“Yes, I totally understand, Mr. Fern. Yes… yes. I assure you that you’re one of our most valued customers and you will be our first priority when it comes to delivery. We, at Skallen Furniture, are very sorry for the delay. I promise you that you can expect delivery on Friday. Yes… thank you! You have a nice day, bye.”
Clark Rine exhaled heavily as he got off the phone with this latest customer, who had called him to inquire about a late order. Clark was feeling drained after having fielded a series of similar calls. If it weren’t for the fact that Mr. Fern’s order was nearly finished, he wouldn’t have had the courage to make that promise. It could have been worse.
Thank goodness for small miracles, I guess, Clark thought to himself as he turned to his assistant manager, Tom Kenn.
“How’s it going?”
“We still have about 20 jobs that are missing parts. The operators can’t advance any further those furniture pieces without these essential parts. Also, our supply lead times are still getting longer and more jobs are having parts placed on backorder.” Tom looked uncomfortable being the bearer of more unwelcome news. Alas, there wasn’t much good news to share.
“How many orders will be delayed due to this?”
Tom winced before answering. “All of them.”
The lines on Clark’s forehead creased even more, making them hard to miss. Being the manager at one of the manufacturing plants for a medium-sized furniture-making company was not easy. He didn’t think it would be. After all, everything in life required hard work, but this was quickly getting out of control, and he needed to fix it, quickly.
Clark’s team was a well-oiled machine and worked quite well, and independently. Most days, he just needed to check up on their progress now and again and there were hardly any issues, allowing him to concentrate on closing more sales.
With the confidence that came with knowing he had lined up a queue of work, Clark had taken two weeks off to go on vacation with his family during his kids’ school holidays. Because Tom pretty much shadowed Clark in their day-to-day tasks, he was happy to leave the operation in Tom’s capable hands for a short while. He had not expected to come back to chaos in the form of many incomplete jobs and a list of complaining customers; customers whose trust he had worked hard to gain.
“All right, hit me with it. We’ve been fine this whole time, what’s suddenly caused us to be this held back?” Clark inquired.
“Well, actually Clark, it’s not new, this is an ongoing issue.”
Clark was not expecting this answer. Seeing his expression, Tom continued, unwilling to keep the man in any more suspense.
“Often, we’ve relied on past data to order parts to match with our forecast demand. Due to this, there are a lot of opinions and ongoing debates amongst the purchasing operators about how much stock to hold. And I’ll tell you this, our stock levels are rising, yet too often we find don’t have the right stock when we need it. But it is worse than that. Even jobs with a full BOM (Bill of Materials) have problems. We have parts in common between jobs and now we are seeing jobs will a full BOM, finding parts have gone missing, stolen for other jobs. And with this, we authorised it when we signalled that the due date tomorrow is to be expedited.”
“So, we’ve been getting by thus far based on assumptions about our past orders, and luck. And you’re saying we have gotten away with it until now? Is that what you’re saying? We’ve been making financial decisions based on… assumptions and luck?”
“Well, we’ve had a few incidents along the way, but none of them were significant enough to warrant much thought. It all seemed pretty routine. For example, we bought in a few extra parts here and there when we were missing a few parts, increased our inventories a little, but mostly, we were able to expedite parts in time to fulfil most orders with only small delays to customers, so nobody really saw it as a big issue.”
Clark was silent as he processed this information before continuing.
“I can understand the logic behind this thinking, and I certainly had a role to play in that, and in certain situations, it did save us time. For example, say we’ve received an order to make 15 tables for a classroom. If we were to receive a similar order in the future, then we roughly know what and how much of each type of material we would need and can even plan ahead. However, this does something to ‘bite us.’ What if the new orders require different shapes and sizes, or the customers reengineer a product? We would have high inventory and still be facing many interruptions due to missing parts, and then again, we have to expedite.”
“That’s exactly what’s happening at the moment, Clark.” Tom supplied. “Many jobs are on hold due to missing parts and it is difficult to maintain the rate of completion like we used to.”
