DEFINITION OF LEAN
LEAN means elimination / minimization of wastages. Waste removal drives competitive advantage in an organization, which is oriented to improve productivity. Improved productivity leads to leaner operations which will help to reduce further waste and quality problems.
Normally, Operations can be categorized as three types
Non value added operations are purely waste and involves in the actions which are not required and should be eliminated completely. E.g. wait time
Necessary but non value added operations are waste but cannot be ignored, since they are required for the existing procedure. E.g. walking long distance to collect parts
Value adding operations are the actual activity to convert raw material in to final product. Eg assembly of parts
Commonly accepted WASTEs
There are 7 commonly accepted wastes in Toyota Production System
Overproduction
It is the most severe waste as it affects a smooth flow of goods or services and is likely to put impact on quality and productivity. It also leads to increase in lead time and storage times.
Kanban system is the best tool to overcome this problem.
Waiting
If, time is not being used effectively, "waiting" occurs. Ideally there should not be any waiting with continuous flow of goods. But it occurs because of improper line balancing, maintenance or kaizen activities
Line Balancing is the best tool to overcome Waiting.
Transport
It refers to movement of goods from one position to another. It is considered as waste which cannot be eliminated but improvement should be carried out to reduce transportation.
Inappropriate Processing
It occurs when complicated solutions are adopted for simple procedures and fool proof devices (Poka-yoke) are not used in the operations.
Unnecessary Inventory
It leads to increment in lead time, space and storage costs. It prevents quick identification of problems.
Unnecessary motion
It can be seen in ergonomics of production where there are unnecessary hand movements. It leads to poor productivity and quality problems,
Defects
It is treated as opportunity to improve rather than something to be traded off against what is ultimately poor management.
WHAT ARE LEAN CONCEPTS
The lean concept is the basic of Toyota Production system, originally created by Taiichi Ohno and Shigeo Shingo. It is widely accepted by various industries on a global scale.
Production and Material control
There are several lean concepts used for production and material control, such as Pull scheduling to do scheduling based upon customer demand received, line balancing to distribute work load among operators equally, Heijunka means production levelling / smoothing by producing intermediate goods in constant rate to maintain production efficiency, visible capacity by creating man power allocation sheet for the shop floor, Point of use delivery, small lot sizes etc.
Manufacturing techniques (http://www.siliconfareast.com/cellular-manufacturing.htm)
Concepts for manufacturing are Gemba Kanri means workshop management, a system of standards for day to day business activity, cellular manufacturing and a work flow design where work stations and machines are arranged in a efficient sequence for smooth and continuous flow of material to produce product in one single process flow, set up time reduction, fool proofing (pokayoke), Pull scheduling, Jidoka (line stopping) etc.
Inter-company lean
It consists of many concepts such as KANBAN(pull) system, lean purchasing, single sourcing, point of use delivery, family of parts sourcing, frequent delivery of small lot size, total quality management etc.
Organization for change
Concepts for organizational change are Multi skilled team working Quality circles, Total quality management to solve major issues of production lines, Philosophy of joint commitment, Visible performance measurement by control charts and record sheets, Statistical process control (SPC), Team targets / performance measurement, Enforced problem solving, Kaizen activity (Continuous improvement) etc.
WHAT IS SUPPLY CHAIN
Supply chain is defined as an integral process of Plan, Source, Make, Deliver, and Return starting from the supplier's supplier to the customer's customer.
A traditional supply chain structure which consists of different modes such as supplier, inbound logistics, operations, outbound logistics, distribution and Customer.
Today's rapidly changing business environment demands to provide goods and service faster with best added values to a correct location with negligible inventory storage.
Supply Chain Management means to obtain supply chain as an optimally efficient, customer-satisfying process, both material management and physical distribution as well as channel management is required. It is not about only matter of performance of individual department, but it is all about the performance of entire supply chain.
Lean Concepts for the Supply chain:
Though lean concept is normally applied and the focus is applicable to manufacturing processes to improve including the whole supply chain. It is to produce more or do more with fewer resources while giving the end customers exactly what they want. It means to focus on each product and its value stream. Most importantly, Lean concept is about eliminating waste as well as enhancing value.
Value is defined as something that the customer is willing to pay for. Value added activities transform materials and information according to Customer's requirement. Non value added services use resources and do not directly contribute to End product required by Customer.
