MGMT 346 Chapter 14 Lean Supply Chains

Kanban Card Formula

k = (Expected demand during lead time + safety stock) / (size of the container) *simplified* k = DL (1 + S) / C - k = number of kanban card sets - D = average. number. of units demanded per period (lead time and demand must be expressed. in the same time units) - L = lead time to replenish an order (expressed in the same units as demand) - S = safety stock expressed as a percentage of demand during the lead time (based on a service level and variance) - C = container size

Service Operations Uncertainty and Variability Sources

*1. Uncertainty in Task Time* - nature of service products is that the execution of each service delivery has some uniqueness - variability leads to a negative exponential distribution of task time - most task executions. will fall within some tight range, some executions will take a long time - deal with uncertainties with customer involvement in service operations *2. Uncertainty in Demand* - while service demand can be forecasted, no forecast is 100% perfect - manufacturers can buffer this forecast uncertainty with some finished goods inventory BUT simultaneous production and consumption in services precludes this tactic - capacity must be available when the demand arises - deal with uncertainties with customer involvement in service operations *3. Customers' Production Roles* - variability is introduced based on how well the service provider performs his or her role - customers usually have to provide information to service agents to initiate service (include tangible tasks to perform)

Value Stream Mapping Symbols

*VSM symbols are categorized as* *(1) process* - include: customer/supplier, process, data box, workcell, and operator *(2) material* - inventory, shipments, kanban stock point, material pull, safety stock, and external shipment *(3) information* - central control point, manual info (daily), electronic info (monthly) *(4) general symbols* - kaizen burst (type of annotation), value-added, and non-value-added time

Under JIT production, it is important to

- "minimize transit time" and "keep transfer quantities small" (typically 1/10 of a days production) - *when inventory levels are low* quality problems become very visible

NOTE

- *basis of lean thinking cam from the Just-in-Time (JIT) production concepts pioneered in Japan at Toyota (Tai-ichi Ohno) that took Toyota cars to the forefront of delivery time and quality - *JIT gained worldwide prominence in the 1970s (but can be traced to the early 1900s in the United States - *Henry Ford used JIT xconcepts as he streamlined his moving assembly lines to make automobiles

NOTE

- *benefits of a lean supply chain* is in the improved responsiveness to the customer - *as business condition change,* the supply chain adapts to "dynamic needs" - *ideal is a culture of rapid change* with a bias for change when it is needed - *reduced inventory in lean supply chain reduces* obsolescence and flow time through the value-added processes - *reduced cost and improved customer service allows* the firms using lean supply chain a significant competitive advantage when competing in global marketplace

Lean Production

- *integrated* activities designed to achieve high-volume, high- quality production using minimal inventories of raw materials, work-in-process, and finished goods - most significant operations and supply management approach of the past 50 years - was developed in Japan - *focuses on* eliminating as much waste as possible - *one of the best tools for implementing green strategies* in manufacturing and service processes - *parts arrive at the next workstation "'just-in-time" and are completed. and move through the process quickly - *lean is based on the logic* that nothing will be produced until it is needed - *targets for improvement during learning process* (1) moves that are not needed, (2) unnecessary processing steps, (3) excess inventory in the supply chain are targets for improvement

Dividing Setup Time into Internal and External Activities

- *internal activities* must be done while a machine is stopped - *external activities* can be done while the machine is running. - *change setup process so that external activities are done while the machine is running in anticipation of the next setup

Waste Elimination (Manufacturing Operations Controllability)

- *is a reasonable goal* in service operations and manufacturing operations but there is a DIFFERENCE IN SOURCES OF VARIATION *manufacturing operations are far more controllable when service operations* - uncertainty does result from material and labor inputs but can be anticipated and controlled - workers, design of the product, and production tools are all under the control of operations - if sales and marketing are part of the process, demand uncertainty can be reduced *When comparing service processes to manufacturing processes, one would say that they are *less controllable*

Estimating the Lead Time needed to produce a container of parts

- *lead time is a function of the* (1) processing time for the container (2) any waiting time during the production process (3) time transporting material to user

Minimized Setup Times (of the kanban production control system)

- *reduction in setup and changeover times* are necessary to achieve a smooth flow - *under the traditional approach*, setup cost is treated as a constant, and the optimal order quantity is shown as six - *under the kanban approach*, the setup cost is significantly reduced and the corresponding optimal order quantity is reduced (from 6 to 2)

NOTE

- *underutilization* and *overutilization* of capacity are controversial features of lean production - *conventional approaches use* safety stocks and early deliveries as a "hedge" against production problems (such as poor quality, machine failures, and unanticipated bottlenecks) - *under lean production* excess labor, machines, and overtime provide the "hedge" - *the excess capacity in labor and equipment* that results is much cheaper than carrying excess inventory

When designing a lean layout, the system designer must consider what type of logistics systems tie to the layout?

