LEAN MANUFACTURING IMPLEMENTATION -Lean Supply Chain University of

LEAN MANUFACTURING IMPLEMENTATION -Lean Supply Chain University of Michigan Manufacturing Strategies IOE 425 October 18, 1999 Ronald L. Turkett

Why Lean Supply Chain? Toyota Indiana GM 2 Plts. Europe Saturn Nummi TPS Renault Toyota Georgetown Suppliers Chrysler COS Ford Worldwide FPS Porsche Mercedes BMW Peugeot Toyota Cambridge Implementing Lean Production Enables Seamless Connection with Customers and Suppliers Lean Supply Chain Ronald L. Turkett 2

The Lean Supply Chain Best Quality - Lowest Cost - Shortest Lead Time Through Shortening the Production Flow By Eliminating Waste Just in Time “Built in Quality” “The right part at the right time in the right amount” • Line Stop - Manual - Automate • Error Proofing • Visual Control Preconditions • Continuous Flow • Pull System • Takt Time • Level Production Flexible, Capable, Highly Motivated People Operational Stability Standardized Work Total Productive Maintenance Lean Supply Chain Robust Products & Processes Supplier Involvement Ronald L. Turkett 3

“Lean Vs. Traditional” 1. Half the hours of engineering effort 2. Half the product development time 3. Half the investment in machinery, tools and equipment 4. Half the hours of human effort in the factory 5. Half the defects in the finished product 6. Half the factory space for the same output 7. A tenth or less of in-process inventories Source: The Machine that Changed the World, Womack, Jones, and Roos, 1990. Lean Supply Chain Ronald L. Turkett 4

“Lean Vs Traditional” u 99. 9% Customer Schedule Attainment u 15 PPM or Better u 4 -6 Inventory Days of Supply u 92%+ Operational Availability u Leveled, Sequenced Production u Order to Customer Use - 4 1/2 Hours u Functioning Supplier Partnership u Strong Production Control Function Examples: Tier 1 Suppliers: Johnson Controls Seating, Litens Automotive Partnership, Cadimex, Denso Manufacturing, Toyota Motor Corporation. Lean Supply Chain Ronald L. Turkett 5

Changing Costing Methods Principles of Cost Plus: SALES PRICE = COST+ PROFIT Profit Traditional View Profit Sales Price Mfg. Cost SALES Profit Mfg. Cost Sales Price Principles of Cost Reduction: PROFIT = SALES PRICE - COST Profit Modern View Profit Sales Price Mfg. Cost Lean Supply Chain Mfg. Cost Ronald L. Turkett 6

Lean Supply - Global Purchasing Strategies u Common Strategy - Buy Cheapest in the world - Support with dual sourcing u Toyota Strategy - Buy to achieve lowest total cost - Buy in country where manufacturing is performed - Minimize Number of Suppliers - Keep supply chain short as possible - Toyota is as strong as its weakest supplier Lean Supply Chain Ronald L. Turkett 7

Consequences of Cheapest Price u Long Distance Supply - Long lead times - increases structural cost: people, travel, premium freight, packaging, obsolete material, scrap due to handling damage u Buying cheapest restricts buying from best supplier and achieving total lowest cost VS. u Buying from best supplier, then get lowest cost Lean Supply Chain Ronald L. Turkett 8

Consequences of Long Supply Chains Long Value Streams Result in: u High Risk - Quality Spills - Availability of Supply - Engineering Changes u High Cost - Transportation (Premium and Standard) - Engineering Support/Supplier Development - Plant Overtime Lean Supply Chain Ronald L. Turkett 9

Automotive Supply Chain = Value Chain Retail Customer OEM Tier # 1 Tier # N Ore in Ground Objectives: Highest Quality Lowest Cost Shortest Lead Time Lean Supply Chain Ronald L. Turkett 10

The Lean Enterprise p ea gr e L En ality is pr &L, , Qu ter , PC ce En s an a n n n ea ratio g, Fi L e in Op has c ur P World Class Lean Supply Chain Implemented Full Benefits of Lean Supply Chain Traditional Manufacturing & Support Functions Lean Supply Chains are not just a Materials Management Effort Lean Supply Chain Ronald L. Turkett 11

Automotive Customers Which group drives lean supply chains? Toyota GM Honda ? Ford NUMMI Saturn Chrysler Nissan Lean Supply Chain Ronald L. Turkett 12

Demand/Schedule Variance Causes Planning/Scheduling System Mechanics: Push Scheduling PRODUCTION FLOW All production operations receive same schedule Sc he du le Machining Schedule Supplier Assembly ule ed h Sc Production Scheduling Customer e dul e Sch Reaction to Changes Occurs Only Weekly Lean Supply Chain Ronald L. Turkett 13

Typical Demand/Scheduling Model OEM Schedule Tier #1 Tier #2 Actual Demand Traditional Scheduling Systems 1. Demand schedule are usually different 2. Noise increases moving down stream 3. Affected most by changes in order quantity, delivery time and lead time Lean Supply Chain Ronald L. Turkett 14

Lean Supply Chain - Pull Production System Ship Raw Material Ship Machining Pull Schedule 06/07/98 Assembly Ship Customer Leveled Production Plan Pull Schedule Assembly Schedule SME Lean Supply Chain

OEM’s Lead Supply Chain Management Process: Smoothing Production to Reduce Supply Chain Cost O. E. Ship Tier 1 Tier 2 Leveled Sequenced Pull Signal Production Action Steps-All Customers 1. 2. 3. 4. 5. Smooth production build and communicate plan to suppliers Maintain daily production levels as planned (maintains smooth flow) Minimize parameter changes in system (lot size, quantity, & lead time) Convert from push scheduling to pull scheduling Maintain open communications with supplier - Provide Supplier access or view of actual demand Lean Supply Chain Ronald L. Turkett 16

Takt Time Vs. Cycle Time An Important Distinction Takt Time = Time (Available seconds per working day) Volume (Daily production requirement) Sets pace of production to match pace of sales. Cycle Time = Actual time required for a worker to complete one cycle of his job process Lean Supply Chain Ronald L. Turkett 17

Implementing the Lean Supply Chain l Level Sequenced Production – – producing a repeatable pattern by volume and mix within each day of the monthly production plan Characterized by: l a smoothed production plan over an extended time l every model made every day l daily adjustment can be made l a predictable production process Lean Supply Chain Ronald L. Turkett 18

Implementing the Lean Supply Chain Summary – – – Find the best supplier and engage early in the design process Partner with key suppliers that have high capability for design and supply Suppliers should be located in the country where you build your product Shorten the supply chain by having suppliers close, frequent deliveries, and leveled production plans Develop pull systems with suppliers Know production capacity by comparing effective cycle times with Takt times. Lean Supply Chain Ronald L. Turkett 19