Demand Chain Management

DCM/10.08/AS-RR/TS
Demand Chain Management
6 Sigma Case Study – CAT : Part 1

This case was
prepared by Alan
Smart, Cranfield
School of
Management,
Cranfield
University,
Cranfield,
Bedford,
MK43 0AL,
England
And
Richard Renshaw
© Cranfield
School of
Management
And
Richard Renshaw
All rights
reserved.
Background
This case study, although simplified, has been derived from a
real world industrial situation. The names of the personnel
have been changed and confidential information modified or
removed.
The Cranfield Agricultural Tractor Company (CAT) has been in
existence for 100 years, originally producing a limited range
of agricultural tractors. It now produces many products and
product variants used in agriculture, building and
construction, and mining. The company has ambitions to
grow further, particularly through overseas expansion, but is
concerned about the working capital that will be required to
double the size of the company extrapolating from the
current situation. As a result the CEO, Hannibal Lecter, has
announced that the Cranfield Agricultural Tractor Company
will adopt 6 sigma. Deployment champions have been
appointed and over 30 black belts are now in position and the
company is now training its own master black belts.
Although the company as a whole is rather profitable, one of
the products – the small hydraulic articulated teleloader – has
been a problem product since its introduction 3 years ago.
There are 3 platforms (X, Y and Z) being assembled on one
assembly line. The management team has struggled to make
this product profitable; there is now a mandate from
corporate headquarters that the product team has one
financial year to turn the situation around. Failure to do so
will result in withdrawal of the investment required to update
the design and to keep it in the market place. Ultimately this
will result in the removal of the product from the market and
disbandment of the product team.

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6 Sigma Case Study – CAT :
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Cranfield School of Management 2
The product manager, Freddy Kruger, has sponsored a 6 sigma project to
establish what the real problems are and appointed a 6 sigma blackbelt,
Norman Bates, to look at the situation. Norman immediately advocated
carrying out a value stream mapping exercise. Norman made requests for
greenbelts from the product team and now has 2 people in training on the
project.
The team have just completed their draft current state value stream map,
by actually walking as much of the flow of the product as possible,
counting machines and parts where appropriate, and complementing this
with information from systems. They are now debating what to present
back to Freddy Kruger.
They agree that the task is large and needs breaking down into
manageable chunks. Their aim is to identify the chunks, prioritise them
and describe what sort of tools they may try and apply for each chunk or
project.
The Value Stream Map (VSM)
Although the team were only able to actually walk the part of the value
stream on their site, they chose to produce a map from suppliers through
to the dealers. The suppliers were grouped recognising :
United Kingdom based suppliers (UK)
European Suppliers (EURO)
United States bases suppliers(US)
Rest of World (ROW)
It has been noted that the source of supply impacts the lead time (see
VSM)
The team also noted there are 170 suppliers with 18 supplying more than
20 parts, 43 with 5 to 20 parts, and 109 with less than 5 parts.
The components are received by Soylent Green Logistics with an average
of 10 days inventory on hand in the receiving area. In the stores there is
an average of 70 days inventory on hand. It takes from less than 1 day to
8 days to put a part away into its designated storage location.
Soylent deliver all parts to line, with the exception of hydraulic hoses
which come directly from the hose plant. Some parts are sequenced to
line, typically large parts like engines and wheels. They also sub assemble
some parts and deliver them to line similar to any other sequenced
component. Smaller parts are taken to line in bins of some sort, typically
using a trailer train.

