Case Studies on the Use of Software to Implement Lean in High-Mix Manufacturing Industries

Case Studies on the Use of Software to

Implement Lean in High-Mix

Manufacturing Industries

Tom Knight

The following Strategic Initiatives of

MESA International

are associated with

this presentation

:

Agenda

• The Business Case for Lean

• Lean in High-Mix Industries

& The Role of IT

–

Fierce offshore competition

–

Shorter product life cycles

–

More product variants and SKUs

–

Standardizing best practices across plants

–

Complex global supply networks

–

Heightened regulatory compliance

“Companies with relatively mature lean processes have recorded 68% faster revenue growth over the past 20 quarters than non-lean companies”.

“Lean manufacturers enjoyed net profit margins that averaged 26% higher than profit margins reported by manufacturers that haven’t pursued lean practices”.

Manufacturing Insights’ Global Performance Index 2007

Why Are Companies

Pursuing Lean?

Company:

Date of Financials: 12/31/2006

Basic Financial Metrics current projected

Annual Revenue $ 5,000 $ 5,000

Annual COGS $ 3,000 $ 3,000

Annual Net Income After Tax $ 500 $ 500

Inventory $ 400 $ 240

Cost of Capital 12%

Storage/Handling/Obsolescence (as 10%

Additional Financial Metrics current projected

Fixed Assets (prop/plant/equip) $ 5,000 $ 5,000

Current Assets $ 3,500 $ 3,340

Total Assets $ 12,000 $ 11,840

Current Liabilities $ 2,500 $ 2,500

Net operating income 10.0% 10.0%

Return on Total Assets 4.2% 4.2%

Return on Net Assets 8.3% 8.6%

Cycle Time Metrics current projected

Inventory Turns 7.5 12.5

Cycle Time [days] 49 29

Value of 1 Day ($US millions) $ 8 $ 8

Invistics Return on Investment

Fortune 100 Company

Lean ROI is often >300%,

with payback in < 1Year

Return on Investment Analysis ($US millions)

Four Main Benefits:

1. Increase Throughput 10-20% 2. Improve Customer Service

• 2-5% fewer late orders

• 5-10% better on-time delivery

3. Reduce Cycle Times 20-75% 4. Reduce Inventory 20-80%

• Increased throughput and customer service while reducing inventory by millions

• Increased throughput while reducing inventory by millions and cycle times 35+%

Results Company

• Increased throughout while maintaining perfect

customer service levels and cutting inventory by $10 million

• Increased throughput, productivity, and customer service, while tripling inventory turns. Plant went from potential shutdown to “Team of the Year” in its industry

Agenda

• The Business Case for Lean

• Lean in High-Mix Industries

& The Role of IT

Product Proliferation

Hitting Every Industry

Increased demands by customers:

Consumer Products adding 20% more SKUs each year Chemicals experiencing 60% volatility in some SKUs

Every Industry Is Changing

Then Now • Long runs • High utilization • Dedicated equipment • Repetitive • Stable demand • Short runs • Faster changeovers • Shared equipment • Responsiveness

• Highly variable demand

Beware of

“automotive” lean tools in your

high-mix plants

What is Different in

High-Mix Industries?

[High-mix industries] lag in the adoption of Lean practices across the board primarily because the Lean techniques popularized by the Toyota Production System (TPS) can be difficult to implement in the shared equipment, high product mix, and highly volatile demand scenarios they face.” _{AMR Research}

Demand-Driven Manufacturing: The Potential Rise of Lean,

Example:

Traditional High-Volume Kanban

Machine 1 Machine 2 Machine 3 Raw Materials Fin. Goods Kanban Card Part Number: 12345 Quantity: 10 12345 Kanban Card Part Number: 12345 Quantity: 10 Stage: Machine 3 12345 Kanban Card Part Number: 12345 Quantity: 10 Stage: Machine 3 12345 Kanban Card Part Number: 12345 Quantity: 10 Stage: Machine 2 12345 Kanban Card Part Number: 12345 Quantity: 10 Stage: Machine 2 12345 Kanban Card Part Number: 12345 Quantity: 10 Stage: Fin Goods

12345

Kanban Card Part Number: 12345

Quantity: 10 Stage: Fin Goods

12345

Kanban Card Part Number: 12345

Quantity: 10 Stage: Fin Goods Kanban Card

Part Number: 12345 Quantity: 10 Stage: Fin Goods

Will Traditional Kanban

Work for High-Mix?

