©the mcgraw-hill companies, inc. 2008mcgraw-hill/irwin chapter 13 lean systems: eliminating waste...

©The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin

Chapter 13

Lean Systems: Eliminating Waste

Throughout the Supply Chain

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Learning Objectives

• Describe the overriding objective of just-in-time management (JIT).• State the wastes that were the focus of Toyota’s original version of JIT.• Describe the enterprise wide JIT techniques and explain how each affects wastes

in the business.• Describe the inventory-focused JIT techniques and explain how each reduces

inventory waste.• Describe the workforce-focused JIT techniques and explain how each reduces

workforce waste.• Describe the capacity-focused JIT techniques and explain how each reduces

capacity waste.• Describe the facility-focused JIT techniques and explain how each reduces

facility waste.• Describe the competitive benefits of lean systems.• Determine the takt time for production.• Calculate the appropriate number of kanbans.• Determine the batch size to minimize inventory.

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• The overriding objective of lean thinking is to reduce waste. It does this by:– Improving process productivity– Reducing inventory– Improving quality– Increasing worker involvement

• Lean practices were imported in an attempt to copy the success of the Japanese just-in-time (JIT) approach to automobile production. – Lean originated in manufacturing, but has begun to influence services

as well.

Introduction: A Management Framework for Waste Elimination

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• Toyota’s original version of lean focused on reducing various kinds of waste.

Eliminate Waste: The Focus of Lean

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• Overproduction waste: The waste caused by producing in excess of demand.– Creates excess inventory– Wastes capacity on products that have no demand– Producing too early has similar effects to producing too much

• Waiting time waste: Waste that results from customer orders, inventory, or completed products waiting in queue for a process to begin.– Reduces value for customers– Increases delay to obtain financial return on the product– The cost associated with cars waiting to be shipped to dealerships, for

example, has been estimated to be as much as $10 per vehicle per day


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• Transportation waste: Results from excessive materials handling and movement.– May be caused by ineffective facility layouts– May also be caused by ineffective choice of locations for suppliers or

warehouses– Moving materials around is not only expensive in itself, but also wastes

time

• Processing waste: Results from steps in production processes that do not contribute value or create too much cost.– One of the most popular ways of improving a business is to reduce this

by identifying and removing the non-value-adding steps


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• Inventory waste: Waste that consists of excess inventory over and above that which is necessary.– Excess inventory increases costs and lead times– Excess inventory reduces quality and flexibility

One of the most important benefits of inventory reduction is not having inventory that covers up other problems. When inventory is reduced, problems are exposed, making it possible to improve systems by solving the problems that inventory hid.


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• Unnecessary motion waste: The waste of human resources caused by unnecessary labor due to ineffective job design.– Wasting labor resources increases product and service cost

• Product defect waste: The waste of capacity, inventory, and labor resulting from products that do not meet customer specifications.


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• Lean practices attempt to increase employee involvement in decision-making.– Lean values “local” knowledge: Waste elimination typically results

from the expertise of employees most familiar with the processes.– Involvement is frequently implemented through process improvement

teams.

Eliminate Waste:Operation Resources and Waste

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• Tools for eliminating waste range from techniques that are very narrow in focus to those that are broad-based.

Exhibit 13.2 JIT Techniques and Their Impact on Operations resources

Eliminate Waste:Waste Reduction Techniques

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• Quality Management– Quality management is a prerequisite to lean systems– It has a positive impact on all the areas that lean targets for waste

reduction.

• Kaizen– Translates to “continuous improvement”.– Implies that business should strive to make everything better– Nothing should ever be considered “good enough”– A kaizen blitz is a two or three day marathon of tearing down an entire

department and completely redesigning its processes.

Enterprisewide Lean Techniques

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Inventory-Focused Techniques: Matching Production to Demand

• Lean production strives to match the rate of production to the rate of demand at very small time increments.– This is done on a daily or even hourly basis

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• Takt time: How often you must produce a product in order to meet demand.– Producing faster than takt time results in a buildup of inventory

Takt Time = Havail/DWhere

Havail is hours of available capacity

D is demand

For example, if demand is 90,000 and capacity is 38 hours (136,800 seconds). . .Takt time = 136,800/90,000 = 1.52 seconds. A product must exit the system every 1.52 seconds to meet demand.

