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This article: It's about time (to accelerate supply chains)
Source: Business-improvement.eu
QRM: The cellular organization
It's about time (part of the cover) A review of the book It's about time, including a discussion with author Rajan Suri
The power of faster supply chains
By Dr Jaap van Ede, editor-in-chief business-improvement.eu

In his new book “It’s about Time” Rajan Suri, founder of Quick Response Manufacturing (QRM), teaches us the basics of this improvement method. The first chapter explains why reducing lead times should be given first priority, or more exactly: why we should always try to shorten the Manufacturing Critical Path Time or MCT. Then, three chapters follow about how to reduce the MCT:
  1. Form Quick Response Cells for Focused Target Market Segments.
  2. Apply System Dynamics.
  3. Make this a Unified Strategy, which includes suppliers and customers. 

It’s about Time is very well written and is much more concise than Suri’s original work published in 1998: Quick Response Manufacturing, A Companywide Approach to Reducing Lead Times.
Therefore this new book is very suitable for people who want learn the basics of QRM.  According to Suri, he wrote his new book for busy senior managers. Especially for this target group it is interesting that he added something new, an answer to what historically was one of the weakest points of QRM: How to make a business case!

In my opinion, the title of Rajan Suri’s new and intriguing book It’s about time could be interpreted in two ways:

  1. It is about time to switch to manufacturing methods that address the needs of twenty-first century markets: making products with options configured or even engineered to the needs of individual customers. This means low volume, high variety production.

  2. The whole book is about time. It deals with the question: How to reduce lead times or more precisely the Manufacturing Critical Path Time (MCT). According to Suri the result will not only be shorter delivery times and lower costs, but also lower overhead costs. This will give you a competitive advantage.

Quick Response Manufacturing (QRM) can be seen as a variant of Lean Manufacturing, adopted for low volume, high variety production. Where Lean focuses on the reduction of waste, QRM focuses on the reduction of idle time. The goal of QRM is to reduce the throughput time in the complete chain from raw materials to product delivery, which is called the Manufacturing Critical Path Time  (MCT). This is defined as:

MCT = the typical amount of calendar time from when a customer creates an order,
             through the critical path (read: through the complete supply chain),
             until the first part of that order is delivered.


Rajan SuriThe power of time
At first sight the difference between Lean and QRM is small, since idle time is waste in Lean.

However there is also a remarkable difference: QRM focuses only on reducing idle time. According to QRM, reducing waiting times will automatically lead to the reduction of other waste, like hidden material handling costs. In addition, QRM does not aim to reduce waste locally, only the effect on the whole supply chain counts. Therefore, working with smaller batches which increases the touch time locally could for example be a good idea, when this leads to a much lower MCT overall.

Investments to reduce the MCT will in general be more than compensated for by increased sales as a result of the shorter delivery times, in combination with much lower overhead due to less organizational costs for among others holding inventory, forecasting, planning and expediting. This is what Suri calls the power of time. And there is another thing which makes QRM attractive: Saying to your employees that you want to reduce lead times is not as threatening to them, as saying that you want to reduce waste!

Response Time Spirals
According to Suri, companies however tend to move in the wrong direction: Their MCT gets longer and longer!

The reason for this is the existence of so-called response time spirals. For example, in a make-to-stock business, long lead times will lead to inaccurate demand forecasts. As a result, customers will increasingly ask for urgent jobs, which will delay regular jobs, so that these are delivered late. This leads to the (incorrect) conclusion that the lead times, on which the planning is based, should be raised even more. In the next planning cycle this will however result in an even more inaccurate planning, more urgent jobs, more delay, and then the response-time increasing spiral starts again.

There is a direct relation between the existence of these response time spirals and scale/cost thinking. About a century ago, pioneers like Henry Ford and Taylor showed that to minimize costs, production should be broken up in simple steps, done by specialized workers. Ford made only one type of car, and in that case this system worked. Later, it became necessary to make different types of products. To make this possible the production steps were replaced by functional departments, led by managers who tried to operate their department at minimum costs. At that moment, the system failed, Suri points out. One example: large batches seem to bring savings due to less set-ups and high asset utilization, but that is only locally. In other departments, like expediting, costs will race up.

To break the response time spirals and reduce the MCT, according to Suri you need to do three things. These are described in a nutshell below.

I. Form Quick Response Cells (QRC’s)
First, your organization should be transformed from functional to cellular, by defining Quick Response Cells (QRC’s). This transformation can be done gradually, by forming a first Cell, and adding more later. However, in the end your whole company, so also the office and the R&D department, should be reorganized by forming these QRC’s.

QRC’s are flexible, dedicated, collocated, multifunctional resources. A cell contains dedicated machines and/or office tools and is typically staffed with about three to ten people. Workers in a QRC should be cross-trained, so that they can take over each other’s tasks. A QRC can autonomously complete a sequence of tasks needed for all jobs in a specific Focused Target Market Segment (FTMS).  This can be production jobs, office jobs or engineering jobs, but it is also possible to create a QRC which handles an end-to-end process from order to delivery.