Requires paper (or similar substitute) to

Paper-based signals:

Requires either very fast set-up times or dedicated equipment.

One piece flow:

Requires inventory to be held for every part every day, even if the parts are

-Low volume

-Make-to-order, or

-Beginning or End of product life-cycle

4 “Flavors” of Pull for High-Mix

Best for High-Mix or Make-to-Order Best for High-Volume Software Required No Software Required Broadly applicable/ most flexible

Best when bottleneck is known & fixed

Better fit for uncommon parts

Best option for repetitive parts

4. Constant Work in Process (CONWIP) 3. Drum Buffer Rope 2. Part-generic Kanban 1. Part-specific Kanban

Optimization of inventory buffers using

operations research Rules of thumb to slowly

lower “water levels”

#5

Inventory Optimization

Flow Paths through shared equipment Dedicated cells for similar

products #1 Value Streams Optimization of lot sizes/campaign sizes/rhythm wheels Rules of thumb like EPEI

#6 Lot Sizing

Shifting Bottlenecks & Optimization of capacity buffers Fixed bottlenecks & Rules

of thumb to dedicate capacity

#4

Bottlenecks and Capacity Planning

Flow Path metrics leveraging enterprise

software Visual line of sight metrics

like Heijunka boards

#3

Performance Measures

Focused factories aligned to flow paths Dedicated people for each

cell

#2 Organization

High-Mix Toyota

Extending Lean to High-Mix

Industries using Lean Software

The Lean Journey &

The Role of Lean Software

Define Define Analyze Analyze Improve Improve Control Control Measure

Measure • Measure Performance vs. Goal

• Optimize Inventory & Capacity

• Reduce Waste & Variability • Build Business Case

• Map Value Streams & Design Pull • Leverage Data Assets

• Improve Flow & Visibility • Implement Pull Lean Software is Necessary for - High-Mix - Scalability - Sustainability

Lean Software Extends

ERP & MES for Lean

Sensors & Process Controllers Machine Monitoring & Supervision like HMI (level 2)

Plant-Level Automation Systems like MES (level 3)

Corporate Business Systems like ERP (level 4)

Business Planning & Logistics

Manufacturing Operations & Control

Batch Control Continuous Control Discrete Control Lean Software:

• Measures Lean Business Case

• Analyzes Variability & Optimize Inventory • Models & Selects Kaizen Improvements • Controls Flow & Implements Pull

Agenda

• The Business Case for Lean

• Lean in High-Mix Industries

& The Role of IT

4 Case Studies on

How IT Supports Lean

Define Define Analyze Analyze Improve Improve Measure Measure

Value Stream Mapping

for High-Mix

Ma sh W ei g h Ste ri lizati o n Ge ll an 12 L ite r S eed T ank Ma sh We ig h & Ma k e Up Ste ri lizati o n Fe rm en ta ti o n Post Tr ea tm en ts Bee r W ell s K OH A d d itio n G ella n P as te ur iz atio n Fi lt er / p H ad ju st men t Pre ci pit at ion 3 De W at er Pre ss 3 Ext rud er Dr y in g 3 Mi lli ng 3 Bl endi n g 8 Fi n e M il li n g 4 S p ec ialt y B le nd 5, 1 1 , 12 , 1 3 FG P ack ag in g R econ. Sy st em Bl en d Pre ci pit at ion 2 Post Tr ea tm en t De Wat er 2 P ress 2 Dr y in g 2 Mil ling 2 B len din g 2, 3, 4 Fi n e Mil ling J10 S p ec ia lt y B le nd 10 , 5 Sh ak e Fl a sk Gl y . T rm n t Bl d 2 ts n H2 O Di l. L2 P as teu ri z at io n Bl end 2 li n g lt y 12, A ll O th er 12 L it er IP IP Q C Q C Q C 1 4 Gellan GelRite Xanthan 3 / NAWX Rhamsan Dispersable Xthn Xanthan 2 Diutan 2 Define Analyze Improve Control Measure

