make to-availability and beyond

TOCICO TOCICO TOCICO TOCICO 2007 2007 2007 2007 ConferenceConferenceConferenceConference

TOCICO CONFERENCE TOCICO CONFERENCE TOCICO CONFERENCE TOCICO CONFERENCE 2007200720072007

1© 2007 TOCICO. All rights reserved.

Make to Availability and Beyond Make to Availability and Beyond Make to Availability and Beyond Make to Availability and Beyond Make to Availability and Beyond Make to Availability and Beyond Make to Availability and Beyond Make to Availability and Beyond Using market buffers and/or capacity buffers

to enable both growth and stability.

Presented By: Eli Schragenheim, The Goldratt SchoolsPresented By: Eli Schragenheim, The Goldratt Schools

Date:Date: November November 55thth, , 20072007


DefinitionDefinitionDefinitionDefinitionDefinitionDefinitionDefinitionDefinition

• Make to Availability is a commitment to the

market, or to specified clients, to maintain

enough availability at a specific warehouse to

be able to deliver immediately upon request at all

times.

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© 2007 TOCICO. All rights reserved.

times.

• This definition is different from make-to-stock where no firm commitment is given.

• A make-to-order environment that requires shorter delivery time than the production lead-time, calls for make-to-stock that is similar, but not the same, as make-to-availability.


MakeMakeMakeMakeMakeMakeMakeMake--------totototototototo--------availability versus availability versus availability versus availability versus availability versus availability versus availability versus availability versus makemakemakemakemakemakemakemake--------totototototototo--------stockstockstockstockstockstockstockstock

• Make-to-stock includes all cases where items are produced without a specific customer order.

− Manufacturing companies that basically produce to order usually mix their production with make to stock.

• A typical managerial question in such environments is: what is available to promise?

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what is available to promise?

− That question testifies to the current state of confusion.

− A company claims it makes to order, but it produces, from time to time, also to stock, so it can sometimes deliver faster.

− But, the company’s response time is not always fast, actually it is usually quite slow, so it cannot commit to fast delivery at all times.


MakeMakeMakeMakeMakeMakeMakeMake--------totototototototo--------availability availability availability availability availability availability availability availability the need and the difficultythe need and the difficultythe need and the difficultythe need and the difficultythe need and the difficultythe need and the difficultythe need and the difficultythe need and the difficulty

• The point in offering a commitment for availability is to allow the potential client to rely on getting very fast response whenever needed!

− It is applicable when the client is able to improve

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− It is applicable when the client is able to improve his business due to the availability provided.

• Difficulty: How strong can our commitment be?

− There is no way to provide true 100% availability.


The focus of this presentationThe focus of this presentationThe focus of this presentationThe focus of this presentationThe focus of this presentationThe focus of this presentationThe focus of this presentationThe focus of this presentation

• Provide the operational issues related to make-to-availability (MTA).

− Marketing and sales aspects are not included.

• Also mentioning issues that in their way highlight

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the MTA aspects

1. The concept of the market buffer.

2. The use of capacity buffers as means to quickly expand the internal capacity whenever there is a need.

3. When the market tolerance is larger than zero.


What is unique in MTA What is unique in MTA What is unique in MTA What is unique in MTA What is unique in MTA What is unique in MTA What is unique in MTA What is unique in MTA

• The real need of the market, for a certain quantity at a point in time, is not known at the planning stage.

− An assumption: we have much better idea of the potential demand in the short term.

− The most effective way to forecast the short-term

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− The most effective way to forecast the short-term demand is to assume it’d be similar to the present demand.

− Thus, very fast reaction to the present demand is a key in MTA, on top of protecting the immediate sales by stock buffer.


The three circles of protectionThe three circles of protectionThe three circles of protectionThe three circles of protectionThe three circles of protectionThe three circles of protectionThe three circles of protectionThe three circles of protection

1. First of all we protect the availability by holding enough stock, both at the warehouse and in production, to cover for maximum demand within the replenishment time.

− And short replenishment time is an enabler to provide

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− And short replenishment time is an enabler to provide adequate protection at that level.

