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ORDER FULFILLMENT IN HALF THE TIME

How to cut order fulfillment times in half for a competitive advantage.

Some companies realize the value of fast order fuilment (next three bullets), but don't know how to shorten it.  Others may not realize the benefit or think it is too hard to improve.

  • Some companies say that without this competitive advantage, they must then compete on price, but can't if they have not lowered their cost, which this site also shows how to do by design.
     
  • Another benefits of reducing order fulfillment time are getting paid earlier, minimizing  the high carrying cost of (almost) completed finished goods. and minimizing the chance of changes during long order fulfillments.
     
  • Some companies says that cutting order fulfillment time in half would double sales!
     

This article will show how to cut order fulfillment times in half or better. The first topic will be a discussion of the delays cause by the typical causes of part/material availability problems followed by a major topic on shortening supply chain times. In that section will be a sub-section on how to eliminate the problems of long-lead-time parts. This will be followed by a section on shortening order fulfillment time for existing products.

The last major subject will show how to shorten build times, preceded by a summary of the traditional practice of shipping from inventory compared to Build-to-Order


Part/Material Availability Problems

Part/Material availability problems are often the leading cause of slow or inconsistent order fulfillment speed. If parts and materials designed into the product (hereafter called “parts”) are not readily available, then the choices are the “between a rock and two hard places," summarized as follows:

Order parts after receipt of order and wait however long it takes to get all of them delivered; build the products; and then ship them so late that this could be a competitive disadvantage with some of the lead-times that are too long to make this scenario uncompetitive.

Try to order all parts ahead based on forecasts, relying on yours or customers’ forecasts . If over, you will incur extra cost and inventory. If under, some of the order will revert to an expedited version of the above firedrill scenario and be late, thus disappointing customers or lowing market share. If any parts have lead times exceed the order delivery window, that prevent this scenario from working, but trying will waste a lot of effort and money.

• Try to stock long-lead-time parts,
which is expensive and hard to know how much to order of each one, all of which gets exponentially worse with the number of long-lead-time parts in your products. Fortunately, long-lead-time part problems can be eliminated by design (see below).

The biggest cause of availability problems

 First, understand the biggest cause of availability problems:

An designer selects the first part found that “will work” and tells Purchasing to buy it.
 

The trouble with this common practice is that even if the selected part has the published specs to “do the job,” it may not be a very good part: It may not have consistently good quality; It may not even function well enough in all usage modes in all environments: And it may not be readily available throughout the expected lifetime of your product.

SHORTENING SUPPLY CHAIN TIMES

So, instead of throwing “the" part number over the wall to be bought, the engineer should specify the minimum spec because looking at higher performing parts may reveal parts that are more available, which may even cost less if they are built in higher volumes in efficient factories by competitive suppliers.

Then work with Purchasing to assure the chosen part will be readily available throughout the production life of the product. In order to assure this, the following need to be investigated for a range of parts above the specified minimum spec..

Importance of part being available for the life of the product

This is important enough to eliminate from consideration parts that may disappear during the expected production life of the product because of the dire consequences, which could be:

• Production delays and resource drains to write the change orders to substitute a new part and deal with quality issues and requalify the product if necessary, or

• Try to buy a lifetime supply (called an “end of life buy”) before the “endangered”part goes out of production based on forecasts, which is either expensive (if over) or risky (if under). The costs and risks will rise exponentially with the number of times this has to be done.

Critical procurement considerations

• Part lifespan. As a starting point, ask suppliers how long candidate parts will be available, specifically asking if there are any looming phase-outs, redesigns, or when a large batch in inventory may run out. They may not know or may give unrealistic assurances, so other investigations may be necessary.

Other users of the candidate parts. Ask suppliers, “Who else is buying your parts?” If their other customers make products with similar lifespans to yours, that is a good sign. Beware of parts used in fast-moving industries, like consumer electronics, whose products and their parts may be obsolete in a matter of months. When enquiring, also ask if their customers have the same challenges.

