Presenter: Dr Alan Barnard, CEO Goldratt Research Labs Date: 27 th August

1. Finding & Testing SIMPLE Solutions for COMPLEX Problems CASE STUDY 1Helping achieve “One-Simple-ABB” with “TOC in SAP” within Complex Manufacturing Environment CASE STUDY 2 Finding & Testing a solution to SHORTAGES & SURPLUSES within Book Publishing Supply Chain Presenter: Dr Alan Barnard, CEO Goldratt Research Labs Date: 27th August

2. Case Study 1Helping Achieve “One-Simple-ABB” with TOC in SAP Presenter: Dr Alan Barnard, CEO Goldratt Research Labs Contributors: Dr Katja Rajaniemi, Improvement Manager ABB BU Fredrik Nordstrom, Regional ManagerABB Ops Development Group Lukasz Krupa, Leader, ABB Manufacturing IS Solutions Alex D’ ’Anci, Regional Manager, ABB Ops Development Group Eli Schragenheim, Goldratt Schools

3. Presentation Outline • Research Background • ABB Case Study: • Facts about ABB • ABB’s Continuous Improvement Evolution at ROI • The “One-Simple-ABB” Challenge for Operations Excellence • Conflict in leveraging and standardizing on best practices across ABB • Conflict in leveraging and standardizing on a single IT Platform and ERP system • Finding a Solution to the “One-simple-ABB” Challenge • Defining a simple yet robust TOC solution for 300+ different factories • Defining “TOC in SAP” using Goldratt’s “Strategy and Tactic” (S&T) process • Testing “TOC in SAP” solution through series of Pilots • Results achieved to date & next steps • Research Conclusions

4. Research Background RESEARCH PROBLEM • Most companies today, have left the final choice of which which Planning, Execution and Continuous improvement (PECI) methods and which IT systems to support these to Business Units because BUs are: • Responsible for continuously improving on their result. • In the best position to decide which methods & systems best meet their specific requirements. • Normally responsible for pay for these. • No wonder BU’s have resisted most attempts to standardize or centralize IT and PECI’s …

5. Research Background RESEARCH PROBLEM • However, not standardizing and leveraging Best Practices and a common IT platform, has major negatives for the Company as a whole… • Providing Support to multiple IT platforms and different Improvement methods is a nightmare for Centralized functions and very costly • Ensuring fast and reliable integration of data between different systems is a major challenge and occupies valuable management time every month • Business Processes cannot be standardized to enable fast and accurate transactions. • Best Practices are not shared and results achieved are not duplicated

6. Research Background RESEARCH QUESTIONS Q1: Is it possible to find a "one-solution-fits-all" both in rules and ERP technology when it comes to planning, execution and improvement of operations especially considering the many specific local considerations resulting in "we are different”)? Q2. Even if it was possible to theoretically find such a solution that could meet most business requirements, would it be possible to get buy-in from regional and plant managers under pressure to improve performance & reduce costs to test such a solution?

7. Research Background RESEARCH METHOD • Literature Review to identify which companies have tried and succeeded and which not and Why? • Consultation with Experts to determine if a “One-Solution-fits-all” solution design was possible and then whether such a solution can be implemented within a standard ERP System (the hypothesis to be tested) • Followed Action Research method using “Plan, Do, Review & Act” cycles to validate and continuously improve hypothesis

8. ABB is the world’s leading provider of power and automation technologies with strong market positions in core businesses ABB’s goal is to create value for their stakeholders by helping customers Use Electrical Power more Efficiently, Increase Industrial Productivity, Lower Environmental impact in a sustainable way Revenues in 2007: $29.2 billion and Orders for $34.3 b (large backlog) Headquarters: Zurich, Switzerland About 107,000 employees in 100 countries with Market-leading positions in most key products Robust global value chain to serve established and emerging markets 300+ factories around the world Case Study: Facts about ABB Power Products Automation Products Process Automation Power Systems Robotics

9. 4 Competitors also have aggressive operational excellence programs Customers P 1 2 Customers expect more for less faster each year T Supply Partners expect Better visibility (and prices) for Improved reliability and response Shareholders expect Increase EBIT (growth) Reduce COPQ (stability) 3 COPQ Revenues EBIT Why Operational Excellence is critical to ABB… Competitors Suppliers Sub Sub