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Cranfield School of Management 3
The Cranfield assembly line has several workstations, these have been
simplified in the value stream map:-
Mainline Assembly (assy)
Test 1 & 2
Mainline Assembly
Rolling Road Test
Load Test
Audit Dress Paint
Ready to Ship (RTS)
100% Audit
The team also noted that there were some other workstations set up
which were not on the original plant drawings. These workstations had
been set up by the manufacturing engineers because problems were being
experienced on line and additional facilities were required.
There is also a shipping and reconfiguration area where some machines
are stored (some of which is dealer stock) and reconfigured to customer
order. This area also organises the physical shipping of machines.
Shipping paperwork is prepared for each machine. Any additional goods
like work-tools (buckets etc.) and work wear are packaged and the
machines are physically marshalled so that they correspond to their load
configurations i.e. grouped into truckloads.
Soylent Green haulage ship all the machines out of the plant and onto the
dealers, with Tractors R’ Us and Tractor World being key dealers involved
in the preparation and reconfiguration area. Machines are shipped all over
the world with 3 areas being recognised on the VSM:-
Europe
USA
Rest of World
The value stream map also indicates some of the systems that are used to
control the supply chain. There is a local ERP system which has a
sequencing module to apply constraint based sequencing to the assembly
line. Sequences are transmitted to suppliers via a website.
There are also corporate systems shared by all the product groups and
different plants. These are for order capture and also organising the after
market (spares) part of the business. These systems also include
functionality to help the dealerships run their businesses with orders,
forecasting and financial projections.

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Cranfield School of Management 4
The following symbols have been used on the VSM:-
P W
Parts or components are pushed to the
next location (not pulled according to
demand)
The tombstone symbol indicates
inventory, usually with pieces or days
of inventory indicated in lower half
This indicates a sequenced flow
This is a production kanban
(effectively saying “I’ve used one,
produce another”)
This is a withdrawal kanban
(effectively saying ”I’ve used one,
withdraw another from inventory”)