• “Better” parts. The range of acceptable parts, already narrowed by availability, can be expanded by considering “better” parts than your minimum requirements, which could have tighter tolerances, better margins, better materials, better finish, or higher performing, as long as they are not to big or too heavy. For new designs, the part volume allotment and mounts could be designed designed to be large enough allow for this eventuality, which may even make it easier to change parts, if it ever comes to that.


• Paying for “better” parts.
Sometimes people resist buying “better” parts because they think it will “cost more,” which is especially problematic if product “cost” is measured predominately by part cost (Bill-of-Material entries). The author’s seminars have a bullet that says:

“Be prepared to pay for this availability, but it will be worth more
in total cost saved and avoid the costs to fix availability problems.”

Selecting parts and materials for regulatory compliance. Specify parts and materials that are already pre-certified for regulatory compliance, such as for cleanliness, product sterilization, mil-specs, etc. This would ensure that the design would not need to be changed later, and maybe need to be requalified.

• Part consumption. Ascertain the number of candidate parts consumed per year (not produced since some may go into inventory). If your products are seasonal, understand if suppliers are building batches in the lean season in hopes of having enough in inventory for the peak season.
        Also, searching past production records will give an indication of the stability of patterns in the part’s demand and production.

Standard parts may have higher consumption than non-standard parts and may be available from more suppliers. So, wherever possible, select standard parts, even if they are “better” than you need because it still will reduce total cost as mentioned in the section, on “Paying for ‘better’ parts” above. A further advantage of standard parts is the synergies when many of your products could use them, thus simplifying your own operations and supply chain management.

Eliminating problems of long-lead-time parts

Eliminating the problems of long-lead time parts starts with part selection and supplier selection. Most long-lead-time problems are caused by specifying parts for function with no regard to their lead times. Systematic avoidance of lead-time problems starts with examination of the suppliers mode of production and its supply chains, using the following criteria:

• Best: Suppliers parts are made in stead flows on dedicated lines

• Next Best. Suppliers part are made on-demand from readily available materials, as taught in this site and http://www.build-to-order-consulting.com/

Next to Worst: Suppliers parts are shipped from forecast-based inventory, discussed above for your products Suppliers parts may be in stock, but if not, they may either make you wait until the next production batch, which may be made yearly for their unusual part, or revert to the worst scenario (next), which guarantees long lead times:

• Worst.
Suppliers parts are built after they get your order with the problems cited in the section above titled: “Part/Material Availability Problems.”


Shortening order fulfillment time for existing products

Rationalization

• Overall order fulfillment rates can be immediately improved by rationalizing away the most unusual products and variations that have the slowest manufacture and supply chains.

• One important caveat is to retain certain products/variations that (a) have future potential, (b) truly must be in the product line for valid reasons, and (c) can then be incorporated into a subsequent product family development and then be built on-demand at low cost and shipped quickly. Until that happens, they may need to be built by the usual heroics.

Outsource or relocate to your own profit-and-loss center

• If those products and variations must really be in the product line, but don’t have much of a future or chance of being redesigned or incorporated into a synergistic family, they could be:

(a) built in a self-supporting profit-and-loss center in your company that keeps building them with their own talented people and so their production will never drain resources away from the fast and efficient Ops and SCM proposed on this. Further, unusual, hard-to-build products should not be charged to overhead that will them have to be paid by the profitable products, which becomes a “loser tax.”

(b) outsource them to a contract manufacturer, even to a less advanced competitor, who will build them in the same old way at the same cost in the same time.
 

Convert selectively

• If certain products have only a few parts with availability challenges or only a few long-lead-time parts, it may be worth it to do proactively (before an order is taken) change orders to substitute more available parts This would apply most to worthy products that have competitive pressures on order fulfillment time.

Before the next major topic of Shortening Build Times, if may be instructive to distinguish between Ship-from-Inventory and Build-to-Order.

