Attending National Manufacturing Week? Get lean!

This week is the National Manufacturing Week trade show and conference, held outside Chicago. It’s the annual gathering of manufacturers and suppliers who come together to network and exhibit their products. This year, I was honored to be invited by Kenneth Brant to sit on a conference panel about lean manufacturing — Ken is the manufacturing research director for Gartner Group. He’s been hard at work contacting panelists, reviewing presentations and making sure anyone attending walks away with valuable insight into lean.

I’m joined on the panel by several important thought leaders and prominent lean practitioners. The panel will cover a lot of ground from lean and Six Sigma to lean’s relevance in today’s business climate. One aspect that is near and dear to my heart is IT and lean. I’ve been blogging about this [see my Sept. 18 post] recently. It IS possible for IT and lean to co-exist and in fact lean can be integrated with an MRP/ERP system. I’ll focus some of my remarks on this topic and show why technology is critical and how it can help lean companies to sustain and scale.

Real-life case histories on lean implementations will also be presented. I’m excited that one of Ultriva’s customers, Trane, will be profiled. Trane is a huge HVAC company that has seen tremendous benefits in deploying lean solutions in a relatively short time frame. I could tell you more about how they achieved this, but you’ll just have to attend the panel tomorrow (Tuesday, Sept. 23) from 9 a.m. to noon at the Donald E. Stevens Convention Center, Rosemont, Illinois. Not attending the show? Watch this space. I’ll be blogging about Trane soon!

IT and Lean – can’t we all just get along?

Over the last 30 years I‘ve seen corporate IT evolve from a business process function to an autonomous powerhouse. In the 70s and early 80s, for instance, IT was primarily implementing technologies that supplemented business functions: hardware, networks, productivity software, and tools that automated manual functions.

During the late 80s and early 90s, however, manufacturing systems became a necessity for running a shop floor. As a result, many shop-floor personnel, especially from materials, scheduling and planning, collaborated closely with IT to successfully implement MRP systems.

By the late 90s, MRP had transitioned to ERP, with the focus shifting to sales, order processing, financials and other corporate functions taking precedence over manufacturing. Corporate executives became the decision makers for purchasing ERP systems with IT owning the deployment. Interestingly, the deployments involved more technology people than business people and if business people were involved, they were outside consultants.

Around the turn of this century, fueled by Y2K problems and the growth of Internet, the transition or evolution, was complete. IT was the owner and final arbiter of all technologies, irrespective of who the end-user was. IT no longer consisted of a good mix of process and technology people; it was overwhelmingly technology people driving businesses. One of the major business magazines even went so far as to question whether the CIO was on par with, or more important than, the CEO.

Since then, IT has provided the latest and greatest technology to the organization, but in the process has quite unconsciously isolated and neglected core business functions. It’s not surprising then, that the IT department can frustrate the very users it is chartered to help. In the manufacturing function, users are busy processing orders, building products, procuring raw materials, shipping goods and collecting money, often hamstrung by an IT department that does not understand the types of systems they need.

The first challenge to this IT dominance came when SalesForce.com devised a quick and simple software tool for sales people to manage their contacts and prospects. This challenged the multifunction, corporate-wide software from Siebel Systems, then the darling of IT. Siebel took months to deploy and users had no control over the deployment or management of it. As soon as an easier tool came directly to end-users to help manage the sales function, IT was cut off from the process. Virtually overnight Siebel, a billion dollar-plus company, saw its market capital significantly eroded.

Nowadays, as I tour manufacturing companies around the U.S., I notice the larger the company, the more anguish end-users are experiencing with their IT department. This problem directly affects the core business when the plant embraces lean manufacturing. Lean is the antithesis of batch processing as well as building to forecast — and these two tenets form the DNA of manufacturing systems within the current ERP systems. Meanwhile, lean practitioners are embracing ‘pull’ methodologies like Kanban and demand-driven scheduling to reduce inventories, eliminate stock-outs and increase shop-floor efficiencies to improve customer satisfaction. To make matters worse, most of the lean gurus have been preaching that technology is not required to implement lean on the shop floor. This has left a huge gap between lean’s potential benefits and the reality of what it actually did accomplish, which has slowed the pace of lean implementation across the corporation.

I believe IT has a chance to add tremendous value. Lean programs normally demand real-time responses as compared to batch processing. They normally demand collaboration with business partners (suppliers and customers). They need integration of scanners, RFID and other evolving technologies to automate traditional processes of ordering, scheduling, receiving and shipping. IT has already made several successful transitions to adapt to a market situation. It is time to change again.