2. Then, in the execution phase, we monitor the real priorities of the production orders as being expressed by the state of the stock buffer.

3. And the replenishment time is protected by maintaining minimum protective/excess capacity.


Ensuring the adequate protection Ensuring the adequate protection Ensuring the adequate protection Ensuring the adequate protection Ensuring the adequate protection Ensuring the adequate protection Ensuring the adequate protection Ensuring the adequate protection is really onis really onis really onis really onis really onis really onis really onis really on

• Do we have the right stock buffers?

− Dynamic Buffer Management (DBM) is an algorithm that signals when a change in the buffer is recommended.

− This is based on the behavior of the stock buffers, not on re-calculating the maximum demand within rep. time.

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on re-calculating the maximum demand within rep. time.

• Do the operators have an access to the single priority list and do they really follow the priorities?

− Buffer Management provides the only priorities. Red orders should be expedited at all costs.

• How do we ensure we have the capacity to maintain the fast replenishment time we need?


The vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacity

• Critical realization:

The response time to the market is heavily

impacted by the amount of excess capacity of

the weakest link.

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• In manufacturing, where the processing times are

relatively short, and when all the flawed policies

been chased out, the excess capacity of the CCR is

the key factor of the average replenishment time.


The vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacityThe vague nature of capacity

• However, the term “excess capacity” is not simple to express and measure.

− If a resource is expected to process today 3-day load, does it mean the resource is a “bottleneck”?

− What is the damage of one day of load being

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− What is the damage of one day of load being delayed by two days?

− And if in three days from now, the resource would have nothing to do, would you still refer to it as a “bottleneck”?


Measuring the load versus Measuring the load versus Measuring the load versus Measuring the load versus Measuring the load versus Measuring the load versus Measuring the load versus Measuring the load versus capacitycapacitycapacitycapacitycapacitycapacitycapacitycapacity

• Realization: in order to decide whether the load on

a resource is “too high” we need to consider a

horizon of time where we expect the resource to

respond to a need.

− We need to consider all the demand that is expected to

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− We need to consider all the demand that is expected to

be delivered within that horizon of time.

− Then validate that the resource has enough capacity to

handle it, including a certain extra for Murphy and going

through the rest of the system.

− This realization constitutes the definition of the planned

load:


Planned Load for MakePlanned Load for MakePlanned Load for MakePlanned Load for MakePlanned Load for MakePlanned Load for MakePlanned Load for MakePlanned Load for Make--------totototototototo--------AvailabilityAvailabilityAvailabilityAvailabilityAvailabilityAvailabilityAvailabilityAvailability

• Definition: The Planned Load is the accumulation of

the load on the CCR of all the demand that have to

be delivered within a certain horizon of time.

• The concept of the planned load fits make-to-order very nicely.

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nicely.

− It helps to smooth the load on the CCR and thus on the shop as a whole.

− It gives adequate idea whether the committed due-date is safe.

• In MTA environment when a production order is initiated it has no firm due-date!

− It’s relative priority would be determined by the sales in the near short term.


Using the Planned Load to measure Using the Planned Load to measure Using the Planned Load to measure Using the Planned Load to measure Using the Planned Load to measure Using the Planned Load to measure Using the Planned Load to measure Using the Planned Load to measure capacity for Makecapacity for Makecapacity for Makecapacity for Makecapacity for Makecapacity for Makecapacity for Makecapacity for Make--------totototototototo--------AvailabilityAvailabilityAvailabilityAvailabilityAvailabilityAvailabilityAvailabilityAvailability

• How we translate the idea of the planned load to MTA, and get a good measure whether the available capacity is adequate?

• When we maintain stock for MTA we should have an idea of the average replenishment time we try to

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idea of the average replenishment time we try to maintain.

• Let the average replenishment time be the horizon.

• All the replenishment requirements be considered in the planned load for MTA.

− This means not just the orders that have been released, but also those that their release was delayed because of too much load already in the shop.


