1) Delkor implemented synchronized planning in its complex manufacturing environment to address declining orders, high inventory levels, and a reactive work environment. 2) Key steps included educating management on planning concepts, integrating bills of materials between CAD and ERP systems, implementing master production scheduling and MRP, and establishing a sales and operations planning process. 3) Recognizing that engineering designs were a constraint, Delkor focused on exploiting engineering capacity by training engineers on new CAD systems, clarifying roles, and improving engineering change processes to synchronize activities downstream.

1. Implementing Synchronized
Planning in a Complex
Manufacturing Environment
A Case Study
April 13, 2010
Terry Cook, CFO – Delkor Systems Inc.
Rick Bernett, Partner -3sixty solution llc.

2. 2
Thank You!
for Supporting our APICS Chapter
 Our goal is to share a real story along with a few
insights we gained along the way:
1. Appreciation of the differences between the goals
of education and training
2. Ways to eliminate the ‘islands’ of information to
improve enterprise planning
3. Formalizing an effective agreement between the
sales function and operations
4. Creating the drum schedule based on the
strategic constraint and synchronizing MRP and
final assembly to the drum schedule
5. A few tips on overcoming pitfalls of implementing
change

3. 3
Agenda
I. Overview of Delkor – Terry C
II. Why We Started – Terry C
III. How We Approached the Situation – Rick B
IV. Results/Key Insights – Terry C
V. Next Steps – Terry C

4. 4
I. Overview of Delkor Systems
 Manufactures end of line packaging equipment
 Originally started in mid 1970’s
 Majority of business sold in 1990 with retirement of owner
 The name ‘Delkor’, an idea, and 3 employees
 The idea turned out to be patentable - Spot-Pak®
 And the company grew to $37M averaging 20% per year
 Employee count grew to 90
 2 Buildings, one 35K Sq. Ft. and the other 22K Sq. Ft.
used for sub assembly and storage
 Key customers include Fortune 500 food companies
 Innovation and operating cost reduction is a key offering
to our customers

5. 5
Trayfecta ® S FormerSpot-Pak® Loader
 Delkor Systems designs and
manufactures end-of-line automated
packaging systems
 Our equipment provides robust,
innovative solutions for carton forming
and closing, top load case packing, tray
packaging, and robotic palletizing
Overview of Delkor Systems (Con’t)

6. 6
 Historically, Delkor custom engineered,
machined, assembled, tested and installed
 Lead times were 18 – 22 weeks
 Machine prices vary from $10K to over $500K
 Typical machine consists of 3,000 parts
 About 30,000 items in Item Master File
 Internal machine shop
 Strong supplier network, most local
 Several Patents
Overview of Delkor Systems (Con’t)

7. 7
 Started first Company-wide strategic planning process
(with guidance from Fred Green)
 Completed our first draft of key process maps and
SOP’s
 Completed first Corporate strategy meeting
 Strengthened our management team with a new
Director of Engineering and a new Director of
Marketing
 We had expanded our product lines beyond Spot-Pak®
 The economic uncertainty had finally caught up to
Delkor in Q2 08 – we had incoming orders, but they
were declining, compared to the usual 20% growth we
had become accustomed
II. Why We Started
Spring 2008 -The Context

8. 8
Why We Started (Con’t)
 This lull was seen as an opportunity to improved planning
functionality in our existing ERP system along with other
strategic initiatives
 Purchased the ERP system in 2003
 Microsoft Dynamics NAV (Navision)
 Good handle of inventory status and cost information
 However not using MRP as a planning tool
 Purchased Solid Works 3D CAD system in 2000
 Several report writing tools available
 But as the company grew, the impact was felt in
numerous ways
 Inventory crept to unacceptably high levels
 Expediting activity increased
 Rework in assembly increased to unacceptable levels
 Overall work environment became overly reactive
 Current planning processes limiting continued growth

9. 9
 Engaged 3sixtysolution to guide the overall project
 Retained our Navision support (Solution Dynamics) for
key technical support
 Following the initial 3sixty solution assessment, we
agreed on phase 1 scope – Material Planning
fundamentals
 This included:
 Standard vocabulary (using APICS as reference point)
 Educational workshops (key assumptions, necessary
conditions, limitations etc.)
 Viable Master Scheduling process
 Full MRP functionality in test database
 Goal to complete by 6/30/2008
Why We Started (Con’t)