10. Number of factories using TOC ABB’s Continuous Improvement Evolution By 2008 ~100 Trained in “Advanced TOC” ~500 in TOC through OEP 2007 TOC in SAP 2008 OEP forControllers 2005 Test TOC Distribution Solution 2007 OEPfor IS 1998 Corp R&DProgram for Manufacturing Technologies 2006 MT R&D Program becomesOperations Development Group.50 consultants in 4 centers 1992 ProductionTechnologyOrganization part of Corp. R&D inFinland 2001 Eli Goldratt visitsABB 2003 OperationalExcellence Program (OEP) launched as CP3 1999 12 Jonahs trained 1993 first DBRimplementation 2002 ConWIP 1988 2010 TOC + Lean Thinking + OEP = Operational Excellence

11. Was the investment in Operational Excellence worth it for ABB? A study of ABB’s Operations Improvement projects (TOC+LEAN) confirm an average payback time of less than 3 months ! 1) Source: Copenhagen Institute for Futures Studies and Larry Keeley: www.doblin.com (3000 projects examined)

12. Sample TOC & Lean success stories in ABB (1/2)

13. Sample TOC & Lean success stories in ABB (2/2)

14. What is the benefit of using TOC as a focusing tool for LEAN & Six Sigma vs. using each in isolation? • Sanmina-SCI Case Study • Leading global electronics manufacturing services (EMS) company employing over 48,000 people and revenue of $11.7 Billion • Set-up experiment over 2.5 years to test financial impact of LEAN, Six Sigma and TLS (TOC focusing LEAN & 6S) • 21 Participating plants with: • 11 Plants on Six Sigma • 4 Plants on Lean • Plants on TLS • TLS, Lean, and Six Sigma all offered benefits • TLS showed 3.9 times greater financial benefit delivering 89% of total benefits achieved from only 6 out of 21 plants Source: Apics Magazine, May 2006 and TOCICO 2007 presentation by Dr Russ Pirasteh, Sanmina-SCI, russ.pirasteh@sanmina-sci.com

15. But how do you achieve Step-Change AND Continuous Improvement within any organization? S D = Standardize, Do, Check, Act Continuous (Evolutionary) Improvement through institutionalizing Best Practices A C P D A C = Plan, Do, Check, Act Step-Change (Revolutionary) Improvement through Constraint Focused interventions (Kaizen) Source: ‘Kaizen: The Key to Japan’s Competitive Success’, by Masaaki Imai

16. Operational Excellence Acceleration Challenge What blocks a company such as ABB from identifying and spreading best-practices, learnings and results effectively in a big organization? Need Action Have a way to Roll -out best-practices efficiently & effectively Standardize our improvement approach The “Best Practice” Standardization Dilemma Objective Because: Each BU/Factories is different which mean there are no “one-solution-fits-all” that can be rolled out Ensure leverage of Best-Practices in all Business units Conflict Need Action Have a way to ensure out- standing result in each BU Customize an improvement approach for each business unit Really?

17. Operational Excellence Acceleration Challenge Despite the many differences between the plants where TOC+LEAN were implemented, it seemed to deliver similar results without any significant differences in the “what” and “how to”… Need Action Standardize our improvement approach Roll-out best practices effectively Resolving the Standardization Dilemma: Objective Ensure leverage of Best-Practices in all units Need Action Develop approach with target unit personnel each time Ensure out- standing result in each unit Direction of solution: Use TOC to focus & synchronize Planning, Execution & Cont. Improvement solution (TOC + LEAN) and an participative engagement approach for getting contribution and consensus

18. 1. Agreement on the problem 2. Agreement on the direction of the solution 3. Agreement that the solution will yield the desired results 4. Agreement that no disastrous side effects will result 5. Agreement on the implementation requirements and the plan itself Planning Sustain Analysis Execution 6. Agreement by all collaborators including management that we can move forward with confidence Development Piloting Implementation 0 1 2 3 4 5 6 7 Validate Close Project Pilot Project Final Project Project results project Hand - results scope solution Start Execution over definition agreement Agreement Plan ABB Gate Model for Process Improvement projects of Best Practices using a holistic TOC approach …. addressing resistance to change as an organizational constraint: But how do a standardize “Best Practices” without standardizing the IT Platform? Source: ABB developed (based on Cooper´s Stage-gate model).

