Yes, while every organization strives to maximize flow, the greatest obstacle is not being able to minimize variability.
That’s because, as the law of variability states, as variability in a process increases, the productivity of that process decreases.
This idea doesn’t only apply to processes, though. While, historically, the analysis of variability has been primarily focused on processes, a new focus has emerged: the analysis of variability from the total system level. This is important because flow does not just exist at the process level. It exists at the system level, and the lack of assessment from the system level will lead to missed opportunities for improvement.
Law of System Variability
Debra Smith and Chad Smith propose a new law in their book, Demand Driven Performance: the law of system variability. This law states:
“The more that variability is passed between discrete areas, steps, or processes in a system, the less productive the system will be. The more areas, steps, or processes and connections in the system, the more erosive the effect to system productivity will be.”
In addition to understanding the variability that exists within each process, we must also understand the variability that is passed and compounded between processes or connections in a system. The more complex a system is, the greater the effect of variability.
Another important term in the assessment of variability is the bullwhip effect, which the book Demand Driven Performance defines as:
“An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain. The bullwhip effect can be eliminated by synchronizing the supply chain.”
The bullwhip effect moves both up and down the supply chain. It begins with a small change, but its impact continues to grow as it moves across the chain. The impact of changes in demand reaches and increases up the supply chain from customers to suppliers, while the impact of supply variability and disruption reaches and increases down the supply chain from suppliers to customers. Like the definition states, it is born from the difficulty of synchronizing communication up the chain and moving products down the chain.
The idea of system nervousness is also important to variability. The book Demand Driven Performance defines nervousness as:
“The characteristic in an MRP system when minor changes in higher level records or the master production schedule cause significant timing or quantity changes in lower level schedules and orders.”
Nervousness is when the impact of small changes in higher level records compounds to create large changes in lower level schedules and orders. Nervousness relates to the dependency that exists in MRP systems as a result of dependent connections in organizations’ product structures. When more components are shared, nervousness can become amplified. Nervousness is not contained within an organization, either. Nervousness of manufacturers in the supply chain compile to create the bullwhip effect.
The Four Types of Variability
Now that we understand some of the effects that impact variability, let’s break down the types of variability in a simple way.
- External & uncontrollable
- Defined in Demand Driven Performance as, “fluctuations and deviations experienced in demand patterns and plans.”
- Demand variability is often caused by system nervousness of entities toward the top of supply chains.
- It has increased and continues to increase for manufacturers, partly because of more custom products, shorter tolerance times, and longer lead times.
- External & uncontrollable
- Defined in Demand Driven Performance as, “disruption in the supply network or deviation from requested dates and/or promised dates for supply order receipts. It is the reliability (or lack thereof) of the supply network.”
- It has increased and continues to increase for manufacturers, partly because of shorter material life spans, longer lead times, more suppliers in general, and more remote/global suppliers. Implementation of lean principles and just-in-time delivery practices also add complexity to supplier variability.
Both demand variability and supply variability lead to the bull whip effect and cause departments to make decisions that conflict with each other, which creates a pendulum that continually shifts back and forth.
Operational Variability or “Murphy”
- Internal, uncontrollable
- This is the normal, random variation that will always exist in a system. Variability will always exist, even in a steady system, so operation variability describes that small amount of variation that may exist within calculated control limits.
- Internal, controllable
- This is variation caused by the human element; the result of decisions and actions of members in an organization.
- This is the only form of variability that is completely controllable, yet organizations are often slow or averse to addressing it. When discussing minimizing variability to maximize flow, though, management variability is the first form of variability that must be tackled by an organization.
Reducing Management Variability
How can organizations begin to reduce management variability? Like most issues, the solution can be complicated and difficult for an organization to handle themselves; this is part of the reason so many organizations fail to address it. We will save the details for another blog, but the big idea is this: open your organization up to new ways of thinking, doing, and measuring that fit with the modern manufacturing industry.
This can be a difficult task when your organization has been doing things in a similar way for years or even decades, so one choice that can assist this solution is to work with partners that understand current needs and solutions and can help your organization grow into a version of itself that will stand ahead of the pack as the manufacturing industry continues to change. Repathis is one such company that is dedicated to understanding client organizations deeply and helping guide them into the future with cutting-edge software solutions built around modern ways of thinking, doing, and measuring, like our manufacturing software, Revive. We aren’t one of those large companies that expects your organization to completely mold to fit our solution. We respect the journey your organization has been on and work WITH you to ensure our solutions fit your operations while helping your organization make the adjustments necessary for continuing success. Interested in learning more or starting a conversation? Contact us here.