VSM, MIFA and Philips’ Goods Flow Analysis

Value stream mapping, or VSM, is a widely spread analytical technique to chart the material flow and the way it is managed, including some key data about the process. In an interesting blog post by Michel Baudin from 2013 (“Where do Value Stream Maps come from?”) he researches the question of where these maps originate from. I recommend you read his post.

In the early eighties of the previous century, however, an interesting parallel development took place in the Netherlands which is worthwhile mentioning as well. At Royal Philips, as part of a global initiative aiming at creating improved integral logistics, teams developed a method of analysis referred to as Goods Flow Analysis (GFA) which is very similar to (and even somewhat more extensive than) VSM and MIFA. This post details Philips’ approach known as Goods Flow Analysis (GFA) at the time.

Personal experience

My own experience with VSM, or rather Material and Information Flow Analysis (MIFA) as I prefer to call it, stems from my time at Valeo. As a supplier to Toyota, we had to map the Toyota-relevant processes once a year as a requirement. But we also used it very regularly for internal purposes. And I still use it intensively in problem-solving and Just-in-Time (JIT) related initiatives.

But my exposure to these types of maps even goes further back in time, as Dutch conglomerate Royal Philips used to work with very similar charts in the early eighties of the previous century. They referred to it as Goods Flow Analysis (GFA). And since then, GFA became an integral part of the industrial engineering curriculum in the Netherlands.

In another way, I ran into Goods Flow Analysis while working at KPMG Consulting in the nineties of the previous century. KPMG took over Lighthouse Consulting Group in 1993, and the group became KPMG’s industrial consulting practice. Lighthouse Consulting Group was a demerged part of Philips, previously known as Corporate O&E (Organization & Efficiency), Philips’ famous corporate staff department that was instrumental in developing Philips’ industrial infrastructure and world-class plants after World War II. This brought a wealth of industrial engineering knowledge and experience to KPMG, including on Goods Flow Analysis (GFA).

Background to Goods Flow Analysis

In a Dutch book from 1985 (later translated into English), Sjoerd Hoekstra and Jac Romme brought together the experience gained in a global initiative to improve the integral control of goods flows at Philips. Triggered by increased competitive pressures from Japanese companies such as Sony, and because of the changes brought about by the EEC, Philips was under severe pressure to drastically improve delivery reliability, shorten lead times, and become more flexible.

At the same time, because of the historical development of Philips as a company, the multinational had a very fragmented organizational structure, with many national organizations spanning both sales offices and distribution and production sites, multiple global product divisions, and several centralized staff departments.

It was clear to Philips that a more integral approach to the management of goods flows (or material flows) would be key to maintaining and improving the competitiveness of the company. As part of the initiative to create integral goods flow control, a method of analysis was developed, which was documented in the 1985 book.

Structure of Goods Flow Analysis (GFA)

Phlips’ GFA in fact consisted of several elements, which I will detail in this post. These elements are:

1. Material Flow
2. Product Structure
3. Control Structure
4. Organizational Structure
5. Lead Times
6. Key Data

In this post, I will describe these elements and have included some examples from the English translation of the 1985 book. I have included the book sources at the bottom of the post, if you wish to read more about Philips’ approach.

Material Flow

In depicting the goods flow, Philips proposed to use different symbols for processes (rectangles), stock points (inverted triangles), and for transport (open arrows) between processes and between stock points and processes. Additionally, the approach paid specific attention to demarcation lines and shared resources.

Demarcation lines are the lines that subdivide the material flow by organizational (sub-)entity. Demarcation lines enable the identification of the manufacturer, the supplier, the subcontractor, and a distributor, for instance. At a more detailed level, demarcation lines indicate the different departments that are responsible for parts of the material flow. Demarcation lines are seen as barriers to flow, and a reason why companies strive for more process-oriented organizational designs. They are indicated by dotted lines in the goods flow map.

Shared resources or common resources are resources used for multiple products or product groups, leading to mixed flows. Mixing material flows typically lead to delays as priorities must be set about the sequence and/or parallelism of products to be processed on the shared resource, and items typically have to be grouped into batches. Shared resources, therefore, lead to increased lead times and reduced flexibility. Shared resources are indicated by using a rectangle (for a process) with a black, vertical, up-down arrow in the rectangle (⇳).

