To reduce shipping costs, Toyota shipped parts from it

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MSE507Lean Manufacturing
Chapter 4Pull
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Principles of Pull

• Pull means that no one upstream should produce a
  good or service until the customer downstream
  asks for it.
• Start with the real customer demand and work
  backwards through all the steps required to
  deliver the desired product to the customer.
• Pull system allows production of smaller lots of
  products, reduces lead-time.
• Pull system requires focus on setup reduction to
  enable quick change over from one part production
  to another.

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Lean Production for Pull

• Machines should be available 90 of the time and
  down for change-overs about 10 of the time.
• Level Scheduling Evaluate the range of products
  to be produced every day.
• Total demand of all products divided by the
  number of days available in the month daily
  demand
• Daily hours available divided by daily demand
  takt time
• Takt time is the time required to produce one
  piece.
• Establish point of use inventory deliver raw
  material and supplies directly to location of
  consumption.
• Establish kanban system as upstream cell
  consumes sub-assemblies or detail parts, empty
  tub signals demand for more to be made.
• Kanban signal card to produce more parts.

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Lean Production for Pull

• Work with outside suppliers to establish lean
  turnaround time.
• Establish Long Term Agreements and Blanket
  Purchase Orders
• Arrange quick loading and unloading.
• Deliver parts to supplier in the morning, picking
  up the batch from the day before.
• Deliver parts to supplier in the afternoon,
  picking up the parts that were delivered in the
  morning.
• As companies learn to pull value through their
  system, they become capable of responding
  practically instantly to customer orders.
• Quality is improved when pull and flow thinking
  are put in place together because WIP inventory
  is reduced.
• Small lots are produced at short notice

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The Bad Old Days of Distribution

• Toyota Corona Model in America in 1965
• High volume sales of cars and service parts
• Long shipping from Japan
• Large stocks of parts were stored in a network of
  warehouses all across North America (Parts
  Distribution Centers PDCs)
• Toyota Production System (TPS) was just being
  implemented in Toyotas supplier plants in 1965.
• PDCs received parts from Japan in large sealed
  containers in large batches shipped in weekly
  intervals.
• PDCs had receiving area where containers were
  opened and parts were given to stockers with
  carts who walked the aisles and picked parts.
• Order lead-time was 15 days, ocean shipping time
  was 38 days, and 5 days at PDCs to bin the parts.
• Total order leadtime 1538558 days

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The Bad Old Days of Distribution

• Toyota dealers placed orders once a week,
  estimating demand.
• Wrong forecasts caused created demand
  dramatic waves of orders traveling back up the
  value stream
• Orders were unrelated to actual demand from real
  customers
• Weekly orders were received at PDCs
• A picker was dispatched to collect the parts
  from the bins and forward them to shipping
• Parts were delivered via carrier service to the
  dealer the next day
• Toyota believed that large batches were economic
  order quantities due to savings in shipping costs
• Since overnight shipping was expensive, dealers
  ordered large amounts of each part whenever they
  replenished.
• Vehicle off road order system was able to
  locate and deliver the needed part before noon
  the next day.
• Toyota warehouse network was fully in place in
  the early 1970s, achieving fill rate ( parts
  available from DC on demand) of 98
• Highest fill rate in the North America auto
  industry.

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Lean Distribution for Pull

• 1984 - Toyota started to assemble cars in the US
• Fremont, CA
• Developed network of suppliers tires, batteries,
  and seats.
• 1986 - Toyota opened receiving warehouse for
  American-made parts in Toledo, Ohio
• 1988 - Toyota opened huge plant in Georgetown,
  Kentucky
• Needed comprehensive suppliers network
• When American competitors like Ford began
  implementing elements of TPS, Toyota executives
  realized that they never applied any of Toyotas
  lean thinking to their North American ware
  housing and distribution system.
• Maintaining and moving the inventory around
  required many resources of people and time.
• Rush orders and hot lists interrupted the
  pickers routine.
• Large sizes bins were used, taking large storage
  space
• Months of spare parts on hand and large
  facilities to hold them

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Lean Distribution for Pull

• Change order frequency from weekly to daily for
  just the right amount to be shipped to the dealer
  that day.
• Dealers order daily just the amount sold to
  customers that day.
• To reduce shipping costs, Toyota shipped parts
  from its eleven PDCs to the dealers in each of
  the eleven sales regions every night.
• Day to day consistency of orders without waves
  allowed consolidation of some truck routes.
• Dealers reduced inventories of same parts knowing
  that any part could be delivered within a day.
• Dealers were able to increase the range of part
  numbers on hand to satisfy the customers who
  wanted their parts RIGHT NOW.

