Lean Operations Process Synchronization and Improvement Lean Operations

Lean Operations: Process Synchronization and Improvement Lean Operations 1 Initiated by Japanese automaker Toyota. Adopted in USA by the aerospace industry in 1990’s Some turnaround times were lowered by 30 -50%. Maintenance productivity improved by 25 -50% Improved performance in all four dimensions in Plants and Supply Chains » Plant: any singly owned, independently managed and operated facility (i. e. , manufacturing site, service unit, storage warehouse) » Supply Chain: a network of interconnected facilities with diverse ownership, and flows of information and materials between the facilities (i. e. , raw materials suppliers, finished goods producers, wholesalers, distributors, retailers)

Lean Operations: Process Synchronization and Improvement What is an Ideal Process? Synchronization + Efficiency 2 Process Synchronization: The ability of the process to meet customer demand in terms of their quantity, time, quality and location requirements. » Exactly what is needed (not wrong or defective products) » Exactly how much is needed (neither more or less) » Exactly when it is needed (not before or after) » Exactly where it is needed (not somewhere else) Process Efficiency: Measured in terms of the total processing costs. Less cost, more efficient!!. At the lowest cost

Lean Operations: Process Synchronization and Improvement The Process ideal: Synchronization & Efficiency 3 Just-In-Time (JIT) » When the four “just rights” come together— » Action is taken only when it becomes necessary!!! » In Manufacturing - production of only necessary flow units in necessary quantities at necessary times!!! Synchronized Networks: » Outflow of one process is the inflow to another process!!!! » Requires precise matching of supply & demand » All stages are required to be tightly linked with flow of information and product » Ideally – the processing stages are achieved for lowest possible cost!!!!

Lean Operations: Process Synchronization and Improvement Waste and Its Sources 4 ANYTHING LESS THAN IDEAL PERFORMANCE IS AN OPPORTUNITY FOR IMPROVEMENT!!! Low Efficiency = High Processing Costs Lack of Synchronization Defective products, high inventories, delays, stock outs

Lean Operations: Process Synchronization and Improvement Buzz-words for managing and achieving efficiency within a plant Other names connected to lean operations; JIT production, Zero inventory program, Synchronous manufacturing, Agile manufacturing, Toyota Production System (TPS) 5

Lean Operations: Process Synchronization and Improvement Waste and Its Sources 6 Waste: producing inefficiently, producing wrong or defective products, producing in quantities that are too small/large, delivering early/late Sources of Waste: » Producing defective products » Producing too much product » Carrying inventory » Waiting due to unbalanced workloads » Unnecessary processing » Unnecessary worker movement » Transporting materials

Lean Operations: Process Synchronization and Improvement Waste Reduction 7 Short term strategies: » Cycle & Safety inventories » Safety capacity » Non-Value adding activities (transportation, inspection, rework, process control) Long term strategies: » Improve the overall processes » Build in flexibility, predictability, stability to eliminate temporary fixes. i. e. , Reduce setup costs to make it more economical to produce small batches.

Lean Operations: Process Synchronization and Improvement The River Analogy 8 The boat can sail in shallow water (lean operations) if we are able to find ways to remove the imperfections on the river bottom!!! FM Defective Materials Long Lead Times WIP Machine Breakdowns FG Defects Long Setups Unsuitable Equipment Uneven Schedules Unreliable Suppliers Absenteeism Inefficient Layouts Rigid Work Rules

Lean Operations: Process Synchronization and Improvement Four Objectives of Lean Operations 9 Improve process flows (Process Synchronization) – Efficient plant layout – Smooth flow of materials and information Increase process flexibility (Process Synchronization) – Low equipment changeover times – Cross-functional training Decrease process variability (Process Synchronization) – Flow rates – Processing times – Quality Minimize processing costs (Process efficiencies) – Eliminate non-value adding activities

Lean Operations: Process Synchronization and Improvement Efficiency/Synchronization for mass production: Henry Ford’s Rouge, Michigan plant 10 v Totally integrated with – steel mill, glass factory, machine tools, electrical systems, assembly line, well-trained (well-paid) workers v Minimal time & cost v Everything in place except product variety!

