CH. 8: Operations Management (LEAN)

Kanban means

"Signal" or "Card" in Japanese and is used for communication (e.g., visual signal) between workstations. It authorizes production or the movement of materials to the next workstation. Could be facilitated through the use of a computer software program, i.e., ERP system.

Before and After Waste Reduction

*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

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 work-in-process inventory goes up, creating more waste in the system.

The MTO strategy *relieves* the problems of

*excessive inventory* that is common with the Make-to-Stock strategy. It is *not appropriate for all types of products*. It is appropriate for highly configured products such as aircraft, ocean vessels, bridges, or products that are very expensive to keep in inventory.

ATO is a ...

*hybrid strategy*, attempting to combine the benefits of both *Make-to-Stock* and *Make-to-Order* strategies, getting products into customers' hands quickly while allowing for some customization to take place.

In the ETO world, 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.

Waste Categories (DOWN TIME)

Defects Overproduction Waiting Non-Utilized talent Transportation Inventory Motion/Movement Extra-Processing

Problem

Demand exceeds capacity at points in the planning horizon. Matching the production plan to follow demand exactly can contribute to inefficiency and waste, including *excess inventory* or *shortages of inventory*.

Pull System

Each stage in the supply chain requests quantities needed from the previous stage. No excess inventory is generated. Reducing inventory levels can also *uncover production problems*

LEAN Supply Chain Relationships

Firms develop lean supply chain relationships with *key customers* and *key suppliers*. In an ideal LEAN supply chain relationship, both customers and suppliers get connected in ways that allow them to easily *exchange information*, demand data, and the visibility of status. Mutual dependency and benefits occur among these partners. Suppliers and customers work to *remove waste, reduce cost, and improve quality and customer service*

Waste 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*.

Manufacturing Process Characteristic

Intermittent -Project Process -Batch Process Repetitive -Line Process -Continuous Process

Based on these characteristics, processes can be grouped into two broad categories:

Intermittent Processes Repetitive Processes

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

TCM includes:

1. *Manufacturing* and *Procurement* activities 2. *Inventory* and *Warehousing* activities 3. *Transportation* activities

TCM -vs- Strategic Alternatives As *volume goes up* . . .

A. *Manufacturing* and *Procurement* costs go *down* due to economies of scale. Generally-step function applies as more capital is required to produce. B. *Inventory* and *Warehousing* costs go *up*. C. *Transportation* costs go *down*, but level off at high volumes as the shipping container gets filled to capacity and another container must be used.

In the 1990s, Supply Chain Management combined:

Quick Response Efficient Consumer Response (ECR) Just-in-Time (JIT) Keiretsu Relationships

LEAN Green Practices

Reduce the cost of *environmental management* Lead to improved environmental performance. Increase the possibility that firms will adopt more advanced environmental management *Carbon-neutral* offsetting the *carbon footprint* of a firm's operations

Benefits of LEAN Waste Reduction

Reduced cycle times Greater throughput Better productivity Improved quality Reduced costs All of these can improve customer satisfaction and provide the company with a competitive advantage!!

LEAN Goals and Objectives

Satisfying internal *customer demand* Communicating demand forecasts and production schedules up the supply chain Quickly *moving products* in the production system Optimizing inventory levels across the supply chain Increasing the value, capabilities, and flexibility of the workforce through *cross-training* Extending *collaboration* and alliances beyond just 1st tier suppliers and customers to include 2nd and 3rd tier suppliers and customers as well

Six Sigma

a disciplined, statistical-based, data-driven methodology for identifying and removing the *causes of defects* (errors) and *minimizing variability* in manufacturing and in business processes. It was originally developed by Motorola.

Make-to-Order (MTO)

a manufacturing strategy in which manufacturing starts only *after a customer's order is received* *customized* to customer's specifications

Engineer to Order (ETO)

a manufacturing strategy in which the product is *designed*, *engineered*, and *built* to the customer's specifications after receipt of the order. involves *building a unique product every time*. There may be components that are common from one product to another, but the *finished product is different each time*.

Assemble-to-Order (ATO)

a manufacturing strategy where products ordered by customers are produced quickly and are *customization* to a certain extent. requires that the basic parts for the product are already manufactured but not yet assembled

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

LEAN

an operating philosophy of *waste reduction* and value enhancement. It was originally created as the Toyota Production System (TPS) by key Toyota executives

Setup Time and Changeover Time Reduction

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

The challenge of MTS is to

avoid having excess inventory. Companies tend to *hold more inventory just in case they need it*, therefore, they struggle to ensure that inventory levels don't get out of control.

Project Process (Job Shop)

creates a custom product for each customer. High customization. Product Variety: very high Volume: very low Strategy: ETO/MTO Customer Lead Time: very long

The goal of LEAN is the

elimination of waste and the minimization of the amount of all resources used in the operation of a company

Line Process

has standard products with a limited number of variations moving on an assembly line through stages of production Product Variety: limited Volume: high Strategy: ATO/MTS Customer Lead Time: short

Keiretsu Relationships

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

LEAN Manufacturing

is a *natural fit within the discipline of Supply Chain Management* as all of the LEAN goals and objectives help to facilitate an efficient and effective supply chain.

