Accelerating Supply Chain Velocity and Cash Flow

Accelerating Supply Chain Velocity and
Cash Flow
By Lou Giuliano, President of ITT Industries and Mike George, CEO of George Group
Acceleration of Supply Chain Velocity vs.

% Reduction in Work in Process
900%
800%
% Increase in Supply Chain Velocity
700%
600%
500%
400%
300%
200%
100%
0%
50% 55% 60% 65% 70% 75% 80% 85% 90%
% Reduction of Work in Process Inventory

Accelerating Supply Chain Velocity and Cash Flow
TABLE OF CONTENTS
Supply Chain Velocity and Shareholder Value..........................................................................................3
The Qualitative Insight: Time Bottlenecks.................................................................................................4
Immediate Doubling of Velocity: Launching Minimum Calculated Batch Size.......................................6
Quantitative Insight: Finding the Accelerators of Velocity ......................................................................8
Critical Insights on Supply Chain Velocity ................................................................................................9

Leverage ......................................................................................................................................................................................9
Application of the Critical Insights.............................................................................................................9
VBSS High Velocity Supply Chain Improvement Methods ..........................................................................................................9
Algorithmic Planning and Scheduling .....................................................................................................10
What About the Velocity of Product Development, Marketing and Transactions? ..............................10
Appendix 1: Eliminating Time Bottlenecks in a Real Factory ................................................................12

Critical Insight: Maximum Supply Chain Velocity Results from Calculating and Launching Minimum Batch Size.....................12
Finding the Velocity Accelerators in a Real Factory...................................................................................................................12
Focus on Time Bottlenecks: Punch and Power to the Improvement Process ...........................................................................14
Capex Avoidance.......................................................................................................................................................................14
What is the Maximum Supply Chain Velocity? World Class Benchmark? .................................................................................14
Appendix 2: Accelerating Supply Chain Velocity by 700% ....................................................................16
The United Technologies Automotive, Hose and Fittings Plant, Mitchell, IN .............................................................................16
Capturing the Value ...................................................................................................................................................................17
Appendix 3: A Practical Approach to Accelerating the Velocity of a Factory ......................................19
Page 2
Critical Insights for e-Business and Supply Chain Velocity

• How Supply Chain velocity is typically doubled by launching minimum calculated batch sizes
• How to increase service levels and cash flow while reducing cost, lead times and working capital
• How to increase production output rates without investing in capex
• How Supply chain velocity can increase five fold by improving only 20% of a factory’s workstations
• How to focus Six Sigma improvement resources to maximize shareholder value
• Algorithmic Planning and Scheduling : maximizing factory service levels to customers and distribution
Supply Chain Velocity and Shareholder Value

This paper will provide management with the critical insights which we have found effective in energizing
their ability to accelerate supply chain velocity. The demands of e-Business for radically shorter lead times
has made a high velocity supply chain mandatory for success. The resulting shareholder benefits include
increased cash flow, lower cost, lower invested capital, and increased revenue growth. Our first application
of high velocity supply chain methods was utilized in an Army Radio plant, in which the board production
time was reduced from 8 weeks to 2 weeks and the inventory reduced from 87,000 to 21,000, all in a six
month period. Similar results were achieved in an Electronic Counter-Measures plant (automotive and
industrial examples are supplied in the appendices).
Our experience shows that managers must first understand the dynamics which determine supply chain
velocity. With this understanding and the team implementation capability inherent in Value-Based Six
Sigma processes, supply chain velocity can quickly be doubled, then re-doubled. If management does not
have this understanding, supply chain velocity does not improve. We felt so strongly about the need to
close this management knowledge gap that we agreed to co-author this paper. In this paper we will focus
on the drivers of supply chain velocity within the “four walls” of the factory. In a later paper we will discuss
external supply chain factors such as demand, distribution, logistics, and suppliers which are all currently
addressed by Supply Chain software (e.g., i2 Trade Matrix).
E-Business has created a new opportunity for growth and profits to companies like Dell Computer, who
have a flexible, high velocity supply chain. At ITT our CEO, Travis Engen, has announced:
We are currently pushing our e-business capabilities beyond basic customer
interaction to integrate all of our business processes… Further, we will use our
Value-Based Six Sigma continuous improvement initiative to improve our
competitive position and drive further growth across all of our businesses. This is
our roadmap for sustained growth and profitability.
Page 3
Greater cash flow, less investment, lower operating costs, and higher revenue growth all result from a high
velocity supply chain. Since projects are prioritized using the tools of Value Based Management1,
shareholder value is maximized. To achieve these goals, Business Unit managers must know key velocity
drivers, know what questions to ask, and what level of performance improvement to demand. This paper
contains the core lessons every manager must master to create an ever-accelerating supply chain velocity.
The Qualitative Insight: Time Bottlenecks

