Class #16 - Chapter 8: Operations Management Part 1 - LEAN Manufacturing

efficient consumer response (ECR)

a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers

just-in-time (JIT)

an inventory strategy to decrease waste by receiving materials only when and as needed in the production process, thereby reducing inventory costs

defects

anything that does not meet the acceptance criteria

waiting

elapsed time between processes when no work is being done

uniform plant loading

ex: level-loading the plan PROBLEM - demand exceeds capacity at points in the planning horizon - matching the production plan to follow demand exactly can contribute to inefficiency and waste UNIFORM PLANT LOADING - planning up to capacity in earlier time periods to meet demand in later time periods - also called "front-loading" the plan or "leveling" the plan - production schedule is frozen in the up-front time period (ex: month) - helps suppliers better plan production

inventory

excess products or materials not being processed

MTS lead times

features economies of scale, large volumes, long production runs, low variety, and multiple distribution channels

keiretsu relationships

involves companies both upstream and downstream of a manufacturing process, remaining independent but working closely together for mutual benefit

LEAN

- not a tool box of methods, ideas, or methodologies - is a culture - provides value for customers through the use of the most efficient resources possible - is standard in many industries

role of supplier

- partner with suppliers - improve process quality - info sharing - goal to build relationships with fewer suppliers

small batch scheduling can be facilitated through the use of Kanbans:

- "signal" or "card" in japanese used for communication (visual signal) between workstations - contains information passed between stations - authorizes production or the movement of materials to the next workstation - could be conducted through the use of a computer software program (ex: ERP system)

quick response

- 1990's - the rapid replenishment of a customer's stock by a supplier with direct access to data from the customer's point of sale

LEAN is composed of three elements working in unison:

- LEAN manufacturing - total quality management (TQM) - respect for people

engineer-to-order (ETO)

- a manufacturing process in which the component is *designed, engineered, and build* to specifications only after the order has been received - more dramatic evolution of a MTO supply chain - essence of ETO is building a unique product every time - may be components that are common from one product to another, but not in the same quantity as in repetitive manufacturing - the cost of poor quality can be very high - the warranty costs and the cost of rework to replace an item in a complex assembly can have a serious negative effect on profit margins - quality must be part of the entire process, and not just part of purchasing and manufacturing-the typical focus of a repetitive manufacturer

make-to-order (MTO)

- a manufacturing strategy that typically allows customers to purchase products that are customized to their specifications - only manufactures the end product once the customer places the order, creating additional wait time for the consumer to receive the product but allowing for more flexible customization - is like an elevator because it starts by receiving a customer order just as an elevator starts by the pressing of a button - relieves the problems of excessive inventory that is common with the traditional MTS strategy - not appropriate for all types of products - appropriate for highly configured products such as computer servers, aircrafts, ocean vessels, bridges, cars, or products that are very expensive to keep in inventory

assemble-to-order (ATO)

- a manufacturing strategy where products ordered by customers are produced quickly and are customizable to a certain extent - requires that basic parts for the product are already manufactured but not yet assembled - once an order is received, the parts are assembled quickly and sent to the customer - a hybrid strategy between a MTS strategy where products are fully produced in advance, and the MTO strategy where products are manufactured once the order has been received - attempts to combine the benfits of both strategies, getting products into customers' hands quickly while allowing for the product to be customized

setup time and changeover times

- both considered a waste as they are times when the equipment is not performing its intended function; producing product

manufacturing strategies

- companies that develop this suit the type(s) of products that they produce, their customer's expectations, and their strengths - can vary significantly depending on the product and/or the customer requirements - essential for establishing and maintaining an effective supply chain

the eight wastes (DOWN TIME)

- defects - overproduction - waiting - non-utilized talent - transportation - inventory - motion - extra-processing

pull approach

- each stage in the supply chain requests quantities needed from the previous stage - no excess inventory generated - reducing inventory levels can also uncover production problems

