TOCICO 2004 Conference Template

Finding & Testing SIMPLE Solutions for COMPLEX Problems

CASE STUDY 1

“

Helping achieve

One-Simple-ABB ” with “ TOC in SAP” within Complex Manufacturing Environment

THEORY OF CONSTRAINTS

CASE STUDY 2

Finding & Testing a solution to

SHORTAGES & SURPLUSES within Book Publishing Supply Chain

Presenter: Dr Alan Barnard, CEO Goldratt Research Labs

Date: 27 th August

© 2004 TOCICO. All rights reserved.

1


Case Study 1

Helping Achieve “ with

One-Simple-ABB ”

TOC in SAP

Presenter: Dr Alan Barnard, CEO Goldratt Research Labs

Contributors : Dr Katja Rajaniemi, Improvement Manager ABB BU

Fredrik Nordstrom, Regional Manager ABB Ops Development Group

Lukasz Krupa, Leader, ABB Manufacturing IS Solutions

Alex D’ ’Anci, Regional Manager, ABB Ops Development Group

Eli Schragenheim, Goldratt Schools


2

Presentation Outline

TOC Research Projects

• Research Background

• ABB Case Study:

− Facts about ABB

− ABB’s Continuous Improvement Evolution at ROI

− The “One-Simple-ABB” Challenge for Operations Excellence

− Conflict in leveraging and standardizing on best practices across ABB

−

Conflict in leveraging and standardizing on a single IT Platform and

ERP system

− Finding a Solution to the “One-simple-ABB” Challenge

−

Defining a simple yet robust TOC solution for 300+ different factories

− Defining “TOC in SAP” using Goldratt’s “Strategy and Tactic” (S&T) process

− Testing “TOC in SAP” solution through series of Pilots

− Results achieved to date & next steps

• Research Conclusions

3

© 2006, Alan Barnard, Goldratt Group. All rights reserved.

Research Background


RESEARCH PROBLEM

− Most companies today, have left the final choice of which which Planning, Execution and Continuous improvement

(PECI) methods and which IT systems to support these to

Business Units because BUs are:

− Responsible for continuously improving on their result.

− In the best position to decide which methods & systems best meet their specific requirements.

− Normally responsible for pay for these.

− No wonder BU’s have resisted most attempts to standardize or centralize IT and PECI’s …

4




RESEARCH PROBLEM

− However, not standardizing and leveraging Best Practices and a common IT platform, has major negatives for the

Company as a whole…

− Providing Support to multiple IT platforms and different

Improvement methods is a nightmare for Centralized functions and very costly

− Ensuring fast and reliable integration of data between different systems is a major challenge and occupies valuable management time every month

− Business Processes cannot be standardized to enable fast and accurate transactions.

− Best Practices are not shared and results achieved are not duplicated

5




RESEARCH QUESTIONS

Q1: Is it possible to find a " one-solution-fits-all " both in rules and ERP technology when it comes to planning, execution and improvement of operations especially considering the many specific local considerations resulting in " we are different ”)?

Q2. Even if it was possible to theoretically find such a solution that could meet most business requirements, would it be possible to get buy-in from regional and plant managers under pressure to improve performance & reduce costs to test such a solution?

6




RESEARCH METHOD

1.

Literature Review to identify which companies have tried and succeeded and which not and Why?

2.

Consultation with Experts to determine if a “One-

Solution-fitsall” solution design was possible and then whether such a solution can be implemented within a standard ERP System (the hypothesis to be tested)

3.

Followed Action Research method using “Plan, Do,

Review & Act ” cycles to validate and continuously improve hypothesis

7


Case Study: Facts about ABB


Power

Products

Power Systems

Automation

Products

Process

Automation

Robotics

 ABB is the world’s leading provider of power and automation technologies with strong market positions in core businesses

 ABB’s goal is to create value for their stakeholders by helping customers Use

Electrical Power more Efficiently, Increase Industrial Productivity, Lower

Environmental impact in a sustainable way

 Revenues in 2007 : $29.2 billion and Orders for $34.3 b (large backlog)

 Headquarters: Zurich, Switzerland

 About 107,000 employees in 100 countries with Market-leading positions in most key products

 Robust global value chain to serve established and emerging markets

 300+ factories around the world

8


Why Operational Excellence is critical to ABB…


Competitors

4 Competitors also have aggressive operational excellence programs

Sub Sub Suppliers Customers

3 Supply Partners expect

Better visibility (and prices) for Improved reliability and response

P

2

Shareholders expect

Increase EBIT (growth)

Reduce COPQ (stability)

1 Customers expect more for less faster each year

T

Revenues COPQ

EBIT

9


ABB’s Continuous Improvement

Evolution


1992 Production

Technology

Organization part of Corp. R&D in

Finland

1993 first DBR implementation

1998 Corp R&D

Program for

Manufacturing

Technologies

2001

Eli Goldratt

1999 visits

12 Jonahs trained

ABB

2002

ConWIP

2007

OEP for IS

By 2008 ~100

Trained in “Advanced TOC”

~500 in TOC through OEP 2007

TOC in

SAP

2005

Test TOC

Distribution

Solution

2008

OEP for

Controllers

2006

MT R&D Program becomes

Operations Development Group.

50 consultants in 4 centers

2003

Operational

Excellence Program (OEP) launched as CP3

1988

TOC + Lean Thinking + OEP = Operational Excellence

10


2010

Was the investment in Operational

Excellence worth it for ABB?


1) Source: Copenhagen Institute for Futures Studies and Larry Keeley: www.doblin.com

(3000 projects examined)

11


Sample TOC & Lean success stories in ABB

(1/2)


Distribution Transformers production unit

2005 TPT (Line1)

TPT (Line2)

- 75%

- 65%


LV Motors manufacturing unit

Tap Changer manufacturing unit

2005

2005

2005

TPT

Delivery time

> - 50%

> - 25%

Total inventory reduction 1,2 MUSD while 40% volume increase

Productivity

TPT

+38%

-17%

TPT

Delivery time

- 50%

> - 60%

HV Bushings manufacturing unit 2005 Capacity

TPT

OTD

2005 Value chain from a component factory in Europe to a product factory in Asia

+30%

- 50% from 8 to 93%

Replenishment time - 72%

Total inventory turns +200%

On Time Delivery from 83 to 95-100%

Technology Development Centre 2005 Project OTD from 45 to 87% with significantly reduced cycle time

Functional Completion Rate incr. to 100%

Cables manufacturing unit 2004 TPT

WIP

- 80%

- 60%


HV Switchgear

2004 TPT

Delivery time

OTD

- 70%

- 48% from 70 to 96% while 245% increase in orders received

2004

12

Capacity


+43%

Sample TOC & Lean success stories in ABB

(2/2)


Power Transformers production unit


2007

2007

WIP and LT - 40%

OTD (On Time Delivery) from 86 to 100%

Capacity +100% without planned expansion

WIP

TPT

OTD

- 45%

- 70% from 45% to 98%

Distribution protection and control 2007 products manufacturing unit

MCB production unit

Power Transformers production unit


MV Circuit Breakers manufacturing unit

LV Breakers and Switches production unit

2007

2006

Delivery time

OTD

Capacity

Delivery time

OTD

Productivity

Delivery time

WIP

2006

2006

Capacity

TPT

Delivery time

Inventories

OTD

Capacity

TPT

Delivery time

OTD

2006 Capacity

Delivery time

OTD

13


- 50% from 40 to 100%

+ 30 % with existing resources

- 50% for stock and non-stock items from 84% to 97%

+30%

- 50% (from 6 to 3 months)

- 35%

+30%

- 64%

- 32%

- 44% from 66 to 98%

+260%

- 60%

- 60% from 77 to 100%

+25%

- 80% from 23 to 90%

What is the benefit of using TOC as a focusing tool for LEAN & Six Sigma vs. using each in isolation?


