Note: For Tools in the M – Z Range, click here.
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. Organized. Shadow boards (example shown below). 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.
The photo below shows a shadow board, an often used tool of 5S to clearly organize and standardize tool locations.
- 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.
- 8 Day Week, 8 day work week, 4 on 4 off: See “Eight Day Work Week.”
You might also want to read our article “Alternate Crewing Schedules” which addresses many other non-traditional crewing patterns. Our post “Making the Case for Additional Shifts” illustrates some significant competitive advantages attained by extending the amount of available work-hours per week.
- 9 Block: A powerful “mind Storming” idea evaluation technique. (See the detailed explanation as well as an illustration at “Nine Block” )
- 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”!
- ABC, Activity Based Costing: 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 demonstrative 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.
- Agile Manufacturing: Another name for “Lean Manufacturing” with a specific focus on quick responsiveness and small lot, customization capability.
- Analysis Paralysis. Time is indeed “of the 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! Choose one and get on with it!
- Andon: See “Opportunity Signals”
- Annual Plant Shutdown A total plant shutdown, used, typically, to use up employee vacation time. The problem with this practice is that it disconnects the customer from the supplier, can cause disruptions (build up of inventory prior to the shutdown and depletion of inventory afterward), and adds unnecessary complexity.
A lean operation is always attempting to linearize production. An annual plant shutdown, and similar policies, have the opposite effect and cause “lumpy” demand.
- Assemble to Order (AKA the “Dell” model): A corporate / product line strategy where the company maintains an inventory of purchased and fabricated parts (and/or sub-assemblies), but waits for a customer order before assembling the final product. This is often a first step toward becoming a more complete “Make to Order” facility.
There are several advantages to assembling to order vs. “Make to Stock.” Components are typically more flexible and lower cost than finished goods. They allow for ease of producing a wide variety of finished model “flavors” without the high cost, high risk (obsolescence) of carrying finished assemblies.
Assemble to order is particularly suited for products that exhibit the classical hourglass configuration: a wide variety of raw components make a limited number of standard subassemblies, which can then be configured to make a wide variety of slightly different finished products. See “Product Structure Types.”
- Autonomation: An adaptation to existing equipment that causes the machine to stop if an abnormal situation arises. Autonomation can be used as a quality control process to prevent the production of defective products. The term is also used to mean that a machine will shut down if it needs maintenance or there is a risk of the machine “hurting itself.”
- Backflush: Typical MRP logic removes parts from raw material inventory when a “kit” is pulled from stock, i.e. when the parts are issued to the shop. 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 raw material 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, 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 two days. If the backlog grows to three days worth of work, 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”!
- BHAGS (Big Hairy Audacious Goals): A term from the excellent business book “Built to Last” by Collins and Porras. The book discusses the power of setting visionary strategic stretch goals to align and motivate the entire organization.
We use this concept in our “Visioning” sessions. We help our client’s top management team “paint the picture” of what the plant / company should look like in 18-24 months. Specific tangible, measurable goals are aligned with this vision, and drive the transformation process.
“A true BHAG is clear and compelling, serves as unifying focal point of effort, and acts as a clear catalyst for team spirit. It has a clear finish line, so the organization can know when it has achieved the goal; people like to shoot for finish lines.” —Collins and Porras, Built to Last: Successful Habits of Visionary Companies
- Bills of Material: Flatten them! 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”)
Deep bills of material cause complexity. And complexity costs a fortune!
Flat Bills of Material are further discussed and illustrated here.
The illustration below is of a “deep” bill of material.
Since this BOM shows no component parts (i.e. only shows assemblies), an equivalent “Flat” BOM for this product would consist of a single level: Bulldozer.
- Blitz: A commonly used (and often abused) term meaning to target an area / process and make rapid significant changes, with minimal study and analysis. A targeted blitz is a powerful technique, 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, microcosms of excellence, but little or no impact on overall company well being. See “Solutions Looking for a Problem” below.
- 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 design 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.
