Posts Tagged ‘Advanced Lean’

The Neglected Law of 6-Sigma

September 18, 2010 Leave a comment

I have just come back from a consulting engagement at a manufacturing plant. This plant is the most successful plant of a global enterprise. In the past 6 years they have been exceeding improvement targets in productivity and order fulfillment. Even in this economy, they have been turning out record profit. Marketing department loves to promote their product because of their high profit margin. Success has brought them more pressure because any improvement would impact the company performance. I can’t held to ask “Why would such a successful operation need any sort of consulting and not just continue to do what have made them successful?”

This turns out to have something to do with the natural law of business process.

Take the example of order fulfillment which is their most important metric. They were at 70% 6 years ago. A yearly target of 5% improvement has taken them to around 96%. But then, they are hitting a wall. Well why should the last 5 % be more difficult than the others? The basics of 6-sigma would cast light on this problem.

Going from 70% to 96% is the journey of going from 1 sigma to 2 sigma. The natural law of business processes says that it will require the same level or more effort to increase every sigma level. Frequently it is a totally different ball game that requires significant resource investment, skill acquisition, technology advancement and cultural transformation to ramp up each sigma level.

They have been relying on automation and Lean methodology in the past 6 years and have succeeded in the journey from  1 to 2 sigma. In order to get to 3 sigma, I have suggested them to start applying scientific and statistical tools to business processes. Without taking more detail measurements and applying appropriate quantitative methods along with Lean, there is a limitation on how far that they can further improve. It is indeed a different ball game that they are more than ever in need of enabling information technology to get them the data and visibility required for scientific management. Years of neglect in IT investment at manufacturing may come to a point to limit further growth of the operation.

Does your operation set key improvement targets, the associated resource and infrastructure investment based on target 6-sigma level? How far can you go down the 6-sigma journey without implementation of enabling information technologies?

The Samurai Sword for Lean Transformation

August 28, 2009 1 comment

The missing opportunity of western manufacturers

In this economy, it is hard to imagine that many manufacturing companies are still missing out the opportunities of pull. This is the simple concept of triggering execution of business process by an actual event rather than by a plan (push). There seems to be a notion that pull processes cannot be applied without going through a long journey of lean transformation. As for those keen lean practitioners who have embarked on cultural change efforts, many have underestimated the power of pull and its synergy effect with technology.

Pull does not come as natural for many non-Japanese organizations. On the other hand, Japanese culture does have a strong element of pull, which may be explained by the tendency to leverage natural flow rather than to apply external force to push for drastic changes. This tendency is manifested physically in terms of saws, swords, even knife in the kitchen are mostly designed for a pulling action whereas their counterparts in the western world are more likely designed for a pushing action.

A Japanese Pulling Saw

A Japanese saw that is pulled backward to cut

A pushing saw that is common in the west

A common saw that is pushed forward to cut

Japanese Samurai Sword Charaterized by a curved blade

Japanese Samurai Sword Characterized by a curved blade

That is also the reason why a Japanese sword is curved whereas swords from other parts of the world tend to be straight. A blade curved backward, away from its cutting edge, promotes a smooth, slicing cut, and distributes impact more evenly along the whole of the weapon than a straight blade, reducing the shock transmitted back to the wielder when applying a pulling action. It also allows for draw and cut in a single action, resulting in better speed and flexibility in combat.

Taiichi Ohno invented BPM

Some may find it surprising that Taiichi Ohno, the father of the Toyota Production System, invented pull-based BPM application to factory floor back in the 60s. Whether he based his ideas on a samurai sword is not referencable but he described in his book[1] on what he called the concept of “The Toyota-Style Information System”, which was neither cost-effective nor reliable to implement with computer technology at that time. That is not the case anymore. Today’s BPM technology if applied effectively can not only boost lean methodology to a new level at the factory floor but also drive to cut waste across multiple entities along the supply chain.

In fact, the 2 fundamental pillars of the Toyota Production System, namely, autonomation and JIT are both based on pull-based business process.

Autonomation calls for the business process of stopping machine and correcting problem to be triggered by the unplanned event of machine malfunction. The process can prevent production of defective parts, eliminate overproduction and avoid delays. Automation of such process relieves the workers from the need to continuously judge whether the operation of the machine is normal.  The workers are then only engaged when there is an alert for a problem and hence can simultaneously supervise several machines to achieve better cost-effectiveness.

JIT demands production activities to be carried out at just the right time in order to minimize inventory, which is considered as waste. Kanban cards are signals triggered by an actual event, such as the completion of a product downstream or the consumption of inventory below a predefined level. These signals are then sent to another operation to trigger an action, such as the start of an upstream assembly operation or the transport of parts from a supplier.

Both autonomation and JIT are business processes triggered by an actual event, instead of a plan. The execution of such pull-based business processes are core to the Toyota Production System. In the era when available computer technologies were no more than mainframe batch-processing and rudimentary means for actual event sensing, Taiichi Ohno sought to implement such processes without the use of computer. Today’s BPM tools together with the advances in sensing technologies such as barcode, machine sensors, RFID and location-sensing technologies, are taking lean methodology to a level beyond the reach of its inventor.

