Lean Supply Chain and Logistics Management, page 8
During the shift, observations are made as to how the equipment is running. The observations are broken into three categories: performance efficiency, availability, and quality. Within each category are specific reasons for slowdowns, stoppages, breakdowns, and quality issues. This information is put on an OEE observation form (Fig. 6.9).
Figure 6.9 OEE observation form.
After the shift is over, the various observations are tabulated and separated into each of the three major categories to come up with an overall OEE percentage for the piece of equipment observed. As with a changeover kaizen event, a video is helpful in TPM to see more detail.
An analysis of the major losses (Fig. 6.10) is then performed, which shows the most productive place to begin an improvement process. In this example, you can see that most of the major losses are breakdowns, thus narrowing down where you should look to improve equipment peformance.
Figure 6.10 Analysis of major losses.
Once you have determined the major source of waste or losses, you can use a Pareto analyis to get to the root cause of the waste (Fig. 6.11). In this example, over half of the breakdowns are in the load arm. By solving this one issue, you can make major progress.
Figure 6.11 Pareto chart of breakdowns.
The team, which should be made up of a variety of people, including maintenance personnel, engineers, and leads, should meet to discuss the major causes of waste and how to reduce or eliminate them. The solutions can range from simple, inexpensive solutions called countermeasures (e.g., putting a filter over a motor to reduce the buildup of dirt and grease coming in to it), to daily, weekly, and monthly PMs (some performed by the operator and others by mechanics).
All of these solutions should be put into an improvement plan, which describes the problem you are going to improve, a list of questions you have, a summary of action steps, and a plan to monitor improvements.
TPM can be applied in the office as there is plenty of technology that can affect productivity, such as computers, copiers, and fax machines, to name a few. Same goes in transportation and distribution where everything from carousels, forklift trucks, automated storage and retrieval systems (ASRS), pallet wrappers, and radio frequency (RF) devices can affect productivity.
Lean Analytical Tools
There are many analytical tools that can be used in Lean, some of which are used in TPM as mentioned earlier. They can best be divided into categories of tools for (1) gathering, (2) organizing, and (3) identifying problems.
Tools for Gathering
The tools for gathering data include simple check sheets, scatter diagrams, and cause-and-effect (or fishbone) diagrams.
Check sheets are simple “chicken scratches” to organize data; scatter charts are basically a graphical view of the relationship between two variables; and fishbone diagrams (called that because they are shaped like a fishbone) show process elements or causes of an outcome or effect. These are useful tools for teams to brainstorm improvement ideas by first trying to come up with possible reasons for waste.
Tools for Organizing
The tools used for organizing data include Pareto charts (Fig. 6.11) and flowcharts.
Pareto charts use the 80/20 rule (discussed previously), which states that a relatively few number of items typically generate a large percentage of sales or profits. This can apply to problem solving as well, as typically a small number of types of issues generate a large proportion of problems or waste. So a Pareto chart or graph identifies problems or defects in a descending order of frequency. On the other hand, a flowchart visually shows the steps in a process.
Tools for Identifying Problems
Tools for identifying problems may include the five whys, histograms, and statistical process control (SPC).
The five whys is a method whereby you ask a series of questions in order to get to the root cause of a problem or defect. The idea is that the answer to each question leads you to ask another “why” until you get to the source of the problem.
Histograms are a graphical way to show the distribution of the frequency of occurances of variables, such as problems or defects.
SPC is a huge subject, of course, and one of the major tools used in Six Sigma to minimize variability in a process. In general, SPC utilizes both statistics and control charts (that indicate whether a process is in a state of statistical control) to tell when you need to take corrective action. It can be used for process improvement as well.
There are four major steps to SPC. First, if you don’t measure a process, you can’t control and improve it. A control chart has upper and lower control limits (UCL and LCL). If samples are within those bounds, then the process is viewed to be “in control.” Second, before making a change to a process, make sure that you have an assignable cause. Third, you should try to reduce or eliminate the cause of the problem or defect and fourth, restart the revised, improved process.
In terms of supply chain and logistics, many of the Lean Six Sigma tools mentioned above can be used to identify, analyze, and minimize variation in areas such as inventory control, forecast, customer demand volatility, and on-time delivery, to name a few.
For example, a client of mine manufactures helicopter accessories. The team identified waste in their receiving area that slowed down the receiving and put-away process. They determined that the wastes were caused by three major categories: suppliers, resources, and workers. To both validate this and gather data, the team had receiving personnel collect data for a month. They then used the Pareto principle to segment the major wastes in each of these categories, and then a kind of informal “fish bone” to determine the major causes of the largest waste within each category (see Fig. 6.12). So in the example shown, the data indicated that the largest supplier-caused waste was missing paperwork. Then, they drilled into the collected data to determine the major causes of missing paperwork were missing certification (58 percent of the occurances) and blue/yellow tag (20 percent). Subsequent next steps and action items were taken to work with suppliers and internally to eliminate the two largest causes of missing paperwork, which made up 78 percent of the identified waste—a real improvement.
