LEAN PRINCIPLES FOR SME’s Principle 3 – Demand driven output

 

Are your manual processes a barrier towards greater productivity?  Do you engage and empower your teams to strip away waste & inefficiency?  Do your staff embrace continuous improvement as the norm?

My 5 blog series for business owners and leaders, will focus your efforts to emerge renewed and reenergized after lockdown

Principle 3 – Demand Regulated Flow

On the 1^st December 1913, Henry Ford set up the first moving assembly line for the mass production of an entire automobile.  His novel idea reduced the build time of his cars by over 80%, from more than 12 hours to just 2½.  This was the most significant piece of Ford’s efficiency crusade, but it’s limitations became apparent as the demand grew for more variety.  The “any colour you like so long as it’s black” phrase we now associate with Henry Ford, served well, until the changing desires of the customer started asking for something other than a Ford Model T in black livery.  

This is where Toyota took Ford’s process a step further. They made changes to their manufacturing process allowing for more variation in the workflow, without returning to inefficiencies.  They made technical changes, quizzed and challenged the progression though the work flow, and strengthened communication between different process teams. 

Ford knew the importance of not creating large amounts of surplus stocks and inventory. He managed his supply chain to have enough materials to hand, to manufacture the cars based on demand.  This had to be balanced to smooth out the delivery service so that cars consistently arrived on time for the customer.

Fords initiatives meant striking the best deals with suppliers, managing inventory so as not to tie up cash on the shelves, and making improvements on the front line that led to the reduction of waste.  You can read more about eliminating waste in my blog Click Here.

 

Just In Time Delivery

In the 21^st Century, we are surrounded by the benefits of adopting this LEAN just-in-time flow delivery principle.  This states that all activity must be triggered by demand.  You don’t “push” materials into the flow but wait for a demand trigger to “pull” product or service delivery along.

The command to produce is initiated by the customer, with their order moving in the opposite direction to the normal flow of production or delivery.    For example, you can walk into a MacDonald’s restaurant, and have your meal ordered, paid for, cooked and packaged within minutes of arriving at the counter.  Customers perceive a good quality service when they get their product when they ask for it.  

Demand forecasting is crucial in this principal. Failing to forecast accurately can massively affect your cash flow and profits.  MacDonald’s have developed their own, very sophisticated forecast application.  Their point-of-sale data is generated on a daily basis at item level, the product list, stock levels, inventory and shipments at the distribution centre.

They have achieved 100% outsourced suppliers, don’t own any factories, or distribution centres, and work with just 16 major suppliers.   MacDonald’s most important key performance indicator (KPI) is ‘no item may ever be out of stock’.  To achieve this they work to strict supply chain planning principles. 

1.  Expectations have to be crystal clear

Get talking to your supplier(s) so they can get to know your business and how they can better serve you.  The relationship will work so much better if you describe your needs and supply requirements from the outset.  Then regularly communicate with your suppliers to ensure they keep up with your business evolution.

2.  Continuously report & evaluate your data

Management control systems are the DNA of every business,  to providing leaders and managers alike, with key information (KPI’s) on time, so you can take informed decisions on where problems exist, how big an issue they are and what are the priorities needing attention at any point in time.

3.  Take the marketing plan into consideration

Where local or promotional activities may need to be factored in, which may affect the forecast.  There’s no point promoting or making special offers in your marketing and social media if operationally you can’t deliver and your customers are going to be disappointed.  Can you imagine what would happen if MacDonalds ran out of Happy Meal boxes or free toys?

4.  Compare the forecast to the actuals regularly

To monitor and measure the accuracy of the forecasting, to tweak and fine tune, and take corrective measures for continuous improvement is essential in achieving a just in time delivery.  The devil’s in the detail, and if the teams or supervisors on the front line take their eyes off the ball, then you’ll be in danger of a stock out situation and losing money. 

MacDonald’s has consistently climbed up the Gartner supply chain Top 25 over recent years, now in the top 5 Supply Chain Masters for 2019.  They manage to finely balance new product growth and the resulting complexity in their supply chain planning, management and execution.

How to apply this in your small business

How will this help you? In a smaller, younger company than MacDonalds?  Well the same principles apply.  The first step is to gather as much historical data you can from your previous trading figures.  You may need to get this by product or service channel, or for each variation of your offerings.

This will provide you with a base line to forecast future demand with.  Take your marketing and promotional activity into consideration to estimate by how much you can increase your sales.  With a firm historical base to measure against, you can then work closely with your suppliers to only deliver the stocks or materials needed to service the forecast volume.

You need to implement a solid management control system to provide frequent checks and balances, and monitor the situation closely enough to avoid a stock out situation. You don’t want to be letting clients down, but at the same time, you don’t want to be left with stock (especially perishables) on your shelves, tying up cash, and potentially drying up your cash flow.

The third, and possibly the most important step, is to monitor when things go wrong, have your team note down or report on the reasons; how much product, or how many clients were affected; & how the problem could be avoided.  Even better, give them the autonomy and power to resolve the problem as it happens.  There’ll be more detail on this in the next Blog on “First Time Quality”.

Regular team meetings, and feedback reviews are the key to continuously evolving and improving on your existing model.  Get sacred time scheduled in yours and their calendars to guarantee these are held regularly – without fail.

The next blog in this series will focus on the fourth Principal of Lean – Jidoka, First Time Quality – the practice of ensuring that quality is achieved, not as an overlay, but as part of the daily culture.  Ensure your teams are empowered to resolve problems as they occur, and as close to the source as possible, termed by the Japanese as Jidoka – “automation with human intelligence”.