Note that if you are currently a one-shift operation, flexibility can be increased significantly by moving some of your people to a second shift.
- 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 reduce complexity and will greatly simplify capacity planning; in many environments, eliminating 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 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.
- Carrying Cost: See “Inventory Carrying Cost”.
- 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!
- CAVE People: Citizens Against Virtually Everything! Pretty much every organization has a few of these folks. They can tell you every reason why any and every suggestion will not work. They can recite details of some obscure circumstance from decades ago where something remotely similar didn’t work.
The easiest cave people to deal with are those that are vocal and will raise their objections. Much more difficult, are the “passive resistant” folks. They will nod their head appropriately, but then fight the change when out of sight.
The good news is, that when you get a cave dweller to “see the light,” they often became some of your staunchest supporters!
The bad news is that you will occasionally run into a person that is in a critical position and refuses to move forward. Then, as the saying goes “If you can’t change the people, you’ll have to change the people.” You cannot allow the well-being of the entire company to be stymied by one obstinate individual. Sad to say, we have seen organizations where just that took place. Don’t let it happen to you.
- 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 1st floor, punch presses made components used for the various meters. On the 3rd 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 3rd 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 3rd floor. It was placed in the cell. Problem solved.
- 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 1st 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”.
- 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.
It is also wise to look a bit further into the REAL cost delta between foreign sourced vs. an in-house make, or local sourcing. All too often, the true cost of a foreign sourced product is considerably underestimated.
- 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: (AKA Quantity Discounts, Volume Discounts) 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”)
Some companies have successfully transitioned to Lean and attained World Class operating performance, but have not taken full advantage in the marketplace. If you’ve got it, flaunt it!
- Complexity: Anything that keeps us from making exactly what the customer needs, exactly when the customer needs it, is complexity. Complexity costs the typical manufacturing company a fortune! Estimates range from 20% – 40% of sales. Excess complexity is caused by long lead times, large lot sizes, deep bills of material, local “optimization” rules, expediting, etc.
- Continuous Flow Manufacturing (CFM): Another term for “Lean Manufacturing”
- Continuous Improvement: A fundamental focus of “Lean Manufacturing” is the creation and maintenance of a culture of Continuous Improvement. We are always seeking to improve every process: Fast Delivery; On-Time, All the Time; Perfect Quality; and Reduced Cost.
One powerful technique to force continuous improvement is through the focus on inventory reduction and on-time delivery.
- 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. Begin with a mantra of “On time, all the time!”
- 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 2nd 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. (See “Job Rotation”)
- Cross Training Matrix: A schedule showing when each employee is to be trained in a new function.
Note that there is typically strong motivation on the part of supervision to delay / forego the training. You will need some form of monitoring and a way to incorporate this cross training objective into the management reward system.
Also, be aware that any benefits attained via cross training will soon be lost if such a program is not coupled with a similar job rotation program. The skills will need to be regularly practiced if they are to be retained by your employees.
- 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 1st 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.
- Days of Supply: A means of prioritizing your efforts to reduce or eliminate Excess / Obsolete inventory. We typically do this analysis by category, i.e. Raw material or Finished Goods. A standard sort is shown below.
The sum of the quantity on-hand plus on-order is divided by historical usage (or, by your projected usage from your planning system), and converted to days of supply. I.e. if we were to continue to use material at the historical rate, this quantity of material would last us X days.
The list is sorted in descending order based upon “Days of Supply.” Clear accountabilities are assigned to work the list, i.e. identify the items that are to be kept (extenuating circumstances), and recommend a way to dispose of the rest.
The focus is on high dollar, high days of supply items (items 1,3, and 4 in our example). This is a category of “low hanging fruit” that can generate some quick cash with minimal disruption to on-going operations and is usually done in parallel with “leaning” your production processes.
- 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.
- Detrashing: The non-value adding effort required to remove and dispose of packaging from purchased material.
