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Lic. Arturo Azuara Flores:
Director de Asesoría Legal del Sistema Sistema Tecnológico de Monterrey Monterrey, N.L., México
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Developing Lean Sigma Improvement Initiative In a Major
Company: a Case Study
Title Developing Lean Sigma Improvement Initiative In a Major
Company: a Case Study
Authors Amozurrutia Villarreal, Marcia
Affiliation Itesm
Issue Date 01/07/2004
Abstract The purpose of this thesis is centered on describing how the combination of tools such as Six Sigma, Lean
Manufacturing, Lean Thinking and Benchmarking lead to a competitive world class enterprise, giving value to the stockholders. Chapter 1, specifies the general context of the thesis, including an introduction, problem description, question research and justification. Chapter 2, presents a referential analysis including topics of World Class Manufacturing, Benchmarking, Six Sigma, Lean Manufacturing, Lean Thinking and Sourcing strategies. Chapter 3, presents a model combining the tools and concepts covered in chapter 2. A real case study using these tools is also detailed; its results and further work are included. Chapter 4, gives conclusions on the thesis.
Discipline Ingeniería y Ciencias Aplicadas / Engineering & Applied Sciences
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Ing. Luis Vicente Cabeza Aspiazu
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Ingeniería y Arquitectura
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Campus Monterrey
Rights Open Access
Downloaded 18-Jan-2017 09:03:24
INSTITUTO TECNOLOGICO Y DE ESTUDIOS
SUPERIORES DE MONTERREY
CAMPUS MONTERREY
DIVISION DE INGENIERIA Y ARQUTTECTURA
ESCUELA DE GRADUAPOS EN ADMINISTRACIÓN
Y DIRECCION DE EMPRESAS
TECNOLÓGICO
DE MONTERREY
Developing a Lean Sigma Improvement Initiative in a Major
Company: A Case Study
THESIS
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE DEGREE OF
MAESTRO EN DIRECCION PARA LA MANUFACTURA
MARCIA AMOZURRUTIA VILLARREAL
MONTERREY, N. L.
BY:
INSTITUTO TECNOLOGICO Y DE ESTUDIOS
SUPERIORES DE MONTERREY
CAMPUS MONTERREY
DIVISION DE INGENIERIA Y ARQUITECTURA
ESCUELA DE GRADUADOS EN ADMINISTRACION Y DIRECCION DE EMPRESAS
TECNOLOGICO
DE MONTERREY
Developing a Lean Sigma Improvement Initiative in a Major
Company: A Case Study
THESIS
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE DEGREE OF
MAESTRO EN DIRECCIÓN PARA LA MANUFACTURA
BY:
INSTITUTO TECNOLOGICO Y DE ESTUDIOS
SUPERIORES DE MONTERREY
CAMPUS MONTERREY
DIVISION DE INGENIERÍA Y ARQUITECTURA
ESCUELA DE GRADUADOS EN ADMINISTRACION Y DIRECCION DE EMPRESAS
Thesis committee's members recommend that the present document, presented by Marcia Amozurrutia Villarreal, should be accepted in partial fulfillment of the requirements for the degree of MAESTRO EN DIRECCI6N PARA LA MANUFACTURA.
Thesis committee:
Ing. Luis Vicente Cabeza Aspiazu
Academia Mentor
Dr. Jose Humberto Cantú Delgado
Sinodal
Ing. Jose Edmundo González de la Torre
Sinodal
APPROVED
Dr. Nicolas J. Hendrichs
Academia Director
Maestría en Dirección para la Manufactura
Dedication
To God; for his love and gift of life, allowing me to be part of his amazing creation. For giving me the strength whenever I need it.
To my mom and dad, Maria Hortensia and Rodolfo; who have unconditionally loved, supported and taken care of me; and have always taught me to become a better person in all aspects of life. To be by my side all the way of my master studies and thesis.
To my brother, Rodolfo; for his unconditional love and support, listening to my concerns and giving me advice; and for setting me challenges.
To Maria, Jose and Ale; for their love, trust, and care all my life.
To Alvaro; for his unconditional love, trust, and understanding. For his help and encouragement for the completion of this thesis. For making me laugh in the tough moments.
To my Friends and Relatives; who regardless of the time I was distanced from them during the development of this project, are always there for me. For their advice and knowledge sharing.
To father Rodolfo Mora; who has been the spiritual support for my family.
"Don't ask yourself what the world needs -Ask yourself what makes you come alive, and then go do it. Because what the world needs is people who have come alive."
Acknowledgements
To Luis Cabeza, my mentor in this thesis; who enriched this work with his knowledge, experience and advice; for his patience during the development of this work.
The thoughtful contributions of Humberto Cantú and Edmundo González are gratefully appreciated.
To Nicolas Hendrichs, Orelia Villarreal and Abel Tintos; for their continuous follow up and dedication in the course of my master studies.
Special thanks to Frank Caarls, Moacir Augustini, Jorge Flores, Joao Cunha, and Paulo Abreu; for their initial opportunity and trust to apply concepts learned on a real project.
Summary
The purpose of this thesis is centered on describing how the combination of tools such as Six Sigma, Lean Manufacturing, Lean Thinking and Benchmarking lead to a competitive world class enterprise, giving value to the stockholders.
Chapter 1, specifies the general context of the thesis, including an introduction, problem description, question research and justification.
Chapter 2, presents a referential analysis including topics of World Class Manufacturing, Benchmarking, Six Sigma, Lean Manufacturing, Lean Thinking and Sourcing strategies.
Chapter 3, presents a model combining the tools and concepts covered in chapter 2. A real case study using these tools is also detailed; its results and further work are included.
