerful tool for managing productivity, WIP and finished goods inventories. 2 Top Manufacturing Operational Pressure Points 14% New product introduction 28% 30% 28% Product quality Increasing operational costs 39% 34% Customer demand for on-time and complete delivery 37% 38% All others Best in class 20% Globalization of MFG plant network 41% 0 10 20 30 40 50 Percent of respondents Base: 150 Source: Aberdeen Group, 2011 Figure 1 Flow Manufacturing’s Business Benefits Manufacturing business leaders are under increasing pressure on multiple fronts to keep their companies in customers’ good graces. This is true for industry leaders and laggards across all sectors (see Figure 1). provides an easy way to visualize how flow process enables faster response to customer orders. • Reduced inventory requirements: Flow practi- tioners have achieved up to a 90% reduction in inventory.2 By reducing WIP and finished goods (FG) inventory, businesses receive associated benefits by avoiding obsolescence, damage, warehouse space, cost of capital, interest, etc. Companies have implemented flow manufacturing to achieve the benefits of higher productivity, operating cost reductions and quicker customer response in terms of order fulfillment (see Figure 2). >> Flow processes impact WIP and FG inventory in the following ways: »» WIP inventory declines are due primarily to shortened manufacturing cycle time and the result of a process layout that avoids material clogging, waiting, etc. Primary Benefits • Faster customer delivery: In its purest form, the flow environment is nothing but a single piece flow. When a product is built one at a time, without any wait time between operations or processes, the total time required for the product to flow through the manufacturing cycle will always be less than the time required to complete a product that is part of the batch process. While the time per operation is the same in both the flow and batch processes, the total elapsed time in a batch process is higher by a factor that is directly proportional to the batch size. So, the end result is a much shorter completion time for an individual order, which is the only way to earn competitive advantage for many businesses. Projected Improvements Due to Flow Customer response Up to 50% Quality Up to 50% WIP 0 20% 40% 60% 80% 100% Percent improvement >> Studies have shown that businesses have gained as much as a 50% improvement in order fulfillment time. Figure 3 (next page) cognizant 20-20 insights Up to 90% Figure 2 3 Quick Take »» FG inventory reduction occurs because flow manufacturing works on a pull basis. Flow Manufacturing: Key Things to Remember »» Subassembly stock is also eliminated because of the feeder design. • Quality improvements: Quality benefits are the most important byproduct of flow implementations. Quality costs are due to not only product defects but also scrap, rework and warranty costs. Initiatives such as TQM, Kaizen and rapid improvement initiatives (RII) are typically integral to flow implementations. These approaches help improve process quality, process discipline, active ownership and collaboration among workers on the production line, resulting in a significant improvement in product and process quality. This directly results in a higher first-pass rate and lower rework and scrap costs, thereby reducing warranty cash outflow. Another important factor that contributes to quality improvement is the robust “measurement-reviewcorrect” feedback loop that is followed in a flow environment. •Flow scheduling: Activities that convert actual customer demand (SO demand) into a signal for manufacturing to inform production and fulfill demand. •Flow execution: Activities that involve physically producing the product and shipping it to the end customer. •TAKT time: The frequency with which products need to move down the line in order to meet the demand at capacity. •TAKT time for a flow line: (Time available in a given day) / (projected daily average demand for the products in that line). •Resources required: (ST) / (TAKT) time (where ST is standard time required for the process and TAKT is the frequency with which products need to move down the line to meet demand at capacity). • Operating cost reduction: An important advantage that is often overlooked is operating cost reduction. Flow manufacturing results in reduced lead time, lower inventory, simplification of material flow and material movement, fewer manual and system transactions, decreased waste, etc., which positively impacts the operating costs required to run a manufacturing operation. Secondary Benefits • Improved labor productivity: A simple definition of labor productivity is (the number of units produced for a unit time) / (the number of people). Flow manufacturing, by its nature, balances the work to be performed and eliminates waste, queue time, move time, wait time, etc. Hence, operators can spend more time building good products and adding value and spend less time on non-value-added activities, such as rework and delays. • Simplified production planning and sequenc- ing: In its purest sense, the flow environment operates on a single-piece basis. Even when Flow Impact on Customer Order Completion Time Nonflow Environment in Discrete World Customer Delivery Single-Piece Process Times Batch Size Customer Delivery Single Piece Process Time Wait Time Queue Time Batch Material Movement Time Wait Time Queue Time