Company

Push-Pull: Strategic
Thinking for Operational Excellence
Yang Sun Yang.Sun@asu.edu GWC 521
Department of Industrial Engineering Arizona State University

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Teaching Philosophy
Basics
Intuition Synthesis

Know How

Know Why

Major Source:
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Wally Hopp and Mark Spearman, Factory Physics, 2nd Ed., 2000
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Company

LOGO

Basics

Essential Context
The IDIB Portfolio Information Decision Data Information

Knowledge
Org. Learning Wisdom

Implementation
Buffer
Sources:

Lee Schwarz, Lecture Notes, 2003 Lee Schwarz, "A New Teaching Paradigm: The Information/Control/Buffer Portfolio", Production and Operations Management 7:2, pp. 125-131, 1998 Dan Shunk, Knowledge Management, Lecturer Notes.

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Variability Basics
Variability is a fact of life. Increasing variability (always) degrades system performance. Demand Variability
The Bullwhip Effect (Volatility Amplification Law) Forecasting Laws

Process Variability
Think about Littles Law!

Technology/Organization Variability
Fruit Flies (Clockspeed Amplification Law)

Variability will be buffered by some combination of inventory, capacity, and time.

Additional Sources: Hau Lee et al., Information distortion in a Supply Chain: The Bullwhip Effect, Management Science, 43(4), 1997; or The Bullwhip Effect in Supply Chains, Sloan Management Review 38(3), Spring1997 Charley Fine, CLOCKSPEED: Winning Industry Control in the Age of Temporary Advantage, 1998

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Buffer Basics
Inventory Capacity Time

Buffer Strategy Buffer Flexibility/Pooling Buffer Location Definition: Lean = Minimal Buffer Cost
TOYOTA Lean Phases:
[Eliminate Direct Waste] (Value-Add) [Substitute Capacity for Inventory Buffers] (Push -> Pull) [Reduce Variability] [Reduce Capacity Buffers] (Cont. Improv.)
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Sources:

Wally Hopp, Supply Chain Sciences, 2005

Lessons from History

A history of buzzwords EOQ; MRP; MPR-II; ERP; BPR; MES; APS; Kanban; JIT; TQM; CIM; FMS;

What went wrong?

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Lessons from History (contd)

Problems with traditional approaches:
Scientific Management has stressed math over realism MRP is fundamentally flawed, in the basics, not the details JIT is a collection of methods and slogans, not systems

Bottom lines:
Supply Chain/Manufacturing systems are large scale, complex, and varied. No technological silver bullet can save us. Continuous improvement is essential.
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Definition: Supply Network

A value-oriented network of processes and stockpoints that deliveries goods and services to customers.

Sources:

Wally Hopp, Supply Chain Sciences, 2005

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Definition: Push/Pull Production System

Push Systems: schedule work releases based on demand.

Pull Systems: authorize work releases based on system status.

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So, pull is not

Kanban
Kanban is a special case of pull ConWIP is a generalized pull concept

Make-to-Order:
MRP with firm orders on MPS is make-to-order. But it does not limit WIP and is therefore a push system.

Make-to-Stock:
Pull systems do replenish inventory voids. But jobs can be associated with customer orders.

Forecast Free:
Toyotas classic system made cars to forecasts. Use of tact times or production smoothing often involves production without firm orders (and hence forecasts).
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The magic of pull

Cycle Time (t) Variability Cost Service Quality Flexibility
Hall 1983

You dont never make nothin and send it no place. Somebody has to come get it.

I dislike this definition.

The key is the WIP cap.

Why control the WIP?

ConWIP
Observability, Efficiency, and Robustness Overcoming rigidity of pull

WIP

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Exercise
Are the following systems push or pull?
Kinkos copy shop Soda vending machine Pure MRP system Doctors office Supermarket (goods on shelves) Tandem line with finite interstation buffers Runway at OHare during peak periods Order entry server at Amazon.com
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Definition: Push/Pull Supply Chain

A push supply chain makes production and distribution decisions based on forecasts (Build-to-stock) A pull supply chain drives production and distribution by customer orders (Build/Assembly-to-Order)
Material Process
Intermediate Inventory

Process

Finished Goods

Deliver

Push Push Pull Pull

Key concept: Location of the push/pull boundary (PPB) (strategic inventory point, inventory/order (I/O) interface)
Source: Simchi-Levi et al., Designing and Managing the Supply Chain, 2003
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Push/pull Boundary Location

