Jun 18, 2010

Building a lean fulfillment stream: book review

Too often, lean expertise is confined within the four walls of a manufacturing operation. While there is a growing awareness of the continuity of the value stream from each supplier to each customer all the way to the final customer, breaking silos has not been easy.

Robert Martichenko and Kevin von Grabe (Toyota alumni) founded the logistics company LeanCor to help their clients optimize their supply and fulfillment streams and make more money. Now they have authored a workbook-style tool, "Building a Lean Fulfillment Stream", published by the Lean Enterprise Institute, to help other companies see how that works. If it can do for the extended value stream what "Learning to See" and "Creating Continuous Flow" have done for inside the plant, the result could be dramatic indeed.

The workbook format makes "Building a Lean Fulfillment Stream" an action guide. A company could go a long way by just following the recipe and working through the instructions. They are detailed, and explain a lot of whys and wherefores that a cross-functional team would need for a common understanding of the subject. The improvement process prescribed for the lean logistics team is orderly and logical, following flow from customer back through the manufacturer to the supplier.

As you'd expect, the process includes a large-scale value-stream mapping exercise, and the workbook does a good job of explaining what information the participants must gather beforehand. The authors explain why each of those bits of data is important, and why some are different from traditional metrics. For example, inventory in its various locations is usually measured in dollars and efficiency evaluated in inventory turns. The book explains why calculating inventory in terms of the average number of days supply on-hand (ADOH) is going to be more useful, since that helps align takt time (cadence) from the customer's usage back through the system.

At first, it would seem impossible to value-stream-map the thousands of parts and paths that would be found in the extended enterprise. In practice, however, it turns out that you can learn much of what you need to know by choosing one stable part used in one stable product. As concepts are learned through the workbook’s improvement process, they are tried out, assessed, then applied to more and more products to bring processes under control.

Cost, the language of management
The workbook provides a structure for analyzing the total cost of fulfillment in a way that management may not have seen it before, but also in a way that can make management sit up and take notice. At every stage, the team can calculate how it can affect the total cost and communicate the effort's value to leaders. The team can use the concept of total cost of fulfillment to illuminate the impact of decisions to offshore, re-shore, or never-shore.

Perfect order execution and the 8 Rights in the fulfillment stream
The concept of perfect order execution is a bit more elaborate than the "what you need, when you need it, where you need it" of the Toyota Production System primer. The 8 Rights are:
  • Right quantity
  • Right product
  • Right place
  • Right time
  • Right quality
  • Right source
  • Right cost
  • Right service

Looking at the 8 rights leads to a method for quantifying execution through all the phases of the logistics value stream and exposing the cold, hard reality that when you do the math and multiply the imperfect percentage scores across the stream, the good service you think you're providing could be more like 9% than the 90% your current metrics show.

Although the workbook focuses on the single first pass of the value stream improvement process, it does address sustaining a continuous improvement approach. Although it's given only brief attention, it helps counter the impression some users might get from the simple workbook treatment that you can work through six chapters of a book and all will be done.

Using the book
The workbook lacks some simple features, like an index, that would have made it more useful to me. I skip over things as I read, then realize later that something was important, and I want to go back and re-read it. Without an index, I can waste a lot of time searching. A detailed table of contents and perhaps a glossary would be handy. All are "standard work" in textbook and professional book publishing that are being skipped too often these days. Fill-in-the-blank worksheets would be good tools for the team, both in the book for photocopying and online for customization and easy download.

The tabbed sections are helpful, but in the chapters that combine two functions like ship/receive/yard management and material ordering, you have some problems of consistency. For example, that chapter has two total cost of fulfillment charts rather than just one, as in other chapters. That repetition of the total cost of fulfillment chart is a key to the book's function as an action guide for improvement. Comparing the charts at each stage of the improvement project was important, but lost me at times. (Of course, I'm not working through the process in a real-life company.)

A single table showing the progression of total cost of fulfillment savings from one stage to the next compared to the current state shown after the first value stream mapping session would have made both a good overview of the improvement process and a capstone for summarizing the work the team has done. Small snapshots of the overall current and future state value stream maps in each section would help refresh the team on where its stage fits into the entire flow. That would continually reinforce stream thinking as the staged improvement process proceeds.

