We were dealing with a large, integrated, steel mill when we put together the following presentation for their management team.  It discusses, via example, the tremendous cost, quality, and delivery burden caused by complexity, as well as how “Lean Manufacturing” principles and techniques greatly simplify such an environment.

While the illustration below specifically targets the complexities found in the metal producing industries, I believe you’ll find most aspects are applicable in every industry that is not already operating at a World Class level.

First, let’s define what it is that we call “Operating Complexity.”

So what’s the big deal?  What kinds of issues does this “operating complexity” cause?

To help demonstrate these issues, we decided to use a simple bicycle manufacturing example.  We will ask you, as we did the steel company’s management team, to put together a production schedule for this simple bicycle operation.  The following slides describe their current situation.

How often does your forecast disagree with actual demand?  How often does this “disagreement” occur within your quoted lead time?

While it might be helpful to attempt to improve your forecasts, the real gains come from shortening your response times and attaining near perfect delivery performance.

First, we’ll want to see if the items in finished goods are of the varieties requested by our customer.   These will be netted from gross requirements, at the appropriate levels of the bill of material, via standard MRP logic.

Note how “held” material, with no disposition, causes uncertainty.   If you assume that it WILL be available, you risk a missed delivery.   If you assume it WILL NOT be available, you risk excess inventory.

One of our standard objectives is to get all “held” material dispositioned within hours of an occurance.   Your scheduling people MUST know whether to count on this product, or plan to start more.

And what about those two past due tires?   Can you count on them?   And if so, when?   Schedules lose their value if you can’t count on their religious execution.

Note that ALL of these lead times appear to be excessive.  A fundamental objective of a Lean Manufacturing transition is to cut all lead times so as to approach the sum of “value adding” activities.

In this example, it would be difficult to justify more than one day per function, and it would seem reasonable to push for a one day TOTAL cumulative lead time!

Significant complexity, as well as extended lead times, are caused by unmatched operating schedules, i.e. different “available hours.”   Needless to say, such unmatched operating hours cause inventory build-ups throughout the manufacturing process.

Large “planned maintenance” periods further complicate scheduling as well as force a build-up of inventory prior to the planned shut-down.   Modularizing and cascading planned maintenance are techniques we’ve developed to overcome this issue.

Similarly, large, uneven, batch size requirements further complicate scheduling while adding to the inventory burden at all levels.  Aggressive efforts to cut all lot sizes, and their associated set-up / change-over costs are required.

We have found that most lot sizes are currently too large, even with their existing high change-over costs, when one considers the true costs of complexity that they impose on the organization.

We see this quite often.  Different operating “efficiency” rules for each machine / department (they’re called “campaign rules” in some industries).  It is caused by an objective to “optimize” each operating unit.  But unit optimization does NOT optimize the “whole.”   In fact, attempting to optimize the individual operations almost always SUB-OPTIMIZES the “whole” total process.

So, how did you do?   Do you have an operating schedule?

Does it REALLY need to be this complex?

Operating complexity adversely effects production and overhead costs.   And it dramatically effects customer service by extending lead times and degrading on-time delivery performance.

No one will disagree that complexity costs us money.  Yet most companies treat complexity like it is a non-issue.  This is particularly true when evaluating alternatives.

Lean Manufacturing FORCES simplicity.

Lean Manufacturing philosophy and techniques challenge all lot sizes, and seeks to minimize lead times, allowing for more accurate requirements from your customer.

But what is the fundamental driver of complexity?

In the vast majority of cases, excess complexity is driven by management’s use of incorrect measurements and reward systems.   Remember, “What gets rewarded, gets done.”

Most companies continue to reward “Unit Optimization.”

But, does “unit optimization” optimize the whole manufacturing process?

The answer is an almost universal “NO”.   Unit optimization quite often dramatically sub-optimizes the total process.

To truly achieve World Class operating performance, the company’s incentive systems must be re-evaluated.   Too many Lean initiatives have come to a screeching halt due to conflicting reward systems.

In addition to aligned measurement and reward systems, people must be held accountable.

We often utilize the following simple format to keep track of the “rocks” and the commitments that have been made to resolve such problems.   On the shop floor, this type chart is simply drawn on a flip chart page for all to see (e.g. Management by Walking Around).

As my teenage daughter said, years ago:   “It’s all common sense.”

Reward the behavior that you desire.   And hold people accountable for their commitments.   It’s management 101.   How tough can this be?

In the real world, however, getting top management to revise their long held beliefs in regard to measurements and reward systems can be extremely difficult.

This is truly where a good consultant can earn his or her fee.

We’ve been helping companies make this lean transition since 1988.   And we have the grey hair to prove it!

If and when you should hit this “wall”, give us a call.   There is no charge for a phone conversation, and we’ll do what ever we can to be helpful.

Good luck on your lean manufacturing journey.

PS: For additional explanation and illustration on these topics, we would suggest that you peruse our articles “How to Optimize Your Entire Plant”, and “How to Attain Near-Perfect On-Time Delivery Performance”.
I think you’ll find them helpful.

Utilizing More of the Available Hours

OK, so we’re a one-shift, five days / week, operation.  What’s wrong with that?

Well, nothing is WRONG with that shift pattern.  But, changing to a multi-shift crewing pattern might offer some significant operating and competitive advantages.  Let’s look a bit deeper.

Here’s an illustration of the plant and equipment utilization of an 8 x 5 operation:

There are 168 hours in a week (24 hrs/day * 7 days/week = 168 hrs/week).

On an 8 x 5 schedule, we are utilizing 40 of the 168 available.  Plant and equipment are unavailable for work 128 hours, or 76% of the time!

But what happens if we were to move half of our workforce to a second shift?

As shown above, by simply moving half of our workforce to the off-shift, we have doubled the availability of the plant and equipment.

So what’s the advantage of that, you ask?

Actually, there are several very significant advantages to doing so:

    1) We can typically cut our manufacturing lead times in half

    2) We will free up cash and space via inventory reductions, and

    3) We have effectively doubled our tooling and equipment!