Table of Contents
DEDICATION II
ACKNOWLEDGEMENTS Ill
[image:11.613.64.514.75.712.2]SUMMARY IV
TABLE OF CONTENTS V
LIST OF FIGURES VII
LIST OF TABLES VIII
LIST OF ABBREVIATIONS IX
CHAPTER 1. GENERAL CONTEXT 1 1.1 Introduction 1 1.2 Problem Description 1 1.3 Question Research 2 1.4 Justification 2
CHAPTER 2. REFERENTIAL ANALYSIS 4
2.7.2 Advantages of Making or Buying 22
CHAPTER 3. TOOLS APPLICATION ON A REAL CASE STUDY 23
3.1 Description of the company 24
3.2 Define and Measure the Problem 24
3.2.1 Selection of the problem 24
3.2.2 Definition of the problem 24
3.2.3 Measure the problem 26
3.2.3.1 Current state description 26
3.3 Analysis of the Problem .. 30
3.4 Improve Phase ...33
3.4.1 Using Lean Sigma 33
3.5 Control Phase 35
3.6 Results 36
3.7 Further work 38
CHAPTER 4. CONCLUSIONS 39
REFERENCES 40
List of Figures
Figure 2.1 World class manufacturing: a transformation strategy 6 Figure 2.2.1 Benchmarking emphasizes attaining socalled breakthrough
improvements 7 Figure 2.2.2 Benchmarking process 8 Figure 2.2.3 Benchmarking wheel...9 Figure 2.5.1 The central lean principles ...15 Figure 2.6.1 Financial value driver tree 19 Figure 3. LeanSigma improvement Model ...23 Figure 3.2.2 General process flow diagram 25 Figure 3.2.3.1 Pareto on FGC per production line 26 Figure 3.2.3.2 Pareto on production volume per production line 27 Figure 3.2.3.3 Pareto on Average production per FGC 27 Figure 3.2.3.4 Machine utilization 28 Figure 3.2.3.5 Direct labor productivity 28 Figure 3.2.3.6 Pareto on scrap per production line 29 Figure 3.2.3.7 Contribution to total margin per production line 29 Figure 3.3.1 Production volume and FGC relation 30 Figure 3.3.2 Relation of contribution to total margin and machine utilization per
List of Tables
List of Abbreviations
WCM: World Class Manufacturing TQM: Total Quality Management
NCPPM: Nonconforming Parts Per Million DMAIC: DefineMesureAnalizelmproveControl ROI: Return on Investment
ROE: Return on Equity
RDC: Regional Distribution Center FGC: Finished Goods Codes
TPM: Total Productive Maintenance SMED: Single Minute Exchange Die JIT:Just in Time
Chapter 1. General Context
1.1 Introduction
The industrial sector is now demanding an intensive application of well known as well as new manufacturing technologies, and given the accelerated growth in the levels of competition; it is necessary to implement solutions that will translate into improved production outcomes. The need to observe existing processes to clearly determine opportunities for improvement has become increasingly apparent; one of these opportunities for improvement is to make the operations of the industries simpler giving more value to the stockholders.
But what does simple means, can we just say is the opposite of complex? We must search for simple design processes through out the enterprise; all aspects of the manufacturing system including product design, equipment and tooling design, error proofing devices, product presentation, material handling devices, setup and changeover processes and operator work elements, as well as the logistics system must be designed to be as simple as possible.
Simplicity in the system is important because it leads to simplicity in managing and operating the system in a complex and variable manufacturing environment. Whereas, complexity may include characteristics such as many products or resources of different types, with different characteristics, many documents, frequent resources or information breakdowns, and customer changes (Calinescu etal. 1998; Deshmukh era/. 1998).
But not only, is simplicity the solution to become competitive but also to be a worldclass manufacturer. How can a company become and remain world class? Companies should focus on several keys to success: Reduce Lead Times, Cut Operations Costs, Improve Business Performance Visibility, Speed Timeto Market, Exceed Customer Expectations, Streamline Outsourcing Processes, and Manage Global Operations.
When manufacturers excel in these areas, they strengthen their core competencies, and outmatch the competition.
1.2 Problem Description
The structure that many companies should adopt is world class manufacturing philosophy; technologies and tools such as Lean manufacturing and Six Sigma; which are triggering the need to implementation on daily operations.
But one must be cautious, since there are several conflicts when using them on a separate manner; some of these are: resources competition, such as time, money and personnel; time to implementation rather than an integral implementation methodology; as well as diminishing the benefits.
A greater advantage should arise when implementing both of them in a harmonic approach focusing the enterprise on a single objective. This change in perspective is in itself a very powerful way in reducing the observed complexity or to put that in other words "not to manage complexity" (Meijer, 1998).
1.3 Question Research
Developing an improvement, having as basis the concepts and tools of Six Sigma, Lean Manufacturing, Lean Thinking, Lean Sigma and strategic decisions such as make or buy decisions will allow the company to reduce the manufacturing complexity, employ its resources more effectively; and provide the stockholders more value.
1.4 Justification
The amount of production lines and the variety of product families are a critical factor in making a plant's operation a complex process in areas such as manufacturing. Naming other several factors affecting the manufacturing system:
1. Customer demands manufacturers continuous price reductions
2. Customer requests flexibility, in order to satisfy this need, the plant often
sacrifices its efficiency to deliver satisfaction to the customer.
3. High diversity of components tends to cause nonoptimal changeovers
between product families.
4. Nonstandardized equipment or old technology making it more difficult for
maintenance and operation.
5. Stockholders demand a continuous cost reduction to keep or improve their
profits.
The main focus of this thesis is how to analyze the aspects involved in a complex manufacturing system and give a structure on how to use assets, tools and methodologies to accomplish the simplicity on design and flexibility in operations; reducing the complexity variability on its processes; providing more value to the stockholders.
Chapter 2. Referential Analysis
2.1 World Class Manufacturing
The challenge for each business is to become a highly competitive, long term; and total feasible enterprise. This involves identifying and implementing appropriate philosophies, systems, organizational changes and technology to provide the levels of flexibility and response required by the market. This transformation will be driven by the world class manufacturing WCM philosophy.
World class manufacturing is (Jacobsen, 1996), an umbrella term for a variety of forms of work organization; managerial and manufacturing techniques; processes; and systems, each of which has as its underlying principle a capacity for increasing the flexibility of an enterprise. World class manufacturing is generally considered to be existent where a number of such elements are combined to address an enterprise's need for flexibility, including considerations of technology, process and personnel.