1. waste (muda) reduction

- firms reduce costs and add value by eliminating waste from the production system - waste encompasses wait times, inventories, material and people movement, processing steps, variability, any other non-value-adding activity - before *waste* is removed, processes are often scattered, which can negatively affect your customers - after *waste* is removed, processes are more streamlined, resulting in more satisfied customers. you'll also save your organization time and money

the 5 S's

- five pillars of the visual workplace, is a systematic process of workplace organization JAPANESE - seiri - seiton - seiso - seiketsu - shitsuke ENGLISH - sort - straighten - shine - standardize - sustain

operations management - the history

- industrial revolution - scientific management - human relations - operations research - quality revolution - internet revolution - globalization

manufacturing processes

- job shop - batch - line flow - continuous flow (look at slide 12)

LEAN often results in:

- large cost reductions - improved quality - increased customer service

types of manufacturing strategies

- make-to-stock (MTS) - assemble-to-order (ATO) - make-to-order (MTO) - engineer-to-order (ETO)

make-to-stock (MTS)

- manufacture products for stock basked on demand forecasts, which is a "push" system - since accuracy of the forecasts is expected to prevent excess inventory and opportunity loss due to stockouts, the critical issue is how to forecast demands accurately - is like a train schedule (supply schedule) for which the number of passengers (forecast demand) for each time period is primarily determined from historical data

2. lean layouts

- move people and materials when and where needed, and as soon as possible - are very visual (lines of visibility are unobstructed) with operators at one processing center able to monitor work at another - manufacturing cells -- process similar parts or components saving duplication of equipment and labor -- are often u-shaped to facilitate easier operator and material movements

relationship of TCM to manufacturing strategy

- procurement and production cost per unit go *down* as volume goes *up* (generally, a step function applies as more capital will be required to produce more as volume grows) - inventory and warehousing costs per unit go *up* as volume goes *up* (must hold more inventory and pay for more storage space, insurance, taxes, etc) - transportation costs per unit go *down* as volume goes up, but level off at high volumes (economies of scales in transportation until the container/conveyance is filled up) - look at slide 14

total cost of manufacturing includes all the costs associated with:

- production and procurement activities - inventory and warehousing activities - transportation activities

role of management

- provide atmosphere of cooperation - empower workers to take action based on their ideas - develop incentive system for lean behaviors

LEAN History 1990's

- quick response - efficient consumer response (ECR) - just-in-time (JIT) - keiretsu relationships

reducing wastes consequently results in:

- reduced cycle times - greater throughput - better productivity - improved quality - reduced costs (these can improve customer satisfaction and provide the company with a competitive advantage)

respect for people

- respect for all people must exist for an org to be at its best -- flatter hierarchy than traditional organizations -- ordinary workers given great responsibility -- supply chain members work together in cross functional teams - the role of workers, management, and suppliers - the goal is not to reduce the number of people in an organization, it is to use people resources more wisely

small batch scheduling

- smaller batches will facilitate producing at the same rate as customer demand - production in small batches creates a smooth workload as production can be synchronized with customer demand, facilitating a pull system - it increases flexibility allowing the company to respond to changes in customer demands more quickly - throughput times in manufacturing go down, and WIP inventory goes down, reduce costs and minimize waste in the system - the company can also get the product to the customer more quickly - shortens manufacturing lead time and the actual time it takes to produce the product, however, setup time must be low so that it is easy to switch from producing one type of product to another

3. inventory, setup time, and changeover time reduction

- some inventory may be necessary, but excess inventory is a waste - takes up space, and costs money to hold, maintain, protect, secure, and insure - ties up financial capital which could be used for other aspects of the business - reducing inventory levels can free up capital and reduce holding costs - there is less likelihood of waste being created by obsolescence, expiry, spoilage, or damage with lower inventory levels

5. lean supply chain relationships

- suppliers and customers work to remove waste, reduce cost, and improve quality and customer service - JIT purchasing includes delivering smaller quantities, at right time, delivered to the right location, in the right quantities - firms develop lean supply chain relationships with key customers. mutual dependency and benefits occur among these partners

traditional push approach

- supply chains work as "push" systems - inventory carried to cover up problems

operations

- the "heart" of any business

total cost of manufacturing

- the complete cost of producing and delivering products to your customers - incorporates both fixed and variable costs used in the manufacturing, storage, and delivery of the product - generally expressed as a cost per unit for each product

