Introduction to Operations Management:Session 3

Professor Gad Allon Kellogg School of Management, Northwestern University

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In this Session } What is lean operations? } What are the main tools? } How do you continuously improve a processes?

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Getting lean at Starbucks

Lean Ops in Health Care

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The Paradigm of Lean Operations

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The architect behind Lean Operations: Toyotas Taiichi Ohno and waste elimination

} Taiichi Ohno: Toyota Production System: Beyond Large-Scale Production

} Sources of waste at Toyota: 1. Overproduction

2. Waiting

3. Non-value adding processing

4. Inventory in excess of immediate needs

5. Inessential motion

6. Correction necessitated by defects

The architect behind Lean Operations: Toyotas Taiichi Ohno and waste elimination

Lean operations has been defined as

a business system for organizing and managing product development, operations, suppliers, and customer relations that requires less human effort, less space, less capital, and less time to make products with fewer defects to precise customer desires, compared with the previous system of mass production.

Lean Ops as Managing Complex Systems

High-velocity organizations treat each problem, each

instance of something not working out the way they expected it to, as the voice of the operation itself, saying, You may have created me, but you still dont know me as well as you should. Look harder, learn more, and well get along better.

Operations in these organizations are designed not only to do the job that needs to be done but to continually let the organization know that it still doesnt know all there is to know. -- Steven Spear, Chasing the Rabbit

Question: Whats the ideal process?

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Paradigm of Lean Operations: The ideal Process =

} Synchronization of all flows } At lowest possible cost

Waste = Gap between ideal and actual How do we set up a system to continually reduce

waste ? 1. Improving synchronization 2. Visibility for continuous improvement

Kaizen: Continuous Improvement Cycle

Ideal- Actual = waste

Visibility

Lean Tools

Experiment

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Kaizen: Continuous Improvement Cycle

Ideal- Actual = waste

Visibility

Lean Tools

Experiment

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Kaizen: Continuous Improvement Cycle

Ideal- Actual = waste

Visibility

Lean Tools

Experiment

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Kaizen: Continuous Improvement Cycle

Ideal- Actual = waste

Visibility

Lean Tools

Experiment

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Kaizen: Continuous Improvement Cycle

Ideal- Actual = waste

Visibility

Lean Tools

Experiment

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Kaizen: Continuous Improvement Cycle

Ideal- Actual = waste

Visibility

Lean Tools

Experiment

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Lean Tools

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Lean Tools 1. Quality at source 2. Batch-size reduction 3. Pull rather than Push 4. Cellular layout 5. Resource flexibility / cross training 6. Reducing processing variability

Lean Tool: Quality at the Source

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Lean Tool: Quality at the Source Defects Found at:

Own Station Next Station End of Line Final Inspection

End Users Hand

$

$

$

$

$

Impact to the Company

Very Minor

Minor Delay

Rework Resched.

of work

Significant Rework

Delay in Delivery

Additional Inspection

Warranty costs

Adminis tra tive costs

Reputation Loss of

Market Share

Quality at the Source: How? } Having a stop and fix-it mentality. } Promoting standardized work. } Performing a root-cause analysis.

} 5 Whys } Fishbone diagram

} Implementing built-in safeguard (Poka Yokes) whenever possible.

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Applying Quality at Source in health care

Problem: CareMores elderly patients failed to show up for as many as one-third of their doctor appointments. About one in three of the elderly people we were taking care of were home by themselves. Theyd outlived their family resources, they couldnt drive, and their kids lived out of town. So when they got sick, they ended up calling 911. And when it came to routine doctor visits, they sometimes just couldnt make it at all.

(The Atlantic)

Applying Quality at Source in health care

Solution: CareMores unconventional solution to the problem was to provide transportation, at no charge, to get patients to their medical appointments. Local car-service companies were happy to have the business, and while the transportation cost money, it ultimately saved a lot more. Increased regularity and consistency of medical care meant that many simple problems were recognized and treated in their early stages: complications were avoided, and rates of hospitalization and nursing-home admittance began to fall.