Such applications are best explained by examples.

Case 1  – Applying advanced lean at a steel production mill

Company A is a 50 million USD company that produces steel coils from recycled metal scraps that are shipped from all over US and Mexico. The price of the end steel product has gone down from 1200 USD per ton to 500 USD per ton during the short several months when the financial crisis hit in 2008. Like many other manufacturers, Company A was under immense pressure to cut cost and release cash for survival. Contrary to common belief that the benefits of lean methodologies require extensive cultural transformation over long period of time and are less applicable to a continuous process like steel-making, they have reaped significant savings in the following areas through relatively simple and fast implementation by leveraging a BPM tool.

Firstly, by applying BPM to synchronize the purchase and delivery of expensive alloys and additives to the actual pace of production, an estimation of 2.5 million cash can be released from inventory. This is implemented by tracking the receipt and consumption of the selected alloy materials in real-time. Purchases and deliveries are triggered by referencing the safety stock level. This safety stock level is automatically adjusted daily based on the statistics of the recent variations and trends of consumption and purchase lead time.

Inventory reduction as a result of dynamic replenishment

Inventory reduction as a result of dynamic replenishment

In this example, purchase is triggered by an actual event which is consumption. The quantity of purchase is calculated by the optimal economic batch size that minimize transportation fee and safety stock is calculated dynamically to reflect historical demand variability. The result is 37% reduction in inventory and is at least 10% more saving than implementation of a traditional fixed quantity Kanban system. This is an example of applying BPM to realize event-driven business process that takes JIT to a new level.

Secondly, autonomation can be enhanced in the production process through BPM.  Machines and processes are typically designed to automatically stop when a problem such as cobble of coil occurs. Such an event would result in delay of order fulfillment and increase of Inventory Prime, a measurement of finished goods inventory not produced to a customer order specification. However, such risk can be largely reduced by implementing an event-pull process to promptly trigger reapplication of the failed coil to the upstream furnace by taking considerations of real-time data including  on-going process chemistry and status at the furnace, overall production schedule and resources availability. A conservative estimate of 200K USD saving in material alone is hence achieved, not to mention the soft benefits of improving customer satisfaction and labor time saving for more productive activities. Autonomation in this case is being taken beyond problem containment but further into automating the corrective action to minimize waste.

Case 2  – Synchronizing product supply at a consumer goods appliance assembly plant

Company B is a major consumer goods appliance company that has a refrigerator plant supplying to 20 distribution centers, which in turn supplying to retail appliance stores all over the country. A major challenge of managing product supply of the white goods category is large seasonal demand variation. The difference in demand variation between high and low seasons is for example at least 3 times higher for refrigerator than for plasma TV. The keys to keep inventory low while meeting customer demand in this case are manufacturing flexibility as well as material synchronization with suppliers and sales.

A mixed product assembly line

A mixed product assembly line

Manufacturing flexibility was achieved by implementing multi-product assembly line. This was especially challenging when increasing the flexibility of the assembly line to not only multiple products but that of multiple colors. The door part for example is fabricated at a different line than the final assembly. The door of the right color has to be delivered to the final assembly line at the right time and sequence. In this case the production of the door part is synchronized to the assembly line through an event-driven process as implemented by a BPM tool. The detail work instruction including the BOM and assembly instruction of the particular door part is exploded and sent electronically to the fabrication line as the refrigerator body is loaded to the final assembly line.

Another important aspect to achieve the above flexibility is in-line quality. The above mentioned synchronization would not be possible without stable yield from the door fabrication line. The shop floor BPM tool served to speed up the corrective action workflow, enable pokayoke and collect inspection results and defect detail to allow for long term continuous improvement.

Demand leveling was necessary to enable smooth running of the multi-product assembly line. The production orders were placed according to the replenishment orders from the distribution centers. The demand could be 3 times higher over the weekend due to weekend shopping. The sales department has agreed to consolidate the orders to the plant by weekly buckets on the condition that the plant has to encompass manufacturing of all 50 products every day. This way the sales department is comfortable of meeting customer demand even orders are placed on weekly buckets.

In order to manufacture all 50 products every day, the plant needs to seek cooperation with its suppliers. Instead of sending delivery instructions to suppliers 2 weeks in advance with 2 deliveries per day, the plant will make last minute changes before the actual delivery date and require 4 deliveries per day. The BPM tool in this case not only publishes the inventory and production schedule to the supplier but also generates detail delivery instruction that synchronize with actual production. Based on sharing of critical information, some of the suppliers have shifted from make-to-stock to make-to-sequence as managed by the pull-based process across multiple sites.

As a result of enhancing manufacturing flexibility as well as material synchronization with suppliers and sales, this plant was able to reduce plant inventory from 14 days to 1 day over a period of 3 years.

