Many companies today are becoming lean enterprises by replacing their outdated mass-production systems with lean systems to improve quality, eliminate waste, and reduce delays and total costs. A lean system emphasizes the prevention of waste: any extra time, labor, or material spent producing a product or service that doesn’t add value to it. A lean system’s unique tools, techniques, and methods can help your organization reduce costs, achieve just-in-time delivery, and shorten lead times. A lean enterprise fosters a company culture in which all employees continually improve their skill levels and production processes. And because lean systems are customer focused and driven, a lean enterprise’s products and services are created and delivered in the right amounts, to the right location, at the right time, and in the right condition. Products and services are produced only for a specific customer order rather than being added to an inventory. A lean system allows production of a wide variety of products or services, efficient and rapid changeover among them as needed, efficient response to fluctuating demand, and increased quality.
Consider a the following Venn Diagram. Two circles, one inside of the other. The large circle represents the Value Stream (all of the activity and information streams that exist between the raw material supplier and the possession of the customer). The smaller circle represents Waste (Cost without Beneﬁt)
Lean manufacturing is simply a group of strategies for identification and elimination of waste inside the value stream. The Identiﬁcation and elimination of waste from the value stream is the central theme of the Lean Manufacturing Philosophy. Lean manufacturing is a dynamic and constantly improving process dependent on the understanding and involvement of all of the company’s employees. Successful implementation requires that all employees be trained to identity and eliminate waste from their work. Waste exists in all work and at all levels in the organization. Effectiveness is the result of the integration of. Man. Method, Material and Machine at the worksite.
- The Problem – Waste exists at all levels and in all activities
- The Solution – The Identiﬁcation and Elimination of Waste
- Responsibility – All of the employees and departments comprising the organization
The Goals of the Lean Enterprise:
Your organization can apply lean methods and techniques to your product-production and business processes to deliver better value to your customers. A lean initiative has four main goals:
Goal #1: Improve quality.
Quality is the ability of your products or services to conform to your customers’ wants and needs (also known as expectations and requirements). Product and service quality is the primary way a company stays competitive in the marketplace. Quality improvement begins with an understanding of your customers’ expectations and requirements. Once you know what your customers want and need, you can then design processes that will enable you to provide quality products or services that will meet their expectations and requirements. In a lean enterprise, quality decisions are made every day by all employees.
Steps to improve Quality
- Begin your quality-improvement activities by understanding your customers’ expectations and requirements. Tools such as quality function deployment are helpful ways to better understand what your customers want and need.
- Review the characteristics of your service or product design to see if they meet your customers’ wants and needs.
- Review your processes and process metrics to see if they are capable of producing products or services that satisfy your customers.
- Identify areas where errors can create defects in your products or services.
- Conduct problem-solving activities to identify the root cause(s) of errors.
- Apply error-proofing techniques to a process to prevent defects from occurring. You might need to change either your product/service or your production/business process to do this.
- Establish performance metrics to evaluate your solution’s effectiveness.
Goal #2: Eliminate waste.
Waste is any activity that takes up time, resources, or space but does not add value to a product or service. An activity adds value when it transforms or shapes raw material or information to meet your customers’ requirements. Some activities, such as moving materials during product production, are necessary but do not add value. A lean organization’s primary goal is to deliver quality products and services the first time and every time. As a lean enterprise, you accomplish this by eliminating all activities that are waste and then targeting areas that are necessary but do not add value. To eliminate waste, begin by imagining a perfect operation in which the following conditions exist:
- Products or services are produced only to fill a customer order—not to be added to inventory.
- There is an immediate response to customer needs.
- There are zero product defects and inventory.
- Delivery to the customer is instantaneous
By imagining a perfect operation like this, you will begin to see how much waste there is hidden in your company. Using lean initiatives will enable you to eliminate waste and get closer to perfect operation.
The seven types of waste
As you use the tools and techniques of lean production, you will work to eliminate seven types of waste, which are defined below:
It can be defined as producing more than is needed. faster than needed or before needed. The worst type of waste, overproduction occurs when operations continue after they should have stopped. The results of overproduction are 1) products being produced in excess quantities and 2) products being made before your customers need them.