Single Piece Movement Time Flow Environment in Discrete World Figure 3 cognizant 20-20 insights 4 Quick Take Techniques Complementary to Flow Manufacturing •Kanban, a material replenishment technique that works on the “pull” philosophy and perfectly complements flow manufacturing. Kanban can be implemented in many ways, ranging from physical cards to electronic light indicators. One of the main benefits of Kanban is that it limits the inventory build. By limiting inventory, less cash is tied up, less space is used, and WIP is significantly reduced, thereby reducing product lead time. •Kaizen, which means “improvement” in Japanese. Anybody who has implemented flow manufacturing can vouch for the fact that, even with effective planning tools, a stable flow environment is usually the result of many small incremental improvements made during the first few years of implementation. With Kaizen, businesses undertake incremental quality improvements and waste reduction by listening to people with the best insights: the production workers on the front line. •RII, another lean tool very similar to Kaizen service- or event-focused and aimed at achieving a real, immediate step change in performance through the practical implementation of change. It is highly structured and coached, with an aim of eliminating waste in processes or work areas by involving a small cross-functional team of employees for a short duration of time. RII events can generate tremendous savings in labor, cycle time and quality. •TQM, another operational performance improvement philosophy to improve quality and performance of processes and products that will meet or exceed customer expectations. TQM looks at the overall quality measures used by a company, including managing quality design and development, quality control and maintenance, quality improvement, and quality assurance. TQM takes into account all quality measures taken at all levels and involving all company employees. •Total predictive maintenance (TPM) programs, which can result in dramatic improvements in equipment uptime, quality, change over time and capital expenditures. but with a much faster pace and shorter time duration. It can be defined as hands-on, businesses do not follow the purest flow concepts, demand is still driven by the final end-product, and in many cases, subassembly planning is eliminated by linking the processes together and creating feeder lines. This makes production planning much simpler and direct. Also, in many cases, the number of subassembly levels in the bill of materials (BOM) could be made “phantom,” as there is no need to transact at every BOM level (depending on the level of tracking/accounting that the business needs). This results in the elimination of planning for those subassemblies. The net result is highly simplified production planning and sequencing. • Effective cost accounting: Cost-accounting methods can be simplified with flow manufacturing. Because the lead time through a flow facility is consistent, repeatable and not volume sensitive, activity-based costing (ABC) can be more easily introduced. Labor costs for cognizant 20-20 insights the flow manufacturer can become an element of the overhead that is applied proportionally to each product. • Better floor space utilization: By linking and balancing manufacturing processes into flow lines or cells — and the related reduction in WIP inventory and a thorough housekeeping effort — manufacturers can reduce factory floor space by 20%-plus, in our experience. Characteristics of Successful Flow Implementation The following eight characteristics are common to successful manufacturing flow adoption, independent of the type and nature of the business: 1. Top-management commitment and involvement: Flow manufacturing is transformational on many levels and can lead to fundamental changes in the way success is measured (KPIs or metric changes). However, it is often difficult 5 to convince key members of the organization that an initiative can deliver transformative change unless it has the complete backing and involvement of top management. Ideally, a top executive in the C-suite, such as COO, CFO or CEO, will act as owner or sponsor of the flow manufacturing initiative. A fundamental reason for failed flow manufacturing implementations is lack of buy-in from top management. Many times, top management buys into the buzz associated with flow manufacturing without completely understanding its business value/fit. Hence, a clear understanding of the ROI and business case is crucial. 2.A flow champion: The champion is someone who believes in flow and is passionate about its success. This individual needs to be the lynchpin of the flow project and can typically be found playing the role of launch coordinator or launch manager. 3.Involvement of the entire team: Successful flow implementations invariably reveal that teamwork and ownership by multiple stakeholders leads to tangible business value. At the end of Successful flow the day, the people in the line implementations decide the success or failure of the implementation. Indiinvariably reveal viduals who operate the that teamwork machines, move materials, and ownership by measure and check and manage the lines will decide multiple stakeholders how well flow will be adopted leads to tangible on a daily basis. Therefore, business value. it is important that they are involved from day one and be part of all communications. 