The problem, of course, is guessing what, and how much, of each SKU (stock keeping unit, i.e. part number) to keep on hand.   Guess too high and you tie up cash and space and also increase your risk of obsolescence.
Guess too low and you may lose a sale because you cannot fill the demand.

There are four primary factors that influence the amount of finished goods carried by a Make to Stock company.

Replenishment time: (your internal lead time)   We must carry enough stock to cover the variability of our demand over the replenishment time.   For example, assume that our lead time to replenish is three weeks, with average demand of 100 units per week.   We have scheduled our production at 100 units per week.   We would, therefore, need to carry a “safety stock” level of inventory sufficient to cover the historical variability of demand over this three week period.

If, demand can be as high as 600 units over a three week period, and we wish to fill every order, we would need a safety stock level of at least 300 units (600 unit demand, less the 300 units on order).
The longer the replenishment time, the greater the level of inventory required to achieve the desired service level.

Production Lot Size:   If our planned production lot size exceeds the typical order quantity, some amount of finished goods will remain in stock between deliveries.
Let’s assume that our average shipping rate is 100 units per week, and our production lot size is 400 units.   On average, we would have 300 units left over when our production lot arrives.   These would last for approximately four weeks and obviously effect our level of finished goods inventory.   Note that “Order Point” is more thoroughly explained and illustrated in our “Lean Toolkit” article.
The greater the lot sizes, the greater the resulting average inventory level.

Production Reliability (on-time completions):   We mentioned, above, a “safety stock” factor.   But safety stock needs to consider not only variability of demand, but also reliability of supply.

To continue with our example, we have three weekly deliveries scheduled, 100/week.   But what if our reliability of supply (on-time completions) is only 50%?   Safety stocks must also attempt to cover for un-reliable supply.

The poorer the reliability of on-time completions, the greater the level of finished goods inventory required to assure the targeted service level.

And, Variability of Demand:   Obviously, the amount of inventory required to avoid a stock-out is considerably less if demand varies from 90 to 110 every week, vs, varying from 0 to 300 per week.   There are many components that cause variability of customer demand.   Some of those components are within our control.   Others are controlled by the customer and the marketplace.

What does it take to become a predominantly “Make to Order” company?

It requires:   Speed, Flexibility, and Reliability!

Speed is attained by cutting your internal lead times.   And, since there is a direct correlation between lead time and Work In Process (WIP) inventory level, reducing WIP becomes a primary focus.

For many companies, the level of WIP is a direct function of our planned lead times and our planned lot sizes (the parameters found in our ERP system).   If your company actually uses these parameters to release work to the floor, then these WIP levels are “self fulfilling.”

For example, if we plan on a four week process (planned lead time), the system will suggest that we start the product four weeks before the planned completion date.   We will, therefore, have four weeks of other stuff in WIP in front of this order, and it will take about four weeks to work its’ way through the process.

Lot sizes have a similar effect by clogging the WIP pipeline.   Lot sizes effect “speed” through the process.   This is one place where flexibility is at a premium.   You will need the ability to cost effectively produce in small batch sizes.

And, one of the worst offenders is a failure to execute the plan, i.e. a lack of production schedule reliability.   By that, I mean not hitting the due dates, splitting orders, expediting, etc.

A typical first step in the lean transformation is an aggressive focus on cutting the amount of WIP and on hitting credible due dates.   In a lot of companies this requires a prior step to address order promising so that the internal schedules are, indeed, doable, i.e. there is a reasonable probability that the required raw material and internal capacity will be available.

Once the promise dates are credible, the focus on cutting WIP will generally require:

1) Cut Lead times in the system.
2) Challenge all lot sizing rules (they are generally larger than justified based on actual total costs).
3) Instill discipline to start jobs on time.   Not early, and not late.
4) Focus, and measure, internal performance on hitting the due dates.
Note:   In many environments there are obvious places where a kanban system will be applicable, and kanbans are generally a preferred scheduling method.   Form inter-unit teams and help them set goals to reduce the inter-unit WIP (i.e. continually reduce the inter-unit kanban sizes).

Even in these circumstances it is often wise to focus, first, on improving the parameters and disciplines of the current scheduling system.   The reason is that this approach can deliver some quick sizable global gains, i.e. the “low hanging fruit,” by freeing up cash and space.

Step Two is to get reliable.   Hit the internal and external due dates.
This will often demand a new operating philosophy:   “The day ends when the schedule is done, NOT the other way around” and will also likely require additional capacity flexibility.

Many factors are taken into account when determining the appropriate level of finished goods for a make-to-stock item.   As discussed above, three key considerations are “Replenishment Time,” “Lot Size,” and “Reliability of Delivery” (on-time completions).

