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Altarum Institute The Boeing Company Messier-Dowty Inc. a SNECMA Group Company

3520 Green Court, Suite 300 Ann Arbor, Michigan 48105

Integrated Defense Systems 100 Airport Way St. Louis, MO

574 Monarch Avenue Ajax, Ontario L1S 2G8 Canada

© 2003 Altarum Institute, The Boeing Company, and Messier-Dowty Inc.

T. Phelps, Altarum T. Hoenes, Boeing

M. Smith, Messier-Dowty

Developing Lean Supply Chains A Guidebook

December 2, 2003

Developing Lean Supply Chains iii

Preface This guidebook grew out of a fortunate set of discussions among Chris Mallow, then of Boeing, John Eash of Boeing, Mitch Fleischer of Altarum, and Mike Smith, of Messier-Dowty. From their discussions came the idea of applying lean approaches across a Boeing supply chain. The concept grew from there into the SPANS Supply Chain Value Stream Management (SCVSM) project.

The goal of SPANS is not just to do projects but to perform innovative work and deploy the results across Navy prime contractors and their supply chains. Hence the concept of this guidebook was always seen as a key outcome of the SCVSM project.

Guidebook Focus We focus on what is beyond the “traditional” lean toolkit. That being said, people at least familiar with lean should be able to understand the basic ideas presented here, if not put them into direct practice. If you need more information on lean in general or specific lean tools, Appendix E lists a number of recommended sources for more information. More important in the long run, if you do not have an experienced lean practitioner on your team, you should bring someone who can provide that expertise into the team.

Target Audience This guidebook is written for experienced lean practitioners who want to expand their operational scope to address value streams comprised of multiple-tier supply chains. Accordingly, this guidebook is written with the assumption that the reader is already familiar with lean manufacturing concepts and tools which are well described elsewhere, including value stream mapping.

The Top of the Supply Chain We chose to have consistent terminology throughout the guidebook to avoid adding confusion. Therefore, we have written the guidebook with the primary user described as a prime contractor in the defense industry. Use of this approach is certainly not limited to that group of companies. OEMs (original equipment manufacturers), the commercial equivalent of prime contractors, are also likely users. They need only substitute “OEM” for “prime contractor” throughout the guidebook. Suppliers large enough to have the necessary resources to work with their own supply chains may want to do so using this approach. These companies will often supply large, complex systems of their own. Examples of this type of supplier are piston and turbine engine manufacturers, supplying engines to the trucking, combat vehicle, ship, and aircraft industries. Such large suppliers often have complete responsibility for the design and manufacture of their systems and are completely responsible for their own supply chains. The top of the supply chain could also be a repair facility such as a depot.

Developing Lean Supply Chains iv

Acknowledgements The primary key team members who were critical to the success of the SCVSM project were:

• Chris Mallow, Boeing, who led Boeing’s efforts in the early stages of the project • Ross Green, Altarum, the unsung but highly appreciated documenter of the supply chain

assessments • Mitch Fleischer, key to developing the original idea and contributor to the early planning and

assessments

Our thanks go to the people of the nose landing gear supply chain who contributed to the project. There are far too many to mention all by name and their contributions are uncountable, but their companies are:

• Boeing Integrated Defense Systems • Messier-Dowty • Cam-Tag Industries • S&L Aerospace • Tecnickrome

• Vac Aero • Wyman Gordon • Superior Plating • Carpenter Technology Corporation

The guidebook benefited from the input of reviewers and contributors, in particular:

• Steve Hoeft, Altarum, who also helped in the supply chain with lean expertise • Susan Moehring, TechSolve, who provided input on performance measurement and observed

the process to assist in deploying the approach

The SCVSM project was a part of the SPANS Program. Neither the project nor this guidebook would have happened without the support of:

• Leo Plonsky, Office of Naval Research (ONR), SPANS Program Manager • Dennis Simon, Advanced Technology Institute, SPANS Executive Director

Funding for the SPANS Program, including the SCVSM Project, was provided by the Navy Manufacturing Technology Program within the Office of Naval Research.

Developing Lean Supply Chains v

Table of Contents Preface .................................................................................................................................................. iii Acknowledgements .............................................................................................................................. iv Introduction .......................................................................................................................................... 1

How to Use This Guidebook ............................................................................................................. 1 Key Thoughts and Examples ................................................................................................... 2

Lean Supply Chain Concept .............................................................................................................. 3 Supply Chains Defined ............................................................................................................ 4 Characteristics That Make Supply Chains Different ............................................................... 5 Supply Chain Performance ...................................................................................................... 7 The Uniqueness Misconception............................................................................................... 8

The Overall Lean Supply Chain Process ........................................................................................... 8 Selecting a Supply Chain ................................................................................................................... 10

Identify Performance Goals ............................................................................................................. 10 Identify the Assembly and First-Tier Supplier ................................................................................ 11 Encourage First-Tier Buy-in............................................................................................................ 14 Document the Supply Chain............................................................................................................ 15

Assess the Current State .................................................................................................................... 19 The Core Assessment Team ............................................................................................................ 19 Assess the First-Tier Supplier.......................................................................................................... 20

The First-Tier Supplier Assessment Team ............................................................................ 21 Selecting the Focus Parts or Subassemblies .......................................................................... 21 Conducting the First-Tier Assessment................................................................................... 22 Draft First-Tier Future-state Map .......................................................................................... 24

Assess the Prime Contractor............................................................................................................ 24 Prime Contractor Assessment Team...................................................................................... 25 Prime Contractor Assessment Process................................................................................... 25 Draft Prime Contractor Future-state Map.............................................................................. 26

Obtain Sub-Tier Supplier Buy-in..................................................................................................... 26 First Supplier Summit............................................................................................................ 26

Provide Lean Awareness Training to the Suppliers......................................................................... 29 Training Location .................................................................................................................. 29 Training Attendees................................................................................................................. 29 Training Content and Structure.............................................................................................. 30

Assess the Rest of the Supply Chain ............................................................................................... 31 The Sub-Tier Supplier Assessment Team ............................................................................. 31 Sub-Tier Supplier Assessment Process.................................................................................. 32 Draft Sub-Tier Suppliers’ Future-state Maps ........................................................................ 32

Build the Current State Big Picture ................................................................................................. 32 Build the Current State Macro Value Stream Views ............................................................. 33 The Current State Timeline Chart.......................................................................................... 34 Building the Timeline Chart .................................................................................................. 36 More Complex Timeline Chart Example............................................................................... 37 Demand Amplification .......................................................................................................... 40

Move to the Future State ................................................................................................................... 42 Draft the Future-State Map.............................................................................................................. 42

Developing Lean Supply Chains vi

Develop the Opportunities List........................................................................................................ 45 Categorize Opportunities ....................................................................................................... 45

Finalize Future-state Map and Select Opportunities........................................................................ 47 Second Supplier Summit ....................................................................................................... 47

Implement Change ............................................................................................................................. 51 Execute Project ................................................................................................................................ 51

Plan the Projects .................................................................................................................... 51 Execute the Improvement Projects ........................................................................................ 52 Potential Pitfalls..................................................................................................................... 53 Other Issues to Consider ........................................................................................................ 55

Document Improvements................................................................................................................. 55 Celebrate Success and Move Forward............................................................................................. 56

The Third Supplier Summit ................................................................................................... 56 Inform Your Supply Chain .................................................................................................... 57 Inform Your Customers ......................................................................................................... 58

Appendix A – List of Acronyms ........................................................................................................ 59 Appendix B – Some Thoughts on Metrics ........................................................................................ 61

Time....................................................................................................................................... 62 Cost ........................................................................................................................................ 63 Quality ................................................................................................................................... 64 Measuring Supply Chain Improvement ................................................................................. 64

Appendix C – VSM Data Form Details ............................................................................................ 67 Business Data Collection................................................................................................................. 67 Manufacturing Data Collection ....................................................................................................... 70 Outside Processing Data Collection ................................................................................................ 73

Appendix D – Decision Matrix .......................................................................................................... 75 Appendix E – Lean Manufacturing Resource List.......................................................................... 77

Developing Lean Supply Chains vii

List of Figures Figure 1. F/A-18 E/F ............................................................................................................................. 3 Figure 2. F/ A-18 E/F nose landing gear as supplied to Boeing............................................................ 3 Figure 3. Conceptual set of supply chains............................................................................................. 4 Figure 4. More realistic supply chain set............................................................................................... 5 Figure 5. New weapon system supply chain, Prime to Prime flow of information and material. ......... 6 Figure 6. Alignment of value stream performance goals and leading indicators. ............................... 10 Figure 7. Example lead time impact.................................................................................................... 12 Figure 8. Suppliers sorted by maximum lead time. ............................................................................. 16 Figure 9. Sub-tier supplier lead time impact. ...................................................................................... 17 Figure 10. Example current-state macro-VSM.................................................................................... 34 Figure 11. Example current-state timeline chart. ................................................................................ 35 Figure 12. More complex example timeline chart............................................................................... 38 Figure 13. Example demand amplification chart................................................................................. 41 Figure 14. Example future-state macro-VSM. .................................................................................... 43 Figure 15. Example future-state timeline chart with current state....................................................... 44 Figure 16. Example VSM business process data collection sheet....................................................... 67 Figure 17. Example VSM manufacturing data collection sheet. ......................................................... 70 Figure 18. Example VSM outside process data collection sheet......................................................... 73

List of Tables Table 1. Example supplier list for the target assembly, sorted by lead time. ...................................... 15 Table 2. Rough estimates of the assessment time commitments......................................................... 20 Table 3. Sample assessment visit agenda. ........................................................................................... 28 Table 4. Symbol and icon explanation for timeline chart.................................................................... 36 Table 5. Example opportunity categorization summary...................................................................... 46 Table 6. Explanation of line items in VSM business process data collection sheet. ........................... 68 Table 7. Explanation of line items in VSM manufacturing process data collection sheet. ................. 71 Table 8. Explanation of line items in VSM outside process data collection sheet. ............................. 73 Table 9. Weighting table. .................................................................................................................... 75 Table 10. Decision matrix. .................................................................................................................. 76 Table 11. Example decision matrix for selecting a car to purchase. ................................................... 76

Developing Lean Supply Chains 1

Introduction “Lean manufacturing” has become a common theme in today’s manufacturing environment, for both commercial and defense industries. Lean manufacturing is the common name for concepts exemplified by the Toyota Production System, with the overall philosophy of eliminating the sources of waste in the manufacturing process. Many companies across the U.S. are working on adopting lean within their individual companies or individual sites (“within the four walls”). Most companies making lean progress soon find that their gains are limited unless their immediate suppliers, and sometimes their customers, also become lean. Even that will not get all the potential benefits. This guidebook presents methods to help take the logical next step: developing lean supply chains, which comes from treating supply chains as systems.

For an aircraft, ship, land vehicle, or other complex product, the majority of the end value is typically created by suppliers, which can be thought of as being organized into a set of supply chains. Each supply chain provides one or more parts or assemblies for the end product. In many cases, the supply chains are responsible for 75% or more of the overall cost of the weapon system. The general trend across defense and commercial manufacturing industries is to further increase the portion of the product value that is created in the supply chain, while reducing the number of direct suppliers to the prime contractor1. The result of that is fewer suppliers providing larger portions of the end product. For example, Boeing purchases the aft two-thirds of the F/A-18 E/F fuselage, a rather large chunk of the airplane, as a unit from Northrop Grumman and the engines from General Electric. Thus the individual first-tier suppliers become more important while at the same time the prime’s resources to work with suppliers can better focus their efforts.

How to Use This Guidebook

You are implementing lean concepts in your company and beginning to see real lead time and cost benefits. You are pleased with the improvements, but your key suppliers may be unable to provide you their parts or services in a way that fits well into your new, efficient internal production environment. Perhaps your customer insists on delivery of shipments in bulk to a schedule. Whatever the reason, you are prevented from taking full advantage of opportunities to reduce improve performance across the system. Helping you move forward in that bigger context is the purpose of this guidebook. We make no promise it will be easy, but the potential rewards will make the effort worthwhile. The supply-chain approach presented here adds the following elements to the traditional lean approach:

1 The methods we describe in this guidebook are applicable to a wide range of industries, both defense and

commercial. For convenience, however, we will use the term “prime contractor” for the top of the supply chain throughout this guidebook. In commercial industries, the comparable term is “original equipment manufacturer” (OEM). The prime contractor position could also be taken by just about any other organization with a supply chain, such as a military repair depot or supplier of complex products like turbine engines.


• Supply-chain level analysis

• Supply-chain level measurement

• Cross-supply-chain teaming, communication

• Cross-supply-chain participation in implementing improvements

This guidebook describes methods and concepts you can use as you build a lean supply chain. Each of the methods fits into an overall process step. The methods are organized into the following overall structure, in the order in which they will be used:

1. Select a supply chain – Deciding which subset of your overall supply network should be the focus of your lean supply chain efforts.

2. Assess the current state – Building a picture of what currently happens in the supply chain as components of the target assembly are built and the assembly completed, plus looking for opportunities to improve that process.

3. Move toward the future state – Deciding how the supply chain processes should look to reduce lead time and cost while improving productivity.

4. Implement change – Undertaking a set of projects that move the overall supply chain system from the current state toward the future state.

Before we get into the details of the process, we provide some background information on lean supply chains and metrics. There is also a set of appendices that provide further information:

• Appendix A – List of Acronyms. Provides the expansions for a list of acronyms and abbreviations.

• Appendix B – Some Thoughts on Metrics. Provides background information on lean supply chain metrics and measurement.

• Appendix C – VSM Data Form Details. Provides a set of data gathering forms to use in building the value stream maps.

• Appendix D – Decision Matrix. Provides a method for more rational, objective approach to making a choice from a set of alternatives.

• Appendix E – Lean Manufacturing Resource List. Provides a list of resources for learning about lean.

Key Thoughts and Examples

Throughout the guidebook, you will see “key thoughts” highlighted in boxes with red borders found along the left margin of the page. These are bits of advice based on team experiences, many of them lessons learned from the F/A-18 E/F nose gear project. Some may seem quite obvious but can be easy to forget or overlook in the course of assessing and working with multiple companies.

Also throughout this guidebook, we will use a particular supply chain as an example, the supply chain that produces the nose landing gear for the F/A-18 E/F (Figure 1 and Figure 2), which is built by Boeing at its St. Louis facility. Examples and


illustrations taken from this supply chain are highlighted in blue-bordered boxes found along the right margin.

Lean Supply Chain Concept

The focus of traditional lean manufacturing is delivering value to the customer. The primary mechanism for improvement is removing waste from the organizations processes with the customer’s needs in mind. The lean supply chain concept is built on the broader goal of providing value to the customer by optimizing the performance of the supply chain as a system. This guidebook is focused on identifying and addressing the opportunities a supply chain has to move toward being the best possible supply chain. A major part of that focus is waste reduction, of

Figure 1. F/A-18 E/F

Figure 2. F/ A-18 E/F nose landing gear as supplied to Boeing.


course, but in the supply chain context, optimal operations may mean increasing apparent waste in one part of the supply chain to allow a larger reduction elsewhere. An example is increasing safety stocks in the supply chain to lower them at the prime contractor. The goal is to optimize the performance of the supply chain as a whole, even though to do so might not match the theoretically “ideal” lean result of one-piece flow to “takt time.”

Supply Chains Defined

Before we go any further, we need to define what we mean by “supply chain.” It is a term freely bandied about but not always well-defined. For example, when you hear “supply chain management,” the people using the phrase are usually talking about managing their business relationships with their first-tier suppliers, including reducing the number of first-tier suppliers. The approach described here goes well beyond that limited concept to what would better be described as “supply chain development.” When we talk about supply chains in this guidebook, we are talking about something like Figure 3. The various shapes in the figure represent different types of supplier companies, which could deliver products such as complex assemblies, machined parts, injection molded plastic parts, sheet metal parts, forgings, castings, or raw materials. Or they could provide processing services such as heat treating, plating, shot peening, or painting. Of course, this view of a supply chain is a simplification. Real supply chains, taken in toto, are not really chains at all, but complex networks more like Figure 4, with all kinds of “tier-violating” connections.

Most people think of supply chains as being triangular in shape, one or a few customers at the top with each lower tier of suppliers containing more suppliers than the one above it. This is generally true for the first and second tiers. However, as the chain reaches down to the raw material suppliers, the number of suppliers tends to reduce, often dramatically. Thus the supply chain, from top to bottom, is more typically a diamond shape, i.e., narrow at the top and bottom, wide in the middle. The reduced number of raw material suppliers directly reflects their larger size, often much larger than their immediate customers in the supply chain, perhaps larger than the prime contractor. This offers an interesting dynamic in working with an entire supply chain, as the customers may have limited influence on their raw material suppliers.

Figure 3. Conceptual set of supply chains.

Prime

1st Tier

2nd Tier

3rd Tier

Prime

1st Tier

2nd Tier

3rd Tier


There is no particular reason a prime contractor needs to be at the top of the supply chain for this approach. It could go all the way to the end customer if that were of interest, perhaps passing through a distributor or other storage or preparation facility on the way. Similarly, the top level could be a supplier of a major system, such as gas-turbine aircraft or ship engines. The method proposed here will work in whatever supply chain makes sense. It is up to you to decide where the end points should be based on your specific situation. Since we need to have a way to present the approach, however, we will stick to the concept of the prime contractor at the top.

An example of a supply chain system is shown in Figure 5. This particular chain is oriented at new weapon system production. For commercial products, the leftmost box would be an original equipment manufacturer (OEM). The leftmost position could also be a large first-tier supplier capable of working with its own supply chains. For spare parts, the system might have a repair center in the leftmost position, where the “tier-1 supplier” might be the original prime contractor for the weapon system. The concept of addressing the supply chain as a system is appropriate in any of these cases, especially since business processes are as much a part of the system (and thereby potential locations of waste) as the manufacturing processes. In fact, the lead time for the purchased assembly from the view of the end product produced by the prime contractor includes all the business processes required to purchase the assembly and its constituent parts and processing. Thus the supply chain lead time and costs begin with initiating the purchasing process at the prime contractor and end with the incorporation of the assembly into the end product.

Characteristics That Make Supply Chains Different

There are two primary ways in which working with supply chains differs from working with individual companies. The first is fairly obvious: greater complexity. There is simply much more to consider when looking at several companies at once rather than just inside one of them. You might think that you could do the whole analysis at a higher level to find the supply chain issues. That turns out not to be the

Figure 4. More realistic supply chain set.

