Lean Supply Chain and Logistics Management, page 12
According to an Aberdeen Group study in 2010, entitled “S&OP—Strategies for Managing Complexities with Global Supply Chains” by Nari Viswanthan, four key performance criteria distinguish best-in-class in terms of S&OP. They were:
1. Forecast accuracy
2. Perfect orders delivered complete and on time
3. Cash-to-cash cycle
4. Gross profit margin [Viswanthan, 2010]
All of these, especially the first three, are measurements of how Lean a company is in that the lower the score, the more “variability” your system has which leads to many of the wastes we have discussed.
Working Together
Dougherty and Gray in their 2006 book Sales and Operations Planning—Best Practices, point out that, in a study of 13 best practice companies, Lean and S&OP help each other. According to Malcolm Jaggard, director of supply chain management, AGFA US Healthcare, at one of their best practice clients, “continuous improvement is embedded in the S&OP process, and continuous improvement cannot be maximized without S&OP.”[Dougherty and Gray, 2006]
Furthermore, the authors point out that:
If you create a manufacturing environment where material flows with minimum waste (Lean), but you can’t predict capacity and material availability problems in enough time to avoid them (S&OP), you will inevitably revert to firefighting, finger-pointing and poor results. Similarly, if you do an excellent job of future planning but have poor flows, you can almost count on higher inventory levels, longer lead times, and lower profitability… Traditionally lean manufacturing has been stronger on workplace management; S&OP on decision-making for the future. The tools and methods of lean manufacturing have tended to look most closely at the plant, and its immediate customers and suppliers, mostly over a short horizon. This leads to improvements like: “shorter, quicker, fewer, lower cost, more flexible, and better aligned.” S&OP provides distance vision—providing the ability to predict capacity and material availability problems before they become crises, to identify market issues while they are still opportunities, and to prioritize improvements in a way that will create the most favorable results. [Dougherty and Gray, 2006]
Tomorrow’s supply chain will be driven, among other things, by effective S&OP, which allows for effective supply chain planning, balances new and current products and services, employs timely and effective replenishment, enables timely success/failure measurement, and, with the help of technology, can generate data/analysis/correction.
When S&OP is implemented in a company that is focused on a team-based continuous improvement process, from top to bottom, success can be ensured.
CHAPTER 11
Getting Started: Lean Forward
So far, we have discussed many of the concepts and possible applications in supply chain and logistics management. This leads to the question “where do we start the Lean journey?”
Lean Opportunity Assessment
In many cases, the best place to start your journey is to perform a Lean opportunity assessment (LOA) to help identify the potential for improvement in your organization (a useful template, Appendix B, accompanies this book). In this type of assessment, you should identify and analyze various aspects of your company from a Lean perspective and rate them against best practices.
In our template (and there are many variations on this type of assessment), we look at various key performance areas and rate them anywhere from “traditional supply chain and logistics” (i.e., “beginner”) up to “world-class supply chain and logistics management.”
The areas recommended for evaluation are:
Internal communication
Visual systems and workplace organization
Operator flexibility
Continuous improvement
Mistake proofing
Quick changeover
Quality
Supply chain
Balanced production
Total productive maintenance
Pull systems
Standard work
Engineering
Performance measurement
Customer communication
Users then rates their performance in each category on a scale from 1 to 5 and compare to Lean best practices to see where general opportunities for improvement exist.
Value Stream Mapping
While an LOA is a good first step, in order to actually identify, plan for, and make the improvements, you need a road map. The perfect road map for Lean is what is called a value stream map (VSM).
A value stream is the set of all actions (both value-added and non-value-added) needed to deliver a specific product or service from raw material through to the customer.
A VSM is typically the initial step your company should take in creating an overall Lean initiative plan. By developing a visual map of the value stream, it allows everyone to fully understand and agree on how value is produced and where waste occurs. It should be noted that in many cases, after company-wide general Lean introduction training, many companies start instead (or at the same time), with a 5S program, which as mentioned before is a good foundation concept and useful in transforming the company’s culture from the bottom up.
Historically, businesses used flowcharts, which show the movement of materials, time function maps, which show flows and time frames, and process charts, which use symbols to show important activities. While these were adequate, they were typically done by individuals (often consultants) who interviewed various parties in a process in order to document it.