Another definition of WCM is the recognition of an organization as a benchmark by its industry sector and, for some aspects, by other industry sectors. World class manufacturing organizations consistently deliver exceptional performance to their stakeholders (customers, stockholders, personnel, suppliers, and the community); and frequently exceed their expectations.
There are seven keys to becoming a worldclass manufacturer that distill the broad concepts above into specific actions that can be addressed and accomplished in a company. When manufacturers excel in these areas, they strengthen their core competencies and outmatch the competition. The keys to success, in no particular order, are:
• Reduce Lead Times
Shorter lead times are always a good thing. In many markets, the ability to deliver sooner will win business away from competitors with similar product features, quality and price. In other markets, quick delivery can justify a premium price and will certainly enhance customer satisfaction. In all cases, shorter lead times increase flexibility, reduce the need for inventory buffers, and lower obsolescence risk.
• Cut Operations Costs
Improve Business Performance Visibility
Ignorance is one of the greatest threats to a manufacturing company's health and success. Executives and senior managers must understand how the enterprise is meeting strategic objectives. Middlelevel managers need visibility into how they are performing against tactical objectives. Responsible individuals must be notified immediately when supply chain issues threaten the completion of objectives, so actions can be taken to ensure customer delivery and quality requirements continue to be met.
Speed TimetoMarket
Developing and introducing new products and services is vital to most manufacturing companies. Good ideas are not enough; wellmanaged processes for bringing new products to market can lead to significant competitive advantages. Those activities, however, represent a significant risk that can lead either to missed opportunities or to huge financial losses.
Exceed Customer Expectations
The ultimate key to success in any business enterprise is to please your customers. The most successful companies don't just meet customer expectations, they exceed them and beat the competition by setting the bar at a level that makes it difficult if not impossible for others to surpass; they define and implement a system to attain customer's loyalty. Successful manufacturers manage the entire customer relationship, from prospect to postsales service and support; involving the entire organization in a customer focus. Whether or not they have direct contact with the customer, contributors must keep the customers' needs in mind as they plan and carry out daytoday operations.
Streamline Outsourcing Processes
Outsourcing of manufacturing operations is a common practice today because it offers flexibility, the ability to change products or processes rapidly; and can often save money by exploiting economies of scale or other favorable cost factors the contractor has to offer.
There are two approaches to outsourcing: a single process step or group of steps may be performed by an outside resource or the entire manufacturing process might be contracted out to a third party. In either case, the manufacturer relieves demand on its own plants and has an opportunity to concentrate on its core competencies, while its partner provides the resources for producing products.
Manage Global Operations
Figure 2.1 depicts the permanent company's journey which allows it to have an unending competitive advantage versus its competitors (Warnock, 1996).
World class
Current State
Figure 2.1 World class manufacturing: a transformation strategy
In essence, WCM sets out to create a new company, by business reengineering, a company very different from the actual. Its culture will b& different. Its structure will be different.
The path to WCM draws from other wellestablished philosophies and methodologies. Among them are:
• Business reengineering
• Total quality management and control (TQM) • Benchmarking
• Six Sigma
• Lean Manufacturing • Lean Sigma
• Lean Thinking
• Formal policies and procedures (ISO/TS, QS) • Change Management
• etc.
Four themes which are considered most central for this thesis have been selected for discussion. The themes are Benchmarking, Six Sigma, Lean Manufacturing, and Lean Sigma.
2.2 Benchmarking
Benchmarking can somewhat philosophically be defined as follows (APQC, 1993): Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match them and even surpass them at it. This definition captures the essence of benchmarking, namely learning from others. The core of the current interpretation of benchmarking is:
• Measurement, of own and the benchmarking partners' performance level, both for comparison and for registering improvements.
• Comparison, of performance levels, processes, practices, etc.
• Learning, from the benchmarking partners to introduce improvements in your own organization.
• Improvement, which is the ultimate objective of any benchmarking study.
Performance
Continuous improvement
Breakthrough
Continuous improvement
Time
Figure 2.2.1 Benchmarking emphasizes attaining socalled breakthrough improvements
2.2.1 Benchmarking Benefits
Successful benchmarking, in which gaps in performance are bridged by improvements, results in significant tangible benefits (Andersen et al. 1998), such as:
• step changes in performance and innovation • improving quality and productivity
• improving performance measurement
• raised awareness about performance and greater openness about relative strengths and weaknesses
• learning from others and greater confidence in developing and applying new approaches
• greater involvement and motivation of staff in change programs
• increase in willingness to share solutions to common problems and build consensus about what is needed to accommodate changes
• better understanding of the 'big picture' and gaining a broader perspective of the interplay of the factors (or enablers) that facilitate the implementation of good practice
• Increasing collaboration and understanding of the interactions within and between organizations.
[image:23.613.73.494.273.549.2]Benchmarking is conducted in separate projects whose individual objective is to improve one of the organization's business processes. The benchmarking process can be detailed in figure 2.2.2 (Bogan, 1999)
Another model is the socalled benchmarking wheel (Andersen, 1995), as portrayed in Figure 2.2.3; the benchmarking process is a continuous revision of several phases required for the success of the study.
[image:24.617.176.393.125.326.2]factors, select a process for benchmArklno.
Figure 2.2.3 Benchmarking wheel
2.3 Six Sigma
The roots of Six Sigma can be traced to two primary sources: total quality management (TQM) and the sixsigma statistical metric originated at Motorola Corporation. From TQM, Six Sigma preserved the concept that everyone in an organization is responsible for the quality of goods and services produced by the organization.
Other components of Six Sigma that can be traced to TQM include the focus on customer satisfaction when making management decisions, and a significant investment in education and training in statistics, root cause analysis, and other problem solving methodologies.
