Strategic LEAN Supply Chain Planning Configuration PDF

5 Strategic LEAN Supply Chain Planning Configuration The strategic LEAN Supply Chain Planning process defines how planning and coordination are managed along the value chain. Within the range of possible approaches, not all ensure timely and efficient supply of goods. In process industries, supply c...

5 Strategic LEAN Supply Chain Planning Configuration The strategic LEAN Supply Chain Planning process defines how planning and coordination are managed along the value chain. Within the range of possible approaches, not all ensure timely and efficient supply of goods. In process industries, supply chain practitioners are increasingly dissatisfied with how their planning approaches perform. What about your company? Is it satisfied with its current approach to planning? Experience shows that implementing the LEAN SCM principles introduced in Chapter 2 enables a company to maximize the potential of planning, especially in the process industry environment. These principles are anchored in LEAN SCM Planning concepts, namely supply chain modes. To conduct detailed analysis and appropriate mode selection according to a company’s specific needs, supply chain modes should be divided into two categories: replenishment modes and production modes. The replenishment mode determines in which quantity and at what time products are ordered from other supply chain stages. The production mode defines in which sequence, time, and quantity the products are finally scheduled at each stage (see Figure 5.1). The key challenge within the strategic LEAN Supply Chain Planning configuration is to select the best-suited replenishment and production modes for a company’s supply chains. This chapter answers three principal questions: What are LEAN alternatives to traditional planning concepts? What are the benefits of LEAN Planning concepts for the process industry? How does a company select appropriate LEAN modes for its supply chains? 139 140 LEAN Supply Chain Planning Strategic LEAN Supply Chain Planning process Definition of production modes Definition of replenishment modes Defines how replenishment signals are processed and converted into a production schedule Defines how information about required quantities and the corresponding timing is derived to meet customer demands Asset side Production asset Demand side Replenishment signal Delivery Stock Customer Figure 5.1 Production and replenishment modes are defined within the strategic LEAN Supply Chain Planning process. To provide corresponding answers, the chapter is structured as follows. In Section 5.1, we introduce LEAN replenishment modes. In addition to forecast-based push replenishment, consumption-based pull replenishment modes are introduced. In Section 5.2, we provide detailed insights into selected LEAN production modes. We describe kanban and the innovative Rhythm Wheel concept in detail. The section focuses on the Rhythm Wheel concept as it addresses the specific needs of process industries. Besides explaining the benefits of this production mode, the section provides insights into precisely how the Rhythm Wheel concept works. Section 5.3 is dedicated to supply chain mode selection. Within this section, we provide a structured approach to identifying the best-suited replenishment and production modes for your company’s supply chain. The decision support provided will help companies tackle the challenge of selecting appropriate supply chain modes. Owing to constantly changing business environments, production and replenishment modes must be reviewed and adjusted regularly to sustainably ensure the competitiveness of the respective supply chain. The strategic renewal process that we introduce in Section 5.4 provides excellent guidance for understanding how such a structured process should look. Strategic LEAN Supply Chain Planning Configuration 141 5.1 What to Produce: Replenishment Modes Choosing suitable replenishment modes is an integral part of the strategic LEAN Supply Chain Planning process. Only through appropriate mode selection can a company assure timely and efficient supply of goods along the value chain. The replenishment mode defines at which time and in which quantity orders are created along the supply chain. We refer to this information as replenishment signals, which are then transmitted accordingly to the production assets. In this section, we introduce two general classes of replenishment modes: push replenishment and pull replenishment, depending on the way in which production is triggered. With push replenishment, production is triggered by a forecast-based plan. With pull replenishment, it is triggered only by real consumption. Since the use of consumption pull is one of the major LEAN SCM principles, this chapter focuses on these replenishment modes. Figure 5.2 provides an overview of all replenishment modes discussed, and represents the underlying structure of the chapter. Strategic LEAN Supply Chain Planning process Definition of production modes Asset side Definition of replenishment modes Demand side Replenishment signal Production asset Delivery Stock Customer Overview on replenishment modes Push replenishment Make-to-Forecast Pull replenishment Make-to-Order (MTO) Figure 5.2 Overview of relevant replenishment modes. Inventory Replenishment Level (IRL) Buffer Management 142 LEAN Supply Chain Planning 5.1.1 Sell What You Make: Forecast-Based Push Replenishment In push replenishment modes, production schedules are derived on the basis of forecasted demand. Here, an attempt is undertaken to predict future demand accurately enough to match produced quantities with anticipated demand. Once such a forecast is made, production orders are “pushed” into the production system, in the hope that demand occurs as expected. How well push replenishment works depends critically on forecasting accuracy. If forecasting error is high, push-managed supply chains typically lack in performance due to poor customer service, excess inventories, and heightened planning nervousness from short-term production plan adjustments. That is why companies across all industries have drawn so much attention to opportunities that improve forecasting accuracy. Improved supply chain coordination (see Figure 5.3) and the application of structured forecasting methods have proved to be very effective in this context. Despite ongoing enhancement of forecasting capabilities, most companies have yet to meet the challenge of accurately predicting future demand for most of the products in their portfolios. Therefore, forecasting inaccuracy remains an obstacle for push-managed supply chains seeking to realize their full performance potential. Under LEAN SCM, aggregated forecasting can be used, since it is more reliable due to statistical pooling effects. While it is, for example, possible to estimate total aggregated demand within a 3-month period, it is not realistic to expect accurate demand forecasts for every single week of this period per SKU. Therefore, to achieve higher accuracy, several periods, such as months, are summed up for an aggregated forecast. Nevertheless, Independent push replenishment Isolated forecasting Isolated forecasting Replenishment signal Replenishment signal Production asset Material flow Coordinated push replenishment Coordinated forecasting Historic sales & market information Production asset Customer Replenishment signal Production asset Replenishment signal Historic sales & market information Production asset Customer Information flow Figure 5.3 Comparison between independent and coordinated push replenishment. Strategic LEAN Supply Chain Planning Configuration 143 for the more volatile products in a company’s portfolio, even an aggregated forecast may not be accurate enough to reliably trigger production. In this case, LEAN SCM proposes to configure the replenishment parameters with the help of the aggregated forecast alone; replenishment and production are then triggered only by real consumption. We therefore discuss alternative LEAN pull replenishment modes in the next section. 5.1.2 Make What You Sell: Consumption-Based Pull Replenishment In this section, we introduce LEAN replenishment modes that provide an alternative to push replenishment by following the LEAN SCM principle of using consumption pull. The replenishment trigger and thus the final production schedule is based on actual consumption, which in turn is indicated either by customer orders or by decreasing stock levels. When implementing consumption pull, a company’s production processes respond to the voice of the customer and produce only quantities that are really sold. High service levels as well as low inventories can be achieved in this way. Furthermore, consumption pull ensures that only reliable information about customer demand is passed along the supply chain (see Figure 5.4). It follows that constant re-scheduling activities can be avoided, which significantly reduces overall supply chain nervousness. Consumption-based replenishment signals Production asset Material flow Production asset Production asset Customer Information flow Figure 5.4 Pull replenishment propagates information about real consumption through the supply chain. 144 LEAN Supply Chain Planning Make-to-Order Customer order as replenishment signal Production asset Customer Material flow Make-to-Stock Replenishment signal Production asset Customer order Stock Customer Information flow Figure 5.5 Comparison of MTO and MTS in the context of pull replenishment. Pull replenishment modes can be further distinguished into two classes, Make-to-Order (MTO) and Make-to-Stock (MTS) (see Figure 5.5). In MTO replenishment, orders from customers function directly as replenishment signals for production. On the other hand, in MTS replenishment, a placed order is delivered from stock. The corresponding removal of goods triggers a replenishment signal indicating the need for replenishment. Note that MTS is not identical to push replenishment. MTS just means that stock is held for a certain product. The stock can be replenished with either mode, push or pull replenishment. In the following sections, we introduce three distinct modes that achieve pull replenishment. In addition to MTO, we describe two MTS replenishment modes—IRL replenishment and Buffer Management. 5.1.2.1 Make-to-Order The MTO replenishment mode is a straightforward form of pull replenishment. In this scenario, customers place orders to be replenished by production assets. The customer order serves directly as a replenishment signal. Once an order is placed, the production asset schedules the order such that the customer’s due date is met. After production is complete, the ordered quantities are delivered to the customer. The major benefit of the MTO replenishment mode is that there is no need to hold inventories because orders are not produced on stock in Strategic LEAN Supply Chain Planning Configuration 145 advance but only when required by the customer. This is especially beneficial if: Inventory holding costs are high Shelf lives are short Demand is sporadic Products are characterized by a high degree of diversification or customization MTO’s potential to achieve notable inventory reductions should make it highly attractive to supply chain practitioners. However, MTO replenishment is not possible in every case. To carry out MTO replenishment successfully, two major prerequisites must be met: adherence to customer lead time expectations and sufficient capacity buffer. The first prerequisite concerns customer expectations concerning the delivery times of ordered products. Customers must be willing to wait until the production of the ordered quantities has finished and the goods have been delivered. Hence, the order lead time may not exceed the customer lead time expectation (see Figure 5.6). If customer lead time expectations are long enough to cover the order lead time of more than one supply chain stage, it is beneficial to move the “MTO boundary” further upstream along the supply chain. By doing so, customer orders trigger production at a supply chain stage that is further upstream. The resulting production output is then processed stepwise at Customer lead time expectation = 3 weeks MTO possible Time Customer lead time expectation = 2 weeks MTO not possible Time Production Order lead time = 3 weeks Time Customer Figure 5.6 Adherence to customer lead time is a prerequisite for MTO replenishment. 