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Suppliers
27 to 57 orders /day
17 order changes / day
C/T = 1 to 2 days
ROW US EURO UK
Soylent
Green
Haulage
EAME
Customer
Dealer
USA
Europe
ROW
Small Hydraulic Articulated Teleloader Current State December 2007
0
Dealer
Stock
Tractors R Us
Tractor World
Dealer
Ready
Dealer
Ready
Average 73
days,
max 73 days
Monthly,
weekly?
deliveries
Average 63
days,
max 63 days
Monthly,
weekly?
deliveries
Average 7
days,
max 84 days
Monthly,
weekly, daily
deliveries
Up to 1 mc per day
Up to 7 mcs / day
Corporate Systems
Spares System
Dealer-BusinessSystem
Configurator
Machine OrderingSystem
Local Systems
ERP
Sequencer
Supplier
Sequencing
Website
PO (EDI)
Sequence
PO & Sequence
Sequence
Orders,
Progress, Serial
Numbers
Machine &
Work Tool
Orders
Machine &
Work Tool
Orders
Machine
Documents
Machine
Documents
Machine
Documents
Customer Prep
Orders
Customs
Proof of Export
Machine Orders and
Routings
Lead Time For A Piece Part From Delivery to Prime
Product Ship
C/T = 1 day
Soylent Green Logistics
0-8 days process time
Average 7
days,
max 84 days
Monthly,
weekly, daily
deliveries
PO, BSR
Max = 10
Sequenced Sequenced Parts
Painted
Parts
Sequenced Sub
Assemblies
Jason the
welder – rework
6 mcs
No max.
Max = 10
Max= 10
Sequenced Parts (wheels)
P
P
W
Hose
Plant
P
W
Parts in
Bins
Non-installed Work tools
7 mc’s
7 mc’s per day
per day
7 mc’s
per day
9 copies of
Orders distributed
10
Receiving
70
Stores
NACD
Customer
ROW
Customer
Dealer Dealer
Turns = 3
174 mcs
Dealer
Stock
5 WT’s per day
TAKT = 80 mins
PT = 880 mins
Shifts = 1
Base = 440 mins
Mainline Assy
# of Oper. = 24
WIP = 11 mcs
TAKT = 80 mins
PT = 320 mins
Shifts = 2
Base = 112 mins
Test 1& 2
# of Oper. = 5 + 1
WIP = 4 mcs
TAKT = 80 mins
PT = 160 mins
Shifts = 2
Base = 53 mins
Load test
# of Oper. = 1 + 1
WIP = 2 mcs
Max = 10
W
Parts in
Bins
5 mc’s
per day
TAKT = 80 mins
PT = 80 mins
Sifts = 2
Base = 53 mins
Rolling Road Test
# of Oper. = 1 + 1
WIP = 1 mc
TAKT = N/A
PT = N/A
Shifts = 2
Base = N/A
Major Failure
# of Oper. = 2 + 2
WIP = 3 mcs
TAKT = 80 mins
PT = 320 mins
Shifts = 1
Base = 327 mins
Mainline Assy
# of Oper. = 3
WIP = 4 mcs
35
mcs
Z Series
on gravel
3 mcs
Z Series TAKT = N/A
PT = 160 mins
Shifts = 1
Base = N/A
1st prod rework
# of Oper. = 12
WIP = 10 mcs
5 mc’s
per day
TAKT = 80 mins
PT = 320 mins
Shifts = 2
Base = 0
Audit/Dress/Paint
# of Oper = 10 + 5
WIP = 4 mcs
5 mc’s
per day
3 mc’s
per day
5 hr
test
0 mcs
TAKT = 80 mins
PT = 80 mins
Shifts = 2
Base = 0
RTS
# of Oper. = 3 + 1
WIP = 1 mc
W
Parts in
Bins
W
Parts in
Bins
3 mc’s
per day
3 mc’s
per day
2 mc’s
per day
3 mc’s
per day
1 mc
per day
Sequenced Parts (PIN Plates) EU Certs
Based on 7 mc’s per day
2635 Eng Chg packages
worked (12565 items) during
2007
Up to 7 mcs / day
2971 Part nos
547 part #’s with no demand (-£88k)
# days usage range from -4676 to 7218
Dealer
Owned
Reconfig
Material
Small high value stock in
secure store.
50 work tools – Tractors R Us
1 work tool – Tractor World
Air con units – Tractors R us
119 mcs
Cranfield
Stock
Shipping
and
ReConfiguration
Manpower = 24
CT = 2-5 days
48 mcs
Shipping
Consolidation
1 mcs / day
0 to 7
mcs / day
0 mcs / day
0 to 7
mcs / day
40 mcs
Dealer
Stock
EU Certs
Frequency /
Quantity varies
up to once per
month
2 mc
per week 2 mc
per week
USA Manifest Safety Rule
All shipping info. must be transfered
to US customs 24Hrs prior to vessel
departure. Shipping Line need info.
48/72Hrs prior vessel departure.
2 mc’s
per day
2 mc’s
per week
2 mc’s
per week
TAKT = N/A
PT = 80 mins
Shifts = 1
Base = N/A
100% Audit
# of Oper. = 1
WIP = 1 mc
2 mc’s
per day
2 mc’s
T per day
AKT = N/A
PT = N/A
Shifts = 1
Base = N/A
Major reworks
# of Oper. = 2
WIP = 1 mc
1 man
2 mc’s
per day
2 mc’s
per day
2 mc’s
per day
2 mc’s
per week
1 mc
per day
84 days
3.4 days
80 days 5.2 days 0 day 42 days 0 days
Best Case = 88.6 days
Worst Case = 215.6 days
% VA = 3.4 / 215.6 = 1.58%
% VA = 3.4 / 88.6 = 3.84%
1 day
3.4 days
80 days 5.2 days 0 day
Total > 20 Parts 5 to 20 Parts < 5 Parts
# Suppliers
SHAT 170 18 43 109
6 Sigma Case Study – CAT : Part 1 DCM/10.08/AS-RR/TS
Cranfield School of Management 6
Value Stream Map Data
Basic data for each workstation has been captured including:-
Workstation Name
The number of operators
The total available cycle time (TAKT Time), which relates to the rate
of production
Planned Production time in minutes (PT) – this may be divided by
several operators to fit into the TAKT
The number of shifts that the workstation operates for
The minimum number of minutes observed for each workstation i.e.
the number of minutes the operators are working at that point in
the process.
Observations
Components and sub assemblies are received by the logistics partner
Soylent Green Logistics who execute receiving, material storage, some
sub assembly and delivery of parts to the main line assembly. The
outsourced, Soylent part of the process is currently out of scope and
subject to further negotiation with Soylent. (Soylent activities have been
ring-fenced using a purple line).
There are several flows from Soylent to various parts of the mainline:-
Sequenced Parts
Sequenced painted parts and sequenced sub assemblies to the start
of the line (big parts here are chassis, engine and cab)
Sequenced wheels to the middle of the lines (wheel and tyre
combinations are often specific to a particular machine order
perhaps with custom colour)
Sequenced product identification number plates (PIN plates) to the
shipping and documentation stage
Non Sequenced Parts
There are 4 flows of parts in bins to deliver to all workstations via trailer
train:-
Start of the line
Middle of the line
Audit dress stage
Shipping and documentation stage (machine manuals stickers etc.)
Hydraulic Hoses
Hydraulic hoses are assembled and delivered on a just in time basis to all
assembly lines – there are no particular issues here.

