After aligning the production departments' objectives with customer needs—thanks to the Shop Floor Management reorganization described in the previous phase—and establishing an internal logistics function to pull the flow according to delivery schedules, a critical need emerged: improving the information flow and governance policies through a revision of the Sales & Operations Planning (S&OP) process.
Problem Analysis
The Value Stream Map highlighted several inconsistencies in the information flow, directly impacting operations:
- Frequent urgencies: Last-minute changes to delivery schedules by customers caused shortages of components in assembly.
- Excessive safety stocks: High inventory levels were maintained to avoid stockouts, resulting in increased inventory costs.
- Misaligned lead times: Suppliers operated with a three-week lead time, while customers could modify their schedules up to one week before delivery, creating potential production gaps.
The analysis revealed that the company, a producer of components for over 30 customer plants in the industrial and off-highway sectors, received weekly forecasts from each plant with varying frozen periods ranging from one to six weeks. This misalignment between internal and external planning caused significant inefficiencies, exacerbated by customer demand variability.
Introduction of a Leveled Production Plan
To address these issues, a leveled production planning policy was introduced, decoupled from immediate demand fluctuations. Variability analysis showed that only four out of 30 customer plants significantly altered their delivery plans, with an average order increase of 5% within the four weeks before delivery.
Based on these findings, the following steps were implemented:
- Freeze the production plan for four weeks, while maintaining reserved capacity to handle urgencies or changes within that period.
- Level internal production capacity and resources, improving machine and production line utilization efficiency.
- Reduce the bullwhip effect across the supply chain by synchronizing production plans with suppliers through a leveled forecast, limiting variability transmitted to suppliers.
This strategy enabled a structured approach to resource management, such as temporarily increasing or decreasing semi-finished or finished goods inventory during demand fluctuations or reallocating personnel between departments when capacity variations occurred.
Optimization of Parameters and Safety Stock
With reduced variability introduced by the leveled production plan, article parameters for calculating safety stock were revised. The updated classification allowed:
- Reduction of safety stocks for high-turnover, low-cost components where demand variability was now controlled.
- Recalibration of uncertainty factors related to average demand and lead times, improving the balance between inventory and production capacity.
- Evaluation of suppliers based on adherence to delivery timelines for the most strategic supplies.
This revision contributed to reducing the overall inventory value, improving cash flow, and increasing process efficiency.
Master Production Schedule Committee
A weekly Master Production Schedule (MPS) Committee was established, involving production planning, operations, and logistics teams to analyze:
- Updates to delivery plans.
- Resource adjustments to increase or reduce production capacity.
- Strategic management of semi-finished and finished goods stock.
- Decisions to internalize or outsource components in response to bottlenecks in the production flow.
This proactive committee identified anomalies in schedules, made shared strategic decisions (even with customers by anticipating delivery shifts), and reduced managerial complexity.
The implementation of the leveled production plan and the governance policy revisions resulted in:
- Inventory reduction: Lower overall stock levels, reducing lead times.
- Improved on-time delivery (OTD): Surpassing 90%, reducing urgencies and delays.
- Increased production efficiency: Average OEE improved from 66% to 72%, enhancing resource utilization and productivity.
These actions, combined with the Shop Floor Management countermeasures described in Part 2, laid the foundation for the next step: optimizing the factory's Footprint and layout, necessary for an even more efficient flow aligned with the Future Value Stream Map vision.
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