- “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)
- Eight Day Work Week (Four On, Four Off): An alternate crewing pattern that allows for seven days/week operation. Also known as a four crew pattern (each shift has two alternating crews). This pattern and several other non-traditional crewing schedules are explained in our article “Alternate Crewing Schedules.”
Each crew’s work day schedule changes every week. In the example above, crew A will work Monday – Thursday this week, and Tuesday – Friday the following week. Four days on, four days off.
- 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!
- Employee Rewards and Recognition: Many of our client companies have come up with some very creative ways to reward employees. These include traditional favorites like bringing in pizza, “wall of fame” displays, and various forms of gain-sharing.
One unique reward was in the form of recognition of accomplishments by the employee’s own peers. The company held an “open house” on company time. The entire production process was shut down while employees “toured” all areas of the plant (including support and administrative areas). Members of each Work Team were on hand, within their respective areas, to explain charts, graphs, before / after pictures, and results data of what they had accomplished. After employees had completed the tour, a luncheon celebration was held.
There are a couple general caveats worth mentioning. Rewards and recognition can have a de-motivating effect if not done correctly. As an example, make sure that all support functions are recognized, as well as your direct operating personnel. A classic example is the efforts of your maintenance and facilities people, purchasing, engineering, etc. Few shop teams can be successful without the effort and cooperation of these indirect support functions.
In general, we recommend deferring any significant tangible rewards until there is a plant-wide reason to celebrate.
And, we are careful to make certain that all employees participate.
You might also find that books like “1501 Ways to Reward Employees” by Bob Nelson can stimulate non-conventional rewards that will continue to spark enthusiasm.
- 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 1st shift accountable for their schedule attainment if the 2nd shift starts at the same time that the 1st 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 and Process Evolution: One seldom mentioned additional benefit of establishing a lean culture is the impact that it has on the internal evolution of your equipment and processes. Let’s use an example. One steel producing client of ours had installed, prior to our transitioning to lean, a piece of equipment called a CPCM: Combined Pickle / Cold Mill. As you can imagine, it took them several years to smooth out all the issues needed to make this piece of equipment function effectively.
Now compare that process to the evolutionary transition approach forced by Lean inventory reduction. First, scheduling must evolve the capability to provide a coil processing sequence that can be accommodated by both the pickler and the cold mill. Physical constraints that need to be resolved include changeover limitations for gauge, width, processing speeds, and pickler chemistry. Next, the quality between operations had to be outstanding. All of these issues were overcome, iteratively, as the inter-unit inventory was continuously reduced.
Once these were overcome, the only significant challenge remaining was the physical tying of the two units together.
In order to remove the inventory and space between any two operations, all scheduling and change-over issues must be resolved. Similarly, the removal of inventory exposes quality problems and demands their resolution.
The resulting inter-unit “hand-offs” soon lead to automated feeding from one process to the next. The important point is this: In a Lean Transition these obstacles can generally be overcome gradually, one issue at a time. And, the individual processes continue to produce, and customers continue to be served while this transition takes place!
- 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 often 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”)
You might also find our article “How to attain near perfect delivery performance” of value.
- 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?” Our article “Total Quality Lean” explains these and related concepts.
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 “Days of Supply”)
- Five Whys: As a rule of thumb, if you ask “why” five times, you’ll get to the actual root cause of the problem.
- 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 a 70% improvement curve (from history) we would expect that if the 1000th unit produced cost us $1.00, then the 2000th unit should cost us about $0.70. The 4000th unit should cost about $0.49 (.7 * $0.70 = $0.49), etc.
This 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.
- Four Crew Schedule: See “Eight Day Work Week.” This, and other schedule patterns, are illustrated and explained in our post “Alternate Crewing Schedules.”
- 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 our client’s 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!
- Hawthorne Effect: An improvement in employee behavior and performance that is a result primarily of the attention being paid to those people being measured. The name refers to a study done in the 20’s where light levels were manipulated to see the effect on productivity. The surprise came when improvement was seen when light was increased as well as when it was decreased!
Lean concepts and techniques can create and sustain this effect: Natural Work teams with goals and recognition; Management By Walking Around, providing rapid feedback; etc.