“Being on hold isn’t solving our issue, but it does signify to us those jobs likely to be late, so we are right back to scrambling for missing parts!”
Tom silently agreed with Clark’s sentiment. He sighed, resigning himself to his fate of having delivered the unwelcome news for the day. Then another thought landed…
“Clark, I was speaking with Margaret in-store earlier, and while we only place orders for materials based on the jobs we receive, it became clear that there are many assumptions around the kind of parts we forecast to use. Margaret showed me around the warehouse and in it the stock we hold that is obsolete, and stock where we ended up with too many parts. While that stock might be useful in the future, none of the jobs we are currently working on need them.”
“What a waste of cash…” Clark trailed off, sighing to himself. Placing orders based on assumptions seemed like the way to go when they had similar orders to look back on, but now, it was not working. Orders were up and the mix of orders seemed to be shifting, too, along with Skallen Furniture’s work-in-progress rising as a result. It hadn’t gotten to the point where it was unsalvageable, but some of their supply lead times were getting longer, and increasingly they exceeded their customer-facing lead times. We simply cannot be making hard financial decisions based on assumptions thought Clark.
“All right, we need a new plan of action, ASAP! Some orders will inevitably be late, considering many of our jobs are not advancing through operations due to missing parts. However, in the long run, we need a plan that will ensure we don’t run into these same problems.”
Tom nodded, happy to assist in any way possible.
“What did you have in mind?”
“Our first task is to make sure that, for every job, there’s a visible prerequisites list (materials, quality standards, etc.), the items on the BOM (Bill of Materials) that we don’t hold in stock.”
Tom nodded, quickly pulling out his phone and typing up all of Clark’s suggestions. He suddenly had a thought and looked up.
“OK, that ensures we know what we are waiting on, but we better also enforce a ‘chase-up’ process to expedite at-risk missing prerequisites. None of these ‘leaving it until it is late’ behaviours. We need to be initiative-taking here,” he suggested, making Clark nod rapidly.
“Yes, that is a useful tactic. Considering our current situation, and to avoid future mishaps, we need to deploy a chase-up process. The focus must be on clearing as many prerequisites as possible prior to a job release. If we use our time on this, it’ll also reduce the number of jobs being held once they are in operations.” Clark added, “Yes, to chase-ups. What else?”
Tom was happy to have been able to deliver a positive suggestion, rather than more unwelcome news.
“All right, Tom, you told me about the lengthening supply lead times, is that game over for us?”
“Hold on, Clark. Yes, it is getting worse, but the issue there is about ordering volumes and frequency. I would like to come back to that. First, there is more we can do internally. Stuff we have more control over.”
“The floor is yours, Tom. What have you got for me?”
“The problems we are currently facing due to missing prerequisites are also hiding issues with jobs that have a full BOM, now work-in-progress in operations and have got stuck. I did some digging. You know how we have a schedule for our constraint, and how that gives us a boost in output? Well, now we are finding some of those jobs having been processed through the constraint are getting stuck waiting on some parts that are in common with other jobs, things like prefabricated drawers.”
“I don’t see it, Tom. We make heaps of drawers; what do you mean they get stuck?”
Tom nodded, continuing to explain, “Most of our orders require some common parts, like drawers. However, the urgency to finish many of the jobs has caused some operators to take common parts assigned to our constraint-scheduled jobs to use to complete whatever job they happen to be working on. This has been common practice for some time and now we can completely run out of common parts, forcing jobs to wait for a new batch of such parts to arrive.”
“And so?”
“Clark, we agreed the rate at which the constraint output work determines the rate at which Skallen Furniture makes money. Remember those arguments?”
“Sure do, are you saying that the constraint is stopping?”
“No, but jobs that have been through the constraint are not flushing to completion, they are sitting waiting for parts. Sometimes, they wait so long that we miss customer delivery dates, all because another job took the common parts it needed. That’s the problem!”
“Do you have a solution for this, Tom? Or do I need to go kick some butt?” Clark asked with a smile.
“It’s all hands on deck! Whatever you have to say, I want to hear!”
