16.660 / 16.853 / ESD.62J Introduction to Lean Six Sigma Methods

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16.660 / 16.853 / ESD.62J Introduction to Lean Six Sigma Methods

  1. 1. MIT OpenCourseWare http://ocw.mit.edu 16.660 / 16.853 / ESD.62J Introduction to Lean Six Sigma Methods January (IAP) 2008 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.
  2. 2. Lean Supply Chain Basics
  3. 3. Impact of Supply Chain Management “Only 7% of companies today are effectively managing their supply chain. However, these companies are 73% more profitable than other manufacturers.” Deloitte & Touche Study, October 2003 Lean Supply Chain Basics V6.2 - Slide 2 © 2008 Massachusetts Institute of Technology
  4. 4. Learning Objectives At the end of the module, you will be able to: • Recognize the importance of suppliers in the enterprise • Describe key attributes of a lean supply chain 1. Alignment of supply chain design with product characteristics 2. Supplier participation in material flow and logistics 3. Supplier involvement in design and development 4. Seamless information flow • Discuss methods for the improvement of existing supply chains Lean Supply Chain Basics V6.2 - Slide 3 © 2008 Massachusetts Institute of Technology
  5. 5. Suppliers Are Critical In The Value Chain Value Specified Customer Value Delivered Product Production Development Producible Design Meeting Value Created Early Value Expectations Suppliers as Involvement Partners Supplier Network Typically, 60-80% of Value Added by Suppliers Lean Supply Chain Basics V6.2 - Slide 4 © 2008 Massachusetts Institute of Technology
  6. 6. What Does a Supply Chain Look Like? End-user Customer Prime Mfg./ Supplier First Tier As you move down Supplier the supply chain, each successive tier Second Tier represents a smaller Supplier percentage of the Material Prime’s main Supplier business base than Raw Material the previous tiers. Supplier Lean Supply Chain Basics V6.2 - Slide 5 © 2008 Massachusetts Institute of Technology
  7. 7. Current State of Many Supply Chains Orders Orders Orders Orders Orders Orders Material Tier Two’s Tier One’s Prime Customer Communications across the supply chain is like tossing orders over a brick wall! Lean Supply Chain Basics V6.2 - Slide 6 © 2008 Massachusetts Institute of Technology
  8. 8. Lean Supply Chain Exercise 1. Gather your team around easel paper or a chart. 2. Discuss each concept on the list below. 3. On your chart, write a prioritized list of concepts that would best create a lean supply chain. • Collaboration • Long lead times • Efficient supply chain • One supply chain for all with little flexibility products • Limited communication • Supplier commitment to • Localized focus on long term relationship continuous improvement • Internal corporate focus • Responsive and agile • Build to order • Based on product • Visibility of demand characteristics • Continuous improvement • Enterprise approach activities that include suppliers & customers Lean Supply Chain Basics V6.2 - Slide 7 © 2008 Massachusetts Institute of Technology
  9. 9. Key Attributes of a Lean Supply Chain 1. Alignment of supply chain design with product characteristics 2. Supplier participation in material flow and logistics 3. Supplier involvement in design and development 4. Seamless information flow Lean Supply Chain Basics V6.2 - Slide 8 © 2008 Massachusetts Institute of Technology
  10. 10. 1 - Matching Supply Chains with Products • “Push” supply chain is focused on efficiency for meeting predictable demand at lowest cost. • Typically for long product lifecycle and mature or commodity items • “Pull” supply chain is focused on responsiveness for unpredictable demand to avoid inventory & stock outs. • Typically for shorter product life cycle, custom items • The reality is that a given product may have components of both the efficient and responsive supply chain designs. This approach has been labeled the Hybrid Supply Chain. Lean Supply Chain Basics V6.2 - Slide 9 © 2008 Massachusetts Institute of Technology
  11. 11. 2 - Supplier Participation in Material Flow and Logistics • Just-in-time deliveries Eliminates inventory - but parts must show up on time! • Kitting for point-of-use Eliminates unpacking, looking for parts - requires supplier involvement in production system design • Vendor-Managed Inventory Vendor owns it, keeps track of it, until it is used • Third Party Logistics Have FedEx handle these? Different supply chain designs Different supply chain designs require different practices require different practices Lean Supply Chain Basics V6.2 - Slide 10 © 2008 Massachusetts Institute of Technology
  12. 12. Atlas V Launcher Supplier Kitting and Direct Delivery Vendor-Supplied Tubing (Old Method) Vendor-Supplied Tubing (New Method) Conventional Packaging, handling and Inventory Reusable Container and Shadow Boards Photographs removed due to copyright restrictions. Category Reduction Inventory Carrying Cost $35,000 per ship-set Internal Handling Cost $12,000 per ship-set Cycle-Time 20 weeks to 14 weeks Lean Supply Chain Basics V6.2 - Slide 11 Source: Lockheed Martin Missiles and Space Systems © 2008 Massachusetts Institute of Technology
  13. 13. 3 - Supplier Involvement in Design and Development Wire Harness Cover Launch Lugs JDAM Tail Kit Strakes Container Strakes Mk-84 Warhead Courtesy of Boeing. Used with permission. Lean Supply Chain Basics V6.2 - Slide 12 © 2008 Massachusetts Institute of Technology SOURCE: Karen E. Darrow (The Boeing Company), “The JDAM Experience: Lean Principles in Action,” Presentation at the SAE Aerospace and Automated Fastening Conference & Exhibition, September 22, 2004.
