Thus, there is confusion in company regarding understanding of factory responsiveness and how it can be practiced. Hence, we decided to undertake a detailed understanding of their production process & existing system/ operations in mohali factory
LITERATURE REVIEW
According to Fisher, products can be classified as functional and innovative. Accordingly, the supply chains have to be efficient and responsive respectively. Made-to-order and assemble-to-order products are generally of the innovative type whereas made-to-stock products are functional .Functional products are generally made-to-stock whereas innovative products are made-to-stock or assemble-to-order. Functional products need an efficient supply chain whereas innovative products need a responsive one. A responsive supply chain also implies that my factory operations should also be responsive in order to achieve a fully responsive supply chain to improve demand reliability.
What Type of Products are Paints?
Paint is a product where the number of SKUs is well over 1000 for the top paint companies. Yet only a few are fast selling. This leads to the following characteristics:
- Volumes of some SKUs are small and demand difficult to predict
- Wide distribution networks (similar to FMCGs) lead to high safety stock requirements.
- Seasonal demand and High competition make obsolescence costs and stockout costs high.
From it we can infer that in the current scenario, paints are more of an innovative product.
Type of paints
The paint and coatings sector manufactures a variety of products that preserve, protect, and beautify the objects to which they are applied. There are four main types of paints and coatings:
- Architectural coatings used in homes and buildings, such as interior and exterior paints, primers, sealers, and varnishes;
- Industrial coatings that are factory-applied to decorate and protect manufactured goods as part of the production process;
- Special purpose coatings, such as aerosol paints, marine paints, high performance maintenance coatings, and automotive refinish paints; and
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Allied paint products, including putties, paint and varnish removers, paint thinners, pigment dispersions, and paint brush cleaners.
Characteristics of Paint as a Product
Production Process for Paint
The paint production is batch process Paint and coatings are made of a variety of compounds formulated to fulfill the requirements of different applications. Paint and coatings are manufactured through the following basic steps, which must be adapted to the characteristics of different ingredients:
- Addition of raw materials (resins, dry pigments, water, or solvents, depending on the type of paint);
- Mixing/dispersion;
- Filtration; and
- Packaging the paint or coating for sale.
Study of the Paint Industry
Before going into the study, some characteristics of the paint industry are mentioned:
- Working Capital intensive: The number of shades is very large and a sufficient stock of every shade has to be maintained at all levels of the distribution channel, the working capital cycle is very high. The extent can be gauged from the fact that the no.1 company Asian Paints has a 12000 strong dealer network selling more than 150 shades. Also, the number of raw materials required can stretch upto 300. As majority of these raw materials are either imported or sourced from small chemical manufacturers, a large stockpile needs to be maintained.
- Seasonal nature of demand: The demand peaks during festival season while is very lean during monsoons. Thus, a major part of the sales are achieved in the second half of the fiscal year.
An analysis of the supply chains of the three best performing Indian paint companies was carried out using the framework proposed by Shah and Singh. The objective was to find the companies with the most efficient supply chains and examine the functional strategies behind these efficiencies. The source of data was the PROWESS database maintained by CMIE.The major findings are listed below:
- Goodlass Nerolac has the lowest raw material costs-could be due low bargaining power of suppliers or the use of cheaper substitutes. However, its WIP and finished goods inventories are high offsetting its gains.
- WIP has reduced as the companies have moved towards dealer tinting systems and postponed the point of differentiation.
- Finished goods inventory is lowest for Asian Paints. This is because:
- Being the market leader, its brands sell faster
- Efficient use of dealer tinting systems
- The supply chain inefficiency is also the lowest for Asian Paints because of its efficient and responsive distribution networks.
- The stock carried by retailers is less than 4 days and that too, whites are stored. If an order comes, the Colourworlds mix the white bases and tinters and supply. In case of other suppliers, they get supplies within a day from the nearest warehouse or shop with a tinting machine, all of which are located at strategic points to ensure quick delivery.
- Two brands were found to provide majority of sales. Moreover, whites sell more than other shades.
Inferences
Thus we see that the gain is due to a radical shift in process design and shifting the point of differentiation with an efficient distribution network that ICI paints has not been able to emulate. With this method they are able to wider range of shades, yet lower costs, and thus maximizing customer satisfaction.
To achieve these benchmarks, ICI paints must start looking closer at its supply chain & factory operations.