The Six Sigma metric was developed at Motorola in 1987 in response to substandard product quality traced in many cases to decisions made by engineers when designing component parts. Traditionally, design engineers often used the "three sigma" rule (total spread of six standard deviations) when evaluating whether or not an acceptable proportion of manufactured components would be expected to meet tolerances. In this case, about 99.7% of the components for a centered process would be expected to conform to tolerances. That is, only 0.3% of parts would be nonconforming to tolerances, which translates to about 3000 nonconforming parts per million (NCPPM).
sigma rule (total spread of 12 standard deviations and a quality level of 3.4 NCPPM) was based on the need to achieve really high quality. Motorola recognized that there was a pattern to improvement (and use of data and process tools) that could naturally be divided into the five phases of problem solving usually referred by the acronym DMAIC (damayick), which stands for DefineMesureAnalizelmproveControl. The DMAIC steps are shown in table 2.3.1 and described below:
• The purpose of the Define phase is to clarify the goals and the value of
the project. Teams and champions use those tools necessary to assess the magnitude of the value opportunity, the resources required, and a design of the problemsolving process.
• Assuming that the project is approved by the champion, the team proceeds to the Measure phase, in which the members gather data on the
problem. Here, primarily data collection tools are used, process mapping, Pareto analysis, run charts, etc.
• In the Analyze phase the team examines its data and process maps to
characterize the nature and extent of the defect. The tolls help pinpoint the time traps and define the tools in priority order. This detailed knowledge about the problem lays the groundwork for finding improvements (in the next phase) that will address the underlying causes of the problem.
• The Improve phase applies a powerful tools set to eliminate defects in
both quality and process velocity (lead time and ontime delivery).
• When the process has achieved the required quality level, the tools of the
Control phase are employed to lock in the benefits. Some of these
Control tools, such as mistake proofing (pokayoke), create a monitoring, gauging, and feedback system to instantly detect and correct trends.
Define 0. Defining the projectDo CTQs still tie to business
Identify financial benefits
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5. 'Determine process performance
Analyze objectives Do you have vital x's? 6. Determine sources of variation and J
time bottlenecks
7. Screen potential causes Have you screen the vital x's?
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Process flow
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Monitor performance •BnHBRH&BNHMHHI •»«B»a««a«glMllml'lrm»3g!!BE •BWBSBSHHSSIaSSSfflSiKWHSSKKl Table 2.3.1 The DMAIC steps and tools Gantt charts•HHH
Six Sigma is a structured, longterm business improvement strategy to aggressively, relentlessly and ruthlessly reduce process variation. Becoming familiar with the DAMIC process and knowing how and when to use data and process tools are critical for the success of Six Sigma.
With Six Sigma, the value of an organization's output includes not just quality, but availability, reliability, delivery performance, and aftermarket service. Hence, the Six Sigma metric is applied in a broad fashion, striving for near perfect performance at the lowest level of activity. In addition, Six Sigma programs generally create a structure under which training of employees is formalized and supported to ensure its effectiveness. All employees involved in activities that impact customer satisfaction are trained in basic problem solving skills. Other employees are provided advanced training and required to act as mentors to others in support of quality improvement projects.
2.4 Lean Manufacturing
The Lean manufacturing concept goes back many years ago. In 1945 Shingeo Shingo identified that batching production was the main source of delays; his colleague Taiichi Ohno began work on the Toyota Production System in 1950; and in 1975 Shingo explained his "non stock production system". Lean manufacturing is based on the Toyota Production System, defined as: 'A philosophical approach to business that is based on satisfying the customer (whether internal or external) by producing quality products that are just what they need, when they need them, in the quality required, using the minimum of materials, equipment, space, labor and time'.
A Lean Manufacturing facility is characterized by:
• Integrated single piece production (i.e. a continuous flow of work) with minimal inventories at each stage of the production process.
• Small batch production capability that is synchronized to shipping schedules
• Defect prevention rather than inspection and rework by building quality in the process and implementing real time quality feedback procedures
• Production planning that is driven by customer demand or "pull" and not to suit machine loading or inflexible work flows on the shop floor
• Team based work organizations with multiskilled operators empowered to make decisions and improve operations with few indirect staff
• Active involvement by workers in trouble shooting and problem solving to improve quality and eliminate waste.
What has been achieved in the industry by adopting Lean Manufacturing is (Womack, 1990): half the hours of human effort in the factory, half the defects in finished product, onethird the hours of engineering effort, and half the factory space for the same output.
The practice of Lean manufacturing originated in Japan some 50 years ago at Toyota Motor Co., helps achieving the goal to create a production environment driven by demand that holds only a small amount of inventory and products at any given time. In a Lean manufacturing environment, whenever finished goods are sold, the sale triggers a signal to the process one level back calling for replenishment. The replenishment generates yet another signal one level back asking for components that go into the finished product; the components process then sends a signal back asking for parts that make up components, and so on. "It's a reverse cascade, and each step consults with the previous step in the chain," (Womack, 1996).
During the implementation of the Toyota Production System, Ohno identified seven 'muda', or wastes (Taylor, 2001):
1. Transport moving components between factories, within the factory and
also between processes. In the automotive industry there is a tendency for first tier suppliers to set up satellite facilities around their customer's main assembly plant to eliminate transport costs and to allow just in time deliveries.
2. Inventory, good inventory is the minimum of raw material that is available
to help manufacture what the customer wants, exactly on time. It is also the strategic buffers in front of bottleneck processes and a small store of finished parts made with the customer's agreement to protect deliveries to him. Bad Inventory includes excessive raw material purchased because the market price was low, and batches purchased when only small quantities are required. Bad inventory is obsolete and slow moving stock that may never be used and the work in progress caused by manufacturing in batches to make things that the customer 'may1 want soon but never orders.
3. Movement the excessive motion of the operator bending, stretching, or
moving to see more easily. Today, ergonomics is a major feature of businesses, as health and safety issues correctly become more important. 4. Waiting: for materials, tooling, maintenance or even work; and waiting for
instructions, schedules or for meetings to start. All are wastes. In a factory operating on flow rather than batch production, waiting indicates that the process has stopped and there may be a problem. In most companies, some form of waiting is inevitable, but people in the best factories utilize this time on cleaning, tidying, maintaining or training.
5. Over Production: making more components than the customer requires or
6. Over Processing: carrying out unnecessary operations. It can be using
machines that are too large or sophisticated for carrying out a small simple operation. Over processing is also caused by the need to replace defective parts.