146 LEAN Supply Chain Planning MTO loop MTS MTO based on customer lead time expectation MTO boundary Stock-keeping point Production Stock-keeping point Production Production Customer Figure 5.7 The MTO boundary depends on the customer lead time expectation. downstream supply chain stages until the final products are delivered to the customer. In this way, significant inventory savings can be achieved within the so-called “MTO loop,” as depicted in Figure 5.7. In cases in which the order lead time exceeds the maximum lead time that is still accepted by the customer, the MTO boundary cannot be moved further upstream. At this point, stocks are required to decouple supply from demand. The replenishment of these stocks must now be based on MTS replenishment modes. Bear in mind that MTS can be based on either pull or push replenishment. The second prerequisite concerns the availability of sufficient capacity. If, for example, many products are ordered in the same period, not all orders can be produced in that period due to capacity restrictions. Therefore, a capacity buffer (of resources and equipment) is required to manage order peaks. However, high capacity buffers imply low average resource utilization, which should typically be avoided in capital-intensive process industries. If these two prerequisites of sufficient customer lead time expectation and capacity buffer cannot be met, products cannot be made-to-order. Instead, they have to be made-to-stock. In the next section, we introduce two MTS pull replenishment modes: the IRL concept and Buffer Management. 5.1.2.2 Inventory Replenishment Level (IRL) IRL replenishment is another mode that involves consumption pull, one of the major LEAN Supply Chain Planning principles. In IRL replenishment, stocks are used to decouple production from demand and to effectively buffer variability. These stocks are often called “supermarket stocks.” Be Strategic LEAN Supply Chain Planning Configuration 147 aware that even though the quantities produced are MTS, replenishment is pull-driven insofar as the replenishment signal is triggered by actual consumption, not by forecasted demand. The IRL represents the target inventory level while the replenishment interval determines how often replenishment signals are sent to the appropriate production asset. Once these parameters are defined, replenishment signals can be triggered automatically based on the following logic. Every time inventory is reviewed, current inventory (CI) levels are compared against the defined IRL. Whenever the CI falls below the IRL, a replenishment signal is sent to the production asset to indicate the need for replenishment. The quantity to be replenished is derived dynamically by the difference between the IRL and the CI. As demand typically fluctuates over time, replenishment quantities typically vary, too, as Figure 5.8 illustrates. Once production has taken place and delivery occurs, the inventory level increases. To manage replenishment in the IRL replenishment mode, only two basic supply chain parameters need to be defined: the IRL and the replenishment interval. To calculate those, a range of factors must be taken into account, such as demand volume and variability, supply variability, and production and transportation times. These factors will be described in detail in Section 6.2. The benefits of IRL replenishment are the use of consumption pull, efficiently buffering demand variability in supermarket stocks, and managing replenishment within only two basic parameters. However, we now Replenishment signals Inventory level IRL Flexible quantity (IRL – CI) Lead time Production asset Supermarket stock Time Fixed replenishment interval Figure 5.8 IRL replenishment with fixed replenishment intervals and flexible replenishment quantities. 148 LEAN Supply Chain Planning consider another promising pull replenishment mode that is often applied in process industries: Buffer Management. 5.1.2.3 Buffer Management Buffer Management is another efficient way to implement pull replenishment using supermarket stock that decouples production from demand. Much like IRL replenishment, Buffer Management requires appropriate management of only a few parameters: the reorder point (ROP) as well as the minimum and maximum inventory levels of supermarket stock. When using Buffer Management, the objective is to maintain the inventory level between defined minimum and maximum boundaries. Hence, replenishment must be triggered whenever inventory levels are in danger of falling out of this range. Because final replenishment requires a certain lead time, the application of an ROP serves as an efficient measure for ensuring that the inventory stays within the defined range. When the inventory falls below that defined ROP, a replenishment signal is created. In practice, the quantity that is replenished is typically fixed (see Figure 5.9). Under Buffer Management, stock is often divided into three zones: green, yellow, and red. Such visualization simplifies understanding the concept and supports monitoring and alerting. Typically the green zone is the area between the maximum inventory boundary and the reorder point. As long as the inventory level remains within this zone, no replenishment orders Replenishment signals Inventory level Max Fixed quantity ROP Min Lead time Production asset Supermarket stock Time Flexible replenishment interval Figure 5.9 Buffer Management with flexible replenishment intervals and fixed replenishment quantities. Strategic LEAN Supply Chain Planning Configuration 149 Supermarket stock Buffering variability in inventories Replenishment quantity Replenishment interval MTO No No Dynamic Dynamic IRL Yes Yes Dynamic Fixed Buffer Management Yes Yes Fixed Dynamic LEAN pull replenishment modes Figure 5.10 Key characteristics of pull replenishment modes. are placed. The yellow zone is the area between the reorder point and the minimum stock level. As soon as the yellow zone is entered, a replenishment signal is triggered. Inventory should be monitored with greater attention in the yellow zone. The red zone is the area between the minimum stock level and the zero line. Only in exceptional circumstances, such as demand peaks or major supply events, should inventory be allowed to drop into this area. As in IRL replenishment, a range of factors must be taken into account to derive the optimal values for the described replenishment parameters when applying Buffer Management. For detailed information about deriving optimal sizes of replenishment parameters, we again recommend reading Section 6.2. The benefits accruing from using Buffer Management as a replenishment mode are very similar to those associated with IRL replenishment. Implementing pull helps to overcome the drawbacks of push replenishment; demand variability is efficiently buffered in stocks; and rule-based replenishment management with only three parameters makes for a loweffort mode in practice. For a comparative overview, Figure 5.10 provides a summary of all previously introduced pull replenishment modes and their key characteristics. Summary The selection of appropriate replenishment modes for the supply chain is a key challenge within the strategic LEAN Supply Chain Planning process. In this section, we introduced the replenishment modes that are relevant within the LEAN SCM framework, while the following section provides insights concerning relevant production modes. We have shown that replenishment modes differ mainly with regard to how replenishment is triggered. This relates to both timing and 150 LEAN Supply Chain Planning quantity as well as to whether the replenishment signal is triggered based on forecast (push) or real consumption (pull). Because it is so difficult to make accurate forecasts, push replenishment often yields unsatisfactory results, such as supply chain nervousness, low service levels for some products, and excess inventories for others. Considering these drawbacks, implementing consumption-driven replenishment as a major LEAN SCM principle represents a promising alternative. MTO, IRL, and Buffer Management have been introduced as pull replenishment modes that follow this principle. All of the above-mentioned replenishment modes are worth considering as options for practical use. To choose appropriate replenishment modes for your supply chains, company-specific factors need to be considered explicitly. In Section 5.3, we provide a detailed approach that will help your company find the best-suited replenishment modes for its supply chains. 5.2 How to Produce: Production Modes In addition to choosing suitable replenishment modes, appropriate production modes must also be determined, which represents the second major decision in the strategic LEAN Supply Chain Planning process (see Figure 5.11). Selecting a production mode means deciding how replenishment signals are processed and transformed into final production orders with precise production quantities and production times. In other words, the production mode defines how the production schedule is derived based on received replenishment signals. In the course of this section, we introduce several state-of-the-art LEAN production modes. We pay special attention to the Rhythm Wheel concept as it embodies core LEAN SCM principles such as the use of repetitive production patterns and leveling of production and resource utilization. Applying the Rhythm Wheel concept appears highly beneficial, especially in process industries. 5.2.1 Kanban and Its Advancements for Process Industries As lean approaches have proved able to overcome the obstacles involved in traditional production planning and scheduling, they are increasingly catching Strategic LEAN Supply Chain Planning Configuration 151 Strategic LEAN Supply Chain Planning process Definition of replenishment modes Definition of production modes Asset side Demand side Replenishment signal Delivery Production asset Stock Customer Overview on production modes Kanban and advancements Classic Rhythm Wheel Breathing Rhythm Wheel High-Mix Rhythm Wheel Repetitive production patterns Figure 5.11 Overview of relevant production modes. the attention of supply chain practitioners. These alternative approaches not only simplify planning but also lead to more efficient planning results. One well-known lean approach in the area of production planning and scheduling is known as the kanban system. The origin of kanban dates back to the late 1940s, when the automotive manufacturer Toyota developed the system to improve its production efficiency. Since then, the kanban system has spread from Japan across the world and is widely recognized as an integral part of the just-in-time (JIT) philosophy. Under a kanban system, detailed planning and scheduling are not a centralized task. Once the appropriate number of kanbans (specific cards that are used on the shop floor) has been determined, the creation of a production schedule is taken over by self-regulating and independent control systems. A key characteristic of a kanban system is that it implements pull replenishment, under which production reacts to real consumption. More precisely, kanban systems are typically based on supermarket pull. When demand occurs, it is satisfied with goods from stock which are then replenished by production. Figure 5.12 summarizes how production is scheduled under a kanban system. Since production consumes prematerial that needs to be replenished as well, the preceding production step can also be managed with kanbans. 152 LEAN Supply Chain Planning Kanban board 3 Key steps of a basic kanban system Kanban 2 1 4 Production step Inbound stock Order Outbound stock Material flow Delivery Customer Information flow 1 Orders are delivered by goods from stock. 2 Kanban is attached to the kanban board representing the need for replenishment. 3 Production is triggered based on the sequence of kanbans (usually first-in– first-out). 