Product wheel planning

Many production companies face the conflicting objectives of minimising net working capital while manufacturing products in the most cost-effective manner. Product wheel planning provides an answer to this challenge and helps you find the right balance between changeover costs, inventory costs and production throughput.

Often, manufacturing companies seek to strike the right balance to make their operations cost-efficient while effectively serving their customers.

On the one hand, reducing inventory may require investments in modern assets that increase the flexibility enough to absorb all market demand fluctuations and enhance scalability. This “chase” strategy has several benefits, but it generally leads to an increase in the cost of goods sold (COGS) of your products.

On the other hand, producing cost-efficiently typically requires levelling production and reducing the number of changeovers to improve asset utilisation and, ultimately, reduce COGS. However, this results in increased inventory levels.

Product wheel planning provides an answer to the conflicting objectives

Product wheel planning provides an answer to the conflicting objectives of minimising net working capital while manufacturing the products in the most cost-effective manner. It does so by following a methodology that optimises the production sequence and campaign length of a variety of products manufactured on an asset. An effective product wheel finds the right balance between changeover costs, inventory costs and production throughput. 

In product wheel planning, products are manufactured in varying quantities from cycle to cycle, but the same sequence is always respected. Therefore, we refer to a rotating wheel that produces the same set of products in the same sequence over and over again.

Figure 1 shows different product families being sequenced in a grouped, cost-efficient manner. This is done by first scheduling the make-to-stock product families and then using the free capacity left on the wheel to produce the less predictable make-to-order items. Alternatively, the leftover time can be spent on preventive maintenance activities.

A well-planned sequence can impact COGS

To highlight how a well-planned sequence can impact COGS, we look at a typical example in the paint industry where switching from producing one colour to another requires the producing asset to be cleaned.

Moreover, the changeover cost depends on the colours we are switching to and from. For example, switching from black to white requires more cleaning than switching from white to black. For this reason, it is generally relevant to map all changeover costs in a changeover matrix (see figure 2).

Figure 3 shows how product wheel planning reorganises the sequencing of products manufactured on a line, each colour representing a product family and each bar representing a product being produced.

The upper part of figure 3 shows an asset being utilised according to the rate of demand. Producing in this way reduces inventory because an item is only produced when needed. Instead, the lower part of the figure shows how the various product families have been regrouped according to a new, more efficient sequence. For instance, instead of producing the black product family in three separate runs, we produce it all at once, reducing the changeover costs by a factor of 2.

What we can create is a production plan with a fixed production sequence that minimises switchover times between product groups while meeting demand and service level requirements. The fixed and repeatable cycles provide stability and production levelling. At the same time, product wheel planning allows for flexibility by enabling variable campaign lengths. This is achieved by scheduling flexible capacity. Having said that, product wheels are designed mainly for MTS products; however, slots for MTOs are also reserved. 

Key principles of product wheel planning

Product wheel planning is based on severalkey principles:

• Product families and products within those families are produced according to a fixed sequence depending on the changeover matrix.

• For each cycle, or better – each wheel turn, the total wheel length is fixed (e.g. we decide to always produce product families A, B and C in a three-week wheel).

• The production quantity for each product family can vary, depending on the changing demand and stock on hand left from cycle to cycle.

• The production frequency, i.e. how often the product family is produced period after period, is fixed. The production frequency can be re-evaluated when market assumptions are changing in the long run. Each product family has a pre-defined frequency, depending on its yearly demand. This means that we may not produce it every cycle but only every second or third cycle (see figure 4).

• Product wheel planning is mainly designed for make-to-stock products but also accommodates a combination of make-to-order and make-to-stock items on the same line.

Gain the full benefits by fitting product wheel planning into your organisation’s planning hierarchy

By implementing product wheel planning, you can gain extraordinary business and behavioural benefits in your organisation (see figure 5).

To gain the full benefits of product wheel planning, it is necessary to adapt the decision- making process in the tactical and operational horizon.

In the tactical planning horizon (1-3 months – depending on the industry), product wheel planning is about parametrising the wheel. Key decisions concern the wheel length, the production frequency of different families and the wheel sequence.

In the operational planning horizon, decisions are made about the detailed scheduling and sequencing of each subproduct within a family. In addition, the final production quantity is defined based on the varying demand levels and safety stock requirements.

Parametrising the wheel

When you start with product wheel planning, you must address several key design decisions:

1. How to establish the wheel length. Several options are available depending on the desired impact:
   1. Making the shortest wheel: this option is typically used when capacity is not necessarily an issue, but more sales could be achieved by shortening the lead time.
   2. Most economical wheel length: this option is typically used when the company seeks to achieve lower production costs and lower prices toward its customers to gain competitive advantage.
   3. Special cases: for industries that sell products with short shelf life, it is also possible to consider this factor in the design of the wheel.
2. How to establish the wheel sequence. A changeover matrix is often used to identify the most economical and least disruptive way of sequencing the products in the process. Constraints are then considered for sequencing the wheel.
3. How to establish the wheel frequency. Intuitively, the higher the average demand for a product family, the more frequently that product family should be produced. The production frequency can also be affected by the production strategy. For instance, MTS products need to have a fixed frequency (every one, two or three cycles etc.), while MTO products will be scheduled only when there is a necessity to meet incoming orders for that product. Such MTO products will be scheduled with varying frequencies and will be produced in batch sizes depending on quantity demanded, minimum batch size and shelf life.

In a more short-term-related scheduling context, the operational adjustments of the wheel must be considered. To ensure the outcome, planners need to:

1. Adapt the cycle production quantity within a family.
   A product family will typically have a variety of subfamilies. These may include different labels, different packages, different country standards etc. Hence, production of these subfamilies must also be organised efficiently.
2. Closely manage the MTO schedule and maintenance capacity.
   It is important that enough space is left on the wheel for MTO products and that these are also scheduled according to PW principles. In addition, operational planners must account for machine maintenance as this occupies wheel “capacity”.

Applicability of product wheel planning

There are some industries that are typically good candidates for implementation of product wheel planning. These are process-heavy industries and more specifically chemical, pharma or FMCG.

Our experience shows that product wheel planning in these industries has improved companies’ throughput by 5-10% without any additional CAPEX investments. However, the impact is not limited to these industries. In general, all companies that experience changeover costs (in terms of time or money) will benefit from production wheel planning.

System support/technology

No major investments are needed to start planning with a product wheel. Depending on the company’s setup, the concept can be implemented and supported by a variety of planning systems. At Implement, we have experience with implementing product wheel planning supported by SAP IBP, SAP APO and MS Excel.

Conclusion

Within just three months, product wheel planning can achieve positive cross-functional business impact.

This business impact includes:

• Net working capital reduction – with same or improved service levels
• More efficient production processes and capacity usage
• Net increase in gross margins and free cash flow

However, the concept combined with our solution and expertise, which has been built over many years, is the ingredient that will help you achieve the desired results.

If you would like to hear more about product wheel planning and quantify the impact for your company, we will be happy to offer you an inspirational workshop.