19. ABB’s ERP System reality after years of acquisitions and empowered BU and Regional IT decision making.. • As a result of numerous acquisitions, ABB at one time had more than 500 ERP systems and 70 different ERP brands in operation across its businesses. • Most of the factories and distribution centres were also using in-house developed Spreadsheets and Databases for supporting their preferred Planning, Execution and Continuous Improvement Methods • Integration of systems and data (and support) had become a nightmare and major risk to the business. • In late 2006, a decision was made at the ABB board, to embark on a (challenging) journey of standardization on a common IT / ERP Platform (or at least range of platforms) and simplification based on “best-practices”. • The initiative was titled “One-simple-ABB” or “OsA”.

20. ABB’s “One-simple-ABB” decision and consequences... Press Release in March 2007 “Today, ABB signed a strategic agreement with the German-based ERP provider, SAP to help deploy common SAP ERP software through its global operations to help unify and simplify some of ABB’s most important business processes. The OsA initial target is one ERP per country, and ultimately one ERP platform per region for all of ABB that would enable a high degree of standardization in the human resources, finance and administration and corporate governance functions as well as in the operational excellence “best-practices” Yes, BUT.... Would it really be possible to find and get agreement that a “One-simple-ABB” solution was possible for managing the diversity and complexity of ABB’s 300+ factories?

21. The Operations dilemma in supporting ABB’s global “One-Simple-ABB” objective? The “One-Simple-ABB” Dilemma Need Action Deploy a common ERP platform across ABB and limit selection of SCM & MES systems Efficient and fully integrated Finance, HR & OPS business processes across ABB Objective Because: Each BU/Factory is unique and using a common ERP platform or limiting choices in SCM / MES methods & systems will jeopardize results and or ownership Create long term competitive edge in our industry Need Action Continuously Improve customer service and sales through efficient & effective operations Allow each site to develop own / use 3rd party ERP, SCM & MES systems

22. The Operations dilemma in supporting ABB’s global “One-Simple-ABB” objective? The “One-Simple-ABB” Solution for Operations Need Efficient and fully integrated Finance, HR & OPS business processes across ABB • Direction of win-win solution: • Get agreement that TOC can provide “one-solution-fits-all” • Find a way to Modify SAP R3 to support TOC (TOC Planning, Execution & POOGI rules). • ABB to launch a “TOC in SAP” initiative to validate above hypothesis Objective Create long term competitive edge in our industry Need Action Continuously Improve customer service and sales through efficient & effective operations Yes, BUT… Q1: Would it really be possible to define a TOC “One-solution-fits-all”? Q2: Would it really be possible to modify SAP to support this solution?

23. “TOC in SAP” Project at ABBGetting Agreement & testing TOC Solution Design & SAP functionality SAP Development & Test Collaboration of ABB, TOC & SAP Experts TOC Solution Validation & Pilot Selection Web-call with Dr. Eli Goldratt Project Start “TOC in SAP” Intro W/Shop In Zurich Roll-out & Validation Cont. To validate robustness & results TOC Solution Design W/Shops In Brno to specify the solution W/Shop in Krakow reviews ABB diversity SAP Blueprint Experts convert Solution Design into Functional Reqs “Go-Live” At Pilot Site In Brno So, what was the process we used to find and test a “SIMPLE & ROBUST” solution... ...introducing Goldratt’s Strategy & Tactic Tree Ongoing Jun 2007 Aug 2007 Oct 2007 Nov 2007 Jan 2007 March 2007

24. Finding a simple & robust SCM solution for ABB that is generic enough to be used by all factories Using Goldratt’s Strategy & Tactic tree method to find a simple & robust Planning, Execution & Cont. Improvement solution… 2.2 1 3.1.3 3.1.2 3.1.1 3.2.2 3.2.3 3.2.4 2.1 3.2.1 Remarkable Due Date Perf & Availability Expanding RR Client Base Coping with Sales Growth Remarkable Rapid Response Rapid Response Competitive Edge Protective Capacity for RR orders Selling Rapid Response as Comp. Edge Reliability/Availability Competitive Edge Selling Reliability/Availability Selling as Comp. Edge ABB Goal: Profitable Growth “The best solutions start with the right questions…”