Real World Examples:
IBM PCB Case GM Case (WSJ Oct. 21, 96, A1) HP DeskJet Case (See Lee, Billington, and Carter, HP gains control of inventory and
service through design for localization, Interfaces 23(4), 1993; Feitzinger and Lee, Mass Customization at HP: The Power of Postponement, HBR Jan-Feb, 1997)

Goal: eliminate entire portion of cycle time seen by customers by building to stock. (Need for responsiveness) Basic Tradeoff: Responsiveness vs. Inventory (Time vs. Cost) Levels: Product design (postponement) and process design (quick response mfg)
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Basic Takeaways
Most systems are hybrid Push/pull supply chain is a strategic design
Key: where the push/pull boundary is located Lead time is the primary driving factor. (t)

Push/pull production is a control policy

Push keywords: Ctrl Release Utilization Pull keywords: Ctrl WIP Cycle Time (t) A pull thinking is always desired
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Company

LOGO

Intuition

The problem is choice

Yes, but not only

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Fishers Matrix

Source: Marshall Fisher, What is the right supply chain for your product, Harvard Business Review, March-April 1997
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Hau Lees Matrix

Source: Hau Lee, Aligning supply chain strategies with product uncertainties, California Management Review, 44(3), 2002 Demand Uncertainty Low High (Functional (Innovative Product) Product) Low (Stable Process)
Basic Appeals, Grocery, Food, Most Commodities Fashion Appeals, Computers, Pop Music, Toys M-commerce, Telecom, Highend Servers, Semiconductor

Demand Uncertainty Low High (Functional (Innovative Product) Product) Low (Stable Process)
Efficiency, Information Integration, AutoReplenishment, VMI (Efficient SC) Buffer Inventory, Shared Resources, MultiSourcing, Info Sharing (Risk-Hedging SC) Build-to-Order, Flexible Mfg, Accurate Response, Postponement (Flexible SC) Supply Network, Postponement, Design Collaboration (Agile SC)

Supply Uncertainty

Supply Uncertainty

High (Evolving Process)

Some Power, Some Food Produce, Precious Metals

High (Evolving Process)

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Simchi-Levis Matrix

Source: David Simchi-Levi et al., Designing and Managing the Supply Chain, 2003
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Where to locate the PPB?

Material Process
Parts Inventory

Assembly

Finished Goods

Deliver

Push Push Push Push Pull

Auto Semiconductor/Electronics Grocery Everything
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Pull Pull Pull

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Semiconductor Case Study

Material

Fab

Probe

Die Bank

Assembly

Test

Final Goods

Delivery

Push

Push

Pull

Pull
Source: Yang Sun, Comparing Semiconductor Supply Chain Strategies under Demand Uncertainty and Process Variability, Masters Thesis, ASU
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Forecasting and Demand Uncertainty

There is a confusion between two kinds of forecasting: what can be sold (WCBS) and what will be sold (WWBS) (Montgomery et al. Forecasting and Time Series Analysis, 1990). The former represents the possible market trends. The latter always represents the companys capacity and budget constraint. Since capacity utilization is extremely important in semiconductor manufacturing, it is always the WWBS forecasts that triggers the production plan (push). The semiconductor industry is always under stress: either lack-forsales (LFS) (WCBS < WWBS) or lack-for-capacity (LFC) (WCBS > WWBS) (Shunk et al. Electronics Industry Drives of Intermediation and Disintermediation, submitted, 2005) WCBS (LFC) Note that huge demand uncertainty EXISTS in the semiconductor industry.
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WWBS
WCBS (LFS)

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Process Variability
Material Fab Probe

Die Assembly Bank

Test

Final Goods

Delivery

Front-end

Back-end

Delivery

Integrated into a cycle time distribution

Issues that can affect the variance of mfg cycle times: variable capacity, shortage of material, variable priorities in lot release, scheduling and dispatching, frequent machine breakdowns, operator error, etc. Issues that can affect the variance of delivery time: globally distributed destination, regional traffic condition, variable 3PL/4PL, holding in custom
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Performance Metrics: Cost and Service

On-time delivery service is of critical importance in todays semiconductor business, but companies are not doing very well today (case: Gateway penalized Intel by shifting business to AMD to blame Intels bad delivery service.)