Sanmina-SCI Case Study

• Leading global electronics manufacturing services (EMS) company employing over 48,000 people and revenue of $11.7 Billion

• Set-up experiment over 2.5 years to test financial impact of LEAN, Six Sigma and TLS (TOC focusing LEAN & 6S)

• 21 Participating plants with:

11 Plants on Six Sigma

4 Plants on Lean

6Plants on TLS

Contribution % to realized savings by method applied

TLS

89%

Lean

4%

Six Sigma

7%

Per Project Financial Return

• TLS, Lean, and Six Sigma all offered benefits

• TLS showed 3.9 times greater financial benefit delivering 89% of total benefits achieved from only 6 out of 21 plants

4.5

4

3.5

3

2.5

2

1.5

1

0.5

0

Return

Lean Six Sigma

Methodology

TLS

Source: Apics Magazine, May 2006 and TOCICO 2007

14 russ.pirasteh@sanmina-sci.com

But how do you achieve Step-Change AND

Continuous Improvement within any organization?


P D

S D

A C

= Standardize , Do, Check, Act

Continuous ( Evolutionary ) Improvement through institutionalizing Best Practices

A C

= Plan , Do, Check, Act

Step-Change ( Revolutionary ) Improvement through Constraint Focused interventions (Kaizen)


Operational Excellence

Acceleration Challenge


What blocks a company such as ABB from identifying and spreading best-practices, learnings and results effectively in a big organization?

The “Best Practice” Standardization Dilemma

Action

Objective

Need

Have a way to Roll

-out best-practices efficiently & effectively

Standardize our improvement approach

Because:

Ensure leverage of Best-Practices in all Business units

Need

Have a way to ensure outstanding result in each BU

Conflict

Action

Customize an improvement approach for each business unit

Each BU/Factories is different which mean there are no

“one-solution-fitsall” that can be rolled out

Really?

16


Operational Excellence

Acceleration Challenge


Despite the many differences between the plants where

TOC+LEAN were implemented, it seemed to deliver similar results without any significant differences in the “what” and “how to”…

Objective

Resolving the Standardization Dilemma:

Ensure leverage of Best-Practices in all units

Need Action

Roll-out best practices effectively

Standardize our improvement

Need

Use TOC to focus & synchronize

Planning, Execution & Cont.

Improvement solution ( TOC +

LEAN ) and an participative engagement approach getting contribution and approach for

Ensure outstanding result in each unit personnel each time

17


ABB Gate Model for Process Improvement projects of Best Practices using a holistic

TOC approach


…. addressing resistance to change as an organizational constraint:

Analysis

0

Project

Start

Agreement

1

Project scope definition

Planning Execution Sustain

2

Project

Execution

Plan

Development

3

Piloting

4

Final solution agreement

Implementation

Pilot results

Project

Hand over

5 6

Close project

7

Validate results

1. Agreement on the problem

2. Agreement on the direction of the solution

3. Agreement that the solution will yield the desired results

4. Agreement that no disastrous side effects will result

5. Agreement on the implementation requirements and the plan itself

6. Agreement by all collaborators including management that we can move forward with confidence

But how do a standardize “Best Practices” without standardizing the IT Platform?

18

Source: ABB developed (based on Cooper

´ s Stage-gate model).


ABB’s ERP System reality after years of acquisitions and empowered BU and

Regional IT decision making..


• As a result of numerous acquisitions, ABB at one time had more than 500 ERP systems and 70 different ERP brands in operation across its businesses.

• Most of the factories and distribution centres were also using inhouse developed Spreadsheets and Databases for supporting their preferred Planning, Execution and Continuous Improvement

Methods

• Integration of systems and data (and support) had become a nightmare and major risk to the business.

• In late 2006, a decision was made at the ABB board , to embark on a

(challenging) journey of standardization on a common IT / ERP

Platform (or at least range of platforms) and simplification based on

“best-practices” .

• The initiative was titled “ One-simple-ABB ” or “OsA”.

19


ABB’s “One-simple-ABB” decision and consequences...


Press Release in March 2007

“Today, ABB signed a strategic agreement with the German-based ERP provider, SAP to help deploy common SAP ERP software through its global operations to help unify and simplify some of ABB’s most important business processes. The OsA initial target is one ERP per country , and ultimately one ERP platform per region for all of ABB that would enable a high degree of standardization in the human resources, finance and administration and corporate governance functions as well as in the operational excellence “best-practices ”

Yes,

BUT....

Would it really be possible to find and get agreement that a

“One-simple-ABB” solution was possible for managing the diversity and complexity of ABB’s 300+ factories ?

20


The Operations dilemma in supporting ABB’s global “One-Simple-ABB” objective?


The “One-Simple-ABB” Dilemma

Objective

Create long term competitive edge in our industry

Need

Efficient and fully integrated Finance,

HR & OPS business processes across

ABB

Need

Continuously

Improve customer service and sales through efficient & effective operations

Action

Deploy a common

ERP platform across

ABB and limit selection of SCM &

MES systems

Action

Allow each site to develop own / use

3 rd party ERP, SCM

& MES systems

Because:

Each BU/Factory is unique and using a common ERP platform or limiting choices in SCM / MES methods & systems will jeopardize results and or ownership

Use

Legacy /

3 rd Party

Not updating

ERP

Don’t trust

ERP

ERP inaccurate

21


The Operations dilemma in supporting ABB’s global “One-Simple-ABB” objective?


The “One-Simple-ABB” Solution for Operations

Objective

Create long term competitive edge in our industry

Need

Efficient and fully integrated Finance,

HR & OPS business processes across

ABB

Need

Continuously

Improve customer service and sales through efficient & effective operations

Direction of win-win solution:

•

Get agreement that TOC can provide “one-solution-fits-all”

• Find a way to Modify SAP R3 to support TOC (TOC Planning,

•

Execution & POOGI rules).