25. Finding a simple & robust SCM solution for ABB that is generic enough to be used by all factories 2.1 3.1.2 3.1.1 3.2.4 1 2.2 3.1.3 3.2.1 3.2.2 3.2.3 Expanding RR Client Base Coping with Sales Growth Selling Rapid Response as Comp. Edge Remarkable Due Date Perf & Availability Rapid Response Competitive Edge Remarkable Rapid Response Reliability/Availability Competitive Edge Selling Reliability/Availability Selling as Comp. Edge Protective Capacity for RR orders ABB Goal: Profitable Growth Potential Performance Other “Hidden” Disruptions to Flow What really causes low Tput, poor DDP / Availability & Long LT? Unsynchronized Priorities in Operations Releasing Too much / Too early Materials / Purchased Parts not available Over- / Under-committing Capacity Current Performance

26. Finding a simple & robust SCM solution for ABB that is generic enough to be used by all factories Execution 2.2 Ongoing Improvement 3.1.2 1 3.1.1 Procurement 2.1 3.2.1 3.2.2 3.2.3 3.2.4 Sales Planning 3.1.3 How do we continuously Improve flow by identifying & removing local optima & other “hidden” disruptions/ CCRs to improve flow? How do we maintain right priority of ALL WO’s on shop floor? How do we maintain High RM Availability with Low Inventory? How to QUOTE reliable due dates with internal Constraint? i.e. Not over-/under-commit How do we control release of ETO, MTO & MTS WO’s for Low WIP/high CCR utilization? Remarkable Due Date Perf & Availability Remarkable Rapid Response Rapid Response Competitive Edge Protective Capacity for RR orders Coping with Sales Growth Selling Rapid Response as Comp. Edge Selling Reliability/Availability Selling as Comp. Edge Expanding RR Client Base Reliability/Availability Competitive Edge ABB Goal: Profitable Growth

27. Finding a simple & robust SCM solution for ABB that is generic enough to be used by all factories 4.11.2 (Buying) 4.11.5 (Improve) 4.11.3 (Planning) 1 2.1 2.2 3.2.4 4.11.4 (Execution) 3.1.2 3.1.3 3.2.1 3.2.2 3.2.3 4.11.1 (Sales) 3.1.1 Expanding RR Client Base Selling Reliability/Availability Selling as Comp. Edge Rapid Response Competitive Edge Remarkable Due Date Perf & Availability Coping with Sales Growth Remarkable Rapid Response Protective Capacity for RR orders Selling Rapid Response as Comp. Edge Reliability/Availability Competitive Edge TOC’s PLANNED LOAD (PL) for Quoting Safe Due Dates TOC’s BUFFER ANALYSIS to Focus Process Improvements & Capacity Elevation TOC’s RELEASE CONTRO (S-DBR) to control WIP and improve Flow TOC’s DYNAMIC BUFFER MGT (DBM) & TOC Replenishment (TOCR) for Inventory Mgt TOC’s SINGLE PRIORITY SYSTEM Buffer Mgt (BM) to keep priorities synchronized ABB Goal: Profitable Growth

28. Defining, communicating & validating the proposed ERP changes using S&T structure 2.1 1 3.1.1 4.11.1 (Sales) TOC’s PLANNED LOAD DETAILS Reliability/Availability Competitive Edge ABB Goal: Profitable Growth Remarkable Due Date Perf & Availability TOC’s PLANNED LOAD (PL) for Quoting Safe Due Dates Quoting Safe Due Dates using CCR(s) Planned Load 4.11.1 • When Sales/Planning accept an order due date which the factory cannot achieve, it jeopardize ABB’s Reliability CE. • Even if the constraint is in the market, fluctuations in demand or supply can cause specific resources (CCRs) to be overloaded. Under such circumstances, quoting fixed lead times is very likely to result in missed due dates resulting in poor DDP. Due-dates given by the sales force/planning are (almost) always met even during periods of capacity overloads (Target: 99% DDP) • It is relatively easy to meet all due-dates when the commitments are given based on actual planned loads on the CCR(s) and S-DBR and BM are in place to control release & align priorities. • The ERP systems can be modified to provide (within mins) a safe due date based on CCR(s) planned load + ½ Production Time Buffer (if CCR is about in middle of flow) Safe Due-date are given according to first available slot on CCR(s) + ½ Production Time Buffer The ERP system is modified to provide Safe Due Date based on CCR Planned Load + ½ PTB within minutes and Sales/Planning is trained to use it.