Product Structure

The basic material flow is then used as a kind of projection screen for additional aspects that were analyzed. First, GFA suggests an analysis of the product structure, or more specifically, the number of part numbers at different stock points in the material flow.

This analysis indicates the complexity of the material flow through the number of parts, the type of material flow (convergent, divergent), and where the minimum number of items exist in the material flow (the “wasp waist”, leading to a material flow in the form of an hourglass).

The position of the customer order decoupling point (DP), the material flow’s main stock point, preferably coincides with the location of the “waist” or narrowest point in the material flow, and before parts start proliferating again downstream of that stock point. Additionally, the items stocked at that point in the material flow ideally are also still generally usable, and not yet specific. You can read more on this DP here: “Pushing and Pulling in the Supply Chain”.

An example of the projection of the product structure onto a basic material flow structure is depicted below:

Control Structure

Secondly, Philips added the control structure on top of the basic material flow map. This aims at charting the way in which the material flow is planned and controlled at different levels of detail and horizons, how certain decisions regarding the material flow are made (e.g., priorities, sequence, etc.), how work and orders are released, and how performance is monitored (lead times, reliability, inventory, etc.).

This control aspect of GFA is very similar to the information flow analysis that is part of a VSM (Value Stream Mapping) exercise or a MIFA (Material and Information Flow Analysis).

An example of the control structure projected onto the material flow, similar to the information flow analysis in VSM or MIFA is shown below:

Organizational Structure

A third aspect added by Philips is the organizational structure. Responsibilities for the various processes and stock points are indicated through the visualization of reporting lines and the organizational hierarchy.

Key in this analysis is to look not only for demarcation lines, but also for the level in the hierarchy where integral decision-making concerning the entire material flow can take place. Too often, this analysis will reveal that this common decision-making point lies too far away (too high up) from the actual material flow leading to slow decision-making, unclear priorities, contradictory decision-making at lower levels of the organization, and below-par performance.

Lead Times

A fourth aspect that Philips added is the lead time (or throughput time) of the material flow. In VSM, this is referred to as the lead-time ladder. Adding lead times to the material flow provides insight into the speed of the material flow, and the challenges of meeting the market-required lead time. It provides some initial indications of where to decouple the material flow from a lead time perspective.

An example of the lead-time analysis in GFA, similar to VSM’s lead-time ladder:

Key Data

Lastly, in GFA, other relevant data can be added to the goods flow diagram using “data boxes” related to the processes and stock points. These data boxes may show data such as capacity, stock levels, surface, number of employees, etc. Such data boxes are again also used in VSM.

The example below shows the data boxes added to the basic material flow structure:

Goods Flow Analysis and VSM

It is interesting to see the similarities between Value Stream Mapping (VSM), Material & Information Flow Analysis (MIFA) and Philips’ Goods Flow Analysis (GFA). It is also interesting to note the fact that Philips’ GFA originated somewhere in the early eighties, if not already at the end of the seventies of the previous century, thereby apparently predating approaches such as VSM and MIFA (at least in the public domain).

I don’t know to what extent Philips was influenced and exposed to Japanese management methods, but chances are realistic, possibly through its links with Sony.

However, given the strong industrial footprint in the south of the Netherlands at the time – with Philips, its supply base, and Eindhoven University of Technology – and the historical orientation on logistics in the country, traditionally the field of production control and logistics has always been of particular interest. So, it could also well be that some aspects of GFA really originated at Philips itself.

Personally, I often make use of the projection of the product structure onto the material flow, to gain more insight into the material flow and the approach to be followed to possibly decouple the material flow, and to discuss alternative production control strategies. Maybe Philips’ GFA will also inspire you to further improve upon the way in which you analyze material and information flows.

Sources:
Hoekstra, Sj., Romme, J. (ed.), “Op weg naar integrale logistieke structuren”. Kluwer Bedrijfswetenschappen, Deventer, 1985. ISBN: 90-267-1866-7.
Hoekstra, Sj., Romme, J. (ed.), “Integral Logistic Structures: Developing Customer-oriented Goods Flow”. McGraw-Hill Book Company, Maidenhead, 1992. ISBN: 0-07-707552-8 / 9780077075521.