In many cases, this type of process mapping is used to enable business process reengineering (BPR), which is a total rethinking and redesign of a process. It was very much in vogue in the 1980s through 1990s, when companies were dramatically consolidating and outsourcing, resulting in large numbers of plant closings and layoffs in manufacturing.
This is in contrast to the concept of incremental change or continuous improvement, as it does not give any indication as to whether individual activities are value-added or non-value-added, especially from the viewpoint of the customer. That is one of the many improvements when using VSM, along with the fact that some data is also gathered to help to quantify the waste in an entire value stream from customer to supplier.
Value Stream Mapping Defined
VSM is a team-based approach to mapping a value stream or process from beginning to end. It visually (and numerically) breaks the process down into value-added and non-value-added steps from the viewpoint of the customer. Typically, you should start at the customer end and work your way back to the supply end. It is best to have a diverse team of employees (no more than 8 to 10) who are usually supervisory and management level (although front-line employees will be involved in the mapping process as well). It should take no longer than 2 days; 1 day for training and the current state map and the second day (usually a week or so later) to create the future state map. The entire process, including implementation, should be completed in less than 6 months at most (if not sooner).
The team first maps the current state, while at the same time gathering ideas and input for an improved, future state. The maps are drawn using standard symbols (easily found on the Internet) showing the flow of materials (shown at the bottom of the map) and information (at the top of the map). It should typically take no more than 1 day to map a processes current state, and this is really a “10,000-foot” level view so it should not be too detailed (but information should be validated).
The future state map, using data contained in the first, is the same value stream with any waste, defects, and failures eliminated.
It is usually best to put some time in between doing the current and future state maps to give time for the ideas to germinate.
Before starting on the current state map, it is important to determine:
1. The value stream you are mapping
2. The product families that will be included
3. The takt time for the selected product family
4. The value stream manager
5. Your goals and objectives
Value Stream Mapping Benefits
There are many benefits to VSM, especially when compared to the other methods described in the previous section.
A VSM shows the various connections between activities, information, and material flow that can impact the lead time of your value stream, allowing you to separate value-added activities from non-value-added activities and then measure their lead time.
It can also help employees understand your company’s entire value stream rather than just a single part of it, as people tend to get tunnel vision or a “silo mentality,” which is counterproductive when trying to implement Lean. VSM also provides a way for employees to easily identify and eliminate areas of waste.
At the same time, VSM can improve the decision-making process of employees by helping team members understand your company’s current practices and future plans.
Other benefits include:
Establishes priorities for improvement efforts
Focuses on no-cost or expenseable improvements
Provides a common language to talk about the processes
Is based on objective information
Forms the basis of an implementation plan
Value Stream and Product Family
Usually, the value stream selected to map for the first time, is a process within the four walls of your company. However, in the case of supply chain and logistics management, this may not always be the case as the supply chain connects us with our suppliers and customers. We may be mapping a process in our warehouse or distribution center, or a process such as purchasing and/or transportation, which is directly related with our suppliers.
In any case, it is important to first narrow the scope of our VSM to a specific product family. A product family consists of products or services that have mostly the same steps. That does not mean that all the products or services have to have all of the same steps (just mostly the same steps!).
Takt Time
As discussed earlier, takt time, which is the demand rate for a product or service family, shows the pace for each activity in the value stream and is useful in identifying bottlenecks, which constrain or limit capacity. In a VSM, the takt time is usually calculated in minutes or seconds (i.e., the need to ship so many units every so many minutes or seconds).
Value Stream Manager
Every team needs a quarterback and each value stream needs a value stream manager. For product ownership beyond functions, you should assign responsibility for the future state mapping and implementing lean value streams to line managers with the capability to make changes happen across functional and departmental boundaries. Value stream managers should make their progress reports to the top manager on the site.
Goals and Objectives
It is a good idea to create a “steering committee” to manage and support the Lean journey. This is especially true in the case of VSM, as it sets the direction of the company and drives individual kaizen events.
It is also critical that the goals for the VSM and subsequent kaizen events tie to the company’s strategic and operational goals. This usually is not too hard to do as long as the company has established these goals. Typically, they can include metrics covering quality, manufacturing, supply chain and logistics, and customer service to name a few. Specifically, they may measure things like inventory turns, on time and accurate shipments, cases/hour handled, etc.
