The Application of Lean Thinking to Supply Chain Management

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The Application of Lean Thinking to Supply Chain
Management
David Taylor Lean Enterprise Research
CentreCardiff Business School

• 2004 Queensland Supply Chain Seminar Brisbane
  10 11 June

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The Lean Enterprise Research Centre Cardiff
University Business School

• Est. 1993 by Prof. Dan Jones
• 25 staff
• gt50 Lean projects in different sectors
  including-
• Automobile Electronics Food
  retailing
• Aerospace Consumer goods Steel
• Public sector admin Food production
  Shipbuilding
• Aim To develop and apply methodologies to assist
  companies in becoming Lean

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David Taylor Senior Research Fellow

• Joined Cardiff 1997
• Various projects applying Lean Thinking to
  individual companies whole supply chains
• 97 -00 - LEAP - Upstream automotive component
  supply chain
• 98 -01 - Footwear - Global supply chain
  improvement
• 00 -03 - MICE UK Metals Industry Competitive
  Enterprise
• 01 -03 - SHOOT Lean in Shipbuilding
• 02 -06 Agri-foods - Value Chain Analysis from
  Farm to Fork

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Agenda

• Today The Background The Theory
• Lean Thinking v Mass Production
• Understanding Waste
• The Lean Principles
• Tomorrow The Practice
• Lean Tools Techniques
• Case Studies of Lean Applications Benefits

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What is Lean Thinking

• A fundamental business logic, based on the
  approach developed by Toyota
• It is focused on eliminating waste from business
  processes and thereby enhancing value to the
  customer
• It aims to optimise the whole value stream for a
  product or service Not on optimising the
  activities of individual organisations,
  departments or assets

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The Origins of LeanLean Thinking v Mass
Production
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Ford Highland Park 1913 16Flow Production
RunningBoards
Commutators
Front Axles
Assembly
Radiators
Gas tanks
Rear Axles
250,000 Vehicles Per Year, One Model
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But the Industry Lost the Plot

• As customers wanted more choice and product
  variety
• Car makers abandoned what Ford called Flow
  production
• They adopted a process-village, process-facility,
  process-firm configuration
• Ford adopted this at River Rouge - which he
  called Mass production.

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Ford River Rouge Mass Production
Specialist departments (Process Villages)
Large expensive Machines
Annealing
Stamping
Painting
Assembly
Washing
Welding
Brazing
Lot of product movement
2.5 Million Vehicle Kits Per Year, Many Models
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Spaghetti World
Internally in factories And externally with
supplier networks
Exacerbated by Globalisation
Assembly
Components
Piece Parts
Process
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A Typical Value StreamWindscreen Wipers
10 FACILITIES 5 FIRMS
20,000 miles 3 COUNTRIES 42 DEPARTMENTS
12 SHIPPERS
SCHEDULE
ASSEMBLER SCHEDULE
SUPPLIER SCHEDULE
COMPOUND SCHEDULE
POLYMER SCHEDLE
CALL OFF
PHONE
RUBBER PLANT
RUBBER WHSE
RUBBER COMP
WIPER BLADE
WIPER ARM
WIPER ASS.
SUPPLIER WHSE..
PARTS WHSE.
ASSEMBLY
DEALER
AIR
SHIP
AIR
70 ACTIONS 188 days
THROUGHPUT TIME 7 VALUE CREATING STEPS
20 mins VALUE CREATING TIME
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The Consequences of Mass

• Long lead times
• Lots of inventories
• Poor customer fulfilment
• It involves increasing amounts of waste
• wasted time/effort, materials transport......
  all down the Value Stream
• It needs ever more sophisticated forecasting,
  planning, scheduling, supplier co-ordination and
  marketing systems

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Toyota Returned to Flow...