IT needs to embrace the concept of enabling business through technology. Whether becoming a SaaS provider or a conduit for application access, it needs to become an integral part of the business unit. IT can play a significant role by combining best-of-breed programs with existing infrastructure. Similarly, IT leaders can become business decision makers instead of the gatekeepers they are today. A good alliance between the business function and IT will ultimately lead to better decision making overall.

Ephraim Schwartz, over at InfoWorld, recently wrote a very good article about this. It is appropriately titled: IT needs to get lean on manufacturing.

Manufacturers: try out our new Lean Assessment Tool

Walk through any manufacturing facility and you’ll notice they all have the same type of charts displayed on the walls, or bulletin boards or electronic displays highlighting results of lean six sigma programs. The shop floor constantly runs Kaizens to improve factory-floor operations.

Surprisingly, most of the emphasis on the shop floor has been on streamlining production, relaying the machineries, reducing production down time, and optimizing production capacity. Everything is focused on activities within the four walls of the factory shop floor. A very small percentage of these activities revolve around improving on-time-delivery, or improving supplier collaboration or material availability — processes that are occurring outside the facility.

In spite of these well-intended and dedicated efforts, when I walk through a typical shop floor, the two most common statements I hear are: “I have too much inventory” and “I can’t find what I want.” Why don’t we see more emphasis on having the right parts – raw material, work-in-process, and finished goods – at the right place?

It is not as if practitioners are unaware of the issues or don’t want to focus on inventory problems; it’s just difficult to collect necessary data to do this analysis. As with everything else, diagnosing the problem (what/where/who) is 80 percent (or is it 99 percent?) of the effort involved here. The data that is available in MRP systems is transactional and batched. Even though the data may be current and accurate (mostly) it is not possible to clearly identify when a stock-out happened (MRP back-flushes only when the material is available) or why someone ordered so much.

Our goal in developing the Lean Assessment Tool (LAT), which we announced today, is to aid the diagnostic process by removing the complexity and presenting the data in a form that can be easily understood not only by lean practitioners but also by material management people.

I like to think of it as an MRI scanner for inventory management. Using a patent-pending simulation engine, the Lean Assessment Tool back-simulates the MRP transactions, calculating the on-hand inventory for each day of a historical period (6 months, 1 year etc.). It then superimposes the consumption-driven replenishment pattern to estimate the potential inventory reduction for each day as well as the overall average for the period.

The Lean Assessment Tool identifies, for each part, the following:
- Standard daily usage (average consumption for the period)
- Safety stock (based on service levels, lead time)
- Consumption variance (S/X ratio – standard deviation/mean)
- Potential stock-outs
- Average inventory needed to meet the consumption pattern

The key aspect of this tool is that the basic premise is your actual consumption, not forecasts or planned demands. So it is possible for you to do “what if” analysis by manipulating the supplier’s lead time, standard lot size, the safety stock service levels, average consumption etc. — in real time. The inventory savings will be automatically recalculated to show the impact of your changes.

Whether your replenishment methodology is MRP or something else, the Lean Assessment Tool will clearly show where the problems lie and the areas for potential improvement. The tool is highly visual so you can see a graphical representation of your actual consumption, your current replenishment and Kanban replenishment patterns – all on the same graph.

Try it – it is free. Enjoy!

Lean Production And Kanban Outside The Plant Floor

It is sometimes assumed by industry novices and veterans alike that the tenets of Lean production and Kanban stop on the plant floor. While you can argue that it all begins (or ends) on the plant floor, middle management and the executive suite play a critical role in Lean success.

While the signals inherent in, for example, Kanban cards are typically acted upon by the floor employees, it can be critical to the success of a Kanban system to make management aware of what's happening on the floor. In our experience, there is no better way to learn what's happening on the floor than by deploying a strong Electronic Kanban or broader manufacturing software program, allowing management to receive the same signals floor employees are receiving without having to set foot on the floor.

Additionally, the support of management is absolutely vital in extending Kanban down the supply chain. Without the championing of management, adoption can be slow to take hold at suppliers reluctant to embrace new practices. In the end, it is ultimately a partnership that makes eKanban work and that partnership is best forged at the management level.

The Lean Contractor?