Waste is defined as anything that does not add value as per Customer desires. e.g. defects, inventories, transportation, excessive motion, waiting.
The best way to observe components of Supply chain and apply lean to each and decide how to connect them to reduce waste.
Creating Value
Lean concepts concentrate on creating Value by identifying value from the perspective of the end customer. A value system can be determined by identifying all the steps which can create value and by mapping the value stream and challenging every step by 5 why method. Value creating steps are lined up so that it can occur in rapid sequence. Flow can be created with capable, available, and adequate processes.
Value creation is also possible by pulling materials, parts, products, and information from Customers and continuously improving to reduce and eliminate waste
The value stream consists of value adding activities required to process a product from concept to launch, order to delivery, and raw materials to customers.
LEAN SUPPLY CHAIN SYSTEM
Lean Supply chain system integrates all participants in the supply chain -Supplier, manufacturer and customer in to one value stream by increasing value of the customer.
It involves working closely with a selected group of suppliers to remove waste and costs from the supply chain, costs, which are several tiers away from the buying company. It helps in optimizing number of miles travelled with in a transport system.
It may occur upstream between suppliers and buyers or downstream between a company and its channel members including end customers.
Labour productivity, which is controlled by hourly production charts provides improvement opportunity to burst the value stream. Problem solving tool that can be used for this metric is kaizen events and system assessment can be done by Hoshin palnning or Hoshin Kanri.
Hoshin Kanriis a guided framework to link strategy with daily management. It helps in planning, implementation and review process for change management. Hoshin Kanri is used by most successful companies such as Toyota, HP, Xerox and Bank of America. Practices adapted for labour productivity are 5S, TPM, Takt time, Work cell design and Standardised work procedure for every team member.
Yield, OEE (Overall Equipment Effectiveness), service, Inventory are the second metric of Lean supply chain system which are monitored by daily shop floor time and gives visible deviations. PDCA (Plan-do-check-action) cycle is used to improve issues related to these parameters. System assessment is being done by VSM (value stream mapping).Practices adopted are Kanban, supermarkets LIFO( last-in-first-out) methodology etc.
A Supermarket methodology described as there is a place between processes having standard amount of inventory to supply a downstream process without any interruption caused by product variations or batch sizes.
Kanban is simple card that gives minimal instructions needed for a supplying process to know what to produce and for a material handler to know what items to replenish" (http://www.systems2win.com/c/vs_inv_symbols.htm)
Safety incident rates are controlled by layered audits and problems get solved by DMAIC (Design-measure-analyze-improve-control) six sigma method. Pace maker scheduling methodology is used to control the incident rate which regulates the speed of entire supply chain. Self assessment has been done by continuous observations.
Value stream cycle time is controlled and monitored by Visual management and lean practices and methods are used for problem solving purpose. Market delivery routes and plant flow lay out is used to analyze the problems and to make VSM (Value stream mapping) easier.
For % value added time, TOC (Theory of constraints) method is used for problem solving purchase. For improvement in supply chain, Source quality Jidoka, SMED methodologies are used, which are depending upon the condition of requirement.
STEPS OF LEAN IMPLEMENTATION
Following steps are used to implement lean successfully.
To prepare a value stream of the product, it is important to choose a product family and its process flow.
We need to map the process steps in sequence and by information flow. This is called a Current state map. It shows a clear picture of process steps and information flow for the process as it exists presently. It includes product flow, transportation links, defects and delivery time and steps and information flow.
To create a future state map by searching improvement opportunities in the current state map. Especially by observing bottlenecks, wastes and process improvements. It helps to observe the road map to get from current state to the future state. It is an ideal state map to visualize how the supply chain could look, if perfect integration of process were to occur.
Waste removal in Supply chains:
As the focus of the supply chain includes both value adding and non-value adding process, from requirement of raw material source to customer receiving of products, it is essential to extend the internal waste removal to the complete supply chain. But it is a very difficult task to do, since there is lack of visibility along the supply chain and lack of appropriate tools to create visibility.
To start the waste removal process, it is essential to stop defective products at their source and to flow processes together or changes the physical relationship of components of the process by eliminate or reduce pointless steps.
Eliminating excessive material handling cost and waiting time reduction for parts, orders, people or information are important factors for waste removal.
