Robust Manufacturing Performance in an Age of Disruption

Introduction

The last few years have seen more disruptions than almost any time in manufacturing history. The industry has seen shutdowns due to the pandemic, supply chain issues due to the pandemic and war in Europe, personnel issues, uncertain economic times, and more.

This has caused rapid changes in demand, both up and down, or shifting from one product to another. Components can be nearly impossible to source, forcing entire industries to shift inventory and procurement strategies. Production planning had to become more dynamic to account for what materials are available on a given day. We are also seeing record numbers of people leaving their jobs – whether that is to take a different job, retire, or just leave the workforce for a while. Many of the companies we work with have had record levels of absenteeism, as well. This forces companies to be very flexible in which jobs can be worked by which people.

Altogether, it is an incredibly dynamic environment for business these days. Fortunately, there are steps companies can take to address each of these issues, or at least mitigate their impact.

Mitigate Demand Disruptions

Even now, after the worst of the pandemic disruptions have subsided, demand for many companies remains much more volatile than in the past. This causes make-to-stock companies to have excess amounts of certain finished goods, while stocking out of other items. Meanwhile, make-to-order companies are sometimes struggling to match production to surges in demand for certain products or sitting with available capacity when demand wanes. In this section, we will discuss methods to mitigate the disruptions for demand volatility.

Forecasting

Traditional forecasting methods that look at the past three years of history to calculate seasonality, causal impacts and demand trends have been struggling due to the inability to adequately adjust historical numbers to use them for this approach to statistical forecasting. Another challenge is that sales do not accurately depict true demand levels when production and supply chain constraints mean that true demand exceeds what was actually shipped or sold.

There are additions and alternatives to base statistical forecasting that can help improve the results, though.

Adjustments to Statistical Forecasting

Many of the adjustments to be made to how statistical forecasts are generated depends on the nature of volatility in the demand history. If the market has stabilized over the past 12 months, that single year can be used to estimate seasonality impacts to eliminate the most severe disruptions that occurred during the shutdown periods. Another helpful change can be to analyze the history over the past few years to see if there are any areas of stability at all. Demand may be massively volatile at the SKU/channel/geography level, but may be relatively stable at higher levels of aggregation. If that’s the case, then it may be possible to forecast using the aggregated demand trends applied to more recent demand at the lower levels.

Additionally, additional data streams can be utilized. These could be used to estimate causal impacts to adjust historical demand patterns. They may also be helpful for estimating the true demand instead of the amount shipped or sold. This can be achieved by incorporating data for overall industry sales, backlog estimates, customer / retail requests, or other data.

Demand Shaping

If improved levels of forecast accuracy are not achievable in your market, it may still be possible to aggressively attempt to shape the demand towards the current capabilities of your organization. This can be done through promotions, discounts, and other marketing and merchandising efforts.

Forecasting Velocity

Another way to increase forecast accuracy is to perform the function more frequently. When forecasting monthly, your team needs to predict demand many weeks out in advance and live with that forecast for that whole horizon. If you can switch to a weekly process, the only “frozen” amount is the initial week of that plan. This may require significant re-engineering of how the forecasting process is performed, but it is absolutely possible in any size organization.

Inventory Planning

Inventory planning one of the key balancing points between efficiency and agility. At Visual Decisions, we have been working with customers on their manufacturing and supply chain practices since 1995. Over that entire time, we have counseled to keep the minimum amount of inventory that will cover variability in demand and supply while achieving your desired service levels. The disruptions in recent years have increased the variability in both demand and supply. In order to achieve traditional service levels, companies have to adjust the amount of inventory they carry. This means that costs associated with maintaining that inventory will also increase. The best way to avoid this increase is to increase the forecast accuracy as outlined above, or to increase the agility and reliability of the manufacturing process, which we will discuss in a moment.

Another method of managing the balance between efficiency and agility is to increase the speed of the entire S&OP process. Just as increasing the velocity of the forecasting process will increase the accuracy of that process, increasing the velocity of the S&OP process will help reduce the overall inventory requirements by more rapidly matching supply with demand. One requirement of this would be that the manufacturing and supply chain teams need to be agile enough to respond to the changes in production requirements on a much more frequent basis. That’s our next topic.