5.The right enablers: An important enabler is the availability of information/ data to allow manufacturing to respond to customer demand changes as they happen. This calls for complete visibility among order management, engineering, manufacturing and shipping functions. This is why availability of a proper decision-making and information system is an essential prerequisite for implementing flow manufacturing. Enterprise resource planning (ERP) systems offer one approach because most off-the-shelf ERP systems already include transactions, analytical features and functions to support flow implementation. It is incumbent on any company to conduct a thorough fit analysis of their ERP systems to make sure the functions and features meet business needs to avoid massive customization in the future. 6.An understanding that software cannot implement flow: One of the main differences between businesses that implement flow successfully and those that do not is the approach to the implementation. Based on our observations of industry practice and empirical research, two approaches stood out in the case of unsuccessful flow implementations: >> They approached it as a software implementation. >> It was led by IT instead of the shop floor manager. While there is no doubt that software is an important enabler in successful flow implementations, more important are the people who understand key manufacturing processes and products and, moreover, exercise the required discipline and controls to execute effective flow design. It is these people who need to adjust their behavior and change their mindset with new measurements and incentives that are key to flow manufacturing’s success. 4.Culture: Shop floor culture can single-handedly lead to flow adoption success or failure. Cultural factors critical to successful flow adoptions include: >> Non-hierarchical decision-making: The work culture fosters both bottom-up and top-down collaboration. Individuals in the line, both workers and supervisors, are empowered to make decisions. Communication is open and transparent. 7. The right measurements: While the specific measurements used may vary from one operation to the other, one characteristic that is common to all successful flow adopters is institutionalizing the right metrics. >> Supplement monthly metrics with daily >> Multi-skilled line workers: Workers are also willing to be trained on new skills, as required. Hence, a clear change management program is also critical for successful implementation of flow manufacturing. cognizant 20-20 insights operational ones. >> Create a dashboard of key performance indicators and track them. 8.A proper physical layout: Another basic, but often ignored, characteristic of a successful flow implementation is the physical work 6 environment. Very similar to smooth traffic patterns, a successful flow process should minimize clutter that waylays effective functioning. This requires orderliness and neatness in and around flow lines. For example, all inventory and subinventory locations should be clearly designated and marked, and necessary tools, fixtures, gauges and other resources should be present at workstations and properly organized. Successful flow implementers pay special attention to the housekeeping disciplines of “sort, set in order, shine, standardize and sustain.” Technology Enablers As all flow manufacturing practitioners understand, the fundamental feature of this approach is its ability to react to actual customer demand, which can happen only when real-time (or very close to real-time) information integration exists between demand (orders) and supply (stock, schedules and WIP). Activities such as inventory management of intermediate-stage subassemblies, configuration management of finished goods, and production order management tied to actual customer orders cannot be efficiently executed without proper technology enablement. Equally important is the accuracy or quality of the data. These informational expectations require technological help. There are various tools and systems that support and enable successful flow manufacturing adoption. These vary from a specific manufacturing system to all-encompassing ERP systems and everything in between. While every business must decide the right technology enabler for its situation, empirical evidence points to ERP. As ERP systems provide much more than flow manufacturing functions, the decision to use ERP must consider the overall system needs across the enterprise. Almost all top-tier ERP systems provide fairly well-developed flow manufacturing modules and functions. (See sidebar below for a list of important criteria to be considered when selecting the right technology enabler.) Beyond the general flow modules and functions that are provided by ERP, manufacturing execution systems (MES) or advance planning systems (APS), additional features and functionalities are essential for creating actionable intelligence for production personnel to act upon. Automated KPI dashboards, ad hoc broadcast systems, workflows and non-conformance alerts can provide decision-makers with the right information at the right time to make informed decisions that improve operational execution. Transitioning to Flow Manufacturing While there is no cookie-cutter approach for successful implementation of flow manufactur- Quick Take Tips for Selecting Technology Enablers >> Engage third-party