29. 4.11.1 Quoting Safe Orders Due Dates using CCR(s) Planned Load Tactic 1. Safe Due-date are given according to first available slot on CCR(s) + ½ Production Time Buffer CCR Back Orders Overdue Material Order Date Material Release Date Safe Due Date Production Time Buffer (PTB) Supply Time Buffer (STB) Quote this “safe” due date to customer ½ PTB ½ PTB WO #15 WO #114 WO #123 WO #124 PLANNED MAINTENANCE WO #138 WO #142 WO #15 WO #15 WO #135 WO #120 WO #130 NEW ORDER WO #122 WO #134 WO #141 WO #132 WO #128 WO #114 WO #117 WO #137 WO #117 WO #126 WO #119 WO #133 WO #140 WO #131 WO #131 WO #113 WO #112 WO #136 WO #127 WO #116 WO #116 WO #118 WO #129 WO #139 WO #125 WO #111 WO #111 Total Load in Time on CCR

30. 4.11.1 Identify Next Avail slot on CCR Quoting Safe Orders Due Dates using CCR(s) Planned Load Tactic 2. The ERP system is modified to provide Safe Due Date based on CCR Planned Load + ½ PTB within minutes and Sales/Planning is trained to use it. Identify CCR Overload

31. Defining, communicating & validating the proposed ERP change using S&T structure 2.1 1 3.1.1 4.11.2 (Buying) TOC REPLENISMENT & DBM DETAILS Reliability/Availability Competitive Edge ABB Goal: Profitable Growth Remarkable Due Date Perf & Availability TOC’s DYNAMIC BUFFER MGT (DBM) & TOC Replenishment (TOCR) for Inv Mgt Maintaining Optimum RM & PP Inventory Levels 4.11.2 • Having too much Raw Material (RM) and or Purchased Parts (PP) in the stores or ordering too early can easily drain the company’s cash /WH space. • Having too little RM, PP can and most frequently do cause delays that can cause lost production and potentially missed due dates (jeopardizing building of a “Reliability” Comp. Edge) • . The target levels of RM & PP inventories held are continuously monitored and when needed are suitably modified (not too much/too little) • TOC;s Dynamic Buffer Management & Replenishment of RM & PP Inventory, is a robust mechanism that enables setting, replenishing & adjustment of inventory targets, according to the actual level of demand & supply ensuring low levels of inventory& high availability. • Most ERP systems do not provide a mechanism for auto resizing inventory target levels based on actual changes in demand/supply Target Levels are sized based on Max Demand within Reliable Replenishment time (Rt=OLT + SLT) Inventory levels are maintained by replenishing on actual consumption & resizing on buffer penetration The ERP system is modified to enable DBM & TOCR functionality

32. 4.11.2 Maintaining Optimum RM & PP Inventory Levels with DBM / TOCR Tactic Target Levels are sized based on Max Demand within Reliable Replenishment time (Rt=OLT + SLT) Inventory levels maintained by replenishing on actual consumption & resizing on buffer penetration TOC Replenishment & Dynamic Buffer Management Rules What are the New TOC Planning, Execution & Feedback Rules… Stock on Hand Stock in Pipeline TOC Planning Rule: Size Buffer Target Level based on “Peak Demand within Reliable Replenishment Time” TOC Execution Rule: Order daily & Replenish up to Target Level frequently (e.g. daily) on actual demand TOC Feedback Rule: Re-size buffers based on red-zone penetration Auto Down-size Buffer based on no Yellow Zone penetration Auto Up-size Buffer based on level of Red-zone penetration 400 300 200 100 Actual Demand Month 1 Month 2 Month 3

33. 4.11.2 Maintaining Optimum RM & PP Inventory Levels with DBM / TOCR Tactic The ERP system is modified to enable DBM & TOCR functionality 2. Graph showing resizing of Stock Buffers SAP TOC DBM & Repl. GUI TOC DBM & Replenishment 3. List of Buffers requiring Resizing (proposals to purchaser, not automated until validated)

