Lean production is a philosophy the philosophy of

Lean production is a philosophy – the philosophy of avoiding waste in the production system (Parks 2003) Lean production Harri Haapasalo; D. Sc. Tech. , M. Sc. Econ. Professor in Industrial Engineering and Management Department of Industrial Engineering and Management e-mail: harri. haapasalo@oulu. fi, office TF 320 Waste minimization and resources use optimization Outline of the presentation 1. Defining Lean Production 2. What leads us to Lean? 3. How to Implement lean? 4. Where to go after Lean – Agility? Value Nets?

Lean production n Is a multi-dimensional approach that incorporates a wide range of management practises, including: ¡ ¡ ¡ n n n just-in-time, quality systems, work teams, cellular manufacturing, supplier management, etc. , in an integrated system The main force is that these systems can operate synergistically to create efficient and high quality system that manufactures finished products at the pace of customer demand with little or no waste. (Özbayrak, 2005) The focus of lean approach is essentially the elimination of waste or muda. Shortly defined lean is doing more with less. (Agarwal et al. 2005)

Five fundamental concepts to “lean thinking” to promote lean production n n value, value stream, flow, pull production and perfection

Another approach defining cornerstones for Lean manufacturing n n n Cellular Manufacturing Pull Scheduling (Kanban) Six Sigma/Total Quality Management Rapid Setup Team Development

The idea is to emphasize leanness – in horizontal level Sales Product creation Production Management Sales Production Management From functions to processes - flow Customer relationship MGMT Order –delivery process Functions rules Core prcesses defined But functions still rules Core processses Are dominating

Puchasing Prodcution Sales Customer Prosess map by Rummler and Brache Generate order Receive product Check order Submit order Forward product Receive order Start manufacturing Receive order Purchase parts Receive parts Pack product

n “Leanness means developing a value stream to eliminate all waste … “(Christopher & Towill 2001) focus on waste – waste can be: ¡ ¡ ¡ ¡ overproduction waiting inventory or work in processing waste transportation motion making defective produts underutilizing people WASTE = MUDA

Targets for prodcution management TUOTANNON Targets for production TAVOITTEET OHJATTAVUUS Controllability Low ALHAISET Costs KUSTANNUKSET LAATU Quality TOIMITUSKYKY Ability to deliver High productivity MATERIAALI Materials TYÖ Work PÄÄOMA Capital Fixed KÄYTTÖ OMAISUUS assets Conrollability OHJATTAVUUS High utilization KAPASITEETIN Of capasity LÄPÄISYAIKA Lead time JOUSTAVUUS Flexibility Floating VAIHTOOMAISUUS asets VARASTOIHIN Deceasing JA KET: IIN Tied in capital SITOUTUVAN In inventories and PÄÄOMAN Work In Progress PIENENTÄMINEN TOIMITUS Ability to KYKY deliver

Inconsistency of purposes for production management Ability to deliver – Lead time OPTIMUM Minimize floating assets Inventories, WIP Maximize utilization rate of capasity

Changing Face of Manufacturing 1980 s 1990 s 2000+ Philosophy Mass production; Product oriented Just-in-Time; Customer Service Mass customisation; Customer value People Individuals; Self-oriented Teams; Company-oriented Strategic leadership; Process-oriented Finance Labour allocation Activity based Integrated perf’nce management Materials Adversarial suppliers Supply Chain Value Chain Overall Posture Just-in-Case Lean Agile

Manufacturing Issues Falling sales – where to find new customers? Input costs increasing, sales income falling No time to introduce new methods No money to develop new products / processes How to increase output without increasing costs? Too small to compete OR Too big to react quickly to changing market Increasing complexity of legislation and regulation What can I / we / anybody do about it?

Company Actions: How can we Compete? Competitive Strategies: 80’s Quality 90’s 2000+ Porter Treacy & Wiersema Delivery Price Flexibility Image … … Focus & Differentiation Value Proposition

Lean Thinking roots are in Toyota Philosophy q q q q q Doing it all for the Customer Levelled production kanbans K K Pull system work Continuous-flow production centre replacement Takt time Multi-skilling TQM TPM lf Se ent m ve Poka Yoke pro m i s itor uou. Compet n i t n Co SPC Standardised work change Present Uncompetitive Competitive Kaizen Day 1 20 7 Day 2 20 7 27 27 Time Day 5 20 5 25 27 store withdraw & process work centre batches Upper action limit average q Qnty 100 27 5 132 135 Competitiveness q Item Runner Repeater Stranger Load Cap’ty Upper warning limit time action?

Lean Manufacturing n Builds on roots but with specific focus on: ¡ Lead time reduction n n ¡ ¡ ¡ Regular production New products Flexibility improvement Variability reduction Cost reduction

Customer focus n Lean production aims to optimize performance of the production system against a standard of perfection to meet unique customer requirements (Howell 1999)

Going Lean n n the value needs to be created in the eyes of the final customer, focus on value is therefore translated across functional and company boundaries, the lean message suggests that the focus on attention should not be on the company or functional department but instead on the complete value stream (Hines et al. 2000) to reach this point every company involved in supply chain has to go lean, this is very demanding part, which needs collaboration and time.

