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Delivery Performance Improvement

6 Ps for Improved Delivery Performance…

Joseph H. Berk, J.H. Berk and Associates, Upland, California

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Attaining acceptable delivery performance is the most significant manufacturing challenge faced by many organizations.  Manufacturing Resource Planning (MRP) systems often do not provide hoped-for delivery performance improvements when implemented without considering other delivery performance factors. 

Our organization has found that delivery performance shortfalls are most frequently driven by problems that fall into six areas:

We’ve found that companies suffering from poor delivery performance usually have problems in all six of the above areas.   To understand how to find and fix the problems in each area, we need to first consider how MRP works.

MRP is a computer simulation of the factory and its manufacturing processes.  The MRP system is a comprehensive and interactive data base that includes information on each product’s bill of material, the manufacturing process, inventory levels, purchased parts’ lead times, setup and run times for each operation, and other information relevant to the manufacturing process.

In most manufacturing organizations, MRP runs each week to process new orders accepted or forecasted by the sales department and entered into the MRP data base.  When MRP runs, it assesses how many of all required items are in inventory and in various stages of the manufacturing build cycle.  Based on this assessment and the MRP system’s knowledge of future demand, the system determines how many new orders should be initiated, how many purchase requisitions should be generated, and all other actions required to meet the demand for additional product.

MRP issues daily dispatch reports to the manufacturing, purchasing, and stockroom areas.  These reports define the jobs that are present in each area and when each should be completed or issued.  The dispatch reports are how the system communicates to the factory.  They define which jobs should be completed (and when they should be completed) in order to ship manufactured goods on schedule.  As each required action defined by the MRP dispatch reports is completed, personnel completing the action make electronic entries into the MRP system.  These entries inform the system of the status of all orders.

MRP assesses, on a daily basis, the status of all material receipts and issuances from stock, the status of all manufacturing operations, the status of all purchasing activities, and the status of components that have been rejected.  MRP knows this because, as outlined above, company personnel make electronic entries to status the build sequence.

The MRP system also identifies detailed activities that are delinquent.  As MRP receives the status information outlined in the preceding paragraphs, it compares the status of all actions to their planned status.  MRP issues an exception message report to identify all actions that have not occurred on time.  This report defines delinquent actions.  Ideally, the exception message report should be used by the organization’s schedulers and others to define areas of special focus.   Figure 1 shows how a typical MRP system works.

Figure 1.  A Typical MRP System.  Orders are entered, the system assesses build and inventory current status, and detailed work instructions are issued to the factory, the procurement function, and the production schedulers.  If all dispatch report due dates are met, the product ships on time.  If they are not, the system can deteriorate rapidly.

In theory, the above process is elegant, and probably represents the best way to keep track of everything happening in a factory, especially if the factory has multiple work centers and multiple products.  In practice, many organizations cannot keep up with the demands stated by the MRP daily dispatch reports (for reasons to be outlined below), and when they fall behind, delivery delinquencies occur.  This paper focuses on what we have found to be the more common delivery delinquency causes and how to correct them.

Production Capacity

We cannot overemphasize understanding and managing the lead time/capacity/load relationship.  In our experience, organizations struggling with delivery performance often find this to be their most significant problem.

Over the past several years, manufacturing organizations and their leaders have come to understand that shorter lead times should result in lower manufacturing costs and improved customer satisfaction.  Unfortunately, comprehension frequently stops at this point.  Managers know shorter lead times are intrinsically better and they therefore want shorter lead times.   Manufacturing organizations have to do things, though, to achieve shorter lead times.  Simply quoting shorter lead times to customers without taking the necessary steps will not make customers happier or reduce costs (nor will it reduce lead times).  Taking this route (promising shorter lead times without the capability to meet them) results in extremely dissatisfied customers, raises costs considerably, and induces delivery delinquencies.

MRP is the model that runs the factory.  It is based on purchased parts lead times, manufacturing lead times, the manufacturing process, and inventory levels.  The MRP system knows, based on these parameters, how long it takes deliver product from order acceptance to shipment, and that should be the lead time the manufacturer quotes to its customers. Manufacturers frequently quote shorter lead times, though, because they want to please customers.  Consider the following scenario:

“I need product in 16 weeks.”