7. Defects: not done 'right first time1 i.e. scrap, rework, inaccurate invoices
etc. Defects have to be repaired or replaced as soon as they are identified.
Lean Manufacturing is all about the systematic elimination of these seven wastes. In The Lean Tool Box1, John Bicheno identifies seven 'new1 wastes,
which apply equally to today's businesses: 1. The waste of untapped human potential 2. The waste of inappropriate IT systems. 3. Wasted energy and water
4. Wasted materials (environmental pollution) 5. Service and office wastes
6. Waste of customer time 7. Waste of defecting units.
Additional to the fourteen wastes, can expand two more:
1. Inadequate performance metrics used in operations (Cabeza, 2003). 2. Inappropriate design, lack of design for manufacture.
Five primary elements are required to support the manufacturing component of lean production: manufacturing flow, organization, process control, metrics, and logistics. On the manufacturing floor, work is divided into discrete cells based on
natural groupings of related tasks.
1. Manufacturing flow concerns the physical changes and design standards
deployed as part of each work cell.
2. Organization establishes people's roles and functions, and trains them in
new ways of working and communicating.
3. Process control includes efforts to monitor, control, stabilize, and improve
manufacturing process steps.
4. Metrics involves establishing visible, resultsbased performance
measures, determining targets for improvement, and recognizing work teams for their process improvements.
5. Logistics defines the operating rules and mechanisms for planning and
controlling the flow of material.
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[image:29.618.77.509.49.297.2]Ua»7hem. Sf.Lucteftaos, Table 2.4.1 Methods and tools of Lean manufacturing In essence, these methods support three basic objectives of lean manufacturing: make only quality stuff, do it fast, and do it efficiently. The presumption of lean thinking is that if you do these things, you save costs, produce faster, and are more flexible to respond to changes in market demand.
To implement 'lean1 an organization's leader must have a lean thinking and a
vision; this must be developed into a planned strategy. A disorganized approach to lean will not produce amazing results; the leader must have a master plan to layout all WCM tools.
2.5 Lean Thinking
More recently, we have realized that 'manufacturing1 is only a small part of any business and whilst we are implementing 'lean1 there, the rest of the business is not being challenged. Thus Womack and Jones introduced 'Lean Thinking" in the mid 1990s, to apply the concepts of 'lean' across the whole supply chain from our supplier's suppliers through all the departments in our own business through the customer.
Womack and Jones (1996) summarized lean thinking in five principles: 1. Precisely specify value by specific product
2. Identify the value stream for each product
3. Make value flow without interruptions
4. Let the customers pull value from the producer
Understand customers and what they value
Define the internal value stream
Externalize the value focus to the whole value stream
Extend the definition of valueN
outside your own company
Appropriate methods to make the necessary change
[image:30.618.128.453.66.298.2]Eliminate waste, make information and products flow pulled by customers needs
Figure 2.5.1 The central lean principles
Specific actions to remove waste tend to happen in principles 3 and 5. Numbers 1 and 2 provide for waste identification.
1. Value is defined by the customer. It's expressed in the characteristics of
the product or service (or both) that the customer finds attractive. At a very basic level these may be no more than reliability, maintainability, and
availability (reliability implies that a product doesn't fail often,
maintainability means it's easy to fix when it does break, and availability
means repair can be done very quickly). At a higher level, value could
mean more "bells and whistles," multiple functionality, or attractive styling. The definition of value establishes product design objectives.
2. The value stream for each product might be considered the process
steps required to bring a product through three critical management tasks: a. Problem solving. Concept through detailed design and engineering
to production.
b. Information management. Ordertaking, through detailed
scheduling, to delivery.
c. Physical transformation. Raw materials to a finished product in the
hands of the customer.
On the other hand, many steps that create no value are immediately avoidable. These are Type 2 'muda', and they obtain most of the
immediate attention of managers attempting to implement lean production.
3. Making value flow requires speed and consistency. The lean alternative
redefines the work of functions, departments, and firms. The objective is to make work valued by the customer move through the system quickly and smoothly (i.e., without the startsandstops inherent in batchandqueue operations).
4. Pull is a manufacturing philosophy based on synchronizing production
objectives and rates with actual customer demand, rather than on forecasts or arbitrary finished inventory levels. Ideally, pull approaches
maketoorder. And effective pull system can achieve dramatic savings in
both workinprocess and finished inventories. To succeed, however, a
pull philosophy depends on exceptionally fast, smooth flow.
5. The final lean principle is "pursue perfection." This implies that the first
four principles are repeated in a continuous, evertightening cycle. Lean thinking maintains that there is no end to the process of reducing effort, time space, cost, and mistakes, while offering products that continually approach exactly what customers want.
Getting value to flow faster always exposes hidden muda in the value stream.
And the harder you pull, the more the impediments to flow are revealed so they
can be removed.
2.6 Lean Six Sigma
Both the Lean and the Six Sigma methodologies have proven over the last twenty years that it is possible to achieve dramatic improvements in cost, quality, and time by focusing on process performance. Whereas Six Sigma is focused on reducing variation and improving process yield by following a problemsolving approach using statistical tools, Lean is primarily concerned with eliminating waste and improving flow by following the Lean principles and a defined approach to implement each of these principles.
methods as complementing each other. And while each approach can result in dramatic improvement, utilizing both methods simultaneously holds the promise of being able to address all types of process problems with the most appropriate toolkit. For example, inventory reduction not only requires reducing batch sizes and linking operations by using Lean, but also minimizing process variation by utilizing Six Sigma tools.
Therefore, many firms are looking for an approach that allows to combine both methodologies into an integrated system or improvement roadmap.
The main differences between Six Sigma and Lean are:
Lean Six Sigma
Project Selection Driven by Value Stream Map
Infrastructure
Various approaches
•JiBiiiMH
Dedicated resources, broad-based training
Table 2.6.1 Comparing Lean and Six Sigma
Developing an integrated improvement program that incorporates both Lean and Six Sigma tools requires more than including a few Lean principles in a Six Sigma curriculum or training Lean Experts as Black Belts. An integrated improvement strategy has to take into consideration the differences and use them effectively:
• Lean projects are very tangible, visible, and can oftentimes be completed within a few weeks (whereas Six Sigma projects typically require a few months). An integrated approach should emphasize Lean projects during the initial phase of the deployment to increase momentum.
