Current situation of manufacturing industry in Indonesia

Thank you very much for visiting here today when you are busy. I have been in charge of manufacturing system for a long time in Indonesia.

But compared with 10 years or 20 years ago, since changes of sales orders quantity and delivery delay occur more frequently, the production plan must been revised, having an impact on the issuing P/O of raw materials, and being excess stock or short stock.

Generally speaking, there is a trade-off problem that if there is short stock in the supply chain, there is a high risk that loses the opportunity for shipping, but if there is a excess stock, then it takes the stock interest rate.

In order to solve this problem, this time, I will explain based on the case about the system implementation for making the demand forecast in consideration of the supply capacity of the in-house production resource.

Company Profile

One of the tool to realize the purpose of business improvement is the system. Realize the following issues by using system :

Improve data entry with efficiency and accuracy.
Effective Use of Information by Visualization, Sharing, and Systematization.

Information from GEMBA is the competitiveness of the company.

We hear your requirements well in order to achieve a visible effect of the system implementation.

How much has the current operation improved?
What did new results come out?

We will propose the system which realize these effect.

We propose the business development template HanaFirst developed by our company besides the production scheduler Asprova.

This is my personal idea, but it is only part of the general affairs department such as accounting that can standardize the business flow. The business flow such as production control, inventory, purchasing etc. are defined in the relation with customers and suppliers. That's why it's difficult to standardize these business flow.

We can implement your requirement into system in a short term by using business template HanaFirst.

Issues for manufacturing industry in Indonesia in recent years.

First we see the impact of diversification of consumer’s preferences and shortening of product life cycle.

Income levels are rising as the country's economic growth, which diversifies consumer preferences, and shortens product life cycle. （Human beings get bored in an environment with full of goods and information ）.

Shift from long-life-cycle low-mix low-volume production to short high-mix low-volume production, and reduce the volume of purchasing, production and shipping throughout the supply chain.

Uncertainty in future demand forecasting increases, and frequent changes of orders such as due date changes and volume changes require a revision of the plan.

Order changes effect in the supply chain, increasing the risk of line stop due to delivery delay.

As a result of these movement inventory cost is high to avoid line stop.

Now we see the background of reducing sales orders quantity and shortening delivery times.

With the expansion of domestic demand in Indonesia, the number of S/O is increasing, but customers are spreading to non-Japanese local companies, and the number of units per order is decreasing.

In 10 or 20 years ago it was enough for us to focus on delivering stable limited products to large customers, but now it is necessary to correspond to changes in the business environment in which Chinese and Indonesian similar companies enter the market with high quality and cheap prices.

As the main customers trend to reduce orders and decentralize their suppliers, we have to increase the number of small-lot customers to raise sales, the number of varieties of item also increases according to the increase of the number of customers, and it is necessary to get strict orders with small lots and short delivery conditions.

Changes of demand by the consumer force manufacturing industry correspond to a large variety of items, small lots, and short delivery times through the supply chain.

Usually uncertainty in demand forecast makes inventory control difficult. It is difficult to keep the appropriate inventory if it is difficult to predict future production by shortening the product life.

Impact of Uncertainty in Demand Forecasts on a Sector-by-Department are

- Shipping staff want to have so much inventory.
- Production staff want to produce so much demand.
- Purchase staff want to issue so much purchase orders.

The load on the production line will increase more and more due to the small-lot production. Divide the process line and increase the common line to increase the operation rate in order to correspond to high-mix low-volume products with limited machines.

But the manufacturing process L/T for each order has become shorter, and setup time like mold replacement, mold adjustment, cleaning have been increased because of small lots.

Because of variations in production L/T from the first process to final process due to item, quantity, and line, it will be not accurate response of delivery date.

It is difficult to know the work order based on the priority because the connection with the order can not be seen. result of that on-time delivery rate is getting worse.

In order to avoid the shortage of materials, we create a material plan with too much allowance, inventory of WIP and R/M are increasing.