- Internal - External

Kaizen

- Japanese philosophy that focuses on continuous improvement - *kaizen bursts* identify specific short-term projects (referred to as "kaizen events" that teams work on to implement changes to the process

NOTE

- Suitability of each technique and the corresponding work steps depend on the characteristics of the firm's (1) markets, (2) production and equipment technology, (3) skill sets, (4) corporate culture

Value Stream Mapping (VSM)

- a graphical way to analyze where value is or is not being added as material flows through a process - is a special type of flowcharting tool that is valuable for the development of lean processes - *used to visualize product flows* through various processing steps - *illustrates* information flow that result from the process and information used to control flow through process - *is usd to visualize*: (1) information flows and (2) product flows - *can be applied* to service, logistic, distribution, or any type of process - *triangle represents* "inventory" - *circle represents* "operator" - *VSM is a two part-part process* (1) depicting the "current state" of the process and (2) a possible "future state" - *VSM is a great visual way to analyze an existing system* and find areas where waste can be eliminated

Group Technology

- a philosophy in which similar parts are grouped into families, and the processes required to make the parts are arranged in a specialized workcell - *considers all operations required to make a part* and groups those machines together (instead of transferring jobs from one specialized department to another) - *group technology cells eliminate* (1) movement time between operations (2) queue (waiting) time between operations (3) inventory (4) number of employees required - *requires workers that are* flexible to run several machines and processes (since they have an advanced skill set job security is increased)

Level Schedule (lean production schedules)

- a schedule that pulls material into final assembly at a constant rate (uniform pattern) - *requires* material to be pulled into final assembly in a pattern uniform enough to allow the various elements of production to respond to pull signals - *does not mean* that the usage of every part on an assembly line is identified hour by hour for days on end - *it does mean* that a given production system equipped with flexible setups and a fixed amount of material in the pipelines can respond to dynamic needs of assembly line

Production need is created by

- actual demand for the product STEPS 1) *when an item is sold*, the market pulls a replacement from the last position in the system (final assembly) 2) *this triggers an order to the factory production line* - where a worker then pulls another unit from an upstream station in the flow to replace the unit taken 3) *this upstream station then pulls from the next station further upstream* and so on back to the release of raw materials

Waste

- anything that doesn't add value from the customer's perspective *examples of process waste* 1) defective products 2) overproduction 3) inventories 4) excess motion 5) processing steps 6) transportation 7) waiting

Two-Card Kanban System

- authority to produce or supply additional parts comes from downstream operations - *requires determination of the number of kanban cards (containers) needed (in two-card system - # of withdrawal and production cards) - *each container next to the assembly line has a "withdrawal kanban" - *each container next to the machine center has a "production kanban" STEPS IN A TWO-CARD KANBAN SYSTEM 1) Assembly line takes the first part from a full container 2) worker takes the. withdrawal kanban from the container, removes the production kanban, and replaces it with the withdrawal kanban 3) Placement of this card on the container authorizes the movement of the container to the. assembly line 4) Freed production kanban is placed on a rack by the machine. center, with authorizes the production of another lot. of material - Cards on the rack visually show upcoming work for the machine center

Backflush (backflushing)

- calculating how many of each part were used in production - *using these calculations* to adjust actual on-hand inventory balances - *eliminates* the need to actually track each part used in production ("shop-floor data collection activity") - *is used where* parts that go into each unit of the product are periodically removed from inventory and accounted for based on number of units produced - is an *added benefit of the stable schedule* is seen in how parts and components are accounted for in a pull system

Customer Value

- in the context of lean production, something for which the customer is willing to pay - *when considered from the entire supply chain* should CENTER on the perspective of the "end customers" with the goal being to maximize what the customer is willing to pay for a firm's goods or service - *value-adding activities* transform materials and information into something the customer wants - *non-value adding activities* consume resources and do not directly contribute to the end result desired by the customer

Building a Lean Supply Chain

- involves taking a system approach to *integrating the partners* - *supply* must be coordinated with the need of the production facilities - *production* must be tied directly to the demand of the customers for products.

