Next Generation Lean

Logistics Asia, 1/1/2008

The era of implementing lean manufacturing without a software infrastructure is over, according to Greg Gorbach and Ralph Rio of ARC Advisory Group.

Lean Manufacturing is today’s most common factory improvement methodology, moving beyond its automotive industry origins to the broader discrete manufacturing segment. A good deal of the lean approach has made its way into common practice and is no longer revolutionary. However, many of the teachings and techniques are grounded in 1978 when Taiichi Ohno (the developer of lean) wrote his book “Toyota Production System, Beyond Large-Scale Production”. But now, advances in information technology offer new opportunities to take lean tothe next level.

Ohno and Toyota put great emphasis on the use of “kanban” to signal and pull orders through the plant. Considering the state of IT in 1978, it is no wonder that the chosen medium was hardcopy, printed cards. When the work cells are in “line of sight”, the cards are effective. When kanban extends to a larger area, however, problems start to occur.

Cards can be lost, causing a lost signal, stock-outs and disruptions in production. Well-meaning people lose confidence and create their own “work arounds” that undermine the benefits of lean. And when kanban extends to multiple plants, printed cards become unworkable. Replacing cards with a system that uses current IT technology alleviates these problems. And, such an “electronic kanban” can be integrated with the company’s other materials management applications and software infrastructure (including e-mail).

Push to Pull
Many manufacturers manage their production schedules based on a forecast. While this is reasonably accurate for longer term capacity planning, real-time adjustments for actual customer demand are difficult and require many manual interventions by planners andexpeditors.

Manufacturers using MRP know that it is a very transaction-oriented application requiring significant manual effort to review output reports, release planned orders, and adapt to ever-changing demand. The multi-level bill of materials must be exploded, level-by-level, netting exploded demand against on-hand and on-order inventory. Planned orders are then created, and these must be manually reviewed by buyers/planners on a case-by-case basis and released. A weekly execution schedule is common, although some manufacturers do a “net change” nightly. This approach to production scheduling is expensive and unresponsive to changes in customer needs.

Lean manufacturing provides a less costly and more agile approach. Here, production scheduling is based on customer orders. The final assembly area builds what shipping needs to fill customer orders. Parts are fabricated based on what the final assembly area needs. Raw materials are purchased based on the needs for fabrication. And production areas communicate and become connected through the exchange of kanban cards.

Manual issues
When there is a small group of work cells that are in close proximity with line of sight, physical kanban cards work well. In normal operation, runners periodically gather manual replenishment signals (usually cards) from fixed collection points and physically move them to upstream supply centers.

As the geographical coverage increases, issues arise. Simply put, the cards get lost. A loss of one percent per day is common. For each lost card, a signal to replenish parts is missed and stock-outs occur. This disrupts the schedule and incurs expediting, added setups, and missed customer delivery dates. Often, duplicate cards are generated, leading to excess inventory. The lean program’s objectives for eliminating waste become lost.

With multiple buildings, physical kanban cards become unworkable. Attempts to replace the cards with fax or email have not worked. Without line of sight, the problems of lost or duplicated replenishment signals are exacerbated. Lost signals become more difficult to identify and fix. Another issue is responding to a significant change in production levels. In many cases, there is no hard signal or notification to trigger the recalculation activity. Experienced managers get a “feel” that something has changed – based on, for example, an observation that a certain part is constantly running out. A significant amount of work is then required to gather, validate, and input the data – such as average daily demand, cycle time, and safety stock – required for calculating replenishment signals. Reworking the spreadsheets is often more of an art than a science, and has caused many long nights andweekends for material planners.

ELECTRONIC ERA
With the technologies available today, physical cards can be replaced and kanban taken to the next level. Extension to large plants, multiple facilities, and partner companies becomes practical and beneficial. Implementing a lean manufacturing software solution can help to reduce stockouts, inventory, and expediting costs, and increase on-time customer delivery performance.

Unlike physical cards, the software messaging or “electronic kanban” is more reliable and can be integrated with other software applications. There is an increasing demand for such software, especially for inter-plant or collaborative supplier solutions.

Ultriva (www.ultriva.com) is an example of one company that supplies lean manufacturing software for electronic kanban. The software actively controls the demand signal as it propagates throughout the value stream. Material requirements are represented by a series of interconnected closed loops betweenconsuming and supplying entities.

Signals are automatically released from consuming entities to supplying entities based upon the kanban sizing, minimum/maximum reorder points, and vendor managed inventory. Demand signals may come from customer orders, or from replenishment signals provided by consuming centers within a plant, between related plants, or external vendors.

CLOSING THE LOOP
Electronic kanban eliminates lost signals and the manual time to audit, identify and replace lost or duplicate cards. The labor for sizing and signal delivery is reduced because electronic signals are automatically sent to the respective supplying center.

The software closes the loop with external plants or suppliers, and provides a “single version of true demand”, based upon consumption, to improve supplier collaboration and visibility into current patterns of demand. It alerts users to demand changes, provides for automatic recalculating/sizing replenishment signals and the use of limited-cycle signals, and integrates to enterprise systems.

Lean manufacturing is a proven manufacturing improvement methodology, but the era of implementing lean without a software infrastructure is over. There is no reason to suffer with outdated manual techniques that are inherently errorprone, inflexible, and labor intensive, or techniques that do not provide ready access to information.

If you manually resize for changing demand signals, lose kanban cards, or need to take your lean manufacturing to multiple plants and external suppliers, a lean software system with electronic kanban cards is recommended.

Inventory On Hand History

ARC Advisory Group (www.arcweb.com) provides research and consultancy services for the industrial automationand supply chain sectors.

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