Lean Manufacturing Tool Kit

Techniques, Tools, Terms, and Tricks Used In World Class Manufacturing

Philosophy vs. Techniques: The overall philosophy of Lean, i.e. Continuous Improvement and the Elimination of Waste, is best enforced through constant pressure to reduce inventory and ship on time.

Consider the techniques, listed below, as “tools” in your “Toolbox”. As you lower the inventory, problems will surface. The following tools and techniques will help resolve them.

Just as you would not attempt to drive a nail with a screwdriver, each of these tools has an appropriate time and place for its use.

5S / Area Organization. The 5 S’s actually stand for Japanese terms, which loosely translate as Sort, Set in Order, Shine, Standardize, and Sustain. A place for everything. Everything in its place. Clean. Shadow boards. Labels. Transparent containers. Clear posted instructions. Color codes. All appropriate tools where needed and fit for use. Remove the un-needed. Place infrequently used items out of the way.
80% Solution: When approached with a capital expense proposal, ask “How would you solve this problem if we could only provide you 10% – 20% of your requested funds? In many cases, Pareto’s law applies; i.e. we can attain 80% of the results with 20% of the expenditure. Note: The remaining 20% of the gain might still justify the additional 80% of the expenditure, but the alternative solutions are worth understanding.
90% of Authority is Assumed: It’s been many years since a very wise mentor made that profound statement. It continues to be proven true. Decide what needs to be done, and do it. Another expression that often applies is “Sometimes it’s better to Beg Forgiveness than to Ask Permission”!
Activity Based Costing: (ABC): Refers to the allocation of the various major components of overhead, based on the % of effort that each product requires from those support areas. As an example, product “A” might be very labor intensive, but require very little space, capital equipment, or engineering support. Product “B” is just the opposite, highly automated but requiring a large factory area, considerable amount of maintenance, and constant engineering support. Applying overhead based only on labor, or space, will likely provide inappropriate costing of both product lines. ABC attempts to ascertain the actual costs of each overhead department, and then applies those costs to the various product lines based on the percentage used by such product line. Note that a detailed ABC can be quite time consuming. Quite often, a “thumbnail” ABC is sufficient.
We had one client that was just about to terminate a product line. We asked if we might do a quick ABC. It turned out that the product line in question was a “cash cow”, while the line that had been planned to expand, was marginal at best!
In some situations this technique can be critical. The inappropriate application of overhead can be detrimental, or even terminal, to the company. Pricing decisions and product terminations are often made based on “full costing”. When the “peanut butter” approach is used, i.e. smoothly applying overhead based on one attribute such as direct labor, or space, products can be inappropriately costed, causing bad decisions. (See Contribution vs. Full Costing)
ABC Inventory Classification: Utilizing Pareto’s Law, inventory is generally classified into 3 broad categories. The “A” parts representing the “Critical Few” items that constitute the biggest annual dollar usage, and must be closely controlled. The “C” Items representing the “Trivial Many” that make up the largest number of SKU’s, and the least amount of annual dollar usage. And the “B” items represent the moderately important middle ground. Each company chooses where the demarcation is between such classifications. Note that there are no “rules” as to where you draw the line between A’s, B’s and C’s. We recommend that the A items be kept to a quantity of SKU’s that you can adequately manage. Percentages of A, B, and C items also vary significantly by industry. A common breakdown in the electro-mechanical assembly industries is: 80% of annual dollar usage = A items, 15% = B items, and 5% = C items. Pick what makes sense for you. And, change it whenever it no longer makes sense.
Once the classification is done, your planner’s emphasis is placed on carefully monitoring and controlling the level of “A” items on hand. Contrarily, the rule on “C” items is to make them non-issues, i.e. make sure that we never run out. This philosophy is often expressed in the raw material inventory and/or lot size policy: e.g. we plan to carry a 2 week supply of “A” items, 5 Weeks of “B” items, and 13 weeks of “C” items.
ABC Raw Material Inventory: Actual vs. Plan:
Many inventory planners use a lot size and/or order point formula for raw material procurement based on the ABC classification of the raw material items. E.g. 2 weeks of “A” items, 4 weeks of “B” items, and 12 weeks of “C” items. The general rule is to procure a lot size of the policy number of “weeks supply” when the on-hand inventory reaches it’s order point (generally about ½ the lot size). I.e. when the on-hand inventory level of an “A” item got down to 1 week supply, an order for an additional lot of approximately 2 weeks supply would be placed.
It is therefore reasonably straightforward to calculate the amount of inventory dollars that this policy should create.
In almost every company where we have calculated this number, the actual inventory was TWICE as much as computed. We’ve found, consistently, that just about ½ of the raw material dollars on-hand are “exceptions” to the inventory policy (either planned or unplanned).
The point is this: Attacking the A,B,C inventory rules will only get at half of the problem. You’ll need to dig into the exceptions to get at the other big piece of the pie.
Accountability: We dropped a client, after several months of their people missing due dates on their action commitments. They were wasting our time and their money.
Don’t even bother to begin any significant transformation process, like Lean Manufacturing, if corporate management neglects to hold people accountable. Should we expect an occasional failure? Of course. But when the recover date is missed, repeatedly, it’s time to take clear demonstrated corrective action. Occasionally the “rock” is a person. Remove the rock, or you risk undermining the entire transformation process.
Accuracy vs. Precision: As you move toward a lean operating environment you will discover that measurements often become less precise. At the same time, however, they tend to be more accurate than before. In all too many traditional operations, the parameters being measured are “precisely wrong” or at very least, denote an unwarranted degree of precision.
As an example, a product in a traditional layout may move in a batch through multiple departments. Each department would “cost” the item based on either the actual set-up and run times, or “standard” times plus some efficiency factor. The result would be a detailed listing of every cost segment (operation), plus an applied factor for factory overhead functions such as material handling, etc.
In a lean environment, the operations might be assembled into a cellular layout, with hand-offs between operations. Unit cost would simply be the total cost of the cell, divided by the number of units produced. While the Lean cost measurement is less detailed, it is hard to dispute its accuracy.
Analysis Paralysis. Time is indeed “of essence”. There are, of course, issues that justify a complete and thorough analysis prior to taking action. Most decisions, however, do NOT involve major risk. Ask the questions: “What will it cost to do this? If this should fail, in the most spectacular way, can we recover? What will it cost to put it back if it doesn’t work?”
Take a quick look at the risks in “just doing it”. It has been our experience that far too much inappropriate analysis takes place in industry. We have literally seen companies repeatedly spend thousands of dollars to “study” a situation, when a simple trial and error of the alternate solutions would have cost hundreds. One company spent a small fortune analyzing where to put a tool supply cabinet! They concluded that it should be in the middle of the shop area so that all could access it efficiently. Who’d of thought?!
Look to error on the side of action. Do something. If it works, do more of it. If it doesn’t, try something else.
On a side note: If you are attempting to choose between a couple alternatives where none has a clear advantage… It probably doesn’t make any difference which one you pick! Chose one and get on with it!
Andon: See “Opportunity Signals”
Backflush: Typical MRP logic removes parts from raw material inventory when a “kit” is pulled from stock, i.e. the parts are issued. A second transaction is then processed to “close” the assembly back into stock as a completed unit. Backflush eliminates one transaction. The parts are deleted from inventory, upon completion of the assembly. E.g. “I built 5 bicycles so I must have used 10 tires”. Doing so can significantly reduce and simplify transactions. Note that backflush is credible, from an inventory control and accounting perspective, only if the production lead times are extremely short (ideally, less than one day), and when process quality is extremely high, i.e. items do not linger in “discrepant material” limbo. Backflush is extremely effective when parts are stored at the point of use.
Note: Some of the older MRP software may required a simple software fix: simultaneous open and close of the work order. The computer is instructed that when an order is closed, assume that it had been opened, and do both transactions simultaneously.
Backlog: Measure and Control It: Backlog of work in technical and support departments such as engineering and drafting must be controlled or lead times will grow. This is accomplished through continuous monitoring of backlogs, with a rule that they will not be allowed to grow beyond some pre-determined amount. A required change in capacity can be determined by watching the amount of overtime necessary to maintain this level of backlog. Example: Our policy is to maintain the backlog of engineering work at under five days. If the backlog grows to six days, overtime will be applied to reduce the backlog to within our guideline. If overtime is consistently required, management will need to evaluate the need for adding of more permanent resources to the department. (See “Value Engineering”)
Banked Hours of Capacity: During periods of rapid WIP and / or Finished Goods inventory reduction, additional capacity will generally be freed up. Example: We currently have 6 weeks worth of Finished Goods inventory on hand, and we wish to reduce that level to three weeks. This can only be accomplished by 1) making less than we ship, or 2) shipping more than we make. For some period of time, we will need to produce less than we ship. You can think of the labor that has been invested in the WIP or finished goods inventory as “banked”. In some client companies, we have been able to utilize this effect to get caught up on an over-extended order book. People were moved from the front-end operations, and utilized to help with the finish-end operations, thereby allowing increased shipments during the inventory reduction period. In other plants, the freed up capacity was used for cross training, re-layouts, painting the factory, etc. All too often we hear these statements, made in earnest: “We don’t have the time to train our people” and in the next breath “We can’t let the people sit around while we reduce the inventory”. Take advantage of this one-time effect. Use the excess capacity to get caught up, or to improve your process capability!
Bench Marking: Bench marking has become the vogue of late. The idea is to compare your operating performance, in various categories, with the world’s best. Some companies will spend weeks, even months, researching other companies to find “best in class’ data. Before spending this time and money, it is critical that you ask this simple, but powerful, question: “What would we do differently if we had this data?” In every case, where we’ve asked this question, the answer was “Well, we’ll seek to get better in those areas”. Here’s an idea: “Seek to get better” now!
I’m going to go out on a limb here. Odds are that you are NOT the world leader in any parameter! Your lead times are too long. Your inventory is too high. Your delivery performance isn’t good enough. Your quality and reliability need improving. And, your costs are too high.
In our experience, bench marking is either 1) an ego trip, e.g. “we’re already really good”, 2) a way for some consultant to add a few more billable days, or 3) a way to postpone actually DOING anything! Don’t waste the time and effort. If you really want to know what world class companies are doing, try reading any of the excellent books that are readily available. An old classic is “World Class Manufacturing” by Richard Schonberger.
Best Practice Studies: If it is truly used to see what, and more importantly, HOW other companies are excelling, then “BPS” can be of benefit. Too often, however, “best practice” is tied to “bench marking”. Pretty much all real “Best Practice” methods are well documented in the available literature. We generally recommend that you do not spend the money and time sending teams of individuals on boondoggles. Bring in a mentor that’s done it with proven results. As NIKE would say… “Just Do It!” And, when you’re done, “Just Do It again”!
Bills of Material: Flatten them! Flat Bills of Material: Lean demands that we simplify operations, reduce lot sizes, eliminate inter-unit in-process inventory, failsafe operations, and attain a high level of on-time completions. These steps greatly reduce the need for deep bills of material. Challenge every level. Continually ask: ”Why can’t we make that subassembly as part of the higher level assembly? Eliminate sub-assemblies where ever possible. Utilize “Blow-Through” BOM’s where required. Use kanban controls to schedule subassemblies, thereby eliminating all “in & out of stock” inventory transactions. (See “Blow-Through BOM’s” and “MAPO”)
Blitz: A commonly used (and often abused) term meaning to target an area / process and make rapid significant changes, with minimal study and analysis. It is a powerful concept, when appropriately applied, and can also be used to illustrate the power of a “Just Do It” approach.
In most environments, the results of the blitz will generate considerable improvement. It is important to emphasize, however, that the operators in the area blitzed, will need to “tweek” and fine-tune the operation in order to achieve the blitz’s full potential. Most blitzes should be thought of as a series of changes: try something, adjust it, tweek it, let it settle in, tweek it again, and then, after it has settled down, proceduralize and document it.
Caveat: Blitzes are all too often un-targeted, i.e. done with little concern as to the overall impact on the total company. The results of such un-focused blitzes typically have a significant local impact, but little or no impact on overall company well being. See “Solutions Looking for a Problem”
Blow-Through BOM’s (Bills of Material): Many “assembled product” manufacturers need to maintain subassembly identity, and/or control configuration, for replacement parts. In these circumstances, rather than have a flat bill of material, it is much more practical to continue to show all subassembly levels on the bill of material. A “Blow Through” level, allows the subassembly’s parts to be called out, for kitting or backflush purposes, on the next higher level assembly. The MRP algorithm “blows through” i.e. treats the subassembly’s parts as if they were called out on the next higher-level assembly.
Boom-Bust Cycle: Some Causes: I just got off the phone with a steel finishing plant / distributor. He said that their on-time delivery performance was terrible, and that their lead times had extended considerably. When I mentioned some ways to fix this issue, his response was classic: “The customers have learned to expect it” “We can’t turn down orders. We just promise what they want to hear, then beg forgiveness”
And what do the customers do in these situations? You’ve go it! They double order. They order high “just in case”. They ask for it early, knowing full well that it will be late.
And what then happens when things slow down, just a little bit, and suppliers begin to get on time? Right again! The customers start canceling orders, and pushing out deliveries. They’ll ask you to “hold it” for them until they really need it.
We go from “Can’t make Enough” to “Can’t Give It Away” virtually overnight! Classic Boom – Bust cycle.
Ask any customer which he’d rather have: An unfavorable, but realistic promise date? Or a “Tell them what they want to hear, then ship it when you can” promise?
When I mentioned that we could help them fix this situation, he said, ”It isn’t a priority. We’re too busy”.
This is doubly interesting since when we’d spoken a few years prior, he’d said that he didn’t want any help then either. You got it! They were too slow then! Odds are, the answer will be the same in another year or so when this bubble, caused by artificially inflated demand, bursts.
When are we going to learn?
There are some simple, yet powerful ways to reliably promise, and deliver, on time, and NOT turn down lucrative “urgent” orders, and, while still keeping the plant running at capacity.
You may not be able to protect your entire industry. But by maintaining reasonable lead times and reliable delivery performance with, at minimum, your “A” customers, you can dampen your own boom – bust cycle considerably.
Bottleneck / Constraint: The machine or function that limits the output of the entire factory. The idea is to focus all efforts on improving the output of the bottleneck.
One caveat: Challenge the validity of all perceived bottlenecks. Is it a physical limitation? Or is it an imposed limitation? Unless your facility is running 24 x 7, most bottlenecks are imposed, not truly a physical constraint. When looked at, in its most basic form, there are only a few true physical limitations to increased output: Time, Money, and the Marketplace. If you are trying to increase the output of buggy whips, the market will likely be your limitation. For most other products, given enough time and money, any bottleneck can be overcome. In the short term, however, very real bottlenecks may exist in your operation. (See “Theory of Constraints”)
Build the Entire Plant at Dock Height with Easy Access to the Entire Periphery. In a lean environment, we seek cost effective material delivered directly to the point of use. We also want easy shipment / loading. Having a plant that is all at truck dock height allows for dock doors to be placed anywhere on the periphery of the plant, thereby providing considerably more flexibility. The use of side loading trucks may also enhance this process.
Build in flexibility: Make it easy to re-arrange equipment. Leave a loop of wire in the ceiling so that benches and equipment can be repositioned. Put twist lock outlets in the ceiling on a grid. Use quick-disconnect air hookups (in ceiling). Put equipment, where practical, on wheels (with wheel locks). The idea is to make “change” as easy and inexpensive as possible. Once flexibility is established, the organization can readily capture the gains that small incremental improvements provide.
Capacity: Demonstrated vs. Theoretical: There are several ways to calculate “theoretical” capacity. And, in circumstances where there is no other data, doing so can provide useful information. However, wherever actual DEMONSTRATED performance data exists, use it. And be careful to use long-term average data. Not, the “best week we ever had” data. While history doesn’t always represent the future, it’s generally more accurate than the calculated numbers.
Capacity: Do We Really Need More? “We need more draftsmen.” Said the head of engineering. “Our backlog of drafting work is 40 days!” It turned out that their backlog of drafting work had ALWAYS been about 40 days! Do they need more permanent drafting capacity? No. Here’s a simple rule of thumb. If your backlog of work continues to remain fairly stable, then you probably do NOT need additional capacity (on average). In this circumstance, you have demonstrated that you have, in fact, got the appropriate capacity to deal with your average demand. If you didn’t, your backlog would continue to grow. Instead, you may just need a temporary, one time, increase in capacity to reduce the backlog. In the real-client example above, we worked a considerable amount of OT, and brought in some part-time help. Once the backlog was reduced (to less than 5 days on average) the original level of staffing was able to maintain it at that level. (See Backlog: Measure and Control It)
Capacity Planning / Capacity Requirements Planning (CRP): Providing a realistic achievable amount of work to the shop floor is a basic requirement for high levels of on-time delivery performance. Capacity planning is a necessary tool to achieve this. Capacity planning can be done at two different levels: Rough Cut, based on the top level schedules only, and Detailed, which utilized the entire set of “detailed” schedules produced by the scheduling system (ERP/MRP). In each method, the approach is to multiply the amount of the various resources required for each individual item, times the number of items that are scheduled to be produced. The cumulative requirements are then totaled by resource (e.g. work center) and time bucket. This total requirement is then compared to the amount of capacity available, and if adjustments are required, they are made (overtime is planned, people are re-allocated, schedules are moved in or out, etc,)
One important point is that Lean principles will greatly simplify capacity planning, and in many environments, will eliminate the need entirely for detailed CRP. When lead times are compressed, bills of material flattened, and lot sizes cut, rough-cut CRP, based on the master schedule, is often sufficient.
Capacity Reservation: In many industries, it is imperative that suppliers retain capacity for their “A” customers. Doing so protects your critical few customers from lead-time vacillations. Aggregate capacity control, i.e. not accepting orders in excess of your demonstrated capacity, is also crucial. It allows you to continue reliable deliveries, even in the face of excess demand. Lead time may float for your “B” and “C” customers, but quality and delivery performance remain World Class.