Let’s use a simple example to illustrate the lead time impact:

In the above example, we have four sequential operations.  Each operation requires eight hours of process time.

And, as the illustration shows, our minimum manufacturing lead time is four days.

Now, suppose we transition to a two shift operation, with 50% of our workforce now on the 2nd shift.

Now, operation 1 occurs on the first shift of the first day, and operation 2 happens on the 2nd shift of day one, etc.  What happens to our average lead time?

Correct:   By doubling the available hours, we can half our manufacturing lead times!

It is important to note that we DID NOT INCREASE OUR TOTAL HEADCOUNT.

We still have the same number of people, and essentially the same amount of capacity.  By moving half of our workforce to the 2nd shift, all we have done is make more of the 168 hours available for production.

Now, instead of our product sitting idle 16 hours per day, it is only sitting idle 8 hours per day.

What is the impact on the amount of Work In Process (WIP) inventory?

Correct again.  By utilizing more of the available hours, we can cut our manufacturing lead times in half, which also cuts our WIP inventory in half.   This frees up cash and space.

Note:  If you are a “make to stock” operation, one of the factors used in calculating the appropriate level of Finished Goods inventory is the replenishment time.  Cutting your manufacturing lead time, i.e. the “replenishment time,” should also allow you to reduce the amount of high dollar finished goods inventory needed to achieve the same fill rate.

But how does moving half my workforce to the 2nd shift, add to the amount of equipment and tooling available?

Let’s look at our 8 x 5 situation:

On a one shift, five day week, most of our equipment and tooling is manned.

What happens if a machine breaks down?  What if you’d like to double the output on a product, i.e. use two pieces of equipment to make the same part number, but you only have one set of tooling?  Fully manning all operations severely limits your operational flexibility.

But what happens if we move half our workforce to the off shift?

With only half as many people working on each shift, half of the equipment is un-manned.

Now, if a machine breaks down there’s a possibility that the operator can still be productive on another machine.  This availability of equipment and tooling also allows for the possibility of one operator running two machines.

Maintenance and change-overs can be done without taking a machine off-line.  In fact, many of our clients were able to dedicate a machine to a high running product and completely ELIMINATE the change over for that product!

As you can see, utilizing more of the available hours has a major impact on company well-being.  But why stop there?

With our two eight hour shift operation, we are still utilizing less than 50% of the available hours.  How do we improve on these gains?

Well, you could go to a three shift five day week.  However, another alternative has some significant advantages.

A client of ours had been attempting to add capacity by creating a second shift.  They ran ads for over six months, with no success.  People just didn’t want to work that shift.

We proposed to our client that they offer a four day, ten hours/day, shift.  The catch was that the four work days might not be Monday through Thursday, and might include a Saturday (this is known as a staggered crewing schedule).  Examples of this shift pattern, and many others, are illustrated in our article “Alternate Crewing Schedules.”

We also proposed that the start times for the second shift be adjusted to allow parents to be at home for dinner with the family before coming to work.  They ran an ad for a four day work week, with starting time, 8:00 PM.

The results were amazing!  People were standing in line to get on that shift.

A full second shift was in place and operational within a few months.  Then the first shift’s hours were also adjusted to ten hours / day, four days / week, with staggered crewing.

Tooling, equipment, and crewing are now available 120 hours of the total 168.

Lead times and WIP inventory can be cut by two thirds.

Let me emphasize; none of the alternate schedules shown above increase your total capacity.  In each example, we have the same number of people, working the same number of hours / week.  However, if you should need to add capacity, the infrastructure is now completely in place.  Just add people.  The equipment and a trained workforce “core” are already on hand.

Note that your improved responsiveness can, and should, be leveraged to gain both market share and price.

Needless to say, there is a considerable amount of additional information that goes beyond the introductory scope of this discussion.

There are ways to gradually transition to any of the illustrated crewing structures that do not disrupt people’s life’s.  There are also ways to incorporate similar options for your non-production processes, and ways to cover all shifts without adding supervisory or manufacturing support personnel.
Going to the ten hour, four day shift pattern will impact your holiday and vacation pay schedules as well.
We can help you with these and other related issues.

If you would like to address how multi-shifting might apply in your specific situation, drop us an e-mail or give us a call.  There’s no charge, and we’ll do our best to be helpful.

All the best on your lean journey toward World Class operating performance.

PS: You might also find our article “How to Optimize Your Entire Plant” applicable.

Unique Lean Challenges and Opportunities for Government Contractors

Being a supplier to the government and/or aerospace industries is not without its challenges, most of which involve extensive administrative, accounting, and tracking requirements.  Dealing with “difficult” bureaucracies, multiple regulations and agencies, and occasionally contradictory requirements offers its own set of trials.  Luckily, there is another side to the aerospace coin:

A government contract delivery schedule will often allow for a gradual ramp up, a long flat linear delivery portion, and a gradual phase out.  It is also typical for the aerospace industry to allow a more generous lead time for first delivery than is normal in the commercial sectors.

Advantages:
Government contracts, therefore, can have these significant advantages not generally available to the private sector:

Delivery schedules are typically known far into the future.  Needless to say, this can provide some major strategic planning and operating advantages.

The long lead times can provide time for adequate engineering design, prototyping, and testing, as well as sufficient time to find and/or qualify procurement sources and get long-lead items on order.

The ramp up delivery schedule allows us to minimize risks by producing smaller quantities in the early stages of the program while the design is still fluid.

The long sustained flat delivery schedule, typical of many such contracts, allows us to truly utilize the “takt time” concept of lean manufacturing and optimally design our production capabilities to produce at this rate.

However, …

All too often these tremendous advantages are lost if our company does NOT utilize a lean philosophy and practices.

Let’s begin with the “padded lead time” syndrome.

When an aerospace contract is signed, there is a given finite amount of time between “now” and the agreed upon first delivery date.