Five stages for waste removal process are 1) Study of the flow of processes 2) The identification of waste 3) A consideration of whether the process can be arranged more efficiently 4) A consideration of a better flow pattern, involving different flow lay out or transport routing 5) A consideration of whatever is done every stage is important and really necessary
The seven value stream mapping tools:
Key attributes of Lean supply chain:
Starting from raw material till finished product, transformation of product is carried out through the supply chain. So, Supply chain design should be aligned with product characteristics.
Supplier participation in this material flow plays a major role since it is the initial and most critical stage of an efficient supply chain.
Logistics should be carried out by-Just-in-time deliveries by eliminating excessive inventory but. Kitting should be done for point of use which will eliminate unpacking issue. It requires supplier involvement in production system design.
Vendor managed inventory (VMI) system should be followed for lean supply chain. This system indicates Vendor's responsibility to keep the inventory and get proper tracking of it before it get used).
The company should hire Third party logistics providers who will take care of whole logistics activity of the company (both inbound and outbound), so that company can fully focus on its own capabilities to improve its competitive position in the market.
Good supplier relationship makes company profitable, since suppliers try their best for on time delivery of raw materials and they should be treated as a part of the organization. They help company for its new product development by adjusting their operations according to new requirements. Suppliers should be involved in product design and development to have efficient material flow and streamlined supply chain
Seamless information flow should be there throughout the supply chain by efficient communication on many levels.
Seamless information flow between customer and supplier with respect to their activities such as program management, Procurement and contracts, Engineering and manufacturing operations.Starting from program management till manufacturing operation, information flow is among all activities through integrated information technology environment.
COMPONENTS OF LEAN SUPPLY CHAIN
Lean Suppliers:
Lean suppliers are ready to respond towards changes. They deliver on time and their work procedure is part of continuous improvement. Their prices are generally low due efficient lean process and their quality is improved to such a level that incoming inspection is not required in next mode.
To create lean suppliers, organizations need to include them as part of their value stream and should treat them as their important partners. Suppliers should be encouraged for lean transformation and should be involved in lean activities, which will be helpful to fix various problems and share cost savings. Organization can set continually declining price targets and increasing quality goals.
Early involvement of suppliers is an important factor for lean supply chain. Since 60-80% of value is added to supply chain by suppliers through good quality and on-time delivery of goods.
Lean Procurement:
Normally, Lean procurement process is electronic based and automated procurement and is otherwise called as E-Procurement. It consists of transactions, strategic sourcing, bidding, and reverse auction using web applications and also helps to minimize human efforts in procurement functions.
Visibility is the main attribute of lean procurement. Suppliers can observe Customer operations very well and customers can also observe Suppliers operations by creating a lean supply network.
Lean supply network:
It consists of team of suppliers that are working with a buyer to produce and deliver small quantity of material more frequently on a regular basis. It ensures the smooth material flow across the supply chain without unnecessary inventory.
Characteristics of Lean supply network:
It focuses on lesser number of total suppliers. To reduce risks and costs from the supply chain, it is important to work with small group of suppliers.
Purchases should be in minimum quantities with more frequent deliveries. It is a most important aspect of lean supply network which needs close cooperation with production planning, transportation and logistics.
Consistent mutual improvements are required throughout the supply chain. Buyers should give equal importance to their suppliers as their own internal operations as far as continuous measuring performance is concerned. They should help them directly whenever needed and provide timely feedback on performance.
Buyer-Supplier relationship should be cooperative and collaborative i.e. Parties work together and share information for their mutual goals and parties work together to create new business opportunities and identify creative solutions to problems.
Efficient communication linkages are very essential factor for lean supply network. It is only possible by both internal and external communications through EDI (Electronic Data Interchange) and point to point communication.
Traditional supply chain, communication takes place only between supply department of customer and sales department of Supplier. And other departments such as operations, planning, Logistics, Quality assurance are internally linked to these two departments.
But in Lean supply chain, there is point to point communication between each department of Supplier and customer.
Practices of supply management to promote lean
There are various approaches to remove cost and redundancy from supply management process. Supply management process is nothing but identifying company's total requirements, developing strategies for supplying goods and evaluating suppliers and managing the suppliers to get higher performance advantage than competitors.