10. 10
III. Our Approach
 Kicked off with a full day offsite education session with
Senior Management
 Fully utilized the existing MRP project team including:
 Terry Cook - CFO and project sponsor
 Dirk Norgaard - Inventory mgr.
 Jenny Mate - Business Analyst
 Tom Tetzlaff - Production mgr.
 Met twice weekly – maintained action registry and project plan etc.
 Next, held a series of educational workshops covering all
relevant topics (i.e. MRP mechanics etc.)
 Needed to integrate this initiative with the new
strategic planning process

11. 11
Order Fulfillment Process
Assembly
Assembly
Assembly
Assembly
Ship
Assemble
to Order
Kitting
Machine
Shop
Suppliers
Make to
Stock 25%
Order Engr.
Machine
Shop
Suppliers
Make to
Order 75%
 Delkor was predominately engineer–to-order
 About 75% MTO & 25% MTS

12. 12
A Few Pinch Points!
Assembly
Assembly
Assembly
Assembly
Ship
Stores
Machine
Shop
Suppliers
Order Engr.
Machine
Shop
Suppliers
Highly skilled
Techs!
Excellent
Inventory
Accuracy
Make to
Stock items
Based on
Min-Max
Shortages/
Stealing/
Rework / Excess
$$
Late
Drawings
The Green Blob!
Hand-Offs

13. 13
New Direction
 As part of the new Strategic Plan, Delkor decided to
greatly increase Product Standardization
 From 25% to 75% Standardized items
 From 75% to 25% Custom Items
 A Major Engineering initiative!
 More important, a major culture change!
 But it created a new opportunity on how to proceed

14. 14
1. Training vs. Education
Education
 Deals with understanding underlying concepts and
principles
 Helps to understand how various functions relate to
each other
 Answer the ‘why’ questions
 Connecting the dots
 Provides context

15. 15
Education at Delkor
 A key objective was education!
 Directors and key managers attended most of the
workshops!
 Workshops included time for dialogue!
 Solidify understanding and acceptance
 Worked to get agreement on:
 The specific problems we were addressing (scope)
 The reasons why the proposed direction would
solve the problems
 Recognize possible negative consequences and
address directly

16. 16
Education & Constancy of Purpose
 Deming Point #1 - Constancy of Purpose
 Repeat, repeat and repeat until the “aha’s” happen!
 Discipline to avoid the easy ‘outs’ or ‘controversy’
 A few eggs must be broken to make an omelet!
 Communicate “Formally”
 Quarterly company reviews
 Weekly status reports to CEO and Directors
 Bulletin boards etc.
 More importantly, communicate “Informally”
 Not over hyping, but honestly explain what and why we
are doing this transformation
 Explain the likely organizational changes/roles
personally to individuals

17. 17
2. Creating the Bridges to
the ‘Islands’ of information
Assembly
Assembly
Assembly
Assembly
Ship
Assembly
had info
Kitting
Inventory
Control had
Info
Order Engr.
Machine
Shop
Suppliers
Engineering
had Info
The machine
Shop had
info
Purchasing
had Info
Sales had
Info
Sr. Mgt had
Info
 There were tons of data, but little credible “information!”

18. 18
 Engineering has full design authority
 A 3D software product (Solid Works) was used to
accomplish their work – the initial BOM resides in Solid
Works
 ERP system resides in Navision
 Bills of Material must be transferred from Solid Works
to Navision
 Initially, this was a manual process!
Engineering
Solid Works
BOM
ERP
(Navision)
BOM
Bridge 1
Solid Works CAD to Navision ERP®

19. 19
 A critical information interface had to be created
 Delkor IT (Paul C) worked to create electronic
transfer from Solid Works to Navision’s BOM file
 This “BOM Push” was a major and critical IT effort
 We decided to wait until this was complete before
going live with full MRP
 It also forced us to improve the ECN process
Bridge 1 (Con’t)
Engineering
Solid Works
BOM
ERP
(Navision)
BOM

20. 20
 While MRP was ‘installed’, it was configured in a basic
Min/Max mode – i.e. treated dependent items as
independent demand
 To get full MRP benefits, we had to re-configure it
 Updated numerous planning parameters
 With the new standardization effort, agreed to master
schedule at the key option level
 Planning BOM
 Agreed to test full MRP functionality using a pilot product
line (Trayfecta) in the test data base
 To reduce internal effort we got assistance from Solution
Dynamics

21. 21
Planning BOM Example
BOM’s could be as
deep as 5-7 levels
SP-12345
Spot Pak Loader
XYZ Food Inc.