Prime

1st Tier

2nd Tier

3rd Tier

More Suppliers…

More Suppliers…

More Suppliers…

Prime

1st Tier

2nd Tier

3rd Tier

More Suppliers…

More Suppliers…

More Suppliers…


case. You really have to look at all the companies at the same level of detail you would use if you were looking at them individually2. Thus you will be looking at far more process steps than you would within an individual company. Fortunately, you do not need to consider the entire supply chain at that detailed level at one time. The detailed work is done in single company chunks. Still, needing the detailed information from all the companies means that significant resources are needed from all the participants, especially from the prime contractor and the first-tier supplier.

The complexity of the supply chain makes a challenge of comprehending it as a whole. The team that visits and works with all the suppliers will have a good understanding of the chain and how it operates. Communicating that to the other members of the supply chain is not easy, however. Some of the tools and methods described in this guidebook are directly aimed at helping with this communication.

The second major difference is the independence of the companies in the supply chain. They operate under their own management and are independent profit and loss centers, with all that entails. Whether in the role of supplier or customer, a company rarely has any real visibility into its trading partners’ activities. Even though a customer and supplier may meet on a regular basis, they do not routinely look at the details of each other’s business. Contacts are primarily between sales representative and purchasing agent, neither of which is in a position to work with the other company’s shop floor personnel. Besides the lack of visibility, each company’s goal is to maximize its own profits and protect its special capabilities, both of which

2 We will show why, when we describe the analysis process in detail and describe our findings in the nose gear

supply chain.

Figure 5. New weapon system supply chain, Prime to Prime flow of information and material.

Information Flow

Material Flow

PrimeContractor Tier-1 Supplier Tier 2 Supplier Tier 3 Supplier

Order/ReleasesMaterials & PartsInternal Requisitions/Orders

Repair Site to Repair Site Flow

Purchasing

Manufac-turing

Sales/Order Entry

Purchasing

Manufac-turing

Sales/Order Entry

Purchasing

Manufac-turing

Sales/Order Entry

Purchasing

Manufac-turing

Sales/Order Entry


tend to encourage wall building rather than cooperation. Further, for those companies in a supply chain that are not direct trading partners, such as the prime and the second-tier supplier, there is rarely any contact between them at all, much less cooperation.

An additional complication related to the independence of the companies is that the relationships between the companies are almost never exclusive. That is, each company has other customers and suppliers besides the ones in a given supply chain. The clout a company carries with its trading partner tends to depend on the customer’s portion of the supplier’s business. Although we normally think in terms of a supplier being smaller than its customers, that is not always the case. For example, when considering raw materials like steel, aluminum, or plastic resin, the supplier can be much bigger than the customer, potentially leaving the customer with minimal influence.

Supply Chain Performance

The basic goal of Supply Chain Value Stream Management (SCVSM) is to optimize supply chain performance as a whole. This involves the intelligent application of lean principles across the supply chain. The ideal lean concepts may need to be tempered with reality as in any other practical lean effort. In almost any optimization problem involving a large, complex system, the overall best performance may come as the result of what can be seen locally as less efficient.

For example, consider the case where heat treating material requires a specialized furnace too costly to operate on a batch size as small as the planned lot size. If the furnace is also too costly to replace, then larger economic batch sizes need to be accommodated. This can be done by letting small machining lot sizes accumulate in a “supermarket” just prior to the heat treatment operation and be distributed in smaller lot sizes from another supermarket after the operation. This kind of buffer is, in effect, a strategic placement of inventory to keep overall costs as low as possible.

In general, anything that classifies as waste within a company will also be waste from the supply chain point of view. A classic example is work in process (WIP), partially completed work sitting around waiting for its next processing step. WIP is waste whether you are looking at a single company or a supply chain. From a supply chain view, however, finished goods inventory at suppliers is really WIP. Hence it behooves the supply chain companies to work together to improve their scheduling, shipping, and processes, allowing them to hold only the amount of strategically located inventory necessary to guard against flow interruptions. This may seem obvious, but, because it requires coordinated efforts across multiple companies, is often difficult to accomplish.

Some kinds of waste, however, are really only visible and addressable when multiple companies within a supply chain work together. Work being done in one company and then undone and redone in another is a good example. Other examples include redundant systems, incomplete information, redundant information, duplicate inspections and approvals, and minimum quantity transportation (full trucks or containers).


In fact, building lean supply chains, just like building lean companies, is conceptually simple and largely driven by common sense, once people change the way they look at their work and their trading partners. The difficulty, of course, is in getting people to make that mental change to work towards common goals instead of individual, and sometimes conflicting, goals.

Of course, much of what you do in building a lean supply chain will help the suppliers with their other customers, if the suppliers adopt the internal changes you recommend. That is not necessarily a bad thing, as it is generally not in your best interest to have a supplier depend on you for too much of their business. That puts it too much at risk of financial collapse if your business drops, even temporarily. Most robust suppliers have a number of customers and are not dominated by any one of them.

The Uniqueness Misconception

There are plenty of cases documented in the literature of the huge savings companies have achieved by adopting lean techniques. Unfortunately, it is too easy for a company’s key people to say something like, “Yes, they did it, but we’re different from them,” implying that the same kind of solution will not be as successful in this

different environment. Regardless of what the people in a particular company think, companies of the same general type differ very little from one to another in the kinds of problems they have and the solutions for those problems. One job-shop machine shop will be little different from another outside of the specific differences in machine mix. Even companies that on the surface are quite different are really not when you look at what they do rather than what they make. A job-shop investment casting foundry will have much in common with a job-shop machine shop.

The Overall Lean Supply Chain Process

Because we expect the primary users of this guidebook to have a strong lean background, we do not lay out the entire process in step-by-step detail. To make sure that everyone understands the recommended process, however, we present it in outline form here:

1. Select the target supply chain

a. Identify the System/Product and associated performance goals that create the highest level context for optimization

b. Determine a list of likely first-tier candidates c. Select the first-tier supplier and target assembly d. Define the performance goals that create the specific context for

optimizing the performance of the selected supply chain e. Map the rest of the supply chain

Example: For one second-tier supplier, Messier-Dowty was 15% of their business, However, through direct sales and other supply chains, Boeing had over half of that supplier’s total business. Hence any general improvements benefited Boeing more than any other company.

Key thought: In nearly every company, people from top to bottom think they are unique and, therefore, others’ success or methods won’t apply to them. Reality is nearly always quite the opposite.


f. Select the set of sub-tier suppliers that afford the greatest opportunity to achieve the performance goals

2. Assess the current state of the supply chain

a. Assess the first-tier supplier, including performance baselines b. Assess the prime contractor, including performance baselines c. Bring supply chain companies together to explain the process and

gain buy-in from sub-tier suppliers d. Train the sub-tier suppliers e. Assess the sub-tier suppliers, including performance baselines f. Develop the macro view of the supply chain

3. Determine how best to move forward

a. Draft the future state b. Develop a list of opportunities for improvement c. Evaluate opportunities in relation to performance goals d. Bring supply chain together to present assessment results and

determine what improvement projects must be done

4. Implement change

a. Plan the improvement projects b. Execute the projects c. Measure and document improvements; compare to performance

goals d. Bring supply chain companies together to celebrate success, present

improvement results, and define roadmap for continuing work

5. Share results with current and potential customers as well as other suppliers in the same and other supply chains

The rest of this guidebook provides advice, approaches, and methods on taking a supply chain through the process. The guidebook sections reflect the above order and cover all the content described above. However, the Table of Contents reflects that some of the individual steps in the above outline are combined into subsections.


Selecting a Supply Chain To apply lean techniques to a “supply chain,” you first have to decide on just what that set of companies will be. Then you need to help them “buy into” the process. You should select the companies carefully to have the greatest probability of success, especially the first time you work with a supply chain. We will stick with “assemblies” from here on when talking about the first-tier supplier. Our experience has shown that individual parts are very rarely (if ever) at the top of the prime contractor’s list for cost, quality, or delivery issues in complex systems such as aircraft, missiles, ships, or land vehicles. The following methods should help you select a worthy assembly and the supply chain that produces it.

Identify Performance Goals

The framework for developing a lean supply chain should be defined through a series of measurable performance goals that are identified for the value stream at each level of the chain and for each participant in the chain. Figure 6 provides a simple example of this notion using lead time as a shared performance goal that has been translated for each member. This roll-up and flow-down alignment provides a means to focus, prioritize and link opportunities and actions as well as to predict with some confidence the measurable impact on chain performance that various actions at any level will produce. Figure 6 also shows that at each level of the chain the ability to predict performance of each participating member will be tied to measures (associated with the goals) that are defined at the process level, or at the level where the daily work is performed. These “leading indicators” are essential components of

3 This content and other performance goal and measurement content was provided by Susan Moehring of TechSolve.

Figure 6. Alignment of value stream performance goals and leading indicators. 3

PROCESS LEVEL PRODUCTION METRICS (Each Level of the Chain)

Yield Attendance Cycle Time WIP

SUB-TIER SUPPLIER PERFORMANCE GOALS Lead Time = 36 Days

TIER-ONE PERFORMANCE GOALS Lead Time = 48 Weeks

PRIME PROGRAM/PRODUCT LINE GOALS Lead Time = 18 Months

PROCESS LEVEL PRODUCTION METRICS (Each Level of the Chain)

Yield Attendance Cycle Time WIP








the overall performance measurement framework of the chain and need to be identified by each participating member of the chain for each goal that the chain seeks to effect. We will discuss this further as we discuss the succeeding steps in our process.

It is important that the top level goals be established at the start of the effort. Equally important is the discipline to define the starting points for these measures at the time you begin your optimization efforts, so you will have a basis for measuring the changes in performance that result from actions taken. The process of creating current state value stream and business process maps at each level of the chain provides the ideal opportunity to build the baseline.

The prime contractor’s basic performance goals for the product line or program should be used to establish the overall context for the optimization efforts. Generally, these goals are defined in terms of the customer and will include one or more of the following:

• Lead Time

• Acceptance Quality

• Delivery Reliability (On-time)

• Price

Identifying these and defining the specific targets for each of them provides the necessary baseline for analyses of relative supplier contributions. Example targets could be: a 25% reduction in lead time, a 100% reduction in quality problems detected by the customer, or 100% on-time delivery. That baseline will help the prime contractor target the first-tiers with the greatest potential to help accomplish them.

These goals will also provide the context for evaluating and selecting the changes and improvement actions that will take place across the chain in order to optimize performance. This allows for an objective ranking of the improvement opportunities based on their potential to contribute to the desired results.

Identify the Assembly and First-Tier Supplier

Trying to improve the entire set of suppliers for a given product all at once is impractical, to say the least. The resources simply will not be available to tackle such an enormous project, nor is that likely a good investment. As in so many situations, the Pareto Rule is a good assumption —at least 80% of the potential gain is to be found in 20% of the supply network. Thus the first step in the process is to identify which purchased assemblies have supply chains that are the best candidates for improvement. Once you select an assembly to look at, you will almost always be selecting a single first-tier supplier to work with as well.

Before identifying the supplier and assembly on which to focus the lean supply chain effort, the prime contractor should consciously determine its priorities for the overall supply network. Cost, lead time, quality, or some combination of the three, can be the primary reason for undertaking the lean supply chain process. Whatever the

Example: Boeing’s overall performance goals of drastic price and lead time reductions for the F/A-18 E/F were the starting points for setting supply chain performance optimization goals.


reason, it should be explicitly agreed upon up front by the various stakeholders within the prime contractor.

With a set of prospective assemblies and supply chains, factors to consider in selecting the target assembly to work with include:

• Impact – Typically, you will want to choose an assembly and its supply chain that have significant impact on your ability to meet your customers’ cost, quality, or delivery needs, if not some combination of the three. Your company’s purchasing or supplier management people will know who they are. For lead time and costs issues, you can look at supply chains that are having problems or are operating acceptably, but limit your options for improvement. For lead time, you may want to generate a picture like Figure 7, which shows the lead time of major components associated with their needed delivery dates in the context of the overall lead time of the aircraft. The longer the supplier’s lead time and the earlier its products are needed, the more likely that supplier will be on the critical path. In Figure 7, control surfaces are more likely to be on the critical path than wings because they are needed so much earlier in the process. Avionics are highly likely to be on the critical path because they have such a long lead time. You can also choose to look at a supply chain with known delivery problems. Quality is somewhat different. You are usually only going to be concerned if there are quality issues such as high rejection rates, high failure rates, or high warranty costs would be of interest. The basic consideration is that the chosen supply chain somehow impacts or restricts your own lead time, cost, or quality, regardless of whether the supply chain can be considered a “problem” or not.

• Supply chain complexity – Simple supply chains will likely not have made the cut to get to this point, but supply chains can be too complex as well. For example, the jet engine for an aircraft is a very high-cost and long lead-time

Figure 7. Example lead time impact.

1 2 3Months

4 5 6 7 8 9 18

Control Surfaces

12 13 14 1510 11 16 17

Landing Gear

Engines

Aircraft

Wings

Avionics

Note: This chart is provided for example purposes and does not reflect an actual aircraft.

Example: For the nose landing gear, lead time was the primary issue, with cost a significant, but secondary issue.

Key Thought: Lead time is often the best focus, and the highest lead time impact will come from addressing the critical path.


assembly; however trying to work with an entire set of suppliers for the engine at one time is too much to handle. The goal, therefore, is to choose an assembly that is neither too simple nor too complex. For your first experience or two, think in terms of an assembly with 8 to 25 major parts in the assembly, though the total part count could be higher (bushings, fasteners, fittings, etc.). We are not suggesting that you will work with that many suppliers, since you will probably receive multiple parts from each supplier, whether separately or in subassemblies. Once you have experience doing supply chains of this complexity, you may feel comfortable taking on more complex assemblies and supply chains.

• Supplier resources – If the first-tier supplier heading a particular supply chain is a large company with substantial resources of its own, then it may well make sense to encourage that supplier to lead its own lean supply chain projects. Again the jet engine example is a good one, since the major suppliers — General Electric, Pratt & Whitney, and Rolls Royce — are all major companies in their own right, with their own supplier development organizations. They are not only capable of taking on this kind of project on their own, they will likely prefer to do so.

• Supplier lean capability – You will need to include other lean expertise on the core team leading the process. In a multi-tier situation, therefore, we strongly recommend that the first-tier supplier already be implementing lean. Without a lean background, the first-tier supplier will not be able to contribute to the assessment and improvement processes, throwing much more responsibility and effort on the prime contractor. Further, the credibility of the proposal will be weaker without positive first-tier experiences to share with the sub-tier suppliers. If you identify such a chain, take the time to get the first-tier supplier moving forward on lean internally first and save the supply chain approach for the future. Any lower-tier suppliers already working to become lean are a bonus. Your initiative should take such suppliers into account and be sure to compliment and build on any previous work.

• Willingness – The first-tier supplier has to want to work with its customer on supply chain improvement. The concept will not work without their enthusiastic cooperation. That means the first-tier supplier has already made a real start at implementing lean manufacturing and has recognized the need to bring its own suppliers along to make real progress. One of the key lessons learned in piloting this approach is just how important the active involvement of the first-tier supplier is to accomplishing change in the sub-tier suppliers (all the suppliers below the first tier). Before finalizing your selection, you need to take the idea to the most likely candidate first-tier suppliers and determine their willingness to participate.

• Supply base rationalization – Having many suppliers for a given kind of part leads to waste such as failure to get quantity pricing or the excess overhead costs of managing multiple suppliers. Too few suppliers, on the other hand, raises the risk of major problems if a supplier cannot deliver. By supplier

Key Thought: It is important that the first-tier supplier already be moving down the lean path.

Key Thought: The active participation and commit-ment of the first-tier supplier throughout is critical. It is their supply chain you are going to work.

Example: Messier-Dowty’s willingness was a key factor in selecting the nose landing gear as the target assembly. They had already recognized the need to work with their suppliers and were ready to commit the personnel.


rationalization, we mean working to get the optimum number of suppliers for a given type of part or assembly. If you are considering reducing your supply base, it makes sense to bring the ones you think are “keepers” into the lean supply chain approach. If they respond well and improve their capabilities and performance, you can increase your comfort level in relying on them for a larger portion of your business. If you have too few suppliers for a part or assembly and are unable to add new ones, the lean supply chain approach can improve the viability of the suppliers you do have and reduce the likelihood of them having problems that, in turn, affect you.

One tool to help with selection is a decision matrix in which you identify “must-haves” and “wants” and then use those to compare the supply chains. There are many variations on this type of tool, but one version is described in Appendix D.

Encourage First-Tier Buy-in

The first-tier supplier’s active participation will be critical to the success of the lean supply chain concept. Although willingness to participate is one of the key

requirements addressed in the selection process, you need to make sure that your selected first-tier supplier is ready to work with you and improve their supply chain. That is, you need to bring its management and key personnel into the project not just as participants, but in a fundamental partnership role.

Most first-tier suppliers of complex assemblies have a great deal of control over the selection of their suppliers. They will likely, and rightly, consider their suppliers to be their responsibility. This makes their active involvement even more important. The first-tier supplier will be a critical part of the effort to:

• Gather and assemble the supply chain map data

• Invite sub-tier suppliers to join the effort

• Arrange supplier summits (invitations and meeting logistics)

• Lead the sub-tier supplier selection process

• Take part in supplier and customer assessments and improvement activities

To do that means that the first-tier supplier should expect to dedicate from one-half to all of their core-team person’s time over the course of the project (a minimum of a year, probably longer). The more complex the supply chain chosen, the greater the time commitment. The first-tier supplier will also need to provide other people as needed to:

• Make meeting and visit arrangements

• Participate in internal data gathering and improvement projects

To get the first-tier supplier to buy into the concept will likely require some detailed explanation of expectations and what the commitment means. You can expect that to

Key Thought: The first-tier supplier and its personnel must be committed to the project, ready to spend the time needed to work with the other companies in the supply chain.

Example: The nose gear first-tier core team member spent about two thirds of his time over the 22-month course of the project.


take one or more face-to-face visits. It will, of course, make the commitment easier to get if they are already thinking of taking lean concepts to their suppliers. The important point is that you should not move forward without a strong, long-haul commitment from the first-tier supplier based on realistic expectations. The supplier’s commitment will be based on expected benefits it will see, so discussion of the goals and metrics for supply chain improvement will be important. It is wise to

clarify expectations with the first-tier suppliers up front. One way to do that is to establish a statement of work (SOW) for the first-tier supplier.

Document the Supply Chain

Once a purchased assembly and its supply chain have been identified as the target for the lean supply chain work, the full supply chain for that assembly needs to be understood in substantial detail. That understanding needs to be based on the particular concerns shared by the prime contractor and first-tier supplier. Therefore, the core team needs to determine what the critical criteria for selection are going to be before collecting the data. Cost, quality, and lead time are likely to be key elements, but others might be important as well, such as a particular supplier’s strategic importance. For example, a particular supplier may not be a major cost or lead time factor on the target assembly, but might have major contributions to other assemblies that makes them worth bringing into the project. Or perhaps the total first-tier spend (not just for the target assembly) at a second-tier supplier is so large that it makes that supplier strategically important. These situations bring leverage for buy-in and promise a broader benefit.

