Factory Physics for Managers: How Leaders Improve Performance in a Post-Lean Six Sigma World

From the award-winning developers of Factory Physics—a powerful leadership guide for breakthrough performance A comprehensive guide that cuts through the hodgepodge of copycat initiatives, overblown buzzwords, confusing mathematics, and misguided software, Factory Physics for Managers is a breath of fresh air for operations managers and executives. Written by the leaders and experts behind the bestselling Factory Physics, it’s a brilliant crash course in the practical science of operations designed to help you: Achieve best possible profit, cash flow, and customer service Attain highest return with existing Lean, Six Sigma, and ERP initiatives Manage your capacity, inventory, response time, and variability with high predictability Simplify management of complexity using existing IT systems Use the fundamentals of science to ensure your operation’s success See your company and procedures more clearly Improve intuition, decision making, and strategy execution A strategy of imitation is not much of a strategy. Most every company uses the common continuous improvement initiatives. This highly accessible guide addresses but goes beyond other business approaches such as Lean, Six Sigma, and Theory of Constraints by offering a customizable plan that you can apply to any manufacturing-based industry or supply chain. You’ll discover invaluable tools for developing operations strategy and driving execution by using practical science to assess your procedures, target problems, and find solutions. You’ll learn essential life lessons from the best—and worst—practices of corporate leaders like Toyota and Boeing. You’ll find ingenious new ways to improve your leadership by predictively managing the tradeoffs that every operation faces—whether it’s more or less inventory or capacity, higher or lower customer service, or more or fewer products. Using this approach, you can tackle these natural conflicts in business through a practical, comprehensive science of operations. Factory Physics for Managers makes it easier to choose and execute the best strategy for better productivity—and even bigger profits. Praise for Factory Physics for Managers “Factory Physics for Managers is a proven path to flawless execution and results. Leading vs. following in our industry is predicated on the relentless pursuit of putting order to chaos. Factory Physics science and CSUITE software have given our organization the ability to plan, predict, model, and execute based on explosive growth and rapid-fire, dynamic changes to our business model. In our case, history is not a good predictor of the future, so we need to deploy our resources wisely, and the Factory Physics approach has helped us do just that.” —Larry Doerr, COO, Stratasys “Shows how the science behind Lean initiatives can greatly improve results interms of productivity and resources.” —Bill Fierle, Vice President and General Manager, TopWorx, Emerson “Brings powerful, accessible science to operations management. The FactoryPhysics playbook enables me to lead the harnessing of our data more effectively for modeling, planning, control, and feedback. Armed with the concepts, common language, and tools in this book, I can partner with operations’ leadership to impact the bottom line.” —Jeffrey Korman, CIO, Hu-Friedy Mfg LLC, Chicago