The Characteristics of waste due to overproduction are :
- Batch Processing
- Building Ahead
- Byzantine inventory Management
- Excess Equipment/Oversized Equipment
- Excess Capacity/investment
- Excess Scrap due to Obsolescence
- Excess Storage Racks
- Inﬂated Workforce
- Large Lot Sizes
- Large WIP and Finished Goods Inventories
- Outside Storage
- Unbalanced Material Flow
Over Production can be Caused by:
- Automation in the Wrong Places
- Cost Accounting Practices
- Incapable Processes
- Just in Case Reward System
- Lack of Communication
- Lengthy Setup times
- Local optimization
- Low Uptimes
- Poor Planning
Example of Overproduction can be Units which were produced in anticipation of future demand are often scrapped due to conﬁguration changes.
It can be defined as the idle time that occurs when Codependent events are not fully synchronized. Also known as queuing, this term refers to the periods of inactivity in a downstream process that occurs because an upstream activity does not deliver on time. Idle downstream resources are then often used in activities that either don’t add value or, worse, result in overproduction.
The Characteristics of waste due to Waiting are
- Idle Operators waiting for Equipment
- Lack of Operator Concern for equipment Breakdowns
- Production Bottlenecks
- Production Waiting for Operators
- Unplanned Equipment Downtime
It can be caused by:
- Inconsistent Work Methods
- Lack of Proper Equipment/Materials
- Long Setup Times
- Low Man/Machine Effectiveness
- Poor Equipment Maintenance
- Production Bottle Necks
- Skills Monopolies
Examples of Waiting can be 1) An operator arrives at a work station only to find he must wait because someone else is using the equipment for production. 2) A production lot arrives at a processing center only to find that the only qualified operator is not available
Transportation waste can be defined as any material movement that does not directly support immediate production. This is the unnecessary movement of materials, such as work-in-progress (WIP) materials being transported from one operation to another. Ideally, transport should be minimized for two reasons: 1) it adds time to the process during which no value-added activity is being performed, and 2) goods can be damaged during transport.
The Characteristics of waste due to transportation are :
- Complex Inventory Management
- Difficult and Inaccurate Inventory Counts
- Excessive Material Racks
- Excessive Transportation Equipment and shortage of associated packing spaces
- High rates of Material Transport Damaged
- Multiple Material storage Locations
- Poor Storage to Production ﬂoor space ratio
It can be caused by:
- Improper Facility Layout
- Large Buffers and In-Process Kanbans
- Large Lot Processing
- Large Lot Purchasing
- Poor Production Planning
- Poor Scheduling
- Poor Workplace Organization
Some Example is Production units are moved off the production ﬂoor to a parking area in order to gather a “Full Lot’ tor a batch operation.
This term refers to extra operations, such as rework, reprocessing, handling, and storage, that occur because of defects, overproduction, and too much or too little inventory. It can be defined as any redundant effort (production or communication) which adds no value to a product or service. It is more efficient to complete a process correctly the first time instead of making time to do it over again to correct errors.
The Characteristics of waste due to Extra Processing are:
- Endless Product/Process Reﬁnement
- Excessive Copies/Excessive information
- Process Bottlenecks
- Redundant Reviews and Approvals
- Unclear Customer Speciﬁcations
It can be caused by:
- Decision Making at Inappropriate Levels
- inefficient Policies and Procedures
- Lack of Customer input Concerning Requirements
- Poor Conﬁguration Control
- Spurious Quality Standards
Some of the examples are Time spent manufacturing product features which are transparent to the customers or which the customer would be unwilling to pay for. Work which could be combined into another process. Another example of extra processing is when an inside salesperson must obtain customer information that should have been obtained by the outside salesperson handling the account.
This refers to any excess inventory that is not directly required for your current customer orders. It can be defined as any supply in excess of process requirements necessary to produce goods or services in a Just-in-Time manner. It includes excess raw materials, WIP, and finished goods. Keeping an inventory requires a company to find space to store it until the company finds customers to buy it. Excess inventory also includes marketing materials that are not mailed and repair parts that are never used.