product-agnostic con- • Conduct an internal study to understand the gap between what you have and what you need for flow manufacturing: >> Features and functions. >> Integration needs. • Compare multiple products: >> Use industry reports from Gartner, Aberdeen, Forrester, IDC, etc. >> Talk to customers using these products in a flow manufacturing setting. • Perform fit analysis between your needs and sultants if resources are available. • Don’t buy products based on future promises. The industry is too dynamic for predictions to be accurate. • Estimate the level of customization needed. Every product will need some customization to suit your specific business needs. • Develop insights into product support and ease of use. • Ask the product vendor to conduct a pilot demonstration using your organization’s data. the product‘s out-of-the box features: >> Leverage vendor functional experts but develop a custom decision matrix. cognizant 20-20 insights 7 Approach to Flow Manufacturing Implementation • Assess need • Develop business case • Rationalize • Select line for pilot implementation • Train workers • Select technology enablers ionalize Rat Se le 1 3 B u y- 6 Set Up Flow I lemen mp tion ta 7 2 ct manufacturing shop Rol lO ut • Roll out to entire • Change line setup • Establish new KPIs/metrics • Set up the system In • Get buy-in from management and shopfloor Re 4 5 Pil vie w • Review process and measure output • Review KPIs/metrics ot Repeat Step 4 if review is not satisfactory • Launch pilot (3-6 months) • Record results • Redo, based on findings from the review step Figure 4 ing, the following recommended sequence and steps have been found to be critical success factors (see Figure 4): with current manufacturing operations that inhibit success. Develop a clear matrix (see Figure 5) to verify whether flow answers each of those issues, both individually and as a whole. • Rationalize: Case studies point to a common reason why flow manufacturing projects fail. Typically, it is a lack of conviction (i.e., the business is not really sure why it needs flow manufacturing but still makes a case for its adoption). Flow manufacturing adoption cannot be based on an executive’s excitement about a popular buzzword or a strategy of “management by imitation.” At minimum, manufacturers must perform the following checks before deciding to adopt flow manufacturing: >> Create a business case: Develop a business rationale that clearly lays out the cost and benefits in terms of dollar value, time and resources. Also, lay out the intangible costs and benefits of adoption. Wherever possible, try to assign a dollar value to the intangibles so emotions and perceptions can be eliminated from the decision-making process. >> Rationalize and decide: Review the business case with company leadership, as well as with the other functional groups that >> Determine the need for flow: Make an hon- est assessment of the goals that your company wants to achieve and identify the gaps Illustrative Flow Suitability Evaluation Matrix Current Issues Flow Solution Can Flow Help? Comments How Flow Will Help Low labor utilization High WIP Big batch Finished inventory Capacity constraints High rework Figure 5 cognizant 20-20 insights 8 will be impacted and make a collective decision. Most often, the affected functional groups include finance, order management (OM), shop floor management, material planning, etc. • Setup: The degree of preparation will determine how smooth the flow manufacturing launch will be. Multiple prerequisites need to be in place for an effective launch. Depending on product type, whether your organization is a job or made-to-order shop, the extent of the line setup will vary. In a job shop world, machines performing the same process would have been located together to maximize productivity. However, in a flow world, machines should be arranged to enable a continuous product flow; hence, they need to be positioned next to each other in a manner that resembles the process hand-off. • Select scope: The next step is to select the scope of the flow implementation. While an organization can attempt a big bang adoption covering the entire manufacturing operation, an incremental approach is often better. Companies should select a specific product line rather than a specific production line (unless they are the same) and use this initial learning to iron out wrinkles before converting the entire manufacturing operation to flow. The following steps are recommended for selecting the pilot candidate: As an example, instead of having each drilling, grinding and assembly machine in a line of its own (characteristic of a batch shop), the flow line should place drilling, grinding, burnishing and assembly operations in the same line to facilitate minimum material movement, minimum WIP accumulation, etc. >> Identify the product. The selected product should exhibit fairly stable demand. (Avoid the cash cow and the dog of the company to avoid extra pressure or the “nobody cares” scenario.) >> >> At minimum, pay particular attention to verifying the following flow line characteristics: Document the manufacturing processes that produce the product, from start to finish. »» Are the processes and machines in the >> Calculate total throughput volume, resources required and TAKT time to achieve the sales volume for the selected product. line flexible and responsive? »» Are the work cells set up to provide