1. Lean Deployment in Supply Chain: Materials

2. 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

3. Foundation: Lean Thinking

4. 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.

5. 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

6. The Seven Wastes
The main restriction to profitability, efficiency and flexibility:
Defects, Mistakes, Corrections
Overproduction (over acquisition)
Transportation
Waiting
Inventory
Motion
Over Processing

7. Price – [VA + NVA + Waste] = Profit
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).

8. 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

9. 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

10. Strategy Deployment
It is important to get the team involved in strategy deployment
Our Supply Chain Director has to main strategy objectives:
Reduce Lead Time
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

11. 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

12. JIT and Jidoka People Process Technology The Pillars of Lean JIT
Best Quality – Short Lead Time – Lowest Cost
JIT
Jidoka
Goal Alignment and Strategy Deployment
Train People: Problem Solving
Work Processes: Standardized
Philosophy: Understand and Eliminate Waste
People
Process
Technology

13. Culture Shift: The Lean Journey

14. 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.

15. 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.

16. Importance of Standardization
Stadardization is backbone of Lean.
It consists of three elements:
Pace of customer demand
Sequence of doing things or sequence of processes
How much inventory or days on hand is needed to accomplish the work
It is impossible to improve any process until it is standardized.

17. Waste Creation
Muda
Waste
Mura
Unevenness
Muri
Overburden

18. 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

19. Shared Accountability
The Lean Supply Chain
Customer
Order
Management
Supplier
Customer Mgt
Supplier Mgt
Logistics
Engineering
Planning &
Scheduling
Construction
Customer Compliance
Feedback Mechanism
Shared Accountability
BOM Accuracy
Schedule Accuracy
Planned System
Event Management
Pull Replenishment
Reduced Lead Time
Cross Docking
Yard Control
Receiving Schedule
Delivery Frequency
Pick Up Frequency
Pick Up Verification
Supplier Compliance
Feedback Mechanisms

20. 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
(Internal)
Late
Delivery
Field Failures
Service
General Admin.

21. 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?

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

23. Inventory Carrying Costs
Administrative Overheads 2%
Cost of Capital 9%
Damage %
Insurance 2%
Transfers 4%
Obsolescence 5%
Shrinkage 3%
Space to Handle Excessive
Inventory 5%
Storage Systems ½%

24. So the focus is not on inventory….
But rather how we manage our excessive inventory!!

25. Highlights of the Transformation
Supply Chain: Materials Management

26. 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

27. 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)

28. Lead Time Reduction

29. Value Stream Perspective

30. Lean Warehousing

31. Reverse Logistics

32. Right Direction?

33. Future State
Pursuit of Perfection

34. Visualizing the Supply Chain
Right Materials
Right Quantity
Right Time
Right Place
Right Source
Right Price
Right Quality
Right Service
Can we answer these questions?
What process are in place?
What are the moments of truth?
What are the failure modes?

35. Value Stream Mapping Lean Thinking Learning to See
Specify Value by Product
Identify the Value Stream
Make the Product Flow
At the Pull of the Customer
In Pursuit of Perfection
Learning to See
How Does the Process Work?
Can we Agree on Performance?
Can we be Involved?
How will we Improve?

36. 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

37. 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?

38. Questions or Comments?