With reasonably “lean” lead times for all of the various build levels, and a flattened bill of material, more than adequate lead time will still remain for the design and procurement processes.

In traditional non-lean government contractor organizations, however, this is NOT the case.

Lead times are padded:  These include a just-in-case offset from the promise date “to help assure our timely delivery” and fat lead times for test, final assembly, sub-assembly build and test, and fabrication.

Well, if the overall lead time is already locked in, and you pad the manufacturing and test portions, what does that do to the front end tasks?

You’ve got it!  It squeezes the front end processes, typically design and procurement.  Parts are fabricated and long lead items are placed on order based on preliminary designs which often change.

This issue is further exasperated by overly complex, too deep, bills of material.

Let’s look at an example.  The following “Erector Set” bulldozer takes about 20 minutes for a single, unskilled, operator to completely assemble from scratch.

Yet, when a group of production planning and design folks were asked to structure the BOM for this simple twenty minute assembly, here’s what they came up with.

Implications?

Twelve items to schedule.  Twelve SKU’s requiring configuration control.  Five structural levels, each with their own lead times.  And, in most traditional operations, this means twelve pick lists, twelve kitting operations, twelve closes back into stock, twenty-four stock transactions, etc.  Note that none of these activities are value adding.

Hang on.  It gets worse!

Traditional non-lean aerospace companies will also attempt to “optimize” their individual operations.   This generally takes the form of increasing lot sizes on the lower level structures: machining, fabrication and sub-assembly, so as to minimize set up costs.

Lot sizing makes a larger quantity of the item due on the schedule date of the first requirement.  In other words, lot sizing pushes the bulk of the work load to the left in time.  The results of these endeavors are shown below.

One large aerospace contractor had a completely unworkable overload in the machining and fabrication shops, due to these practices.  To compound these problems, shop travelers had been cut and issued to the shops far in excess of their capability to produce.

How did the shop floor handle the situation?  Machine operators would pick and choose the jobs THEY wanted to run.  They’d pick a past due job, a current job, and a future job for the same part and combine them to save a set-up!

The consequences were hardly surprising.  Schedule adherence was essentially zero.  Huge inventories of parts accumulated, yet no assemblies could be built (they didn’t have ALL of the parts).  And many of the “economically produced” machined parts had to be reworked or scrapped when the engineering inevitably changed!

In addition to this disastrous front loading impact, lot sizing completely negates the ramp up and linearity advantages of that nice smooth delivery schedule we discussed above.

We worked with another aerospace supplier that was having huge issues with scheduling.  Their MRP produced un-buildable schedules that had no credibility.

It took us over an hour of discussions to finally get their management team to understand that they could simply build all levels of the product at the contract delivery rate!  Once this was incorporated, production completely smoothed out, costs dropped dramatically, quality shot up, and their delivery performance hit, and stayed, at 100%!

The Solution, Lean Manufacturing:

Utilizing the philosophy and the applicable techniques of lean manufacturing allows a government contractor to capitalize on the advantages that are unique to your industry.

Take the pad out of all levels of production.  Allowing a week to build a product with 1-2 hours of work content is NOT OK!  Challenge, and minimize, every lead time at the initial planning phase of the contract.  Make everyone aware of the fact that an extra week at assembly takes a week away from design and/or procurement.

Flatten the bills of material.  If you require a sub-assembly for future spares requirements, use “phantom,” “blow through,” or “MAPO” (Made As Part Of) product structures.  These allow the identification of a sub-assembly level, without the need to actually separate it from the production of the next higher level unit.

Cut all lot sizes.  In most instances, the hidden costs of complexity far exceed the direct cost of an additional set-up.  Cut set-up times where possible.   Aggressively attack all lot sizes greater than lot-for-lot.

Note that this same philosophy is equally applicable to procurement.  Buying “economic” quantities early in a program is generally a high risk practice.  Requirements change often in this environment as the customer, and/or engineering, makes changes to the product structure.   Even if you’re on a cost plus contract, we’re all still tax payers!

Make only what you need, only when you need it.  I.e. build at the contractual delivery rate.  Pull systems with kanban controls work quite well in this environment.  Even if your customer only wants one delivery per month, it still may provide some internal benefits to build linearly and accumulate for the monthly delivery.

Needless to say, there is a long list of additional lean techniques that can and should be applied in an aerospace environment:  Sequential inspection and failsafe, cellular production, 5S, one piece flow, SMED, TPM, cross training, visual factory, …   (For a comprehensive listing of Lean tools, and their definitions, take a look at the article “Lean Manufacturing Tool Kit”)

In a lean environment, schedule adherence is critical.  It all begins with a simple philosophy:  Say what you’ll do, and do what you say.   Establish daily rates and implement a standard operating practice “The day ends when the schedule is complete, NOT the other way around.”

Another easy rule that will force credibility is “We NEVER come in on a Monday with anything past due.”   This rule says that if we fall behind during the week, we will use the weekend to catch up.  It is NOT OK to miss any completion date, at any level.

If you lie to the system, the system will lie right back to you.  Padded lead times, large lot sizes, complex bill of material structures, and a lack of discipline to force adherence to the schedule will cost you, and the tax payer, in a myriad of ways.

Product quality is obviously another critical factor in the government contract / aerospace industries.  Take a moment and peruse the article “Total Quality Lean” .  It explains, in more detail, the close linkage between lean manufacturing and world class levels of product quality.

Good luck on your lean journey.

If have a specific question or if we can be of additional assistance, feel free to write or call.  You will not be disappointed.  We guarantee it!

The Hands-On Group
www.handsongroup.com
info@handsongroup.com
You might also want to visit our sister site:
www.TPSLean.com

How to Build New, or Modify Your Old Plant to Optimize Lean Manufacturing

The obvious first question is “Do we really need a new facility” i.e. have we fully utilized the current space?
Are we using all available hours (24×7)?  Are we utilizing the full cube (all three dimensions)?  Have we reduced our inventory and freed up the associated space?
Remember: Space constraint can also be used as a powerful means to force continuous improvement.