Cascade Planned Maintenance: In capital intense industries, scheduled maintenance “down periods” tend to dry up the inventory prior to the next downstream process step. The idea of cascading planned maintenance is to schedule these down periods sequentially, in the sequence that the product flows. Picture an inventory “hole”, created by the maintenance down period, flowing from operation to operation. While process #1 is down for maintenance, the inventory queue in front of process #2 dries up. We then shut down process #2 for maintenance, thereby allowing the queue in front of it to re-build, while the queue in front of process #3 is depleted. This cascading continues throughout the remaining processes. This technique, combined with modularizing the planned maintenance duration, can have a huge impact on the success of in-process kanban controls. (See “Modularize Planned Maintenance” and the article “Running Steel lean”)
Cause & Corrective Action Reports: Accountability can be significantly improved via this simple technique. Whenever a commitment is missed, demand a “cause and corrective action” report. As the name implies, we’re seeking an explanation of the reason for the missed commitment, and the proposed fix so that the commitment will be attained. Understand, we are NOT advocating a lot of bureaucratic paperwork. The real purpose is twofold: 1) force a real understanding of the situation, and 2) make it such a pain in the @#$%%^^ that it quickly becomes evident that it is easier to make the commitment, than do the explanation!
Challenge all “Cure Times” “Test Times” etc. Nature doesn’t necessarily work in 8,16,24 hour blocks. Plot failures vs. time. If ALL failures occur within the 1^st 2 hrs, why run an 8 hr test?
Do some failure testing for various cure times. We have seen dramatic reductions in overall cycle times simply by challenging and changing here-to-fore sacrosanct “rules”.
Cellular Manufacturing: Arrange equipment so that a product can flow easily from operation to operation. Seek one-piece flow within the cell. Minimize storage and conveyance devices. Wherever possible use “Hand-offs” between operations.
Note that cells will naturally occur if there is enough pressure to reduce inter-operation inventory (the catalyst for change). We were working with an electric power meter company that was very vertically integrated. On the 1^st floor, punch presses made components used for the various meters. On the 3^rd floor, one product line of meters was assembled. We formed a team composed of both assembly and punch press operators, and set an inventory reduction goal curve. This rapidly evolved into work cells on the 3^rd floor. However, in about one month the team said “This is crazy, we’re wearing a path in the floor running over to get the punch press parts” (They had a dumb waiter elevator to move the parts between floors) “We need to add back some inventory” they said. We, of course, said “That’s the wrong answer. What else can we do?”
With a little more discussion, it was agreed to move the press from the “press floor” to the 3^rd floor. It was placed in the cell. Problem solved.
China Contingencies: In a large number of industries, due to the substantial cost differential, some portion of the product line (parts, sub-assemblies, or even finished product) will be procured from distant sources (China, India, Korea, Mexico, etc.). It is imperative that a clear set of contingencies be incorporated with this procurement policy to mitigate your shipping performance risks. Such policies may include: Retaining some capability to produce in-house or domestically; Willingness to pay for air-freight when / if required; Producing / procuring domestically during startup / product introduction “trial” phase (possibly at a loss, due to the higher local cost structure); etc.
Color-of-Money Issues: Standard corporate measurement systems treat cash generated from inventory reduction differently than cash generated from operations. This is a correct procedure in “normal operating conditions”, i.e. when there is not a transition to “Lean” going on. However, during such a transition from traditional operating practices to “Lean Manufacturing” a one-time windfall of cash, via permanent inventory reduction, is likely to occur. As long as the appropriate systems (kanban controls, inventory goal curves, etc.) are put in place, this inventory delta is enduring. Management should seriously consider providing all, or a portion of this inventory reduction cash to fund operating improvements: tooling, cross-training, equipment re-arrangement, capital items, etc. In addition, top management should consider allowing permanent inventory reduction to be considered when evaluating capital and expenditure proposals. If spending $10,000 on a piece of equipment (a “working asset”) will allow for a $50,000 permanent inventory reduction (a “non-working asset”), the decision appears to be a no-brainer. Yet, all too often, this type of proposal is rejected because it doesn’t fit the normal justification criteria.
Column Pricing: It is common practice, in many industries, to provide price breaks at increasing volumes of purchase. The name comes from the typical form in which such pricing is presented, i.e. columns showing the price at various purchase quantities. The problem occurs when column pricing is set up so as to encourage “lumpy” demand; i.e. buy a bunch now, then nothing for a long period of time. This happens when the price break is based on the amount taken at any one time. A Lean organization is always looking for ways to smooth demand. This can be accomplished by rewarding volume in terms of annual purchasing volume, as opposed to “per delivery”. Needless to say, smoothing demand implies smaller, more frequent, runs. This, of course, forces reducing set-up costs so that small lots can be effectively produced. Every solution causes new problems! Lean is, indeed, an iterative process.
Common Sense: My teenage daughter wanted to see what her Dad did for a living, so I brought her along to a basic “Lean” workshop I was conducting. I presented the philosophy and some of the common techniques of Lean. At lunch I asked what she thought. “They pay you for this?” she said. “It’s all common sense”. And so it is. There are a lot of people trying to make it complicated. It isn’t. 1) Reduce the inventory. 2) Fix the problems that arise. Repeat!
The concept and techniques are straightforward. Making the necessary culture change to embrace these concepts, however, is NOT. Every company makes this transition, hopefully, just once. The problems that you will encounter are predictable. Get some help. Find someone that’s done it 20, 30, 50 times. The payback can be huge.
Communication Devices: I walked into the meeting with our new client. After a few minutes of discussion, I got up to explain a concept. There was no whiteboard or flip chart in the room! “How the heck do these people communicate?” I thought.
Make it easy for people to convey ideas. Hang butcher paper in the hallways and on the walls. Hang markers on strings or make wall mount hangers to hold them. Make sure that every office and conference room has a large white board and an ample supply of markers. Put flip charts in every meeting room. Make sure everyone knows to bring a pad and pen to every meeting. These simple, low cost items stimulate conversation, communication, and brain-storming. Communication devices are not an expense. They are an investment, with a huge payback.
Compete with Speed / Responsiveness. Not just price (note: Quality is a given). One strategy that I have personally implemented at one of our own factories is this: Get your customers dependent on your quick response time. We provided product in 1-2 days. Our competition required 2 weeks. Our customers loved the quick response, and soon got dependent on it. They couldn’t go elsewhere! A great book on this subject is “Competing Against Time”, by George Stalk.
Needless to say, speed without reliability is not of much value. Measure both your response time and your on-time delivery performance to the original promise date. Set goals to improve each. (See “On-Time Delivery”)
Continuous Flow Manufacturing (CFM): Another term for “Lean Manufacturing”
Continuous Questioning: Things are often not what they seem. Don’t be afraid to dig deeper. Ask Why? Why not? A couple extremely powerful questions are: “What value does that add?” And “What would keep us from doing that… Right Now?” (See Five “Whys”)
Continuous Product Replenishment (CPR): A modification of traditional kanban replenishment. The idea is to produce the aggregate forecast quantity of product, but use the lowest “days supply” to determine what specific SKU’s are produced, rather than using an absolute kanban quantity per item.
Contribution, vs. Full Costing: One technique that companies use to avoid the risk of misapplication of overhead, deals with the “contribution” that a product makes. No attempt is made at “Full Costing,” i.e. applying overhead to the more readily attained “direct costs” of labor and material. Contribution is defined as the amount and/or percent of money that the product “contributes” toward both overhead and profit. This can be extremely important when considering the elimination of a product line. If no other product is available to fill the capacity that would be freed up, the elimination of a “loser” could have serious detrimental consequences. I.e. the product that is “losing money” when fully burdened with its overhead, might still be “contributing” to covering some of those overhead costs. When in doubt, do a proforma with and without the product line.
Contribution is a relatively simple way to look at costs and pricing when the application of overhead is subjective or difficult to do. (See Activity based Costing)
Conveyors: Avoid them where possible. They’re inflexible, take up a lot of space, can block traffic flow, and can be used to store inventory. If you must use conveyors, investigate moveable conveyors (wheeled) and extension conveyors (the conveyor can be extended or collapsed like an accordion). (See Slippery Floors)
Cost of Complexity: Unit optimization rules, lot sizing, etc. all complicate the scheduling process. It is intuitively obvious that complexity costs money. However, since it is difficult to measure the actual costs of complexity, we tend to treat it as zero. Assign an arbitrary cost adder to complex solutions. Seek simplicity.
Note: The very simplest scheduling method is FIFO: First In First Out. Lean attacks all of the things that cause us to deviate from simple FIFO.
Counter Cyclical Products. We worked with a toy manufacturer. Their workforce went from 90 people to 900 people every year due to the seasonality of toys. Not a terribly efficient way to operate. The idea is to find compatible products / markets that have a demand pattern that is counter to your current demand pattern, i.e. is “up” when your current demand is “down”. Using the toy manufacturer as an example, their primary capabilities were injection molding and assembly. We would search for products that require similar capabilities, but have their strong season in the spring and summer, such as landscape / gardening, construction, etc.? We would also look for counter cyclical markets, e.g. spring & summer toys (outdoor games, water toys) and counter-seasonal locations (i.e. their summer is our winter), e.g. winter toys (sleds, skis, toboggans, etc.) in South America?
Credibility: Say what You’ll Do, and Do What You Say: In too many companies, the strategy is to take the order, then hope like hell we can find a way to ship it! Order entry must have, and use, rough cut capacity control. Credible delivery begins with credible order promising.
Creative Ways to Increase Capacity: Switch to a 10 hr, 4 day shift to draw employees. Stagger people’s days off to increase capacity, i.e. every employee works only 4 days per week, but not necessarily the same days (you can run a 4, 5, 6 or 7 day operation). Note that a 10 hour day, 6 day week buys you 50% more capacity from the same plant and equipment, without having to add an afternoon or night shift.
If you are, or plan to run a 2^nd shift, consider changing the work hours to start the shift at 8:00 PM. In our experience, this pattern better fits the American employee’s needs (parents are home with the kids after school, and can still participate in the family dinner). We had a client that was experiencing great difficulty staffing a second shift. They then changed their 2nd shift offer to a 4 day week (10 hrs/day) and a 8:00 PM starting time. They had people standing in line applying for the positions!
Critical Equipment Spare Parts: As we reduce production inventory and focus on on-time delivery, the need for reliable equipment, and quick response when a piece of equipment does fail, increases significantly. Beware the temptation to start slashing this spare parts “inventory”.
In the early stages of a lean transition, it is not unusual to actually increase the supply of spares. Some of the cash, freed up from the reduction of “production inventory,” may need to be spent on additional “critical spares”. Later, after production inventories have been dramatically reduced and are now reasonably stable, you can begin working on ways to reduce the spare parts inventory pool as well. Work with critical parts suppliers to reduce their replenishment times. Standardize equipment to minimize the variety of spares that must be retained, Etc. Note: In some industries, retaining a machine shop and some capable employees (machinists) can also hedge against the loss of a critical part.
Cross Training: The need for cross training increases as the Work In Process inventory is decreased. Variations in the work content of the individual tasks becomes increasingly obvious. Employees, therefore, will need to become more flexible and multi-skilled. This will require cross training. Establish cross-training matrices, with target dates. Create/define, if necessary, different levels of proficiency. Typical levels are 1) Capable: The employee can perform all the requirements of the task, to specification, and produce a good quality product. 2) Skilled: Same as above but at a higher level of output. I.e. “proficient”. And 3) Master: Capable of performing the job at the skilled level, plus set-up the machine, perform routine maintenance, and train other operators.
Culture Change: For most traditional manufacturing companies, the transition to Lean is truly a culture change. Emphasis on individual operator / unit performance is replaced with aggregate performance measures. Teams become the norm. On-time delivery becomes a “given”. All too often we see a top management team basically saying “Go get us one of those ‘lean’ things.” Making the culture shift, and sustaining it, requires top management understanding, buy-in, and constant vigilance. As they say, “you can delegate authority, but you will always retain responsibility”.
The transition typically requires a Clear Vision, with a Perceived Need, and a Sense of Urgency, Pervasive throughout the Organization. We have found it essential that top management keep it’s finger on the pulse. This takes place at the weekly review of the goal curves. Management must quickly change the questions from “If” to “How” the goals will be met.
Another key role of top management is the modification of measurement and reward systems to reflect the new way of operating. Traditional measurements typically encourage and reward “Local optimization”. Lean measurements and reward systems seek to optimize “the whole”. Quite often this will require, at least temporarily, sub-optimizing some units. Without a change in measurements and rewards, there will be conflicting pressures that will inhibit progress.
Customer Classification: All customers are NOT equal. Like most other business parameters, customers can and should be ranked by importance. Pareto’s law will likely prevail, i.e. 20% of your customers generate 80% of sales and profits. These are your “A” customers. Reserve capacity for them. During good times or bad, you’re “A” customers should expect and receive short, fixed lead times. Lead times may, however, float for your B and C customers.
Note that All customers should expect and get reliable delivery performance. Lead time may float, but delivery performance to your promise date must be constant.
Cut Lead Times in the System, Immediately. Planned lead times are self-fulfilling. If you “plan” for an assembly to take 4 weeks to complete, it will almost always actually take at least four weeks! You will issue it to the shop floor 4 weeks ahead of its due date. And, there will also be four weeks worth of other work on the floor “ahead” of this item.
You can think of WIP as items standing in line waiting for their turn. The more items waiting in line, the longer the wait. If we were to increase the planned lead-time to five weeks, the system would tell us to issue another week’s worth of stuff to the shop floor. And each item would have that much longer to wait in line for its turn. Conversely, if we cut the planned lead-time, fewer items would be on the shop floor, and all items would therefore have a shorter wait.
Bottom Line: Cut system lead times, and enforce schedule adherence. Instill the discipline to not start any product into WIP prior to its scheduled start time. Do this NOW! This is a big “bang for the buck” item.
Cycle Counting: Cycle counting is the process of monitoring your inventory accuracy by regularly counting a few randomly generated part numbers. While each count discrepancy is corrected through this process, that is NOT the purpose. The purpose is to identify, and correct, procedural problems that allow inventory accuracy to degrade. Focus less on the number of SKU’s counted, and more on the analysis and corrective action of the underlying root causes.
Cycle Counting; Do it on the “Off Shifts” if possible: Cycle counting is considerably easier if parts are not being transacted during the cycle count process. The easiest way to accomplish this is to do cycle counting at a time when no production activity is taking place. For a one-shift operation this might be done in the evening or nighttime. It could also be done on the weekends. In companies that do “batch” processing of transactions, if possible, choose a time after the batch has been run, and before the beginning of operations; typically early morning before the start of the 1^st shift. Note: Where parts are stored at the point of use, ALL items can be counted daily / weekly by the area production operators.
Cycle Counting; Thumbnail: There are circumstances that arise where you need to know that your inventory numbers are “reasonable,” i.e. that there are no major “gotcha’s” lurking. One such circumstance is upon the purchase of a new plant or company where the inventory numbers are suspect. We have also used this methodology on occasions where it was apparent that the client’s existing inventory numbers were grossly unreliable.
The idea is to rapidly get ALL inventory accuracy within some reasonably wide tolerance level, say plus or minus 10-15 %. You can then move at a more leisurely pace to hone the accuracy further. The methodology is simple and straightforward. Each part number gets a quick scan for approximate accuracy. If the inventory number in the records seems reasonable, move on to the next item. As an example, the stock status shows 347 of item A. A quick look at the stock location finds three boxes labeled 100/ea and one open box. If the boxes appear to be able to hold 100, you’re done. Move to the next item. If the thumbnail look shows a major discrepancy, the item is flagged for additional research. One major benefit of the thumbnail methodology is that you can, and should, use the majority of your workforce to get it done “today”. The flagged items can then be addressed by more qualified individuals (who know the parts, and the “hiding places”). We generally set the objective to get all inventory accuracy within plus/minus 10% within one week. Inventory accuracy is too critical to delay correction.
Defect Display Boards: Many cosmetic defects are difficult to quantify. Providing samples and/or photos showing the distinction between minimally acceptable and not acceptable provides a clearer reference for operators. Make sure that such aids are placed on the shop floor where they are easily accessible by the appropriate operators. Get the operators involved in the design of the display: which items / defects should be displayed? Layout? Location of the display, etc.
Design for Manufacturability: Design new products with the manufacturing process/s in mind. Make sure that you have representation from manufacturing intimately involved during the front-end design process. Designing a product with current and future production capabilities in mind, can save not just money, but also time-to-market.
Designing to a Target Cost: The marketing group provides forecast sales volumes for various price levels. Management decides the target price and cost needed to accomplish its objectives. The design team is then tasked to provide a product that meets the requirements, at or below the target cost. If it cannot do so, the project may be terminated.
“Doneness” Criteria: Establish, in advance, exactly what constitutes successful completion of an action item. Is the task to initiate a discussion? Establish a plan? Produce a result? What result? To what level of performance? How measured? Is someone else’s verification required? If so, who? Getting agreement on this critical parameter can be the difference between completing a project on time, and missing the due date.
Don’t Over Study. Just Do It! Overcoming inertia to get something done is difficult. We suggest that you ask three test questions: 1) Is it safe? (i.e. no one will get hurt if we try this) 2) Is the customer protected? (If this fails in the most spectacular way, can we still provide the customer with a quality product, on time?) and 3) Has everyone been INFORMED (and there’s been no outcry). If the answers are positive, then Just Do It!
Do what you can, with what you’ve got, where you are, right now! (See “Silence is Acceptance”)
Drive the Inventory Out of WIP: In most manufacturing companies, the initial lean focus should be on reducing WIP inventory. Push the existing WIP forward into Finished Goods, or, preferably, backward to raw.
Inventory in WIP correlates directly with cycle time (think of WIP as items waiting in line. The longer the line, the longer the average cycle time).