Lean Operations: Process Synchronization and Improvement 10. 4. 1 Improving Process Architecture: Cellular Layouts 11 Process Architecture: the network of activities and resources One method: FUNCTIONAL LAYOUTS Different product types follow different routings through the resource pools…enabling each flow unit to be sent to any available station in the pool.

Lean Operations: Process Synchronization and Improvement 10. 4. 1 Review of Process Architectures: Job Shop 12 Functional Layout: Resources that perform the same function are physically pooled together– JOB SHOPS Output Product 1 Input Product 2 A C B D

Lean Operations: Process Synchronization and Improvement 10. 4. 1 Improving Process Architecture: Cellular Layouts 13 Alternate to Process-based Functional Layout: CELLULAR LAYOUT All workstations that perform successive operations on a given product are grouped together to form a “CELL”

Lean Operations: Process Synchronization and Improvement 10. 4. 1 Improving Process Architecture: Cellular Layouts 14 Product 1 Input A B C Output Example: Henry Ford’s Assembly Line for the Model T

Lean Operations: Process Synchronization and Improvement Improving Process Architecture: Cellular Layouts 15 + ADVANTAGES Facilitates synchronous flow of information and materials between processing stations Physical proximity of cells reduce transportation of flow units Moves small batches of flow units quickly Encourages teamwork & cross functional skill development + Improved communication between stations Improves synchronization where each station produces parts only if the next station needs them Easier to recognize and report problems Quicker ability to correct defects

Lean Operations: Process Synchronization and Improvement 10. 4. 1 Improving Process Architecture: Cellular Layouts 16 - DISADVANTAGES Resources are dedicated to specific cells Resources cannot be used by other cells Lose advantage of resource pooling Worker incentives must be “team” oriented, not individual performance based - REMEDIES: » Use flexible resources that are cross functional » Peer pressure to control productivity of team members

Lean Operations: Process Synchronization and Improvement Push Strategy 17 Push Production: Input availability triggers production where emphasis is on maximization of resource utilization (as long as there is work) » Planning Tool is Material Requirements Planning (MRP) » MRP: End-Product demand forecasts are “exploded” backwards to determine parts requirements at each station PUSH works well if and only if » All information is accurate » Forecasts of finished goods are correct » There is no variability in processing times Otherwise, it will disturb the planned flow, and destroy synchronization throughout the process!!

Lean Operations: Process Synchronization and Improvement Pull Strategy 18 Push Production: Where demand from a customer station triggers production. Each station produces only on demand from its customer station The demand is actually “downstream” PULL works well if and only if » There is a well-defined customer/supplier process. » The process can produce the quantity needed only when signaled to do so by its customer

Lean Operations: Process Synchronization and Improvement 10. 4. 2 Improving Information & Material Flow: Demand Pull 19 SUPPLY PUSH: Input availability triggers production Supplier Inputs Process Outputs Customer DEMAND PULL: Output need triggers production Supplier Information Flow: Inputs Process Outputs Material Flow: Customer

Lean Operations: Process Synchronization and Improvement 10. 4. 2 Improving Information & Material Flow: Demand Pull 20 Demand Signaling: Customer needs a way to signal (inform) the supplier of its need. Customer’s demand starts a chain reaction – - For withdrawals and replenishments of intermediate parts - EOQ-ROP system is a “Pull” system where ROP triggers production at the supplier and EOQ determines the quantity produced

Lean Operations: Process Synchronization and Improvement 10. 4. 2 Improving Information & Material Flow: Demand Pull 21 Synchronized Pull: When the delivery of parts are in sequence [Suppliers must have greater ability and capability to achieve a synchronized pull effectively]

Lean Operations: Process Synchronization and Improvement 10. 4. 3 Improving Process Flexibility: Batch-Size Reduction 22 Each station must know HOW MUCH TO PRODUCE AT A TIME - Level Production: where small quantities are produced frequently to mach customer demand [i. e. , if demand is 10000 sedans and 5000 SUVs, the production would call for producing 2 sedans and then 1 SUV, and then repeat the sequence] - Changeover Costs and Batch Reduction: Goal of level production is reduction of changeover costs (fixed setup or transportation costs of each batch) - I. E. In auto production expensive parts like seats are produced in batches of one, wipers in larger batches u Study the Changeover process to: use special tools to speed it up, customize some machines, keep some machines already set up. u Consider “small-batch” production