4. small batch scheduling and uniform plant loading

- the ideal schedule is to produce every product as quickly as possible and at the same rate as customer demand - material availability, labor availability, and setup or changeover time influences the scheduling of large batches - large batches can exacerbate the bullwhip effect as production in large batches creates an uneven workload - production is not synchronized with customer demand making a pull system impossible - throughput times in manufacturing go up and WIP inventory goes up, creating more waste in the system (snake trying to swallow a large meal)

job shop

- type of manufacturing process - creates a custom product for each customer (ex: custom cabinets)

line flow

- type of manufacturing process - has standard products with a limited number of variations moving on an assembly line through stages of production - ex: cars

continuous flows

- type of manufacturing process - is used to manufacture such items as gasoline, laundry detergent and chemicals - inflexible processes and high capital investment

batch

- type of manufacturing process - process manufactures a small quantity of an item in a single production run (ex: clothing manufacturing)

role of workes

- workers performing different tasks and actively pursuing company goals: - worker duties -- improve production process -- correct quality problems -- monitor quality - work in teams -- quality circles

the seven elements of LEAN manufacturing

1. waste reduction 2. LEAN layouts 3. inventory, setup time, and changeover time reduction 4. small batch scheduling and uniform plant loading 5. LEAN supply chain relationships 6. workforce empowerment 7. continuous improvement

LEAN history

1910's - Henry Ford's mass production line was a first breakthrough by using continuous assembly and flow systems that made parts find their way into finished products - 1940's/50's - Taichii Ohno and Shigeo Singo created the *Toyota Production System* which incorporated Ford's production system and other techniques to form the basis of what is now known as LEAN - LEAN was first coined by John Krafcik in 1988 and the definition was expanded in the 1990 book, *The Machine that Changed the World*

watch the toyota production system

7:48

lead times from least to most

MTS ATO MTO ETO

sustain

stick to the rules; maintain and review the standards

shine

clean the work area so it is neat and tidy

7. continuous improvement

continuous approach to reduce process, delivery, and quality problems, such as machine breakdown problems, setup problems, and internal quality problems

issue of MTS

is to avoid having excess inventory; companies today that operate with an MTS model struggle to make the correct product at the correct time in the correct quantities

goal of operations

is to manage processes that transform materials and labor into values g/s as efficiently and effectively as possible, while also *controlling costs in order to maximize profits*

sort

keep only necessary items in the workplace, eliminate the rest

6. workforce empowerment

managers must support lean manufacturing by providing subordinates with the skills, tools, and other necessary resources to identify problems and implement solutions

straighten

organize and arrange items to promote an efficient workflow

overproduction

production before it is needed, or in excess of customer requirements. providing a service that is not needed

operations management

refers to the *design, execution, and control* of the operations that *convert resources into desired goods and services (value creation)*, aligned to company's business strategy

MTO lead times

relies on relatively small quantities, but more complexity

standardize

schedule regular cleaning and maintenance

lean manufacturing

the combination of all 1990's approaches and concepts have emerged as the philosophies and practices

while setting up the equipment is a necessary function, if the set up time can be minimized...

the difference will be more time available to produce. both setup and changeover are non-value added operations and should be minimized as much as possible

changeover time

time taken to adapt and modify the manufacturing equipment and systems to produce a different product or a new batch of the same product

setup time

time taken to prepare and format the manufacturing equipment and systems for production

non-utilized talent

underutilizing people's talents, skills, or knowledge. de-motivating the workforce by not asking for input or recognizing success

transportation

unnecessary movement of materials or products

motion

unnecessary movement of people. multiple hand-offs

extra-processing

unnecessary steps in a process. redundancies between processes. more work or higher quality than required by the customer

ETO lead times

used when products are unique and extensively customers for the specific needs for individual customers

ATO lead times

when base components are made, stocked to forecast, but products are not assembled until customer order is received