The Customer Value Bill of Rights and the Lean Manufacturing Justice System

Customer Value Bill of Rights - calvinlwilliams.com

You’ve probably heard the expression that you succeed by helping others to be successful. Well that’s also true for a manufacturing business. Truly putting the customer first and your role as helping them to succeed changes the way you see value and waste, which are the ying and yang of Continuous Improvement. In 1950, it took Toyota a year to make the same amount of cars that Ford and GM made in 3 days. Toyota was on a glide path to failure and needed to make drastic changes for the sake of their own survival. Out of this immense pressure emerged the diamond that we now call Lean Manufacturing and the Toyota Production System, which has become the global benchmark of operational excellence. At the core of this set of management processes were 2 principles:

  1. Value is defined by the customer
  2. Waste is eliminated or controlled by a method we call one-piece-flow

This article stresses the importance of the first principle. The Toyota Production System was born out of an understanding that the customer is at the center of the company’s universe and everything the company does is intended to bring greater value to the customer. With this clear perspective on what it means to “win”, it also becomes clear what “losses” are – which are any activity that does not bring value to the customer. On the same note, Toyota has famously proclaimed that as much as 93% of all of it’s end-to-end supply chain activity is waste. So if you look around and see some opportunities for improvement, you’re certainly not alone.

Each customer defines value differently. Likewise, customer preferences are constantly changing. This is great; it means there’s always opportunity for you to grow and lay claim to whatever your slower moving competitors are leaving on the table. However, there are 6 rights that bring increasingly greater value to every customer. The company that does the best job satisfying those 6 rights every time has a huge competitive advantage over the other guys.

Here is the Customer Value Bill of Rights:

The Right Product

When you think of product, think of a solution that has a certain form, fit, and function. Customers will buy the product that most closely fits their need (or desire). Also, keep in mind that customer needs are always evolving as being driven by new technology, fashion trends, and competitive activity. You win this category by picking up the signals of consumer taste and being first to re-tool and launch products that seize emerging market opportunities. In this category, your weapon of choice is production agility and flexibility.

The Right Place

One simple but powerful Lean tenant is that supplies should be staged near the point of use. Your customers also appreciate the convenience of getting what they need from you without needing to look far and wide for it. Nearly all supply chain operations fall short of the ideal of zero distance from the point of use but Amazon.com is getting us fairly close. Most supply chain models are designed to get the product from the factory to the shelf at the supermarket. We then rely on the customer to come into the store to find and purchase the product. Amazon and a few other close followers have taken this a step further by delivering products directly to the customers doorstep – albeit at least a couple of days later. There is still opportunity here for us all.

The Right Time

Can you imagine everything you need just materializing right in your hand the moment you need it? We don’t live in that world today but I’m sure people would be delighted to fork over a little extra cash if you could figure this one out for them. This sounds a lot like the Lean Manufacturing principle of Just in Time delivery (JIT). As a consumer, the closest thing we have to this is in digital products like movies, music, and other content that can be accessed on demand. The next wave is products on demand in real-time. Imagine a new bottle of dish washing liquid showing up at your door the moment your current bottle reaches the 10% mark with no action needed on your part. Its coming – and if you get there before the other guys do, the spoils are all yours to enjoy.

Click here to calculate your savings opportunity by using Impruver’s Transformative Lean Manufacturing Software

The Right Quantity

I would venture to say that most manufacturers that have been in business for a while do a pretty good job at shipping the right quantities to the customer. Of course some still struggle in this department from time to time but with the help of ERP and Order Management technology, you shouldn’t have much trouble getting production orders filled as needed. The key here is to continue to increase production reliability so that your system delivers the quantities needed with less time and inventory required.

The Right Quality

Quality can be a tricky one because it has a double-meaning; one being to produce with high consistency and low deviation from one unit to the next of the same product; the other referring to the perceived value of materials and methods used in production (consider luxury products as being regarded as high quality). For all intensive purposes, let’s consider quality to mean consistency and reliability of the product itself. Manufacturers win in this space by continuously engineering a more perfect production process where defects are made impossible in the best case and contained prior to shipping in the least so that product defects never reach the customer.