“I’m sorry, but our lead time is 22 weeks.”

“But I really need it in 16 weeks.”

“The best we can do is 16 weeks.”

“If I can’t get it in 16 weeks, I’ll have to go elsewhere.”

“Okay, we’ll deliver in 16 weeks.”

Does the above sound familiar?  The problem with the scenario outlined above is that if the order is entered for delivery in 16 weeks and nothing is changed in the MRP model (and the factory/supplier network it represents), in 16 weeks the manufacturer will have accomplished little more than disappointing the customer to whom it made the 16-week delivery promise.  Things will get even worse.   The customer to whom the promise was made will not be the only disappointed customer.  So will all the other customers whose orders go delinquent because of the 16-week commitment our manufacturer made to just one customer.  How can that happen?  If we only committed to an under-lead-time delivery to one manufacturer, should we not only go late to just that one customer, and not affect the others whose deliveries we booked at the correct lead time?  The answer is a resounding no.  The likelihood is that if a manufacturer books just one order under lead time, the company is probably going to induce delinquencies for several other customers.  To understand why, we need to turn to our next topic:  Capacity.

Capacity is a measure of how much a factory and its suppliers can produce in a specified period.  To understand it, we must think about the manufacturing process and the constraints associated with each step in the process.  These constraints can best be defined through the use of capacity assessments that show how many standard hours of work can pass through the work center in a given period.  To identify capacity, a manufacturer needs to know how many machines and people are available to perform work.

Simply identifying capacity is only half of the problem, though.  Manufacturers also have to consider the load going through each of the work centers in the manufacturing process.  This is where the MRP system helps.  As outlined earlier, the MRP system defines how many jobs have to move through each work center.  If the amount of time required for each job is identified through the use of standards (a standard is an estimate of the period of time it should take to perform an operation), then a capacity analysis can be performed to compare the amount of work each work center can perform to the amount of work it will have to perform in order to meet the dispatch report requirements.

If a manufacturer knows the standards for performing the operations that have to move through each work center and the capacity of each work center, the manufacturer can compare each work center’s capacity to its load.  If the capacity is greater than the load, the manufacturer should not have a problem (the work center can support the load, and the work should be accomplished on time).  If the load exceeds the capacity, then the manufacturer has a constraint.  The work center has more work than it can perform, and it will not complete the jobs it is supposed to in time to meet the dates specified in the MRP-generated dispatch report.  At least a few of the jobs moving through the work center will fall behind.  Unless the downstream work centers have excess capacity, it is not likely these jobs will recover to their downstream dispatch report due dates, and that means the delivery to the customer will be late.

We have found a number of ways in which the capacity versus load challenge can be inadequately considered by manufacturing organizations:

Any of the above can be deadly to delivery performance, and we suspect that several readers will recognize that their companies suffer from one or more of the above problems.  One might ask the question:  How can a company operate at all if it does not accurately address capacity versus load?  Many companies do, and they do so because they have excess capacity in other areas of the operation.  This will allow such companies to fall behind in one area of the operation, but make up the lost time in subsequent downstream operations with excess capacity.  Such situations frequently exist in poorly-managed companies, and during and after economic downturns (at least for a while after the downturn).

Where excess capacity exists, it usually exists because the company has not tailored capacity to meet market conditions.  In these situations, companies can be lulled into believing that capacity versus load assessments are not necessary to assure delivery performance.  Such a belief is dangerous for two reasons:

Let’s consider the lead time versus capacity issue.  What we need to consider is that lead time is directly influenced by capacity and load, and in reality, lead times are not fixed.  They vary as the capacity and the load change.  We will approach the discussion by recognizing two situations:  One in which the plant and its work centers are operating below capacity, and the other in which at least one of the plant’s work centers are operating at or above capacity.

If the organization is operating below capacity (i.e., it has excess capacity), product lead times are determined strictly by how long it takes to setup and run each job and to move jobs from one work center to the next.  The idea here is that as a job moves into a work center, there is a machine available to set up and run it immediately.  Lead time, in this situation, becomes the simple sum of the times required for the purchased parts, the setup and run operations, and moving the product between operations (with appropriate consideration given to operations that occur in parallel and those that occur in series, as indicated in Figure 2).

