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Create a Lean and Visible Workflow Across Your Business For Efficient Working Practices
First, I am going to give you the view from Novelis and tell you how we are doing things. I am going to introduce myself. So my mother always says you should never take the jacket off until you’ve introduced yourself. She also says make sure you got a coat hanger, so there we go. OK, so Novelis is part of the Birla Group. Has anybody ever heard of the Birla Group? It’s not so blank-there’s a few-Collins has heard of them. I thought, you might have.
Yeah, like I said, June 2007, Novelis was bought by the Birla Group of companies, which immediately increased their end-to-end leverages across a number of markets, cement, aluminum, carbon black, copper, retailing, cell phones-India’s biggest cell phone provider, I think, as the numbers go: 13 countries, big market capitalization, more than 100,000 employees, and 20 countries over the globe. So, not a small organization, and one with which bringing Novelis’s purely aluminum industry focused business into Birla was very interesting.
I guess the key thing there was that the Birla group does do world class manufacturing processes. They do have programs to deliver that. So Lean Six Sigma and the kind of stuff we were doing was a good fit, but a bit like some of the Toyota things. They wondered why it needed to be special. They just said, “Well, that’s how you work, isn’t it? Why do you need a special program with special people driving it? Isn’t it just something that you do?” So it was a good fit. It’s good for Novelis and it’s good for the Birla group, and that’s pretty much it for the corporate intro.
So Novelis, Europe then-yeah, we’ve got 6,000 FTs, 14 plants. In 2007 we shipped a million tonnes of aluminum, and that’s like a lot, that’s like all of it. That’s like 20 percent. We have the world’s largest hot-rolling aluminum plant in the world. Actually it’s in Alunorf in Düsseldorf, a joint venture with Hydro. So the assets that we have around Europe, they’re quite diverse in their location. Transport and logistics are obviously interesting with all the different supply chains and there are lots of different cultures in there too. So thinking about a supply chain transformation against that backdrop starts to get quite interesting, quite quickly.
So then the Alunorf is-I think it’s the size of 70 or 80 football fields. The footprint of the factory-it’s like, when you fly into Düsseldorf, it’s the thing you can see from the aircraft. It’s that big, it’s huge, it has its own railway. This is all kind of run from a HQ point of view from Zurich. So plant-wise, you’ve got lots of mergers and acquisitions that have come together, you’ve got diverse equipment, you’ve got geography, you’ve got all of the stuff in there. So it’s a good one to take as a case study for the transformation.
What do we supply and who to supply? Well, Lots of people actually, with lots of products, maybe not the end-user product. You can see some of the vehicle applications here and general purpose and specialties and what not. The North American operations are more about the sort of the common side with the Anheuser-Busch’s and Cokes and those people, but beverage can, food can and all those product ranges. There are a lot of supply chains in there.
The interesting thing about it from my point of view was that when you see an aluminum ingot cast, they actually look very similar-one aluminum ingot looks a lot like another one. It’s only when they get to codify weight and the supply chain that they actually start to look like something different that you can recognize as an end-user customer. That’s been one of the challenges with our supply chain transformation is to stop bundling material at the start of the supply chain and just hoping that it’ll figure its way by the time it gets to the end in the right customer application channels. We have had to work quite hard about that.
As you know, I mean anybody that’s involved with automotive, particularly Toyota, things like stopping production lines because of poor OTIF and bad delivery performance just doesn’t happen. You can’t do that. Also with cane makers and people like…don’t take it. Don’t take it great, if you phone them often and say you’ve got to shut down your lines and that is just-it just doesn’t happen.
So the behavior that you tend to drive there of course is you get the just-in-case orders that go in and the just-in-case inventory and the just-in-case buffer stock. So you get this whole propagation across the chain with all the geography that goes with it, and you end up with 60 million Euros-100 million Euros spent on transportation-and all your inventory is in trucks, and then in trains and boats and on the Rhine and all these places. It’s a huge challenge, huge challenge.
To give you a bit of background, a bit of scene setting, in terms of scale of transformation and the diversity of the products coming through the product lines, in terms of our specific supply chain challenges, I mean in these fluctuating times of metal prices, aluminum has gone anything from nearly $3,500 on the LME down to $2,000 at the moment, and it’s like a pogo-ing thing anywhere in between. So your inventory holding value, when you’ve got a large kilo tonnes in the chain can be hugely significant and punitive.