The Right Price

Finally, all of this must be done at the right price to the customer. This implies that conversion and material costs are low enough to leave you with a healthy profit as well. The manufacturer with the lowest direct, indirect, and overhead cost structure has a significant advantage over the competition given all other things equal. To win in this category, continue to drive out the eight wastes while delivering excellence across the Customer Value Bill of Rights.

The days of brand loyalty are quickly becoming a thing of the past. Companies that win in the markets of tomorrow understand the Customer Value Bill of Rights and leverage end-to-end Continuous Improvement to deliver on them more effectively than the competition. Jeff Bezos and the good folks at Amazon.com have made a killing by exploiting the fact that manufacturers do poorly at providing the right product at the right place. However, Amazon is terrified of that manufacturer who figures out how to deliver the right product to the individual customer’s doorstep on demand in the right quantity, quality, and price.

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Coaching and Improvement KATA – How to Do It and Why You Should

Coaching and Improvement KATA - calvinlwilliams.com
There’s a damn good chance that coaching and improvement KATA are the missing ingredients in your Lean or Continuous Improvement recipe. KATA comes from the martial arts world as an approach to building skills through practice and repetition. Over time, this practice leads to the rapidly development of process improvement capability and has produced incredible results across industries.

I have personally used this process to drive a 25% increase in productivity in 6 months, including a 40% reduction in quality defects at a leading global CPG company.

Lean’s AHA Moment – How Lean Met Improvement KATA

Lean thought leaders, Mike Rother and others, have identified that the leading reason that over 70% of Lean and Continuous Improvement initiatives fail is due to a lack of development of improvement skills and understanding within the workforce. Coaching and Improvement KATA addresses this shortcoming by transforming every employee into an agent of improvement and every leader into a coach, whose role is to develop CI capability into their teams. This multi-layered approach engages employees from the shop floor up, where the true culture work is done.

In the Improvement KATA framework, each process owner (the person executing the process every day) is issued a challenge, for which they need to develop the target condition. The challenge should be aligned with the broader business strategy and target condition should be the next performance goal the learner, or process owner, is trying to achieve. The learner and coach should also agree on a target due date for either the result to be achieved or for the next experiment to be completed.

Learners run a set of controlled experiments (PDCA) to drive progress against their target condition and 1st level leaders provide coaching on established intervals. 2nd level leaders provide coaching to 1st level coaches. This helps build coaching capability into the organization as well and engages multiple levels in driving improvements.

In this model coaches don’t provide learners with the “just go do this” answer, but help the learner find the answer for themselves; which in a sense, teaches the learner how to learn on their own. Over time, learners begin to take initiative to resolve issues that exist in their work areas instead of waiting for management, who also have limited time and resources available to work on issues. They key for management is to ensure that all employees understand and keep their improvement work aligned with the company strategy.

At the end of it all, the workforce builds the skills and capabilities to drive Continuous Improvement in their work area, resulting in more rapid progress against the company’s goals. This method, in combination with an effective strategy deployment process, enables greater speed of improvement in the direction that can help the company excel in the market.

So, here’s the Coaching and Improvement KATA process:

  1. Deploy Strategy
  2. Assign a challenge to each employee in alignment with the strategy
  3. Each employee should develop a target condition
  4. Collect data and make observations to understand the current condition
  5. Experiment with changes to see what difference they make to performance (here’s where many other Lean tools fit into the puzzle)
  6. Collect data to measure the impact made
  7. Review the findings with 1st level coaches to determine what should be done next
  8. 2nd-level coaches work with 1st level coaches to improve coaching capability

This is very much like the PDCA process with a slight twist, placing more focus on the skill-building than on actual results, which are a product of developing the right skills.

