Ch. 14: Lean Supply Chains

Lean grew out of the just-in-time (JIT) system that Taiichi Ohno refined at Toyota in the 1970s, although Henry Ford already used JIT ideas. Customer value is something the customer is willing to pay for; waste is anything that does not add value from the customer's perspective. The opening case shows the limits: lean systems are built for steady rates, so the sudden demand swings of the COVID-19 pandemic caused shutdowns and shortages, and more flexibility and real-time visibility are now needed.

The pull system

Production is triggered by actual demand. When an item is sold, the market pulls a replacement from final assembly, which pulls from the upstream station, and so on back to raw materials. This requires high quality at each stage, strong vendor relations and fairly predictable demand.

The Toyota Production System

Two core philosophies: elimination of waste (Japanese: muda) and respect for people (job security for permanent staff, cooperative company unions, bonuses, automation of dull work, long-term supplier partnerships).

Lean supply chains

When the idea is extended to the supply chain, a further aim is added: maximizing value as seen by the end customer. The value stream consists of every activity, value-adding or not, required to design, order and supply a product, from concept to launch, from order to delivery and from raw material to customer. Waste reduction is about optimizing the activities that add value and removing those that do not. The building blocks are lean suppliers (quick to respond, low prices, no need to inspect incoming goods), lean procurement (automation, e-procurement, visibility on both sides), lean manufacturing, lean warehousing (cutting waste in receiving, storing, picking, packing and shipping), lean logistics (choice of transport mode, pooled orders, multistop loads, routing, cross docking, keeping backhauls to a minimum) and lean customers (who state their needs clearly and value speed and flexibility). The gains: better responsiveness, less obsolete stock, faster flow and lower cost.

Value stream mapping (VSM)

Value stream mapping is a flowcharting tool that shows material flows and information flows through a process and where value is or is not added. Under each process box the map lists cycle time, changeover time, lot size, available time and uptime; triangles show inventories; a time line at the bottom shows processing (value-added) time and inventory waiting time, which together give the total lead time. It is a two-part method: a current state map and a future state map. Kaizen (continuous improvement) bursts on the map mark short improvement projects (Kaizen events). In the book's example, combining operations into a three-person workcell and switching to a pull system cut lead time from 34 days to 5 days. In the bolt example, lead time at each inventory = inventory / daily demand; total lead time fell from 66.1 to 50.89 days (23 percent) while value-added processing time was only 28.88 seconds.

Lean design principles

1. Lean concepts

• Balanced workflow with minimal WIP and preventive maintenance (periodic inspection and repair, much of it by operators).
• Group technology: similar parts grouped into families and made in a dedicated cell, instead of moving jobs between specialized departments. Less movement, waiting and inventory, fewer employees, but workers must be flexible.
• Quality at the source: do it right the first time; workers stop the line when there is a problem.
• JIT production: produce only what is needed when needed; ideal lot size is one; small transfer quantities. Low inventory makes problems visible, like rocks appearing when the water level in a pond drops.

2. Lean production schedules

• A level schedule pulls material into final assembly at a constant rate. A freeze window is the period in which the schedule cannot change. Backflush deducts component usage from inventory based on units produced, instead of tracking each part.
• Lean hedges with some excess labor and machine capacity rather than safety stock.
• Uniform plant loading (heijunka): build the same small mix of products every day so schedule changes do not amplify through the chain (Toyota: sedans every 2 minutes, hardtops and wagons every 4 minutes, sequenced one minute apart).
• Kanban (sign or card) regulates pull flows. In a two-card system a withdrawal kanban authorizes moving a container and a production kanban authorizes producing one. Alternatives: kanban squares, containers as signals, colored golf balls.
• Minimized setup times: lower setup cost lowers the optimal lot size. Split setup into internal activities (machine stopped) and external activities (done while the machine runs).

A kanban system does not create zero inventory; it caps WIP at the number of containers, and cards can be added or removed to tune it.

3. Lean supply chains: small specialized plants linked and synchronized to demand; collaboration with suppliers (sharing usage plans, frequent deliveries straight to the line, skipping incoming inspection); and building the chain along Womack and Jones' guidelines: define value jointly per product family with a target cost, all firms earn an adequate return, jointly eliminate muda, set new targets once targets are met, and every firm may examine every relevant activity.

Lean services

Services face more uncertainty (task times, demand, customers' production roles), so lean is harder to apply. Ten successful techniques: organize problem-solving groups, upgrade housekeeping, upgrade quality, clarify process flows (FedEx hub system), revise equipment and process technologies (Speedi-Lube drive-through pits), level the facility load (breakfast menus, take-a-number, peak pricing), eliminate unnecessary activities (surgical instrument checklists), reorganize physical configuration (hospital work groups by problem type), introduce demand-pull scheduling (early Wendy's cooks watching cars arrive) and develop supplier networks.