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Demand Driven Performance

Book Description

Implement demand driven smart metrics to drive and sustain dramatic gains in flow and improve ROI performance

What if the objective of minimizing unit product cost that is hard coded into all reporting and measurement systems is simply "bad math" that drives decisions and actions that destroy ROI?

In today's volatile, globally competitive environment, new decision-making tools are required to monitor, measure, and improve total organizational performance. Adherence to "old" operational rules, tools, and behaviors is killing competitiveness in most enterprises. A fundamental shift is required. Cowritten by internationally recognized experts in the field, Demand Driven Performance explains why current measurement forms must be replaced. The authors present a demand driven blueprint and the smart metrics to maximize flow and ROI.

"The methods described in this book worked in one of the most complex manufacturing operations that you can imagine with very effective results." -- From the Foreword by Dan Eckermann, former President and CEO, LeTourneau Technologies, Inc.

THIS PRACTICAL, TIMELY GUIDE OFFERS:

  • The case against conventional unitcost-focused metrics, and proof of their negative effects
  • The new rules needed to succeed in the complex and volatile global demand and supply landscape
  • Historical perspectives on flow, cost, and rise and demise of management accounting
  • The evolution of flow and ROI as strategy
  • A case study--the Boeing Dreamliner
  • Instructions on how to design and implement a demand driven information system
  • The smart metrics required to sustain and drive improvements in demand driven operating models

