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.
The photo below shows a shadow board, an often used tool of 5S to clearly organize and standardize tool locations.
Note: The remaining 20% of the gain might still justify the additional 80% of the expenditure, but the alternative solutions are worth understanding.
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)
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.
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.
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.
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!
A lean operation is always attempting to linearize production. An annual plant shutdown, and similar policies, have the opposite effect and cause “lumpy” demand.
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.”
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.
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!
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.
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
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.
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.
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.
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.
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”)
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.
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.
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.
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.
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”.
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.
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.
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.
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!
One powerful technique to force continuous improvement is through the focus on inventory reduction and on-time delivery.
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)
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.
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!
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.
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”)
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.
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.
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.
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.
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.
Getting agreement on this critical parameter can be the difference between completing a project on time, and missing the due date.
Do what you can, with what you’ve got, where you are, right now! (See “Silence is Acceptance”)
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.
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.
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.
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.
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”)
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”)
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.
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.
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”)
Reserve capacity. Standardize components. Etc. (See “Rubber Factory”)
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.
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!
By far the two most common inhibitors are 1) inappropriate measurements and rewards, and 2) lack of clear quantifiable objectives and accountabilities.
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
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.
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.
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.
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)
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”)
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.
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”)
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.
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”)
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.”)
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.
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.
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.”
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”)
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.
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 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.
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”
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!
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.
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.
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”)
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”