Transcript No Slide Title

The Application of Lean Thinking to
Supply Chain Management
David Taylor
Lean Enterprise Research Centre
Cardiff Business School
2004 Queensland Supply Chain
Seminar
Brisbane 10 & 11 June
The Lean Enterprise Research Centre
Cardiff University Business School
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Est. 1993 by Prof. Dan Jones
25 staff
>50 Lean projects in different sectors including:Automobile;
Electronics;
Aerospace;
Consumer goods;
Public sector admin; Food production;
Food retailing
Steel
Shipbuilding
Aim: To develop and apply methodologies to assist
companies in becoming Lean
David Taylor
Senior Research Fellow
Joined Cardiff 1997
Various projects applying Lean Thinking to individual
companies & whole supply chains
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97 -00 - LEAP - Upstream automotive component supply chain
98 -01 - Footwear - Global supply chain improvement
00 -03 - MICE – UK Metals Industry Competitive Enterprise
01 -03 - SHOOT – Lean in Shipbuilding
02 -06 – Agri-foods - Value Chain Analysis from Farm to Fork
Agenda
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Today : The Background & The Theory
– Lean Thinking v Mass Production
– Understanding Waste
– The Lean Principles
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Tomorrow : The Practice
– Lean Tools & Techniques
– Case Studies of Lean Applications & Benefits
What is Lean Thinking
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A fundamental business logic, based on the
approach developed by Toyota
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It is focused on eliminating waste from business
processes and thereby enhancing value to the
customer
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It aims to optimise the whole value stream for a
product or service
Not on optimising the activities of individual
organisations, departments or assets
The Origins of Lean
Lean Thinking v Mass Production
Ford : Highland Park 1913 –16
Flow Production
Running
Boards
Commutators
Front Axles
Assembly
Radiators
Gas tanks
Rear Axles
250,000 Vehicles Per Year, One Model
But the Industry Lost the Plot
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As customers wanted more choice and product variety
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Car makers abandoned what Ford called “Flow”
production
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They adopted a process-village, process-facility,
process-firm configuration
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Ford adopted this at River Rouge - which he called
“Mass” production.
Ford : River Rouge
Specialist
departments
(Process Villages)
Annealing
Mass Production
Large expensive
Machines
Stamping
Focus is to
Keep assets busy
Painting
Inventory queues
ahead of each m/c
Assembly
Long
Changeovers
Washing
Lot of product
movement
Welding
Brazing
Batch
processing
2.5 Million Vehicle Kits Per Year, Many Models
Spaghetti World
Internally in factories : And externally with supplier networks
Exacerbated
by
Globalisation
Assembly
Components
Piece Parts
Process
A Typical Value Stream
Windscreen Wipers
10 FACILITIES
3 COUNTRIES
5 FIRMS
42 DEPARTMENTS
20,000 miles
12 SHIPPERS
SCHEDULE
POLYMER
COMPOUND
SUPPLIER
SCHEDLE
SCHEDULE
SCHEDULE
ASSEMBLER
CALL OFF
SCHEDULE
PHONE
RUBBER
PLANT
RUBBER
WHSE
RUBBER
COMP
WIPER
BLADE
WIPER
ARM
WIPER
ASS.
SUPPLIER
WHSE..
PARTS
WHSE.
SHIP
ASSEMBLY
DEALER
AIR
AIR
70 ACTIONS
7 VALUE CREATING STEPS
188 days THROUGHPUT TIME
20 mins VALUE CREATING TIME
The Consequences of Mass
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Long lead times
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Lots of inventories
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Poor customer fulfilment
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It involves increasing amounts of “waste”
– wasted time/effort, materials & transport...
... all down the Value Stream
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It needs ever more sophisticated forecasting,
planning, scheduling, supplier co-ordination and
marketing systems
Toyota Returned to Flow...
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Over twenty years Taiichi Ohno at Toyota overcame
the obstacles to producing a variety of products in
process sequence
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Toyota built a business system based on:compressing time near perfect capability
close proximity
build to order.
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And synchronised the whole supply chain
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Increasing productivity by 50%
while cutting defects and lead times by 90%
The Wake Up Call 1990
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Lean Thinking was born from a
world wide auto industry
benchmarking programme
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Highlighted huge gaps in
performance between Toyota &
other Japanese Lean producers
&
Western Mass producers
Jim Womack
Dan Jones
Daniel Roos
How far has Lean spread?