(The Atlantic)

Quality at the Source One of CareMores critical insights was the application of an old systems-management principle first developed at Bell Labs in the 1930s and refined by the management guru W. Edwards Deming in the 1950s: you can fix a problem at step one for $1, or fix it at step 10 for $30. The American health-care system is repair-centric, not prevention-centric. We wait for train wrecks and then clean up the damage.

(The Atlantic)

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Lean tool: Batch Size Reduction

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Cutting batch sizes An illustrative example

Consider the following 4-step process:

} What is the theoretical flow time of the process?

4 min } What is the capacity of the process?

1 job/min } What does that imply for the amount of inventory

needed in the process?

A

1 min/job Resource A

B

1 min/job Resource B

C

1 min/job Resource C

D

1 min/job Resource D

Cut batch size ABCD example continued

1 2 3 4 A

B

C

D

Batch Size = 4

Cut batch size ABCD example continued

1 2 3 4 A

1 2 3 4 B

C

D

Cut batch size ABCD example continued

1 2 3 4 1 2 3 4 A

1 2 3 4 B

C

D

Cut batch size ABCD example continued

1 2 3 4 1 2 3 4 A

1 2 3 4 B

1 2 3 4 C

D

Cut batch size ABCD example continued

1 2 3 4 1 2 3 4 1 2 3 4 A

1 2 3 4 1 2 3 4 B

1 2 3 4 C

D

Cut batch size ABCD example continued

1 2 3 4 1 2 3 4 1 2 3 4 A

1 2 3 4 1 2 3 4 B

1 2 3 4 C

1 2 3 4 D

Cut batch size ABCD example continued

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 A

1 2 3 4 1 2 3 4 1 2 3 4 B

1 2 3 4 1 2 3 4 C

1 2 3 4 D

Cut batch size ABCD example continued

Batch Shop (Batch size = 4)

T = 16 minutes I = 16 jobs R = 1 job/min

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 A

1 2 3 4 1 2 3 4 1 2 3 4 B

1 2 3 4 1 2 3 4 C

1 2 3 4 D

Cut batch size ABCD example continued

1 A

B

C

D

Cut batch size ABCD example continued

1 A

B

C

D

1

Cut batch size ABCD example continued

1 A

B

C

D

1

1

Cut batch size ABCD example continued

1 A

B

C

D

1

1

1

Cut batch size ABCD example continued

1 2 A

B

C

D

1 2

1 2

1 2

Cut batch size ABCD example continued

1 2 3 A

B

C

D

1 2 3

1 2 3

1 2 3

Cut batch size ABCD example continued

1 2 3 4 A

B

C

D

1 2 3 4

1 2 3 4

1 2 3 4

Flow Shop (Batch size = 1)

T = 4 minutes I = 4 jobs R = 1 job/min

An Example from Renault One basic idea was to break parts shipments into smaller batches - packages for two hours of work. That reduces inventory and helps keep line-side supplies closer to assembly line workers.

For production of the previous Laguna and Safrane, we received around 10,000 small packages and 4,000 to 4,500 large packages a day,

Today, for a similar production output, its 40,000 small packages and 3,700 large packages.

-- Model commonality helps cut costs at Sandouville Anna Kochan 13 January 2003 Automotive News Europe

Lean Tool: Pull rather than Push

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Synchronization with demand: customer demand pulls product (JIT)

Supplier inputs outputs

Process Customer

PUSH: Inputs availability triggers execution

Supplier inputs outputs

Process Customer

PULL: Outputs need triggers execution

Implementation: Kanban Production Control Systems

Kanban

Processing center i Processing center i + 1

WIP

Job

JIT at Seattle Childrens Hospital Problem: Nurses get very anxious when we cant get our hands on the tools we need for our patients, Ms. Matthews says, so we grabbed them when we saw them, and stashed them away. This, in turn, made the shortages more acute.

