Lean Manufacturing

1. Lean Manufacturing Chapter 4Pull

2. Principles of Pull • Pull means that no one upstream should produce a good or service until the customer downstream asks for it. • Start with the real customer demand and work backwards through all the steps required to deliver the desired product to the customer. • Pull system allows production of smaller lots of products, reduces lead-time. • Pull system requires focus on setup reduction to enable quick change over from one part production to another.

3. Lean Production for Pull • Machines should be available 90% of the time and down for change-overs about 10% of the time. • Level Scheduling: Evaluate the range of products to be produced every day. • Total demand of all products divided by the number of days available in the month = daily demand • Daily hours available divided by daily demand = takt time • Takt time is the time required to produce one piece. • Establish point of use inventory – deliver raw material and supplies directly to location of consumption. • Establish kanban system – as upstream cell consumes sub-assemblies or detail parts, empty tub signals demand for more to be made. • Kanban: signal card to produce more parts.

4. Lean Production for Pull • Work with outside suppliers to establish lean turnaround time. • Establish Long Term Agreements and Blanket Purchase Orders • Arrange quick loading and unloading. • As companies learn to pull value through their system, they become capable of responding practically instantly to customer orders. • Quality is improved when pull and flow thinking are put in place together because WIP inventory is reduced. • Small lots are produced at short notice

5. The Bad Old Days of Distribution • Toyota Corona Model in America in 1965 • High volume sales of cars and service parts • Long shipping from Japan • Large stocks of parts were stored in a network of warehouses all across North America (Parts Distribution Centers– PDCs) • Toyota Production System (TPS) was just being implemented in Toyota’s supplier plants in 1965. • PDCs received parts from Japan in large sealed containers in large batches shipped in weekly intervals. • PDCs had receiving area where containers were opened and parts were given to “stockers” with carts who walked the aisles and picked parts. • Order lead-time was 15 days, ocean shipping time was 38 days, and 5 days at PDCs to bin the parts. • Total order leadtime = 15+38+5=58 days

6. The Bad Old Days of Distribution • Toyota dealers placed orders once a week, estimating demand. • Wrong forecasts caused “created demand” – dramatic waves of orders traveling back up the value stream • Orders were unrelated to actual demand from real customers • Weekly orders were received at PDCs • A “picker” was dispatched to collect the parts from the bins and forward them to shipping • Parts were delivered via carrier service to the dealer the next day • Toyota believed that large batches were economic order quantities due to savings in shipping costs • Since overnight shipping was expensive, dealers ordered large amounts of each part whenever they replenished. • “Vehicle off road” order system was able to locate and deliver the needed part before noon the next day. • Toyota warehouse network was fully in place in the early 1970s, achieving “fill rate” (% parts available from DC on demand) of 98% • Highest fill rate in the North America auto industry.

7. Lean Distribution for Pull • 1984 - Toyota started to assemble cars in the US • Fremont, CA • Developed network of suppliers: tires, batteries, and seats. • 1986 - Toyota opened receiving warehouse for American-made parts in Toledo, Ohio • 1988 - Toyota opened huge plant in Georgetown, Kentucky • Needed comprehensive suppliers network • When American competitors like Ford began implementing elements of TPS, Toyota executives realized that they never applied any of Toyota’s lean thinking to their North American ware housing and distribution system. • Maintaining and moving the inventory around required many resources of people and time. • Rush orders and ‘hot lists’ interrupted the pickers routine. • Large sizes bins were used, taking large storage space • Months of spare parts on hand and large facilities to hold them

8. Lean Distribution for Pull • Change order frequency from weekly to daily for just the right amount to be shipped to the dealer that day. • Dealers order daily just the amount sold to customers that day. • To reduce shipping costs, Toyota shipped parts from its eleven PDCs to the dealers in each of the eleven sales regions every night. • Day to day consistency of orders without waves allowed consolidation of some truck routes. • Dealers reduced inventories of same parts knowing that any part could be delivered within a day. • Dealers were able to increase the range of part numbers on hand to satisfy the customers who wanted their parts RIGHT NOW.

9. From Theory into Practice • Implementation of pull system in warehousing to respond to actual customer demand required years • The translation of lean concepts into the warehouse required great change of mind for the employees and managers. • Toyota had to convince its employees that the new way of thinking will not cause anyone to lose his or her job. • 1989 – bin sizes were reduced, parts were relocated by size and by frequency of demand. • Parts were segregated into small, medium and large categories and had own sections in the warehouse. • Parts demanded most frequently were moved closest to the start of the sorting and picking runs • Length of the aisles was dramatically reduced.

10. From Theory into Practice • 1990 - standard work and visual controls were introduced by dividing the workday into 12 minute cycles. • It took about 12 minutes to pick any order of 30 lines of small parts, 20 lines of medium parts, or 12 lines of large parts • Progress control board was placed between the receiving dock and the shipping dock to show everyone the number of cycles to be completed and the time available. • The progress control board eliminated the need for team leaders to supervise their teams. • Instead, everyone looked at the board observe that one worker was falling behind, and provide help once other tasks were finished. • Visual controls and use of exact cycles made it possible to address causes of disruptions in work flow. • Causes were logged on the control board whenever a cycle took too long.

