Lean Manufacturing & Management

Lean Manufacturing Topic of the Day:  How to Optimize Your Entire Plant

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

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

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

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

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

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

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

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

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

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

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

So, how would a traditional manufacturing plant run production?

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

Inventory isolates operations

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

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

So?  What’s the problem with that?

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

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

minimizing inventory between operations makes them dependent

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

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

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

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

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

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

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

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

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

Yet, in practice, total costs universally come down!

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

Eliminate all “unit optimization” measures.

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

Build in Flexibility.

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

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

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

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

All the best on your lean journey.


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

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

We’ve got a track record of continuing dramatic bottom-line successes since 1988!   Drop us a note, or give us a call.
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