It has been our experience that business unit managers can accelerate supply chain velocity when they
understand that process deficiencies such as excess batch size, scrap, setup time, etc., are the root cause
of slow velocity, poor cash flow, high cost and high investment. The impact of scrap is quite amazing. If a
workstation produces 10% scrap, it can slow down the supply chain velocity by 33% and require an
increase in WIP inventory of 53%. To qualitatively understand the accelerators and decelerators of
supply chain velocity, run the animation on the website www.georgegroup.com/animations, (we
recommend that you use Netscape).
Batch Size of 5 Batch Size of 1
Product Mix Change: Batch Size of 5 Product Mix Change: Batch Size of 1
1 The Value Imperative, James McTaggert, Peter Kontes and Michael Mankins, The Free Press, 1994.
Page 4
In the animation, we learn that the velocity of the supply chain could be increased five-fold if the setup time
and batch size at the time bottleneck, the Punch workstation, could be reduced by 80%. This allows the
launching of batch sizes 80% smaller with no reduction in production rate, resulting in a five-fold increase in
overall velocity. By cutting WIP inventory by 80%, lead-time was reduced by 80%. In appendix 2 we will
see that a seven-fold improvement has been achieved in a real factory and contributed to a dramatic
increase in Economic Value Add.
We identify the Punch as the leading time bottleneck, because it creates the greatest single slowdown in
the velocity of the supply chain. Long setup time requires it to run large batches to produce at a given rate
of 10/hr. Given a large enough batch size, the Punch is able to deliver 11 parts per hour. Hence it is not a
capacity bottleneck, since a rate of only 10 per hour is required. Time Bottlenecks can generally be
removed by applying one of the six improvement methods described in the Application of Critical Insights
section of this paper (p. 9). Capacity bottlenecks may require capex investment (see pg. 14). Failure to
understand the difference between time bottlenecks and capacity bottlenecks has caused unnecessary
capex investment.
Excess inventory, whether due to large batch sizes or pre-mature or excessive releases, slows down
manufacturing velocity, just like too many cars slows down the freeway. By improving factory velocity, the
animation showed that the distribution channel velocity was also increased. Better customer service levels
were achieved with a fifth of the WIP and less than half the distribution inventory. The relationship between
WIP and supply chain velocity can be understood by the graph below. If you can reduce the WIP by 50%,
you will double the supply chain velocity. If you can reduce the WIP by 85% (as was achieved by the
company in Appendix 3), you can increase the supply chain velocity by 700%.
Acceleration of Supply Chain Velocity vs.

% Reduction in Work in Process
900%
800%
% Increase in Supply Chain Velocity
700%
600%
500%
400%
300%
200%
100%
0%
50% 55% 60% 65% 70% 75% 80% 85% 90%
% Reduction of Work in Process Inventory
Page 5
Immediate Doubling of Velocity: Launching Minimum Calculated

Batch Size
We learned that the root cause of slow velocity in the animation was the long setup time at the punch. The
reason velocity accelerated was because we reduced the batch size after setup time reduction had been
accomplished. Most factories are launching much larger batches than is required by setup time, downtime,
etc. The batch size is often picked arbitrarily, such as a month’s or a week’s usage, and was not calculated
based on flow algorithms used in SupplyChainAcceleratorSM software. By launching the minimum
calculated batch size, an immediate acceleration of supply chain velocity is almost always possible.
We depict this situation by the Rocks diagram. The factory is likened to a boat that transforms raw material
to finished goods by crossing a perilous river strewn with dangerous rocks. As long as the water level
(batch size) is large enough, deficiencies like long setup time will not prevent the factory from hitting its
production rate, albeit with large inventory. The height of the rocks can be calculated using flow algorithms
and generally allows an immediate reduction in inventory and acceleration of velocity. This is as far as the
Theory of Constraints goes. Process Improvement, directed by SupplyChainAcceleratorSM goes much
further, applying improvement methods to eliminate the worst time bottleneck (highest rock) and allowing
much greater velocity acceleration and inventory reduction. The next time bottleneck is then attacked in a
never-ending cycle of improvement to the maximum supply chain velocity described in Appendix 1 (p. 14).
Low Velocity Supply Chain

Excessively Large Batch Sizes Cause WIP to Clog the Supply Chain
Raw Finished
Material Goods
Manufacturing
BATCH SIZE
CYCLE TIME
Transport Time Operation Time Rework Setup

Operation 3 Operation 7 Operation 4 Operation 10
Figure 1
Page 6
Process deficiencies are proportional to the height of the rocks under the water. The height of the water is
proportional to the batch size or WIP. The water level of most factories is significantly above the rocks
(Figure 1). We can reduce the batch size to just above the highest rock, making an immediate reduction in
inventory and acceleration of the supply chain (Figure 2). We then improve the worst workstation (in this
example) with the Four Step Rapid Setup method before we lower the water level (batch size) again
(Figure 3). We then move on to the next workstation and use Six Sigma quality tools, etc, in a never ending
cycle of improvement and supply chain velocity increase.
Time Bottleneck Calculation
Raw Finished
Material Goods
Manufacturing
BATCH SIZE
CYCLE TIME
Batch size need only “cover the rocks” (calculation in Appendix 1)
Figure 2
Immediate Velocity Increase

Results from Lowering the Batch Size to Safely “Cover the Rocks”
Raw Finished
Material Goods
BATCH SIZE
CYCLE TIME
Manufacturing
Ra
Setupid
p

Figure 3
Page 7
Most of our plants, including the Army Radio plant mentioned above, were launching batches that were far
greater than required for production demand, i.e., there weren’t any long setup times or other process
deficiencies that forced us to use large batches. Velocity was tripled within four months because we
immediately reduced batch size to the calculated minimum plus the recommended safety margin. It is very
important to calculate the minimum batch size rather than make arbitrary batch size reductions.
Quantitative Insight: Finding the Accelerators of Velocity

