Here’s the question heard round the world: How do we continuously increase speed, improve quality while lowering our operating costs? My answer is to stop chasing computer sophistication and focus on the basics of your business and your profession. One of my favorite sayings is: “It's the Basics, Friend!” In March of this year Aberdeen Group, a technology driven research destination of choice for the global business executive, published their “Lean Benchmark Report.” Of close to 300 manufacturers that participate in this study, 90% reported that they are committed to Lean. However, further analysis found that less than 20% of these companies can be considered best-in-class. The report went on to say: Companies that have achieved operational excellence through the deployment of a Lean strategy share this key characteristic: &quot;Dedication to basics such as streamlining processes, creating a well ordered work environment, and ongoing continuous improvement programs (Kaizen).&quot; An important Aberdeen Group conclusion: Best-in-class companies tackle Lean by mastering the basics. So the secret is out… it’s the basics, friend!
I realize the word &quot; BASICS &quot; is not very sexy. But it is a very important thing to understand. Many years ago Vince Lombardi led the Green Bay Packers football team to unprecedented success by having an almost obsessive focus on doing the BASICS very well. It’s amazing how many individuals and companies have great visions yet fail to achieve their full growth and earning potentials. They're a lot like the Green Bay Packer's football team before the arrival of Vince Lombardi... all the potential in the world but with no focus on executing the basics of their business. The fact is, the basics of manufacturing... the things that serve as a solid foundation for growing and enduring success have not changed since before I was born... and won't change after you're dust. It's tempting to think that they do... that the introduction of a new systems like Enterprise Resource Planning (ERP), Customer Relations Management, (CRM) and/or Six Sigma can change the fundamentals. I understand the temptation. I can only caution against it, and invite you --- urge you --- to be a serious student of manufacturing history and both the evolution and revolution in manufacturing. Kaizen Based Lean Manufacturing is based on the principle that mastering the proven basics of what has worked in the past will give you the foundation needed to predict what will work today... and tomorrow! Are you aware that much of the Japanese world class manufacturing success can be attributed to their study and mastery of Henry Ford's manufacturing basics. Henry Ford first introduced manufacturing basics at his River Rouge operation in 1920. Using these basics as a basis for his production line concept, the Ford plant was able to go from receipt of iron ore to casting the engine block, and to shipment of the machined engine block in a final assembled car in an astonishing forty-eight hours. NOW THAT'S LEAN! The Japanese used Ford's manufacturing basics and Juran's & Deming's quality and management basics to create the foundation for achieving world class manufacturing. The first thing we need to do is identify the basics that are requisites to lean manufacturing success. Next, we need to provide a process for obtaining “top-to-bottom,” company commitment to the flawless execution of these basics. This commitment becomes a launching pad for achievements beyond all expectations. How do we identify the basics and gain the necessary commitment? That is the purpose and scope of your tutorial, “The 8-Basics of Kaizen Based Lean Manufacturing.”
The purpose and scope of this tutorial is to help manufacturing companies identify and achieve their full growth and profit potentials. It provides recipients an opportunity to identify and master the 8-Basics of Kaizen Based Lean Manufacturing (KBLM). It’s an e-learning experience for anyone… anywhere... anytime, and it can function as the mainstay of a company-wide lean manufacturing training program. Kaizen (pronounced Ky’zen) is the Japanese word that means gradual, continuous improvement . In my experience, directing a continuous improvement project is difficult but a kaizen program presents a unique challenge because the kaizen program has no end. It is sustainable and successful only when management has made a commitment to stay the course — discipline and tenacity are basic requisites for kaizen success. Kaizen Based Lean Manufacturing is a proven methodology that employs practical tools and techniques that optimize manufacturing performance and helps companies exceed bottom line expectations. Kaizen Based Lean Manufacturing structures eight manufacturing basics as kaizen targets.
Computerization… has it become too much of a good thing? I think so! In the 50’s we took off the green shades and started to explode BOM by computer, we named it MRP - Material Requirement Planning. In the 70’s we added shop floor control and capacity planning to MRP module… we called it closing the loop. In the 80’s we added cost accounting… although for manufacturing the data was too confusing and way too late! We called it MRPII In the 90’s we introduced ERP - Enterprise Resource Planning. ERP combined sales, engineering, human resource and customer relationship management and manufacturing into one all encompassing software package. I swear The MRP evolution took us down the road of computer sophistication. It was to be the panacea for solving all manufacturing problems. Little did we know that when we finally arrived at the final phase—ERP—that we would still be facing daily part shortages, shop floor disasters and end-of-the-month chaos.