The Characteristics of waste due to Inventory are :
- Additional Material Handling Resources (Men, Equipment. Racks. Storage space)
- Extensive Rework of Finished Goods
- Extra space on receiving docks
- Long Lead Times for Design Changes
- Storage Congestion Forcing LIFO (Last In First Out) instead of FIFO (First In First Out)
It can be caused by:
- Inaccurate Forecasting Systems
- Incapable Processes
- Incapable suppliers
- Local Optimization
- Long Change Over Times
- Poor Inventory Planning
- Poor Inventory tracking
- Unbalanced Production Processes
An example can be a large lot of purchases of raw material which must be stored while production catches up
It can be defined as any movement of people which does not contribute added value to the product or service. This term refers to the extra steps taken by employees and equipment to accommodate inefficient process layout, defects, reprocessing, overproduction, and too little or too much inventory. Like transport, motion takes time and adds no value to your product or service. An example is an equipment operator’s having to walk back and forth to retrieve materials that are not stored in the immediate work area.
The Characteristics of waste due to motion are :
- Excess Moving Equipment
- Excessive Reaching or Bending
- Unnecessarily Complicated Procedures
- Excessive Tool Gathering
- Widely Dispersed Materials/Tools/Equipment.
It can be caused by
- Ineffective Equipment, Office and Plant Layout
- Lack of Visual Controls
- Poor Process Documentation
- Poor Workplace Organization
For example, it is not uncommon to see operators make multiple trips to the tool crib at the beginning of a job. A lack of proper organization and documentation is in fact the cause for many types of waste.
It can be defined as repair or rework of a product or service to fulﬁll customer requirements as well as scrap waste resulting from materials deemed to be un-repairable or un-reworkable. These are products or aspects of your service that do not conform to specification or to your customers’ expectations, thus causing customer dissatisfaction. Defects have hidden costs, incurred by product returns, dispute resolution, and lost sales. Defects can occur in administrative processes when incorrect information is listed on a form.
The Characteristics of waste due to defects are:
- Complex Material flow
- Excess finished goods Inventory
- Excessive floor space /Tools/ Equipments.
- Excessive Manpower To rework/repair/inspect
- Hugh Customer Complain/ returns
- High Scrap Rates
- Poor Production Schedule Performance
- Questionable Quality
- Reactive Organization
It can be caused by:
- Excessive Variation
- High Inventory level
- Inadequate tools/equipments
- Incapable/Incompatible Process
- Insufficient training
- Poor Layouts/Unnecessary Handling (Transport Damage)
Steps to eliminate waste
As you begin your lean initiative, concentrate first on overproduction, which is often a company’s biggest area of waste. It can also hide other production-related waste. As your lean initiative progresses, your company will become able to use its assets for producing products or services to customer orders instead of to inventory.
- Begin your team-based waste-reduction activities by identifying a product or operation that is inefficient.
- Identify associated processes that perform poorly or need performance improvement. If appropriate, select the operation in your organization with the lowest production output as a starting point for your waste-reduction activities.
- Begin by creating a value stream map for the operation you are reviewing.
- Review the value stream map to identify the location, magnitude, and frequency of the seven types of waste associated with this operation.
- Establish metrics for identifying the magnitude and frequency of waste associated with this operation.
- Begin your problem-solving efforts by using lean principles to reduce or eliminate the waste.
- Periodically review the metrics you have identified to continue eliminating waste associated with this operation.
- Repeat this process with other inefficient operations in your organization.
Goal #3: Reduce lead time.
Lead time is the total time it takes to complete a series of tasks within a process. Some examples are the period between the receipt of a sales order and the time the customer’s payment is received, the time it takes to transform raw materials into finished goods, and the time it takes to introduce new products after they are first designed. By reducing lead time, a lean enterprise can quickly respond to changes in customer demand while improving its return on investment, or ROI. Reducing lead time, the time needed to complete an activity from start to finish is one of the most effective ways to reduce waste and lower total costs. Lead time can be broken down into three basic components:
- Cycle time. This is the time it takes to complete the tasks required for a single work process, such as producing a part and/or completing a sales order
- Batch delay. This is the time a service operation or product unit waits while other operations or units in the lot, or batch, are completed or processed. Examples are the period of time the first machined part in a batch must wait until the last part in the batch is machined, or the time the first sales order of the day must wait until all the sales orders for that day are completed and entered into the system.
