Providing excellent customer service in volatile markets while keeping a tight leash on working capital is like dancing the tango, beautiful if you get everything right, but a nightmare when something goes wrong.
Over recent years the predictability of demand in many industries has diminished to a point where an accurate forecast which can be used to drive production is about as real as centaurs in Central Park. To get ahead of the game in these demanding commercial environments you have to have an agile and efficient supply chain. However, many companies in manufacturing industry have capacity constraints, budgetary targets and equipment and planning systems which were not designed for this environment. In addition major capital expenditure on new equipment to create capacity headroom or systems is not viable in the short-term either. Often the solution has to be found using the equipment and technology you have with the minimum of upgrades, and it has to done quickly.
One of the key components of the agile supply chain is Rhythm: a simple inventory planning and scheduling approach based on Demand Driven Supply principles which allows the right amounts of the right products to be produced on demand while level loading the plant and minimising working capital.
Rhythm has its roots in the original Lean Planning Wheel concepts for minimising changeover downtime, but takes the approach to the new dimension by allowing batch sizes and production frequencies to flex while the sequence remains fixed.
This simple adaptation allows the ABC segmentation by volume and different approach to supply for runners, repeaters and strangers, and even make to order to be abandoned resulting in a supply process which is simple, consistent and able to automatically respond to demand changes. While Rhythm is best suited to a make-to-stock (MTS) VMI environment where there is visibility and management of inventory at the customer, it is not restricted to this, rhythm can also work well in a pure make-to-order MTO environment.
How it works.
The rhythm concept comprises four main processes: three as part of the periodic supply planning process and one as part of the production execution process.
Inventory Replenishment Level (IRL) calculation – This is the level to which customer inventory should be replenished by production. The calculation is similar to conventional inventory requirements calculations taking into account demand and supply volumes and variability, and post production release and logistics lead times. However, production lead time is replaced by rhythm time – to be discussed later. The IRL can be forward looking to provide a required inventory profile to cater for seasonality and demand trends and is based on historic demand patterns and future forecast.
Forecast is only used to define the IRL and provide visibility of future materials and capacity requirements. It is not used in any way to plan production.
Rhythm calculation – Rhythm has three primary design parameters: sequence, rhythm time, minimum make quantity. Products are grouped by like production process and allocated to a production line based on this. All products falling into the process family should be included, irrespective of demand profile or if they are MTS or MTO.
Production sequence for the line is determined by applying a changeover hierarchy to minimise the changeover downtime between the one product and the next in the sequence. The most critical design parameter for rhythm is the rhythm time, the time expected to complete one full cycle of the rhythm sequence. This should be no more than 1 week if the full benefits of rhythm are to be realised, this of course means that aggressively reducing changeover time is has to be a high priority.
Myth Buster #1 – A one week rhythm time does not mean that every product is made every week – it means that every product has the opportunity to be made every week if there is demand for it.
The actual production frequency for any product is governed by the actual demand and the “minimum make quantity”, the minimum practical and financial quantity of product which should be made on the line. This is further modified to balance available line capacity against aggregate average demand run time and combined changeover times.
Using these parameters, the line should be loaded to a minimum of 85% of total available capacity based on design rhythm time and average aggregate demand for the products on that line. The unallocated 15% of capacity is to provide for maintenance and other planned downtime.
A further enhancement is to factor in product value so that high value or high margin products are triggered for production more frequently.
Event Management – An essential part of the IRL renewal, this process determines the impact of demand and supply abnormal events on ability to supply the customer and factors these into the IRL to ensure that product is available to the customer when it is needed.
Consumption Trigger – The first thing to understand about rhythm execution is that there is no fixed forward schedule or firm planning horizon. In theory, the next product to be made, the quantity to make and when to make it will be determined at the time the previous product run has finished. However in practice a report called the Consumption Trigger Report (CTR) is run at the start of each shift which gives a forward view of what is likely to be made in the next shift. Firm horizon is governed only by the length of time to stage and prepare materials for production.
The CTR is in rhythm sequence order and uses the following logic: for each product, current available inventory, in-transits and any open production orders are netted off against the IRL. The result of this is compared to the minimum make quantity and if greater, a production order is created for that amount (this can be modified to suit raw material batch sizes or packaging multiples if necessary). If the result is smaller, then the product is skipped and the next product in the sequence is reviewed in the same way. For MTO products, the requirement is simply the order quantity with no modification. A final check is made on material availability immediately prior to production and the production order is released and started. All of this happens a maximum of 24 hours before physical production of that product is started. Ideally, this should be within minutes of starting. At the start of the next shift or day, the current CTR is destroyed and new one created to manage the next period of production. The traditional weekly schedule which absorbs so much time being created, changed and changed again can be dispensed with freeing up time to manage events better.
Once a rhythm cycle is completed, the next starts immediately whether the design rhythm time has expired or not. The result of this is that: in cycles where there is less than average aggregate demand the rhythm cycle finishes early and the next is started; in cycles where there is greater than average aggregate demand the rhythm cycle finishes late. This “breathing” of the rhythm to demand allows production to be continuous and level loaded at the line’s design capacity, while output of product is in line with demand irrespective of the variability of the demand. With sufficient products in the sequence, the demand variability of individual products can be very large, but the aggregate variability will be within acceptable limits of +/- 20% of average on any one cycle.
Myth Buster #2 – Rhythm is applicable to almost any product demand profile, it is not restricted to products with stable demand with low week to week volatility.
Rhythm is self-regulating and will recover from most minor demand and supply events without intervention. In addition, if a product’s demand profile changes (say an increasing demand trend over time), the CTR calculation result will exceed the minimum make quantity more frequently and trigger production more frequently as a result. There is no predetermined ABC product classification which determines a fixed production frequency for a product. This is one of the major departures from Planning Wheel logic.
The primary KPI for rhythm is Rhythm Time Attainment (RTA). This monitors the actual rhythm time for each cycle and provides early warnings of changes in either overall product demand for the line and changes in capacity. This should be monitored using a control chart with the upper and lower process control limits set by the rhythm design parameters. Any trends identified which violate these control limits indicate that something has changed and action may be necessary to resolve it – either fixing a problem, or refreshing the rhythm design. Rhythm time trending low means smaller batches and wasted capacity on excessive changeovers, rhythm time trending high means that there will be more days of demand on the next cycle which will further increase actual rhythm time and ultimate lead to service issues.
The final key component of Rhythm which overarches all the others is discipline. Rhythm is a simple process with a few basic rules which can transform the efficiency and effectiveness of a supply chain. However all will be lost if the organisation does not understand the rules and does not have the discipline and leadership to stick to them when the going gets tough.
The rhythm concept has been tested and proven to be effective across industry sectors in blue chip companies by our consultants over a period of 15 years. SmartChain has developed Smart Apps and processes to support Rhythm as part of our Agile Supply Chain concept, to work alongside existing planning and execution systems, and which can be configured and installed at a significant discount relative to developing custom modules for SAP ERP or APO/APS systems.
For more information please contact us at firstname.lastname@example.org