Part Two of the Series, Where Lean Works in Process Manufacturing

Leveling and Pull Streamline Production in Process Industries

Dow applies lean to right-size chemical reactions.

Patricia Panchak

ike many manufacturers, Dow Chemical Co. faces a familiar litany of business challenges related to linking customer demand to production: the difficulty of forecasting at the SKU level; of managing a large number of products each delivered in a wide variety of packaging; of scheduling complex production processes so they are flexible enough to meet changing demand, yet stable enough to achieve economies of scale. Add in the fact that the process-industry company is shifting from mass production to demand production, and it all adds up to what can be a mind-numbingly complex equation. By implementing lean, however, Dow is continuously improving its ability to meet its customers ever-changing demand, while reducing inventory. With a lean-inspired strategy called Every Product Every Interval (EPEI), as well as lean pull and leveling, the company has increased order fill rates by ten percent to 25 percent, reduced cycle time by 30 percent to 40 percent, and reduced inventory by 10 percent to 20 percent over a six-month period.

The Midland, MI-based company is among a growing number of process industry manufacturers who are adding lean to the arsenal of strategies they use to continuously improve business operations. In the process, theyre breaking new ground in translating lean principles developed in a discrete world to fix problems and create opportunities in the process environment that Toyota never imaginedand many naysayers never thought possible.

In Brief
Dow Chemical Co. is among a growing number of process industry manufacturers who are adding lean to the arsenal of strategies they use to continuously improve business operations. In doing so, theyre breaking new ground in translating lean principles developed in a discrete world to fix problems and create opportunities in the process environment that Toyota never imagined and many naysayers never thought possible.
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EPEI, Leveling and Pull in the Process Industry

Figure 1. Achieving Every-Product-Every-Interval (EPEI), leveling and pull requires facilities to produce smaller batches of product more frequently to fill actual customer demand while maintaining less inventory and increasing flexibility at the same time.

To get started, Dow personnel had to overcome some long-standing myths regarding the use of lean. According to these myths, lean simply wouldnt work for, you name it, non-discrete manufacturing, for capital-intensive industries, and for operations that face variable or seasonal demand, variable supply, or long leadtimes. Any of these misconceptions could have stopped Dows implementation of lean, but they didnt. In early 2005, the company launched a few lean pilots, which they later combined with their already full-scale six sigma approach to pursue a lean-six sigma strategy. For Dow, lean was the next logical step in a long history of continuous improvement that follows the adoption of business strate-

gies in a near-textbook review, from total quality management, value-based management and reengineering in the 90s to six sigma in early 2000, to lean and lean-six sigma in the last few years. Martino Fernandes, Dows global supply chain consultant, said the company pursued lean because it addresses challenges the other strategies dont and creates a continuous improvement cycle linked to business opportunities. In six sigma you find a problem and fix it, but when you look at it from a lean valuestream perspective, you may find you have fixed a problem that doesnt have as much effect on the value chain, Fernandes said. Six sigma had delivered excellent results, but at some point company executives found the improvement pipeline drying up, so they turned to lean. A bonus, he added, is that lean and six sigma are complementary. If you identify a kaizen opportunity in a value stream, you can use six sigma to help achieve it.

Demand-Driven Business
In an effort to create a lean culture, Dow executives first had to change their own perspective of the business. Chief among the needed mindset changes was to broaden the scope of business planning, from market forecasting to pull scheduling. We first start with a look at market demand and determine our capacity to match that, then we look at the business operations performance targets and come up with a balanced demand and supply plan, Fernandes said. The goal is to, up front, have the business opportunity as clear as possible, as well as the targets we need to match with regard to capacity and performance needs. If you cant balance, you cant do lean, he asserted. To do this, the Executive Sales and Operations Planning (ES&OP) team uses an unconstrained market forecast that is updated monthly and goes out 36 months. The next step is balancing demand and supply taking into account proven global supply capabilities, financial performance targets, and other operational performance goals. In this way, executives are seeing the whole, a