  14. 14. Early Supplier Integration SUPPLIER VALUE CREATION • Major modification to system • Major architecture • • From “partitioned architecture” to “integrated architecture” • • Reduced Wiring / Connectors • • Reduced unit cost • • Improved reliability Courtesy of Boeing. Used with permission. SUPPLIER INTEGRATION • • Re-allocated “Work Share” Work re • Part of proposal team • proposal PRODUCT VALUE CREATION PRODUCT VALUE CREATION • Understood project goals - • Understood GOAL CONGRUENCY •• Original cost est. --$68+ K Original cost est. $68+ K • Understood requirement • •• Final actual cost -- $15 K Final actual cost $15 K for low cost, seamless •• Unit costs reduced > 75% Unit costs reduced > 75% assembly •• Total savings > $2.9 B Total savings > $2.9 B Lean Supply Chain Basics V6.2 - Slide 13 Ref: Lean Enterprise Value, pp 138-140, 206-207 © 2008 Massachusetts Institute of Technology
  15. 15. 4 - Seamless Information Flow Requires communication on many levels Customer Supplier Enterprise Strategic & Business Enterprise Management Management Program Objectives & Progress Program Management Management Procurement Contracts/Deliverables Procurement & Contracts & Contracts Engineering Design & Config Engineering Manufacturing Hardware Manufacturing Operations Operations Integrated Information Technology Environment Lean Supply Chain Basics V6.2 - Slide 14 © 2008 Massachusetts Institute of Technology
  16. 16. Exostar Offerings e pac rks d Wo ste r Tru osta Ex Courtesy of Boeing. Used with permission. Copyright 2007 Exostar Proprietary and Confidential 15 Lean Supply Chain Basics V6.2 - Slide 15 © 2008 Massachusetts Institute of Technology
  17. 17. EXOSTAR Facilitates Supply Chain Management Streamlining At Rolls-Royce the eProcurement implementation has produced a number of quantitative and qualitative benefits, including: • Rationalizing the direct supplier base from more than 5,000 to several hundred • Reduction in cost of goods of up to 20%; • Reduction in inventory value levels as much as 80%; • Reduction in errors due to the elimination of manual re- keying of buying data; • Reduced cycle time, in some cases by up to 80%; • Near-elimination of paper and fax processes. • Improved relations with suppliers, who have benefited from reduced transaction costs and improved efficiency. Lean Supply Chain Basics V6.2 - Slide 16 © 2008 Massachusetts Institute of Technology
  18. 18. Improving Supply Chains Program Value Stream Prime Contractor Owns Supplier Owns The Vision The Vision Supplier Education & Selection Orientation Continuous Improvement Lean • Critical Path • Compelling Assessment • Cost Interests & Value • Quality Stream Lean Strategy • Building the • Cycle Time Mapping & Deployment Relationship • Delivery • Understanding Plan • Enterprise-Level Context Analysis • Common Lean • Commitment to Engagements • Product-Level Objectives Yes Go Forward Lean Analysis • Common Metrics • Basis for • Plans of Action • Improvement Ready? Improvement • Timelines Workshops Plans • Additional No Training Work Outstanding Issues Lean Supply Chain Basics V6.2 - Slide 17 © 2008 Massachusetts Institute of Technology
  19. 19. Example: Hicksville Machine Works Corp. • Supplier worked with prime to implement lean • Prime (Boeing) provided expertise and training for 5S, Statistical Process Control, and Set-up Time Reduction • Savings shared, plus many additional benefits: “... a good example of what good team work between a vendor and sincere Boeing personnel, ... can do. ... my Company is much more competitive than ever before. Following are some of parts we were able to reduce the unit prices on: P/N Previous Unit Price New Unit Price 17P2A5224-1NC $1815.00 $751.68 17P2A5821-1 $1992.00 $639.33 17P2A5829-1NC $2531.72 $1024.00 These types of savings will apply to all parts we manufacture.” -Jack Spezio, President Courtesy of Boeing. Used with permission. Lean Supply Chain Basics V6.2 - Slide 18 © 2008 Massachusetts Institute of Technology