If a new facility is indeed required, how do we design and use it to optimize the philosophy of Lean Manufacturing?

The following is a listing of some considerations:

• Can the building be cost effectively build with all accessible sides at “dock height”?
Can dock doors be installed, or at least structurally compensated for, along the entire periphery of the plant?
Doing so provides for future flexibility for re-arrangement, and can assist with point of use stocking (deliveries can be made anywhere along the plant’s outer walls).
A sufficient supply of dock doors can also allow you to produce directly into the truck trailer (even if doing so takes a few days to fill the trailer).  Trucks drop off an empty and pickup a full trailer.

• Make all power and air flexible.  Use a ceiling grid of “quick disconnects” when possible.
One thing that you can always count on is CHANGE.  Whatever arrangement is “optimal” today, will most likely be sub-optimal tomorrow.  Some forethought during the design phase of your facility can make future equipment / layout re-arrangement easy and inexpensive.
We have set up plants where the light equipment and work benches were literally on lock-down casters. The shop floor was re-arranged, on the fly, to optimize the layout for the particular product being run at the time.
This flexibility has an obvious impact on your actual rate of continuous improvement.  Too many times good improvement ideas languish waiting to get the facilities moved.
Also, it is worth noting that a flexible power and air supply allows your shop floor teams to “Just Do It”.  Flexibility greatly reduces the amount of advanced planning required.  And the on-going “tweaking” invariably improves not only shop efficiency, but also the buy-in from the operators.
Some of our most effective floor designs came about by trial and error enhancement.

• Leave room on the shop floor for any required support personnel.  A lean facility requires quick and easy communication and decision making.  Locate your manufacturing engineers, et al, right out in the middle of the action!

• Is it worth the extra construction cost to make the building high-bay? Doing so allows the flexibility of use as warehouse as well as manufacturing, and also allows for the addition of relatively inexpensive future floor space via mezzanine.
We have set up assembly operations, in high-bay facilities, where the work-station’s “back-stock” of raw materials and tooling was stored directly overhead (on pallet racking).  This arrangement eliminated kitting and simplified replenishment for low volume parts.

• When computing the amount of space required in your new facility, it is critical that you also consider your work hour philosophy.
Obviously, the amount of space required to produce a given output of product is quite different for a 1 shift, 5 days/week operation than that required of multi-shift operation.
Also consider the ancillary impact of your operating hour pattern.  Spreading your workforce over more of the available work week has a significant impact on the amount of equipment required, the amount of money tied up in inventory, and on your customer response times (lead times).

• Visitor viewing areas and/or walkways can be powerful marketing tools.
A lean efficient operation can be a differentiator in the eyes of a potential customer.  You might want to consider providing viewing areas and safe walkways through a portion of the plant to facilitate this feature.

• Provide for your Work Teams with support resources.  They’ll need one or more convenient meeting places, with phone, computer, and audio/video resources.  There should be at least one room that provides privacy for candid discussions.  White boards, flip charts, etc. are necessities in all meeting rooms.

• Facilitate communications.  Provide white boards and flip charts, clip boards, and lots of markers anywhere and everywhere that people might be likely to meet and discuss issues.  Some of our most successful clients lined their hallways with such graphic communication devices.
Too many good ideas die for lack of paper and a marker!

• Companies generally build plants larger than is currently needed, to allow for future growth.  While this may be a prudent approach, it is important to restrict the plant space being utilized during the interim.  Lean manufacturing concepts are encouraged and sustained by constantly constraining the space used by your operations.  If you don’t, the typical operation will expand to fill the available space.
One technique that we often use is to literally tape off the open areas, and hang notices that it is not to be used without written approval from the plant manager.
Note: We change the signs to read “This space reserved for the XYZ company” prior to any prospect visits!

Also, when thinking about design for a new or enlarged facility, the subject of “Make vs. Buy” is extremely pertinent, as is your entire supply chain relationship.   You might want to consider these often overlooked aspects.

While there are a host of additional considerations, we’ll stop here for now.

One last note: Your facilities and maintenance people are often unsung heroes.  Make sure that they are recognized when you have plant/area/team celebrations.  Quite often, the results would never have been accomplished without their unseen support.

If you have specific questions or would like to discuss these concepts further, feel free to contact us.  There’s no charge, and we’ll try to be helpful.

Jack Harrison
Senior Partner
The Hands-On Group
info@handsongroup.com

Another look at the Make / Buy decision process?

Lean Manufacturing defines “Value Adding” activities as those that do, in fact, add value to the final product.  They typically change the form, fit, or function of the product.  They are the activities that the customer must have, and is willing to pay for.

While there will likely still be activities that are currently necessary, by our strict lean definition, they are not “value adding.”

This is particularly true of the standard procurement process.

I’ve listed some of the steps, below, that the typical manufacturing company follows in order to acquire purchased material.  Look this list over and ask, for each, does it add value?

Planning / Forecasting
Capacity Planning / Master Scheduling
Requirements Planning (MRP: explode the bill of material, gross to net requirements, lot sizing, etc.)
Request for Quote / Competitive bidding (price and delivery)
Re-negotiation (as required)
Generation of Purchase Orders (PO’s)
Review confirmations from suppliers (agreeing to our terms and delivery requirements)
Expediting (as needed)
Packaging (paid for by the supplier, but included in his/her price)
Transportation / Freight from supplier site to our plant
Receiving
Receiving inspection
Un-packaging from shipping container (de-trashing)
Stocking (locating each part in its appropriate place within the stockroom)
Cycle Counting (to maintain inventory accuracy)
Picking / Kitting (getting the parts back out of the stockroom)
Material Handling (move the kit to the shop floor)
De-Kitting at the production area

Some of the above steps are less pertinent for a repetitive manufacturer (except during new product introduction, or engineering change activity).  
Just about all of the above steps are applicable in a job shop, “one of a kind,” environment.