ABB to launch a “TOC in SAP” initiative to validate above hypothesis

Yes

, BUT…

Q1: Would it really be possible to define a TOC “ One-solution-fits-al l ” ?

Q2: Would it really be possible to modify SAP to support this solution ?

22


“TOC in SAP” Project at ABB

Getting Agreement & testing TOC Solution Design &

SAP functionality


Project Start

“TOC in SAP”

Intro W/Shop

In Zurich

TOC Solution Validation &

Pilot Selection

Web-call with

Dr. Eli Goldratt

TOC Solution Design

W/Shops

In Brno to specify the solution

W/Shop in

Krakow reviews

ABB diversity

SAP Development & Test

Collaboration of

ABB, TOC & SAP

SAP

Blueprint

Experts

Experts convert

Solution Design into Functional

Reqs

Roll-out & Validation

Cont. To validate robustness & results

“Go-Live”

At Pilot Site In

Brno

Jan

2007

March

2007

Jun

2007

Aug

2007

Oct

2007

Nov

2007

Ongoing

So, what was the process we used to find and test a

“ SIMPLE & ROBUST ” solution...

...introducing Goldratt’s Strategy & Tactic Tree

23


Finding a simple & robust SCM solution for

ABB that is generic enough to be used by all factories


Using Goldratt’s Strategy & Tactic

1 tree method to find a simple &

ABB Goal: robust Planning, Execution & Cont.

Improvement solution…

Profitable Growth

2.1

Reliability/Avail ability

Competitive

Edge

2.2

Rapid Response

Competitive

Edge

3.1.1

Remarkable

Due Date Perf

& Availability

3.1.2

Selling

Reliability/Availabi lity Selling as

Comp. Edge

3.1.3

Coping with Sales

Growth

3.2.1

Remarkable

Rapid

Response

3.2.2

Protective

Capacity for

RR orders

3.2.3

3.2.4

Selling Rapid

Response as

Comp. Edge

Expanding

RR Client

Base

“The best solutions start with the right questions…”

24





1

ABB Goal:


2.1


Competitive

Edge

2.2

Rapid Response

Competitive

Edge

3.1.1

Remarkable

Due Date Perf

& Availability

3.1.2

Selling


Comp. Edge

3.1.3


Growth

3.2.1

Remarkable

Rapid

Response

3.2.2

Protective

Capacity for

RR orders

3.2.3

3.2.4

Selling Rapid

Response as

Comp. Edge

Expanding

RR Client

Base

What really causes low

Tput, poor DDP /

Availability & Long LT?

Other “Hidden” Disruptions to Flow

Unsynchronized Priorities in Operations

Releasing Too much / Too early

Materials / Purchased Parts not available

Over- / Under-committing Capacity

Potential

Performance

Current

Performance

25





1

ABB Goal:


2.1


Competitive

Edge

2.2

Rapid Response

Competitive

Edge

3.1.1

Remarkable

Due Date Perf

& Availability

3.1.2

Selling


Comp. Edge

3.1.3


Growth

3.2.1

3.2.2

Remarkable

Rapid

Response

Protective

Capacity for

RR orders

3.2.3

3.2.4

Selling Rapid

Response as

Comp. Edge

Expanding

RR Client

Base

Sales

How to QUOTE reliable due dates with internal

Constraint? i.e. Not over-/undercommit

Procurement Planning Execution

How do we maintain High

RM

Availability with Low

Inventory?

How do we control release of ETO, MTO &

MTS WO’s for

Low WIP/high

CCR utilization?

26

How do we maintain right priority of

ALL WO’s on shop floor?


Ongoing Improvement

How do we continuously

Improve flow by identifying & removing local optima & other

“hidden” disruptions/

CCRs to improve flow?




1

ABB Goal:


2.1


Competitive

Edge

2.2

Rapid Response

Competitive

Edge

3.1.1

Remarkable

Due Date Perf

& Availability

3.1.2

Selling


Comp. Edge

3.1.3


Growth

3.2.1

Remarkable

Rapid

Response

3.2.2

Protective

Capacity for

RR orders

3.2.3

3.2.4

Selling Rapid

Response as

Comp. Edge

Expanding

RR Client

Base

4.11.1 (Sales)

TOC’s

PLANNED

LOAD (PL) for Quoting

Safe Due

Dates

4.11.2 (Buying)

TOC’s

DYNAMIC BUFFER

MGT ( DBM) & TOC

Replenishment

(TOCR) for Inventory

Mgt

4.11.3 (Planning) 4.11.4 (Execution)

TOC’s

RELEASE

CONTRO ( S-DBR ) to control WIP

TOC’s

SINGLE PRIORITY

SYSTEM

Buffer Mgt (BM) to keep priorities synchronized


4.11.5 (Improve)

TOC’s

BUFFER

ANALYSIS to

Focus Process

Improvements &

Capacity Elevation

Defining, communicating & validating the proposed ERP changes using S&T structure

TOC Research Projects 1

ABB Goal:

Profitable

Growth

TOC’s PLANNED LOAD DETAILS

4.11.1

Quoting Safe Due Dates using CCR(s) Planned Load

2.1


Competitive

Edge

Why is the change needed?

Necessary

Assumption

3.1.1

Remarkable

Due Date Perf

& Availability

4.11.1 (Sales)

TOC’s

PLANNED

LOAD (PL) for

Quoting Safe

Due Dates

What is the objective of the change?

Strategy

Why will the change achieve the objective?

Parallel

Assumptions

How will the change be

implemented?

Tactic

•

•

When Sales/Planning accept an order due date which the factory cannot achieve, it jeopardize ABB’s Reliability CE.

Even if the constraint is in the market, fluctuations in demand or supply can cause specific resources (CCRs) to be overloaded. Under such circumstances, quoting fixed lead times is very likely to result in missed due dates resulting in poor DDP.

Due-dates given by the sales force/planning are (almost) always met even during periods of capacity overloads ( Target: 99% DDP)

• It is relatively easy to meet all due-dates when the commitments are given based on actual planned loads on the

CCR(s) and S-DBR and BM are in place to control release & align priorities.

•

The ERP systems can be modified to provide (within mins) a safe due date based on CCR(s) planned load + ½ Production

Time Buffer (if CCR is about in middle of flow)

1. Safe Due-date are given according to first available slot on CCR(s) + ½ Production Time Buffer

2. The ERP system is modified to provide Safe Due

Date based on CCR Planned Load + ½ PTB within


4.11.1

Quoting Safe Orders Due Dates using CCR(s) Planned Load

Tactic

1. Safe Duedate are given according to first available slot on CCR(s) + ½ Production Time Buffer


CCR

Back Orders Overdue

Material

Order Date

Supply Time Buffer (STB)

Material

Release Date

Production Time Buffer (PTB)

½ PTB ½ PTB

Safe

Due Date

Quote this

“safe” due date to customer

29


4.11.1

Quoting Safe Orders Due Dates using CCR(s) Planned Load

Tactic

2. The ERP system is modified to provide Safe Due Date based on CCR Planned Load + ½ PTB within minutes and Sales/Planning is trained to use it.


