Month-end Madness March 1, 2007
Posted by Lawrence Loucka in : Consulting, Lean, Lean Sigma, Supply Chain , add a comment
Do you have a “hockey stick”, where most of your bookings occur right at the end of the month, quarter, year? If you have a “hockey stick”, it is very hard to have consistently predictable revenues. Growth, profits and market value suffer when revenues are not predictable. Many companies experience 50% or more of their quarterly sales coming in during the last week or two of the quarter. The V.P. of Sales loses a lot of sleep, the CEO gets irritable and the rest of the executive staff loses confidence.
When orders look weak midway through the quarter, management applies pressure to “pull next quarter’s orders in”. The reps’ only choice may be to offer a discount to entice customers to cooperate. Whether or not they are successful in the current quarter, there is a reinforcing effect and customers learn to hold orders to the end of the quarter to get a lower price in the future. The net effects are a "hockey stick" and lower prices which can lead to significant profitability and cash flow concerns.
Vicious Cycle: With constant pressure to manage operating expenses the supply chain can end up reinforcing the month or quarter end splurge as supplies are expedited to meet the spike in demand, or replenish the stocks that shipped out all at once. Expediting or pulling in digs a hole creating future shortages; a self perpetuating cycle of feast and famine.
What to do? Change the systems - discounts, incentives, compensation, culture. A tall order but it can be done.
Safety Stock Calculations January 29, 2007
Posted by Lawrence Loucka in : Definitions, Lean Sigma, Logistics, Sigma, Supply Chain , 2commentsWhen I first learned inventory planning the math was rather simple. On top of the cycle stock (expected demand during lead time) I would add a percentage or a number of days. Here’s a web app that uses this percentage approach. If the lead time was 2 weeks I might carry 3 or 4. I soon learned that demand for some inventory items is more volatile than others, and some suppliers less reliable than others. I’d either have too much or not enough, and I’d never get in trouble for having a little too much. So I started using (average demand * lead time) + (one sided Z factor * demand standard deviation) for the target inventory level; a little better approach.
Here’s another formula from Inventory Management Review; Safety Stock: {Z * SQRT (Avg. Lead Time * Standard Deviation of Demand ^2 + Avg. Demand ^2 * Standard Deviation of Lead Time ^2}.
Over at QuickMBA ; To calculate the safety stock, first calculate the standard loss function, designated as L(z). This function is dependent on the values of the desired fill rate f, the demand μ and its standard deviation σ , the time between orders p, and the replenishment lead time l : L(z) = ( 1 - f ) µ p / σ ( p + l )1/2. Once L(z) is known, z can be found in a look-up table and the safety stock can be calculated by: Safety Stock = z σ ( p + l )1/2
Here’s a new one recently published by Kent Linford in the APICS Magazine Nov/Dec 2006. SS = √ [( σFE)2 x (LTI/FI)beta + ( σLT)2 x D2] x Z x (FI/OCI)beta
Where:
SS = safety stock
FE = forecast error
LT = lead time interval
FI = forecast interval
pick a beta between 0.5 and 0.7
D = average demand during lead time
Z = normal distribution service factor based on desired service level
OCI = order cycle interval
Dave Piasecki at InventoryOps.com uses; safety stock = (standard deviation)*(service factor)*(lead-time factor)*(order cycle factor)*(forecast-to-mean-demand factor)
Jon Schreibfeder has anoher approach.
Got any other versions?
Gantt Charts December 24, 2006
Posted by Lawrence Loucka in : Definitions, Lean, Lean Sigma , add a comment
Henry Laurence Gantt (1861-1919) was a mechanical engineer, and management consultant. He developed a visual scheduling tool in the second decade of the 20th century that we know today as a Gantt Chart. Gantt Charts are used to show scheduled and actual project progress. Accepted as a commonplace project management tool today, it was an innovation of world-wide importance in the 1920s, based on his work studying ship building during WWI. Gantt charts were used on large construction projects like the Hoover Dam started in 1931 and the US interstate highway network started in 1956.
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Frederick Taylor December 17, 2006
Posted by Lawrence Loucka in : Definitions, Lean, Lean Sigma , add a comment
Taylor, Frederick Winslow (1856-1915), American industrial engineer, who originated scientific management in business. He was born in
Simplified Systematic Layout Planning October 22, 2006
Posted by Lawrence Loucka in : Consulting, Lean, Lean Sigma , add a comment
The process of arranging a work space for a factory or office is often done informally. The people working in the area all have opinions about who should be where or what equipment goes here or there. Here’s a better way, Richard Muther’s Simplified Systematic Layout Planning:
- Chart the Relationships
- Establish Space Requirements
- Diagram Activity Relationships
- Draw Space Relationships
- Evaluate Alternative Arrangements
- Detail the Selected Layout Plan
Let’s dig in … To chart the relationships make a list of each activity involved on a relationship chart and code and score the interaction between pairs as so :
- A - Absolutely necessary = 16
- E - Especially important = 8
- I - Important = 4
- O - Okay = 1
- U - Unimportant = 0
- X - Undesirable = -80
Current layout 
Propsed layout 
Here’s the math…