Table of Contents:
Prologue 1 The Book in Brief 1 Why Is This Book Needed? 2 CHAPTER 1 Science—Use It or Lose 5 Of Theories and Buzzwords 6 Toyota and Science 9 How Toyota Did It 10 Batch and Queue Production 14 A Balanced Approach 15 The Track Record: Lean and Six Sigma 15 A Confused Landscape 16 Boeing’s Moving Assembly Line 18 Looking Ahead 22 CHAPTER 2 The Nature of Business—A Secret Hidden in Plain Sight 25 Leading Performance Improvement More Productively 27 Tradeoff Illustrations 31 Leadership and Tradeoffs 34 The Factory Physics Approach 34 CHAPTER 3 Practical Science for Leaders 37 Knowledge and Science 37 Science, Math, Software, and Intuition 40 Practical Theory 45 The Value Stream: Demand, Stocks, and Production 46 Buffers 50 Types of Buffers 51 Conceptual Illustrations: Something or Someone Is Always Waiting 53 A Manager’s World: Environment, Tactics, Controls, and Measures 60 Putting Practical Science to Practice 65 Defi nitions 65 Factory Physics Science: As Simple as Possible but No Simpler 69 Advancing the Practical Science of Management 70 The VUT Equation 72 Cycle Time versus Utilization Graph 74 Production and Stocks 80 Little’s Law 82 Production-Flow Graph 84 Variance of Replenishment-Time Demand Equation 92 Tradeoff Plot: Inventory versus Fill Rate Graph 98 Effi cient Frontiers 100 Insights from the Tradeoff Plot 104 Visual Management of Stock-Point Performance 106 Stocks and Flows, the Lot-Size Graph 108 CHAPTER 4 Practical Math for Managers 113 Defi ning Terms 114 Modeling Stocks 115 A Perfect World 115 Replenishment Times 116 Demand 118 Forecast Error and Lead Time 120 Inventory Performance Measures 123 Computing Inventory Policies 133 Inventory in an Assembly System 135 Modeling Flows 137 Little’s Law 137 Capacity Analysis 138 Overall Equipment Effectiveness 144 Best-Case Performance 146 Effect of Variability 147 Measures of Variability 150 Queuing Effects 151 Total Cycle Time 154 Raw Process Time 155 Move Time 156 Shift-Differential Time 156 Batch Time 157 Pull Systems 160 Combining Stocks and Flows 163 Cash-Flow Optimization 165 Examples of Cash-Flow Optimization 166 Conclusions 167 CHAPTER 5 Profit, Cash Flow, and Factory Physics Science 169 The Value-Added Fantasy 172 Financial Statements and the Science of Operations 176 Financial Performance Driven by the Science of Operations 179 Contribution Margin at the Bottleneck 179 When Lean Manufacturing Adds Cost 185 Inventory Optimization 188 Managing the Portfolio of Buffers 190 Marketing and Operations Strategies Drive Financial Results 195 CHAPTER 6 Operations Strategy and Planning 197 Operations Strategy 197 Strategy 198 Tactics 199 Controls 199 Measures 199 Execution 200 Information Technology Control and Control Limits 200 Factory Physics Sales and Operations Planning 202 S&OP Event Sequence and Participants 203 S&OP Meeting Practices 208 S&OP+ 211 S&OP+ Process 212 CHAPTER 7 Implementing Tactics, Controls, and Measures for Optimal Results 219 Demand Tactics and Controls 221 Describing and Forecasting Demand 221 Lumpy Demand 222 Inventory Tactics 224 Inventory Strategy Considerations 225 Capacity Considerations 225 Current Performance versus Predicted Performance 226 Strategic Options 227 Tactics for Inventory Management 232 Inventory Control 235 Capacity Tactics 240 Utilization 241 WIP Control and CONWIP 245 Virtual Queues and Due-Date Quoting 248 Rework and Scrap 251 Response-Time Stratagems 254 Predictive Control Using MRP/ERP Systems 257 Common Practices 257 MRP for Inventory Control 261 MRP for Production Control 265 Dynamic Risk-Based Scheduling 265 Dynamic Risk-Based Scheduling in Assemble-to-Order Environments 271 Measures Alignment and Insight 277 CHAPTER 8 Leadership, Measures, and Culture Change 283 An Approach to Sustainable Leadership 285 A High-Level Plan So That Strategies Can Be Shared and Understood 288 Vision and Mission 289 Critical Strategies 290 Monthly or Quarterly Plans to Establish Prioritized Initiatives 291 Inventory Optimization 292 Utilization Targets 293 Weekly Scheduling Meetings to Plan the Work 295 WIP Caps 296 Due-Date Quoting 297 Weekly Operations Meetings to Check Progress 298 Daily Mechanisms for Feedback 301 Personal Plans So That Individuals Understand Their Roles 303 CHAPTER 9 Examples from Industry 307 Learning to See—Farther 307 Beyond ABC—Optimal Inventory Policies 316 Reducing Cycle Times in a Traditional Pharmaceutical Plant 320 Restoring Customer Service in a Fabrication and Assembly Plant 325 Increasing Throughput in a Biopharmaceutical Facility 330 Dynamic Risk-Based Scheduling in the Textile Industry 331 CHAPTER 10 Final Word on Factory Physics Science (for Now) 339 Quick Wins 342 Operations Strategy Alignment with Business Strategy 343 Absolute Benchmarking 343 High-Level Assessment of Utilization 344 Bottleneck Analysis 344 Potential for WIP Cap Deployment 346 High-Level Analysis of Lead Times 346 ERP/MRP Mechanics 347 More Complex Implementations 347 A Large Company Implementation 349 Alternative Histories 351 The Future 353 Notes 355 Acknowledgments 358 Index 359

About the Author :
Edward S. Pound is Chief Operations Officer at Factory Physics Inc. Jeffrey H. Bell is a managing partner of Arc Precision, a supplier of precision-engineered components to the medical device industry, and he serves on the advisory board of Factory Physics Inc. Mark L. Spearman, Ph.D., is the founder, president, and CEO of Factory Physics Inc. and coauthor of Factory Physics.