Table of Contents

  1. Cover 
  2. Title Page
  3. Copyright Page
  4. About the Authors
  5. Contents 
  6. Foreword
    1. You Can Do This—a CEO’s Perspective
    2. About Dan Eckermann
  7. Preface
    1. About This Collaboration
  8. Acknowledgments
  9. Introduction: Deep Truth
  10. Chapter 1: The Need to Get Smarter
    1. Are We Even Playing by the Right Rules?
      1. Area 1: Planning and Materials Management
      2. Area 2: Costing Systems
      3. Area 1 + Area 2 = Big Problems
    2. The Rise of the New Normal
    3. The Push-and-Promote Problem
    4. The Need for Flow
    5. Variability—Enemy Number One of Flow
    6. The Types of Variability
      1. Demand Variability
      2. Supply Variability
      3. Operational Variability or “Murphy”
      4. Management Variability
    7. Getting Smarter—A Basic Blueprint for Change
      1. Step 1: Install the Right Thoughtware in the Organization
      2. Step 2: Become Demand Driven
      3. Step 3: Deploy Smart Metrics—Rules for the Smarter Way
  11. Chapter 2: Install Thoughtware in the Organization
    1. Can Our Organizations Think Systemically?
    2. Modern Organizations—Conflict Factories
    3. Conflicts and Oscillation
      1. A Short Story about Oscillation
    4. The Real Definition of Waste
  12. Chapter 3: Becoming Demand Driven
    1. Push and Promote to Position and Pull
    2. Accepting the Changes Inherent in the New Normal
    3. Embracing Flow and Its Implications
    4. Designing the Demand Driven Operating Model
      1. Placing Decoupling Points
      2. Placing Control Points
    5. A Decoupling and Control Point Example
    6. Protecting Decoupling and Control Points
      1. Demand Driven Stock Buffers
      2. Demand Driven Time Buffers
      3. Demand Driven Capacity Buffers
    7. Bringing the Demand Driven Model to the Organization
    8. Operating and Sustaining the Demand Driven Model
  13. Chapter 4: Introducing Smarter Metrics
    1. The Search for a Deeper Truth
    2. Quantifying the Performance Gap
    3. Smarter Metrics
      1. Company 1: Oregon Freeze Dry
      2. Company 2: Jamestown Container Company
      3. The Results
      4. Company 3: LeTourneau Technologies, Inc
      5. Company 4: M.C. Gill Corporation
      6. Lessons from the Four Companies
  14. Chapter 5: How Do We Know What’s True?
    1. The Scientific Method
      1. Monthly Meeting of “Company Normal”
      2. Using Consistent Terminology
      3. What Is a Scientific Fact?
      4. What Is a Theory?
      5. What Is Proof?
      6. What Is Scientific Proof?
      7. Back to the Scientific Method
    2. Unit Cost-Centric Efficiency—A Deep and Universal Truth
  15. Chapter 6: Efficiency, Flow, and the Right Measures
    1. The “Right” Measures
    2. Defining Cost
  16. Chapter 7: Our Current Accounting Measuring Mess
    1. Reason 1: The Proliferation of ERP/MRP II
    2. Reason 2: The Growing Distance between the Front Office and Operations
    3. Reason 3: The Fading Away of Management Accounting
      1. Gap Explanation 1: An Increase in Complexity
      2. Gap Explanation 2: The Shift from Linear to Nonlinear Systems
    4. Silo Thinking
      1. Challenging a Deep Truth by Definition Shakes Up the Status Quo
  17. Chapter 8: The Evolution of Flow and ROI as Strategy
    1. The Birth of Product Costing
    2. The Birth of Decentralized Management
    3. An Accelerant—Andrew Carnegie
    4. The Rise of Wholesale Distribution and Large-Scale Retail
    5. The Birth of Conglomerates and Management Accounting
    6. Automation and the Death of the Craftsman
    7. Ford versus General Motors—A Lesson of Relevancy
    8. How Did GM Beat Ford?
    9. The Birth of Push and Promote
    10. Systemizing the Management of ROI
    11. The Emphasis on GAAP and the Rise of Unfocused Improvement and Outsourcing
  18. Chapter 9: A Case Study—The Boeing Dreamliner
    1. The Boeing Dreamliner
  19. Chapter 10: Complexity Science and Supply Chains
    1. The Newtonian Way
    2. The Push beyond Newton
    3. Complexity
    4. Chaos and Complexity Theory Maturation
    5. Supply Chains as Complex Adaptive Systems
      1. The Simplicity in Complexity
      2. Understanding Complex Systems
      3. What Makes a System Complex?
      4. Complex Systems Are Nonlinear
    6. The Move beyond Complexity Theory—Complex Adaptive Systems (CAS)
      1. Boundaries
      2. Coherence
      3. The Edge of Chaos
      4. Self-Organization and Emergence
      5. Emergence and Innovation
      6. Self-Balancing Feedback Loops Maintain Stability
      7. Resilience and Rigidity
    7. A Complex Adaptive System Example—Company Normal
    8. A Reference Example for Complex Adaptive Systems
    9. Connections and Interactions in Nonlinear Systems
    10. CAS and the Demand Driven Operating Model
      1. Data Collection and Feedback Loops
      2. Demand Driven and Resiliency versus Rigidity
    11. Summary
    12. Conclusion
  20. Chapter 11: Smart Metrics
    1. Managing in a Pareto World Calls for New Thinking
    2. The Power of Pareto and Strategic Buffers
    3. Stock Buffers, Pareto Analysis, and Smart Metric Objectives
    4. The Purpose and Size of Each Strategic Stock Buffer Zone
    5. Strategic Stock Focused Improvements
    6. Flow Indexes
    7. Capacity Buffers, Pareto Analysis, and Smart Metric Objectives
    8. Our Reference Environment
    9. The System and Paretian View of Resource Capacity
    10. The Implications of the Sales and Operating Plan for Strategic Capacity Investment
    11. Cost, Volume, Profit Relevant Range Is Defined by the Scarce Capacity Resource
    12. Allocating Scarce Capacity to the Market Based on Strategic Contribution
    13. Prioritizing the Product Mix by Throughput Dollar Rate Changes the CVP Graph
    14. Calculating the Value of Finding More Lathe Capacity
    15. Relevant Information for Strategic Outsourcing
    16. The Case for Acquiring Internal Lathe Capacity
    17. A Summary of the Financial and Nonfinancial Factors of Outsourcing or Capital Investment
    18. The Third Alternative—Using Smart Metrics to Find Capacity
    19. Summary on Strategic Investments in Capacity and Stock
    20. The Scheduling Implications of Stock Buffers
    21. Stock Buffers’ Role in Execution
    22. Control Points and Resource Scheduling
    23. Time Buffers and Reliable Schedule Execution
    24. Time Buffers as the Execution Feedback Loop for Manufacturing
    25. Time Buffers Require Ten Zones
    26. Time Buffers During Work Order Execution
    27. Minimizing Control Point Disruption
    28. Schedule Execution Coherence and Priority Alignment
    29. Assigning Roles and Responsibilities
    30. Larger, More Complex, Multisite System Control Requirements
    31. The Cheat Sheet for a Demand Driven Performance System
      1. Ask and Answer Five Key Questions Hourly, Daily, Weekly, and Monthly
      2. Ensure the Five Critical Data Capture Points to Provide the Smart Metric Answers are Timely
      3. Plan an Executable Schedule Focused on System Flow and the Market Lead-Time Strategy
      4. Expect Reliability, Stability, and Speed
      5. Remove Cost-Centric Competing Measures
  21. Chapter 12: Summary
    1. Performance Measurement Built on a New Deep Truth
    2. The Need for Steady Feedback
    3. Focus on Improvement
    4. A Final Thought on Information Technology
  22. Appendix A: More on the Strategic Replenishment Buffers of Demand Driven MRP (DDMRP)
    1. Sizing Buffers
      1. Green Zone
      2. Yellow Zone
      3. Red Zone
    2. Planned Adjustments
    3. Supply Order Generation
  23. Index