Lean Operations: Process Synchronization and Improvement 10. 4. 4 Quality at Source: Defect Prevention & Early Detection 23 Defective flow units increase average flow time and cost!!! WHY? It necessitates inspection and rework!!! Anticipate and then Compensate for the problem: » Hold extra safety inventory in the buffer » This increases avg. flow time and cost Plan and control Quality: 1. Prevent defects for occurring in the first place 2. Detect and correct them as soon as they appear

Lean Operations: Process Synchronization and Improvement 10. 4. 4 Quality at Source: Defect Prevention & Early Detection 24 Defect Prevention » Careful design of both product and process » Simplification & standardization » Mistake-proofing (poka yoke) - Parts are designed to halt automatically when defective units are fed into them (parts are designed to minimize chances of incorrect assembly) Defect Visibility » Early detection/corrections more effective & economical

Lean Operations: Process Synchronization and Improvement 10. 4. 4 Quality at Source: Defect Prevention & Early Detection 25 Defect visibility (cont’d) » Early detection helps tracing to the source » Contribution to better synchronization and lower costs » Early detection requires constant vigilance and monitoring!! Decentralized Control » Employees must be empowered with authority and the means to identify & correct problems at the local level

Lean Operations: Process Synchronization and Improvement 10. 4. 4 Quality at Source: Defect Prevention & Early Detection 26 Decentralized Control (cont’d) » In typical plants, line workers don’t feel the responsibility, motivation or security to point out problems. BEST STRATEGIES OF LEAN OPERATIONS ARE: 1. Preventing problems through better planning 2. Highlighting problems as soon as they occur 3. Delegating problem solving to the local level

Lean Operations: Process Synchronization and Improvement 10. 4. 5 Reducing Processing Variability: Standardization of Work Maintenance, and Safety Capacity 27 Reduce Variability: » Standardize work at each stage and specify it clearly Advantages to Standardization: » Reduces variability from changing personnel » Reduces variability from one production cycle to the next » Makes it easier to identify sources of waste that can be eliminated

Lean Operations: Process Synchronization and Improvement 10. 4. 5 Reducing Processing Variability: Standardization of Work Maintenance, and Safety Capacity 28 Lean Operations try to: » Minimize carrying safety inventory due to increased flow time » Maintain some safety capacity as production against variability - These could be extra machines, workers, overtime u. These forms of safety capacity should be flexible so that it can be used as needed!!

Lean Operations: Process Synchronization and Improvement 10. 4. 6 Visibility of Performance 29 A company needs to “see” (measure) process performance from the customer’s perspective » I. E. Time per call Measure Percentage of Customers that had a problem resolved with one call Actual performance (along with expectations) should be visible at each work cell Not for punishment, but to provide quick feedback for corrective action

Lean Operations: Process Synchronization and Improvement 10. 4. 7 Managing Human Resources: Employee Involvement 30 SYNCHRONIZATION WITHIN A PLANT REQUIRES: 1. Cooperation 2. Contribution 3. Commitment Elton Mayo’s “Hawthorne Experiments” at Western Electric showed that: Research has shown that workers involved in the decision-making process are better motivated and productive

Lean Operations: Process Synchronization and Improvement 10. 4. 7 Managing Human Resources: Employee Involvement 31 In Companies with Lean Operations: • Workers are cross-trained to provide the company with flexible workers. • Workers are in work teams in cells and may perform certain managerial duties such as material ordering, hiring, scheduling • Great importance on recruiting and training of workers

Lean Operations: Process Synchronization and Improvement 10. 4. 8 Supplier Management: Partnerships 32 Outsourcing: Provides a flexible alternative to producing inhouse BUT- - - purchased materials account for a major portion of product cost and are a major source of quality problems!! Lean approach: » Choose only a few capable suppliers » Cultivate cooperative, long-term relationships