The one thing that ALL of the above steps have in common is that they are all NON-VALUE-ADDING!

To test this hypothesis, one merely need ask:  “If we were to find a way to eliminate this step, would the customer care?”  If the answer is no, it is likely not a value adding activity.

The article “Lean Supplier Development: A Synopsis” addresses many of the internal causes, and suggests solutions.

“ Lean Supplier Evaluation Checklist ” provides an exhaustive list of parameters that are worthy of consideration in choosing your “A” suppliers.

The “Lean Manufacturing Tool Kit” provides an explanation of many lean techniques that attack the above forms of waste, such as “Vendor Managed Inventory,” “Reserving Capacity,” “Certifying Suppliers,” “Dock to Stock” / “Dock to Shop Floor” techniques to by-pass the stockroom, etc.

One additional item worthy of discussion is the magnitude and extent of the true hidden costs of procurement.  These costs are seldom adequately considered when doing a make-buy analysis.

In addition to these hidden costs of procurement, and perhaps of even greater impact, is the loss of control and lack of responsiveness.

If we have an un-predicted hiccup in-house, we can make the decision to work overtime, split the lot, etc. so as to recover.  Such flexibility is greatly reduced when dealing with remote suppliers.
This problem is further compounded when dealing with foreign suppliers.

We would encourage you to ask the questions:
What is it that the supplier will do, that we could not do equally well in house?
How can the supplier perform all of the production and procurement functions, add a profit, plus the cost packaging, and transportation, and still produce it cheaper than we can?
What is the cost of any underutilized capacity (overhead)?
What is the value of the increased flexibility and responsiveness of “make” vs. “buy”?

A common logic trap that many companies fall into is in the allocation of overhead.  It goes something like this:
“We can’t afford to make product A in house” so the item is changed from “make” to “buy”.
This leaves a smaller manufacturing base in house to absorb the same fixed overhead, and thereby raises the internal cost of the remaining production items.

Now the internal “make” cost of product B is too high.  So we sent it to the outside.  In the mean time, we’re adding purchasing people, stockroom folks, receiving people, … (all overhead costs!) to handle the increased procurement load.
A partial solution is to utilize activity based costing (ABC) for the allocation of your overhead.  When correctly applied ABC will generally alleviate much of this issue.

Another technique that may be applicable (a compromise of sorts) is to lease space, on site, to key suppliers.  This action can at least reduce the packaging, and transportation costs.  And, the supplier will typically have a greater sense of urgency when physically on-site! 
This can be a practical action when the supplier possesses some unique capabilities, intellectual property rights, and/or expertise not readily available in house.

As product life cycles shrink, and the consuming public demands ever faster responsiveness, the above considerations will continue to grow in importance.

Sometimes the high cost of making products locally, isn’t so high after all.  Just ask the companies that repeatedly write off millions in excess/obsolete inventory due to the length of their supply chain.  Don’t get caught in this same trap!

It often takes an outsider to change some of these long held views.  We’ve got the experience and successes to gain credibility with your management team.  Schedule a call.  There’s no charge, and I guarantee that you’ll attain value well worth your time invested.

Good luck on your continuing lean journey.

Optimize Your Entire Plant
Attempting to optimize each operation actually sub-optimizes the whole

In the early 1900’s Henry Ford perfected the assembly line.  Since that time, Toyota has further enhanced the concept through the use of a “pull” philosophy, essentially providing assembly line benefits to the subassembly and procurement processes.

There is general agreement that the assembly line concept provides the most efficient, most effective, production process available today for mass produced products.

Assembly lines produce at a rate.  And every process incorporated in such an assembly line, produces units at this same “line rate.”  Pretty basic stuff.

So here’s a quiz:  Do you think that every production process on the assembly line, is producing units at the equipment’s maximum rate?

Of course not!  Each piece of equipment has its own “optimum” rate of production.  All we know for certain is that the line rate does not exceed the maximum capability of any one production process on the line.

As we will illustrate shortly,  ”Lean Manufacturing” attempts to make every production process, i.e. the entire value stream, emulate an assembly line!

Changing subjects:  Let’s talk about “traditional” manufacturing companies, operating with traditional measurement and reward systems.

In these environments, the focus is on “Unit Optimization.”  In the steel industry you’d recognize it in the term “tons per hour”.  The concept is simple: get the most production, per hour of operation, as is possible from each piece of equipment, i.e. make each individual operation as efficient as it can be.

Let’s illustrate with an simple example:  Suppose we have a production process that requires three sequential operations.  Operations A and C can produce all that is needed in one eight hour shift.

Operation B, however, runs at a slower rate, and requires two shifts to produce the daily output required.

So, how would a traditional manufacturing plant run production?

Right on:  They’d run operations A & C one shift/day.  They’d run operation B two shifts per day.  Each operation is “optimized” in that each is running at its peak rate.

Now let’s look at the total process.  How “optimized” is it?

Operation A must build inventory in front of operation B (enough to cover operation B’s 2nd shift).  We must also carry inventory in front of operation C (Operation B must build inventory for operation C during their 2nd shift).

So?  What’s the problem with that?

• The product will likely require double handled, i.e. there are no “hand-offs” between operations.  We call it “putting things where you don’t want them, so that you can then go back and move them to where you DO want them!”
• The inventory takes up space, so the operations typically cannot be placed side by side.  Product will therefore need to be moved an extra distance, wasting motion.  There is also, of course, a value to the space that is now tied up.
• The inventory ties up cash which incurs a “holding cost.”  Some of our clients have calculated that their true cost of carrying inventory exceeds 4% per month (48%/year!).
• The inventory may contain defective units, requiring re-inspection, sorting, scrap, or rework.
• The inventory delays the discovery of any defect.  Delayed discovery reduces the chances of correctly identifying the true root cause, thereby increasing the chances that the defect will re-occur.
• This practice adds to product lead time.  Our simple example scenario will generally result in at least a three day lead time, regardless of the actual work content.