DATA COLLECTION AND ANALYSIS
Manufacturing/Production system
The production system is viewed as a combination of the materials supply, production planning, scheduling, control and material transformation functions. Together, these functions must respond to demands set either directly by customer orders (in a make to order situation), or to production orders generated by an inventory control function (in a make to stock scenario)
Production/Factory responsiveness
Production & factory responsiveness can be defined in a number of ways:
A responsive factory is a factory which is agile. Agility is defined as quick moving, nimble and active. Agility is the ability to thrive and prosper in a competitive environment of continuous and unanticipated change, to respond quickly to rapidly changing markets driven by customer-based valuing of products and services.
Responsiveness is the ability of a production system to respond to disturbances (originating inside or outside the manufacturing organisation) which impact upon production goals.
Typical disturbances might include, for example, the receipt of rush orders, machine breakdowns or degradations or variations in raw material supply. The disturbances may be internal or external and importantly their effect may be either positive or negative.
Range of Production Environments and Responses
Agility and Response
Agility is described as the ability of a company to operate “profitably in a competitive environment of continually, and unpredictably, changing customer opportunities”.
Four key imperatives have been associated with agile companies:
a) Enrich the customer,
b) Master change and uncertainty,
c) Leverage resources and
d) Co-operate to compete.
Responsiveness helps in fulfilling the need for agility for mastering change and uncertainty. However, agility is also concerned with making full use of the influence a company has over the sources of change and uncertainty, to pro-actively remove them or drive them to support the organisation’s goals.
An agile company pro-actively influences the various environments in which it operates by means of many different activities, including marketing, co-operative alliances, new product and process development.
In contrast, responsiveness is about taking actions in response to actual or potential changes which the system either cannot control or has not planned. The link between agility and responsiveness is outlined as follows:
From this diagram we can say that effective response is a critical attribute, and represents the reactive capabilities of an agile organization.
Another important parameter to be considered over here is system flexibility.
System Flexibility has received much attention as a manufacturing research topic in the last decade or so. It is the ability of a production system to change the mix, volume and timing of its outputs.
Total system flexibility is a complicated function of many system attributes, including machine and subsystem flexibilities. While system flexibility constitutes a possible means for responding to disturbances (both internal - e.g. machine breakdowns - and external - e.g. demand variation, rush-orders) it is not synonymous with responsiveness, since the system must also be able to judiciously use its flexibility in response to disturbances - i.e. decide when to flex its outputs and by how much.
Parameters to measure factory responsiveness
We feel that factory responsiveness cannot be determined by a single variable. In fact, In order to improve factory responsiveness, first it is necessary to find those variables which would help us to measure & quantify factory responsiveness. This will also help us to fix suitable benchmarks.
Also, ignoring the factory, will only lead to increased inventory, longer cycle times, and higher costs as product variety increases. There are a number of compelling reasons why the factory should be the starting point in the journey toward demand driven manufacturing.
First, converting to lean manufacturing in the factories will help ensure that ERP software is not merely automating an otherwise bad process.
Secondly, the factory is often the starting point for companies intending to make broader supply chain improvements. When a company sees significant results from the lean manufacturing transformation, they can often convince suppliers to do the same, providing help and experience. Once the factory is lean, upstream supply chain improvements help ensure that supply disruptions do not hamper the lean factory.
Another critical aspect to be considered here is:
“To Go for Global Optimisation across the Supply Chain rather than local optimization”
To achieve suitable factory responsiveness we have to start evaluating right from the supplier end who delivers our raw material.
We did a detailed secondary research to determine parameters to measure factory responsiveness. We also took the inputs of managers in demand planning & factory to arrive at a list of parameters
The following parameters can be used to gauge the responsiveness of the factory.
1) Direct Labour Productivity
This involves the measure of:
- Standard Direct Labour Cost
- Standard Direct Labour time per unit output
- Earned standard Direct Labour dollars
- Direct Labour efficiency
- Direct Labour utilization
Total Labour Rate = Direct Labour Rate X (1 + overhead rate)
The principle problem of this allocation method is the high priority it puts on the reduction of Labour and the lack of emphasis on the reducing overhead.
2) Machine utilization
Machine Utilization = Actual Time Producing (min/day) = Actual Output Rate
Time Available (min/day) Standard Output Rate
3) Production and Operations Criterion: Many companies set daily, weekly, or monthly output and schedule requirements based on the internal factors so as to yield the largest positive cost variance, the greatest number of items shipped, the smallest lead times, or whatever else will make the company look good.