About Dow
With annual sales of $54 billion and 46,000 employees worldwide, Dow is a diversified chemical company that combines the power of science and technology with the human element to constantly improve what is essential to human progress. The company delivers a broad range of products and services to customers in around 160 countries, connecting chemistry and innovation with the principles of sustainability to help provide everything from fresh water, food and pharmaceuticals to paints, packaging, and personal care products. References to Dow or the Company mean The Dow Chemical Company and its consolidated subsidiaries unless otherwise expressly noted.
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global view of the market needs that they can balance against the companys global supply capabilities. At this point its high-level leveling, Fernandes said, noting that 95-percent forecasting accuracy is achievable at the product-family level. Once executives can level at the family level, then by applying lean leveling and pull at the plant level, operators can adjust production between various specific products within the product family to meet specific daily SKU demand. If youre not leveled at that [higher] level, you cant level at the SKU level, he added. Executives also determined that execution against the plan would follow a leaninspired strategy they call Every Product Every Interval (EPEI), as well as lean leveling and pull. The new production strategy requires greater flexibility at the plant level a goal that runs counter to traditional process manufacturing. Most process companies are built around economies of scale, where production runs are long and big batches are produced to make the product at the lowest possible cost; changeovers are traditionally viewed as costly interruptions to production; high inventories, as just the cost of doing business. Achieving EPEI, leveling and pull requires facilities to produce smaller batches of product more frequently to fill actual customer demand while maintaining less inventory and increasing flexibility at the same time. Thus the operators, too, had some mindset changes to make. To enable greater flexibility and to spur the required change in thinking requires that plant managers have access to the information they need to make sound business decisions. Plant operators must take into account supply capability and variability, demand amplification and variability, and operational rules and constraints. With EPEI analysis, they plan process improvements to the Product Wheel that are necessary in reducing cycle times by reducing campaign lengths, reducing changeover times, and exposing off-grade product and rework as waste.

The Product Wheel

Both sets of decisions involve making changes to the product wheel, which determines which products get made when, how often, in what sequence and in what quantity. Unlike discrete operations, batch process plants, like those at Dow, run multiple products through the same production line, usually in a standard sequence. Operators who make changes to this sequence must take into account a bewildering array of considerations that line workers in discrete companies dont have to. For example, in process operations, any change to a single step can affect nearly every other step throughout that particular line; in discrete, the changes tend to remain localized within a particular production cell dedicated to making a particular product. In discrete, your activities are very much tasks that you can more easily change, Fernandes said. In process, it takes more approvals and you have to be absolutely sure the change will work. In some situations, process operations cant easily changeover from one product to certain other products, say from products with low viscosity to those with high viscosity. In others, the chemical or biological reaction required to make the product dictates the batch size. The demand signal may call for 10,000 pounds of a certain product, but the chemical or biological reaction that makes the product won't achieve consistent quality unless 75,000 pounds are produced. With discrete, if the order calls for five, you make five, whereas sometimes in process the order calls for one, but you have to make five in order to deliver that one at the appropriate quality, Fernandes explained. The more substantial changes to meet continuous improvement efforts to shrink the product wheel can be even more harrowing. In some situations, the wrong type of changeover can result in the polymerization of an entire reactor, which is extremely expensive to fix. Plant managers and operators are understandably more cautious than their discrete colleagues when it comes to making such changes.
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Also, Fernandes said, You have to take into account some of the inherent structures that have been in place for years. Process plants are fairly automated, which equals consistency, but that also makes it harder to make big changes. The proposed changes dont go through people, but through a technical approval process, Fernandes said. This is because the cost of errors is of a different scale than the cost faced by a discrete manufacturer. Likewise, process operations usually involve tightly connected, large, and expensive production equipment that was designed to produce large batches, which makes changes to the equipment unrealistic. If I have a reactor that is 75,000 pounds, to ask them to run a campaign to produce 10,000 pounds doesnt make sense, Fernandes explained. Reducing the batch size is more of an asset design issue. Maybe the reactors we build in the future will be smaller, but right now thats what we have to work with.

Virtual Kaizen
With the plethora of variables to consider and the potential for error so high (and costly), the hands-on Kaizen events so well-known in the discrete world, are not an option in the process environment. At Dow, software modeling and analytics are used instead.