How to go lean Objective Method 1 Understand customers and what value they want Setting the direction, targets and checking results 2 Define the internal value stream An internal framework for delivering value 3 Eliminate waste, make info & products flow, pulled by customer needs Appropriate method to make necessary change 4 Extend the definition of value outside your company Externalise the value focus to the whole value stream 5 Continually aim for perfection Strive for perfection in the product and in all processes and systems

Levels of Lean thinking (Simons & Zokaei 2005)

Lean Toolbox – derived from Toyota Philosophy

Value stream mapping 1. Define value precisely from the end customer perspective. specific product needs specific capabilities specific price, delivery and quality expectations 2. Identify the entire value stream for each product line and eliminate waste. Product definition and development Material transformation Information management 3. Make the value added activities flow. Through radical shifts in process methodology and organizational structure Improving processes from end-to-end by eliminating scrap, downtime and WIP Moving towards continuous operations vs. batch processing 4. Provide what the customer wants only when the customer wants it. Let the end customer pull products from the manufacturing value stream Minimize finished goods inventories and WIP 5. Pursue perfection through continuous improvement When lean principles are applied throughout the value stream, odd things begin to happen; People recognize there is no end to reducing effort, time, space and mistakes, Your products become more closely aligned with the customer needs.

Example of process map ¡ Note value-add time -vs- lead time

Puchasing Prodcution Sales Customer Prosess map by Rummler and Brache Generate order Receive product Check order Submit order Forward product Receive order Start manufacturing Receive order Purchase parts Receive parts Pack product

5 S - the foundation for a disciplined approach to workplace n 5 S is derived from five Japanese words starting with letter S that describe principles of good housekeeping: ¡ ¡ ¡ n n 1. Sort 2. Set in Order 3. Shine 4. Standardize 5. Sustain It cleans and organizes areas around machinery and equipment. It creates a safer work environment, removes clutter, creates a labelling system for ease of recognition, introduces audit procedures, and creates a more inviting work place. (Piatkowski 2004)

TPM is a systematic methodology to eliminate equipment breakdowns and quality defects n n n productive maintenance involving total employee participation and it must be carried out on a companywide basis system of preventive maintenance plans and procedures for the equipment’s life span TPM focuses its methodology on elimination of six major obstacles to equipment effectiveness: 1. Equipment failure 2. Setup and adjustment 3. Idling and minor stoppages 4. Reduced speed 5. Production of scrap and defects 6. Reduced yield from start-up to stable production

Key to Lean Manufacture is measurement n n OPTIM UM Need clear, objective focus on value Example: OEE (Overall Equipment Effectiveness) ¡ ¡ ¡ A composite measure of the ability of a process to carry out value adding activity OEE = % availability x % output achieved x % perfect output If change to a process increases OEE it is worthwhile Actual Available Production Time Theoretical time minus planned downtime and shutdowns This is the realistic best available production time (100%) Planned Downtime PM, Shutdowns, Holidays Machine Running Time Actual production hours minus downtimes This is possible production if 100% performance Net Operating Time Machine speed against theoretical speed This is the possible output if 100% quality Useful Production Time Material in minus product out This is the real output Quality Losses, adjustments, Set-up waste Unplanned Losses Breakdowns, HR, Set-up time Speed losses Idling, minor stopages performance Quality Performance Availability OEE

Error Proofing n n n a systematic approach for anticipating and detecting potential defects and preventing them from reaching either internal or external customer Error proofing is also mentioned in literature with closely related terms such as, fail saving, poka yoke, zero defects and design for manufacture and assembly. Error Proofing seeks to proactive identification and prevention of errors at the source.

Setup Time Reduction n Setup is a set of activities needed to prepare for the next part to be produced Setup time is the total amount of elapsed time from completion of the last good part from the previous setup to the first good part from the new setup There are two elements to setup time reduction: ¡ ¡ n equipment modifications such as technical improvements, elimination of waste in setup methodology Both activities will contribute significantly to minimize setup time

Continuous Flow n n n It studies production pace, manpower requirements, equipment utilization, and manufacturing methodologies is defined as movement of material from valueadded process to value-added process without transport time or storage in buffers all the knowledge of lean methodologies, tools, and process are put to an ultimate test of generating cost reductions and improvements to quality, efficiency, and performance

Pull System n n n Pull system includes vital elements such as, kanban to promote JIT and visual controlling For unique items consumed in production lines, uniform containers (kanban) can be used to standardize lot sizes to signal the need to replenish materials and simplify transport between the vendor and customer Materials can be pulled into production lines as needed to support the required production rate of finished goods

Standardized Work n n Standardized work is the optimum combination of operators, machines and materials to ensure that a task is completed the same way every time with minimum waste. This may sound a trivial but it isn’t. Standardized work seeks to establish and clarify the best method of production at the present time. Standards must be specific and scientific – meaning that they are based on facts and analysis, not on custom, guessing or memory Standards must be adhered to; ¡ ¡ they are useless if no one follows them. for a standard to be standard, it will be consistently followed and respected.