The workbook format has an inherent limitation -- it can't include everything, and I don't think it should. It must simplify. Yet even with some exposure to lean logistics at LeanCor and Toyota, I found it a bit difficult to absorb all the ideas in the book, and members of a cross-functional team attacking problems will come to the project with different levels of knowledge.

Some members of the core team should have broad, deep knowledge, and experience with lean and six sigma tools. A consultant to guide the process may also be necessary. Without that foundation, teams that just follow the workbook recipe are going to hit roadblocks and frustration, which can taint the process for years to come. The workbook doesn't make this need isn't made explicit in the workbook, and it doesn't provide a consolidated list of resources for delving more deeply into the subject.

Once I started reading another book, "Lean Six Sigma Logistics" by Martichenko and Thomas Goldsby, the underlying mechanisms of traditional management of inventory and transportation as well as how to improve them with statistical analysis and lean principles became much clearer. I highly recommend making this book a companion to the workbook. Another source that will provide more detail and examples is "Toyota Supply Chain Management" by Ananth Iyer, Sridhar Seshadri, and Roy Vasher. (If you're a member of AME, you can read my article about lean logistics at the Toyota distribution center in Mansfield Massachusetts in an upcoming issue of Target magazine for a snapshot of how the company manages its supply of service parts to dealers.

Overall, "Building a Lean Fulfillment Stream" ought to be in any lean leader's arsenal. It is authoritative, action-oriented, step-by-step, simple, timely, and results-focused. LEI is doing a great service by keeping its workbook series going, putting the means of improvement in the hands of the people who will do it.

Jun 9, 2010

Set-based design of capital-intensive manufacturing systems

Robert Simonis, director of global lean manufacturing for a division of Lear, makes a living spending money -- big money -- designing and installing manufacturing systems around the world. At the end of the day, however, his capital investment decisions have to pay off for the company. As he’s seen how lean is affecting production thinking, he’s also become more and more conscious of the constraints imposed by upstream decisions made in product and process design.

Addressing a Detroit SME meeting last month, he said we don’t yet have good names for lean in the design of production processes and accompanying systems design. Product design has the “design-for” tools -- design for manufacturability, design for reliability, design for maintainability, and so on. But what would “design for lean” or “design for continuous improvement” be all about?

Process design was once the bailiwick of manufacturing engineering alone, to be done after the product design was tossed over the proverbial wall by engineering. Many traditional manufacturing engineering and process design rules are based on mass production. They anticipate large returns on capital investment once volume achieves the breakeven point, the point where costs are recovered and the payback period starts.

That scenario is right for high-volume production, yet Simonis said that it can result in some bad bets being placed. For one thing, demand, when it must be predicted years before the fact, determines designed-for capacity, which in turn determines size, speed, complexity and cost of the equipment selected. And in Simonis’s experience, demand is sometimes estimated way too high.

Traditional methods may cause process designers to greatly underestimate variation in demand. If they design enough capacity to handle the expected peak in year three and it doesn’t pan out, the result will be overbuilding and overspending.

Their $1 million robotic system might reduce labor by four workers, but the cost of capital may not receive enough consideration. Process designers and manufacturing engineers need better information about interest and other costs of servicing the debt on the capital investment. They need methods of process design for capital investment, taking in how long equipment is going to be used, recovery time, and payback time.

Circumstances turn on the question, “How do you anticipate the future?” Besides what traditional methods give process designers, there are a number of other variables in the real world that impinge upon how well a process design proves out:

    Speed to market
    Niche markets
    Mass customization
    Variation in mix
    Variations in volume (short term, week-to-week)
    Variations in volume (long term, annual)
    Risk to capital
    Cost of capital
    Automation vs. labor

Rather than following formulas, Simonis sees process design for lean in terms of several goals:
    Minimize total cost and risk
    Produce profit
    Satisfy customers, both external (buyers of final product) and internal (employees)
    Safe process
    Good product
    Stockholder/stakeholder interests
    Support frequent change

To disrupt old manufacturing engineering routines, Simonis said we need to start process design and development with a concept earlier -- soon after the product concept is developed, not after the prototyping and piloting happens.