So in terms of our particular challenges, primary metrics, really for the transformation of our supply chain, are to deliver the OTIF. We can sell OTIF as a business. We can sell it because if customers don’t need buffer stocks and they don’t need all these intermediate things that protect their supply chain. If we can deliver the OTIF, we can lower those buffer stocks, and we can get commercially better arrangement. It works like that. That’s how it is.
Minimize the inventory in the supply chain. A thousand KT of aluminum is a huge number to ship. When you look at the inventory terms that we had within the system, the width we were holding on a month-by-month basis is some colossal numbers, colossal numbers you know. It’s lottery number stuff. I’ll come onto that in a minute, but yeah, basically the two primary drivers that deliver the OTIF and minimize the inventory in the chain.
This is a real project as well. This isn’t like a theoretical thing that we’ve done here. I wanted to give you a real example and you always walk a fine line between what you can say commercially, and there are all customers in the room, but I think people would rather know that we are improving something than just leaving it to go to the state of dilapidation. So this is a real example.
When you take the map of Europe if you’d like and then you put the metal flows on the top of it. You can see Alunorf there, which really is a huge engine right in the middle: two hot mills, five cold mills, heat-treatments, remount facilities, ingot casting, recycling centers, its own railway. It’s a huge engine. Then you look at the geography between all the different plants, different applications, and you look at the kind of metal flows reach for the customers, where do you begin. I mean, do you try and figure out orders in one particular customer application? Do you take a bunch of them? Do you take, try and segment some of them together? Do you do it by plant basis? Do you do it by assets? I mean, you have to do something. So I am going to tell you what we did.
Yeah basically, we took the approach that we needed the proof of concepts. There was obviously far too much risk in rationalizing the supply chain for everybody at the same time without really knowing the intricate details of what was in there, and this is where the Lean Six Sigma approach came in. I was listening earlier, the evolution of these conferences. I mean I went to-I think even before my own Six Sigma IQ in 2000 or maybe even 1999. I can’t remember now. In those days people used to stand up and present a fishbone, and everybody went, “Oh wow, a fishbone.” They wrote it down on their path and they went in back and they said, “We must do fishbone when we go home.”
Now it’s kind of got very, very corporate. We give those slick presentations on methodology and all that stuff. Well I am going to go a bit old school in a moment and give you some real tools and techniques that have actually been used. So, I apologize for that.
Yes, so where to start with supply chain. So we did a proof of concept. We basically-bit of Six Sigma, Lean Six Sigma speak-we took an AX product, so something with relatively stable order pattern and quite low variation when the order comes in. So, that gave us a reasonable chance to start understanding some of the intricacies of the supply chain.
That product also, we managed to find one that didn’t go around six or seven different plants and different ports and different shipping roots and all that stuff. We managed to find something that was relatively stable, a good AX runner, and something that we can actually get our hands on in terms of the physical material movements, because this stuff is big and it’s heavy, and there’s a lot of it. So it’s not easy.
You’ll notice from your left hand side, we did some Value Stream Mapping on the metal intake, and this is basically the big ingots that come in at the start of the process. Now it was relatively straightforward actually, like I say, not that many specifications of coming into the front end, but enough and some logistical kind of heralds attached to it, but that was relatively easy in terms of the VSM. When we got to the order to delivery side-I mean those of you that know something about Value Stream Mapping, and if you look at this mail stream that flashes up here, this is Electronic Data Transfer. An order comes into one plant and it has a local planning, sales order, ERP, plant planning, somewhere else planning, everybody is order in taking and planning everything, and this was quite a revelation actually.
So with the two basic tools, two VSMs, and also some SIPOC, just looking at the kind of key process steps of that order entry at the start of the chain where if you don’t get it right at the start of the chain, chances are it’s not going to fix itself once it gets into the chain, barring out all the intricacies that are in there. Now bear in mind, this was an AX product, relatively stable demand, week-in week-out, study state customer flow, you know, to have 10 separate IT systems involved in the administration of that, just getting the order in getting it moving.