Identify CCR Overload

Identify Next Avail slot on CCR

30


Defining, communicating & validating the proposed ERP change using S&T structure


ABB Goal:

Profitable

Growth

TOC REPLENISMENT & DBM DETAILS

4.11.2

2.1


Competitive

Edge

3.1.1

Remarkable

Due Date Perf

& Availability


Necessary

Assumption


Strategy


Parallel

Assumptions

Maintaining Optimum RM & PP Inventory Levels

•

•

Having too much Raw Material (RM) and or Purchased Parts

(PP) in the stores or ordering too early can easily drain the company’s cash /WH space.

• Having too little RM, PP can and most frequently do cause delays that can cause lost production and potentially missed due dates (jeopardizing building of a “Reliability” Comp.

Edge)

.

The target levels of RM & PP inventories held are continuously monitored and when needed are suitably modified (not too much/too little)

• TOC;s Dynamic Buffer Management & Replenishment of RM &

PP Inventory, is a robust mechanism that enables setting, replenishing & adjustment of inventory targets, according to the actual level of demand & supply ensuring low levels of

• inventory& high availability.

Most ERP systems do not provide a mechanism for auto resizing inventory target levels based on actual changes in

4.11.2 (Buying)

TOC’s DYNAMIC

BUFFER MGT ( DBM)

& TOC

Replenishment

(TOCR) for Inv Mgt


implemented?

Tactic

Reliable Replenishment time (Rt=OLT + SLT)

2. Inventory levels are maintained by replenishing on actual consumption & resizing on buffer penetration

3. The ERP system is modified to enable DBM & TOCR


4.11.2

Maintaining Optimum RM & PP Inventory Levels with DBM / TOCR

Tactic

1. Target Levels are sized based on Max Demand within Reliable Replenishment time (Rt=OLT + SLT)

2. Inventory levels maintained by replenishing on actual consumption & resizing on buffer penetration


TOC Replenishment & Dynamic Buffer Management Rules

What are the New TOC Planning, Execution & Feedback Rules…

300

200

100

Stock in Pipeline Stock on Hand

TOC Planning Rule : Size Buffer Target Level based on “Peak Demand within Reliable Replenishment Time”

TOC Execution Rule : Order daily & Replenish up to Target Level frequently (e.g. daily) on actual demand

TOC Feedback Rule : Re-size buffers based on red-zone penetration

Auto Up-size Buffer based on level of Red-zone penetration

Auto Down-size Buffer based on no Yellow Zone penetration

400

Actual

Demand

Month 1 Month 2


4.11.2

Maintaining Optimum RM & PP Inventory Levels with DBM / TOCR

Tactic

1. The ERP system is modified to enable DBM & TOCR functionality

1.

SAP TOC DBM & Repl. GUI


2. Graph showing resizing of Stock Buffers

TOC DBM & Replenishment

3. List of Buffers requiring Resizing ( proposals to purchaser, not automated until validated )

33




ABB Goal:

Profitable

Growth

TOC RELEASE CONTOL (S-DBR) DETAILS

2.1


Competitive

Edge

3.1.1

Remarkable

Due Date Perf

& Availability

4.11.3 (Planning)

TOC’s RELEASE

CONTROL ( S-

DBR ) to control

WIP and improve

T, DDP & LT

4.11.3


Necessary

Assumption

TOC Release Control to prevent Over-production

•

•

Having too many orders on the shop floor masks priorities, promotes local optima behavior and therefore prolongs the lead-time and significantly disrupts due-date-performance

(DDP).

•

Having too little orders on the shop floor will cause starvation of CCRs and cause lost production and potentially missed due dates (jeopardizing building of a “Reliability” Comp.

.

Edge)

The shop floor is populated ONLY with orders that have to be filled within a predefined horizon.


Strategy


Parallel

Assumptions

•

•

In traditionally run plants touch time is a very small fraction (<10%) of the lead time.

Vast experience shows that, in traditionally run plants, restricting the release of materials, to be just half the current lead time before the corresponding due date, leads only to good results and to no negative ramifications* (lead time shrinks to

• less than half, DDP improves considerably, throughput goes up and excess capacity is revealed). These results are achieved irrespective of whether or not a bottleneck exists.

* Except for environments which are dominated by heavily dependent set-up matrixes. Those environments have to be dealt in a different way.


implemented?

Tactic

1. For each group of products currently having similar lead times, a buffer time is set to be equal to 50% of the current avg lead-time. Orders are released to the floor only a buffer time before their committed due-date, and if all materials are available. (WIP frozen until its time arrives).

2. The ERP system usage is modified to support S-DBR release

34 control and automatic material availability check.


4.11.3

Controlling the Release in Manufacturing (MTO/ATO)

Tactic




S-DBR Planning (Release Control) Solution

Shipping Buffer for MTO

GREEN ZONE

1. Raw Materials for Stock Manuf Parts Release based on “Replenish Frequently on Actual Consumption

YELLOW ZONE RED ZONE

Shipping Buffer for ATO

GREEN ZONE YELLOW ZONE RED ZONE

2. Raw Material for Non-Stock Manuf Parts Release

= DD – MTO Shipping Buffer

Manuf Parts Release Date = Due Date – ATO Shipping Buffer

RAW MATRL RELEASE (ROPE)

Part # Qty OD DD Buffer Type

P001 5 05/2 04/3 66% Time

P002 10 07/2 07/3 30% Stock

MANUF PARTS RELEASE

Part # Qty OD DD Buffer Type

M001 5 05/2 04/3 66% ATO

M002 10 07/2 07/3 20% Cust

MPS = DRUM = ORDERS

Part # Qty Due Date Buffer

FG001 5 13/3 66%

FG002 10 16/3 23%

Stock Manuf (Common) Parts

1.1

1.2

2.1

2.2

2.3

Non-Stock (Unique) Manuf Parts

3.1

GREEN ZONE YELLOW ZONE

RM3

RED ZONE

3.2

2.4

3.3

4.1

Part sales to customers

Quote LT’s on Planned CCR Load

“Customer”

Orders

CCR

5.1

5.2

FG

SHIPPING

35

Definitions

Buffer Status = (Buffer Time – Remaining Duration) / Buffer Time

Red Zone = Time req’d for expediting a medium-sized order

PP1

PP2



ABB Goal:

Profitable

Growth

2.1


Competitive

Edge

3.1.1

Remarkable

Due Date Perf

& Availability

4.11.4

(Execution)

TOC’s Buffer

Mgt (BM) as synchronized

SINGLE

PRIORITY

SYSTEM

TOC SINGLE PRIORITY SYSTEM DETAILS

4.11.4


Necessary

Assumption

Single Priority System to Synchronize Execution

• Hectic priorities (hot, red-hot and do-it-NOW) cause chaos on the floor

• Even when material release is properly choked, not having a priority system can cause some orders to still be late..

