More Related Content Similar to Capacity hunt program reveals huge hidden capacity (20) More from Shridhar Lolla (20) Capacity hunt program reveals huge hidden capacity4. Copyrights©2013CVMark.AllRightsReserved.
Ambience
• First Phone Call mentions that the Organization is
struggling to be Operationally Profit
• Age of Organization: 30 years
• It had undertaken several improvement programs
but did not get desired results.
• It also spent millions of dollars into capital
investment, the ROI for which could never be
justified.
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Methodology
• The team presents operational performance
• Sales team confirms that indeed demand for
some products is higher than supply
• The team
– Follows the trail inside the factory to Identify the ‘one
thing’ that Limits the Capacity
– Identifies and Calibrates the Hidden Capacity
– Draws up action plan to Activate the Hidden capacity
– Agrees on a mechanism to harness Hidden capacity
All in less than 30 hours24-08-2013 6
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Step1- Prune the Long Tail
• Overall 1000 SKUs
• The list has not been revised for over 20 years
• Reduced target SKUs to 700
• Results:
– Lower Inventory + WIP (Work in Progress)
– Less Change-overs (setups)
– Uncluttered warehouse and shopfloor
– Increase in Throughput (Capacity) = 15%
– Increase in Revenue for the month = 12%
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Step-2 Reclassification of SKUs
• Old Practice: SKUs which were infrequently
supplied or suppliers were willing to wait
longer, were stocked (Made to Stock),
although there was no need to stock them.
• Old Practice: SKUs which were in regular
demand and had benefit of aggregation were
made to order (MTO) resulting in
changeovers, delays and expediting
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Step-3 Stop Overproduction
• Old Practice: In order to keep all the staff always
engaged and keep utilization of plant high, several
batches where produced even when they were not
required in near term
• Now: Strict Disciplines imposed and batches were
produced only as per consumption from stocks (MTS)
and confirmed sales order (MTO). No other system was
allowed to create orders for production.
– WIP and Inventory Reduced
– Lead time reduced by 20%
– Increase in Throughput (Capacity) by 12%
– Increase in Revenue by 8%
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Made to Order Products
7 56 6
WIP in shop floor (Plant)
45
Confirmed
Orders with
Due Date 98
RM
Customer Order Due Date
Order 9A12-004 20-Apr-2012
Order 9A12-005 30 Apr-2012
Order 9A12-006 02-May-2012
Order 9A12-007 08-May-2012
Order 9A12-008 15-May-2012
Order 9A12-009 30-May-2012
Market (Customers)
Customer
Order List
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Step-4 Follow Single Priority System
• Too many urgencies from too many directions
confuse the staff in the plant with too many
priority changes
• Effect:
– Chaos, firefighting, uncontrolled operations, 24x7
operations, overtime, high expediting,
obsolescence
– People work on orders that are not required now
delaying orders that are required now.
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Poor Priorities cause Mismatches
RM Stock WIP in shop floor
A
B B BA
A
A
A
A
D
D
D D
C C
C
C
B
Stock Situation in Ware House
SKU B
SKU C
SKU D
SKU A
Wastage of Capacity: Items already
full stocked in warehouse are being
produced
Late Deliveries: Items (A, C) needed
urgently queue behind those (B,
D) not required NOW.
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FG StockWIP in shop floor (Plant)RM
Waiting for
packing material,
120days
Waiting for
change parts,
70days
Waiting for repair
of coating
machine, 70 days
Waiting for
License, 210 days
Waiting for
retest, 275 days
Waiting for
clearance from
delivery team,
40days
Sticking problem;
waiting for product
specialist, 140 days
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Step-4 Follow Single Priority System
• Old Practice: There were multiple priorities
leading batches left half way, the real urgent
batches were left waiting
• Now: Single Priority System led to delivering the
orders that were required urgently by customers.
– WIP and inventory reduced
– Lead Time reduced by 20%
– Increase in Throughput (Capacity) = 5%
– Increase in Cash Revenue for the month = 15%
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Process Order # Urgency Product
N002543 Endangered Cetrizine 10mg
N002570 Endangered Cetrizine 10mg
N002556 Endangered Omeprazole 20mg
N002577 Endangered Omeprazole 20mg
N002523 Endangered Glimepiride 4mg
N002554 Glimepiride 4mg
N002588 Glimepride 4mg
N002511 Simvastatin 80mg
N002545 Cetrizine 10mg
N002590 Cetrizine 5mg
N002623 Omeprazole 40mg
N002643 Omeprazole 40mg
N002594 Glimepiride 4mg
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Visualization of Priorities of
Work Orders
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Step-5 Management By Constraint
• Old Practice: The organization ran a large number
of improvement projects which led to bad
multitasking and thinning out of organization’s
bandwidth. In fact, hardly any improvement
project delivered higher revenue.
• Now: The Constraint Resource was identified and
organizational attention was increased on this.
