Lean Thinking and Strategic Asset Management

An MRO Software White Paper

November 2003

Johan Arts
Director of Industry Marketing

MRO Software
100 Crosby Drive
Bedford, MA 01730
Tel: +1 (800) 244-3346
Fax: +1 (781) 280-2202
www.mro.com
 Lean Thinking and Strategic Asset Management

1. Introduction..........................................................................................................3
2. Lean principles......................................................................................................3
3. Strategic Asset Management................................................................................6
4. Lean thinking and risk.........................................................................................8
5. Summary and conclusion.....................................................................................8
6. About MRO Software............................................................................................9
7. How MRO Software has adopted lean thinking................................................10
8. Sources:................................................................................................................10

MRO Software ©2003 Page 2 3/4/2020

 Lean Thinking and Strategic Asset Management

1. Introduction

The principles of lean thinking are applied in manufacturing companies around the
world with great success because of their impact on company performance. However,
if not executed with the appropriate support systems and infrastructure in place, an
improvement project based on lean thinking can adversely impact the company’s risk
and can lead to serious business disruption.

This paper investigates the impact of lean thinking on one of the support functions,
the Maintenance Department. By removing waste from the value stream, the
dependency on reliable performance of the assets (people, tools and machines)
dramatically increases. Reliable assets become an absolute prerequisite for running
the business. There simply is less and less room for error.

Companies that are implementing lean thinking should consider strategic asset
management approaches that help improve the reliability of assets while optimising
the cost of maintenance and operations across a wide range of asset classes.

2. Lean principles

Lean thinking is all about the removal of waste from the value chain. Waste is defined
as any (human) activity which absorbs resources but creates no value. This definition
includes mistakes which require rectification, production of items of no market value
and processing steps which aren’t actually needed. Lean thinking provides a way to
specify value, prioritize value-creating actions, conduct these activities without
interruption when requested, and perform them more effectively. In short, lean
thinking is lean because it provides a way to do more -- with less -- while providing
customers exactly what they want.

Historically, manufacturing companies are organized in “functions” and “departments.”

The grouping of workers and assets along functional lines appears to be a logical
choice to manage tasks as efficiently as possible. However, the movement of goods
and services from one function to the next and the coordination and planning required
introduces tremendous delays and other forms of waste.

Today, companies can realize significant gains by implementing a lean enterprise.

The lean alternative aligns functions and departments along the lines of the value
stream with specific work cells and assets that are dedicated to performing certain
tasks. By using this approach, unnecessary and non-value-adding activities can be
removed from the system leading to a more efficient process.

Porsche AG

An example of an automotive company that has adopted the lean

manufacturing principles is Porsche AG, the famous sports car manufacturer.
Their lean initiative was started in 1991 and over a five-year period, Porsche
doubled its fundamental productivity in operations while cutting defects in
supplier parts by 90 percent and first-time-through errors in-house by more
than 55 percent. By 1997, it had launched two highly manufacturable (full
production) products after only three years of development work, cut the
needed manufacturing space in half, shortened lead times from raw materials

MRO Software ©2003 Page 3 3/4/2020

 Lean Thinking and Strategic Asset Management

to finished vehicle from six weeks to three days, and cut parts inventories by
90 percent

Table 1: Porsche Results1

1991 1993 1995 1997

Time
A. Concept to launch 7 years - - 3 years
B. Welding to finished car 6 wks - 5 days 3 days
Inventories 17.0 4.2 4.2 3.2
Effort 120 95 76 45
Errors
A. Supplied Parts 10,000 4,000 1,000 100
B. Off the assembly line 100 60 45 25

The principles of lean thinking can be defined in five key concepts that are outlined
below:

Value
The critical starting point for lean thinking is value. Value can only be defined by the
customer or purchaser. And it’s only meaningful when expressed in terms of a
specific product which meets the customer’s need at a specific price.

Value stream
The value stream is the set of all the specific actions required to bring product
through the three critical management tasks of any business:
problem-solving;through detailed design and engineering to production launch,
information management; from order-taking through detailed scheduling to delivery
and the physical transformation; from raw materials to a finished product in the hands
of the customer.

Flow
Once value has been specified, the value stream for a product fully mapped, and
wasteful steps eliminated, it’s time for the next step in lean thinking: Make the
remaining value-creating steps flow. Instead of having activities performed by
distinctive departments, all of the activities pertaining to the completion of a product
or service should be organized in a single, uninterrupted flow.

Pull
Once a company has placed its revenue generating assets in a flow concept, the next
step is to start making product only when there is actual demand from a customer,
instead of working against a forecast. This concept is called “pull” and ensures that
no waste in the form of unwanted products is being created.

Perfection
Once companies have implemented all of the above lean principles, those involved
are often made aware that there is no end to the process of reducing effort, time,
space, cost and mistakes while offering a product which is ever more close to what
the customer actually wants. A strive for perfection can drive additional rounds of
improvement.
1
The Porsche case is an excerpt from the book “Lean Thinking” by J. Womack and D. Jones and has a
number of footnotes with assumptions and details on how calculations for this table are made.