The shop floor is governed by a simple, yet robust, priority system


Strategy


Parallel

Assumptions

• Vast experience has shown that when work is released according to set time buffers, excellent results are obtained by using a crude priority system that is based solely on the time lapsed since the release.

• Buffer Management (BM) is setting priorities only according to the degree the buffer-time is consumed (four color code system - green: less than one third of the buffer time passed is lowest priority and black: more than the time buffer passed is the highest).


implemented?

Tactic

1. TOC Buffer Management is the ONLY priority system used on the shop floor.

2. The ERP system (and MES/RFID systems) are modified to ensure the Purchase Order List, “Work-to-List” and

Distribution Shipment List are prioritized based on buffer status (1

36 st Black, 2 nd Red, 3 rd Yellow, 4 th Green)


4.11.4

Single Priority System to Maintain Execution Synchronization

Tactic




SAP

Customer Production

Orders do have “Due

Dates”

Stock Replenishment

Orders do not have “Due

Dates”

37




ABB Goal:

Profitable

Growth

2.1


Competitive

Edge

3.1.1

Remarkable

Due Date Perf

& Availability

4.11.5 (Improve)

TOC’s BUFFER

ANALYSIS to

Focus

Improvements

& Capacity

Elevation

TOC BUFFER ANALYSIS (POOGI) DETAILS

4.11.5


Necessary

Assumption

Focusing Mechanism for Process Improvement/Elevation

•

Most local improvement initiatives in manufacturing, which use good tools (Root Cause analysis, Lean and Six Sigma techniques) do improve the local performance but, many times, those local improvements do not translate into global improvements

•

Not having sufficient protective capacity results in long LT & poor DDP

All local improvements initiatives in manufacturing do contribute meaningfully to the global performance and there is enough protective capacity for high DDP


Strategy


Parallel

Assumptions







If a CCR exists, work-in-process piles up in front of it. When materials release is restricted, the only work centers that have work-in-process piling up in front of them are the real

CCRs.

CCRs can be identified also by recording “what black & red orders were waiting for?”

In most of the cases additional capacity can be exposed by better EXPLOITATION like:

- Ensuring that CCRs do not take lunch or shift change breaks,

Offloading work from the CCRs to less “effective” work centers that have ample excess capacity,

- Using LEAN /Six Sigma techniques to shrink the set-up time/reduce variation on the CCRs,

- ELEVATING capacity with overtime or capex approval for the CCRs, etc.


implemented?

Tactic

1. For all Red & Black Orders and Stock Buffers, Production

Supervisors / workers/purchasers record “what was black/red order waiting for?”

2. CCRs are identified and effectively removed through focused process improvement / elevation to the extent that most loaded resource has at least 20% protective capacity.

38

3. The ERP (and MES) systems are modified for POOGI.


4.11.5

Focusing Mechanism for Process Improvement/Elevation

Tactic

1.

For all Red & Black Orders an Stock Buffers, Production Supervisors record “what was black/red order waiting for?” extent that most loaded resource has at least 20% protective capacity.

39


TOC in SAP at ABB

“TOC in SAP” solution design: Order Processing Part I


40



“TOC in SAP” solution design: Order Processing Part II


41



“TOC in SAP” solution design: Determination of

Earliest Due Date


42



Results from Brno (Czech Republic) and Vaasa

(Finland)


“After analyzing SAP recommendations and data from nearly 2 months, we are confident that the the TOC rules were implemented correctly and that we are now confident that we can switch of our Off-line & 3 rd Party systems.

The new Dynamic Buffer Management Functionality enables us to react quickly to changes in inventory values, which was not possible earlier, as we didn’t have time to monitor values manually.

We are very happy, are continuing to use the functionality and will be expanding it to other product lines”

Operations Managers

43

Factories in Brno and Vaasa



Next Steps


Implemented " TOC and SAP ” now in 8 factories:

• in Brno, Czech Republic

• in Chonan, Korea, 2 factories

• in Vaasa, Finland, 2 factories

• in Baroda, India

• in Przasnysz, Poland, 2 factories

And planning the implementations (in the work queue)

• In Vaasa, Finland, 3rd factory

• in Dalmine, Italy

• in Ratingen, Germany. Has “SDBR in MES”

• in Xiamen and Beijing China

• in Skien, Norway.

• … until all 300+ factories are reached…

44


Research Conclusion


• The “ TOC in SAP ” initiative, showed that the ambitious goal of “One-

SimpleABB” can be achieved even in the management of operations

(Planning & Execution and Continuous Improvement) in complex and different operational conditions.

• The partnership between ABB and Goldratt Research Labs made it possible to:

− Define a ROBUST enough TOC Planning, Execution and Continuous

Improvement solution that could cope with all the variations and complexities of 300+ factories

− Define a SIMPLE enough TOC Solution which could be supported with

relatively small modifications within a standard ERP system such as SAP.

− Break new ground by using the Strategy & Tactic Tree to define, communicate and get buy-in for the new TOC solution in a way that focused and accelerated the achievement of consensus and development of the required SAP functionality …which is also accelerating all new SAP implementations

− Deliver this project and its associated results in a record time for SAP

45 solution design, development and testing in less than 9 months ….

Acknowledgments to Project

Team Contributions


• Stefan Forsmark, Operations Manager for ABB’s Power Products Division/BU Transformers.

• Thomas W. Schmidt, IS Manager for ABB’s Power Products Division

• Goethe Wallin, Operations Manager for ABB’s Power Products Division/BU Medium Voltage

• Karol Kaczmarek, Global Project Manager Operational Excellence, ABB BU Transformers

• Erich Beeler, IS Manager, ABB BU Transformers, Engineering IS

• Dr Katja Rajaniemi, Global Process Improvement Manager, ABB BU Medium Voltage

• Bill Vick, Global Operations Improvement Manager, ABB BU Medium Voltage

• Miroslaw Bistron, Leader of Manufacturing IS program, ABB’s Power Products Division

• Lukasz Krupa, Leader of Manufacturing IS program, ABB’s Power Products Division

• Fredrik Nordstrom, ABB GF Q&O / ODG

• Vesa Enestam, Eliaps Oy, SAP SCM Consulting

• May-Jing Li, Project Manager, ABB Group Function IS, 'One Simple ABB' and SAP R/3

• Martin Korthaus, SCM II Consulting, SAP

• John Trip, Goldratt-TOC Ltd

• Dr Alan Barnard, CEO, Goldratt Research Labs

• Eli Schragenheim, Principal, Goldratt Schools

• Dr Eli Goldratt, Chairman, Goldratt Group

46



CASE STUDY 2

Finding & Testing a solution to

SHORTAGES & SURPLUSES within Book Publishing

Presented By:

Date:

Dr. Alan Barnard (CEO Goldratt Research Labs, TOCICO Chairman 2003-2006)

27 th August 2009


47

Presentation Outline


1.