What happened to all those promises? During the MRP crusade, I was a disciple of MRP guru, Ollie Wight. In those days, as an operations manager, I designed and directed successful MRPII/ERP implementations and taught Materials Management at SDSU. Today, a Schonberger - Costanza - convert, I write, teach and coach on the design, development and implementation of kaizen & flow technology . My Kaizen Based Lean Manufacturing program is based on my real-world experiences and successful implementations. It’s intended for companies that want to improve the effectiveness of their MRPII and ERP systems and achieve lean/agile manufacturing performance .
MRP at first look is not a complicated system. We input a master schedule that uses bills of material, part lead times, and lot size algorithms to calculate gross requirements. These requirements are then balanced against the aggregate of on-hand inventory, work-in-process and open purchase orders to determine coverage. The MRP system then does a gross to net requirements explosion to establish time phased net requirements. The resultant output is notification to planners in the form of take actions to either reschedule, reorder or cancel shop and/or purchase orders. Vince Guess is the creator of the graphics in this slide. Vince is an expert at communicating complex processes through the design of effective graphics. Vince taught me the importance of using this type of graphic to educate and enlighten. Vince is the President of the Configuration Management Institute and is a recognized guru in configuration management. If you ever need help in the creation and control of engineering documentation, Vince’s company offers a certification course on the subject. It is cosponsored by Arizona State University and offers professional certification upon successful completion. Check them out on the Web at www.CMI.com
If we dig deeper into what is happening in the gross to net requirement process, we discover that many calculations are made based on the data and systems parameters supplied by planners. Before computers these calculation were done by hand calculators but only for the high costs or as we called them the A items. B and C items were purchased on a min-max or two bin system. When the computer came on the scene many planners got carried away and started doing these gross to net calculations for all material items. In reality, the computer is flawless in its ability to calculate the gross to net calculations, however, the data supplied by the planner is not. Consequently, the results are subject to human error. The typical MRP/ERP system generates more take action exception messages than planners can handle effectively, we call it a nervous system! My experience is that the exception message selection parameters for most MRP systems are setup to detect and report far too many non-essential take actions . If your planners can’t get to all their take actions in a timely manner, then it’s time to readjust the selection parameters by replacing theoretical instructions with practical know-how and common sense!
This chart displays the inputs required to generate a master schedule and then feeds that master schedule into the MRP module along with the other required inputs to calculate net requirements and generate take actions. Let’s fill in the blanks with percentages that are pretty common in industry today. One thing we know about SALES FORCASTS is that they are always wrong… that said let use 95% accuracy. A sales configurator is used to define a highly engineered product. They are usually very accurate so lets give them a 99%. Finish goods inventory… let’s use 97%. Product design, if its new its low if old its high so let’s use 92%. Order entry is usually good so we’ll use 99%. To arrive at the percent integrity of the master schedule you must multiply each of its decimal inputs (it is not the averaging of the decimals, as most people think). In this case it calculates to .83 or 83%. This resultant decimal is the input to the MRP module based on the other inputs we can then calculate the shop order launch and control accuracy . Let’s take a look at these inputs. Production Bills of Materials usually have problems let’s give it 95%. Production inventory let’s say 98%. Purchase order status let’s say 96% and shop order status we’ll give it 94%. So what do we have? Our order launch and control accuracy is 70%. In a typical case the purchasing and shop floor activities are being driven by system error of 30 percent. Is there any wonder why MRP and ERP are not the panacea we once thought them to be!
As an exercise, pause the presentation and mentally fill in the blanks with what you know or think the percent accuracy of the your company’s data input to be. Then calculate your company's order launch and control accuracy. An effective method for evaluating how well a company is doing in managing their MRP database data is to ask questions as to how accurate are their bills of materials, how accurate is their purchase order and shop order status, how accurate are their inventory records, etc. If the answers you get are pretty vague, like—good, OK, not too bad—then you know that this is a company that needs help in stepping up to the problems of poor information integrity. Believe this---If we’re not measuring your company’s data and documentation integrity, nor in pursuit of continuous improvement, our manufacturing performance will always be marginal.
