Lean Deployment in Supply Chain: Materials

Presentation Objectives

• Foundation: Lean Thinking• A Culture Shift – The Lean Journey In

Supply Chain• Highlights of the Transformations at CPS

Energy’s Materials Team• Our Future State - Relentless Pursuit of

Perfection

Foundation: Lean Thinking

What is Lean

• The term ‘Lean’ is an outside term to describe the Toyota Production System

• It is a philosophy based on eliminating waste and defining value from the customer’s perspective.

• Lean is rooted in observation… go and see, analyze the situation and ask why the problem occurs.

• It is a philosophy of continuous improvement and learning.

• Lean means dependence on people.

The Foundation

• The foundation to Lean is to gain an understanding of a few key principles: Waste Standardization Visual Management Strategy Deployment Continuous Improvement The Pillars – JIT and Jidoka

• The goal is to improve quality, reduce lead time and reduce cost

The Seven Wastes

• The main restriction to profitability, efficiency and flexibility:

1. Defects, Mistakes, Corrections2. Overproduction (over acquisition)3. Transportation4. Waiting5. Inventory6. Motion7. Over Processing

The Cost Principle

• The cost principle is based that in a competitive market, the customer sets the price:

Price – Cost = Profit

Price – [VA + NVA + Waste] = Profit

• Value added work is what the customer is willing to pay for… all else is a form of waste (cost).

Standardization

• Standardization is the essential if you are going to have any form of improvement

• Standardization can be obtained by finding best practices and applying them as the way to do the work

• This is true until another best practice or a better method is found, therefore, becoming the new standard

Visual Management System

• It is key to measure and monitor your operations

• This must be displayed where all can see and understand

• Strategies, improvements, problems and goals are displayed

Strategy Deployment

• It is important to get the team involved in strategy deployment

• Our Supply Chain Director has to main strategy objectives:

1. Reduce Lead Time2. Improve Quality

• The Materials group’s strategy must support Supply Chain’s strategy

• The Supervisor’s strategy must support the Material group’s strategy

• This is the nature of goal alignment bottom up

Continuous Improvement

• Continuous improvement is not an event, but way of doing business

• It is key to train your managers and supervisors on how to solve problems

• Root cause analysis becomes part of their role

JIT and JidokaThe Pillars of Lean

Best Quality – Short Lead Time – Lowest Cost

JIT Jidoka

Goal Alignment and Strategy DeploymentTrain People: Problem SolvingWork Processes: Standardized

Philosophy: Understand and Eliminate Waste

PeopleProcess

Technology

Culture Shift: The Lean Journey

Lean Supply Chain

• Perfect first-time quality: quest for zero defects, revealing & solving problems at the source.

• Building and maintaining relationships with suppliers: collaborative risk sharing, cost sharing, and information sharing arrangements.

• Continuous improvement: reducing costs, improving quality, increasing productivity and information sharing.

Go to the Gemba

• Gemba in Japanese means “where the truth can be found”.

• As Lean practitioners, we must go and see where the problem occurs to thoroughly understand the situation.

• Supervisors and team members must be intimately involved in quality issues.

• Going to the Gemba (actual place) will increase the speed of resolution of problems.

Importance of Standardization

• Stadardization is backbone of Lean.• It consists of three elements:

1. Pace of customer demand2. Sequence of doing things or sequence of

processes3. How much inventory or days on hand is

needed to accomplish the work

It is impossible to improve any process until it is standardized.

Waste Creation

MudaWaste

MuraUnevenness

MuriOverburden

Building the Foundation

• Train employees to identify waste• Build a culture of stopping to fix problems• Get quality right the first time• Standardize work processes and tasks• Train employees to solve problems and

work together towards common goals• Go and See mentality• Become a learning organization

The Lean Supply ChainCustomer SupplierOrder

Management

Customer MgtSupplier Mgt

Logistics

Engineering

Planning &Scheduling

Construction

Planned SystemEvent ManagementPull ReplenishmentReduced Lead Time

Cross DockingYard Control

Receiving ScheduleDelivery Frequency

Pick Up FrequencyPick Up VerificationSupplier Compliance

Feedback Mechanisms

Customer ComplianceFeedback Mechanism

Shared AccountabilityBOM Accuracy

Schedule Accuracy

Total Cost of Ownership

Easier to Identify

Harder to Identify,

Measure and Relate to Purchase

Unit

Price

Freight

Cost

Duties

&Fees

Planning Purchasing

QC

Warehouse

& Inventory

Lead Time

Impact

Poor Quality

Impact

(Internal)

Late

Delivery

Impact

Field Failures Service General Admin.

Total Cost of Ownership

• TCO is the cornerstone of the Lean Supply Chain.• TCO encompasses all the costs associated with

the acquisition, use, and maintenance of a good or service.

• In theory, TCO may include all costs originating with the conception of a construction/service idea, all the way through rework once the product or service has been provided to the end customer.

• So what is the paradigm shift that is required in CPSEnergy today?

Manifestation of Costs

• Although many of the TCO costs are hard to see and quantify….. Where do they manifest themselves?

Inventory Carrying Costs

• Administrative Overheads 2%• Cost of Capital 9%• Damage 5%• Insurance 2%• Transfers 4%• Obsolescence 5%• Shrinkage 3%• Space to Handle Excessive

Inventory 5%• Storage Systems ½%

So the focus is not on inventory….

But rather how we manage our excessive inventory!!

Highlights of the Transformation

Supply Chain: Materials Management

Breaking Down the Walls

• Our department was segregated into 4 groups:

MRP Buyers Stores Salvage• We introduced a customer first team

where we combined and reclassified departments into teams:MA Team Warehouse Team Customer

Material Flow

Information Flow

Are Key Strategies for FY09

• Lead Time Reduction – Baby A3• Lean Warehousing Implementation• Reverse Logistics Group Formation• Quality Improvement with Fleet (Beginning

Stages)• Inventory Reduction Project: Milk Runs

with Techline (Beginning Stages)

Lead Time Reduction

Value Stream Perspective

Lean Warehousing

Reverse Logistics

Right Direction?

05

10

15202530

3540

Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08

Lead Time Target

Future State

Pursuit of Perfection

Visualizing the Supply Chain

1. Right Materials2. Right Quantity3. Right Time4. Right Place5. Right Source6. Right Price7. Right Quality8. Right Service

• Can we answer these questions?

• What process are in place?

• What are the moments of truth?

• What are the failure modes?

Value Stream Mapping

• Lean Thinking1. Specify Value by

Product2. Identify the Value

Stream3. Make the Product Flow4. At the Pull of the

Customer5. In Pursuit of Perfection

• Learning to See1. How Does the Process

Work?2. Can we Agree on

Performance?3. Can we be Involved?4. How will we Improve?

Mapping the Supply Chain

• The challenges… • 80% of the supply chain activities are invisible to

those accountable• Multiple suppliers, multiple customers, multiple

third parties• High variability in material behavior,

transportation modes• High variability in lead time, supply and demand• High variability in supplier performance and

capability• The extended enterprise is not always visible• Data is not always abundant

The Future State

• What are the customer’s expectations?• What is the rate of customer demand?• What processes are non value added?• Where is the First Time Quality an issue?• Where is availability an issue?• Where are excessive inventories?• Where can we implement flow and pull?• Where do we go and see?• What can we see? What can we do?• What projects must be prioritized?

Questions or Comments?