Figure 2.  A Typical Manufacturing Process.  The process can be thought of as a chain, with overloaded work centers being the weak links that constrain and therefore define the factory’s output.

If an organization is at or over capacity, though, determining lead time becomes more complicated.  There are two concepts we must consider:  

Most organizations operating at or above capacity address the above relationships (and their inherent limitations) by adding capacity internally or by offloading work, or through the use of buffers or queue times for each work center.  Offloading work or adding capacity internally are self-explanatory solutions to this dilemma. Buffers or queue times are a bit trickier.  They are a measure of the predicted amount of time a job will have to wait in a work center before it can begin the setup and run process.  In effect, queue times are buffers that represent an implied understanding that jobs will not get on machines immediately.  Queue times are the organization’s estimate of how long jobs will have to wait.  In this situation, capacity is reached when the load in the work center exceeds the sum of the setup, run, and queue times.

Readers who have worked in manufacturing will probably feel that most of the above is obvious, and to an extent, intuitive.  Readers who have never worked in manufacturing (as is often the case for people in sales or marketing positions who make delivery commitments for the company), the relationship between lead time and capacity is neither intuitive nor obvious. We believe that manufacturing managers making delivery commitments have to understand the lead time/capacity/load issue.  We further believe that manufacturing managers have to recognize that others outside manufacturing will not intuitively understand the lead time/capacity/load relationship, and that the desire to quote reduced lead times has to be carefully managed.

Given the above considerations, what are the things responsible managers can do to intelligently commit to delivery schedules?  Here are our recommendations:

Production Control

Production Control is the discipline that determines what needs to be built and when it needs to be built in order to ship product on time.  Doing so requires real planning skills (the ability to work backwards from a future point in time to determine what has to happen and when it has to happen).  Our observation is that with the advent of MRP systems over the last decade and a half, planning skills have deteriorated in many companies.  This is perhaps a logical fallout of large scale MRP systems implementation.

Let us think about why this might be.  In our earlier discussion in this chapter, we reviewed how MRP systems work and what they do.  We explained that the MRP system, with its data base of component assembly times, manufacturing routers, and other information, identified when items had to be built and in what quantities to support required delivery times. Unfortunately, in many organizations, this MRP capability has resulted in production control and planning personnel who are, in essence, data entry clerks.  The ability to truly plan, which has always been a rare attribute, has been made more rare by over-reliance on MRP systems.

The above situation might be acceptable if MRP systems had the capability of a human mind, but they do not.  When work is not completed in a work center when scheduled, the MRP simply shows that it is past due and must be completed now.  If more than one work order is late, it shows these work orders as late and directs that all delinquent work orders must be completed now.  In short, MRP cannot account and plan around bottlenecks, rejections, items in MRB, or any of the other real-world situations manufacturers must contend with on an hourly basis.   Doing so takes someone with the ability to plan.

To address this MRP shortfall, a company needs production control professionals who recognize when the data provided by MRP is no longer valid, and who can develop work-around plans to bring the company back on schedule.

Productivity

A manufacturing organization can have the best production control people in the world and adequate capacity, but if the plant’s productivity is poor, work will not ship on time and ultimately, the plant will not be competitive.

There are numerous productivity measures.  The productivity measure we have found best for integration with capacity and lead time issues is a measure of the actual time versus the standard time to perform a task.  This is frequently referred to as efficiency, and is defined as:

     Efficiency = actual time/standard time

To use this productivity measure, a plant has to have work standards for all tasks (or at least for most of the tasks performed during the manufacturing process).   There simply is no way to get around this.  Some might view developing and having standards as a burden, but in our experience, without such standards a manufacturing organization is simply guessing at its costs, schedules, and lead times.

Why is the above so important?  In addition to what should be a normal management concern (i.e., to assure all employees are working efficiently), we need to recognize that most MRP systems inherently assume that operations are occurring at 100% efficiency.  If the plant is averaging less than 100% efficiency, it will run behind the MRP schedule, and delinquencies will result.  Delivering manufactured goods on time will not occur without measuring efficiency and taking the necessary steps to assure that any inefficient areas are brought up to standard.