Plant Layout

- is required by lean to be designed to ensure *balanced *workflow with a minimum of work-in-process inventory - *each workstation is part of a production line* where or not a physical line exists - *capacity* is balanced using the same logic for an assembly line - *operations* are linked through a pull system - *system designer* must visualize how all aspects of internal and external logistics system tie to the plant layout

Cycle Time

- is the time between two identical units being completed on the line - *used* to adjust resources to produce the precise quantity needed

Production Process (in a Lean Process)

- is where the product is being made (ex: manufacturing plant) - *VSM is used to identify all of the value-adding and non-value-adding process* that materials are subjected to within a manufacturing plant (from raw materials to delivery to customers)

JIT Production

- means just-in-time - serves as a basis for leaning thinking - producing what is needed when needed and no more - *anything over the minimum amount necessary* is viewed as a "waste" bc effort and material expended for something not needed now cannot be utilized - JIT production is in contrast to relying on extra material if something goes wrong - *typically applied to repetitive manufacturing* which is when the same or similar items are made one after another - *JIT strives to produce* on (1) schedule, (2) on cost, and (3) on quality - *does not require large volumes* and can be applied to any repetitive segments of a business (regardless of where they appear) - *ideal lot size or production batch* is ONE - *JIT manufacturing exposes problems* otherwise hidden by excess inventories and staff - *goal of JIT* is to drive all inventory "queues to zero" which minimizes inventory investment and shortening lead times

To create a lean process

- one needs to have a FULL UNDERSTANDING of the business, including (1) production processes, (2) material flows, (3) information flows

Preventive Maintenance

- periodic inspection and repair designed to keep equipment reliable - *emphasized to ensure* that flows are not interrupted by downtime or malfunctioning equipment - *involves* periodic inspection and repair designed to keep a machine reliable - *is often done by operators* bc they are most familiar with machines and machines are easier to repair (since lean operations use several simple machines not one complex one)

Value Chain

- refers to the concept that each step in the supply chain processes that deliver products and services to customers should create value - *if the step does not create value*, it should be removed from the process

Lean Production and Six Sigma work best in

- repeatable and standardized operations

Kanban Cards

- represent the number of containers of material that flow back and forth between the supplier and the user areas - *each container* represents the. minimum production lot size to be supplied - *number of containers directly controls* the amount of work-in-process inventory in the system

When determining the size of a kanban, which of the following do you need to consider?

- safety stock - size of the container - expected demand

What types of machines do lean operations favor?

- simple

Uniform Plant Loading

- smoothing the production flow to dampen the reaction waves that normally occur in response to schedule variations - *occur when* changes are made in a final assembly (magnified throughout the line and supply chain) - *eliminate the problem* by making adjustments as small as possible by setting a firm monthly production plan. for which the output rate is frozen - *heijunka* japanese word for "smoothing" or "leveling"

Waste Reduction

- the *optimization* of value-adding activities and *elimination* of non-value-adding activities that are part of the value stream

Freeze Window

- the period of time during which the schedule is fixed and no further changes are possible

Quality at the Source

- the philosophy of making workers personally responsible. for the quality of their output - workers are expected to make the part correctly the first time and to stop the process immediately if there is a problem - *requires workers to concentrate on one part of the job*. at a time so quality problems are uncovered - (1) if pace is too fast, (2) worker finds a quality problem, (3) or safety issue is discovered, workers are obligated to. push a button to stop the line - *workers do their own maintenance and housekeeping until the problem is fixed - factory *workers* become their own inspectors (personally responsible. for quality of their output)

Value Stream

- these are the value-adding and non-value-adding activities required to design, order, and provide a product from concept to launch, order to delivery, and raw materials to customers. - *is all inclusive view of the system* which is a significant expansion of the scope of application of lean concept pioneered by Toyota

Kanban Production Control System

- uses a signaling device to regulate JIT flows - *kanban* is a signaling device used to control production (means "sign" or instruction card" in japanese) - *kanban pull system* an inventory or production control system that uses a signaling device to regulate flows (cards or containers make this up) - *can be used within manufacturing facilities, between manufacturing. facilities, and between manufacturers and external suppliers - *does not produce zero inventory* rather controls the amount of material that can be in process at a time (number of containers of each item)

