Lean Supply Chain

1. Lean Supply Chain The History, Application, and Life after Live

2. Agenda • Introductions • Lean Definitions • History of Lean • Practical approach to Lean – Supply Chain deployment • Deployment discussion • Wrap up and questions

3. Introductions • Why have a Chief Operating Officer of a Human Resource Consulting Company speak on Lean and Supply Chain? • Background • Principles created from desire to improve Manufacturing Operations • Finite ability to streamline operations • Systems • Measure results • Continuous Improvement initiatives • Examples

4. Lean Definitions It is not Supply chain on a diet It is not a stand alone process Requires a cultural change within most organizations

5. Lean Definitions Lean* Production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination Value Any action or process that a customer would be willing to pay for Create “More Value with Less Work” *Wikipedia definition

6. Traditional vs. Lean Traditional Perspective Lean Perspective • Some defects are acceptable • Errors will be caught by inspectors • Defects are fixed later • Higher quality = higher cost • Suppliers are adversaries • Quality results from inspection • Buy from lowest bidder • Low quality is caused by people • Quality is a function of the shop floor • Quality is the responsibility of QC • Management must discover problems • Statistics constitute a complex tool • Defects are never acceptable • Employees catch mistakes • Defects are fixed now • Higher quality = higher profits/lower costs • Suppliers are trusted team members • Quality built into the product/process • Buy for quality/reliability • Low quality is caused by poor process management • Quality is a function of all functions • Quality is everyone's responsibility • Employees discover problems • Statistics can be used by anyone

7. Why deploy Lean? % improvement Base year Base +5 Inventory Turns 15 50 333 On-time ship % 97 99.99 3 Customer order ship time 8 4 50 Sales Base$ Base X2$ 100 Defects (PPM) 50 2 96 Data entry (hrs/week) y .25y 75 PO release Hours 1 Min 99 Mat’l Mgt work week (hrs) 60+ 40+ 33 Automotive manufacturing company results from a 5 year period By focusing on the Value Proposition your organization has to offer in the marketplace, the reward is virtually unlimited

8. History of Lean - Summary • Foundation built in United States in early 1900’s • After world war II concepts expanded in Japan – Toyota • Industrial Revolution in United States masked impending quality and cost Tsunami • 1980’s saw the rebirth of the United States quality programs • Late 1990’s early 2000’s began Holistic movement of quality to back office operations • Key concept: Lean is focused on getting the RIGHT things to the RIGHT place at the RIGHT time in the RIGHT quantity – while minimizing waste and implementing continuous improvement

9. Lean & Supply Chain Key Tenet • Key Tenet of Lean is Elimination of Waste • To eliminate – Must first understand • Shigeo Shingo noted • Only the last turn of the bolt tightens it – the rest is just movement • Toyota defined 3 types of waste • Muri • Mura • Muda

10. Types of WasteDefined • Muri • Unreasonable work management imposes on people and machines • Ask for higher performance than person or machine can achieve with out taking shortcuts • Usual cause of variations in product quality and output • Focuses on the preparation and planning of the process – what work can be avoided by design • Mura • Focus on implementation of work design • Elimination of fluctuations at scheduling or operations level – i.e. quality or volume • Muda • Results of the design and implementation of the process (Muri & Mura) • Managements role to investigate causes of variations caused by Muri and Mura • Feedback to the Muri

11. Typical Example • Quarter end – • “make the numbers” edict comes out • Demand is increased to make plan (Mura) • System is stressed causing extra capacity to be squeezed from the process • Standards relaxed • Short-cuts taken • Muri – Focus on shipping product at all cost - leading to downtime, mistakes, waiting, rework - Waste • Leads to Muda • Transportation (Moving products not required to perform the process) • Inventory (not all WIP being processed) • Motion (excess movement of people and materials) • Waiting (Queue times extend) • Overproduction ( build to stock) • Over Processing ( equipment & process not geared for increased volume) • Defects (Increase in rework and inspection)

12. Waste Elimination Three underlying Waste Elimination methods • Pull Scheduling Make what the customer is buying today • Takt time Change processes to run at rate which output is required • Flow Production Rearrange processes to eliminate batch processing Strive for most efficient way to process one (1)

13. Best In ClassMisperception • Best in Class Companies* • 96% of orders delivered to customers complete and on time • 96% of orders received from suppliers complete and on time • Decreased by 3% total landed costs per unit in past year • Decreased by 3% supply chain execution cost relative to revenue *Aberdeen Group