Table 1. Example supplier list for the target assembly, sorted by lead time.

Supplier Max. Lead Time

Total Spend per Shipped

Assembly

Quality Rating Supplier

Max. Lead Time

Total Spend per Shipped

Assembly

Quality Rating

Supplier G 44 weeks $120,000 1 Supplier O 14 weeks $900 1 Supplier V 43 weeks $214,000 3 Supplier D 13 weeks $1,200 2 Supplier Z 43 weeks $340,000 1 Supplier AA 12 weeks $3,000 3 Supplier Y 41 weeks $145,000 2 Supplier T 8 weeks $500 2 Supplier C 41 weeks $45,000 2 Supplier K 6 weeks $800 1 Supplier M 40 weeks $150,000 1 Supplier I 3 weeks $500 1 Supplier N 35 weeks $39,000 1 Supplier B 2 weeks $700 2 Supplier Q 32 weeks $5,000 4 Supplier W 2 weeks $4,000 1 Supplier R 24 weeks $3,000 1 Supplier X 1 weeks $500 2 Supplier J 16 weeks $25,000 3 Supplier S 1 weeks $300 2 Supplier L 16 weeks $4,000 2 Supplier P 1 weeks $1,000 1 Supplier H 15 weeks $3,500 1 Supplier E 1 weeks $300 1 Supplier U 15 weeks $4,000 1 Supplier A 1 weeks $100 1 Supplier F 15 weeks $11,000 2 Supplier AB 1 weeks $100 2

Note: These data are provided for example purposes and do not reflect any actual supply chain.

Key Thought: Clearly describe your goals and metrics for the supply chain to the first-tier supplier.


As you might expect, the first-tier supplier is the key to gathering the information. The first-tier supplier starts by generating a list of all the second-tier suppliers and attaches some key metrics to each one. Information to be gathered includes each supplier’s maximum quoted lead time for its parts in the target assembly, the total price (to the first-tier supplier) of all the parts it supplies for one assembly, and the supplier’s quality rating. Table 1 is an example, sorted by the maximum lead time each second-tier supplier has out of all the parts it contributes to the overall assembly.

Another way to look at this is through the chart shown in Figure 8, which will likely provide a better sense of how the suppliers relate to each other. Looking at this chart quickly tells you which suppliers are the ones with the greatest impact in lead time and cost. Though the correlation between cost and lead time is fairly strong, it may not be perfect. As an example, you will notice that the ordering of lead times and total spends are not the same in Figure 8. Just because a particular supplier does not supply a lot of the end value does not mean that that supplier is not important in terms of lead time.

The lead time for the end product produced by the prime contractor is dependent on the critical path for parts and assemblies. You need to work with the first-tier supplier to decide the relative importance of cost, lead time, quality, and any other criteria the core team has chosen. That prioritization, combined with the appropriate charts, will help you select the set of second-tier suppliers you wish to pursue further. Just as at the aircraft level, if lead time is important to you, you should look at the critical path part or parts. In Figure 9, the shock strut cylinder and piston are likely to be on the critical path because of their long lead time and relatively early delivery requirement. You should also consider supplier representation. You will get more

Figure 8. Suppliers sorted by maximum lead time.

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out of the process if you choose a mix of supplier types that represents the first-tier’s supply base than to have multiple examples of only one or two types of suppliers.

Then, with the selected set of second-tier suppliers, you need to go through the same selection process again, determining the key third-tier suppliers. You have already

decided whether your focus will be cost, quality, or delivery, so the selection process becomes a bit simpler. You might need to go through the process yet again to the fourth tier at a key third-tier supplier or two, but only if there is a fundamental contribution to the overall focus. The point is to understand and select the key contributors to the chosen focus.

Besides the primary considerations of lead time, spend level, and quality, other factors you may want to consider when selecting which suppliers to work with include some of the same kinds of things you looked at when selecting the first-tier supplier:

• Willingness – The more willing the sub-tiers are to improve their operations or meet their customers’ needs, the better the likelihood of success

• Supplier resources – Whether the sub-tier suppliers’ resources are adequate to support their participation, including training, assessment, and the resulting improvement projects

• Supplier lean awareness – Any sub-tier suppliers already working to become lean are a bonus

• Supply base rationalization – First-tier suppliers are also often working to reduce the number of suppliers with whom they work

Figure 9. Sub-tier supplier lead time impact.

Hydraulic lines

Trunnion

Wheels

Brakes

Electrical Harnesses

Shock Strut Cylinder & Piston

Landing Gear

14 15 1610 11 12 13Months (Aircraft Time Frame)

3 4 5 6 7 8 9

Note: This chart is provided for example purposes and does not reflect an actual landing gear.

Key Thought: Lean supply chain projects will be large projects that may extend over a year or more. Top-level commitment at all suppliers is necessary to maintain continuity.


When going to the next level of suppliers, the same process repeats, although perhaps with less time spent on the details. Again, especially for larger firms, visits may be necessary to gain commitment.

In some cases, it may be appropriate or necessary for the first-tier, and possibly the prime, to pay one or more sub-tier suppliers a visit to provide more information and encourage their participation. Physical presence by the customer tends to carry substantial weight.


Assess the Current State You have identified your target assembly and the key suppliers in its supply chain. Now, as in any lean project, you need to build a picture of the current state of the supply chain. That is, you need to document how the supply chain currently operates when producing the target assembly. This step is all about gathering the data, building the individual company value stream maps (VSMs), using those to build the macro-VSM, and analyzing the results. The fundamental difference between the supply chain approach and the more traditional VSM approach is that much more attention will be paid to activities and interactions outside an individual facility.

The primary reference for building a macro-VSM is Seeing the Whole, by Jones and Womak4. We use the same notation and terminology as in that book with one major exception. We use the term “macro-VSM” instead of “extended VSM” for the supply chain level view. We believe that “macro” has a stronger implication of treating and viewing the supply chain as a system.

The Core Assessment Team

An effective overall current state assessment will take several pairs of eyes seeing the whole supply chain in detail. Continuity is necessary to avoid missing key insights. Therefore, you need a core assessment team that is directly involved in planning and conducting the assessments at every company, from the prime to lowest tier, and then doing the macro-level analysis. Piecemeal assessment teams risk missing aspects of the big picture. Selecting the members of the core assessment team is, therefore, not something to take lightly. They will need to be available and to work together for the entire supply chain assessment.

We recommend a core assessment team of at least three people:

• The person from the prime contractor with primary responsibility for the target assembly, who should have the following characteristics:

– Technical knowledge of the target assembly and its application – Knowledge of end-user requirements – Experience with suppliers – Holistic view of the supply chain

This may be the purchasing agent, but is a separate role in many large companies. Thus this person may come from purchasing, but may also come from a “supplier management” or other systems manager group. It is possible that meeting all these characteristics may require more than one person.

• An experienced, practicing lean expert. This person can come from the prime contractor, either some supplier development or internal lean function, from the first-tier supplier, or from a third party source. This can be a lean consultant, as long as he or she is conscious of the issues related to a supply chain system.

4 Seeing the Whole extends the traditional VSM approach from Learning to See, by Rother and Shook.


• A person from the first-tier supplier who needs to have these characteristics: – Familiar with the first-tier supplier’s internal lean deployment plan – Knowledgeable about the product – Has a working relationship with the suppliers – Has authority to make change happen at home

Like all the core team, he or she will be taking part in the entire assessment.

Table 2 provides a rough estimate of the likely range of time commitments required for the assessment part of the project, assuming a supply chain with about 10 total companies to assess. These times include preparation, travel, on-site assessment, and off-site assessment documentation. The core team time is captured for the entire assessment process. Other personnel time is shown on an activity by activity basis.

Assess the First-Tier Supplier

We strongly recommend that you start building the current-state picture by assessing the first-tier supplier. The primary reason is to get the best understanding of the target assembly and its supply chain. The first-tier supplier assessment will most likely require more time than the later assessments for a number of reasons:

• The core assessment team may not have worked together before

• Some of the team members may be lacking VSM experience

• The supply chain focus adds new and unfamiliar elements to the assessment

• The team’s unfamiliarity with the details of the assembly and its supply chain

• The need to select a small set of parts as a focus for the rest of the supply chain assessment process

Table 2. Rough estimates of the assessment time commitments.

Participants Time Commitment

Core Team (entire process) Prime contractor member 40-60 days Lean expert 40-60 days First-tier member 60-80 days

Additional Assessment Participants (per assessment) Information providers at assessed company 2-10 days

First Supplier Summit Attendees Prime 6-8 days First-tier 6-8 days Sub-tier supplier (each) 2-5 days


As a “shakedown cruise,” there will inevitably be delays and inefficiencies. At its heart, though, the assessment process will be quite familiar to someone who has done traditional VSMs and should feel like a logical extension.

The First-Tier Supplier Assessment Team

In addition to the core team, the team for the first-tier supplier assessment should include some additional members:

• The person at the first-tier supplier with responsibility for the target assembly

• If possible, representatives from one to three of the identified second-tier suppliers, the number depending on the complexity of the assembly

The second-tier supplier people are desirable as informed outsiders that have the advantage of not necessarily seeing things the same way as your people do. That can help ensure process steps are not missed and encourages “out-of-the-box thinking.” Having suppliers involved also helps show them the benefits of the assessment and helps prepare them for their own assessments.

Additional people at the first-tier supplier will become participants in the assessment as it focuses on their parts of the overall process. These will likely include one or more of the following types of people: production planners, shop floor supervisors, machine operators, quality control supervisors, inspectors, purchasing agents, and any other personnel with expertise on some aspect of the business and production processes involved in making the target assembly.

Selecting the Focus Parts or Subassemblies

When you assess a member of the supply chain, you are looking for opportunities for improvement. One of your end goals should be to identify categories or types of opportunities that can be addressed by broad, programmatic improvements, but they will be generalizations of the specific opportunities you find. Just as in a traditional lean assessment using VSM, the only way to really identify opportunities is by focusing the assessment on a few specific parts as you work your way down the supply chain. That way you can get down to the nitty-gritty details you will need to really understand what is happening in the supply chain. Therefore, you need to determine which parts or subassemblies to use for the assessment. Data should drive this choice.

Characteristics of a good focus part5 include that it passes through the selected suppliers and:

• Has the longest or nearly the longest lead time of all the parts, especially if it is on the critical path for the end assembly

• Has a high cost relative to other parts or the overall target assembly

5 Just as we focused on an assembly at the overall supply chain level, working down in the supply chain we

will refer only to parts even though they may actually be subassemblies.

Key Thought: Having outside eyes take part in an assessment can be very valuable.


• Has a high scrap or rework rate

• Is representative of the manufacturing processes used by other parts

In general, you are looking for key examples of the major types of parts or subassemblies in the overall target assembly. Once you select them, you can move forward with the assessment.

The part selection process is best done as a discussion among the assessment team and key first-tier supplier personnel based on data and the criteria chosen in the supply chain selection process. Depending on the nature of the overall target assembly for the supply chain, you may select one or more specific parts or assemblies as your focus. Performance goals such as cost, lead time, and quality issues now come back into consideration. You want to focus on parts or subassemblies that will contribute to achieving the performance goals. Fortunately, there will generally be a good correlation between such things as the lead time and the cost of the object, making the selection a bit easier.

Conducting the First-Tier Assessment

Once the parts or subassemblies have been selected, the actual assessment process can begin. The core team needs to build the VSM for this purpose to ensure consistency across the different VSMs, a full understanding by the team, and the opportunity for the team to ask questions and seek clarification. Relying on a VSM done by someone else, including other people within the company, will not support the necessary data gathering. The process basically follows a standard VSM approach with the added element of supplier and customer issues:

1. Walk the business processes that have to happen for the purchased part or subassembly to be added to the end assembly. For each business process step, besides the traditional VSM information, investigate how the process step is affected by the customer or suppliers, such as whether the step exists to meet a specific customer need.6

2. Walk the manufacturing process from the point where the part comes into the facility. Capture the standard VSM information at each manufacturing process step. As with the business processes, check whether each process step is there to meet some customer requirement, especially if the process step does not add value to the part or subassembly.

3. Review the business and manufacturing process steps one by one with cognizant personnel, looking for opportunities for improvement. Throughout, keep checking into the impact of the suppliers and customer on each process step.

Throughout the data gathering and review, you will want to capture all the details of the process as well as all the issues and opportunities that have been raised, whether purely internal to the company or involving external organizations. If the supplier

6 Suggested data gathering sheets for building the VSM are found in Appendix C. Three sheets are provided

for business processes, internal manufacturing processes, and outside processes.

Key Thought: The core team needs to con-sciously collect infor-mation on company-to-company interfaces.


has an up-to-date VSM for one or more of the processes, the team will still need to walk the process to understand it, but they will spend somewhat less time doing so. The review, however, will become more important as the primary mechanism for identifying the supply chain opportunities.

You are, of course, free to use whatever VSM data gathering techniques you prefer. We found that collecting the data on 8.5 by 11 paper forms developed as extensions to the traditional VSM data box to be quite effective. They can then

be taped up on the wall in sequence. Once posted, you can add the value-added/non-value-added discriminator line underneath. This worked quite well as a simple way to build the map while allowing plenty of room for discussion and modification. If you wish, you can have a set of other VSM icons prepared and stick those up with the data sheets in the appropriate places. Although a bit different from the traditional

VSM method of sketching on an 11 by 17 piece of paper, we found that the visibility provided by the larger format works better for the kind of group discussions that are important to a supply chain assessment. It also supports a larger number of process steps than can easily be captured on a single sheet of paper.

From the supply chain view, the important aspect is to make sure you collect data on interactions with companies outside the first-tier supplier. In

particular, when there is a transfer of information or materials, the time it takes to accomplish that exchange needs to be captured and broken down into transportation time, outbound or inbound as appropriate, and in-house time at the supplier. At this point, you should use the quoted lead time from each supplier. For the selected suppliers that will also go through the assessment process, the quoted times will be validated with those from their assessments.

The assessment team should plan to leave the VSM, whether sketched or data sheets, behind for the supplier to use, preferably still hanging on the wall. That way the map stays in the supplier’s view, keeping the process visible to them, encouraging them to act on any quick hitters that were identified,

and begin work on their longer-term internal opportunities. The supplier also retains ownership of the map, even though someone else may generate a “pretty” version. However, the core team needs to build a VSM diagram that they can take back for reference and to use in building the macro-VSM. We found that with a three-person core team, the diagram could be constructed on paper by one of the team members during the review process

(assessment step 3 above). As backup, you can take a series of pictures of the map on the walls using a digital camera.

When the VSM contains more than a few steps, it is quite helpful to build a computer version of it for future manipulation. This version is especially useful when capturing potential future states’ value-added and non-value added times. This is another reason for leaving the original form posted on the walls at the supplier.

One of the most important aspects of the macro-VSM assessment process is the inter-company interactions that occur. That is why it is so important to have appropriate

Key Thought: The core team needs to agree up front on a consistent approach for all assessments.

Key Thought: It is important that the assessment team captures a correct version of the initial current state at each company.

Example: In the nose gear case, we built the computer versions of the VSMs directly in Microsoft Excel. The formatting is a bit different from traditional VSMs, but it turns out to be quite easy to do and the calculation ability comes along automatically Key Thought:

Throughout the assessments, capture metrics that fit the overall goals.


representatives of the prime contractor and, if possible, second-tier suppliers taking part in the first-tier supplier’s assessment. The resulting discussion will help you really begin to see the effects and impact of one company on another, both positive and negative.

Draft First-Tier Future-state Map

The process of developing the first-tier supplier’s initial future-state map should begin as soon as its current-state map is complete. Ideally, the assessment team should help the company draft its future-state map as a part of the current-state assessment visit. This is a very important step. It is the differences between the current- and future-state maps that define what the supplier should do. The future-state map should reflect both the performance goals of the first-tier supplier and of the supply chain. The supply chain performance goals should be interpreted at this point to clarify the first-tier’s contribution.

The team needs to recognize that the future-state map is not yet aligned with the broader macro-future-state map, for the simple reason that the macro version does not yet exist. Once the macro-future-state map has been determined, the individual future-state map may require revision. You could argue that you should wait until the macro future-state map has been determined. There are two reasons not to wait. The first is that the individual future-state maps, even though in draft form, will help in the development of the macro future state. Secondly, a company almost always can do plenty to improve itself without the overall future state being in place. It is very important that companies not wait for the rest of the supply chain to move forward with their own internal lean activities. They need to see some early successes. The majority of the internal opportunities will be unlikely to have a negative impact on the supply chain, especially if the supplier is just beginning to implement lean concepts. The core team should, however, be cognizant of the possibility and guide the supplier’s early efforts toward those activities least likely to have a negative effect at the supply chain level.

Assess the Prime Contractor

Because of the impact of the prime contractor’s processes on the supply chain, you should assess those processes as well. Since the supply chain is probably providing an assembly to the prime contractor, the prime may not do much physically with the assembly beyond install in the end product. On the other hand, the prime may do some further subassembly work before attaching the purchased assembly in its final position. Regardless, the goal of the prime contractor assessment is to look at the business processes that purchase and receive the target assembly, as well as follow what happens to it after it arrives at the prime and until it is incorporated into the end product.

The prime contractor’s assessment should follow the first-tier assessment. This is so the prime contractor’s future-state map is available to set the context for the subsequent sub-tier supplier assessments and draft future-state development.


Prime Contractor Assessment Team

The assessment team for the prime contractor’s operations should be made up of at least the core team, thereby automatically including the first-tier supplier. Having the first-tier supplier involved in the prime’s assessment has the same effect as having second-tiers involved in the first-tier assessment. It adds to the possibility of useful ideas from a knowledgeable outsider. It also opens the possibility of finding and addressing issues that might otherwise be missed.

The core team should consider bringing in representation from the second-tier suppliers. If that can be made to happen, it provides yet another set of eyes, helps emphasize the prime’s support for the overall process, and encourages sub-tier supplier responsiveness.

As with the other assessments, additional people at the prime will become participants in the assessment as it focuses on their parts of the overall process. The set of likely people include much the same list as at the first-tier supplier: production planners, shop floor supervisors, machine operators, quality control supervisors, inspectors, purchasing agents, and any other personnel with expertise on some aspect of the business and production processes involved in purchasing and working with the target assembly.

