LEAN MANUFACTURING IMPLEMENTATION -- Lean Supply Chain University of Michigan Manufacturing Strategies IOE 425 October 18, 1999 Ronald L. Turkett

Why Lean Supply Chain? Suppliers Toyota Indiana Toyota Georgetown GM 2 Plts. Europe Saturn Nummi TPS Ford Worldwide FPS Renault Toyota Georgetown Suppliers Chrysler COS Porsche Mercedes Toyota Cambridge Peugeot BMW Implementing Lean Production Enables Seamless Connection with Customers and Suppliers

The Lean Supply Chain Just in Time Best Quality - Lowest Cost - Shortest Lead Time Through Shortening the Production Flow By Eliminating Waste Just in Time “The right part at the right time in the right amount” Preconditions Continuous Flow Pull System Takt Time Level Production “Built in Quality” Line Stop Manual Automate Error Proofing Visual Control Flexible, Capable, Highly Motivated People The Toyota Production System is built on: Operational Stability. Built in Quality. Just-In-Time. Flexible, Capable, Motivated, People. TPS focuses on Best Quality, Lowest Cost, Shortest Lead Time through the elimination of waste. JIT and Jidoka and People are pillars for the building. Remove any of these and the building falls. Note: People are in the middle because this is where value is added. Operational stability is the foundation. Weaken efforts in operational stability and the whole building is shaky. The roof is the outcome: Best quality, lowest cost, shortest lead time. Operational Stability Standardized Work Robust Products & Processes Total Productive Maintenance Supplier Involvement 8

“Lean Vs.Traditional” Half the hours of engineering effort Half the product development time Half the investment in machinery, tools and equipment Half the hours of human effort in the factory Half the defects in the finished product Half the factory space for the same output A tenth or less of in-process inventories Lean has the potential for helping us accomplish the . . . . .organizational characteristics listed above. Source: The Machine that Changed the World, Womack, Jones, and Roos, 1990. 2

“Lean Vs Traditional” 99.9% Customer Schedule Attainment 15 PPM or Better 4-6 Inventory Days of Supply 92%+ Operational Availability Leveled, Sequenced Production Order to Customer Use - 4 1/2 Hours Functioning Supplier Partnership Strong Production Control Function This slide shows in real terms what lean means. (Read each bullet) Examples: Tier 1 Suppliers: Johnson Controls Seating, Litens Automotive Partnership, Cadimex, Denso Manufacturing, Toyota Motor Corporation. 3

Changing Costing Methods Principles of Cost Plus: SALES PRICE = COST+ PROFIT Profit Profit SALES Profit Traditional View Mfg. Cost Sales Price Sales Price Mfg. Cost Mfg. Cost Principles of Cost Reduction: PROFIT = SALES PRICE - COST The major difference is that the Toyota view believes the price of the product is set by the customer. Therefore, the only way to increase profit is to reduce cost. Profit Profit Profit Modern View Mfg. Cost Sales Price Mfg. Cost Mfg. Cost 7

Lean Supply - Global Purchasing Strategies Common Strategy - Buy Cheapest in the world - Support with dual sourcing Toyota Strategy - Buy to achieve lowest total cost - Buy in country where manufacturing is performed - Minimize Number of Suppliers - Keep supply chain short as possible - Toyota is as strong as its weakest supplier

Consequences of Cheapest Price Long Distance Supply - Long lead times - increases structural cost: people, travel, premium freight, packaging, obsolete material, scrap due to handling damage Buying cheapest restricts buying from best supplier and achieving total lowest cost VS. Buying from best supplier, then get lowest cost

Consequences of Long Supply Chains Long Value Streams Result in: High Risk - Quality Spills - Availability of Supply - Engineering Changes High Cost - Transportation (Premium and Standard) - Engineering Support/Supplier Development - Plant Overtime

Automotive Supply Chain Supply Chain = Value Chain Retail Customer OEM Tier # 1 Tier # N Ore in Ground Objectives: Highest Quality Lowest Cost Shortest Lead Time

Purchasing, Finance, Quality The Lean Enterprise Lean Enterprise Leap Operations, PC&L, Engr Purchasing, Finance, Quality World Class Lean Supply Chain Implemented Full Benefits of Lean Supply Chain Traditional Manufacturing & Support Functions Lean Supply Chains are not just a Materials Management Effort

? Automotive Customers Which group drives lean supply chains? Toyota GM Honda ? Ford NUMMI Saturn Chrysler Nissan

Reaction to Changes Occurs Only Weekly Demand/Schedule Variance Causes Planning/Scheduling System Mechanics: Push Scheduling PRODUCTION FLOW All production operations receive same schedule Supplier Machining Assembly Customer Schedule Schedule Schedule Schedule Production Scheduling Reaction to Changes Occurs Only Weekly

Typical Demand/Scheduling Model OEM Tier # 1 # 2 Schedule Actual Demand Traditional Scheduling Systems 1. Demand and schedule are usually different 2. Noise increases moving down stream 3. Affected most by changes in order quantity, delivery time and lead time

Lean Supply Chain - Pull Production System Ship Ship Ship Customer Leveled Production Plan Raw Material Machining Assembly Work Sequence Layout: Visually lay out the steps in the process being defined in the work sequence layout area. This layout can be defined in many ways and should b the optimal way to define the specific process for the operation. An example of the procedure for creating a Work Sequence Layout is: Draw the machine layout and record the machine names. Outline and number the working sequence. Draw a solid line representing the path of the work sequence. Draw a dotted line connecting the last process to the first indicating the movement of the return from the final task. Shade the machine with the lowest processing capacity. NOTE: In some cases if the operator is basically stationary, you may want to draw the workers’ movements in relationship to the part with the appropriate steps in sequence. Pull Schedule Pull Schedule Assembly Schedule SME Lean Supply Chain 06/07/98 I-1

OEM’s Lead Supply Chain Management Process Process: Smoothing Production to Reduce Supply Chain Cost Ship Ship O.E. Tier 1 Tier 2 Pull Signal Pull Signal Leveled Sequenced Production Leveled Sequenced Production Action Steps-All Customers 1. Smooth production build and communicate plan to suppliers 2. Maintain daily production levels as planned (maintains smooth flow) 3. Minimize parameter changes in system (lot size, quantity, & lead time) 4. Convert from push scheduling to pull scheduling 5. Maintain open communications with supplier - Provide Supplier access or view of actual demand Safety Symbols: If specific types of equipment are needed, make sure it is also specified in the “Recommended Safe Job Procedure” section. If possible, list the part # of the safety equipment required. I-2

Takt Time Vs. Cycle Time - An Important Distinction Time (Available seconds per working day) Volume (Daily production requirement) Takt Time = Sets pace of production to match pace of sales. Actual time required for a worker to complete one cycle of his job process Cycle Time =

Implementing the Lean Supply Chain Level Sequenced Production producing a repeatable pattern by volume and mix within each day of the monthly production plan Characterized by: a smoothed production plan over an extended time every model made every day daily adjustment can be made a predictable production process

Implementing the Lean Supply Chain Summary Find the best supplier and engage early in the design process Partner with key suppliers that have high capability for design and supply Suppliers should be located in the country where you build your product Shorten the supply chain by having suppliers close, frequent deliveries, and leveled production plans Develop pull systems with suppliers Know production capacity by comparing effective cycle times with Takt times.