- Hoshin Kanri: See “Lean Strategic Planning”
- Hours of Operation, Order Entry: If your customer base covers more than one time zone, it may provide a competitive advantage to staff 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. Check out our article on “Alternate Crewing Schedules.”
- Inhibitors to the Lean Transformation: We’ve been helping companies make the transition to lean manufacturing since 1988. We’ve encountered many obstacles and inhibitors that stop the transition long before the huge potential gains have been experienced. Occasionally a company will achieve significant gains but will fail to institutionalize the process so as to not only retain the gains made, but also sustain the continuous improvement progress.
By far the two most common inhibitors are 1) inappropriate measurements and rewards, and 2) lack of clear quantifiable objectives and accountabilities.
- Institutionalizing the Lean Manufacturing Gains: One comment that we hear regularly from prospective new clients is: “We’ve had a Lean Initiative going for several years now. We got some reasonable gains the first year, but they have all pretty much slipped away since then”.
One cause is the approaching of “Lean Manufacturing” as a “project” and not as a new way of running the business. Another more common problem is that the company’s implementation approach did not include a formal mechanism to sustain and propagate the continuous improvement gains.
We have found two critical ingredients to sustainability: 1) A consistent formal mechanism that keeps top management involved in the process, and 2) Pushing the ownership and accountability down through the organization, i.e. establishing a consistent universal company-wide set of objectives.
Our process utilizes Goal Curves (typically for Inventory Reduction and On-time Delivery) that are reviewed every two weeks by the top management team. Clear ownership and accountability is established for each goal. Cause and Corrective Action is required whenever actual performance falls behind the goal.
If you would like more specifics regarding how our approach might apply to your environment, send us an e-mail or give us a call: email@example.com, 407-299-5245
- Introducing Your Customer to Your Competition: Long lead times and/or poor delivery reliability will often cause your customer to “try another supplier.” You now have the risk that your customer will prefer your competitors’ product or service.
Far more customers are lost due to lead time and delivery issues than are lost due to cost. Do NOT give your customer any reason to try someone else’s’ products. The age old adage in business has always been “Make it easy to buy.” In addition to performing at a consistently high level with quick responsiveness and near perfect reliability, consider other “easy” features like supplier managed inventory (they don’t even have to place an order), Backflush billing (no invoice required), etc. These days, most buyers are extremely busy. Make it so easy to deal with your company that they won’t see any need to “shop” your product.
- 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 of our clients 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 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 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 Hides Waste (Rocks and Water Analogy): We can “cover-up” problems by carrying excess inventory. Doing so reduces the urgency to eliminate those problems. The concept is explained in greater depth in our article “Forcing Continuous Improvement.”
- 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 root 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.
- Job Rotation: The primary purpose of cross training is to provide flexibility. It gives us the ability to move resources to products or functions as needed. However, cross training rapidly loses its’ value if people do not, regularly, perform their alternate tasks. As the term implies, “Job Rotation” means that employees rotate through all of their trained operational functions on a regular, scheduled, basis. Doing so allows your people to stay sharp, via practice. Just as we advocate a cross training matrix to increase your people’s skills, a job rotation schedule is also required so that your people will retain these necessary skills.
- Job Shop Lean : Job Shops typically run small runs. Some products are one-time only. In this non-repetitive environment, many of the traditional lean tools do not apply.
One extremely successful methodology utilizes the scheduling system (MRP / ERP) to accomplish the same lean manufacturing objectives. Lead times and lot sizes are reduced, and emphasis is placed on hitting every operational due date. A detailed explanation of the job shop transformation process is available in our post “Making Lean Happen in a Job Shop.”
- 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)
- Kaizen: Japanese term for Continuous Improvement.
- 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 Systems”)
- Kanban “Blitz”: A concentrated improvement initiative typically focused on the inventory between shop or office areas. The effort can require anywhere from two to five days depending on complexity. The intention is to initiate a functioning kanban control system.