The Lean transition process seeks to minimize inventory throughout the entire supply chain.  Special attention is given to driving the inter-unit WIP inventory down.

So how do we go about reducing this inter-unit inventory?

Right again!  Just like the assembly line, each operation must be paced to produce at the same rate.  Since operation B is the pacing process, if operation B cannot be sped up, operations A and C must be “slowed down” accordingly.

But how, pray tell, could we run operations A & C two shifts, without incurring additional costs?

The specifics would depend on the product being produced and other constraints, but a few examples may help:

1. Can the three operations be combined into a production “cell” with jobs shared between operators?
2. Can the new layout get operations close enough to allow handoffs?
3. Can the crews for operations A and C be combined and spread over two shifts (i.e. NO increase in total man-hours)?
4. Can we run operations A and/or C at half speed with half the crew size?  E.g. If operation A currently requires a two person crew and produces 100 widgets/shift, can we run the operation with one person and produce 50 widgets/shift?

Note that there are other powerful advantages to running multiple shifts.  They include shortening your production lead times, and increasing your equipment and tooling availability.

One thing we see in nearly every traditionally run factory is that their analysis will usually treat any difficult-to-measure parameter as if they were zero.

Using our example process:  is the cost of space, capital, long lead times, hidden defects, unresolved process problems, extra handling, extra travel distance, etc. truly zero?  Of course not.  But it IS difficult to precisely quantify.

The point is:  We can generally quantify the cost of streamlining a value stream.  Too many companies get no further than this step.   “It will increase our costs” they’ll say.

Yet, in practice, total costs universally come down!

The bottom line:  Traditional measurement and reward systems will continue to drive precisely the WRONG behaviors.

Eliminate all “unit optimization” measures.

Focus on overall lead time reduction and on-time delivery.

Emulate the assembly line.  Balance the output rates of your processes.  Note that kanban controls can provide a simple, powerful, mechanism to force line balancing.

Minimize inter-process inventory and space.  Walk the shop floor and challenge every unit in WIP that does not have value being added:  “Why is it here?  What can we do to eliminate it?”

Do this, and Cost and quality gains are automatic outcomes.

Changing the culture begins with changing the understanding of your management team.  We can help.  Give us a call or drop us a line.  There is no charge for a conversation, and we guarantee that you will receive value worthy of your time.

All the best on your lean journey.

Jack

PS: You may also find Lean Tools and the power of Lean Manufacturing to dramaticaslly impact quality interesting.

On-Time, All the Time!

Near-Perfect On-Time Delivery is a fundamental requirement for World Class performance.

It, along with inventory reduction, is a key driver for a successful lean transition.

So how do we get and sustain near perfect delivery performance?

As trite as this may sound, it begins with something as simple as DECIDING to be on-time.

Too often, on-time delivery is seen as one, of many, considerations, and is treated as secondary to cost, the most common primary consideration.

World class companies have a different view.  They see on-time delivery as 1) an ethical issue, i.e. we made a promise and we have a moral obligation to fulfill that promise, and 2) as a “stake in the ground” that makes all other measures credible.  Note: World Class companies also see delivery performance as a marketing tool.  It allows them to compete on something other than price alone.

I don’t think we need much more discussion on item 1) above.  So let’s discuss item 2).

How difficult is it to reduce inventory, … if there is no requirement to deliver on time?  How tough is it to cut costs?  Or improve quality? …

On-Time Delivery is the constant unremitting standard that makes all other performance measures meaningful.

In some operations, capacity planning and order promising are vital prerequisites for world class delivery performance.

However, in most corporations, i.e. those operations that are NOT loaded to capacity, this is not the usual constraint.  Here, it’s more often some form of perceived cost control.

Some examples will help illustrate this point:  “We could have shipped on time, but it would have required paying overtime.”  Or “We’d have needed to pay the supplier an expedite fee”,  or “pay for air freight.”  Or “We’d have had to have someone receive material on the off-shift.”  And the list goes on.

Note that in all of these circumstances, management made the decision NOT to be on time!

The same is generally true for the company that IS at capacity.  Seldom is it a systems issue, i.e. “we didn’t know we were overloaded.”  More often it is a conscious decision to overbook the shop.

All of these management decisions COST MUCH MORE THAN THEY SAVE!

The first impact of missing your delivery promise is that it invalidates the powerful prediction tools that come from your ERP (Enterprise Resource Planning) system.

Let’s illustrate with a simple example: If we do not ship per the schedule, we invalidate the system’s cash flow projections.  The system expected a billing that did not happen.  This can have a significant impact on your controller, who is attempting to maximize the use of the company’s cash.

Missing deliveries has an even greater impact on your shop floor.

The schedule showed us shipping widget “A” yesterday.  We missed it.  That means that the schedule to produce widget “B” today will likely need to be altered so that we can finish widget “A”.

What impact does this have on your Material requirements?  Manpower needs?  Equipment loading?

You’re correct:  Every one of these parameters is now inaccurate!

Everyone has heard the old expression “Garbage In, Garbage Out.”  It generally refers to data integrity, and it is absolutely true.  Similarly, schedule integrity has a huge impact on shop floor efficiency.

Missed deliveries cause schedule disruptions, excess inventories, and expediting.  All are extreme forms of waste!

What’s the solution?

• Decide to be on time.  Change the culture.  “A delivery commitment is a promise, and we do NOT break our promises.”  We generally kick the transition off with an all-employee meeting.  We discuss the moral as well as the business reasons, and explain why they will soon see a new focus on hitting all due dates.
We have had dozens of clients where missed deliveries were cut by 70-90% simply by taking this step!

• Get, and maintain credible schedules.  Make sure that your order promising process considers, and abides by, all available data: shop capacities, procurement availability, tooling, etc.  It all begins with a reasonable schedule.