14. Focus shift Supply Chain Personnel Today Kaizen Acquisition Product Line Profitability Inventory Optimization Supplier Relationship Consulting Consulting Analysis Pricing Cost Elimination Multi-sourcing Funding Analysis Transactions Releasing purchase orders Expediting Quality tracking and reporting Transactions A true transformation of activities * Taken from Jean Cunningham's Real Numbers

15. Guiding Principles For Implementation Stepping back – Why are we interested in Lean Supply Chain? • In business to maximize profits by selling what the customer wants • Timely – Accurate - Meaningful – Actionable information • How do we do that? – 5 Principles • Value • Value Stream • Flow • Pull • Perfection

16. 5 Guiding Principles • Value • Everything that a company does must add value • Every activity must be aligned or changed or eliminated • Set in marketplace – • Not cost plus markup to get selling price • i.e. Postal Service vs FedEx

17. 5 Guiding Principles(Cont.) • Value Stream • All items from raw materials to customer delivery • Determined at Product/Service design • Includes Invoicing – field service – etc…. • When Lean is implemented – traditionally this is where folks begin • Flow • Products & Information should flow from inception to completion with no stops • Prime example of non continuous flow – leaf floating down a mountain stream • One Piece Flow • Control systems must be updated when moving from Job-shop (batch) to flow – i.e. no longer have materials sitting in queues – no standard lot sizes – etc….

18. 5 Guiding Principles(Cont.) • Pull • Traditional ERP systems (Push) build to forecast (Inventory build) • Only build what Customers want – (small inventory) • Dynamic re-assignment of personnel to other tasks not related to building products • Will require change to performance benchmarks • Efficiency & Utilization become obsolete terms • One of the quickest ways to “Kill” a lean implementation • All downstream processes are driven by upstream demand

19. 5 Guiding Principles(Cont.) • Perfection • Perfect quality • No inventory buffers– can’t afford defects • Quality programs and Lean Programs go hand-in-hand • Not just physical product quality – but right product at right place at right time (subassemblies) • Toyota Tundra plant – door glass example • Continuous improvement • Goes beyond the shop floor • Focus on driving waste out of the “system”

20. How do we do it? • Starts with the product and/or service being offered • People are the foundation – Empowered employee program must be underway • 5s methodology in-place • Sort • Set in Order • Shine • Standardize • Sustain • Just in Time manufacturing based only on customer demand • Quality designed into product and processes – not inspected in • Suppliers included in design process • Visual performance tracking • Continuous improvement • Cells vs traditional work centers

21. Some Common Misconceptions Regarding Lean • It is a management program to lay off workers • It is a management ploy to bust the union • It is a management ploy to make workers work harder for same pay • Management will lose control of the operation • It is to difficult to put in

22. Analyze the work flow 2nd Floor 1st Floor 8th Floor

23. Redesign the workplace/process 3rdFloor 3rdFloor 3rdFloor Measure & Refine Metrics

24. Deploying Lean • I’ve captured the low hanging fruit – now what? • The vision is to drive down transaction processing costs, while driving the work towards more value added analysis • Reduce overproduction with end goal to eliminate it • High setup costs • Making the numbers • Poor quality – high scrap rates • “Clean the plate” mentality • Everything is running well – hate to stop • Work to drive production cycle times to match customer consumption • Make versus Buy analysis on every component • Attempt to Continuous flow everything • Be selective in areas where inventory buffers are created • Tie customer trigger to pacing manufacturing item • Educate the customers on your activities to help normalize demands • Educate your suppliers to reduce variations and minimize outages

25. Post Deployment Discussion • Continuous process – does not end • Be Patient Earth wasn’t made in a day Act Plan Check Do

26. Post Deployment Discussion • Remember why you are in business • To make a profit • Lean implementations tend to become self serving • Tools are a means to the end – not the end • Over measurement – not every variable is important • Tendency to take tools beyond their practical application • i.e. value stream mapping good at flows, but poor in metrics

27. Post Deployment Discussion • Management Techniques • Cultural change – employees must pull change not management push • Train the management team – then the employees • Get buy in at mid management level – hardest for them to give up authority • Practice what you preach

28. Deployment Discussion Things to consider • Have we communicated to all involved parties? - are they committed? • Senior Management • Board of Directors • Shareholders • Employees • Unions • Banks/financial institutions/Investment community • Auditors • Suppliers • Customers • Do we have a clear vision of why we want to implement Lean? – “program of the day” • Who is going to lead down in the trenches? • Where and how much help will we need? • Are we in it for the long haul?

29. Wrap up Questions?

30. Gary D. Glick Chief Operating Officer Provenir LLC (210) 479-3444 gglick@provenirusa.com