What we found was, when we looked at this SIPOC it was anything between five to, say, 15 days, just to confirm the order. So you ring up on the Monday of one week and say we’d lack a bunch of the stuff, and a week later, you might get a call saying, “Yeah, we could deliver that in two-and-a-half months time.” I mean in some business segments it’s just laughable, really, really, bad, but that’s the reality. So with two VSMs and five SIPOC, we managed to get to a state where we could get the whole management team and the European Board in a place where we could visualize the problem. We have gone to the Gemba, we looked at all that stuff, we had learnt to see-we did not necessarily like what we saw, but you can’t un-know it once you know it, and we took all that information back. So that was a very, very powerful, two VSMs and five SIPOC.
So what did we learn? Well, interestingly enough, and I have been very roundly-I wouldn’t say attacked, it would probably be the wrong word, but I am not particularly loved showing this slide internally actually. So, I am quite lucky to be able to show it here today, but the customer places have relatively steady state order, over on the left hand. Order intake gets hold of it, throws it over the wall, literally to a different plan. Central planning: Planning at Site A, planning at Site B, planning at Site C, and, of course, what happens here is that this steady state order gets proliferated through the supply chain bull-whip with 10 different IT systems on one AX product, and it is a steady state, why should there be any variation in the output? If the assets are consistently performing, there should not be a bull-whip, it should be a straight line. The delivery should always be on time and the quality should always be there, but that is not the case; it is not the case.
I have shown the order intake being a nice, clean process on the left hand side where one person picks up the phone and takes the order or the fax or the EDI or whatever, but actually what is really happening here was that all of these people are-functions rather-are prejudging the order and they are doing the just-in-case order from their own point of view. So actually, this one order that comes in ends up being four, five orders with different multiples of it and the kind of local knowledge that sits there. This is where the bull-whip comes from, and, of course, everybody is doing the best they can, aren’t they? No one is trying to mess this thing up. They really do believe that they are doing the right thing to deliver that customer value.
So, what do you tell the customer when they call up? In terms of OTIF and order tracking and feedback: What do you tell them and from where? Do you phone plan A, do you phone plan B, do you phone central planning, do you phone the ingot people, who do you phone and what do you tell them? Two VSMs and five SIPOC were able to get a still situation where we could understand, you know, Europe’s largest role product provider and the whole supply chain, the behavior that was underneath it.
And of course what do we want? The vision was pretty simple-we kind of just want to turn the brick walls the other way around. I mean ideally we don’t want any brick walls, obviously, but we will take as a first set if we can take the steady state order and have not so the integration across the chain is transparent between the different transactions that take place and done on the same information. That would be a huge, huge step forward and that was our vision to take that bull-whip out of the chain on a product line by product line basis and even that to be still-people still do struggle with the fact that this releases supply chain bandwidth, kind of like, how do you get more from the same assets. It is like what could you plan it and it is integrated and lined up and the VSM and the this and the SIPOC and that stuff and even then the data-driven approach with the tools and techniques does not make it a given that people are just going to think the medicine is good and want to keep on taking it. It is you and your eye; it’s a journey distinct.
So, yeah, what do we learn in words? So, bearing in mind this was just one product line with particularly the stable demand, full in 14 days, 10 separate IT systems depending on how you count them of course between 50 and a 100 staff just administering that stuff, and they are all doing nothing, they are all doing something whether it’s the right level of something. The value that we need is questionable, and what is even worst is that 50 percent of the orders are changed post launch. Imagine that, so these kind of just-in-case orders that were put into the system with standard…sometime after they were launched with and needed to be changed. I mean imagine administering that, where do you go to get the metal? Not like you just go to the room next door and say “Change that.” You have to go on a plane and fly somewhere. It is an incredible journey really.
System system invent turns actually average over by six, five-and-a-half, six, something like that. Some levels of turns in some places up to as high as 16 and some as low as four, so you can imagine slow mover brings a whole new meaning when you see on the four invent returns, it is kind of like non-moving, it is slow.
OTIF varying-again depending on how you cut the LME price, not just $400 million in metal, but $2,000 dollars a ton LME, so at one point that was nearly $880 millions when LME was high. So half-a-ton is like instant cash relishes, it is a huge benefit to the business.