- Process delay. This is the time that batches must wait after one operation ends until the next one begins. Examples are the time a machined part is stored until it is used by the next operation, or the time a sales order waits until it is approved by the office manager.
As you think about places where you can reduce lead time in your product production or business process, consider the following areas:
- Engineering design and releases
- Order entry
- Production planning
- Order fulfilment
- Invoicing and payment collection
Below is a list of possible lead-time solutions to consider and their goals. They are divided into three categories: product design, manufacturing, and supply.
Product rationalization. This involves simplifying your product line or range of services by reducing the number of features or variations in your products or services to align more directly with your customers’ wants and needs.
- Process simulations. These enable you to model your work processes to reveal waste and test the effects of proposed changes.
- Delayed product configuration. This means waiting until the end of your production cycle to configure or customize individual products.
- One-piece, or continuous, the flow of products and information. This enables you to eliminate both batch and process delays.
- Technology (i.e., hardware and software) solutions. These enable you to reduce cycle time and eliminate errors.
- Quick changeover. This involves making product/service batch sizes as small as possible, enabling you to build to customer order.
- Work process standardization. This means identifying wasteful process steps and then standardizing “best practices” to eliminate them.
- This reveals wasteful logistical practices both upstream and downstream in your demand/supply chain. It often reveals excess inventories being held by your customers, your organization, and/or your suppliers due to long manufacturing lead times that result in overproduction. Freight analysis sometimes reveals that overproduction occurs in an effort to obtain freight discounts. However, these discounts do not necessarily offset the costs of carrying excess inventory.
Steps to reduce Lead Time
The steps your improvement team must take to reduce lead time are similar to the ones you take to eliminate waste.
- Begin your team-based lead-time-reduction activities by creating a value stream map for the business process you are targeting.
- Calculate the time required for the value-added steps of the process.
- Review the value stream map to identify where you can reduce lead time. Brainstorm ways to make the total lead time equal the time required for the value-added steps that you calculated in step 2.
- Determine what constraints exist in the process and develop a plan to either eliminate them or manage them more efficiently.
- Establish metrics to identify the location, duration, and frequency of lead times within the process.
- Once you have established a plan for improving the process, measure the improvement.
- Repeat this process for other inefficient operations in your organization.
Goal #4: Reduce total costs.
Total costs are the direct and indirect costs associated with the production of a product or service. Your company must continually balance its products’ and services’ prices and its operating costs to succeed. When either its prices or its operating costs are too high, your company can lose market share or profits. To reduce its total costs, a lean enterprise must eliminate waste and reduce lead times. For cost management to be successful, everyone in your organization must contribute to the effort. When you implement a process to reduce total costs, your goal is to spend money wisely to produce your company’s products or services. To minimize the cost of its operations, a lean enterprise must produce only to customer demand. It’s a mistake to maximize the use of your production equipment only to create overproduction, which increases your company’s storage needs and inventory costs. Before you can identify opportunities to reduce costs, your team should have some understanding of the way that your company tracks and allocates costs and then uses this information to make business decisions. A company cost structure usually includes variable and fixed costs, which are explained below:
- Variable costs. These are the costs of doing business. These costs increase as your company makes each additional product or delivers each additional service. In manufacturing operations, variable costs include the cost of raw materials.
- Fixed costs. These are the costs of being in business. These costs include product design, advertising, and overhead. They remain fairly constant, even when your company makes more products or delivers more services.
Use one or more of the methods listed on the next page to identify places to reduce the costs related to your company’s current processes or products/services. These methods are useful for analyzing and allocating costs during the new-product-design process.
- Target Pricing. This involves considering your costs, customers, and competition when determining how much to charge for your new product or service. It’s important to remember that pricing has an impact on your sales volumes, and thus your production volumes. The rise and fall of production volumes impact both the variable and fixed costs of the product—and ultimately how profitable it will be for your company.