Form inter-unit 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”)
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 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 projects / activities 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.
This list will typically include cross training, SMED, 5S, etc.
- 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. Etc.
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 worked with UPS to delay the pickup until 5:00 PM. The end result: Eliminated $600,000 of finished good inventory, and went from a 2 day lead time (filled from finished good stock) to an “Order by 2:00 PM, 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 Work In Process 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. Note that this method includes the slow or non-moving inventory hidden in WIP. This is the low hanging fruit that should immediately be pursued. It’s the stuff that needs repair, split lots that hang over in WIP, cancelations, etc.
- 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 work hours available each day. 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 1st to 2nd 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 2nd shift, the lead time is now 2 days. Operation A is done day 1, 1st shift. Operation 2 is done day 1, 2nd 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 2nd shift, the shifts can be balanced through longer term policy rules: Require that all new hires be added only on 2nd 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 Accounting: The transition to a Lean operating environment greatly simplifies operations. The difficulty is that, while the information is generally more accurate than before, it is not as detailed. RIP (Raw and In Process) lumps together the two previously separate categories of Raw and Work-In-Process inventory. We’ve traded locked stockrooms for “point of use.” Cells collect total labor costs, but not the costs of individual processes, etc.
It may take a little time and experience for your CFO to adapt to these seemingly radical changes. (see “Accuracy vs. Precision” and “Activity Based Costing, ABC”)
- Lean and Safety: We had just conducted a brief lean overview introduction for all employees at a steel finishing plant. That evening we ran into one of the plant operators and started a conversation.
“We’d discussed a few reasons why we believe it is important to drive down inventory,” I said. “What reasons do you see for reducing inventory?” I asked.
Without hesitation he said “Safety.”
When we asked him to elaborate, he told of how his friend had been recently killed. “He stepped out from behind a stack of coils, and a ram truck hit him.” He said.
It turns out that the plant had been double stacking coils, and had even been placing them over the aisle markers. The employee could not be seen by the ram truck driver.
Within a month we had the rule in place “No double stacking coils. No coils to extend over the walk-way markers.” These were our first informal kanban controls.
Safety, area lighting, air movement, lead times, and coil damage all improved significantly with this one simple step.
Bottom line: High levels of inventory generally pose a safety hazard. Just one more extremely important reason to drive the inventory out of the system!.
- Lean Implementation Problems: The transition from a “traditional” to a “lean” operating philosophy is not easy. While there are real physical issues to be overcome, the vast majority of impediments are “people and/or political” in nature. Discussion / education of top management, and often, the board of directors, as well, is required to get conflicting measurements and reward systems changed.
A systematic, company-wide approach will generate very large tangible bottom-line results within months of kickoff.
- Lean Management: Good management is good management in any environment: There are a host of excellent books written on this subject. We will try to focus on those key attributes needed for a successful transition to Lean Manufacturing, and to sustain and propagate the gains.
Focus on the customer. Set high expectations. Provide direction via clear objectives (i.e. establish a perceived need); With a sense of urgency. Push those objectives down through the entire organization.
Ask probing questions. Hire good people and get rid of marginal folks. Be consistent and fair. Walk the talk and MBWA. Be honest and open (share information). Provide only a few global measurements. And institute a consistent reward system that optimizes the entire organization. Hold people accountable.
Take personal ownership and responsibility. Understand the overall lean philosophy and leave the techniques to your people. Avoid the “program du jour” syndrome. Get rid of any “unit optimization” measurements.
- 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”)
Here is a link to our brief video overview Lean Manufacturing 101
- 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 30 to 1. (See “How to Choose a Lean Consultant”)
- Lean Manufacturing Implementation Problems: The transition from a “traditional” to a “lean” operating philosophy is not easy. While there are real physical issues to be overcome, the vast majority of impediments are “people and/or political” in nature. Discussion / education of top management, and often, the board of directors, as well, is required to get conflicting measurements and reward systems changed.