After the initial increase in velocity due to launching minimum calculated batch sizes, further acceleration is
dependent on eliminating process deficiencies such as long setup time. The interest of managers is
stimulated by this multiple choice self-test. We consider a simple workstation that produces just two
different parts A and B, has a setup time of two hours and then processes batches of 1000 parts at the rate
of 100/hour. Assume that the setup time increased to four hours. Clearly an increase in setup time will
require an increase in production rate to preserve the output rate. But how much? If a quality problem
results in a scrap rate of 10%, how much must you increase the current batch size of 1000 to keep the
production rate constant? Intuition would suggest an increase of 111 to compensate for the loss. As we
shall see, this quantity will result in shortages. Similar questions are posed for setup time, machine
downtime etc. Circle your choices below.
Bottleneck Cause Process Change Resulting Velocity Resulting Inventory

(Process Deficiency) Decrease Increase
Scrap rate Increase from 0 to 10% 10%, 20%, 40% 10%, 25%, 50%
Setup time Increase from 4 to 8 hrs 20%, 50%, 100% 20%, 50%, 100%
Downtime Increase from 0 to 10% 12 , 23, 33 13, 23, 33
Process time/unit 10% reduction 10, 20, 30 10, 20, 30
Process flow time 10% reduction 10, 20, 30 10, 20, 30
What percent of the workstations destroy 80% of supply chain velocity? 20%, 40%, 60%
Compare your circled answers with the correct answers below. If you have a hard time believing them, the
calculations are quickly performed by SupplyChainAcceleratorSM using flow algorithms.
Page 8
Critical Insights on Supply Chain Velocity
Bottleneck Cause Process Change Resulting Velocity Resulting Inventory

(Process Deficiency) Decrease Increase
Scrap Rate Increase from 0 to 10% 40% 53%
Long setup time Increase from 4 to 8 hrs 100% 100%
Downtime Increase from 0 to 10% 33% 33%
Process time/unit 10% reduction 20% 20%
Process flow time 10% reduction 10% 10%
What percent of the workstations destroy 80% of supply chain velocity? 20%
Leverage
We can turn the logic around -- if you have process deficiencies, you have an opportunity to accelerate the
velocity of the supply chain. In real factories, it turns out that only about 20% of the workstations are
responsible for destroying 80% of the velocity. Thus, improving only 20% of the workstations results in a
five-fold increase in supply chain velocity. Managers are attracted by this leverage offered by
continuous improvement. The insight that a 10% scrap rate can create a 53% increase in inventory and
slow down the supply chain velocity by 38% is also compelling.
Application of the Critical Insights

It is quite clear that a huge increase in supply chain velocity is possible if process deficiencies at a minority
of workstations are eliminated. The improvement methods that achieve this velocity increase are part of the
training in our Value-Based Six Sigma (VBSS) program.
VBSS High Velocity Supply Chain Improvement Methods

Four Step Rapid Setup Method2: Typically reduces setup time, batch size and inventory
by 50-80%. Requires little if any capital equipment.
Six Sigma Quality: Using all the statistical tools of 6σ including SPC, DOE, etc
culminating in mistake proofing (poka yoke) to prevent defects (<3 per Million) without
dependence on human intervention or judgement.
Total Productive Maintenance: Reducing workstation downtime by 80%+ by preventive
and predictive maintenance, operator routine maintenance.
2 See America Can Compete, pp 64, 81.
Page 9
Process Time Improvement: Increasing output per hour (after setup) using workstation
redesign, waste motion elimination, work instructions: principally applied to human paced
work.
Process Flow Improvement: Reducing the transport time between workstations, and
balancing line flow and work content. Particularly valuable for assembly work, it also
enables the Six Sigma successive checks quality method.
Pull System Implementation: Replacing all or part of a forecast demand system with a
replenishment system using either cards or computer to trigger demand based on
downstream customer consumption. Maximum intermediate and logistics output buffer size
is calculated, based on process deficiencies and demand fluctuations. Workstation shuts
down when max output inventory buffer quantity is reached.
The improvement methods are relatively easy to learn, but like any continuous improvement initiative, do
require the Black Belts to have both training in the improvement methods and team leadership skills.
Algorithmic Planning and Scheduling

We learned that supply chain velocity is critically dependent on launching the minimum calculated batch
size. Supply chain velocity is also critically dependent on the inventory buffers downstream of finished
goods in the distribution channel. These buffers are necessary to compensate for the variability and product
complexity of demand. We employ statistical algorithms to improve service levels based on actual demand
replenishment plus historical demand frequency. In general, a mixture of MRP, Generic, and SKU pull
systems are used to maximize supply chain velocity and minimize inventory. This methodology is
developed in Black Belt Supply Chain expert training. Faster factory velocity increases the velocity and
inventory turns of logistics and distribution. This has allowed Cisco Systems to reduce lead time from four
weeks to two weeks (e-Company, Nov 2000, pg.248), but another doubling of velocity is probable (see
Appendix 1).
What About the Velocity of Product Development, Marketing and

