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Think Lean to Escape the Planning Loop Trap
The basis of every company’s operation is its value 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, build the computer, deliver it, and collect payment? What are all the steps a mortgage company must go through to process a mortgage application and issue 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?
Every business operation is different, but they all have one thing in common: they are all systems for creating value delivery systems for customers. The success of the company is a direct result of how efficiently the system is managed. Companies that operate more efficiently and responsively than their competitors have better managed value delivery systems. Many enterprise value delivery systems perform poorly due to time traps. One of the most powerful time traps is the planning loop.
Planning loop trap
A fundamental test of the quality of a company’s value delivery system is whether or not the company is caught in a planning loop. All businesses need to do some kind of planning for the future to ensure they are ready to fulfill customer orders.
Manufacturers face the need to order raw materials, schedule capacity, add labor, etc. Traditional manufacturing requires long lead times to resolve conflicts between different tasks or activities that require the same resources. Long delivery times, however, require sales forecasts to guide planning. Because sales forecasts are forecasts, they are inevitably wrong, no matter how well-intentioned. Of course, the accuracy of the sales forecast deteriorates with the extension of delivery times. With more forecasting errors, the need for safety stocks and excess capacity increases at all levels, and inventories grow. Forecasting errors also mean that more unscheduled tasks must be accelerated, crowding out scheduled tasks. The need for even longer lead times becomes greater, and the planning loop expands, increasing costs, increasing delays, and creating inefficiencies in the value delivery system. Managers caught in the planning loop often respond by demanding better forecasts and longer delivery times. However, this is treating the symptom and not the cause of the problem.
The only way to break the planning loop is to think lean and reduce wasted activity time throughout the value delivery system, reducing the need for lead times. After all, if we could reduce lead times to zero, we would only have to announce sales one day in advance. Truly forward-thinking companies understand this concept and break the destructive loop that suffocates most traditional manufacturing and non-manufacturing organizations. While zero lead time is idealistically successful, lean organizations have at least prevented their lead times from increasing, and many have reduced them, reducing the detrimental effect of the planning loop.
Escape the planning loop trap
To escape from the planning loop, companies have two options.
1. They produce to predict and ignore fluctuations in demand that would cause them to do otherwise.
2. Reduce time delays in the flow of information and products throughout the value stream.
The real solution is to reduce time consumption in all your value streams to become more flexible. Flexible factories use significantly less time than traditionally managed factories. The improvement in response time due to greater flexibility is even more impressive than the improvement in labor productivity and costs. Many companies have dramatically improved their production response times by streamlining their processes and becoming more flexible. Consider this example from one of Toyota’s suppliers. The Toyota supplier had 15 days to deliver the parts to the Toyota assembly plant. Unsatisfied with this level of response to changing needs, Toyota set to work to help the supplier shorten the lead time. By reducing the batch size, they shortened the supplier’s delivery time to six days. After streamlining the factory layout to reduce much of the in-process inventory, the delivery time was reduced to three days. Finally, the elimination of all inventory in the production process meant that the supplier could only respond to Toyota with one day’s notice.
Companies can become more flexible (reduce wasted time) by applying the basic principles of lean thinking. A few key techniques are explained below. All these tools try to create continuous flow and traction according to the level of customer demand, thus reducing lead times and reducing inventory.
This requires sequencing production or service activities so that they run seamlessly. In a continuous flow, the processing of a job or document occurs at the time of the customer’s request. Production happens when it is needed – nothing more, nothing less. Continuous flow is based on the principle of moving one element at a time (or a small and consistent series of elements) through a series of processing steps as continuously as possible, each step doing only what the next step requires. The concept of continuous flow can be summed up in four words – “do one, move one.”
Line coordination is the even distribution of work among people in a process with the goal of meeting customer demand (takt time). This tool optimizes staff utilization so that all people in the process do more or less the same job content.
Spare and safety stocks
The focus of all lean process improvements is to remove all constraints and ensure that all processes run flawlessly. Sometimes this is not always possible due to the following reasons: · Removing all bottlenecks at once may not be feasible but should be done in stages.
· Stabilization of the process may take longer than anticipated
· Large fluctuations in customer demand
In such circumstances, reserve and safety stocks are used. In a manufacturing situation, reserve and safety stocks can be predetermined levels of raw materials, subassemblies, etc. In an office environment, this can be overtime, temporary workers, holiday pay, etc.
To become flexible, you need to understand your customer ordering patterns (demand). Once you determine customer demand, you can determine the Takt time or pace of customer demand. Lead time is the speed at which an organization must produce a product to meet customer demand. Clockwise production means synchronizing the pace of production with the pace of sales.
Standard work is the “best known way” of doing work. It can be based on workforce experience, industry benchmarks and current process capabilities or technology requirements. Standard work ensures that workers follow the same process every time. The method is documented in writing so that it is clear to everyone how the work is done.
The goals of work cells are to create independent, optimized, all-inclusive operating units that use minimal space with all activities placed sequentially next to each other, usually processing for a product family. This allows the product to be processed in a continuous flow.
Providing what is needed, when it is needed, on time, in the agreed quantity. In a pull system, production is triggered by a signal (Kanban) based on what has been consumed, unlike a push system where production is based on historical trends or sales forecasts. The pull system enables work flow without detailed schedules. There are many other lean tools available, but implementing these few will help you avoid the planning loop trap.
The challenge of becoming more flexible by reducing time consumption in your value streams is not only related to the factory, but also to workspaces or offices. Typically, most of the time to build a customer order is spent outside the factory by decision makers and information processors. In many cases, 85% to 90% of the total lead time of the value of a manufactured product is consumed by administrative processes. This is an important finding because it helps justify the improvement of lean processes in service organizations and offices.
The planning loop trap is the relationship between forecasting errors and long lead times. Changes in customer demand cause forecast errors that affect delivery times in a traditional manufacturing environment. As forecasting errors increase, stocks increase; more unplanned jobs have accelerated to displace planned jobs. Forecasting errors also increase the need for even longer lead times, and the planning loop increases, increasing costs, increasing delays, and creating inefficiencies in the value delivery system.
You can overcome the planning loop trap by using lean tools and techniques to produce at the level of customer demand and enjoy the following benefits:
· Drastic reduction in inventory
· Reduced operating costs
· Reducing delays
· Improved customer response time
· Improved efficiency
A planning loop is a time trap. Lean thinking forces you to look at this time trap and develop solutions to eliminate the trap and never fall into it again.
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