Procurement

“Acme Manufacturing, one of our suppliers, delivered late, and that’s why our product is shipping late.”

Have you ever heard the above?  One of our more frequently-encountered explanations for delinquent deliveries is late purchased parts delivery.  Most manufacturing organizations buy as much as 75% or more of their products from suppliers, so the potential for supplier failures certainly exists.  Our experience indicates, however, that supplier failures frequently are not the reason materials are missing when needed.  Usually, the failures are induced by the buying organization.  We need to turn to a focused assessment of a typical procurement process (as Figure 3 shows) to understand this phenomenon better.

Figure 3.  A Typical MRP-Driven Procurement Process.  Logical performance metric points include requisition release, purchase order placement, and purchased materials receipt.

From the material planning and procurement organizations’ perspectives, when MRP runs it checks the due dates of orders that have been entered, the requirements based on the bill of materials, and inventory status.  Based on these assessments, the system defines additional materials to be purchased and when they should be ordered based on supplier lead times (as previously input to the system).  MRP provides a dispatch report of recommended requisitions.  The planners or buyers should review this list and release the requisitions recommended by the system and their knowledge of ordering practices, likely future orders, and other factors. Once the requisitions are released, the buyers should place the orders with the delivery times the MRP system indicates it needs.

The above material planning and purchasing steps have “run” times just as manufacturing operations do.  Many times, managers fail to monitor material planner and buyer performance in meeting these run times.  Most MRP systems have inputs that tell the system how long it should allow for buyers and planners to review and release requisitions, convert them to purchase orders, and place the purchase orders.  

We have frequently found that these internal procurement action “setup and run” times (i.e., the time to convert the requisition to a placed purchase order) are violated.  If the buyers and planners take too long to accomplish these actions, they may do the same thing the Marketing people frequently want to do, and that is to violate lead times.  When this occurs, the supplier lead time is violated, and the supplier is likely to deliver late.

Another problem we frequently encounter is purchase orders with due dates that do not support the MRP need date. This means the supplier may deliver on time (i.e., meet the purchase order due date), but the material will still not arrive on time to allow an on-schedule end-item delivery.  The reasons for this can include internal excesses as outlined above (taking too long to place the purchase order) or changing market conditions that increase supplier lead times (as is currently occurring for titanium, forgings, extrusions, etc., due to the aerospace industry upturn).  Organizations with poor delivery performance that track supplier delivery performance and show a high percentage of on-time supplier deliveries often have this problem.  The suppliers are on time, but their deliveries do not support the procuring organization’s MRP need dates.

In yet other instances, purchase orders are simply not placed.  Buyers and material planners make mistakes.  Our recommendations to address the procurement issues outlined above include:

While the above actions may seem intuitive, we are often surprised at how many non-supporting supplier deliveries are induced by procurement (and not supplier) failures.  We strongly recommend taking a hard look at the procurement function; it is an area of low-hanging fruit for improving delivery performance.

Process Robustness

As mentioned above, MRP systems generally assume all processes are robust; i.e., rejections will not occur. MRP systems do not make allowances for rejections in their planning.  When a component is rejected, the time it takes to rework, repair, or replace the component is not included in the MRP routers and their associated lead times.  That means that each rejection carries with it a requirement for significantly increased work-order-specific planning, and a much higher risk the item will ship late.

Preventing non-robust processes from inducing delinquencies requires an aggressive failure analysis and corrective action approach, as well  as superior planning to develop rapid recovery plans.  We recommend the problem solving and systems failure analysis approach outlined earlier in this book.  The problem solving and systems failure analysis approach outlined in preceding chapters has worked well for manufacturers that have adopted it.  The approach supports D1-9000 (Revision A), ISO 9000, MIL-Q-9858, MIL-STD-1520, and other quality management requirements.

Perhaps the most important considerations regarding process robustness are that processes should have high yields, but when rejections occur, they should be worked aggressively to prevent the rejection from influencing required delivery dates. 