• Target Costing. This involves determining the cost at which a future product or service must be produced so that it can generate the desired profits. Target costing is broken down into three main components, which enables designers to break down cost factors by product or service, components, and internal and external operations.
• Value Engineering. This is a systematic examination of product cost factors, taking into account the target quality and reliability standards, as well as the price. Value engineering studies assign cost factors by taking into account what the product or service does to meet customer wants and needs. These studies also estimate the relative value of each function over the product’s or service’s life cycle.
The following techniques are useful for analyzing and improving the cost of your organization’s operations.
- Activity-based costing (ABC). ABC systems allocate direct and indirect (i.e, support) expenses—first to activities and processes, and then to products, services, and customers. For example, your company might want to know what percentage of its engineering and procurement costs should be allocated to product families to determine product-contribution margin. In addition, you can do indirect cost allocations for each customer account, which enables you to do a customer-profitability analysis.
- Kaizen (i.e., continuous improvement) costing. This focuses on cost-reduction activities (particularly waste reduction and lead-time reduction) in the production process of your company’s existing products or services.
- Cost maintenance. This monitors how well your company’s operations adhere to cost standards set by the engineering, operations, finance, or accounting departments after they conduct target costing and kaizen-costing activities.
Steps to reduce Total cost
- Decide whether your cost-improvement efforts will begin with new or existing product lines.
- If new products or services are the focus of your improvement efforts, techniques to consider using are target pricing, target costing, and value engineering.
- If existing products or services are your focus, begin by reviewing your company’s high-cost products and processes. Apply ABC, Kaizen costing, and cost maintenance to assist your cost-improvement initiatives. If your product-production process is inherently costly, first consider applying the lean manufacturing
techniques Then focus your efforts on reducing total costs. This typically involves company-wide participation.
Why are these goals important?
- Implementing lean tools and techniques will enable your company to meet its customers’ demand for a quality product or service at the time they need it and for a price they are willing to pay.
- Lean production methods create business and manufacturing processes that are agile and efficient.
- Lean practices will help your company manage its total costs and provide a fair ROI to its stakeholders.
Lean metrics are measurements that help you monitor your organization’s progress toward achieving the goals of your lean initiative. Metrics fall into three categories: financial, behavioral, and core-process. Lean metrics help employees understand how well your company is performing. They also encourage performance
improvement by focusing on employees’ attention and efforts on your organization’s lean goals. Lean metrics enable you to measure, evaluate, and respond to your organization’s current performance in a balanced way—without sacrificing the quality of your products or services to meet quantity objectives or increasing your product inventory levels to raise machine efficiency. Properly designed lean metrics also enable you to consider the important people factors necessary for your organization’s success.
Objectives of using lean metrics
- After you use lean metrics to verify that you are successfully meeting your company’s lean goals, you can do the following:
- Use the data you have collected to determine existing problems. Then you can evaluate and prioritize any issues that arise based on your findings.
- Identify improvement opportunities and develop action plans for them.
- Develop objectives for performance goals that you can measure (e.g., 100% first-time through quality capability = zero defects made or passed on to downstream processes).
- Evaluate the progress you have made toward meeting your company’s performance goals.
- Lean metrics help you analyze your business more accurately in the following areas:
- Determining critical business issues, such as high inventory levels that drive up operational costs, poor quality levels that create customer dissatisfaction, and extended lead times that cause late deliveries and lost orders.
- Determining whether you are adhering to lean metrics. These differ from traditional metrics, which can actually work against you. For example, adhering to traditional metrics such as machine efficiency can spur overproduction, and improving your inventory turnover can worsen your on-time-delivery performance.
- Determining the best way to use your organization’s resources. For example, you can ask questions such as “What is our most frequent problem?” and “What is our costliest problem?”
Before your team begins to collect data, ask the following questions:
- What is our purpose for collecting this data?
- Will the data tell us what we need to know?
- Will we be able to act on the data we collect?
Your goal is to create an easy-to-use, high-impact measurement system. An easy-to-use system must require minimal human involvement. The higher the level of human involvement required, the lower the accuracy of the data and the more time needed for data collection. Try to find ways to automate your data collection and charting. A high-impact measurement system is one that results in information that is useful and easily interpreted.