MRO Software ©2003 Page 4 3/4/2020

 Lean Thinking and Strategic Asset Management

Example: Bicycle manufacturing Part I – Applying the Lean Principles 2

In order to explain the transformation to a lean enterprise, an example of

bicycle manufacturing is hereby explained in more detail.

Traditional bicycle manufacturing

The key functional activities in the bicycle manufacturing process are tube
cutting, tube bending, mitering, welding, washing and painting of the frame
and handle bars, and final assembly of the complete bike. Most traditional
manufacturing companies have organized their production layout along the
lines of these functional groupings.

Figure 1: layout of traditional bike manufacturing plant

Tube stock storage Tube Cutting Deburr Tube Miter

Finished
Compo
stores
nent Frame parts storage Frame Welding Tube Bending
and
Storage
shipping

Final Assembly Frame storage Frame Paint Frame Wash

For each stage of manufacturing, machine automation has been introduced

to remove manual labor from the process. Because changeover times on
these machines were lengthy, parts are usually produced in large batches.

In order to manage the production process, a planning system is used that

generates work orders based on a forecast, taking into account the
inventories of parts and subassemblies. Due to the batch sizes for part
production, the total lead times for the bikes are usually quite lengthy. In
addition to that, the batch sizes also lead to high inventories of
subassemblies and parts that put pressure on the working capital.

Lean bicycle manufacturing

In the continuous flow layout, the production process is laid out in the
sequence of the process steps required to make the bike, removing all
requirements for non-value added movements between functional
departments.

Figure 2: layout of lean bicycle manufacturing plant

2
The Bicycle case is an excerpt from the book “Lean Thinking” by J. Womack and D. Jones.

MRO Software ©2003 Page 5 3/4/2020

 Lean Thinking and Strategic Asset Management

Bend Miter Deburr Cut

Weld Wash Paint Assemble Tube

Stock
&
Parts
Bend Miter Deburr Cut

Weld Wash Paint Assemble

Bend Miter Deburr Cut

Ship
Weld Wash Paint Assemble

In the new, flow-oriented layout, single large machines have been replaced or
broken into multiple small machines. Now bikes can proceed continuously,
one at a time, from tube cutting, to mitering, to bending, to welding, to
washing, to painting and to final assembly without ever stopping. In order to
realize this, changeover times have been reduced using SMED or like
approaches. The inventory between the stations has been reduced and is
moved from stage to stage using a pull-based system. The size of the work
teams can be geared to the production volume of the cell.

The benefits of this approach include lower working capital because of

reduced of work-in-process inventories ability to respond to shifts in customer
demands and in some cases, lower capital requirements (space, machines
etc).

3. Strategic Asset Management

Strategic asset management (SAM) maximizes the performance of fixed, physical or

capital assets that have a direct and significant impact on achieving corporate
objectives. Companies and organizations depend on vital assets to drive their
business; however, they often see them as individual, stand-alone objects operating
in the background. In reality, companies comprise a collection of strategic assets that
are tightly inter-dependent and exist as a single system that should be managed as a
unified enterprise at higher levels in the organization.

Strategic asset management strives to maximize asset performance for the lowest
total cost of ownership while taking into account risk, safety and compliance and
management with a limited set of resources.

To get continuous flow systems to flow for more than a minute or two at a time, every
machine/asset must be completely “capable;” that is, they must always be in proper
condition to run when needed and every part made must be correct for the process.
The reliability of the assets is the responsibility of the maintenance department which
is responsible for the asset management function. Strategic asset management helps

MRO Software ©2003 Page 6 3/4/2020

 Lean Thinking and Strategic Asset Management

companies to maximize the asset reliability and performance required for a lean
manufacturing implementation.

Example bicycle manufacturing: Part II – An unplanned downtime situation

Traditional bicycle manufacturing

On a given morning, the operator of the tube-bending machine is scheduled
to bend 100 aluminium tubes and finds out that the electric motor of the
machine won’t start. The maintenance department was behind in its
preventive maintenance program and the motor had missed a few badly
needed inspections and repairs. Luckily for the operator, all of the tube-
bending machines are located in the tube-bending department, and some of
the newer machines have multi-size tube bending capabilities. So the
operator informs the maintenance department of the problem, moves the
production batch to the other tube-bending machine and completes the job.,
Because these bent tubes are only necessary for the production run of the
week after next, even if the machine that broke down was the only one that
could perform the required task, there was ample time for the operator to get
the maintenance department to perform a rush repair job.

Lean bicycle manufacturing

Now that the bicycle plant has been changed to the flow-oriented layout, the
impact of the breakdown has changed significantly. The tube-bending
machine is placed within the aluminium bike production line. A breakdown of
the tube-bending machine now affects the production output of the entire line.
More importantly, because the planning system has been changed from
forecast-based production with production of parts in advance, to pull-based
production based on demand signals, the impact of a breakdown is that a
real customer demand cannot be fulfilled. The reliability of the tube-bending
machine becomes a critical prerequisite for the performance of the entire
production line for aluminium bikes.