continuous flow? >> Create the flow line layout and use this as the reference point for making any TAKT time adjustments or line balancing. »» Are the machines and equipment required to complete the entire process collocated? Two other important considerations must be applied at this juncture: »» Is the staff multi-skilled? If the targeted product line has characteristics that are completely opposite to what has been described above, the line should be reexamined and changes introduced to more easily transition to a flow environment. >> Select the right technology enabler: Whether it is an ERP or a specific flow manufacturing package, it is essential to have the right system before adopting flow manufacturing. In today’s world, quality, accuracy and speed of information are absolutely essential, and this can’t be achieved without the right system to support the process. >> Metrics/KPIs setup: Incentives and mea- surements drive expected behavior, and this applies to the shop floor, too. As flow manufacturing objectives are much different from traditional discrete batch job manufacturing or process manufacturing requirements, organizations cannot maintain the same KPIs and metrics to measure the performance of flow lines. For example: Instead of using conventional metrics such as machine utilization or total productivity, create metrics around ‘‘on-time delivery” and “cycle time” (see Figure 6, next page). >> Education: An important factor in a suc- cessful adoption of flow manufacturing is the level of awareness and acceptance by shopfloor personnel. More than anything, flow manufacturing requires mindset and cultural changes across all levels in the organization. Classroom pilot or challenge workshop sessions are the best way to accomplish this. We recommend that manufacturers use an external consultant to provide this educational service. cognizant 20-20 insights >> System setup: For a system to behave as the right enabler, it needs to be set up 9 with the correct information. Flow-specific data elements include flow routing, maximum and minimum flow line capacity, flow resources, BOM, shift capacity, inventory rules, etc. The decision-support systems should be integrated with flow transaction systems to provide real-time information and alerts to flow line managers. • Pilot launch: The fourth key step is to actually run the pilot for the selected line(s). The pilot should be kick-started in non-critical financialending periods such as year- or quarter-end. This will avoid the extra pressure of meeting revenue numbers while learning to adjust to the new way of functioning in a flow environment. During the pilot, frequently gather data related to process time, setup changes, material movement, wait times, rework, defects/scrap, etc. While there is no rule of thumb on the frequency of data collection, data should be compiled multiple times during a shift to generate a representative sample size for further analysis and review. Data collection can be performed either by line employees or with the help of process/value engineers using normal data collection techniques such as a stop watch, data sheet, etc. could be developed through Kaizen or RII initiatives. The review process should be transparent and involve people responsible for the specific process or operation. Depending on the review results, the pilot launch duration could be extended or shortened. • Buy-in: As flow implementation is more of a mindset and cultural transformation than anything else, it is absolutely necessary to conduct a formal review of the pilot results with all stakeholders and address every concern. Before starting the full implementation, make sure to obtain: >> Buy-in from the leadership/management team. >> 100% backing from the production lines/ shop floor team. • Roll-out: Once the pilot is successful, there are four important activities to complete before the actual rollout commences. 1. Set up the flow lines for the full-blown production roll-out: »» Start with the product that has reason- ably stable demand. If not already available, map out the current manufacturing process steps for each product. • Review: This step can be viewed as part of step four. Data can be reviewed on its own or be used to generate the relevant metrics/KPIs. Reviews should happen on a regular basis, and corrective actions should be instituted immediately in the line. Many times, corrective actions »» Perform value engineering to determine the value-added steps. Eliminate non-value-added steps. »» Determine if there is commonality across product families such that multiple fami- A Change in Metrics Metric Metric Definition Calculation Measures the percent of time an order is delivered to the customer within the promised time. (Note: The promised date is expected to be strictly the total cycle time plus total shipping time. No buffers are expected to be included. ) Orders delivered on time/ Total number of orders shipped First-time pass yield Measures the first-time pass rate. This can be calculated either for a specific operation or specific line. (The numerator considers the number of defects and hence it will always be a number either equal to or less than the denominator.) Total number of units produced — Number of defective units/Total number of units produced TAKT time adherence Measures the actual operational cycle time in line with the TAKT time calculated for that line. (Note: TAKT time