Manufacturing & Supply Chain

A strong focus on agility in the manufacturing and supply chain departments will also help to mitigate the impacts of demand volatility. The amount of finished goods inventory required to match demand drops the faster that these departments can scale up production to match demand surges or switch to other products when demand requires.

Another key factor of manufacturing agility is the ability to reduce lead times and minimize the time between runs of the same product. For instance, if your plant cycles through products A and then B, C and D before going back to A, that is one complete product cycle. If that cycle takes a month to complete, then you have to produce at least a month’s worth of demand for each product whenever it is produced. If that cycle can be reduced to one week, then only a single week of demand needs to be produced at one time. This means that production tracks to demand much more quickly and can adjust up and down more rapidly as required.

To be able to increase agility in this manner requires focus within manufacturing. Some of the required changes are to decrease setup times, decrease production lot sizes, and increase the velocity of the production planning process, as well.

This will also require changes to supply chain strategies. Some of the biggest roadblocks to increased agility for many companies isn’t in manufacturing, it is the supply chain. It is difficult to adapt to rapid changes in demand if the lead time on components for your products have six to twelve month lead times. This means that to increase the ability of manufacturing to keep pace with demand may require changes in procurement strategies and raw material inventory strategies.

Anything that can be done to shorten supply chains will generally be beneficial. Each node of transport can have backups in the global network these days as entire countries go in and out of lockdown or are impacted by ongoing wars and conflicts. Local sourcing helps to not only minimize those delays, but also reduces the general procurement lead times. This can also help to increase the number of deliveries from the supplier, and this can have the same positive effects of reducing manufacturing lead times to finished goods. While sourcing locally can have a higher direct cost, there are efficiency and agility benefits that can accrue to offset that difference.

Postponement strategies can also be helpful to combat demand volatility. This is particularly true for companies that have a base product with many possible accessories, configurations, or different packaging. Keeping the item in inventory prior to these final steps can help smooth the demand across the different SKU’s to reduce the total amount of inventory required.

Mitigate Supply Disruptions

The chip shortage that struck across many industries is the most glaring example, but supply shortages have been rampant across nearly every market segment the past couple years. These issues have been driven by factors such as manufacturing being shut down due to pandemic surges, international conflicts such as the war in Ukraine, transportation and logistics backlogs, or other issues. Even in normal times, supply disruptions are a thorn in the side of every manufacturer. Here are some ways to mitigate the impact of those disruptions.

Communication and Visibility

One way to improve supply issues is to improve visibility in both directions. Suppliers benefit from as much visibility as possible of demand to them, as described above. Giving them as much visibility to your own demand, constraints, and production plan will help your suppliers be more reliable. Likewise, the supplier giving you increased visibility of their shipment and production plans increases your ability to adapt to any coming disruptions.

This may require a level of trust that does not exist today. It is likely not desirable to establish this level of trust and two-way visibility with all suppliers. It would not be required for commodity suppliers when there are many available in that market. However, there are clear benefits to establishing this level of communication with strategic suppliers.

Production & Supply Chain Planning

The impact of higher velocity planning in responding to demand volatility was discussed above. It is also critical in mitigating supply issues. Many companies are still doing weekly production planning and even monthly planning at the supply chain level. For these companies, a shift to daily planning can be a big improvement in their ability to adjust when certain components are going to be delayed or even unavailable. This might mean shifting to different products within manufacturing, finding alternative sources for the raw materials, or facilitating the expediting of the original shipment through the supply chain.

Another key is to improve the capabilities of the planning process itself. The most popular planning software in the world is undoubtedly still Microsoft Excel. There are a number of fantastic solutions available from a variety of vendors that provide planning and scheduling capabilities within the plant, across plants, and throughout the supply chain. These solutions enable closed-loop planning that can incorporate all the relevant material, resource, and process constraints. Many of them also enable rapid re-planning within the workday to improve agility even further than daily planning cycles. Which brings us to the next section.

Improved Agility in Execution

It is one thing to be able to replan the factory throughout the day. Being able to deliver those plans in real-time to the shop floor and adjust execution on the fly is another. This requires an infrastructure that allows the floor to always see the current plan. It requires discipline on their part to adhere to the plan as it is displayed. It requires that setups be minimized so that changeover times are not a hurdle to frequent adjustments. It also requires that real-time information about current status from the floor is continually available to the planning system so that current status can be incorporated as a starting point for replanning. This status must include machine uptime/downtime status, human resource availability, and material availability as a minimum.