  20. 20. Supply Base Stratification - Five Levels Strategic Alliance Certified Gold, Silver, Bronze, Probation Strategically Important Core High Performing, Standard, Potential, Legacy Disengaged Courtesy of Boeing. Used with permission. Lean Supply Chain Basics V6.2 - Slide 19 © 2008 Massachusetts Institute of Technology
  21. 21. 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 Subcontractor Subcontractor Prime Subcontractor Prime Lean Supply Chain Basics V6.2 - Slide 20 © 2008 Massachusetts Institute of Technology
  22. 22. Lean Supply Chain Wrap Up • Suppliers are critical to lean enterprise success • Supply chains need to be understood and designed to meet the needs of the product enterprise needs • Legacy supply chains can be improved through win-win customer-supplier teamwork. Supply Chain Management is a lean Supply Chain Management is a lean enterprise core competency enterprise core competency Lean Supply Chain Basics V6.2 - Slide 21 © 2008 Massachusetts Institute of Technology
  23. 23. Exercise • What aspects of a Lean Supply Chain can you implement today to improve your enterprise’s performance? • Spend the remaining time capturing these on an easel chart for your team’s use. Lean Supply Chain Basics V6.2 - Slide 22 © 2008 Massachusetts Institute of Technology
  24. 24. Reading List Bozdogan, K., Deyst, J., Hoult, D., Lucas, M., “Architectural Innovation in Product Development Through Early Supplier Integration”, R&D Management, Vol 28, No 3, 1998, 163-173. Dyer, Jeffrey H., Collaborative Advantage: Winning through Extended Enterprise Supplier Networks, New York: Oxford University Press, 2000. Dyer, Jeffrey and Nobeoka, Kentora, “Creating and Managing High-Performance Knowledge-Sharing Network: The Toyota Case,” Strategic Management Journal, 21, 2000, 345-367. Fine, C., Clockspeed: Winning Industry Control in the Age of Temporary Advantage, Reading, MA: Perseus Books,1998 Fisher, M.L., “What is the Right Supply Chain for your Product,” Harvard Business Review, Vol. 75 (2), Mar/Apr, 1997, 105-116. Ghemawat, Pankaj, "Distance Still Matters, The Hard Reality of Global Expansion." HBR. Sept, 2001 Kraljic, "Purchasing Must Become Supply Management," HBR, September - October 1983 Liker, J.K. and Yu, Yen-Chun, “Japanese Automakers, U.S. Suppliers and Supply-Chain Superiority,” MIT Sloan Management Review, Vol. 42 (1), Fall 2000, 81- 94. Liker, J.K., Kamath, R. R., Wasti, S.N., and Namagachi, M., “Supplier Involvement in Automotive Component Design: Are There Really Large US/Japan Differences?, Research Policy, 25, 1996, 59-89. MacDuffie, J.P. and Helper, S., “Creating Lean Suppliers: Diffusing Lean Production Through the Supply Chain,” California Management Review, 39, 1997, 118-115. Sako, Mari, “Supplier Development at Honda, Nissan and Toyota: Comparative Case Studies of Organizational Capability Enhancement,” Industrial and Corporate Change, 13 (2), 2004, 281-308. Simchi-Levy, D., Kaminski, P., Simchi-Levy, E., Designing and Managing Supply Chains, McGraw-Hill, 2002. Takeishi, Akira, “Knowledge Partitioning in the Interfirm Division of Labor: The Case of Automotive Product Development,” Organization Science, Vol. 13 (3), May-June 2002, 321-338. Venkatesan, "Strategic Sourcing: To Make or Not to Make," HBR, November-December, 1992 Lean Supply Chain Basics V6.2 - Slide 23 © 2008 Massachusetts Institute of Technology
  25. 25. Acknowledgements • Kirk Bozdogan - MIT LAI • Tom Callarman - ASU • Al Haggerty - MIT, Boeing (ret.) • Greg Harris - Univ. of Alabama in Huntsville (UAH) • Dick Lewis - Rolls-Royce (ret.) • Tim Mead - DAU • Hugh McManus – Metis Design • Earll Murman - MIT • Sue Siferd – ASU • Kenneth Sullivan -UAH • Stan Weiss - Stanford Univ, Lockheed Martin (ret) Lean Supply Chain Basics V6.2 - Slide 24 © 2008 Massachusetts Institute of Technology

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