Lean Thinking

(Acknowledgment to Professor Peter Hines, Dr Matthias Holweg & Dr Nick Rich, Lean Enterprise Research Centre)

Why Lean Thinking?

Sales

Profitable Growth

Resources / Costs

Time

Delivering Profitable Growth through Value Creation Shorter Lead Times.

Better Quality and Delivery Performance.

Faster Time to Market on New Products / services. Greater Innovation in products and services

Delivering Profitable Growth through Waste elimination

Faster production rates. Greater equipment / people Utilisation.

Motivated, effective employees - sustainability

Continual Supplier Performance improvement

Lean Thinking
Specify Value
Identify the Value Stream

Make the Product Flow

At the Pull of the Customer

In Pursuit of Perfection

Specify Value by Offering

What is Value?
What is the difference between these two screws? Who would buy which screw and why? Which benefits drive each decision? What does this tell us about value?

Specify Value by Offering

What is Value?
High perceived Value

Where does your business Fit on this map? Do you know?

Perceived Benefits

Premium

Standard

Low perceived Value

Economy

Price
Source: M W Dale

Specify Value

Value Changes Over time

Product Variety Cost / service Competitivenes s

Market Size

Product Innovation

Immature
Source: M W Dale

Development

Maturity

Time

Identify the Value Stream

Lean Thinking Principles

Bottom tier Supplier

Consumer

What is a Value Stream?

Key Business Processes

Bottom tier Supplier

Consumer

There are two types of activity in a value stream:1. Those which add value to the customer 2. Those which do not.

The Seven Wastes

Overproduction

Waiting

Defects

Waste (Muda)
Transporting Unnecessary Motion Inappropriate Processing Unnecessary Inventory

What does one typically find?

Value Added Activities 5%

Necessary Waste 35% Unnecessary Waste 60%

Make the product flow

Lean Thinking Principles

Isolated Islands

Continuous Flow
Source: Learning to See by Mike Rother & John Shook

At the pull of the customer

Lean Thinking Principles

Demand

Supply Consumer

Continuous Flow

In pursuit of perfection

Lean Thinking Principles

Where every activity performed by every person, every machine and every process adds value from the point of view of the Customer

Lean Thinking since 1980

Has made a significant contribution to
academia & industry Had gaps in its early approaches

Has seen significant developments

Awareness Stage: 1980-1990

Theme
Focus Business Process Industry Sector Gaps

Shop Floor Practice

JIT Techniques, Tools Shop Floor Manufacturing Automotive Assembly Outside Shop Floor Outside Single Firm Narrow Focus

Quality Stage: 1990-mid 1990s

Theme Focus Business Process Industry Sector Gaps Best Practice Benchmarking Cost, Quality, Reengineer Manufacturing & Mat. Mgt Automotive Ass./ Supply Human Element Supply Chain Systems Perspective

Quality, Cost, Delivery Stage: Mid 1990s-2000

Theme
Focus Business Process Industry Sector Gaps

Lean Enterprise
Cost / Process QCD Order Fulfilment: Val. Str. (Repetitive) Manufacture (Other) Process Integrate Relationships Integrating Industries

Value System: 2000+

Theme
Focus Business Process Industry Sector Gaps

System Capability
Value & Cost Integrated Processes All Manufacturing/Service Low Volume Manufacture Strategic Integration Total Systems Capability

Relation of Value, Cost & Waste

Cost-Value Equilibrium 2 1

Customer Perceived Value

x
Creating Lean Solutions: 1. Reduce Internal Waste 2. Develop Customer Value

Waste/Cost

Integrating Processes
Purchasing Manufacturing
Sales

Finance

Quality

Strategic Management / Policy Deployment Human Resource Development

Continuous Improvement

Order Fulfillment
Sales Acquisition New Product Development

Technology Plant and Equipment

Lean Network Systems

Demand High Variability Stranger Variety/Complexit y Avoid? Stock? Medium Repeater Variety/Complexit y Make To Order Low Variability/ Runner Complexity Kanban
Adapted from: Fisher, 1997

Volume

Global Supply Chain at Clarks

Raw Materials - Leather from England - Goretex from Germany Manufactured in Taiwan

Distribution Through England

Market mostly in USA

Did this make sense?