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From Theory into Practice

• Implementation of pull system in warehousing to
  respond to actual customer demand required years
• The translation of lean concepts into the
  warehouse required great change of mind for the
  employees and managers.
• Toyota had to convince its employees that the new
  way of thinking will not cause anyone to lose his
  or her job.
• 1989 bin sizes were reduced, parts were
  relocated by size and by frequency of demand.
• Parts were segregated into small, medium and
  large categories and had own sections in the
  warehouse.
• Parts demanded most frequently were moved closest
  to the start of the sorting and picking runs
• Length of the aisles was dramatically reduced.

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From Theory into Practice

• 1990 - standard work and visual controls were
  introduced by dividing the workday into 12 minute
  cycles.
• It took about 12 minutes to pick any order of 30
  lines of small parts, 20 lines of medium parts,
  or 12 lines of large parts
• Progress control board was placed between the
  receiving dock and the shipping dock to show
  everyone the number of cycles to be completed and
  the time available.
• Each associate was given magnetic markers of a
  given color and placed a marker on the
  appropriate square on the board each time a cycle
  was completed.
• The progress control board eliminated the need
  for team leaders to supervise their teams.
• Instead, everyone looked at the board observe
  that one worker was falling behind, and provide
  help once other tasks were finished.
• Visual controls and use of exact cycles made it
  possible to address causes of disruptions in work
  flow.
• Causes were logged on the control board whenever
  a cycle took too long.

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From Theory into Practice

• Pacing the processes by controlling completion
  times eliminated working ahead to beat the
  system and reduced errors related to picking
  wrong items.
• In August 1995 Toyota was ready to transition
  from weekly to daily orders from its dealers
  without the need for additional headcount.
• At the end of 1995, twenty-two pickers were
  picking 5,300 lines per day while the hundred
  pickers at the Chrysler warehouse were picking
  9,500 parts using traditional methods
  productivity difference of 2.5 to 1.
• In 1996 the new Toyota Daily Ordering System
  (TDOS) was combined with the relocation of the
  PRC for Japanese-sourced parts from Japan to
  Ontario, California
• Replenishment to the PDCs from the PRCs was
  reduced from 40 to 7 days.
• The secret to total inventory reduction in
  complex production is the ability to get parts
  resupplied very quickly from the next level of
  the system, which allows to order in small amount.

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Technology for Lean Distribution

• Toyota achieved dramatic improvements in
  productivity and space reduction at its PDCs
  without spending for new technology.
• 1994 the Chicago PDC was fully automated while
  Toyotas management focused on direct labor
  reduction.
• Productivity per employee lagged behind the other
  PDCs that implemented standard work, visual
  control, and efficient bin size and location.
• Although direct effort was saved in Chicago,
• The amount of technical support needed to
  maintain the complex system offset the gains in
  direct labor.
• The capital costs made the whole approach
  uneconomic.

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Level Scheduling Needs Level Selling

• As inventories and handling costs as the North
  American suppliers and warehouses implemented
  lean techniques, it was possible to offer highest
  quality and lowest cost service and parts to
  Toyota dealers.
• Special promotions took place to temporarily
  lower prices and boosted sales.
• Toyota dealers would always have the best deal
  for their customers.
• 1994 Toyota and its dealers together spent 32
  million in the US in direct mail, print, and
  broadcast advertising for specials
• Offered Toyota owners anything from oil change to
  complete maintenance programs at far below the
  normal price.
• The net result was a temporary increase in Toyota
  orders to suppliers to a level far above
  long-term average demand, followed by a dramatic
  drop in orders below average demand.
• Was costly in both directions
• The solution was level selling by keeping
  prices constant and making replacement parts at
  the exact rate parts were being sold.

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Pulling from the Service Bay

• In 1994 Bob Sloanes Toyota dealer near
  Philadelphia kept two separate buildings with
  unstable shelves and dim lighting before
  implementing lean techniques to the Toyota
  warehousing system.
• The physical flow of parts was an non-value-added
  activity compared with the income-producing
  service bays for car repairs and the showroom
  where cars were sold
• Three months supply of the average part created
  an inventory of about 580,000.
• Weekly parts delivery resulted in erratic
  workload on the stockers, and took three days to
  receive and place in bins
• Empty bins while computer showed parts were in
  stock.
• In 1995, after implementing pull in the whole
  parts distribution and manufacturing system,
  Sloane increased part numbers by 25 while
  cutting inventory value to 290,000
• Added service bays using the empty second parts
  warehouse.