Inventory-Focused Techniques:Matching Production to Demand

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• Kanban– A system used to link production rate to demand.– Kanban is Japanese for “visible record” or “signal”.

• The traditional approach is to forecast demand and produce in a batch to meet that forecast. – Products are “pushed” through the system and then sold.

• In kanban systems, the demand “pulls” products through the system.

Inventory-Focused Techniques:Kanban Systems

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• Kanban systems use small buffers of inventory between work centers, departments, and manufacturing plants.– Management determines the maximum size of these buffers. – When a buffer is at its maximum (full), the process that feeds that

buffer is not authorized to produce.– The signal to start producing again is when the buffer drops below its

maximum size. In this scenario, the kanban or “signal” is the buffer being less than full.

– In other kanban systems, particularly when the buffer is not within sight of the feeding process, a card or message or even a container can be used as a kanban. When inventory is consumed, a card is sent to the supplying work center. Or, if a container is emptied, the empty container is sent back.


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• Assume seven work centers, with containers between them that hold six items each. The full container prevents production. If the container has room, it authorizes replenishment.

• The rightmost buffer is full of finished product, and the rest are full of WIP inventory.

Exhibit 13.4 Kanban System


Buffer is full, so preceding WC is not authorized to produce

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• What happens if one item of finished product is taken out of the buffer after WC7?

Exhibit 13.4 Kanban System

WC1 WC2 WC3 WC4 WC5 WC6 WC7


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– The empty space in the buffer after WC7 is the signal for WC7 to start producing– WC7 will pull one item out of the buffer preceding it– That empty space is the signal for WC6 to start production– WC6 will pull one item out of the buffer preceding it...and so on, all the way up the chain.– Each work center produces to replenish the buffer…and all buffers are full again


WC1 WC2 WC3 WC4 WC5 WC6 WC7

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• What is the total amount of WIP inventory that can be in the system?– Each buffer holds 6 items, and there are 7 buffers, so the maximum

WIP inventory level is 42– Management controls this number

Exhibit 13.5 Inventory Levels in Kanban System


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Kanban Simulation (a)

FinishedProducts

RawMaterials

Work Center#1

Work Center#2

WIPInventory

As soon as demand consumes a finished product, work center 2 begins processing by removing an item from WIP inventory, which authorizes work center 1 to process, which requires a unit of raw materials. The supplier immediately replenishes raw materials . . . . .

Customer

Supplier

Finished Goods

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Kanban Simulation (b)

FinishedProducts

RawMaterials

Work Center#1

Work Center#2

WIPInventory

As soon as work center 2 completes its unit, it is transferred to finished products. Work center 1 completes its unit, and WIP inventory is replenished. All buffers are now at their maximum quantity, so production stops, until demand consumes another finished product. . .

Customer

Supplier

Finished Goods

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Kanban Simulation (c)

FinishedProducts

RawMaterials

Work Center#1

Work Center#2

WIPInventory

Once again, as soon as demand consumes a finished product, work center 2 removes a unit from WIP inventory, which authorizes work center 1 to process, which requires a unit of raw materials. Again, the supplier replenishes raw materials.

Customer

Supplier

Finished Goods

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Kanban Simulation (d)

FinishedProducts

RawMaterials

Work Center#1

Work Center#2

WIPInventory

Once again, as work center 2 completes its unit, it is transferred to finished products. Work center 1 finishes its unit, and replenishes the WIP inventory buffer. All buffers are now at their maximum quantity, so production stops.

Customer

Supplier

Finished Goods Simulation over

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• Work centers don’t have to be next to each other to be linked using kanban systems

• The kanban (visible signal) doesn’t have to be an empty container. It can be anything, as long as it clearly sends the signal to make more

Exhibit 13.6 Kanban System Extending to Suppliers


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• Management must decide how much inventory to have in the system, and this is done by computing the appropriate number of kanbans, which dictate the maximum size of the buffer.

SDk LT C

Wherek = Number of kanbans or containersDLT = Average Demand during the replenishment lead timeLT = Replenishment lead timeS = Safety stockC = Number of units per container


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• Step-by-step: Determining the Appropriate Number of Kanbans.– Determine the average lead time for a container of parts

• Sum of production time, transit time, and wait time– Determine the demand for parts during that lead time

• From the hourly production rate of the downstream work center that receives them.

