"quality at the source" requires factory workers to become their own inspectors.

Although being lean helps manufacturers hold down costs by keeping stockpiles of components and finished goods low, it can leave them high and dry if production supplies don’t arrive as expected, a risk highlighted by the parts shortages caused by the earthquake and tsunami in Japan. The March 11, 2011, disaster that damaged factories and hobbled ports in Japan has thrown the situation into sharp relief. The disruptions quickly radiated out, putting kinks in the global supply chains of several industries. Auto plants in the midwest United States and electronics factories across Asia scrambled to find substitutes for Japanese-made parts. Many other industries say they are still assessing how the disruptions will filter back to them.

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Closer to the Bone

INVENTORIES AT U.S. COMPANIES, RELATIVE TO DEMAND, HAVE BEEN TRENDING LOWER FOR MORE THAN A DECADE, PARTLY REFLECTING THE INFLUENCE OF JUST-IN-TIME MANUFACTURING. STOCKPILES SPIKED DURING THE RECESSION, HOWEVER, AS PLUNGING DEMAND LEFT FACTORIES STUCK WITH UNSOLD GOODS. AS A RESULT, SOME OF THEM ARE HESITANT TO RAMP UP AS THE ECONOMY RECOVERS.

Steps factories are taking to prevent disruptions:

Sources: Commerce Dept.; WSJ reporting.

Just-in-time makes sense, but it makes supply chains vulnerable to disruptions, so what we’re seeing now is theoretical concepts being adapted to meet the practical world. Nobody expects manufacturers to revert to their old ways of piling up masses of parts and products, but many manufacturers may have gotten stretched too thin in recent years.

Source: Adapted from Timothy Aeppel, The Wall Street Journal, April 29, 2011.

LO14–1

Explain what lean production is.

LEAN PRODUCTION

The most significant operations and supply management approach of the past 50 years is lean production. In the context of supply chains, lean production refers to a focus on eliminating as much waste as possible. Moves that are not needed, unnecessary processing steps, and excess inventory in the supply chain are targets for improvement during the learning process. Some consultants in industry have coined the phrase value chain to refer to the concept that each step in the supply chain processes that delivers products and services to customers should create value. If a step does not create value, it should be removed from the process. Lean production may be one of the best tools for implementing green strategies in manufacturing and service processes.

Lean production

Integrated activities designed to achieve high-volume, high-quality production using minimal inventories of raw materials, work-in-process, and finished goods.

The basis of lean thinking came from the just-in-time (JIT) production concepts pioneered in Japan at Toyota. Even though JIT gained worldwide prominence in the 1970s, some of its philosophy can be traced to the early 1900s in the United States. Henry Ford used JIT concepts as he streamlined his moving assembly lines to make automobiles. For example, to eliminate waste, he used the bottom of the packing crates for car seats as the floor board of the car. Although elements of JIT were being used by Japanese industry as early as the 1930s, it was not fully refined until the 1970s when Tai-ichi Ohno of Toyota Motors used JIT to take Toyota’s cars to the forefront of delivery time and quality.

Customer value, in the context of lean production, is defined as something for which the customer is willing to pay. 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. Waste, therefore, is defined as anything that does not add value from the customer’s perspective. Examples of process wastes are defective products, overproduction, inventories, excess motion, processing steps, transportation, and waiting.

Customer value

In the context of lean production, something for which the customer is willing to pay.

Waste

Anything that does not add value from the customer’s perspective.

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exhibit 14.1

Lean Production Pull System

Strategy

Lean production is an integrated set of activities designed to achieve production using minimal inventories of raw materials, work-in-process, and finished goods. Parts arrive at the next workstation “just-in-time” and are completed and move through the process quickly. Lean is also based on the logic that nothing will be produced until it is needed. Exhibit 14.1 illustrates the process. Production need is created by actual demand for the product. When an item is sold, in theory, the market pulls a replacement from the last position in the system—final assembly in this case. 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. This upstream station then pulls from the next station further upstream and so on back to the release of raw materials. To enable this pull process to work smoothly, lean production demands high levels of quality at each stage of the process, strong vendor relations, and a fairly predictable demand for the end product.

The Toyota Production System

Here we develop the philosophy and elements of lean production developed in Japan and embodied in the Toyota Production System—the benchmark for lean manufacturing. The Toyota Production System was developed to improve quality and productivity and is predicated upon two philosophies that are central to the Japanese culture: elimination of waste and respect for people.1

Elimination of Waste Waste, as defined by Toyota’s past president, Fujio Cho, is “anything other than the minimum amount of equipment, materials, parts, and workers (working time) which are absolutely essential to production.” An expanded lean definition advanced by Fujio Cho identifies 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, and (7) waste from product defects.2

Respect for People Respect for people is a key to the Toyota Production System. It has traditionally strived to assure lifetime employment for permanent positions and to maintain level payrolls even when business conditions deteriorate. Permanent workers (about one-third of the total workforce of Japan) have job security and tend to be more flexible, remain with a company, and do all they can to help a firm achieve its goals. (Global recessions have caused many Japanese companies to move away from this ideal.)

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Company unions at Toyota as well as elsewhere in Japan exist to foster a cooperative relationship with management. All employees receive two bonuses a year in good times. Employees know that if the company performs well, they will get a bonus. This encourages workers to improve productivity. Management views workers as assets, not as human machines. Automation and robotics are used extensively to perform dull or routine jobs so employees are free to focus on important improvement tasks.

