Supply Chain Present Frustrations and Lean to the Rescue

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       Module I
    Supply Chain:
 Present Frustrations
and Lean to the Rescue
   California Space Authority

       November 3, 2009

       Bo W. Oppenheim
  Instructor: Bohdan "Bo" W. Oppenheim, Ph.D.
    – Professor of Mechanical and Systems Engineering
    – Graduate Director of Mechanical Engineering
    – Director, US Department of Energy Industrial Assessment Center, 2000-2007
    – Coordinator, Lean Aerospace Initiative Educational Network (MIT based) (
    – Founder and Co-Chair: Lean Systems Engineering Working Group, INCOSE,

    – PhD, 1980, U. of Southampton U.K., in System Dynamics
    – Naval Architect, 1974, MIT
    – M.S, 1972, Stevens Institute of Technology, Ocean Systems
    – B.S. (equiv.), 1970, Warsaw Technical Univ., Mech. Eng. and Aeronautics (MEL)

    – 125 industrial plants assessed for Productivity/Lean
    – Author (with S. Rubin) of POGO simulator for U.S. liquid rockets
    – Consultant in dynamics, lean, productivity, quality, and systems engineering for
        Northrop (1985-1990), The Aerospace Corporation (1990-1994), Boeing (2002-2004),
        Global Marine Development (1974-77), 50 other firms and governmental institutions

                                 C-2009 Bohdan W. Oppenheim                                      3
What do we mean by Supplier Network?
    End-user                                                Moving down the supply
                                                            chain, we see each
                                                            successive tier
                    Customer                                representing a smaller
                                                            percentage of the Prime’s
                          Prime Mfg./                       main business base and
                           Supplier                         the previous tiers.
                                   First Tier

                                            Second Tier

LAI Lean Academy™
                                                                Raw Material
                               C-2009 Bohdan W. Oppenheim         Supplier       4
                         Global Competition
• Global competition is a fact
• Brutal race without the finish line
• Today’s competition means competing with the global best
• Yet, instead of aligning our U.S. companies for better
  competition, we spend our energies on conflicts between
  buyers and suppliers
• Modern programs: 70-95% of value provided by suppliers

                   Key to winning global competition:
                      Better buyer-supplier relations!

                   C-2009 Bohdan W. Oppenheim            5
   Traditional Procurement System
 • Supplier selected by lowest bid
 • Distrustful, even hostile relationship
 • Unrealistic mutual expectations
 • Complaints about quality, lead times,
   price, service
 • Lawyers involved in writing and
   executing contracts

Is this the way to conduct business in
          global competition?
                      C-2009 Bohdan W. Oppenheim   6
                      Typical Frustrations

•   Bad Requirements/Specs
•   Quality Assurance (QA)
•   Standards
•   Lead times
•   Price
• Bureaucracy and poor communications

                 C-2009 Bohdan W. Oppenheim   7
                 Frequent Frustrations
                 Mutual Expectations Poorly Defined.

  Poor requirements and specifications
• Both buyer and supplier should share the blame
• Buyer: prepares incomplete, ambiguous,
  unclear, mutually conflicted and unstable
  requirements and specifications
• Supplier: makes inadequate effort to draw the
  complete, crystal clear, stable and unstated
  requirements and specs from the buyer

                C-2009 Bohdan W. Oppenheim         8
                   Frequent Frustrations
                      Not meeting mutual expectations.

       Typical Quarrels About Quality
• Lack of trust between buyer and supplier
• Test procedures not explained to the supplier
• Making outgoing inspection incompatible with test
• Double inspections (and costs and time)

                  C-2009 Bohdan W. Oppenheim          9
                    Frequent Frustrations
                        Not meeting mutual expectations.

          Quarrels about Lead Times
• Buyer to supplier:
   – Your lead times are too long
   – You do not have Lean
   – You are not competitive
• Supplier to buyer:
   – Your specs delivered too late
   – Your specs have errors
   – You do not tell us how you will test the system

                    C-2009 Bohdan W. Oppenheim         10
                Frequent Frustrations
                    Not meeting mutual expectations.

           Quarrels about Price
• Buyer to Supplier:
  – You are too expensive, not competitive
  – You do not have Lean
• Supplier to Buyer:
  – Your price is not fair, impossible to meet
  – You operate on cost-plus luxury but demand
    fixed price from us!

                C-2009 Bohdan W. Oppenheim        11
                     Frequent Frustrations
                         Not meeting mutual expectations.