One result of lean manufacturing implementation is the need for maintenance

departments to install programs that help improve and manage the reliability of the
critical assets. In order to achieve this, maintenance departments must master a set
of core competences that are related to the asset management function and put in
place the required improvement programs. Strategic asset management provides
maintenance and asset managers with a framework and process to make decisions
on improvement programs and to make the right decisions in relation to the corporate
objectives.

Within the strategic asset management methodology, companies can deploy

individual techniques such as Total Productive Maintenance (TPM), Reliability
Centered Maintenance (RCM) to increase the asset reliability, Just-in-time (JIT) or
Vendor Managed Inventories (VMI) to manage their parts inventories, or Activity
Based Costing (ABC) or Zero-based Budgeting (ZBB) to improve their understanding
of costs.

The implementation of a strategic asset management program directly affects the

ability of the company to achieve its corporate objectives:
 Revenue protection and enhancements through higher asset reliability

MRO Software ©2003 Page 7 3/4/2020

 Lean Thinking and Strategic Asset Management

 Cost control and reduction through enterprise visibility of maintenance

activities across sites and asset classes
 Risk mitigation and legal compliance through the implementation of
standards based work processes and common standards for safety and
health related processes
 Competitive advantage through better execution and lower cost for maximum
performance

While implementing a strategic asset management program requires people that

have the right skills and experience, the investment in a software solution to support
the strategic asset management program can provide significant benefits:
 Reduction of the number of systems required – one system across all asset
classes and geographies
 Reduction in total cost of ownership
 Reduction of the number of integration points
 Visibility of asset performance and workforce using a common set of
standards for benchmarking
 Flexibility to adjust the solution to changing requirements and work processes
 Embedded best practices leading to easy adoption by the users

4. Lean thinking and risk

An easy way to explain the impact of lean thinking on the risk profile of the company
is to think in terms of insurance. If an organization considers a “buffer stock” as a type
of insurance policy that can reduce the risk that a customer order cannot be shipped,
then the implementation of the lean principles drives the company to remove these
buffer stocks, and the risk of non-delivery increases.

The company needs to take out another insurance policy in the form of more reliable
assets that help to mitigate this risk. Strategic asset management helps companies to
implement better asset management programs that help to increase asset reliability.

5. Summary and conclusion

By removing waste from the value chain, the dependency on reliable performance of
the assets (people, tools and machines) dramatically increases. Reliable assets
become an absolute prerequisite for running the business.

Strategic asset management provides a framework for improving the reliability of

assets while working in a resource-constrained environment.

Using the Strategic Asset Management Methodology, companies can evaluate when
to apply specific maintenance philosophies and techniques such as RCM, TPM etc.
SAMM also provides a standardized approach to manage projects using a risk-based
approach.

Strategic asset management also provides lower cost of ownership alternatives by

supporting the implementation of a single asset management platform across multiple
asset classes. This provides management with better visibility of asset performance
and standardized work processes across the organization.

6. About MRO Software

MRO Software ©2003 Page 8 3/4/2020

 Lean Thinking and Strategic Asset Management

MRO Software is the leading provider of strategic asset management solutions. The
Company’s integrated suite of applications optimizes performance, improves
productivity and service levels and enables asset-related sourcing and procurement
across the entire spectrum of strategic assets.

The Company’s asset management solutions allow customers to manage the

complete lifecycle of strategic assets including: planning, procurement, deployment,
tracking, maintenance and retirement. Using MRO Software’s solutions customers
improve production reliability, labor efficiency, material optimization, software license
compliance, lease management, warranty and service management and provisioning
across the asset base.

MRO Software (Nasdaq: MROI) is a global company based in Bedford, Mass., with
approximately 900 employees, 10,000 customers and more than 260,000 end-users.
The Company markets its products through a direct sales organization in combination
with a network of international distributors. MRO Software has sales offices
throughout North America, Europe, Asia/Pacific and Latin America. Additional
information on MRO Software can be found at http://www.mro.com. MRO
SoftwareTM is a trademark of MRO Software, Inc.

7. How MRO Software has adopted lean thinking

MRO Software’s Strategic Asset Management Methodology (SAMM) incorporates the

lean principles. The methodology helps companies to identify value, map out the
value stream, compress the value stream and strive for perfection. Instead of
focusing only on the removal of waste, the SAMM approach provides guidelines for
improving asset reliability and performance. By combining lean and value thinking
with robust risk-based project management approach, MRO Software provides
companies with a solid foundation to implement improvement programs.

8. Sources

Certain parts of this white paper are excerpted from the book “Lean Thinking” by
James Womack and Daniel Jones, Free Press, 1996.

MRO Software ©2003 Page 9 3/4/2020