4 Consumption of pre-material from inbound stocks and replenishment of outbound stocks. Figure 5.12 Basic methodology of a kanban system. Figure 5.13 illustrates the material as well as information flows in a kanban system with multiple production steps. It also emphasizes that a kanban system may consist of several production control systems working independently. An enhancement of the kanban approach is constant work-in-process (ConWIP). The basic idea is similar, but in ConWIP the kanban control system embraces not merely one but several production steps. In this way, the individual production and control systems no longer work independently; instead, the various production steps are coupled. The total number of kanbans can be reduced in this case, which means a reduction of work in process. Another form of the traditional kanban is the “advanced kanban.” So far, the kanban systems described here schedule production orders on a first-in–first-out (FIFO) basis, following the sequence of their arrival. As production in the process industries is typically characterized by very time-consuming and sequence-dependent changeovers, this scheduling Control system Control system Production step Stock Production step Stock Material flow Control system Production step Stock Information flow Figure 5.13 Kanban system with multiple production stages. Order Stock Delivery Customer Strategic LEAN Supply Chain Planning Configuration 153 rule leaves room for improvement. Box 5.1 offers a practical example in which a big pharmaceutical manufacturer adjusts the kanban approach to cover its industry-specific needs. The basic idea behind the adjustment is that production orders are batched to reach production quantities that are economically efficient. Box 5.1 Advanced Kanban System of a Leading Pharmaceutical Company In the context of a major lean manufacturing initiative, a leading pharmaceutical manufacturer carried out pull replenishment at a key production site in Europe by implementing a kanban system. The kanban system manages the replenishment of stock for bulk material, that is, medicinal tablets. In the industry-specific pharmaceutical production environment, the kanban system in use differs from the basic approach in two major respects: 1. Consolidation of production batches to campaigns due to high changeover effort 2. Sequencing of production campaigns due to the high sequence dependency of changeovers These modifications are operationalized with the help of a kanban board, which is depicted schematically in Figure 5.14. Whenever a drum of tablets is consumed by the packing unit, the attached kanban (card) is removed from the drum and attached to the wait section of the kanban board. As soon as a certain predefined number of kanbans is reached, they constitute a campaign and are passed on to the work section. In the work section, the planner allocates campaigns to various production resources and determines the production sequence. Accordingly, the kanbans are moved on to the corresponding position in the in-process section, where they trigger production. As each process step—granulation, compressing, coating, and quality control—is completed, the corresponding kanban moves forward on the board. After completion of the production process, the kanban is finally attached to the finished drum of tablets. 154 LEAN Supply Chain Planning Wait section Work section In-process section Granulation Product A Resource 1 Compressing Coating Resource 1 Resource 2 Resource 1 QC1) Product B Product A Product B Resource 2 Resource 3 Resource 4 Resource 2 Product C Campaign Inventory section Product C Kanban Emergency kanban 1) QC = Quality control Figure 5.14 Schematic picture of a kanban board. Also, the inventory section of the kanban board shows the stock levels of each product. This visibility enables the planner to react appropriately whenever a product approaches a stock-out situation. In the case of a potential stock-out, the planner is allowed to attach a red emergency kanban to the board, which indicates high priority for production. By realizing consumption pull and significantly reducing planning complexity, kanban and its enhancements appear to offer a promising alternative to traditional production planning and scheduling. However, one might wonder if there is still room for improvement regarding applicability to process industries. Indeed, there is, as we will show in the next section. 5.2.2 Product Wheels and Rhythm Wheels for Cyclic Production Planning In this section, we introduce an innovative production planning and scheduling approach that considers key characteristics of process industries—the so-called Rhythm Wheel or product wheel approach. This approach both satisfies the wish for a LEAN Planning process and ensures Strategic LEAN Supply Chain Planning Configuration 155 efficient scheduling. Industry experts such as Peter L. King and Raymond C. Floyd have already introduced “cyclic scheduling” and “product wheel” applications in process industries. But the general product wheel approach is rather suitable for large volume products with relatively stable sales. Therefore, specific Rhythm Wheel approaches have been developed for high-mix product portfolios and volatile environments. 5.2.2.1 General Idea of Rhythm Wheel Planning and Scheduling: What You Need to Know... The general idea of the Rhythm Wheel concept is fairly simple, and likewise brilliant: Use a pre-configured optimal production schedule and repeat it over and over again. As shown in Figure 5.15, such a repeating schedule can be visualized by a wheel on which each segment stands for a product being produced at an asset. Segment size represents the time required to complete the planned production runs. In a metaphorical sense, the wheel rotates over the course of time at a certain rhythm, which explains the name “Rhythm Wheel.” Translating a schedule that is created by a Rhythm Wheel into a commonly used Gantt chart, a repetitive production cycle with a corresponding cycle time is created (see Figure 5.15). Other than the optimal production sequence, only a few production parameters have to be determined to pre-configure a Rhythm Wheel. According to a major LEAN SCM demand principle, an aggregated forecast is used for this pre-configuration (see Figure 5.16). Chapter 6 provides an overview of the parameters to be chosen and detailed insights into how to derive their optimal values. Cycle time C A B Cycle time Product A Product B Product C Time Figure 5.15 Illustration of the Rhythm Wheel as a repetitive production mode. 156 LEAN Supply Chain Planning Configuration of Rhythm Wheel specific production parameters Production asset Material flow Aggregated forecast Production asset Customer demand Information flow Figure 5.16 An aggregated forecast is used to configure the Rhythm Wheel. It is important to understand why supply chain champions in the process industries have already implemented the Rhythm Wheel concept and why others are sure to follow in the near future. We therefore discuss the major benefits of the Rhythm Wheel approach in the next section. 5.2.2.2 Key Benefits: Why Your Company Should Put the Rhythm Wheel on Its Agenda... By following several LEAN SCM principles, such as the use of repetitive production patterns and leveling production and utilization, the Rhythm Wheel approach makes it possible to enjoy major benefits, especially for companies in process industries. The key benefits of the Rhythm Wheel concept cover four major areas, as shown in Figure 5.17. 5.2.2.2.1 Optimal Production Sequence A key characteristic of the Rhythm Wheel approach is that production runs are continuously scheduled in the optimal changeover sequence in terms of the costs and time that are required for changeovers between consecutive products. The clue is that the optimal changeover production sequence has to be determined just once, namely in the design phase of the Rhythm Wheel. Once this is done, the production process follows the designed sequence from then on. Optimizing the repeating sequence Strategic LEAN Supply Chain Planning Configuration 157 Low planning & scheduling effort Optimal production sequence Key benefits of the Rhythm Wheel approach Leveled production & low supply chain nervousness Learning effects Figure 5.17 Key benefits of the Rhythm Wheel approach. in which products are produced once and permanently sticking to it significantly improves production efficiency. Particularly in process industries, in which production is characterized by highly sequence-dependent changeover times and costs, valuable capacity can be freed up because less time is spent on changeovers. This freed-up capacity enables greater production flexibility and increased production volumes on an asset, or it simply allows for a reduction in overtime, fewer shifts, or even disinvestment of production assets. 5.2.2.2.2 Leveled Production and Low Supply Chain Nervousness A key characteristic of the Rhythm Wheel concept is that an optimized production schedule is created and then continuously repeated. This allows for stable and leveled capacity utilization which is highly beneficial in process industries. Furthermore, the constant production takt significantly increases the transparency and predictability of production. This effect has positive impacts on both local operations and the entire supply chain. In local operations, this enables efficient coordination of shop floor activities as well as better alignment with purchasing activities and logistics. Stable production additionally reduces supply chain nervousness and facilitates production planning and scheduling at upstream and downstream supply chain stages. Moreover, customers benefit because predictable production schedules lead to reliable delivery dates that can be confirmed. All these benefits emphasize that stable production patterns, which are facilitated by the Rhythm Wheel concept, represent major improvements compared with the traditional scheduling approach in which frequent re-scheduling activities are common. 158 LEAN Supply Chain Planning 5.2.2.2.3 Low Planning and Scheduling Effort Another major benefit of the Rhythm Wheel approach is reduced planning effort. Once the optimal sequence has been determined, only a few tactical production parameters need to be determined to efficiently manage production (see Chapter 6 for more details). With the tactical parameters defined, the repetitive pattern of the Rhythm Wheel concept minimizes the required planning effort for local production planners. This enables local planners to shift their focus from pure scheduling tasks, including firefighting, to more strategically important activities. Having more time available, planners can, for example, foster operational excellence initiatives, which again can have a significant impact on a company’s production efficiency. Furthermore, the simplicity of the Rhythm Wheel concept facilitates the interpretation of planning results. As a consequence, planners as well as employees on the shop floor show a very high degree of acceptance concerning the concept and actively promote its application. 5.2.2.2.4 Learning Effects A key advantage of the Rhythm Wheel concept concerns the repetitiveness of production, which generates learning effects. When process activities are repeated over and over in the same sequence, the people managing those processes need less time to execute them and can achieve higher quality and more reliable results with the accumulated experience. Especially on the shop floor, companies see the impact of this approach very quickly. Improvements such as faster changeovers, reduced scrap rates, and higher average production speeds lead to significantly increased production efficiency. In this way, the implementation of the Rhythm Wheel concept supports and even promotes a continuous improvement process that is assigned high priority within lean manufacturing initiatives. This aspect highlights another decisive difference between the Rhythm Wheel approach and either traditional production planning and scheduling or kanban, in which the potential benefits of repetitive production patterns are never realized. 5.2.3 How to Manage Variability with Different Rhythm Wheel Types In light of the benefits of the Rhythm Wheel approach, we expect this LEAN Planning concept to shape the future of production planning and Strategic LEAN Supply Chain Planning Configuration 159 Rhythm Wheel approach Classic Rhythm Wheel Breathing Rhythm Wheel High-Mix Rhythm Wheel Figure 5.18 Various Rhythm Wheel types ensure the broad applicability of the Rhythm Wheel concept. scheduling in process industries. Hence, companies would do well to place this topic on their strategic agendas. However, since one size generally does not fit all, the Rhythm Wheel approach needs to reflect that companies pursue a range of strategies, face varied business environments, run several production processes, and so on. Therefore, several Rhythm Wheel types are required to fully exploit the potential of this approach, especially for the effective management of variability. Within the general Rhythm Wheel approach, three types can be distinguished, which will be explained in the following sections (see Figure 5.18). 