Prime Contractor Assessment Process

The prime contractor assessment can be conducted at any time after the first-tier assessment. Whether this assessment is before, during, or after the sub-tier supplier assessments does not matter. The assessment process is basically the same as used for the first-tier supplier, except, of course, the target assembly has already been identified and will itself be the focus of the assessment.

1. Walk, at least conceptually, the business processes that have to happen to purchase, receive, and install the target assembly. In addition, you will investigate how the process step is affected by the supplier.

2. In the same manner, walk the manufacturing process from the point where the target assembly comes into the facility from the first-tier supplier to where it is incorporated into the end product. If there is outside processing that takes place on the assembly, capture that data as well.

3. Review the business and manufacturing process steps one by one with cognizant personnel. The review for each process step should include confirmation of the basic data as well as the reason for the process step and whether there is some way to eliminate the step, especially by changing the what the first-tier supplier does.

Example: The first-tier member of the core team found that when “dressing” the nose gear, Boeing had to undo and then redo a bracket that the first-tier supplier was completing. The first-tier supplier leaving it undone took out about two hours of labor per nose gear.

Key Thought: Treating the prime as part of the supply chain will likely be a new perspective.


You should use the same forms, style, and approach as with the first-tier supplier. Review the data with cognizant personnel and capture it all for the supply chain analysis.

Draft Prime Contractor Future-state Map

Of all the draft individual future-state maps, the prime contractor’s is probably the most important. The individual and macro future-state maps will be most effective if they reflect the context of the prime contractor’s future plans. Because the first-tier supplier’s draft future-state map is built first, it may be necessary to revisit it if the prime’s has much of an impact on how the two companies do business with each other.

Obtain Sub-Tier Supplier Buy-in

A fundamental difference between the supply-chain approach and the more typical supplier development work with selected first-tier suppliers is that with the supply-chain approach you will have much less freedom to select the sub-tier suppliers that will participate. As a result, there will be a mix of interest levels and capabilities at the different suppliers. Chances are good that the second- and third-tier suppliers will not be overly enthusiastic when first approached to take part in a lean supply chain project. Wary interest is a more likely response. The question most suppliers will have on their minds is: “Is this another flavor of the month? Are we in for another round of lots of talk and little action?” You and your first-tier supplier will have to convince them that this is the way you will be doing business in the future and you fully expect them to take part. The most likely active difference between this initiative and most in the past is that you will not just insist that they do something, but will be actively working with them and helping them to make it happen. Your shared goal is improving the entire supply chain to make it more competitive.

Addressing lead time as the primary focus of the assessment process will be the least threatening to the suppliers, even if cost reduction or quality improvement is the prime contractor’s primary goal. The prime contractor should make the supply chain selection based on the actual goal. However, when selling it to the suppliers, focusing on lead time reduction will keep them less defensive. That does not mean that the prime contractor should not state its interest in cost or quality.

First Supplier Summit

By the time you have completed the first-tier assessment, you should already have talked to each of the other suppliers you expect to participate. Completion of the first-tier supplier assessment is a good time to bring all the suppliers together to talk about the project and what it is going to do for them as a group. That is why we recommend having what we call a Supplier Summit soon after completing the first-tier assessment. The intended participants at the Summit are high-level representatives from each of the selected suppliers (hence the name “Summit”). We recommend holding this Supplier Summit at the first-tier supplier’s site. This emphasizes the leading role of the first-tier supplier as well as muting the sense of something being forced on them by the prime. You still need to “sell” the suppliers


on what you plan to do. The Summit is another opportunity to convince them that there is value to the approach and that it is in their best interests to participate. Collected as a group, they are more likely to react positively than they might

individually.

The first-tier and prime contractor should jointly present the content, emphasizing their intent to work together throughout the project. The content should be built around a presentation of the project and its expected results as suggested by the following agenda:

1. First-tier and prime contractor welcome – Beyond its face value, the intent of the welcome is, in large part, to reinforce the commitment of the prime and first-tier to a joint, cooperative project. This message needs to be reinforced continually.

2. Overview of the project – This is the big picture look at the project, including the concept, purpose, goals, and expected benefits. It will present the target assembly, the supply chain that builds it, and each company’s role in the production process. One of the points that should be made clearly here is the supply chain orientation and the concept of a team to carry out all aspects of the project. How this approach differs from traditional lean assistance or other types of supply chain development should also be explained.

3. Testimonial – Identify a company that has successfully implemented lean (ideally in a lean supply chain situation) and have its representatives speak about their experiences to your selected suppliers. The company can be from inside or outside the selected supply chain, but should not be the prime or first-tier supplier. There is nothing like a company of similar size, customer mix, and requirements to bring home the applicability of something that appears (and is) complex. A presentation like this can be one of the best ways to explain the “Why” of lean manufacturing as well as communicate some of the basic concepts. It will be a special bonus if the company can describe how their experience in a lean supply chain worked out.

4. Assessment process overview – Describe how each company will undergo an assessment, from the smallest sub-tier supplier to the prime contractor. Then explain what you will do with the information you gather and the nature of the overall view of the supply chain that will result. It is important that you make clear that you are not out to evaluate the suppliers. That is a different issue conducted through a different process. The goal of this assessment process is understanding.

5. The assessment visit – Explain how each assessment visit will take place, including rough timing for how long it will take at each company, who will attend, what will be required of the company being assessed, and what the results will be. A good way to do this is to talk through a sample visit agenda such as in Table 3. You will want to emphasize again that the goal of the assessment is to create a current-state view of what goes on at the company. It is not an evaluation, but a method to understand how things are now so we can determine how they can be better in the future, both internally and among the companies in the supply chain. It is also worth pointing out that the assessment may well identify opportunities the company can address right away (“quick

Key Thought: Clearly define the goals, roles, and expectations of the suppliers.


hitters”), either on its own or together with one or more of the other members of the supply chain.

6. Review first-tier assessment results – Having described how assessments work, you should use the first-tier supplier assessment as an example. Describe what happened, including how long it took, who from supplier’s personnel were involved, and who made up the assessment team. Then describe the results of the assessment, showing at least a piece of the value stream map and a list of the opportunities that you spotted. Especially point out any examples of opportunities that are linked to either the prime or sub-tier suppliers. Also be sure to point out any quick hitter opportunities, no matter how small.

7. First-tier facility tour – Especially for the sub-tier suppliers, a tour of the first-tier supplier’s facility will be a useful way to reinforce the lean concepts and opportunities identified in the first-tier assessment. The first-tier supplier needs to be as open as possible about opportunities and issues that appeared in the course of the assessment. The tour would work fine just in front of reviewing the first-tier assessment results.

8. Set up training – In preparation for the Summit, the core team should have set a date for a one to three day lean awareness training session to take place in the near future. The sub-tier suppliers should be invited to attend (at least two people from each) and provided with a brief outline of the content that will be covered. If a supplier is already moving down the lean path, then this training will likely be unnecessary for their personnel.

9. Set up remaining assessments – The core team should also come into the Summit with a calendar listing the available assessment weeks. There should be at least one week set aside for each second-tier supplier. Third-tier suppliers, especially processing suppliers physically near their customers, can

Table 3. Sample assessment visit agenda.

Activity Time (hrs)

Participants (besides Core Team)

Welcome & Introductions 0.5 VSM Overview 1

As many of upcoming participants as possible

Manufacturing Process Walk and VSM Construction 2-12 Operations manager, shop floor

supervisor(s), operators (as needed) Business Process Walk and Current-State VSM Construction 1-12 Production planner, bidding/quoting

specialist, operations manager Manufacturing Current-State VSM Validation 1-6

Business Process VSM Current-State Validation 1-4

Manufacturing Future-State VSM Construction 1-4

Business Process Future-State VSM Construction 1-4

Affected department managers and their key/lead employees


often be assessed in the same week as their second-tier customer, as they may only take a day or so to complete.

10. Discussion & wrap-up – Summarize what has happened over the two days of the Summit. List action items, including who is responsible and when they will be complete. Open the floor up for any further discussion or issues that people wish to raise.

You may want to invite a few extra key sub-tier suppliers in the Summit. That allows backups if one of the selected suppliers drops out. It also informs those additional suppliers that you and the first-tier are working on something that will very likely affect all suppliers eventually. That makes it worth their while to make the effort to pay attention to what is going on today.

Provide Lean Awareness Training to the Suppliers

Whether they have heard about lean or not, sub-tier suppliers not already actively applying lean concepts in their facilities will most likely need a substantive introduction to the details of lean techniques. We therefore recommend that the project team spend some time teaching key personnel from the sub-tier suppliers about lean techniques. We call this lean awareness training because we do not expect the suppliers to be able to go implement a lean program based on this training. Your

goal is to make sure that when the core team arrives to conduct the assessment, the suppliers have at least been previously introduced to the methods you are using. The goal is to avoid major surprises later in the process.

While this training could be provided in conjunction with the first Supplier Summit, the people who will be taking it may not be the same as the Supplier Summit attendees. The Summit will likely draw only

one person, maybe two, from each supplier. The training should have more. Furthermore, the suppliers are likely to want to go back to their companies and take some time to decide who to send to the training. The ideal situation is where a supplier designates a lead person for participation in the project and that person attends the training along with one or two others who will also likely participate.

Training Location

The lean awareness training should take place at a facility where the trainees can get on-the-floor experience and there is a room large enough in which they can gather to do their work. Most likely, that would be the first-tier supplier, though there might be better candidates in some situations. A possibility is holding it at the prime contractor’s site. The key is having access to a working shop floor that has already seen at least some lean implementations. That allows those new to lean concepts to see and to practice some of the things they have learned, a good technique for improving their understanding and retention of the information.

Training Attendees

At this stage, the training focus should be on key people from each facility taking part in the process. This should include at least a representative from management

Key Thought: There is real benefit from bringing customers and suppliers together in the same room for any of the project activities


and an appointed change agent or other person responsible for change. They are the people who will interact most closely with the assessment team when it comes to their facility. The purpose is to give them the background so that when they work with the assessment team the methods used and concepts referred to are at least somewhat familiar and the logic behind them is already established.

Training Content and Structure

We structured the lean awareness training as a high-intensity two-day session. You may choose some other training approach, of course, using your own structure for the content and delivery if you have your own training package ready to go. The goals should be the same; to give the suppliers basic lean concepts and give them a common base of understanding. The following comprise the suggested training content.

• Lean Overview – Describe the fundamental concepts of lean, especially one-piece flow and the elimination of waste

• Waste Introduction – Describe waste in greater detail, including examples of waste on the manufacturing floor and in the office.

• First-Tier Waste Walk – With a bit of overview under their belts, the attendees should be ready for a tour of the first-tier’s shop and office areas. Throughout, the tour should focus on identifying examples of waste and other lean-related activities, whether the current approach has eliminated them by

now or not. There may be a better time for the tour in your particular circumstance, but the opportunity to show the real situation is important. We suggest that tour groups be small (four to five per group) so that there can be plenty of interaction between the members of the groups and their guides. The guides should be knowledgeable both about lean techniques and about their application in the plant.

• Lean Success Stories – People hear about lean but the link to real cost and lead time reductions is often hard to make. Therefore you want to present the attendees with as many real examples of lean successes as you can fit in. The closer to the suppliers’ situation the examples can be, the better. For example, if your suppliers are job shops, then job shop examples are preferred.

• Lean Awareness Simulation – The best way to bring some concepts home to people is to see them in action. The purpose of the lean awareness simulation is to show the attendees how a typical system can be dramatically improved by applying some (conceptually simple) changes. As with the lean success stories, the closer the simulation reflects their situation, the better.

• Common Lean Techniques – You should introduce the common concepts that you will likely be referring to and using as you work

through the assessments and move into implementing improvements. We recommend at least the following topics. You may want to add others. There will probably not be enough time to get into detailed methods, but you can talk about what they are and how they are applied.

Key Thought: Simulation with a well structured debrief works well in group meetings to encouragegroup learning and interaction.

Key Thought: Having the suppliers look for lean opportunities in the first-tier supplier’s facility creates mixing and communication opportunities as well as illustrating concepts.


– Value stream mapping – 5S – Visual controls – Flow manufacturing and takt production – Set-up reduction

You will undoubtedly have noticed group participation activities in the above list (the lean awareness simulation and the shop floor waste walk). These are included for several reasons. They break up the monotony of talking heads, they help people internalize concepts, they help keep the participants engaged, and they help encourage interactions between participants that lead to long-term relationships.

One of the most common impediments to implementing lean techniques you will run into is a belief in uniqueness. It is far too easy for companies to say “That’s nice, but we’re different from them.” Most companies think they are substantially different from all other companies. There may be some truth to the claim of difference, but those differences are nearly always very small, especially at an operational level. The similarities are much more important than their differences. For example, the techniques for reducing setup time on a CNC milling machine are essentially the same regardless of the part you are actually milling, the brand of the machine or controller, or the size of the machine. Therefore, a key theme throughout your lean awareness training should be the focus on the majority of types of waste and opportunities that nearly all companies share, at least within a major class of companies.

If you and your first-tier supplier are not comfortable giving the training yourselves, there are lean training providers available who can do it for you. They should be able to adapt existing materials to meet your needs and will likely have their own suite of exercises and simulations.

Assess the Rest of the Supply Chain

Once the rest of the suppliers have been introduced to the project and lean concepts through the first supplier summit and the training, you can do essentially the same assessment process at each one that you did at the first-tier supplier. The primary difference is that you have already selected the parts to follow down the supply chain.

The Sub-Tier Supplier Assessment Team

The assessment team for the sub-tier suppliers’ operations should be made up of the core team plus at least:

• The person from the first-tier supplier who is responsible for purchasing the parts from the second-tier supplier

• If assessing a third-tier supplier, the person from the second-tier supplier who is responsible for purchasing the parts from the third-tier supplier

In other words, you want the entire “customer chain” represented if at all possible. In addition, when assessing a second-tier supplier you should consider including a

Key Thought: The team needs to be aware of and anticipate proprietary information issues.


person or persons from the selected third-tier supplier(s) you will be assessing as well.

Having the entire customer chain involved in each assessment is important both for data gathering and supplier buy-in. Taking the prime contractor and first-tier supplier into a third-tier supplier with the question “What are we doing that causes you pain?” sends a powerful positive message. Of course, having the customer chain on site also helps eliminate or at least address the classic excuse of saying that they are doing something the customer demands. And, as always, additional outside eyes are also likely to bring up issues that would not otherwise have surfaced.

Sub-Tier Supplier Assessment Process

The sub-tier supplier assessments can be conducted in any order once the first-tier assessment is complete, as long as the sub-tier suppliers have the necessary

background and have agreed to participate. The assessment process is basically the same as used for the first-tier supplier, except the parts have already been identified and are the focus of the assessment.

You should use the same approach as with the first-tier supplier and prime contractor. That includes using the same definitions for all terms, using the same way of looking at time, the same time units, etc. Otherwise, building

the combined supply chain views will be more difficult. Review the data with cognizant personnel and capture it all for the supply chain analysis. As in the previous assessments, be sure to capture the current-state metrics that contribute to the supply chain goals.

Draft Sub-Tier Suppliers’ Future-state Maps

As with the previous assessment steps, the last activity in each of the sub-tier supplier assessments should be to help the supplier create its own draft future-state map. Each supplier’s contribution to the overall supply chain performance goals needs to be identified to ensure the future state reflects the supply chain goals as well as the supplier’s own performance goals. Again, the goal is to both provide input to the macro future-state map as well as to help the supplier begin moving forward with internal and quick-hitter improvements without waiting for the overall supply chain future-state picture to be completed. It may be necessary to revise one or more of the individual future-state maps based on the macro future-state vision, but the likelihood of internal improvement activities conflicting with the overall future-state vision are small.

Build the Current State Big Picture

There are two primary reasons for building a coherent current state picture for the supply chain as a system, what we call the macro-VSM. One is understanding, the other communication. After completing all the individual current state assessments in the prime and selected suppliers, you will have a large amount of data and some ideas about where the major issues and opportunities are in the supply chain. In fact,

Key Thought: As you build the VSMs at the different companies, be sure to be consistent in how you do it.

Key Thought: It behooves the assessment team to make clear what they are going to need and do in advance, including agenda, personnel requirements, and data requirements.


you will likely begin seeing major supply-chain oriented opportunities well before you finish the last individual company assessment. As tempting as it will be to simply move forward with that list, we strongly recommend taking the time to develop a true supply chain current state picture based on the macro-VSM. Doing so will pull together the many threads you have found and allow you to weave a coherent picture of the supply chain. Building that picture will anchor the already identified opportunities in the context of the whole as well as potentially identify other opportunities.

The macro-VSM will help you outside the core team as well. The primary reason we so strongly support the concept of the core team for the assessments is the difficulty in perceiving the supply chain as a whole. A supply chain is a very complex system. Having done the assessment, the members of the core team will have a good understanding of that system. However, they will almost certainly find it difficult to communicate the nuances to others, including those within the supply chain. The macro-VSM views will help that communication.

We need to define what we mean by macro-VSM. We are definitely not talking about a giant VSM that combines all the steps in all the companies in a single picture. That is simply too much detail to handle at one time. We have seen organizations try to do something on that kind of a scale. They spent incredible amounts of time drawing exceedingly complex graphics that cover walls of conference rooms and are essentially useless. Therefore, we recommend a macro-VSM approach that works with condensed data. In addition to the macro-VSM, we recommend building what we call the timeline chart. In developing these two views, you will want to develop and capture the supply chain metrics that relate to the overall goals for the supply chain that were set early in the project.

Build the Current State Macro Value Stream Views

As its name implies, a macro-VSM is a very high-level look that provides a conceptual understanding of the supply chain’s structure and key interactions. We recommend using standard VSM notation to show this map.

Figure 10 shows an example current-state macro-VSM for an imaginary part. This view allows the viewer to focus attention on the overall structure of the supply chain and the interactions between companies as well as the overall timing within

companies. The example illustrates a typical low-volume supply chain providing complex assemblies to the final assembly. In this map, the part passes through a number of companies in the course of manufacture and assembly. The actual manufacturing is driven by delivery schedules from the relevant customer. The first-tier supplier responds to the prime contractor, the second-tier to the first, and so on.

A key element of the macro-VSM is that it shows the fundamental information flow down the supply chain. In this case, the prime sends out enterprise resource planning (ERP)-generated delivery schedules that are passed down the supply chain. That process of promulgating the schedule information adds delays to the information, which, in turn, reduces the effectiveness of the information and helps lead to the supply chain scheduling bullwhip effect that causes great difficulty to the sub-tier suppliers.

Key Thought: You will want to build a top-level VSM for each part you follow through the supply chain.


You will notice that we include timing information for the Prime Assembly step. This is a little different from the usual approach, but because we are looking at the whole system we include the assembly work at the prime that absorbs the part from the supply chain.

