Theory of Constraints Handbook - James Cox Iii [220]
The conflict cloud in Fig. 12-1 clearly describes the current situation for many complex manufacturing environments. On one hand, there is a necessity to effectively plan in advance of real customer orders to order long lead time materials, incorporate sales and marketing data and plans, plan capital and staffing levels, and develop contingency plans for potential problems. This has driven the management team to focus on systems and approaches that emphasize predictability. Some companies have developed a very sophisticated sales and operations planning process in order to minimize the potential for problems within the planning horizon. On the other hand, there are three well-known rules of forecasting.
1. Forecasts are always in error.
2. The more detailed the forecast is, the more error will be realized.
3. The further into the future the forecast goes, the more error will be realized.
These three rules of forecasting represent how the focus on predictability exposes companies to the risk associated with variability and volatility. The necessary inventory and resource costs to compensate for forecast error are too expensive in this hypercompetitive time. This has driven managers to focus on reducing planning lead times and implementing pull-based strategies like Lean and DBR to improve overall company agility. It is well known that when a company can react quickly, then there is less exposure to market volatility and variability. In order to resolve this conflict effectively, a solution must be deployed that allows companies to effectively plan and strategize without the inherent risks that come along with conventional approaches.
The organization of this chapter consists of this introduction which briefly describes the realities of manufacturing complex long lead-time products in a constantly changing environment. Next, we surface problems (undesirable effects) and then identify the underlying cause (core problem) of using push systems to manage both production and inventories in this environment. Finally, the direction and exact solution to the core problem is described. To demonstrate how significant this approach has been, some case studies of implementation successes are presented.
Identifying the Real Problem—Rethinking the Scope of Supply Chain Management
In the last 20 years, there has been much attention and emphasis on developing supply chain solutions from both a methodological and a technological perspective. In truth, most of what has been developed has been a revolution for the distribution and logistics between consumers and suppliers. Distribution and logistics are no longer the constraint worldwide. Now it is well known across the supply chain what is sold and when it has moved. A logistics company can provide real-time updates as parts move around the world. Ultimately, however, at the heart of any supply chain is manufacturing and, in most supply chains, it is several different manufacturing sites and processes that must be effectively coordinated and synchronized to bring a finished item into the distribution pipeline. Now, the question is how to increase the coordination and synchronization? An AMR Report concluded that:
Today’s companies have a dilemma. They need to reduce costs in the face of product complexity, shorter product lifecycles, and increased regulatory compliance. While companies apply a broad range of supply chain strategies