Click here to calculate how much you can save with Impruver’s transformative Lean Manufacturing software

For coaches, there are 5 Kata Questions that help the learner progress to their desired future state:

  1. What is the target condition?
  2. What is the current condition?
  3. What obstacles are preventing your from reaching your target condition?
  4. What is the next step (or experiment)?
  5. When can we go and see what we have learned?

This cycle is repeated on some frequency agreed upon by the coach and learner until the desired result is achieved and sustained. In this model coaches are most likely to be the learner’s (or executor of the process) direct supervisor, who’s 2nd level coach is their direct manager. This model supports deployment of continuous improvement through the direct chain of command instead of being owned and driven by a support function.

We are now learning that this is the secret sauce in Toyota’s CI success. Toyota has generously opened their doors on the tools and methods they used to rise to sustained market dominance. However, many have copied and pasted these tools verbatim without putting in the work to develop the workforce. As a result, leadership ends up pushing changes that the workforces are not capable of sustaining, leading companies to be further behind than where they started.

Improvement KATA turns the focus of CI from tools and methods to coaching and experimenting to solve problems through the application of the scientific method. Coaching and Improvement KATA are not viewed as a tool or process to be implemented but more of a behavior to be practiced so that the skills to solve problems of ever-increasing complexity can be solved. Over time, a true culture of continuous improvement develops as people become conditioned and skilled at overcoming the challenges they see all around them. This approach can be combined with cross-functional engagement in the application of Lean tools such as Root Cause Analysis can produce powerful effects.

WHAT IS MARKET-DRIVEN CONTINUOUS IMPROVEMENT?

Market-driven continuous improvement - calvinlwilliams.com

Continuous improvement can be tricky. There are examples abound of companies applying all the tools and methodologies to perfection and still failing in the market. But how can this be? you ask. Isn’t Continuous Improvement supposed to give a company a significant competitive edge in the market?

Well the fact is that CI can be used to do whatever you want it to do. It can be used to increase profitability, reduce operating cost, or improve quality, morale, or safety. But winning in the market is a little bit different. To do this, Continuous Improvement must be coupled with strategy. Toyota called this Hoshin Kanri, where strategy is used to focus any improvement effort on making gains in the market.

This is a stark difference from the way many companies approach Lean and Continuous Improvement. Many tend to consider Lean an approach to eliminate waste and drive cost savings. Often, they never stop to consider if these areas of focus will actually help make gains in the market.

Market-driven Continuous Improvement might look at the few strategic imperatives needed to increase sales, market share, or even customer retention. For example, company XYZ might be getting a signal from the market that customers want suppliers to provide products in much shorter lead times. In this case, the company realizes that it could increase sales, market share, profitability, or some other key area of performance by being the supplier with the shortest lead time. The company can then deploy its limited Continuous Improvement resources against cutting lead time down as low as possible in order to win in the market.

Click here to calculate how much you can save by using Impruver’s transformative Lean Manufacturing software

In the absence of a clear strategy, improvement efforts are more random, which can be wasteful in itself. Even when using prescribed Lean tools as flawlessly as can be done. This is what can create a dynamic of succeeding at Lean and failing at business, which can be counterproductive.

In today’s CPG business landscape where retail is gradually moving online and brand loyalty is waning, companies are competing in three key areas:
1) Product fit – this means the more flexible or agile factory wins
2) Quality – the factory with the most consistent and reliable processes wins
3) Price – the factory with the lowest operating cost (and ultimately best value for the price) wins.

The market is changing toward more of a direct-to-consumer model where big box retailers have less influence over which manufacturers get more exposure to the customer. Smaller companies are growing at 6% year over year and larger ones are at less than 1% growth in CPG. The game is changing – so make sure you’re in position to win.

Can OEE be Used to Reduce Operating Cost?