• Lean emphasizes broad principles coupled with practical recommendations to achieve improvements. For example, Lean suggests a technique to analyze and reduce changeover time that does not require sophisticated analysis and tools. However, Lean principles are oftentimes inadequate to solve some of the more complicated problems that require advanced analysis. Therefore, Six Sigma needs to be introduced during the first year of the deployment to ensure that the improvement roadmap includes a generic problemsolving approach.
• Whereas the Six Sigma process and tools can be applied to virtually every process and industry, the Lean approach is much more specific and the content needs to be adjusted to industry needs: for example, reducing set up time in a plant that has lines dedicated to a single product is pointless. Therefore, the Lean curriculum needs to be adjusted to meet the needs of the specific business.
• Training is effective but only when combined with application. Lean principles are typically taught as separate workshops, with each workshop combining a short training session on the principle with direct application on the shop floor. Six Sigma training is broken down into the phases of the DMAIC process with time between each training session to apply the tools learned to the project. The extensive analysis required for Six Sigma projects suggests that a workshop structure as used for Lean training would not be effective.
So what is Lean Six Sigma? Lean Six Sigma is a methodology that maximizes shareholder value by achieving the fastest rate of improvement in customer satisfaction, cost, quality, process speed, and invested capital (George, M.L, 2002).
The fusion of Lean and Six Sigma is required because Lean can not bring a process under statistical control and Six Sigma alone can not dramatically improve process speed or reduce invested capital.
A Lean Six Sigma organization would include the following three primary tenants of Lean manufacturing:
1. It would incorporate an overriding philosophy that seeks to maximize the valueadded content of all operations
2. It would constantly evaluate all incentive systems in place to ensure that they result in global optimization instead of local optimization
3. It would incorporate a management decisionmaking process that bases every decision on its relative impact on the customer.
A Lean Six Sigma organization would include the following three primary tenants of Six Sigma:
1. It would stress datadriven methodologies in all decision making, so that changes are based on scientific rather than unprepared studies
2. It would promote methodologies that strive to minimize variation of quality characteristics
3. It would design and implement a companywide and highly structured education and training regimen.
Assessing the financials is a twostage approach for identifying opportunity areas related to financial drivers:
1. Find the big buckets of money from financial statements 2. Decide which of those you can reasonably hope to influence.
This is equivalent to identifying the largest "value prize" and then assessing how much can each lever can be moved.
•Customer Retention •Revenue per Customer •Service Speed
•Yield •Cycle Time •Productivity •Service/Product
•Facilities Utilization •Capacity Utilization •Technology Utilization
•Inventory Turnover •Accounts Receivable Days
•Accounts Payable
[image:34.612.72.526.156.463.2]•Market Penetration •Market Development •Service/Product Development
Figure 2.6.1 Financial value driver tree
2.7 Sourcing Strategy. Make or buy: strategic decisions
The importance of the make or buy decision is evidenced by the fact that all manufacturing firms at some time during the course of their operations will probably have to make such decision. Thus, they are often major determinants of profitability and can be significant to the financial health of the company.
There are host of factors that must be taken into consideration when making this decision. Financial considerations include the cost and investment involved. Non financial considerations include quality requirements, vendor relations, work force stability, capacity availability, core and noncore processes, etc.
When faced with a choice between selfmanufacturing and purchasing from an outside supplier, the firm has the following alternatives:
• Make an item currently purchased • Buy an item currently made
• Make or buy an item currently not a part of the company's product line • Make or buy more or less of an item the company is currently making
and/or buying
Firms often conduct value analyses of existing products. Such an analysis might conclude that it would be better to produce an item inhouse rather than to continue to purchase it, or vice versa.
2.7.1 Factors Influencing the Decision
Financial considerations generally are first calculated as a starting point for the makebuy determination. The nonfinancial factors are then considered and often are more important than the financial ones (Gambino, 1980).
Financial
a) Cost
Many companies hold that only direct or variable costs are relevant to the decision, while others maintain full costs (fixed + variable) should be considered.
However, the application of fullcost concept in all cases would reduce uncertainties caused by evaluating the time frame of the decision involved. In addition to present costs, a make or buy analysis should give consideration to what future costs are expected to be.
The following is a summary of major variable cost items that should be included in an estimate to make or buy:
To Make
• Delivered raw material costs
• Direct labor costs (including inspection costs) • Incremental factory overhead costs
• Incremental managerial costs • Incremental purchasing costs
• Incremental inventory carrying costs • Incremental costs of capital
To Buy
• Transportation costs
• Receiving and inspection costs
Fixed costs might include material handling, indirect labor, fringe benefits, overtime premium, supervision, power, special training costs, setup and tear down time for conversion of equipment, and equipment depreciation. In addition they might include building repairs and maintenance, general taxes, and administrative costs.
b) Investment
Besides costs, a second important financial consideration is the amount of investment required.
Full consideration must be given to what the investment "should be" under obtainable conditions and reflecting all possible improvements. Thus, the required investment should reflect the best obtainable productivity and efficiency and the lowest possible inventory levels. Investment related to the buy alternative must reflect maximum use of supplier terms, opportunities for suppliers to carry backup inventories, etc.
c)ROI
Once cost and investment have been determined, one can calculate the relative return on investment (ROI) of each project.
There are several techniques that can be used to determine the profitability of an investment. They include: payback, average rate of return, net present value, and internal rate of return. The first two methods, payback, average rate of return, do not consider the time value of money, whereas, net present value and internal rate of return do and are therefore the ones selected for the analysis.
In the present value technique, the firm's cost of capital is used as a discount rate and applied against the project's net cash flow. If the present value of the cash inflows exceeds the cash outflows, the project's return is greater than the firm's cost of capital and the project should be considered.
