2. Lean Manufacturing e-Library
Training Module No. 2:
Supply Chain Management
by Bill Gaw
Who is Bill Gaw?
And why should we listen to him?
http://bbasicsllc.com/BillGaw.htm
1-2
3. SUPPLY CHAIN MANAGEMENT
Logistics Planning
• Parts in the right place at the right time
• Elimination of stockroom
• Lower overhead costs
• Supplier relationships
Strategic Outsourcing
• Outsourcing Policy
• Outsourcing Team
• Implementation and Results
• “Win-Win” Partnerships
7-2
4. MATERIALS SCHEDULING AND CONTROLS
The Buyer/Planner Challenge
X Y
1 2 1 3
MASTER SCHEDULE
LEAD TIME = 4 LEAD TIME = 6
PLANNED ORDERS FOR “X” PLANNED ORDERS FOR “Y” FOR “1”
PERIODS
5 6 7 8 9 10 11 PERIODS 8 9 10 11 12 13 1 2 3
25 30 15 40 15 30 15 15
PART “1”
ON-HAND 95
ALLOCATED 20
SAFETY STOCK 10
LEAD TIME 3
LOT SIZE 100 1 2 3 4 5 6 7 8 PERIODS
GROSS REQUIREMENTS 15 40 40 30 15 45
SCHEDULED RECEIPTS 100
-10
PROJECTED ON-HAND 60 20 80 50 35 35 90
90
NET REQUIREMENTS 20
PLANNED ORDER RECEIPT 100
NET REQUIREMENTS 100
7-3
5. REQUIREMENTS AND SCHEDULE INTEGRITY
A Return to Scheduling Basics
– The Build Plan
• Modular configurations
• Focused Forecasting
• Time fence management
– Point of Use Logistics
• Sets of parts
• Weekly and daily deliveries
• Inventory Back flushing
– Visual and Sequential Scheduling
• Kanban and JIT pull system
• Everything has its place and in its place
– Product Team Management
• Cross functional responsibilities
• Supplier communication system
7-4
6. MATERIALS SCHEDULING AND CONTROLS
General Kanban and JIT Rules
– Stock locations are maintained at a specific stocking level
– Production is triggered by scheduling signals
– Parts are produced only to fill a void in supply chain
– Parts are made and moved IAW predetermined quantities
– No defective parts are moved to the next process
– Line stoppage creates immediate support response
– Inventory relief is by a back-flushing technique
7-5
9. MATERIALS SCHEDULING AND CONTROLS
Inventory Management
– Startup and buffer inventory strategies
– Factory floor parts cycle counting procedure
– Visible shortage control system
– Inventory utilization performance tracking
– Back-flushing for inventory relief from factory
7-8
10. PROCUREMENT STRATEGIES
Inventory Objectives
– Less is Better
– Limit Supplier Exposure
• Capacity flexibility
• Lower level/long lead time focus
• World Class “JIT” application
– Point of Use Logistics
• Stockroom elimination
• Material handling/storage considerations
• Quality Requirements
• Schedule mix flexibility
? • In-house rework capability with payback system
? The lead time from receipt of iron ore at Henry Ford’s River Rouge
operation, to casting the engine block, and to shipment of the
machined engine block in a final assembled car was an astonishing
forty-eight hours in 1920.
7-9
11. PROCUREMENT STRATEGIES
Supplier Base - The Fewer the Better
– Obstacles - “Use a bigger club” Culture
• Second source options
• Competitive Quoting
– Benefits
• Improved quality and on-time delivery
• Reduced order processing time
• Reduced supplier lead times
• Improved inventory turnover
• Lower total material cost
FOCUSED PROCUREMENT
Original Base
771
215 Reduced Base
215
50
Reduced Base
7-10 Key Suppliers
17. KEY SUPPLIER DEVELOPMENT
Performance Measurement
PRODUCTION LINE QUALITY REJECTS CONTINUOUS IMPROVEMENT
Quantity Quantity RECOMMENDATIONS
5 5
4 4 4
4 4
3 3 3
3 3
2 2 2 2 2 2
2 2
1 1 1 1 1
1 1
0 0
0 0
GOA L B EST FY96 FY97 QTR1 QTR2 QTR3 M AR APR 5/3 5/10 5/17 GOA L B EST FY96 FY97 QTR1 QTR2 QTR3 M AR APR M AY JUN JUL
FY98 GOAL WEEKLY AVERAGE FY98 GOAL MONTHLY AVERAGE
KS01: Number of rejects found in production KS02: Number of c recommendation submitted per month.