Lead time = (Time when factory receives the product)
- (Time when the factory receives the order)
4) Quality Requirements: The organisation needs to assess the product and service quality, however the criterion are developed internally and are inwardly focused. Strict quality requirements are fundamental, but strictness must be gauged by the customer’s measures.
World – class view held by JIT/TQM organisations is charachterised by:
- Continuous process flow
- Employee involvement
- Supplier involvement
- Elimination of variation and waste
- Visual control
- Global competition
- Rapid change in the competitive products and technology
- Design for manufacturability and customer value
- Continuous improvement and innovations
- Short product life cycles
5) Financial Criterion:
Total Head Count Productivity
= _ Units Produced______________________
Total number of employees (Direct, Indirect, Administrative)
Units per Payroll dollar = Units produced
Total Payroll Dollars
Value added per employee
= Sales – (Cost of material, supplies, contracted work)
Total number of Employees
Value added per payroll Dollar
= Sales – (Cost of material, supplies, contracted work)
Total Payroll Dollars
6) Asset Utilisation:
Return on the assets employed
= Net Income + [(Interest expense) X (1 – Tax rate)]
Average total Assets
Asset Turnover
= Net Sales_____
Average total assets
7) Inventory:
Inventory can be classified as follow:
- Raw materials
- WIP
- Finished Goods
Days of inventory = Quantity of the Inventory
Demand
WIP Turns = Days per Period
Days of WIP
8) Other measures are as follows:
-
Set – up time: The time between when the final unit of one batch is finished and the first acceptable unit of the next batch is finished
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Lead Time: Is a measure of the overall performance as it takes into account the happenings across the whole organisation. The manufacturing Lead time is the slacked time or sum of the individual lead times along the critical path of all sequential, required activities, including the time to order and receive raw materials, time to process the material into finished goods, and the time to deliver the finished products to the customer. Lead time ratio = M/C
where, M = Supplier Lead time and C = Customer Lead time
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Layout:
- Assembly space per product
= Total Square footage of the space in Assembly Area
Number of units ordinarily in Assembly Process
= Square foot of storage space occupied by materials
Total Square footage available for storage
= Number of damaged goods processed in a time period
Total number of units processed in a time period
= Total Distance between all operations
Units per Container (or batch)
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Equipment:
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Equipment availability = Planned running time – All downtime
Planned Running time
= Equipment availability X Performance efficiency X Rate of Quality
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Performance efficiency = Number of Units produced X Design CT
Actual Running Time
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Rate of Quality = Number of Good units produced
Number of all units produced
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Process Focused measures:
These measures include the following
- % of total parts starting a process that do not finish
- % of parts that have at least one defect
- % of parts that are scrapped
- % of parts that are reworked
- number of errors per order shipped
- % of vendors – supplied parts that are defective
- % percent of processes in statistical control
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Schedule adherence by the production process:
A measure of this aspect is the Linearity index which is given by
L = 100% - Percent deviation from uniform schedule amount
Number of Production Plants
Another important measure is the Jobs Shipped On Time (JSOT) given by
JSOT = 1 – Number of Jobs shipped late
Total jobs processed PROPOSED SYSTEM TO ACHIEVE FACTORY RESPONSIVENESS
We suggest a combination of lean & agile production system, which we would like to term as Leagile production system
Lean production systems
Lean productions systems have become compulsory .They have become hygiene factors for a manufacturing company.Implementing lean manufacturing principles will help provide the foundation to make demand driven strategies a success & ultimately deliver suitable customer value.
Additionally, having a supply chain comprised of lean factories allows you to get more benefit from later supply chain optimization efforts. Secondly, the traditional mass production approach emphasizes lowering costs through capital utilization and large batch sizes. In this environment, producing a greater variety of products means that each product is produced less often and inventories must increase. With lean manufacturing practices, setup times are reduced, allowing smaller batches to be run in a cost-effective manner. Smaller batch sizes greatly reduce cycle time, which is necessary for a build-to- order system to work effectively. Before a company can offer more product variety, their factories must be capable of producing a high mix of products in relatively small quantities.