The first lesson of this introduction to lean manufacturing is to get MRP off the shop floor and move to real-time and visual processes for controlling production and purchasing schedules. For a measure of MRP/ERP shortcomings, we need only to spend some time in a manufacturing facility—especially during the last weeks of the final financial quarter. In a typical company, we’ll find that converting the quarterly financial forecast into reality still requires overtime, internal/ external expediting, last minute on-the-run product changes and even a little smoke and mirrors . Results are scrap, rework and warranty costs that negatively impact profitability. In addition, relevant quality and shipment problems deliver less than acceptable customer satisfaction. C ompanies that have spent thousands of dollars in pursuing MRP/ERP and ISO-9000 certification, are devastated when they experience their business decline due to uncontrolled operating costs that caused non-competitive pricing. Other companies have won the Malcolm Baldrige Award for Quality and Business Excellence and subsequently fell far short of achieving growth and earnings expectations.
Kaizen Based Lean Manufacturing involves arranging and defining manufacturing resources so that products flow most efficiently through the manufacturing process. Today, most manufacturing companies are still organized for functional manufacturing—mechanical assemblies, electronic boards, cables, machined components and purchased parts are produced or purchased in lot sizes and received, inspected and moved to stockrooms. This process includes the picking-of-parts to fill shop orders and the movement of shop orders to the production area to build assemblies, modules that are usually returned to the stockroom. Finally the end product is assembled, tested and accepted. Ollie Wight would be turning over in his grave if he knew that in spite of his 1970s MRP crusade—the shop order launch and expedite syndrome is still alive and kicking. Why? Because the realities of information integrity and statistical probability reduce the effectiveness of MRPII/ERP shop floor control systems. No matter how much sophistication is added to our computerized shop floor control systems, if we fail to master the basics of visual controls, we will never eliminate the chaos that grips our shop floor day-to-day activities!
Changing factory floor realities is a focus of Kaizen Based Lean Manufacturing. We need to shift from the order launch and expedite system to a system flow technology, I call it sequential production. We need to convert stockrooms into production space and move the materials to point of use, I cal it Point-of-use-logistics. It’s time to eliminate the end-of-the-month crunch and focus on linear production. We need to design our manufacturing system to be flexible and agile so that we can contend with inside-of-lead-time orders. Let’s get rid of the old management structures and get to self-directed teams. The worst sin in supply chain management is that many manufacturers still treat their suppliers as adversaries instead of focusing on supplier partnerships. If its not a core strength lets considering it for outsourcing. And, finally let’s get rid of the annual goal setting and establish a performance measurement system based on balanced scorecards. The realities of today find most manufacturers still bogged down applying old computer systems for controlling shop floor operations. To survive in the 21st century these companies will need to make the transition from MRPII/ERP to the hands-on application of the 8-Basics of Kaizen Based Lean Manufacturing.
During my 30-year business career as a supervisor, manager, director and chief executive, I participated in four successful financial turnarounds . At Solar Turbines we grew the business from $50 to $500 million while turning losses into profits in the first year of a four-year period. At Pagaso, a Spanish truck company, we turned a $100 million annual loss into an annual profit—achieving our three-year turnaround target. Leading Eaton Leonard out of bankruptcy, we turned a profit in the first-year of reorganization. At Palomar Systems, over a period of four years, we increased our gross profit margin from 34% to 55% while growing the company from $17 to $225 million. Throughout these experiences, I continuously researched and tested business ideas, practices, processes and systems relative to their growth and profit margin contribution. As the years passed, it became clear to me that there were a number of tools, techniques and processes that were crucial to establishing a solid foundation for growth and profits. Because of their importance, I now write, teach and counsel on the development and implementation of what I have come to call the eight-basics of Kaizen Based Lean Manufacturing.
What can a company expect from a pursuit of the 8-Basics of Kaizen Based Lean Manufacturing? There will be a decrease in direct supervision and an increase in people creativity and problem solving participation. Team empowerment will result in more timely decision and resulting problem solving. Quality will no longer requite an inspection process as a switch to process ownership occurs. Self-direction will lead to people motivation and enhanced performance. Direct communications will result in better decision-making. A mindset of “no status quo” will create a successful continuous improvement. Creative performance recognition and reward will create a win-win work environment where work will become fun again Companies need to raise their performance expectations and realize that benefits come only from the successful implementation of change. Price Prichett says, “Kaizen keeps you reaching, stretching to undo yesterday. The continuous improvements may come bit by bit. But enough of these small, incremental gains will eventually add up to a valuable competitive advantage. Also, if every employee constantly keeps an eye out for improvements, major innovation are more likely to occur. The spirit of kaizen can trigger dramatic breakthroughs.”
