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3. Module I Supply Chain: Present Frustrations and Lean to the Rescue Module I Supply Chain: Present Frustrations and Lean to the Rescue Webinar California Space Authority November 3, 2009 Bo W. Oppenheim

4. C-2009 Bohdan W. Oppenheim3 Instructor: Bohdan "Bo" W. Oppenheim, Ph.D. LOYOLA MARYMOUNT UNIVERSITY, Los Angeles, since 1981 –Professor of Mechanical and Systems Engineering –Graduate Director of Mechanical Engineering –Director, US Department of Energy Industrial Assessment Center, 2000-2007 –Coordinator, Lean Aerospace Initiative Educational Network (MIT based) (http://lean.mit.edu)http://lean.mit.edu –Founder and Co-Chair: Lean Systems Engineering Working Group, INCOSE, www.incose.org/practice/techactivities/wg/leansewg/ EDUCATION –PhD, 1980, U. of Southampton U.K., in System Dynamics –Naval Architect, 1974, MIT –M.S, 1972, Stevens Institute of Technology, Ocean Systems –B.S. (equiv.), 1970, Warsaw Technical Univ., Mech. Eng. and Aeronautics (MEL) INDUSTRIAL EXPERIENCE –125 industrial plants assessed for Productivity/Lean –Author (with S. Rubin) of POGO simulator for U.S. liquid rockets –Consultant in dynamics, lean, productivity, quality, and systems engineering for Northrop (1985-1990), The Aerospace Corporation (1990-1994), Boeing (2002-2004), Global Marine Development (1974-77), 50 other firms and governmental institutions

5. C-2009 Bohdan W. Oppenheim4 End-user Customer Prime Mfg./ Supplier First Tier Supplier Second Tier Supplier Material Supplier Raw Material Supplier Moving down the supply chain, we see each successive tier representing a smaller percentage of the Primes main business base and the previous tiers. LAI Lean Academy What do we mean by Supplier Network?

6. C-2009 Bohdan W. Oppenheim5 Global competition is a fact Brutal race without the finish line Todays competition means competing with the global best Yet, instead of aligning our U.S. companies for better competition, we spend our energies on conflicts between buyers and suppliers Modern programs: 70-95% of value provided by suppliers Global Competition Key to winning global competition: Better buyer-supplier relations!

7. C-2009 Bohdan W. Oppenheim6 Supplier selected by lowest bid Distrustful, even hostile relationship Unrealistic mutual expectations Complaints about quality, lead times, price, service Lawyers involved in writing and executing contracts Traditional Procurement System Is this the way to conduct business in global competition?

8. C-2009 Bohdan W. Oppenheim7 Bad Requirements/Specs Quality Assurance (QA) Standards Lead times Price Bureaucracy and poor communications Typical Frustrations

9. C-2009 Bohdan W. Oppenheim8 Poor requirements and specifications Both buyer and supplier should share the blame Buyer:Buyer: prepares incomplete, ambiguous, unclear, mutually conflicted and unstable requirements and specifications Supplier:Supplier: makes inadequate effort to draw the complete, crystal clear, stable and unstated requirements and specs from the buyer Frequent Frustrations Mutual Expectations Poorly Defined.

10. C-2009 Bohdan W. Oppenheim9 Typical Quarrels About Quality Lack of trust between buyer and supplier Test procedures not explained to the supplier Making outgoing inspection incompatible with test expectations Double inspections (and costs and time) Frequent Frustrations Not meeting mutual expectations.

11. C-2009 Bohdan W. Oppenheim10 Quarrels about Lead Times Buyer to supplier: –Your lead times are too long –You do not have Lean –You are not competitive Supplier to buyer:Supplier to buyer: –Your specs delivered too late –Your specs have errors –You do not tell us how you will test the system Frequent Frustrations Not meeting mutual expectations.

12. C-2009 Bohdan W. Oppenheim11 Quarrels about Price Buyer to Supplier:Buyer to Supplier: –You are too expensive, not competitive –You do not have Lean Supplier to Buyer:Supplier to Buyer: –Your price is not fair, impossible to meet –You operate on cost-plus luxury but demand fixed price from us! Frequent Frustrations Not meeting mutual expectations.

