FACTORY PHYSICS FOR MANAGERS How Leaders Improve Performance in a Post-Lean Six Sigma World Edward S. Pound Jeffrey H. Bell Mark L. Spearman Mc Graw Education Hill New York Chicago San Francisco Athens London Madrid Mexico City Milan New Delhi Singapore Sydney Toronto
Prologue The Book in Brief 1 Why Is This Book Needed? 2 CHARTER 1 CHARTER 2 Science Use It or Lose Of Theories and Buzzwords 6 Toyota and Science 9 How Toyota Did It 10 Batch and Queue Production 14 ABalancedApproach 15 The Track Record: Lean and Six Sigma 15 A Confused Landscape 16 Boeing's Moving Assembly Line 18 Looking Ahead 22 The Nature of Business A Secret Hidden in Piain Sight Leading Performance Improvement More Productively 27 Tradeoff lllustrations 31 Leadership and Tradeoffs 34 The Factory Physics Approach 34 25 CHAPTER 3 Practical Science forleaders Knowledge and Science 37 Science, Math, Software, and Intuition 40 Practical Theory 45 The Value Stream: Demand, Stocks, and Production Buffers 50 Types of Buffers 51 Conceptual lllustrations: Something or Someone Is Always Waiting 53 A Manager's World: Environment, Tactics, Controls, and Measures 60 Putting Practical Science to Practice 65 Definitions 65 Factory Physics Science: As Simple as PossiblebutNo Simpler 69 Advancing the Practical Science of Management 70 The VUT Equation 72 Cycle Time versus Utilization Graph 74 Production and Stocks 80 46 37 VII
viii Contents Little's Law 82 Production-Flow Graph 84 Variance of Replenishment-Time Demand Equation 92 Tradeoff Plot: Inventory versus Pill Rate Graph 98 Efficient Frontiers 100 Insightsfromthe Tradeoff Plot 104 Visual Management of Stock-Point Performance 106 Stocks and Flows, the Lot-Size Graph 108 CHARTER H Practical Math for Managers 113 Defining Terms 114 Modeling Stocks 115 APerfect World 115 Replenishment Times 116 Demand 118 Forecast Error and Lead Time 120 Inventory Performance Measures 123 Computing Inventory Policies 133 Inventory in an Assembly System 135 Modeling Flows 137 Little's Law 137 CapacityAnalysis 138 Overall Equipment Effectiveness 144 Best-Case Performance 146 Effect of Variability 147 Measures of Variability 150 Queuing Effects 151 Total Cycle Time 154 Raw Process Time 155 Move Time 156 Shift-Differential Time 156 Batch Time 157 Pull Systems 160 Combining Stocks and Flows 163 Cash-Flow Optimization 165 Examples of Cash-Flow Optimization 166 Conclusions 167 CHARTER 5 Profit, Cash Flow, and Factory Physics Science 169 The Value-Added Fantasy 172 Financial Statements and the Science of Operations 176 Financial Performance Driven by the Science of Operations 179 Contribution Margin at the Bottleneck 179 When Lean Manufacturing Adds Cost 185 Inventory Optimization 188 Managing the Portfolio of Buffers 190 Marketing and Operations Strategies Drive Financial Results 195
ix CHARTER 6 Operations Strategy and Flanning 197 Operations Strategy 197 Strategy 198 Tactics 199 Controls 199 Measures 199 Execution 200 Information Technology Control and Control Limits 200 Factory Physics Sales and Operations Flanning 202 S&OP Event Sequence and Participants 203 S&OP Meeting Practices 208 S&OP+ 211 S&OP+ Process 212 CHARTER 7 Implementing Tactics, Controls, and Measures for Optimal Results 219 Demand Tactics and Controls 221 Describing and Forecasting Demand 221 Lumpy Demand 222 Inventory Tactics 224 Inventory Strategy Considerations 225 Capacity Considerations 225 Current Performance versus Predicted Performance 226 Strategie Options 227 Tactics for Inventory Management 232 Inventory Control 235 Capacity Tactics 240 Utilization 241 WIP Control and CONWIP 245 Virtual Queues and Due-Date Quoting 248 Rework and Scrap 251 Response-Time Stratagems 254 Predictive Control Using MRP/ERP Systems 257 Common Practices 257 MRP for Inventory Control 261 MRP for Production Control 265 Dynamic Risk-Based Scheduling 265 Dynamic Risk-Based Scheduling in Assemble-to-Order Environments 271 Measures Alignment and Insight 277 CHARTER 8 Leadership, Measures, and Culture Change 283 An Approach to Sustainable Leadership 285 A High-Level Plan So That Strategies Can Be Shared and Understood 288 Vision and Mission 289 Critical Strategies 290
CHARTER 9 CHARTER 10 Monthly or Quarterly Plans to Establish Prioritized Initiatives 291 Inventory Optimization 292 Utilization Targets 293 Weekly Scheduling Meetings to Plan the Work 295 WIPCaps 296 Due-Date Quoting 297 Weekly Operations Meetings to Check Progress 298 Daily Mechanismsfor Feedback 301 Personal Plans So That Individuais Understand Their Poles 303 Examples from Industry Learning to See Farther 307 Beyond ABC Optimal Inventory Policies 316 Reducing Cycle Times in a Traditional Pharmaceutical Plant 320 Restoring Customer Service in a Fabrication and Assembly Plant 325 Increasing Throughput in a Biopharmaceutical Facility Dynamic Risk-Based Scheduling in the Textile Industry Final Word on Factory Physics Science (for Now) Quick Wins 342 Operations Strategy Alignment with Business Strategy 343 Absolute Benchmarking 343 High-Level Assessment of Utilization 344 BottleneckAnalysis 344 Potential for WIP Cap Deployment 346 High-Level Analysis of Lead Times 346 ERP/MRP Mechanics 347 More Complex Implementations 347 A Large Company Implementation 349 Alternative Histories 351 The Future 353 Notes Acknowledgments Index