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Usually when I get to a new client who’s been using SAP to run their supply chain for a number of years, I try to get my hands around their process by laying out a value stream. As we all know, a value stream is comprised primarily of an information flow , going backwards from the demand source and a material flow, going forward to the demand source. In the information flow, I can then see what functions and transactions are in use in which way, whereas the material flow gives us valuable insight into WiP and stock locations, throughput and cycle times (as described by Little’s Law).

After we mapped out the current state, we can use it to define, describe and document a future, better state. I also like to build models that we can touch and point to; and Lego has been the preferred choice so far.

Besides the regular elements like ‘process’, ‘inventory’, ‘info boxes’ and ‘FIFO Lanes’ you can make up your own. I use (1) SAP MMR info boxes, (2) Functional area info boxes, (3) transaction info boxes, (4) an element to maintain all relevant information for a Kanban cycle to achieve pull, (5) customizing info boxes, which document the settings to be done in customizing, (6) order related information and how to generate them in SAP, (7) additional descriptions and (8) structure related to as we combine process steps into a routing and eventually an order.

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Of course you may define your own ones and every time I create a new value stream, I come up with additional elements.

This way I will know how the four MRP screens are maintained in the MMR, what transaction flow my client employs to schedule the line, creates a forecast or triggers replenishment and what order types are used. And most importantly, what SAP functions are used, used as intended by the standard, not used at all within SAP.

Now I dream up the way I would operate considering the closest options to standard SAP. Where can we use consumption based replenishment strategies to automate supply? Where is the inventory / order interface to identify Finish to Order? What planning strategies may be used to optimize finished goods inventory levels and service? What master data settings support best a better planning strategy? Where can I use Kanban? Should I use repetitive orders or discrete production or process orders? And many things more…

The map is a living document and it gives us not only a point of reference,  for discussion and education but also a place to document our decisions. I then also use the SAP value stream map to identify workshops and educational sessions that need to be performed to get everybody on the same page.

Some general comments: Every value stream is made up of two essential components: demand and transformation. Demand is the reason for the existence of the value stream. Transformation provides the ability to satisfy the demand.

The Value Stream also involves only two basic components: stocks and flows. Both demand and transformation are types of flows. Flows involve capacity and time. The capacity of a flow represents the maximum amount of flow (what we will call the “throughput” which is measured as parts per year, parts per day, patients treated per month, etc.) the flow can produce. The time element describes how long it takes for a part to traverse the flow. We call this the “cycle time.”

Stocks are what separate flows. If two or more parts need to come together in an assembly, for instance, there will be a stock for the parts to match up. Raw materials and finished goods are also examples of stock. Note that only parts can be stocked and services cannot. If you break your arm, you cannot go to the emergency room and get your x-rays, a diagnosis and a cast for your arm off the shelf.

Interestingly, work in process in a flow (the parts that are being made) is not a stock. WIP is a characteristic of the flow and is the product of the throughput and the cycle time (Little’s Law). However, parts that are stored between flows are in a stock. The difference is determined by whether the parts are waiting for a resource (e.g., a machine) or waiting for another “logistical event” such as matching with other parts at an assembly or waiting to be shipped. WIP is waiting for a resource. Stock is waiting for a logistical event. The drivers of resource performance are quantitatively different than the drivers of logistical events.

A value stream therefore, is a structure of flows and stocks providing transformation to meet demand. Note that this definition is completely scalable and can apply to a production line, a plant or an entire supply chain.

Using this type of information and the value stream we can measure the effectiveness of the supply chain. This can be done using the flow benchmarking process, which I started to describe in a previous blog. But there is much more…

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