We generally advocate a multi-phase approach. First, get the inventory out of WIP. This will force operating improvements, shorten replenishment times, and improve on-time completion reliability. These improvements will then allow you to work on reducing finished goods. This frees up cash and reduces risk of obsolescence. Finally, work with suppliers to reduce raw material.
Note: during phase one, it may even be advisable to temporarily increase the amount of raw material on-hand. Reducing WIP is difficult enough without facing chronic parts shortages.
“Dropping a Product Line? Be Careful!: Be extremely cautious when considering the elimination of “unprofitable” product lines. Make certain that the allocation of overhead to such product lines is a valid representation of the level of support required from the OH departments. I saw a company eliminate a very labor intensive product line because it was “unprofitable”. With this product line gone, ALL of the overhead now fell on the “profitable” product, making it, too, unprofitable. (See Activity based Costing)
Employee involvement: While this is, of course, a powerful tool in achieving world class operating performance, it is not an end in itself. When you squeeze the inventory out of the system, employee interaction and interdependency will automatically occur. It is in this environment that employee involvement and teaming skills will be required. Provide the skills training and empowerment as, and when, the environment is ready to accept them. Forcing “teams for teams sake” can be both a waste of money and a cause of additional headaches. We have seen companies spend small fortunes forming employee teams, only to have the teams focus their energy discussing critical issues such as what music should be played over the PA system!
Empowerment: The idea is to free up 100% of the brainpower within an organization. We consider the production operator as the “expert” in his/her job. The difficulty is in focusing the empowered employee to work on things that better the company. To do so, it is critical to align goals and reward systems so that what is good for the individual is also good for the company.
Recommendation: Provide clear quantifiable objectives for the natural work teams to pursue. In our process, this is typically the local increment of the corporate goal curves. Then provide the empowerment to achieve these goals. This will require Time & Money. Allot specific time for team meetings and time to work on the initiatives. Provide some discretionary funding, when appropriate, to allow the team to try low-cost ideas without going through an approval cycle.
Enforce Schedule Commitment, Every Shift, Every Area. There are two ways to attain reliable delivery: 1) carry a lot of finished goods inventory, or 2) maintain reliable schedule completions. Consider on-time performance as a quality parameter. Measure on-time completion to the schedule date and set goals to improve it. One critical change in perception is the following:
The shift ends when the schedule is done, not the other way around. Start with “every week”, then “every day” and finally “every shift”. Needless to say, if you are on a two-shift operation, it is difficult to hold the 1^st shift accountable for their schedule attainment if the 2^nd shift starts at the same time that the 1^st shift ends. One solution to this problem is the staggered shift pattern, e.g. 8 hr shift, 4 hour gap, 8 hr shift. This pattern allows each shift to work overtime when required to hit their schedule, exactly, every day.
Enterprise Resource Planning (ERP): “MRP on steroids”. ERP was a natural progression from Material Requirements Planning or MRP. ERP software attempts to integrate all functions of the organization, as well as customer and supplier information. While a comprehensive ERP system can be a powerful resource to the company, be fully aware of the tremendous resource drain that must be incurred to implement, train your people, and truly adapt / institutionalize such a system into your culture. Whatever the software company tells you, in terms of time and money, double it!
Another big risk is in installing an ERP system prior to “leaning” the operation. Too many companies have spent huge amounts of money to, basically, automate their waste! If your lead times are too long, lot sizes too large, and discipline too weak, no system on earth will do you much good. In addition, when the operation is greatly simplified, many of the computer system requirements are similarly simplified.
Caveat: ERP software is typically “general”, i.e. has features and capabilities that may not be required in your environment. Be careful to “lock out” these features before someone starts playing with them. Wherever possible, Keep It Simple! (See the article “ERP and Lean”)
Equipment Isolation: (also known as “Lock Out, Tag Out”): Is a much needed precaution when performing maintenance on large dangerous pieces of capital equipment. It can, however, also be a major stumbling block when attempting to reduce change-over times and/or modularize scheduled maintenance. If this rock appears, focus some blitzes and be prepared to spend some money to shorten the isolation time. In capital intense industries, such as metals production, doing so can be a big payback item. (See “Running Steel Lean” article)
Expense Your Raw Material: Traditional accounting systems consider inventory as an asset. In most companies, that asset is broken down even further into Raw, WIP (work in process), and Finished Goods. Tracking and controlling this inventory asset can be a complicated and costly exercise, and generally adds no value from the customer’s perspective.
As inventory and cycle times are reduced, and kanban controls are put in place, inventory levels become very low, and quite stable. In such cases, you may be able to greatly simplify your bookkeeping by expensing raw material as it is received. Your CFO will need to investigate all legal and tax reporting constraints. Where this is impractical, consider backflush upon completion to finished goods, or even upon shipment. (See “Backflush”)
Expediting; Cause of Many Missed Deliveries: When lead times are long, it is common practice to give priority to key customers. This typically means expediting them ahead of older orders that may already be in queue. This “re-shuffling of the deck” adds complexity, and causes the previously scheduled completion dates to become invalid; e.g. customer A’s order was scheduled to complete today. However customer B’s order was expedited in front of A, thereby making A late. We have found a consistent correlation between the amount of expediting taking place, and the percent of missed deliveries.
Be extremely careful about the questions you ask. If you ask, which order gets priority, it is pretty well a given that someone’s order is going to be missed. Ask instead “What will we need to do to get ALL the orders that have been promised for today?” You’ll get a lot better answers!
Solution: Control the order book, i.e. do not over promise. Cut WIP inventory levels (which reduces lead times). Measure on-time completions and set goal curves to improve. Establish a policy “The day ends when the schedule is completed” not the other way around. Remember: another definition for “priority” is “who do we screw?” (See “Order Promising”)
Fail Safe: Make the process incapable of producing a defect. Every defect is a treasure. It identifies a process problem that we can now attempt to permanently fix. At every defect discovery ask “What can we do to make this defect impossible to re-occur?” There are excellent books, complete with illustrations and examples of failsafe devices and techniques. Get some and pass them out. (See “A Chapter per Week”)
Faxban: A pre-filled out form requesting replenishment of items, complete with supplier name and fax number. Office and production workers simply dial or hit the speed dial for the vendor, and insert the faxban to order replenishment materials. The back of the form has a history file where the date ordered is recorded.
FIFO, LIFO, and FISH: (FIFO = First In First Out) (LIFO = Last In First Out) (Fish = First In Still Here) Rotate your stock. Doing so minimizes risk of obsolescence and aids in the quick discovery of defects. Make sure that all of your storage systems are FIFO. We’ve found dead bodies buried in some of those old LIFO inventory piles!
Figures Don’t Lie, But Liars Figure: Be “from Missouri”. Make sure you dig into the data. One common trick is to use a “creative” scale to portray a distorted picture. Graphs can be adjusted to look great, or terrible, depending on the scale and / or the time period reflected. Another trick is to tell the truth, but use a rare or isolated case as if it represented the norm. Get the source data, and check it out for yourself. We commonly see this ploy utilized when explaining why lean “can’t be done” in their situation.
Finite Loading Systems: A philosophy and software methodology that schedules only to your stated capacity. With such software, any schedule requirement that exceed the stated capacity in any given time period is automatically pushed in or out to an available capacity “hole”. This software approach has proven to be very powerful in industries that are truly capacity limited, i.e. that run 24 x 7. This approach has, however, caused major problems, even disasters, where it was applied to “widget makers” that were not 24 x 7 operations. Do you really want the system to automatically reschedule a product when you hit 8.1 hours (one shift operation)? At 16.1 hours (two shift operation)? Also, finite loading systems are often extremely “nervous” i.e. continually changing schedule dates.
In the vast majority of industries, standard MRP back-scheduling logic is far simpler to use, and provides more credible and stable schedules. We advocate a simple philosophy: Combine reasonable schedules, with perfect execution. Use capacity planning (and capacity reservation for your “A” customers) to provide reasonable promise dates. Then do what ever it takes to make sure that those dates are achieved.
FISH: First In, Still Here! You’ve heard of FIFO (First in, First Out) and LIFO (Last in First Out). FISH is a slang term for parts, material, or product that comes in and simply stops moving. It’s the stuff that gets rejected and never dispositioned. It’s the items that need rework that never seem to get reworked! It’s the parts we procured for a prospective new product that never got off the drawing board, but the parts remain in stock. Or the material for a product that’s been discontinued. In some companies, the amount of FISH can be substantial.
We’ve worked with companies where FISH amounted to half of their total inventory dollars! We recommend that all slow-moving / obsolete material be identified and a person clearly tasked to get it dispositioned and moved. Significant gains in cash, reduced clutter, and freed up space can often be achieved. (See “Lead Time: How to Calculate”)
Five Whys: As a rule of thumb, if you ask “why” five times, you’ll get to the actual root cause of the problem.
“We didn’t make the schedule” Why? “The machine stopped” Why? “The fuse blew” Why? “The bearing hadn’t been lubricated” Why? “We didn’t know it needed grease” Why? “We have no preventative maintenance schedule.”
Forecast Error: It is considerably easier to forecast aggregate sales, rather than sales for an individual SKU. Use “Total Volume” forecasts to plan your capacity and capability needs, both in-house and with your supplier base. Then leverage quick response to handle the individual SKU variability wherever possible.
Reserve capacity. Standardize components. Etc. (See “Rubber Factory”)
Forward Pricing Using Learning Curves: Forward pricing generally refers to the practice of aggressively pricing new products based on an anticipated or historical cost improvement formula. Learning / Improvement curves are planning tools evolved from historical data. They basically say that the production cost of a certain type product will reduce by a factor of X% every time the cumulative output doubles. For example, with as 70% improvement curve (from history) we would expect that if the 1000^th unit produced cost us $1.00, then the 2000^th unit should cost us about $0.70. The 4000^th unit should cost about $0.49 (.7 * $0.70 = $0.49), etc..
The pricing process is a bit of chicken-and-egg in nature. Marketing says “We think we could sell 1,000,000 of these if we could produce them for ~ $0.35/ea.” Operations makes a few runs and then applies the historical learning curve to see if such a production cost is feasible. If agreement is reached, the initial pricing of the product will be substantially below the current cost! Marketing signs up to “get the volume” at this price. Operations signs up to drive the actual cost to the target cost over that same volume. Progress is continually monitored by plotting “actual cost” vs. “target cost” taken from the learning curve. Corrective actions are taken as required to stay on plan.
Freight: As lot sizes are cut, and frequency of replenishment is increased, freight costs can become an inhibitor. There are a multitude of alternative solutions: Buying from a distributor, Consolidating shipments via use of a consolidator, Utilizing company vehicles running a regular route, etc. One client of ours had a wire mill that provided wire to multiple motor assembly plants throughout the southeast. We set up wire racks in each plant with a designated number of coils for each wire type that they used (kanban control). Each day the truck from the mill replenished the wire that was used the day before. He then noted the number of coils missing from the racks, by type, and called it in to the mill. That night the mill ran the required coils for delivery the next day. The trucks ran a route that began at the wire mill and circled from plant to plant, returning to the mill at the end of the cycle.
Go, No-Go Gauges: One simple form of Failsafe is a set of gauges that measure a part for its’ upper and lower dimensional tolerance. If the “go” gauge will fit over the part, the part is not oversized. If the “no-go” gauge does not fit over the part is not undersized. This type of gauge system is regularly used to measure cylindrical items like shafts.
Goal Curves: This is one of the most powerful mechanisms that we’ve found to drive continuous improvement. Measure a parameter that is important to your customer, then set a goal to improve that parameter, e.g. reduce our lead time by 20% in the next six weeks. Now draw a line on a graph from the existing performance level to the target level and date. Measure progress against the goal curve weekly and take corrective action to stay on the curve. This process forces continuous improvement. Goal curves form the foundation of our Rapid Impact process. This process has generated consistent dramatic results in over 100 companies and in 30+ different industries. Goal curves work!
Goal Curve Review Meetings: Goal curves drive improvement & provide a powerful mechanism for top management to monitor and control the improvement process. Weekly reviews of actual progress vs. the goal curves are the control mechanism. Division / department heads present their data to top management. If they are on their curve, no additional data is required. If not, then a cause and corrective action report is required. (See “Cause & Corrective Action Reports”)
Habits: It takes 3 weeks to truly extinguish an old habit and replace it with a new one. Do NOT expect a change, often even a simple one, to immediately demonstrate it’s potential. I recall a re-layout that the natural work team proposed. It required an operator to work “from right to left” where she had, for years, taken parts from the left side and moved them, after processing, to the right. “It can’t be done” she said. We asked her to try it for one month, and then we’d “let the data decide” whether to keep the new layout, or go back as before. Needless to say, by the end of a month, the operator was quite happy with the new workflow, and the output was substantially increased.
A good way to illustrate this to a group is to ask people to tie their shoe. Then ask them to do it again, only reversing the roles of each hand. It quickly demonstrates the need to practice a new procedure sufficiently long to become adept, before judging the applicability of a change!
Hours of Operation, Order Entry: If your customer base covers more than one time zone, it may provide a competitive advantage to man your customer service area during “normal business hours” for all the time zones served. One of our east coast clients did a considerable amount of business with customers located on the west coast. We encouraged them to stagger the hours of a couple of their order entry people to 8:00 PM (5:00 west coast time). They rapidly experienced a 20% growth in sales from that time zone! While the automated systems continue to improve, there is still no substitute for that human interaction.
Inventory Build: There are many business issues that can justify a short-term build up of inventory: anticipated supplier price increases, anticipated increase in demand beyond plant capacity, etc. The CEO of one client made a decision to build inventory in anticipation of increased demand. The inventory build was held at a flexible stage, and was kept separate from the inventory reduction targets. Doing so, allowed the company to continue it’s lean initiatives while accomplishing this other business objective (Note: Demand DID increase, and a sizable profit was made on the inventory investment). There are very few “absolutes”. Common sense must prevail.
Inventory Carrying Cost: Cost of money, space, insurance, taxes, tracking, counting, shelf life (material deterioration), material movement / handling, counting, record keeping, lost, damaged, obsolescence, rework, etc. Inventory delays innovation (we must wait until the old parts are used before implementing the new design), and can add to lead time (items must wait their turn). Inventory adds to complexity. Many of our electro-mechanical assembly clients have estimated their inventory carrying cost at between 2% and 4%… per month! Some academics have claimed as high as 100% per year.
Calculate a realistic cost of inventory for your operation. Be sure to add a factor for the very real, but difficult to quantify, parameters mentioned above.
Inventory and Quality: Reducing inventory can have a significant positive impact on product quality. Less inventory means fewer potential defects. Reduced inventory means less handling and storage damage. And, most importantly, less inventory means shorter lead times, thus reducing the time between the cause of the defect and its discovery. And quicker discovery means improved probability of identifying the cause of the defect. Identifying the true cause is half of the solution.
Inventory Reduction: This is the basic fundamental philosophy of Lean Manufacturing: Drive the inventory out of the system (See “Rocks and Water”) and, thereby, force improvement. There are two fundamental approaches to WIP inventory reduction: 1) Reduce the planning parameters within the ERP system, or 2) Institute Kanban controls, and a systematic process to reduce the size of the kanbans (See “Goal Curves”).
Where applicable, kanban controls are preferable. They allow for easy visual controls, and also allow for front line inter-unit teams of operators and support people to own the inventory reduction process.
Where kanbans are not applicable, a systematic reduction of system lead times, lot sizes, and safety stock parameters can be utilized to attain similar Lean operating performance results.
ISO 9000: While ISO is touted as a quality tool, in practice it is generally more of a marketing tool. The gist of ISO is that a company will DO as they say they will do. Generally speaking, if you document your procedures and follow your documentation, you can become ISO compliant.
The good news is that ISO can be used to help institutionalize the Lean procedures.
Do your Lean conversion first. Then follow up with ISO.
Another caveat: Keep all ISO documentation at the highest level possible, i.e. avoid getting too detailed. Do NOT let ISO become an excuse to not make the myriad of small changes that World Class performance requires. Good enough… Isn’t. Keep the documentation at a high enough level that small changes are still compliant.
Iterative Automation: The continuous pressure to reduce inter-unit inventory allows for the gradual elimination of all issues that would keep two operating units from being tied directly together. The easiest way to accomplish this is to establish kanban controls between operations. Then set inter-unit inventory reduction targets (see “Goal Curves”). When fully accomplished the kanban quantity approaches zero and the units are physically connected, requiring no operator intervention.
JUST DO IT! How much will it cost to make a suggested change? And how much to put it back if it doesn’t work? Will that break the company? Is it safe (no one will get hurt)? Can we recover so as to protect the customer if this initiative should fail? If the change passes this test… Then just do it!
At one client site, the area work teams concluded that a concrete block wall needed to be removed so that the two areas could be combined into one large manufacturing cell. Without batting an eye, the plant manager brought in the maintenance guys, and began knocking out the wall. The area operators were given tours of other plant areas and some additional training while waiting for the demolition to be completed. I asked the plant manager, after the fact, if the cost had been worth it (he could have waited and done it when the operators were no longer on the clock). He said “It was the best money I’ve ever spent. The additional training was needed, the plant tours helped the operators better appreciate their role in the big picture, and the ownership that was conveyed by taking their suggestion and implementing it with a sense of urgency was priceless!” (See Analysis Paralysis)
Just In Time (JIT): An earlier term for “Lean Manufacturing”.
Kaizen: Japanese term for Continuous Improvement.
