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Lecture Eight

Lean Operations
The new economics equation
Companies used to set prices as

Cost + Profit margin = Price

The new profit equation is

Price (fixed) - Cost = Profit


Price, in most industries, is fixed (as it is set by the
market or customer).
To improve profit, reduce cost in a sustainable way.
Lean Production
Lean production, also known as the
Toyota Production System, means

Doing more with less


less time, less space, less human effort, less
machinery, less materials while giving
customers what they want
Lean Operations
Lean operation
A flexible
system of operation that uses
considerably less resources than a traditional
system
Tend to achieve
Greater productivity
Lower costs

Shorter cycle times

Higher quality
Lean: Ultimate Goal
The ultimate goal:
Achievea system that matches supply to
customer demand;
supply is synchronized to meet customer demand
in a smooth uninterrupted flow
A balanced system
One that achieves a smooth, rapid flow of
materials and/or work through the system
Lean: building blocks
Lean: Supporting Goals
The degree to which leans ultimate goal is
achieved depends upon how well its supporting
goals are achieved:
1. Eliminate disruptions
Disruptions hinder the smooth flow of products through the
system
caused by poor quality, equipment breakdowns, changes to
the schedule, and late deliveries.
2. Make the system flexible
handling a mix of products and changes in the level of
output while still maintaining balance and throughput speed.
Lean: Supporting Goals
3. Eliminate waste, especially excess inventory
Represents unproductive resources
Seven sources of waste in lean systems:
1. Motion
2. Waiting time
3. Unnecessary transporting
4. Product defects
5. Processing waste
6. Inventory
7. Overproduction
Lean: Building Blocks

Product design
Process design
Personnel/organizational elements
Manufacturing planning and control
Building Blocks: Product Design
Four elements of product design that are
important for lean systems:
1. Standard parts
Workers have fewer parts to deal with.
Training times and costs are reduced.
Purchasing, handling, and checking quality are more routine.
The ability to use standard processing.
2. Modular design
Modules are clusters of parts treated as a single unit.
Reduce the number of parts to deal with
Simplifying assembly, purchasing, handling, training, and so
on.
Simplifying the bill of materials.
Building Blocks: Product Design
Four elements of product design that are important
for lean systems:
3. Highly capable systems with quality built in
Quality must be embedded in goods and processes.
Because of small lot sizes and the absence of buffer stock,
production must cease when problems occur, and it cannot
resume until the problems have been resolved.
4. Concurrent engineering
Cross-functional teams including design and manufacturing
engineering people in the design phase to simultaneously
develop the product and the processes for creating the product.
To achieve product designs that reflect customer wants as well
as manufacturing capabilities.
Building Blocks: Process Design
Eight aspects of process design that are important
for lean systems:
1. Small lot sizes
In the lean philosophy, the ideal lot size is one

Benefits of small lot size


Reduced in-process inventory
Lower carrying costs
Less storage space is necessary
Lower inspection and rework costs
Greater flexibility in scheduling
Increased visibility of problems
Increased ease of balancing operations
Building Blocks: Process Design
Eight aspects of process design that are important for
lean systems:
2. Setup time reduction
Small lot sizes and changing product mixes require

frequent setups
Unless these are quick and relatively inexpensive,

they can be prohibitive


Single-minute exchange of die (SMED)
A system for reducing changeover time
Categorizing changeover activities into internal and
external activities.
Convert as many internal activities as possible to external
activities.
Simplify the remaining internal activities.
Building Blocks: Process Design
Eight aspects of process design that are important
for lean systems:
3. Manufacturing cells
The cells are highly specialized and efficient

production centers.
It contains the machines and tools needed to

process families of products having similar


processing requirements.
Benefits include
Reduced changeover times
High equipment utilization
Ease of cross-training workers
Building Blocks: Process Design
Eight aspects of process design that are important
for lean systems:
4. Quality improvement
Quality defects during the process can disrupt

the orderly flow of work


Autonomation (jidoka)
Automatic detection of defects during production
Two mechanisms are employed
1. One for detecting defects when they occur
2. Another for stopping production to correct the cause of
the defects
Building Blocks: Process Design
Eight aspects of process design that are important
for lean systems:
5. Production flexibility
Guidelines for increasing flexibility:

1. Reduce changeover time to reduce downtime


2. Use preventive maintenance to reduce breakdowns
3. Cross-train workers so they can help when bottlenecks
occur or other workers are absent
4. Use many small units of capacity; many small cells
make it easier to shift capacity temporarily and to add or
subtract capacity
Building Blocks: Process Design
Eight aspects of process design that are important
for lean systems:
6. A balanced system
Line balancing means distributing the workload evenly
among workstations to achieve a rapid flow of work
through the system.
Time needed for work assigned to each workstation
must be less than or equal to the Takt time.
Takt time
The cycle time needed in a production system to match the
pace of production to the demand rate.
Referred to as the heartbeat of a lean system
Compute the Takt time by dividing the net available time
(per shift, per day, etc.) by demand for the same period.
Building Blocks: Process Design
Eight aspects of process design that are important
for lean systems:
7. Little inventory storage
Lean systems are designed to minimize inventory
storage
Inventories cover up recurring problems that are never
resolved
partly because they are not obvious
partly because the presence of inventory makes them
seem less serious
Building Blocks: Process Design
Eight aspects of process design that are important
for lean systems:
8. Fail-safe methods
Building safeguards into a process to reduce or eliminate
the potential for errors during a process.
Poka-yoke (mistake proofing)
Safeguards built into a process to reduce the possibility
of errors.
Examples
Electric breakers
Seatbelt fastener warnings
ATMs that signal if a card is left in a machine
Designing parts that can only be assembled in the correct
position
Building Blocks:
Personnel/Organizational
Five Personnel/Organizational elements that are
important for lean systems:
1. Workers as assets
Well-trained and motivated workers are the heart of the
lean system
They are given greater authority to make decisions and
improvements.
2. Cross-trained workers
Workers are trained to perform a variety of tasks
Facilitates flexibility
Helps in line balancing
Building Blocks:
Personnel/Organizational
Five Personnel/Organizational elements that are
important for lean systems:
3. Continuous improvement
Lean workers should be involved in problem solving and
continuous improvement.
Problems that occur during production must be dealt with
quickly.
Andon
System of lights used at each workstation to signal
problems or slowdowns.
To enable workers and supervisors to immediately see
when and where problems are occurring.
Building Blocks:
Personnel/Organizational
Five Personnel/Organizational elements that are
important for lean systems:
4. Cost Accounting
Activity-based costing
Allocation of overhead to specific jobs based on their
percentage of activities.
Identifies traceable costs and assigns it to various types of
activities such as machine setups, inspection, machine
hours, direct labor hours, and movement of materials.
Specific jobs are then assigned overhead based on the
percentage of activities they consume.
Overhead costs required to run a business while do
not contribute directly to a specific product or service.
Building Blocks:
Personnel/Organizational
Five Personnel/Organizational elements that are
important for lean systems:
5. Leadership/project management
Managers are expected to be leaders and facilitators, not
order givers.
Lean systems encourage two-way communication
between workers and managers.
Building Blocks: Manufacturing
Planning and Control (MPC)
Seven elements of MPC are particularly important
for lean system:
1. Level Loading
Lean systems place a strong emphasis on achieving
stable, level daily mix schedules.
For a variety of produces, it is desirable to produce in
small lots
to minimize work-in-process inventory
to increase flexibility
to spread the production of the different products
throughout the day.
Building Blocks: Manufacturing
Planning and Control (MPC)
Seven elements of MPC are particularly important for lean
system:
1. Level Loading
Mixed Model Scheduling
What is the appropriate product sequence to use?
Setup time or cost may vary depending on the sequence.
How many times (cycles) should the sequence be repeated
daily?
Minimize units per cycle.
Consider available time, processing time, and setup times.
How many units of each model should be produced in each
cycle?
Size of packages for each product.
Some operations may have standard production lot sizes.
Building Blocks: Manufacturing
Planning and Control (MPC)
Seven elements of MPC are particularly important
for lean system:
2. Pull Systems
Push system
Work is pushed to the next station as it is completed
Work moves on as it is completed.
Pull system
A workstation pulls output from the preceding workstation
as it is needed.
Output of the final operation is pulled by customer demand
or the master schedule.
Work moves on in response to demand from the next
customer
Building Blocks: Manufacturing
Planning and Control (MPC)
Seven elements of MPC are particularly important
for lean system:
2. Pull Systems
Communication moves backward through the system
from station to station.
Each workstation (customer) communicates its need for
more work to the preceding workstation (supplier)
Assures that supply equals demand
Work moves just in time for the next operation
Flow of work is coordinated
Accumulation of excessive inventories is avoided
Building Blocks: Manufacturing
Planning and Control (MPC)
Seven elements of MPC are particularly important for
lean system:
3. Visual Systems
Kanban
Card or other device that communicates demand for work
or materials from the preceding station
Authority to pull, or produce, comes from a downstream
process.
Two main types of kanbans:
Production kanban (p-kanban): signals the need to produce
parts
Conveyance kanban (c-kanban): signals the need to deliver
parts to the next work center.
Building Blocks: Manufacturing
Planning and Control (MPC)
Seven elements of MPC are particularly important
for lean system:
4. Limited WIP
Lower carrying costs
Increased flexibility
Aids scheduling
Saves costs of scrap and rework if there are design
changes
Lower cycle-time variability
Building Blocks: Manufacturing
Planning and Control (MPC)
Seven elements of MPC are particularly important
for lean system:
5. Close Vendor Relationships
Lean systems typically have close relationships with
vendors
They are expected to provide frequent, small deliveries of
high-quality goods
A key feature of many lean systems is the relatively
small number of suppliers used
Building Blocks: Manufacturing
Planning and Control (MPC)
Seven elements of MPC are particularly important for lean
system:
6. Reduced Transaction Processing
Traditional manufacturing systems often have many built-in
transactions that do not add value such as
Logistical transactions ordering, execution, and confirmation of
transported materials.
Balancing transactions production planning, production control,
procurement, scheduling, and order processing.
Quality transactions determining and communicating
specifications, monitoring, recording, and follow-up activities.
Change transactions changes in specifications, bills of material,
processing instructions, and so on.
Lean systems cut transaction costs by reducing the number and
frequency of transactions.
Building Blocks: Manufacturing
Planning and Control (MPC)
Seven elements of MPC are particularly important
for lean system:
7. Preventive maintenance and Housekeeping
Preventive maintenance
Maintaining equipment in good operating condition
and replacing parts that have a tendency to fail
before they actually do fail.
Housekeeping
Maintaining a workplace that is clean and free of
unnecessary materials.
Lean vs. Traditional Philosophies
Factor Traditional Lean