Use a standard definition form for your metrics. The form should answer the following questions:
- What type of metric is it (financial, behavioral, or core-process)?
- Why was it selected?
- Where will the data be obtained?
- How will the data be collected?
- What formula will be used for calculating the metric?
- How often will it be calculated?
- How often will the metric be used?
Revise your definition form as needed. Use basic graphs (e.g., line, bar, and pie graphs) and statistical process control (SPC) charts to display your data. These charts give you insight into data trends, reveal whether true process changes have occurred, and show if the process is capable of achieving your desired performance objectives. Other data analysis techniques might be required to conduct effective problem-solving.
Designing a data-collection process
When you design your data-collection process, keep the following points in mind:
- Make sure that all employees who will collect the data are involved in the design of your data collection process.
- Tell employees that the main driver for data collection is process improvement, not finger-pointing.
- Tell all involved employees how the data will be used.
- Design data-collection forms to be user-friendly.
- When developing a data-collection procedure, describe how much data is to be collected, when the data is to be collected, who will collect the data, and how the data is to be recorded.
- Automate data collection and charting whenever possible.
- Involve employees in the interpretation of the data. Avoid the following pitfalls:
- Measuring everything. Focus instead on the few critical measures that can verify performance levels and guide your improvement efforts.
- Misinterpreting data. Show employees why and how the data was captured. Also, tell how the data will be used in your lean enterprise initiative.
- Collecting unused data. Data collection is time-consuming. Ensure that all the data you collect will be put to good use.
- Communicating performance data inappropriately. Avoid creating harmful faultfinding, public humiliation, or overzealous competition.
Remember to use the appropriate tools for your analysis. Less-experienced teams can use basic tools such as Pareto Charts, Histograms, Run Charts, Scatter Diagrams, and Control Charts. More-expert teams can use advanced tools such as regression analysis, design of experiments, and analysis of variance (ANOVA). Most metrics reveal ranges of values and averages of multiple measures. However, your customers rarely experience an “average.” Each opportunity for a defect is an opportunity for failure in your customers’ eyes. As you work toward improvement, you might find that solving the smallest problems takes up most of your time. You might spend 80% of your improvement efforts fixing 20% of the things that go wrong.
You improve your organization’s financial performance by lowering the total cost of operations and increasing revenue. If your company can become a lower-cost producer without sacrificing quality, service, or product performance, it can strengthen its performance and market position. It’s also important to avoid cost-shifting, which is the act of moving costs from one account to another without creating any real savings. Cost shifting often hides waste rather than removing it. Your ultimate goal is to reduce both your hard- and soft cost savings for the benefit of the whole organization.
Examples of Financial Metrics
- Cash flow
- Direct and indirect labour costs
- Direct and indirect materials cost
- Facility and operational costs
- Production systems
- Information systems
- Inventory-carrying costs
- The total cost of ownership
- Gross margins
- Earnings before interest and taxes
- Return on assets
- Return on investment
- Warranty costs
- Product profitability
Behavioral metrics are measurements that help you monitor the actions and attitudes of your employees. Employees’ commitment, communication, and cooperation all have a significant impact on your organization’s success. Financial and core-process metrics alone cannot show whether employees are working together in a cooperative spirit. Your company’s long-term success is possible only when employees’ behavior is aligned and everyone works for the benefit of the entire organization. Customer and employee satisfaction surveys and core-process metrics measure behavioral performance only indirectly. More effective and direct ways to measure it include project feedback, meeting evaluations, employee appraisals, and peer evaluations. Conduct teamwork and facilitation training to improve cooperation and communication within your organization. Make sure your reward-and-recognition system is aligned with your company’s lean goals
Behavioural Categories and Metrics
- Category: Commitment
- Adherence to policies and procedures
- Participation levels in lean improvement activities
- Availability and dedication of the human resources department
- Efforts to train employees as needed
- Category: Communication
- Customer/employee surveys regarding the quantity and quality of company communications efforts
- Elimination of service or production errors caused by ineffective communications
- Error-reporting accuracy and timeliness
- Formal recognition of employees’ communication effort
- Category: Cooperation
- Shared financial risks and rewards
- Effective efforts toward reporting and resolving problems
- Joint recognition activities
- Formal recognition of employees’ cooperation efforts
- Category: Commitment
There are many different types of core-process metrics, which allow you to measure the performance of your core processes in different ways. Be sure to measure all your core processes for both productivity and results. Productivity, the ratio of output to input, provides data about the efficiency of your core processes. Tracking the results and then comparing them to your desired outcomes provides you with information about their effectiveness. Some general core-process metrics are shown below.