Kaizen Blitz: A concentrated improvement initiative typically focused on one shop or office area. Generally involves 2-5 days. The intention is to MAKE SOMETHING HAPPEN, i.e. to attain significant tangible results by the end of the project. (See the article “Just Do It”)
Caveat: Blitzes are a powerful way to get something done in a particular area. Too often, however, blitzes are performed without any company-wide direction. Local results look great. Company wide bottom line results are negligible. (See “Solutions looking for a Problem”)
Kanban: A signal to move or make an item. The simple rule is that no item is to be produced or moved unless there is a kanban authorizing it. While a kanban can be anything: A light, a card, etc. in the USA, it most frequently takes the form of a physical space or container: e.g. squares taped out on a table, lines painted on the floor, marked tote bins, carts, racks, etc. (See Kanban Controls) (See Pull System) (See the article “Taking the Mystique out of Kanban Controls”)
Kanban “Blitz”: Form teams between operations, areas, and/or departments. Set goal curves to reduce the amount of inventory between the locations. The team reaches agreement on the size, amount, and location, of the initial kanbans. They then go into the area and install the agreed upon kanbans: Mark off the locations, remove the excess inventory, mark containers, establish preliminary procedures and checklists, hold education sessions for all operators, etc. At the end of the blitz, a functioning kanban system should be in place and operational. Following the blitz, the teams should be plotting their progress vs. the goal curve and initiating the necessary actions to stay on the goal curve. (See “Cause & Corrective Action”) (See “Problem / Idea Charts”)
Kanban Carts: In some circumstances the ideal form of kanban control is a number of wheeled carts. Each cart holds a pre-determined amount of inventory and can easily be moved between source and using departments. Reducing the number of carts forces continuous improvement. An alternate approach is the use of generic carts carrying removable kanban containers.
Kanban Checklist: A listing of good kanban practices that is used to periodically monitor kanban utilization. The checklist includes tracking “exceedances” i.e. how often the actual level of inventory exceeds the allotted kanban quantity, the level of operator understanding, clarity of the limits, procedures, rules posted in the area, use of goal curves to reduce the kanban quantity, a listing of tasks to be performed when the kanban is full, etc. (See “Kanban Full” Projects)
Kanban Controls: Kanbans put upper limits on inventory, potential defects, and cycle times. They provide visual control and a simple mechanism to force continuous improvement. While kanban controls are not applicable in every circumstance, utilize them wherever possible. They are easy to implement. Easy to understand. Easily monitored. Visual. And provide a simple, but powerful way to force improvement, i.e. continuously press to reduce the kanban size!
“Kanban Full” Projects: Have your production teams compile a list of project type things that need to be done in or around their work area. Sort the list by approximate time modules, e.g. the minimum amount of time that they would need to accomplish all, or a meaningful portion, of the project. Have the teams post their list in the production area.
When the operation is stopped due to a down stream issue, i.e. the kanban is full, or an upstream issue, i.e. the work has dried up, the list provides the team alternatives for meaningful work while the problem is resolved.
Kanban Lights: In some industries it makes sense to have dedicated areas for certain item production. If these items are not in constant demand, you may need a signaling device to notify operators that a product needs production / replacement. One easy signaling device is a simple pole sticking high in the air, with a light bulb on top. The light tells your operators when it is time to move to that area. Similarly, kanban lights can be used to signal the need for more product or materials.
Kanban Size: As a general rule, attempting to “calculate” the correct kanban size is a waste of time. Kanbans provide a perfect mechanism to force continuous improvement through inventory reduction. Choose an initial kanban quantity large enough to cover the common problems that are currently being encountered. Establish the disciplines of stopping upstream production when the kanban is full.
Then, set a goal curve to reduce the size of the kanban over time. A simple rule of thumb for sizing kanbans: “What ever it is, It’s too much!” The eventual outcome of such kanban reduction pressure is the assembly line. Here, the kanban size between operations is zero! (See “Iterative Automation”)
Kickoff Video: In making such a dramatic change as the transition from traditional manufacturing philosophy to Lean, clear visible Top Management support is critical. In small companies, this is readily accomplished through all-employee meetings that begin with a short introduction by a top level officer of the company.
In large companies, a reasonable substitute can be attained by utilizing a short video clip of the CEO / COO. The video contains a “perceived need” and a “sense of urgency” to make the change.
KISS vs. KICC: Everyone has heard of KISS: “Keep It Simple, Stupid.” And, most people believe that KISS makes sense. Yet, so many companies have an ingrained culture of “Keep It Complicated and Confusing.” Over testing. Over documentation. Over approvals. Management must challenge these unreasonable impediments to progress. At a meeting with the management team of a Fortune 100 company, we recommended a “just do it” change. One of the Vice Presidents said “That’s not our culture.” The CEO responded with “That’s why they’re here” (meaning The Hands-On Group). We’ve seen companies spend months discussing the need for speed! (See “Just Do It”)
Kitting: The “Set-Up” for Assembly: The traditional way to get sets of parts to the assembly area is through “kit pulling.” The stockroom stores the parts. The MRP system then generates a “pick list” that the stockroom uses to “pull” the parts, which are then issued to the shop floor.
This kitting activity acts very much like the change-over of a machine in its impact on the ability to reduce lot sizes. As the batch size for assembly is reduced, i.e. moving us closer to making just what the customer wants, just when the customer wants it, the number of kits being pulled increases. This increases the workload (and cost) of this non-value adding activity. Kitting becomes a “rock” that needs to be addressed.
And then there is the issue of “kit integrity.” The assembly area comes up short of a part. Did they lose it? Or did the stockroom simply count wrong? We’ve seen this lead to even more non-value adding steps such as “kit inspection” where the stock room’s counts are verified, “witch hunts” to assign blame, additional trips to the stockroom to get the missing parts, and trips back to the stockroom to re-stock any overages that may have been inadvertently kitted (more often, however, any excess parts are simply “stashed” in the assembly area for “future use”). Generally the solution is NOT in improving the kitting function. The focus, instead, should be on reducing or eliminating the entire centralized kitting activity. (See “point of use stocking” and “Locked Stockrooms.”)
Late-in-the-Day Pickup Time from UPS / Fed-Ex: Many companies, after making the transition to “Lean,” are now capable of shipping “same day” for certain types of orders. This capability may be inhibited if your means of shipping is via Fed-Ex, DHL, or UPS and they have an early pickup time.
We worked with a client that produced high-pressure valves and fittings. After making the transition from “Make to Stock” to “Make to Order” and dramatically reducing the process times, we were able to produce same day. However, the UPS pickup time was 2:00 PM. We work with UPS to delay the pickup until 5:00 PM. The end result: Eliminated $500,000 of finished good inventory, and went from a 2 day lead time (filled from finished good stock) to an “Order by 10:00 AM, ships same day” lead time and make to order. As you would expect, the company attained a significant increase in market share solely from this improvement in responsiveness.
Work with your carriers to improve your scheduled pickup times. Also, investigate the opportunity to cost-effectively “drop off” product at the carrier’s office.
Latest Technology: Utilize the available technology to enhance performance: portable phones, cell phones, speaker phones, fax machines on the shop floor, bar codes, e-mail, web sites, web based training, video conferencing, video cameras, TV’s on shop floor, voice recognition software, laptops, PDA’s, wireless networks, etc. (See “Video Kanbans”)
Lead Time: How to Calculate: There are some elaborate methods to calculate the actual amount of time it takes to get a unit through production. These methods are, however, typically less accurate, and a lot more difficult to do than the following simple method. Think of your inventory as items waiting in line for their turn (See the “Lead time / Inventory Relationship” illustration below). In any queue, the more items in line, the longer it takes to get an item through the queue.
To calculate actual lead-time, simply divide your on-hand inventory by your average usage rate. E.g. we have 2000 pieces in WIP, and we complete, on average, 500 pieces per day. Therefore our average actual lead-time is 2000 / 500 = 4 days.
Lead time / Inventory Relationship: There is typically a direct relationship between the amount of Work in Process inventory and the actual lead time required to get a product through your manufacturing process. This correlation is easy to understand if you imagine items in WIP as things waiting in line. The longer the line, the longer it takes before it’s “your turn”. In the illustration below, there are 10 units between operation A and operation B. If we process one unit per day, our lead-time is 10 days. If we produce 2 units per day, our lead time is 5 days (10 units in WIP divided by 2 units processed/day).
The key point: There is a direct correlation between the amount of WIP and lead time through the process. (See “Lead Time: How to Calculate”)
Lead Time Reduction by Increasing Available Work Hours: In most traditionally operated plants, the lead time to get a product through the operation is considerably longer than the actual “Value Add” time. However, as you reduce the lead times you may hit the “available work hours” rock. One way to further reduce lead times is to increase the number of available work hours. This does not, necessarily, mean adding capacity. It may simply mean moving some of your workforce to the currently idle hours of the day or week. As an example, in a typical one-shift operation, plant and equipment sit idle 16 hours per day (plus 24 hours per day on weekends). By simply moving some of your people from 1^st to 2^nd shift, you can cut your lead times dramatically. A simple example is a product that requires 4 sequential operations, each operation takes 8 hours to perform. On a one-shift operation, the shortest possible lead time is 4 days. By moving some of your people to 2^nd shift, the lead time is now 2 days. Operation A is done day 1, 1^st shift. Operation 2 is done day 1, 2^nd shift, etc. Capacity does not change, but WIP inventory and lead-time are both cut in half.
Note: If you can not get sufficient numbers of your current employees to immediately move to 2^nd shift, the shifts can be balanced through longer term policy rules: Require that all new hires be added only on 2^nd shift. Allow attrition to balance the shifts. Note: theoretically, the optimal crewing covers 7 days/week.
See Alternate Crewing Schedules for some additional ways to entice employees to move to the “off shift.”
Lean Manufacturing: The latest term used to describe a philosophy of manufacturing committed to the elimination of waste from the entire value stream, and to “Continuous Improvement” in all things. Waste is defined as anything that does not add value from the customer’s perspective. Previous names for this same concept include “Just In Time,” “Zero Inventory,” “World Class Manufacturing,” “Continuous Flow Manufacturing,” etc.
The term is often misused.
The basic concept is that inventory hides waste. Applying continuous pressure to reduce inventory, while maintaining a high level of customer service, forces the exposure of this waste. A host of techniques have evolved to assist with eliminating the root cause of this waste. (See “Rocks & Water Analogy”)
Lean Manufacturing Consultants: While it is certainly possible to make the difficult transition to Lean without outside guidance, it is typically NOT cost effective. Choose a sensei that has a large number of successes in a wide variety of industries. The ROI on a good consulting group can be huge. Our average client ROI exceeds 50 to 1. (See “How to Choose a Lean Consultant”)
Let the Data Decide: This is a powerful counter to the “It won’t work” objection. When hit with all the reasons why a recommended change “Can’t be done” simply ask that the team give it a good valid test (at least 3 weeks) and then we’ll “let the data decide”. By that, we mean that we will measure the important parameters, for both alternatives, and choose the one that is best for the company. This is also an excellent way to resolve disputes. Can’t agree on which way to do things? “Let the Data Decide”
Level the MPS (Master Production Schedule): There is a lot written about level loading the factory. This is a useful and practical endeavor in some industries, notably automotive. It may not be as applicable in other industries (see “Rubber factory”). However, many of the standard Lean tools will naturally help in smoothing the MPS. Reducing lot sizes reduces “lumpiness” (see “Column Pricing”). Reducing lead times and maintaining a high level of delivery performance will reduce the “boom-Bust” syndrome (see “Multiplier Effect”). And creative delivery systems will help reduce the transportation penalty of small frequent deliveries.
Step one is to gain the capability to produce “linearly” (a little bit of everything every day). Step 2 is to work closely with your customers to get them to take delivery in this fashion. Step 3 is to find creative ways to keep the unit “cost of delivery” from increasing (both for incoming material and for shipping).
Lighting: Spending a little money on improved lighting can be one of the best investments you can make. There is a correlation between workplace light levels and both quality and productivity. Note also, that quite often the existing lighting isn’t as much the problem as the shadows being cast by too much inventory! The amount of effective work-station light, as well as air circulation, were dramatically improved at one client site, simply by removing the huge amount of work in process inventory between operations! A new coat of light colored paint can also improve lighting significantly.
Locked Stockroom: Some customers require their suppliers to maintain a locked, controlled stockroom. This can be an inhibitor to “point of use” stocking. One solution is to make the entire plant a “locked stockroom.” Keep expanding the stockroom “fence” until the entire operation is inside the “stockroom”. This approach was utilized with super results at a military hardware supplier client of ours. We simply kept expanding the stockroom to enclose more and more production operations. Eventually, the entire factory was one large “controlled” stockroom.
Lock Out, Tag Out Procedure: This necessary safety procedure can be an inhibitor to quick change-over and to “modularizing” maintenance. (See “Equipment Isolation”)
Lot Size Reduction: In most companies, lot sizes are too large for even the existing change over costs. The “optimum lot size” based on the balance of change-over costs and inventory carrying costs should be smaller than that which is currently in use. The reason for this is pretty straightforward: We tend to underestimate the real cost of inventory. Several prominent electro-mechanical assembly firms estimates that their real cost of inventory is in the order of 4% per month!
Generally speaking, we advocate cutting the lot sizes first, then reducing the change-over costs. Doing so provides the incentive for a SMED initiative. (See “SMED” See “Inventory Carrying Cost”)
Low Hanging Fruit: In almost every business opportunity, there are the “easy to attain” gains, and there are the ones that will require some effort, time, money, etc. The “Low Hanging Fruit” is a term used to identify the easy gains. We strongly advocate going after these first. In our approach to Lean, these gains typically take the form of cash and space that can be freed up from through-out the entire organization. If you think of the “Rocks and Water” illustration, there is generally a certain amount of water lying above the rocks, i.e. “low Hanging Fruit” that can be “harvested” without the need to fix any major underlying “rocks”. Go after these “macro Gains” first. Then go after the “micro gains” by fixing the rocks as they appear. This approach provides bottom line impact up front (results beget results), generates cash through inventory reduction (to fund the removal of the rocks), and provides inertia (See “Rocks & Water Analogy”)
Made-As-Part-Of (MAPO): A level of the bill of material that is ignored by the for MRP system for scheduling. The subassembly is, as the name implies, made as a part of the next higher level assembly. It is typically an additional part type classification, similar to “make” or “buy.” (See “Blow-Through”)
Maintenance: Condition-Based: The concept is to enhance your normal scheduled maintenance with sensory information that provides a “heads-up” that maintenance may now be required. It involves the monitoring of equipment to provide an early warning that something is out of the normal operating conditions and that maintenance may be required. This monitoring utilizes vibration sensing, in-line gauging, and other such devices.
Maintenance Signals: As inventory is reduced, the need to respond quickly to a “machine down” situation becomes critical. Flashing lights, horns, pagers, walkie-talkies, cell phones, etc. should be utilized as needed to assure that your maintenance people are immediately notified. Make sure that the normal “filler” work being performed by these key individuals is of a nature that it can be interrupted at a moments notice: e.g. process improvement projects, PM, etc.
Maintenance Work Area Lighting: Many maintenance operations occur within the dark recesses of the equipment. Permanent or portable lights can be of great help. Also, make sure that every maintenance person is provided a high quality, lightweight, hands-free head set light.
Maintenance: Modularize & Cascade: In some capital intense industries, extensive scheduled maintenance periods can cause disruptions in flow, mandate large kanban levels between operations, and cause additional complexity (see the article “Running Steel Lean”). One obvious solution is to reduce the extent of time required per down period, i.e. “modularize” the maintenance events. Instead of doing one 24 hour down period per month, the attempt would be to do one six-hour maintenance each week. Making this transition will require overcoming many obstacles, not the least of which is resistance to change. It will generally also require some capital expenditures. Cascading maintenance means to schedule maintenance on machines in the order that product flows. Doing so allows the “hole” (depletion of inventory between operations) to flow from machine to machine.
Maintenance Operator as Teacher: We’ve had some excellent results by re-defining the role of the maintenance people to include training. Ask your skilled maintenance personnel to teach operators to do routine maintenance: oil, grease, clean, inspect, etc. This can free up the skilled maintenance people to focus on the difficult infrequent maintenance and on equipment upgrades.
Maintenance: Point of Use Tool Storage: For common maintenance, involving relatively inexpensive tools, locate the tools directly at the point of use. Securing such tools with simple clips or other quick-release securing devices can significantly improve efficiency. In some applications the “tool” can be permanently attached to the machine, i.e. weld the ratchet onto the nut, switch to wing nuts, etc. Standardizing hardware can also assist with maintenance.
Management By Walking Around (MBWA): We worked with a client that produced all sorts of labor efficiency / utilization reports for their supervisors. The only problem was that the report data was, at best, meaningless, and at worst, outright wrong! It turned out that if the supervisors would spend less time poring over reports, and more time on the shop floor, they would know how, and who is performing!
As an organization moves toward “Lean”, many of the traditional measurement devices fail to perform accurately. People are cross trained and move back and forth to various jobs. Operators perform minor maintenance. Natural work teams work on improvement projects. Kanbans will cause short term delays, etc. Measurement often must move from individual performance to team performance. In some progressive companies, the teams themselves provide input into the individual reviews. There is, however, no substitute for being “out there” on the shop floor.
Master Production Schedule (MPS); Using Negative Numbers for “What-If” Analysis: Some of the older MRP / ERP software is not capable of “what if” analysis. One low-cost way to provide such capability is to allow the MPS (Master Production Schedule) to accept negative numbers. A trial run, un-netted, of a “change only” MPS will show the material and labor changes caused by the proposed change. E.g. “what if we were to add 20 widget A’s and make 15 less widget B’s”? We would schedule only the delta A’s and negative delta B’s in a trial MPS, and “exploding requirements” un-netted. The result would be a netting of any common components and would show the additional materials and labor needed, as well as identifying any surplus parts that this change would cause.