Transactions?
We have shown that reduction of WIP increases velocity of the supply chain and can be physically seen
and touched. What is less obvious, and requires an act of imagination, is that the same phenomena exists
in Product Development, where velocity is increased by the reduction of PIP (Projects in Process). The
same phenomena exists in Marketing or Financial Services where TIP (Transactions in Process) are
reduced. The tool sets employed to increase velocity are different, but the objectives are identical, and are
the subject of other Best Practice Skill Centers within the Value-Based Six Sigma Methodology.
Page 10
Value-Based Six Sigma

Comprehensive Model for Performance Improvement
Merging Strategy and Operations...
High Velocity Supply

Chain
Six
Six Sigma
Sigma
Value-Based
Value-Based Leadership
Leadership Performance
Performance
Marketing & Sales Value
Strategies
Strategies Effectiveness
Effectiveness Effectiveness Creation
Improvement
Improvement
High Velocity Product
Development
…for Sustainable Share Value Growth
Value-Based Strategies Leadership Six Sigma Performance Supply Chain / Marketing &
Decisions driven by key Effectiveness Improvement Sales / Product
value drivers (EVA, ROIC, Model behavior Infrastructure of Development
Growth) Company-wide Champions, Black Pull from specific best
Determine priorities for communications Belts, & Green Belts practices to support process
business, markets, Robust problem solving improvement in cost, quality
Create alignment
product, and projects process that attacks and cycle time
Physical & Intellectual Optimize &
accelerate variability
capital allocation
performance
Page 11
Appendix 1: Eliminating Time Bottlenecks in a Real Factory
“It’s hard to be aggressive when you don’t know who to hit”
(Vince Lombardi to a tackle who hadn’t learned the playbook)
We have used simple examples and animations to show that Supply Chain Velocity and lead time is
determined by WIP inventory, and that WIP inventory is determined by process deficiencies such as setup
time. Most workstations are far more complicated, producing scores of different parts. Software is available
which makes easy the task of calculating the delay time imposed by each workstation. In analyzing a real
factory, we want to know which workstations are the time bottlenecks in priority of their destruction of
supply chain velocity. As we saw in the animation, we cannot always make this determination by looking for
inventory buildups. The bottleneck workstation, the Punch, required batch sizes of 5, but once this batch
size is launched throughout the factory, WIP spreads pretty uniformly. Moreover, the actual batch sizes
used in a factory are often arbitrarily chosen, not calculated using flow algorithms. Thus the batch size may
be larger than needed to compensate for process deficiencies. In such a case, we can immediately reduce
WIP and increase velocity without even improving any of the workstations.
Critical Insight: Maximum Supply Chain Velocity Results from Calculating and
Launching Minimum Batch Size
To maximize the velocity of the supply chain, we clearly have to minimize the WIP inventory. This in turn
requires that we launch the minimum batch size consistent with the production demand and the existing
process deficiencies. The power of SupplyChainAcceleratorSM is that it can calculate this minimum batch
size directly from the data. Other simulation programs can get to the minimum batch size by multiple runs.
Our goal is to put a tool into the hands of manufacturing that is no more difficult to learn than Excel™.
SupplyChainAcceleratorSM locates the same bottleneck more quickly, although it uses average rather than
distribution data.
Finding the Velocity Accelerators in a Real Factory

We don’t need to analyze every workstation in a factory to find the Velocity Destroyers. First of all, we can
generally eliminate assembly workstations. They can be placed in a flow line, receive quality improvement
methods such as Six Sigma provides, and operate in a batch size of 1. Rather, it is generally workstations
which have a long setup time, downtime, or hold period (heat treat, cure, bake) that are the best targets.
We need the setup times, processing speeds, and any unusual characteristics such as machine downtime,
high scrap and rework. We also need the demand per month or week by part number. We input this data
into the PC and obtain an output like the one below (Courtesy of the Emerson Electric Company, Copeland
Refrigeration Division).
Appendix 1: Eliminating Time Bottlenecks in a Real Factory Page 12

Figure 4
Figure 5

Focus on Time Bottlenecks: Punch and Power to the Improvement Process

The practical advantage of calculating minimum batch sizes and workstation delay times is that you do
know who to hit, and this makes improvement resources far more productive. You will notice that the Drill
Pin workstation is the time bottleneck (Figure 5), destroying 8.3 days of supply chain velocity. The
workstation spends about equal time in setup and machine downtime, so the Black Belt could estimate
potential benefits of both improvement methods, and run a “what if” simulation to see which would yield the
greatest improvement in velocity. The Black Belt would then proceed to H bore, then Mill Top, and Finish
Grind. Improving 4 of the 13 workstations will double the velocity. Most lines are far less challenging. As
mentioned, assembly lines allow an immediate move to pull systems. In most plants, fab lines such as this
drive assembly lines that often require little improvement. The percentage of workstations requiring
improvement is below 20%, giving powerful leverage to focused improvement efforts.
Capex Avoidance
Capex should only be spent on capacity bottlenecks, and then only if capacity process deficiencies
such as setup time scrap, downtime, etc have first been eliminated. SupplyChainAcceleratorSM and
other simulation packages can calculate the capacity bottlenecks and allow “what if” scenarios to be
played. In our experience, nearly half of all capex investments can be avoided. Capex applied to non-
bottleneck workstations generates more excess inventory. The first step in attacking a capacity bottleneck
is to eliminate process deficiencies such as setup time, downtime, scrap, etc. The last step should be
purchasing additional capex. One of our clients was about to buy an expensive bar code tracking system.
Once the velocity had been increased five-fold, he no longer cared where the product was, since if it
entered the line on Monday it would hit test by Thursday.
What is the Maximum Supply Chain Velocity? World Class Benchmark?