• Over twenty years Taiichi Ohno at Toyota overcame
  the obstacles to producing a variety of products
  in process sequence
• Toyota built a business system based on-
  compressing time near perfect capability
  close proximity build to order.
• And synchronised the whole supply chain
• Increasing productivity by 50 while cutting
  defects and lead times by 90

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The Wake Up Call 1990

• Lean Thinking was born from a world wide auto
  industry benchmarking programme
• Highlighted huge gaps in performance between
  Toyota other Japanese Lean producers
  Western Mass producers

Jim Womack Dan Jones Daniel Roos
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How far has Lean spread?

• Widespread adoption in automotive in 1990s
• Aerospace
• Grocery and FMCG ( Efficient Consumer Response)
• Consumer electronics
• Raw materials Aluminum Steel
• Construction
• Healthcare
• Public Sector
• Agri- foods

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Key Features of LeanWaste Elimination
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Muda

• Any activity which absorbs resource but creates
  no value for the user of the product or service

• Examples
• Mistakes which require rectification
• Production of items which no one wants
• Unnecessary movement of products
• or employees round a workplace

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Toyotas Seven Wastes
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Waste of Overproduction
Toyota see this as the worst waste
Producing too much or too soon Resulting in poor
flow of goods information and excess inventory
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Over ProductionCorus Steel Plant South Wales
Key Driver Volume of steel produced Keep the
factory busy Sweat the assets Minimise unit
costs of production Large batches avoid lost
production due to changeovers
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Waste of Waiting
Materials or information are waiting to proceed
to the next process. They are not moving or
having value added.

• Goods waiting to be processed
• Machines or men waiting for goods to arrive from
  upstream processes
• Paperwork waiting to be processed
• People waiting to be processed or served

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Waste of WaitingTexon Shoe Component
Manufacturer UK

• Inner soles take 8 hours on 5 different machines
  to make
• Product spends a total of 20 days waiting in
  queues
• in the factory
• Factory quotes 5 weeks - Order to despatch
  lead time
• Result Lost business to competitors

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Waste of Transport
Materials (or information) transported into, out
of, or around the factory.
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Waste Of Transport Talent Engineering
Automotive component manufacturer NE England
Product transported 3.5 km around the site in
the course of production Each movement on a
fork-lift truck
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Waste of Inappropriate Processing
Using machinery and equipment which is
inappropriate in terms of capacity or
complexity
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ComplexityThe Space Race

• NASA spent a great deal of money in encouraging
  the US pen manufacturer, Fisher, to develop and
  produce a pen for use in space. It had to be
  able to write upside down and function in zero
  gravity situations...

Managers oftenlook to spend their way out of a
problem
...The Soviets came up with a simpler solution to
the same problem - They used pencils !!
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Waste of MotionInappropriate Ergonomics layout
of the workplace
4 metres
Tools
Parts
3 metres
Organise the work place so tools materials
located conveniently to minimise motion
physical stress
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Waste of MotionSheffield Forge MastersProduce
Rollers for Steel mills

• Changeover Time 2.5 hours
• Feet 75 mins !

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Waste of Making Defects
Rectification
Poor Customer Service
Costs Delays
In 1990 VW spent more time rectifying defects at
the end of the Golf production process Than the
time it took to build a Toyota Corolla !
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Waste of Inventory
The Obvious Issue Cost Capital tied up Space
Obsolesence Damage Deterioration Insurance
The Really Big Issue Inventory hides problems
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Toyotas View of Inventory

• Delays action with machine breakdowns
• Delays actions dealing with product defects
• Reduces the need to face up to tool / process
  changeover time improvements
• Conceals imbalance in the capability of the
  facility

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Focus of Improvement Mass v Lean
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Key Features of Lean

• Waste Elimination
• The Five Lean Principles

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The Five Lean Principles

• Specify what creates value from the customers
  perspective
• Identify all steps across the whole value stream
  for every product family
• Make those actions that create value flow
• Only make what is pulled by the customer
• Strive for perfection by continually removing
  successive layers of waste