OEE or Overall Equipment Effectiveness measures manufacturing performance against perfection. It is regarded as the global benchmark for managing and improving manufacturing efficiency. Any deviation from perfection drives up operating cost. OEE looks at three different losses and multiplies them across to assess total losses. Those losses are:

Availability – This is a measure of downtime (both planned and unplanned)

Throughput – This measures rate loss against the theoretical maximum run rate

Yield – This measures the amount of efficiency lost due to quality issues

Each of these factors has a cost impact. There are measurable financial and other costs associated with having people at work, the lights on, and machines operating. Anytime these things are happening and you aren’t producing at theoretical maximum levels, you are suffering efficiency and financial losses. Most factories are operating at or below 60% OEE but have no idea. Additionally, most factories do not measure productivity, and many who do, use methods that exclude significant losses such as changeover times, start-ups, throughput loss and many others. Again, anytime you have people on the clock and product yet to be made, anything less than the theoretical max output is a loss…for whatever reason – controllable or uncontrollable. At the end of the day, all aspects of running your business are controllable; the only real question is: are you willing to do what it takes to “fix” something that is perceived as “uncontrollable”. I’ve worked with manufacturers who, for years, wrote off “bad raw material” as uncontrollable but have never talked with the supplier about fixing the problem or investigated sourcing with other suppliers. In almost all cases, uncontrollable is synonymous for “we don’t want to deal with it”.

The Logic

For a factory with a direct operating cost of $10M annually and an OEE of 60%, the total efficiency losses are 40%. Therefore 40% of the direct operating costs are also losses, or $4M in this case. At 100% efficiency, the operating cost would be $6M.

World-class execution is 85% OEE, which equates to a direct operating cost of $8.5M in the example above. For the same factory, there is a $2.5M savings opportunity for improving from 60% to 85% OEE. What would you do with an extra $2.5M dollars per year? Expand production? Pay bonuses? Acquire a new business? Buy a small yacht and sail around the world?

Achieving 85% OEE is challenging but attainable for the vast majority of manufacturers. Click the link below to receive a free report on how much savings opportunity you might have based on your direct operating costs and efficiency performance:

My Total Savings Opportunity

If you don’t know your OEE, we can get you up in going on Impruver in less than a month. It will help you track OEE by product, line, shift, team, and even individual. It’s a great tool for highlighting exactly where to focus improvement efforts. For the sake of the tool mentioned in the above link, input 60% as a reference point and see what you get for a savings opportunity if you’re unsure of your current OEE.

 

 

The 8 Lean Wastes and Their Potentially Disastrous Effects – Motion

Manuficient - Motion [Katrina]

Motion – any movement that takes time and / or effort that does not directly add value. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Motion to understand what causes it, how to see it, and how to eliminate it.

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Case Study:

In 2005, Hurricane Katrina broke the levees in New Orleans’ lower 9th ward, resulting in catastrophic flooding. Despite the desperate and obvious need for relief, local, state, and federal emergency response agencies failed to supply sufficient aide with any level of urgency. Officials deliberated, stalled, and wasted critical time deciding when, how, and rather or not to respond. An estimated 1,836 lives and $108 Billion were lost due to the flooding. It’s difficult to quantify exactly how much of this loss can be attributed to the poor emergency response; but we can all agree that the amount of time and effort wasted prior to providing aide was a complete disaster in itself.

Corrective Action:

During the event, aide, although debatably insufficient, began to arrive for some affected by the flood. Many people have fled the northern gulf coast to cities like Houston, Nashville, and others around the US – never to return home. Programs to help Katrina victims to resettle elsewhere sprang up around the United States. After Katrina, FEMA was granted authority and tools to respond to crisis more urgently, including the Post-Katrina Emergency Response Act (PKERA). This new system was tested a few years later during Hurricane Sandy and the results were markedly improved.

Interesting Fact:

All major studies concluded that the US Army Core of Engineers (USACE) were primarily responsible for the failing levees. However, they were granted immunity under the Flood Control Act of 1928. The USACE cited budgetary constraints for installing the insufficient levee system. This is one case where saving perhaps a few million dollars ending up costing thousands of lives and hundreds of billions of dollars in the end.