34. Defining, communicating & validating the proposed ERP change using S&T structure 2.1 1 3.1.1 4.11.3 (Planning) TOC RELEASE CONTOL (S-DBR) DETAILS Reliability/Availability Competitive Edge ABB Goal: Profitable Growth Remarkable Due Date Perf & Availability TOC’s RELEASE CONTROL (S-DBR) to control WIP and improve T, DDP & LT TOC Release Control to prevent Over-production 4.11.3 • Having too many orders on the shop floor masks priorities, promotes local optima behavior and therefore prolongs the lead-time and significantly disrupts due-date-performance (DDP). • Having too little orders on the shop floor will cause starvation of CCRs and cause lost production and potentially missed due dates (jeopardizing building of a “Reliability” Comp. Edge) • . The shop floor is populated ONLY with orders that have to be filled within a predefined horizon. • In traditionally run plants touch time is a very small fraction (<10%) of the lead time. • Vast experience shows that, in traditionally run plants, restricting the release of materials, to be just half the current lead time before the corresponding due date, leads only to good results and to no negative ramifications* (lead time shrinks to less than half, DDP improves considerably, throughput goes up and excess capacity is revealed). These results are achieved irrespective of whether or not a bottleneck exists. • * Except for environments which are dominated by heavily dependent set-up matrixes. Those environments have to be dealt in a different way. For each group of products currently having similar lead times, a buffer time is set to be equal to 50% of the current avg lead-time. Orders are released to the floor only a buffer time before their committed due-date, and if all materials are available. (WIP frozen until its time arrives). The ERP system usage is modified to support S-DBR release control and automatic material availability check.

35. Controlling the Release in Manufacturing (MTO/ATO) 4.11.3 Tactic Target Levels are sized based on Max Demand within Reliable Replenishment time (Rt=OLT + SLT) Inventory levels maintained by replenishing on actual consumption & resizing on buffer penetration S-DBR Planning (Release Control) Solution Shipping Buffer for MTO YELLOW ZONE RED ZONE GREEN ZONE GREEN ZONE RED ZONE GREEN ZONE RED ZONE YELLOW ZONE YELLOW ZONE 1. Raw Materials for Stock Manuf Parts Release based on “Replenish Frequently on Actual Consumption Shipping Buffer for ATO 2. Raw Material for Non-Stock Manuf Parts Release = DD – MTO Shipping Buffer Manuf Parts Release Date = Due Date – ATO Shipping Buffer RAW MATRL RELEASE (ROPE) Part # Qty OD DD Buffer Type P001 5 05/2 04/3 66% Time P002 10 07/2 07/3 30% Stock MPS = DRUM = ORDERS Part # Qty Due Date Buffer FG001 5 13/3 66% FG002 10 16/3 23% MANUF PARTS RELEASE Part # Qty OD DD Buffer Type M001 5 05/2 04/3 66% ATO M002 10 07/2 07/3 20% Cust PP1 PP2 RM1 RM2 MP1 Stock Manuf (Common) Parts MP1 1.1 1.2 Part sales to customers RM1 “Customer” Orders Quote LT’s on Planned CCR Load 2.1 2.2 2.3 RM2 2.4 4.1 CCR FG SHIPPING 5.2 5.1 Non-Stock (Unique) Manuf Parts 3.1 3.2 3.3 RM3 Definitions Buffer Status = (Buffer Time – Remaining Duration) / Buffer Time Red Zone = Time req’d for expediting a medium-sized order PP1 PP2

