It's all about the value of time
Quick Response Manufacturing challenges the way you have looked at business and suggests you to take a view from another perspective, i.e. through the lens of time. So for whom in Europe is time important? And in what sense?
Example Fashion industry
Let’s take a look at the fashion industry and supply chain. This industry faces enormous pressure on cost due to the competition with low-cost countries in for example, China, Vietnam, Bangladesh, and other south-eastern countries in the world. This competition has led to a development where most fashion goods are sourced from these countries, ordered in large quantities months ahead of their arrival in the shops, while in the meantime consumer preferences may have changed compared to the initial estimate, seasons such as the winter may have started earlier than expected due to weather conditions, and opportunities to order additional quantities for some hard runners with huge added value do not exist.
Time is the Achilles’ heel in a competitive model that outsources to low-cost countries with long leadtimes.
Several of the most successful European companies in the fashion business for the consumer market nowadays are Zara (Spanish) and Zalando (German). These companies have organized themselves fundamentally different. Response times are really short due to their strategy to not outsource to production facilities in countries far away from the consumer market, but to be as responsive as possible to the behaviour of consumers, weather conditions, and the times they prefer to issue orders are need information. These companies operate with online shops and rely on e-business logistical service providers for whom time is money. Moreover, these companies excel in developing new products and offering them to the market faster than regular retailers are able to ship their large batch quantities from Asia to Europe.
Are organizations in the fashion industry the only companies for which competing on time might be a valuable strategy? Not at all. But the example gives us already a clear idea of what aspects of time are of interest in order to compete successfully.
Time to market is the time it needs to develop a new product and bring it to the market shows how competitive you are. This is especially relevant if you would like to be a product leader and compete on innovativeness. No matter how innovative you are, if your competitor is faster, the premium advantages of product leadership may already be lost and the risk exists that you get stuck in the middle, a not very privileged position.
But even if you prefer to focus on customer intimacy or operational excellence, if your customers have to wait a long time before you have been able to develop a new product that fulfils their requirements, in the meantime their requirements may have changed, which leaves you with new products with already outdated components, technologies, style, or features. Time to market is relevant for every company that wants to renew its portfolio of activities in order to survive in the long run.
The Time to deliver is generally known as the consumer lead time. After issuing an order, the consumer might have to wait some time before he or she actually obtains the required product or service. During this time, several activities might have to take place, such as administration, planning, invoicing, expediting, transportation, packaging, order picking, testing, assembly, subassembly, or even production. It depends on the position of the customer order decoupling point, also known as the pull/push interface, what activities have to take place during the customer lead time. But for the customer itself the only thing that matters is: why do I have to wait that long? If the customer could find a competitor who could offer the same product or service while he has to incur less waiting time, he might consider changing to another supplier in future, even if that supplier would charge a slightly higher price for the same product. Hence, the customer faces a time/cost trade off. A small reduction in the customer lead time might compensate for a substantial higher price if the market conditions are such that waiting time of a customer is really costly.
The time to manufacture, also known as manufacturing throughput time, will affect the competitiveness of a company. Even if the customer order decoupling point is located in finished goods inventory, when the time to manufacture does not impact the customer lead time directly. According to the law of Little, a longer throughput time automatically means an increase in work in progress inventory. And someone has to pay for this inventory. Hence, the shorter the time to manufacture, the less costs related to work in progress inventory you encounter.
Typical work-in-progress related costs are associated with how you organize the work.
If there is more work in progress, you may have to plan and replan the progress of work, which leads to hiring planners and investing in planning support systems. You may also have to temporary store the incomplete parts and invest in storage facilities, material handling equipment, control systems, et cetera. Next, a lot of work-in-progress may lead to undesired behaviour of employees. They might spend too much time on searching for orders, tools and parts while working on other orders should have a higher priority at that moment. They might lose sight on the importance of finishing orders on time, of working in a synchronized takt time, of responding to the needs of the customer, but instead focus on efficient processing of work in their own department. This type of efficiency is denoted as resource-efficiency. And here is the problem.
Resource efficiency is often counter-productive.
In the end resource efficiency does not really matter to your competitiveness. Cost savings in one area are counterbalanced by cost increases in another area. Hence the customer does not benefit from a lower price. And most certainly, as a consequence of focusing of resource efficiency the customer of such a company will face lower service, longer waiting times, et cetera.
Flow efficiency calculates the ratio of total processing time of an order over total throughput time of that order.
A better definition of efficiency is flow efficiency. A higher flow efficiency means that a higher percentage of the throughput time of an order is actually used to add value to the product of your customer. So it is a better measure to calculate efficiency that really matters to your customer, as an efficient use of time helps to improve time to manufacture and decrease storage costs et cetera.
Quick Response Manufacturing aims to increase the flow efficiency while maintaining resource efficiency at a reasonable level. Therefore, the aim is to move from the “Waste of time” or “Waste of resources and time” cells in the next figure towards the upper right cell in the efficiency matrix. However, there we meet an efficiency frontier curve, coloured in yellow. This frontier curve may be moved to the upright corner by reducing dysfunctional variability in your processes. In most cases, this type of variation is caused by internal procedures that at first hand seemed logical, but in the end cause variation in your processes that affect both your flow and resource efficiency.
An example of a measure that results in dysfunctional variation is the change of priorities in the operational processes due to rush orders. It is no problem to give a high service to just one order, but it is far better if all orders would receive the same short time to manufacture.
It may take time to purchase and receive materials from external suppliers. In literature, we denote this as the supplier lead time, but in fact we need to include our internal processes to procure and receive the correct materials in the right quantity at the right moment as well.
Why does the time to purchase matter? Do we incur any direct costs during the supplier lead time?
In some cases the answer is yes and has the buyer to pay for the items ahead of the actual shipping. In other cases, the items are paid upon receipt. However, even in the latter cases indirect costs associated with supplier lead times are incurred. Think of things that happen during the time you wait upon the receipt of an order. Your customer might have cancelled the order for final products or slightly changed the order, resulting in different amounts of raw materials needed from your supplier. Long supplier lead times makes you less flexible and less adaptive to changing circumstances.
Your costs of adapting to the market increase strongly with the length of supplier lead times.
The time to engineer is time needed before we can actually order materials with our supplier or send orders to the shop floor.
Many companies have to modify their standard products towards the specific requirements of customers, which makes these processes engineer to order. The time to engineer has to be included in the customer lead time of these orders.
Now some engineering work seems to be repetitive work, but it appears to be far more difficult to provide good estimates of the time necessary to complete such tasks. Moreover, engineers are not only involved in order preparation, but might also need to contribute to order quotations, maintenance planning, and new product development. Hence, it takes in general far more time to complete the engineering work for an order than the net engineering time for the specific order.
Finally, the order bidding and quotation process takes time. We denote this as the time to bid. Customers might ask for a quotation at various competing companies and make up their minds after receiving one or more bids.
How important is it for prospective customers to encounter a short waiting time before they receive a quotation from your company?
Whenever you show that you are able to deliver a good quotation in just a short period of time, this provides trust in how you are able to manage your processes and increases the probability of success in acquiring the order. If you are late with providing a good bid, the probability increases that the buyer already has made up his or her mind and you won’t be as successful as possible.