Both labor costs and material cost in Indonesia are rising. Indonesian UMK（Upah Minimum Kota/Kabupaten＝UMK）is getting higher.
UMK in Karawang is more than 2 times higher than Yogyakarta.

Other Asian companies and Indonesian companies are also rising. Among the industries of domestic investment in Indonesia by foreign capital, manufacturing is the largest. Jawa barat is largest（Bekasi・Karawang）. Singapore, Japan, China, Hong Kong, Korea, in that order.

There are many factors that raise information management costs in your company. Purchasing of direct materials is willing to be complicated, less transparent, and black boxed.

Demand forecasting and inventory costs in the supply chain.

Usually the number of players increases as going upstream or downstream.

The supply chain is a series of process connections from purchasing materials, manufacturing and delivery to end user. With supply chain management, assuming that our plant as the center of the upstream supply chain that leads to raw materials, and the downstream supply chain that leads to the consumer, and logically arranges a management system .

Effects of fluctuations in quantity, price and delivery time on the supply chain is called "Bullwhip Effect", that is the end user places an order (whip) and order fluctuations build up upstream the supply chain.

This is the flow of goods and information in our own factory, Control of the flow of goods and information in the factory is a plan that has been adjusted by the PIC at each level.

Product and inventory costs incurred in our own factory. There are two types of cost, the first is evaluation of assets in financial accounting with accounting journal, and the price is determined on the supply chain. The second is the interest in management accounting that converts the load of holding stock into cost according to the holding period.

The character of the inventory interest cost are negative impact on cash flow by stock amount, opportunity loss of interest obtained when the cash is deposited to the bank, borrowing interest to purchase R/M to be purchased, opportunity loss costs due to own warehouse space occupancy and risk of impairment / depletion / dead stock.

Invisible inventory interest costs can be turned into visible costs in the future, and they can be said to be off-balance liabilities that cause the company's loss.

The reason why inventory is the interest cost, longer inventory days have a negative impact on cash flow (Relationship between stock and financing) .

The reason why need stock in own factory are To fill the difference between manufacturing L/T and sales L/T, and As buffer stock before bottleneck process. Actually the supply capacity is not sufficient, so the supply and demand are adjusted while keeping the stock in optimal level.

Trade-off between opportunity loss and inventory cost, always be troubled when issuing Work Order and P/O where decision-making works in internal supply chain.

By preparing demand forecast, overcome the worry of inventory cost and opportunity loss cost at the time of issuing W/O and P/O.

Conversely, costs on the supply chain can be reduced by accurate demand forecast and shorter supply L/T.

In order to improve the accuracy of demand forecast, it is important that company plan, sales plan, production plan and purchase plan be synchronized and unified as a plan for the entire internal supply chain.

Produce only the required quantity at the required time. Purchase only the required quantity at the required time.

The effect of centralizing departmental planning, if the factory capacity and order qty are under the the same requirement, it is more valuable to finish purchasing, manufacturing and shipping in a short time after receiving S/O.

By synchronizing the shipping plan with the production plan and the purchase plan, the waiting time is shortened and the responsiveness of the supply chain is improved.

Systematization of planning work considering supply capacity

Supply capacity is different from process to process.

The tact time and the lot size are different between the pre-process and the post-process. Use the intermediate stock completed by the pre-process in the post-process. To reduce setup time, increase lot size. To reduce inventory, decrease lot size. The overall optimal considering the capacity of the pre-process and post-process and the setup time.

The lot size flowing between processes depends on the bottleneck process capacity, and if the tact time of the bottleneck process is delayed, it affects the overall tact and affects the yield.

The result of simply shifting the lot by production L/T days and Move lots of load over to another day. APS (Advanced Planning & Scheduling) is a scheduling method considering the load of machine, that is directed to overall optimization synchronizing with purchasing material.