Leanness is a different concept to agility. The term lean is used because lean manufacturing is concerned with doing everything with less. In other words, the excess of wasteful activities, unnecessary inventory, long lead times, etc are cut away through application of just in time manufacturing, concurrent engineering, overhead cost reduction, improved supplier & customer relationships, total quality management (TQM), Just in time (JIT), Kaizen, etc. These Japanese production systems have helped the Japanese companies to attain world class competitiveness and they have been adopted by other companies across the globe.
In implementing a key principle of Lean, eliminating waste, the company needs to focus its efforts on many parameters, including the following:
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Complexity: Reduce or eliminate complex solutions because they tend to produce more waste and are more difficult to manage.
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Labor: Eliminate all unnecessary “movement” and steps of people.
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Overproduction: Produce only the exact amount of goods the customer wants when the customer wants them.
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Space: Conserve space by improving poor arrangement of machines, people, conveyors, or work stations, and storage of excess raw materials, parts, work-in-process, and finished goods inventories.
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Energy: Operate equipment and use person-power only for productive purposes.
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Defects: Strive to achieve the goal of no rework.
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Materials: Convert all materials into products. Avoid scrap, trim, excess, or bad raw materials.
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Idle materials: Make sure that nothing sits idle so there is a steady flow to the customer.
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Time: Eliminate delays, long setups, and unplanned down time of machines, processes, or people.
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Transportation: Eliminate the movement of materials or information that does not add value to the product, such as double and triple handling of goods and needless movement of information.
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Unsafe acts: Eliminate dirty, dumb and dangerous acts
Agile production systems
Manufacturing industry has taken a major paradigm shift. This shift has taken us away from mass production, way beyond lean manufacturing, into a world of agile manufacturing.
The corporations are undergoing massive transformations – reengineering business processes, flattening hierarchies, empowering people, implementing lean production concepts, computer integrated manufacturing, ERP, etc. However to achieve a competitive lead the companies should do something that the competitors are not doing.
The aim of agile manufacturing is to put the enterprise in front of primary competitors by developing agile properties. This agility will then be used for competitive advantage, by being able to rapidly respond to changes occurring in the market environment and exploiting a fundamental resource – knowledge.
Agility is defined as quick moving, nimble and active. This is clearly not the same as flexibility which implies adaptability and versatility. Agility & flexibility are therefore different things.
When we link computers across applications, across functions & across enterprise we do not achieve agility. We might achieve a necessary condition for agility, that is rapid communication and the exchange & reuse of data, but not agility.
Agility has been defined in several ways. Here are 2 examples:
"An Agile corporation is a fast moving, adaptable and robust business enterprise capable of rapid reconfiguration in response to market opportunities. Such a corporation is founded on appropriate processes and structures and the integration of technology, organization and people into a coordinated system in order to achieve a quantum leap forward in competitive performance by delivering capabilities that surpass those obtained from current enterprise practices."(Kidd 1995)
"The Agility that arises can be used for competitive advantage, by being able to respond rapidly to changes occurring in the market environment and through the ability to use and exploit a fundamental resource - knowledge. People need to be brought together, in dynamic teams formed around clearly defined market opportunities, so that it becomes possible to lever one another's knowledge. Through this process is sought the transformation of knowledge into new products and services."
(Kidd 1994)
Some of the key words and phrases linked with the agile paradigm are:
- Fast - a very high speed of response, for example, to new market opportunities.
- Adaptable - the capability to change direction with ease, for example, to enter completely new markets or product areas.
- Robust - avoiding and withstanding variations and disturbances, for example, products that lose market appeal owing to changes in customer preferences.
- Virtual corporations - the combining of talents between companies through (short term) joint ventures.
- Reconfiguration - the ability to very quickly reconfigure corporate structures, facilities, people, organization and technology to meet (often) unexpected and (probably) short lived market opportunities.
- Dynamic teaming - actively looking for and building off the creative and innovative talents of other team members.
- Transformation of knowledge - explicitly transforming raw ideas into a range of capabilities which are then embodied in both products and services.
The main points about Agility are:
- Agility is about the basis of competition, business practices, and corporate structures in the 21st century.
- Agility is not about developing more technology, although technology will play an important role.
- Agility is not another way of referring to leanness, flexibility, computer integrated enterprises, or other current buzzwords.
- Agility is a strategic response, not tactical, and involves building defense against primary competitive forces through cooperation.
- Agility is a holistic concept.
- Agility is primarily about adaptability which is achieved through reconfiguration capability.
- Processes, structures, organization, people, implementation capabilities, etc are the key issues.
