Think Lean to Escape the Planning Cycle Trap
Behind the operations of each company is its value delivery system. It is the central processing unit of the entire company. For example, what does it take for a computer manufacturer to receive an order, process the order, produce the equipment, deliver it, and collect payment? What are all the steps a mortgage company takes to process a mortgage application and deliver a timely and accurate loan decision? How does Toyota design a new vehicle made up of thousands of components, manage the daily flow of orders and shipments with suppliers and assembly plants?
Each business operation is different, but they all share a common trait: they are all systems for creating value-value delivery systems for the customer. The performance of a company is the direct consequence of the effectiveness of the management of the system. Companies that operate more efficiently and responsively than their competitors have better managed value delivery systems. Many business value delivery systems malfunction due to time traps. One of the most formidable time traps is the planning cycle.
The planning cycle trap
A fundamental test of the quality of a company’s value delivery system is whether or not it is caught in the planning cycle. All businesses need to do some kind of planning for the future to make sure they are ready to fulfill customer orders.
Manufacturers face the challenge of ordering raw materials, scheduling installations and adding labor, etc. Traditional manufacturing requires long lead times to resolve conflicts between multiple jobs or activities that require the same resources. Long lead times, in turn, require sales forecasts to guide planning. Because sales forecasts are predictions, they are inevitably wrong, no matter how well-intentioned. Naturally, as lead times increase, the accuracy of sales forecasts deteriorates. With more forecasting errors, the need for safety stocks and excess capacity at all levels increases, and inventories rise. Forecast errors also mean that more unscheduled jobs must be sped up, eliminating scheduled jobs. The need for even longer lead times grows larger and the planning cycle expands, increasing costs, increasing delays, and creating inefficiencies in the value delivery system. Managers caught in the planning cycle often react by asking for better forecasts and longer lead times. However, it is about treating the symptom rather than the cause of the problem.
The only way to break the planning cycle is to think Lean and reduce time wasted on activities across the entire value delivery system, thereby reducing the need for lead times. After all, if you could cut lead times to zero, you would only have to forecast sales one day in advance. Forward-thinking companies understand this concept and are breaking the devastating cycle that strangles much of traditional manufacturing and non-manufacturing organizations. While zero lead times are idealistic, Lean organizations have kept their lead times from increasing, at the very least, and many have shortened lead times, thus lessening the damaging effect of the planning cycle.
Escape the planning loop trap
To escape the planning cycle, companies have two options.
1. Produce to forecast and ignore fluctuations in demand that would cause them to do the opposite.
2. Reduce delays in the flow of information and product along the value chain.
The real solution is to reduce time consumption throughout your value streams to become more flexible. Flexible factories are much less time consuming than traditional managed factories. The improvement in response time from being more flexible is even more impressive than the improvement in labor productivity and costs. Many companies have dramatically improved their manufacturing response times by streamlining their processes and becoming more flexible. Consider this example from one of Toyota’s suppliers. A Toyota supplier had a 15-day lead time to ship parts to a Toyota assembly plant. Unsatisfied with this level of response to their changing needs, Toyota went to work to help the supplier reduce its delivery time. By reducing batch sizes, they cut supplier lead time to six days. After optimizing the factory layout to reduce much of the work-in-process inventory, the lead time was reduced to three days. Ultimately, the elimination of all work-in-process inventories resulted in the supplier being able to respond to Toyota just one day in advance.
Companies can become more flexible (reducing wasted time) by applying the basic principles of Lean thinking. Some of the key techniques are explained below. All these tools try to create a continuous flow and pull at the pace of customer demand, thus shortening delivery times and reducing inventories.
Continuous flow
This requires sequencing production or service activities so that they move seamlessly. In continuous flow, the processing of a part or document occurs in time with the customer’s demand. Production happens when it is needed, no more, no less. Continuous flow is based on the principle of moving one item at a time (or a small, consistent batch of items) through a series of processing steps as continuously as possible, with each step doing exactly what the next step requests. . The concept of continuous flow can be summed up in four words: “make one, move one”.
Line balance
Line balancing consists of evenly distributing work among the people in the process in order to satisfy customer demand (Takt time). This tool optimizes staff utilization so that everyone in the process is doing more or less the same work content.
Safety stocks and buffers
The focus of all lean process improvements is to remove any restrictions and ensure that all processes run smoothly. Sometimes this is not always possible for the following reasons: Eliminating all process bottlenecks at once may not be feasible, but it must be done in phases.
Stabilization of the process may take longer than anticipated
Big changes in customer demand
In such circumstances, backup and safety reserves are used. In a manufacturing situation, buffer and safety stocks can be predetermined levels of raw materials, sub-assemblies, etc. In an office setting, it could be overtime, temporary workers, vacation pay, etc.
Takt Time
To be flexible, you need to understand your customers’ ordering (demand) patterns. Once you determine customer demand, you can determine the Takt time or the pace of customer demand. Takt time is the speed at which an organization must produce a product to meet customer demand. Producing to takt means synchronizing the rhythm of production with the rhythm of sales.
Standard work
Standard work is the “best known way” to get work done. It can be based on workforce experience, industry benchmarks, and current process capability or technology requirements. Standard work ensures that workers follow the same process at all times. The method is documented in writing so that everyone understands how the job is done.
Work cells
The goals of work cells are to create independent, streamlined, and all-inclusive operating units that use minimal space with all activities sequentially placed side by side, typically processing for a family of products. This allows the product to be processed in a continuous flow.
Sweater
Providing what is needed, when it is needed, on time, in the stipulated amount. In a pull system, production is triggered by a signal (Kanban) based on what has been consumed, as opposed to a push system, in which production is based on historical trends or sales forecasts. An extraction system allows work to flow without detailed schedules. There are many other lean tools available, but implementing these few will help you escape the planning cycle trap.
The challenge of being more flexible when reducing time consumption in your value streams is not only related to the factory, but also to the office or white collar areas. Typically, most of the time to produce a sales order is consumed beyond the factory – decision makers and information processors. In many cases, 85% to 90% of the total value of the delivery time of a manufactured product is consumed by administrative processes. This is an important observation because it helps to advocate for lean process improvement in service organizations and offices.
Conclution
The trap of the planning cycle is the relationship between forecast errors and long lead times. Changes in customer demand result in forecast errors that affect lead times in a traditional manufacturing environment. As forecast errors increase, inventories increase; more unscheduled jobs are sped up by squeezing out scheduled jobs. Forecast errors also increase the need for even longer lead times, and the planning cycle increases, increasing costs, increasing delays, and creating inefficiencies in the value delivery system.
You can overcome the planning cycle trap by using lean tools and techniques to produce at the pace of customer demand and enjoy the following benefits:
Dramatic inventory reduction
Reduced operating costs
Reduction of delays
Better customer response time
Improved efficiency
The planning cycle is a time trap. Lean thinking forces you to look at this time trap and develop solutions to eliminate the trap and never get caught in it again.