“I was thinking, whenever a job is scheduled for the constraint and requires a common part, what if we reserve and put aside those jobs’ common parts, so that we can maintain more predictability of completion?”
“Hmm…,” Clark nodded slowly, mulling it over. Tom rushed to explain his reasoning.
“Of course, we should reserve in the same order as we schedule the constraint, this way earlier scheduled jobs won’t be stuck waiting for missing parts, should a later scheduled job get to assembly first. Which does happen! We have to best meet market demand, so let’s protect the flow to completion of any job that has been processed by our constraint.”
“Yes, that sounds like a better idea than the ‘first in best dressed’ approach we have now, where jobs grab common parts from other jobs and we hold up jobs due now. That would mean, if a non-constraint job requires the same common part, it can wait for the arrival of new, non-reserved common parts. Leave the reserve parts alone. It’s a good failsafe to fall back on. Good work, Tom!”
Tom was glad to hear that, his grinning face a testament to his improving mood.
“Clark it is not just common parts we have a problem with, we also run out, from time to time, of other materials, like sanding disks, sometimes bigger ticket items too.”
“But don’t you just send the apprentice off to buy more when this happens? It doesn’t seem important,” voiced Clark, ready to move on.
“Bear with me, the issue is not the apprentice’s time, I agree it is largely irrelevant in the scheme of things. The issue is that jobs have stopped advancing and our skilled people use this as an excuse to move on to another job, which re-sequences the flow. It is losses like these that are adding up. It happens quite a bit. Have you seen how much work-in-progress is on the floor lately? Take a walk with me, most of it is sitting gathering dust.”
“Yes, Tom, I am aware, and you’re right we have to solve this, too.”
“OK, so we need to hold some stock, a small amount of stock of such items keeps that stock topped up. We should implement a system to replenish the miscellaneous parts. Maybe we use a simple Kanban three-bin system for the cheap stuff. Clark, can we also take a look at how we are ordering core materials like timber and board? I’m fairly sure we are ordering in large volumes. Could we perhaps order in smaller volumes more frequently? It will push up the freight costs a little, but I’m willing to bet the suppliers will be able to ship smaller volumes more frequently, and that will reduce the long lead times we have to wait while they put together a large order before shipping it. Half the time, I reckon they order once we order from them. As our order quantities have risen, the lead times have gotten worse. How else would you explain the lead times we are now being quoted?”
“I agree. Also, to add on, I think having on hand a number of long lead time inputs could be beneficial for us,” said Clark. “Since we have a few long lead-time clients, Mr. Fern being one of them, we should ensure we always have a small stock of their prerequisite parts on hand. But let’s not be arbitrary about this. Choose a starting ‘buffer’ of stock for such items, and then let’s tune the level based on actual demand and resupply times. We could even go as far as checking the minimum order qualities and get the supplier to ship as soon as we have used that much stock. More expensive, I know, but it would mean lower stock on hand, and I’d say we are losing more in sales due to our long lead times by a huge factor.”
“Yes, that will be good practice. We won’t be overbuying anything, and replenishing the stock used will also allow us to gauge how many parts we need on hand every day for our long lead-time clients. Yes, it’s a good idea, but let’s focus on trying it out on a sample of routine orders first,” Tom suggested.
Clark readily agreed. “I trust that you have the list of overdue jobs with you already?”
Tom nodded affirmatively.
“Right, get that list of prerequisites done and make a separate list of all the materials we need right away, so we can chase those early. Let’s start with that and then gather the operators for a quick meeting to go over everything we’ve discussed. We’ll meet outside the lunchroom in say, two hours?”
“That sounds good! I’ll get started on that.”
“Great, I’ll leave you to it. Send the list as well as the expected delivery dates for the missing prerequisites to me once you’re done. If we get this right, then next month I won’t have to field all those unhappy customer calls. That will be a blessing. Though, I might have to make some calls and explain the changes to a few clients. I reckon that Mr. Fern will be on board with it.”
Tom did not envy Clark one bit, so he quickly nodded again and turned to the direction of his desk, feeling calmer and more confident now that they had a clear direction to head in.