Toyota relies heavily on subcontractor networks. Indeed, more than 90 percent of all Japanese companies are part of the supplier network of small firms. Some suppliers are specialists in a narrow field, usually serving multiple customers. Firms have long-term partnerships with their suppliers and customers. Suppliers consider themselves part of a customer’s family.

Lean Supply Chains Processes

The focus of the Toyota Production System is on elimination of waste and respect for people. As the concepts have evolved and become applied to the supply chain, the goal of maximizing customer value has been added. Customer value when considered from the entire supply chain should center on the perspective of the end customer with the goal being to maximize what the customer is willing to pay for a firm’s goods or services. The value stream consists of the value-adding and non– value-adding activities required to design, order, and provide a product or service from concept to launch, order to delivery, and raw materials to customers. This all-inclusive view of the system is a significant expansion of the scope of application of the lean concepts pioneered by Toyota. When applied to supply chains, waste reduction relates to the optimization of the value-adding activities and the elimination of non–value-adding activities that are part of the value stream.

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.

Waste reduction

The optimization of value-adding activities and elimination of non– value-adding activities that are part of the value stream.

In the following paragraphs we discuss the different components of a supply chain and what would be expected using a lean focus:

Lean Suppliers Lean suppliers are able to respond to changes. Their prices are generally lower due to the efficiencies of lean processes, and their quality has improved to the point that incoming inspection at the next link is not needed. Lean suppliers deliver on time and their culture is one of continuous improvement. To develop lean suppliers, organizations should include them in their value stream planning. This will help them fix problems and share savings.

Lean Procurement A key to lean procurement is automation. The term 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 the financial reporting of the firm. Another key to lean procurement is visibility. Suppliers must

VOICE-DIRECTED ORDER FULFILLMENT ALLOWS WORKERS HANDS-FREE OPERATION FOR FASTER, SAFER, AND MORE ACCURATE INVENTORY PICKING. IT ALSO SUPPORTS THE USE OF MULTIPLE LANGUAGES.

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BOXES OF COCA-COLA CO. CANS MOVE DOWN A SPIRAL CONVEYOR BELT AT THE COMPANY’S SWIRE BOTTLING PLANT IN SALT LAKE CITY, UTAH.

be able to “see” into each customer’s operations and customers must be able to “see” into their suppliers’ operations. The overlap of these processes needs to be optimized to maximize value from the end-customer perspective.

Lean Manufacturing Lean manufacturing systems produce what the customer wants, in the quantity they want, when they want it, and with minimum resources. Applying lean concepts in manufacturing typically presents the greatest opportunities for cost reduction and quality improvement.

Lean Warehousing This relates to eliminating non–value-added steps and waste in product storage processes. Typical functions include the following: receiving material; putting-away/storing; replenishing inventory; picking inventory; packing for shipment; and shipping. Waste can be found in many warehousing processes including shipping defects, which creates returns; overproduction or overshipment of products; excess inventory, which requires extra space and reduces warehouse efficiency; excess motion and handling; waiting for parts; and inadequate information systems.

Lean Logistics Lean concepts can be applied to the functions associated with the movement of material through the system. Some of the key areas include optimized mode selection and pooling orders; combined multistop truckloads; optimized routing; cross docking; import/export transportation processes; and backhaul minimization. Just as with the other areas, these logistics functions need to be optimized by eliminating non–value-adding activities while improving the value-adding activities.

Lean Customers Lean customers have a great understanding of their business needs and specify meaningful requirements. They value speed and flexibility and expect high levels of delivery performance. Lean customers are interested in establishing effective partnerships with their suppliers. Lean customers expect value from the products they purchase and can then provide value to their own customers.

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

LO14–2

Illustrate how lean concepts can be applied to supply chain processes.

LEAN SUPPLY CHAIN PROCESSES

Looking for ways to improve supply chain processes should be based on ideas that have been proven over time. In the following, we review a set of key principles that can guide the design of lean supply chains. We divide our design principles into three major categories. The first two sets of principles relate to internal production processes. These are the processes that actually create the goods and services within a firm. The third category applies lean concepts to the entire supply chain. These principles include:

1. Lean layouts

a. Group technology

b. Quality at the source

c. JIT production

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2. Lean production schedules

a. Uniform plant loading

b. Kanban production control system

c. Minimized setup times

3. Lean supply chains

a. Specialized plants

b. Collaboration with suppliers

c. Building a lean supply chain

Process

Lean Layouts

Lean requires the plant layout be designed to ensure balanced work flow with a minimum of work-in-process inventory. Each workstation is part of a production line, whether or not a physical line actually exists. Capacity is balanced using the same logic for an assembly line, and operations are linked through a pull system. In addition, the system designer must visualize how all aspects of the internal and external logistics system tie to the layout.

Preventive maintenance is emphasized to ensure that flows are not interrupted by downtime or malfunctioning equipment. Preventive maintenance involves periodic inspection and repair designed to keep a machine reliable. Operators perform much of the maintenance because they are most familiar with their machines and because machines are easier to repair, as lean operations favor several simple machines rather than one large complex one.

Preventive maintenance

Periodic inspection and repair designed to keep equipment reliable.

Group Technology Group technology (GT) is a philosophy in which similar parts are grouped into families, and the processes required to make the parts are arranged in a manufacturing cell. Instead of transferring jobs from one specialized department to another, GT considers all operations required to make a part and groups those machines together. Exhibit 14.2 illustrates the difference between the clusters of different machines grouped into cells versus departmental layouts. The group technology cells eliminate movement and queue (waiting) time between operations, reduce inventory, and reduce the number of employees required. Workers, however, must be flexible to run several machines and processes. Due to their advanced skill level, these workers have increased job security.

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.