In my opinion, a QRC can be seen as a mini-company. By forming it, borders between functional departments disappear.  To stress that overall optimization is the goal, the QRM-number is introduced. Within a QRC this is defined as:

QRM-number = [Original MCT] / [Current MCT] * 100%


So, the QRM-number increases when the MCT is reduced.

II. Apply System Dynamics
The team in a QRC should therefore focus on increasing their QRM-number!

System Dynamics is a good aid to do that, and can also be used to stimulate flow between Cells.

From system dynamics it follows that the waiting or Queue Time (QT) when a job arrives, before it is processed within a QRC (or by a production step within a QRC) is equal to:

QT  =   AV x TJ x M


So, to decrease the waiting time and thus the MCT, you could do three things:

  1. Reduce AV, this is the combined variability due to fluctuations in the arrival times of the jobs and the time to complete those jobs.
  2. Decrease the average job time TJ (this can be done by decreasing the batch size or by decreasing the setup time)
  3. Decrease the value of M. This is a magnifying factor which increases exponentially when the average resource utilization approaches 100%. So, investing in spare capacity makes a lot of sense. Suri puts it even more strongly: Even when a machine in a QRC has a large overcapacity, this extra capacity should not be used to process orders from other QRC’s.

III. Make this a Unified Strategy
The third and final step to reduce the MCT, is to apply the principles above everywhere in your company, including your office, your supply chain and your R&D department!

To support this unified strategy, the material planning system should be adapted. Your ERP-system should only be used for high-level planning. It determines per QRC which orders are released, and sees to it that all materials needed for those orders are supplied or purchased in time. To coordinate and control intercell flow, the POLCA-system can be applied. This is a Kanban-variant, adapted for high variety/low volume production.

It's about time (cover)Title:  It’s about time

Subtitle: The competitive advantage of Quick Response Manufacturing
By: Rajan Suri

Additional information:
  Published by Taylor & Francis Group, 210 pages (2010).

Pro’and con’s:

+  Very well written. Questions which are arising, are in many cases answered in following sections.

+
  For the first time Rajan Suri addresses the question of how to make a business case for QRM.

The book comes with a bonus CD with about a hundred pages of in depth information.

+- The content of the book is (in part) the same as what you would hear when you visit a workshop given by Rajan Suri.
 
-  Although there are case descriptions in the book, many of those are already known and rather dated.

The book can among others be ordered at:
amazon.co.uk


Business case
Until now there are far more implementations of Lean and Six Sigma than of QRM. One of the reasons is that it is difficult to make a business case for QRM.

For people who are already familiar with QRM, the most interesting parts in It’s about time are therefore about cost accounting.

QRM focuses on reducing waiting times, and although it is promised that this will in the end lead to waste and cost reduction, this could not be expressed in dollars. Until now, because for the first time Suri now explains how to make a business case for QRM!

To do that, understanding the flaws in current accounting systems is important first. As a rule, these only measure the production costs, and add an amount of overhead. Now, the problem with making a business case for QRM is that all possible savings are in this non-specified overhead! One example explains this. When you decide to decrease the batch size with the aim to reduce the MCT, investments in extra machinery and or people in a manufacturing workcell maybe needed. However, those investments are more than compensated for by a reduction in material handling and organizational costs in other departments. However, because the overhead is not specified, thus not linked to root causes, your accounting system won’t notice that. Therefore, it will erroneously say that smaller batches will lead to higher costs!

Therefore, the first thing you should do when you want to decrease the MCT, is to ignore the warnings signs of your accounting system, or adjust it. Suri claims that realizing a certain percentage MCT Reduction (MCTR) indirectly brings a percentage Cost Reduction (CR) as expressed by:

CR = (MCTR)1/6


So, reducing the MCT with for example 60% (MCTR=0,6), leads to a cost reduction of 14% (CR=0,86). Possible explanations for this cost reduction are less urgent jobs, less overtime costs, less work in progress, less resources like warehouses needed to store and retrieve materials, less frequently explaining delays to customers, earlier warning signs of quality problems, increased sales etcetera.

Note however that the formula above is not scientifically proven, it is only a rule of thumb based on a set of historically QRM-cases. Who therefore thinks that is not enough for a business case is right in my opinion.

However, it is also possible to calculate, or at least estimate the savings for a specific QRM-project. A simple way is to measure the overhead absorption during manufacturing. Only products which are shipped to customers should count to calculate the overhead absorption, which stimulates lowering the MCT and production to order. In my opinion, this can be seen as a simplified form of throughput accounting as defined in the Theory of Constraints.

The book mentions many more options to adjust the method of accounting.

Estimating the savings for a specific QRM-project will make it possible to define an investment budget for each day of MCT reduction.

