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CHAPTER 14: LEAN SUPPLY CHAINS

Learning Objectives

  • LO14–1: Explain what lean production is.
  • LO14–2: Illustrate how lean concepts can be applied to supply chain processes.
  • LO14–3: Analyze supply chain processes using value stream mapping.
  • LO14–4: Apply lean concepts to service processes.

Lean Production

  • Definition of Lean Production:
    • Integrated activities designed to achieve high-volume production using minimal inventories.
    • Focuses on elimination of waste in production effort.
    • Timing of production resources, ensuring that parts arrive at the next workstation "just in time".
  • Value chain: Each step in the supply chain must create value.
    • If a step does not create value, it should be removed.
  • Customer Value: Represents something that the customer is willing to pay for.
  • Waste: Anything that does not add value from the customer’s perspective.

Uncertainties and Variabilities in Services

  • Uncertainty in Task Times:
    • Each service delivery has some uniqueness, resulting in variability in task times.
  • Uncertainty in Demand:
    • Demand forecasts are inherently uncertain.
    • Manufacturing can buffer uncertainties with finished goods inventory, whereas services cannot.
    • Capacity must be available when demand arises.
  • Customers’ Production Roles:
    • Customers often participate in the production of services, introducing further uncertainty.

Lean Production and Six Sigma

  • Lean production and Six Sigma are most effective in repeatable, standardized operations, which can be challenging in the service sector.

Lean Logic

  • The principle of lean is based on the idea that nothing is produced until it is needed.
    • A sale triggers a replacement from the last position in the system, causing an order to the factory production line.
    • Each upstream station pulls from the next station further upstream.

Lean Production - Pull System

  • Each stage of the supply chain is tightly linked, with materials pulled only when there is demand.
    • Stages include:
    • Final Assembly
    • Various fabrication (Fab) stages and Vendors.

Toyota Production System

  • Elimination of Waste includes:
    • Waste from Overproduction: Producing more than what is needed.
    • Waste of Waiting Time: Time wasted when product flow is interrupted.
    • Transportation Waste: Unnecessary movement of materials.
    • Inventory Waste: Excess stock that does not add value.
    • Processing Waste: Inefficient operations that do not enhance value.
    • Waste of Motion: Unneeded movement by workers.
    • Waste from Product Defects: Costs incurred from reworking or scrapping defective products.
  • Respect for People principles in Toyota's philosophy include:
    • Lifetime employment for permanent positions.
    • Maintaining stable payrolls even in downturns.
    • Promotion of company unions and bonuses.
    • Viewing workers as assets.

Lean Supply Chains

  • Transition from lean and Six Sigma concepts to focusing on maximizing customer value.
  • Value Stream encompasses both value-adding and non-value-adding activities throughout product lifecycle.
  • Aims to optimize value-adding activities while eliminating non-value-adding ones.

Lean-Focused Supply Chain Components

  • Lean Suppliers: Ability to respond to changes, lower prices, and achieve higher quality.
  • Lean Procurement: Automation via e-procurement and mutual visibility between suppliers and customers.
  • Lean Warehousing: Elimination of non-value-added steps in storage processes.
  • Lean Logistics: Enhancements includes:
    • Optimized mode selection, pooling orders, combined truckloads.
    • Optimized routing, cross docking, import/export processes, and minimizing backhaul.
  • Lean Customers: Essential characteristics include understanding business needs, valuing speed and flexibility, and forming effective partnerships with suppliers.

Value Stream Mapping

  • Definition: A specialized flowcharting tool for the development of lean processes.
    • Visualizes product flows through processing steps and illustrates information flows controlling these processes.
    • Requires comprehensive understanding of business and production processes.
  • Technique Application: Identifies all value-adding and non-value-adding processes in material handling within a plant.