Material Requirements Planning (MRP): A back scheduling, gross to net logic system that calculates material requirements based on the Master Production Schedule, Bill of Material structure, on-hand inventory, scheduled receipts, lead times, lot sizing and safety stock rules, etc. (See Enterprise Resource Planning, ERP) (See the article “ERP & Lean”)
Measurement & Reward Systems; Performance Against Standard: The largest productivity improvements come from methods changes, not from increasing the level of effort of the people. Traditional PAS logic calls for a standard change when ever a process/procedure changes. Yet, if the “standard” is changed every time there is a method improvement, performance typically will fall! Why, because people are new at the new method. They need practice to come down the learning curve. This is obviously a negative incentive to change the method. In a lean environment, we are always looking for a better way to do things. Seek a performance measure that encourages process method improvement. This is best accomplished by comparing current “actual” cost to historical actual cost. If improvement is what you seek, it is pretty much irrelevant what it “should cost” based on some theoretical “standard”. What really matters is “is it currently costing me less than last year? Last month? Last week?
Instead of spending time and energy calculating a theoretical “standard,” you will be much further ahead if you focus on finding a better way, and on providing people timely feedback as to how well they are performing. If you feel compelled to have a performance against standard system, at minimum calculate performance vs. both the current standard and against a fixed standard. The former measures theoretical level of effort (current standard). The latter measures their impact on profitability and rewards people for innovation (methods changes) as well as effort.
Measurement & Reward Systems; Unit Output Measures: Many traditional organizations have M&R systems that encourage local optimization, often at the expense of aggregate total company well being. These will invariably become an impediment to your lean transition efforts. (See “Optimize the Whole”)
Minimum “Modularized” Down Time Intervals: This is a technique appropriate for some “assembly line” type operations, i.e. an environment where a failure of any one piece of equipment will shut down the entire line.
We worked with a steel pipe mill. Maintenance had been neglected for years, and the line was regularly shut down as one after another problem occurred. An interim solution was to have each operation develop a list of 2 hr maintenance / reliability projects. The rule was established: When any piece of equipment breaks down, the entire line will remain shut-down for at least 2 hrs while everyone works on their area projects. Within a few months, total line up-time was significantly improved.
Minimum Specifications: Cull out the critical performance characteristics. Specify these as to the minimum acceptable requirements. Then loosen or eliminate all other specifications. This is particularly beneficial during the design phase of a new product. By specifying only the critical performance attributes, the design team has considerably more room to be creative. Note that this is also true for your suppliers. We have found dozens of cases where a non-critical parameter was causing a supplier to quote a high price. Once these non-critical constraints were relaxed, major cost and quality gains were attained. (See “Design for Manufacturability” and “Designing to Target Costs”)
Minimize The Number of Suppliers: The cost of a purchased part includes much more than it’s purchase price. Reliability of delivery, lead time, quality, packaging, freight, response to change requests, delivery location, delivery frequency, etc. are all factors effecting the total cost of purchase. Find one or two top performing suppliers for each commodity type, and then concentrate your purchasing volume with these suppliers. Discuss with them your requirements, annual purchase volume, delivery expectations, etc. Negotiate price based on annual expected purchase volume. Share information. Ask for capacity reservation so that lead times remain stable and delivery reliable. (See “Capacity Reservation” and “Minimum Specifications”)
Min-Max Controls: Upper and lower trigger points for inventory control. When the on-hand inventory level reaches a pre-established Minimum, it triggers a replenishment order. The Maximum sets the upper limit that is allowable for this item. As an example, we have set the min-max for a particular purchased item at min = 1000 and max = 5000. A recent pull of this item from stock has dropped our on-hand inventory to 800. The system (computer or manual) will trigger the buyer to place an order to get our on-hand inventory back up above the minimum of 1000. He/she is authorized to buy as many as 4200, bringing our projected on-hand balance back up to the max of 5000. (See “Two Bin System”)
Mixed Model Production. Simplicity saves money, and the simplest scheduling system is First In First Out (FIFO). Strive for the flexibility, both internally and from your suppliers, to produce your products in the sequence that orders are received. This will require responsive suppliers, flexible manufacturing operations, quick changeovers, and flexible capacity. (See “SMED” and “Rubber Factory”)
Monuments: A slang term for large, extremely difficult to move, pieces of equipment. An environment with monuments will typically require some different lean techniques than those used in a standard “widget maker” factory. (See the article “Running Steel Lean”)
Modularize Planned Maintenance: In “capital intense” industries, planned maintenance often removes critical pieces of equipment from service for multiple shifts or even multiple days at a time. The disruptive impact of this planned outage can be huge. This is particularly true when we have reduced the allowable queue between operations, i.e. installed inter-unit kanban controls.
The idea is to re-engineer the maintenance processes to allow them to be done in smaller increments, “modules”. Thus, instead of scheduling one 24-hour maintenance period to be done every month, we would seek to replace this schedule with one 6-hour down period, each week. (See “Total Productive maintenance” and “Cascade Planned Maintenance”)
Move Equipment: Plan on a 2^nd & 3^rd move: Continuous improvement means continuous change. Build flexibility into your re-arrangement on the 1^st move: e.g. Flexible power drops, flexible air connections, light equipment on lockable wheels, equipment on skids, etc. Encourage and expect a 2^nd and 3^rd move as your people continually “tweak” the arrangement.
Move Some Maintenance People to the Off Shifts to Get “Time on the Machine”. We were working with a corrugated box plant client. The production people said that their biggest issue was that the equipment was breaking down due to lack of preventative maintenance, and that equipment upgrades were not getting implemented in a timely manner. The maintenance crew agreed with the assessment, but complained that they could never get “time on the machine.” It turned out that the maintenance staff was scheduled to work the identical hours that the production people worked (three shifts, 5 days / week). They couldn’t work on the equipment because the equipment was scheduled for production. We met with the entire maintenance crew, explained the requirement and logic, and proposed a few alternatives. The team went off alone, and in a few hours came back with an excellent plan. They had prepared a twenty four hour by seven day crewing schedule, that was acceptable to all crew members and that was much more cost effective than those that we had recommended.
By having access to the idle equipment on weekends, an excellent Preventative Maintenance program was implemented, and equipment upgrades were addressed in a timely manner. Within six months of the change, this issue was no longer a problem and productivity jumped by 20%!
Muda: See “Waste”
Multiplier Effect: Extensive supply chain inventory has the effect of exaggerating demand swings at the lower end of the chain. This effect is caused by an attempt to adjust “days supply” of inventory at the same time as adjusting for the change in rate of usage. Example: I have an inventory policy of keeping 4 weeks supply of a component (raw material) on hand. My demand has been 100 per week. I now anticipate my demand dropping to 90 per week. Instead of ordering 90 per week of this component, I would need to order less, so as to adjust my inventory level (I now want 4 weeks supply = 4 * 90 = 360 pieces on hand). If I “smooth” the inventory reduction over a few weeks, I may change my orders to 80 pieces per week.
Net result: Where our company saw a 10% change in demand, our suppliers will see a 20% change in demand! Thus the “Multiplier”. The same effect happens when demand increases. And, the further down the supply chain, the greater the swings.
You can readily see that the extent of this multiplier is proportional to the amount of inventory in the supply chain, and the number of levels in the chain.
What can you do about it? Reduce inventory throughout the supply chain.
Note: your customers will carry inventory of your product in proportion to your lead time and your delivery reliability. Do these things well, and you’ll minimize the multiplier. You’ll also want to monitor and compare changes in your product’s demand to changes in top level demand.
Analysis of the recession of the 1970’s showed that while the end demand for steel products fell ~ 10%, the demand on the steel industry (the bottom of the supply chain) fell by over 40%! Needless to say, a “Lean” supply chain is essential. Maintaining short lead times, and reliable deliveries to your customers is also crucial (see “Boom – Bust Cycle”)
Natural Work Teams (NWT’s): By reducing the inventory between operations, natural work teams will automatically come about. Inventory elimination and a pull philosophy forces a mutual dependence upon operators. Inventory reduction may even allow operations to be placed physically next to one-another (a manufacturing “cell”). In such an environment, a problem at one operation rapidly impacts both the upstream and the downstream operations, forcing operators to communicate and begin acting as a team.
Note: We are NOT forming teams for teams sake. We are squeezing out the inventory, which results in the formation of “teams” whether you want them or not! It is at this time, when people are closely interdependent, that additional teaming skills training will be needed. Books like “Zapp” and “Heroz” can be useful training aids. (See “Training: Do a Chapter a Week” and “Problem Idea Charts”)
Natural Work Teams; Discretionary Budgets: One way of providing NWT’s with a sense of empowerment is to provide them with a discretionary spending budget. The idea is to allow the teams to buy items that they need to improve their performance, and to encourage the NWT’s to try low cost things that may, or may not, work. The budget is generally $X per month. No management approval is required for the team to spend their allotment.
While this discretionary budget can be both an employee motivator and a practical process improvement aid, this is one area that we would NOT advocate “just do it”. Spend some time. Think it through. Establish clearly defined “acceptable uses” for the spending. Create a “straw man” procedure as to how the team would make spending decisions. Discuss safety precautions that the teams must consider.
Some companies have established team accounts at places like Grangers, and allow their teams to place orders against these accounts. Others provide debit cards. Remember: It is a whole lot easier to increase the spending limits than it is to decrease. Start slowly, and then build upon it. And don’t second-guess valid attempts that did not work out. These budgets are typically small, and therefore low risk. It is not at all unusual for the teams to spend several hundred dollars on items that had little or no positive effect, before they eventually hit the project that saved the company tens of thousands of dollars. The idea is to encourage trial and error!
NPI (New Product Introduction): Use a multi-function team to develop and prototype new products. Engineering, manufacturing, procurement, sales/marketing, etc. Make sure that adequate time is allotted to “tweaking” after the initial prototypes are produced.
It has been our experience that NPI has an 80/20 law of its own. Twenty percent of the time and cost will be required to develop a viable concept. The remaining eighty percent will be required to bring this concept to a saleable product. Note that in almost every industry, “time to market” continues to grow in importance. It IS possible to set deadlines. And it is critical to set a cut-off on design changes (for the introductory model). In today’s environment, it is almost always preferable to have “good” product out first, rather than a “great” product out late.
Objectives, Strategies, Tactics (O.S.T.): Top level goals (Objectives) must be supported by 2^nd tier Strategies, which are supported by departmental Tactics (goals and measurements). (See “Goal Curves”)
Old Equipment: In some industries, and some circumstances, old otherwise “obsolete” equipment can be cost effectively used if dedicated to a very limited product line. The savings come from the lack of any changeover and from a very reliable repeatable process. This situation is typically practical in environments where excess space is not terribly costly, since the equipment is generally idle for long periods of time.
On-Time Completions: Many companies maintain a respectable delivery performance by carrying substantial amounts of finished goods inventory. This is true even in “make to order” environments. They accomplish this by scheduling to a padded completion date: “We promise shipment for 9/30, but we schedule completion internally for 9/23.” The logic is that if we happen to have a production hiccup, we can still ship to the customer on-time.
Needless to say, if we are ever to drive out this resulting finished goods inventory and associated hidden waste, we must measure, set goal curves, and improve performance on on-time completions. Measure the percentage of completions that occur exactly on the date scheduled. Then set goal curves to dramatically improve this performance. On-time completions should become a critical gauge of “company well-being”, and treated accordingly.
On-Time Delivery: While it is important to measure your shipping performance, this parameter is of less importance to your customer than on-time delivery. This can sometimes be difficult to measure and control, however, it is a critical factor to consider. In some industries, such as automotive, on-time delivery is THE critical parameter. Missing a delivery can idle a production process costing millions of dollars per hour. If it is not yet critical in your industry, it will be in the future. Work with your “A” customers to find ways to measure and improve this critical measure of performance. Monitor you carriers’ performance to stated lead times. Utilize the tracking systems that most carriers now provide. Look into using company-owned vehicles in lieu of common carriers, etc.
On-Time Shipment, to the Original Promise Date: I spoke to the president of a steel service center the other day. He candidly told me “We will not turn down an order. We promise what the customer wants to hear, then beg forgiveness”. When I asked what his delivery performance was, he replied, “We ship 95% on time.” How do you explain the disparity? Easy. They kept “revising” their promise date until they finally shipped the order. Then they measured against their final promise. I still don’t know why they weren’t 100% on time! I guess they just got too lazy to re-promise some orders! Needless to say, the only credible benchmark is the original promise date, unless, of course, the customer initiates the change. Beware: Some companies delude themselves by saying “we talked to the customer, and he said it was OK.” In actuality, all we’ve really done is reinforced the idea that the customer should ask for his product earlier than he really thinks he’ll need it. Treat on-time delivery, as measured against the original promise date, as another critical quality parameter.
On-Time Shipment to the Request Date: An additional measurement that some top performing companies track is their delivery performance versus the initial customer request date. Doing so can identify opportunities: Can we charge a premium for less than standard lead time? Can we gain share, or increase prices if we cut our standard lead times to less than the competition?
Note: Short lead times are of little value if your delivery performance to your promise is not near perfect. However, short lead times combined with reliable delivery performance can be a significant competitive advantage. Caveat: Prove out that you can perform BEFORE you advertise the capability.
“One Perfect Unit” Day: A full, or partial day is set aside to focus on “perfect quality” at every station: Standardizing procedures, establishing written sequential inspection criteria, identifying and implementing failsafe devices, clarifying quality standards, implementing visual “quality” boards, etc.
One Size Does NOT Fit All: Various Lean approaches and techniques are effective for various industries and situations. Kanban controls are an excellent example. Kanban is an extremely powerful tool. It is not, however, applicable in some environments (sporadic, infrequent product demand; job shop; engineer to order; etc.). Too many consultants have one set of tools, and attempt to force their use into inappropriate circumstances. Think of this list as your tool kit. You, as the craftsman, must apply the appropriate tool as / when needed. “If the tool fits, use it”. (See “Solutions Looking for a Problem” and “Goal Curves”)
Operation Checklists: The pilot goes through his pre-flight checklist to make certain that no important parameter is overlooked. This same logic can and should be applied to equipment start-up procedures, and even between shift hand-offs between crews. Similar checklists are a basic fundamental of good maintenance procedures. Such checklists protect the equipment, and are an important safety procedure.
Opportunity Capacity: It can be a significant profit enhancer to reserve some capacity when aggregate demand exceeds capacity. It is normal in such situations for industry wide lead times to extend, and delivery performance to degrade. The capability to reliably deliver in short lead time can command significant price premiums. This situation has occurred repeatedly in the steel industry, and the technique is called “opportunity tons”.
Opportunity Signals: Visual or auditory signals that identify a need, i.e. more material, or a problem, i.e. the machine is down.
Optimize the Whole, Not Necessarily the Pieces: A Lean initiative’s primary focus should be on optimizing the entire organization. As inventory is squeezed from between operations, all units will tend to be operated at the speed, and in the sequence of the bottleneck operation. While this will increase the performance and effectiveness of the entire operation, it will generally have a negative impact on some unit efficiencies. One of the most difficult obstacles that many companies must overcome is the fact that their current measurement and reward systems target “unit optimization”. The easiest way to think about this is to picture an automobile assembly line. Every piece of equipment is paced to the rate of the line, yet most of the equipment could produce considerably more than that pace. Doing so, however, would require queues of inventory between operations, different crewing schedules, etc. We could indeed increase the effectiveness of the individual pieces of equipment, but how efficient do you think the total factory would be?
Note: There are techniques that can and should be applied to individual units that have been sub-optimized to improve their effectiveness as well. However, the biggest gains come from the initial phase of optimizing the whole.
Order – Delivery (O.D.) Cycle: The elapsed time from the receipt of an order to the delivery of the product is called the O-D cycle. Needless to say, this is an important parameter in the eyes of most customers. Measure it and set goals to reduce it. (See “Lead Time: How to Calculate)
Order Entry: Hours of Operation: While many companies already operate 24 x 7 customer service departments, those that only have humans on duty during “business hours” need to take a look at their customer-base geography. The idea is to man your phones during the business hours of your customers. An east coast company with a substantial amount of customers on the west coast will appear to be rather customer unfriendly if they close at 2:00 PM in the afternoon! Staggering the hours of your customer service people can readily remedy this situation.
Order Point: A predetermined level of inventory that triggers a replenishment order. It is typically calculated as the amount of inventory that we expect to use during the time required to replenish, plus some amount of “safety stock.” The idea is to refill the bin before it goes empty. EXAMPLE: If we, on average, use 10 pieces per week, and we need 3 weeks to replenish the stock, we’d want to order when the on-hand inventory reaches 30 pieces. This level, however, does not allow for fluctuations in demand, or potential slippage of supply. In our example, we might look at the historical demand pattern, and the reliability of the replenishment source, and conclude that we’d be comfortable with a 10 piece safety stock level. Our order point would therefore be 40. Our in-house inventory control systems would be set up to automatically trigger a replenishment signal when on-hand inventory of this particular SKU hits a level of 40 or less on hand.
Order Promising: It is critical to on-time delivery that order promising be done with consideration of available material and capacity. The rule is to make “reasonable” promises, then focus on doing all that is required to execute to that promise. This may mean paying premium freight for delivery of shortage materials, and working any necessary overtime to accomplish the schedule.
Organization Chart, Flatten it: A by-product of a lean operation is the elimination for many non-value adding, typically middle management, tasks. Self-directing teams, minimized scheduling, simplified accounting, etc. allow the lean organization to eliminate many levels of the typical management pyramid. Streamlining the organizational structure will reduce cost while improving communication and customer service.
Paint: A coat of white or light colored paint on the ceilings, walls, and floors (even cabinets and equipment) can have a dramatic effect on lighting, as well as employee attitudes and product quality. It’s difficult to catch a defect if you can’t see it! It also makes oil leaks more readily detectable.
Paper Templates of Equipment used for re-arrangement trials: With small easy to move equipment, we will typically advocate that only cursory paper layout planning be done. We’ll come up with a general idea of how & where things should go, then get on the floor and do a lot of trial and error. However, when equipment is big and/or difficult to move, it makes sense to spend more time planning. While scale drawings are a good start, there is nothing like “walking” the new layout. This can be achieved by making full sized cardboard cut-outs of the equipment and then letting the entire team play “paper dolls” until a comfortable mutually agreed upon arrangement has been established. Mark out the locations on the floor, and then do the real equipment move.