Optimizing supplying base
It is building of lean supply network with right number and combination of suppliers to maintain each item, category or commodity. Main advantage is to remove redundancy and wastage that incurs minimal value by effective management of lower tier suppliers by upper tier suppliers such as management of second tier by first tier suppliers in terms of easier material traceability, lesser contracts/ purchase orders, lesser material receipts, better communication with suppliers, improved delivery performance, lower purchase unit costs etc.
Creating a world class supplier selection process
Some effective ways to create a leaner supplier selection process is to verify whether supply managers have enough knowledge about product development as per selection needs. Electronic systems should be established, so that internal customers can forwards their supply requirements effectively to procurement. It is essential to create pre-approved contract to streamline negotiations and to qualify suppliers in advance as per anticipation of future needs. RFQs (Request for Quotations) should be sent electronically to suppliers. Various softwares can be used to streamline the supplier response evaluation process. Efficient quantitative tools should be used for assessment during supplier site trips and preferred supplier list can be created by segregating suppliers based upon criticality.
Decreasing redundancy across buying sites and locations
It happens due to poor coordination of supply activities across different business locations. It can be reduced by approaching global sourcing. Global sourcing is the integration of common materials, operations, technologies across worldwide procurement locations. Firms which adopts global sourcing, improves a lot in eliminating dissimilarities that create waste with in supply chain.
Developing Long term supplier contracts
Longer term supply contracts are the contracts between two or more parties for more than one year time period and which usually address a higher range of price and non-price issues than short term contracts.
Long term contract plays a major role in continuous improvement incentives, joint commitment to improve performance, better relationship and communication between buyer and supplier. It provides opportunity to eliminate waste and non-value added activities throughout the supply chain.
Establishing Low-Dollar purchase systems
Sometimes, Companies put a lot of effort for low dollar purchase item and it is a biggest challenge to reduce these efforts by redirecting them towards value adding activities and eliminating the costs obtained by insignificant items. It is very important to reduce transaction cost of insignificant items.
Low dollar purchase system can be created by issuing procurement cards to internal users. Blanket purchase orders can be used by internal users to order material directly from suppliers. Online catalogues and electronic requisitions should be introduced .Electronic purchase orders can be issued to suppliers. Onsite suppliers should be preferred to manage inventory. Fund transfer to suppliers should be done electronically.
Internal users should be allowed to issue purchase orders below a dollar items
Low dollar system has several benefits such as transaction costs are low. More attention will be given to important items. Less time will be required to fulfil internal user requirements. Time gets reduced due to lesser number of transactions.
Lean Manufacturing (Toyota Production System)
Lean manufacturing provides an effective and efficient set of tools that can eliminate the above wastes. Lean concepts can be applied in both production and other corners of the industry. For an effective lean manufacturing system, TPS provides basic guide lines to ensure proper implementation of lean concepts.
It is an approach to achieve best performance in a manufacturing company based upon the continuation of elimination of waste (wastes are those things which do not add value to the product).
Lean manufacturing produces exactly what customer expects in terms of quantity, quality and delivery with minimum resources. From start of manufacturing till end lean makes resources free to use and do continuous improvements in several areas of the organizations.
It gives a wide opportunity for cost reduction and quality improvement.
Concepts for manufacturing normally used are
Gemba Kanri i.e. workshop management, a system of standards for day to day business activity which helps company to reduce cost, improve quality, reduce inventory and reduce cycle time.
Cellular manufacturing is a work flow design where work stations and machines are arranged in an efficient sequence for smooth and continuous flow of material to produce product in one single process flow set up time reduction is normally done to improve productivity.
Fool proofing (pokayoke) is a system to identify defects in the machines or work stations by using different kind of sensors.
Pull scheduling is the planning of production based upon customer pull or demand.
Jidoka (line stopping) is a simple methodology used most of the Japanese companies to prevent getting defects in an assembly line. Operators stops his activity by pressing andons if he finds any defect in his work stations and ultimately whole line will be stopped until the issue gets verified.
Kanban system is a type of production system where production is carried out based upon customer demand. So it is otherwise called Pull system. Kanban card is a card which can track amount of goods used and this is sent to previous station to signal that these amount of goods need to be replenished.
Lean Warehousing:
It is to eliminate non-value added steps and wastages in part storage processes such as receiving, storing, Replenishment, Picking, Packing, Shipping.