For more details on this case study, check out the Wikipedia article at the following link:

https://en.wikipedia.org/wiki/Hurricane_Katrina

Motion waste occurs in abundance in just about any manufacturing or supply chain operation. Anything from reaching across a table to grab the next unit to shuffling pallets in the warehouse to get everything to fit can be considered motion waste. It is nearly impossible to eliminate all motion waste but it can definitely be reduced greatly. Reducing motion waste reduces process cycle times resulting in an increase in throughput. The best way to measure motion waste is the perform a detailed breakdown of the work needed to execute a process called a Time & Motion Study. In this case, the more granular, the better. For example, a time & motion study output might look like this:

Manuficient - Motion Waste Chart

 

Observe how over 30% of the time spent processing this unit was wasted motion. This type of waste can be reduced by identifying the waste from time & motion studies on critical process steps and optimizing workstation design to increase efficiency. This method allows you to optimize for efficiency within a process step at a very technical and granular level; but can yield tremendous cost and lead time savings if you can increase throughput at the bottleneck step by 30%.

Impruver also helps you see motion waste. Motion waste reduces throughput, increases operating costs, and lengthens lead times. Impruver helps to motivate employees to reduce motion waste by highlighting achievements such as Raising the Bar (outperforming the previous standard). When motion waste is reduced, it can lead to the previously established standard being exceeded, at which time best-practices and operator recognition is distributed across your manufacturing network. This helps others to make progress toward creating breakthroughs in performance as well.

 

 

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

The 8 Lean Wastes and Their Potentially Disastrous Effects – Inventory

Inventory – any materials or other resources stored or staged until demanded. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Inventory to understand what causes it, how to see it, and how to eliminate it. Lean.org defines inventory as “materials (and information) present along a value stream between processing steps.”

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Case Study:

In 2007, Toyota issued a massive recall that affected 9 Billion vehicles worldwide. The recall was triggered by several reports of gas pedals “sticking” and causing unintended acceleration. At the time of the incident, dealerships across the US were holding substantial amounts of inventory, which could not be sold until they were all serviced to minimize the risk of further unintended acceleration issues. A study was conducted to estimate the losses associated with all of this inventory that was placed on “hold”, which revealed that dealerships were losing the staggering amount of $2.5 Billion per month in combined income.

Corrective Action:

In response to this issue, Toyota conducted an investigation to identify the root cause of the unintended acceleration and concluded that the configuration between the floor mat and the gas pedal was defective. They also began to experiment with an alternative supply chain model with the Toyota Scion where a base unit would be built to about 70% at the factory, then buyers would be allowed to customize how the vehicle would be finished. Finally, the base unit would be shipped to the buyer’s local dealer to complete the final manufacturing steps; a process known as Late-Stage Customization. This kept inventory low for the Scion at the dealerships and allowed consumers more control over the features and functionality that would be included with their vehicle. Unfortunately, the Scion did not perform well in the market; however, I don’t think the supply chain model was the problem. It simply isn’t a very good looking car.

Interesting Fact:

Even though Toyota distributes vehicles all over the world, the only reports of unintended acceleration came from the United States. Also, there was never a definitive conclusion for a mechanical failure that was causing the problem. However, once the floor mat / gas pedal configuration was changed, no further issues were reported.

For more details on this case study, check out the 24/7 Wall Street article at the following link:

http://247wallst.com/autos/2010/01/29/toyota-dealers-face-2-5-billion-monthly-loss/

This case study exposes one of the many major problems with building and carrying inventory. Building inventory has the same issue issue as batching, which is a form of inventory in itself. When there is a quality defect that needs to be contained, many times the entire batch needs to be recalled and investigated due to limited granularity in traceability.  This requires the manufacturer to cast a wide net instead of being able to pinpoint the specific units that are affected by the defect.

