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SUPPLY CHAIN NEWS
 HOW YOUR BRAIN KEEPS BELIEVING WHAT ISN'T NECESSARILY TRUE...
Much of what you believe to be true probably isn’t. That’s thanks to a mental short cut your brain takes without you realising it.
It’s called processing fluency and its effect on how we see the world is very robust – possibly alarmingly so.
The more “fluency” there is then the more we tend to like it; the less risky we judge it; and the more popular we believe it is.
The “Deep Truth”
That's the situation with a commonly held "Deep Truth" in business. That's the assumption that Return on Investment (ROI) directly corresponds to the minimisation of unit costs.
Advocates of maximised local efficiencies and cost cutting see this as a highly accu- rate statement, but it is proven to be incor- rect.
An easy test for the success of a cost reduction, local efficiency focus is to look
at your first quoted on time delivery rate. If that is good are your quoted lead times
the very best in the industry? Are you late or delivering ahead of the first promised due date?
The First Law of Manufacturing
If not good, it’s because the minimisation of unit cost approach is in direct conflict with the first Law of Manufacturing, Plossl's Law.
This was originally stated by George Plossl in the second edition of Orlicky’s Material Requirement’s planning and further refined by Ptak & Smith of the Demand Driven Institute and authors of the third edition
to be:
“All benefits will be directly related to the speed of flow of relevant information and materials.”
Adopting A Flow Based Strategy
When everything is flowing well, service and delivery performance is good and you are meeting customer expectations. And if serv- ice is consistently high, market share tends to grow.
ROI
High Service Lower Inventory
Fewer Expenses
Flow is the rate at which a sys- tem converts material to product required by a custmer
Cash Velocity is the rate of net cash generation; sales dollars minus truly variable costs (akaa contribution margin) minus peri- od operating expense.
Net profit/investment the equation for ROI
  Cash Buffer Flow Status
Sales Orders
Position, Protect & Pull
FLOW
Image based on information from the Demand Driven Institute
Quality improves, too, as fewer mistakes are made, and inventories and WIP are reduced as material is converted to finished product faster.
Cash flow is easier and, importantly, expens- es are automatically controlled and with many (eg expedited freight, rework costs and overtime) significantly reduced.
Of course, you just can’t move things faster through a system and expect to be success- ful. So, what is missing?
There’s a need to appreciate what is rel- evant information and materials. Companies today are drowning in masses of data with little of it relevant. There is far too much of the wrong material and not enough of the right and this badly affects the ROI. The flow of information and materials needs to synchronise the assets of the business with what the market really wants.
There are now growing case studies to sup- port the effectiveness of this alternative understanding and the benefits of the flow based, demand driven business model.
Isn’t it time you challenged the “Deep Truth” and looked at an alternative approach?
Without the right cutting tools at the right time the flow through your machine shop will be badly impacted. By working directly with
its clients and by using our tried and tested Total Solution EngineeringTM processes we offer that alternative approach.
If you are involved in engineering manufac- turing, and responsible for company per- formance improvements and would like to see just how Quickgrind is embracing flow- based system developments to support the sector, please contact us (email: administra- tion@quickgrind.com) to request A VIP Invitation to visit our manufacturing facility and Technical Centre.
Footnote:
Quickgrind is a family owned UK based cus- tom cutting tool manufacturer supporting many high-profile clients in 37 countries. It has been established over 50 years and nearly 80% of its production is exported.
The Demand Driven Operating Model Formula
ΔFlow > ΔCash Velocity > Δ(Net Profit )> ΔROI Investment
Plossl's First Law of Manufacturing and the Demand Driven Model
   This article was submitted by Robin A Darch FCA, a Chartered Accountant of over 40 years who is responsible for finance and IT systems development at GTMA supplier Quickgrind.
He is also a student of the Demand Driven MRP methodology developed by the Demand Driven Institute and its associates to which grateful thanks and acknowledgement is given for many of the references in this article.
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