Warehousing wastes consists of Defective products, Overproduction, Excessive inventory which occupies additional space, Excessive motion and material handling, Unnecessary process steps, Transportation motions, Waiting
Each process step of ware housing has to be analyzed appropriately to find out unnecessary, repetitive and non value added activities.
Lean Logistics (Transportation):
Lean Transportation is one of the major steps of lean supply chain. Primary objective of lean transportation is meant for predictable and more frequent delivery to a specific point of use.
Elements of a Lean Transportation System
Following are the characteristics of lean transportation system where lean and transportation are together to provide a valuable output.
Contract and Third part logistics providers
They play a key role to execute lean transportation. The important driver behind contract and third party logistics is to use resources efficiently, eliminate wastes and finally to reduce costs and to focus on specialization of the firms in terms of technology or capability
To be competitive in market, companies need to shorter cycle time by greater outsourcing and less vertical integration.
Normally, Transportation carriers can be classified as common carriers, private carriers and contract carriers. For lean transportation, private and contract carriers are mostly preferred rather than common carriers.
Traditional Vs Lean supply chain shipment
A traditional supply chain with LTL shipment builds unwanted number of steps or activities, which increase delivery cycle time and chance of theft and damage.
A traditional inbound shipment with common carriers requires 33 steps to move an item from supplier end to buyer end, while a delivery system with contract carrier requires 8 steps to complete the same task.
Traditional shipment includes several wastages like inventory wastages due to slow moving of goods, multiple material handling without adding any value, increased packaging and damage during transit. Contract carriers coordinate both suppliers and customers to verify their production schedule and demand schedule respectively. This type of delivery is also called closed loop JIT delivery.
Lean transportation offers the opportunity to improve supply chain by considering all relevant factors which creates unnecessary wastages. Lean supply chain requires detailed transportation analysis to determine the best option of carriers, which is carried out by third party logistics providers.
Third party logistics providers are the companies which manage and control various logistics activities of other companies.
Closed loop delivery system:
Closed loop delivery system comprises of regular pick up and deliveries across the supply chain with return trips, which is also called a MILK RUN. This delivery system is called Milk Run since it is just like the system followed by milk man in villages, who makes regular deliveries of milk in bottles to homes and bring empty bottles back to bottling plant.
Many automated guided vehicles works in a closed loop system for material handling and delivery inside the plant. Closed loop system is designed to pick up and deliver material to buying companies and return empty containers to suppliers
Returnable containers:
Returnable containers play an important role all across the supply chain. These are made up of steel or plastic in different sizes and capacity, are designed for repetitive use. These can be interlocked when stacked just like lego pieces, which saves lot space and prevent damaging.
Returnable carriers can be used in the link between external suppliers and buying company, distribution and retailing facilities within a closed loop system.
Information Technology:
Now a day, it is a greatest challenge to get real data of supply chain. It is only possible by information technology. Most advanced innovations in technology include satellite based global systems that provide real time vehicle, rail, car and container tracking. It allows creating an efficient transportation network.
Creating a lean transportation system:
Lean transportation system can be created by formulating transportation strategy and designing pick up and delivery network. Next step is to evaluate carriers and optimize base and to place carriers on the longer-term contract. Electronic interface is necessary to create lean transportation system. Identifying material handling equipments is the final step of lean transportation system.
CHAPTER SUMMARY
This chapter starts with definition of lean as minimization of wastages and types of wastes in an organization is explained. Followed by the definition, various lean concepts for production and material control, manufacturing techniques, inter-company lean and organization to change are discussed.
Next, the chapter explains about traditional supply chain and utilization of lean concepts in supply chain. then it elaborates lean supply chain system having various metrics such as labour productivity, yield, OEE, service, inventory, service incident rate, value stream cycle time, % value added time with respective lean tools for monitoring and control , improvement opportunities, problem solving, system assessment & alignment, Practices & methodologies, roles and processes. Then stages of lean implementation in a supply chain and key attributes of a lean supply chain are explained.
In next section, components of lean supply chain are discussed starting from lean suppliers, where importance of supplier involvement followed by characteristics of lean supply network is mentioned. Then the chapter goes on to discuss about lean procurement, lean manufacturing, lean ware housing, lean transportation and lean distribution.
After establishing foundation about lean supply chain using various references, the next chapter will explain about its usage and application in solving major issues of Cosmic oil filed devices pte ltd.