The Current State Timeline Chart

While the macro-VSM provides a good sense of the nature of the inter-company relationships, more detail in a visual form can also be helpful. For that we recommend what we call the timeline chart. The basic idea is to combine elements of value stream mapping with elements of traditional Gantt charts.

An example a timeline chart is shown in Figure 11. It is an alternative current-state representation of the supply chain in Figure 10. The basic structure of the timeline chart is that the columns represent units of time (2 days for each column in the example) and the rows represent different sites or organizational entities. Thus the progress of activity over time is left to right. Movement up or down represents a formal handoff of information or material from one organization to another.

The symbols used on the timeline chart are described in Table 4 (page 36). The red bars indicate the value-added time in the process. Therefore, the focus should be on the yellow and blue bars, since they represent non-value-added time in the system. The yellow bars represent pure business process steps. These early steps are the purchasing processes necessary to acquire the raw materials and processing. Minimizing any of the business processes reduces waste. The blue bars primarily represent waste in the manufacturing process, though they also include embedded business

Figure 10. Example current-state macro-VSM.

Lot Size: 18

Shifts: 1

Lead Time: 31 days

Lot Size: 18

Shifts: 2

Lead Time: 40 days

Lot Size: 18

Shifts: 1

Lead Time: 10 days

Lot Size: 2

Shifts: 1

Lead Time: 4 days

1 xWeek

Ship qty: 4

Time: 1 day

Ship qty: 1

Time: 1 day

Ship qty: 18

Time: 1 dayShip qty: 18

Time: 1 day

Ship qty: 1

Time: 3 days

Lot Size: 1

Shifts: 3

Lead Time: 28 days

1 xMonth

II

I

I PrimeAssembly

SteelDistributor

Forge MachineShop

HeatTreat

MachineShop

MachineShop’sMRP

II I

1 xQuarter

Man

ufac

turin

gSc

hedu

le

Shipping

Schedule

Shipping

Schedule

Shippin

gSch

edule

1 xQuarter

Manufacturing

Schedule

ShippingSchedule

Lot Size: 1

Shifts: 1

Lead Time: 5 days

Key Thought: We chose to use Microsoft Excel® to make aligning the many time columns easier. You could also use a drawing package.


processes. Reducing the yellow and blue bars equates to the elimination of waste. It may, of course, be possible to reduce the red (value-added time) as well through process improvements, but as the example illustrates, there is generally much more opportunity in the non-value-added time. The timeline chart also indirectly shows the non-value-added time associated with transportation. That is captured in the time gaps between the colored bars associated with the arrows.

Most other symbols on the timeline chart follow VSM conventions. The narrow solid arrows represent information flow, the wider dashed arrows represent pushed material. To avoid putting too much detail on the chart, we suggest only putting in transportation icons where they signify something other than whatever the typical transportation method is for the supply chain. In the Figure 11 example, the standard transportation method is common carrier trucking ordered up as needed. Because this is used for every transportation case in the timeline chart, no transportation icons appear. As with the traditional VSMs, if you need additional icons or symbols beyond those of standard set, you can create them. Just be sure to define them so everyone looking at the chart knows what they mean. There is no reason to duplicate all the information shown on the macro-VSM on the timeline chart. It would become too messy to use effectively. Use the macro-VSM to focus on the company-to-company interactions. Use the timeline chart to focus on value-added versus non-value-added work and lead time issues.

On the far left of the timeline chart you will see “PO Qty” and “lot size” columns. The PO Qty column gives the number of items covered by the purchase order or contract received by the company in that row from its customer. The lot size column shows the typical lot size processed within the facility in that row. Any case where the lot size changes for that company is captured by a number added to the appropriate time bar in the body of the timeline chart. In the example, you will see that appear in the last bar in the Machine Shop row. This signifies that, although that supplier processes parts in lots of 18 for most of the process, in the late stages after heat treatment it shifts to processing in lots of 2. When looking at the chart, changing numbers and large numbers relative to the actual

Figure 11. Example current-state timeline chart.


consumption rates for the parts are flags that the supply chain may be seeing less than optimal operations.

Building the Timeline Chart

The timeline chart is constructed from the individual VSM data collected at the supply chain companies. Key to the timeline chart’s value is the time scale. Explicitly showing activities on a time scale makes clear relationships that might otherwise be missed.

The timeline chart is a condensed view in that each bar on the chart captures a continuous block of time that the work stays at one facility. To build a bar, the team adds up all the time the paperwork, part, or assembly spends at the facility between arrival and departure. The time is divided into value-added and non-value-added time. Then when the bar is placed on the chart, the proportion of value-added time can be shown relative to the overall length of the bar. For the example timeline charts, we show the proportion of value-added time in red, the non-value added time in blue.

Bars are placed on the timeline chart working backwards from the end of the process. Each company captured in the assessment process has at least its own row in the chart. In the case of two or more substantially different activities or facilities within a company, such as a machine shop making individual parts and an assembly area, you may choose to have more than one row. The exception is for activities that were not examined as part of the detailed assessment. Those activities can be collected

Table 4. Symbol and icon explanation for timeline chart.

Symbol/Icon Meaning Yellow Bar Pure business processes such as issuing and responding to a request for

quotes. Generally speaking, all yellow bar time is non-value-added time even though it may be necessary to produce the end product.

Blue Bar Portion of a continuous block of time that a part or assembly spends in a manufacturing facility Non-value-added.

Red Bar Portion of a continuous block of time that a part or assembly spends in a manufacturing facility that can be considered Value-added time. The relative amounts of blue and red bars are significant.

Green-blue Bar Processes that have not been mapped in detail. The time is the typical time the customer sees based on historical data, which is not necessarily the supplier’s quoted time.

White Bar Slack time that a supplier has before needing to begin work on a part to meet the customer’s schedule. That time should not be counted as either value-added or non-value-added.

Solid Thin Arrow Information handoff (business process). Dashed Thick Arrow Pushed material handoff Truck Icon Material transport via truck in some fashion other than shipping via common

carrier arranged by shipment. Airplane Icon Air freight as a matter of course. Number Lot size being processed (bar) or shipped (arrow) when different from value in

PO Quantity or Lot Size column.


onto a single row within a part group. They need to be shown, however, or the overall timeline will not be correct. The time span used for them is the typical experience of their customer, not their quoted lead times. As with traditional VSMs, the intent is to show what really happens.

At every handoff from one facility to another, the chart should show a jump from one row to another. The transportation time it takes to move between the facilities is shown by a correctly sized gap between the end of the sending bar and the beginning of the receiving bar. The actual movement is signified by an arrow or other appropriate VSM transportation icon.

Each individual part or assembly should have its own set of rows. Where an assembly splits into multiple parts or parts come together to create an assembly, the handoffs will jump from one group of rows to another. Running multiple parts through the same set of rows makes the view too confusing.

With multiple parts on the same chart, inevitably the lead times for the different parts will be also be different. The longest lead time sets the critical path and also determines the length of the timeline chart itself. Because the parts that have shorter lead times have greater flexibility, we capture that explicitly with the concept of “slack time.” Improvements in the lead time of the critical path part can be made up to the shortest slack time before the part is no longer on the critical path.

To build the timeline chart, the team needs to convert all individual companies’ VSM data to calendar time. This requires converting time at the machine, in a queue, or

whatever to a portion of a calendar day. For example, if the work takes an hour and the plant runs two shifts, each running nominally eight hours, then the lead time is about 1/16 of a day. If the work is one hour and the plan runs one shift, then the lead time is about 1/8 of a day. We say “about” in each of those examples because a shift rarely has exactly 8

hours of working time. Breaks and other interruptions shorten the actual work time. Therefore, the calculations converting the VSM time to calendar time need to take the actual working time into account.

The real strength of the timeline chart is that it brings visibility to the supply chain. It highlights waste in an objective manner. It provides a rapid understanding of time relationships. In general, it conveys a great deal of information quite simply.

More Complex Timeline Chart Example

Figure 12 (page 38) shows a more complex example of the timeline chart, including symbols and icons not shown in the first example. While this chart also does not depict a real system, it was inspired by what we saw in the nose landing gear supply chain. In this example, you can see one of the key strengths of the timeline chart — its ability to show multiple parts on one diagram while maintaining clarity.

Key Thought: The way timing is calculated needs to be consistent across all companies.


Figure 12. More complex example timeline chart.


Business Processes

The top group of rows represent work done at the assembly level. The yellow bars to the left in those rows are the primary business processes associated with procuring the part: the request for quotes, the quote in response, the purchasing process at the prime contractor, and the subsequent scheduling and purchasing processes at the first-tier supplier.

Overall Critical Path

In this example, the timeline chart tracks two parts that the first-tier supplier purchases as components of the assembly, one from each of two suppliers. Each of those parts has its own set of rows below the assembly rows. You can easily see how Part 2 in the lower set of rows is the part that determines the overall lead time. That is, Part 2 is on the critical path because it takes longer to make than Part 1. That means that improvements in the overall lead time cannot occur unless the lead time for Part 2 is reduced. Because it is not on the critical path, reductions in Part 1 lead time increase the slack time for that part. Of course, those lead time reductions may be worth doing if they also lead to reduced costs. They just will not affect the overall lead time. If the lead time for Part 2 is reduced by more than 17 days and no changes are made to Part 1, then the slack time shown for Part 1 is gone and it moves to the critical path in place of Part 2, and therefore the overall lead time depends on it.

Other Suppliers

The light green-blue bars represent manufacturing processes for which the team has not generated VSMs. In the original supply chain selection, these processes were determined to be of low enough interest for this round of assessment that they were assumed to be “black boxes.” In this particular case, the processes are all at separate suppliers, but that need not be the case. Though the details are not there, the contribution of these processes to the overall lead time, including the associated transportation, is captured. The timeline chart is well suited to including this kind of information beyond the actual VSM data.

Slack Time

The purpose of the white “slack-time” bar in the Part 1 rows is to show the excess time the Part 1 manufacturer has compared to Part 2. Effectively, Part 1 can be started any time from the start of Part 2 out to the point at which it is shown as starting and be delivered on time. The most cost-effective situation is usually as shown in the chart. That is where the Part 1 manufacturer waits to start work on the part until there is just enough time to make it without incurring any expediting costs.

Lot Size

Looking down the lot size column on the left of the chart, the widely different lot sizes are worth noting, especially within a given part track. Large lot sizes tend to indicate opportunities for improvement, especially if trading partners’ lot sizes are smaller. For example, in the Part 2 rows, you will notice that the lot size for the

Example: In the nose gear supply chain, we had one supplier that handled each part two separate times but we only mapped out one of the processes.


machine shop is 30, as is the PO for the plating firm. On the other hand, lot size for the plating supplier is only six. That implies many parts sitting around waiting for processing.

Something else to notice is that the Part 2 Steel Supplier has a lot size of one. This is because the order is for one piece of steel which the machining supplier then cuts to size for its processing. The Steel Distributor for Part 1, on the other hand, receives orders for and ships the steel as four pre-cut pieces.

Transportation

As with the first example, transportation is assumed to be common carrier, ordered up as needed. The truck icons that are shown, however, signify a regular daily run between the two facilities. If parts need to be moved, they are simply put on the truck. No formal shipping contract is required. The airplanes signify air-freight shipments as the normal way of doing business due to long distance (as opposed to expediting an order).

Demand Amplification

One of the common characteristics of supply chains is demand amplification, often called the “bullwhip effect.” Demand amplification comes about as orders are processed down the supply chain. The various automatic and manual ordering methods tend to add uncertainty at each tier. As each lower tier sees greater uncertainty, it tends to compensate by ordering and processing larger lots to ensure it will be covered no matter what its customer asks for. That, in turn, increases the uncertainty to its suppliers. The result is that by the time orders get to the third tier, they vary wildly and have no apparent relationship to the actual demand at the prime, which may be very steady7.

You will likely find this effect in your supply chain. A good way to show it is to display a chart showing the relative demands at the different supply chain tiers. An example demand amplification chart is shown in Figure 13.

7 For a good demonstration of demand amplification, see John D. Sterman’s “Flight Simulators for

Management Education – The Beer Game,” http://web.mit.edu/jsterman/www/SDG/beergame.html (accessed October 24, 2003).

Example: We followed three different parts through three different manufacturing paths (different suppliers, different timing). We then developed a timeline chart showing the three separate parts. Because the parts all ended up in the nose gear, they all came together at the end for the assembly process.


Figure 13. Example demand amplification chart.

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Move to the Future State Developing a deep understanding of the current state is nice, but the real goal is improving the supply chain. You will have identified a number of opportunities in the course of building the current state. Some of those will have been the obvious quick hitters that should have been addressed right away. Others will be more complex, difficult to address, or justify. You and your trading partners may be tempted to charge right into some of those opportunities as well. However, we strongly recommend that you work with the entire group to build a future-state map. This common vision will then guide the improvements that you make in the supply chain.

As you will see, this step overlaps the assessment step a great deal. This is in large part, to keep the suppliers interested, involved, and moving forward throughout the process.

Draft the Future-State Map

Just as the macro current-state map is linked to the individual current-state maps, the draft macro future-state map should be based on the company future-state maps and associated performance goals. It will also be driven by discussions about what the core team has seen across the supply chain as a whole and the goals set for the supply chain at the beginning of the process. We recommend that you follow the path of building a stretch, but plausibly attainable, future state that looks out 18-24 months. Taking this perspective, you may need to set interim performance goals to ensure progress. If so, you should expect to revisit and develop subsequent current-state maps to determine progress before the overall time period ends.

With the macro current-state maps and the draft individual future-state maps assembled, a draft macro future-state map can be created. The future-state map captures the vision for the future operations of the supply chain. As with the current-state map, the future state should be described in the form of a macro-VSM (Figure 14) and a timeline chart (Figure 15, page 44). Together they describe a vision of the future where operations are dramatically improved over the current state. As with the ability to clearly show two parts on the same chart, Figure 15 shows that you can also compare current state to future state on the same chart.

In these two representations, you can see several major differences from the current state, even though the companies that make up the supply chain haven’t changed:

• Demand-driven production –In the future state, while forecast information is provided down the supply chain for basic planning purposes, all shipping is to some form of demand-oriented signal. The first-tier machine shop carries the responsibility of electronically checking the stock status (the eyeball icon) at the Prime’s Assembly facility and maintaining the landing gear assembly stock between some minimum and maximum amount. Below the first-tier supplier you see supermarkets placed at strategic locations, with electronic equivalents of kanban cards being sent from the supermarkets to the appropriate locations when stock drops to a trigger point. Implicit in this approach is long-term


agreements on part quantities and pricing, removing negotiations from any of the transactions between companies.

• Very short effective lead time – The lead time that the prime contractor’s assembly facility sees is now very short. From the moment the machine shop detects a need at the prime for a part to the delivery of that part is only three days, two to finish processing it at the machine shop and one to ship it. That demand then cascades down the supply chain, but that is invisible to the prime.

• Smaller lot sizes – The companies in the supply chain have reduced lot sizes and improved efficiency. They thereby substantially reduce lead times as well as the losses that occur when parts sit in finished goods inventory (damage, shrinkage). Inventory turns increase, with all the financial benefits that provides. The lot size of four across most of the chain was chosen as the minimum that was comfortable to the forging and heat treating operations.

The core team has not yet gone into the specifics of the opportunities for improvement. The team has just mapped out what it believes is an achievable vision, recognizing that it will take substantial effort to accomplish it.

Figure 14. Example future-state macro-VSM.

Lot Size: 4

Shifts: 2-3

Lead Time: 13 days

Lot Size: 2

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Lot Size: 1

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Lot Size: 1

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Figure 15. Example future-state timeline chart with current state.


These initial versions need to be treated as drafts because the entire supply chain will have to discuss them, make any necessary changes, and only then agree to accept them as representing the future state. As in all such group endeavors, dictating the macro future-state map from above is unlikely to lead to wide acceptance. Therefore, the future state should not be built entirely within the core team. We recommend that it be presented to at least two key suppliers for their comments. The process of presentation itself will raise issues that either need to be addressed or explained. With the input from the key suppliers, you can revise the draft to a form more likely to resonate with the entire set of suppliers.

Develop the Opportunities List

The major supply chain opportunities are not likely to change much during the supplier’s review of the draft future state. Therefore, the core team can move forward in determining how to address the opportunities even before the future state is finalized. The opportunities will include most, if not all, of the opportunities that were identified in the course of the individual assessments and the construction of the current-state map. The process of developing the draft future state itself may also bring opportunities to the surface.

Categorize Opportunities

The first breakdown of opportunities is whether they are internal to a company or span some portion of the supply chain. We consider supply chain opportunities to be those that involve at least two companies in the supply chain. We assume here that the core team has already accomplished this first level of categorization, separating out the internal opportunities. That should have been done when developing the internal suppliers’ future states.

You will probably have identified a wide variety of opportunities. You will likely find it wise to sort them into categories, which can be done in several ways:

• General class of opportunity, such as reducing inspections across the supply chain, rationalizing lot sizes across the supply chain, demand-based replenishment, or reengineering business processes

• Estimated time frame to address, such as short, medium, or long term

• Estimated cost to address, in terms of labor, training, materials, and equipment, with rankings such as no/low, moderate, or high cost

• Estimated personnel impact in terms of overall labor requirements, training, morale

• Estimated benefit, such as lead time reduction or cost avoidance, either of which could be reported in percent improvement, actual time or cost reduction, or improved quality measures

Example: In the nose gear supply chain, the core team identified 14 supply-chain oriented opportunities ranging from rationalizing inspections across the chain to improving forecasting and scheduling down the chain.


You might find it beneficial to build a table brings these categorizations into a single place, such as in Table 5.

Putting the opportunities in these categories will require some serious thought about what will have to be done to accomplish them as well as the benefits to be received in doing them. This information will help drive the opportunity prioritization, where all these factors will likely come into play. For example, if immediate gains are needed, short-term projects may be the best. Low- or no-cost solutions are also often good to address quickly. Solutions likely to impact the personnel levels in the company need to be identified as well and should have plans made to address the problem. Freeing up personnel time does not necessarily mean layoffs. Additional work can be competed for, attrition can gradually remove the excess staff, or other internal work that needs to be addressed can be assigned to those who are no longer so busy with their primary work.

Opportunities within the individual companies are likely to be important prerequisites to address the broader supply chain opportunities. For example, reducing batch sizes through faster setups and other improvements may be necessary so activities at other companies can be more efficient. While the suppliers can be considered responsible for addressing their internal opportunities, they are likely to need assistance — perhaps substantial — in doing so.