5.2.3.1 The Classic Rhythm Wheel The key characteristic of the Classic Rhythm Wheel design is that, in addition to involving a pre-defined fixed production sequence, constant production quantities are produced in every Rhythm Wheel cycle. The result is a repeating schedule with a pattern characterized by fixed times and fixed quantities. So once the production sequence and quantities have been determined, the Classic Rhythm Wheel design makes it easy to derive reliable start and end times for production runs within a given Rhythm Wheel cycle. Figure 5.19 illustrates a Classic Rhythm Wheel with a production cycle of five days. With this type of Rhythm Wheel, planners can predict that the production of a certain product always starts on the same day of the week. With a Classic Rhythm Wheel, production does not react to demand variations. Instead, production quantities are leveled over time, which we call production leveling, one of the major LEAN SCM principles. Hence, production quantities are shifted from periods of high demand to periods of low demand to maintain high, stable capacity utilization. By leveling 160 LEAN Supply Chain Planning 2nd cycle 1st cycle C A C B A B Cycle time Cycle time Product A Product B Product C... Mo Tu We Th Fr Mo Tu We Th Fr Time Figure 5.19 Production pattern with a Classic Rhythm Wheel. production, production assets can be utilized as fully as possible, since no excess capacity is needed to cover peaks of production quantities. Especially for companies in process industries, which typically have very capital-intensive production assets, high, stable utilization represents a major benefit. This makes the Rhythm Wheel approach especially suitable for the process industry. Because the business environment changes constantly, the designed cycle of the Classic Rhythm Wheel needs to be reviewed regularly. Relevant changes in the environment such as changes in the demand pattern are highly relevant in this context. It is therefore advisable to establish a structured process in order to manage adjustment decisions and the corresponding implementation of changes in the configuration efficiently. We describe how this process should look in Section 6.4, where we cover the tactical renewal process. Using a Rhythm Wheel with fixed quantities is a powerful approach that can be applied broadly in a practical context to achieve all the abovementioned benefits. However, the strength of a highly stable and predictable production schedule based on fixed production quantities comes at a cost: low flexibility for reacting to actual demand variations. If these variations are medium or even high in magnitude, demand peaks require undesirably high safety stock levels. Therefore, with medium-to-high demand variability, the Classic Rhythm Wheel reaches its limits of applicability. But is this the end of the Rhythm Wheel story? Not at all! As we Strategic LEAN Supply Chain Planning Configuration 161 show in the next section, there is an alternative type of Rhythm Wheel that makes it possible to retain the benefits of the Classic Rhythm Wheel on the one hand, while adding flexibility for more effective reactions to demand variability on the other. 5.2.3.2 Breathing Rhythm Wheel The Breathing Rhythm Wheel differs from the Classic Rhythm Wheel insofar as it allows flexibility in production quantities. This in turn enables production quantities to be dynamically adjusted to occurring demand and thus embodies one of the major LEAN SCM demand principles— using consumption pull. Hence, the Breathing Rhythm Wheel is perfectly suited to be combined with pull replenishment modes, in which production is triggered on the basis of real consumption (see Chapter 7 for details). Whenever demand occurs, the Breathing Rhythm Wheel schedules the corresponding production quantities at the appropriate production asset. Due to the dynamic adjustment of production quantities to actual demand, the application of the Breathing Rhythm Wheel concept has two major impacts as compared with the Classic Rhythm Wheel: 1. Deviation between designed and actual Rhythm Wheel cycles 2. Need for cycle time boundaries to level production quantities 5.2.3.2.1 Deviation between Designed and Actual Rhythm Wheel Cycles Under the Breathing Rhythm Wheel, production quantities are allowed to be dynamically adjusted to real demand, so actual production quantities may vary over time and thus deviate from the designed quantities. As a consequence, production times and thus the rhythm cycle may vary as well. As illustrated in Figure 5.20, some cycles may be a bit longer or shorter than others. However, with several products on the Rhythm Wheel, the variations tend to balance each other out, so that the Rhythm Wheel cycle typically remains more or less constant. Here not only the production quantities but also the pre-defined production sequence may deviate from those included in the design. In cases of high demand variability, there might be cycles with no demand for a given product. Strictly following a pull replenishment model would mean that such a product would be skipped in these cases, that is, it would not be produced within such a cycle. However, even though the actual sequence may deviate from the designed sequence, in most cases the sequence 162 LEAN Supply Chain Planning 1st cycle C A 2nd cycle B Cycle time A C B Cycle time Product A Product B Product C... Mo Tu We Th Fr Mo Tu We Th Fr Time Figure 5.20 Production pattern with a Breathing Rhythm Wheel. remains optimal. Imagine, for example, the tablet-pressing process in the pharmaceutical industry, in which the optimal sequence is typically achieved by producing tablets from low to high concentration of an active ingredient; let us assume the levels of concentration are 10, 20, 50, and 100 mg. If the process skips pressing the 20 mg tablet, the sequence for the other tablets remains optimal. Therefore, the deviation of the actual rhythm cycle from the designed cycle does not significantly impact the efficiency of the production schedule that is created by the Breathing Rhythm Wheel approach. 5.2.3.2.2 Need for Cycle Time Boundaries to Level Production Quantities One of the major LEAN SCM principles postulates the importance of leveling production and utilization. To realize this principle appropriately within the Breathing Rhythm Wheel approach, Rhythm Wheel cycles should be prevented from fluctuating widely. In practice, this can be achieved by the use of minimum and maximum cycle boundaries. If, for example, high demand in a period indicates that the Rhythm Wheel cycle is about to run beyond that range, production quantities are cut off while in succeeding cycles the produced quantities slightly exceed actual consumption to refill the stocks. This ensures smooth production and stable resource utilization, since production quantities remain more or less constant over time. The application of the Breathing Rhythm Wheel concept in conjunction with an efficient method for achieving production leveling Strategic LEAN Supply Chain Planning Configuration 163 makes it possible to find the optimal balance between flexibility and the benefits of repetitive production patterns (see Box 5.2). There are several possible approaches to effectively attaining production leveling via minimum and maximum cycle boundaries. We discuss these so-called “factoring” approaches in Section 6.1. So far we have introduced the Classic and the Breathing Rhythm Wheels. We have demonstrated that both concepts are very well-suited for production planning and scheduling in process industries; the Classic Box 5.2 The BREATHING RHYTHM WHEEL in Pharmaceutical Multistage Bulk Production A major European pharmaceutical manufacturer decided to implement Rhythm Wheel-based planning in its multilevel bulk operations. A pilot was set up in one production unit in order to gain first experiences with the concept and to evaluate the benefits. In the specific bulk production unit, the active pharmaceutical ingredient (API) is transformed into tablets in three major steps: first, the API and other ingredients are mixed and granulated. Second, the granulate is pressed into the form of the tablet (compacting). Third, the tablet is coated to obtain the desired dissolving characteristics. In the specific processing unit, the bottleneck operation was the granulation step. The Rhythm Wheel was designed to achieve the best changeover sequence and continuous high utilization on this operation. Once the Rhythm Wheel schedule was created, the other processing steps were adjusted to it. In this case, there was a forward push of orders from granulation to compacting, and from compacting to coating (see Figure 5.21). Rhythm Wheel on granulation Granulation Compacting Coating Batch product A Batch product A Batch product B Batch product C Forward sequencing Batch product A Batch product A Batch product B Batch product C Forward sequencing Batch product A Batch product A Batch product B Batch product C Time Figure 5.21 Application of Breathing Rhythm Wheel in multistage bulk production. 164 LEAN Supply Chain Planning The results of the pilot implementation were so intriguing regarding changeover and capacity improvement that the pharmaceutical manufacturer started to roll out the Rhythm Wheel concept in bulk planning in other production units as well. Since the first processing step (granulation) was not always the bottleneck operation, the approach needed slight adjustment. The Rhythm Wheel still created the optimal production schedule for the bottleneck operation, but now, operations further upstream were scheduled backwards, whereas operations downstream of the bottleneck were pushed forward. Rhythm Wheel works best in an environment of low demand variability while the Breathing Rhythm Wheel can also manage higher demand variations. As we show, the High-Mix Rhythm Wheel even broadens the applicability of the Rhythm Wheel concept since it perfectly suits the needs of a company that features heterogeneous product portfolios that are produced at one asset. 5.2.3.3 High-Mix Rhythm Wheel Under both previously described Rhythm Wheel concepts, Rhythm Wheels are designed such that every product occurs once within a cycle. In the case of a heterogeneous product portfolio on a Rhythm Wheelmanaged asset, this is not necessarily the optimal design. The High-Mix Rhythm Wheel closes this gap and broadens the applicability of the Rhythm Wheel approach to heterogeneous product portfolios. In Section 4.3, we emphasized that the application of leveled flow design is a powerful means of avoiding the commitment of undesirable highmix product portfolios to a single production asset. In this way, runners, repeaters, and strangers are produced on separate lines. However, allocating similar products to a given production asset is not always possible in practice, as several constraints must be considered. In this context, technical limitations or validation aspects in particular prevent the achievement of leveled flow. As a consequence, resource commitment for a heterogeneous product portfolio possibly remains in place, which means that both low-volume and high-volume products share the same resource. What happens if either the Classic or the Breathing Rhythm Wheel is applied to heterogeneous product portfolios? According to the design Strategic LEAN Supply Chain Planning Configuration 165 Changeover time Production time Figure 5.22 Applying the Classic or Breathing Rhythm Wheels to a heterogeneous product mix. entailed in both approaches, every product occurs once within a Rhythm Wheel cycle. Hence, in all cycles the production resource needs to be set up independently for every product, whether the quantity to be produced is large or small. As changeovers in process, industries are typically very time consuming and costly, it is inefficient to set up a resource for small quantities in every cycle. Figure 5.22 illustrates how changeover times would be relatively high compared with the actual production time needed for low-volume products. The key design improvement idea for producing every product only once per cycle is rather intuitive: defining varying production rhythms for products sharing the same resource. Instead of producing low-volume products every cycle, they are scheduled only once over a certain number of cycles. By using varying production rhythms, changeover times for low-volume products can be reduced, which frees up valuable capacity. This additional capacity can either be saved by reducing overtime within an asset or it can be used in other ways. One promising alternative to using such freedup capacity is reducing the designed Rhythm Wheel cycle and setting up the asset for high-volume products more frequently. In this way the cycle time for high-volume products can be reduced, which makes it possible to lower inventory levels for these products. Note that, while inventories of high-volume products are reduced, higher inventories are needed for low-volume products since their cycle time increases. To achieve optimal production rhythms, the trade-off between inventories of low-volume products and those of high-volume products should be considered. Figure 5.23 illustrates this trade-off with the help of inventory charts for a highvolume and a low-volume product. 