lean six sigma

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 fOS 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.

 

 

Is the Factory Operating System the Death of Lean Manufacturing?

Manuficient - Death

With over 70% of Lean initiatives failing across the United States and the world over, is Lean dying? Is the Factory Operating System (fOS) only helping to kill Lean off? Both Lean and the fOS are designed to serve the same purpose: the systematic elimination of waste. However, there are some very distinct differences between Lean as we have come to understand it and the fOS.

Those differences include:

Lean is tools and theory-focused, which often causes conflict and debate
The fOS is singularly focused on getting better, which everyone agrees is, well… better

Lean is pushed onto the organization from the top down
The fOS is pulled into the organization from the shop-floor up

Lean is levered on fear and crisis
The fOS is levered on desire and success as people are recognized for achieving increasingly greater efficiency

Lean requires a high level of expertise to educate / coach / facilitate the effective use of prescriptive tools
The fOS encourages and rewards ingenuity from all levels in the organization – sort of like crowd-sourcing for improvement methods and ideas

Lean takes years to implement effectively
The fOS is implemented virtually instantly

Lean concentrates on waste and process failures
The fOS concentrates on outstanding performance

Lean improvements can be difficult to quantify and sustain
The fOS visualizes performance levels so that the impact of process changes are easily quantifiable and addressable

…and many more.

Lean manufacturing is one the most prominent Continuous Improvement programs of the past century. Despite the many flaws in the way companies attempt to implement and approach Lean, it’s principle of a never-ending pursuit of perfection is the true value to be extracted from the rubble of failed initiatives. The fOS, especially in combination with the Percent Perfect Methodology®, beautifully extracts this precious element and makes it readily available to all manufacturers in it’s purest form. This positions the fOS as a powerful tool that results in companies becoming more Lean without all the bloodshed involved in implementing an organizational transformation to the scale of a traditional Lean implementation. In other words, the fOS does kill the “old Lean”, and gives life to the “new Lean” that approaches Continuous Improvement more like professional sports than military boot camp. Except in this sport, the field is the factory, the opponent is inefficiency, the season never ends, and there are winners everyday.

The fOS is a system designed to create a culture of performance improvement leveraged around OEE, which is regarded as the global benchmark for managing manufacturing productivity.

Visit http://manuficient.com or click here to learn more about how the fOS might help you save MILLIONS over the next 12 months.

fOS Lead Capture2PPM Lead Capture2

Engage with us:

Subscribe | Request Material | Schedule a Call | Request a Proposal  

Connect with us:

Facebook | Twitter | Linkedin | Google+ | Blog

Copyright © Calvin L Williams blog at calvinlwilliams.com [2016]. 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 fOS is the New North Star for Continuous Improvement Programs Around the World

fOS Hompage Header2

The fOS, or the Factory Operating System, is a game changer for manufacturers and the Continuous Improvement movement. It is a powerfully disruptive technology and is a wake-up call for many who believe they are running a World-Class operation. The truth is that a vast majority of manufacturers, including those who believe they have “implemented Lean”, are less than 60% as efficient as they could be. Prior to the fOS, anyone could say they were World-Class because there was no truly objective way to measure performance across various factories and industries. Those days are over – and so are the days of using productivity and efficiency as a vanity metric. There are any number of ways to measure productivity; and due to this un-standardization, manufacturers all over the world have chosen different measures. This creates 2 problems: 1) It’s very difficult to measure one factory against another and 2) it’s easy to omit efficiency losses to avoid dealing with difficult issues. As a result, performance and efficiency often gets deprioritized behind more pressing crisis. The fOS solves these problems by measuring manufacturers against perfection, ie, absolute-zero efficiency losses. This provides manufacturing leaders with a compass, or North Star, for where they are in their journey to Operational Perfection. It also lends itself to the actions needed to make significant progress in the journey, especially when coupled with the Percent Perfect Methodology®