Complaints about Poor Communications
•   “Over the wall“
•   Bureaucratic ineffective communications       Supplier/buyer

•   Hands-off relationships
•   No engineer-to-engineer access


                     C-2009 Bohdan W. Oppenheim               12
        Frequent Frustrations

Hostility, confrontation and
exploitation have no place in
   modern supply chain.

        C-2009 Bohdan W. Oppenheim   13
      To the Rescue: Lean Thinking

             What is Lean?
• Introduced to the US as “Lean” by Womack
• Lean = "slimmed down”
• Lean = organization of work within a company
  and between all cooperating companies
  which is based on the elimination of waste
  from all activities (Womack)

                C-2009 Bohdan W. Oppenheim       14
      To the Rescue: Lean Thinking

        Fundamentals of Lean Thinking
• Three concepts are fundamental to the understanding
  of Lean Thinking
  – Value
  – Waste
  – The process of creating Value with no Waste

                  C-2009 Bohdan W. Oppenheim      15
                Introduction to Lean
           Value to the Customer
• All customer expectations are met
• Product delivered to the buyer as follows:
  – As promised
  – With expected and “first time right” quality
  – Within the expected lead time
  – At the price agreed
  – With nice service
                 C-2009 Bohdan W. Oppenheim        16
                Introduction to Lean
             Value to the Supplier
• Long-term relationship with the buyer, steady
• Fair price enabling to stay in business
• Alignment with the buyer against outside
• Receiving requirements/specs early enough to
  enable preparations for design/production
• Receiving specs which are final, correct, clear
• Direct ongoing communications when needed
                 C-2009 Bohdan W. Oppenheim         17
              Introduction to Lean
• Anything other than the minimum amount
  of equipment, materials, parts, space and
  employee’s time, which is absolutely
  essential to the delivery of Value
• The work element that adds no value to
  the product or service
• Waste only adds cost & time
               C-2009 Bohdan W. Oppenheim     18
                       Introduction to Lean
                          Ohno’s Seven Types of Waste
1. Over-production               Creating too much material or information

                                 Having more material or information than
2. Inventory
                                 you need
3. Transportation                Moving material or information

                                 Moving people to access or process
4. Unnecessary Movement
                                 material or information
                                 Waiting for material or information, or
5. Waiting                       material or information waiting to be
                                 Errors or mistakes causing the effort to be
6. Defective Outputs
                                 redone to correct the problem
                                 Processing more than necessary to
7. Over-processing
                                 produce the desired output
                       C-2009 Bohdan W. Oppenheim                          19
LAI Lean Academy™
                           Introduction to Lean
      Six Lean Principles for Creating Value without waste

1.        Specify value: Value is defined by customer in terms of specific
2.        Identify the value stream: Map out all end-to-end linked actions,
          processes and functions necessary for transforming raw materials
          into products, after eliminating waste
3.        Make value flow continuously: Make the remaining linked value-
          creating steps “flow” per common takt time
4.        Let customers pull value: Customer’s “pull” cascades all the way
          back to the lowest level supplier, enabling the super-efficient just-
          in-time production
5.        Pursue perfection: Pursue continuous enabling just-in-time
          production. Pursue continuous process of improvement striving
          for perfection
6.        Respect People
     LAI Lean Academy™
                              C-2009 Bohdan W. Oppenheim                      20
    To the Rescue: “Lean Thinking”
• Emphasis on Value
• Obsessive reduction of waste
• Mutual interest
• Crystal clear requirements, specifications
• Consensus on testing and QA
• Seamless partnership and communications
• Culture (partnership, sharing, alignment, trust,
  honesty, openness, teamwork)
• Lean throughout the enterprise

                  C-2009 Bohdan W. Oppenheim         21
Characteristics of Lean Supply Chain
                                  1. Quality
•   The supplier has an obligation to adopt quality initiatives of world-class
•   The contracting company has the burden of explaining in minute detail its
    requirements, nuances, and required QA steps, in a timely manner
•   The supplier has the burden of assuring that all requirements/specs are at
    hand and are clear and precise
•   Both sides strive for close cooperation and coordination throughout the
•   Any and all issues are resolved competently in real time
•   The supplier creates exactly the product expected
•   The product is always perfect, nobody ever complains
•   No incoming inspection or certifications needed on individual pieces
•   Test/inspection required by contract is always “pass”
                         C-2009 Bohdan W. Oppenheim                              22
    Characteristics of Lean Supply Chain
                             2. Lead time