Finally, the beginning of the book suggests another way, to examine roughly if it is a good idea to implement QRM. The bigger the difference is between the lead time which your customers experience today (which might be short because you deliver from stock), and the real lead time to make your products from scratch, the bigger the potential advantages of QRM will be! Another indication is your answer to this question: ‘What activities and resources could be eliminated if there were no internal and external lead times at all?’. 

Mistake
Finally, I want to discuss a mistake which Suri makes in his book, although this does not in any way disqualify the QRM-approach.

In his value stream maps, Suri separates gray or touch time, from white or waiting time. Then, he stresses that traditional improvement methods only focus on what happens in the gray time, followed by examples why this is not a good idea. For example, on page 111 of the book we read: ‘… even if the engineering time were to be cut in half, to 15 minutes, the total office portion of the MCT would barely be affected at all – reducing 12,6 days by 15 minutes would not even be noticeable.’ 

Is this true? No. In his example Suri mentions the introduction of CAD-software, to cut the amount of engineering time in half. When you succeed in doing that, the engineers will not be overloaded with work any more, a lot of free capacity will result, and therefore the MCT will be strongly reduced.

Fact is, that you can’t change things that you don’t do (white time), you can only change things that you actually do (gray time). Suri himself focuses also on gray time, however with the aim to reduce white time. That is in my opinion the real difference with other approaches, although this difference is less than the reader might think. For example, Lean considers white time as waste and the TOC focuses on increasing the overall throughput time, so the latter method has more or less the same objective as QRM.

That said, I wish to conclude that It’s about Time perfectly fits the needs of senior managers who want to become acquainted with the basic principles of QRM.

Comments of Rajan Suri on this review:
Why focus on reducing gray timeall too often leads to laying off people

Rajan Suri: 'In this review you have done a nice job of extracting main points of my book as well as the essence of QRM strategy. In fact, QRM’s singular focus on reducing total lead time (MCT) comes out very clearly. I’m glad that you feel this book would be good reading for senior managers.'


Business case

'You are also right that it does a better job of making a business case for QRM. And I’m also happy that you found the book to be concise. I’d like to add a personal perspective here. When I wrote the first book on QRM (in 1998) it was a totally new concept and challenged many traditional management strategies. Therefore, it was important for me to document the details of how and why QRM worked so that people wouldn’t say “There’s nothing here”, or “This doesn’t make sense”. The result was a book with 540 pages! While this meant that people who were serious about QRM could find a lot of depth there, it also meant that busy managers and other employees in a company found it too arduous to read this big book. However, now that the details of QRM are documented in the first book, and proven out with 10 years of implementation, it was possible for me to write a shorter book with the main ideas of QRM strategy, and refer to the other book and case studies for details. Also, when I wrote the first book we had limited experience with QRM implementation, so the business case was not well documented. A decade of experience with convincing senior managers to implement QRM has helped me to elaborate on the business case for QRM in this new book.'

Compete with overseas suppliers
'One point that I’d like to add to your summary of the “Unified Strategy” section is about QRM’s approach to supply chains. The “time-based supply management” approach implies that companies must re-examine their supply chain strategies to give priority to suppliers with short lead times, even if this means paying a bit more for the parts. This will often result in preference for local suppliers over distant low-cost suppliers, a point that should help factories in the EU compete with overseas suppliers. Also, EU industry organizations should make Original Equipment Manufacturers (OEMs) with factories in the EU aware of this approach, so that they have an incentive to source parts from factories in the EU. Together, the QRM strategy implemented by suppliers, and the time-based supply management implemented by OEMs and other customers, should help EU industry compete in today’s global marketplace.'

Mistake?
'Now, about the “mistake” that you mentioned. First I want to say that I’m impressed that you make this point, because it shows that you really thought about my approach and you understand the impact of spare capacity. In my opinion, it is not a mistake for the following reason. Because of the traditional cost-based thinking, when managers find a way to reduce the gray space, they immediately look for ways of getting rid of people, or moving them to other activities. For example, many engineering companies in India have grown a lot in the last 10 years because they have convinced U.S. companies to outsource engineering tasks to them. What happened to the engineering departments in the U.S. companies? They got severely reduced in size and then the CFO could show big cost savings! Similarly, when companies have put in automation such as CAD or other software in the office, or robots and automatic machines on the shop floor, they have immediately looked for labor savings through the automation. In other words, after reducing the gray time, management does not say “Wonderful, we have spare capacity!”, but instead they say, “How many people can we cut?” (so that the remaining people are again loaded at 100% or more!). That said, you are right in that this is not made clear in my book, so thank you for pointing it out. Perhaps we can agree that there was an omission and not a mistake.'

'Thank you again for taking the time to write a thorough and insightful review of  “It’s About Time.” '

Professor Rajan Suri, Founding Director Center for Quick Response Manufacturing, USA (august 2010)


Do you need help with the implementation of QRM and/or POLCA?

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