166 LEAN Supply Chain Planning Standard Rhythm Wheel design— Every product every cycle 2nd cycle 1st cycle Inventory High-Mix Rhythm Wheel— Varying production rhythms 1st cycle High-volume product Inventory 2nd cycle 3rd cycle High-volume product Average Average Time Inventory Time Low-volume product Inventory Low-volume product Inventory effect Average Average Time Time Figure 5.23 Impact of the High-Mix Rhythm Wheel on inventories in cases involving heterogeneous product portfolios. We provide additional details about the concrete configuration of HighMix Rhythm Wheels and about the determination of optimal production rhythms in Chapter 6. In that chapter, we also offer insights into the implementation of production rhythms. For a comprehensive overview, see Figure 5.24 as it provides a summary of all previously introduced Rhythm Wheel types and their key characteristics. Optimal production sequence Production leveling Rhythm Wheel cycle time Production quantities Production rhythm Classic RW Yes Yes Fixed Fixed Every product, every cycle Breathing RW Yes Yes Dynamic Dynamic Every product, every cycle High-Mix RW Yes Yes Dynamic Dynamic Different production rhythms Rhythm Wheel type Figure 5.24 Key characteristics of Rhythm Wheel types. Strategic LEAN Supply Chain Planning Configuration 167 Summary In this section, we addressed the fact that, in addition to selecting suitable replenishment modes, companies must also select appropriate production modes as they define how production is planned along the supply chain. Several production modes were introduced in this context. By realizing consumption pull as one of the major LEAN SCM principles and significantly reducing planning complexity, kanban was introduced as a promising alternative to traditional production planning and scheduling. However, some improvement potentials with regard to the applicability to process industries were identified. The Rhythm Wheel concept realizes major LEAN SCM principles and thus seizes remaining improvement potentials. The Rhythm Wheel follows the idea of predefining an optimal production schedule and repeating it over time. Applying the Rhythm Wheel concept and thus implementing repetitive production yields major benefits for process industries such as low supply chain nervousness and optimal production sequences. To apply the Rhythm Wheel concept to a wide range of business environments, we introduced three types of Rhythm Wheel to effectively manage variability: the Classic, Breathing, and High-Mix Rhythm Wheels. Your company should expect to find that at least one of the production modes we have introduced here is worth considering. It should identify the production mode that is best suited to its operations. In the next section, we provide methodological support that will help your company to define the right production modes for its supply chain. 5.3 Supply Chain Mode Selection: Combining Production and Replenishment Modes In previous sections, we have introduced replenishment and production modes that are relevant in the context of LEAN SCM. What, however, is the best supply chain mode set-up for companies in process industries? It is obvious that there is no single correct answer to this question. There are simply too many company-specific factors that impact the suitability of a given supply chain mode, such as supply chain strategy, demand patterns, 168 LEAN Supply Chain Planning Scope definition Analysis of key impact dimensions Pre-selection of supply chain modes Quantitative supply chain mode evaluation Figure 5.25 Approach to supply chain mode selection. and supply chain characteristics. To identify the best-suited supply chain mode set-up for your company, we recommend following a structured approach that incorporates four major steps, as depicted in Figure 5.25. In the following section, we provide insights into the four major steps of the recommended approach, which provides your company with valuable decision support to help it identify the best supply chain mode set-up. 5.3.1 Define the Configuration Scope of the Supply Chain Segment The first step in following the recommended approach to selecting the best-suited supply chain modes entails defining the parts of the value chain that fall within the scope of the supply chain mode selection. Three key aspects should be considered when defining the scope in the process of selecting the best-suited supply chain modes: determining the control span, adopting an end-to-end approach, and subdividing the supply chain into more manageable components. To define the overall scope, the control span concerning a company’s supply chain must first be clarified (see Figure 5.26). Companies operating the complex supply chains that are characteristic of process industries generally do not control the entire supply chain from the production of raw material to the delivery of finished goods to the end customer. In most cases, one or several production steps are outsourced or the distribution of finished goods to customers is taken over by external partners. Hence, supply chain stages that are out of a company’s control can be excluded straightaway from the scope of the supply chain for purposes of mode selection. Second, an end-to-end approach should be adopted. The selection of a supply chain mode at one stage impacts conditions in other parts of the supply chain. Assume, for instance, that the Rhythm Wheel concept is implemented at one of the production assets in a company’s supply chain. More stable and predictable production results in smoothed order Strategic LEAN Supply Chain Planning Configuration 169 Control span Supplier Production Supplier Production Supplier Production Supplier DC Not in the control span Customers Figure 5.26 Definition of a company’s control span. patterns. As a consequence, upstream supply chain stages see more stable demand patterns which, as we will see, have a significant impact on supply chain mode selection at that stage. Therefore, when seeking the best production and replenishment modes for a supply chain, we advise adopting an end-to-end approach. Owing to the size and complexity of global supply chains in process industries, it can be useful to slice and dice the supply chain into more manageable sub-supply chains in a third step. Supply chain mode selection for sub-supply chains can be pursued either in parallel or successively. When sub-supply chains are sliced, some simple guidelines should be followed. These guidelines suggest that subdividing a supply chain is especially sensible where material flows do not interact with other products, product areas are very different from one another, or a range of management responsibilities is involved (Figure 5.27). Supplier Production Supplier Production Supplier Production Production LDC Customers Production LDC Customers Supplier Production Figure 5.27 Subdividing the supply chain due to the independence of material flows. LDC Customers 170 LEAN Supply Chain Planning 5.3.2 Analyze Key Impact Dimensions of Mode Selection Once the scoping phase is completed, an in-depth analysis with respect to the key factors influencing supply chain mode selection is launched. These factors can be grouped into three dimensions: strategy, demand, and supply-related factors. These three dimensions form the LEAN SCM triangle for supply chain mode selection (see Figure 5.28). Analyzing these dimensions provides valuable insights and enables solid preassessment of the suitability of one or another supply chain mode set-up. Insights concerning the analysis of key impact dimensions fit the following structure: Replenishment mode evaluation Production mode evaluation 5.3.2.1 Replenishment Mode Evaluation In Section 5.1, we introduced several replenishment modes, including push replenishment and several pull replenishment modes—MTO, IRL replenishment, and Buffer Management. On the basis of an analysis that covers the three dimensions of the LEAN SCM triangle, the following sections provide valuable insights into choosing the best-suited replenishment modes for your company’s supply chain. 5.3.2.1.1 Strategy Analysis In Section 4.1, we discussed the need to define a company’s supply chain strategy such that the optimal balance between the four key order winner dimensions is achieved: cost, time, flexibility, and service. With such a strategy in place, clear guidance is provided for designing and managing De ly pp Su ma nd Strategy Figure 5.28 LEAN SCM triangle for supply chain mode selection. Strategic LEAN Supply Chain Planning Configuration 171 Strategy an Time focus De m ly pp Su d Cost focus Flexibility focus Service focus Figure 5.29 Strategy-related factors for replenishment mode selection. the supply chain. As a consequence, supply chain strategy must be taken into account during the process of selecting replenishment and production modes. We address how to consider strategies with respect to replenishment mode selection in this section (Figure 5.29). The cobweb diagram in Figure 5.30 represents the defined balance between relevant target areas within a supply chain strategy. The diagram indicates that in the depicted case the supply chain needs to focus on service and flexibility to match customer needs. Such a strategy is certainly reasonable and worth considering, especially in environments such as the pharmaceutical industry with lifesaving drugs. The consequences of stock-outs are dramatic. Therefore, a focus on service and flexibility is essential for such supply chains. In such cases, pull replenishment has considerable promise for success. Triggering production based on consumption ensures the required flexibility for reacting to demand variations and thus makes it possible to maintain the required service levels. Cost 10 9 8 7 6 5 4 3 Service 2 1 0 Time Focus on service and flexibility Flexibility Figure 5.30 Supply chain strategy and its impact on replenishment mode selection. Pull replenishment 172 LEAN Supply Chain Planning 5.3.2.1.2 Demand Analysis Demand patterns are certainly key determinants in replenishment mode selection and thus analyzing such patterns is very important. Figure 5.31 lists demand-related factors that are highly relevant to identifying suitable replenishment modes. As experience shows, it makes sense to begin demand analysis by investigating demand volume and variability. To do so, it is useful to plot relevant products on a two-dimensional matrix. Typically, the y-axis represents demand variability as measured by the coefficient of variation, which is defined as the standard deviation in demand divided by mean volume per period. The x-axis displays mean volume per product per period. Figure 5.32 shows a product portfolio that contains a mix of high-volume/low-variability products on the one hand and low-volume/high-variability products on the other. Figure 5.32 also includes recommendations as to which LEAN replenishment modes are most promising for various parts of the product portfolio. High-volume products with low demand variability are usually characterized by a high degree of forecast accuracy. In this case, push replenishment—triggering replenishment based on forecasting—is a promising option since produced quantities are likely to meet actual demand with sufficient accuracy. Experience shows that in the other segments that are characterized by lower