In a more general way, when setting goals and objectives, the team should be asking questions like:
What does the customer want in terms of the cost, service, and quality of our products/services, and which objectives and goals established by our company meet these market needs?
What processes greatly impact the performance of these products and services?
Who needs to support this effort?
Steps to Creating a Current State Value Stream Map
While there are standard “icons” that are used in VSM (easily found on the Internet), there really is no “standard” step-by-step methodology to the actual mapping process. In general, you should:
1. Have individual team members do a “quick and dirty” map of the major processes in a value stream by themselves and then as a group, compare maps, and reach a consensus. This should typically just include the individual processes (from customer to supplier) to make sure that none were missed. It is always useful to draw the major activities on a whiteboard once they have been agreed to at this point.
2. Assemble data collection forms (to be discussed shortly), pencils, “yellow stickies,” and a stopwatch for collecting data.
3. Select a product family (or service) to map. Conduct a quick tour of the value stream to view the end-to-end material and information flows, making sure you have identified all the component flows (it is usually best to start in shipping and work your way back). Always let operators know in advance about the tour so that they don’t work any faster or differently than normal. During this time, it is important to observe and ask questions and to start thinking about the “future state.” These ideas should be captured on the “yellow stickies.”
4. Identify a representative customer(s) of the product and gather data about typical order quantities, delivery frequencies, and number of product variations (will be used to develop takt time).
5. Assign team members individual value stream activities for which to collect data using the data collection form.
6. Begin mapping the detailed value stream, (using Lean icons), starting with customer requirements and going through the major production activities. The result is current state value stream map (information flow on top, material-flow in the middle, and a lead-time chart at the bottom of the VSM, showing value-added and non-value-added production lead times).
7. Review the map with all the employees who work in the value stream you have mapped to ensure accuracy (see Fig. 11.1 for current state VSM example).
Figure 11.1 Current state value stream map example.
8. Review the map with upper management before proceeding with the future state mapping process.
Data Collection
When doing VSM in supply chain and logistics management, in some cases, it may be more like a “traditional” VSM in manufacturing, where you look at the inventory that is built up between processes as non-value-added and convert the quantities to days or even minutes using the takt time. However, in both the office and warehouse, it is typically more important to look at inventory “dwell” time between processes as a better indication of waste.
In a warehouse or distribution center (DC) it is important to see how long inventory sits between receiving and put away, picking and staging, staging and shipping, etc. It is always a good thing to also measure the amount of inventory between steps, but in many cases, the DC may have no control over the amount of inventory (a VSM and kaizen event for another day with corporate buyers and purchasing managers!). It really depends on how far upstream you take your value stream.
In the office, dwell time is important between steps as the longer information such as orders sit, the longer the order-to-cash cycle becomes.
The type of information gathered to develop a VSM also varies somewhat from an office situation versus the DC (see Fig. 11.2). The reality of mapping in a supply chain and logistics management environment is that it is usually a combination of office and warehouse (including transportation) value stream.
Figure 11.2 Supply chain and logistics management VSM data collection sheet.
The data collection form shown in Fig. 11.2 gives you a good idea of the type of information required to create a VSM. Once the data is collected and displayed on a current state VSM, along with information flows, the team can get a good idea of where improvement opportunities exist.
The actual layout of the current state VSM can be seen in Fig. 11.1. The value stream is mapped from customer to supplier as previously mentioned. Data boxes are completed with information gathered for each process or activity in the middle of the map (with either inventory or dwell time between the activities), information flow shown on top, and individual and system-wide lead times (value- and non-value-added) at the bottom.
As the team discusses and reaches consensus that the current state map is accurate, they start to identify areas for improvement with the goal of reducing non-value-added activities. These opportunities are highlighted by “kaizen bursts” (shown previously in Fig. 11.1).
In our example of the current state map for a purchasing process, the team found many opportunities to reduce non-value-added steps, such as a lengthy quotation and approval processes, which could potentially be improved upon.
Future State Value Stream Map
The future state map attempts to create a flexible, agile system that quickly adapts to ever-changing customer needs, eliminates waste, minimizes handoffs and “silos,” and triggers resources only when needed (see example in Fig. 11.3).
Figure 11.3 Future state value stream map example.