A reduced lead time, reduced lot sizes, and improved reliability (i.e. hitting our internal completion dates), allows us to reduce our Finished Goods levels and still attain the required off-the-shelf delivery performance.

Note that cutting Finished Goods is almost always a significant net cash generator.   Make sure that some of this cash is reserved to resolve the “rocks” (problems) that will surely be uncovered.   An investment in SMED (quick set-up for your equipment) may be required to further cut WIP by reducing your set-up costs and lot sizes.

At this stage, many companies can begin to transition from make-to-stock to Assemble-to-Order.

A producer of high pressure valves and fittings client of ours had been a make-to-stock producer. They had over $600,000 of assembled valves in finished goods inventory.

The “value-add” time to assemble and test their product was only a matter of 5-10 minutes. We initiated an effort to move to assemble to order.

Within a few weeks of initiating the effort, the new policy was “any order received by 12:00 noon, was assembled and tested to order and shipped the same day.”   After another month, the cut-off was pushed out to 2:00 PM!

All component machined parts were put on min-max control while we moved the focus to further reducing machined parts replenishment times and lot sizes.   Lead times were quickly cut from eight weeks to two.   We eventually got the machined parts replenishment lead times to five days.

The entire $600,000 finished goods inventory was eliminated, and, as machined parts lead times and lot sizes were reduced, and schedule reliability increased, the inventory of machined parts was cut by 75%.   On time delivery was over 98%.

Their customers were pleased with the faster and more reliable delivery.

Our client was also thrilled.   Lower costs, higher quality, and considerably higher margins!

Another client of ours produced corrugated containers.   Our client had a request from their primary large customer to have a few pallets of each of several SKU’s ready for pickup at 7:00 AM every morning.

The customer would pick up a pallet or two several times during the day.   They would do this up until 5:00 PM.

By adjusting the corrugator scheduler’s hours, reducing our change-over costs, cross training operators, and providing some flexible capacity, we were able to replenish any item that was needed overnight.   We utilized kanban controls and make-to-order capability to serve a key customer with minimal planning required.

A modification of “Assemble to Order” can be applicable in some process industries.   Another client had a steel finishing plant.   They quoted a two day lead time to pick and ship packaged coils from stock.

Often, the identical product was held in inventory but could not be shipped because it had already been packed to a different customer’s specifications (eye to the sky, vs. eye horizontal, paper wrapped vs. plastic, palletized, labeling, etc.).

First we made the transition to pack to order.

We then held the common gauges wide, and slit and packed to order.

After a few months we were able to hold wide and do the finish pass to final gauge, slit, cut to length, and pack to order, all within two days from receipt of order!

Even if you fail to get all the way to “Make to Order,” the above steps will allow for the dramatic reduction of finished goods while maintaining or improving your fill rate.

In the case of the steel finishing plant, an entire external finished goods warehouse was eliminated.

A client of ours made customized engraved products.   After going through all of the above steps, including radically streamlining the entire order entry process, a heretofore two-week lead time product was ultimately reduced to same day.   Orders were received, entered, downloaded to engraving, and produced.   Total elapsed time from receipt of order until packed and waiting UPS pickup: Four Hours!

Once you have made the final step in the transition to Make to Order, it may be possible to eliminate an entire category of non-value adding activities; e.g. releasing, tracking, and closing items to Work in Process!

Now that the time that a product spends in WIP has been dramatically reduced, you may be able to move to “Backflush” and eliminate the category of WIP entirely.   The categories of “raw” and “WIP” are combined into a new category:   RIP:   Raw and In Process Inventory.

As products ship, the material control system backflushes the raw material and eliminates it from on-hand raw material.   A simple example is that of a bicycle plant that makes to order.   As a specific model bike ships, the raw material balances are reduced by the entire bill of material for that bicycle: two wheels, one handlebar, one chain, etc.

It is important to note that it is not necessary to move all products to make to order to reap these gains.   Apply the concepts where and when you can.   Very few make-to-order companies have their entire product offering on make to order.   Most still maintain some select products in finished goods.

The next obvious step in the journey towards world class operating performance, is to establish a responsive base of local suppliers and minimize or, in some cases, eliminate raw material.

Many purchased items may be delivered directly to the point of use on the production line.   This is particularly true in the automotive industry.

An example is the seats that go into the automobile.   They are produced by a local supplier, and will generally be made to order, in the correct sequence so as to match the automaker’s final assembly schedule.   They are produced and delivered, just in time, to the appropriate location.

Seats go directly onto the truck from the seat production line, and come off the truck and go directly into the designated auto on the assembly line.

Look at the efficiency gained by this closely linked supply chain.   No finished goods of seats at the supplier’s plant.   No seats in raw material at the customer’s plants.   Each seat is handled once to put it on the truck and once to take it off the truck and put it in the assembly.   No stocking and unstocking.

