A high level of inefficiency is related to the production planning processes in the metals industry. Low asset utilizationpoor delivery performance and high inventory carryover are the three key areas of inefficiency. Corresponding Key Performance Indicators in these three areas are typically used in order to measure and improve production planning performance.

The key root causes for the inefficiencies in metals supply chains can be grouped in three broad categories depending on their origin. A summary is presented in the following graph.
 
 
root causes for planning inefficiencies in metals

 

The process category contains root causes that are linked to key characteristics of the manufacturing processes in the metals industry. The multiple-step manufacturing routings, associated with long lead times and high operational variability, increase the complexity of the resulting production planning scenarios. As a result, the balancing between the conflicting objectives of maximizing delivery performance and minimizing critical resource underutilization and inventory carryover becomes particularly challenging. Furthermore, the geographical distance between raw materials, manufacturing facilities and customers creates a challenging distributed network that most of the times operates with increased levels of inventory.

The sales category contains root causes related to the common characteristics of the sales operations in the metals industry. Sales and production organizations are usually disconnected and operate on conflicting objectives. The low volume orders and the high demand variability complicate the situation even further. Extensive order overbooking, i.e. acceptance and delivery promising of orders regardless of capacity availability  is also an important root cause. As a direct consequence, we see, multiple, often conflicting prioritization rules, high volumes of past-due orders, poor delivery performance and low customer satisfaction that leads to lost sales.

Finally, the systems category contains the root causes that are relevant to the information systems that metals companies usually operate. A variety of disparate and incompatible systems make data maintenance and validation a complicated task. The disconnected input from shop floor scheduling systems into factory and corporate planning makes information exchange and business integration difficult and inefficient. The lack of a common, global order visibility is also an issue, where some corporate systems work with real customer orders, some with forecasts and some with fictional internal orders. 

In order to address the root causes that we analysed above, several best practices can be applied.

The first step is to create a consensus prioritized list of top rules and objectives for production planning taking into account the special characteristics of the company’s business. Since there are usually many conflicting business rules and objectives, setting the right priority in the list reflects the company’s decision regarding specific business trade-offs and is respected throughout the company’s organization. Typically, such a list includes the KPIs of key resource utilization, delivery performance and inventory levels in this particular priority. 

The second step is to align the processes, systems and people to generate a consensus production plan that corresponds to the top rules and objectives in priority already defined. The implementation can be challenging for each KPI on the list. 

 

  • With respect to the asset utilization, the goal is to get plan acceptance. That requires the company-wide definition of the key resources. Then, the resource balancing strategy is determined and implemented so that the short term utilization of such key resources is increased. Additionally, the resource calendars must be adjusted and maintained by the proper systems and people to reflect full campaigns in planning. That requires tight daily coordination between functional and technical groups and their respective systems.
  • In order to improve delivery performance a single global priority needs to be assigned to every customer order entering the company’s systems. Such a priority is visible and respected throughout the entire production planning. Cross functional groups that include sales, marketing, production and finance decide for such a consensus global order prioritization. Overbooking must be limited or disallowed to reduce the order lateness significantly. Solutions that generate available to promise figures regularly, can help the salespeople visualize the limits of order booking in a calendar-type manner.
  • To strive for excellence, the inventory carryover needs to be reduced. A better coordination between planning and scheduling is required. Implementing a scheduling input for planning ensures transitional stability and reduced Work-In-Progress. Such a scheduling data gathering requires the effort of deciding what levels in the supply chain and to what extent i.e. planning items and resources, are relevant to harmonize the planning with the scheduling. Additionally, the rationalization of low volume products can be instrumental in reducing the overall inventory surplus. Such low volume products in combination with lot sizing manufacturing constraints create a lot of unnecessary inventory surplus that sits around for a long time. Rationalization of such products and creation of generic standard products helps reduce that inventory surplus.


The third step is to measure the production plan execution with key metrics like adherence or performance metrics. Plan adherence, i.e. how well is in reality the plan executed, and KPIs like key resource utilization, delivery performance and inventory levels are a few examples. Assessing the current situation and setting improvement targets constitute the core concept of adding value to the bottom line.

Based on industry market material and implementation estimates from past years, KPI improvement value targets can be set in relation to the best practices applied and provided that the current situation is measured first. The figure below shows the necessary steps that need to be taken in order to transform the quality of a production planning process from low to best-in-class.

expected benefits in the metals industry

Consequently, the order quoting time can be reduced from several days to a few seconds.  The on-time delivery performance, which typically lies below 70%, can be improved to above 90%.The order lead time, meaning the actual time required to satisfy a customer order, rather than the theoretical material processing time, can actually be halved, for example for hot rolled products it can be reduced from more than 4 weeks to 2 weeks. Finally, a significant improvement in inventory turns can be achieved, reaching values that are traditionally achievable by high-tech industries.

The implementation success of these best practices heavily depends on the size of an organization and how well the business processes, systems and people are internally aligned. External management expertise is usually required in order to realize the targeted business value in a fast and efficient manner.