•    Program cost increases with time, so the shortest possible lead
     time for all suppliers is critical for competitiveness
•    The supplier lead time should be the lead time for his raw
     materials plus touch labor time plus only a small margin
•    The buyer has every right to expect that all suppliers implement
     Lean manufacturing, in the entire supply chain
•    The contractor, who is supposed to be the expert in the field of
     making the parts, should be involved in the planning and design
•    Advising the design team on the best form/fit/function, shortest
     lead time, maximum quality and lowest cost
•    The supplier should be involved early enough, and not called at
     the last moment

                          C-2009 Bohdan W. Oppenheim                    23
    Characteristics of Lean Supply Chain
                       3. Quantity

•    The buyer must be able to order the number of
     pieces need and no more
•    If the supplier insists that the buyer buys 1000
     pieces when he needs 5 pieces, the
     relationship is wrong
•    This is enabled by a long-term partnership
     between buyer and supplier
•    The buyer can and should insist that the
     supplier implement Lean with JIT capabilities
                   C-2009 Bohdan W. Oppenheim           24
    Characteristics of Lean Supply Chain

                                  4. Price
•    Must be fair, enabling the (Lean) buyer to be competitive and the (Lean)
     supplier to survive in a healthy condition
•    Squeezing suppliers dry is shortsighted, it kills them in the long term
•    Tens of thousands of suppliers have disappeared in recent years
•    US manufacturing industry is bleeding, dying, going overseas
•    Squeezing suppliers leads to de-facto exploitation of workers: low wages,
     tough working conditions, no fringe benefits, turnover – all detrimental to
•    Both large corporations and suppliers are to be blamed for the lack of
     Lean Thinking
•    Reverse bidding is OK for buying toilet paper but not aerospace

                           C-2009 Bohdan W. Oppenheim                          25
                                         Lean Supplier Network
 Some “Best” Practices for Lean Supply Chain Management
         • Long-term Trusted Partnership with Strategic and Critical
         • Supply base reduction, e.g.,
                – One supplier for strategic parts
                – Two for critical parts
                – Several for commodities (toilet paper)
         • Shared digital product description with common software and
           computer platforms, 3D models
         • Just-in-time deliveries
         • Kitting
         • Vendor-Managed Inventory
         • Third Party Logistics
         • Paperless procurement
LAI Lean Academy™

                                C-2009 Bohdan W. Oppenheim               26
                                     Lean Supplier Network
                         Future State in Lean Relationships

“Old” Approach                                                   “Current” Lean
    Rigid vertical                                                Collaborative
interfaces and control                                             with rigid
                                           Customer              organizational
                                                   Subcontractor    interfaces
      Customer                         Prime

        Prime                                   “Emerging” Lean
                                                         Virtual Team without
                                                          boundaries enabling
                                        Customer         continuous innovation
                                    Prime        Subcontractor

 LAI Lean Academy™
                            C-2009 Bohdan W. Oppenheim                       27
                             Benefits from Lean
                 Womack's Maxim for Lean in Manufacturing
•   Converting a traditional batch-and-queue production system to lean flow yields
    these effects:

     –   Doubles the productivity in the entire system
     –   Cuts production throughput times by 90%
     –   Reduces inventories in the entire system by 90%
     –   Cuts errors in half
     –   Cuts time to market for new products in half
     –   Expands product families at modest additional costs
     –   Vastly improves work morale

                           C-2009 Bohdan W. Oppenheim                       28
• Present Relations between Buyers and Suppliers are
  burdened by frustrations
• Energy is wasted on conflict resolution
• It would be better spent creating Lean Supply Chains,
  fighting against foreign competition
• Lean Thinking provides powerful improvements

Lean Supply Chain yields vastly more profits, shorter
    lead times, higher quality, and better morale.
                    C-2009 Bohdan W. Oppenheim            29
             Planned Future Webinars
MODULE II. Fundamentals of Lean And Quality

MODULE III. The Do's and Don'ts of Specifications, Requirements and
• The latest knowledge on how the supplier and buyer should cooperate to
  develop the best consensus-based requirements that lead to the "first time
  right" delivery at minimum cost.

MODULE IV. Lean Enablers for Systems Engineering for Suppliers and
• Selection of lean enablers dealing with supplier relations, the do's and
  don'ts for transactions involving the buyer and supplier, based on the new
  body of knowledge called Lean Enablers for Systems Engineers.

MODULE V. Implementation and Closure
• Training (who, how long, how); Standardization of Skill Sets; Mentoring;
  Development of Standards, Best QA; Visual Controls; 5 S's; Global

                           C-2009 Bohdan W. Oppenheim                          30

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