is calculated based on the projected average daily demand for the products on that line.) Actual operational cycle time/TAKT time calculated for that line Measures the total value of WIP inventory in the flow line. Inventory quantity for each item type x Value of the item Measures the percent of time the process discipline was not followed and hence deviation occurred in the line. Number of process deviations recorded/Number of FG items produced On-time delivery WIP inventory Process discipline conformance rate Figure 6 cognizant 20-20 insights 10 lies could be built on the same flow line. The more products built on the same line, the more flexible the process will be. approach, and rely on real-time manufacturing data, bottleneck constraints, inventory and actual consumption to drive production decisions. »» Once the products per line are determined, calculate the TAKT time for the line, based on the projected average daily demand of products in that line. »» Once this is done, physically rearrange the shop floor to create the flow lines. Note: Once actual production starts, there will be a need for making changes based on actual observation of the line. This can be addressed through RIIs. 2. Training and education is 100% complete. 3. Required resources (people, processes, etc.) are in place. 4. IT systems are fully enabled. Flow Manufacturing Moving Forward To deliver customer orders at the right time, right price and with the right quality, the first step is to synchronize customer demand with manufacturing execution. To accomplish this, a couple of fundamental changes must happen: • Manufacturers must become customer centric by measuring against on-time delivery metrics. • Manufacturers must focus on a holistic collab- One proven way to make these changes is to adopt flow manufacturing and the related complementary techniques. There are many examples of companies doing this. If there is one thing that industry captains have learned, it is that the cookie-cutter approach does not work; in reality, there is no single solution that fits all business scenarios, and flow manufacturing is no exception. Just as with any other process change, flow manufacturing is not a panacea, nor should it be embraced as a religion. So, never try to force-fit a solution. We can guarantee that minimal to no benefits will be achieved if flow manufacturing is treated as a “fad of the month.” It is an operational strategy that needs to be carefully reviewed for applicability. Given the long list of benefits, it is not surprising that flow manufacturing has become a competitive necessity for most industries. The extension of flow methods to non-manufacturing processes is happening rapidly, and industries such as banking, software development, healthcare and construction are leading the way. orative pull approach, instead of a siloed push References • R. Michael Donovan, “Demand-Based Flow Manufacturing For High Velocity Order-to-Delivery Performance,” Performance Improvement, May 23, 2001, http://www.idii.com/wp/donovan_demand.pdf. • Gerard Leone and Richard Rahn, Fundamentals of Flow Manufacturing, Flow Pub, 2002. • “Demand Driven Manufacturing,”Aberdeen Group, November 2007, http://www.nmetric.com/pdfs/4172-RA-DDMManufacturing-ML-SPF.pdf. • James Womack and Daniel Jones, Lean Thinking, Free Press, June 2003. • Definition of “rapid improvement,” Kaufman Global, http://www.kaufmanglobal.com/glossary-pages-61.php. • “Manufacturing Readiness and New Product Introduction,” Aberdeen, May 2012, http://www.aberdeen.com/Aberdeen-Library/7902/AI-manufacturing-readiness-operations.aspx. • “Transitioning to Lean with Oracle Flow Manufacturing,” Technology Evaluation Centers, April 2006. • Visionary Manufacturing Challenges 2020, National Academy Press, 1998. • “Design for the Environment,” U.S. Environmental Protection Agency, http://www.epa.gov/dfe/pubs/pwb/tech_rep/usecluster/pr_pt2-1.htm. • Jon Duane, Nazgol Moussavi and Nick Santhanum, ”A Better Way to Measuring Shop Floor Costs,” McKinsey Quarterly, August 2010, http://www.mckinseyquarterly.com/A_better_way_to_measure_shop_ floor_costs_2664. cognizant 20-20 insights 11 • Wallace J. Hopp and Mark L. Spearman, Factory Physics: Foundations of Manufacturing Management, Waveland Press, August 2011. • Marshall Fisher, Janice Hammond, Walter Obermeyer and Ananth Raman, “Making Supply Meet Demand in an Uncertain World,” Harvard Business Review, May-June 1994, http://homepages.rpi.edu/home/37/ neubed/public_html/Stuff/Classes/Supply%20Chain/Sport%20Obermeyer%20Reading.PDF. • Fredrik Nordstrom, Piotr Gawad and Adam Nowarski, “The Science of Manufacturing,” ABB Review, 2006. About the Author Deepak Mavatoor is a Manager within Cognizant’s Manufacturing and Logistics Consulting Practice. He has over 15 years of experience in the supply chain, manufacturing, logistics and technology domains. Deepak has rich experience in the automotive, manufacturing, high technology, consumer electronics and IT sectors. He has an M.B.A., with Beta Gamma Sigma honors, from the Stephen M. Ross School of Business, University of Michigan, and a degree in mechanical engineering from Mysore University, India. He can be reached at [email protected] About Cognizant Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 156,700 employees as of December 31, 2012, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. 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