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Widespread adoption in automotive in 1990’s
Aerospace
Grocery and FMCG ( Efficient Consumer Response)
Consumer electronics
Raw materials : Aluminum
Steel
Construction
Healthcare
Public Sector
Agri- foods
Key Features of Lean
Waste Elimination
Muda
Any activity which absorbs
resource but creates no value
for the user of the product or
service
Examples
•Mistakes which require rectification
•Production of items which no one wants
•Unnecessary movement of products
or employees round a workplace
Toyota’s Seven Wastes
Overproduction
Defects
Waiting
MUDA
Non-Value-Adding
Activity
Unnecessary
motion
Transporting
Inappropriate
Processing
Unnecessary
inventory
Waste of Overproduction
Toyota
see this as
the worst
waste
Excess
What’s Needed
Producing too much or too soon
Resulting in poor flow of goods &
information and excess inventory
Over Production
Corus Steel Plant : South Wales
Key Driver = Volume of steel produced
‘Keep the factory busy’
Sweat the assets
Minimise unit costs of production
Large batches – avoid lost production due to changeovers
Results
Warehouses clogged with
unwanted product
Poor Service < 40 % OTIF
Victim lines
Long lead times
Lost orders
Waste of Waiting
Materials or information are waiting to proceed to the next process.
They are not moving or having value added.
• Goods waiting to be processed
•Machines or men waiting for goods to arrive from upstream
processes
• Paperwork waiting to be processed
• People waiting to be processed or served
Waste of Waiting
Texon: Shoe Component Manufacturer : UK
•Inner soles take 8 hours on 5 different machines to make
•Product spends a total of 20 days waiting in queues
•in the factory
•Factory quotes : 5 weeks - Order to despatch lead time
Result = Lost business to competitors
Waste of Transport
Materials (or information) transported
into, out of, or around the factory.
STORES
Waste Of Transport
Talent Engineering
Automotive component manufacturer : NE England
Ford Fiesta Subframe
Coil
Receipt
Store
Blank
Press
Store
De-grease
Store
Assembly
Store
Paint
Fin. Assy
&
Despatch
Store
Store
Product transported 3.5 km around the site
in the course of production
Each movement on a fork-lift truck
Store
Waste of Inappropriate Processing
Using machinery and equipment which is inappropriate
in terms of ‘capacity’ or ‘complexity’
Capacity
Using a sledge hammer to crack a nut”
Companies frequently buy large
& fast machines which are good to
produce large batches cheaply
But the demand is increasingly
for small batches of high variety
Need small flexible machines
Complexity
The Space Race
“NASA spent a great deal of money in encouraging
the US pen manufacturer, Fisher, to develop and
produce a pen for use in space. It had to be able
to write upside down and function in zero gravity
situations...
...The Soviets came up with a simpler
solution to the same problem
Managers often
- They used pencils !!
look to spend
their way out
of a problem
Waste of Motion
Inappropriate Ergonomics & layout of the workplace
4 metres
Tools
Parts
3 metres
Organise the work place so
tools & materials located conveniently
to minimise motion & physical stress
Waste of Motion
Sheffield Forge Masters
Produce Rollers for Steel mills
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Changeover Time
= 2.5 hours
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Feet = 75 mins !
Waste of Making Defects
Rectification
Poor
Customer
Service
Costs
Delays
In 1990 VW spent more time rectifying defects
at the end of the Golf production process
Than the time it took to build a Toyota Corolla !
Waste of Inventory
RM
WIP
WIP
FP
The Obvious Issue = Cost
Capital tied up; Space; Obsolesence
Damage ; Deterioration ; Insurance
The Really Big Issue = Inventory hides problems
Toyota’s View of Inventory
Rock = Problems
Inventory
Defects
Damage
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Supply
Issues
Shortages Equipment
Breakdowns
Delays action with machine breakdowns
Delays actions dealing with product defects
Reduces the need to face up to tool / process changeover
time improvements
Conceals imbalance in the capability of the facility
Focus of Improvement : Mass v Lean
Production Lead -Time
Value
added
Waste
Mass Focus
for Improvement
Lean Focus for Improvement
Key Features of Lean
 Waste
 The
Elimination
Five Lean Principles
The Five Lean Principles
•Specify what creates value from the
customers perspective
•Identify all steps across the whole
value stream for every product family
•Make those actions that create value flow
•Only make what is pulled by the customer
•Strive for perfection by continually
removing successive layers of waste
1 Specify Value
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Specify VALUE by product or product family
– Through the eyes of the customer
– Not from the standpoint of the department, function or
firm
Value involves several Dimensions
V
=
&
Quality
£
Cost
&
Delivery
Value Adding v Non-Value Adding Activities
Value Adding Activities
An activity or process that the customer would be willing
to pay for
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Eg Assembling components of a washing machine
Non
Value Adding Activity
Activities that in the eyes of the final customer do not
make a product or service more valuable & they would
rather not pay for
eg Transferring components from one sized container to
another to move them round a factory
2 Identify the Value Stream
Identify all the steps along the VALUE STREAM
for each product family
- From raw materials to end customer
- From customer order through to delivery
Value Streams
Total Value Stream
Multi-plant
Plant
Action
Action
Action
Action
Action
Action
Action
The Cola Can: Complete Value Stream
Mine
•Total time
= 319 days
•Value Adding = 3 hours
Reduction
Mill
Smelter
Hot
Roller
Cold
Roller
Can
Maker
Can
Warehouse
Bottler
Bottler
Warehouse
Home
Tesco
Warehouse
Tesco
Store
Identify the Value Stream
Then Challenge Every Step !