Another major issue with carrying inventory is that it enables poor manufacturing execution and erodes operational discipline. Part of the equation for determining how much inventory you need is how unreliably your factory performs. In other words, being unreliable means you need to maintain higher inventories to meet service expectations. The path of least resistance is to build inventory as opposed to addressing your factory’s reliability issues. A little trick to kicking off a lean implementation is to cut your finished inventory gradually and challenge your teams to maintain service levels with lower inventory stocks. This will require improving factory reliability and becoming more lean in the process. Finally, inventory hurts your factory’s lead time on special order and rush items. This is because orders often need to wait in inventory buffers in between process steps before the next value-added step can be completed.

Impruver also helps you see waste from inventory, which often manifests itself in the form of unreliability. In Impruver, unreliability shows up as downtime, rate, and yield losses. By addressing these issues, you can increase plant reliability and subsequently reduce safety stocks. When inventory is reduced, working capital is freed up to be invested in other more important matters. Impruver also allows you to quickly estimate the savings to be gained in just one click by driving out efficiency losses. This powerful functionality is made available to everyone from the shop-floor up to be used for justifying continuous improvement ideas.

 

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.

The 8 Lean Wastes and Their Potentially Disastrous Effects – Transporting

A worker operates a forklift to transport floor boards at a wood flooring factory in Huzhou
A worker operates a forklift to transport floor boards at a wood flooring factory in Huzhou, Zhejiang province July 13, 2012. REUTERS/Sean Yong

Transporting – the act of moving people, materials, or information from one place to another. In this series titled “The 8 Lean Wastes and Their Potentially Disastrous Effects”, we examine case studies for when companies, government organizations, or entire industries have allowed a specific type of waste to escalate to a disastrous effect. In this post, we review the waste of Transporting to understand what causes it, how to see it, and how to eliminate it.

Jump to:

The 8 Wastes and Their Potentially Disastrous Effects:

Defects | Overproduction | Waiting | Non-utilized Talent & Ideas | Transportation | Inventory | MotionExcessive Processing

Study:

Based on data from the National EMS Information System (NEMSIS), the US national average time for an ambulance to arrive after an emergency call has been placed is 9.4 minutes. Just to level-set, the gold standard for ambulance arrival time is 8 minutes within 90% of the time. The data suggests that, on average, ambulances arrive 1.4 minutes late for an emergency call.

Additionally, the time to transport a patient back to the hospital to receive full treatment averaged 12.2 minutes in the dataset. This means that the time between the emergency call and the patient arriving at the hospital averaged almost 22 minutes in total.

Manuficient - Ambulance Arrival Time Data
Copyright 2016 Manuficient Consulting

 

Interesting Fact:

The chances of surviving cardiac arrest diminishes greatly after 5 or 6 minutes of waiting time. How many deaths or serious complications could be prevented if we could design an emergency medical system with an overall response time of less than 5 minutes?

For more information on this data, visit the NEMSIS at:

http://www.nedarc.org/

 

Transporting waste is abundant in just about any manufacturing or supply chain system. Since, for all practical purposes, multiple objects cannot occupy the same space at a time, transporting is an inevitable condition in the way we live, work, and play. One of the challenges to reducing transporting waste is that most methods of measuring productivity fail to highlight its existence. It’s important to measure delivery lead time from step to step within the factory and throughout the supply chain to help identify transporting waste; this also needs to be monitored on a continuous basis. Once you know to look for this type of waste, losses can fairly easily be measured and reduced in manufacturing or supply chain processes. For example, tools such as 5S, line layout, work cell design, and point-of-use supply (POUS) are all great approaches to minimize the waste of transporting within a factory.

Impruver also helps you see waste from transporting in the form of lost efficiency. In Impruver, this type of waste could either show up as downtime or rate losses. For example, if operators are having to travel across the factory to retrieve parts needed to perform a changeover, this entire time is captured under the planned downtime category. In this case, you might rearrange where items are being stored or staged in order to minimize transport time, changeovers, and efficiency losses due to planned downtime.

 

Copyright © Calvin L Williams blog at calvinlwilliams.com [2015]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Calvin L Williams with appropriate and specific direction to the original content.