Demand Analysis
Repeater : Ongoing Demand More Difficult to Predict Medium Inventory Risk Items

Runner : Regular, Predictable Ongoing Demand Low Inventory Risk Items

Stranger : No Ability to Predict Ongoing Demand High Inventory Risk Items

Categorising the Products

High volume, predictable, long life cycle Runners
Oxford Brogues

Ongoing Demand but hard to predict Repeaters

Ladies & childrens fashion colours

No ability to predict Strangers

New products

High Volume Predictable Oxford Brogues

Demand

Focus on: 1. Rapid information flow 2. P:D ratio 3. Lowest Production Cost Brazil, China, India slow response

Time

Ongoing Demand Fashion Shoe Colours

Demand
Quick response capability: UK, Italy

Focus on: 1. Dual Sourcing 2. Fast Demand Analysis 3. Lowest Total Cost/Risk
Slow response sourcing

Time

No Ability to Predict New Products

Demand

?? Focus on: 1. Quick Response Capability Quick Response 2. Fast Demand Analysis 3. Later chain reconfiguration

??
Time

An Integrative Lean Approach

Demand Variability High
Increase Capacity through Attention to Overall Equipment Effectiveness (existing Lean approach) Improve Process Reliability (Six Sigma addition) Identify & Manage Bottlenecks Identify & Manage Bottlenecks (TOC addition)

1
Typical Western Organisation

3
The Lean Value Stream
Remove Buffers

Smooth Demand with Key Customers + PullSystem + Radical Lead Time Reduction for Information + Physical Flow (existing Lean approach) Reduce Complexity of Product by Postponement of High Specification (Agile addition) Segment markets & Institute Buffer Customer or Buffer Stock Category Policy

Low Low

Capacity Constraint High

Traditional Business Planning

Corporate Policy & Direction Top Level Out-Put Scores by Function

Market Planning Information

Department Out-Put Scores

Technology Direction

Department Activities

Stakeholder In-put

Individual Action Plans

Management SWOT Analysis

Monthly Department Reporting

Mission, Vision & Values

Management Review

Integrating Strategy & Deployment

Outputs: Inputs: Strategic Intent Purpose/Mission Values Goals Positioning Served Markets Segmentation Products & Services Winners & Qualifiers Routes to Market Value propositions etc Competences Distinctive Core External Sources High Level Financial Model

Strategy Deployment

Outputs: Critical Success Factors Top level Process Definitions Process Owners Process Owner Role Definitions Measures Targets

Current Performance Market Dynamics Business Environment Shareholder Requirements Current Business Model Current Business Rationale

Strategy Formation

Inputs:

Process Improvement Project Plans

Key Strategic Issues The Issues Strategic Programme Plans

Days of Inventory
100 10 20 30 40 50 60 70 80 90 0
Raw Material

Min

Max

Average

Bought-out Parts

In-house built Parts Pre-Assembly WIP

First Tier Suppliers

Assembly WIP

Finished Components

Inbound Logistics

Inbound Transit

On-site Part (VM)

Vehicle Manufacturers

Vehicle Production WIP

Inventory Profile of the UK Automotive Supply Chain

Loading & Despatch Outbound Logistics Outbound Transit

Source: Holweg (2002)

Distribution & Retail

Marketplace

Customer

 Production availability Material constraints

Central Planning Office

Central Sales Office

National Sales Company

Monthly sales meeting with zone manager.