Quality at the Source Quality at the source means do it right the first time and, when something goes wrong, stop the process or assembly line immediately. Factory workers become their own inspectors, personally responsible for the quality of their output. Workers concentrate on one part of the job at a time so quality problems are uncovered. If the

Quality at the source

Philosophy of making factory 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.

exhibit 14.2

Group Technology versus Departmental Specialty

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pace is too fast, if the worker finds a quality problem, or if a safety issue is discovered, the worker is obligated to push a button to stop the line and turn on a visual signal. People from other areas respond to the alarm and the problem. Workers are empowered to do their own maintenance and housekeeping until the problem is fixed.

JIT Production JIT (just-in-time) means producing what is needed when needed and no more. Anything over the minimum amount necessary is viewed as waste because effort and material expended for something not needed now cannot be utilized now. This is in contrast to relying on extra material just in case something goes wrong.

JIT is typically applied to repetitive manufacturing, which is when the same or similar items are made one after another. JIT does not require large volumes and can be applied to any repetitive segments of a business regardless of where they appear. Under JIT the ideal lot size or production batch is one. Although workstations may be geographically dispersed, it is important to minimize transit time and keep transfer quantities small—typically one-tenth of a day’s production. Vendors even ship several times a day to their customers to keep lot sizes small and inventory low. The goal is to drive all inventory queues to zero, thus minimizing inventory investment and shortening lead times.

When inventory levels are low, quality problems become very visible. Exhibit 14.3 illustrates this idea. If the water in a pond represents inventory, the rocks represent problems that could occur in a firm. A high level of water hides the problems (rocks). Management assumes everything is fine, but as the water level drops in an economic downturn, problems are presented. If you deliberately force the water level down (particularly in good economic times), you can expose and correct problems before they cause worse problems. JIT manufacturing exposes problems otherwise hidden by excess inventories and staff.

Lean Production Schedules

As noted earlier, lean production requires a stable schedule over a lengthy time horizon. This is accomplished by level scheduling, freeze windows, and underutilization of capacity. A level schedule is one that 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. It does not necessarily 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 the dynamic needs of the assembly line.3

Level schedule

A schedule that pulls material into fi nal assembly at a constant rate.

exhibit 14.3

Inventory Hides Problems

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The term freeze window refers to that period of time during which the schedule is fixed and no further changes are possible. An added benefit of the stable schedule is seen in how parts and components are accounted for in a pull system. Here, the concept of backflush is used where the parts that go into each unit of the product are periodically removed from inventory and accounted for based on the number of units produced. For example, if 1,000 road bicycles are made, 1,000 of the appropriate handlebars, 2,000 tires, one seat, and so forth, are automatically removed from on-hand inventory. This eliminates much of the shop-floor data collection activity, which is required if each part must be tracked and accounted for during production.

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 like poor quality, machine failures, and unanticipated bottlenecks in traditional manufacturing. 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 demand is greater than expected, overtime must be used. Often part-time labor is used when additional capacity is needed. During idle periods, personnel can be put to work on other activities such as special projects, work group activities, and workstation housekeeping.

Freeze window

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

Backflush

Calculating how many of each part were used in production and using these calculations to adjust actual on-hand inventory balances. This eliminates the need to actually track each part used in production.

Uniform Plant Loading Smoothing the production flow to dampen the reaction waves that normally occur in response to schedule variations is called uniform plant loading. When a change is made in a final assembly, the changes are magnified throughout the line and the supply chain. The only way to eliminate the problem is to make adjustments as small as possible by setting a firm monthly production plan for which the output rate is frozen.

Uniform plant loading

Smoothing the production flow to dampen schedule variation.

Toyota found it could do this by building the same mix of products every day in small quantities. Thus, it always has a total mix available to respond to variations in demand. A Toyota example is shown in Exhibit 14.4. Monthly car style quantities are reduced to daily quantities (assuming a 20-day month) in order to compute a model cycle time (defined here as the time between two identical units being completed on the line). The cycle time figure is used to adjust resources to produce the precise quantity needed. The speed of equipment or of the production line is adjusted so only the needed quantity is produced each day. JIT strives to produce on schedule, on cost, and on quality.

Kanban Production Control Systems

A kanban control system uses a signaling device to regulate JIT flows. Kanban means “sign” or “instruction card” in Japanese. In a paperless control system, containers can be used instead of cards. The cards or containers make up the kanban pull system. The authority to produce or supply additional parts comes from downstream operations. Consider Exhibit 14.5, where we show an assembly line that is supplied with parts by a machine center. The machine center makes two parts, A and B. These two parts are stored in containers that are located next to the assembly line and next to the machine center. Each container next to the assembly line has a withdrawal kanban, and each container next to the machine center has a production kanban. This is often referred to as a two-card kanban system.

Kanban

A signaling device used to control production.

Kanban pull system

An inventory or production control system that uses a signaling device to regulate flows.

exhibit 14.4

Toyota Example of Mixed-Model Production Cycle in a Japanese Assembly Plant

Sequence: Sedan, hardtop, sedan, wagon, sedan, hardtop, sedan, wagon, and so on (one minute apart)

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Process

exhibit 14.5

Flow of Two Kanbans

When the assembly line takes the first part A from a full container, a worker takes the withdrawal kanban from the container, and takes the card to the machine center storage area. In the machine center area, the worker finds a container of part As, removes the production kanban, and replaces it with the withdrawal kanban. Placement of this card on the container authorizes the movement of the container to the assembly line. The freed production kanban is placed on a rack by the machine center, which authorizes the production of another lot of material. A similar process is followed for part B. The cards on the rack become the dispatch list for the machine center. Cards are not the only way to signal the need for production of a part; other visual methods are possible, as shown in Exhibit 14.6.