Case 3  – Enabling flexible supply network at a global electronic equipment company

Company C is a global electronic equipment company who has recognized the challenge of not only implementing best-practice lean processes in one plant but also rolling out such to multiple internal and external facilities across the globe. Due to the fast pace of technology in this industry, the manufacturing model of each product category evolves rapidly over time. The high volume and low mix products are more effective to be managed by pull processes while the low volume / long lead time product are more effectively managed by plan-pushed processes. While new products are more likely to produced in-house initially, their production may ramp up within less than a year. Out-sourcing part of the operations to sub-contractors in lower cost countries becomes necessary in order to stay competitive to meet market demand as products are commoditized. In order to meet such challenges, Company C adopted enterprise SOA architecture together with BPM in the following ways.

An Example of Enterprise SOA

An Example of Enterprise SOA

Firstly, a basic logical unit of service is defined for a manufacturing operation, which is part of the entire manufacturing process. Each unit of service has 2 layers of functionalities, namely planning and execution. The planning layer is realized by an ERP package which handles MRP, order taking, purchasing and financial. The execution layer is realized by a manufacturing BPM tool that manages the execution of all the inventory, quality, production and maintenance transactions as well as all the  pull-based processes.

Secondly, each of the basic unit of service  interacts with each other through the same sales and purchase order mechanism. Internal orders with no financial posting are created when one unit is ordering parts from another unit within the same plant. External orders that post the proper financial journal entries are used when parts are ordered from a supplier or a subcontracted plant.

By adopting this architecture throughout the enterprise, whether it is a process change from plan-push to event-pull as product lifecycle matures, a rearrangement of operation sequences as a result of continuous improvement or a shift of an operation to a subcontractor as business model evolves can all be handled by rearranging the identical units of service at the ESB without the need for custom programming that requires month-long system upgrade. With such a global flexible platform approach, IT cost is estimated to be reduced from 2.9% to 1.8% of sales in 3 years. This does not include any of the operational benefits attained by implementing best-practice across the global facilities and responding faster to demand in supply network reconfiguration.

5 keys areas to leverage technology in lean

The above 3 cases illustrated that pull-based BPM can be applied in the following ways:

1. Leverage second order information – which is not only the current state but also dynamic data such as the up-to-the-minute or second standard deviation, micro-trends, variability to trigger better actions and control processes (such as dynamic buffer in case 1, dynamic Kanban flow, realtiime TOC). These data can of course used to support 6-sigma improvement effort and reduce DMIAC cycle time for projects as well as to improve accuracy of master data in planning systems (standard leadtime, standard cost.. etc)

2. Extend in-process visibility / intelligence for operation decision support – which is different from typical batch-based business intelligence/ after-the-fact analysis. In case 1 such realtime in-process visibility enables prompt human decision in reapplication of failed coil.

3. Enable pull process to supply chain partners and customers – as indicated by case 2 that suppliers and sales synchronization are keys to lean initiatives, even when their sole focus is within the 4 walls of a facility.

4. Sustain Kaizen – which drives many small steps of changes in the lean journey. Changes of shopfloor layout, work sequence, equipment, methods, people, material all need to be supported by a flexible IT platform not only at the local level but also roll out of changes across the enterprise. Rapid measurement of Kaizen results and benchmarking operational KPIs across multiple facilities to reinforce common goals.

5. Increase process and supply network flexibility – which requires an enterprise architecture to capture lean best-practice, to enable flexible switching between different types of processes according to business need as well as to roll out to multiple facilities and to ramp up/down suppliers as supply network is reconfigured in case 3.

In this context, pull-based process and lean techniques have been proven to be applicable to all styles of manufacturing from continuous , batch to complex discrete assembly as illustrated by the above 3 cases. Case 1 is a company that had no previuous experiences of adopting lean while Case 2 and 3 are companies that have adopted lean for many years. In other words, opportunities to apply pull-based processes that result in saving can be identified at whatever stages of the lean journey.

Isn’t cultural transformation more important?

Lean practitioners who deny the importance of IT would never able to tackle the above challenges. The kind of cultural transformation requires for taking the lean journey typically takes many years. IT tools, if applied effectively, can reinforce the collective organizational motivation requires for the long journey of lean transformation with quick, concrete and visible benefits on the way. Taking the lean journey is just like a Samurai taking many years to master the skill and spirit of Bushido, along the path he needs to arm himself with the right Katana to win his day-to-day battles. Pull-based BPM is the modern Katana (Samurai sword) to cut through organization barriers, pull together organizational Kaizen persistence, split best-practice to global operation as well as craft out the ultimate goal of cultural transformation that strikes at the heart of competition.

While it takes years to master the spirit of Bushido, a Samurai's sword can make a difference of win or lose in battle

Taking the lean journey is just like a Samurai taking many years to master the skill and spirit of Bushido, along the path he needs to arm himself with the right Katana to win his day-to-day battles

How the right Katana should be cast? That would be a topic for another day.

[1] “Toyota Production System – Beyond Large-Scale Production” page 48-50, Taiichi Ohno