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Several readers of Lean for the Process Industries - Dealing With Complexity have e-mailed with questions that go into details not covered in the book.  Those questions that are believed to have widespread interest will be posted here with the answers.

Readers are invited to send questions in.  All questions will be answered promptly.  Questions will not be posted here without the permission of the sender.

Question 1:   We have analyzed product demand variability and developed product wheels for one of our locations.  Some of the equipment is constrained (high utilization - scheduled 24/7) while some is not.  I'm wondering if the change over cost for EOQ should be calculated differently depending on the situation.  Our accounting system provides a value for the material cost as well as equipment cost / hr (opportunity lost).  Our Change over Cost is the sum of the material and lost opportunity cost.  It's my opinion that this makes sense when the equipment is constrained but the lost opportunity cost should not be included when we have open time.  Have you run across this issue and would you agree to how we have been approaching it?

Question 2:    My CEO has asked me to start thinking about how we develop Value Streams for the company.  Since our VS's cross multiple locations they will be virtual.  The real question is how do we align headquarter staff functions to these VS's without creating dual rolls or complex organizational structures.  Do you have any thoughts on how to deal with this?

 Question 3: One manufacturing location and even one production line within that location can support multiple Supply Chains. If we create a supply chain manager for each product family, do the people in manufacturing report to that SC manager as well as the location manager? What Supply Chain gets priority at the plant?

Question 4: How do you feel about adding energy use in the process data box? Over use of energy is a huge opportunity.

Answer 1:    I agree with you that the changeover cost used in EOQ calculations should be different in those two situations.  The key principle is that you should include only those costs which increase due to doing more changeovers, not those costs which are independent of the number of changeovers done.  So if the full capacity of the equipment is required to meet demand, then more changeovers mean lost sales and should be included in changeover cost. If the equipment has slack time, then additional changeovers do not reduce sales, so equipment time is not a factor in EOQ calculations.  In my experience, when the equipment is fully utilized, the lost opportunity cost is generally the dominant factor in EOQ calculations.

 Material cost should not be included in EOQ, unless it represents material lost during the changeover including losses getting back to aim conditions.

Answer 2:   When analyzing value streams that run across multiple sites, it is very useful to develop a Supply Chain Map.  This is very much like a VSM for a single site, but has somewhat less detail on each site, and more data about transportation quantities and lead times.  It provides all the same benefits for a complex supply chain that a VSM does for a single manufacturing site.  The information flow component of a Supply Chain Map (SCM) is even more important than it is on a VSM, because it highlights the issues behind your question.  A well constructed SCM will show how the HQ functions impact supply chain performance, and coupled with the swim-lane diagrams I describe on page 102 and 103, should show how to simplify and better coordinate the HQ functions.  Rather than creating dual roles, this should clarify opportunities to eliminate redundancies. 

Answer 3: I’ve seen many cases where a single line supports several supply chains. For example, a polymer-fed paper line I mapped made paper for envelopes, for medical packaging, and for hospital gowns. In that case the product line with the higher variable margin took priority. In other cases there are contractual requirements to provide material, with significant penalties, so that influences priority. In other cases, it is not so clean cut, so an allocation strategy must be negotiated among the supply chain managers. In some cases, a single supply chain manager will be responsible for all supply chains flowing through a line, or even an entire plant. That eliminates any possibility of competition for line time.

Where there are several supply chain managers, the most common practice I’ve seen is that the manufacturing people report to a single manufacturing manager, who must be responsive to each of the supply chain managers. In most cases, they work well together as a team, and don’t have much conflict.

 Answer 4: Most process operations, especially chemical plants, are huge energy consumers, but in my experience that is an already understood issue, and there are significant analysis and reduction programs already in place. I did have one client where this wasn’t the case, so the major focus of the VSM was energy consumption. It was added to the standard list of wastes and to the process data boxes, and was the target of a majority of the improvement efforts.