Figure 6.12 Receiving kaizen event example.
In general, using many of the tools described in this chapter, Lean Six Sigma teams (and teams in general) can follow five problem-solving steps to quickly identify root problem causes, develop solutions, and put in place procedures that maintain those solutions. A formal Six Sigma model used for process improvement is known as DMAIC, which stands for:
Define—Identify the customer requirements, clarify the problem, and set goals.
Measure—Select what needs to be measured, identify information sources, and gather data.
Analyze—Develop hypotheses and identify the key variables and root causes.
Improve—Generate solutions and put them into action, either by modifying existing processes or by developing new ones. Quantify costs and benefits.
Control—Develop monitoring processes for continued high-quality performance.
All of the tools and methodologies discussed in this chapter are very useful for getting to the root cause of problems and defects, but in order to make them work for you, there has to be a team-based continuous improvement culture in place, which is described in Chap. 10.
CHAPTER 7
JIT in Supply Chain and Logistics: This JIT Is Good
Much has been made of the usefulness of Just in-Time (JIT) as a Lean manufacturing tool through the years. It has been applied throughout the manufacturing process to minimize waste with much success. In terms of supply chain and logistics management, however, there is still tremendous untapped potential. As result, it is a good idea to devote an entire chapter to the subject.
As we know, inventory acts as a buffer between your internal processes—between you and your customers and between you and your suppliers. It is kind of a “necessary evil” because of variability and uncertainty in the system. In terms of your supply chain management (SCM) function, it is in place to compensate for forecast error, variability (and length) of lead times, inventory inaccuracy, order size minimums, damages, pilferage, shipment errors, etc.
While there has always been an emphasis on cutting SCM costs as it is easier to reduce costs a little than increase sales a lot for the same contribution to the bottom line, it has gotten harder and harder to “get blood from a stone.” That’s where Lean and continuous improvement can help your organization to keep its eye on the prize.
Areas of Focus
With today’s global sourcing, there is an even greater need to efficiently manage inventory in the supply chain. As a result, there is a tendency to carry excess safety stock to help compensate for this. This excess safety stock actually costs the company money via carrying costs, which can be in excess of 20 to 30 percent of the cost of the inventory, so it is important to get to the root cause of the variability and reduce or eliminate it so as to minimize this inventory.
Typically, the sourcing or purchasing manager tends to try to reduce the company’s material costs as much as possible. This leads to buying in larger volumes. The same goes for the logistics manager, who also focuses on low cost and reliability in the transportation and distribution network.
However, when your operations are JIT-based, you still need to focus on cost and reliability, but other dimensions are now added, such as flexibility and agility to meet rapidly changing customer shorter-term demand.
In a JIT environment, the focus is on lower total cost, not just lower per-pound or unit raw material cost. You need to look at other aspects, such as transportation, handling, storage costs, etc., and at new types of relationships with suppliers (including material, transportation, distribution, and 3PL partners). Logistics managers must consider shipping in smaller and smaller quantities, more frequently using less-than-truckload (LTL), 3PLs, freight forwarders, and consolidators. By focusing on lower total cost, you can somewhat offset the higher transportation and handling costs of smaller loads and get the benefits of lower storage and overall carrying costs.
You now need to develop more of a partnership with your suppliers where they can do more than give you the lowest price and best quality. Again, you need to consider total cost based upon not just unit price and transportation costs, but overall carrying costs and the price of inflexibility to your company. You should be able to set up JIT relationships in which materials can be resupplied based upon downstream “pulled” requirements.
There is, of course, a lot of risk with the extreme partnering of single sourcing” material as we saw during the 2011 earthquake and tsunami disaster in Japan. Many manufacturers and distributors are being affected by shortages as a result of this horrific event as first-, second-, and even third-tier suppliers have parts that are sourced in Japan, especially in the area of high-end highly technical parts like semiconductors, which also are very small and light. Additionally, they typically ship by air so manufacturers don’t have to keep much of a buffer for those products.
The lesson to be learned here is that JIT still makes sense, but it has to be applied strategically. If, for example, you purchase some kind of semiconductor (20 percent of which are made in Japan), you should consider having a secondary supplier outside of Japan, even though you may pay a bit more per unit.
Network Design
If you have a fairly complex supply and demand network, it is usually best to first look to optimize your overall distribution network design based upon these new JIT goals to make sure that your entire network (i.e., procurement, manufacturing, transportation and distribution) is designed to support this strategy (note: it is not a bad idea to do this on an annual basis, as it can lead to significant cost reductions and improved service levels).