Virtual Kaizen Modeling and Simulation

Figure 2. Virtual Kaizen modeling and simulation software, basically an internally developed excel spreadsheet, analyzes inputs, then quickly models and simulates the effect of any change to the product wheel, and then provides an analysis of the opportunities and benefits of making such a change.
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To help plant managers (business planners) quickly sort through all the possibilities, Fernandes developed what he calls Virtual Kaizen modeling and simulation software. The application is basically an Excel spreadsheet that can analyze inputs, (such as the reactor/batch size, campaign length, changeover, production rate, sequence rules, etc.), then quickly model and simulate the effect of any change to the product wheel, (considering the chemical processes, supply and demand processes, and other variables and interdependencies) and then provides an analysis of the opportunities and benefits of making such a change (improved product availability, rightsized inventory, shorter cycles, consistent cycles, etc.). See Figure 2. The modeling and simulation software that was developed internally enables Dow operators to input pertinent data and criteria, then run a simulation to tell if you apply lean, here is what your value proposition will be. Fernandes created a template that meets the needs of 80 percent of Dows production units. Using the software analytics, an operator can explore changes in a risk-free environment. Instead of making the changes in real-time on a real production line, operators model the changes to determine whether the changes result in the expected benefits. The software analytics is analogous to value stream mapping, in that it enables plant managers and operators to fully understand the current-state with regard to how and why products are produced the way they are. It also allows them to explore the supply/demand balance and variability, as well as the potential effects of EPEI adjustments, such as reducing campaign run lengths or changing the amount of time available for changeovers. The software analytics also allows for designing future states, by allowing operators to run what-if scenarios to identify cycle-time reduction opportunities and other asset utilization improvements. The modeling and simulation is done every month or two at the SKU level, at the plant or warehouse, using supply, inventory,

and demand information during a set leadtime and testing probabilistic scenarios. See Figure 3. During their first virtual kaizen, plant managers and operators work with a corporate implementation and support team to first identify where the product wheel is in the current state, and then work through the leveling exercise, asking: What types of changeovers do we do now? How can we reduce cleaning time between runs? How much time do we lose to changeover relative to the amount of material I produce and how does that relate to the amount of product a customer is ready to buy? Answers to all these questions help the business group to determine: How much can we shrink the wheel without giving us discomfort in how we work within the constraints of the process? If the product wheel is running at 45 days, what will happen if I take it to 40 days? Fernandes explained. The software analytics takes into account set variables, such as make-tostock and make-to-order levels, pulls in historical information, and delivers a report. It tells us: If I set service levels, buffer levels, and reorder points at X, then this is the number of times I need to run this product, Fernandes said. This gives the operator a proposed plan to review and consider the trade-offs, such as the effect of additional changeovers on the amount of product produced compared to demand. If, say, the service level drops below the target, you can reset your assumptions and rerun the model, Fernandes said. See the illustration, Building a Value Proposition.

cerns the operators may have as he demonstrates the value proposition. He can demonstrate that the model works by showing how it works with past performance, by and this is where six sigma comes in pulling historical data into the model. See Figure 4. What he hopes operators will realize and they usually do is that the analytics makes sure everybody understands customer needs and how to change the production plan to meet those needs without overproducing. One of the big dangers is that everybody touts lean as inventory reduction, and that may be short-selling it, Fernandes said. Lean can be used to increase fill rates or establish a more consistent leadtime, either of which may be more important to the customer. At Dow, the implementation of EPEI, lean leveling and pull is itself delivered on a pull system. Fernandes must sell the opportunity to the business units. The businesses must want to do this, they have to pull, Fernandes said. Once a business unit expresses an interest, Dow sends an implementation and support team to help map the process, run the analytics, and analyze the value proposition of implementing changes. They can say yes or no, Ferndandes said. Its the business leaders

Planning, Analysis, and Execution

The Culture Change

The software model also plays a big role in showing operators what is possible, and convincing them that EPEI, lean leveling and pull work in the process environment. Doing the number crunching is one thing, Fernandes said. Getting it implemented is another. The first hurdle is getting the operators to understand and accept the proposed changes. By using the software to model the changes, Fernandes can answer any questions and address any con-

Figure 3. The modeling and simulation is done every month or two at the SKU level, at the plant or warehouse, using supply, inventory and demand information during a set lead time and testing probabilistic scenarios.
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Figure 4. The report from the Virtual Kaizen gives the operator a proposed plan to review and consider trade-offs.