OK, we are getting closer to the crunch. So what to change, and how and where? Well, in the words of President De Veer, our President of Europe, “Big problem need big medicine.” What we did not do was say, I know let us send out 20 or 30 Green Belts and try and Lean each of these little bits and try and figure the stuff out. That was not going to get us what we needed, nowhere near. Like I say, we already have a regular Lean Six Sigma program and that was not doing it for us either. So we needed a step change, but remember that the vision was very simple. What we wanted was to just get transparency across the supply chain. The assets are big, they are very expensive, they are fixed locations-you can not move them. A hot mill is a multi-billion dollar investment and it was a bit like a Network Rail. It would have been great at Network Rail. If you could have put Manchester, Piccadilly, Birmingham, New Street and Euston about a mile of each of each other, 100 percent punctuality, here we come! But in reality you can not do that, and it is the same way with our fixed assets-we could not move them. That will be my mom telling me to put my jacket on.
So, in terms of what we wanted, the vision was still simple, had clarity and transparency. This one is a busy slide, but I thought to show it anyway. Pegging the right material to the right stocking points with the right orders in the correct time sequence is basically linking the ingot through the hot milling and cold milling and etc. right through to finished goods. So this is the first time it has ever been done. Actually Novelis has taken an end-order item and linked it back though the chain to say, it starts like this and ends like this; it is not wonderful. If want to know what the proliferation is here, it is at the middle. I mean, incredible really, but that is how it is. So, yeah the supply chain vision was simple but obviously the detail is pretty intensive.
OK, so we are coming to the crunch now. So, the big medicine, we have talked a lot at the conference today about we need to take the journey, get on with it. It does not end. There are lots of aspects of the journey, lots of tools, techniques, different ways of approaching it. Well, basically we needed a lot of those things all at the same time and we needed them fast. We needed advanced production systems. We needed the kind of IT and infrastructure. We needed organization. What is the point-having these great processes, these new fantastic ways of working, which people are resistant to, because it is going to change their, move their cheese around, and the process design, getting people involved in redesigning their own processes against the backdrop of moving to a supply chain based organization. A lot of human factors in that, a lot of emotions, and a real good all-round journey here. So project management stuff of course, weekly plans, plan-do-check-acts, but basically the vision was simple, integrated supply chain, end-to-end division-I am keep referring back to those initial proof of concepts to get us along the journey.
So, in terms of the old state, if you want to look at it in a schematic point of view, the kind of information flashes. We did not move the assets. We can do much more Lean Six Sigma stuff on that in the future and we will do of course. But in the old state there is no real way of getting a feedback loop. The system was kind of open loop, metal keeps going in, inventory keeps coming out and that is not good from anywhere at this point of view. So to simplify that a little bit, the advanced production system along with the kind of streamlining of the information flow. The information flow, 14 days was losing a third of our lead time just in accepting the order. There is a third of your the OTIF gone right there. That is a mega number and that just to confirm the order and miss out a lot of opportunity, so the opportunity is huge.
So the closed-loop system is where we are and obviously we have got some other decision support tools in there as well. It is probably not quite as clean as the bottom picture, but I like nice, clean practical things that you can get your hands on, because I think that is a good actually for the business to see.
So, my simple view on the world and the things that I have learned again because I do not think the new, and I am sure some of the stuff would have resonated, I can see a few smiling faces as I have gone through the slides.
The tools of Lean Six Sigma really are the basis for the change, however you package them, wrap them, box them, pyramid them, flow-map them, Chevron Chart them, DMAIC them and all that stuff. In the end, data-driven and fact-base will get the buy-in. It will not deliver it all, it will not get it all there, we know that, but it gives you a better chance of success I think. It is a better way of saying it. If you are going to take the big medicine-I remember when I was youngster, it is always better to take it fast, kind of lingering around the spoon and hoping it gets better, it does not happen. So if you are going to take it, just get on with it and get it done.
If you are going to take it, take all of it. Sometimes you have got to keep taking it. The kind of package Lean Six Sigma is a two year program-consultants, trained, culture change, smiley faces, everybody is happy. It does not work like that, you have to keep going. So yeah, the Lean Six Sigma gives you the data and the fact base-you change management and your kind of organizational agility, if you like, to deliver that program. It is going to give the advantages. The reality is as we have a very nice coat-hanger for the Novelis business system to look at Lean Six Sigma and all those tools ongoing to really give those things a home against the supply chain as we move forward and that is it.
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