SHIP-FROM-INVENTORY vs. BUILD-TO-ORDER

1. Ship from Forecast-Based Inventory. Even this title casts doubt about this practice as a consistent solution to competitive order fulfillment. If the forecasts were right, which is rare, then order fulfillment could be right away. On the other hand, if (a) the forecasts were not good guesses and (b) you can not afford to carry all the inventory for all the variations, then the company must try to build those product variations “to order” in a firedrill mode, but without employing the systematic methodologies described below.
        Each affected product will probably be a chaotic firedrill that will deplete your resources and morale, while greatly disappointing customers some of the time. The reason this will not work is the inescapable dilemma of inventory management:

High inventory levels improve fulfillment, but will cost a lot of money just to try.
However, if you try to lower inventory costs, that will disappoint customers.

Thus, trying to improve one will always make the other worse!
And none of these oscillations will consistently satisfy customers.
 

Using the right words: When discussing order fulfillment, use the most realistic words, not “build to stock” and “ship from stock” which may sound unrealistic appealing because some people actually like having things “in stock” – as long as everything they want is in stock Rather, use terms like “build to forecast” or “ship from inventory” because no realistic person likes “forecasts” or “inventory.”

2. Build-to-Order means that products (and their variations) are built quickly in flexible operations “on demand” in any quantity from parts and materials that are supplied in the following ways:

(a) They are pulled quickly from their sources on-demand spontaneously directly to wherever they are needed (called “dock-to-line”), which is a principle of lean production; or

(b) They are so standardized that they are always available all at the points of use, thus avoiding kitting batches of parts into a “kit” which then forces manufacturing in forecasted batches, which is called Mass Production; or

(c) if parts are not available like that, then they are built on-demand from available materials as in (a) and (b).

SHORTENING BUILD TIMES

Document current order fulfillment times. First, identify the market segments in which order fulfillment matters the most. One simple question to ask Marketing and Sales would be “how much would sales increase if we could cut the order fulfillment time in half?” Another question would ask how much market share would grow for the same improvement in order fulfillment speed.
        Prioritize the following efforts on the most promising products, product families, product variations, market segments, and even specific customers. Then starting at the top of the list , break down the activities that add up to the overall build time. This will be added to the time to procure parts and materials (previous section) to result in the overall order fulfillment time.

Understanding the activities. Summarize key activities of current order fulfillment times and put them in Pareto order with the longest activities on the top of the list.

For each activity, enter the following into a spreadsheet:

• current elapsed time
• minimum possible actual processing time
• current batch size
• setup times on the critical path (on-line setup)
• setup times that are done off-line when the processing is going on

Spreadsheet columns to the right would show further breakdowns, goals, resources required, estimated resource savings, estimated financial benefits, and then plans to achieve those goals. This process could be formalized using tools such as Value Stream Mapping.

ONE PIECE FLOW to shorten order fulfillment time


Shift from “batch & queue” production to one-piece flow

 

The shift from manufacturing batches to one-piece flow has two elements, Operations and Supply Chains.

The Shift in Operations

This discussion will start with “The Slow Build Time” scenario, which will need to shift to “The Fast Build-Time” scenario:

The Slow Build-Time scenario

Slow factories make parts in batches from, a batch of materials, and then move the finished batch of parts to Assembly where a batch of products is assembled.

Slow factories schedule each batch of production based on forecasts and then the batch of products either:

• Goes to customers who has waited for ordered parts to be delivered to the factory and then is fabricated and assembled into a batch of products which are then delivered to waiting customers.
“Just
• Goes into inventory, based on forecasts made early enough so that the slow factory could deliver finished products in time for the anticipate demand. If the size of the forecasted batch matches demand, then everything is fine, but this idealized scenario is extremely rare. In reality, there will be one of two dismal alternatives

• If the forecasted batch size was smaller than demand, then the first customers would get their products right away After that, customers would either be turned away, thus losing all those sales, or customers would have to wait for “back-ordered” products to be built in the slow scenario mentioned above.

• If, on the other hand, the forecasted batch size was larger than demand, then current demand would be satisfied right away but money are precious resources would have been wasted building products that may not sell now and then go obsolete. Most companies will pay for years of inventory carrying cost (about 1/4 of the inventory value per year) “just in case” someone will buy one or offer a clearance sale to “move the metal” or send to a liquidator. Eventually, if this doesn’t get rid of the obsolete inventory, the company will have to “write it off.” Usually the result of these costs the company millions of dollars.