13. C-2009 Bohdan W. Oppenheim12 Complaints about Poor Communications Over the wall Bureaucratic ineffective communications Hands-off relationships No engineer-to-engineer access Frequent Frustrations Not meeting mutual expectations. Supplier/buyer Buyer/supplier

14. C-2009 Bohdan W. Oppenheim13 Hostility, confrontation and exploitation have no place in modern supply chain. Frequent Frustrations

15. C-2009 Bohdan W. Oppenheim14 What is Lean? Management and cultural paradigm that made Toyota No. 1 Called Toyota Production System (TPS) Introduced to the US as Lean by Womack Lean = "slimmed downLean = "slimmed down LeanLean = organization of work within a company and between all cooperating companies which is based on the elimination of waste from all activities (Womack) To the Rescue: Lean Thinking

16. C-2009 Bohdan W. Oppenheim15 Fundamentals of Lean Thinking Three concepts are fundamental to the understanding of Lean Thinking –Value –Waste –The process of creating Value with no Waste To the Rescue: Lean Thinking

17. C-2009 Bohdan W. Oppenheim16 Introduction to Lean Value to the Customer All customer expectations are met Product delivered to the buyer as follows: –As promised –With expected and first time right quality –Within the expected lead time –At the price agreed –With nice service

18. C-2009 Bohdan W. Oppenheim17 Introduction to Lean Value to the Supplier Long-term relationship with the buyer, steady business Fair price enabling to stay in business Alignment with the buyer against outside competition Receiving requirements/specs early enough to enable preparations for design/production Receiving specs which are final, correct, clear Direct ongoing communications when needed

19. C-2009 Bohdan W. Oppenheim18 Waste Anything other than the minimum amount of equipment, materials, parts, space and employees time, which is absolutely essential to the delivery of Value The work element that adds no value to the product or service Waste only adds cost & time Introduction to Lean

20. C-2009 Bohdan W. Oppenheim19 Introduction to Lean Ohnos Seven Types of Waste 1. Over-productionCreating too much material or information 2. Inventory Having more material or information than you need 3. TransportationMoving material or information 4. Unnecessary Movement Moving people to access or process material or information 5. Waiting Waiting for material or information, or material or information waiting to be processed 6. Defective Outputs Errors or mistakes causing the effort to be redone to correct the problem 7. Over-processing Processing more than necessary to produce the desired output LAI Lean Academy

21. C-2009 Bohdan W. Oppenheim20 1.Specify value: Value is defined by customer in terms of specific products 2.Identify the value stream: Map out all end-to-end linked actions, processes and functions necessary for transforming raw materials into products, after eliminating waste 3.Make value flow continuously: Make the remaining linked value- creating steps flow per common takt time 4.Let customers pull value: Customers pull cascades all the way back to the lowest level supplier, enabling the super-efficient just- in-time production 5.Pursue perfection: Pursue continuous enabling just-in-time production. Pursue continuous process of improvement striving for perfection 6.Respect People LAI Lean Academy Introduction to Lean Six Lean Principles for Creating Value without waste

22. C-2009 Bohdan W. Oppenheim21 Emphasis on Value Obsessive reduction of waste Mutual interest Crystal clear requirements, specifications Consensus on testing and QA Seamless partnership and communications Culture (partnership, sharing, alignment, trust, honesty, openness, teamwork) Lean throughout the enterprise To the Rescue: Lean Thinking

23. C-2009 Bohdan W. Oppenheim22 Characteristics of Lean Supply Chain 1. Quality The supplier has an obligation to adopt quality initiatives of world-class companies The contracting company has the burden of explaining in minute detail its requirements, nuances, and required QA steps, in a timely manner The supplier has the burden of assuring that all requirements/specs are at hand and are clear and precise Both sides strive for close cooperation and coordination throughout the program Any and all issues are resolved competently in real time The supplier creates exactly the product expected The product is always perfect, nobody ever complains No incoming inspection or certifications needed on individual pieces Test/inspection required by contract is always pass