From a supply chain perspective, the benefits of multiple sources and shorter supply chains were discussed above. They are also critical to prevent supply disruptions from happening in the first place. Simply put, there are many more potential points of failure when supply lines run across continents. Military leaders learned the benefits of protecting their supply lines centuries ago, and those lessons still apply in business today. It may be less expensive to buy in bulk from overseas. But it creates extra risk and the potential for extra costs, lost revenues, and damaged customer relationships during times of high volatility.

This concept can be extended to carrying strategic raw material reserves. Safety stock calculations already account for supply lead times and a degree of variability in that supply. However, it may be necessary to add additional risk factor for critical components that cannot be sourced locally or from multiple vendors. The desire to cover for disruptions must be balanced against the additional carrying cost of those materials, potential obsolescence, and other losses.

Mitigate Personnel Disruptions

The last area of disruptions for today’s discussion is around personnel. Over the past few years there have been issues around absenteeism, retirement, and churn. Let’s look at each of those in turn.

Absenteeism

There are many factors driving an increased level of absenteeism compared to pre-COVID years. The ongoing impacts of the pandemic and the heightened recognition of staying home when sick are continuing to have a major impact. The mindset of large segments of the labor force has changed over the past several years, as well.

Not much can be done to directly counter the underlying problems of absentee workers. But there are things that can be done to mitigate the impacts. Cross-training workers to cover multiple jobs is more critical than ever. Having well-defined standard work for each job and a culture of following those standard work practices facilitates cross-training success. Additionally, smart factory solutions such as video analytics can help enhance the training process and provide performance feedback on the line for new (or newly trained) operators. Having hands-free work instructions available on a display or even overlaid on the process through augmented reality can help workers ramp up on new tasks much more quickly. Using error-proofing solutions such as pick-to-light can also reduce quality issues with new (to the operation) workers.

Retirement

There has been a recognition of the aging work force in manufacturing for many years now. Many companies are operating with a workforce on the shop floor that averages 20+ years of experience. I was recently at a plant where one of the workers was celebrating their fiftieth year on the job! Sometimes these operators know far more about how the process runs and how to keep their machines going than engineering. Losing these workers to retirement without capturing their knowledge can have harsh consequences.

This is another area where smart factory solutions can have an impact. IoT solutions can track the machine settings being used and the performance of the equipment at those settings to determine what should be used for standard work. “Expert capture” solutions facilitated through augmented reality solutions can capture every step of how work is supposed to be performed by these experienced workers. Video analytics solutions can capture all the variations of what they do on a 24/7 basis.

Churn

There are two main strategies to address the impacts of employee turnover (or churn): retain your current workers more effectively; or recruit new workers and train them more effectively. Training is discussed above, so let’s focus on employee retention. Paying employees more will always help with retention, but that isn’t always possible or desirable. The other major lever available is to increase the satisfaction of the workforce.

One of my key partners, Sandalwood Engineering & Ergonomics , has a focus on “Human Centered Design”. By putting the people at the center of manufacturing process design, it is possible to help workers more comfortable, safe, and valued. Improved ergonomics are a key part of this, but it also should flow through the entire workstation and work process design.

Lean manufacturing practices have long focused on appreciating the worker for their full potential contribution. Taylorism treated workers as meat-based automatons, but lean companies recognized that everyone in the organization, including the operators, are knowledge workers. This not only helps the company achieve higher performance, but also provides workers with increased satisfaction and feelings of being valued.

Some of the new technologies in use can also make manufacturing more fun, especially for younger generations entering the manufacturing workforce. Augmented reality interfaces, robots, lasers – these are the things that help make manufacturing seem “cool” again!

Summary

In difficult times, there are great opportunities available to the companies that are best able to handle the challenges. Success requires tremendous speed, agility, and focus. This has just been a quick review of the hurdles businesses have faced the past several years and some strategies to address them. There are many technologies that can help, but long-term success will require changes to the processes of the business.

The next article in this series will drive deeper into how to increase the speed and agility of the organization using Smart Factory / Industry 4.0 technologies.?