Pareto’s Law: The 80/20 rule is typically utilized in inventory control. Annual dollar usage, i.e. the quantity of an item used per year times the unit cost, is ranked in descending order. In most companies, the top 20% of the items, or SKU’s (stock keeping units), will constitute about 80% of the total annual spending dollars. In many industries, like electro mechanical assembly, the ratio is more likely to be 90/10. (See “ABC Inventory Classification”)
Pay For Raw Material on “Shipment” Rather Than Receipt: As the frequency of raw material deliveries increases, the number of receiving transactions also increases. There are many ways to circumvent this additional transaction cost. One such way is to pay for your vendor’s material based on the amount of product your company has shipped. A simple example: We manufacture bicycles. I shipped 20 bikes, therefore I must have used 40 tires. Since we have good records of our shipments, and we have complete and accurate bills of mater5ial, the computer can readily calculate raw material usage. Needless to say, such an arrangement requires approval from your vendors, and demands that your inventory turnover be high. You’ll also have to have very low scrap rates and a good way to collect scrap data.
Perpetual Inventory Control: I’ve got 20 units of item A. I bring in 10 more units, and use (ship / scrap, etc.) 5 units. What’s my new on-hand balance? (20 + 10 – 5 = 25 units are left on hand) This is an example of what a perpetual inventory system does. The computer processes incoming and outgoing transactions, typically through MRP / ERP type inventory control software, so as to maintain an on-going, i.e. “perpetual”, accurate parts balance at all times.
Physical Inventory: As opposed to a perpetual inventory, a physical inventory (PI) is a “go out and count them” process. In most companies, day to day inventory balances are maintained via perpetual inventory control. A “physical” is generally done as an event for a specific purpose; e.g. accounting audit, due diligence process, etc. (See “Cycle Counting”)
Physical Inventory: Thumbnail: When you find yourself in an “inventory accuracy emergency” this technique can be an effective band-aid. The idea is to do a thumbnail physical inventory by checking the appearance of the on-hand physical supply vs. the inventory record. “That looks like about 100” and the records say 120. Close enough. Move on to the next idem. The idea is to quickly catch the “gotcha’s” that will bite you. Then, go back and do a good physical inventory, and implement all the necessary procedures to maintain on-going accuracy.
Physically kitting to find shortages… CREATES shortages. We’ve all seen it. The raw material inventory balances in the system are not accurate, so someone comes up with the idea to “pull the parts early to identify the shortages”. Sounds reasonable. It isn’t! Parts, available on one kit, are short on another. Pulling parts early significantly decreases the odds of being able to make ANYTHING complete! The only viable option is to fix your inventory accuracy, and put systems in place to keep it that way. (see “Trial Kitting”)
Planning “Percentage” Bills of Material: Forecasting is generally easier, and more accurate, when done at the product family level. However, in order to utilize the planning data for material requirements purposes, the forecast must explode down to the specific part level. One easy way to accomplish this is through the use of a planning BOM. The planning BOM contains parts and labor requirements that represent the entire family of products, by proportions. The easiest way to create this bill of material is through the use of percentages. For example: Our product family “Adult Men’s Bicycle” is anticipated to sell 22% “Flyer” model, 47% “Clipper” model, and 31% “Off-Road” model. We would create a percentage planning BOM with these three products as components. The “quantity per” for each would be the forecast % of the family sales for each product, i.e. .22 Flyer, .47 Clipper, and .31 Off-Road. Thus, when we load the forecast into MRP and explode requirements, the resulting component parts and labor forecast will accurately represent this product mix.
Plant / Process Tours for All Employees: An operator had been doing a manual operation; scraping tape residue off a transformer core; for eight years. His thumb was all buggered up. We asked where the part went next. He had no idea. So, with approval of his supervisor, we walked the process. You guessed it! The section that he’d been manually scrapping for all these years, was, at the next operation, cut off and thrown away!
We are continually amazed at the number of employees that have no idea what is being done in the other areas of the factory. Take the time to provide a tour for your operators. You may be surprised at how it increases there caring and awareness of opportunities for improvement. Note: This same concept has produced huge benefits when extended to customer and supplier sites.
Point of Use Stock and Supplies: Do you see any non-value adding activities in this familiar process? Parts are received, the count is verified, a sample is inspected for quality, a transaction is processed, they are moved to another location, another transaction is processed, some of the parts are then withdrawn, and another transaction is done, and the parts are finally moved to the assembly area.
Wouldn’t it make more sense to put the parts immediately where they can be used for production? Now, I understand that lots of groundwork must be done to accomplish this logical step. Just like the Frito Lay delivery guy, let’s get the supplier, where ever practical, to deliver quality parts (we’ve pre-qualified his process), in reasonable batch sizes (we’ve shown him how to cut his set-up times), directly to the point of use. Transaction costs have been minimized through backflush.
Point of Use Tool Storage: Store any low-cost tools where they are needed. Put clips on the equipment to hold the screwdriver, wrench, ratchet, etc. within reach of the maintenance person. At one plant, we watched the maintenance person spend 20 minutes searching all over the plant to find a set of vernier calipers. Investing a few hundred dollars in additional tools, combined with clearly defined locations for their storage, saved thousands of dollars, annually, in lost productivity.
Note: Several tool supply companies will now furnish “vending machines” that are placed throughout the shop floor and are stocked with commonly used tools and supplies, generally on consignment. Operators/supervisors are provided with credit-card type keys that record when, what, and by whom, each part has been used.
Poka Yoke: See “Failsafe”
Pre-Agreement: Get agreement in advance. If …, Then … e.g. “If we can show that … is the case, then do you agree that we can…? We had a go-around with a quality engineer. We had him verify that not one test failure had ever occurred after the initial hour of testing (shake & bake). Yet, he refused to reduce the test time (8 hours). It took us months to convene all the right players to override this guy! (See “Let the Data Decide”)
Pre-Meeting Coaching Sessions with the CEO: Our Rapid Impact process requires that Top Management monitor our lean transition progress via regular TMAC (Top Management Advisory Council) meetings. One trick that we utilized with great success is to hold a short pre-meeting get-together with the CEO prior to the TMAC. This provides us an opportunity to “coach” him/her as to where we anticipate resistance. E.g. “We are going to suggest … Jim is going to want to “study” it. We’d encourage you to suggest that we just ‘give it a try’”
Preventative Maintenance: (See “Total Productive Maintenance, TPM”)
Price Changes: In some industries it is standard practice to pre-announce price increases. Doing so has several consequences, all bad! As mentioned elsewhere in this article, we are constantly seeking ways to smooth demand. Pre-announcing a price increase has just the opposite effect. Orders spike as customers attempt to beat the deadline, and slump afterward. Customers attempt to “guess” what they’ll need, and then are forced to call in change orders. All of these actions adversely affect the company. Our suggestion: Announce, right now, that the company’s new policy is to no longer “pre-announce” price increases. Then enforce the policy.
Product focused layouts: Many traditional industries are arranged in “process focused” layouts, i.e. all lathes are in one area, all presses in another, etc. As we attempt to squeeze out interdepartmental inventory, it soon becomes apparent that a “product focus” makes more sense. E.g. to arrange the various kinds and quantities of equipment together so as to cost effectively produce a specific product or family of products. (See “Cellular Manufacturing”)
Profit Impact of Driving Down Inventory. Inventory reduction generates cash and improves operating performance. However, due to labor variance, and/or under absorption of overhead, accounting profits can actually go down, temporarily, during these periods of rapid inventory reduction. Also, a significant reduction of inventory can expose LIFO / FIFO layers in the inventory accounting system. The impact of this may cause accounting profitability to go in either direction. It is important that the CFO be tasked to provide a proforma of the impact on accounting profits that will occur if the targeted inventory reductions take place. Once this has been done, get approval from the board to go ahead. (See the article “Transitioning to Lean”)
Program Du Jour: A slang term for the syndrome of some companies to constantly change the corporate focus. It is often the fad of the moment: A new book comes out on “work teams”, so that becomes the drive, then another comes out on “six sigma”, and the emphasis changes. The only consistency is that little or nothing seems to get accomplished.
“Problem / Idea” charts: This can be a powerful tool in some environments. Natural work teams are provided simple flip charts in their work areas. The chart has a column drawn with the heading: “Problem/Idea”. This is used for employees to post any issue. Two additional columns: “Responsibility”, and “Promise Date” provide a way for the team, and it’s support people, to keep track of commitments made to resolve such problems. Every problem is an opportunity. Make sure that they are posted, and then seek a solution. This is additionally powerful when combined with Management by Walking Around, and unit / area / kanban goal curves.
Prune the Customer Base (All Customers are NOT Equal): It is a useful exercise to evaluate your customers for margins, volumes, and a somewhat less tangible “hassle” factor. Most companies find that a “normal curve” exists. A few customers are quite profitable. The majority of customers are moderately profitable. And a few customers are just not worth continuing to do business with. Get rid of them. (See “Activity Based Costing”)
Pull vs. Push: In a “Pull” philosophy, the next operation is considered a customer. As such, it is reasonable to ship a product to a customer only when it is requested, i.e. only when it is needed. In a “Push” environment, product is delivered to the next operation based on schedule, or simply availability, whether the next operation needs it or not. A pull philosophy is seen as superior for a number of reasons. Pull minimizes WIP inventory build up and thereby keeps congestion down and assures short lead times.
Push systems have a tendency to constipate the system, adding to WIP and necessitating expediting. (See “Kanban Controls”)
Pull Systems: Utilize the Pull Philosophy. This is generally accomplished via kanban controls. The same pull philosophy can be extended as far up and down stream as your suppliers and customers allow. Visualize a chain of events triggered by the end user. He/she removes a product from the retail shelf, which causes the supplier to generate a replacement, which initiates demand for one more set of component parts, etc. (See the article “Taking the Mystique out of Kanban Systems”)
Put Time Limits on Discrepant Material Resolution: Discrepant material is in limbo. You can’t count on it, yet if you order replacement and then the discrepant material is released as OK, you’ll have excess inventory.
Establish turn-around targets for “time to disposition”. Measure it. Push to assure that all functions required to make such disposition are available as close to 24 – 7 as feasible. You can’t have your operations waiting on material that may, or may not, be available for production.
One effective technique is to require that all discrepant material remains within the kanban allotment, i.e. if you are allowed 20 pieces between operations, and 5 are on hold (discrepant), then only 15 “good” pieces are allowed in the kanban. This will add operating pressure for quick discrepancy resolution.
Quick Changeover Tooling: There is a large compliment of tooling and equipment now available that has been designed to simplify and speed up typical set-up operations. Quick clamping devices, slotted holes, ¼ turn bolts, hydraulic systems, etc. Pickup catalogues and/or search the web. No sense in re-inventing the wheel!
Raw & In-Process (RIP) Inventory: Traditional manufacturing accounting separates inventory into three groupings: Raw Material, Work in Process (WIP), and Finished Goods. Work orders generate kits with pick lists. The kits are picked and the entire job is “released” to Work In Process. This transaction relieves the raw material parts from “raw” and puts the job in WIP. When the job is finished, the job is closed and the inventory value is transferred, eventually, into Finished Goods. As lead times and lot sizes are reduced, and raw material is stored at or near the point of use, WIP becomes small enough to eliminate it as a separate category of inventory. Products are back-flushed upon completion, thereby relieving the raw material inventory. The accounting categories are thus RIP and Finished Goods. Many of the non-value activities of processing “pick lists” and issuing transactions are thereby eliminated.
Receive at Night: There are several advantages to receiving incoming material at night. It often makes it easier for the shipping companies (traffic is lighter) and very often truck drivers must wait overnight before being able to unload. It also allows the received material to be entered in the system so all material shows for planning purposes during normal business hours.
Red, Yellow, Green: In many batch environments, there are certain high-use products where it is more economical to process the entire batch rather than process just the quantity required for the order. An example is the blanking of sheet metal parts from a coil of steel. If the product/s being blanked are high volume runners, completing the entire coil may make good economic sense (in many circumstances, there are very real capital limitations to SMED). On the other end of the spectrum, there are low-usage products that should NOT be processed ahead. This scenario is particularly true in the steel service center business.
A cursory study of each product’s historical demand, cost of processing, and cost of carrying the additional inventory can lead to simple decision rules. The various products are coded. Green: Cut up the entire coil. Red: Cut only what is needed, then put the unused portion of the coil back into stock. Yellow: Use your discretion.
Reduce Set-up / Change-over costs to allow further lot size reduction. The basic rule is “Make just what the customer wants, just when he wants it.” Any additional production is waste and adds to inventory. The ideal is lot size of one. Historically we determined the lot size based on the change-over costs. A better direction is to determine the right lot size based on customer demand, then drive down your change-over costs, where possible, to allow such.
Remove doors wherever they’re not essential: We want product to flow, ideally, without interruption, through the entire process. Walls, doors, fences, separate buildings, etc. inhibit this flow. I toured a plant recently, where many of the departments were in separate rooms. Unless separate rooms are needed for process constraints, e.g. environmental controls, or security, a good 1^st step to improve flow and communication is to remove the doors. The next obvious step is to remove all unnecessary walls as well.
Rent Space at Your Customer’s Site: I visited a blow-mold bottle maker a few years ago. Their process was highly automated, with minimal WIP. Palletized bottles were shrink-wrapped to protect them from dirt and dust. They had a large warehouse full of palletized bottles and a tremendous amount of shipping, with trucks continually departing. When asked for my recommendations, I said, “You are storing and transporting … AIR!
I suggested that they rent some space at their primary customer’s site (this customer used 80+% of their volume), cut a hole in the wall, and deliver bottles directly to the bottling line.
The result: No pallets. No shrink-wrap. No storage. No transportation. And a customer for life.
Replenishment System: A mechanism to simply and reliably re-order and obtain parts or services when needed. Replenishment system is a general term for specific mechanisms such as the two-bin system, kanban controls, min-max, etc. As the name implies, the idea is extremely simple: replenish what gets used. Note that such systems have limited applicability in job shop, one-of-a-kind environments
Reserve Capacity for “A” Customers: Your critical few top customers should expect, and receive, short fixed lead times and reliable delivery, no matter what your backlog position may be. In times of super heated demand, this can still be accomplished by closely working with your “A” customers to reserve adequate capacity to handle their actual (realistic) demand. Lead times for “B” and “C” customers may float in and out. Not so with your “A” customers. Provide them with short fixed lead times, even in a hot market, and you’ll have a customer for life.
Note: while lead times may float for the B’s & C’s, reliability cannot. Credibility is paramount. Say what you’ll do, then do what you say.
Reserve Capacity for “Rape & Plunder”: In times of scarce supply and excessive demand, it may make sense to reserve additional capacity beyond that required for your “A” customers. In such markets there is often an ability to attain a significant price premium for quick delivery. Note: if the “hot” order does not come in, simply pull some of the backlog ahead, i.e. capacity is not lost.
Resource Restriction: can be used to force innovation and process improvement. Take away a person. Challenge the team to make the schedule without them. Squeeze the space. Challenge them to find a suitable substitute for expensive supplies / materials. Necessity is the mother of invention.
Returnable / Reusable Packaging: In some industries, packaging and the cost of “de-trashing” i.e. getting rid of the packaging, can be a major expense item for you and your customer. Work with your “A” customer/s to find ways to reduce or eliminate the expendables: Use standardized, nesting, returnable shipping containers, pallets, fold-flat returnable plastic containers, etc. Also look for dual function packaging, e.g. packaging that can be used as part or all of the end-item packaging, e.g. use the same box to ship the picture tube that the customer (assembly plant) will use to ship the finished TV; Or the packaging becomes a part of the final product, etc.
Roaming Around Other Departments / Functions: A very astute boss of mine advised that I allocate a certain percentage of time, each week, to “roaming around” the company. The awareness of the “big picture” that doing so provided, was invaluable. Take the time to understand what the other organizations do within the company. Get a good overview of how the various pieces fit together. Doing so will pay for itself many times over, both in terms of providing more value to the company, and in advancing your career.
Rocks & Water Analogy: Consider your company as a ship sailing on a pond. Under the water are dangerous rocks. However, as long as the water is high enough, there is no need to worry about these rocks. In this analogy, the rocks represent problems that cost the company in terms of productivity, customer service, and quality. The water represents inventory.
As in this analogy, corporations can continue to operate while “hiding” a myriad of problems beneath a blanket of inventory.
If we begin to drain some of the water from our pond, some of these rocks will be exposed. We will then have to remove them so that our ship can continue to sail. The same occurs in our factories as we begin to reduce the inventory. Lot size / set-up time, vendor reliability, lack of flexibility, un-reliable processes, etc. will slowly be exposed as the inventory is reduced. Fixing these “rocks” reduces cost and improves quality and customer service. See the analogy below.
Rope -Off Customer-Required F/G’s to Prove That It Isn’t Necessary: Some companies are contractually required by their customer to maintain a certain level of finished goods on hand. This “safety stock” is meant to protect the customer in situations where the supplier misses a production schedule. Once lead times are reduced and on-time completion performance improved, these safety stocks my no longer be required. At one client site, we invited the customer to witness the inventory being held in his account. We recorder the lot numbers, and then “taped off” the entire inventory (several pallets) with the bright yellow police tape. We asked for agreement that if we could continue to ship at 100% performance, without breaking into this buffer, we be allowed to eliminate the buffer requirement. A compromise was reached that allowed our client (the supplier) to cut the safety stock requirement in half with each month of successful on-tine delivery. The requirement was eventually eliminated.
Rope Off Freed-Up Space: or it will refill. Space, freed up via the lean transition process, is a valuable asset that upper management can use for new products, acquisitions, sub-lease, plant consolidation, distribution warehouse. etc. Do not let this asset slip away. We have gone so far as to use yellow “Police” tape to cordon off the area. Post large notes stating that written approval from the plant manager is required to store anything in the area.