The internal rate of return, it is that rate at which the present value of the cash inflows equals the present value of cash outflows.
Nonfinancial
a) Manufacturing complexity b) Manufacturing capacity c) Plant space availability d) Core or noncore processes e) Employment stability
f) Confidentiality of process g) Quality control
• Multiple sources; if a firm purchased all the requirements of a particular item from one supplier, it would be extremely vulnerable if that supplier went out of business, significantly cut back production, or increased prices to an unreasonable level.
i) Technological Obsolescence
j) Strategic business issues (market, competitors, technology, etc).
2.7.2 Advantages of Making or Buying
The most advantages of buying rather than manufacturing inhouse are:
1. Benefit of outside supplier's specialized abilities 2. Less expensive
3. Volume not big enough to justify capital and inventory investment or to update current manufacturing assets
4. Plant space
5. Demand variations 6. Quicker delivery
The main advantages of making a part rather than buying are:
1. Integration of plant operations 2. Help carry overhead
3. Less expensive
4. Unusual complex parts requiring direct supervision 5. Higher quality
6. Less transportation and delivery delays 7. Secrecy
Chapter 3. Tools Application on a Real Case Study
The intention of this chapter is to provide the structure and application of the concepts and tools described in the previous chapter, to a real case study.
Usually improvement areas projects are identified within the organization, sometimes they are just mentioned and time makes them ancient history while improvement opportunities pass by; other times the approach to solve the problem is somewhat mixed up, while people gets discourage to initiate the process. Therefore, a need to establish the right roadmap to follow is necessary in order to accomplish the project's objective. In this case, the application of Lean Six Sigma and other tools will give the project the correct course of action.
Figure 3 illustrates a model supported by the referential analysis discussed in Chapter 2. This model includes concepts of World Class; Value added, Perfection Lean; Six Sigma; Business strategies such as Outsourcing. Following this process on any company, should lead towards a competitive advantage.
, costs / Business excellence /
1
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work culture i_earr*ina
I
Activity I _XAdels value7o\^?"V^^ •« vrorieT"NjV'*«^lt a Cor»^N_xCr, and/or I ~^worganlzatlon?^ ^V. class? >• " VCompetenceV Process I t ^^ r " [image:38.616.77.510.332.668.2]Complexity Reduction Case Study
3.1 Description of the company
We will now center our attention on a Consumer Products enterprise, which from now on will be named "The company". The company is a world leader in the market with manufacturing plants all over the world (Brazil, Spain, Poland, Italy, France, The Netherlands, Mexico). Translated into figures, it produces over 2.4 billion units every year; 30% of segment market O around the world are using company's products, also 65% of the world's top segment market A, 55% of major segment market S, and 30% of segment market H.
3.2 Define and Measure the Problem
3.2.1 Selection of the problem
A meeting of senior management of the company was held and a brainstorming session produced a list of over a 100 projects. These were listed on a table classified by impact area, project owner, timeframe, and priority to the organization produced by a consensus.
The project selected for this case study is Manufacturing Complexity Reduction. A crossfunctional team was formed of people from marketing,
product management, planning, purchasing, product and process engineering, finance, and a project manager to facilitate the project's process.
3.2.2 Definition of the problem
The amount of production lines and the variety of product families are making the plant's operation a complex process. Several factors affecting the
manufacturing system:
1. Customer demands manufacturers continuous price reductions
2. Customer requests flexibility, in order to satisfy this need, the plant often
sacrifices its efficiency to deliver satisfaction to the customer.
3. High diversity of components tends to cause nonoptimal changeovers
between product families.
4. Nonstandardized and/or old technology equipment making it more difficult
5. Stockholders demand a continuous cost reduction to keep or improve their
profits.
The Complexity Reduction Project has as objective to simplify the
manufacturing process, thru elimination of the less value operations for the stockholders, reduce operational costs; defining alternative sources to satisfy customer's demand and releasing factory resources to be utilized in future profitable projects. This latter point is the foundation for the project's stretch goal of 45% product code reduction, senior management has declared the need to release factory space and the target is this percentage. The scope of this case study will be focus in one of the 3 plants in city M, which is the special products plant, from now on named "plant 1"; analysis will be in one part of the whole supply chain which is manufacturing. All other supply chain links, such as new vendor relations, transportation, etc.; are being placed apart for this study. The plant under study manufactures products for special uses. Its products are mainly for the US and Canadian markets. A general process diagram can be illustrated in figure 3.2.2 GENERO.PROCESSFLOWDIA3RAM MATERIAL WAREHO USE , * I — i 3 — J 3 T li £ § MY, „ J PL1 |
•* j^| pirn —
1 PI 11 1 [image:40.613.93.505.360.645.2]PL16 I
UJ PL5 | i i 1
\4 PLe \
3.2.3 Measure the problem
Reduction volume
Finished goods codes (FGC) Material codes Roduct families
Manufacturing
Headcount
Customers
11 7 million units
653
1192 32 types
16 manufacturing lines IBLIhe
[image:41.615.191.401.107.297.2]1 Line 610 direct labor 44 indirect labor 7 Distrbution Centers
Table 3.2.3 Plant 1 overview
3.2.3.1 Current state description
Over the time, plant 1 operations have become very complex due to numerous causes such as; products transferred from sister factories on a mature stage product life cycle; introduction of new products with out a deep financial analysis to determine whether it will be profitable or not to make, old and external technology, variety on packaging, etc.
The result of this complexity for each production line, can be seen in Figures 3.2.3.1 and 3.2.3.2
Pareto on FGC per production line
PL1 FL5 PL3 PL7 PL15FL12 PL2 PU6 PL9PL14 PL4 PL8 PL11 PL16PL13 PL10
• FGC
[image:41.615.156.450.482.652.2]Considering that one of the elements of the goal is to reduce 45% of the products codes. Figure 3.2.3.1 Pareto analysis, illustrates that production lines PL1, PL5 and PL3 are the top three; and 4 more production lines represent the 68% from total FGC (Finish Goods Codes).