• Change the measurement and reward systems, if required.  The “given” is that we will ship on time, all the time.  THEN, we will attack the costs associated with on-time delivery: e.g. “Why did we have to work the OT, airfreight, etc.”
Management must establish the mantra: “The day ends when the schedule is done.  NOT the other way around”

• Require “Cause and Corrective Action” reports for any missed due date.  Begin with the final ship date, then do the same for subassembly and fabrication completions, and finally for procurement on-time delivery.  It is NOT OK to be late!

• Hold people accountable.

Establishing an “On-Time, All the Time” culture will have a literally huge impact on operating performance.  Do it.  Do it now!

In many companies, the commitment to be on-time represents a major change of operating philosophy.  It isn’t “how we’ve always done things.”

Sometimes it requires an outsider to convince key personnel.  We can help.  Give us a call.  I guarantee you won’t regret it.

Jack Harrison
Senior Partner
The Hands-On Group
info@handsongroup.com
407-299-5245

It’s All About Cash Flow!

Cash is King!

It’s a common expression, but it also extremely pertinent.
While profitability is a good long-term measure of success, many companies have shown a profit right up until the day they went belly-up!  Cash pays the bills.

What Ever Your Total Cycle Time Is, It’s Too Long!

Time is of the essence!  Another applicable cliché.

We call it the O-P cycle:  The total elapsed time from receipt of Order until receipt of Payment.
The length of the O-P cycle relates directly to your company’s cash flow.  And cash flow relates directly to company well being.

As a side note: The Boston Consulting Group did a major study comparing speed (the O-P cycle) with company profitability and rate of sales growth.  There was an astounding correlation between speed and the above measures of company success.  If you’d like more details, their results are explained in the book “Competing Against Time.”  It’s worth reading.

The Order through Payment cycle time will include your order entry process, design time if applicable, scheduling, procurement (if you are a buy and make to order producer), production, pack and ship, any inventory waiting time, transit time, and your payables cycle (the actual time for payables, not the terms on the invoice.)

If your company is like most, this cycle is 10 to 20 times longer than it should be!
Don’t believe me?  Try this simple experiment.  Expedite an order through your entire process.  Pay particular attention to the O-D cycle (Order through Delivery).  This is the portion over which you have the most control.

Now compare this expedited cycle time to your “normal” cycle time.  If you’re like most, there will be a glaring disparity.  And note that your “expedited” process still includes all sorts of non-value activities that can, and should, be eliminated.

If you are a “Make to Stock” / “Make to Forecast” operation, this same calculation applies.  The difference lies in the inventory cycle.  The cycle time of your inventory is a simple calculation:  How much inventory do I carry, divided by my average shipping rate.

Let’s say that we average 1000 widgets in stock, and we ship, on average, 10/day.  We therefore have an average cycle time of (1000 widgets / 10 widgets/day) = 100 days.  Note: The average daily shipping rate probably should be based on a seven day week (i.e. 70/week = 10/day).

The use of a seven day week can be debated, but in most instances, you have control over this parameter:  It is your company that decides whether it will run a 5, 6, or 7 day work week.  The clock, however, continues to run, 24 x 7, and so does the cost of capital.

We consistently see two major shortcomings in industry today:  A lack of a sense of urgency, and a similar lack of commitment to the company’s promises.

What should your O-P cycle be?

Less Than It Is!

What should your on-time delivery performance be (to your original promise)?

A consistent 100%!

How is this achieved?

The critical first step is to regularly measure these parameters and make the measurements public throughout your entire workforce.  Then set aggressive goals to improve both measurements.

Assign the appropriate managers to each segment of the O-P cycle, and then hold them accountable for achieving their cycle time reductions and on-time completions targets.

The methods and tools required to reduce the O-P cycle include cutting lead times and lot sizes in the system, and/or reducing kanban limits.

As a side note, this same process of driving down your total cycle time will also drive significant cost and quality improvements.  It is an extremely powerful elixir!

If you would like further discussion, specific to your circumstances, contact us and we’ll set up a conference call.  There’s no charge, and we will attempt to be helpful.

Jack Harrison
Senior Partner
The Hands-On Group
www.handsonfroup.com

Takt Time:  Where and When is it Applicable?

Takt time is a common lean concept, applicable and beneficial in a number of situations.
The idea, in a nutshell, is to produce product at the rate at which the customer requires it.  If the customer demand averages one unit per production minute, produce the product at this rate (Takt time).

The math is simple: Divide the available production hours by the demand rate to determine the average time allowed to produce a product.  If the customer wants 100 units/day.  And, we’re planning to run one shift/day (less allowances) equals seven (7) production hours/day.  We would need to produce one unit every (7 hrs * 60 minutes/hr)/100 units = 4.2 minutes.  For this example: the unit takt time is 4.2 minutes.

While the benefits of producing at a rate, equal to customer demand, are obvious, there are additional questions that need to be answered regarding applicability of this concept in your specific situation:
How linear is the actual demand, i.e. how much does actual demand vary, period to period?  How does the customer want to take delivery?  Are there any shipping constraints?  How large is the value-add work content?

Let’s take them one at a time: Takt time implies a reasonably level rate of demand.  In some government contract businesses, this is indeed the case.  However, in many industries, the actual demand varies significantly period to period.

Knowing that average demand is 100 units/day is of little value when actual customer demand regularly varies from zero/day to 300/day!  If we were to produce at an average rate, while consistently meeting customer demand, we’d likely have to carry some finished goods inventory.  This strategy has all of the typical “wastes” associated with inventory: Double handling, tracking, risk of obsolescence, hidden quality defects, tied up money and space, etc.

Another question: How does the customer want to take delivery?

Needless to say, producing at a nice linear rate, all month long, only to ship once/month, defeats much of the benefit of producing at a rate.  All month long we’ll be building and storing inventory, double handling (put it into storage, then take it back out of storage to ship it), with all of the wastes associated with inventory.