demand volumes and/or higher demand variability, forecasting error increases significantly, which reduces the suitability of push replenishment. Therefore, pull replenishment modes are recommended in these segments as production there is triggered based not on forecasts but on actual demand. In cases of high demand variability, products are characterized by rather low volumes. For these products, MTO is typically applied as the Demand volume Strategy ly an De m pp Su d Demand variability Forecast accuracy Customer lead time expectation Degree of customization Product life cycle Figure 5.31 Key demand-related factors for replenishment mode selection. Strategic LEAN Supply Chain Planning Configuration 173 Variability MTO High IRL / Buffer Mgmt. Medium Push Low Low Medium High Volume Figure 5.32 Volume/variability analysis for replenishment mode selection. replenishment mode, for two reasons. First, other pull replenishment modes, such as IRL and Buffer Management, use supermarket stock, which means that inventories are held throughout the entire year, although sales volume is rather low. Second, the products in this segment are typically not basic commodities but rather are characterized by a high degree of customization. Therefore, it is often not possible to keep these products in stock. Another demand-related factor that is worth considering is product life cycle, which helps in predicting how products will develop with respect to key demand-related factors such as volume and variability. In the new product launch phase, product demand volumes are typically low with high demand variability, which indicates that MTO applies. With increasing product maturity, however, product volumes tend to increase while demand variability should decrease, which calls for realigning the replenishment mode. 5.3.2.1.3 Supply Analysis In addition to strategic and demand-related factors, supply-related factors also play an important role in a company’s selection of replenishment 174 LEAN Supply Chain Planning modes. Figure 5.33 provides an overview of key supply-related factors that should be taken into account when choosing a replenishment mode for a given product. Among supply-related factors that impact the replenishment mode decision, two are of major importance: economies of scale and lead time. In this context, economies of scale can be leveraged as a benefit of batching production orders, which occurs, for example, when usual or extraordinary changeover costs and times are required to changeover from one product to another. Lead time is defined here as the time that is required to fulfill a replenishment order, that is, the time that passes from order receipt until delivery to the customer takes place. The implication of these two supply-related dimensions for the selection of replenishment modes is illustrated in Figure 5.34. If economies of scale are low, due to short changeover times for example, small-batch production does not incur high production costs. With small batches, production can react quickly to occurring demand, which favors a pull replenishment mode that triggers production based on actual consumption. On the other hand, large economies of scale favor push production as forecasted demand from several periods can be batched and consolidated into a single production run, which implies high saving potentials. The second supply-related factor depicted in Figure 5.34 is lead time. For products with long lead times, production is not able to react quickly to real occurring demand. In these cases, production based on actual consumption is not recommended. Instead, push replenishment should be applied. On the other hand, short lead times enable production to react accurately to occurring demand, which favors pull replenishment. Strategy ma De ply p Su nd Lead time Economies of scale Product value Potential of synchronizing transportation with replenishment Figure 5.33 Key supply-related factors for replenishment mode selection. Strategic LEAN Supply Chain Planning Configuration 175 Lead time Short Push/Pull Push Long Pull Push/Pull Low High Economies of scale Figure 5.34 Impact of major supply-related factors on replenishment mode selection. If a company decides to implement a pull replenishment mode for a set of products within its product portfolio, the following two supply-related factors support the decision as to which of the potential modes to select: product value and the potential for synchronizing transportation with replenishment. High product value favors MTO replenishment while low product value favors IRL replenishment or Buffer Management, because in this case supermarket stock does not incur high inventory costs. The potential for synchronizing transportation with replenishment is relevant to the choice between IRL replenishment and Buffer Management. However, such a choice requires a careful tradeoff. On the one hand, Buffer Management uses fixed replenishment quantities, which allow for alignment between transportation lot sizes and quantities to be replenished. So, for example, the full truck load capacity can be continuously exploited, which reduces logistics costs. On the other hand, IRL replenishment enables replenishment to be carried out at fixed intervals, which facilitates transportation planning and thus should have a positive impact on cost as well. To evaluate the final impact on cost, a company’s specific situation must be considered. 5.3.2.2 Production Mode Evaluation The second step in the suggested approach covers the analysis of key factors that impact production mode selection. Again, the three dimensions 176 LEAN Supply Chain Planning of the LEAN SCM triangle need to be analyzed to choose among potential production modes. 5.3.2.2.1 Strategy Analysis When selecting a production mode, the supply chain strategy that defines the balance between the four key order winner dimensions needs to be considered (see Figure 5.35). Regarding production mode selection, we highlight two areas: cost and time. If a company’s operations strategy focuses on cost and time (see Figure 5.36), the Rhythm Wheel concept is an excellent approach. By leveling production and continuously maintaining the optimal production sequence, utilization remains constant at a high level, enabling a company to reduce production costs. Moreover, repetitive production patterns bring learning effects that additionally increase production efficiency. Focusing on time also favors the Rhythm Wheel concept, as continuous production in the optimal production sequence helps to reduce cycle times and thus delivery time to the customer. But which of the Rhythm Wheel concepts should be chosen? The answer is closely linked to a concrete weighting of the four target areas. If a Strategy ma Time focus De ly pp Su nd Cost focus Flexibility focus Service focus Figure 5.35 Strategy-related factors for production mode selection. Service Cost 10 9 8 7 6 5 4 3 2 1 0 Time Focus on cost and time Rhythm Wheel concept Flexibility Figure 5.36 An example of an operations strategy and its impact on replenishment mode selection. Strategic LEAN Supply Chain Planning Configuration 177 company’s operations strategy also draws attention to the service dimension and flexibility, the Breathing Rhythm Wheel represents a promising production mode. The Breathing Rhythm Wheel makes it possible to dynamically adjust production quantities which provide the flexibility needed to respond quickly to actual consumption and ensure high service. If such a weighting indicates a strong focus on cost, the Classic Rhythm Wheel is best suited. By continuously outputting a product at the same time and quantity, production and changeover costs can be minimized. Yet the High-Mix Rhythm Wheel can also be a good alternative in such a case as it accommodates optimal production rhythms. The High-Mix Rhythm Wheel has a positive impact on the time dimension as well. Since not all products are produced in every cycle, average cycle time decreases, thereby reducing the time needed to react to customer demand. 5.3.2.2.2 Demand Analysis It is extremely important to analyze demand-related factors when selecting a suitable production mode. Figure 5.37 displays key factors that should influence the selection of production modes. Despite numerous influencing factors, here we suggest again that demand analysis begin with volume and variability, so we have plotted a product portfolio of an asset on a two-dimensional matrix. Figure 5.38 shows examples of product portfolios and the respective recommended production modes. The product portfolio depicted in the first chart of Figure 5.38 is characterized by products with high volume and stable demand. If such a portfolio is assigned to a production asset, a Classic Rhythm Wheel is highly beneficial as in such a case the full benefits of the Rhythm Wheel concept can be applied. With repetitive production patterns in place, the optimal ma n De ly pp Su d Strategy Demand volume Demand variability Forecast accuracy Figure 5.37 Key demand-related factors for production mode selection. 178 LEAN Supply Chain Planning Non-RW assets Rhythm Wheel suited assets Classic Rhythm Wheel Breathing Rhythm Wheel High-Mix Rhythm Wheel Non-repetitive concept Variability Variability Variability Variability High High High High Medium Medium Medium Medium Low Low Low Medium High Volume Low Low Medium High Volume Low Low Medium High Volume Low Medium High Volume Figure 5.38 Volume/variability analysis for production mode selection. production sequence is followed continuously, production is leveled and highly predictable over time, and learning effects increase overall production efficiency. Since volumes are very stable and are typically characterized by high forecast accuracy, the required service level can be achieved and maintained at minimum levels of inventories as well. If the product portfolio at an asset looks like the one depicted in the second matrix of Figure 5.38, greater flexibility is required to enable the asset to react effectively to real demand. The Breathing Rhythm Wheel is an excellent design for such product portfolios since it allows for dynamic production quantities while maintaining the benefits of the Rhythm Wheel concept. If a heterogeneous portfolio must be produced on one production asset as shown in the third matrix of Figure 5.38, the High-Mix Rhythm Wheel is recommended as the production mode. In contrast to other Rhythm Wheel concepts, the High-Mix Rhythm Wheel allows for various production rhythms for products being produced on an asset, that is, low-volume products are not produced in every cycle. This avoids frequent changeovers for small production quantities, which frees up valuable capacity. If the product portfolio consists only of a large number of low-volume products with high variability (as on the right-hand side of Figure 5.38), the Rhythm Wheel approach is not the perfect fit for the asset. The benefits of a leveled and repetitive production sequence would be lost due to many sporadic production runs. In this case, a nonrepetitive production mode would be the better pick. 5.3.2.2.3 Supply Analysis In addition to considering a company’s strategic and demand-related aspects, supply-related factors must also be taken into account to properly Strategic LEAN Supply Chain Planning Configuration 179 Sequence dependency of changeover cost/time an De m ly pp Su d Strategy Process reliability Capacity utilization Economies of scale Benefits of synchronization Figure 5.39 Key supply-related factors for production mode selection. evaluate production modes. Figure 5.39 provides an overview of key ­supply-related factors that should influence the selection of appropriate production modes. Again, we highlight especially important factors in this context: sequence dependency of changeover costs and times and the reliability of the production process. The sequence dependency of changeover costs and times represents the degree to which a suboptimal production sequence impacts such KPIs as capacity utilization or total production cost. A reliable production process implies that machine breakdowns are rare, scrap rates are low, and the quality of finished goods is constantly at a high level. In this case, the production schedule can be executed as planned. We illustrate the implications of these two supply-related dimensions for the selection of production modes in Figure 5.40. Since the Rhythm Wheel concept enables an