Make-to-Stock (MTS)

to *manufacture products for stock* based on demand forecasts. Push system. ex: daily necessities such as foods, sundries, and textiles

Continuous Process

used to manufacture such items as gasoline, laundry detergent and chemicals. Inflexible processes. High capital investment Product Variety: very limited Volume: very high Strategy: MTS Customer Lead Time: very short

Intermittent Processes

used to produce a large variety of products with different processing requirements in *lower volumes*.

Repetitive Processes

used to produce one, or a few, standardized products in *high volumes*.

Reducing inventory 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*.

Small Batch Scheduling

will facilitate producing at the same rate as customer demand. 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 Work-in-Process inventory goes down, reducing costs and eliminating or minimizing waste in the system.

The Components of LEAN Manufacturing

1. Waste Reduction 2. LEAN Layouts 3. Inventory, Setup Time, & Changeover Time Reduction 4. Small Batch Scheduling and Uniform Plant Loading 5. LEAN Supply Chain Relationships 6. Workforce Empowerment 7. Continuous Improvement

Manufacturing Strategies

Companies must develop a manufacturing strategy that suits the *type(s) of products* that they produce, their *customer's expectations*, and their *strengths*.

Continuous Improvement (Kaizen)

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

Role of Management

Create the cultural change needed for LEAN to succeed: -Provide an *atmosphere of cooperation*. -Empower workers to *take action* based on their ideas. -Develop incentive systems to recognize and *reward LEAN behaviors*.

Small batch scheduling can be facilitated through the use of

Kanbans

LEAN and Six Sigma complement one another

LEAN + Six Sigma -> Speed and Accuracy

Components of LEAN

LEAN Manufacturing Total Quality Management Respect for People

Role of Supplier

LEAN involves building long-term supplier relationships -Partnerships with suppliers. -Improving process quality. -Sharing information. The goal is to have the *fewest number* of high-quality suppliers possible without unnecessarily increasing risk.

LEAN regularly results in:

Large cost reductions Improved quality Increased customer service

Major Manufacturing Strategies

Make-to-Stock (MTS) Make-to-Order (MTO) Assemble-to-Order (ATO) Engineer-to-Order (ETO)

Workforce Commitment

Managers must support LEAN Manufacturing by providing subordinates with the skills, tools, time, and other necessary resources to *identify problems and implement solutions*

Manufacturing Processes

Part of any manufacturing strategy involves developing a manufacturing process that can create the exact product that has been designed. Although there are differences between companies, many manufacturing processes have certain *characteristics in common*.

Role of Workers

Perform tasks and actively pursuing company goals: -Improve production process -Correct quality problems -Monitor quality Work in Teams (i.e., Quality Circles)

Uniform Plant Loading (i.e., level-loading the plan)

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 (i.e., month) Helps suppliers better plan production.

Non-Value Added Process

Process steps that take time, resources, or space, but do not transform or shape the product or service.

Value Added Process

Process steps that transform or shape a product or service which is eventually sold to a customer.

Inventory, Setup Time, & Changeover Time Reduction

Some inventory may be necessary, but *excess inventory is a waste* - Excess inventory *takes up space*, and *costs money* to hold, maintain, protect, secure, and insure. - It ties up financial capital which could be used for other aspects of the business.

LEAN History

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

Traditional Approach

Supply chains work as "push" systems, and inventory is carried to cover up problems

Manufacturing Strategy -vs- Performance Cycle

The choice of strategy determines which performance cycles (i.e., lead time) the customer experiences Customer Delivery Cycle-> MTS Manufacturing Cycle-> ATO Procurement Cycle -> MTO Product Design-> ETO

The Role of Workers, Management, and Suppliers (refer to the 3 slides which follow).

The goal is *NOT* to reduce the number of people in an organization, it is to use *people resource* more wisely.

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. In the real world, material availability, labor availability, and setup or changeover time influences the scheduling of large batches

Manufacturing

The process of making *raw materials or components into a finished product* especially by means of a large-scale industrial operation, i.e., mass production

Respect for People

This must exist for an organization to be at its best -Flatter hierarchy than traditional organizations. -Ordinary workers given *greater responsibility*. -Supply chain members work together in cross functional teams.

Setup Time

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

Operations Management refers to

managing the process to *convert resources into goods and services*, in alignment with the company's business strategy as efficiently and effectively as possible, while also controlling costs.

Batch Process

manufactures a small quantity of an item in a single production run Product Variety: high Volume: low Strategy: MTO/ATO/MTS Customer Lead Time: long

LEAN is NOT a tool box of methods, ideas, or methodologies, it is...

philosophy/culture

Understand "Value"

the *inherent worth* of a product as judged by the customer, and reflected in its selling price and market demand. It is any activity that increases the market, form, or function of the product/service. Things for which the customer is willing to pay.

Total Cost of Manufacturing (TCM)

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 cost per unit

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.

The Five-S's

the five pillars of the visual workplace, is a systematic process of workplace organization. -Sort -Straighten -Shine -Standardize -Sustain "There is a place for everything, and everything should be in its' place"

Manufacturing Management

the management of all the processes which are involved in manufacturing

Quick Response

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

Changeover Time

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