Lean Supply Chains
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Terminology
Elements of being lean
Ways we can reduce waste besides just
having no inventory
Lean chains can be fragile chains
Toyota case
Terminology
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Lean / JIT / Toyota Production System (TPS) are
terms that are often used interchangeably.
You can produce just in time and not necessarily be
lean – I have previously talked about car production.
Many services fit this bill as well – think of a hospital.
They have lots of inventory, excess capacity, and so
on. Or Harley Davidson.
TPS is a JIT system that continuously improves to
have no waste of any form (not just inventory)
A truly lean system is a waste free system
Getting beyond terms
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They key to Lean / JIT / TPS tends to be
behaviors as opposed to names.
Lean is both a philosophy and a tool box.
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Even if there are tools that don’t work in your
setting – others will
For instance JIT production with no inventory–
requires steady demand patterns – generally of
standardized goods.
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This is not going to work in a job shop – which are
bound to have WIP. Yet preventive maintenance
works in all settings.
Key elements of a lean system
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Continuously improve to reduce waste.
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The ultimate production system from the Toyota
perspective is one with the minimal amount of
resources needed for production available at all
times.
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Extra resources are a cost
To few resources stop production
Does not mean no inventory (or other buffers) – it
means the lowest amount possible
All forms of waste – capacity, skills, redundant
tasks, and so on. Don’t fixate on the inventory
Other elements of lean
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Workforce commitment and involvement –
the people in the supply chain who know the
most about key supply chain processes are
the ones who perform them.
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Managers get this within their own company and
then drop the ball with suppliers
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Causes of non-conformance
Payless shoes
Deming’s 85% rule and the supply chain
Focus on customer – let customers define
value and waste.
More elements of lean
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Zero defects – fixing defects is a form of
waste – This is why “quality is free”.
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This is arguably even more important in services
with no ability to inventory. Think health care!
This is the part of lean thinking that Harley
Davidson inexplicably misses.
Prevention verses abatement – don’t fix a
problem if you can prevent it- this is
absolutely critical – why?
Leaning out a supply chain
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Removing buffers – many (most) chains have
just in case buffers of inventory, capacity, and
or time.
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Inventory is the one you are most familiar with –
rock metaphor ?
Additional lead time is another buffer that is often
used to cover inefficiencies
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Just in case our project is late we schedule slack –
and then what happens?
Excess capacity – this room, extra people called
in JIC we are busy and so on.
Reducing the number of suppliers
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What does the number of suppliers per input have to
do with being lean?
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Are there sometimes good reasons to have more
than one supplier for an input?
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Are you using the secondary supplier to mask a problem?
Number used need not equal number who bid / are
qualified
Reducing the number of activities in
a chain
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Redundant steps add waste and the
opportunity for error
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This is one of the important reasons for ERP, EDI
and so on. Single entry of data
Minimizing number of touches / steps.
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WinCo and no back room
Centralized purchasing
Giving employees credit cards (huh – this is
decentralized)
More process / step reductions
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Reduce movement - goods
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Cross docking is an obvious example
Direct shipping
Reduce movement - services
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My recent course change proposal – that was
made better through IT
Processing stuff at the social security
administration
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They may have more WIP than any organization I
know
The whole point of smart car
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The smart production system is designed to
reduce the total number of steps and
significantly eliminate movement.
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Similar to system being used by GM in Brazil
Pollution prevention verses
abatement
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In the 80’s the main focus of waste reduction
was fixing quality problems- we worked at
reducing variance in our processes.
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In the 90’s the focus was on moving from
variance free to waste free.
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The next step for most organizations is
redefining waste to include pollution.
What are environmental issues ?
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I talk to lots of managers who claim they have no environmental
issues because they don't have to deal with the EPA and or don’t
release toxic chemicals.
OSU is a service but we have massive environmental concerns /
impacts / costs
 Energy and water use – reductions go right to bottom line
 Just beginning to monitor at the building level this year
 Many MRO items –especially cleaning products are toxic
 Coastwode labs in the MU
 Paper – we use and then dispose of incredible amounts of
paper
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E-waste – we invested in lots of technology to reduce
paper use – now we have to dispose of the computers
OK- that is wasted resourcesbut pollution prevention ?
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Interfaces case
Louisiana Pacific
Using less plastic and cardboard at Earth2O
GP and ink recovery
GPS / GIS and fertilizing crops
Risk reduction – whose name is on the box?
Services – go back a slide
Some of the empirical evidence
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Pollution prevention pays – in general the
publicly traded companies with the best
environmental performance have better
financial performance
Investing in EMS leads to higher operational
performance
Small and family owned firms (in OR) who
ignore these issues in strategic planning have
lower economic performance than those who
consider them.
To put this another way
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Should you be paying a supplier to use more energy
than they need?
Should you be paying a supplier to throw out a
resource (this is what pollution is) ?
Should you be buying something toxic from a
supplier that you may one day have to deal with?
Given the vagrancies of environmental regulation
(some of which has been retroactive) do you want
the risk?
Lean tools lead to prevention
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Prevent quality defects
Prevent waste of all types
Preventative maintenance
Prevent supplier failures
Prevent employee failures
Prevent pollution (some of it)
Does not lead to abatement – JIT organizations and
environmental performance
Yet – lean chains are fragile?
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A lean chain with a single supplier for most
inputs and few if any buffers is:
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Efficient
Effective
Going to stop dead if there is a major disruption
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Supplier goes out of business
Ship sinks (or a container falls off a ship)
And so on
A simple way to think about risk
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Disruptions can usually be described along
two dimensions:
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Frequency – from rare to frequent
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Number of occurrences
Impact – from minimal to catastrophic
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Business impact
So what do we do?
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Should buffers be reinserted?
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Are the savings from being lean more than
worth the occasional disruption?
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Last years snow storm
How do you mitigate risk?
Risk mitigation
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One area of growing interest is risk of nonconformance due to financial conditions of
the supplier – in many cases supplier
selection now requires commercial credit
reports as well
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Customer selection to mitigate risk at Umpqua
Bank
More risk mitigation
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Know your own risks and the costs associated with
them (nice place to simulate)
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Develop contingency plans for identified risks
Know trade-offs associated with risks you have decided are
worth taking
Create exception management systems – return to reading
one and the hurricane response
Require key suppliers to:
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Identify possible risks during calculations of total cost
Have a contingency plan for these risks
Even more mitigation
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Buffers are the most common tool used
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Often for high frequency / low impact risks
Would they be more appropriate for low frequency
high impact risks?
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A back-up generator at WinCo or in a Hospital might
get used once a year (capacity buffer)
Increased information flow / transparency is a
risk reduction tool
A final thought on risk
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Most companies are just starting to deal with
this.
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Many of them never really achieved lean
supply chains- and are using this as an
excuse to go back
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The Lean leaders are not!
Conclusion
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JIT / TPS / Lean – all about being waste free
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Lean chains have the minimal amount of
resources needed for production – but they
usually have small strategic buffers
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WinCo example of back-up generating.
As a chain gets leaner it often becomes more
fragile
Toyota case
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Main goal- derive a solution to the seat
problem
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Include recommendations for the short and long
term
Consider
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Use of TPS principals for this problem
Root cause of defects
Supplier’s role in causing / solving the problem