The following are some other possible approaches:

Kanban squares. Some companies use marked spaces on the floor or on a table to identify where material should be stored. When the square is empty, the supplying operations are authorized to produce; when the square is full, no parts are needed.

Container system. Sometimes the container itself can be used as a signal device. In this case, an empty container on the factory floor visually signals the need to fill it. The amount of inventory is adjusted by simply adding or removing containers.

Colored golf balls. At a Kawasaki engine plant, when a part used in a subassembly is down to its queue limit, the assembler rolls a colored golf ball down a pipe to the replenishment machine center. This tells the operator which part to make next. Many variations have been developed on this approach.

exhibit 14.6

Diagram of Outbound Stockpoint with Warning Signal Marker

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The kanban pull approach can be used not only within a manufacturing facility but also between manufacturing facilities (pulling engines and transmissions into an automobile assembly operation, for example) and between manufacturers and external suppliers.

Analytics

Determining the Number of Kanbans Needed Setting up a kanban control system requires determination of the number of kanban cards (or containers) needed. In a two-card system, we are finding the number of sets of withdrawal and production cards. The 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. The number of containers, therefore, directly controls the amount of work-in-process inventory in the system.

Accurately estimating the lead time needed to produce a container of parts is the key to determining the number of containers. This lead time is a function of the processing time for the container, any waiting time during the production process, and the time required to transport the material to the user. Enough kanbans are needed to cover the expected demand during this lead time plus some additional amount for safety stock. The number of kanban card sets is

Unexpected text node: 'k'Unexpected text node: 'k' [14.1]

where

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 (this can be based on a service level and variance as shown in Chapter 20).

C = Container size

Observe that a kanban system does not produce zero inventory; rather, it controls the amount of material that can be in process at a time—the number of containers of each item. The kanban system can be easily adjusted to fit the current way the system is operating because card sets can be easily added or removed from the system. If the workers find that they are not able to consistently replenish the item on time, an additional container of material, with the accompanying kanban cards, can be added. If it is found that excess containers of material accumulate, card sets can be easily removed, thus reducing the amount of inventory.

EXAMPLE 14.1: Determining the Number of Kanban Card Sets

Meritor, a company that makes muffler assemblies for the automotive industry, is committed to the use of kanban to pull material through its manufacturing cells. Meritor has designed each cell to fabricate a specific family of muffler products. Fabricating a muffler assembly involves cutting and bending pieces of pipe that are welded to a muffler and a catalytic converter. The mufflers and catalytic converters are pulled into the cell based on current demand. The catalytic converters are made in a specialized cell.

For a step-by-step walkthrough of this example, visit www.mhhe.com/jacobs14e_sbs_ch14.

Catalytic converters are made in batches of 10 units and are moved in special hand carts to the fabrication cells. The catalytic converter cell is designed so that different types of catalytic converters can be made with virtually no setup loss. The cell can respond to an order for a batch of catalytic converters in approximately four hours. Because the catalytic converter cell is right next to the muffler assembly fabrication cell, transportation time is virtually zero.

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The muffler assembly fabrication cell averages approximately eight assemblies per hour. Each assembly uses the same catalytic converter. Due to some variability in the process, management has decided to have safety stock equivalent to 10 percent of the needed inventory.

How many kanban sets are needed to manage the replenishment of the catalytic converters?

SOLUTION

In this case, the lead time for replenishment of the converters (L) is four hours. The demand (D) for the catalytic converters is eight per hour. Safety stock (S) is 10 percent of the expected demand, and the container size (C) is 10 units.

k=8×4(1+.1)10=35.210=3.52or4setsk=8  × 4(1 + .1)10 = 35.210=3.52 or 4 sets

In this case, we would need four kanban card sets, and we would have four containers of converters in the system. In all cases, when we calculate k, we will round the number up because we always need to work with full containers of parts. When the first unit of a batch of 10 catalytic converters is used in the muffler fabrication cell, a “signal” card is sent to the catalytic converter cell to trigger the production of another batch.

Minimized Setup Times

The reductions in setup and changeover times are necessary to achieve a smooth flow. Exhibit 14.7 shows the relationship between lot size and setup costs. Under a traditional approach, setup cost is treated as a constant, and the optimal order quantity is shown as six. Under the kanban approach, setup cost is significantly reduced and the corresponding optimal order quantity is reduced. In the exhibit, the order quantity has been reduced from six to two under lean methods by employing setup-time–saving procedures. This organization will ultimately strive for a lot size of one.

In a widely cited example from the late 1970s, Toyota teams of press operators producing car hoods and fenders were able to change an 800-ton press in 10 minutes, compared with the average of six hours for U.S. workers and four hours for German workers. (Now, however, such speed is common in most U.S. auto plants.) To achieve such setup time reduction, setups are divided into internal and external activities. Internal setups must be done while a machine

exhibit 14.7

Relationship between Lot Size and Setup Cost

Definitions: Holding cost includes the costs of storing inventory and the cost of money tied up in inventory. Setup cost includes the wage costs attributable to workers making the setup, and various administrative and supplies costs. (These are defined in total in Chapter 20, “Inventory Management.”)

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is stopped. External setups can be done while the machine is running. Other time-saving devices such as duplicate tool holders also are used to speed setups.

Lean Supply Chains

Strategy

Building a lean supply chain involves taking a systems approach to integrating the partners. Supply must be coordinated with the need of the production facilities, and production must be tied directly to the demand of the customers for products. The importance of speed and steady consistent flow that is responsive to actual customer demand cannot be overemphasized. Concepts that relate to lean network design are discussed next.

