How improving material flow brings benefits beyond conventional business 

Nortal Suomi, October 14, 2019

There is a reason why lean philosophy is highlighting the importance of material flow at every step of the process. Having material flow seamlessly between processes is the most efficient way of reducing production and delivery lead times.

Lead time reduction is essential for two main reasons. First, it reduces capital tied into inventories and all other related costs. Second, it accelerates sales by offering shorter delivery times and adaptations to the market changes.

Where goes the precious lead time?

The processing cycle is usually only a fraction of time compared to the phase when material is waiting between processes on the factory floor or in the finished goods stock. Therefore, when there is room for material flow improvement, investment on higher production capacity (e.g., additional machines) has minimal impact to the lead time reduction.

Following misleading KPIs can make the situation even worse. For example, trying to maximize the overall equipment effectiveness (OEE) leads to expensive machines being required to run at all times. However, this approach does not have an impact on the variable costs (machines have already been bought) nor changes in demand. And producing without demand will extend lead times and increase capital tied to the inventories.

Yet, it is still a necessity to monitor the OEE for a bottleneck resource.

Not just planning, but planning correctly

The objective is to have the shortest possible lead time for deliveries.

In principle, it would mean producing everything in chronological order. However, this is often not possible in the manufacturing industry, since there are unit processes in between such as ovens and paint shops where the work is conducted in batches. As well as setups and cleanups, which “brake” the process flow.  Also, different production and logistical constraints can impede setting up chronological order (e.g., different types of moulds in production or vessel shipment timetables for logistics). These processes affect the material flow and make for a challenging planning environment. In essence, this means orders need to be grouped into batches.

Only if we consider production batches and sequencing together with process synchronization, can we achieve an optimized and feasible plan. And material flow can be optimized using Advanced Planning Systems (APS). For optimizing the material flow, there are a few takeaways to consider:

  • One pace giver. For flow optimization, there must be a bird’s eye view of the supply chain and/or production and consolidated management. Breaking the value chain into small entities leads to sub-optimization if they are not connected.
  • Small production batches. At some point, there will be a discussion about the advantages of small production batches. Also, how small is small enough? The rough guideline is to aim for the smallest batches allowed by the time constraints.
  • Demand is king. Optimizing production volume without demand is the ultimate waste.
  • Think about your manufacturing strategy. Such as could one line be dedicated to producing large volumes and another line for customized deliveries?
  • Set up buffer stocks in compliance with your process reliability. It is important to manage and update the buffer stock scheme frequently in order to establish the necessary minimum level for earliness.

The potential is 50% faster lead-time

Depending on the sources, manufacturing companies have value-added time in their production processes somewhere between 1–5%. And during the remaining time, the semi-finished products are in non-value-adding status. Non-value-added time also includes activities that cannot be solved using APS; but based on our experience, even 50% lead-time reduction can be achieved.

The benefits of process synchronization go beyond conventional business benefits. When orders are scheduled to be in-sync at every step of the process, it eliminates lateness and stops firefighting. It minimizes the sense of continuous urgency, relieves stress from every stakeholder, as well as allows bandwidth for more value-added work such us development activities.

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