Flow creation as a differentiating strategy

Flow creation as a differentiating strategy

Currently, we can see a major change in society's consumption patterns. The adoption of healthier lifestyles or the fact that consumers make more sustainable purchasing decisions has led producers to adapt their products and, consequently, their operations. Moreover, about 70% of consumers believe that the personalisation of the products they buy is important. On the other hand, exports today are 40 times higher than in 1913, which shows that the market is increasingly global and, naturally, more competitive. Therefore, producers today face a double challenge: to combine customisation with productivity. What paradigms must be overcome to achieve this challenge?

Efficiency maximisation

One of the main management goals of any factory is to maximise resource occupancy, thus ensuring the highest possible output. However, when there are not enough orders for the installed capacity, continuing to maximise occupancy will only contribute to create muda (waste) of overproduction. This, of course, will ultimately generate increased stocks, increased need for storage space, increased capital tied up in stock value, increased risk of damaged goods and increased risk of unsold goods.

Another measure widely used to increase efficiency is the increase in production batches. With this, the number of references changed is reduced and higher production rates can be achieved. Raw materials are also bought in larger quantities and at a lower price. However, batch production increases the EPEI (every part every interval), i.e., the time required to produce all the different items which decreases production flexibility. In addition, intermediate stocks increase and so does production Lead Time. Together, these problems lead to customer dissatisfaction and possible penalty rates, loss of contracts, suboptimal deliveries and extra transport costs, while reducing responsiveness to market changes.

The Bullwhip effect

On the other hand, small changes in the customer's final demand profile generates increases in requirements throughout the supply chain which contributes to overproduction and increased stock levels. This effect, also known as the Bullwhip effect, arises whenever actual demand exceeds the consumption forecast. In the case of raw materials, when this happens, stockouts occur, which are overcome by increasing the amount ordered to ensure that there are no more stockouts. Faced with this problem, it is often decided to increase the safety stock of finished products and, consequently, of raw materials. As a result, demand distortion is intensified, and the forecast quantities of orders are increased. In some cases, this effect may even lead to investments to increase production capacity.

Productivity

Although it varies from one industry to another, the value-added time of operators is often low. When observing a production area, it is common to observe several muda activities, namely waiting and movement. This happens mainly due to the existence of maladjusted layouts and the lack of an optimised border of line with all the tools and components necessary for the operation.

According to the Kaizen Institute's experience, these factors have an impact of around 20% in terms of productivity loss. In addition, work is often not balanced between operators and there is no standardised sequence of tasks to be performed at each workstation. All this results in increased labour costs, reduced team motivation, increased employee turnover and changeover times.

Creation of flow in operations

Faced with the personalisation/productivity dichotomy, having a robust, efficient and agile production system is key to the business's success. Thus, implementing strategies that reduce production costs while ensuring product quality and service level should be the focus of any manufacturer. Therefore, it is crucial to create flow in production and logistics, adopting a pull production system. This is based on physical supermarkets, fixed orders and actual consumption, flow optimisation and respect for the standards.

The references produced are classified as MTS (make-to-stock) or MTO (make-to-order) according to several criteria such as the order frequency and the ordered volume. The MTS references are organised into finished product supermarkets that are dimensioned according to demand and considering a safety coefficient to absorb variability (of the process, demand and suppliers). Each product in the supermarket has an order point which is the stock level that triggers a new production order which is also parameterised and called order quantity. Regarding production, the one-piece flow from raw material to finished product should be implemented, minimising all intermediate stocks and reducing production Lead Times.

To achieve scale customisation, it is necessary to adapt production flexibly by producing small batches and using intermediate product supermarkets. With this, it is possible to reduce the production Lead Time of a partially customisable product.

To maximise productivity, it is essential to dimension production to takt time, that is, the cadence of market demand. Once the cycle time has been defined, it is fundamental to balance the tasks between the several operators and, through work analysis and standardisation, eliminate non-value-added activities and automate simple operations. Furthermore, the existence of various production standards for different levels of demand enables the production output to be adapted to the real demand of the customer and prevents overproduction.

Consequently, to remain competitive and to be able to meet the customisation demands, manufacturers must adopt a production system that is based on the pull principles of creating flow throughout the value chain.

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