Generic Research Problem

1. Extent and Consequences of Shortages & Surpluses

2. Cause(s) & Direction of Solution

2.

Case Study: Random House Publishing

1. Publishing Industry Background

2. Random House Company Overview

3. Phase 1: Quantifying the Extent, Consequences & Causes

4. Phase 2: Finding a Solution

5. Phase 3: Testing the Solution

3.

Research Findings

4.

Future Research

48


Research Problem

Extent & Consequences of SHORTAGES


1.

How many of YOU frequently don’t find what you want at a SHOP?

* Either because the retailer was “Out-of-Stock” (OOS) or it decided not to carry the item you wanted?

2.

What is YOUR (consumer) response to this SHORTAGE ?

− Come back later to same retailer to buy same product ?

− Buy a similar product from same retailer and same supplier ?

− Buy a similar product from same retailer but different supplier ?

− Go to other retailer to buy same product ?

− Do not buy anything?

What is the consequences of this SHORTAGE on:

CONSUMER SHOP

SUPPLIER

49


BANK

Consequences of SHORTAGES on Profitability

For Book Publisher and Retailer…


Quantifying impact of 1% Lower Sales Volume on Net Profit

INSIGHT: 1% Lost Sales = 10% reduction in Profits

BELIEF: Lost Sales is not significant (2 – 3%) since today, consumers that want our products can in most cases find it somewhere .

FEAR: Is it really worth it to invest in trying to further reduce Shortages ?

CHECK : How do we know shortages (out-ofstock) is really “only” 2-3%?

Does it match our experience as Consumers?

50


INDUSTRY RESEARCH: Extent, Consequences

& Consumer Response to SHORTAGES


Results from International GMA Research Study (2002)

Title: “Retail Out-of-Stocks: A Worldwide Examination of Extent, Causes and Consumer Responses”

Scope: 661 Retail Outlets, 32 Product Categories, 71,000 Consumers Interviewed, 29 Countries

Impact on Lost Sales & Profitability

Retailers Lost Sales

8 to 9% OOS x (9+31=40%) Consumer Response = 3 to 4%

Supplier Lost Sales

8 to 9% OOS x (9+26=35%) Consumer Response = 3 to 4%

But at 1:10 Leverage, 3 – 4% Lost Sales = Lost Profitability of 30 to 40%

What about SURPLUSES?

51



Extent & Consequences of SURPLUSES


1.

How many of YOU have recently gone into a SHOP and bought something you did not really want / need simply because the shop offered a BIG discount ?

2.

How frequently does this happen to YOU?

−

Once a year?

−

Once a month?

− Once a week?

What is the consequence of this SURPLUSES on:

?

CONSUMER SHOP

SUPPLIER

52


BANK

Consequences of SURPLUSES on Profitability

For Book Publisher and Retailer…


Quantifying impact of 1% Discount (Lower Price) on Net Profit

INSIGHT: 1% Discount in Price = 20% reduction in Profits

BELIEF: Consumers are VERY sensitive to pricing...and discounts is necessary since lower prices = more sales

FEAR: Reducing discount / increase in price WILL reduce sales much more

CHECK : Are consumers REALLY that sensitive to Price?

Is it not possible to significantly reduce SURPLUSES (that lead to discounts)?

53



Another important consequence of SURPLUSES


1.

Where is the real Constraint in the Consumer Goods

Supply Chain (e.g. for printed books)?

− Number of Customers willing to buy (books)…

…and what limits customers to buy more of the available books

(OR what prevent retailers to sell more books)?

− Shortages (Out-of-Stocks) OR

− Shelf Space available in Book Shops to display all available books that would sell if they were available to buy...

2.

What is the consequences of SURPLUSES on

“Exploiting” the Retailer’s shelf space?

Surpluses is like having BRICKS on the Shelf…

…and BRICKS = LOST SALES of non-stock items selling elsewhere

54



Previous attempts to solve the problem


• More Sophisticated (and expensive) Forecasting Systems to predict consumer Demand…and more Collaboration efforts to share forecasts and supply problems

• Implementing Central & Regional Distribution Centers

(CDC / RDC) to improve availability and responsiveness

• Bar Coding, High Tech Materials Handling & EDI

What was the result?

Significant improvements in availability at CDC and RDC’s

(95 – 98%) and in responsiveness (daily deliveries)…

But…did it really improve Shortages and

Surpluses at Retail level and if not, WHY?

55



Challenges in reducing SHORTAGES & SURPLUSES


• What makes reducing Shortages and Surpluses so difficult in Consumer Goods?

− Large number of “Stock-Keeping-Units (SKUs)

− Unpredictable and High Variation in Demand and Supply

− Inter-dependencies between SKUs

• So, off-course, with this complexities, it is a very difficult decision on what to order, when to order and how much ?

• This decision determines not only the success of retailer , but also the success of the distributor, manufacturer and material supplier .

So, who do we leave this critical & complex decision to?

…and Are these people really in the best position to decide?

56



Cause(s) of SHORTAGES and SURPLUSES


100

Order

LT

Supply

LT

Surpluses

Stock Level based on customers ordering large batches typically monthly

(based on inaccurate

F/Cast)

Order

LT

Supply

LT

ROP

25

Actual Demand

Stock Level based on customers ordering daily or weekly based on with actual consumption

Month 1 Month 2 Month 3

Shortages

The KEY to achieve “profitable availability of more SKU’s” is to get each link to

ORDER LESS MORE FREQUENTLY

(START)

….rather than the traditional practice of

,,,

ORDER MORE LESS FREQUENTLY

(STOP)

Yes, BUT…the Cause and Solution has been known for long time, so why don’t we see MORE Supply Chains adopting this…especially BOOK Publishing

57


Case Study

Publishing Industry Background


• The publishing industry, due to slow or even declining sales , has been under SEVERE pressure to find ways to improve for many years …

• The book publishing industry think shortages is low but has experienced very high returns

(surpluses) for many years ( no-sale-return policy )

* A Typical Book Publisher have 30% - 50% returns of all books printed

• Many Book Publishers & Retailers assumed that high returns was simply the “ price you pay ” to not lost any sales…but most still considered it as an improvement opportunity

* A Typical Book Publisher’s Print & Distrib. Costs is only 30% of Selling Price

58

Pile’em high….

Watch’em fly…”


Case Study

Random House Publishing


• In February 2008, Goldratt Research Labs was approached by Random House Publishing.

• They are considered one of the best in managing returns, and still have 28% of every book printed returned to be shredded.

• There were no reliable data about the level of surpluses

(and or shortages within retailers), and it appeared as if the consequences of these were not fully understood.

Could Theory of Constraints help to quantify the extent, consequences and causes of the problem… and help to find a solution?