Effect of product variety on inventory cost and customer satisfaction

Keep in mind that forecasting batch production for inventory gets worse, mathematically times the number of variants as follows:
 

"X" variants would mean X times the inventory for the same customer satisfaction or
1/X the customer satisfaction given the same inventory level.

For instance:

2 variants would mean twice the inventory for the same customer satisfaction or
half the customer satisfaction given the same inventory level.

5 variants would mean 5 times the inventory for the same customer satisfaction or
1/5 the customer satisfaction given the same inventory level.
 

The Fast-Build Time Scenario; Flow Manufacturability and one-piece flow

    If setup can be eliminated or reduced enough to eliminate the need to manufacture in batches, then parts, sub-assemblies, and products can flow one piece at a time. One-piece flow may be essential when building to-order a wide variety of standard or mass-customized products.

    It also eliminates much of the waste of batch-and-queue manufacturing: waiting, interruptions, overproduction, extra handling, recurring defects, and other non-value-added activities, which Lean Production strives to eliminate.

One-Piece Flow

    One-piece flow has a distinct advantage for assuring quality at the source. First, flow manufacturing eliminates the possibility that recurring defects may be built into several batches before being caught at a downstream inspection step. Second, people working in flow manufacturing look for any visible deviation as each part is handed to "its customer" (the next station). Further, if the part doesn’t fit or work in the next operation, the feedback will be immediate leading to quick rectification of the problem.

    In flow manufacturing, parts may be manually handed to the next station, which may be very close, thus eliminating the need for mechanized conveyance or fork lifts, whose aisles may occupy as much space as the production line.

U-Shaped Lines

    One-piece lines are usually sequential, sometimes breaking into parallel routes when needed to balance the line (see next section). Rather then laying out "lines" in a literal straight line, it may be advantageous create a U-shaped line which bends the line into the shape of a "U" for the following reasons:

C Visual control. Everyone in the line can see the whole operation, enhancing visual control, thus resulting in greater group ownership, continuous improvement (kaizen), and problem solving. Visual control can be further enhanced with clearly visible andon (warning or status) lights and display boards.

C Problems heard. When everyone in the line works close together, problems at all stations will be heard by the entire line, thus leading to faster problem identification and resolution.

C Helping out. If one worker gets behind, nearby workers can help out, even from end to beginning.

C Skipping steps. Having work stations closer together makes it easier to process orders that skip steps.

Machine Maintenance

    In sequential one-piece flow, when one production machine breaks down, the whole line will go down. Therefore proactive equipment maintenance is important to prevent unexpected production interruptions. A good TPM  (Total Preventive Maintenance) program should assure this. Inventory buffers may give an allusion of protection, but may still require special measures, like overtime and inventory, to recover.

    Equipment maintenance can be more responsive and less costly with standardization of all replaceable parts: belts, motors, fuses, controllers, etc.

Line Balancing

    Ideally, to achieve optimal machine tool and work station utilization, one-piece flow lines should be balanced so that the time to do the required tasks at each station, called the takt time, is fairly constant.

C If takt time at each station = station capacity, arrange into sequential line.

C If takt time does not equal station capacities, but does not vary with products:

C Upgrade appropriate capacities or find faster machines to achieve balance.

C Group machines/stations into series/parallel paths to achieve better balance, perhaps 3 of one feeding 2 of another.

C If underutilized machines are not expensive, don’t worry about balancing if the entire system can provide high value.

C If takt time varies with different products,

C Make stations/machines flexible enough to share workload.

C Sequence jobs to compensate for imbalances

C Size the line based on the most expensive machine and provide excess capacity for the less expensive machines.

    Another way to balance lines is to make certain stations double as kanban sources, so that they make kanban parts during times when they have excess capacity.

