LEAN MANUFACTURING IMPLEMENTATION -Lean Supply Chain
University of Michigan
Manufacturing Strategies IOE 425
October 18, 1999
Ronald L. Turkett
Why Lean Supply Chain?
Toyota
Indiana
GM
2 Plts. Europe
Saturn
Nummi
TPS
Renault
Toyota
Georgetown
Suppliers
Chrysler
COS
Ford
Worldwide
FPS
Porsche
Mercedes
BMW
Peugeot
Toyota
Cambridge
Implementing Lean Production Enables Seamless Connection
with Customers and Suppliers
Lean Supply Chain
Ronald L. Turkett
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The Lean Supply Chain
Best Quality - Lowest Cost - Shortest Lead Time
Through Shortening the Production Flow By Eliminating Waste
Just in Time
“Built in
Quality”
“The right part
at the right time
in the right amount”
Preconditions
• Continuous Flow
• Pull System
• Takt Time
• Level Production
Flexible, Capable,
Highly Motivated
People
• Line Stop
- Manual
- Automate
• Error Proofing
• Visual Control
Operational Stability
Standardized Work
Total Productive Maintenance
Lean Supply Chain
Robust Products & Processes
Supplier Involvement
Ronald L. Turkett
3
“Lean Vs.Traditional”
 Half the hours of engineering effort
 Half the product development time
 Half the investment in machinery, tools and
equipment
 Half the hours of human effort in the factory
 Half the defects in the finished product
 Half the factory space for the same output
 A tenth or less of in-process inventories
Source: The Machine that Changed the World, Womack, Jones, and Roos,
1990.
Lean Supply Chain
Ronald L. Turkett
4
“Lean Vs Traditional”
 99.9% Customer Schedule Attainment
 15 PPM or Better
 4-6 Inventory Days of Supply
 92%+ Operational Availability
 Leveled, Sequenced Production
 Order to Customer Use - 4 1/2 Hours
 Functioning Supplier Partnership
 Strong Production Control Function
Examples: Tier 1 Suppliers: Johnson Controls Seating, Litens Automotive
Partnership, Cadimex, Denso Manufacturing, Toyota Motor Corporation.
Lean Supply Chain
Ronald L. Turkett
5
Changing Costing Methods
Principles of Cost Plus: SALES PRICE = COST+ PROFIT
Profit
SALES
Profit
Traditional
View
Profit
Sales
Price
Mfg.
Cost
Mfg.
Cost
Mfg.
Cost
Sales
Price
Principles of Cost Reduction: PROFIT = SALES PRICE - COST
Profit
Modern
View
Profit
Profit
Sales
Price
Mfg.
Cost
Lean Supply Chain
Mfg.
Cost
Mfg.
Cost
Ronald L. Turkett
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Lean Supply - Global Purchasing Strategies
 Common Strategy - Buy Cheapest in the world
- Support with dual sourcing
 Toyota Strategy
- Buy to achieve lowest total cost
- Buy in country where manufacturing
is performed
- Minimize Number of Suppliers
- Keep supply chain short as possible
- Toyota is as strong as its weakest
supplier
Lean Supply Chain
Ronald L. Turkett
7
Consequences of Cheapest Price
 Long Distance Supply - Long lead times
- increases structural cost: people, travel,
premium freight, packaging, obsolete
material, scrap due to handling damage
 Buying cheapest restricts buying from best
supplier and achieving total lowest cost
VS.
 Buying from best supplier, then get lowest cost
Lean Supply Chain
Ronald L. Turkett
8
Consequences of Long Supply Chains
Long Value Streams Result in:
 High Risk
- Quality Spills
- Availability of Supply
- Engineering Changes
 High Cost
- Transportation (Premium and Standard)
- Engineering Support/Supplier Development
- Plant Overtime
Lean Supply Chain
Ronald L. Turkett
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Automotive Supply Chain
Supply Chain = Value Chain
Retail
Customer
OEM
Tier # 1
Tier # N
Ore in
Ground
Objectives: Highest Quality
Lowest Cost
Shortest Lead Time
Lean Supply Chain
Ronald L. Turkett
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The Lean Enterprise
World Class
Lean Supply
Chain
Implemented
Full Benefits of
Lean Supply Chain
Traditional
Manufacturing
& Support
Functions
Lean Supply Chains are not just a Materials
Management Effort
Lean Supply Chain
Ronald L. Turkett
11
Automotive Customers
Which group drives lean supply chains?
Toyota
GM
Honda
?
Ford
NUMMI
Saturn
Chrysler
Nissan
Lean Supply Chain
Ronald L. Turkett
12
Demand/Schedule Variance Causes
Planning/Scheduling System Mechanics: Push Scheduling
PRODUCTION FLOW
All production operations receive same schedule
Supplier
Machining
Assembly
Customer
Production
Scheduling
Reaction to Changes Occurs Only Weekly
Lean Supply Chain
Ronald L. Turkett
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Typical Demand/Scheduling Model
OEM
Schedule
Tier
#1
Tier
#2
Actual Demand
Traditional Scheduling Systems
1. Demand and schedule are usually different
2. Noise increases moving down stream
3. Affected most by changes in order quantity, delivery time and lead time
Lean Supply Chain
Ronald L. Turkett
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Lean Supply Chain - Pull
Production System
Ship
Raw
Material
Ship
Customer
Machining
Pull Schedule
06/07/98
Ship
Assembly
Leveled Production
Plan
Pull Schedule Assembly Schedule
SME Lean Supply Chain
OEM’s Lead Supply Chain
Management Process
Process: Smoothing Production to Reduce Supply Chain Cost
O.E.
Ship
Ship
Tier 1
Tier 2
Leveled Sequenced Pull Leveled Sequenced Pull
Signal
Signal
Production
Production
Action Steps-All Customers
1.
2.
3.
4.
5.
Smooth production build and communicate plan to suppliers
Maintain daily production levels as planned (maintains smooth flow)
Minimize parameter changes in system (lot size, quantity, & lead time)
Convert from push scheduling to pull scheduling
Maintain open communications with supplier - Provide Supplier
access or view of actual demand
Lean Supply Chain
Ronald L. Turkett
16
Takt Time Vs. Cycle Time An Important Distinction
Takt Time =
Time (Available seconds per working day)
Volume (Daily production requirement)
Sets pace of production to
match pace of sales.
Cycle Time =
Actual time required for a worker to
complete one cycle of his job process
Lean Supply Chain
Ronald L. Turkett
17
Implementing the Lean Supply Chain

Level Sequenced Production
–
–
producing a repeatable pattern by volume
and mix within each day of the monthly
production plan
Characterized by:
 a smoothed production plan over an
extended time
 every model made every day
 daily adjustment can be made
 a predictable production process
Lean Supply Chain
Ronald L. Turkett
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Implementing the Lean Supply Chain
Summary
–
–
–
–
–
–
Find the best supplier and engage early in the
design process
Partner with key suppliers that have high
capability for design and supply
Suppliers should be located in the country where
you build your product
Shorten the supply chain by having suppliers
close, frequent deliveries, and leveled production
plans
Develop pull systems with suppliers
Know production capacity by comparing effective
cycle times with Takt times.
Lean Supply Chain
Ronald L. Turkett
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