ON TIME DELIVERIES
Percent JIT "BUFFER" INVENTORY
100 100 100 100 Percent
100 94 25
92 21
90 20 17
83
79 78 15
80 75 15 12 12 12
10 10
70 10
60 5 2
50 0
GOAL B EST FY96 FY97 QTR1 QTR2 QTR3 M AR A PR M AY JUN
GOA L B EST FY96 FY97 QTR1 QTR2 QTR3 M AR APR 5/3 5/10 5/17
FY98 GOAL MONTHLY AVERAGE
FY98 GOAL WEEKLY AVERAGE
KS03: Percent of JIT line items received "on time". KS04: JIT "buffer" inventory requirement as a percent of total inventory
7-16
18. KEY SUPPLIER DEVELOPMENT
Recognition - Key Supplier Conference
TIME FRAME: Semiannual
ATTENDEES: CUSTOMER SUPPLIER
Procurement Manager President/Owner
Product Team Leaders Manufacturing Mgr.
Quality Manager Quality Manager
Buyer/Planners
DISCUSSION TOPICS:
Business Outlook Volume Stability
Partnership Concerns Communications
Quality Capacity
Delivery Flexibility
AWARDS:
Excellence Awards
7-17
19. SCM PROGRAM REQUISITES
• Materials Scheduling and Controls
– Supplier schedule integrity
– Shop visual scheduling
– A return to scheduling basics
• Procurement Strategies
– Inventory objectives
– Supplier base - fewer the better
– Key supplier focus
• Supplier Selection
– The selection team
– Supplier selection process - Commodity
– Supplier selection process - Product Outsourcing
• Key Supplier Development
– Communications
– Performance measurement
– Recognition - key supplier conference
7-18
20. STRATEGIC OUTSOURCING
• Outsourcing Policy
• Outsourcing Team
• Implementation and Results
• “Win-Win” Partnerships
3-2
21. OUTSOURCING POLICY
Core Competencies
Core competencies identified as crucial to
maintaining market share and profitability
Competitive Advantages
Processes
Capabilities
Unique Proprietary Proprietary
Knowledge Special Operating
Skills Technologies Information
Methods
3-3
22. OUTSOURCING POLICY
Supplier Structure and Alignment
AS IS TO BE
Electronics A
Electronics B
Module A
Electronics c Parts
End
Sheet metal Module B
Product Parts
Mach Parts A Module C
Parts
Mach Parts B
Mach Parts C
3-4
23. OUTSOURCING POLICY
Target Costing (Product A)
Sub-Assy: xyz Total Parts Procurement Target Price = Current Total Costs - 15%
Part by Part Purchasing Concept Outsourcing
P/N Current Current OH Current Total Total New Total KYZ Kit
Price Costs Costs Target Cost Costa Costs
324879
978652
512498
542658
854657
623598
124598
325987
TOTAL
TOTAL COSTS = COSTS =
________
3-5
24. THE OUTSOURCING TEAM
Leader and Members
BUYER/ MANUFACTURING
PLANNER ENGINEER
CORE
TEAM
QUALITY PRODUCT
ENGINEER TEAM LEADER
3-6
25. THE OUTSOURCING TEAM
Knowledge Management
Develop Measure
Supply Performance
Strategy
Supplier
Performance Manage Continuous
Audits improvement
Supplier Initiatives
Knowledge
Base
Partner with
Capture
Suppliers Supplier
Ideas
3-7
26. THE OUTSOURCING TEAM
Strategic Sourcing
“As Is” “To Be”
* Transaction and approval intense; time Simpler * Simpler, more flexible, less time
consuming Process consuming processes
* Fractured; duplicate responsibilities; Organi- * Reorganized to leverage buying power,
purchases not always leveraged; low spans zation and separate strategic and tactical buying
of control Design
* Only 12% average of suppliers formally Perform- * Formal objective, balanced and customer
evaluated; internal measures cost focused; ance focused performance measures internally
no alignment across functions; little Measure- and with suppliers; tied to reward system,
tracking; no tie to reward system ment
* Poor communication; no sense of Change * Singular mission/vision focus; formal and
community across functions; low morale; Mgmt. routine communication; increased morale
no singular focus for the future
* Key market criteria, and strategic vs. * Key market criteria defined; strategic vs.
Risk/
tactical criteria does not formally exist; Complex tactical criteria defined; differentiated
there aren’t different strategies for different Strategies strategies for different risk/complexity
risk/complexity combinations combinations
3-8
27. SUPPLIER CONNECTIVITY
Stages of Development
– Awareness
– Credibility
– Trust
– Commitment
3-9
28. SUPPLIER CONNECTIVITY
Developing Trust
– Make fair demands on each other
– Clear rules of engagement
– Joint leadership by top management
– Communicate often at policy and operation levels
– Use multi-functional teams
– Surface issues early, spot issues for each other
– Accept occasional mistakes, admit own errors
– Use root-cause problem-solving
– Build a spirit of community
– Introduce new programs together
– Avoid surprises
– Keep deepening mutual understandings
3-10
30. IMPLEMENTATION AND RESULTS
Balanced approach
STAFFING TO PEAK.
Underutilization if
Staffed for Peak
Workload
Poor Quality & Results
if Staffed for “Average”
WORKLOAD.
Jan. Apr. July Oct. Dec.
3-12
32. IMPLEMENTATION AND RESULTS
Performance Measurement
Performance Measure Why Track?