11. From Theory into Practice • Pacing the processes by controlling completion times eliminated working ahead to “beat the system” and reduced errors related to picking wrong items. • In August 1995 Toyota was ready to transition from weekly to daily orders from its dealers without the need for additional headcount. • At the end of 1995, twenty-two pickers were picking 5,300 lines per day while the hundred pickers at the Chrysler warehouse were picking 9,500 parts using traditional methods: productivity difference of 2.5 to 1. • In 1996 the new Toyota Daily Ordering System (TDOS) was combined with the relocation of the PRC for Japanese-sourced parts from Japan to Ontario, California • Replenishment to the PDCs from the PRCs was reduced from 40 to 7 days. • The secret to total inventory reduction in complex production is the ability to get parts resupplied very quickly from the next level of the system, which allows to order in small amount.

12. Technology for Lean Distribution • Toyota achieved dramatic improvements in productivity and space reduction at its PDCs without spending for new technology. • 1994 – the Chicago PDC was fully automated while Toyota’s management focused on direct labor reduction. • Productivity per employee lagged behind the other PDCs that implemented standard work, visual control, and efficient bin size and location. • Although direct effort was saved in Chicago, • The amount of technical support needed to maintain the complex system offset the gains in direct labor. • The capital costs made the whole approach uneconomic.

13. Level Scheduling Needs Level Selling • As inventories and handling costs as the North American suppliers and warehouses implemented lean techniques, it was possible to offer highest quality and lowest cost service and parts to Toyota dealers. • Special promotions took place to temporarily lower prices and boosted sales. • Toyota dealers would always have the best deal for their customers. • 1994 – Toyota and its dealers together spent $32 million in the US in direct mail, print, and broadcast advertising for “specials”: • Offered Toyota owners anything from oil change to complete maintenance programs at far below the “normal” price. • The net result was a temporary increase in Toyota orders to suppliers to a level far above long-term average demand, followed by a dramatic drop in orders below average demand. • Was costly in both directions • The solution was “level selling” by keeping prices constant and making replacement parts at the exact rate parts were being sold.

14. Pulling from the Service Bay • In 1994 Bob Sloane’s Toyota dealer near Philadelphia kept two separate buildings with unstable shelves and dim lighting before implementing lean techniques to the Toyota warehousing system. • The physical flow of parts was a non-value-added activity compared with the income-producing service bays for car repairs and the showroom where cars were sold • Three months supply of the average part created an inventory of about $580,000. • Weekly parts delivery resulted in erratic workload on the stockers, and took three days to receive and place in bins • Empty bins while computer showed parts were in stock. • In 1995, after implementing pull in the whole parts distribution and manufacturing system, Sloane increased part numbers by 25% while cutting inventory value to $290,000

15. Pulling from Service Bay to Raw Materials • By the end of 1996, Toyota’s new pull system was in place throughout North America • The request of the customer arriving in a Toyota dealer service bay became the trigger for pulling parts through four replenishment loops going all the way back to steel blanks. Information Flow Local Suppliers Local Suppliers Toyota PRC Toyota PDC Part Flow Sloane Toyota

16. Just the Beginning • Between 1982 and 1990, Toyota reorganized its service and crash parts business in a manner identical to the new North American pattern, except that it took two additional steps: • It created Local Distribution Centers (LDCs) in each metropolitan area (jointly owned with the dealers) • Tool all the parts stock out of the dealerships with the result that Toyota dealers in Japan only carry three-day supply of forty commodity parts like windshield wipers blades. • It then encouraged dealers to work with every customer to preschedule maintenance so that parts needs could be precisely predicted in advance. • “Milk run parts delivery vehicle circulates from the LDC to every dealer every two hours, and practically every car can be repaired the same day with no need for express freight from the PDC at the next level up the system.

17. Is Chaos Real? • With lead-times and inventories essentially disappearing, what would happen when customers can pull value instantly from raw materials into reality? • Could chaotic markets exist and force organizations to instantly respond? • The end-use demand of customers is quite stable, chaos in the marketplace are in fact self-induced. • The consequence of the long lead times and large inventories in the traditional world of batch-and-queue overlaid with relatively flat demand and promotional activities – like specials on auto service – which producers employ in response.

18. Do We Really Need a Business Cycle? • If we get rid of lead times and inventories to give people what they want when they want it, the demand will stabilize for another reason: • The damping effect on the traditional business cycle. • Economists believe that about 50% of the down-swing of economic activity in business cycles is due to consumers and producers working off the inventories built up toward the top of the cycle. • Similarly, about 50% of the upswing is due to building up new inventories in expectation of higher upstream process: • “Buy raw materials now to get a bargain before prices go up” • Most applications of JIT, even in Japan, have involved Just-in-Time SUPPLY, not Just-in-Time PRODUCTION, and batch sizes have not been reduced by much. • Nothing has happened over the years except to push inventories one step back up the value stream toward raw materials.

19. Pulling Value in Pursuit of Perfection • You now should be able to: • See the need to precisely specify value • Identify every step in the value stream for specific products. • Introduce flow • Let the ultimate customer pull value from its source. Much of the potential of lean thinking is lost unless you take the final principle to heart !