Specialized Plants Small specialized plants rather than large vertically integrated manufacturing facilities are important. Large operations and their inherent bureaucracies are difficult to manage and not in line with the lean philosophy. Plants designed for one purpose can be constructed and operated more economically. These plants need to be linked together so they can be synchronized to one another and to the actual need of the market. Speed and quick response to changes are keys to the success of a lean supply chain.

Collaboration with Suppliers Just as customers and employees are key components of lean systems, suppliers are also important to the process. If a firm shares its projected usage requirements with its vendors, they have a long-run picture of the demands that will be placed on their production and distribution systems. Some vendors are linked online with a customer to share production scheduling and input needs data. This permits them to develop level production systems. Confidence in the supplier or vendor’s delivery commitment allows reductions of buffer inventories. Maintaining stock at a lean level requires frequent deliveries during the day. Some suppliers even deliver directly to a location on the production line and not at a receiving dock. When vendors adopt quality practices, incoming receiving inspections of their products can be bypassed.

Building a Lean Supply Chain A supply chain is the sum total of organizations involved—from raw materials firms through tiers of suppliers to original equipment manufacturers, onward to the ultimate distribution and delivery of the finished product to the customer. Womack and Jones, in their seminal work Lean Thinking, provide the following guidelines for implementing a lean supply chain: 4

• Value must be defined jointly for each product family along with a target cost based on the customer’s perception of value.

• All firms along the value stream must make an adequate return on their investments related to the value stream.

• The firms must work together to identify and eliminate muda (waste).

• When cost targets are met, the firms along the stream will immediately conduct new analyses to identify remaining muda and set new targets.

• 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 summarize: To be lean, everyone’s got to be on the same page!

Value stream mapping

A graphical way to analyze where value is or is not being added as material flows through a process.

LO14–3

Analyze supply chain processes using value stream mapping.

VALUE STREAM MAPPING

Value stream mapping (VSM) is a special type of flowcharting tool that is valuable for the development of lean processes. The technique is used to visualize product flows through various processing steps. The tool also illustrates information flows that result from the process as well as information used to control flow through the process. The aim of this section is to provide a brief introduction to VSM and to illustrate its use with an example.

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Process

To create a lean process, one needs to have a full understanding of the business, including production processes, material flows, and information flows. In this section we discuss this in the context of a production process where a product is being made. VSM is not limited to this context and can be readily applied to service, logistics, distribution, or virtually any type of process.

ln the context of a production process such as a manufacturing plant, the technique is used to identify all of the value-adding as well as non–value-adding processes that materials are subjected to within a plant, from raw material coming into the plant through delivery to the customer. Exhibit 14.8 is a sample map that depicts a production process. With this map, identification of wasteful processes and flows can be made so that they can be modified or eliminated, and the manufacturing system made more productive.

Details explaining the symbols will be discussed later in the section but here it is useful to discuss what the information in the map depicted in Exhibit 14.8 actually means.5 Startng from the left, we see that material is supplied on a weekly basis and deposited in a raw material inventory indicated by the triangle. The average level for this inventory is 2,500 units. This material is run through a five-step process consisting of machining, drilling, cleaning, inspection, and packaging. The machining, drilling, inspection, and packaging processes all use a single operator. Under each of these process symbols is the activity cycle time (CT), changeover time (C/O time to switch from one type of item to another), lot size, available number of seconds per day, and percentage of uptime. The cleaning activity is a multistep process where items are handled on a first-come-first-served basis. In between each process are inventory buffers with the average inventory in these buffers depicted in the exhibit.

exhibit 14.8

Manufacturing Process Map

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exhibit 14.9

Value Stream Mapping Symbols

Information flows are shown on the map. In Exhibit 14.8 we see that production control issues monthly demand forecasts, weekly orders to the supplier, and a weekly production schedule that is managed by the supervisor on a daily basis. Monthly forecasts are provided by the customer and it places its orders on a weekly basis. The time line at the bottom shows the processing time for each production activity (in seconds) together with the average inventory wait time. Adding these times together gives an estimate of the lead time through the entire system.

VSM symbols are somewhat standardized but there are many variations. Several common symbols are depicted in Exhibit 14.9. These are categorized as Process, Material, Information, and General symbols.

Value stream mapping is a two-part process—first depicting the “current state” of the process and second a possible “future state.” Exhibit 14.10 depicts another map of the same process with suggested improvements. The map has been annotated using Kaizen bursts that suggest the areas for improvement. Kaizen is the Japanese philosophy that focuses on continuous improvement. The Kaizen bursts identify specific short-term projects (often referred to as “Kaizen events”) that teams work on to implement changes to the process. In this exhibit we see a totally redesigned process where the individual production operations have been combined into a workcell operated by three employees. In addition, rather than “pushing” material through the system based on weekly schedules generated by production control, the entire process is converted to a pull system that is operated directly in response to customer demand. Note that the lead time in the new system is only 5 days, compared to the 34-day lead time with the old system.

Kaizen

Japanese philosophy that focuses on continuous improvement.

To study another example using value stream mapping (VSM), consider the Solved Problem 2 at the end of the chapter. VSM is a great visual way to analyze an existing system and to find areas where waste can be eliminated. Value stream maps are simple to draw and it is possible to construct the maps totally with paper and pencil. These maps can, however, be more easily constructed using standard office software or graphics packages. Additionally, dedicated VSM software is available from Strategos (www.strategosinc.com) and Systems2win (www.Systems2win.com).