Cost (per product sold) performance

= front-end mfg costs + back-end mfg costs + inventory (holding) costs + penalty costs based on tardiness Delivery cost ignored
(Quality is a given in SC analysis.)
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Penalty

L.T. Due

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The Simulation Model

Forecasts WWBS Order Generator based on WCBS

Push

Pull (Pull Strategy) Fab Probe

Pull (Push-Pull Strategy) Die Assembly Bank

Pull (Push Strategy) Test Final Goods

Material

Delivery Delivery

Front-end

Back-end

Performance

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DOE Factors
Factors Strategy Due-Date Lead Time Penalty Weight Demand of Product A Demand of Product B Front-end CT Variability Back-end CT Variability Delivery Time Variability Front-end Mfg Cost Back-end Cost Prod A Back-end Cost Prod B
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Level 1 Pull Tight Light LFS (Low) LFS Zero Zero Zero Low Low Low

Level 2 Push-Pull Medium Heavy LFC (High) LFC High High High High High High

Level 3 Push Loose

2135
fractional factorial design

Assume: two products, same family, assembled from common generic parent die
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A General Case Instance

Due-date Lead Time or Cited Lead Time
Penalty per delayed hour Light Penalty Heavy Penalty

Level 1: Tight 5 days $55 $275 Level 1 Zero Variability Constant (45)

Level 2: Medium 30 days $30 $150

Level 3: Loose 55 days $5 $25

Process Cycle Time (days)

Level 2 High Variability Triangular (35,45,55)

Duarte, 2001

Front-end

Back-end
Final Product Delivery

Constant (8)
Constant (4)

Triangular (5,7,12)
Triangular (2,3,7) Level 2: High Cost 4000 4000 8000

Mfg Cost ($/wafer) Front-end Back-end for Commodity Goods Back-end for High-end Goods

Level 1: Low Cost 2400 2400 4800

IC Knowledge, 2003 And other assumptions

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Strategy

The Global Experiment: Effects

Since in simulation experiments almost all factors have none-zero effects, Sequential Bifurcation Analysis is suggested by Wan et al. 2003 (QSR Winner paper INFORMS Atlanta 03) Group Screening: Factors are grouped as Important and Unimportant Step-Down: In each step, a group of IE@ASU factors are tested for importance

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Screened Factorial Effects

Primary Factors: Due-date Lead Time and Penalty Weight (t is the game) Secondary Factors: Demand Pattern and Mfg Cycle Time Variability Unimportant Factor: Final Product Logistics Time Variability
(Of course costs have significant effects, but do we need to analyze them?)
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Due-dates vs. Penalty Weights

12000 10000 8000 Pull 6000 4000 2000 0 1 5days 2 30days 3 55days

Total Cost per wafer sold in $

Further StepDown Analysis

Pushpull Push

Heavy Penalty
Due Day
20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 1 5days 2 30days 3 55days Pull Pushpull Push

Total Cost per wafer sold in $

Light Penalty

Due Day

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Demand Pattern vs. Mfg C.T. Variability

8100 $ Total Cost per wafer sold Product A 8000 7900

medium due-date and light penalty

7800 7700 7600 7500 7400 7300 7200 7100

Low Variability High Variability Low Variability High Variability Low Variability High Variability

Pull Push-Pull Push

Low Demand

Mid Demand

High Demand

$ Total Cost per wafer sold Product A

7100 7000 6900 6800 Pull Push-Pull Push

loose due-date and heavy penalty

6700 6600 6500 6400 Low Variability 6300

High Variability Low High High Variability Variability Variability Low Variability High Variability

Low Demand

Mid Demand

High Demand

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The analytical results lead to a conceptual decision framework

This is Layer One

Due-Date Lead Time
Tight Medium Loose

Importance of on-time delivery service

Less Important

Pull
Step-down to Layer Two Comparison

Push

Far More Important

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Layer Two: Push-Pull Can be Appropriate

medium due-date + light penalty or loose due-date + heavy penalty
Aggregate Demand

Layer Two
Process Variability

Low Demand (Lack-for-sales)

Average Demand

High Demand (Lack-for-capacity)

Low Mfg* Variability

High Mfg* Variability

Pull

Push

Push

Push-Pull

Push-Pull

Push

* Manufacturing variability contains both front-end and back-end variability IE@ASU 35

What else can be done?