Pull Design for High-Mix

Inboxes Sorted by

Product Wheel

Ferment Recover _Bledning Pack to WIP Re-blend Pack to WIP Re-pack Quality DC2 Hodges 20 SKUs Ship to Buy Raw 40% 60% Pete Reblend Loop Pull s igna ls For C DL Quality 2-14 days CDL

Pull signals from Remote DCs

DC1 Pull signals from

San Diego DC Lyman sets targets Pul l sig nals For Reb lend

Pull signasl from WIP

Pull Design for SKUs using 2 Loop Replenishment

Pete CDL Loop

CDL Inbox Reblend Inbox

Define

Analyze

Improve

Control

Used Data in ERP/MES to

deliver Lean Business Case

ERP Planning ERP/MES Execution ERP APS Define Analyze Improve Control Measure

• De-emphasize traditional metrics like equipment utilization or department budgets

• Focus on measures that track the movement of materials to the customer through each value stream

– Cycle time – elapsed time from receipt of raw materials to shipment of finished products

– Throughput - production rate of sales

– Customer Service - ability to meet customer commitments

• Utilize data already in ERP or MES systems so the

Measure: Establish Scalable,

Sustainable Lean Metrics

Define

Analyze

Improve

Control

Used Lean Metrics to

Reduce Cycle Times

• Before:

– No cycle time metrics – Large piles of WIP – Long cycle times • After:

– Cycle time metrics using existing ERP/MES data on easy to use web pages

– “Incentives” for reductions – 50% faster cycle times

Define

Analyze

Improve

Control

e m e a q t u m u c c t U V ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ − ⎟⎟ ⎠ ⎞ ⎜⎜ ⎝ ⎛ + ≈ × × ≈ − + ) 1 ( 2 CT 1 ) 1 ( 2 2 2

Understanding Variability

Define

Analyze

Improve

Control

Reliability Process Quality Wait time Setup Forecast Error Lead Time

You must understand

variability

and

flow

to improve inventory, cycle time, throughput, and customer service

Using Software to

Manage Variability

Define Analyze Improve Control Measure

Optimized Inventory & Customer

Service using Lean Software

Define

Analyze

Improve

Control

Optimized Lot/Batch Sizes

using Lean Software

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 0 5 10 15 20 25 30 35 40 45 50

Batch Size (jobs/batch)

Cy c le T ime ( h rs ) No Lot Splitting Optimum Lot Size drops from:

Cut Setup Times 20%

Lot Size [units]

Define

Analyze

Improve

Control

• Production team identified 25 possible Kaizen improvement projects, and thought 6 of these should be implemented

• Team used Lean Software to evaluate all 25 projects, and found that a different 6 projects

showed an ROI 375% greater than possible with initial 6 projects.

• Team implemented 6 projects selected by Lean Software:

–Cut Cycle Times by 33%

Define

Analyze

Improve

Control

Measure Selected Best Kaizen Improvement

• Before:

– Many reports but little visibility – 90 minute daily meetings

– Poor customer service • After:

– 5 minute daily meetings – 100% customer service

(no late orders for 28 months)

Define

Analyze

Improve

Control

Measure Improved Visibility Using Lean

Poor Lead Time Management Forecast Accuracy Low First Pass Success Raw Material Cycle Time Equipment

Cycle Time _Changeover Long Times Sea of Inventory Finished product to the customer Raw Material Demand

Used Pull to Lower the “Water”

Used Lean to Remove “Rocks”

Define

Analyze

Improve

Control

Implemented Pull Using Lean

Software & ERP/MES Data

Poor Lead Time Managemen t Forecast Accuracy Low First Pass Success Raw Material Cycle Time Schedule Equipment

Cycle Time _Changeover Long Times Large Demand variability Define Analyze Improve Control Measure

Used Pull to Reduce

Inventory by $10 Million

WIP vs. CONWIP Target during Pilot Project

5 10 15 20 25 30 35 40 45

Kilos [1000s] 1st CONWIP Target:

WIP Dropped & Stabilized

2nd CONWIP Target: WIP Dropped &

Stabilized (Target Removed: WIP Grew again) Define Analyze Improve Control Measure

Thank You!

www.invistics.com [email protected]