In Physics we know that the speed of light is the ultimate velocity beyond which we cannot pass. Is there a
comparable terminal velocity in supply chains? The answer is yes, but it is so fast that it imposes no
practical limit to supply chain velocity, any more than the speed of light imposes any practical limitation on
aviation velocity. In the ideal case, setup, downtime, rework, and transport time are nearly zero, and all
that is left is value add processing time. These conditions were nearly achieved by Henry Ford by
eliminating all product complexity (one product - no setup). But Ford’s single product system could not
respond to the consumers’ demand for variety. If one adds up the value add processing time down the
critical path you arrive at the absolute minimum time of transit through the factory which is the analog of the
speed of light. If you then divide this time by the actual observed cycle time from release of materials into
the line to its completion as finished goods, you obtain the manufacturing cycle efficiency:
Manufacturing Cycle Efficiency = MCE =(Value Add Time critical path) / (actual cycle time)
In the next appendix we will study a real factory which increased its supply chain velocity seven-fold in a
period of about a year. Lead times were reduced from 14 days to 2 days in this two-shift operation. Is this
good or bad? Well, clearly it is better than it was, and in fact was good enough to overpower the
competition and double revenue. Based on the above analysis, we shall find that the maximum velocity was
2.5 hours, so there was still plenty of room for improvement.

MCEinitial = (2.5 hours)/(14daysX2shiftsX8hours)= 1.2%
MCEfinal = (2.5 hours)/(2daysX2shiftsX8hours) = 8.4%
In performing this calculation, it is important to remove any bake and cure times from numerator and
denominator, as they distort the MCE upward, and in fact can often be eliminated by alternate technologies.
So what is a world-class benchmark? When I visited Toyota in Japan, I saw comparable factories running
at 20-30% cycle efficiencies, but which had been operating under continuous improvement for over a
decade. An MCE above 10% is generally going to surpass any competitor, and will be achieved in tandem
with a Six Sigma level of quality. In comparing the MCE of two factories, one must also estimate the relative
complexity of their product mix. Velocity is adversely affected by product complexity, and the relative impact
can be calculated by SupplyChainAcceleratorSM.

Appendix 2: Accelerating Supply Chain Velocity by 700%

The United Technologies Automotive, Hose and Fittings Plant, Mitchell, IN
We have discussed the application of High Velocity Supply Chain initiatives to a line of 13 workstations, but
what about a whole plant of 140 Workstations with 585 UAW employees? This factory supplies coupled
hose fittings which couple the pressurized fluid from the power steering pump to the master cylinder. The
company was delivering in 14 days and, their main customer, Ford, wanted much faster delivery and higher
quality. Value Based Analysis showed that Ford and Chrysler offered huge opportunity for revenue growth
and margin enhancement. Products being supplied to Toyota and Navistar would never earn their cost of
capital, added a great deal of complexity, and were gradually phased out. Using High Velocity Supply
Chain methods, the delivery time was then reduced from 14 days to 2 days, a seven-fold improvement in
velocity. Because competitors were still slow, the company captured the growth in the Taurus platform,
doubled revenue and quadrupled EBITDA in just 26 months.
Increase in Enterprise Value Resulting from

7-fold Acceleration of Supply Chain Velocity
United Technologies Automotive Hose & Fittings Division

(Preferred Technical Group)
BEF O RE AF T ER
M a n u fa ctu rin g Cycle T im e 14 Day s 2 Day s
Re ve n u e ($M M ) 145 312
EBIT DA ($M M ) 10 48
O p e ra tin g M a rg in 5.4% 13.8%
Ca p ita l T u rn o ve r 2.8 3.7
RO IC 10.0% 33.3%
EV A = RO IC% - W ACC % -2.0% 21.3%
En te rp rise V a lu e ($M M ) 64 208
Figure 6
About 15% of all workstations (25% of non-assembly workstations) received a team-led application of the
improvement methods. To give one example, the flare machines shown in Figure 7 had a 2-hour setup time
and were a time bottleneck. The machines were setup off shift and a single part number was produced the
whole next shift, then moved to the next workstation. The principal metric used by management had been
direct labor productivity. By reducing the setup time to 10 minutes, the batch size was reduced and 8
different part numbers were set up and run during each shift, reducing the delay time and inventory by
more than 80%, with no loss of direct labor productivity.
Appendix 2: Accelerating Supply Chain Velocity in a Whole Factory Page 16

14 Day Lead Time - 2 Day Lead Time -

Low Velocity Supply Chain High Velocity Supply Chain
2 Hour
Excess WIP Setup Time 10 Minute
Setup Time
80% Less WIP
BEFORE AFTER
Metal Ware Flare running large batches with Metal Ware Flare with pull system and setup
large amounts of WIP at revenue of $145MM reduction: inventory reduced 85% at revenue
of $300MM
Figure 7
This is just one of about 20 workstations which were high priority time bottlenecks that received team-led
application of one or more of the improvement methods. A four-hour videotape is available which details
the improvements in the other workstations, and was used as a training video in sister plants. The fact that
a 7-fold improvement in velocity can result from improving 15% of a plant’s workstations is far more
important now than ever before.
Capturing the Value

To create value for a whole company, it is important to first prioritize projects based on their contribution to
shareholder value. The graph in Figure 8 is empirical stock market data. It shows that the market rewards
companies with a high multiple of book value if their return on capital is at least 5% higher than the cost of
capital, and if the company is growing at 10% per year. The Hose and Fittings Division of United
Technologies Automotive was growing, but not earning its cost of capital. The customer with the greatest
value potential was Ford, and their Key Buying Factor was improved quality and delivery time. The ability
of the supply chain to deliver in 2 days won revenue growth of 40% per year in a market that was
growing at 5%. Results like this are even more critical today as the e-business market grows. The
company with the highest velocity supply chain will increasingly become the industry leader in profit margin,
revenue growth, and equity value.