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exhibit 14.10

Analysis Showing Potential Areas for Improving a Process

LO14–4

Apply lean concepts to service processes.

LEAN SERVICES

Waste elimination is a reasonable goal in service processes, just as it is in manufacturing processes, but there is a difference in the sources of variation that cause the waste. Manufacturing processes, compared to service processes, are far more controllable. Uncertainty does result from material and labor inputs, but those can be anticipated and controlled to a great extent. The workers, the design of the product, and the production tools are all under the control of operations to a very large extent. If sales and marketing are part of the process, the demand uncertainty also can be reduced.

In contrast, services operate in a sea of uncertainty and variability that is much harder to control. Let’s look at these sources.

• Uncertainty in task times. The nature of service products is that the execution of each service delivery has some uniqueness. This variability typically leads to a negative exponential distribution of task times. Simply put, this means that while most task executions will fall within some tight range, some executions will take a long time. Consider airplane boarding. There’s uncertainty here, yet Southwest found a way to reduce the uncertainty and achieve faster turnaround times at airports, increasing effective capacity.

• Uncertainty in demand. While service demand can be forecasted, no forecast is 100 percent perfect. Manufacturers can buffer this forecast uncertainty with some finished goods inventory. The simultaneous production and consumption in services precludes this tactic. The capacity must be available when the demand arises. Think about the number of available tables needed in a restaurant for peak dining hours.

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• Customers’ production roles. Both of the above uncertainties have much to do with customer involvement in service operations. Because customers typically have some role to play in the production of a service, 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, and they typically have tangible tasks to perform.

Lean production and Six Sigma work best in repeatable, standardized operations. While many services are repeatable, given the above, how well can they be truly standardized? Let’s look at the recent experience of the airline industry.

Airline companies such as Southwest have very efficient operations, and they achieve high ratings in customer satisfaction—until a major storm causes a disruption. Consider the horrible storms that often strike the eastern third of the United States in the spring. Weather is one of those uncertainties that the airlines simply cannot control. Flights will be canceled, and passengers will need to be rebooked. This is an extreme example of demand uncertainty that leads to huge demand spikes.

At the same time, to eliminate waste and become more efficient, airlines have tended to cut capacity and fill flights. Today you seldom fly on a plane that isn’t 90 to 100 percent booked. With few available seats, it can take days to rebook all passengers from flights canceled due to weather. Our point is that there is often a price to pay for being lean, and that price often is at the expense of customer service when unlikely events occur. Whether in a service or manufacturing business, potential trade-offs exist with lean production and must be dealt with.

Many lean techniques have been successfully applied by service firms. Just as in manufacturing, the suitability of each technique and the corresponding work steps depend on the characteristics of the firm’s markets, production and equipment technology, skill sets, and corporate culture. Service firms are not different in this respect. Here are 10 of the more successful techniques applied to service companies:

1. Organize Problem-Solving Groups Honeywell is extending its use of quality teams from manufacturing into its service operations. Other corporations as diverse as First Bank/Dallas, Standard Meat Company, and MillerCoors Brewing Company are using similar approaches to improve service. British Airways used quality teams as a fundamental part of its strategy to implement new service practices.

Process

2. Upgrade Housekeeping Good housekeeping means more than winning the clean broom award. It means that only the necessary items are kept in a work area, that there is a place for everything, and that everything is clean and in a constant state of readiness. The employees clean their own areas.

Service organizations such as McDonald’s, Disneyland, and Speedi-Lube have recognized the critical nature of housekeeping. Their dedication to housekeeping has meant that service processes work better, the attitude of continuous improvement is easier to develop, and customers perceive that they are receiving better service.

3. Upgrade Quality The 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.

McDonald’s is famous for building quality into its service delivery process. It literally “industrialized” the service delivery system so that part-time, casual workers could provide the same eating experience anywhere in the world. Quality doesn’t mean producing the best; it means consistently producing products and services that give the customers their money’s worth.

4. Clarify Process Flows Clarification of flows, based on JIT themes, can dramatically improve the process performance. Here are three examples:

First, FedEx Corporation changed air flight patterns from origin-to-destination to origin-to-hub, where the freight is transferred to an outbound plane heading for the destination. This revolutionized the air transport industry. Second, the order-entry department of a manufacturing firm converted from functional sub-departments to customer-centered work groups and reduced the order processing lead time from eight to two days. Finally, Supermaids sends in a team of house

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cleaners, each with a specific responsibility, to clean a part of each house quickly with parallel processes. Changes in process flows can literally revolutionize service industries.

5. Revise Equipment and Process Technologies Revising technologies involves evaluation of the equipment and processes for their ability to meet the process requirements, to process consistently within tolerance, and to fit the scale and capacity of the work group.

Speedi-Lube converted the standard service station concept to a specialized lubrication and inspection center by changing the service bays from drive-in to drive-thru and by eliminating the hoists, and instead building pits under the cars where employees have full access to the lubrication areas on the vehicle.

A hospital reduced operating room setup time so that it had the flexibility to perform a wider range of operations without reducing the operating room availability.

6. Level the Facility Load Service firms synchronize production with demand. They have developed unique approaches to leveling demand so they can avoid making customers wait for service. McDonald’s offers a special breakfast menu in the morning. Retail stores use take-a-number systems. The post office charges more for next-day delivery. These are all examples of the service approach for creating uniform facility loads.

7. Eliminate Unnecessary Activities A step that does not add value is a candidate for elimination. A step that does add value may be a candidate for reengineering to improve the process consistency or to reduce the time to perform the tasks.