– Improved utilization of constraint by 20%
– Lead Time reduction by 25%
– Increase in Throughput (Capacity) = 20%
– Increase in Revenue = 23%
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Complexity of improvement
• Take an example of a plant:
– 500 resources
– Involved in 100s activities
– Producing over 1000 SKUs
– 100s open process orders at any time
• At any moment there are 100s of improvement initiatives.
• Managers are bogged down with a long ‘to do list‘ to chase
improvements.
• Actually, management attention (the most critical and costly
resource) is continuously diluted even if you use Pareto Principle.
Q H
PM
S
D
Q H
PM
S
D
Q H
PM
S
D
Q H
PM
S
D
Q H
PM
S
D
Q H
PM
S
D
Q H
PM
S
D
Q
H
P
M
S
D
QH
P M
S
D
Q
H
PM
S
D
Q H
PM
S
D
Q H
PM
S
D
Q
H
PM
S
D
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D
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Too many initiatives dilute
management attention
• Response time of organization becomes sluggish
Number of Improvement projects
ResponseTimetoexecutechange
Brink of Chaos
Chaos
28
• Making improvement in Business System becomes very complex
• As a results failure rate of improvement projects >70%
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Strategy for Growth
• When there is overwhelming complexity and
chaos, Focusing on the right thing is the right
strategy.
• Focusing mechanism called Theory of
Constraints, TOC ideally suits this need.
• Further, organizations need to improve the
process of improvement itself rather trying to
learn each and every new technique of
improvement.
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Strength of the chain is no stronger than the
weakest link…
Trying to improve each link is not necessary to
improve strength of the chain…
But improving the weakest link by 10% improves the
strength of the whole chain by 10%
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Focusing on Constraints Improves Financial
Performance Dramatically without Increasing expenses
proportionately
Measurement Crore, Rs
Sales 100 110
Material Cost 40 44
Margin 60 66
Operational Expenses 40 40
Operational Profit 20 26
Sales Up by
10%
Profit Up by
30%
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Managing by Constraint
• Identifying Constraint is the first step
• Managing the Constraint requires behavior
change
– Most of the constraints are not bottlenecks
– They are constraints because of the way they are
managed
• Capacity of a plant is the capacity of its people
to see hidden capacity.
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Constraint decides the Capacity
• An hour lost at constraint is an hour lost for
the complete line
• Trying to improve anywhere than constraint
does not take the organization any where
• Organization must take decisions to exploit
the constraint
• Just decision is not enough, everybody in the
organization must subordinate to the
constraint.
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Results of Capacity Hunt Program
• Hidden Capacity Identified within 24 hrs
• >60% Capacity Revealed in less than 60 days
• Gross Capacity improved by 30% but Revenue
increased by 60%... That’s improving direct
impact of improving operations on Revenue in a
non-linear way.
• ….And More Benefits are still coming in; without
taking too much risk and without costly trade-offs
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Remembering the Laws of Operations
• Redefined the definition of Operations:
– It is no more cost reduction, firefighting,
– Nor it is about quality, safety and health.
• Ever Improving Flow is the prime objective
• Have a mechanism to know when not to
produce
• Install a Single Priority System
• Must practice a focused mechanism to
balance flow
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Operational Excellence is a Journey
towards achieving Strategic Intent
• There are different strategies for growth, sustainability
and harmony
• Every company has to make a choice
• Consider that the world is only going to be more
complex and chaotic
• A choice, where you can make a difference not by 1%,
nor by 5% but by over 20-30%
• For some organizations Leveraging Operations is
becoming a decisive competitive choice. Why not, if
dramatic improvements can be obtained quickly and
sustained without costly trade-offs and burn-outs.
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Reality
• Constraint is not always a resource
–It is often a policy
• Recruitment policy, purchase policy,
maintenance policy, training policy,
CAPEX policy, cost control policy, travel
policy, productivity policy
• Sales, Product Development, Distribution,
HR, Marketing, Finance, Strategy
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TOC Steps to
Achieve Continuous + Radical Improvement
Step 0. Identify the Goal of the System/Organization
Step 0.5 Establish a way to measure progress to Goal
Step 1. Identify the system’s constraint.
Step 2. Exploit the system’s constraint.
Step 3. Subordinate everything else to the above decision.
Step 4. Elevate the system’s constraint.
Step 5. If a constraint is broken, go back to Step 1. But don’t
allow inertia to become a constraint.
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The Process of ongoing improvement
Ident
ify
Syste
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train
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Time
Performance
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The Biggest Secret !
• Huge Capacity is hidden in organizations
irrespective of the industry they belong to.
– Pharmaceuticals
– Manufacturing
– Software Development
– BPOs
– Education Sector
– Food and Grain Distribution
Keep following http://time2change.co.in for the
forthcoming whitepaper on the generic model of
Revealing Hidden Capacity!
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