What is the fOS? It is a cloud-based Continuous Performance Improvement (CI) system leveraged on the power of OEE, the global benchmark in managing manufacturing productivity. No matter where you are in your CI journey, the fOS will make you better – faster. It is a private system that only allows people within the same company to view, add, edit, or delete performance data unless special permissions are provided. The fOS is loaded with features to cultivate a professional sports-like environment regarding manufacturing performance. This includes:

  • Success Stories – When someone sets a Personal Record, Raises the Bar (outperforms the standard), or achieves a Record Breaking Week, this achievement gets broadcast automatically across your network. Other users can easily give “Hi 5s” and recognize their outstanding results.
  • Efficiency Rankings – Top performers, or those operators, supervisors, and managers, who achieve the highest efficiencies are recognized daily. All others on the chain of command are also ranked based on their performance numbers. For example, if there are 50 people in your ops team, you might be ranked anywhere from 1 to 50 in your network. The question becomes: what can you do to become number 1?
  • Better Everyday Wall – This is sort of like a Linkedin or Facebook wall (or ESPN News feed) except the site automatically and exclusively publishes Success Stories there. Then people can recognize, comment and collaborate on how to drive organization-wide excellence.

The fOS is loaded with features that make capturing data, calculating efficiency, and reporting performance a piece of cake, minimizing the burden of using this super-powerful Continuous Improvement system. Another ground-breaking feature is that it automatically sets and updates production standards based on the maximum demonstrated historical run rate. The standard is adjusted every time someone Raises the Bar. This automates a task that could otherwise take an Industrial Engineer months to complete. Yet another invaluable feature is that it allows users to calculate the savings opportunity on a line, team, shift, or product in one click for the selected date range. Again, automating something that usually takes quite a while to determine. It’s an all-around phenomenal tool with beyond bank-level security to keep your data safe and private. Additionally, very little, if any, confidential data is even required to use the system to begin with.

Every manufacturer on the planet and their suppliers should be using this system. Then start receiving automated reports everyday showing exactly where you are in your journey to Operational Perfection.

Click here to have us setup your user accounts and get it rolling for you today.

Check out the fOS Videos link for more information.

fOS Lead Capture2PPM Lead Capture2

Engage with us:

Subscribe | Request Material | Schedule a Call | Request a Proposal  

Connect with us:

Facebook | Twitter | Linkedin | Google+ | Blog

 

The Compounding Benefits of Prioritizing in Continuous Improvement

Manuficient - Compounding

Albert Einstein once said that the most powerful force in the universe is compounding. Just as in finance, this is true for managing a manufacturing operation. New problems, big and small, arise everyday. When a problem goes unresolved, it behaves like a disease on your productivity. Additionally, new problems are added to old ones, which creates a snowball effect, and thus the compounding dynamic takes effect. At some point in the life cycle of a manufacturing operating, it takes what Grant Cardone calls “massive action” to reverse this momentum and get into a position where compounding is working in your favor. To do this, you must develop a thorough understanding of what specific wastes are driving inefficiency and pick them apart with well orchestrated and massive action. The 85/15 rule (a variation of the 80/20 rule) definitely applies here. In other words, 85% of your inefficiency is probably being driven by 15% of the issues. The key is to systematically identify the 15% of issues and prioritize the fewest number of initiatives needed to eliminate 85% of inefficiency, which will result in substantial profitability increases.

Manuficient Methodology1.1 PrioritizePrioritizing is the act of deliberately ranking needed activities, then allocating time and other resources in the order of greatest to least significance. Prioritize is the 3rd Phase in the Percent Perfect Methodology® (PPM), which identifies the 3 – 5 tools and initiatives needed to capture the greatest gains toward achieving your operating potential. In Phase 1 of the PPM, we looked at how to define perfection for a manufacturing operation. In Phase 2, we reviewed how to Assess where you are in your journey to Operational Perfection (OP). In this phase, we look at how to determine which specific initiatives will have the greatest impact on closing the gap between current state and perfection.

