Lean Supply Chain (PowerPoint)

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University of Michigan Manufacturing Strategies IOE 425

October 18, 1999 Ronald L. Turkett

Why Lean Supply Chain?
Toyota Indiana
Renault GM 2 Plts. Europe Saturn Nummi TPS Ford Worldwide FPS

Chrysler COS


Toyota Georgetown




Toyota Cambridge

Implementing Lean Production Enables Seamless Connection with Customers and Suppliers
Lean Supply Chain Ronald L. Turkett

The Lean Supply Chain
Best Quality - Lowest Cost - Shortest Lead Time Through Shortening the Production Flow By Eliminating Waste

Just in Time
“The right part at the right time in the right amount”

“Built in Quality”
• Line Stop - Manual - Automate • Error Proofing • Visual Control
Flexible, Capable, Highly Motivated People

• Continuous Flow • Pull System • Takt Time • Level Production

Operational Stability
Standardized Work Total Productive Maintenance Robust Products & Processes Supplier Involvement

Lean Supply Chain

Ronald L. Turkett

“Lean Vs.Traditional”
 Half the hours of engineering effort  Half the product development time

 Half the investment in machinery, tools and

equipment  Half the hours of human effort in the factory  Half the defects in the finished product  Half the factory space for the same output  A tenth or less of in-process inventories
Source: The Machine that Changed the World, Womack, Jones, and Roos, 1990.
Lean Supply Chain Ronald L. Turkett

“Lean Vs Traditional”
 99.9% Customer Schedule Attainment  15 PPM or Better  4-6 Inventory Days of Supply  92%+ Operational Availability  Leveled, Sequenced Production  Order to Customer Use - 4 1/2 Hours  Functioning Supplier Partnership  Strong Production Control Function
Examples: Tier 1 Suppliers: Johnson Controls Seating, Litens Automotive Partnership, Cadimex, Denso Manufacturing, Toyota Motor Corporation.
Lean Supply Chain Ronald L. Turkett

Changing Costing Methods
Principles of Cost Plus: SALES PRICE = COST+ PROFIT
Profit Profit

Sales Price

Traditional View
Sales Price

Profit Mfg. Cost

Mfg. Cost Mfg. Cost

Principles of Cost Reduction: PROFIT = SALES PRICE - COST


Profit Profit Mfg. Cost Mfg. Cost

Modern View

Sales Price

Mfg. Cost

Lean Supply Chain

Ronald L. Turkett

Lean Supply - Global Purchasing Strategies
 Common Strategy - Buy Cheapest in the world - Support with dual sourcing  Toyota Strategy - Buy to achieve lowest total cost - Buy in country where manufacturing is performed - Minimize Number of Suppliers - Keep supply chain short as possible - Toyota is as strong as its weakest supplier
Lean Supply Chain Ronald L. Turkett

Consequences of Cheapest Price
 Long Distance Supply - Long lead times - increases structural cost: people, travel, premium freight, packaging, obsolete material, scrap due to handling damage

 Buying cheapest restricts buying from best supplier and achieving total lowest cost

 Buying from best supplier, then get lowest cost

Lean Supply Chain

Ronald L. Turkett

Consequences of Long Supply Chains
Long Value Streams Result in:  High Risk

- Quality Spills
- Availability of Supply - Engineering Changes

 High Cost
- Transportation (Premium and Standard) - Engineering Support/Supplier Development

- Plant Overtime
Lean Supply Chain Ronald L. Turkett

Automotive Supply Chain
Supply Chain = Value Chain
Retail Customer Ore in Ground


Tier # 1

Tier # N

Objectives: Highest Quality Lowest Cost Shortest Lead Time

Lean Supply Chain

Ronald L. Turkett

The Lean Enterprise

World Class
Lean Supply Chain Implemented
Full Benefits of Lean Supply Chain Traditional Manufacturing & Support Functions

Lean Supply Chains are not just a Materials Management Effort
Lean Supply Chain Ronald L. Turkett

Automotive Customers
Which group drives lean supply chains?
Toyota GM Ford



NUMMI Saturn Nissan


Lean Supply Chain

Ronald L. Turkett

Demand/Schedule Variance Causes

Planning/Scheduling System Mechanics: Push Scheduling

All production operations receive same schedule
Supplier Machining Assembly


Production Scheduling

Reaction to Changes Occurs Only Weekly
Lean Supply Chain Ronald L. Turkett

Typical Demand/Scheduling Model



Tier #1

Tier #2

Actual Demand

Traditional Scheduling Systems 1. Demand and schedule are usually different 2. Noise increases moving down stream 3. Affected most by changes in order quantity, delivery time and lead time
Lean Supply Chain Ronald L. Turkett

Lean Supply Chain - Pull Production System
Ship Ship Ship

Raw Material

Machining Assembly
Leveled Production Plan

Pull Schedule

Pull Schedule Assembly Schedule
SME Lean Supply Chain


OEM’s Lead Supply Chain Management Process
Process: Smoothing Production to Reduce Supply Chain Cost
Ship Ship


Tier 1

Tier 2

Leveled Sequenced Pull Leveled Sequenced Pull Signal Signal Production Production

Action Steps-All Customers
1. 2. 3. 4. 5. Smooth production build and communicate plan to suppliers Maintain daily production levels as planned (maintains smooth flow) Minimize parameter changes in system (lot size, quantity, & lead time) Convert from push scheduling to pull scheduling Maintain open communications with supplier - Provide Supplier access or view of actual demand
Lean Supply Chain Ronald L. Turkett

Takt Time Vs. Cycle Time An Important Distinction
Takt Time = Time (Available seconds per working day) Volume (Daily production requirement)

Sets pace of production to match pace of sales.

Cycle Time =

Actual time required for a worker to complete one cycle of his job process

Lean Supply Chain

Ronald L. Turkett

Implementing the Lean Supply Chain

Level Sequenced Production


producing a repeatable pattern by volume and mix within each day of the monthly production plan Characterized by:  a smoothed production plan over an extended time  every model made every day  daily adjustment can be made  a predictable production process

Lean Supply Chain

Ronald L. Turkett

Implementing the Lean Supply Chain Summary

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Find the best supplier and engage early in the design process Partner with key suppliers that have high capability for design and supply Suppliers should be located in the country where you build your product Shorten the supply chain by having suppliers close, frequent deliveries, and leveled production plans Develop pull systems with suppliers Know production capacity by comparing effective cycle times with Takt times.
Lean Supply Chain Ronald L. Turkett