36. Defining, communicating & validating the proposed ERP change using S&T structure 2.1 1 3.1.1 4.11.4 (Execution) TOC SINGLE PRIORITY SYSTEM DETAILS Reliability/Availability Competitive Edge ABB Goal: Profitable Growth Remarkable Due Date Perf & Availability TOC’s Buffer Mgt (BM) as synchronized SINGLE PRIORITY SYSTEM Single Priority System to Synchronize Execution 4.11.4 • Hectic priorities (hot, red-hot and do-it-NOW) cause chaos on the floor • Even when material release is properly choked, not having a priority system can cause some orders to still be late.. The shop floor is governed by a simple, yet robust, priority system • Vast experience has shown that when work is released according to set time buffers, excellent results are obtained by using a crude priority system that is based solely on the time lapsed since the release. • Buffer Management (BM) is setting priorities only according to the degree the buffer-time is consumed(four color code system - green: less than one third of the buffer time passed is lowest priority and black: more than the time buffer passed is the highest). TOC Buffer Management is the ONLY priority system used on the shop floor. The ERPsystem (and MES/RFID systems) are modified to ensure the Purchase Order List, “Work-to-List” and Distribution Shipment List are prioritized based on buffer status (1st Black, 2nd Red, 3rd Yellow, 4th Green)

37. 4.11.4 Single Priority System to Maintain Execution Synchronization Tactic Target Levels are sized based on Max Demand within Reliable Replenishment time (Rt=OLT + SLT) Inventory levels maintained by replenishing on actual consumption & resizing on buffer penetration SAP Customer Production Orders do have “Due Dates” Sample Screen for showing Buffer status (Priority) of each order and enabling capturing of reason codes for “black” and “red” orders Stock Replenishment Orders do not have “Due Dates”

38. Defining, communicating & validating the proposed ERP change using S&T structure 2.1 1 3.1.1 4.11.5 (Improve) TOC BUFFER ANALYSIS (POOGI) DETAILS Reliability/Availability Competitive Edge ABB Goal: Profitable Growth Remarkable Due Date Perf & Availability TOC’s BUFFER ANALYSIS to Focus Improvements & Capacity Elevation 4.11.5 Focusing Mechanism for Process Improvement/Elevation • Most local improvement initiatives in manufacturing, which use good tools (Root Cause analysis, Lean and Six Sigma techniques) do improve the local performance but, many times, those local improvements do not translate into global improvements • Not having sufficient protective capacity results in long LT & poor DDP All local improvements initiatives in manufacturing do contribute meaningfully to the global performance and there is enough protective capacity for high DDP • If a CCR exists, work-in-process piles up in front of it. When materials release is restricted, the only work centers that have work-in-process piling up in front of them are the real CCRs. • CCRs can be identified also by recording “what black & red orders were waiting for?” • In most of the cases additional capacity can be exposed by better EXPLOITATION like: • - Ensuring that CCRs do not take lunch or shift change breaks, • - Offloading work from the CCRs to less “effective” work centers that have ample excess capacity, • - Using LEAN /Six Sigma techniques to shrink the set-up time/reduce variation on the CCRs, • - ELEVATING capacity with overtime or capex approval for the CCRs, etc. For all Red & Black Orders and Stock Buffers, Production Supervisors/workers/purchasers record “what was black/red order waiting for?” CCRs are identified and effectively removed through focused process improvement / elevation to the extent that most loaded resource has at least 20% protective capacity. The ERP (and MES) systems are modified for POOGI.

39. 4.11.5 Focusing Mechanism for Process Improvement/Elevation Tactic For all Red & Black Orders an Stock Buffers, Production Supervisors record “what was black/red order waiting for?” CCRs are identified and effectively removed through focused process improvement / elevation to the extent that most loaded resource has at least 20% protective capacity.

40. TOC in SAP at ABB“TOC in SAP” solution design: Order Processing Part I

41. TOC in SAP at ABB“TOC in SAP” solution design: Order Processing Part II

42. TOC in SAP at ABB“TOC in SAP” solution design: Determination of Earliest Due Date

43. TOC in SAP at ABBResults from Brno (Czech Republic) and Vaasa (Finland) “After analyzing SAP recommendations and data from nearly 2 months, we are confident that the the TOC rules were implemented correctly and that we are now confident that we can switch of our Off-line & 3rd Party systems. The new Dynamic Buffer Management Functionality enables us to react quickly to changes in inventory values, which was not possible earlier, as we didn’t have time to monitor values manually. We are very happy, are continuing to use the functionality and will be expanding it to other product lines” Operations Managers Factories in Brno and Vaasa