- Agility is a paradigm shift.
- Agility is a step change innovation not an incremental innovation.
- Agility holds the promise of a world based on cooperation.
Leagile production systems
We suggest a combination of lean + agile production systems (Leagile system) to have a responsive production system at ICI paints
There is a lot of difference between the two paradigms. The differences between the two paradigms should not be considered in a progression or in isolation. Neither paradigm is better nor worse than the other, indeed they are complementary within the correct supply chain strategy. The decoupling point acts as a buffer between the variable demand for a wide variety of products and the level production schedule for a smaller variety of components. There is need for accurate and quick market information and hence information lead time compression as well as material lead time compression is important.
Once the need for agility and the position of the decoupling point has been identifed there are further decisions to be made. The way in which an agile manufacturer differentiates its products from the lean manufacturer is through concentrating on the service levels at the expense of reducing costs. ICI Paints should not be looking at operations in isolation from the rest of the supply chain. Whether to develop an agile capability or a lean manufacturing structure will be dependent upon where in the supply chain the members are located. This total supply chain perspective is essential and ICI Paints should be striving for leagility that is carefully combining both lean and agile paradigms.
What kind of results should you expect from a responsiveness improvement? Research has reported following findings:-
- Defects reduced by 20%.
- Delivery Lead Times reduced by more than 75%
- On Time Delivery improved to 99+%
- Productivity (sales per employee) increases of 15-35% per year
- Inventory (Working capital) reductions of more than 75%
- Return on Assets improvement of 100+%
Both postponement and information decoupling have been considered as relevant initiatives in making the agile factory operations a reality. It is commonly argued that the two can be combined into ``leagility'', which is the combination of agility with lean Capabilities. Leagility might work well in operational terms as lean capabilities can contribute to agile performance and might often be a prerequisite.
If the leagility approach is to work, though, it is required to fit within a purely agile operations strategy, rather than a purely lean approach. Thus it is concluded that the leagility thesis does not fundamentally challenge the agility concept.
RECOMMENDATIONS
We are aware of various lean practices. Introduction of agility in the manufacturing process involves the infusion of a number of agile practices. The introduction is like a progression across the whole value chain of the activities being performed by the system. In manufacturing, a good portion of the value chain exists on the shop floor, where raw materials are converted into valuable end products. Other functions exist to support the activities on the shop floor. When introducing agility in the organization it is always better to start from the shop floor and work towards processes. The effectiveness of the processes reduces as we move away from the shop floor level towards the corporate/office level.
The processes which can be directly affected while redesigning the shop floor are as follows:
- Supplier Relations
- Preventive maintenance
- Inventory control
- Production control
- Integrated quality
The processes which support and interact with the shop floor process but need a separate attention are as follows:
- Marketing
- Quality assurance
- Production engineering
- Finance/Accounting
- Production planning
- Product engineering
Thus in order to take care of the aforesaid factors, in improving the factory or more precisely the shop floor responsiveness, the following order can be suggested to bring about agility on the shop floor. The suggested order is based on the study of the industry best practices as far as the improvement of the shop floor responsiveness is concerned:
REFERENCES
Childerhouse P., “Enabling Seamless Market Orientated Supply Chains”, Cardiff University, PhD Thesis. 2001.
Fisher M.L., “What is the Right Supply Chain for your Product?”, Harvard Business Review, March-April 1997, pp105-116
Harrison, A., "Investigating the Sources and Causes of Schedule Instability", Int. J. Log. Man., Vol. 8, No. 2, 1997, pp 75-82
MuCullen P. and Towill D.R., “Practical Ways of Reducing Bullwhip: The Case of the Glosuch Global Supply Chain”, IOM Control, December/ January, Vol.27 No. 1, 2001, pp. 24-30
Naylor B.J., Naim M.M. and Berry D., “Leagility: Integrating the Lean and Agile Manufacturing Paradigms in the Total Supply Chain”, International Journal of Production Economics, 62, 1999, pp. 107-118.
“World Class manufacturing”, Sahay B.S., Management Development Institute
“The Transition to Agile Manufacturing”; Montgomery Joseph C. and Levine Lawrence O.
Towill, D.R., “The Seamless Supply Chain”, International Journal Technology Management, Vol. 13 No. 1, 1997, pp. 37-56.
Waddington T.R., “The Integrated Supply Chain: Fact or Fiction” Durham University Business School, MBA Thesis, 2001.