Product Delivery Responsibilities

While MRP has significant capabilities and it has helped organizations improve, the MRP concept has a few disadvantages.  One disadvantage is that the MRP system’s data-processing-nature and dispatch-report “to-do-list” outputs tend to drive companies to organize along manufacturing-process-based lines. 

For single-product companies, this may not be a problem.  As product variety increases, however, process-based. work-center dispatch reports tend to grow in terms of quantity of work orders and types of part numbers.  The result is that how the product comes together becomes opaque to the human beings in the system.  There are so many parts in the system (and so many different assemblies they go into) that no single person can sense how the schedule and the parts integrate to allow finished assemblies to ship on time. 

The MRP system knows how the product is supposed to come together, but it does not know what has to be done when anomalies occur.  That takes a human being.  When this problem is compounded with the other problem we mentioned earlier (production control personnel who are data entry clerks), what happens is not good.  Products don’t ship on time. 

The result of the above is that the MRP system, in a very real sense and in many companies, takes over all or nearly all of the thinking required to ship a product on schedule.  If the organization and all of its suppliers are on schedule to their dispatch reports, and if the organization has not exceeded its capacity in any areas, a company can live with this situation.  The word “if” as used here is a powerful qualifier, though.   Organizations and their suppliers are usually not 100% compliant to the dispatch reports, and that is when another problem emerges:  Unfocused delivery responsibilities. 

Consider this common situation:  Supplier deliveries are late, Marketing is making commitments to ship products below standard lead times, several of the work centers are not keeping up with their dispatch reports, some of the parts are rejected during manufacture, and one or more of the work centers is overloaded. 

In a company organized along process (rather than product) lines, other than the Vice President of Manufacturing, who is responsible for shipping product on time?  Which of the jobs in the work centers that are past due should be worked first?  Which parts of the many that are in work are needed to finish a product so that it can be shipped on time?  Which of the delinquent supplier parts need urgent attention? Who is working the rejected parts, and in what order, so that they can be reworked or remade and the products that need them can be shipped?  With all of the above occurring, who can predict when the products will ship? 

The above situation defines the essence of what occurs in many manufacturing operations that run on MRP systems.  The questions are:   

Our experience indicates than when companies are organized along process (and not product) lines, delivery performance failures are likely because the problem becomes too complex for a single person to solve. 

Our recommendation is to organize the factory along product (rather than process) lines to the maximum extent possible.  We recommend having all of the work centers unique to specific product lines report to individual operations managers responsible for the product lines.  We recommend having other factory areas that provide generalized support (such as a machine shop, process lines, stock rooms, and other generalized functions) report to a single factory manager.  We further recommend having the product-unique functions for each product area (e.g., manufacturing engineering, scheduling, final assembly, and any other product-unique manufacturing areas) report to the product-line-specific operations managers.  Figure 4 shows a recommended organizational approach for a company with four product lines. 

Figure 4.  Recommended Operations Organization.  This approach incorporates product-line-specific operations managers to champion on-time delivery for their product lines. 

The above approach provides for single individuals to champion product delivery performance, to act as a magnet to draw required parts into and through the plant, and to resolve issues related to their assigned products.

Summary 

Our experience indicates that in MRP-based manufacturing organizations, delivery delinquencies are systemically driven by failures to understand and abide by lead times, failures to address capacity constraints, ignoring manufacturing productivity, diffused organizational responsibilities for on-time delivery performance, internal procurement failures, and non-robust processes.  Our recommendations for delivery performance improvement include understanding the nature of the capacity/load/lead time relationship, developing meaningful lead times, and only departing from lead times with supporting reschedules and focused management. 

We recommend that manufacturers optimize the robustness of their processes using a systems failure analysis process focused on rapid cause identification and corrective action implementation.

We believe manufacturers have to understand their productivity and act on areas not meeting standard. 

Manufacturers should understand the procurement process and its associated internal lead times, and monitor the procurement organization’s performance to assure supplier commitments and deliveries that support MRP need dates. 

Finally, we recommend organizing operations along product (rather than process) lines to assure appropriate focus on delivery performance. 

References

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