44. TOC in SAP at ABBNext Steps • Implemented "TOC and SAP” now in 8 factories: • in Brno, Czech Republic • in Chonan, Korea, 2 factories • in Vaasa, Finland, 2 factories • in Baroda, India • in Przasnysz, Poland, 2 factories • And planning the implementations (in the work queue) • In Vaasa, Finland, 3rd factory • in Dalmine, Italy • in Ratingen, Germany. Has “SDBR in MES” • in Xiamen and Beijing China • in Skien, Norway. • …until all 300+ factories are reached…

45. Research Conclusion • The “TOC in SAP” initiative, showed that the ambitious goal of “One-Simple-ABB” can be achieved even in the management of operations (Planning & Execution and Continuous Improvement) in complex and different operational conditions. • The partnership between ABB and Goldratt Research Labs made it possible to: • Define a ROBUST enough TOC Planning, Execution and Continuous Improvement solution that could cope with all the variations and complexities of 300+ factories • Define a SIMPLE enough TOC Solution which could be supported with relatively small modifications within a standard ERP system such as SAP. • Break new ground by using the Strategy & Tactic Tree to define, communicate and get buy-in for the new TOC solution in a way that focused and accelerated the achievement of consensus and development of the required SAP functionality…which is also accelerating all new SAP implementations • Deliver this project and its associated results in a record time for SAP solution design, development and testing in less than 9 months….

46. Acknowledgments to Project Team Contributions • Stefan Forsmark, Operations Manager for ABB’s Power Products Division/BU Transformers. • Thomas W. Schmidt, IS Manager for ABB’s Power Products Division • Goethe Wallin, Operations Manager for ABB’s Power Products Division/BU Medium Voltage • Karol Kaczmarek, Global Project Manager Operational Excellence, ABB BU Transformers • Erich Beeler, IS Manager, ABB BU Transformers, Engineering IS • Dr Katja Rajaniemi, Global Process Improvement Manager, ABB BU Medium Voltage • Bill Vick, Global Operations Improvement Manager, ABB BU Medium Voltage • Miroslaw Bistron, Leader of Manufacturing IS program, ABB’s Power Products Division • Lukasz Krupa, Leader of Manufacturing IS program, ABB’s Power Products Division • Fredrik Nordstrom, ABB GF Q&O / ODG • Vesa Enestam, Eliaps Oy, SAP SCM Consulting • May-Jing Li, Project Manager, ABB Group Function IS, 'One Simple ABB' and SAP R/3 • Martin Korthaus, SCM II Consulting, SAP • John Trip, Goldratt-TOC Ltd • Dr Alan Barnard, CEO, Goldratt Research Labs • Eli Schragenheim, Principal, Goldratt Schools • Dr Eli Goldratt, Chairman, Goldratt Group

47. CASE STUDY 2Finding & Testing a solution to SHORTAGES & SURPLUSES within Book Publishing Presented By: Dr. Alan Barnard (CEO Goldratt Research Labs, TOCICO Chairman 2003-2006) Date: 27th August 2009

48. Presentation Outline • Generic Research Problem • Extent and Consequences of Shortages & Surpluses • Cause(s) & Direction of Solution • Case Study: Random House Publishing • Publishing Industry Background • Random House Company Overview • Phase 1: Quantifying the Extent, Consequences & Causes • Phase 2: Finding a Solution • Phase 3: Testing the Solution • Research Findings • Future Research

49. Research ProblemExtent & Consequences of SHORTAGES • How many of YOU frequently don’t find what you want at a SHOP? *Either because the retailer was “Out-of-Stock” (OOS) or it decided not to carry the item you wanted? • What is YOUR (consumer) response to this SHORTAGE? • Come back later to same retailer to buy same product? • Buy a similar product from same retailer and same supplier? • Buy a similar product from same retailer but different supplier? • Go to other retailer to buy same product? • Do not buy anything? What is the consequences of this SHORTAGE on: SHOP BANK CONSUMER SUPPLIER

50. Consequences of SHORTAGES on Profitability For Book Publisher and Retailer… Quantifying impact of 1% Lower Sales Volume on Net Profit INSIGHT: 1% Lost Sales = 10% reduction in Profits BELIEF: Lost Sales is not significant (2 – 3%) since today, consumers that want our products can in most cases find it somewhere. FEAR: Is it really worth it to invest in trying to further reduce Shortages? CHECK: How do we know shortages (out-of-stock) is really “only” 2-3%? Does it match our experience as Consumers?