There are hundreds and perhaps thousands of Lean Six Sigma and other Continuous Improvement tools out there to be applied depending on the specific application. In fact, any repeatable activity that makes a process more efficient can be classified as a tool, which makes the list virtually limitless. The challenge is knowing a) which tool(s) should be applied and b) how to most effectively apply the tool(s) selected. Just like a mechanic needs to have the right tools for a given job and know how to use them without completely mucking up the project, so do manufacturing leaders. This takes resourcefulness, knowledge, and skills – which are all a function of having the right quantity and quality of experiences.

You can identify the appropriate tool to apply based on the type of waste that is occurring. The 8 lean wastes are: defects; overproduction; waiting; non-utilized talent & ideas; transporting; inventory; motion; and excessive processing.

There is a 6 Step Process for determining which tools will have the greatest impact on closing the gap to OP for your manufacturing operation:

Step 1: Determine what perfection would be for your manufacturing operation. Use the Factory Operating System (fOS) to achieve this. It’s a free tool and provides the best way to set and establish your theoretical maximum productivity levels.

Step 2: Analyze where you are in your journey to Operational Perfection. The fOS will also help you complete this step. It provides a user-friendly interface to track, aggregate, and report production performance. It also helps to cultivate employee motivation around CI by disseminating success stories such as personal records and breakthrough performances across your manufacturing network.

Step 3: For each of the three significant types of loss (availability, throughput, and yield), further categorize each type into the 8 wastes.

Step 4: Quantify the total losses being driven by each type of the 8 wastes and perform a Pareto Analysis grouped by type of waste and total annualized losses (in dollars or other currency).

Step 5: Select the set of tools or processes that are best fit for eliminating or reducing the types of wastes that are resulting in the greatest losses. The objective here is to identify the fewest number of tools that will cut waste to within 15% of Operational Perfection, which is widely considered to be World-Class execution. For example, motion waste is best address through time and motion studies; and transporting waste is minimized through process layout re-design and a technique called Point of Use Supply (POUS) among others.

Step 6: Develop the specific initiatives needed to best leverage the selected tools for maximum effect. This may mean customizing or combining tools to refine an ideal set for your specific needs.

Once you’ve gotten this far, you’ve won more than half of the battle. Abraham Lincoln once said that “If you give me 6 hours to cut down a tree, I’ll spend the first 4 sharpening my ax.” After Phase 3 of the PPM, the axe is razor sharp and you’re just about ready to deliver a swift blow to your manufacturing operation’s inefficiency. Unfortunately, many companies skip this phase and consequently, this is where they go wrong with their CI program implementations. Instead, they often mistakenly approach it as either a beautification or fire-fighting program. They start with something like 5S because it’s very visual and friendly or they go with problem-solving / kaizen events just so they can pull their CI resources into the weeds of daily operations with them. This isn’t necessarily a bad thing, it’s just not the most effective use of time and resources. They rarely take the time (and it usually doesn’t take much time) to assess exactly where the greatest gains can be achieved, then prioritize effort and resources. As a result of this and other factors, 70% of improvement programs fail in their first couple of years according to a study completed by the McKinsey & Company consulting firm. Furthermore, having the prioritized list of initiatives on hand helps to recruit / promote the ideal talent for manufacturing leadership roles. For example, if your greatest opportunity for improvement is to reduce changeover times, the optimal talent for a director or plant manager role would have a tremendous track record for implementing the SMED tool (Single-Minute Exchange of a Die) for minimizing changeover times. You can see how having a rock solid CI playbook changes your entire approach to how you play the game. Can you imagine how many major decisions are made everyday without taking any of these factors into account?

MIC_World Class Mfg

I can assure you that the powerful dynamics of compounding are either working for or against you. If you’re not taking deliberate action to leverage this phenomena to your advantage, then it’s most likely working against you. The key to changing the trajectory of your manufacturing operation’s performance is to prioritize the small set of CI initiatives that will produce the greatest impact on closing the gap to Operational Perfection. Defining perfection provides the North Star for manufacturing leaders to navigate the complex maze of day to day manufacturing operations. Assessing the current state helps you to gauge exactly where you are in your journey. The fOS tool at http://factoryoperatingsystem.com is the best tool available to define and assess where you are against operational perfection on an ongoing basis. Finally, prioritizing provides a clear and executable roadmap to World-Class execution. From here, you have laid the groundwork to capture rapid gains in productivity and profitability.