- New product launches
- New product extensions
- Product failures
- Design-cycle time
- Time to market
- Product life-cycle profitability
Product life-cycle metrics include the identification of market potential, product design, new product launches, model extensions, product use, and product obsolescence. Order-fulfillment-cycle metrics include activities related to sales, engineering, procurement, production planning and scheduling, the production process, inventory management, warehousing, shipping, and invoicing. Some specific core-process metrics are shown below.
- Health and safety (HS)
- First-time-through (FTT) quality
- Rolled-throughput yield (RTY)
- On-time delivery (OTD)
- Dock-to-dock (DTD)
- Order-fulfilment lead time (OFLT)
- Inventory turnover (ITO) rate
- Build to schedule (BTS)
- Overall equipment effectiveness (OEE)
- Value-added to non-value-added (VA/NVA) ratio
Health and safety metrics
Health and safety (HS) metrics measure the impact of your production processes on employees’ health and safety. A wholesome and safe workplace improves the availability and performance of your organization’s human resources. Operations costs improve when insurance rates are lowered, the cost of replacing workers is reduced, and production assets are more available. In addition, improved morale and a sense of well-being increase employee productivity and participation in your company’s improvement initiatives. HS conditions can be measured in several ways. Metrics to consider when evaluating HS include days lost due to accidents, absenteeism, employee turnover, and experience modification ratio (EMR), a method used by insurance companies to set rates.
The first time through (FTT)
The first time through (FTT) is a metric that measures the percentage of units that go through your production process without being scrapped, rerun, retested, returned by the downstream operation, or diverted into an off-line repair area. This metric is also applicable to processes related to the services your company provides. For example, you can use it to measure the number of sales orders processed without error the first time they go through your work processes. Increased process/output quality reduces the need for excess production inventory, improving your dock-to-dock (DTD) time. It improves your ability to maintain proper sequence throughout the process, improving the build-to-schedule (BTS) metric. Increasing quality before the constraint operation occurs ensures that that operation receives no defective parts. This enables you to increase your quality rate and reduce defects at the constraint operation. This in turn improves the overall-equipment effectiveness (OEE) metric. Your organization’s total cost is improved due to lower warranty, scrap, and repair costs. FTT is calculated using the following formula. (Remember that “units” can be finished products, components, or sales orders; FTT’s use is not limited to a production environment.)
Rolled throughput yield (RTY)
Rolled throughput yield (RTY) is a metric that measures the probability that a process will be completed without a defect occurring. Six Sigma programs use this metric either instead of or in parallel with FTT. RTY is based on the number of defects per opportunity (DPO). An opportunity is anything you measure, test, or inspect. It can be a part, product, or service characteristic that is critical to customer-quality expectations or requirements. FTT measures how well you create units of product; RTY measures how well you create quality. While FTT measures at the unit level and finds the percentage of defective parts, RTY measures at the defect level and finds how many defects a particular part has. The RTY metric is sensitive to product complexity, as well as the number of opportunities for defects present in a production process or aspect of a service. RTY can help you focus an investigation when you narrow down a problem within a complex or multi-step process. To calculate RTY, you must first calculate defects per unit (DPU) and defects per opportunity (DPO). The result is then used to calculate RTY.