22. 22
 Using Planning BOM’s, the MPS is manually entered into
Navision
 Custom parts, of course, are build to order
 With MPS, Inventory File and BOM’s, the MRP calculates
all dependent material needs (i.e. planned orders)
 Agreed to floor stocking where it was practical
Full MRP Functionality

23. 23
 Custom items are designed and built to order, thus
the process starts with a Request for Proposal (RFP)
 If customer accepted the proposal, had to create a Sales
Order in Navision - a manual process
 Agreed to purchase a product configurator that is a
bolt-on application to our Navision ERP System
 This project is still in process!
 Will create the demands (Options) in Navision
 Reduce RFP complexity
 Reduce manual data entry
RFP Process
Stand alone
Order Entry
Navision)
Sales
Process
Bridge 3
RFP’s to Order Entry

24. 24
 The next bridge, the S&OP process, took more
than software!
S&OP
a necessary
bridge

25. 25
 Value is created when we sell something – the process
starts with Sales!
 Delkor provides capital equipment
thus sales process is long & complex
 1-2 years not uncommon
3. Sales Buy-In
A Necessity for ERP Success
 Sales involves other groups
 Applications engineering – Quotes, Proposals & Changes
 Engineering – Is design viable?
 Assembly – Can we actually build it?
 Finance – Are we going to make money?
 Sales staff is technically capable, but focus on sales,
not forecasting
 What we needed for effective planning was a ?

26. 26
 Conceptually S&OP is easy!
 Even the details are not too involved
Sales & Operations Planning
Version 1.0
Initial
Sales Forecast
Formal S&OP
Meeting
Recommendations
Pre-Meeting
Capacity
Check
Updated
Sales & Production
Plan
The real
challenge is
changing old
nasty habits!

27. 27
 Required CEO’s direct involvement (with a key push
from the CFO!)
 This took several iterations!
 We back slid at least several times
 But we pushed forward
 Sales Customer Mgt. System (ACT) re-implemented
 Guidelines on inclusion to sales forecast agreed
 Forecasting is still more art than science!
 New Approach – if something ‘big’ happened, no
hallway orders-meet as a team and agree from
there
 Discipline! Old habits die slow & must be driven from the
top!
 Note, if the above is not possible
– It’s a Show Stopper!!
Creating the S&OP Process at Delkor

28. 28
Summary thus Far
1. Provided educational workshops
2. Bridged many ‘information islands’
 BOM Push
 Full MRP capability
 Order Entry Configurator (in process)
3. Formal S&OP in place (i.e. Bridge #4)
 But we did not want
bridges to nowhere!
 Still had not yet fully
synchronized the order
fulfillment process

29. 29
4. The Strategic Constraint - Drum Beat
 The Theory of Constraints (TOC) includes the 5
Focusing Steps:
1. Identify
2. Exploit
3. Subordinate
4. Elevate
5. Start Over
 In 2008 the true system constraint was
obviously external - the ‘market’
 The sales team worked to ‘exploit’ this constraint,
but this is another story unto itself
 Internally, however, we needed to identify the
strategic constraint – a logical control point
to synch up all other activities

30. 30
 A daily “Engineering Release” meeting was held to
provide downstream resources as what they could work
on the next few days
 Engineers were rushed and stressed
 Someone was always waiting for some information from
engineering-specifically, mechanical engineering)
Design
Engineering
Assembly
Machine Shop
Purchasing
A new
drawing

31. 31
Step 1 – Determine the Strategic Constraint
 Where should the internal constraint be located?
 It depends!
 E.g. what is the natural constraint of a Boeing 767?
Kitting
Order
Entry Engr.
Machine
Shop
Suppliers
Assembly
Assembly
Assembly
Assembly
ECN’s
 Recall, Delkor designs and builds machinery

32. 32
Step 2-Exploit
How to Best Utilize Engineering?
 What actions would allow us to get the biggest
bang for the buck in engineering?
 New Director of Engineer – Adam Koller
 Training in updated Solid Works CAD system
 New roles – e.g. have tech run interference between
assembly, machine shop etc. to cover the most
common design issues
 Improved ECN process
 Improved upfront scrutiny of sales order proposals
– validate we can do what customer wants
 Stop the bad multi-tasking (huge urban myth!)
 Create a finite schedule for Mechanical
Engineering which would be used to synch up
all other operations- “Drum” Schedule

33. 33
How to Schedule Engineering?
July Aug Sept Oct Nov Dec
Project ABC
 Create a finite schedule (drum beat) based on
mechanical engineering capacity and customer needs
 We had several false starts
 Agreed on a simple Gantt Chart – using MS Project
Project 123
Project XYZ
• Stagger Mech. Engr in
the most effective way
to assure capacity not
exceeded
• Time Estimates based
on complexity of project

34. 34
Step 3 – Subordinate by Synching Up
 Once we had created the Drum, we could easily
forward schedule all key downstream tasks
Mech. Engr.Review
Elect. Engr.
Integ.
Machining
Engr. Release
Pick
Assemble
MPS
MRP
Orders
BOM
Suppliers
Drum
• Use the Pick Date to
trigger MPS due dates
• Lot size set at L4L
• True demand pull for
all dependent items
• The buffer is
the backlog
• Only release if
ALL conditions
are a ‘GO’!