Production Programme Down-days, Shift patterns, etc. Request for Production Capacity monthly meeting decides on allocations Finance input

Sales request all markets all models

Sales forecast per market monthly submission

Forecast 1 year horizon Volume Commitment depends strongly from VM to VM

Dealer - UK

Monthly Yearly forecast 12 mths out

Order Bank 8.8 days

Production Programme for month M+2-3 ORDER BANK holds available to schedule orders

Feedback allocation per market, allocation of constraint items

Stock Orders

Direct order entry online feedback on build week within a day

First Tier Suppliers ca. 300 - XX local content 30-80%

Schedules 3-4 weeks firm covers also 6 months forecast

weekly

Order Input 3.8 days

Limited or no order amendment facility 2 weeks: engine, transmission 1 week: colour, trim days: some options Supply Constraints

Daily Call In daily requirements 2-17 days Sequenced delivery, multidaily line-side: modules and systems Daily delivery against schedule or kanban line-side or into consolidation hub / resequencing centre Weekly delivery against schedule Monthly delivery against schedule/order

daily Order Scheduling Tool

Sequence and Broadcast Messages 3hrs -7 days!

Daily, plus update / warning messages Small Parts Warehouse weeks Bulk Parts Warehouse days Kanban / Consolidation Point Resequencing Hours to days Every 30min - 3 hrs

Sequencing 6.5 days

Schedules orders according to boundaries set in production programme Sequencing Tool in plant or centrally. Approaches: fix sequence and resequence as required make bodies as per daily schedule, and resequence manually or automatically for paint and assembly Feedback to order bank

Auto Supply Chain

Generic Example of Order Fulfilment Process, Volume Car Manufacturer

Traffic Control System

WELD

Production 1.4 days

PRIMER

Body Bank: Resequencing for paint, or FIFO

Paint Interim Storage: FIFO or batching for paint if body bank FIFO TOPCOAT

Paint Bank: Resequencing for load levelling on the line

Scheduling 15.1 days

Testing ASSEMBLY Internal Supplier e.g. Engine Assembly

GATE RELEASE

Leave Factory 0.9 days

Average 1 day Transfer to load Load Lanes

DC or RDC or Distribution Points

typically 1 (DC), 4 (RDC), or 10 distribution points

Distribution 3.8 days

Dealer UK

Rework

Source: M. Holweg, 2001

 15 billion annual Profit Potential

Programming Committee National Sales Company manages dealer liaison Monthly Sales Requirements Forecast. 1yr forecast +/- 20% Monthly programme meeting Feedback on constraint items availability Forecast 1 yr horizon reviewed every 3mths No volume committment Dealer Production Programme
Sets boundaries Market allocations

1st Tier Suppliers

Standardised Supplier Schedule accuracy depends on system fill

Accumulated status/ filling of daily buckets

ORDER BANK Direct Booking System

Over-night order expansion

Direct Order Booking

Online feedback

BIW, paint requirements

Daily o/n

Future State
Three-day Car

Schedule

For material & resource planning purpose

36 hours locked in Sequence

SEQUENCER
Assembly Sequence Generation

Generates Assembly Sequence

Further Input: for forecast: Forecasts Programme

TRAFFIC CONTROL

Assembly Sequence

Control

Notification on Time of Arrival

PULL System
Min 99% achievement within day

PRESS

WELD
SIGNAL kanban

PAINT

Sequencing buffer

ASSEMBLY
Direct transfer 3 hrs

Distribution Centre(s) / RDC

Distribution min. 24 hours

Dealer

Consolidation Hub
X days

Assembly 8 hours
Buffer to cover rework time Electronic Call-off. Multi-daily delivery

Engine / Powertrain Assembly

2 days

Source: M. Holweg, 2001

Lean Thinking Framework

Shared Vision

Common Goals

Value Stream Management

Extended Enterprise

Tools aligned to need

Lean thinking and VMOS alignment

Shared Vision Objectives Master schedule

Common Goals Global datacard

Value Stream Alignment

Extended Enterprise

Tools aligned to need

Current Lean Thinking

Clear Evolution from early 1980s Integrative Approach Focus on Value & Cost Strategic & Operational Level Contingent Toolkit

Focus now on: Lean Value Systems:

Encompassing a value adding network of operations across companies, with the goal of providing a series of contingent value propositions to individual final consumers.