at the operations level who must make the call. Implementing pull typically starts at the warehouse. Before implementing pull, production would simply make product and ship it to the warehouse. Once you get the warehouse to say I dont need this product, you create a discussion around how to change the product wheel, Fernandes said. We had to go after the value streams that gave us the most pain, Fernandes said. We needed to look at the business value streams and find the biggest opportunities, where we either had too much inventory or where we were not meeting customer demand. The plants operating at the chemistry level, cracking crude oil into naptha, benzene, toluene, etc, you cant mess with that process thats a very sacred process, he said. But going downstream, where plants
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make more than one product, you start to see opportunities because they are batching products, Fernandes said. You start to see lean opportunities.

Implementing a Closed-Loop Process

Once the new EPEI plan is validated, the team uploads the settings to the production units SAP (ERP/Planning) system. SAP then becomes the kanban system telling operators what they need to make to maintain the proper levels of production and inventory to meet demand. Fernandes explained: We developed a Visual Control solution that talks to our SAP system. It monitors customer orders, replenishment orders, inventories, and trends that may trigger the need to perform further

Implementing a Closed Loop Process

analysis of a revised EPEI plan Whenever goods are issued at the point-of-sale, the system takes the inventory down, checks inventory, and, if needed, sends a pull signal to refill inventory to the level required to meet customer demand at the desired service level that was determined by the EPEI plan. See Figure 5. This visual replenishment system, resides anywhere SKUs are managed at a plant or warehouse. Typically, the operator runs the system once or twice a day to identify, within three minutes, what actions must be taken to balance supply and demand. The system highlights exceptions to the plan in different colors, showing where the operations may have potential stockouts or whether they have produced excess inventory that they need to work off by selling more or not producing anymore. Then operators will use lean techniques to get back into balance. Another report generated by the system, the visual replenishment process control chart, allows operators to self-monitor how well they are following the pull signals and maintaining control.

Figure 5. Whenever goods are issued at the point-of-sale, the system takes the inventory down, checks inventory, and, if needed, sends a pull signal to refill inventory to the level required to meet customer demand at the desired service level that was determined by the EPEI plan.

The Human Element

The big change is the human change, where operators have to follow the pull system, which is not the traditional way of running a process operation. Its a big change, Fernandes said. Were not as satisfied as wed like to be. Theres still a trend of disbelief in the process industries that this is going to work. The big danger in overcoming years of traditional work methods in process industries and myths about lean is in the learning curve that people must go through to trust the system. It can take people over a year to really get it, Fernandes said. You need a lot of discipline. Compounding the difficulties of navigating a long, steep learning curve is employee turnover and even vacations. You cant just interchange people, because the people are key, Fernandes explained. Dows strategy to overcome resistance to change is to repeatedly demonstrate that the process works through modeling and successful imple-

mentations, as well as by providing consistent implementation and support from the corporate organization and pushing business units to take control of operations and the lean implementations. Show the process, Fernandes explained. Take the people to the change and listen to their concerns. The principle is sound, the logic is sound.

An Evolving Approach
At the business units that have implemented lean, the Executive S&OP at the product-family level and the closed loop process at the operations level have become the source for continuous improvement. Both processes regularly identify new business opportunities as they identify gaps between customer demand and Dows ability to meet the demand. We try to look at todays operations and we see gaps, which come from new business needs, Fernandes said. We look at the gap and ask ourselves, Do we have a solution for this? If an identified solution dubbed Most Effective Technology (MET) exists, then they implement it. If not, operators try
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to improve upon an existing process through a Measure, Analyze, Improve, Control (MAIC) process. If operators have no idea how to solve the problem, they move to innovate a new solution using a Design for Six Sigma (DFSS) or Quality Function Deployment approach to clearly understand the voice of the customer, and come up with a new MET that can be leveraged across business function or geography. Because Dow is a global company we want to come up with solutions that we can leverage globally, rather than for individual plants or locations. From there, the continuous improvement process keeps evolving.
Figure 6. Once the Executive S&OP at the product-family level or the Closed Loop Process at the operations level identify a gap between customer demand and Dows ability to meet the demand, operators seek a solution by implementing or improving an existing best practice, or innovating a new best practice.

Patricia Panchak is editor-in-chief of Target.

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