35. 35
Example of MS Project Drum & Load Report
• Mechanical Engineering
is the control point for
capacity, but secondary
view in assembly is also
checked
Load Report

36. 36
Step 3 – Dealing with Murphy
 Murphy lives in a plant, Delkor was no different
 We needed to buffer against Murphy
1. Between Engineering and Production
2. Between Production and Shipping
 We used two time buffers
Mech. Engr.Review
Elect. Engr.
Integ.
Machining
Engr. Release
Pick
Assemble
Suppliers
Drum

37. 37
Summary
 Created the Drum based on finite capacity and
customer needs at Mechanical Engineering
 Schedule downstream action accordingly
 Synchronize the MPS/MRP to the release and pick dates
established
Mech. Engr.Review
Elect. Engr.
Integ. ShipMachining Assemble
BOM Release
& load MPS
Parts
Due Date
 Protect against Murphy – add 2 buffers
Drum
Engr. Completion
Buffer
Shipping
Buffer
 New policy - No order until specifications
understood and engineering samples in-house

38. 38
 Step 3 of TOC - “Subordination” - is the
toughest nut to crack!
 Requires new habits e.g.
 Push back on sales until idea can be validated
 Using different measures for decision making
 Explore Throughput Accounting vs. GAAP based
 Avoiding the temptation to pull work ahead to keep
everyone ‘busy’
 Cannibalizing material from one project to another
 Trying to ‘save’ set ups by using large lot sizes
 Leaning out too much-resulting in lack of protective
capacity
Challenges

39. 39
 A weekly production status meeting held
 Review Drum Schedule and Buffer Consumption
 Master Scheduler facilitates meeting, actions and issues
entered real time (& hyper-linked to production log)
 Application Engineers provide project management
support
 The use of the Drum provides a enterprise-wide easy
to view picture of all engineering and operational
activities
Drum

40. 40
5. Tips on Implementing Change
 CEO must be educated and understand this is not a
software thing – but a new way to conduct business
 CFO must be on-board!
 Do not assume the nodding of heads implies
understanding
 Assure all agree on the problem at hand – don’t
assume this is true!
 Gain agree on the general direction of the solution
first
 Acknowledge concerns on possible negative
consequences – provide viable workarounds with
their involvement
 Maintain constancy of purpose - plan to repeat
this many times!

41. 41
From
1. Decentralized information
2. Questionable information
3. Informal hallway decision
making
4. Manually interface between
CAD & ERP
5. Project schedules informally
and inconsistently updated
6. Unaware of strategic control
point
Results & Key Insights
To
1. Centralized Information
2. Confident information
3. Formal decision making
(S&OP)
4. Electronic interface from CAD
to ERP
5. Project schedules formally
and consistently updated
6. Leveraging of strategic
control point

42. 42
 Education
 We tried to do it ourselves, but we did not understand the
underlying principals
 Needed to learn the underlying concepts to see how to apply to
Delkor
 Moved to thinking of Delkor as an assemble-to-order company and
how to structure processes to support that type of manufacturing
 Visibility
 There is a central repository of information, (Navision and the Drum
schedule)
 Formalization of communication
 Dramatic Reduced Hallway meetings
 Installed and executed SOP meetings to make decisions based upon
input from all functions which then can be executed (I.E. setting
ship dates while addressing load and customer requirements)
 BOM Push
 Had been started but really it took action to support MRP project
 We now have accurate data in Navision with little manual input
thus freeing up a FTE to address other needs in the production/
purchasing department
Results

43. 43
Productivity Improvements
Comparing 2008 to 2009
we:
 Reduced Engineering
time ≈ 25%
 Reduced Assembly
time ≈ 33%

44. 44
 We doubled throughput capacity with only a
10% headcount increase
 Reduced Inventory 18%
 Improved Pick % from high 80% to high 90%
 Less Chaos
Overall

45. 45
 Hold the gains!
 Complete product configurator process
 Continue to improve ECN process
 Continued strategic growth
V. Next Steps

46. ?
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Questions?