And, the supplier is paid based on the auto assembler’s completions.   “We made 100 Mustangs.   We must have used 200 front bucket seats, and 100 rear seats!”   Backflush is extended back to the supplier’s payables.

Needless to say, the actual work required to make this very desirable transition from make-to-stock to make-to-order is extensive.   The good news is that the transition, if done correctly, is almost always more than self funding.

We can help.   Drop us a note or give us a call.   There is no charge, and I can guarantee that you’ll find the time “value adding.”

The post Lean Manufacturing Topic of the Day: From “Make to Stock” to “Make to Order” appeared first on The Hands-On Group.

“Our biggest problem is that our customers don’t read our forecasts!” said the VP of Operations.

“We plan on them ordering 100 units, and they order 300.   The next month, we plan on 200 and they order 100.   We compensate by carrying lots of inventory and we still miss a lot of deliveries” he said.

The “Rubber factory” is a term, coined by Brian Clements of Steelcase, many years ago.

It refers to the concept of making your manufacturing plant “capacity flexible.”   By that, we mean building in the flexibility to expand and contract plant output, as required, to compensate for varying demand.
It also means providing flexibility to adjust the output of your various internal production lines by moving resources within the plant.

In addition to the Rubber factory, you will need to take measures to smooth external customer demand.   These “demand leveling” techniques are explained in more detail in our post “Smoothing Customer Demand.”

The methods for internal flexibility, i.e. the ability to increase the output on one product line, while decreasing another, include:   Extensive employee cross training and regular job rotation, additional available equipment and tooling, and extra raw material (and/or extremely responsive suppliers).

If you are currently running one shift, or a five day week, additional flexibility, as well as additional capacity, can be attained by moving some of your workforce to the second shift, or by extending the work week by going to a staggered crewing schedule.

Also, many of the lean tools compliment this needed flexibility:   Cross Training, Job rotation, Standardization, 5S, Good Documentation, Training Aids, etc.

The carrying of additional raw material, if required, can be viewed as trading high-dollar inflexible finished goods inventory for lower dollar, much more flexible raw material.   Total cash tied up in inventory should go down, while the risk of obsolescence also drops significantly.

With a cross trained workforce, flexible raw material, and available equipment, we can flex the output of our various internal product lines by moving people.   Note that while these methods allow us to alter the mix of products produced, it does not substantially change the total plant output.

Flexing the total output of the plant requires the ability to increase or decrease the total equivalent manpower.

Increasing the plant output also requires that your equipment and tooling are not already 100% utilized (i.e. the equipment / tooling is not in use or being maintained 24 x 7).   If, indeed, you ARE running low on capacity, take a look at your investment in inventory.   We have had multiple clients use the cash freed up by permanent inventory reduction to acquire substantial amounts of additional equipment and tooling.

The most common ways to flex total labor capacity is through the use of overtime, the use of part-time / temporary employees, and by subcontracting out a portion of the work.

Overtime is generally the quickest, simplest solution for a short-term spike in demand, … unless, of course, you already work a lot of overtime as part of your standard workweek.

We spoke with a plant manager that had a policy of working a standard 50 – 60 hour work week.   He obviously had very little upside capacity to meet any spikes in demand, without “killing” his people.

Excessive continuous overtime will also cause productivity to fall off and absenteeism to rise.

Therefore, if you are currently utilizing more than a couple hours a week of overtime to meet your typical demand, step 1 is to adjust your fixed staffing levels, through the use of either temporary or permanent employees, as required, to reduce overtime.   Your objective should be to average at or near a standard 40 hour workweek.

It is also important to explain this policy to your people and to “phase it in” if such a policy will substantially reduce the current level of overtime.   In spite of what you may have recommended, most of your people will have indeed adjusted their spending levels, and will need time to re-adjust!

Once your average workweek is near 40 hours/week, spikes in demand of up to 50% (e.g. working a 60 hour week) can typically be accommodated for short periods of time.

While we don’t advocate “mandatory” overtime, we do suggest that your reasons for the surges in overtime be clearly explained, and your expectations made public at hiring and reiterated regularly at all-employee meetings.

We try to explain all such expectations in terms of serving our customer:   “The customer is the guy that pays the bills.   If we don’t serve our customers better than our completion, the problem WILL go away!”

While running my own factory, I was approached with a huge potential order with a tight delivery window.

I called all my people together, explained the opportunity and the amount of overtime I expected it would demand.   I didn’t accept the order until they had all bought in.   A couple of my employees also knew some good people that we could bring on board as temps during this period.

We took the order, made the delivery, and we all prospered from it.

Another caveat is that “staffing to average demand” will generate periods where you have more capacity than is required to meet demand.