Typically, a network analysis can be a complex undertaking done by consultants. However, with the advent of improved, lower-cost technology, the cost of doing this has dropped dramatically. Some examples of this software include IBM’s ILOG, Axxom’s ORion-PI, Oracle’s Strategic Network Optimization, MicroAnalytics Opti-Site, to name a few (visit http://www.lionhrtpub.com/orms/RD/products.html for a larger list).
Integration of Resources
In Principles of Supply Chain Management—A Balanced Approach, Joel Wisner et al. point out that there is really an “evolution” that a firm must go through to institute Lean with JIT internally first, then vendor-managed inventory (with suppliers) and quick response (QR)/efficient consumer response (ECR; a form of VMI used to manage customer’s inventory of your product), which are really external expansions on the idea of JIT. The stages of JIT are:
Stage 1—Firm is internally focused and functions are managed separately. This functionally focused silo effect is reactive and short-term goal oriented.
Stage 2—Firm integrates efforts and resources among internal functions.
Stage 3—Firm links suppliers/customers with firm’s processes.
Stage 4—Firm broadens supply chain influence beyond immediate or first-tier suppliers and customers. [Wisner et al., 2009]
There are significant challenges in getting from the first stage to the fourth. We have to realize that managing a supply chain is not easy, as it is usually a geographically dispersed network with conflicting objectives across the supply chain. There are many conflicting objectives among the participants (e.g., manufacturers produce and ship in relatively large quantities and retailer wants small shipments fairly frequently) with a lot of uncertainty and risk inherent in the system. Also, information tends to get distorted as it is passed among the supply chain partners (think of the “telephone” game you played as a child).
Lean supply chain relationships develop where suppliers and customers work to remove waste, reduce cost, and improve quality and customer service. JIT purchasing includes delivering smaller quantities, at right time, delivered to the right location, in the right quantities. Firms develop Lean supply chain relationships with key customers. Mutual dependency and benefits occur among these partners.
Walmart and Dell: Examples of JIT in the Supply Chain
Walmart and Dell are two prime examples of a Lean supply chain. It is best to look at how they accomplished this so that we can all learn where to look in our own businesses.
Walmart was one of the first retailers to collaborate with suppliers in the late 1980s/early 1990s with their Retail Link system. Having worked for several of Walmart’s larger suppliers, Unilever and Church and Dwight (Arm & Hammer), during that period, I can discuss my experience with Retail Link firsthand.
Walmart’s Retail Link was an early way of sharing point of sale (POS) data, distribution center inventory levels and shipments to retail information, as well as working collaboratively to improve forecasts. In addition, Walmart is a heavy user of cross docking, which involves the unloading of materials from an inbound truck or railroad car and then loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between (typically, this all happens within 24 hours). They also use radio frequency identification (RFID), which uses a radio frequency (RF) device to read data from an electronic tag attached to an object, for the purpose of identification and tracking.
More recently, according to the article “Walmart takes back its Supply Chain—IT in the Spotlight” by Frank Hayes, Walmart is planning on increasing the use of its own vehicles to pick up merchandise right at the suppliers’ shipping docks. While this is not new (it is known as “backhaul”), it can help them to cut their wholesale costs by as much as 6 percent and, perhaps more importantly, get better control over their inbound inventory (i.e., when and how it arrives, and how quickly it can be turned around). Currently, Walmart tracks pallets as soon as they are delivered to the distribution center (DC), where the RFID tags are scanned and the information linked to EDI information, which shows what should have been shipped. In the case of backhauls, with Walmart picking up the shipment, the RFID tag will be scanned at the manufacturer’s dock and any errors will be caught right away, thereby implementing “quality at the source” and a kind of poka yoke into the process. This will give Walmart better inventory accuracy, visibility, and predictability. [Hayes, 2010]
Dell is a great manufacturing example of a Lean supply chain in the age of mass customization. They can take a customer’s order and assemble and ship it within 24 hours and get inventory turns as high as 90+ times/year (has varied from 40 to 140 turns/year).
Dell has perfected “strategies such as direct-to-consumer sales, barebones inventory, reverse cash conversion (which pays suppliers after, rather than before, receiving payment from customers), and a requirement that suppliers retain possession of parts until the last possible minute have enabled Dell to build a super-lean business model that has upended high-tech manufacturing much in the same way Wal-Mart changed retail.”[Risen, 2006]
Dell has a very tight relationship with its vendors. They develop very strong relationships with a few key suppliers and have “virtually integrated” their suppliers so it appears as though the vendors are an extension of the Dell Corporation. Parts are provided JIT to the point that the exact number of items needed are delivered daily, and in some cases even hourly.
In fact, for its various worldwide manufacturing facilities,
Dell does not buy raw materials and components and maintain inventory. Dell’s vendors use third party service providers to set up logistics parks and distribution warehouses close to Dell’s plants and deliver materials just in time to the plant against an order for production, which is triggered based on an order confirmed by the customer on the internet.