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Is this step really necessary?
Would the customer think this product is
worth less if this step could be left out?
Many steps are only necessary because the
way firms are organised and because of
previous decisions about technologies and
assets
Remove Non-Value Adding Steps
Talent Engineering
Before
Coil
Receipt
Store
Blank
Lead Time 23 days
VA Time
30 minutes
Press
Store
De-grease
Store
Assembly
Store
Blank
Store
Press
Paint
Store
Store
Store
Lead Time 13 days
VA Time
30 minutes
After Initial Lean Improvement
Coil
Receipt
Store
Fin. Assy
&
Despatch
Assembly
Paint
Fin. Assy
&
Despatch
Store
3 Aim for Flow
Line up all of the steps that truly create value
so that they occur in rapid sequence
Mass
Lean
•VA Steps brought close together
•Product moves directly from one Value Adding
step to the next
4 Only make what is Pulled by the
customer
– Only make what is needed, when it is needed
and in the quantities wanted
– Move away from making to forecast
– Use Kanbans & JIT
– Eliminate making to stock and PUSH thinking
5 Perfection
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Relentlessly Pursue Perfection
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Develop an attitude of continuous improvement
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Set ambitious improvement targets
Western Mass producers
Typically measure defects in percentages
Aim to reduce defects from 5% to 3% to 1%
Lean Automotive Producers
Typically measure defects in parts per million
2001 Nissan suppliers must achieve < 200ppm
2003 Nissan suppliers must achieve < 100ppm
1% =10,000 ppm
The Metrics of Perfection
Your rate of improvement in :
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Eliminating Wasted Steps & Defects
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Speeding Flow
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Reducing Inventories
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Reducing Volatility & Instability
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Cutting management time devoted to firefighting and negotiating
What have we Got So Far ?
Mass Production Thinking
V
Lean Thinking
The Seven Wastes
The Five Lean Principles
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Overproduction
Defects
Waiting
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MUDA
Non-Value-Adding
Activity
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Unnecessary
motion
Transport
Inappropriate
Processing
inventory
Specify value
Identify the value stream
Make the product flow
So the customer can pull
Manage towards perfection
What are the gains?
Small Company
GH White : Volkswagon Dealership : London
Repair Shop
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20 people : Turnover £3m
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Lean thinking applied – 2 year project
1998
Lead time
No cars /wk
Profit
Return on
Sales
3 weeks
35
- £ 20k / mth
Negative
2000
2 weeks
45
+ £15k /mth
+ 5%
( Industry Aver 2%)
Medium Company
Lantech : Stretch Wrap Equipment
Pre- lean 1991
Batch & Queue
Lean 1995
Flow
Time to develop new
product family
3-4 years
1 year
Employee hours per
machine
160
80
100 sq feet
55 sq feet
8
0.8
$2.6 m
$1.9m
16 weeks
14 hours – 5 days
38%
50 %
Manufacturing space per
machine
Delivered Defects per
machine
Inventory
Production throughput
time
Market share
Sales
Profitability
Doubled
Loss making
Best in the class
Tesco
Lean Supply Chain Improvement 1997…..
Large Company
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Benefits
Improved product replenishment system
Savings £100m reported in1998/9 Accounts
Product availability increased from 95% to 98.5%
Improved customer service & satisfaction
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Total supply chain costs targeted to fall by 15% - 20%
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Application of Lean now one of the 3 key strategic
drivers of the company
The Lean Model
Toyota’s Relentless March…..
1948
2000
2001
2004
2010
Virtually no output
10% share of world market
No 3 in USA market share – overtook Chrysler
No 2 in world market share – overtook Ford
Aim to be No 1 in world
- 15 % market share
The most profitable car producer in the world
( except for Porsche)
$10 billion profit on $125 billion sales.
With a return on sales of nearly 8%,
Agenda

Today : The Background & The Theory
– Lean Thinking v Mass Production
– Understanding Waste
– The Lean Principles

Tomorrow : The Practice
– Lean Tools & Techniques
– Case Studies of Lean Applications & Benefits