We are having work done on our kitchen now by our contractor, Brent. I feel we can refer to him as "our" contractor, as this is his 3rd major project at our house since we bought it in 2000. Each time, I've had the oppotunity and pleasure to do more than a trivial amount of work under Brent. Unlike previous times (which is perhaps unfortunate since I've written a lot of checks to him), Lean thinking is now part of who I am. As a result, I've taken to analyzing Brent's lean production techniques.

On the Lean adherent side of the ledger, Brent is relentless in his goal of minimizing defects. He is careful and detailed in everything he does, even the smallest things, and the results are that we have never seen more than an inconsequential defect in any of his work. If he thinks he is headed in that direction, he works to rectify the situation immediately, effectively shutting off the assembly line. And if he in fact ends up with a defect, he goes back and fixes it. It has to appear well after the completion of the project for it to not be repaired.

On the downside, Brent's tireless efforts to perfect everyhing he does takes his focus away from the production process. Case in point, tomorrow Brent will be working on building a new stairwell in our house. The stairs are to be tiled, a new rail installed and the walls painted. As he tends to focus on one minute area at a time, he often misses an opportunity to cut waste in his production process.

Today, he was painting several walls in our kitchen. He first primed. He had put the primer in a pan and dedicated a roll to the prime. As he finished priming, he washed the roll and brushes, then painted, went on a supply run, then painted another coat when he returned.

I asked him why he didn't prime every wall needing prime when the equipment was already out. He said it was because he was painting kitchen walls today, not working on the stairwell. When I suggested he could have saved set up and tear down costs (which aren't big, but still...) by having primed every wall today, he looked at me confusedly.

Just an observation here, but a focus on quality does not translate to an evolution towards Lean. In Brent's case, it's just not the way he works. Now, imagine having to change the culture of a plant or plants to apply their thinking more broadly.

Lean Myths -- Kanban Will Drive Up My Shipping Costs

Another excuse we frequently hear for not deploying Kanban or Lean production is that moving from push to pull will drive up shipping costs. To a Lean skeptic, the potential for increased shipping costs outweighs the potential gains from a transition.

Well, you can probably guess that we think these skeptics are wrong. Shipping costs don't always increase. First, shipping frequency tends to already be an issue. The problem is the shipments tend to come in several large bulk orders, then lots of smaller orders to attempt to ameliorate the impact of poor forecasting. With a Kanban system, where pull drives replenishment, the number of orders typically doesn't change dramatically, rather the variance in order size changes. The end result of a Kanban implementation is typically a much smoother order curve, not higher shipping costs.

Now, let's talk benefits. Even where shipments are more frequent, doesn't it seem the tradeoff is worth it? Lower inventory, increased turaround times, fewer rush orders, more on time deliveries... Independently, each variable would likely offest any increase in shipping costs. Taken in aggregate in a lean manufacturing operation, the benefits of utilizing, for example, kanban cards or an electronic kanban system far outweigh any potential costs.

Anything more than a marginal increase in shipping costs is unikely. But those costs are quickly and easily more than offset in any successful Lean impelmentation.

Mattel Follow Up: Chinese Manufacturer Kills Self

Following up on our recent post on Mattel's Toy recall, I saw this article on CNBC. Wow! Obviously, Chinese authorities are cracking down on those believed to be responsible for recent quality failures in Chinese factories. We all know quality failures can kill, but this isn't quite what I expected. Sadly, this story doesn't appear to be over. Mattel is rumored to be preparing to announce another toy recall and blame for the first incident seems to be moving further down the supply chain.

So what are some takeaways from this unfolding tragedy? On this side of the Pacific, it seems that American companies might be wise to not be so disconnected from their suppliers. While Lean producton can help manage the supply chain, the more distant each supplier gets from the end product, the less influence they'll ultimately have. Moving a kanban system down the supply chain is not easy. However, as more such incidents occur, companies might no longer have a choice to act.

Ultimately, I think market forces might determine how much control companies like Mattel will demand over their overseas suppliers. Consumers will demand more accountability (and if they don't get it regulators will). And those demands will ultimately work their way down the supply chain. While Lean might not ultimately be the response from companies like Mattel, visibility will. And how do you get visbility...?

Distance is still a challenge. Physical Kanban cards don't work across the ocean so well in a real-time world, but electronic kanban can. We try to avoid the open promotion of our manufacturing software when possible on this blog, so let us instead promote eKanban, of which we are a provider. While no solution is perfect, eKanban provides the best chance of driving quality all the way across the supply chain.