A hospital discovered that significant time was spent during an operation waiting for an instrument that was not available when the operation began. It developed a checklist of instruments required for each category of operation. Speedi-Lube eliminated steps, but also added steps that did not improve the lubrication process but did make customers feel more assured about the work being performed.

8. Reorganize Physical Configuration Work area configurations frequently require reorganization during a lean implementation. Often manufacturers accomplish this by setting up manufacturing cells to produce items in small lots, synchronous to demand.These cells amount to microfactories inside the plant.

Most service firms are far behind manufacturers in this area. However, a few interesting examples do come out of the service sector. Some hospitals—instead of routing patients all over the building for tests, exams, X-rays, and injections—are reorganizing their services into work groups based on the type of problem. Teams that treat only trauma are common, but other work groups have been formed to treat less immediate conditions like hernias. These amount to microclinics within the hospital facility.

9. Introduce Demand-Pull Scheduling Due to the nature of service production and consumption, demand-pull (customer-driven) scheduling is necessary for operating a service business. Moreover, many service firms are separating their operations into “back room” and “customer contact” facilities. This approach creates new problems in coordinating schedules between the facilities. The original Wendy’s restaurants were set up so cooks could see cars enter the parking lot. They put a preestablished number of hamburger patties on the grill for each car. This pull system was designed to have a fresh patty on the grill before the customer even placed an order.

10. Develop Supplier Networks The term supplier networks in the lean context 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 materials because the service costs are often predominantly labor. Notable exceptions include service organizations like McDonald’s, one of the biggest food products purchasers in the world, which has been developing lean practices. Manpower and other employment agencies have established lean-type relationships with a temporary employment service and a trade school to develop a reliable source of trained assemblers.

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CONCEPT CONNECTIONS

LO14-1 Explain what lean production is.

Summary

Lean production is a concept that involves improving processes by eliminating waste and excess inventory. The basis for the concept is the just-in-time philosophy pioneered by Toyota. The concept has now been expanded to include all supply chain processes with the intent of creating value for the customer by eliminating all non–value–adding activities.

Key Terms

Lean production

Waste

Waste reduction

Customer value

Value stream

LO14-2 Illustrate how lean concepts can be applied to supply chain processes.

Summary

Lean concepts can be applied to virtually all the processes in the supply chain. Key areas include production layouts, the scheduling of production, and the design of the supply chain. Flow throughout the supply chain can be managed using just-in-time systems that pull material based on need. The kanban card is an example of this type of system.

Key Terms

Preventive maintenance

Level schedule

Uniform plant loading

Group technology

Freeze window

Kanban

Quality at the source

Backflush

Kanban pull system

Key Formula

Determining the number of kanbans

[14.1] k=DL(1+S)Ck=DL(1+S)C

LO14-3 Analyze supply chain processes using value stream mapping.

Summary

Value stream mapping is a flowcharting tool used to visualize flows through a process. A unique feature of the tool is the identification of value-adding and non-value-adding activities together with a time line that shows the processing time for each activity and the process as a whole. The tool can be applied to internal processes, such as production of a product, and also logistics and distribution processes. The goal in value stream mapping is to identify ways to “lean” a process by eliminating waste and creating value for the customer. A short-term project designed to quickly improve a process is referred to as a Kaizen event.

Key Terms

Value stream mapping

Kaizen

LO14-4 Apply lean concepts to service processes.

Summary

Just as with production processes, waste elimination and customer value creation are also goals of service processes. One major difference is that services often operate in an environment with more uncertainty that is difficult to control. Many of the lean techniques, though, have been successfully applied by service firms.

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Solved Problems

LO14–2 SOLVED PROBLEM 1

A local hospital wants to set up a kanban system to manage its supply of blood with the regional blood bank. The regional blood bank delivers blood to the hospital each day with a one-day order lead time (an order placed by 6 p.m. today will be delivered tomorrow afternoon). Internally, the hospital purchasing group places orders for blood each day at 5 p.m. Blood is measured by the pint and is shipped in containers that contain six pints. For a particular blood type, the hospital uses an average of 12 pints per day. Due to the critical nature of a blood shortage, the hospital wants to carry a safety stock of two days’ expected supply. How many kanban card sets should the hospital prepare?

Solution

This problem is typical of how a real application might look. Using the data given, the variables for this problem are as follows:

D = 12 pints per day (average demand)

L = 1 day (lead time)

S = 200 percent (safety stock, as a fraction this is 2.0)

C = 6 pints (container size)

k=DL(1+S)C=12(1+2)6=6k=DL(1+S)C=12(1+2)6=6

This indicates that we need to prepare six kanban card sets. Each time a new container of blood (containing six pints) is opened, the card will be sent to purchasing and another six pints of blood will be ordered. When the blood is received, the card will be attached to the new container and moved to the blood storage area.

LO14–3 SOLVED PROBLEM 2

Value Stream Mapping Example: Bolt Manufacturing 6

A simple example will illustrate the use of value stream mapping. Exhibit 14.11 depicts a bolt manufacturing operation that ships 7,500 bolts per week. The current state map provides cycle time and setup time information for each of the 15 processes used, and it provides inventory levels at each location. The map also depicts information flow between the steel supplier, the bolt customer, and management via production scheduling. The total value-added time, denoted as processing time, is obtained by summing all of the individual value-added contributions at each processing step on the time line. For the example, it equals 28.88 seconds. At each inventory location, lead time is calculated by dividing inventory level by daily production demand, which is 1,500 bolts. Summing all of the lead time produces an overall production lead time of 66.1 days, which is the entire time it takes an individual bolt to make its way through the plant.