Nature abhors a vacuum. Take aggressive steps to preserve the empty space or it will rapidly refill!
Rubber Factory: Build flexibility into your capacity. Use part-timers, overtime, cross training, move people between departments, etc. While it a very worthwhile effort to attempt to smooth production, quick response will, at times, demand some level of flexible capacity. (See “Counter Cyclic Products”)
“Rule” or “Exceptions”? In most discussions as to why a lean initiative “can’t be done”, it is the exception that is used to justify things. Look at frequency and percentages as well as the “facts” given; e.g. “We’ve got long lead time items from China” (on 1% of the parts!). One of the nice things about the Lean techniques is that they do not need to be used universally. Select the appropriate techniques and then use them only where appropriate. (See “Figures Don’t Lie, But Liars Figure”)
Safety “bag”: For small component users, a very simple form of replenishment signal is to place a quantity of components (sufficient to cover on-going operations during the replenishment cycle) in a separate bag that includes a replenishment kanban card. The instructions on the card advises to “use these parts last” and to order more once the bag of parts has been opened. The card can even contain the necessary reorder information. The card is provided to procurement, or the supplier, for order placement. (See “Faxban”)
Safety Stock: Be Cautious. In many MRP programs, Safety Stock is treated like a priority item, triggering expedite messages. Doing so can cause credibility issues with the system’s recommendations and lead to second guessing, or worse. (See the article “ERP & Lean”)
“Same As Except” Method of Estimating: This is an excellent way to quickly, and often more accurately, estimate the cost for a new product. When faced with the need for a quick cost estimate, begin with a similar existing item with a known cost. Then add & subtract for estimated differences. This method is almost always faster than a bottoms-up estimate, and often more accurate.
Schedule Accountability, By Shift: Delivery performance demands that the schedule be accomplished in all areas of the organization. Start with schedule completion each day. This will then lead you to measure & improve on-time schedule accomplishment by shift.
You will soon, however, run into a problem. The typical multi-shift operation has shifts that are “back to back”, i.e. one shift ends at the same time that the next shift begins. If your process allows, it can be a huge benefit to stagger the shifts, thereby leaving a gap between shifts for recovery, repairs, and preventative maintenance; e.g. 1st shift runs 7:00 AM – 3:30 PM, 2^nd shift runs 7:00 PM – 3:30 AM (3.5 hr gap). Each shift can then be held accountable to make the schedule, exactly, before going home. Instill a discipline: “The shift ends when the schedule is done”. (See “On-Time Completions”)
Schedule Adherence; Order Entry: In most manufacturing companies, the majority of orders come into the company during day shift. Yet, to ensure a short lead-time, we’d like to be able to produce these orders on 2^nd and 3^rd shift. This requirement results in a philosophy of “The day ends when all orders have been entered into the system and are available for production”. Stagger the hours of your order entry people. Get agreement that the last person on duty will stay until every order is in the system (same day). As you continue to shorten your response times, making this change will become more important. (See “Order Entry: Hours of Operation”)
Schedule Randomizer: In some industries, it is still accepted practice to promise shipment “week of”. Obviously, this is NOT a world class practice! Be that as it may, until scheduling practices change, weekly schedules can cause a problem with the back-scheduling algorithms when lead times are dramatically reduced. A case in point: We worked with a steel company that scheduled all of their shipments for Friday of the promise week. The operations planning department had no good scheduling tools to provide credible “day of the week” completions. As we reduced the lead time, and began holding operations accountable for on-time schedule completions at the individual operation level, unrealistic schedules began to appear. Since many products had similar routings, and everything was scheduled to complete on Friday, workload “lumps” appeared at various operations.
A quick and easy fix was to apply a simple randomizer to the internal completion date. This smoothed the completions over the promise week, and provided producible schedules. The customer continued to receive a “week of” promise date, but internally the operating and scheduling people were measured to the completion day. Needless to say, the next obvious step is to begin providing daily ship date promises to the customer. So far, however, we haven’t been able to win that battle!
Scheduling Function: Hours of Operation: We were working with a large corrugated box producer. They had customers clambering for next day delivery. We had streamlined the production operations to allow for extremely rapid turnaround. However, orders were received until 5:00 PM, yet the scheduler for the corrugator went home at 3:30. With some work-shift schedule changes, and some cross training, the problem was overcome. It was necessary to overlap the scheduling function beyond the end of 1^st shift so that all of today’s orders could be entered into the schedule and be available for production TODAY.
A similar problem arose at a steel finishing plant. Standard practice was for production scheduling to be done on weekdays, day shift only. However, production operations ran 24 x 7. Needless to say, as the internal lead times were reduced, it became unrealistic to attempt to schedule production that far in advance. The schedulers agreed on new work schedules. Schedulers were also provided with PC’s and the ability to access the scheduling software. This allowed for critical schedule changes to be made electronically from the schedulers home.
Scheduling: Upstream & Downstream From a Bottleneck: In many industries, there exist true bottleneck operations. If the upstream and/or operations are NOT true bottlenecks, i.e. have excess capacity, then the objective is to use only one schedule; that which optimizes the bottleneck; for ALL operations. The same scheduling sequence (also called a “line up”) used for the bottleneck, is applied to as many up & down stream operations as feasible. The end result is a Lean environment while still optimizing the bottleneck operation.
Sequential Inspection: Here’s an easy first step in establishing sequential inspection. Have every operator write down the items that they could possibly mess up. Pass this list to the next operator as his/her checklist. Run for a week or two, adding to and correcting the list. Then formalize (print up, add color photos, etc.) and post at each work-station.
Sequential Pull: Many kanban systems are “product specific”, i.e. the kanban tells you what to make, when to make it, and how many to make. However, a more streamlined form of kanban, applicable in many industries, is “sequential pull”. In this system, the kanban signal is generic; it tells you “when” to move or make a part, but does not tell you what to make. A schedule, or “line up” tells you the specific item to move or make.
The automobile assembly line and associated feeder lines are set up in this fashion. By “pulling” the correct parts in the correct sequence, a complete final assembly is produced with minimal WIP inventory, just in time. Note, that while this is by far the most efficient form of pull system, it requires a considerable amount of pre-work. Quality and reliability of all processes must be truly world class, as any defect or line disruption can throw off the sequencing. (See “Kanban”)
Set-Up Person; New Role as Teacher: Some companies have “high skill” set-up operators that are on-call to perform change-overs on the production equipment. This often causes delays, while production operators wait for the change-over expert to get to their operation. We’ve had some huge successes by re-framing the set-up person’s job to include simplifying the change-over, and training operators to do their own change-overs. Transition your “set-up” people into trainers and SMED experts (simplify the change-overs, document the procedures). Teach operators how to do their own change over. Then elevate the responsibilities of the set-up person to include process improvement.
Shadow Boards: Help people put things back where they go by creating a shadow board. By putting the outline of the tool on a board, or in a drawer, where the tool is supposed to be located, the location for a tool becomes obvious. Combining the outline with color-coding can be even more effective. (See “5S / Area Organization”)
Sharing Equipment / Work Stations: We visited a transformer plant and noticed that more than ½ of the arbor winding equipment was un-manned. When we asked why, we were told that the 2^nd shift operators all had their own equipment, and that no operator could continue the work of another. Winding was considered “art,” not science.
The addition of standard methods, checklists, and a 5 minute shift overlap, allowed space, equipment, and WIP inventory to be cut in half.
Shop Floor Control: This term is generally used to denote software & hardware systems that are used to track, reschedule, and prioritize products that are currently in production. Many companies have spent a considerable amount of time & money installing shop floor control systems, and, in some industries they are an absolute necessity. Too often, however, they simply mask a host of underlying problems: If schedules are credible, and on-time completion rates are high, there is little need to track, reschedule, or prioritize items in WIP. However, when lead times are excessive; lot sizes are too large; schedules are un-realistic (poor capacity planning and/or shop loading discipline); and accountability is lacking, SFC systems will be seen as a necessary solution. They will NOT solve the problem.
In most industries, if Lean is done correctly, the need for SFC is greatly reduced or eliminated, and, in the few industries that truly do require SFC systems, their credibility will be greatly enhanced by a lean initiative.
Shorten Lead Times by Adding Shifts: Here’s a quiz: Our product requires four operations to be performed, in sequence. We’ve got four operators, each performing a different operation. Each operation takes 8 hrs to perform. There is only one shift. What’s the minimum lead-time? Right: 4 days. On day 1, operation 1 is completed. On day 2 operation 2 is completed, etc.
What happens to WIP inventory levels and lead times if we were to move 2 of our operators to the 2^nd shift? Operation 1 is done on day one, 1^st shift. However, operation 2 now can also be performed on day one, on the 2^nd shift. Same with operations 3 & 4. The lead-time and WIP inventory levels are cut in half.
Note: we did NOT increase capacity. Four operators still produce 1 completed unit each day. However, by manning more of the available hours, we are able to keep the product flowing, thereby cutting inventory, space requirements, and lead times accordingly. We used 8 hour operations for illustration purposes. Moving a portion of your capacity to the off shifts will have the same impact regardless of the work content.
Show Me: We were working in a traditional assembly plant and were about to re-arrange some equipment. I asked that the wiring be left flexible so that future minor equipment moves could readily be accomplished. However, the maintenance man assured me that this was not allowable “per the code”. I politely asked him to please show me where the code said this. I waited a few hours, then sought him out. As I had expected, he could not find any such prohibition in the code.
Many constraints are perceived, habit, or hear say. Require the letter of the law be shown. Don’t be afraid to challenge convention. All too often, it’s being done that way because “it’s always been done that way”!
Side-Loading Trucks: The problem with the typical rear opening truck is that only a small amount of product can be reached at any time, and that the product flow is LIFO: Last In First Out. A lean environment requires frequent deliveries of material to the point of use. Thus, a side loading truck, combined with modified receiving capabilities along the entire periphery of the plant, provides a more fitting arrangement. Material can be accessed along the entire length of the truck, allowing material to be stored and unloaded where and when needed.
Silence is Acceptance: A culture of continuous improvement demands on-going change. It is difficult to make rapid progress if approvals are required for every action taken. Institute a procedure that encourages teams to “notify” people of actions they intend to take. The onus is then on those notified to “raise a flag” of concern. “Speak now, or forever hold your peace!” (See “Just Do It!”)
“Similar To” BOMs (Bills Of Material): If you do not have a final design, load the BOM for a similar product into your MRP. Then evolve it as product definition firms up. The “similar to” item is treated like the “same as, except” item discussed elsewhere. Schedule the anticipated demand in your master schedule, and then use the system to warn you of long lead item requirements, reserve capacity, project cash flow, etc. (See “Similar To, Except”)
Single Handle: Once an item is in the hands of an operator, try to do as many value-adding operations as make sense. Much time is wasted picking up, putting down, and conveying material. If practical, arrange operations that require different small pieces of equipment in a U shaped arrangement. The operator swivels his/her chair or “walks” the item through each operation before putting it down. (See “U-Shaped Cells”)
Situational Approach: Just Do It vs In-Depth Study: While we are advocates of the “Just Do It” philosophy, there are indeed situations that warrant a more studied approach to a Lean transition. If the area of concern is a bottleneck, if the intended action has a potential impact on personnel policies or could stimulate union organization efforts, if the intended action could cause a significant / life threatening impact on the company (i.e. “drilling below the water line”), if the action risks anyone’s safety, then a more cautious studied approach is justifiable.
Six Sigma: A powerful analytical method for quality or process problem discovery and resolution. Due to the amount of training required to become proficient, six sigma is often utilized by training a small elite group of internal experts (black belts). Six Sigma is a rigorous situation analysis process. It is quite powerful for determining and resolving a complex process / quality problem. It is not, however, a general overall business improvement methodology. Do NOT attempt to use as such. (See the article “Is Six Sigma Right For Your Company?”)
Slippery Floors: Here’s a rather radical idea. We worked with one company that made pillows. The product shipped in large, relatively light-weight (about 40 pounds) but cumbersome boxes. In discussing alternatives with a safety expert, the decision was made to try “slippery” floors and equip all operators with rubber soled “deck shoes”. The boxes were then slid to the shipping area. This was clearly seen as a superior alternative to lifting each box to put it on a conveyor or other conveyance device (risk of back injury). Another major advantage: there were no conveyors blocking routes; No wheeled vehicles to take up space, “deadheaded” back to where needed, or stored.
Small lot, JIT deliveries, to the point of use: Receiving transactions, incoming inspection, moving parts to a stockroom, recording transactions, picking parts, etc. are all non-value adding functions. One solution is to evolve to frequent vendor delivery directly to the point of use, bypassing receiving, incoming inspection, and the raw material stockroom. It is important to recall the many pre-requisites required to reach this objective. Vendor quality must be sufficient to bypass incoming inspection (see “vendor certification”). An alternate method must be put in place to assure vendor part count delivered (see “backflush”). A simple trigger must be put in place to notify the vendor when it is time to deliver (see “replenishment system”). And, you’ll need a simple means to get the vendor paid (backflush, line operator sign off, bar codes, fixed quantity parts containers, point of sale terminals, etc.)
Small, Flexible Machines, Multiple Copies: There are several advantages to having small machines vs. one large “mega-machine.” If the mega-machine is down, all production stops. If one of the small machines is down, partial production can continue. The mega-machine runs one product at a time. Several small machines can run several different products at the same time. Mega-machines generally have extensive set-up costs (change-over between products). Smaller machines are usually less complex and lend themselves to quick set-up. Plus, with several copies of the same small machine, it is often possible to leave one machine set-up on a key product all the time, i.e. eliminate change over all together! Small machines often are simpler than the mega-machine and therefore more reliable and easier to fix. Mega-machines generally have a fixed output rate and crewing requirements. It’s either on or off. Multiple small machines, in contrast, can be crewed to provide variable rates of output. Note that doing so also keeps the labor costs in line with the actual volume required.
SMED, Single Minute Exchange of Dies: As we reduce inventory, the lot size “rock” will generally appear. In order to further reduce inventory, we will need to reduce production lot sizes and thereby increase the number of changeovers. This will cause changeover costs to increase. As a result, set-up / changeover costs must be reduced. SMED is a proven set of techniques that allow one to reduce changeover costs. There are entire books written on the subject.
The typical process is to form a team involving the equipment operators, set-up people, maintenance, and an outsider or two. A typical changeover is then video taped. The team reviews the tape, identifying and challenging all elements. “Can it be done while the machine is running? Can it be done better, faster, cheaper? Do we need all off these screws/nuts? Can we use quick clamping devices?” Etc.
In areas where no previous set-up reduction efforts have been taken, it is quite typical to reduce the changeover times by 50%-75% with little capital outlay. (See “Quick Change Tooling”)
“Solutions Looking For a Problem”… Beware: We see all too many “lean transitions” begin with this unfocused approach. “Let’s do a 5S”; “Let’s re-layout this area”; “Let’s blitz the stockroom”; etc.” All too often: 1) The considerable amount of activity and expense involved creates local excitement, but has little or no effect on bottom line results, and/or 2) The effort must be completely un-done when it is discovered that: the process blitzed should be eliminated, the area 5S’ed should be re-located, the re-laid out area must be moved to fit with the overall plan for product flow, etc.
The problem is not that these endeavors are necessarily wrong. And it is certainly correct that people will learn from the effort. The point is that there is a more efficient and effective way of focusing the efforts.
If you wish to generate cash, reduce lead times, and prioritize your efforts in the most effective manor, use inventory / cycle time reduction to drive the process. Reducing inventory generates cash. It also highlights that next “rock” that must be attacked.
The Hands-On Group’s “Rapid Impact” process utilizes an inventory reduction goal, along with an on-time delivery goal, to drive the improvement process. As you progress toward these simultaneous objectives, problems will appear. Kanban installation, SMED initiatives, 5S blitzes, NWT’s, Vendor workshops, Cross training, Manufacturing cells, etc. are used as & when needed to fix these problems. The process of driving inventory out of the system acts to prioritize your specific actions. The specific “tools” are used to achieve this inventory delta objective. And, the cash generated through the inventory reduction process will typically more than fund the cost of the transition.
Lean is about eliminating waste. Doesn’t it make sense to use a “lean” transition process as well?
Source Inspection: Incoming inspection is a non-value adding activity. Doing source inspection is a stopgap measure, used until your supplier can install process controls that assure a quality product. Typical steps include: Eliminate incoming inspection by imposing source inspection (by your own people at the vendor’s site, by 3^rd party folks, or by “certifying one of the vendors people). Note that the additional expense of doing this inspection is best if it is incurred by the vendor. Doing so provides an additional; incentive for the supplier to implement adequate process controls so as to eliminate this additional expense. The final step is to move to process control verification, and thereby eliminate both the source inspection and incoming inspection requirements.
Standardize Parts, Equipment, and Processes. We worked with a well-respected company making a high volume electro-mechanical product. After forming a natural work team, one of the operators suggested standardizing the screws for this product. Further investigation showed that 16 different screw types and/or lengths were required for this one level of assembly! The natural work team worked with a design engineer, and in two weeks reduced the complexity down to 2 different screws.
Standardizing reduces procurement costs, complexity, and opportunity for error. Standardizing equipment reduces spare parts requirements and improves maintenance know-how. Standardizing processes aids in employee rotation and cross training/flexibility. And, the impact on quality is obvious. (See “Value Engineering”)
Standard Work: Generally speaking, there IS a best way to do things. Involve the people in the evaluation process, document the “best” way, and then teach your people how to do it that way. Expect that their performance may fall off during the change process until the new method has been fully learned. (See “Let the Data Decide”)
Station Controls (Zone Controls): A centralized location that provides all necessary information, tools, and supplies required by the work area. This might include quality charts, go/no-go gauges, measuring devices, clip board and calculator, photos / samples illustrating quality criteria, production cost data, on-time completion data, vacation schedules, goal curves and status, area layout diagram, tooling and supply catalogs, etc.