- Lean Manufacturing Results: What should you expect from a well executed Lean transition? Within the first 12 – 18 months you should expect 1) Cash generation, (Your transition should not only be self funding. It should be a large net cash generator!) 2) Dramatic company-wide improvement in lead times and on-time delivery, 3) An order of magnitude reduction in your internal cost of quality, and 4) A significant, but delayed, increase in profitability.
In addition, the transition should have altered management’s understanding, as well as the measurement and reward systems, so as to create and enforce a culture of continuous improvement.
- Lean Strategic Planning: Lean Manufacturing is not just about the elimination of waste and the corresponding reduction of costs. A successful transition to Lean provides world class quality, fast / agile responsiveness, and near perfect delivery performance.
Lean Design means component standardization, modularization, cooperative design for producability, and on-going value engineering of existing products. A Lean New Product Development process allows for fast new offerings that can capture new markets and increase the share in older markets.
Lean Procurement means minimal raw material inventory, perfect quality (no incoming inspection), point-of-use frequent vendor deliveries, supplier managed replenishment, cooperative new product development, backflush in place of receiving transactions, pay-on-shipment agreements, vendor risk mitigation strategies, total cost of procurement measurement (not PPV), etc.
Lean Finance means simplified and streamlined accounting. No more waiting 5 days for month-end “closings”, up-to-date accurate financials are available at any time, activity based costing (ABC) for allocation of overhead, quick and easy “what-if” analysis, etc.
Lean Sales and Marketing means forward pricing to grab share, counter-cyclical products and markets to balance seasonality, joint customer new product development, and overall leveraging of the Lean gains in the marketplace.
We ask our client’s management team to “paint a picture” of what the company should look like in 2-5 years (the corporate “Vision”). This is not just the usual verbiage “A leader in our industry, …” It is as specific as we can make it: e.g. “lead times of 3 days on custom products, 99.5% delivery to our original promise date, 24 hour, or less, turn-around on all quotations, etc.”
Measurements and Rewards are aligned to these objectives. Corporate goal curves are then set. These provide the first major step toward the achievement of the ”Vision.” Goal curves drive the transition process.
- Lean Supervision: In a Lean environment, the role of production supervisor often changes to more of a working supervisor / team leader / facilitator. He/she provides direction, communicates, provides training, cross training, job rotation, teaming skills, enforces the kanban limits, and helps the team hit its goals. Suggested reading: the books Zapp and Heroz by Byrum and Cox. See the “Peter Principle.”
- 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 “The 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).
This concept is further explained in our post “Smoothing Customer Demand”
- 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.
Caution: we went into an extremely well lit factory a few years ago; Or, so thought! Turned out that the plant was well lit on DAY SHIFT only, due to sky-lights. At night the plant was a cave!
- Load Profile: A graphic presentation of the shop load projected for future periods for a specific department or equipment category. The load projection is generated as a result of the MRP detailed schedules or from the master production schedule (MPS). All products scheduled to be produced in a department in a specific time bucket are multiplied by the bill of labor “standard hours” and totaled by time period. This total is then compared to the available hours.
The load profile allows the production scheduler to provide valid order promises to customers and provide credible schedules for operations.
The illustration below shows a typical load profile for the equipment category “small mills.” In this circumstance, the production scheduler would avoid loading any more requirements into period two unless he/she could increase the available capacity.
- 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. The transition frees up cash via inventory reduction. Make sure that some of that cash is allocated to resolve this and similar issues. (See “Equipment Isolation”)
- Lot for Lot: A lot sizing rule where the lot size is equal to the net requirement, i.e. there is no increase in the recommended build / buy quantity. Make or buy exactly what is recommended by your requirements planning (MRP) system.
From a lean perspective, Lot For Lot is the recommended lot sizing rule unless there are serious extenuating circumstances: Make just what is needed, just when it is needed.
- 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”)
For a quick, efficient tool used to reap the Low Hanging Fruit in Raw Material or Finished Goods, take a look at “Days of Supply”
- Note: For Tools in the M – Z Range, click here.