• Multiply the lead time by the production rate– Add a safety stock– Determine the number of containers needed

• Divide demand for parts during the lead time, plus the safety stock, by the number of parts that fit in the container


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• Example: Determining the number of kanbans– Suppose a golf club manufacturer wishes to determine the appropriate number

of kanbans for inventory that flows between the shaft/head assembly area and the final step, which is the handle grip station. The “kanban” used is a rack that holds a maximum of 20 clubs. Use the values below to determine the number of racks (containers) that should be used.

Average production time for shaft/head assembly of 36 clubs: 0.7 hour

Average transit time: 0.5 hour

Average wait time of container at shaft/head assembly: 1.9 hours

Average output of grip wrapping station: 35 clubs/hour

Desired safety stock: 10%


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Example: Determining the number of kanbans• Avg. total lead time = Production time + transit time + wait time

= 0.7 + 0.5 + 1.9 = 3.1 hours

• Avg. demand during lead time = lead time x production rate of downstream work center = 3.1 hrs. x 35 clubs/hr. = 108.5 clubs

• Add 10% safety stock: 108.5 + 10.85 = 119.35 clubs

• Number of racks = (demand + safety stock)/container size = 119.35/20 = 5.975 = round up to 6 racks


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• Standardizing components of a product line lowers total inventory cost. – In some industries, such as the automotive industry,

component standardization can reduce inventory investment by at least 50%.

Inventory-Focused Techniques: Component Standardization

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• Small-batch production is an important approach for matching production rate to demand rate.– Producing in more frequent, smaller batches drives the average inventory

level down.– But it also increases the number of times equipment must be changed

over, which can cut into available capacity.– Small-batch production becomes economical only when changeover

times can be reduced sufficiently.

Inventory-Focused Techniques:Small-batch Production

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• One approach in small-batch production is to identify the amount of capacity that is not needed for production and use all of it for changeovers:

D(Hreq – Havail)/T

Where

D = Demand during the planning horizon

Hreq = Hours of required capacity

Havail = Hours of available capacity

T = Time it takes to perform a changeover

Inventory-Focused Techniques:Small-batch Production

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• Step-by-step: Batch size determination– Determine the hours of required capacity– Determine the hours of available capacity– Subtract required capacity from total available capacity to yield the

capacity that could be dedicated to changeovers, in hours– Divide the hours that could be dedicated to changeovers by the

changeover time to yield the number of changeovers feasible without utilizing production capacity

– Divide the total demand for the planning horizon by the number of changeovers feasible to yield the smallest possible batch size


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• Example: Batch size determination– A company that stamps small parts out of sheet metal has one particular stamping

press that is scheduled to stamp out 144,000 parts, taking a total of 200 hours during the next month. There are 235 hours available for production during the time period. Changeover time for the die on that press is 20 minutes (0.333 hours). Determine the number of batches that can be run on the press during the next month and the minimum size of each batch.

Capacity that could be dedicated to changeovers = 235 – 200 = 35 hours

Number of changeovers feasible = 35/0.333 = 105.105 changeovers

Minimum batch size = 144,000/105.105 = 1,370.0585 = (round) 1,371


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• Changeover time reduction is an integral aspect of lean production.– U.S. manufacturers who adopted JIT, with modest effort,

reduced changeover times from hours to minutes– The result was shorter production runs, smoother flow of

materials, and reduced inventory• Frequent deliveries from suppliers has an effect similar

to that of small batch production.– Raw materials and component parts are “pulled” from suppliers

just like they are within a plant.– The result is that inventory is “pulled” from the supplier and the

supplier’s production more closely matches the rate of demand.

Inventory-Focused Techniques:Reduced Changeover Times

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• Frequent deliveries from suppliers accomplishes nearly the same thing as small batch production– Raw materials and component parts are “pulled” from suppliers

just like they are within a plant

Inventory-Focused Techniques:Frequent Deliveries

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• There are fixed costs associated with deliveries from suppliers. Reducing these “order” costs makes it possible to take more frequent (smaller) deliveries. How are these costs reduced?