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Rework
It has been observed that there is substantial rework occurring within the
assembly which is not really reflected in the daily reporting.
After test 1
We see machines with serious failures which meant that they could not
progress to the next assembly station on the line; this meant that the line
stopped until they could be fixed. Records show that on average there are
2 failures per week after test 1.
Shipping & Documentation
We see that 2 machines per week were taking detours through the major
reworks area before going on to the 100% audit area.
100% Audit
2 Machines per day are being diverted through the major reworks area.
Approximately 2 machines per day are identified as having parts of the
wrong engineering level i.e. an engineering change to the product has
been approved since the machine was launched on line. This may be for
safety reasons, cost reduction, due to shortage of a new part type, or
confusion over engineering levels at any point in time. This type of rework
is called a first production rework.
Approximately 2 machines per day pass from this area to an ad hoc
welding area where additional brackets (e.g. for lights etc.) are welded
onto the chassis by Jason the welder, who can fix about 6 machines per
day if necessary. This is another form of rework and is driven by minor
parts being missed off the chassis fabrication. Around this rework loop we
counted 35 machines sitting on the gravel outside the main building.
Shipping and Reconfiguration
There are 24 people working in this area ensure that shipping
documentation, export paperwork etc. is correct and that the machine
corresponds to the customer order including any work tools (buckets,
forks etc.) that may be shipped with the machine but not attached or
assembled to it. After this stage the machines may be directly shipped or
they may go into either Cranfield stock or dealer stock. This is dealer
owned stock held next to the plant which the dealer would prefer to keep
there, so that when a customer order matching the configuration is
received it can be shipped directly to the customer. This is a preferred
method for 2 dealers, Tractors R Us and Tractor World, which is thought
to reduce total transport cost by avoiding shipping via a dealer stock yard.
Value Added Time
The shortest elapsed time from receiving the first part to shipping the
elapsed product is 88 days with the total value added time (the amount of
time that value added work is being carried out) being over 3 days, giving
a value added ratio of 3.84%. The worst case has an elapsed time of 215
days with value added of 1.58%.

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Cranfield School of Management 8
Define Phase
The first stage in the project that the team decided to address first was
the Control of Engineering Change.
The big observation from the value stream map was
the level of failures
that were directed to the first production rework area
. This area was
specifically set up with engineering support to ensure that machines on
line were produced to the latest engineering levels (latest drawings).
Machines are being produced on line that do not correspond to the
drawings that are currently issued. Engineering changes are being made
all the time:
some are safety driven, their implementation is therefore critical
others are failures in the market
some are requested through the dealer networks to try and
improve the product.
The product design does not appear to be in control: changes are being
made to the designs, suppliers are getting confused and using the wrong
drawings to produce components.
Investigation with engineering showed that 2635 engineering change
packages (groups of drawings) had been worked during 2007.
Measure Phase
Manpower – definition of people usage in the production system:

Manned Workstation Value Added Non value added
Mainline Assy 24
Test 1&2 6
Mainline Assy 3
Rolling Road Test 2
Load Test 2
Audit/Dress/Paint 15
Ready To Ship (RTS) 4
100% Audit 1
Shipping and
Reconfiguration
24
Major failure 4
1st Production Reworks 12
Jason the Welder 1
Major Reworks 2
Total 81 19

It was identified that there is an opportunity to remove up to 13 people
(including Jason the welder) associated with the 1
st production reworks,
which would reflect better control of the engineering change process.