VALUE
6 5-6
4-5
5 3-4
H&F
H&F
3.6
3.6 2-3
4
Market to 1-2
Book
Equity 3
>5%
H&F
H&F
2 2% to 5%
1.0
1.0
1 -2 to+2%
0 -5 to-2% EVA = ROIC% - WACC%

<3% (Return on Invested
3-6%
6-9%
Capital % - Weighted
9-12% <-5% Average Cost of Capital %)
12-15%
>15%
Revenue Growth
Figure 8

Appendix 3: A Practical Approach to Accelerating the Velocity of a

Factory
Thus far we have discussed how to reduce WIP and lead time by launching the minimum calculated batch
size. This has been illustrated by performing manual calculations using a few parameters such as setup
time, scrap, etc. We have also used the SupplyChainAcceleratorSM software tool, which can accept 35
additional production parameters and performs laborious calculations for you. We have shown the financial
benefits of launching calculated batches throughout an automotive supplier factory.
Is it practical for a Black Belt to manually input and model a whole factory using
SupplyChainAcceleratorSM? A typical plant has hundreds of workstations producing thousands of part
numbers. Even a modest factory of 75 workstations and 2000 part numbers would take six weeks of
uninterrupted work to model, and the time rises linearly with the number of workstations and part numbers.
To this must be added the chore of manually inputting changes in schedule demand, updating machine
downtime, etc.
SupplyChainAcceleratorSM attacks these problems. It created the simulation of 75 Workstations (data

below) and 2000 part numbers in less than 10 minutes (see spreadsheet data at the end of this paper).
Additional time required for larger factories is modest (and is hardware dependent)
SupplyChainAcceleratorSM receives data from the server or mainframe, and automatically builds a model
for the whole plant using data from the MRP, ERP or legacy system. In this way, time bottlenecks can be
re-calculated daily among hundreds of workstations due to schedule demand mix changes, etc, and can
provide a daily correction to promised lead times. Often an immediate improvement in lead time is possible
by reducing batch sizes to a safe level above the minimum calculated level (see spreadsheet data at the
end of this paper). Moreover, marketing and operations can define a desired lead time and use the
simulation output to create a prioritized list of projects for the Black Belts. The graph below (Figure 9)
shows that 80% of the lead time delay (the “Station Cycle Time”) is consumed by 20% of the workstations.
Appendix 3: A Practical Approach to Accelerating the Velocity of a Factory Page 19

20 % of Workstations Cause 80% of the

Production Lead Time Delay
100%
90%
Percentage of Lead time delay
80%
70%
60%
50%
40%
30%
20%
10%
0%
0% 5% 10% 15% 20% 25% 30%
Percentage of Workstations
Figure 9
Thus a set of Black Belt projects that will reduce lead time by 80% can be defined, executed and monitored
through e-Tracker. When planning a project, the Black Belt can download data from
SupplyChainAcceleratorSM so that he or she can plan the improvement project using “what if” scenarios and
sensitivity analysis. This enables the Black Belt/Production Planning to decide which improvement methods
(immediate batch size reduction, setup reduction, total productive maintenance, poka yoke, operation time
improvement, etc) will be most effective in eliminating a time bottleneck.
The advantage of SupplyChainAcceleratorSM is that WIP and lead time reduction can be accomplished
much faster due to the early knowledge of time bottlenecks in priority order. At one client, the delivery time
and WIP was reduced by 50% in just three months using SupplyChainAcceleratorSM. The demands of e-
Commerce are creating requirements for rapid acceleration of the supply chain velocity with resulting agility
and responsiveness, making a high velocity Supply Chain increasingly important.
The minimum process data necessary for input to SupplyChainAcceleratorSM from MRP include: monthly
demand by part number, setup time, and processing time per unit. Workstations which are shown to be
suspect time bottlenecks also require Machine Downtime %, Scrap and Rework %, as do all other
workstations in which these parameters exceed 5%, respectively. SupplyChainAcceleratorSM includes 35
input parameters, which describe virtually all manufacturing conditions (e.g., Startup Scrap, MTTR, etc).
Any significant departure of a parameter from normal should be input. Great accuracy is not generally
needed until a workstation is determined to be a suspect time bottleneck. At this point the Black Belt will
enter detailed data to validate its priority as described above. SupplyChainAcceleratorSM typically runs on a
mainframe or an NT Server 4, or NT 2000. Individual workstations can be downloaded to
SupplyChainAcceleratorSM via ASCII input. The attached SupplyChainAcceleratorSM output is an Air-
conditioning factory consisting of 75 workstations, primarily presses and assembly. The output has been
sorted by Workstation cycle time and calculated Batch size. The data from this factory provided the input
for the graph above.