asset to produce continuously in the optimal sequence, its application is very beneficial in environments characterized by highly sequence-dependent changeover costs. Even if such sequence dependency is not present, however, the considerable advantages of the Rhythm Wheel concept favor this production mode. However, the Rhythm Wheel concept is not a silver bullet for all production environments. In an environment in which the reliability of the production process is low, for example, when production assets break down regularly, it is impossible to fully exploit the full potential of the Rhythm Wheel concept. There are two reasons for this. First, the Rhythm Wheel cycle is likely to fluctuate widely, which precludes constant production intervals and the realization of corresponding benefits. Second, in such an environment, frequent switching between alternate lines is likely 180 LEAN Supply Chain Planning Reliability of production process High Low Rhythm Wheel concept Basic kanban Advanced kanban Low High Changeover dependency of set-ups Figure 5.40 Impact of major supply-related factors on production mode selection. required to avoid stock-outs. Such a scenario cannot be effectively managed with the Rhythm Wheel concept. In cases of low reliability of the production process, kanban is a suitable alternative to the Rhythm Wheel. Using a kanban system, production orders are dynamically allocated to substitutive production assets, providing the required flexibility in such an environment. However, the basic kanban concept follows a FIFO scheduling rule. If the sequence dependency of changeovers is high, the advanced kanban mode needs to be applied, as described in the practical example offered in Section 5.2.1. Some additional supply-related factors and their impact on production mode selection are summarized in Figure 5.41. The second step in our recommended approach to selecting supply chain modes is now complete concerning the analysis of various dimensions of the LEAN SCM triangle. Box 5.3 presents an example of a company in the food processing industry which conducted such an analysis to identify the best-suited production modes for a European site. Strategic LEAN Supply Chain Planning Configuration 181 Supply-related factor Kanban Classic RW Breathing High-Mix RW RW Reasoning High current capacity utilization Leveled production, optimal production sequence and optimal production rhythms relieve capacity utilization High economies of scale Optimal production lot-sizes help to seize high economies of scale High benefits of synchronization Fixed production patterns allow for best possible supply chain synchronization Figure 5.41 Impact of additional supply-related factors on production mode selection. Box 5.3 Evaluation of the Rhythm Wheel Concept for a Company in the Food Processing Industry To stabilize and level production, a yoghurt manufacturer evaluated the suitability of the Rhythm Wheel concept for a major European site. The scope of the evaluation included four packaging lines which covered a broad product range. The product portfolio covered multiple flavors, several cup sizes, and various labels for delivery to several European markets. To investigate the suitability of the Rhythm Wheel, the manufacturer conducted an analysis with regard to key supply- and demand-related factors. Figure 5.42 shows the results of the analysis for the first filling line. Besides the analysis concerning demand volume and variability (on the left-hand side), several other factors were investigated (righthand side). Based on its detailed analysis, the company was able to make a carefully reasoned decision regarding the four lines. Finally, the Rhythm Wheel concept was implemented on three of the four filling lines. As filling line 3 was aged and characterized by very low process reliability, scheduling remained a manual task on that line. 182 LEAN Supply Chain Planning Product portfolio of filling line 1 Variability (CoV monthly) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 0.00% RW evaluation criteria Well RW suited RW suited Less RW suited Volume Demand variability Production process reliability Sequence dependency of changeovers Asset capacity utilization Benefits of synchronization Number SKUs 5.00% 10.00% 15.00% Volume (% of resource load) Figure 5.42 Analysis of key impacting factors. Your company should now be able to make the first evaluations regarding which of the replenishment and production modes are suitable for its supply chain. However, we recommend two additional steps to make the best decision regarding the final supply chain mode set-up. 5.3.3 Select the Appropriate Supply Chain Modes Once the analysis we have just described is completed, the third step in the recommended approach tackles the challenge of consolidating the findings of the analyses and deriving the most promising replenishment and production modes within the defined scope of the supply chain. This is not an easy task, since the findings of the analysis with respect to the three dimensions may be inconsistent or even contradictory. For instance, demand analysis might favor applying a Classic Rhythm Wheel due to stable demand with high volumes, while supply analysis favors kanban because process reliability is rather low. In such cases, a company must carefully weigh the potential benefits and drawbacks of each approach. In the end, however, consolidating the findings typically leads to several alternative supply chain mode set-up scenarios, each of which appears beneficial. Here, we emphasize two additional aspects that should be considered when potential supply chain mode set-ups are pre-selected: Strategic LEAN Supply Chain Planning Configuration 183 1. Interaction between replenishment and production modes 2. Supply chain interdependencies 5.3.3.1 Interaction between Replenishment and Production Modes We recommend giving explicit consideration to potential interaction between production mode selection and replenishment mode selection. This is important since some combinations of replenishment and production modes are not feasible for all companies, while others are simply less effective or efficient than the optimal combinations. Figure 5.43 depicts the LEAN SCM compass for supply chain mode selection, providing a guide to understanding the degree of compatibility Non -rep eti tiv e Kanban IRL R Buffer. Mgmt. Advanced Kanban Forecast High-Mix RW Breathing RW Classic RW Repe titiv e Typical combinations Figure 5.43 LEAN SCM compass for supply chain mode selection. Pu sh ode nm tio c u od Pr Pu ll ode nt m me ish len ep MTO 184 LEAN Supply Chain Planning between replenishment and production modes by displaying typical combinations. 5.3.3.2 Supply Chain Interdependencies Another aspect beyond interaction between replenishment and production modes at a single stage that should be considered is that of interdependencies between replenishment and production modes along the entire supply chain. This is an issue because the definition of a supply chain mode at one stage impacts supply chain mode selection elsewhere along the supply chain, especially at upstream stages. If the Rhythm Wheel concept, for instance, is assigned to a company’s production asset within its supply chain, production patterns will stabilize, which allows for smoothed order patterns. Upstream supply chain stages are in that case likely to face more stable demand, which needs to be considered in the supply chain mode set-up. To capture these interdependencies, we suggest running a backwards assignment of supply chain modes, starting at the downstream supply chain stage closest to the external customer and moving stepwise upstream. Figure 5.44 visualizes the recommended backwards assignment Classic RW C Breathing RW CT A CT(+) CT CT(–) B C A B Production Production Customer Step 3 Step 2 Step 1 Variability Variability Variability C C C B A Volume B A Volume Figure 5.44 Backwards assignment of supply chain modes and its implications. B A Volume Strategic LEAN Supply Chain Planning Configuration 185 Alternatives Production stage 3 Production stage 2 Production stage 1 Supply chain mode set-up 1 FC & Classic RW IRL & Breathing RW IRL & Breathing RW Supply chain mode set-up 2 IRL & Breathing RW IRL & High-Mix RW MTO & High-Mix RW Supply chain mode set-up 3 IRL & Breathing RW IRL & Breathing RW Buffer Management & High-Mix RW Figure 5.45 Examples illustrating pre-selection of supply chain modes. and illustrates its impact on relevant demand-related factors for supply chain mode selection. Using such an iterative assignment of supply chain modes and with the help of the LEAN SCM compass, the consolidation of findings from step two of the suggested approach makes pre-selection of beneficial supply chain mode set-ups possible. Figure 5.45 illustrates several promising scenarios for supply chain mode set-up. In the fourth step of the approach, we suggest applying simulation-based validation to identify the best supply chain mode set-up for your company. 5.3.4 Evaluate Your Decision Quantitatively Our review of the previous steps of the suggested approach has shown how promising supply chain mode set-ups can be derived. From this point, however, making the final selection of appropriate supply chain modes is difficult, due mainly to the complex interdependencies that typically operate within global supply chain networks. Predicting the impacts of one or the other promising supply chain mode set-up is hardly possible, especially when findings from in-depth analyses are contradictory. To resolve this uncertainty, we recommend complementing the qualitative results with a quantitative analysis that predicts the impacts of 186 LEAN Supply Chain Planning pre-selected supply chain modes on supply chain performance. In this context, a simulation-based analysis provides the required quantitative results. The corresponding benefits of supply chain simulation are depicted in Figure 5.46. To conduct a simulation-based analysis, a simulation model must be built first, incorporating all relevant supply chain processes. In particular, production capacities, throughput rates, stock-keeping points, transportation patterns, and lead times are typical variables that are modeled to create an appropriate picture of real-world conditions along a supply chain. Since such a supply chain simulation aims at providing quantitative decision support, KPIs must be defined, depending on the underlying supply chain strategy and its corresponding objectives. Such KPIs as customer service levels, inventories, changeover cost and times, capacity utilization, transportation cost, and total production cost are typically used to evaluate overall performance. Once the model has been built, the pre-selected supply chain mode setups can be evaluated to identify the best choice for your company’s supply chain. Figure 5.47 displays screenshots that show the end-to-end simulation of a pharmaceutical supply chain which supported the decision on supply chain mode set-up. Understanding current and future behaviour of the supply chain Key benefits of supply chain simulation Quick generation of quantitative results instead of guesswork Risk-free testing of new supply chain mode before implementation Visualization creates transparency and broad acceptance of simulation Figure 5.46 Benefits of supply chain simulation for supply chain mode selection. Supply chain simulation to validate pre-selected supply chain mode set-ups. Figure 5.47 machines and facilities by analyzing single Very detailed results November 18 2011 Friday Zoom into production site visible on one screen chain and all KPIs The complete supply Strategic LEAN Supply Chain Planning Configuration 187 188 LEAN Supply Chain Planning Summary In this section, we have emphasized that the right supply chain mode set-up decision strongly depends on company-specific factors. Therefore, we cannot offer a general recommendation in favor of certain replenishment and production modes. To support your company’s decision-making process, we have provided general advice and guidelines throughout the chapter and introduced an approach to supply chain mode selection that entails four major steps. First, the scope of the supply chain mode selection must be defined. To achieve this, a company must determine its control span, adopt an endto-end approach to its supply chain, and slice and dice the supply chain into manageable parts. Second, it is vital that your