Lean Operations: Process Synchronization and Improvement 10. 4. 8 Supplier Management: Partnerships 33 In Lean Operations: » Suppliers are an extension of the plant » Processing without inventories or quality inspection » Synchronization requires defect-free material » Frequent deliveries, small batches » Supplier’s process be able to produce small quantities on demand

Lean Operations: Process Synchronization and Improvement 10. 4. 8 Supplier Management: Partnerships 34 YOU ARE TREATING THE SUPPLIERS AS PARTNERS

Lean Operations: Process Synchronization and Improvement 10. 4. 1 – 10. 4. 8 SUMMARY 35 Lean Operations aim to sustain continuous flow processing in an economical manner: 1. Synchronize material and information flows 2. Increase flexibility 3. Reduce variability 4. Decrease processing costs

Lean Operations: Process Synchronization and Improvement Chapter 10 36 Lean Operations: Process Synchronization and Improvement Questions? ?

Lean Operations: Process Synchronization and Improvement Operations Management: Lean Operations (JIT) Module MBPF House Manufacturing Game - The transition to Lean Ops The Paradigm of Lean Operations: The ideal - Methods for synchronization & waste reduction - Increasing visibility for continuous improvement Approaching the ideal with Product Variety: TPS - Managing variety & flexibiltiy - Toyota Production System (TPS) 37

Lean Operations: Process Synchronization and Improvement Paradigm of Lean Operations: The Ideal Process 38 Synchronization of all flows - 1 x 1 - production on demand - defect free At lowest possible cost Waste = Gap between ideal and actual How do we set up a system to continually reduce waste ?

Lean Operations: Process Synchronization and Improvement Toyota’s waste elimination in Operations 39 1. Overproduction 2. Waiting 3. Inessential handling 4. Non-value adding processing 5. Inventory in excess of immediate needs 6. Inessential motion 7. Correction necessitated by defects

Lean Operations: Process Synchronization and Improvement Synchronize to reduce waste: Cut Batch Sizes 40 Example Process: A B C D 1 min/job Batch Mfg (Lotsize = 5) 0 1 2 3 4 5 Space 5 5 5 A Time B C 0 1 2 3 4 5 D 5 5 5 15 5 5 20 5 5 10 Flow Mfg (Lotsize = 1) Space 1 1 1 1 1 A 10 15 5 20 1 1 1 B 1 1 C 1 D

How to run Lean Operations: Managing Variety Lean Operations: Process Synchronization and Improvement 41 Monthly Production Requirement: Þ How should production be scheduled for the month?

Lean Operations: Process Synchronization and Improvement Synchronize to reduce waste: Heijunka Mixed Level/Balanced Production 42 Batch Production Schedule Mixed Production Schedule (AAAABBBB. . ) Product (ABAB. . . ) Apr/12. . . . 15. . . . 30 Apr/12. . . . . 15. . . 30 A B FGI time

Lean Operations: Process Synchronization and Improvement Synchronize to reduce waste: Reduced Setup Times 43 Can we shrink batch sizes with long setup/changeover times?

Lean Operations: Process Synchronization and Improvement Synchronize to reduce waste: customer demand pulls product 44 PUSH: Inputs availability triggers execution Supplier inputs Process outputs Customer PULL: Outputs need triggers execution Supplier inputs Process outputs Customer

Implementation: Lean Operations: Process Synchronization and Improvement Kanban Production Control Systems 45 Kanban Job Processing center i WIP Processing center i + 1

Lean Operations: Process Synchronization and Improvement Synchronize to reduce waste: Quality at the Source 46

Lean Operations: Process Synchronization and Improvement Synchronize to reduce waste: Quality at the Source 47 Quality at source also improves time and throughput performance Fool-proof/Fail-safe design (Poka-Yoke) Inspection » Self » Automated (Jidoka) Line-stopping empowerment (Andon) Human infrastructure

Lean Operations: Process Synchronization and Improvement Synchronize to reduce waste: From Functional Layout to Cells 48 Production Control Roof Cut FA QC Base Cut Production Control Base Cut Base Assy Roof Cut Base Cut FA Base Assy Production Control Roof Cut Base Cut FA Base Assy