Station Name Flags Station Cycle Cycle Percent Percent Percent Percent
Cycle Time Time Time Unit Setup Process Down Idle
Unit Mode Time Time Time Time
P3 & P6 3.749999 WEEK MINIMUM 35.71 62.14 2.15 0.00

P2 3.032381 WEEK MINIMUM 27.90 69.04 3.06 0.00
P22 2.212896 WEEK MINIMUM 21.50 76.26 2.24 0.00
P1 1.702468 WEEK MINIMUM 59.33 38.74 1.93 0.00
P28 - 5937 1.613632 WEEK MINIMUM 44.80 55.20 0.00 0.00
P26 I 1.585760 WEEK MINIMUM 37.99 59.24 2.78 0.00
P17 1.353528 WEEK MINIMUM 17.78 78.83 3.39 0.00
P23 1.352797 WEEK MINIMUM 54.30 43.84 1.86 0.00
P10 1.282567 WEEK MINIMUM 55.85 41.76 2.40 0.00
P24 1.280189 WEEK MINIMUM 42.81 54.52 2.67 0.00
P18 1.171651 WEEK MINIMUM 26.47 71.34 2.19 0.00
P20 1.137897 WEEK MINIMUM 60.58 37.41 2.01 0.00
P31 1.135998 WEEK MINIMUM 32.86 64.18 2.96 0.00
P9 1.130057 WEEK MINIMUM 25.59 70.11 4.30 0.00
NC1 1.007525 WEEK MINIMUM 31.95 63.35 4.69 0.00
S1 0.881973 WEEK MINIMUM 62.84 37.16 0.00 0.00
B16 SAL 0.809584 WEEK MINIMUM 76.77 23.18 0.00 0.05
5937-STOLP 0.800750 WEEK MINIMUM 93.03 6.30 0.00 0.67
S2 I 0.780889 WEEK MINIMUM 64.80 35.20 0.00 0.00
P7 0.650754 WEEK MINIMUM 38.49 57.53 3.98 0.00
B1-B2-B3-B4-B5-B8 0.606960 WEEK MINIMUM 46.66 50.46 2.88 0.00
NC2 0.570829 WEEK MINIMUM 42.09 54.14 3.77 0.00
P8 0.563391 WEEK MINIMUM 37.62 58.25 4.12 0.00
P12 I 0.529478 WEEK MINIMUM 81.20 16.93 1.87 0.00
P4 0.468798 WEEK MINIMUM 72.64 24.98 2.38 0.00
NC3 I 0.402158 WEEK MINIMUM 65.07 34.03 0.87 0.03
14015-STOPE I 0.387452 WEEK MINIMUM 56.73 43.23 0.00 0.04
P29 0.318104 WEEK MINIMUM 74.93 22.47 2.61 0.00
P11 0.315759 WEEK MINIMUM 87.42 10.67 1.91 0.00
P32 0.283834 WEEK MINIMUM 50.73 46.43 2.84 0.00
14016-STOPE I 0.267714 WEEK MINIMUM 50.43 49.18 0.00 0.39
NC4 0.221333 WEEK MINIMUM 46.49 49.88 3.63 0.00
TOOLROOM 0.139618 WEEK MINIMUM 92.76 7.23 0.00 0.01
P25 0.135502 WEEK MINIMUM 75.54 24.41 0.00 0.05
P21 0.101133 WEEK MINIMUM 74.22 23.91 1.55 0.32
B10-B11-B12-B14-B15 0.086349 WEEK MINIMUM 80.14 17.61 2.25 0.00
M1 - NOTCHER 0.060320 WEEK MINIMUM 93.87 3.78 2.35 0.00
BLOWER CELL 1 I 0.037546 WEEK MINIMUM 72.17 27.79 0.00 0.04
2254 0.025236 WEEK MINIMUM 71.17 28.21 0.00 0.62
DRILL PRESS 0.024386 WEEK MINIMUM 96.03 1.15 0.00 2.82
CRMP1 0.009120 WEEK MINIMUM 60.19 0.56 0.00 39.25
SETUP C/O 0.008763 WEEK MINIMUM 88.88 4.27 0.00 6.85
RF2 0.006808 WEEK MINIMUM 79.07 10.30 0.00 10.63
2257 BEAD & CRIMP 0.003096 WEEK MINIMUM 20.06 0.56 0.00 79.38
PRS OP. LABOR 0.000274 WEEK MINIMUM 6.60 79.25 0.00 14.15
MATHAND LABOR 0.000004 WEEK MINIMUM 0.00 21.54 0.00 78.46

Station Name Flags Station Cycle Cycle Percent Percent Percent Percent
Cycle Time Time Time Unit Setup Process Down Idle
Unit Mode Time Time Time Time
SET UP LABOR 0.000001 WEEK MINIMUM 0.00 41.81 0.00 58.19

B3 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
T/R LABOR 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
OFFICE 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B10 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B11 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
S&R LABOR 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
RF1 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B12 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B14 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B15 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
P6 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
P5 -5942 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B2 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B4 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
P30 -5937 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B5 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B9 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
B8 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
P27 - 5942 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
BENCH 1 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
MAINT LABOR 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
MORGANFORD - 4 MI FR 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
NC16 PUNCH CELL 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
NC1SH 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00
P15 - 5942 0.000000 WEEK MINIMUM 0.00 0.00 0.00 100.00