Pareto on Production Volume per production line
0%
PL9PL12 PL8 PL11 PL4 PL15 PL3 PL5 FLU PL7 FL2 PL6 PL1
PL10 PL13 PL16
[image:42.613.166.469.151.330.2] [image:42.613.147.463.431.596.2]H Production Volume
Figure 3.2.3.2 Pareto on production volume per production line
Pareto analysis from above figure shows that production lines PL1, PL6 and PL2 signify only 5% of total production volume.
Pareto on Average production per FGC codes
o
PL9PL12 PL8 PL11 FL4 PL14PL15 PL3 PL7 FL5 FL6 PL2 PL1 FL10PL13 PL16
• Average production per FGC
Figure 3.2.3.3 Pareto on Average production per FGC codes
One of the factors affecting production performance is the amount of changeovers. This factor can be reflected by the machine utilization metric, which is the ratio of total worked hours, divided by total available hours. A low ratio means high changeovers in the production line.
Machine Utilization Analysis 95% -|
90% 85% 80% 75% 70%
PL1 PL2 PL3 PL4 PL5 PL6 PL7 PL8 PL9 PL11 PL12 PL14 PL15 PL10 PL13 PL16
[image:43.612.122.478.128.285.2] [image:43.612.150.463.373.538.2]Machine Utilization
Figure 3.2.3,4 Machine utilization
On Figure 3.2.3.4; PL1, PL2 and PL14 production lines are showing the less machine utilization.
Pareto on Direct labor productivity
PL11 PL5 PL9 PL14 PL8 PL3 PL12PL4 PL15PL6 PL7 PL2 PL1
PL10 PL13 PL16
• Direct labor productivity
Figure 3.2.3.5 Direct labor productivity
Once more, figure 3.2.3.5 shows again production lines PL1, PL2, and PL6 with less direct labor productivity; also they have in common to be the least in contribution to total production volume, and in average production
per FGC.
Another important factor is the production line technology that the plant currently has. Plant's 1 technology equipment can be classified in different types:
• NA groups, which is the first company's technology generation • NB groups, which is the second company's technology generation • NB groups with special features, latest company's technology.
Currently, plant 1 has 5 production lines with external technology (PL1, PL2, PL14, PL15 and PL16); and 11 NA groups (PL3 to PL13).
Pareto on Scrap per production line
PL14 PL2 PL6 PL5 PL9 PL15PL12 PL3 PL4 PL7 PL8 FL11 PL1
PL10 PL16 PL13
[image:44.613.140.480.182.367.2] [image:44.613.127.463.485.664.2]m Scrap
Figure 3.2.3.6 Pareto on scrap per production line
Production line PL14 is the highest on scrap percentage, and it is associated with external technology equipment.
Following is the contribution to total margin as a percentage of total annual production.
Contribution to total Margin
Figure 3.2.3.7 reflects the financial contribution from each production line to plant's 1 total. Production lines PL1, PL2, PL8, PL11, PL14, PL15PL16 have a negative impact to the plant's financial performance. The financial contribution per production line to total margin is computed as the subtraction of transfer price (set by the commercialmarketing department) minus manufacturing costs of the plant.
3.3 Analysis of the Problem
In the previous section it was shown individually some key indicators and their performance; in order to have a better picture of their behavior and impact to the plant, let's combine them and define the low volume and nonprofitable products production lines; that are generating complexity to the operation.
Firstly, the FGC and production volume comparison are analyzed.
FGC and Production Volume comparison
[image:45.612.144.476.274.486.2]PL1 FL2 PL3 PL4 PL5 PL6 PL7 PL8 PL9 PL11PL12PL14PL15 PL10 PL13 PL16 • FGC E Production Volume
Figure 3.3.1 Production volume and FGC relation
Figure 3.3.1 shows production lines PL1, PL2, PL3, PL5, PL6 with a production volume : FGC ratio too low; meaning that for example PL1 has many FGC's while its production volume is too low. The output of this low ratio is causing numerous changeovers in each production line, making the machine utilization and efficiencies to decrease considerably.
Margin and Machine Utilization comparison ^ CO 2 .0 S 80% -r 70% 60% 50% 40% 30% 20% -10% 0% • -10% • -20%
T 95%
PL1
PL10 PL13 PL16
J 70%
[image:46.612.99.473.77.273.2]••I Contributbn to total Margin per production line —•— Machine Utilization
Figure 3.3.2 Relation of contribution to total margin and machine utilization per production line
An interesting analysis to determine the feasibility to reach the stretch goal of 45% reduction on product portfolio of finished goods codes; can be
[image:46.612.213.373.385.600.2]An obvious suggestion would be to invest on equipment to standardize technology; but keep in mind that the industry growth for the products involved in PL1 and PL2 is flat, locating them on a mature or early decline market position; where sales do not increase, costs are stable or increase over time.
3.4 Improve Phase
3.4.1 Using Lean Sigma
The driver for any organization that uses LeanSigma principles is to eliminate waste in order to improve customer satisfaction, reduce costs and increase stockholder's profits. Therefore, in order to achieve the goal to reduce complexity, synonymous of waste; a decision matrix will be created based on the key factors analyzed on sections 3.2 and 3.3.
Table 3.4.1 specifies all production lines qualified by key factors (each of them making reference to their figure to clarify the data). Also, this matrix includes the relative weigh for each key factor in order to reach the case study goal:
1. Contribution to total margin has been given the highest weigh (30%) because its being searched to give the best value to the stockholders; 2. The second key factor is the Low volume category (20%) since it
represents the highest FGC associated with low annual production volume (25K), since the goal is to achieve a 45% reduction in FGC; 3. Machine utilization and Technology have 10% weight; these two
factors plus Low volume category stand for major changeovers.
100%
Table 3.4.1 Decision process map matrix
Once all opportunity gaps have been mapped in the above figure, there is a need to determine the weighed decision process map matrix (table 3.4.2) to identify the production lines with the highest opportunity to reduce complexity, according to the established business case objective.
For example, production lines with the minimum total points will represent the candidates to reduce complexity.
Table 3.4.2 Weighed decision process map matrix
[image:49.612.94.529.388.605.2]