You may have noticed that the potential categories do not include traditional return on investment (ROI) calculations. Lean improvements are often very difficult to quantify with the kinds of numbers used in ROI calculations. For example, shortening lead time inherently reduces the carrying cost of materials. However, the value of WIP increases as it goes through value-added process steps. Few companies are able to assign accurate carrying cost savings for the removal of a step late in the manufacturing process (where the WIP value is somewhere between raw material and finished goods). Another likely benefit that is difficult to quantify in advance is floor space gained by adopting lean techniques. It will happen but the actual gains are hard to predict. It is also very difficult to quantify the value of the improved flexibility and agility a job-shop company has when changeover and lead times are

Table 5. Example opportunity categorization summary.

Opportunity Time to address

Cost Personnel impact

Benefit

Rationalize batch sizes across chain

12 months Substantial labor hours by floor employees Purchase inspection tools

Operator training on setup reduction

8-week lead time reductions Carrying cost reduction

Redesign processes to eliminate external processing step

6 months Process engineering labor hours New fixtures

Operator training in new processes

2-week lead time reduction Reduced processing and carrying costs

…


short. We know all these things are good and likely to improve in a lean process. The problem is that they are very difficult to quantify in a traditional ROI calculation. One way around this it to use examples of successes at similar companies as the starting point for setting your own expectations. You can then build an ROI based on assuming similar gains, or somewhat smaller gains, if you prefer to be conservative.

The best solutions (maybe the only solutions) that take advantage of an opportunity may not always benefit everyone in the supply chain. This is something you need to acknowledge and communicate to all the participating suppliers up front, certainly by the first Supplier Summit, and be prepared to address. For example, the best solution to one opportunity might be to shift work from one supplier to another. If the losing supplier is antagonistic to the overall approach, then shifting work to a more cooperative supplier may bring home just how serious you are. If, however, the losing supplier is an active and positive participant in trying to improve the overall supply chain, then the issue is problematic. You certainly do not want to punish a supplier for being a contributing part of the team.

As an example, if it makes good sense to move work from a second-tier supplier to the first-tier supplier, then one thing that can help make that palatable is to allow the losing supplier to maintain the same level of profit as before at a lower level of work. In other words, the price reduction the supplier absorbs is just the direct cost of the lost work. Another solution might be to move other work to the losing supplier to make up for the loss. The compensation may not necessarily be in terms of money. It might, for example, be a long-term agreement as a sole provider. That guarantee of business might be adequate compensation in and of itself. We cannot tell you in advance what the solution to a specific situation might be. It will depend on the circumstances, of course. The key point is to recognize the possibility of such an issue arising and be prepared to address it. Plan for it and use open communication to explain the situation and work out fair ways to deal with the change. It would probably be wise to inform suppliers that such a situation might appear from the beginning of the project and that the team’s goal is to minimize any pain to suppliers.

Finalize Future-state Map and Select Opportunities

With a draft future state for the supply chain and a list of opportunities that will move the chain toward that future state, the core team should bring all the suppliers back together. This is your chance to finalize the future-state vision, prioritize the opportunities that will move the supply chain toward the future state, and initiate projects that will address the high priority opportunities. As always, the supply chain performance goals should drive the final prioritization. Each opportunity should be evaluated based on its potential for helping to achieve the desired results.

Second Supplier Summit

This is an important opportunity to bring the members of the supply chain back together. Just as with Supplier Summit 1, a key purpose is to foster information exchange between the companies. The main purpose, however, is to develop a consensus on the future-state vision, select which opportunities would be the best ones for the group to work on as a whole, and have the suppliers determine which of the resulting projects they will undertake.


We recommend holding the second Summit at the prime contractor’s site. This accomplishes two primary purposes. It helps emphasize that the prime supports the approach and it allows the suppliers to see their parts being added to the final assembly (through a plant tour). The following is a suggested agenda for the second Summit:

1. Prime contractor and first-tier welcome – As in Summit 1, the intent of the welcome is to reinforce the commitment of the prime and first-tier to a joint, cooperative project that includes and benefits all the participants.

2. Review of the project to date – This is a high-level overview of the project, presented by the core team and focused on what has been done. The purpose is to set a context for the remaining discussions. This presentation should reiterate the goals and metrics for the supply chain as a whole to set the context of the discussion.

3. Individual company status reports – This is an opportunity for the companies involved in the project to briefly tell the others about what they have been doing as a result of their assessments. It is a chance to brag as well as share. It will also give those who have not made much progress a bit more incentive to move forward. The expectation is that they will spend just 15 minutes each on their presentations. It may be hard to keep some of them within that time frame, of course. Others will have minimal experience in this kind of presentation. Either way, we recommend providing them with a slide template in advance that gives them some guidance.

4. Simulation – The Summit attendees have seen some instructional material at Summit 1 and, perhaps, in the lean training. They have also seen the results of their individual assessments. This is an opportunity to reinforce their learning by conducting another, different simulation activity that shows how lean techniques can improve their operations.8

5. Current state macro-VSM review – This is the time to present the big picture that came from analyzing the set of individual assessments. Through the macro-VSM and the timeline chart, the core team can show what it found across the supply chain. The presentation should include brief descriptions of opportunities for the supply chain that were identified during the assessment process.

6. Draft future-state review – Follow the current state with the draft future state. Describe how it differs using both the macro-VSM and timeline chart. Solicit comment and, if necessary, make changes to the draft to move toward a final version. Use standard VSM “starburst” notation to highlight what has to change across the supply chain to move to this vision. Most of the starbursts can be prepared in advance based on the draft version. Major changes are unlikely but some good ideas might arise. Additional starbursts

8 A list of suggested, readily available simulations is provided in Appendix E, page 80.

Example: All of the nose gear suppliers presented, touting the positive steps they had made.

Key thought: The interaction of the companies is so beneficial that there is a stronglikelihood of further “quick hitter” opportunities being identified.


may be identified during the course of discussion. You will also want to discuss how these changes might affect them in their own facilities.

7. Revise future-state vision – Initiate a discussion that solicits and answers questions about the draft future-state vision, encourages new ideas and potential adjustments, and leads to agreement on the future-state vision.

8. Project opportunities – Each starburst on the future-state map or timeline chart represents at least one potential improvement project, perhaps several. The core team should go into the Summit with a list of projects and estimates of their impacts for the starbursts they know they are going to put up, but they should also be prepared for new ones to be generated on the fly. The point is to get the participants thinking about potential projects.

9. Prime assembly facility tour – This tour is suggested here to allow the participants some thinking and talking time while providing them with the chance to see their parts actually being installed on the prime’s end product. It is also a chance for them to see lean methods and techniques being implemented at the prime’s facilities. Once again this helps bring home the prime’s role in building a lean supply chain. If possible, have the suppliers meet with the people who receive and use or install the supply chain’s product. It is another chance for the “What can we do to help you?” question.

10. Tour observations/recap – Sharing observations of what everyone learned from the tour, things they think could be done better, and other general thoughts.

11. Supply chain opportunities and project review – Because some time has passed, it will be useful to review the opportunities and potential projects that may address them.

12. Supply chain project issues – This is the time for the suppliers to raise questions and issues related to the proposed projects. The goal is clarification and perhaps modification of the projects to better suit the participating suppliers.

13. Project selection – The members of the supply chain should prioritize the potential projects likely to move them to the future state. This is best done with input from all levels of the supply chain. We recommend a group voting method for making decisions.

14. Participant selection – With a prioritized project list, the next step is to recruit members of the supply chain to participate in the highest priority projects. Some projects will involve most or all of the supply chain companies, others just a few

Example: The suppliers were able to see what Boeing was doing to improve its assembly processes, as well as see the nose gear being hung onan airplane and talk to the people who do that work.

Example: For project selection in the nose gear supply chain, each company had three votes and put one each on their top three projects. Then the number of votes prioritized the projects.

Example: In the nose gear supply chain, all of the companies selected at least one project in which to participate. No company below the first tier selected all projects.


companies. You can expect companies to be most interested in projects they believe will affect them most. One goal should be to have every company involved in the assessment take an active role in at least one project.

15. Schedule project planning sessions – With the improvement project teams selected, the initial planning session for each of the projects can be scheduled. The planning sessions should be arranged to take place as soon as possible to keep the enthusiasm up and move forward. The goal of the planning sessions will be to determine the basic structure of the project, what the goals and metrics will be, when detailed planning will be complete, and similar project planning information. The attendees at each planning session should be the key people from each company taking part in that improvement project. The logical location for the planning meetings will be at one of the key participating suppliers.

16. Discussion & wrap-up – Summarize what has happened over the two days of the Summit. List action items, including who is responsible and when they will be complete. Open the floor up for any further discussion or issues that people wish to raise.


Implement Change You can do all the assessments and mapping you want, but if no one changes the way they do business, there will be no improvements. Everything done to this point has been to determine what the supply chain should do. With luck you will have seen some benefits as companies address some of their internal opportunities and supply chain quick hitters identified during the assessment process. Now is the time to move forward with the selected supply-chain improvement projects.

Execute Project

Nearly all successful projects have clear expectations at the start and are managed to meet those expectations. There are also potential pitfalls to watch for when working in a multi-company environment.

Plan the Projects

Accomplishing a multi-company project requires vigorous project management and commitment from the participants. Sound project management principles need to form the foundation of each improvement project. For each project, therefore, the participating organizations should jointly:

• Form a project team – Each organization participating in the project should identify a primary contact for the project. Each should be heavily involved in (ideally the leader of) that particular project at his or her company. It is also a good idea to identify alternate contacts who can back up the primaries when necessary. This team of representatives will be the core controlling group for the overall project.

• Select an overall project leader – The project leader should be someone actively involved in the project at his or her company as well as be willing to work with the other participants to keep them all on track. He or she can, and probably should, also be the primary contact for his or her organization. The project leader will be responsible for the project-wide management tasks such as organizing multi-company meetings, building project progress reports based on the participants’ own reports, and generally tracking what is happening. The project leader would normally come from the prime contractor, though there may be rare cases where someone from the first-tier supplier makes more sense.

• Determine the deliverables –Up front, the project team needs to agree upon what will be in place at the end of the project and what will be reported out to the members of the supply chain during and at the end of the project. Specific expectations regarding goals and metrics are necessary for progress. The deliverables should always include the measured or expected results of the project relative to the supply chain performance goals.

• Develop a detailed project plan – The detailed overall project plan will provide context for the local activities so that they contribute to the whole. The project team probably already has a sense of how much time they have to


accomplish their project. They now know the deliverables as well. Therefore the next step is to develop a detailed project plan with identified responsibilities, milestones, and dates. Having an overarching plan will help the pieces of the project be accomplished on time and in an effective manner. It will also help ensure that everyone is working toward the same goals on the same timeline.

Execute the Improvement Projects

This can be summarized with the concept of “work to the plan.” Of course, no plan is perfect and some flexibility will be required. Each improvement project will require its own specific activities, events, and deliverables. Those will be outlined in the plan. Be that as it may, there are a number of elements or approaches to consider that may be common to these projects.

Kaizen Workshops

One of the best ways to kick-start some projects is through a kaizen workshop (also called rapid improvement workshop, accelerated improvement workshop, kaizen blitz, and many other names). The primary difference between kaizen workshops in the supply chain environment and within individual facilities is the participation of the customer and, potentially, suppliers in the workshop. A customer’s representative busily cleaning, moving things around, or otherwise helping out on the supplier’s shop floor has substantial impact on the workers that see him. You may find that with the customer and other suppliers involved, the nature of what you can tackle can be more far-reaching than a typical internal kaizen scope. For example, you may be able to address issues such as the engineering change process, design producibility constraints, or optimizing lead times for outside services.

Total Productive Maintenance

Total Productive Maintenance (TPM) may be used when planned maintenance scheduling and execution do not yield the quality results or productivity requirements of an organization. The process is a maintenance program, which involves a newly defined concept for maintaining plants and equipment.

To begin applying TPM concepts to plant maintenance activities, the entire work force must be committed. Action teams are charged with the responsibility of pinpointing problem areas, detailing a course of corrective action, and initiating the corrective process. The Society of Manufacturing Engineers (SME) and Productivity Press are two possible sources for TPM training and orientation.

3P – Production Preparation Process

The 3P approach is specifically designed for three situations; new product launch, changes in production rate, and design changes. Designed to be fast, multi-disciplined and action oriented, a cross-functional team is led through the process where “learning by doing” is emphasized and multiple mock-ups are built and tested prior to any designs being generated. The principles are:


• Voice of the customer establishes product design and quality requirements

• Quality is built into the process

• Production system is designed to meet demand, lead-time and cost targets

• Lean manufacturing principles are employed

• Simultaneous product and process development

Potential Pitfalls

While many things can interfere with implementation projects, here are a few common issues. Knowing that they are possible, it is wise to watch out for them from the start. Early detection leads to early, and often less drastic, solutions.

Losing Sight of the Big Picture

The project team needs to be careful to avoid the “analysis paralysis” trap, where the team spends ages and ages building more detailed and accurate maps or other models and never actually doing anything. There are other, similar sidetracks that can stop progress. For example, if a company starts its lean “journey” with a major 5S effort, it is possible to spend so much time and focus on 5S that it becomes an end in itself. The effect is that the organization forgets that there is much more to lean and they make a lot of progress but only in one, limited area. They never actually become a lean organization because they are stuck at their first step.

A lean action plan in each facility as well as at the supply chain level can help avoid this. Such plans lay out the full set of steps that need to be accomplished to achieve the future state. The action plans should maintain the focus on the supply chain performance goals as guides to what gets done and the time frame for results.

Lack of Commitment

For any change to be successful, high-level management must be committed to making the change. If one of the suppliers is only paying lip service to the effort, it will not make the changes needed. The result will be that the supply chain as a whole will not see the kind of improvements that are possible. One effective way to demonstrate this commitment is for each supplier’s management team to embrace the performance goals that have been identified for them under the program and translate them into internal operational expectations with accountability. This goal translation process creates a framework within each supplier for tracking activities at every level that will accomplish the goals.

Management commitment is more than just saying “do this” to the personnel. The managers have to be seen taking an active role in making changes. They have to reinforce the concept every time they talk to someone about something. In effect, they need to demonstrate their commitment to the work in a highly visible fashion — by what they do as well as what they say.

The same holds true at the shop floor level. As with any lean effort, or any change effort for that matter, there are nearly always “nay-sayers” among the personnel.


These are the people who say the proposed changes “can’t” be done rather than getting to work and determining how to do them.

It can be difficult to initiate change at the prime contractor. Usually the largest company involved, its bureaucracy and wide dispersion of responsibility make change cumbersome. This can lead to difficulties in implementing improvements in the supply chain, since at least some of the opportunities will need the prime’s active participation.

Whatever the cause of the resistance, the project team needs to try to get the less than enthusiastic folks to buy in and contribute. Use examples of successes within the rest of the project team, whether at the company level or within.

When it gets to the point that the recalcitrant folk are holding back the supply chain or the company, those that will not make the necessary changes need to be eliminated from the process. A customer may need to find another supplier, a company may need to replace specific personnel. Neither is ideal and both can be hard to do, especially if specialized knowledge is involved. However, the reality is that the possibility needs to be part of the potential actions necessary to create a lean supply chain.

Ability to Implement Change

The old saw of “you have to walk before you can run” applies to adopting lean manufacturing. A company will likely not be able to go straight to implementing lean improvements such as rapid changeover if they do not already have basic management skills. Unfortunately, not all companies are so equipped. Some of the suppliers may only be “crawling” with very limited management ability. You need to watch for that kind of situation in the companies in your supply chain. Such a company may be participating willingly, knowing they need to improve. You just cannot assume that you can give them an assignment and expect it to be completed. Early recognition of this situation is important so that you can start working on their basic skills as soon as possible.

Use of Simulations

The use of simple simulations of supply chain issues worked well as exercises at the lean awareness training and supplier summits. However, care needs to be taken when using a simulation to stimulate thinking for a given improvement project. Within a project, you are

Example: In the nose gear supply chain project focused on improving forecasting and scheduling, a simulation based on multi-tier product distribution led to discussion about retail sales issues rather than the concepts that applied to a manufacturing supply chain. The desired concepts were there, but the project team was unable to make the connection to their own situation.

Example: In the nose gear chain, at least one company was not ready to adopt lean thinking. They needed basic manufacturing management tools and understanding first. Because the core team did not recognize this situation early enough, the initial attempts at implementing quick changeover had minimal success. It was only when their basic need for management tools began to be addressed through intensive, on site assistance was real progress possible.


focusing on specific issues. Any simulation you use in that context needs to clearly relate to the those issues rather than provide general background. Otherwise it may turn out to be more of a distraction than a useful exercise as people focus on the wrong issues.

Other Issues to Consider

There are several other issues you will want to keep in mind as you select and move forward with your improvement projects:

• Additional data collection – Significant additional project-specific data may need to be collected once a project is selected. The assessment process may be good enough to identify the opportunity but not provide the detailed data needed to decide specifically what to do.

• Outside participation – Just as in the assessment process, fresh eyes taking part in an improvement project can enrich the result, especially when they belong to a customer or supplier. Knowledgeable outsiders can see things others might miss as well as come up with a rich set of ideas and suggestions. Customers or suppliers may also generate joint solutions as part of the improvement project.

• Need for the right people – When improvement project planning meetings are held, it is important to have the people participating who have the technical background to understand the issues and the clout to make something happen. Either they need to be the decision makers or direct deputies delegated to participate and bring back action items. Otherwise, useful movement forward is unlikely.

Document Improvements

Near the end of the improvement projects, you will want to document that improvements have indeed been made in terms of the supply-chain performance goals established early in the process. A company can claim to have made all kinds of improvements, but without documentation of their efforts and results, the claims are not believable.

Example: The nose gear project to rationalize inspections across the supply chain required the suppliers to go through their processes and identify a number of additional characteristics of each inspection step.

Example: When one of the second-tier nose gear suppliers worked with the first-tier and a key third-tier, the synergy that appeared was extremely beneficial, leading to major improvements such as reducing the trips a part takes between two facilities from three to one.

Example: In a project looking at forecasting and scheduling, a planning meeting was held that involved larger suppliers. The people at the meeting understood the issues, knew the kinds of things that needed to be done, but in the end, could only restate the company policy because they did not have the authority to approve even piloting a change.


There may be some lag-time for the roll-up impact at the next level to be felt based on progress made by each supplier. Therefore, probably the best way to document improvements is through another round of current state value-stream mapping. The initial current-state maps provide a baseline picture of the system. The future-state maps provide a goal towards which the supply chain should move. To document actual movement towards the future state requires generating a new set of current state maps after implementing change. The differences between the new current-state maps

and the originals represent the gains made. The overall cost and lead time savings as well as the value-added to non-value-added ratio can be calculated by adding up the bits and pieces of savings throughout the value stream.