Lean Operations: Process Synchronization and Improvement Synchronize to reduce waste: Just-In-Time operations 49 JIT = have exactly what is needed, in the quantity it is needed, when it is needed, where it is needed. Reduce transfer batches Level load production Pull rather than push work Quality at source Set up cells

Lean Operations: Process Synchronization and Improvement Reducing waste: Increase Problem Visibility Lower the Water to Expose the Rocks Inventory Missed Due Dates Late Deliveries Too Much Space Too much paperwork Engineering Change Orders Scrap & Rework Poor Quality 100% inspection Long queues Machine Downtime 50

Lean Operations: Process Synchronization and Improvement 51 Lean Operations: Causal Link Diagram Source: Lieberman and Demeester

Lean Operations: Process Synchronization and Improvement Time plays the role of Inventory in Lean Service Operations 52 TIME

Lean Operations: Process Synchronization and Improvement Continuous Improvement: Kaizen 53 Increase visibility of waste Targeted improvements » Active worker involvement » Time for experimentation » Supplier involvement Exploratory stress Human infrastructure

Lean Operations: Process Synchronization and Improvement Lean Operations: Best Implementation is TPS 54 TPS is a production management system that aims for the “ideal” through continuous improvement Includes, but goes way beyond JIT. Pillars: » Synchronization - Reduce transfer batch sizes - Level load production - Pull production control systems (vs. push): Kanban - Quality at source - Layout: Cellular operations » Continuous Improvement (Kaizen): through visibility & empowerment . .

Learning Objectives Lean Operations: Process Synchronization and Improvement Basic Lean Operations 55 Paradigm of Lean Operations: ÕStrive for the ideal by eliminating waste Synchronize » Reduce transfer batch sizes » Level load production » Pull production control systems (vs. push): Kanban » Quality at source » Layout: Cellular operations Improve » Increase problem visibility (river analogy)

Lean Operations: Process Synchronization and Improvement Operations Management: Supply Chain Management Improving Supply Chain Performance (The bullwhip effect) - Causes of bullwhip effect - Managerial implications - ECR and QR 56

Information Distortion: Lean Operations: Process Synchronization and Improvement The Bull Whip Effect 57 What is the Bull-Whip Effect? » The variance of orders is greater than that of sales, and the distortion increases as one moves upstream. Causes Managerial Implications Source: “Information Distortion in a Supply Chain: The Bullwhip Effect”, Lee, Padmanabhan, and Whang, July 1996.

Causes of Bull Whip Effect: Lean Operations: Process Synchronization and Improvement Order Batching 58 Economies of Scale in Ordering Quantity Discounts Short Term Discounting (Trade Promotions) Periodic Review System with Review Period T > 1 period (Order at least T period demands). Correlation of order timing.

Causes of Bull Whip Effect: Lean Operations: Process Synchronization and Improvement Price Variations 59 Short Term Discounting (Trade Promotions)

Causes of Bull Whip Effect: Lean Operations: Process Synchronization and Improvement Demand Signal Processing 60 Demand is non-stationary over time. Demand forecasts are updated based on observed demand. Order Policy: Dynamic Order Upto Points » implies that a large demand this period will lead to an estimate of higher order-upto point for next period » Implies, Order quantity for next period will be greater than demand realized for this period

Causes of Bull Whip Effect: Lean Operations: Process Synchronization and Improvement Rationing Game 61 Suppose, limited production capacity, say during peak season Supplier / Manufacturer will ration the supply to satisfy retailers’ orders. Retailers’ know this. They exaggerate orders in order to secure a larger share of the limited capacity. During off-peak, no capacity limits. So orders are back to normal.