Elements of the standard operations (Monden 1983)

Agile – a step on from lean? n n Roots of agile in America defence industry – developing the ability to react and reorganise to successful equipment bids Lean and agile have common components ¡ ¡ n n quality, reliability, improvement, etc But lean is process focused, agile is boundary focused Ability to thrive in constant, unpredictable change Key attributes of agile ¡ ¡ Customer value focus (solutions not products) Flexibility to adapt to fundamental market changes n ¡ ¡ n Not simply changes in product mix Competing from multiple fronts, possibly virtually Organisational knowledge, including ability to adapt IT systems to support new processes Sometimes Agility has been defined as a sum of Lean and Flexibility

Types of flexibility n n n Planning flexibility – the system's ability at the planning stage to take up a structure suited to the relevant range of tasks. Commissioning flexibility (teettäminen) – the system's ability to be adapted or set up for the given tasks, so that the system's capability can be verified and it remains constant. Insensitivity (epäherkkyys) – the ability to function in spite of variations in the assembly. Versatility (muunnettavuus) – the ability to change over directly to other foreseen tasks. Adaptability (mukaantuvaisuus) – the ability to be changed over to unforeseen tasks. Flexibility of re-use – the ability to be rebuilt for other tasks.

Flexibility vs agility n n agility is an ability to quickly respond to changes in an uncertain and changing environment, or even cause changes that are favourable to the organisation whereas flexibility is taken to mean the ability of companies to respond to a variety of customer or other requirements which exist within defined constraints flexibility is an important aspect in agility is more external and flexibility is internal

Different views on lean -vsagile The journey Traditional Lean Agile A spectrum of companies Lean Agile Make to stock Low variety Mass, repetitive “Cost minimiser” Make/Engineer to order, High variety, Service culture “Product Innovator”? “Customer intimate”? Complementary Make to forecast Material suppliers Lean Upstream variation Stock (to decouple) Make to order Agile Downstream variation customer

LEAN vs. AGILE (Christopher 2000)

Establishing Foundations for Lean, Agile … Culture change n Need the classic pre-requisites for any programme ¡ ¡ ¡ ¡ Strategy Commitment Objectives Communication Empowerment Establish framework Activity plan, cost, time and execution Measurement and evaluation system Use of champion

Developing towards an agile supply chain Goldman’s (1995) distinctive forces that drive towards agility: 1) market fragmentation, 2) production to order in arbitrary lot sizes, 3) information capacity to treat masses of customers as individuals, 4) shrinking product lifetimes, 5) convergence of physical products and services, 6) global production networks, 7) simultaneous inter-company co-operation and competition, 8) distributed infrastructures for mass customization, 9) corporate reorganization and 10) pressure to internalize prevailing social values.

Theoretical framework for the agile supply chain Virtual ICT utilization demand driven responsive and flexible Market sensitive Agile supply chain Network based Process integration speed, flexibility and quality modular design and modular manufacturing processes

Value net, value-adding partnership (VAP) n n n a group of independent companies working close to each other to manage the flow of products and services through the whole value chain digitally linked network of customer-supplier relationships that creates value to all of its counterparts, ¡ Customer aligned. ¡ Collaborative and systemic. ¡ Agile and scalable. ¡ Fast flow. ¡ Digital. Value creation ¡ ¡ ¡ VA, NNVA 1. Non-value adding (NVA); (Type two MUDA) 2. Necessary but non-value adding (NNVA); (Type one MUDA) 3. Value-adding (VA)

6 principles of ICT system in SCM % Information must be readily and consistently available to all that need it. Information availability can reduce operating and planning uncertainty. % Information must be accurate. Increased information accuracy decreases uncertainty and reduces inventory requirements. % Information must be timely. The delay between when an activity occurs and when it is visible in the information system reduces planning effectiveness and increases inventory. % Information should be appropriately formatted. The right information must be in the right structure and sequence. % Information systems must be exception-based in order to highlight problems and opportunities. % Information systems should be flexible to be able to meet both system users and customers’ needs. Bowersox & Closs (1995)

Useful literature n n James Womack & Daniel Jones, 1996, Lean Thinking: Banish Waste and Create Wealth in your Corporation (Simon & Schuster) John Bicheno, 2000, The Lean Toolbox, 2 nd edn (Picsie Books) Peter Hines & David Taylor, 2000, Going Lean: a guide to implementation (Lean Enterprise Research Centre, Cardiff Business School) Imai, M. 1997. Gemba Kaizen: a commonsense, low-cost approach to management New York, Mc. Graw-Hill