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Pulling from Service Bay to Raw Materials

• By the end of 1996, Toyotas new pull system was
  in place throughout North America
• The request of the customer arriving in a Toyota
  dealer service bay became the trigger for pulling
  parts through four replenishment loops going all
  the way back to steel blanks.

Information Flow
Local Suppliers
Local Suppliers
Toyota PRC
Toyota PDC
Part Flow
Sloane Toyota
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Just the Beginning

• Between 1982 and 1990, Toyota reorganized its
  service and crash parts business in a manner
  identical to the new North American pattern,
  except that it took two additional steps
• It created Local Distribution Centers (LDCs) in
  each metropolitan area (jointly owned with the
  dealers)
• Tool all the parts stock out of the dealerships
  with the result that Toyota dealers in Japan only
  carry three-day supply of forty commodity parts
  like windshield wipers blades.
• It then encouraged dealers to work with every
  customer to preschedule maintenance so that parts
  needs could be precisely predicted in advance.
• Milk run parts delivery vehicle cisrculates from
  the LDC to every dealer every two hours, and
  practically every car can be repaired the same
  day with no need for express freight from the PDC
  at the next level up the system.

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Is Chaos Real?

• With lead-times and inventories essentially
  disappearing, what would happen when customers
  can pull value instantly from raw materials into
  reality?
• Could chaotic markets exist and force
  organizations to instantly respond?
• The end-use demand of customers is quite stable,
  chaos in the marketplace are in fact
  self-induced.
• The consequence of the long lead times and large
  inventories in the traditional world of
  batch-and-queue overlaid with relatively flat
  demand and promotional activities like specials
  on auto service which producers employ in
  response.

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Do We Really Need a Business Cycle?

• If we get rid of lead times and inventories to
  give people what they want when they want it, the
  demand will stabilize for another reason
• The damping effect on the traditional business
  cycle.
• Economists believe that about 50 of the
  down-swing of economic activity in business
  cycles is due to consumers and producers working
  off the inventories built up toward the top of
  the cycle.
• Similarly, about 50 of the upswing is due to
  building up new inventories in expectation of
  higher upstream process
• Buy raw materials now to get a bargain before
  prices go up
• Most applications of JIT, even in Japan, have
  involved Just-in-Time SUPPLY, not Just-in-Time
  PRODUCTION, and batch sizes have not been reduced
  by much.
• Nothing has happened over the years except to
  push inventories one step back up the value
  stream toward raw materials.

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Pulling Value in Pursuit of Perfection

• You now should be able to
• See the need to precisely specify value
• Identify every step in the value stream for
  specific products.
• Introduce flow
• Let the ultimate customer pull value from its
  source.

Much of the potential of lean thinking is lost
unless you take the final principle to heart !
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Post-it Note Exercise

• Divide into two teams (5 to 8 per team), batch
  team and a pull team
• Clear the table, so nothing is in the way
• Each team member needs a pen or pencil
• Object is to get 10 post-it notes completed with
  the words Lean Manufacturing on each sheet, times
  the number of team members
• Each person on the batch team is to write the
  words Lean Manufacturing on each sheet. When all
  10 sheets are done then push to the next person.
• Pull team writes the company name on one sheet at
  a time using kanban rules.

Im the Customer and all I want is my 10 Post-it
Notes!
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Continuous Flow Production

• Definition
• Flow of products in a level manner through the
  production operations. The ideal situation is one
  piece flow at and between processes.
• The intent of flow production is to increase the
  velocity of products and make the production
  cycle predictable.

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Incoming Orders Flow
Planning Stations
Work coming In
Etch for Pent
Steel
Decorative
Quick turn
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Work is Pulled Into Anodize Line
FLOW
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Summary of Benefits

• Work flow levels are reduced and progress is
  visible at a glance
• The ability to cross train is enhanced
• Work team members take ownership of full process
  and can help each other
• Quick problem identification and feedback
• Reduced Cycle Time
• Improved quality through cycle of learning
• Information flow and decision making enhanced
• Value-added ratio improved
• Reduces transportation waste
• Reduces material handling
• Helps to identify root causes of quality problems
• Allows for equipment dedication
• Drives set-up times down

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Homework Assignment

• Questions
• What do you think are the key reasons continuous
  improvement takes so long to implement?
• Which types of waste Pull production helps
  eliminate? Explain how it is done.
• Explain the advantaged and possible disadvantages
  of using Pull production system to improve the
  business
• Read Lean Thinking Chapter 5 - Perfection
• Pages 90 - 89

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Questions? Comments?