Preserving the excess capacityPreserving the excess capacityPreserving the excess capacityPreserving the excess capacityPreserving the excess capacityPreserving the excess capacityPreserving the excess capacityPreserving the excess capacity

• The planned load for MTA should not be over 80% of the time horizon.

− The horizon being equal to the average replenishment time.

• The 80% line ensures that:

− There is enough excess capacity to be able to expedite when

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− There is enough excess capacity to be able to expedite when needed.

− When the total demand grows the excess capacity gives management some time to react.

− Either to restraint the sales or to increase capacity.

• Warning: when demand is up then excess capacity goes down and the replenishment time goes up exponentially.


An exampleAn exampleAn exampleAn exampleAn exampleAn exampleAn exampleAn example

• A producer of towels has an average replenishment time of 5 weeks to reach its plant warehouse.

− The planned load to process all replenishments should not be more than 4 weeks.

− It is possible to expedite a minimum batch in mere 4 days.

− But, that is only in case of emergency.

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− But, that is only in case of emergency.

• What would happen if the total demand grow by 10%?

− The planned load would fluctuate around 4.5 weeks.

− The number of orders to be expedited would grow substantially.

− Some buffers might be signaled for increase. This would add even more load on the system.

− If we did not have substantially more excess capacity than 10%, such a sudden increase could cause losing the availability and credibility.


What to do with What to do with What to do with What to do with What to do with What to do with What to do with What to do with 2020202020202020% excess % excess % excess % excess % excess % excess % excess % excess capacity?capacity?capacity?capacity?capacity?capacity?capacity?capacity?

• One option is: let it be.

− Let the CCR be actually idle for about 20% of the time when we review the long term.

− Another option is letting the CCR “waste” this capacity by processing very small daily batches.

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• Another option: finding something the CCR can do with its spare capacity.

− Necessary condition: Whatever the CCR would do in those 20% of capacity has clearly less priority and will never cause a delay in production for the MTA market.

− Thus, it cannot be a market for which we have any commitment.

− Naturally it won’t be a very lucrative market.


The Market BufferThe Market BufferThe Market BufferThe Market BufferThe Market BufferThe Market BufferThe Market BufferThe Market Buffer

• Definition: Market Buffer is a well defined segment of the market where no commitment is made, but if the items are produced to stock it’d be possible to sell them for positive T.

• The idea is to take advantage of the CCR limited capacity in such a way that would not harm the

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capacity in such a way that would not harm the performance for the commitment market.

• The Market Buffer is not really a buffer, it is a way to exploit the secondary constraint.

− The main constraint is the lucrative market.

− It uses the “excess-capacity-buffer”, the 20% of excess we must keep to keep the MTA intact, in a way that pays back the cost of the buffer.


The characteristics of the market The characteristics of the market The characteristics of the market The characteristics of the market The characteristics of the market The characteristics of the market The characteristics of the market The characteristics of the market bufferbufferbufferbufferbufferbufferbufferbuffer

• The market segment is for standard items that many suppliers offer.

• In spite of the competition, either the market demand is very large, or the reputation of the company ensures that it would be sold for good enough price.

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• The items of the market buffer use the CCR time.

• The maximum amount of items produced for the market buffer would not generate a new CCR.

• The raw materials for the market buffer are routine and do not pose any additional problem.


Operational ramificationsOperational ramificationsOperational ramificationsOperational ramificationsOperational ramificationsOperational ramificationsOperational ramificationsOperational ramifications

• A clear set of rules have to be defined for production execution to determine when a production order for the market buffer be initiated.

− Notifying Sales when such an order is released to

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− Notifying Sales when such an order is released to the floor.

− Note, the decision to generate a market-buffer production order should lie with the execution.

• Monitoring the total load, checking that it is still at or behind 80%, before orders for the market buffer are generated.


Capacity buffersCapacity buffersCapacity buffersCapacity buffersCapacity buffersCapacity buffersCapacity buffersCapacity buffers

• The term “capacity buffer” appears in several fields in TOC. The use here is different:

• Definition: A capacity buffer is maintaining optional capacity, which is not part of the fixed costs and can be used whenever necessary, but

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costs and can be used whenever necessary, but costs extra truly-variable-costs per usage.