• Much of the administrative cost can be eliminated by using electronic data interchange (EDI) instead of paper transactions

Inventory-Focused Techniques:Paperless Transactions

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• Relationships with suppliers must improve with lean.– Good communication is essential for frequent deliveries– Relationship must be long lasting and more exclusive, because

the supplier must invest in a change– The supplier must become a lean manufacturer. Lean practices

must be incorporated upstream in the supply chain in order to provide true benefits

Inventory-Focused Techniques:Improved Supplier Relationships

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• Process Focus: Lean focuses on process expertise, not product expertise.– Build expertise in processes instead of trying to do a large

variety of different processes.

• Eliminate Non-Value-Adding Steps: – Reduce one of the most common forms of waste in business by

reexamining how things are done. – Just because things have been done in a certain way historically

doesn’t mean it’s the right way to do them.

Capacity-Focused Techniques:Process Focus

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• Eliminate Non-Value-Adding Steps: – Reduce one of the most common forms of waste in business by

reexamining how things are done. – Just because things have been done in a certain way historically

doesn’t mean it’s the right way to do them.

Capacity-Focused Techniques:Eliminate Non-Value-Adding Steps

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• Automation– Not exclusive to lean, many lean firms use it for repetitive or

dangerous jobs.

Capacity-Focused Techniques: Automation

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• Small-Scale Equipment– Production using many small machines can be preferable to

production using one big one.– Small machines provide flexibility to turn some of them on or

off and adjust the output rate to more closely match a variable rate of demand.

– With a single large machine, output is typically either running at maximum output or not at all. These extreme rates do not match the rate of demand.

Capacity-Focused Techniques:Small Scale Equipment

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• Protective Capacity– Maintain a small amount of excess capacity instead of

inventory.– It is equally effective at satisfying unexpected demand, but

extra capacity doesn’t have the negative impact on flexibility and quality that inventory has.

Capacity-Focused Techniques:Protective Capacity

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• Level Loading Capacity: – Lean manufacturers can’t have level production as their aggregate

planning strategy because it requires large buildups of inventory– Nor can they chase demand, because constant hiring and firing ruins

workforce quality– The alternative is to create a somewhat level demand for production. One

option is to manufacture complementary products (motorcycles in summer and snowmobiles in winter)

– Another option is to level the load for a period of time, then adjust it to another level for a period of time

Capacity-Focused Techniques:Level Loading of Capacity

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• Increased Preventive Maintenance: – Decoupling between work centers is eliminated in lean manufacturing– Machine breakdown can quickly bring an entire production line to a halt– One approach to reducing the potential for a production line stoppage is

to reduce machine breakdowns by increasing the amount of preventive maintenance

Capacity-Focused Techniques:Increased Preventive Maintenance

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• Cellular Layouts and Group Technology: Cellular layouts are attractive in lean environments for several reasons.– It virtually eliminate material movement– It utilizes small-scale equipment– Workers are responsible for broad rather than narrow tasks– Cross-trained employees improve the reliability of cells– The number of workers in a cell can be reduced in the event of a

downturn

Facility-Focused Techniques:Cellular Layouts and Group Technology

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• U-shaped production lines eliminate transportation waste and reduce the potential for damage.

Exhibit 13.7 Comparison of U-Shaped and Traditional Production Lines

Facility-Focused Techniques:U-shaped Production Lines

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Workforce-Focused Techniques:Employee Involvement

• Employee Involvement– Knowledge and talent of employees should not be wasted– The impact of decisions on customer interactions and specific

processes is needed and can be obtained from employees.

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Workforce-Focused Techniques:Employee Cross Training

• Employee Cross-Training– In a pull system, things are not produced unless they are

needed.– It is difficult to pay employees to do nothing– If a particular work center has no demand, a cross-trained

employee can go work elsewhere in the facility.

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Workforce-Focused Techniques:Improvement Teams

• Improvement Teams– Utilize employee knowledge and talent to achieve the

continuous improvement attitude that forms a foundation for JIT.

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Competitive Benefits of Lean

• Inventory Reductions:– Enhance quality– Increase flexibility– Reduce response Times

• Process Expertise:– Eliminates non-value-adding steps– Increases use of automation– Flexibility from protective capacity– Stability from level loading

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Competitive Benefits of Lean

• Manufacturing Advantages– Cellular layouts, GT, and U-shaped lines improves flows,

reduces costs and adds flexibility• Employee involvement, cross-training and improvement

teams make better use of employee knowledge and talent.

©the mcgraw-hill companies, inc. 2008mcgraw-hill/irwin chapter 13 lean systems: eliminating waste...

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