Nearly all manufacturing business leaders will state that one of their primary goals is to ship products to customers on time. However, in my experience the majority of diversified industrial manufacturing businesses do not operate this way. And perhaps because the On-Time Delivery (OTD) metric is both highly visible and not a financial measure, it is the one I see most often “fibbed about.”
The complexity, variability and quality of a company’s products and production processes make a big impact on OTD. The relative strength of the company’s business systems may have an even greater impact. However, a company’s culture, particularly of its leadership, affects OTD the most.
I like to say there are Three Keys to On-Time Delivery:
1. Book Responsibly
2. Pre-Expedite Critical Shortages
3. Run to the Schedule
Book Responsibly means, “Make sure you can ship it on time before you take the order.” In other words, don’t book your own delinquency. The concept of ensuring capability (Capable to Promise) was integral to the 1994 ISO 9002 Quality Systems standard (Section 4.2 – Contract Review). A good system will provide an estimated ship date during the quote stage of acquiring an order. The difference between the customer required date and the expected ship date is called Gap. Booking new orders with unachievable due dates is called Booking With Gap, and is irresponsible, if not unethical.
I’ve taken plenty of fire from C-Level executives on this topic. They don’t want to turn away business. They expect the operation to figure out a way to ship the product when the customer wants it, and I can’t blame them for wanting that. We should break the constraints to faster throughput. Whether it’s implementing an advanced design engineering method, reducing supplier lead time on key components, or doubling up capacity on critical internal machines – we have to do it. My point is that we have to first do these wonderful things, then update the system to reflect the new reality. The system will then quote shorter and sustainable lead times. We can’t operate effectively at scale based on wishful thinking.
Pre-Expedite Critical Shortages. A good system will always give advance warning of critical upcoming shortages – long before they affect production. Critical shortages are inbound purchased materials “on the critical path.” This means that the machines or assembly lines will be waiting for the material when it arrives. The elapsed time between material arrival and consumption (use) is called Consumption Gap, and will be near zero. Even in very lean environments, we don’t want zero consumption gap. That’s cutting it too close. For example, in a high volume automotive plant, material arrives a few hours prior to assembly. In diversified industrial environments, we want our materials available about one day in advance.
To pre-expedite means to effect a remedy without affecting production. No matter how long it is until the part is due (could be months), get on the phone and talk to the supplier immediately to improve the delivery date. It is much, much easier to improve a delivery by one week if the product is due 24 weeks from now, not next week. This is called working the Prevention Window, versus working the Recovery Window. Conversely, if the supply problem cannot be solved, we proactively engage the customer, giving them ample opportunity to help us seek a solution.
Run to the Schedule means exactly what it sounds like – when finished with the current job, run the next job in queue, per the system schedule. Don’t skip past jobs that are more difficult, require less setup, or that someone is expediting (at the last minute). Expediting is the greatest cause of chaos and overhead in most manufacturing organizations.
It also means Meet the Market. Every work center, or resource, whether it is a molding machine, a break press, a quality inspection area or a design engineering team, has a Market Rate. The market rate is the number of standard hours per day required from this resource to ship all orders on time. It is like takt, but at an individual resource level. Many diversified industrial factories operate with no concept of market rate for their various production work centers, much less the support resource groups like engineering and quality. In a diversified industrial setting, team leaders must check their resources’ output daily, and try to maintain equality between the 7-Day average output and the market rate. This is how we maintain balance between supply and demand.
If a resource’s output falls below the market rate, this is called Negative Recovery and the team leader should institute a Recovery Plan to bring the output back up to the market rate. This can include adding overtime, adding a shift, moving work to other resources, or as a last resort, outsourcing the work temporarily. A good recovery plan is described in one sentence - Who will do What by When.
In order to effectively run to the schedule, we must also Minimize Idle Queue. Every work center has an effective cycle time, meaning, the length of time it takes for discrete work to be completed after it arrives (goes into queue) at that work center. In a lean diversified industrial environment, the cycle time should be one day. So we say that if an item has been in queue more than two days (allowing for natural variation), it is Idle. The largest cause of idle queue is Queue Jumping – skipping past the next scheduled job in order to run a more desirable one. The most effective way to prevent queue jumping is to Restrict Release of new work so there is much less to choose from, and no new work can be released to a work center with idle queue. The best way to restrict work release is through Kanban. Sync the release of new work to the completion of existing work, while capping the amount of released work to 1-2 days. This enables lean flow.
The Three Keys to On-Time Delivery are intertwined and reform part of a company’s culture. They are the keys not just to higher OTD, but also to achieving lean flow in a diversified industrial environment, reducing inventory and overhead, and enabling growth through more reliable deliveries followed by more competitive pricing.
The biggest perceived implementation risk is the loss of new orders when promising achievable delivery dates. Executives fear they will lose share to competitors who (perhaps unwittingly) promise hopelessly unachievable dates. But anyone can see this is a shortsighted way to run things. The competitors’ OTD performance will drop while the honest supplier’s performance will improve. This will quickly result in a rebalance, and the honest supplier will gain back whatever they lost – and something more valuable – a differentiated position in the marketplace.
Implementing the Three Keys is difficult and requires deep understanding and sustained commitment from leadership. It requires great systems that can deliver accurate advice. The risks are great, the rewards greater. It is not for the faint or the one who leads by taking polls. It is the higher road less taken, that will elevate a company’s reputation while positioning it for long term growth, providing a healthier culture for its employees and a surer investment for its stakeholders.