Station Name Part Number Step Shipping Rate Processed Rate Rate Rate Period Batch Flags
Number Period Mode Size
14015-STOPE 103950002 10 2944.999800 2944.999800 YEAR MINIMUM 22

14015-STOPE 103950004 20 5889.999500 5889.999500 YEAR MINIMUM 44 I

Station Name Part Number Step Shipping Rate Processed Rate Rate Rate Period Batch Flags
Number Period Mode Size

2254 437840 20 120825.990700 120825.990700 YEAR MINIMUM 59
2254 462590 20 0.000000 0.000000 YEAR MINIMUM
2254 468610 20 0.000000 0.000000 YEAR MINIMUM
2254 472600 20 7860.999400 7860.999400 YEAR MINIMUM 4
2254 476690 20 8825.999300 8825.999300 YEAR MINIMUM 5
2257 BEAD & CRIMP 255170 30 3463.999700 3463.999700 YEAR MINIMUM 1
5937-STOLP 245601 20 8836.999300 8836.999300 YEAR MINIMUM 137
B1-B2-B3-B4-B5-B8 102713000 20 9619.999300 9619.999300 YEAR MINIMUM 119
B1-B2-B3-B4-B5-B8 121550 20 0.000000 0.000000 YEAR MINIMUM

Accelerating Supply Chain Velocity and Cash Flow

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Accelerating Supply Chain Velocity and

Acceleration of Supply Chain Velocity vs.

% Reduction of Work in Process Inventory

Supply Chain Velocity and Shareholder Value..........................................................................................3

The Qualitative Insight: Time Bottlenecks.................................................................................................4

Immediate Doubling of Velocity: Launching Minimum Calculated Batch Size.......................................6

Quantitative Insight: Finding the Accelerators of Velocity ......................................................................8

Critical Insights on Supply Chain Velocity ................................................................................................9

Appendix 1: Eliminating Time Bottlenecks in a Real Factory ................................................................12

Critical Insights for e-Business and Supply Chain Velocity

Supply Chain Velocity and Shareholder Value

The Qualitative Insight: Time Bottlenecks

Batch Size of 5 Batch Size of 1

Acceleration of Supply Chain Velocity vs.

% Reduction of Work in Process Inventory

Immediate Doubling of Velocity: Launching Minimum Calculated

Low Velocity Supply Chain

Transport Time Operation Time Rework Setup

Time Bottleneck Calculation

Batch size need only “cover the rocks” (calculation in Appendix 1)

Immediate Velocity Increase

Transport Time Operation Time Rework Setup

Quantitative Insight: Finding the Accelerators of Velocity

Bottleneck Cause Process Change Resulting Velocity Resulting Inventory

Critical Insights on Supply Chain Velocity

Bottleneck Cause Process Change Resulting Velocity Resulting Inventory

Application of the Critical Insights

VBSS High Velocity Supply Chain Improvement Methods

2 See America Can Compete, pp 64, 81.

Algorithmic Planning and Scheduling

What About the Velocity of Product Development, Marketing and

Value-Based Six Sigma

Merging Strategy and Operations...

High Velocity Supply

…for Sustainable Share Value Growth

Appendix 1: Eliminating Time Bottlenecks in a Real Factory

“It’s hard to be aggressive when you don’t know who to hit”

(Vince Lombardi to a tackle who hadn’t learned the playbook)

Finding the Velocity Accelerators in a Real Factory

Appendix 1: Eliminating Time Bottlenecks in a Real Factory Page 12

Appendix 1: Eliminating Time Bottlenecks in a Real Factory Page 13

Focus on Time Bottlenecks: Punch and Power to the Improvement Process

What is the Maximum Supply Chain Velocity? World Class Benchmark?

Appendix 1: Eliminating Time Bottlenecks in a Real Factory Page 14

MCEinitial = (2.5 hours)/(14daysX2shiftsX8hours)= 1.2%

MCEfinal = (2.5 hours)/(2daysX2shiftsX8hours) = 8.4%

Appendix 1: Eliminating Time Bottlenecks in a Real Factory Page 15

Appendix 2: Accelerating Supply Chain Velocity by 700%

Increase in Enterprise Value Resulting from

United Technologies Automotive Hose & Fittings Division

Appendix 2: Accelerating Supply Chain Velocity in a Whole Factory Page 16

14 Day Lead Time - 2 Day Lead Time -

80% Less WIP

Capturing the Value

Appendix 2: Accelerating Supply Chain Velocity in a Whole Factory Page 17

0 -5 to-2% EVA = ROIC% - WACC%

Appendix 2: Accelerating Supply Chain Velocity in a Whole Factory Page 18

Appendix 3: A Practical Approach to Accelerating the Velocity of a

SupplyChainAcceleratorSM attacks these problems. It created the simulation of 75 Workstations (data

Appendix 3: A Practical Approach to Accelerating the Velocity of a Factory Page 19

20 % of Workstations Cause 80% of the

Appendix 3: A Practical Approach to Accelerating the Velocity of a Factory Page 20

P3 & P6 3.749999 WEEK MINIMUM 35.71 62.14 2.15 0.00

Appendix 3: A Practical Approach to Accelerating the Velocity of a Factory Page 21