59


Case Study

Random House Key Facts


• Market Position: Random House is the world’s largest general-interest book publisher , with ore than 11,000 new books issued a year and 500 million books sold annually

• Employees: 5,779 (as of December 31, 2008)

• Revenues: € 1.7 billion (Fiscal Year 2008)

• Shareholders: Bertelsmann AG (100%)

• Published Authors include : F. Scott Fitzgerald, Ernest

Hemingway, John Gresha, Danielle Steel, Dan Brown and

Barack Obama…

60


Case Study



The Pressure to improve….

Random House Income Statement in € millions 2008 2007 2006

Revenues

Operating EBIT

EBIT % of Sales

1,721

137

8.0%

1,837

173

9.4%

Employees (in absolute numbers) 5,779 5,764

2005

1,947

182

9.3%

5,804

2004

1,828

166

9.1%

5,395

1,791

140

7.8%

5,383

What would be the impact of a significant reduction in

Surpluses on profitability …?

61


IMPACT of Reducing Returns on Profitability

For Book Publisher…


Quantifying impact of Reducing Returns from 30% to 15% on Net Profit

INSIGHT: 50% reduction in returns = 50% increase in Profits

FEAR: But what if Changes to reduce Returns causes Sales Volume to drop?

Lets use Theory of Constraints to analyze the situation…

62



Research Questions


• Is it possible to reduce returns without reducing sales?

• Is “High Returns” the only “cost” of surpluses at retail level?

• What is the “real level” of unavailability (shortages) of books at retail level?

• Is it possible to do much better…?

… and if so, what changes would be needed in the way the links in the Book Publishing Supply Chain is managed?

63


Impact of Shortages and Surpluses on Publisher and Retailer Profitability


PROFITABILITY

Potential

Profitability

GAP

Price lower than PoV

Avoidable Discounts

Cost of Avoidable Returns

Lost Sales (Non-Stocked)

Lost Sales (Stocked)

Current

AVAILABILITY

Surpluses

Shortages

Potential

Availability

GAP

Current

But how do we quantify the impact of Surpluses /

Returns (and Shortages) on Profitability?

64


Applying TOC’s 5 Focusing Steps to the

Book Publishing Supply Chain…


Step 1: IDENTIFY the System’s Constraint

“Until the consumer has bought, nobody has really sold…”

The System Constraint therefore is the No. of Consumers willing to buy

Step 2: Decide how to EXPLOIT the System’s Constraint

“Exploiting the System Constraint” means “Having the Right Product, at the right place and right time (when consumer is ready to buy).

What conditions block better exploitation?

1)Shortages of Products already stocked

2)Unavailability of Products that sell elsewhere but which is not stocked due to shelf-space constraints (occupied by Surpluses ).

Actually Surpluses in a retail shop is like having bricks on the shelf…

Step 3: SUBORDINATE everything to the above decision

Change any Policy, Measurement and or Behaviour that contribute to current high level of both Shortages and Surpluses

YES

, BUT, how to we find these and will it really be a win:win

65 to change these…

Random House Research Projects

Project Timeline


Project Start

Conference

Call to share

Simulation

Develop simulation to

Test

Test impact of

“Less more

Frequently” real damage & extent of validate damage of with 12 Test

Surpluses & PUSH and Shops and with

Shortages

TOC Evaluation

Share generic TOC benefits of

PULL analysis & solution

Customized S&T

Dr. Goldratt with

Exco construct

B&N data to shortages & surpluses customized S&T and plan Test

Analyse Test Results

Analyse Test

Results for 12

Test vs. Control

Shops and agree on next steps

Feb

2008

March

2008

April

2008

June

2008

July

2008

Nov

2008

So, what was the process we used to find and test a

“ SIMPLE & ROBUST ” solution to the problem of

SHORTAGES and SURPLUSES …


Case Study


Book Publishing Research Challenge #1

What makes quantifying the Extent, Consequences and

Causes of Surpluses & Shortages so difficult?

• Despite excellent “Point-of-Sale” data available from most retailers,

Publishers do not have visibility of actual shortages and surpluses at retails.

• Retailers can buy directly from Publishers (to get best price) or from

Wholesalers (to get best availability and response).

• Therefore, knowing the availability (or unavailability) at one

Publishers and Wholesalers do not give a true picture of unavailability at retail level.

Is there a simple way to quantify the likely level of shortages and surpluses at retail level?

67


Quantifying the Opportunity for reducing SHORTAGES & SURPLUSES


Benefit of “flagging” the stock-outs in red ...

68


Quantifying the Opportunity for reducing SHORTAGES & SURPLUSES


Stock-out Lost Sales

= Stock-out Days x Sales Velocity/day

= 8%

Surpluses Lost Sales

= Surplus Days x Replacement Sales Velocity/day

= 7%

69


Typical Book Store – Concentration Analysis


NOTE: Above Data for period of 185 Weeks (1/1/2005 - 7/18/2008)

10% of Titles generates 65% of Total Sales

95% of Titles sell at less than 1unit/wk

25% of titles had ZERO sales over the 3 year period

VERY Large opportunity to replace “SURPLUSES”

Where “Surplus” = Zero Sales Titles and Titles with Sales Velocity of <1/month with display of >1unit

70


70

Overcoming the challenges to reduce shortages & surpluses in Book Publishing


Book Publishing Research Challenge #2

What makes reducing Surpluses & Shortages so difficult?

• Uncertainty of consumer demand

• Weak incentives for retailers & distributors to improve returns…due to an industry policy of “No Sales-Return Any time” creates an incentive to rather order too much than too little..

• Distributors & retailers create buffers for the same “end-consumer demand.

• Printing & Binding economies of scale that drive large batches.

• A strong held belief that “Title visibility in the marketplace drives demand (but there is little research to quantify this relationship)

• Supply chain constraints like warehouse proximity and limited rush reprint capacity at printers

The goal is to print & distribute closer to what



Cause(s) of SHORTAGES and SURPLUSES


100

Order

LT

Supply

LT

Surpluses

Stock Level based on customers ordering large batches typically monthly

(based on inaccurate

F/Cast)

Order

LT

Supply

LT

ROP

25

Actual Demand

Stock Level based on customers ordering daily or weekly based on with actual consumption


Shortages

The KEY to achieve “profitable availability of more SKU’s” is to get each link to

ORDER LESS MORE FREQUENTLY

(START)

….rather than the traditional practice of

,,,

ORDER MORE LESS FREQUENTLY

(STOP)

Yes, BUT…the Cause and Solution has been known for long time, so why don’t we see MORE Supply Chains adopting this…especially BOOK Publishing

72


Change in Inventory Profile in moving from

PUSH to PULL (less more frequently)


SKU Target Level = Maximum Demand with Reliable Replenishment Time

Where RRt = Order LT + Supply LT)