There are several possibilities to optimize the current production scenario. Exhibit 14.12 provides a few of these, shown as Kaizen bursts, including eliminating several processing steps, modifying some of the existing processes, and reducing travel distances between processes. Exhibit 14.13, the future state map, illustrates the incorporation of these modifications. As shown, the changes reduce production lead time to 50.89 days, which is a 23 percent reduction. The production scenario could be enhanced even more if pull systems were incorporated at various locations.

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exhibit 14.11

Current State Map for Bolt Manufacturing Example

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exhibit 14.12

Potential Process Changes for Bolt Manufacturing Example

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exhibit 14.13

Future State Map for Bolt Manufacturing Example

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Discussion Questions

LO14–1

1. Is it possible to achieve zero inventories? Why or why not?

2. One way to help achieve lean production systems is to employ flexible automated manufacturing equipment and automated material handling systems. A natural result of such a move is that fewer people are required in the process, an issue addressed regularly in negotiations with labor unions. Do you think there is a conflict between such a move and the principle of Respect for People in the Toyota Production System?

3. Can a supply chain become too lean? Explain your answer—using examples if possible.

LO14–2

4. Why must lean have a stable schedule?

5. What objections might a marketing manager have to uniform plant loading?

6. What are the implications for cost accounting of lean production?

7. What are the roles of suppliers and customers in a lean system?

8. Explain how cards are used in a kanban system.

9. In which ways, if any, are the following systems analogous to kanban: returning empty bottles to the supermarket and picking up filled ones; running a hot dog stand at lunch-time; withdrawing money from a checking account; raking leaves into bags?

10. Why is lean hard to implement in practice?

11. Explain the relationship between quality and productivity under the lean philosophy.

LO14–3

12. Stopping waste is a vital part of lean. Using value stream mapping, identify some sources of waste in your home or dorm and discuss how they may be eliminated.

13. How would you show a pull system in VSM symbols between the blanking and CNC stages of the bolt manufacturing Solved Problem 2?

14. What is value stream mapping?

15. What is the purpose of value stream mapping? How can it be achieved?

LO14–4

16. Will lean work in service environments? Why or why not?

17. Discuss ways to use lean to improve one of the following: a pizza restaurant, a hospital, or an auto dealership.

Objective Questions

LO14–1

1. What phrase refers to the idea that all steps in supply chain processes that deliver goods and services to the customer should create value?

2. What term refers to the optimization of value-adding activities and elimination of non–value-adding activities that are part of a value stream?

3. List at least four of the seven prominent types of waste that should be eliminated from the supply chain.

4. What lean concept relates to eliminating non–value-added steps and waste in product storage processes?

LO14–2

5. What term refers to a schedule that pulls material into final assembly at a constant rate?

6. The periodic inspection and repair of equipment designed to keep the equipment reliable, thus eliminating unplanned downtime due to malfunctions is called_________.

7. What term refers to the concept of doing things right the first time and, when problems occur, stopping the process to fix the source of the problem?

8. In some JIT systems, marked spaces on a table or the floor identify where material should be stored. Supplying operations are signaled to produce more when the space is empty. What are these spaces called?

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9. Under a kanban approach to lean manufacturing, order quantities should be as small as possible. For a part that is manufactured in-house, what part of its manufacturing process needs to be reduced to reduce the optimal order quantity for an item?

10. A supplier of instrument gauge clusters uses a kanban system to control material flow. The gauge cluster housings are transported five at a time. A fabrication center produces approximately 10 gauges per hour. It takes approximately two hours for the housing to be replenished. Due to variations in processing times, management has decided to keep 20 percent of the needed inventory as safety stock. How many kanban card sets are needed?

11. Transmissions are delivered to the fabrication line four at a time. It takes one hour for transmissions to be delivered. Approximately four vehicles are produced each hour, and management has decided that 50 percent of expected demand should be maintained as safety stock. How many kanban card sets are needed?

12. A bottling plant fills 2,400 bottles every two hours. The lead time is 40 minutes and a container accommodates 120 bottles. The safety stock is 10 percent of expected demand. How many kanban cards are needed?

13. Refer to Example 14.1 as the basis for this problem. Meritor hires a team of consultants. The consultants suggest a partial robotic automation as well as an increase in safety stock to 12.5 percent. Meritor implements these suggestions. The result is an increase in efficiency in both the fabrication of muffler assembly and the making of catalytic converters. The muffler assembly fabrication cell now averages 16 assemblies per hour and the lead time has been decreased to two hours’ response time for a batch of 10 catalytic converters. How many kanban cards are now needed?

14. Meritor is so pleased with the outcome from previous suggestions that the consultants are invited back for more work. The consultants now suggest a more complete robotic automation of the making of muffler assemblies and also a reduction in container size to eight per container. Meritor implements these suggestions and the result is that the muffler assembly fabrication cell now averages approximately 32 assemblies per hour, and the catalytic converter assembly cell can now respond to an order for a batch of catalytic converters in one hour. The safety stock remains at 12.5 percent. How many kanban cards are needed?

LO14–3

15. In value stream mapping, what does an arrow in the shape of a lightning bolt mean?

16. What does a triangle represent in a value stream map?

17. In a data box on a value stream map, what do the abbreviations CT and C/O mean?

18. What is used to indicate suggested changes in a process that may lead to improvements in a value stream?

LO14–4

19. Compared to manufacturing systems, what is it about the environment of service operations that make them much harder to control?

20. The chapter presents multiple techniques that service firms can use to make their processes leaner. Which technique is demonstrated by a restaurant that offers special discounts midweek to attract more demand during a traditionally slow period?