Product:    concept→    prototype→    pilot→   
Process:        concept→    prototype→    pilot→

Models that are often used to guide process design include replacing automation with low-cost labor, replacing people with machines, or outsourcing. In making decisions for where and how to produce a product, companies often believe that one of those models is the best practice. In Simonis’s experience, none of the three is necessarily the right strategy. Any one of them could be correct, depending upon circumstances.

To make better decisions, Simonis recommends turning to the concept of set-based design. His planning teams start decision making with a few scenarios. (Senseis say to start with seven sets, because the team usually has to really stretch to find that many, which stimulates creativity.) Which one will be the choice depends on the situation.

In set-based design, you start with multiple possibilities, develop them, and winnow them down:

----------  --------\
----------  --------  ---------\
----------  --------  ---------  --------X
----------  --------  ---------/
----------  --------/

Simonis describes three that could apply:

Set A
The first option might be an integrated system capable of immediately satisfying estimated peak demand. The rule of thumb is usually to design for 85% of forecast. Simonis said his own experience suggests that the customer actually orders at 70% of forecast, so with the figure that comes from a financial model, you may have overcapacity. The fully-integrated manufacturing system has another problem. The more complex it is, the less the inherent efficiency, because any failure will stop the whole system and there are no substitutions. Over time, components stop operating the way they do when new, for example, conveyer performance tends to degrade rapidly

Set B
A second concept might be a U-shaped cell with modular components and flexible staffing. You may start with the assumption that the customer will take 70-80% of forecast. You will then have the option to add capacity only at bottlenecks, and subtract people on the downside of fluctuating demand rate. Of course, the plan will have problems if it doesn’t properly allow for rapid expansion if necessary.

Set C
The third scenario might be to design for many small cells. In fact, that gives you more opportunity for continuous improvement, because each cell will develop ideas to apply to each new one as you set it up with growing capacity. Your initial proposal will show lower but more consistent returns rather than a big return after breakeven is reached. As with B, contingencies like rapid demand expansion need to be anticipated.

Simonis favors considering the third approach, if not as a solution, at least as an alternative. Working it out among several scenarios before fixing minds on Set A will bring out ideas. Even if Set A is the choice, the idea generation in the process will likely make for a more flexible integrated system.

People ask why they should belong to a professional engineering or business organization. This meeting is an example of when local organizations do their best. Robert Simonis is a member with special expertise, sharing it with his fellow SME members, without any financial motive. If a membership fee of $100/year or so seems like a lot of money, do the math: it works out to less than $10 a month. And a meeting like this is priceless.

Robert Simonis is Director of Global Lean Manufacturing, Electrical Power Management Systems Division at Lear. His comments represent his own views, not any official statements of Lear Corporation.

Jun 8, 2010

Leadership, change, and the world of work

I'm working on a couple of original pieces for Lean Reflections, but in the meantime, this compilation will have to suffice. (Feels kind of like cheating, though.) A few of my favorite lean and quality blog posts this week:

Transcending silos is a management power that is sadly lacking in most companies, but Jon Miller expands on a Newsweek article about Cisco Systems in his post, Leaders who think across silos.

Do sewing operators refuse to change?  asks Kathleen Fasanella in her Fashion Incubator blog. She's implemented lean in a number of American apparel manufacturing settings, and analyzed many others. She knows they will change once they see that a properly set-up cell will  get engagement. She gives a tip of the hat to Len Egan, who helped me write about how GoodGlove Inc. used lean to beat offshore competition making baseball gloves in Massachusetts for AME's Target magazine last month.

How it was... Download and read this for free... Work for Women Suggesting that women could become industrial designers, George Manson wrote in 1883, "Men still hold the best positions, and they receive large salaries, from $1,000 to $4,000 a year. In the present condition of affairs, hedged in as the female industrial designer is by the masculine doubt of the employer as to her ability, and the masculine jealousy of the employé whose work she seeks to do, it would be the best plan for her to do piece-work at her own home, or office." Manson describes other good careers for women such as feather curling, nursing, being a book agent, poultry raising, and button-hole making.
Copyright @ 2005-2014 by Karen Wilhelm