Toyota Production System

- was developed to improve quality and productivity - was the benchmark for. lean manufacturing *predicated on Two Philosophies central to Japanese culture* *1) Elimination of Waste* - is anything that is not absolutely essential to production *2) Respect for People* - key to the Toyota Production System - they have striven to ensure lifetime employment for permanent positions and to maintain level payrolls even when business conditions deteriorate - *permanent workers* (1/3 of total workforce in Japan) have. (1) job security, (2) tend to be more flexible, (3) remain with a company, and (4) do all they can to help a firm achieve its goals - *company unions* exist to foster a cooperative relationship with management - *management views workers as* ASSETS not human machines - *toyota relies heavily on subcontractor networks* more than 90% of all Japanese companies are part of this supplier network of small firms - *suppliers consider themselves* "part of a customer's family"

Guidelines for Implementing a Lean Supply Chain

1) Value must be defined jointly for each product family, along with a target cost based on the customer's perception of value 2) All firms along the value stream must make a adequate return on their investments related to the value stream 3) The firms must work together to identify and eliminate muda (waste) 4) When cost targets are met, the firms along the stream will immediately conduct new analyses to identify remaining muda and set new targets 5) Every participating firm has the right to examine every activity in every firm relevant to the value stream as part of the joint search for waste *to be lean, everyone needs to be on the same page!*

Seven Prominent Types of Waste to be Eliminated from the Supply Chain

1) Waste from Overproduction 2) Waste of Waiting Time 3) Transportation Waste 4) Inventory Waste 5) Processing Waste 6) Waste of Motion 7) Waste from Product Defects

Lean Production demands (which enables the pull system to work smoothly)

1) higher level of quality at each stage of the process 2) strong vendor relations 3) fairly predictable demand for the end product

A Stable Schedule over a Lengthy Time Horizon required by Lean Production is accomplished by:

1) level scheduling 2) freeze windows 3) underutilization of capacity

Which of the following components are part of lean layouts?

1) quality at the source 2) group technology 3) JIT production

Other Methods to Signaling the Need for Production of a Part

1. *Kanban Squares* - marked spaces on the floor or on a table to identify where material should be stored - when square is empty, supplying operations are authorized to produce - when square is full, no parts are needed 2. *Container System* - container is used as a signal device - an empty container on the factory floor visually signals the need to fill it - amount of inventory is adjusted by simply adding or removing containers 3. *Colored Golf Balls* - used when a subassembly is down to its queue limit, assembler rolls a colored golf ball down a pipe to. the replenishment machine center (used by Kawasaki) - tells the operator which part to make next

True or false: When comparing service processes and manufacturing, the same sources of variation cause waste.

FALSE

Standardization Example of Airlines

Southwest Airlines Example - southwest has very efficient operations and achieves high ratings in customer satisfaction - weather is one of the uncertainties that airlines cannot control - flights will be canceled and passenger will need to be rebooked (this is an example of DEMAND UNCERTAINTY) which leads to huge demand spikes - *to eliminate waste and become more efficient airlines* have tended to cut capacity and fill flights *there is often a price to pay for being lean, that price often is at the expense of customer service when unlikely events occur* - means that not matter service or manufacturing, "potential trade-offs" exist with lean production

True or false: Anything other than the minimum is considered waste in lean production.

TRUE

Three Major Categories of Lean Supply Chain Design Principles

*1) Lean Concepts* - group technology - quality at the source - JIT production *2) Lean Production Schedules* - uniform plant loading - kanban production control systems - determination of number of kanbans needed - minimized setup time *3) Lean Supply Chain* - specialized plants - collaboration with suppliers - building of a lean supply chain

Different Components of a Supply Chain (what would be expected using a lean focus)

