Nov 11, 2011 ... TOCICO 2011 Conference. 1. Application of Theory of Constraints (ТОС) to
create competitive advantages in machine- building companies: ...
TOCICO 2011 Conference Application of Theory of Constraints (ТОС) to create competitive advantages in machinebuilding companies: ensuring high speed and reliability in fulfillment of customer orders
Vladimir Kharchenko Deputy Director for Marketing and Development, Managing Company of Scientific-Industrial Group “Dneprotekhservis" Board Chairman – General Director, PJSC “Dneprotiazhmash” Chairman of the Supervisory Board, PJSC “Slavtiazhmash” 11 November 2011
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SIG “Dneprotekhservis" TOCICO 2011 Conference
GROUP STRUCTURE TOCICO 2011 Conference
Slavtyajmash
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DTS-TIAZHMASH (hard machine building) TOCICO 2011 Conference
ТЕКСТЫ ТЕКСТЫ …..
TOCICO 2011 Conference
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First date with ТОС TOCICO 2011 Conference
TOCICO 2011 Conference
Collective reading of the books “The Goal” and “The Goal-2” in summer 2008
Tubing production output in July 2008 – 1,700 tons
Tubing production output in October 2008 – 3,500 tons
Славтяжмаш
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What did we believe our advantage was? TOCICO 2011 Conference
Price, payment terms Product quality Delivery time But!!! In practice, all competitors have similar quality and delivery time indicators
Tough competition in prices 5
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If not price, then what? TOCICO 2011 Conference
We compete by quality
We compete by delivery time
Purchasing new equipment, more expensive raw materials
Purchasing more effective equipment
Increasing investment!
Core disadvantage: A competitive advantage is easily copied by our competitors (while they have money) 6
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Let’s look at the customers
TOCICO 2011 Conference
Our customers are mining, coke and metallurgy enterprises. They order equipment for: •capital construction; •overhauling; •maintenance. What factor can be a decisive one for the customers dealing with construction or repair when they select an equipment supplier? •Price? •Quality? •Delivery time? 7
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Current practices TOCICO 2011 Conference
As a rule, a decision on selecting a supplier is taken via bidding procedure (tenders). To win a contract through bidding, suppliers often try every trick:
•deliberate inadequately short delivery time •deliberate low price, far lower than market price Some consequences a customer experiences upon accepting the above terms:
•deadlines anyway are not complied with •a supplier makes aggressive attempts to increase the price (in the process of contract performance)
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Noncompliance with delivery deadlines? TOCICO 2011 Conference
What steps the customer is doing when he needs to make construction or repair and if equipment delivery deadlines are broken?
•delays launch of production •should launch production with the old equipment What are the consequences?
•profit generation is delayed for an indefinite period •risk that equipment would break down •risk to get substandard products One day of downtime costs to the customer between UAH 10 thousand and UAH 100 thousand 9
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Actual time VS contractual time TOCICO 2011 Conference
Length of delay
Specific weight of “late” orders
up to 10 days
1%
10 days - 30 days
10 %
30 days - 60 days
40 %
over 60 days
45 %
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What about reliability of deliveries? TOCICO 2011 Conference
Current reliability of delivery deadlines in the market is:
up to 40%!!! Over 60% deliveries are delayed!!! Delays often are months long!!!
The major need of our customers purchasing the equipment is supplier RELIABILITY! 11
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Reliability is a competitive advantage
TOCICO 2011 Conference
The goal of the company is to become a market supplier demonstrating delivery reliability of 99% and more
The reality is that the management team can’t significantly improve current situation despite of extreme importance of on-time equipment delivery to a customer. What steps did we take to change the situation?
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System of Production Performance Indicators TOCICO 2011 Conference
The old performance indicator system completely ignores timely shipping!
•compliance with standard hours; •production output, tonnage; •etc.
No indicator traces DDP!
“Tell me how you measure me and I’ll tell you how I will behave” Eliyahu М. Goldratt 13
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Consequences of following the old indicators TOCICO 2011 Conference
As the old indicators encouraged local success, many years of applying them resulted in the following:
•The number of timely shipped orders was up to 7% (Slavtiazhmash) and up
to 40% (Dneprotiazhmash). The level of work in process (WIP) equals to the company sales for over four months. High WIP indicator hides priorities in the orders aggravating the situation with “manual priority management”.
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New production performance indicators TOCICO 2011 Conference
We’ve accepted new indicators to assess production performance:
•Number of the orders dispatched on time, % - ratio of the
orders dispatched on time (within initially agreed deadlines) to the total number of orders.
•Cost of the orders dispatched on time, % - ratio of cost of the
orders dispatched on time (within initially agreed deadlines) to the total cost of all open orders.
•Financial losses due to delayed execution of the order (TVD),
UAH – amount of money, which the Company has not received due to late execution of the order. 15
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Fast improvements TOCICO 2011 Conference
•ТОС solution was applied for make-to-order, Simplified DrumBuffer-Rope. Production buffers were calculated and production schedules were launched.
•Raw materials and components are launched at the Production buffer stage. Ensuring compliance with priorities
Launch of raw materials and components
Market demand Production lead time
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Identifying production buffer TOCICO 2011 Conference
Order dispatching date promised to the customer 15.12
Lead time of 90 days promised to the customer Date of order launching and dispensing supplies to production 01.11
Production buffer equal to 45 days
In most cases an initial shipping buffer made up a half of usual order lead time! Thanks to this, the level of work in process (WIP) has been significantly reduced thus improving identification of priorities for each order. All orders, which time of launch was not due, were “frozen”. All works under the same orders were stopped! 17
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Priorities in production TOCICO 2011 Conference
A simple and reliable system of priorities was launched in the production, and being followed through in all production sections, the system significantly simplified decisionmaking. 15 days
Order No.1 8 days have passed
30 days
Order No.2 25 days have passed
45 days
Order No.3 37 days have
passed
Current order status (color) demonstrating its priority among other orders is identified ONLY according to the spent time of the Production Buffer (have passed upon its launch according to the schedule). 18 18 18
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Sample priority system TOCICO 2011 Conference
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Ensuring work according to priorities TOCICO 2011 Conference
The previous motivation system did not support the work under priorities according to the buffer statuses:
•piece-rate wages system •keeping to standard hours •keeping to standard tonnage The decision made:
•guaranteed average wages to all workers in the event of forced downtime
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Current results TOCICO 2011 Conference
Indicator for PJSC “Slavtiazhmash”
May
June
July
August
September
Total number of orders
173
158
163
169
148
Number of timely executed orders
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9
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DDP
4.62 %
3.80 %
5.52 %
9.47 %
20.95 % 21
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Next steps TOCICO 2011 Conference
• Inventory Management • Drafting a Mafia offer for customers • Process of Ongoing Improvement
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