One of the biggest benefits implied by being able to produce linearly, at Takt time, is the ability to produce essentially directly to the shipping process and to transfer the product immediately to the customer.  I.e. we want to produce and ship at the takt time rate.

In the circumstance where the customer does NOT want daily linear deliveries, it often makes more sense to produce and ship JIT according to the customer’s shipping constraints.  I.e. instead of producing linearly and accumulating the product to ship, it may make more sense to produce the shipping quantity, at a considerably higher production rate, and then immediately load and ship the product.

In our above example, assume that the average demand is 100/day, but the customer only wants delivery once/week.  We might choose to produce at a takt time of 0.8 minutes/unit (500 shipping quantity, all produced in one day) and to pack and ship the shipment directly off the end of the production line.

Another typical extenuating circumstance is logistical.  If the logistical costs of daily shipments are prohibitive, then some of the benefits of takt time are lost.  We’d produce nice and linearly, but then have to accumulate and store the product waiting for an “efficient” transportation batch.

Another limitation to takt time usefulness is the amount of value-adding time required to produce the unit.

Let’s go back to our example, this time with no constraints on the shipping rate: i.e. the customer is willing to take daily delivery, and the transportation costs are not prohibitive.
Our computed takt time is 4.2 minutes/unit.

But what if the entire value-add time is less than 1 minute/unit?  i.e. one production operator can produce a unit in less than 1 minute.

Does it make sense to spread out the work beyond 1 minute?  Probably not!

Takt time applicability demands that the total value-add time is substantial enough to justify producing at a rate.

So what are some reasonable alternatives?

Where the above constraints are not an issue, go ahead and set up the line to produce at a rate.  However, build in the flexibility, via overtime, flexible workforce, additional work stations, extra raw material, etc. to allow for the actual production rate to vary as required to meet, exactly, the customer demand.

It is imperative, for any world class operation, that we fulfill our customer commitments with religious precision.  We have a simple mantra: “The day ends when the schedule is complete.  Not the other way around.”  World class companies consistently “Say what they’ll do, and do what they say.”

You can then work with your customer to identify, and reduce the reasons for any non-linearity of demand.  All too often, these “reasons” are self imposed: column pricing (providing a unit price discount for the customer when he/she orders a large batch size), in-efficient supply chain (batched deliveries), false economies of production: “lot size optimization”, etc.  We will address these issues in more detail in a future post.

The bottom-line message is this: Your lean tool kit contains a myriad of powerful techniques.  Takt time is but one example.

What is critical, is that you and your people understand the basic philosophy and concepts of “lean” so as to utilize only those techniques, where and when they are appropriate, to your circumstances.

If you’d like to discuss your specific situation, write or call.  We’ll attempt to be helpful, and there’s no charge.

Good luck on your lean journey.

A Lean Synopsis for the CEO

Top managers are always stressed for time.  So here is a capsulized summary of how a “Lean Manufacturing” philosophy can provide a critical positive transformation for your company.

1) If you are not, currently, a “lean” enterprise, the transition can provide a Cash Windfall.

A fundamental requirement of the transition to lean is a dramatic reduction of inventory.  This has multiple consequences, not the least of which is the generation of large amounts of up front tax-free cash.

To date, we have worked with three companies that have generated in excess of $150,000,000 (Yes, One hundred fifty million dollars) in cash within the first two years of transitioning to lean.
Even small companies have generated millions.  This upfront cash generation has never failed to far exceed the total cost of the lean transition, usually within the first few months.  Transitioning to lean is more than self-funding!

2) Another basic feature of a good lean process is that it not only encourages Continuous Improvement, It demands it!

A couple basic, company-wide, measurements provide the mechanism to drive a culture of continuous improvement.   Goal curves, combined with accountability, assure that improvements are sustained and continue.   And, they provide you and your management team with on-going progress status.   No surprises. Just rapid, tangible, company wide results.

3) An additional benefit of a Lean transition is the rapid improvement in Responsiveness.

There is an inverse correlation between inventory and responsiveness. Driving inventory down shortens lead times.  You can think of inventory as items waiting in line for their turn.  Fewer items mean shorter waiting time.
Quick response times, i.e. shorter lead times, often provide a significant competitive advantage.

4) One greatly under-emphasized benefit of a valid Lean initiative is the attainment of near perfect delivery performance.

A critical component of continuous improvement is the elimination of any disruption that causes us to miss a commitment.  We used the mantra: “The day ends when the schedule is completed.  Not the other way around.”
A quantum improvement in delivery performance is often generated within a few months of beginning the transition.  In most companies, the primary requirement for dramatically improved delivery performance is deciding to do it.  We can help.

5) Lean also has a dramatic impact on product Quality.

Reductions of inventory mean fewer defects if one is found.  Shorter lead times mean quicker discovery of a defect when one does occur.  And, quicker discovery means an improved probability of finding the true root cause.
It is not uncommon for our clients to experience an order of magnitude improvement in overall yield within the first 12 months of their lean transition.

6) Last, but not least, is the impact on Profitability.

Continuous improvement reduces waste.  Reduced inventory and improved yields mean less scrap and rework.  Better responsiveness and near perfect delivery performance means increased sales.

Bottom line: Revenues increase while expenses decrease.  Profitability spikes upward.

Note: A few of the above Lean Manufacturing Concepts are illustrated in the brief overview video on our home page.  Many of our clients use it as an introduction to lean for their people.

Additional articles that you might find informative address the High Cost of Complexity, How to Optimize Your Entire Plant, a re-look at your Make-Buy Criteria, increasing your market share by Leveraging Lean in the Marketplace, and Making a Case for Multiple Shifts.   And, if your business includes some Job Shop features, you’ll definitely find this article of interest.

Already pursuing the transition to Lean?   If you’re not thrilled with your rate of progress, you might want to check out these common process flaws.

If you would like additional discussion as to the application of our approach to a Lean Transformation to your specific situation, drop us a note and we’ll set up a conference call.   There’s no charge, and I guarantee you’ll find the time spent “value adding.”