Load leveling function is one of the difference between MRP and scheduler

In order to reflect the time reduction in production planning, necessary to make detailed plans not with fixed lead time but with cycle time for each combination of item and machine.

In order to maximize operation rate of the bottleneck process, first create the plan of the bottleneck process, next create the plan of the previous process with backward, and create the plan of the next process with forward.

By producing according to the bottleneck, the stock of WIP decreases in the previous process. Materials necessary for production with the tact time of the bottleneck process.

The final goal of systematization of planning work is to improve cash flow. When the appropriate inventory is realized by shortening L/T and maximizing the operation rate of the bottleneck process, the cash will increase

MRP I (Material Requirements Planning) is to create Master Production Schedule(MPS), which is a monthly production plan for a F/G based on a finish date after reducing F/G stock. Based on MPS without considering the supply capacity of production machine (infinite capacity), calculate the required date and required qty of raw materials and WIP.

MRP II (Manufacturing Resource Planning) is considering the supply capacity of production machines(finite capacity) to adjust work that has been overloaded, or reassign them to alternative resources.

Example of “a single pass system going through the whole process” from sales order to purchase

How to make a production plan by planner in Indonesia.

Get S/O from sales dept. and collect in Excel format.
Summarize data from CSV or PDF format file to Excel format
Create a production plan for shipping.
Create monthly MPS based on the F/G finished date after reducing F/G stock.
Calculate the required qty of R/M and WIP to manufacturing based on BOM.
Run BOM Explosion and calculate the required qty of R/M, WIP and F/G based on the BOM.
Calculate net required qty after reducing stock.
Calculate net requirements for parts and materials inventory, after reducing stock and outstanding P/O.
Create production schedule by shifting lots by production L/T for each process.
Shift lots considering manufacturing L/T and safety stock days, and create a manufacturing schedule of parts for each process.
Leveling production lots on the day when the load is exceeded.
Shift the work of the over-loaded process to another day or another machine and revise the plan according to the capacity of the machine.

There two problems of how to make the current production plan.

1. Lack of communication between sales dept. and PPIC dept.
  Even if production plan to meet the request from customers, PPIC trend to make plans by looking only at the manufacturing site, resulting in partial optimization. As a result of this it takes time for responses from sales dept. to customers, and it takes time to change the order qty and delivery date.
2. Shift L/T and load leveling by process.
  Load leveling without considering the production capacity and load of the previous process and next process, trends to result in partial optimization, as a result of this response time of the post process is not in time, and the waiting time and the stock increase.

Since the process control system divides control for each process, there is a limit to shortening the lead time.

If there are partitions in each process at each process, the stock between processes will be piled up and the production L/T will be longer.

The wall that separates the process disturb the flow of goods and the flow of information, to make L/T longer and to increase WIP stock.

This is system in which production plan and process control are linked from S/O.

1. Load to create Monthly Prd Plan⇒Shorten time from 3 days to 3 hours.
  Just before the demand-supply adjustment meeting, no overtime work.
2. Responding to the change of plan ：
  Previously, it was not possible to re-adjust the plan due to order change,
  but after the implementation of the Asprova, rescheduling according to
  the change of delivery date and qty.
3. Visualization of process work ：
  By attaching the root ticket to the pallet, the flow between the system
  connection and the physical process became consistent.
4. Schedule with added constraints ：
  Automatically generates a plan for collectively producing orders within
  the same week.

Create forecast demand with high accuracy in consideration of internal production capacity.

Problems encountered during system implementation

Background of considering system investment in Indonesia are the importance of the factory in Indonesia has increased, and accurate and fast information and effective use of information are required.

The implementation is almost successful if there is a key person who has a voice over Indonesian and Japanese.

What do Indonesian staff think?

What are the benefits of implementing a system?
The Japanese will return home someday. Aren't we bothered to have the system run?
Is there a problem with the current system?
Japanese says it, so I will follow it anyway.
Isn't it unreasonable from Japan head office?
Why can't they explain until we understand well?