Value Stream Mapping Symbols

  • Process Symbols include:
    • C/T = Cycle Time
    • C/O = Changeover Time
    • Process, Batch, Inventory symbols, and various data boxes.
  • Material Symbols: Show different stages of material handling like Inventory, Shipments, Kanban, etc.
  • Information Symbols: Include production control tracking through various channels (daily, monthly).

Manufacturing Process Map

  • Example includes monthly forecasts, daily production shifts, and various efficiencies that impact production targets. Details include:
    • Total Cycle Time, Work Time, Uptime, and various operational time segments.

Lean Supply Chain Design Principles

  • Principles include:
    • Lean layouts and group technology to ensure smooth workflow.
    • Quality management practiced at the source.
    • Just-In-Time (JIT) production methodology and uniform plant loading.
    • Kanban production control.
  • Focus on minimizing setup times and building specialized plants.

Quality at the Source

  • Quality at the Source Concept: Main tenet is to do it right the first time and stop processes immediately in case of issues.
    • Workers bear responsibility for the quality of outputs and are expected to perform maintenance as needed.
  • JIT Production: Produce only as needed, effectively minimizing waste.
  • JIT exposes issues typically hidden by excessive inventory, revealing inefficiencies in productivity.

Lean Production Schedules

  • Level Schedule: Maintains a constant rate of material flow into final assembly.
  • Freeze Windows: Specific periods during which no production schedule changes can be made.
  • Backflush: A technique for calculating the parts used in producing finished products.
  • Uniform Plant Loading: Strategy to smooth production flow to minimize schedule variations.

Kanban Production Control Systems

  • Kanban: A Japanese term meaning "sign" or "instruction card"; crucial in creating a pull system for production management.
    • Cards/containers signal production and material movement.

Kanban Pull System Process

  • Procedure for managing materials through a pull system:
    • Workers take parts from full containers and authorize movement through kanban cards, enabling production of additional material as needed.

Determining the Number of Kanbans Needed

  • Formula for calculating the necessary number of kanban cards (k):
    • k=D×(1+S)Ck = \frac{D \times (1 + S)}{C}
    • Where:
      • D = average demand over a specified time period.
      • L = lead time for replenishment.
      • S = safety stock as a percentage of demand during the lead time.
      • C = container size.

Example of Kanban Calculation

  • Given values for demand, lead time, safety stock and container size:
    • Average units demanded (D) = 8/hour
    • Lead time (L) = 4 hours
    • Safety stock (S) = 10%
    • Container size (C) = 10 units
    • Calculation to derive:
    • k=8×4(1+0.10)10=3.52→4k = \frac{8 \times 4 (1 + 0.10)}{10} = 3.52 \rightarrow 4

Minimized Setup Times

  • Strategy to reduce setup and changeover times to establish an efficient flow of operations.
  • Kanban systems facilitate reduced setup costs and support aiming for lot sizes of one unit.

Building a Lean Supply Chain

  • Joint Value Definition: Value for each product family must be mutually defined based on customer perceptions.
    • All firms involved must secure returns on investments and collaborate to eliminate waste, thereby meeting cost and ROI targets.
    • Continual analysis and identification of waste to set new improvement targets.

Lean Services

  • Service-oriented practices include:
    • Organizing problem-solving groups.
    • Upgrading facilities and quality control practices.
    • Clarifying process flows and reconfiguring layout where necessary.
    • Introducing demand-pull scheduling to manage service delivery more effectively.

Summary

  • Lean production focuses on process improvements by eliminating waste and excessive inventory.
  • The JIT philosophy underpins lean concepts aimed at creating customer value while addressing non-value-adding activities.
  • Lean methodologies apply broadly across supply chain processes, including production layout, production scheduling, and supply chain design.
  • Value stream mapping serves as a critical tool to visualize and refine process flow, identifying opportunities for waste reduction and enhanced value creation.

Practice Exam Concepts

  • Identify factors that do not add customer value.
  • Definitions of lean production and its fundamental philosophies.
  • Components involved in value and non-value-adding activities across the product lifecycle.
  • Continuous improvement philosophies relevant to lean principles.