A manufacturing efficiency expert such as those at Manuficient can help you to prioritize your CI initiatives and gain immediate results in performance.

fOS Lead Capture2PPM Lead Capture2

Engage with us:

Subscribe | Request Material | Schedule a Call | Request a Proposal  

Connect with us:

Facebook | Twitter | Linkedin | Google+ | Blog

Copyright © Calvin L Williams blog at calvinlwilliams.com [2016]. 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.

 

Assessing Your True Opportunity for Improvement – And Closing the Gap

Manuficient - Skills Gap

An inherent requirement of Continuous Improvement is to set a goal that cannot be feasibly achieved – then pursue it with reckless abandon. Okay maybe not completely reckless but it’s important to at least take it seriously. The phrase “shoot for the moon and even if you miss, you’ll land among the stars” by Norman Vincent Paele applies here in full effect. Approaching your Lean initiative with this attitude sets the stage for creating a culture of perpetual improvement. In the last post, we covered how to define perfection for a manufacturing operation. This provides the North Star that we shoot for when we decide that we’re going to do Continuous Improvement. Perfection, in this regard, is essentially to operate in a state of zero efficiency losses. This post dives into how to measure losses and determine exactly what type of waste is occurring in your manufacturing process.

Manuficient Methodology1.1 AssessThe second phase in the Percent Perfect Methodology® (PPM) is to Assess your efficiency losses against perfection and categorize them accordingly. The reason this is done is to categorize your losses in terms of availability, throughput, and yield, as is how Overall Equipment Effectiveness (OEE) is typically determined. This is also done to gain a deep understanding of which and how much of the 8 Lean Wastes are occurring. The PPM is a methodology designed to determine and systematize the few critical operational disciplines needed make dramatic progress toward perfection.

Understanding your efficiency losses by category is critical for a few good reasons:

  1. Areas for greatest efficiency losses highlight gaps in competency in the workforce and management that will need to be strengthened
  2. Opportunities to make dramatic improvements in equipment and plant layout become apparent as well as the cost savings opportunity associated
  3. Quantifying efficiency losses by category enables the ability to prioritize which management disciplines to incorporate into your operating model, which is spelled out in more detail in the third and fourth phase of the PPM

The challenge to this approach is that sometimes learning how efficient you’re not can be a bit difficult to swallow. Especially if you have a culture of using vanity metrics, or metrics that are designed to make the team look good as opposed to exposing real opportunities for improvement. I was approached by one supervisor as we were executing this part of the engagement who, in a state of desperation, asked that we not show their OEE number. Instead, let’s use a number that doesn’t count losses like start-ups, changeovers, waiting on product, shutdowns and others because he believed he didn’t have any direct control over those factors. As I listened to him speak, it became clear that he wanted to show efficiencies at or above 100% so he and his team could feel good about their performance everyday. It seems that he was under the misconception that this would help make his team “more” engaged. Perhaps he was right that they would be more engaged, but what exactly was he trying to engage them in? It certainly wasn’t Lean or Continuous Improvement. My comment to this Supervisor was to “look at Lean like a journey that starts now. The last Supervisor left off at 53% to perfection; your mission is to take this team and this plant to 83%. That’s what you should engage your team to do”; and thus the buy-in process began for him. FYI…this Supervisor went on to lead his team to 78% after a few short months (and his team continued to improve after he was promoted).