This reminds me of a common complaint:   “We haven’t got time to train / cross-train our people.”

This statement is rapidly followed by:   “We can’t do that (e.g. staff at average demand).   We’d have people sitting around idle!”

Task your supervisors, and/or natural work teams, to prepare lists of training, cross training, and improvement project ideas to be implemented when demand is low.

Some of our clients have had great success utilizing temporary / part-time help to overcome spikes in demand.

One client of ours utilized a “four-hour crew” of part-timers that could be called upon with short notice.   The crew consisted of high school and college students, housewives, retired people, etc.   A similar approach has been utilized by using part-timers to staff a weekend shift.

Another of our clients had severe seasonality of demand.   They would consistently double or even triple their workforce during the peak season.   The extra staff was composed almost entirely of part-time temporary employees.   Most of these people were “regulars” that worked year after year, but only during peak season.

And, there are always the temporary labor agencies.   You’ll pay a premium, but you can be fairly certain that you will find capable help.   This avenue is particularly applicable when needing more specialized help: buyers, systems design, web site structuring, CAD experts, mechanics, maintenance / facilities pro’s, even product designers.

One advantage of using agency “temps” is that you can, and should, send for a replacement immediately if the current “temp” does not meet all of your requirements.   You’ll be paying a premium.   Expect “premium help.”

Subcontracting is a more difficult option, but it can be done.

Job shops such as machine shops and sheet metal shops regularly “sub-out” excess work.

The risks, however, of using a subcontractor are not trivial.   Your company is still responsible for quality and delivery, and it is your reputation (and liability) that is at risk if the sub screws up.

There is also the risk of introducing a potential competitor to your customer, and exposing your proprietary processes, tooling and/or designs.

Suppliers and customers can occasionally be used to handle a spike in demand.   A sheet metal fabrication client of ours would occasionally do some assembly work for their customer when requested.

The customer was local and provided them with the internal “guts” for our clients’ sheet metal parts.

Some of this work was eventually transferred to our client permanently.   By helping out their customer, they had expanded their “value add” contribution, as well as their profitability.

Bottom line?   As the expression goes “Speed Kills.”

Make speed and flexibility your strategic advantage.

The Rubber Factory is a key ingredient essential for providing the flexibility to implement this powerful competitive strategy.

While your competition is still pondering how and when they will be able to take the order, you will have produced it, shipped it, and deposited the check!

Note:   You may also find some of our other articles and posts of interest: “How to Attain Near-Perfect On-Time Delivery Performance?” and “How to Optimize Your Entire Plant”.   Both are essential concepts for a successful lean strategy of fast, reliable, delivery.

If you would like to discuss how the “Rubber Factory” 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.

The post Lean Manufacturing Topic of the day: The Rubber Factory appeared first on The Hands-On Group.

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”.
You will also need the flexibility to adjust capacity as required.
I think you’ll find them helpful.

NOTE:   If you are less than thrilled with your Lean Manufacturing results to date, you might want to check out our “Lean Bench Marking” article.   This is what you SHOULD EXPECT in the first 9-12 months!

The post Lean Manufacturing Topic of the Day: The High Cost of Complexity appeared first on The Hands-On Group.

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.

To further enhance flexibility and responsiveness, we would encourage you to consider moving toward the “Rubber factory” concept.   Doing so provides the necessary Capacity Flexibility to respond to changes in the level of demand.

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.

The post Lean Manufacturing Topic of the Day: Making the Case for Multiple Shifts appeared first on The Hands-On Group.

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%!

Traditional manufacturing practices generate all manner of complexity, and complexity costs a fortune!

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

The post Lean Manufacturing Topic of the Day: Lean Manufacturing and Government Contracts appeared first on The Hands-On Group.

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).
Combining multiple dock doors, side loading trucks, and an appropriately designed plant can greatly facilitate plant speed and efficiency.

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

The post Lean Manufacturing Topic of the Day:  Facility Considerations for Lean Manufacturing appeared first on The Hands-On Group.

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 of 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.

The post Lean Manufacturing Topic of the Day:  The Hidden Costs of Procurement appeared first on The Hands-On Group.

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 cost of complexity can be huge!

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.

Build in Flexibility.

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: This concept is further explained and illustrated in our article on “The Theory of Constraints.”   You may also find Lean Tools and the power of Lean Manufacturing to dramatically impact quality interesting.

PPS:   If you are less than thrilled with your Lean Manufacturing results to date, you might want to check out our “Lean Bench Marking” article.   This is what you SHOULD EXPECT in the first 9-12 months!

We’ve got a track record of continuing dramatic bottom-line successes since 1988!   Drop us a note, or give us a call.
There is no charge for a discussion and I guarantee you won’t be disappointed

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