Much to offset forecast errors or


Inventory Minimal necessary to operate
late deliveries

Frequency Few Many


Deliveries
Size Large Small

Lot sizes Large Small

Production # of Setups Few Many


changes Runs Long runs Short runs
Long-term relationships are
Vendors Partners
unusual

Workers Necessary to do the work Assets


Lean Services
Lean benefits can be achieved in the following ways:
Eliminate disruptions.
For example, try to avoid having workers who are servicing
customers also answer telephones.
Make the system flexible.
It is desirable to standardize work because that can yield high
productivity.
Ability to deal with variety of task requirements can be a
competitive advantage.
Train workers to handle more variety of tasks.
Reduce setup times and processing times.
Have frequently used tools and spare parts readily available.
For service calls, try to estimate what parts and supplies might be
needed so they will be on hand, and avoid carrying huge
inventories.
Lean Services
Lean benefits can be achieved in the following ways:
Eliminate waste.
This includes errors and duplicate work. Keep the emphasis on
quality and uniform service.
Minimize work-in-process.
Examples include orders waiting to be processed, calls waiting
to be answered, packages waiting to be delivered, trucks
waiting to be unloaded or loaded.
Simplify the process.
This works especially when customers are part of the system
(self service systems including retail operations, ATMs and
vending machines, service stations, etc.).