− For instance, overtime and extra shifts.

− Outsourcing.

• The capacity buffer is a real buffer protecting the performance of the organization from occasional lack of capacity.


The value of the capacity buffersThe value of the capacity buffersThe value of the capacity buffersThe value of the capacity buffersThe value of the capacity buffersThe value of the capacity buffersThe value of the capacity buffersThe value of the capacity buffers

• The internal CCR can be safely used to 100%, as long as there is adequate amount of the capacity buffer left.

− The real excess capacity is how much of the capacity buffer is not used.

− Thus, when we recommend only 80% maximum

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− Thus, when we recommend only 80% maximum utilization of the CCR – it includes the full capacity buffer.

• Warning: Using the capacity buffer just for the CCR would elevate the CCR, and then the CCR might move to another resource.

• Maintaining capacity buffers makes growth to be smooth and stable.


Managing the buffersManaging the buffersManaging the buffersManaging the buffersManaging the buffersManaging the buffersManaging the buffersManaging the buffers

• The essence of buffer management is to fix the

red-line – the point where there is a threat to the

protected area.

• The market buffer actually uses the excess-

capacity buffer. Thus, the red line is a minimum

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capacity buffer. Thus, the red line is a minimum

quantity of production for the market-buffer in a

period.

− Producing less than that quantity for the market buffer,

signals too low excess capacity for the main market.


Tolerance time > Tolerance time > Tolerance time > Tolerance time > Tolerance time > Tolerance time > Tolerance time > Tolerance time > 0 0 0 0 0 0 0 0

• In cases of make-to-order where the required response time is shorter than the production lead-time, then:

− It is possible to make-to-stock to cover for the time difference between production lead-time and the industry lead-time.

− This is not truly MTA, because availability is neither

A Content BufferA Content Buffer

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− This is not truly MTA, because availability is neither maintained nor committed.

− But, the stock is used to ensure fast enough delivery.

• In such a case the protection on the delivery is made up of a combination of two buffers:

− Time buffer: the tolerance time of the customer.

− Stock, the amount of stock in the system (above the net on-hand orders).


The Operational RamificationsThe Operational RamificationsThe Operational RamificationsThe Operational RamificationsThe Operational RamificationsThe Operational RamificationsThe Operational RamificationsThe Operational Ramifications

• Any incoming order initiates a production order for the same quantity.

• A target level of stock is maintained on top of the customer orders.

• There should be enough finished goods stock, at any given time, for all orders to be shipped within 1/3 of the production lead-time.

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lead-time.

− If this is not the case, then the oldest order should be RED and expedited.

− When the production lead time is 3 times longer than the customer lead time – move to full MTA.

• The green situation means all open orders can be shipped from the finished goods stock.

• According to the time spent in the red or green, rules to recommend changing the stock buffer can be developed.


Eli Schragenheim: I believeEli Schragenheim: I believeEli Schragenheim: I believeEli Schragenheim: I believeEli Schragenheim: I believeEli Schragenheim: I believeEli Schragenheim: I believeEli Schragenheim: I believe

I believe TOC will eventually become the I believe TOC will eventually become the norm of how to manage.norm of how to manage.

I believe we just scratched the surface of I believe we just scratched the surface of what could be developed by using the what could be developed by using the TOC concepts, guidelines and tools.TOC concepts, guidelines and tools.

I’m personally interested to develop I’m personally interested to develop

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Eli Schragenheim as an optimistic young person

ready to conquer the world

I’m personally interested to develop I’m personally interested to develop further: further:

1.1. Dealing with common and expected Dealing with common and expected uncertainty.uncertainty.

2.2. Management Accounting: considering Management Accounting: considering the right financial ramifications.the right financial ramifications.

3.3. Learning from Experience: making the Learning from Experience: making the right conclusions.right conclusions.

make to-availability and beyond

Business

short replenishment

shorterdelivery time

holdingenough stock

companys response time

maintainenough availability

stock whereno firm commitment

immediate salesby stock

fast response