Pooling/Postponement Hybrid
Source: Alex Brown et al., Xilinx improves its semiconductor supply chain using product and process postponement, Interfaces, 30(4), 2000

Strategy No postponement (Push) Partial postponement (Push) Die-bank push-pull Hybrid

Postponement of decision

Inventory at diebank

Inventory at finished goods X X

X X X X X

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Technology Involvement
Process
Product Full-Custom IC CBIC Structured ASIC

Wafer Production

Fabrication & Probe

Assembly & Packaging

Test

System Set-up

GA
PLD FPGA ASSP Standard IC

Push Pull

Source: Joong-In Kim and Dan Shunk, working paper

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Intuition Takeaways
t is the name of the game. From the semiconductor case, lead time customers require and the perceived importance of on-time delivery are the driving factors. We also need to understand not only the nature of the demands but that of the processes. Supply Chain Visibility (both Demand Stream and Supply Stream) is important. Implementation issues should be addressed. Transition from push to pull needs tremendous cultural change and technological support.
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Company

LOGO

Synthesis -- Push-Pull It All Together

A Customer-Driven Supply Chain Framework

Info Flow

Material Flow

Semiconductor SC example
Source: Yang Sun, Dan Shunk, John Fowler, Proceedings of INFORMS Annual Meeting, San Francisco, Nov. 2005

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The Semiconductor Flow

Raw Material

Die Bank

Wafer Fabrication (W/F)

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Assembly & Test (A/T)

Configuration & Shipment (C/S)

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Critical Decisions in the Semiconductor Supply Chain

Source: Shunk et al., ASU DBR Survey, 2004 Wafer Fabrication (W/F) Assembly & Test (A/T)
Configuration & Shipment (C/S)

W/F Build the right stock

A/T Rough cut, loose allocation How much die bank inventory to hold? /How How much raw material much package material inventory to hold? inventory to hold? What rough cut What categories of products to release? How allocations of lots to anticipated orders are many to release? made? What priorities are What priorities are assigned to wafer lots? assigned to anticipated Which A/T facility to ship orders or factory released to? lots?
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C/S Who gets what! How much finished goods inventory to hold? What is the final priorities for firm orders? Which lots are assigned to which order, or Who gets what? What quantity and mix of products are shipped from which factory to which customer?
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How are they made?

Wafer Fabrication (W/F) Assembly & Test (A/T)
Configuration & Shipment (C/S)

Logistic Estimation of Probabilities Optimization Decision Technique

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.35

.20
Ideal?

Heuristics

.33
.22
W/F

.27
.38
A/T

.29
.51
Current C/S

Tacit Knowledge

Odds Ratio 0.25

2004 Survey Result

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Inventory Management
Key to Supply Chain Management
Deterministic model adjust solution
- EOQ to compute order quantity, then add safety stock
EOQ Assumptions (not realistic) Key Insight: There is a tradeoff between lot size and inventory

Stochastic models
- news vendor model - base stock and (Q,r) models - (s,S) models - Multi-echelon and network models
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Prioritizing and Releasing

There is sometimes confusion between the production planning domain and the shop floor control domain. We need to connect planning and execution. The releasing function is key to Push-Pull. It connects supply chain planning and factory operation.
Supply Chain: Release by forecast vs. by order Factory: MRP Push vs. Kanban/ConWIP Pull

Allocation is important for determining who gets what.

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Logistics
Key to Supply Chain Management Often performed by a 3PL or 4PL Begin to contribute large portion to the GDP

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Within The Four Walls

$$$$

Capacity

Release
Shop floor ctrl
Workforce planning Quality ctrl Dispatching Scheduling

$$$

$$

Recommended reading: John Fowler et al., Workload Control in the Semiconductor Industry, Production Planning & Control, 13(7), 2002 IE@ASU 47

Synthesis and Implementation

The Strategic Importance of Details The Practice Matter of Implementation
System view Means-ends analysis Creative alternative generation Modeling and optimization Iteration

Communication and Teamwork

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Coordination and Collaboration

Value of Info Sharing/SC Visibility Coordinated Decision Making Knowledge Sharing and Communities of Common Interests Risk Sharing Contract Management VMI and CPFR Remodeling the Supply Chains to pursue Supply Network Collaboration
Recommended Reading: Grard Cochan, Matching Supply with Demand, 2005
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We think in generalities, we live in detail.

Alfred North Whitehead

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