Once the suppliers get the idea and begin to make improvements, they will likely see other opportunities and begin making related improvements. The benefits from such spin-off work still can be considered a part of the overall project, even though outside the selected project set. Those benefits should, therefore, be included in the supply-chain metrics.

In addition to the broader view, before and after pictures and charts showing improvements are useful. Such examples can be used to encourage further successes as well as to illustrate the high-level summaries.

Celebrate Success and Move Forward

The work of implementing the improvements will likely not be complete when the individual implementation projects are finished. As is typical of any lean-oriented project, the work may be ongoing for the foreseeable future. Nonetheless, the original project should have an identifiable endpoint. This is where the improvement work officially shifts from the original project to a broader, ongoing (ideally self-sustaining) way of doing business. You need to celebrate the success that has been achieved among the direct participants as well as share the success with others. One good audience will be those you will be approaching next to apply the approach. Another audience is your customer base. You can show them how you are working to lower costs (leading to price reductions) and improve the speed with which you deliver high-quality products.

The Third Supplier Summit

The third Supplier Summit is intended to mark this “end of the beginning” milestone as well as look to the future. As with the previous summits, bring the participants of the project to date together, this time to celebrating the successes they have had to date. This means having all the participating suppliers present the improvements they have achieved and how they have moved towards the future state. In the spirit of continuing to improve, they should also present their plans for continuing to move forward in the future.

Example: Two of the suppliers began working together to implement a new technology that would improve their joint processes. This work was not even identified until after the improvement projects were begun. It was, however, a direct result of the joint approaches and activities fostered by the overall project.

Key thought: As in most lean activities, lean supply chains tend toward many small improvements adding up to large overall benefits.


We recommend you hold this third Summit at the first-tier supplier’s facility. The first-tier will be the focus of the ongoing work, so this brings the perception back into their home space. A one day meeting should be adequate.. A suggested agenda is:

1. Prime contractor and first-tier welcome – As in Summit 1, the intent of the welcome is to reinforce the commitment of the prime and first-tier to a joint, cooperative project that includes and benefits all the participants.

2. Review of the project to date – This is an overview of the project, presented by the core team and focused on what has been done in the improvement projects.

3. Individual company status reports – This is an opportunity for the companies involved in the project to briefly tell the others about what they have been doing since the second Supplier Summit. It is a chance to brag as well as share. It will also give those who have not made much progress a bit more incentive to move forward. We recommend again providing them with a slide template in advance that gives them some guidance.

4. First-tier facility tour – There should have been significant changes since the first Supplier Summit. This is a chance for the sub-tier suppliers to see what their customer has done.

5. Overall results – The core team should present the overall benefits that have been seen at the supply chain level. These will be the lead time, cost, and other benefits seen to date.

6. Stakeholder comments and award presentations – Key representatives from the prime contractor, first-tier supplier, and any other key stakeholders should express their enthusiasm and support for what has been accomplished and set the tone for continued efforts. This is also the time to give out plaques, certificates, awards, gifts, etc., to the participants.

7. Roadmap for continued change – Describe how the activities that have begun will continue and what new activities will be initiated in the supply chain to build on the accomplishments to date. This is basically the high-level plan for moving forward.

8. Discussion & wrap-up – Open the floor up for any further discussion or issues that people wish to raise, then finish up with a final set of thank-you’s and congratulations.

Inform Your Supply Chain

Since you selected a subset of your entire supply chain for this application of the lean supply chain approach, you will want to share your successes with your other

Example: One of the second-tier suppliers indepen-dently began helping one of its own (third-tier) suppliers to move toward lean.

Example: The first-tier supplier had just been given a preferred supplier designation by the prime contractor, in large part because of its delivery and lead time improvements. They shared that and gave credit to the sub-tier suppliers for making it possible. That status also strengthens the entire chain’s chances for getting more work in the future.


suppliers in preparation to begin the process with another group of suppliers. This is a way to pique their interest as well as give them a sense that you are indeed helping your supply base improve their operations rather than simply demanding price reductions. You can do this through newsletters or other publications as well as through direct contact with key suppliers by your supplier development organization or your purchasing department.

Inform Your Customers

Although we probably do not have to tell you this, improved supply chain operations will likely help you with your customers as well as your suppliers. When you make major improvements in your operations, it obviously makes sense to tell your customers about your success. Ideally coupled with announcements of price reductions, delivery improvements, or any other ways in which you will be able to service them better from now on. Such improvements can open doors to new customers as well.


Appendix A – List of Acronyms 3P Production Preparation Process

CNC Computer numerically controlled

ERP Enterprise resource planning

FIFO First in first out

IDS Integrated Defense Systems (Boeing)

OEM Original equipment manufacturer

ONR Office of Naval Research

PERT Program evaluation and review technique

ROI Return on investment

SCVSM Supply chain value stream management

SOW Statement of work

SPANS Supply-chain Practices for Affordable Navy Systems

TPM Total Productive Maintenance

VSM Value stream mapping

WIP Work in process


Appendix B – Some Thoughts on Metrics Measurement is key to improvement. Measurement precepts include:

1. Improvement will not occur unless the relevant metrics are measured and tracked. A corollary is that as soon as something begins to be measured and tracked, it will begin to improve.

2. Metrics need to be actionable. A company can identify all the metrics it wants, but if it does not track them and act on them, they are of no value.

3. Setting targets for metrics is necessary to know when to take action and what level of action to take.

4. Be careful what you ask for because you may get it. If the focus is on too small a set of metrics, those metrics will improve but at the expense of other, perhaps also important metrics. A balanced set of metrics is necessary for a good overall result.

The best metrics are those that are predictive, indicating where the company will be rather than where it has been. Metrics that are calculated once a month can only show general trends and cannot tell whether the trend is continuing. By definition they are a month or more out of date. By the time managers see monthly data, a problem can grow to be very large. Further, a problem can be hidden by normal variation in aggregated metrics for several months before it becomes visible, by which time severe damage may have been done. Aggregated metrics do not help identify the specific problem, either. Their very purpose is to hide the details. For the most impact, it is necessary to collect data as close to real time and as close to the source as possible. Local data gathered daily and tracked at the machine or operation level quickly show local trends, allowing fast identification and correction of problems. Examples of predictive metrics (sometimes called “leading indicators”) include process yield, worker attendance, process cycle time, units completed per day, and number of units in process.

Daily metrics predict the longer term aggregated metrics for the company because company-level metrics are roll-ups of individual metrics, whether explicitly or implicitly. If you can improve the daily metrics, therefore, the company metrics will also improve. The rolled up metrics you may want to track include internal labor time to produce the part (operator time, material handling time, inspector time, packing and shipping time, managerial time, changeover time, plus any business personnel time spent on the part). Similarly, the internal lead time is the sum of the times to accomplish all the process steps that are on the critical path, whether business or manufacturing. These amounts include the internal setup time, queue times, material handling time, waits for raw materials, outside processing, inspections, etc.

Most metrics can be linked to three basic areas of concern: money, quality, and time. Ultimately, quality and time issues have monetary impacts, though they are not

Key thought: You must measure and track what you want to improve.


always easy to document. They also have impacts not directly related to money and are widely recognized as important, so are worth considering on their own.

Time

From a customer’s point of view, on-time delivery and overall lead time are the primary time concerns. They want the lead time to be as short as possible and delivery to be neither too early nor too late. In the context of building a lean supply chain, lead time should be the primary focus. Even if the main overall goal is to

reduce the cost of building the product, lead time reduction is far less threatening and more constructive than demanding price reductions. When you work with suppliers to achieve lead time reductions, you are helping them improve their operations, which reduces their costs, which, in turn, makes price reductions possible. Note that for lead time we are talking about the time from the initial order or release from the prime to

the receipt of the assembly at the prime. Therefore the lead time is made up of the time it takes for the business processes to propagate an order down the supply chain and for manufacturing and business processes to process the materials/parts/assembly back up the supply chain.

Suppliers really have two lead times for a part. There is their internal lead time, in which they expect to build the part under normal circumstances, and the longer lead time they quote to their customers. Suppliers build substantial cushions into their quoted lead times because their customers penalize late deliveries. Even if a company does not change its nominal lead time, adopting lean approaches will give the company better control of its processes, which will reduce lead time variation. That will allow reduced quoted lead times (smaller padding to cover for problems) without increasing the risk of late deliveries.

Lead time is made up of a number of elements at each process step and includes all process steps in the critical path, whether value adding or not and whether a business process or a manufacturing process:

• Queue time waiting for other lots to be processed

• Internal setup time

• Actual processing time

• Queue time waiting for other parts in the same lot to be processed

• Queue time spent waiting for parts for an assembly

Lead time is linked to on-time delivery. The shorter the overall lead time for a part or assembly, the more responsive a supplier can be to meeting the customer’s requested delivery date.

The lead time for a part or assembly links to cost in several ways:

• Carrying cost for the material from purchase to customer payment. The longer material is on the supplier’s books, the greater the carrying cost. People tend to underestimate carrying cost. They focus on the cost of money, which is only a part of the carrying cost and may be a small part when interest rates are low.

Key thought: When building a lean supply chain, lead time should be the primary focus.


The more WIP in a facility, the larger the facility has to be, increasing all the costs associated with space. In addition, as they add value to the part or assembly, its effective carrying cost increases, because more money has been tied up in it through labor and machine time.

• The longer a part takes to get through the manufacturing process, the greater the likelihood that it will be damaged or lost, effectively leading to higher scrap and rework costs.

• The longer a part is in a facility, the more times it is likely to be moved and the greater the distances it will be moved. That leads to increased material handling costs plus adds to the risk of damage or loss.

One of the common problems in justifying lean approaches is the difficulty of predicting the results in traditional, return on investment (ROI) terms. Even after the fact, the improvements can be difficult to document in traditional business terms. One of the biggest problems is that inventory is counted as an asset on financial balance sheets. So a company with very low inventory because it is lean can actually find that to be a negative when negotiating with a banker who does not understand lean concepts.

Cost

The primary issue in the money class is cost. Cost is made up of many factors, such as:

• Labor (including fringe benefits)

• Purchased materials (including consumables)

• Outsourced processing and services

• Equipment (including rent/lease and finance costs)

• Equipment and facility maintenance

• Facilities (including actual or foregone rent/lease and utilities)

• Taxes

• Interest on inventory

• Hazardous chemical disposal fees

There are also indirect representations of cost, such as scrap rates, rework rates, and inventory turns. In the case of outside purchased materials, services, processing, and maintenance, profit for the outside company becomes a cost in the overall system. Thus at the prime contractor, the profit for all the suppliers in the supply chain is part

of the overall cost of the purchased parts and assemblies. It seems obvious, but it is a significant factor and it is unreasonable to expect suppliers to operate without making a profit.

Reductions in any cost factor will help the company’s bottom line as long as it is not achieved by adding greater cost to other factors. The primary issue with lean efforts is that cost reductions tend to be distributed across large portions of the company. When you purchase a machine tool, it is

Key thought: As in most lean activities, lean supply chains tend toward many small improvements adding up to large overall benefits.


easy to see the cost of the purchase. It is a large, discrete amount. If you take out a loan to pay for it, you can also clearly see what the interest costs will be through an amortization schedule. In typical lean improvements, you take labor hours and WIP out in bits and pieces here and there throughout a manufacturing process. That can lead to a substantial total reduction even though the individual amounts are small. Further, because the reductions are so spread out, predicting them in advance is difficult. The inability to point at a specific chunk of cost that will be eliminated as the result of the changes makes constructing a believable case for implementing the change difficult.

A major concern related to lean implementation is that the associated labor reduction will result in unnecessary people and, therefore, layoffs. The primary counter argument is that with lower costs (and better quality and delivery), the company will be more competitive and will be able to bring in more work, thereby using up the excess capacity while becoming stronger in the market. If there is simply no more work to be had, the company will at least be better able to survive difficult times.

Quality

As with cost, there are a number of factors that contribute to quality in this context, all of which increase one or more of the cost categories listed above:

• Scrap rate

• Rework rate

• Customer rejection rate

• Deviation (variance) request rate

These are normally determined by company, rather than by supply chain. While lean efforts rarely focus on any of these directly, nearly all improve as companies become leaner. Less handling and less time spent sitting around both reduce the damage that occurs to WIP. Standardized work helps reduce variation, which, in turn, reduces the number of parts that do not meet requirements. Over time, therefore, leaner processes should result in improvements in all of these areas, directly and indirectly reducing the cost incurred by the supplier.

Measuring Supply Chain Improvement

The measurement discussion so far has implied a company-specific point of view. From a supply chain view, the basic concepts are no different. Cost, quality, and time (lead time and delivery performance) are the categories of interest. At the supply chain level, therefore, the metrics are roll-ups of the suppliers’ numbers. The supply chain is improving if:

Example: One sub-tier supplier of nose gear parts improved its lead times and cut its costs (and price) so dramatically that its customer increased its buy from that supplierby over 20%. This at a time when the landing gear business was in major slump along with the entire aerospace industry.


• Overall lead time as seen at the prime contractor is going down. This is determined by the critical path of activities from the initiation of the prime’s order to the prime’s installation of the parts or assemblies.

• Lead time across the supply chain is going down. That is, the lead time for each part and subassembly in the delivered assembly is decreasing. Even if not on the critical path, lead time reductions due to leaner business and manufacturing processes will inevitably lead to cost and quality improvements. This can be measured as a sum of the lead times for all the parts and subassemblies that make up the delivered assembly. It can be taken to as deep a level as needed regarding individual parts.

• Costs are going down across the supply chain as a whole, even though costs might be increasing in specific parts of the supply chain to enable bigger savings elsewhere. The measurable result of the overall cost reduction should be both a price reduction in the parts or assemblies delivered to the prime contractor combined with stronger financial performance of each individual company in the supply chain. Sharing the gains is one major incentive for suppliers to take part.

• Quality is improving across the supply chain. This can best be measured at the prime contractor through its reject, variance, and rework rates due to problems with the assembly as delivered. A reduction in the quality issues identified and addressed in the supply chain before the prime receives the assembly will be reflected in reduced costs and more timely delivery in the supply chain.


Appendix C – VSM Data Form Details The following paragraphs define each line of the VSM data collection sheets we suggest you use to build your value stream maps. Note that many data items are time. You can give them in minutes or hours. Just be sure and note the units used. Eventually you will need to use consistent timing across all the companies. We recommend using hours for that purpose, but if it is easier to collect the basic data in minutes, then you can convert them later.

You can modify any of these forms to meet your needs, of course, but we do recommend keeping the text large to support group discussions. The forms shown here, when they fill an 8.5 by 11 sheet, can be filled in with sharp-point permanent markers, which also enhance legibility for groups.

Business Data Collection

Figure 16 is the suggested form for capturing the data from each step in the business processes you choose to address. These are normally the ones directly in the lead time of the product and typically include such activities as customer order entry, planning, purchasing (parts & raw materials), shipping, and receiving. Table 6 explains each of the lines in the data collection sheet. Note that we use the term “operator” here as a generic term for the person doing the work.

Figure 16. Example VSM business process data collection sheet.

Step # _________

# Resources on Shift 1: Shift 2: Shift 3:

Bus. Process Step:

Internal Set-up TimeExternal Set-up TimeProcessing Time

Average Batch SizeWhat Percentage of the Work Requires Rework?How Long Does the Rework Take?

Approval Time (within process step)Total Cycle Time How Much of the Process Happens Unattended?Is the Resource Doing the Work Shared?Average Lot Size

Misc. Information:

Number of Items in Work at This StepNumber of Jobs Waiting Ahead of Process StepNumber of Jobs Waiting After Process Step


Table 6. Explanation of line items in VSM business process data collection sheet.

Line Item Description Bus. process step & Step # The name and process number of the business process

step represented by the sheet. A sequential number is assigned to each step after review/validation of all processes.

# Resources on shift For each of the three shifts, enter the number of people doing this particular process.

Internal set-up time Enter the time the operator has to spend getting ready to do this step where nothing is happening otherwise. That is, the equipment is idle, waiting for setup steps to be completed before processing on this job/step can begin.

External set-up time Enter the time that the operator spends getting ready to do the step while waiting while the equipment is busy processing the previous job.

Processing time The amount of time actually spent processing one “unit” of work for this step.

Approval time (within process step) The amount of time that the document(s) wait on another person’s approval. This is like an inspection. Including it in the process step helps avoid making a lot of additional process steps with little helpful information.

Total cycle time This is the time it takes to move one work unit through the entire step. It is the sum of the internal setup time, the processing time, and the approval time.

How much of the process happens unattended?

This is a measure of how much of the processing time the work unit is being processed but the operator can be doing something else while it happens. For example, if the work unit gets processed by a computer program that takes an hour to do it, then the operator can do something else for that hour, such as prepare for the next set of work (external setup).

Is the resource doing the work shared?

This is asking whether the operator does work other than the specific process step listed. The answer for business processes is normally “yes”.

Average lot size How many of the same work units the operator works on as a “lot” from the same work order. For business processes, this most often has a value of one.

Average Batch size This is the number of items that are processed as a single “batch” in an operation. In business processes, a purchase order for 30 parts would be a batch size of one for a lot size of 30.

What percentage of the work requires rework?

How much of the work done in this process step has to be redone in whole or in part, for whatever reason.

How long does rework take How long it takes the operator to do the typical rework. Number of items in work at this step

This is capturing the size of the current lot being worked on.

Number of jobs waiting ahead of process step

This is a count of the number of jobs waiting for the operator and/or equipment to become available.


Line Item Description Number of jobs waiting after process step

This is a count of the number of jobs that have been completed but are waiting at the operator’s area to be moved on to the next step.

Misc. information This is a place to write down any notes, explanations, opportunities spotted, or any other additional information of interest.


Manufacturing Data Collection

Figure 17 is the suggested form for capturing the data from each operation in the manufacturing processes related to the selected part. Most of these operations appear on the process sheet associated with the product. However, as you walk the process, you will likely find some operations that are not officially recognized yet take time and effort. A typical example of such an undocumented operation is packaging parts up before shipping them to an outside processor. Table 7 explains each of the lines in the data collection sheet.

Figure 17. Example VSM manufacturing data collection sheet.

Step # _________

# Operators on Shift 1: Shift 2: Shift 3:

Mfg. Process Step:

Total Cycle Time

Is the machine a shared resource?

Average Batch Size

Internal Set-up TimeExternal Set-up TimeMachine Run TimeInspection (within process step)

Misc. Information:

Does the machine operate independently of the operator?

What percentage of parts are reworked?How long does the rework take?Machine/Equipment Uptime %Number of Pieces in Work at This StepInventory ahead of ProcessNumber of Completed Pieces after Step

What percentage of parts are scrapped?

Average Lot Size


Table 7. Explanation of line items in VSM manufacturing process data collection sheet.