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Rate of Rework
Analyse Phase
The engineering change process was then examined in more detail.
There are 2 key decision points: the first, implementation approval,
determines whether the business wants to do the change. The second is
an engineering approval. This is a technical sign-off indicating that the
change is technically correct. This relates to things like ensuring a revised
component fits with the components around it, or that stress analysis is
acceptable.
Note: BOMs are Bills of Materials; this is the list of components required
to make a product, usually structured in a ‘tree like’ hierarchy.
8 6 4 2 0
10
12
14
16
Rework Rate
Rework Type
Weekly Rework rate
Weekly Rework rate
Weekly Rework rate 15 10 10 10 10 2 2 2
Rolling
Road Test
100% Audit –
1st Prod
Reworks
Jason the
Welder
100% Audit
Major
Reworks
RTS 5hr
Test
Mainline
Failure
RTS Major
reworks
5hr Test
Major
Reworks
Requested
Product
Changes
Investigate
Changes
Schedule
Changes
Drawing
Change
Requested
Product
Changes
BOMs
Changed Release to Line Release to Suppliers
Implement? Approve?
NO
NO

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Cranfield School of Management 10
The release of drawings leads to updated bills of material. New drawings
then flow through to the users including the assembly line, with work
instructions being updated by manufacturing engineering, and also the
suppliers. The rate of drawing change was analysed as shown in the
Figure below:
On average, 11 changes were released per day with a standard deviation
of 5.93. There was no discernable statistical pattern that emerged and no
correlation with weeks.
It is evident was that that
there was no effective filtering of the changes
being made to the product
and that changes are being approved for
implementation at greater rate than the ability to execute the engineering
drawing release. 3423 engineering changes were approved for
implementation and 2635 were actually released, with 231 changes
rejected for implementation. The engineering change process is therefore
currently overloaded as there is insufficient engineering capacity.
At the beginning of 2007 there were 892 changes in progress, at the end
of the year there were 1665. There are 21 engineers currently working in
engineering, however their jobs are being evaluated to reduce cost.
Changes per day
5 0
10
15
20
25
1 9 17 25 33 41 49 57 65 73 81 89 97 105 113 121 129 137 145 153 161 169 177 185 193 201 209 217 225 233
Changes per
day

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The engineering workload has been segmented using the categories
currently used in the engineering change process.

Safety Critical Changes identified as ‘safety critical’
must be made.
Market Failure Market failures also need to be
corrected to prevent reoccurrence.
Dealer Request Dealers are often very insistent on
changes which are required for their
particular market places; the rigour of
analysing the benefits of these changes
is very limited but frequently backed by
Marketing.
Internal Request (cost down) The internally generated cost down
changes go through an evaluation
within the product group, justifying the
change based on agreed cost down
criteria.
Market Request Request generated by the marketing
company. They generally have a lower
rigour in the analysis required to justify
the change and this often relates to a
perceived market need or that a
competitor has it.

Changes in Progress
0
200
400
600
800
1000
1200
1400
1600
1800
1 10 19 28 37 46 55 64 73 82 91 100 109 118 127 136 145 154 163 172 181 190 199 208 217 226 235
day
Changes in Progress
Changes in Progress
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Action
Summarise the key issues arising from the first 3 phases of the case
Prepare a clear Problem Statement which the 6 Sigma team should
address.
0
200
400
600
800
1000
1200
1400
1600
Quantity of Changes
Safety Critical Market Failure
(warranty)
Dealer Request Internal Request
(cost reduction)
Marketing
Request
Segment
Workload Segmentation
Implementation Approved
Released