| Best Practices |
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The
Impact of Forecasting Improvement on Return on Shareholder Value
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| Conferences & Events |
New Products Forecasting - Webinar with Professor Kahn, |
| Lean Manufacturing Principles: Fundamental to Successful Enterprise Planning and Performance Management | ||
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By Alluri Raju, Senior Project Manager, Steelwedge Software |
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In the face of global competition and discerning customers, more and more businesses are turning towards Lean Manufacturing principles to become more efficient and effective in lowering costs and increasing profits. Developed by Automotive industry to reduce waste and improve quality on the shop floor, the basic principles-- Value Analysis, Continuous Flow, Pull System, Standardized Work, Production Smoothing and Continuous Improvement-- have resonated and permeated across various industries and business functions.
The advent of digital age and software solution providers has further fueled this process. The reason is simple, to minimize waste in value chain and to place the right product at the right place at the right time and at the right price requires:
The Need for a Structured Consensus Demand Process
Accurately projecting demand is the foundation for one of the key tenets of Lean Manufacturing: Continuous Flow - Instead of producing or moving products intermittently in large batches, products should move continuously in smaller batches through the value chain. As you may have experienced, it is difficult to estimate how much to produce at the right mix and rate without an accurate picture of your customer needs. Accurately projecting customer needs requires a concerted effort from various stake holders within an organization including Sales, Marketing, Product Management, Operations and Finance. They all develop plans, but too often the plans do not align. Many organizations have failed on this aspect because these functions have their own, usually incomplete understanding of what real demand is. 
The importance of the various functions is the value they bring to the process: Sales provides customer demand projections; Marketing/Product Management provides upcoming promotional events and PLM plans; Operations brings inventory and supply picture; and Finance drives pricing and margin. Consensus demand planning brings these disparate plans together to derive one plan that the entire organization can work towards. 
Trading Partner Collaboration will Minimize the "Bullwhip Effect"
The importance of Collaboration between trading partners is based on another key tenet of Lean Manufacturing: Demand Driven Pull Systems – Where possible, build to customer demand. That I,s customer demand pulls the products through the system as compared to the traditional process of building goods to stock. Due to lack of effective communications, Manufacturers, Suppliers, Distributors and Retailers have their own usually incomplete understanding of real end customer demand. Lack of understanding is further complicated by long lead times and high demand volatility, leading to excessive inventory in order to maintain acceptable customer service levels. This is commonly referred to as 'Bullwhip Effect'. The term bullwhip effect refers to the magnification of demand variability as orders move up the supply chain. Each group has control of only part of the supply chain but each group can influence the entire supply chain by ordering too much or too little and are often influenced by the decisions others are making. The ‘Bullwhip Effect’ (see graph below) shows the discrepancy between real end consumer demand and channel demand as orders propagate thru the supply chain. Channel partners tend to over order to compensate for demand variability and lack of visibility to end customer demand. Orders get significantly inflated as you go up the supply chain resulting in excess inventory carrying costs and obsolescence. 
The most effective way for manufacturers and suppliers to minimize the 'Bullwhip Effect' in the Supply Chain is to gain a clear understanding on what drives demand and supply patterns and then, collaboratively work towards improving information quality and compressing cycle times throughout the entire process.
The Need for Software Applications in Lean Manufacturing Initiatives
Although lean initiatives can be implemented manually, software applications dramatically improve data visibility by speeding information flow for problem resolution. Software solutions enable business planning for the demand-driven enterprise by providing visibility, collaboration, and performance management across sales, marketing, finance and supply chain operations. Software applications support lean initiatives in three distinct areas:
Plan Future Performance It’s imperative that manufacturers and suppliers be able to track and understand every potential change in demand, including new product introductions, competitive challenges and supply chain signals. They should also be able identify and validate the assumptions that drive planning outcomes. Planning software systems help facilitate and support these processes by providing a single repository of past, present, and future forecasts, plans and assumptions across the entire enterprise. They provide the ability to quickly identify and remediate exceptions to plans or performance variances in real-time. The result: better synchronized execution and improved business performance. Business Process Automation and Exception Management Often business processes fail due to lack of integration between people and processes, and their inability to engage cross-functional users in a personalized manner. As processes get more and more complex it takes months if not years to develop, refine and effectively deploy them across the enterprise. Business Process Automation software systems bridge this gap by creating sustainable and repeatable processes with user-defined events, notifications and process workflows. Further they provide ability to systematically monitor and measure end-to-end processes, and the ability to drill-down to the details as required to enable continuous improvement. Performance Measurement To remain competitive, businesses have to constantly improve results by providing consistent direction and measuring performance throughout every level of the enterprise. Metrics and Key Performance Indicators need to be linked from top to bottom, ensuring that all decisions are based on aligned goals. Software solutions enable real time business performance assessment by comparing current activities to benchmarks They provide tools and mechanisms to estimate future performance based on past performance trends and assumptions, and the ability to uncover the why behind the numbers known as Root-cause analysis. While there is much more to learn and know about Lean Manufacturing, the application of three principles will usually pay out in the first year: (1) accurate demand projections based on a structured consensus process; (2) effective collaboration between Trading Enterprises; and (3) timely and informed decision-making based on accurate qualitative and quantitative data.
About the Author
Prior to joining Steelwedge Software in 2004, Alluri Raju was a Supply Chain Management Consultant serving apparel, retail, automotive, life sciences and hi- tech clients deploying SCM solutions (demand planning, replenishment planning, S&OP, and Collaboration). Before that he was an Industrial Engineer in the Chrysler/BMW Joint Venture Engine Program, applying Toyota Production System principles in the design of machining lines and layouts. He holds a MS Industrial Engineering from Louisiana Tech, Ruston, LA. |
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