24. C-2009 Bohdan W. Oppenheim23 2. Lead time Program cost increases with time, so the shortest possible lead time for all suppliers is critical for competitiveness The supplier lead time should be the lead time for his raw materials plus touch labor time plus only a small margin The buyer has every right to expect that all suppliers implement Lean manufacturing, in the entire supply chain The contractor, who is supposed to be the expert in the field of making the parts, should be involved in the planning and design seamlessly Advising the design team on the best form/fit/function, shortest lead time, maximum quality and lowest cost The supplier should be involved early enough, and not called at the last moment Characteristics of Lean Supply Chain

25. C-2009 Bohdan W. Oppenheim24 3. Quantity The buyer must be able to order the number of pieces need and no more If the supplier insists that the buyer buys 1000 pieces when he needs 5 pieces, the relationship is wrong This is enabled by a long-term partnership between buyer and supplier The buyer can and should insist that the supplier implement Lean with JIT capabilities Characteristics of Lean Supply Chain

26. C-2009 Bohdan W. Oppenheim25 4. Price Must be fair, enabling the (Lean) buyer to be competitive and the (Lean) supplier to survive in a healthy condition Squeezing suppliers dry is shortsighted, it kills them in the long term Tens of thousands of suppliers have disappeared in recent years US manufacturing industry is bleeding, dying, going overseas Squeezing suppliers leads to de-facto exploitation of workers: low wages, tough working conditions, no fringe benefits, turnover – all detrimental to Lean Both large corporations and suppliers are to be blamed for the lack of Lean Thinking Reverse bidding is OK for buying toilet paper but not aerospace components Characteristics of Lean Supply Chain

27. C-2009 Bohdan W. Oppenheim26 Long-term Trusted Partnership with Strategic and Critical Suppliers Supply base reduction, e.g., –One supplier for strategic parts –Two for critical parts –Several for commodities (toilet paper) Shared digital product description with common software and computer platforms, 3D models Just-in-time deliveries Kitting Vendor-Managed Inventory Third Party Logistics Paperless procurement LAI Lean Academy Lean Supplier Network Lean Supplier Network Some Best Practices for Lean Supply Chain Management

28. C-2009 Bohdan W. Oppenheim27 Customer Subcontractor Prime Emerging Lean Virtual Team without boundaries enabling continuous innovation Old Approach Rigid vertical interfaces and control Customer Prime Subcontractor Current Lean Collaborative with rigid organizational interfaces Customer Prime Subcontractor LAI Lean Academy Lean Supplier Network Future State in Lean Relationships

29. C-2009 Bohdan W. Oppenheim28 Womack's Maxim for Lean in Manufacturing Converting a traditional batch-and-queue production system to lean flow yields these effects: –Doubles the productivity in the entire system –Cuts production throughput times by 90% –Reduces inventories in the entire system by 90% –Cuts errors in half –Cuts time to market for new products in half –Expands product families at modest additional costs –Vastly improves work morale 50% ! 90% ! 2x ! Benefits from Lean

30. C-2009 Bohdan W. Oppenheim29 Summary Present Relations between Buyers and Suppliers are burdened by frustrations Energy is wasted on conflict resolution It would be better spent creating Lean Supply Chains, fighting against foreign competition Lean Thinking provides powerful improvements Lean Supply Chain yields vastly more profits, shorter lead times, higher quality, and better morale.

31. C-2009 Bohdan W. Oppenheim30 Planned Future Webinars MODULE II. Fundamentals of Lean And Quality MODULE III. The Do's and Don'ts of Specifications, Requirements and Testing The latest knowledge on how the supplier and buyer should cooperate to develop the best consensus-based requirements that lead to the "first time right" delivery at minimum cost. MODULE IV. Lean Enablers for Systems Engineering for Suppliers and Buyers Selection of lean enablers dealing with supplier relations, the do's and don'ts for transactions involving the buyer and supplier, based on the new body of knowledge called Lean Enablers for Systems Engineers. MODULE V. Implementation and Closure Training (who, how long, how); Standardization of Skill Sets; Mentoring; Development of Standards, Best QA; Visual Controls; 5 S's; Global competition