Statistical Process Control (SPC): A powerful analytic technique for process control, involving the frequent measurement of various product attributes to detect if the production process is drifting out of control. It involves, as well, the analysis of process capability to verify that the current equipment is capable of holding the desired tolerances.
In our experience, a similar but much simpler procedure is often adequate: Divide the tolerance by 4. Consider the middle two bands around nominal as green. The outer bands are yellow. Outside of tolerance is red. Set up your SPC control charts and actions accordingly. (See “Six Sigma”)
Stockroom Location Systems: There are many methods for deciding where to put parts within a stockroom, and there are plusses & minuses for each. A few of the common methods are listed here: Stocking by Commodity Type will put all resisters in one location, heat sinks in another, etc. Stocking by Part Number places each part in the correct sequence based on it’s part number. And Random stocking assigns the location after the part has been put up (first available opening).
The advantages of commodity and part number methods include ease of training and ease of finding lost parts. The disadvantages are the poor use of space, and the difficulty in adding new part numbers. Random location systems maximize the use of the “cube” (warehouse space) but have no logical pattern and depend heavily on correct input of location data into the system. Most effective warehouses use combinations of the above. As an example, small parts might be placed in standardized bins in part number order. A card is then inserted in the bin identifying the location of any “over stock” that would not fit in the bin. Large or awkward parts are stored in random locations.
Stop the line. Fix the problem: If you truly seek a quality process, this technique is a must. The intent is to attempt to permanently fix the process. Stop the line, identify the root cause, and either fix it, or make certain that a clear responsibility and due date has been assigned (“Who?” “By When?”) to fix the problem, before continuing operation. Note that the schedule must still be completed on time. Therefore, a stop of the line will often require overtime. The company’s willingness to incur this short-term cost to assure a long-term fix sends a clear message to the workforce regarding the commitment to a quality process. Walk the talk.
Caveat: As processes are linked to one-another via kanbans or other means, this task becomes considerably more difficult to enforce. Stopping one area, will soon lead to stopping upstream and downstream areas as well. There will be a temptation to exceed the kanbans and only work overtime in the affected area. Occasionally this may be justified. However, be very cautious as to the message being sent to the troops. Each exception makes the next exception a little easier, and can rapidly lead to a loss of discipline. (See “failsafe”) (See “One Perfect Unit Day”)
Supermarket: A central area to draw parts and/or subassemblies. Supply of parts to the supermarket is typically kanban controlled. This method is utilized in circumstances that make sequential pull impractical such as the need for immediate off-the-shelf delivery.
Supplier Development: Few companies can become truly world class without the assistance of world-class suppliers. The typical process involves 1) Evaluate your current suppliers. 2) Eliminate the obvious poor performers. The typical goal is to have no more than 1 or 2 suppliers for each commodity type. 3) Hold a “supplier day” kickoff meeting. Explain what the company is trying to achieve, and your expectations of your suppliers. Establish key measurements and set goal curves for your key suppliers. 4) Assist in supplier training where necessary. 5) Measure all suppliers (lead time, on-time delivery, quality, etc.) and provide on-going feedback. 6) Take corrective actions as / when needed.
Phase two: Work with all key suppliers to reduce or eliminate the non-value adding activities typically associated with procurement: Product packaging, freight costs, receiving transactions, incoming inspection, stocking, accounts payable, record keeping, etc.
One of our clients posted all vendor performance charts right in the lobby for all to see. For additional information, see our article “Lean Supplier Development.”
Takt Time: This concept is based on the idea of leveling production for efficient use of your resources. The sales requirement is divided by the planned work hours to arrive at a required rate of production, e.g. we need to produce one automobile every 60 seconds. All operations are then targeted to achieve this production rate. This approach has considerable practical application in industries where demand is level (e.g. government contracts) or where the company is running at maximum capacity.
However, it has been our experience that this concept, while a worthy objective, is not very practical in many industries. With very few exceptions, customers do NOT buy linearly, i.e. the “takt time” is constantly changing. This problem has been alleviated in some industries (automotive, etc.) by artificially flattening “demand.” They accomplish this by establishing a production schedule for some fixed period of time (a week, a month). Needless to say, if actual demand is varying, and our production schedule is fixed, we must depend on finished goods inventory to take up the difference. This clearly violates the “PULL” concept of making something only when the customer requests it. As we shorten lead times and become more responsive to actual customer demand, the concept of takt time becomes less relevant. Instead, the emphasis needs to be put on flexibility and agility. (See “Rubber factory”)
Target Costing: A design / marketing approach whereby the design team is provided cost and feature tradeoffs. Cost targets are set for the various new product performance levels desired. The challenge is for the design team to provide viable new product configurations and production methods that will allow the product to be produced at or below the targets set.
Teachable Moment: People learn best when they have a pressing need to know. Education and training is much more effective when done at a time when people can immediately use the information. The Lean transition, when correctly done, lends itself to this efficient form of training. By reducing the inventory throughout the system, problems that were previously hidden will now become painfully apparent. The ideal time to teach the applicable technique to overcome such a problem is when this problem has become the obstacle. This is the “teachable moment” when your training will be most effective. Teach the concepts and technique/s, then immediately go out and apply them. See and do.
Teams for Teams Sake. A large transformer plant had spent a sizable amount of time and money training employees and forming teams. The teams worried about lots of important issues, like what radio station to pipe into the plant! When we asked the general manager, “what results have you attained?” Dead silence! They had spent a heap of money, and 18 months of time, forming teams and teaching their employees ‘teaming skills’. What they had NOT done, was create an environment where teaming skills were REQUIRED! A Lean transition process removes the inventory that hides waste. This inventory reduction process does two things: 1) It removes the buffer (inventory) that separates operations and thereby forces inter-dependence. And 2) It exposes meaningful problems that the natural work teams need to address. Employees are forced to communicate and coordinate like never before. Teaming efforts become focused on the problems that the inventory reduction process surfaces.
The point is: Don’t form teams just to form teams. Drive out the inventory, and natural work teams will automatically occur. Teach the teaming skills as/when the need arises. Not before. (See “Teachable Moment”)
Test a New Layout By Removing Excess WIP: Rather than wait until the level of WIP can be worked down to the target levels, we have found it practical, in some applications, to remove the WIP, test out the new process, and then slowly feed back the WIP to remove it from the system.
Thank You Note in the Local Newspaper: A client of ours ran into a serious procurement problem. However, their key supplier was able to jump through some hoops and bail our client out of their jam. As a way to show their appreciation, our client placed a large “Thank You” ad in the local newspaper in the supplier’s hometown. Needless to say, it was warmly received by all.
When a salesman from the supplier called our client to say thanks, he was told “Wait ‘til you see the ad we have if you screw up!” Remember: Companies don’t do things; people do. A little appreciation can go a long way in achieving sustainable world-class performance.
Theory of Constraints: The idea is to focus all efforts on improving the output of the bottleneck. And as such, it is a simple, fundamental, and powerful concept. As an example, we were working with a steel mill client that had a true bottleneck at its cold mill. The first thing we did was to “optimize” the cold mill rolling schedule (the sequence in which the various coils of steel would be rolled). We then pushed that identical schedule, to the extent possible, upon all upstream and downstream operations. This schedule reduced the efficiency of some non-bottleneck operations, but increased overall efficiency of the mill, while still allowing steel to flow rapidly through the entire process.
Like so many other good tools, this one is also subject to abuse. TOC becomes pretty trivial in environments that are not truly capacity constrained. The constraint, per the literature, is now lack of sales. Not much of a revelation! (See “Bottleneck”, “Optimize the Whole” and “Scheduling: Upstream & Downstream From a Bottleneck”).
Time Lapse Video: One of our clients had traffic flow problems in their facility. We mounted a video camera near the ceiling where it could see just about the entire shop floor, set it on time lapse, and let it run for a full shift. The next day, it took less than an hour of watch the tape to clearly identify the issues, and generate a list of solutions.
Top Management Advisory Council, TMAC: A Lean transition impacts all areas of the company, and as such, the effort is best led by top management. The TMAC is top management’s forum for monitoring and controlling the lean transition process. Team members typically include the CEO and his/her staff. The TMAC reviews the progress that has been made vs. the goals that they have set. We recommend that these review meeting be incorporated into the normal weekly staff meetings. This regular meeting, along with the appropriate presentation of the goal curves and “actuals” provides the control mechanism needed for top management to truly steer the lean transformation process. (See “Goal Curves” and “Cause and Corrective Action”)
Total Quality: Form, fit, and function are no longer sufficient criteria for “quality”. A quality product is just the beginning. It must be the right product, complete, and with all the requested options. It must also have reliability, cosmetic appeal, attractive packaging, ship with the correct paperwork, to the right location, to the attention of the appropriate person, at the right time. The order should ship complete. The billing should go to the correct address, and have the correct price and terms. Today, the term quality must be expanded to encompass all aspects of the procurement process that effect overall customer satisfaction. (See “Inventory & Quality”)
Total Quality Lean: The philosophy and set of Lean techniques that are fundamental to World Class quality performance. Lean methodology minimizes inventory, and thereby, lead times throughout the value stream. Minimal inventory means minimal defects when a process problem does occur. Minimum lead times also mean that a defect will be quickly discovered, thereby aiding in identifying the root cause. A more thorough explanation can be found in the article ”Total Quality Lean”
Multiple Lean techniques provide additional robustness to the entire quality process: Sequential inspection, failsafe devices, stop the line / fix the problem, etc.
Total Quality Management (TQM): Systems / methodologies used to assure that internal and external processes will provide “Total Quality”. (See “Total Quality”)
Total Productive Maintenance (TPM): AKA Preventative Maintenance. The concept of preventing equipment failure or downtime by doing all necessary lubrication, parts replacement, etc. as and when needed, i.e. prior to failure. There is an entire discipline related to this subject, and multiple excellent books that expand on the details.
Training: Do a Chapter a Week: There is an incredible amount of Lean and related information available today in the public domain. The problem is no longer availability, it is getting the time and commitment to read and absorb such information. One simple, yet powerful technique is to ask people to “swallow the elephant” by reading one chapter each week. Select some good books / articles and schedule a regular weekly discussion session to talk about the week’s assignment. Use targeted questions, e.g. “How is this concept applicable to our environment?” A variation of this approach is to provide audiotapes / CD’s of the material. This allows employees to “read” the assignment while in the car during the commute to work.
Trial Kitting: A software routine, provided in most MRP / ERP systems. It is a very useful tool. The idea is for the computer to, on paper, “pull” the parts for all scheduled assemblies, to see what kits can be pulled “complete” and what parts shortages affect the other assemblies. Typically, the software will identify shortages, by assembly, and show the promise dates for each shortage. It allows management to see what can physically be build from the existing on-hand inventory without physically pulling parts.
Two-Bin System: A simple form of kanban control. Parts or assemblies are kept in two bins (or bags, or boxes, etc.) When one bin empties, it signals the need to buy or make more. The 2^nd bin provides parts to cover demand during the replenishment cycle. (see “Replenishment System”)
Under-Capacity Planning: The general rule is to never book the plant to 100% of demonstrated capacity (24 x 7). Some reserve capacity is needed to assure delivery performance. On-time delivery must be considered an absolute requirement. Reserve some capacity for the unforeseen happenstance. Pull work forward if needed so that there is no capacity lost if things go well. (See “”Opportunity Capacity”)
U shaped cells: Removing the cues from between operations allows equipment to be located next to one another. Arranging such equipment in a U shaped cell provides several advantages. Product begins and ends on the same aisle. The shape enhances communication. And, a U shaped cell minimizes travel distance, i.e. one operator can “walk” the product through the cell if / when needed. (See “Single Piece Flow”)
Value Add: Those process steps that the customer would be willing to pay for. Most production steps are value adding. Non-value adding steps are things that do not alter the fit, form, or function of the product. Examples of non-value adding activities include receiving, inspections, transaction processing, transportation, de-trashing, product movement, storage, etc. One objective of Lean is the reduction / elimination of all non-value activities. (See “Waste”)
Value Engineering: An engineering effort focused on improving existing products. The term is generally used to denote a focus on cost take-out while retaining product functionality.
Value Engineering: Providing the Resources. We worked with several Engineer-to-Order clients. In each we heard a similar theme: “We don’t have time to do any value engineering” “We always keep a backlog of engineering work to assure are engineers are efficient”. Think of the engineering workload as a sine wave with peaks and valleys. Most companies staff the engineering department to handle the average workload. Backlog buffers the peaks and valleys so all engineers are pretty much constantly doing design engineering. If, however, you man at a level closer to the peak load, backlogs can be kept low (quicker turn around of designs) and the “idle time” can be used for value engineering, product enhancement, new product development, etc.
Value Stream: The entire chain of participants, from basic raw material to the ultimate consumer. It involves suppliers, customers, wholesalers/distributors, retailers, and transportation steps. Since the ultimate consumer price is a function of the cumulative costs of the entire value stream, streamlining it becomes critical. In many industries, the competitive environment has boiled down to one industry leader’s value stream vs. another.
On a more narrow perspective, “value stream” is also used to denote the entire stream of activities required to move a product through the internal events within a company.
Value Stream Mapping: The process of flow-charting all activities required to move a product through the value stream. The focus is then on identifying and removing/reducing the non-value adding activities.
Vendor Certification: The process of validating that a supplier has put in place all necessary process controls required to assure that their products will arrive “fit for use” at the customer’s site. The purpose is two fold: verify quality so that incoming inspection can be eliminated, and assist your suppliers with process control thereby reducing costs. (See “Source Inspection”)
Vendor Stocking Programs: Have the suppliers provide components without the need of the customer to place an order. This powerful technique can effectively remove/reduce several categories of non-value adding activities: requirements planning, procurement, receiving, receiving inspection, stocking, etc. We have had several clients gain 100% of a new customer’s business while charging higher prices! They did this by eliminating many of the customers procurement costs, thereby reducing the “total cost of purchase” for their new customer.
Video Kanban: How do you get the replenishment signal to a distant supplying department? Using cheap TV cameras and monitors can greatly enhance a simple traditional kanban system. Position the camera and monitors such that your fork truck driver can see the kanbans as well as any comments/notes via flip chart or white board.
Visible Data: Keep all pertinent data clearly visible at the work area: schedule, quality criteria, inventory lever vs. goal, on-time completions vs. goal, cross training matrix, notes from the previous shift, tolerances, work instructions, sample boards, etc. (See “Problem / Idea Charts”)
Wall of Fame: Employee recognition is a powerful motivator. One of our clients posted photos of the various work teams, their names, and short story of their successes on a corkboard in the cafeteria where all could see it.
Walkie-Talkies for maintenance operators. On large pieces of equipment, it is often essential for the maintenance operators to communicate sight unseen (for both efficiency and safety). Hands-free walkie-talkie sets can be a helpful tool.
Walk the Talk: What you say will be of far less impact than what you do. Your people will watch you closely to see if you really are willing to do as you say. There will be incidents where making an exception to the principles may make good business sense. However, make sure you weigh the impact on perceptions when making any such decision.
Walk to the Work Station: This technique works well for infrequently built assemblies. Workstations are set up with all parts needed to produce one or more various sub-assemblies. Kanban signals are used to indicate when a sub-assembly needs to be replaced. Then an operator walks to the station and produces it.
Waste: Anything that does not add value, from the customer’s perspective. Ask the questions: “Would the customer pay extra for us to do this?” “Would the customer care if we eliminated this activity?” Constantly push to minimize / eliminate all non-value adding activities from the entire value stream. Note that there are likely going to be certain activities that still must be done that do not add value. (See “Value Add”)
What Would You Do If You Were In Charge? I recall, early in my career, complaining to my boss about how this and that were screwed up. He asked this question. “What would you do if you were in charge?” I told him several things that I’d change. Then he said… “So why don’t you change them? Go see the appropriate people. Take the time to present your case.” All good advice. (See “90% of Authority is Assumed”)
Who, By When. Make this a mandatory meeting procedure. Try not to leave an item of discussion without attaining: Who? Is to do something, and: By When? Is it to be done. Record each commitment. Follow-up. Enforce Accountability. (see “Doneness Criteria”)
Workplace Layout. Utilize all 3 dimensions. Some companies have effectively used pallet racking over the workstation as a place to store point of use inventory. Take the time to look above and below work areas for needed storage.
World Class Manufacturing: A general term encompassing “lean” and all associated disciplines to describe “best in class” performance in all areas.
Zero Defects: A quality initiative based on fail-safeing all processes. The premise is that all defects are related to flaws in the process, and that it is theoretically possible to create processes robust enough to literally eliminate defects. (See “Fail Safe”)
Zero Inventory: An earlier name for “Lean.” See the excellent book “Zero Inventory” by Bob Hall.

“As a company, we need to be faster in all kinds of ways–faster to decide, faster to choose, faster to act….We need to take more risks, act on less perfect information.”

Worth Magazine 2000/02

{ 4 comments }

Moises Covarrubias December 22, 2009 at 8:04 pm: Dears Sirs,

I am very interested to know if you have developed some didactical material to teach some of the above techniques??

Regards
chaovalitt December 30, 2009 at 6:27 am: All of the lean tool kits have lot of vauable. But the user need to be well awared and well trade-off which should be come or implement first to fit the firm and evironmental.

We may have to start from standing, walking then running before leaping….
Chaovalit T
valuestreamguru January 10, 2010 at 6:23 am: Great article – covers all the bases! – while these tools serve different purposes – what tool does everyone consider is the tool that “everyone” in the business should learn and utilize. I’m always surprised by how many people out there havent heard of Pareto for example and when they learn about it they find a whole range of possibilities unlocked!

Once again great article – linked to it from our twitter page
Alphonso Vanhandel February 9, 2011 at 1:53 pm: I simply want to say I am beginner to blogging and absolutely savored this page. Most likely I’m want to bookmark your blog . You definitely come with perfect stories. Thanks a lot for sharing with us your website.

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