OLT = Daily

SLT = 1 to 4 weeks

OLT = Daily

SLT = 1 to 4 days

OLT = Daily

SLT = 1 to 2 days

PUSH

Inventory

Profile

1-4wks

PRINTER

1 - 4days

PUBLISHER

CDC

PUBLISHER

RDCs or

RETAILER CDC

RETAILERS

73


PULL

Inventory

Profile

Sizing Stock Buffers with Uncertainty and variability in demand and supply


Planning Rule : “Be Paranoid but not Hysterical”

Target Stock Level for each Title at each Storage Location = Maximum

Demand within Reliable Replenishment Time

Execution Rules:

Replenish up to Target level in sequence of buffer status more frequently (e.g. daily)

Feedback Rules:

Adjust Target Level (Buffer Size) based on

Level of Buffer Penetration

Too little

Good

Enough

Too much

Time / Stock Buffer

400

Auto Upsize Buffer based on level of Redzone penetration

Auto Downsize Buffer based on lack of

Yellow zone penetration

300

200

100

Actual

Demand


74


Testing Robustness of TOC’s Dynamic

Buffering regardless of Demand Pattern


Stable Sales Launch Event

Special Event

75


Seasonality Events

Results from Past TOC’s Replenish-to-

Consumption (RTC) Implementations


• In general, Goldratt Research Labs have found that if a company reports formally a 13% “Lost Sales” due to unavailability of product, improving availability to close on 100% (to end consumer) typically will result in increase in sales of 10 to 30%

•

The Table below shows the results from actual implementation tests:

Industry Official

Lost Sales

Availability before TOC

Availability after TOC

Avg Increase in Sales within

1 st year of TOC rollout

Fruit Supplier 2-5% 85 -90% >98% 30%

(worst 5%, best 200%)

Bread & Flour

Supplier

2-5% 80-95% >99% 20%


Cosmetic

Supplier

2-5% 90-98% >99% 10%

(worst 2.5%, best 50%)

Sportswear

Supplier

10-20% 80 – 85% >97%

(Total Inv down

60%)

25%


Note: In reality, most “lost sales” are not recorded. The dramatic increase in sales achieved with improved availability verifies this.

76


Testing the Solution with 12 Test vs. Control Shops


Research Questions:

1. Acceptance Rate?

• % of Shops accepting the offer for the Publisher to “Replenish

Daily on Actual Consumption

2. Difficulty to setup up RTC system?

• How difficult would it be to set up a system for a shop to share daily sales with the publisher and to receive daily deliveries?

3. Really Win:win (Value = Benefits – Costs)?

• What will be the impact “Less more Frequently” on Shortages

(Out-ofStock) and Surpluses and on Lost Sales…?

77


Impact on Shortages (OOS)

Typical Control Shop – Before vs. After


Similar level of “Stockouts” before and after the Launch of Test

78


78

Impact on Shortages (OOS)

Typical Test Shop – Before vs. After


Zero “Stock-outs” after the Launch of

Test !

79


79

Results Achieved and Lessons

Learned so far?


• Importance of knowing how to answer simple question of “ By how much has Sales gone up ?” due to this change...

• Very high level of acceptance rate of offer to replenish daily based on actual sales (>80%)

• “Replenishing Daily on Actual Consumption” can help significantly reduce Shortages & Surpluse:

− Sales Increase by preventing Shortages around 2.5-10%

− Sales increase by replacing Surpluses (if done on wide enough scale) can be 5-20% .

• Implementing Dynamic Buffer Management (with so many SKUs) and frequent bad decisions is expected to increase Sales even more

• Replacing a BRICKS with any Item that sells will increase Sales

(BRICKS = More than Needed / Really Slow Runner)

• Major leverage opportunities to reduce SURPLUSES & SHORTAGES are the really HIGH Runners and the LOW Runners (1’s, 2’s & 3’s that should be 0’s,1’s & 2’s)…

80


80

Results Achieved and Lessons

Learned so far?


Achieving

Viable Vision

BASE GROWTH ENHANCED GROWTH

2:1

High

Availability

2:2

The Digital

World

2:3

Word-of-

Mouth

2:4

Strategy;

2:5

Book titles are always

Dead Horses

3:1:1 RH

3:1:2

Test

– Impact on

Impact on B&N

Book Shops

Rollout to directly serviced Shops in

CDC area

demand exists for those titles

Tactics:

The Co. provides

replenishment to daily consumption

Spread to

all Book

Shops

Chains &

Wholesalers’

Outlets to

2:6

Editorial

Section

3:1:7

Achieving

Ongoing

Improvement

4:11:3

Analyze the results

4:11:1

Define test sample

4:11:2

Launch

Strategy:

RH has good enough*

Tests

estimate of the resulting benefits from providing better availability ( “Good Enough”:

The reliability of the estimates enables a clear decision)

Tactics:

RH carries out a carefully monitored test of “high availability ” on a

Always Remember…


“Your FOCUS ( or lack of it ) will determine your reality …”

Thank you!

For more information….

visit

www.goldrattresearchlabs.com

www.toc-goldratt.com

82


TOCICO 2004 Conference Template

Case Study 1

Presentation Outline

Research Background

Research Background

Research Background

Research Background

Case Study: Facts about ABB

Why Operational Excellence is critical to ABB…

ABB’s Continuous Improvement

Evolution

Was the investment in Operational

Excellence worth it for ABB?

Sanmina-SCI Case Study

Operational Excellence

Acceleration Challenge

Operational Excellence

Acceleration Challenge

ABB’s “One-simple-ABB” decision and consequences...

, BUT…

“TOC in SAP” Project at ABB

Identify CCR Overload

Identify Next Avail slot on CCR

TOC in SAP at ABB

TOC in SAP at ABB

TOC in SAP at ABB

TOC in SAP at ABB

TOC in SAP at ABB

Research Conclusion

Acknowledgments to Project

Team Contributions

Presentation Outline

Research Problem

Research Problem

Research Problem

Research Problem

What was the result?

Research Problem

Research Problem

Case Study

Publishing Industry Background

Case Study

Random House Publishing

Case Study

Random House Key Facts

Case Study

Random House Publishing

Random House Publishing

Research Questions

Impact of Shortages and Surpluses on Publisher and Retailer Profitability

Random House Research Projects

Case Study

Quantifying the Opportunity for reducing SHORTAGES & SURPLUSES

Quantifying the Opportunity for reducing SHORTAGES & SURPLUSES

Research Problem

Sizing Stock Buffers with Uncertainty and variability in demand and supply

Results from Past TOC’s Replenish-to-

Consumption (RTC) Implementations

Testing the Solution with 12 Test vs. Control Shops

Research Questions:

Impact on Shortages (OOS)

Typical Control Shop – Before vs. After

Impact on Shortages (OOS)

Typical Test Shop – Before vs. After

Results Achieved and Lessons

Learned so far?

Results Achieved and Lessons

Learned so far?

Always Remember…

Thank you!

www.goldrattresearchlabs.com

www.toc-goldratt.com

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