*1) Lean Suppliers* - are able to respond to changes - prices are generally lower due to the efficiency of lean processes - quality has improved so that incoming inspection at the next link is not needed - deliver on time and their culture is one of continuous improvement - *to develop lean suppliers, organizations should* include them in their "value stream planning" (helps fix problems and share savings) *2) Lean Procurement* - *key* is "automation" - *e-procurement relates to automatic transaction, sourcing, bidding and auctions using web-based applications* and the use of software that removes human interaction and integrates with financial reporting of firm - *key* is "visibility", *suppliers must be able to see* into the customer operations and *customer must be able to see* into their suppliers operations - overlap needs to be optimized to maximize value from the end-customer perspective *3) Lean Manufacturing* - produce what the customers want, in the quality they want, when they want it, and with minimum resources - *applying lean in manufacturing* presents the greatest opportunities for (1) cost reduction and (2) quality improvement *4) Lean Warehousing* - relates to eliminating non-value-added steps and waste in product storage processes - *functions include* (1) receiving material, (2) putting-away/storing, (3) replenishing inventory, (4) picking inventory, (5) packing for shipment, and (6) shipping - *waste is found in warehousing process including* (1) shipping defects (creating returns, overproduction or over shipment of products), (2) excess inventory (requires extra space and reduces warehouse efficiency, (3) excess motion and handling, (4) waiting for parts, (5) inadequate information systems *5) Lean Logistics* - are lean concepts applied to the functions associated with the movement of material through a system - *key areas include* (1) optimized mode selection and pooling orders, (2) combined multi stop truck loads, (3) optimized routing, (4) cross docking, (5) import/export transportation processes, and (6) backhaul minimization - *logistic functions need to be optimized by* eliminating non-value-adding activities while improving the value-adding activities *6) Lean Customers* - have a great understanding of their business needs and specify meaningful requirements - value speed and flexibility and expect high level of delivery performance - are interested in establishing effective. partnerships with their suppliers - expect value from products they purchase and provide value to their customers

10 Successful Techniques applied to Service Companies (Lean Services)

*1) Organize Problem-Solving Groups* *2) Upgrade Housekeeping* - good housekeeping means that only the necessary items are kept in a work area, there is a place for everything, and that everything is clean, and in a constant state of readiness - *McDonalds, Disneyland, and Speedi-Lube dedication to housekeeping has meant that (1) service processes work better, (2) attitude of continuous improvement is easier to develop, (3) and customers perceive that they are receiving better service *3) Upgrade Quality* - only cost-effective way to improve quality is to develop reliable process capabilities - *process quality* is quality at the source (it guarantees first-time production of consistent and uniform products and services) - *quality does not mean* producing the best, it *means* consistently producing products and services that give the customers their money's worth *4) Clarify Process Flows* *5) Revise Equipment and Process Technologies - *revising technologies involves* (1) evaluation of equipment and processes for their ability to meet the process requirements (2) to process consistently within tolerance (3) to fit the scale and capacity of the work group *6) Level the Facility Load - service firms synchronize production with demand - *examples* (1) McDonald offers a special breakfast menu, (2) retail stores use take-a-number systems, (3) post office charges more for next-day delivery *7) Eliminate Unnecessary Activities* - a step that does not add value is a *candidate for *elimination (may be up for reengineering to improve the process consistency or reduce the time to perform the tasks) *8) Reorganize Physical Configuration* - *accomplished by manufacturers by* setting up manufacturing cells to produce items in small lots (synchronous to demand) - *service firms example* (1) hospitals are reorganizing their services into work groups based on the type of problem *9) Introduce Demand-Pull Scheduling* - demand-pull scheduling (customer-driven) is done due to the nature of service production and consumption - service firms are separating their operations into "back room" and "customer contact" facilities *10) Develop Supplier Networks* - *supplier networks refers* to the cooperative association of suppliers and customers working over the long term for mutual benefit - *service firms have not emphasized supplier networks for material* bc the service osts are often predominantly labor

Concepts relating to Lean Network Design

*1) Specialized Plants* - *small specialized plants* rather than large vertically integrated manufacturing facilities are important - large operations and their bureaucracies are difficult to manage and not in line with lean. manufacturing - *specialized plants* need to be. linked together so they can. be synchronized to one another and the actual market need *2) Collaboration with Suppliers* - *if a firm shares its projected usage requirements with its vendors*, they have a long-term picture of the demand that will be placed on their production and distribution systems - collaboration can be reached through online interaction with a customer - *confidence* in a supplier or vendor's delivery commitment allows reductions of buffer inventories *3) Building of a Lean Supply Chain* - *supply chain* is the sum total of organizations involved from (1) raw materials firms through (2) tiers of suppliers to (3) original equipment manufacturers, and ultimately (4) distribution and delivery of finished product to the customers