Cellular Manufacture

    Flexible operations work best with dedicated cells or lines for every product family. Cells can be permanently configured so that within a product family, all setup has been eliminated. This strategy works best with many simpler dedicated machines instead of a single "mega-machine, unless the mega-machine can handle a very large family -- enough to justify its expense. In some cases, older or "obsolete" machines may be used to provide complete set of machines for the cell; this was one of the solutions covered in Eli Goldratt’s novel The Goal. Remember that speed or capacity may not be as important as flexibility.

    Total cost analysis must be used taking into account all related overhead costs in addition to the usual material and processing cost. In some cases, cells may be installed even if the cell alone can not be justified by traditional analyses, but if the cell completes a valuable plant capability like build-to-order. The guiding strategy for cell design is flexibility and setup elimination.

Leveling Production

Artificially induced irregularities.

    Raw material comes out of the ground in a steady flow. Most products are ultimately consumed in a steady flow. Most irregularities in factory workload are artificially induced.  Sources of irregular factory workload include:

C Production quotas for end of the month, quarter, and year.

C Promotions, usually to move built but unsold finished goods or to meet sales quotas. This situation is compounded when customers hold off purchases until the expected "sales."

C Quantity discount and "deal making" encourage large batch purchases. Ironically, this may cause the producer to work overtime to deliver the large batches and cause the customer to incur inventory carrying costs once the batch is received.

C Lack of dealer confidence of product availability, leading suppliers to build up inventory.

C Lack of customer confidence in product availability, leading consumers to "stock up" when they can.

C The "business cycle." Half of the effects of downturns are caused by working off excess inventories; half the upturns are caused by building up inventories for anticipated upswings in demand.  (See Womack and Daniel T. Jones, Lean Thinking; Banish Waste and Create Wealth in Your Corporation, (1996, Simon & Schuster), p.  88, "Do we really need a business cycle.")

Seasonal irregularities. Some irregularities in factory workload are seasonal, such as Christmas, back-to-school, and other events. But these can be dealt with, since these are predictable. Notice how grocery stores know how many turkey’s to order for the holidays and how much beer and snack foods to order for major sporting events.

Line capacity issues:

C Eliminate artificially induced irregularities listed above.

C If demand exceeds daily capacity for a line, prioritize scheduling into categories (next-day, two-day, time available within the week) and charge accordingly, either a premium for next day or a discount for slower delivery.

C For short-range peak demand beyond capacity of a line or cell:

C Shift production to another line if second line is flexible enough

C Consider overtime

C For long-range peak demands beyond capacity, expand capacity and/or outsource the least efficient or least compatible operation. Pre-assign efficiency ratings & work from the top of the list.

C Avoid unexpected loss of capacity with preventive maintenance (TPM) and quality assurance programs, like TQM and process controls, to avoid interruptions and products looping back.

 

SHORTENING THE TIME TO CONFIGURE AND CUSTOMIZE

Instead of using a lof of valuable resource-hours and taking a lot of calendar for firedrill customizations, use Mass Customization principles customize products quicly and cost-effectively, as shown at http://www.design4manufacturability.com/mass_customization_article.htm .  The first example shows a factory layout to mass customize electronic products.  The second illustrated example shows how to mass customize facbricated products.

The article at http://www.halfcostproducts.com/design_for_lean_and_bto.htm shows how to design products for mass customization.

These are the general principles. Pass around this article or URL to educate and stimulate interest

In customized seminars and webinars, these principles are presented in the context of your company amongst designers implementers, and managers, who can all discuss feasibility and, at least, explore possible implementation steps

In customized workshops, brainstorming sessions apply these methodologies to your most relevant products, operations, and supply chains.

 

Call or email about how these principles can apply to your company:

  Dr. David M. Anderson, P.E., CMC
fellow, American Society of Mechanical Engineers
www.design4manufacturability.com
phone: 1-805-924-0100
fax: 1-805-924-0200
e-mail:
anderson@build-to-order-consulting.com

copyright © 2016 by David M. Anderson

Book-length web-site on Half Cost Products: www.HalfCostProducts.com

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