* Inventory units & dollars * Inventory reduction
* Inventory days * Inventory utilization
* Outside storage space & costs * Outside storage reduction
* Inventory JIT units * Move towards flow technology
* Inventory obsolescence dollars * Obsolescence reduction
* cycle-count adjustments * Inventory integrity improvement
* Inbound freight costs * Transportation cost reduction
* Number of stockouts & related downtime * Improve customer service
* Supplier lead-times in days * Shorten cycle times
* Number of receipts * Increase frequency of receipts
* Quality rejects * Quality rejects
* improvement suggestions * Increase supplier contributions
3-14
33. WIN-WIN PARTNERSHIPS
Benefits of Partnership
– Point-of-use logistics
– Single reliable source
– Up-front design involvement
– Reliable and flexible performance
– Continuous Improvement
Partner Characteristics
– Organizational stability
– Quality system deployment
– Financial stability
– Technical support
– Shorter lead times
– On-time, low total cost producer
4- 14
34. WIN-WIN PARTNERSHIPS
Stages of Successful Partnering
– Stage 1. Background and documentation
– Stage 2. Process Evaluation
– Stage 3. Detail Formation
– Stage 4. Audit and Maintenance
4- 15
35. STAGES OF SUCCESSFUL PARTNERING
Background and Documentation
– Internal sources
• Company database
• Service department
• Engineering
• Quality Assurance
• Finance
– External Information from supplier
• Performance data
• Internal systems documentation
• Quality data
• Preventative Maintenance
• Tooling and gages
• Survey results
4- 16
36. STAGES OF SUCCESSFUL PARTNERING
Process Evaluation
– Supplier processes evaluation
• Team formation
• Assess skill levels and provide training
• Formalize tasks and milestones
• Obtain supplier concurrence
• Establish project time schedule
– Report and Corrective Action
• Findings and recommendations
• Corrective action commitments
4- 17
37. STAGES OF SUCCESSFUL PARTNERING
Detail Formulation
– The Partnership Agreement
• Purpose and scope
• Duration of agreement
• Detailed responsibilities of each of the partners
• Quality, delivery, design commitments
• Pricing policy and formulas
• Performance review meetings
• Communication methodology
• Confidentiality
• Warranties expected
• Limits of liabilities
• Termination clauses
4- 18
39. A Straight From the Internet Story
I rarely open joke e-mail messages. Not that I don't enjoy a good joke but rather
because I am not usually in the mood for a joke when I am on the Internet. However,
once in awhile, I will open one and on this occasion it was worth it.
On June 20th 1969, Neil Armstrong, commander of the Apollo -11 Lunar Module,
stepped onto the moon and said, "That's one small step for man, one giant leap for
mankind."
When reentering the module, he made a brief statement, "Good luck, Mr Gorsky."
When back in the USA many reporters kept asking him what was the significance of
the Gorsky statement. He never responded with an answer. Many speculated that it
was a message to a Soviet astronaut.
On July 5th, 1995, when once again he was asked the 26 year-old question, he finally
replied. In 1938 when I was a kid in a small Midwestern town, we used to play baseball
in a field in the back of my house. One day, one of my friends hit a ball over the fence
into my neighbor's yard. I jumped the fence to retrieve the ball that had landed up
against Mr. and Mrs. Gorsky's house directly under their bedroom window. When I
stooped to pick up the ball, I could hear Mrs. Gorsky yelling at Mr. Gorsky, " Sex! You
say you want sex! You'll get sex when the kid next door walks on the moon!"
40. Lean Manufacturing Certification
Become a certified, lean manufacturing champion
and reach your full growth and earning potentials
Increasing speed, creating agility, improving quality, and eliminating non-
value-added costs are requisites to a successful lean initiative. This Lean
Manufacturing Certification Program develops lean champions that make it
happen.
Business Basics Institute's, Lean Manufacturing
Champion, Certification Program with
personalized mentoring by Bill Gaw
http://bbasicsllc.com/world.class.manufacturing.htm
To check out this program, simply
Business Basics , copy the above URL, paste it into
LLC your PC browser and click on GO.
6003 Dassia Way
Oceanside, CA 92056
41. At-Your-Site Training Programs
Manufacturing Knowledge and implementation “know-how” you'll not
find in the books at Amazon.com... neither in the APICS library nor in
the Harvard Business School Press
Lean Manufacturing – Balanced Scorecard – ISO 9000-2008
– Lean Six Sigma – Supply Chain Management – Kaizen Management
– Lean Six Sigma – Value Stream Mapping
If you're serious about getting lean, take some time to review our
at-your-site lean manufacturing seminars, forums, and events...
there's one for every budget. For details, simply visit our Website
at:
http://bbasicsllc.com/lean.manufacturing.seminars.htm
To check out this program, simply
copy the above URL, paste it into
Business Basics , your PC browser and click on GO.
LLC
6003 Dassia Way
Oceanside, CA 92056