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1 Specify Value

• Specify VALUE by product or product family
• Through the eyes of the customer
• Not from the standpoint of the department,
  function or firm

Most companies claim to be adding value But few
have really understood value from the point of
view of the customer
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Value Adding v Non-Value Adding Activities

• Value Adding Activities
• An activity or process that the customer would be
  willing to pay for
• Eg Assembling components of a washing machine

• Non Value Adding ActivityActivities that in the
  eyes of the final customer do not make a product
  or service more valuable they would rather not
  pay foreg Transferring components from one
  sized container to another to move them round a
  factory

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2 Identify the Value Stream
Identify all the steps along the VALUE STREAM
for each product family
- From customer order through to delivery
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Value Streams
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The Cola Can Complete Value Stream

• Total time 319 days
• Value Adding 3 hours

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Identify the Value Stream Then Challenge Every
Step !

• Is this step really necessary? Would the
  customer think this product is worth less if
  this step could be left out?
• Many steps are only necessary because the
  way firms are organised and because of previous
  decisions about technologies and assets

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Remove Non-Value Adding Steps
Store
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3 Aim for Flow Line up all of the steps that
truly create value so that they occur in rapid
sequence
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4 Only make what is Pulled by the customer

• Only make what is needed, when it is needed
  and in the quantities wanted
• Move away from making to forecast
• Use Kanbans JIT
• Eliminate making to stock and PUSH thinking

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5 Perfection

• Relentlessly Pursue Perfection
• Develop an attitude of continuous improvement
• Set ambitious improvement targets

Western Mass producers Typically measure defects
in percentages Aim to reduce defects from 5 to
3 to 1
1 10,000 ppm
Lean Automotive Producers Typically measure
defects in parts per million 2001 Nissan
suppliers must achieve lt 200ppm 2003 Nissan
suppliers must achieve lt 100ppm
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The Metrics of Perfection

• Your rate of improvement in
• Eliminating Wasted Steps Defects
• Speeding Flow
• Reducing Inventories
• Reducing Volatility Instability
• Cutting management time devoted to fire-fighting
  and negotiating

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What have we Got So Far ?

• Mass Production Thinking
• V
• Lean Thinking

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What are the gains?
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GH White Volkswagon Dealership LondonRepair
Shop
Small Company

• 20 people Turnover 3m
• Lean thinking applied 2 year project

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Lantech Stretch Wrap Equipment
Medium Company
Pre- lean 1991 Batch Queue Lean 1995 Flow
Time to develop new product family 3-4 years 1 year
Employee hours per machine 160 80
Manufacturing space per machine 100 sq feet 55 sq feet
Delivered Defects per machine 8 0.8
Inventory 2.6 m 1.9m
Production throughput time 16 weeks 14 hours 5 days
Market share 38 50
Sales Doubled
Profitability Loss making Best in the class
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TescoLean Supply Chain Improvement 1997..
Large Company

• Benefits Improved product replenishment
  system Savings 100m reported in1998/9
  Accounts Product availability increased from 95
  to 98.5 Improved customer service
  satisfaction
• Total supply chain costs targeted to fall by 15
  - 20
• Application of Lean now one of the 3 key
  strategic drivers of the company

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Toyotas Relentless March..
The Lean Model

• 1948 Virtually no output
• 2000 10 share of world market
• 2001 No 3 in USA market share overtook
  Chrysler
• 2004 No 2 in world market share overtook Ford
• 2010 Aim to be No 1 in world - 15
  market share
• The most profitable car producer in the world (
  except for Porsche)
• 10 billion profit on 125 billion sales. 
  With a return on sales of nearly 8,

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Agenda

• Today The Background The Theory
• Lean Thinking v Mass Production
• Understanding Waste
• The Lean Principles
• Tomorrow The Practice
• Lean Tools Techniques
• Case Studies of Lean Applications Benefits