Having a consistent and reliable way to measure performance on an ongoing basis has the same effect of pro athletes having the statisticians on ESPN to track and report their performance numbers. By establishing a fair and objective way to measure progress, you level the playing field so that people can clearly see if they are getting better or not; and by how much. This also enables you to conduct a side-by-side comparision to see who’s getting better, who’s consistently doing well, and who needs help. You can also easily determine the true impact of process changes by assessing progress against your new definition of perfection. This is the part that makes manufacturing more like a sport than day-to-day drudgery. In comes the sport of: Continuous Improvement, where the winners are those getting better and executing at a high level. This includes setting personal records, breaking production records, raising the bar (outperforming the standard), and much more. From there, you can establish your own system of rewards and recognition including but not limited to: most consistent, most improved, top performers, broken records, and so on. You could even do your own version of the Heisman or MVP awards. How fun would that be?

MIC_Continuous Improvement Culture

Finally, this step helps to uncover opportunities to benchmark the things that are going well and share them across the board to help underperforming teams, products, and production lines to achieve breakthroughs in performance. For instance, this analysis will reveal why underperformers are incurring greater costs than top performers, then help to close the gap.

Fortunately, by using the Factory Operating System (fOS), Phase 2 (Assess) of the Percent Perfect Methodology® is completed automatically. As production runs are entered into the system, the calculation to categorize losses by downtime, rate loss, and yield loss is done automatically. It takes less than a minute to enter a production run and the system which allows you to group results by line, shift, team, individual, product, and several other options. This helps you to quickly see where efficiency losses are occurring and areas where process waste is being held to a minimal. It also shares success stories such as personal records, record breaking week, raising the bar (outperforming the standard), and others with people across your manufacturing network to drive a culture around getting better everyday. Additionally, the fOS is free for anyone in your organization to jump on and start using to measure themselves against and strive toward perfection.

Once you’ve identified your North Star, which can also be viewed as Operational Perfection (OP) and provides the “compass” for your Continuous Improvement initiative, it’s important to determine exactly where you are in the journey. The goal is to reach 100%, which is theoretically impossible but will keep you and your team striving to get better everyday. In fact, World-Class execution is widely considered to be 85% OEE. This means keeping total process waste to within 15% including start-ups, changeovers, shutdowns, unplanned downtime, rate losses, and yield losses. Remember to celebrate progress at every step of the way. As milestones are reached and records are broken, a culture will emerge that abandoning the status quo and getting better is the way to go; and there will be no doubt in anyone’s mind about what Continuous Improvement is all about.

A manufacturing efficiency expert such as those at Manuficient can help implement a low-burden system of measuring efficiency such as the fOS to initiate your journey to Operational Excellence.

fOS Lead Capture2PPM Lead Capture2

Engage with us:

Subscribe | Request Material | Schedule a Call | Request a Proposal  

Connect with us:

Facebook | Twitter | Linkedin | Google+ | Blog

Copyright © Calvin L Williams blog at calvinlwilliams.com [2016]. 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 – 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

Copyright 2016 Manuficient Consulting

 

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%.

The Factory Operating System (fOS) at factoryoperatingsystem.com also helps you see motion waste. Motion waste reduces throughput, increases operating costs, and lengthens lead times. The fOS 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.

A manufacturing efficiency expert such as those at Manuficient can help you to improve the detection and elimination of motion waste, resulting in significant cost savings and lead time reduction for your operation.

fOS Lead Capture2PPM Lead Capture2

Engage with us:

Subscribe | Request Material | Schedule a Call | Request a Proposal  

Connect with us:

Facebook | Twitter | Linkedin | Google+ | Blog

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.

The Factory Operating System (fOS) at factoryoperatingsystem.com also helps you see waste from inventory, which often manifests itself in the form of unreliability. In the fOS, 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. The fOS 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.

A manufacturing efficiency expert such as those at Manuficient can help you to improve the detection and elimination of inventory waste, resulting in significant cost savings, lead time reduction, and quality improvement for your operation.

fOS Lead Capture2PPM Lead Capture2

Engage with us:

Subscribe | Request Material | Schedule a Call | Request a Proposal  

Connect with us:

Facebook | Twitter | Linkedin | Google+ | Blog

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.