Line Item Description Mfg. Operation & Step # The name and number of the manufacturing operation

(process step) represented by the sheet. In the rare case that they do not have a numbering system for the manufacturing operations, make one up. It helps to put the sheets back in order if they get mixed up somehow. You may find you need to document operations that occur but are not formally captured in the process sheet. Those should be numbered in some fashion as well (such as adding a letter to the previous numbered operation, like following operation 110 with 110a ).

# Operators on shift For each of the three shifts, enter the number of operators doing this particular operation.

Internal set-up time Enter the time the operator has to spend getting ready to do this step where nothing is happening otherwise. That is, the machine is idle, waiting for setup steps to be completed before it can start processing again.

External set-up time Enter the time that the operator spends getting ready to do the step while waiting for the machine is busy processing the previous job. This could include such activities as delivering the needed tools to the machine, presetting cutting tools, gathering needed documentation, getting raw material.

Machine run time The amount of time the machine (or operator, if a manual operation) actually spends processing one “unit” of work for this operation.

Inspection (within process step) This is time spent inspecting parts within the operation. In a job shop, this will often include first-off inspection. Capturing it in the operation data sheet helps avoid making a lot of additional, usually undocumented, operations with little helpful information.

Total cycle time This is the time it takes to move one work unit through the entire step. It is the sum of the internal setup time, the processing time, and the inspection time.

Does the machine operate independently of the operator?

This tells whether the operator can be doing something else while the work unit is being processed. For example, while a machine tool is running, it is often possible to prepare for the next operation to be run on the same machine (external setup).

Is the machine a shared resource? This is asking whether the operator does work other than the specific process step listed

Average lot size How many of the same work units the operator works on as a “lot” from the same work order. The lean ideal is one, but practical reality often leads to a larger number.

Average batch size This is the number of items that are processed as a single “batch” in an operation, such as a batch of 15 parts going through heat treatment at the same time. A lot of 30 would be processed in two batches.

What percentage of parts are scrapped?

How much of the work done in this operation results in scrapped parts, for whatever reason.


Line Item Description What percentage of parts are reworked?

How much of the work done in this operation has to be redone in whole or in part, for whatever reason.

How long does rework take (on average)

How long it takes the operator to do the typical rework.

Machine/equipment uptime % If there is equipment involved in doing this process step, what is the percentage of the overall work time that is it available to the operator to use

Number of pieces in work at this step

This is capturing the size of the current lot being worked on.

Inventory ahead of process step This is a count of the number of parts waiting for the operator and/or equipment to become available.

Number of completed pieces after step

This is a count of the number of parts that have been completed but are waiting at the operator’s area to be moved on to the next step.

Misc. information This is a place to write down any notes, explanations, opportunities spotted, or any other additional information of interest.


Outside Processing Data Collection

Figure 18 is the suggested form for capturing the data from each operation that occurs at an external facility in the manufacturing processes related to the selected part. Outside operations should appear on the process sheet associated with the product. Table 8 explains each of the lines in the data collection sheet.

Table 8. Explanation of line items in VSM outside process data collection sheet.

Line Item Description External operation step & Step # The name and number of the external manufacturing

operation represented by the sheet. If the operation is not already numbered, make one up. It helps to put the sheets back in order if they get mixed up somehow. Those should be numbered in some fashion as well (such as adding a letter to the previous numbered operation, like following operation 110 with 110a )

Number of pieces (lot size) sent to supplier

What is the typical number of parts sent to the external supplier as a single lot.

Number of pieces (lot size) received from supplier

What is the typical number of parts received back from the external supplier as a single lot. Although usually the same, this may be different from the number of pieces sent out.

Transportation time out How long it takes to ship the part to the external supplier. This should include wait time for pickup.

Transportation time back How long it takes to ship the part back from the external supplier. This should include wait time for pickup, if known.

Figure 18. Example VSM outside process data collection sheet.

Step # _______

Typical lead time not including transportation

Transportation time back

Normal transportation methodTransportation distance

Misc. Information:

External Process Step:

Quoted lead time not including transportation

% of received parts rejectedSupplier Location

Number of pieces (lot size) sent to supplierNumber of pieces (lot size) received from suppleirTransportation time out


Line Item Description Transportation distance How far the external processing site is from the main

facility. Normal transportation method What is the normal method used for this operation. Quoted lead time not including transportation

What lead time does the supplier quote for this external process, not including transportation to and from the supplier.

Typical lead time not including transportation

What lead time does the supplier typically achieve for this external process, not including transportation.

% of received parts rejected What portion of the parts you receive from the outside processor do you reject, whether for damage or improperly done processing.

Supplier location Where the supplier facility that does this operation is located.

Misc. information This is the place to write down any notes, explanations, opportunities spotted, or any other additional information of interest.


Appendix D – Decision Matrix Deciding which of several alternatives to select can often be quite difficult. One way to help make such a selection is by setting up a decision matrix. The purpose is to establish the criteria to use for making the decision and then compare how the alternatives meet those criteria. The following steps describe building and using a decision matrix.

1. Determine the selection criteria. There are two classes of criteria, “must-haves” and “wants.” As implied by their name, the must-haves are those criteria that any acceptable solution must meet. The wants are the additional criteria that determine which of those solutions is the best. The criteria can be developed through a brainstorming approach and there should be no more than 10.

Table 9. Weighting table.

Wants Charley George Jody Totals (weights)

C 1 2 2 5 D 4 1 3 8 E 3 3 1 7 F 5 4 4 9 G 6 5 6 17 H 2 6 5 13

2. Determine the relative importance of the criteria. The criteria should be given relative weights based on your particular situation. There are several ways to establish weights. One is a simple relative system such as a 1 to 3 scale with 3 being the highest weight. Another approach is to go through a group ranking process such as to have each member of the group involved rank the criteria, then add up the rankings to use as weights (see example in Table 9).

3. Build the decision matrix. With the criteria and weights, you can build the decision matrix itself using the model in Table 10. The weights are put in for the wi and how well each alternative satisfies each want is entered in the remaining cells of the matrix (the sji values). These can again be described using relative scale, perhaps 1 to 5, with the 5 again representing the strongest. Then you can calculate the score for each alternative by multiplying the weight in each row times the value in the column and adding up the results. The highest score is then the best alternative.

This is, of course not always so easy to do, since both determining weights and determining what values to use for how well an alternative meets a criterion can be difficult. The approach is not fully objective because the weights and values are at least somewhat subjective. The decision matrix does, however, help ensure that a number of criteria are consciously considered in as objective a way as possible.


Table 11 shows an example decision matrix that someone might use for determining which car to purchase.

Table 10. Decision matrix.

Criteria Weight Alternative 1 Alternative 2 Alternative 3 Alternative 4 Must-Haves: A Yes/No Yes/No Yes/No Yes/No B Yes/No Yes/No Yes/No Yes/No Wants: C w1 sa1 sb1 sc1 sd1 D w2 sa2 sb2 sc2 sd2 E w3 sa3 sb3 sc3 sd3 F w4 sa4 sb4 sc4 sd4 G w5 sa5 sb5 sc5 sd5 H w6 sa6 sb6 sc6 sd6

Alternative Score:

∑

=

8

1iaiisw ∑

=

8

1ibiisw ∑

=

8

1iciisw ∑

=

8

1idiisw

Table 11. Example decision matrix for selecting a car to purchase.

Criteria Weight Car 1 Car 2 Car 3 Must haves: 4-door station wagon Yes Yes Yes Fits 5-foot tall driver Yes Yes Yes Wants: All wheel drive 3 0 5 3 Flexible seating 1 3 3 4 Navigation system 2 3 2 5 Sun roof 1 3 0 4 Turbocharged 2 5 4 0 Side curtain air bags 3 2 5 3 Auto climate control 2 5 2 3 ABS 3 5 5 5

Score: 53 64 49


Appendix E – Lean Manufacturing Resource List Highly recommended titles are in bold.

Toyota Production System, Lean History, General Philosophy and Just in Time (JIT):

Conner, Gary, Lean manufacturing for the small shop, Society of Manufacturing Engineers, 2001 Fisher, Dennis, The Just-In-Time Self Test: Success Through Assessment and Implementation,

Irwin Publishers, 1995 Ford, Henry, Today and Tomorrow, Productivity Press, 1926, 1988 (reprint) Fujimoto, Takahiro, The Evolution of a Manufacturing System at Toyota, Oxford University

Press, 1999 Greif, Michael, The Visual Factory: Building Participation through Shared Information,

Productivity Press, 1991, Gunasekaran, A. (Editor), Agile Manufacturing: The 21st Century Competitive Strategy, Elsevier

Health Sciences, 2001 Hirano, Hiroyuki, JIT Implementation Manual: The Complete Guide to Just-In-Time

Manufacturing, Productivity Press, 1998 Liker, Jeffrey K., Becoming lean: inside stories of U.S. manufacturers, Productivity Press, 1997 Monden, Yasuhiro, Toyota production system: an integrated approach to just-in-time,

Engineering & Management Press, 1998 (the ‘Blue Book’) Ohno, Taiichi, Toyota production system: beyond large-scale production, Productivity Press,

1988 Productivity Press Development Team, Pull Production for the Shopfloor (Shopfloor Series),

Productivity Press, 2002 (the Entire Shopfloor Series is exceptional) Shingo, Shigeo, A Study of the Toyota Production System from an Industrial Engineering

Viewpoint, Productivity Press, 1989 (the ‘Green Book’) Standard, Charles; Davis, Dale, Running Today's Factory: A Proven Strategy for Lean

Manufacturing, Hanser Gardner Publications, 1999 Suzaki, Kiyoshi, The new manufacturing challenge: techniques for continuous improvement,

Free Press; Collier Macmillan Publishers, 1987 (the ‘Red Book’) Taylor, Frederick Winslow, The Principles of Scientific Management, Dover Publications, 1919,

1998 (reprint) Womack, James P.; Jones, Daniel T.; Roos, Daniel, The machine that changed the world: how

Japan's secret weapon in the global auto wars will revolutionize western industry, Harper / Perennial, 1991, 1990

Womack, James P.; Jones, Daniel T.; Lean Thinking: Banish Waste and Create Wealth in Your Corporation, Simon & Schuster, 1996

Value Stream Mapping (VSM): Rother, Mike; Shook, John, Learning to See: Value stream mapping to add value and eliminate

muda, Lean Enterprise Institute, 1999


Kaizen Workshops, setup and tools: Imai, Masaaki, Kaizen: The Key to Japan’s Competitive Success, McGraw-Hill, 1986 Imai, Masaaki, Gemba Kaizen: A Commonsense, Low-Cost Approach to Management, McGraw-

Hill Trade, 1997 Mika, Geoffrey L., Kaizen Event Implementation Manual, Kaizen Sensei, 2001 Regan, Michael D., The Kaizen Revolution, Holden Press, 2000

Quick Changeover or Single Minute Exchange of Dies (SMED): Shingo, Shigeo, A Revolution in Manufacturing: The SMED System, Productivity Press, 1985

Total Productive Maintenance (TPM): Sekine, Keniche; Arai, Keisuke, TPM for the Lean Factory: Innovative Methods and Worksheets

for Equipment Management, Productivity Press, 1999

Error Proofing, Poka-Yoke: Nikkan Kogyo Shimbun, Poka-Yoke: Improving product quality by preventing defects,

NKS/Factory Magazine, 1988 Shingo, Shigeo, Zero Quality Control: Source Inspection and the Poka-Yoke System,

Productivity Press, 1986

Lean and Supply Chains: Cooper, Robin; Slagmulder, Regine, Supply Chain Development for the Lean Enterprise,

Productivity Press, 1999 Hines, Peter; Jones, Dan; Lamming, Richard, Value Stream Management: Strategy and

Excellence in the Supply Chain, Financial Times Prentice Hall, 2000 Jones, Daniel T., and Womack, James P., Seeing the Whole: Mapping the extended value

stream, Lean Enterprise Institute, 2002 Taylor, David; Brunt, David, Manufacturing Operations and Supply Chain Management: The

LEAN Approach, International Thomson Business Press, 2000

Other Support Tools (not solely Lean-focused): Blackburn, Joseph D., Time-based competition: the next battleground in American

manufacturing, Business One Irwin, 1991 Deming, W. Edwards, Out of the Crisis, MIT Press, 1986, 2000 (reprint) Goldratt, Eliyahu M.; Cox, Jeff, The goal: a process of ongoing improvement, Great North River

Press, 1992 Hall, Robert W.; Johnson, H. Thomas; Turney, Peter B. B., Measuring up: charting pathways to

manufacturing excellence, Business One Irwin, 1991


Hopp, Wallace J.; Spearman, Mark L., Factory Physics, McGraw-Hill/Irwin, 2000 Kaplan, Robert S., Measures for manufacturing excellence, Harvard Business School Press, 1990 Kinni, Theodore B., America's best: IndustryWeek's guide to world-class manufacturing

plants, Wiley, 1996 Maskell, Brian H., Performance measurement for world class manufacturing: a model for

American companies, Productivity Press, 1991 Miller, William B.; Schenk, Vicki L., All I Need to Know About Manufacturing I Learned in Joe's

Garage, Bayrock Press, 2001 Moody, Patricia E.; Morley, Richard E., The technology machine: how manufacturing will work

in the year 2020, Free Press, 1999 Quirk, Michael, Manufacturing, Teams and Improvement: The Human Art of Manufacturing,

Prentice Hall, 1998 Rath & Strong's Six Sigma Pocket Guide, Rath & Strong, Inc, 2000 Schonberger, Richard, World class manufacturing: the next decade: building power, strength,

and value, Free Press, 1996 Schragenheim, Eli; Dettmer, H. William, Manufacturing at Warp Speed: Optimizing Supply

Chain Financial Performance, CRC Press, 2000 Sloan, Alfred P., My Years With General Motors, Doubleday, 1996 (reissue) Smith, Wayne K., Time Out: Using Visible Pull Systems to Drive Process Improvement, John

Wiley & Sons, 1998 (great for continuous process companies) Suri, Rajan, Quick Response Manufacturing: A Companywide Approach to Reducing Lead Times,

Productivity Press, 1999

On-Line Links for Lean Manufacturing: Association for Manufacturing Excellence (AME, www.ame.org) AME is a not-for-profit

providing its members an educational opportunity to learn leading-edge techniques and a forum to stay abreast of new and developing management and operational techniques.

Lean Enterprise Institute (LEI, www.lean.org) LEI’s global mission is to be the leading educators for society in maximizing value and minimizing waste. LEI develops and advances lean principles, tools, and techniques designed to enable positive change (books, workshops, discussion groups, etc.).

Lean Enterprise Research Centre (www.cf.ac.uk/carbs/lom/lerc) Brings together the benchmarking and lean production work of Daniel Jones (together with James Womack of MIT) and the work on supply chains, supplier development and materials management of Peter Hines.

Lean On-Line Glossary of Terms (www.searchmanufacturing.com/Manufacturing/Lean/glossary.htm) This on-line resource provides a list of lean manufacturing related terms and definitions.

National Association of Manufacturers (NAM, http://www.nam.org/) NAM seeks to advance a pro-growth, pro-manufacturing policy agenda; the leading voice for manufacturers in the United States.

Shingo Prize for Excellence in Manufacturing (http://www.shingoprize.org) The Shingo Prize recognizes companies that excel in productivity and process improvement, quality enhancement, and customer satisfaction. It is administrated by Utah State University College of Business.


Society of Automotive Engineers (SAE, www.sae.org) Common definition for lean in the auto industry in “Identification and Measurement of Best Practice in Implementation of Lean Operation” (SAE J4000), and “Implementation of Lean Operation User Manual” (SAE J4001), which provides instruction for evaluating levels of compliance to SAE J4000.

University of Michigan Engineering School Lean Certificate Programs (http://cpd.engin.umich.edu/index.html) The UM College of Engineering offers world-class Certificate-level training series of courses in the areas of Lean Manufacturing and Lean Product-Process Development.

University of Kentucky Lean Manufacturing Program (www.crms.engr.uky.edu/lean) The UK Center for Robotics and Manufacturing Systems offers a comprehensive program of assistance to companies in all phases of implementing lean manufacturing, including consultation, workshops, education and training courses, and in-plant workshops.

Basic Lean Concept Simulations: Many public and custom trainers offer lean simulation classes of 4 to 8 hours in length. Our purpose is not to try to list them here. Our focus here is to suggest a few packages, instructions and kits that are available at no charge or for a fee from the providers listed below. We suggest you check the Internet for the latest information, but here are a few simulation packages to consider:

The Lean Sim Machine

A 4-hour experience that simulates both machining operations and assembly operations. Target audience is Production Managers, Engineers, Planners, Material Handlers, Machinists and Assemblers. It was developed by the Donnelly Corporation, a successful supplier for the automotive industry. Manufacturers may register for the class or purchase the program for teaching their employees.

Available from: Vision Performance at http://www.visionperformance.com/lean.htm and Scanlon Leadership Network at http://www.leanhelp.com/Tools.html

The Penville Plant

The Penville PlantTM Kit gives managers, engineers, designers, line personnel and others the opportunity to experience three different manufacturing systems. Players are guided through the transition from traditional batch manufacturing to pull manufacturing that uses teamwork and cross-trained employees. The kit includes a comprehensive instruction manual, pen parts, and record sheets. Contact Maria Muñiz at [email protected]. Web site: http://www.tc2.com/ET/ETProducts.htm

The Beer Game Production-Distribution Exercise

The Beer Game introduces participants to lean Supply Chain Management principles by showing the effects that decisions at one part of the supply chain have on other parts of the chain. It will dramatically highlight the cost of demand uncertainty, lead times, and non-value adding activities as well as the value of information. The objective of the game is to minimize total inventory carrying costs, along with backorder costs in the given supply chain channel.

Described by Peter Senge in his book, The Fifth Discipline, pp. 27-54. Also search Internet for “Beer Game.” Instructions and game boards as well as computerized versions are available at several websites, including an Internet version available at http://www.pom.edu/beer/BeerDocs.htm


JIT Flow Simulation - The “Paper Airplane” Exercise

A simple teaching tool that allows the demonstration of nearly every JIT principle and gives an opportunity to discuss the rest. The power is in the flexibility of the exercise, which can be adapted and modified to illustrate nearly any circumstance. As few as 6 participants can actually “play the game.” Others can be active Lean observers and analysers, or you can run multiple teams. This game uses a simple production process for folding paper airplanes to teach the principles of JIT, Kanban, Single Piece Flow, and with variations Heijunka (load levelling / line balancing) and Lean Accounting.

Instructions can be downloaded free from: http://www.leanaust.com/main.htm

developing lean supply chains - spans website home page

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