Lean Operations: Process Synchronization and Improvement Causes of Bull Whip Effect: Behavioral Issues* 62 Misperceptions of feedback » Stages do not see how their actions affect others » When problems arise they blame others » when they get “proactive” and place more orders, they male matters worse » They don’t learn from their experience since consequences of their actions occur elsewhere * Source: The Fifth Discipline

Managerial Implications of the Bull Whip Effect Lean Operations: Process Synchronization and Improvement 63 Cause » Order Batching Contributing factors » High Order Cost » Full TL economies » Random or correlated ordering Counter Measures » EDI & Computer Assisted Ordering (CAO) » Discounted on Assorted Truckload, consolidated by 3 rd party logistics » Regular delivery appointment State of Practice » 3 rd party logistics in Europe, emerging in the U. S. » P&G

Managerial Implications of the Bull Whip Effect Lean Operations: Process Synchronization and Improvement 64 Cause - Fluctuating Prices Contributing factors - High-Low Pricing - Sell-in and Sell-thru not synchronized Counter Measures - EDLP - Special Purchase Contract State of Practice - P&G (resisted by some retailers)

Managerial Implications of the Bull Whip Effect Lean Operations: Process Synchronization and Improvement 65 Cause » Demand Signal Processing Contributing factors » No visibility of end demand » Multiple forecasts » Long lead-time Counter Measures » Access sell-thru or POS data » Single control of replenishment » Leadtime reduction State of Practice » Sell-thru data in contracts (e. g. , HP, Apple, IBM) » VMI (P&G and Walmart) » EDI and Cross docking

Managerial Implications of the Bull Whip Effect Lean Operations: Process Synchronization and Improvement 66 Cause » Shortage / Rationing Game Contributing factors » Proportional rationing scheme » Ignorance of supply conditions » Unrestricted orders & free return policy Counter Measures » Allocation based on past sales. » Shared Capacity and Supply Information » Flexibility Limited over time, capacity reservation State of Practice » Saturn, HP » Schedule Sharing (HP with TI and Motorola) » HP, Sun, Seagate

Lean Operations: Process Synchronization and Improvement Efficient Consumer Response 67 Unlinked Replenishment In Supply Chain Supplier Warehouse Demand Flow Distributor Warehouse Retail Store Consumer Household Product Flow A Single ECR Grocery Supply Chain Supplier Warehouse Demand Flow Distributor Warehouse Product Flow Retail Store Consumer Household

Lean Operations: Process Synchronization and Improvement Comparison of Cycle Times Before and After ECR 68 DRY GROCERY CHAIN BEFORE ECR Packing Line Distributor Warehouse (Forward buy 9 days, Inventory turn 31 days) 40 days Supplier Warehouse 38 days Retail Store 26 days Consumer Purchase 104 days DRY GROCERY CHAIN AFTER ECR Packing Line Supplier Warehouse 27 days Distributor Warehouse Retail Store 12 days 22 days 61 days Source: Kurt Salmon Associates Consumer Purchase

Lean Operations: Process Synchronization and Improvement ECR Industry Update: Evidence of Change Through 1995 69 ECR IMPLEMENTATION 55% 46% Average Industry Implementation of ECR Elements 54% 47% 46% 34% Efficient Assortment Promotion Replenishment ECR Investments by Manufacturers were less than planned. ECR investments as a percentage of sales: - Actual ‘ 94 =. 45 - Plan ‘ 95 =. 60 - Actual ‘ 95 =. 34 Source: Kurt Salmon Associates Manufacturers Brokers Wholesalers Chains Indepdendents 39% 52% 48% 70% 46% (up 3 pp from YAG) (up 8 pp from YAG) (up 4 pp from YAG) (up 26 pp from YAG) (up 14 pp from YAG) Fastest Growing ECR Components • Cross-Docking Displays • Cross-Docking ‘Turn’ • Cat. Mgmt. Partnerships • Scan-based Promo/Pymnt • Cat. Mgmt. Org. Struct. +21% +20% +19% +15% +14%

Lean Operations: Process Synchronization and Improvement ECR Industry Update: Investments 70 Payback on ECR Investment is Excellent Chain Wholesalers Manufacturers Brokers 1. 9 years 2. 2 years 3. 0 years Retailer Investment Priorities Manufacturer Investment Priorities • Headquarter Systems: IS/IT • Education/Training • Category Management Discipline • Business Process Re-engineering • Store Level Systems • Information Technology • Education/Training • Customer Alliances • Business Process Re-engineering • Sales and Sales Promotion Source: Kurt Salmon Associates

Lean Operations: Process Synchronization and Improvement Key Learning Objectives 71 Bullwhip effect introduces information uncertainty Causes of bullwhip effect Managerial actions to counter bullwhip effect