company conduct an in-depth analysis of the three dimensions of the LEAN SCM triangle to understand the impacts of strategy and supply- and demand-related factors on production and replenishment mode selection. The third step of our recommended approach is consolidating the findings of the in-depth analyses to make a pre-selection of the most promising supply chain mode set-ups. During this step, a company should also explicitly consider both interaction between replenishment and production modes and supply chain interdependencies. The fourth and final step of the selection approach is to conduct a simulation-based analysis of the pre-selected modes. Simulation provides quantitative results enabling a company to make a fact-based comparison of pre-selected scenarios and allows for a valid decision regarding a supply chain mode set-up. Armed with the insights we have provided in this section, your company will be prepared to solve the challenge of finding the right supply chain mode set-up for its supply chain. When the company accomplishes this end, it has taken an important step toward realizing the full potential of LEAN SCM. 5.4 The Strategic Renewal Process to Configure Agile Supply Chains Nothing is more constant than change! The Greek philosopher Heraclitus realized more than 2500 years ago that this is a universal axiom. Of course, this principle also holds true in supply chains. Conditions are continuously Strategic LEAN Supply Chain Planning Configuration 189 Input Renewal Output Review changes concerning: Strategy Demand Supply Assess need for renewal of modes Roadmap for implementation Trigger further analysis and generate proposal Supply chain performance review Evaluate and select modes Implementation of adjusted supply chain modes Figure 5.48 High-level structure of the strategic renewal process. changing, externally and internally. Changes in network structure due to internal growth or mergers and acquisitions, expansion into new markets, changing demand patterns, and so on have a significant impact on the requirements that a supply chain has to meet. Within the LEAN SCM framework, we have emphasized the importance of selecting the right supply chain modes to ensure that a company’s requirements are met. In the face of constant change, therefore, reviewing production and replenishment modes is essential to ensuring the sustainable competitiveness of a supply chain. We therefore highly recommend conducting such a review within a structured process. The strategic renewal process that we describe in this section provides guidance for designing such a structured process. Figure 5.48 provides an overview of the high-level structure of the strategic renewal process. It should be triggered on a regular basis within a range of 1–2 years, or when structural changes in the supply chain or business environment occur. In the course of this section, we provide further insights into the underlying phases and briefly discuss important factors within this process. 5.4.1 What Information Base Is Needed on Strategic Level? The first phase of the strategic renewal process is the input phase, during which the collection, consolidation, and validation of data and information that support the evaluation of current supply chain modes are addressed. Hence, this phase builds the basis for decisions that will be made in the renewal phase regarding whether or not to adjust current 190 LEAN Supply Chain Planning Review of decision dimensions Performance feedback Strategic alignment (e.g., corporate and operations strategy) Demand side (demand patterns, new markets, etc.) Input St rat al Input e gic re n e w Tactical LEAN SCM process (e.g., LEAN supply chain metrics) Supply side (supply chain structure, product flows, etc.) Input Input Figure 5.49 Input dimensions for the strategic renewal process. supply chain modes. An overview of required input dimensions for the strategic renewal process is depicted in Figure 5.49. 5.4.1.1 Strategic Input First, input concerning the strategic portfolio and go-to-market approach is required, which is especially relevant if significant changes have occurred. Such changes are, for example, a re-positioning of brands or a whole product group to strengthen market position, or a change in the product portfolio due to complexity management initiatives or product launches. These factors must be considered in supply chain mode setup. The required information is typically gathered at the corporate level, which implies the involvement of the supply chain board. 5.4.1.2 Demand Input A second decision dimension, review of the demand side, is highly relevant, since demand patterns are typically very dynamic over time. Product volumes, for instance, are impacted by a range of factors such as demand trends, the expiration of patent protection, increased market penetration, Strategic LEAN Supply Chain Planning Configuration 191 product maturity, and so on. Moreover, both volume and demand variability are constantly in flux. Changing order patterns, entries into volatile markets, or demand-shaping initiatives that aim to reduce demand variability are major root causes of these dynamic changes. Typically, sales and commercials have the closest connection to markets and customers. Therefore, they are key sources of information on demand-related inputs. 5.4.1.3 Supply Input A third area of information required for the strategic renewal process is that of changes concerning the supply side. Highly relevant in this context are changes in the supply chain network, such as the opening or closing of production assets or distribution centers, and the adjustment of product flows, as in the re-allocation of a product family from a site in Asia to one in the United States or the other way around. These changes have a huge impact on the product portfolios to be produced on a company’s assets, on lead times, resource utilization, and other factors. Since these factors are key determinants of the selection of appropriate supply chain modes, they should be considered within the strategic renewal process. A key source of the required information is the supply chain board, since it is typically involved in decisions pertaining to changes related to the supply side. 5.4.1.4 Performance Feedback Performance feedback constitutes yet another important input that is required for the strategic renewal process. Such feedback reflects past performance and therefore serves as important feedback relating to the current supply chain mode set-up. If supply chain performance falls below expectations concerning such KPIs as service levels, inventories, or production costs, one potential root cause is that a company has chosen unsuitable supply chain modes. The tactical level of the LEAN SCM process is an important source of information pertaining to past supply chain performance that is complemented by figures from the controlling department (see Chapter 9 for details). This consolidated data represents valuable input to inform decision making within the strategic renewal process. 5.4.2 Establish Sustainable Renewal of Supply Chain Modes Once all required input information has been gathered, the core phase of the strategic renewal process begins. The renewal phase is designed to help 192 LEAN Supply Chain Planning Renewal phase Assess need for renewal of modes Trigger further analysis if required (pre-assessment) Scope definition Analysis of key impact dimensions Pre-selection of supply chain modes Finalize & prioritize improvement areas Start proposal & evaluation project for new modes in the identified areas Final decision on supply chain modes Quantitative supply chain modes evaluation Figure 5.50 Main steps of the core phase within the strategic renewal process. a company define and renew production and replenishment modes based on data gathered during the input phase. Hence, in the renewal phase, the decision is made whether to confirm or adjust current supply chain modes. Figure 5.50 summarizes the process steps that are required within the core phase of the strategic renewal process. The first step within the core phase of the strategic renewal process involves a high-level assessment of the potential need for a renewal of current supply chain modes. If the assessment reveals that factors relevant to supply chain mode selection have not changed significantly and performance is within the targeted range, current supply chain modes can be considered appropriately chosen and remain in place. However, due to the dynamics of global and complex supply chains in the process industry, conducting a detailed analysis is often worth the effort. Once the decision is made to trigger further analysis, it is useful to identify and prioritize the areas that stand to benefit the most from a realignment of supply chain modes. A detailed analysis of past performance helps to identify the potential benefits and thus supports the determination of areas on which to focus. If, for instance, the analysis reveals that the main root cause of an unsatisfying performance of a particular brand is an inappropriately chosen supply chain mode, high priority should be assigned to reviewing this brand in detail. Once the focus areas for further investigation are defined, in-depth analysis is required that aims at evaluating and proposing the best supply chain mode set-up. We recommend conducting such an analysis within the structured approach that we have outlined in Section 5.3. The outcome of this approach is a fact-based recommendation regarding supply chain modes which supports the final decision on the final supply chain mode set-up. Especially if large adjustments of the current supply chain mode set-up are suggested, typically Strategic LEAN Supply Chain Planning Configuration 193 the supply chain board, the supply chain planner, and other responsible persons within the supply chain excellence center are involved in this decision. 5.4.3 Ensure Supply Chain Agility through Regular Mode Renewal Once the renewal phase is completed, the output phase of the strategic renewal process is launched to ensure operational agility of the supply chain. The output phase is designed to prepare and conduct the implementation of the agreed-upon production and replenishment modes along the supply chain. One important element of the output phase refers to the drawing up of an implementation roadmap for integrating supply chain modes into operations. On this roadmap, the ultimate goal, the key responsibilities, and a timeline aligned with corresponding tasks, measures, and milestones are defined. Such a roadmap is essential because it helps to efficiently manage and coordinate all involved resources and provides an essential medium for communicating the targeted changes within the organization. On the basis of such a roadmap, a project is typically triggered which takes care of the actual implementation of adjusted replenishment and production modes in the supply chain. Figure 5.51 completes the picture of the strategic renewal process by summarizing all relevant steps in a process diagram. Corporate Planning Budgeting Supply R&D, Sales & chain board Commercials Controlling (SC) Tactical renewal 1 Input phase Operations and corporate strategy (alignment) Renewal phase Assess need for renewal of modes Output phase Roadmap for implementation (communication required) Supply chain structure and business constraints Performance measurement 2 Trigger further analysis if required (pre-assessment) Finalize & prioritize improvement areas Start proposal & evaluation project for new modes in the identified areas (analysis) 3 Implementation Figure 5.51 Focus areas for the implementation of new supply chain modes. Consolidate & validate data & information Evaluate current performance Evaluate alternatives & select new modes 194 LEAN Supply Chain Planning 5.4.4 Who Is Involved to Enable Governance for Supply Chain Agility? So far, we have emphasized how the steps and tasks involved in the strategic renewal process should look. To pursue the process steps efficiently, it is important to define clear roles within an organization for the people who will assume responsibility for the defined tasks. In this section, we describe the key roles that are relevant to the strategic renewal process. An overview is provided in Figure 5.52. 5.4.4.1 Supply Chain Excellence Center Conducting the strategic renewal process and especially driving the implementation of new supply ch