A review of MRP, ERP and lean manufacturing case studies produced the data for this bar graph. The yellow horizontal bars represent the typical percent reductions of waste that have been made through the design and implementation of MRP and ERP systems. They are good reductions but nowhere close to the total waste reduction potential. When companies implement the application methodologies of Kaizen Based Lean Manufacturing, a whole new range of reductions are identified and achieved. These new reductions are displayed by the blue horizontal bars. The Japanese word muda represents the seven targets of waste that when attacked and reduced they yield significant gains in productivity and profitability. The seven types of muda are: overproduction, inventory excess, repairs/rejects, motion, processing inefficiency, waiting (idle time) and transport (moving parts and materials). MRP and ERP system are not designed to attack muda… that’s what lean manufacturing is all about.
The gains recorded in this slide are real and were achieved by Palomar Systems, an ESI Company, over a period of three years. During this time period, Palomar’s sales grew from $17 million to $225 million. Palomar’s growth and profit results were achieved in a fast-paced, high-tech, manufacturing environment. Many of their achievements were attributed to the successful implementation of Kaizen Based Lean Manufacturing. As director of operations, I was the facilitator of this effort. In my tutorial, I present relevant challenges, changes and achievements in the form of a case study that refers to Palomar Systems as our case study company .
Let’s review the 8-Basics of Kaizen Based Lean Manufacturing. Information Integrity: MRPII/ERP and lean manufacturing expectations will be achieved only when day-to-day production and Manufacturing/ material control systems are driven by inaccurate, untimely and uncontrolled data and/or documentation. Motivational Measurement: While financial numbers may tell us we’re winning the war, it takes a motivational measurement to focus our energy and efforts to win each of the battles along the way. Balanced scorecards is the choice of winners. Sequential Production: Effective shop floor control has proven elusive as we have upgraded our manufacturing control system from MRP to MRPII and then to ERP. To capture control of shop floor activities, we need to stop beating a “dead horse” and implement flow technology or as I call it Sequential Production. All the winners are!.
Point-of-use-Logistics: Companies will never achieve their MRPII/ERP lean manufacturing expectations as long as business leaders continue to talk about value-added supplier partnerships, while continuing to deal with their suppliers as adversaries. And its time for operations leadership to realize the stockrooms are a non-value added expense and it’s time to move most inventory to point of use. Cycle Time Management: If your manufacturing team can handle only one kaizen project at a time, then let it be the reduction of total cycle time. There just isn’t any other more important control factor in our pursuit of lean manufacturing success . Production Linearity: Companies will never achieve their full growth and profit potential if they produce more than 25% of their monthly shipment plan in the last week of the month or more than 33% of their quarterly shipment plan in the last month of the quarter. As companies struggle to remain competitive, one of the strategies by which gains in speed, quality and costs can be achieved is to pursue and achieve linear production. Resource Planning: The inadequate and untimely availability of resources is a major cause of manufacturers’ failure to meet their delivery schedules and profit margin forecasts – material shortages, low productivity and poor planning are not always the only causes. Customer Connectivity: The reality of Customer responsiveness is in the eyes of the beholder – the Customer . The sooner we realize and accept our customers’ perceptions of our products and services as reality, and accept it as our challenge, the sooner we will earn their confidence and become their permanent supplier of choice. And isn’t that what business is all about? With all the computer power and software sophistication available today, why is it that most businesses are still struggling to sustain profitable growth, still fighting the end-of-the-month crunch and are no where close to achieving their full growth and profit potential? Most business managers facing major day-to-day problems and constraints adopt a totally reactive management style. Consequently, their time is consumed with band-aiding and/or finding ways to work around system and process problems—leaving them little or no time to analyze and eliminate the root causes of ineffective systems and processes. How does one turn around such a classic “cart before the horse” syndrome? What’s required? First, a company-wide, in-depth understanding of the fundamental importance of business basics and then a total commitment to the consistent and tenacious execution of the eight-basics of Kaizen Based Lean Manufacturing. Like Vince Lombardi, who achieved success by having his teams master the basics of football—we need to have our business teams focus on mastering the basics of Kaizen Based Lean Manufacturing. Each of the eight-basics requires pro-active planning and tenacious execution that demands leadership above and beyond satisfying day-to-day accountabilities.
Business Basics , LLC 6003 Dassia Way, Oceanside, CA 92056 West Coast: 760-945-5596 Email: BillGaw@bbasicsllc.com KAIZEN BASED LEAN MANUFACTURING (KBLM) 0-1 Introduction