(NY Times)

JIT at Seattle Childrens Hospital

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JIT at Seattle Childrens Hospital Solution: There are two bins of each item; when one bin is empty, the second is pulled forward. Empty bins go to the central supply office and the bar codes are scanned to generate a new order. The hospital storeroom is now half its original size, and fewer supplies are discarded for exceeding their expiration dates.

(NY Times)

Lean Tool: Cellular Layout

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From Functional Layout to Product Cell organization

Production Control

Production Control

Production Control

Roof Roof

Roof

Base

Base

Base

Base Assy

Base Assy

Base Assy

FA FA FA

Department 1

Department 2 Department 2

Department 2 Department 2

Production Control

Roof

Base

FA Base Assy

Cell 1

Production Control

Roof

Base

FA Base Assy

Cell 3

Production Control

Roof

Base

FA Base Assy

Cell 2

Product Cells at Sealy USA Today reported that Sealy dramatically improved its operations:

} Each bed is completed in four hours, down from 21. } Median delivery times have been cut to 60 hours from

72. } Plants have cut their raw-material inventories by 50%

to 16 days' worth. } By moving workers closer together, the Williamsport

facility last year freed enough space to combine two shifts, slicing costs.

Relationship Cells (McKinsey Quarterly) Relationship service cell (RSC): a cross-functional, collocated team, or cell, that handles most of the major value streams that affect the client. The RSC integrates back-, middle-, and front-office processing into a seamless unit: for example, at any moment an asset managers RSC might be opening a new account, overseeing asset distributions, and resolving problems over the phone, all for one registered investment adviser.

Relationship Cells (McKinsey Quarterly)

Teams in Cells and Lean Ops: Human Resources issues

} Advantages } Consistent with the moral ideal of autonomy. } Empowers the workforce through participation and

autonomy in managing daily activities } Gives unprecedented responsibility to workers:

} They also gain better understanding of the process

} Challenges: } Less WIP means more tight coupling and less autonomy

} Rigid procedures and interdependence of cells } Team dynamics: incentives, team pressure,

Lean Tools 1. Quality at source 2. Batch-size reduction 3. Pull rather than Push 4. Cellular layout 5. Resource flexibility (Ch. 4) 6. Reducing processing variability (Ch. 4)

Continuous Improvement

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Kaizen: Continuous Improvement Cycle

Ideal- Actual = waste

Visibility

Lean Tools

Experiment

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Continuous Improvement: Kaizen } Increase visibility of waste } Exploratory stress } Targeted improvements

} Active worker involvement } Time for experimentation } Supplier involvement

Implementing Continuous Improvement and Quality at the Source: Andon

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Scrap & Rework

Missed Due Dates Too Much Space

Late Deliveries

Poor Quality

Machine Downtime

Engineering Change Orders

Long queues

Too much paperwork

100% inspection

Inve

ntor

y

Increase Problem Visibility Analogy: Lower the Water to Expose the Rocks

Lean Ops as Managing Complex Systems (Revisited)

High-velocity organizations treat each problem, each

instance of something not working out the way they expected it to, as the voice of the operation itself, saying, You may have created me, but you still dont know me as well as you should. Look harder, learn more, and well get along better.

Operations in these organizations are designed not only to do the job that needs to be done but to continually let the organization know that it still doesnt know all there is to know. -- Steven Spear, Chasing the Rabbit

Getting lean at Starbucks

Impact of Continuous Improvement in Health care Last year, amid rising health care expenses nationally,

C.P.I. helped cut Seattle Childrens costs per patient by 3.7 percent, for a total savings of $23 million, Mr. Hagan says.

And as patient demand has grown in the last six years, he estimates that the hospital avoided spending $180 million on capital projects by using its facilities more efficiently. It served 38,000 patients last year, up from 27,000 in 2004, without expansion or adding beds.

(NY Times)

Summary } The basic paradigm of Lean Operations } Lean Tools:

1. Quality at source 2. Batch-size reduction 3. Pull rather than Push 4. Cellular layout 5. Resource flexibility (Ch. 4) 6. Reducing processing variability (Ch. 4)

} Continuous Improvement: } Andon } River Analogy

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Next:Service Operations

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