Defects per opportunity (DPO) is the probability of a defect occurring in any one product, service characteristic, or process step. It is calculated as follows:
Finally, RTY is calculated as follows: RTY = 1 – DPO
On-time delivery (OTD)
On-time delivery (OTD) is a metric that measures the percentage of units you produce that meet your customer’s deadline. For this metric, a unit is defined as a line item on a sales order or delivery ticket. OTD provides a holistic measurement of whether you have met your customer’s expectations for having the right product, at the right place, at the right time. You can use OTD to track deliveries at both the line-item and order levels. OTD alerts you to internal process issues at the line-item level and shows their effect on your customers at the order level. OTD ensures that you are meeting optimum customer-service levels. When you balance OTD with the other internally focused core-process metrics—build-to-schedule (BTS), inventory turnover (ITO) rate, and dock-to-dock (DTD)— you can meet your customer-service goals without making an excessive inventory investment. OTD is calculated on an order-by-order basis at the line item level using the following formula:
A control part is a significant component of the final product that travels through all the major manufacturing processes for that product. The end-of-line rate is the average number of jobs per hour for a particular product. It is calculated using the following formula:
Order-fulfillment lead time (OFLT)?
Order-fulfillment lead time (OFLT) is the average time that elapses between your company’s receipt of an order from a customer and when you send an invoice to your customer for the finished product or service. It extends the DTD metric to include all your sales order-entry, sales-engineering, production- planning, and procurement lead times before production, as well as your invoicing lead times after production. The time from receipt of a sales order to the time of receipt of payment is a measure of your company’s operating cash flow. This is the money that your company uses to invest in its human resources, materials, equipment, and facilities. How your company manages its cash flow affects the company’s ability to acquire investors and borrow the money it needs to expand its business. OFLT calculation is based on the average time the company took to perform the following separate operations. (The team decided to exclude receipt of payment from their calculations.)
- Sales order (SO): The time from when an order is received until the time it is entered into the production-scheduling system.
- Production scheduling (PS): The time from when an order enters the production-scheduling system until the time actual production begins.
- Manufacturing (M): The time from when a manufacturing order is started until the order is released to the shipping department.
- Shipping (S): The time from when an order is received in the shipping department until it leaves the dock.
- Invoice (I): The time from when accounting is notified of a shipment going out until it sends the invoice to the customer.
Thus, OFLT = SO + PS + M + S + I.
Inventory turnover (ITO) rate
Inventory turnover (ITO) rate is a metric that measures how fast your company sells the products you make— that is, how efficient your marketing efforts are.
- Inventory costs are a significant portion of your company’s total logistics-related costs.
- Your inventory levels affect your customer service levels, specially if a customer’s order lead time is less than your manufacturing lead time.
- Your company’s decisions regarding service levels and inventory levels have a significant effect on how much of the company’s money is tied up in inventory investment. This is commonly referred to as “inventory carrying cost.”
- High ITO rates reduce your risk of inventory loss and keep your return-on-assets rates competitively high.
- A low ITO rate can indicate excess inventory or poor sales—both bad signs. A high ITO rate, on the other hand, can indicate high efficiency. Most companies struggle with low, single-digit ITO rates. The goal of most lean organizations is to achieve at least a double-digit ITO rate. A few exceptional companies are able to achieve triple-digit ITO rates across all their product lines.
ITO is calculated using the following formula:
Build to schedule (BTS)
Build to schedule (BTS) is a metric that measures the percentage of units scheduled for production on a given day that are actually produced on the correct day, in the correct mix, and in the correct sequence.
- BTS measures your company’s ability to produce what your customers want, when they want it, and in the scheduled production order.
- BTS alerts you to potential overproduction situations.
- BTS enables you to lower your inventory levels and improve your DTD time.
- The lower materials-handling and inventory carrying costs that should result when you use BTS lead to improved total cost results for your company.
BTS is calculated using the following formula:
BTS = volume performance × mix performance × sequence performance
The calculation for determining volume performance is as follows:
where “actual number of units produced” is the number of units of a given product to come off the end of the line on a given day, and “scheduled number of units” is the number of units of a given product scheduled to be produced. The result of the calculation is a percentage. The calculation for determining mix performance is as follows:
where “actual number of units built to mix” is the number of units built that are included in the daily production schedule (i.e., no overbuilds are counted). You can use either the number of actual units produced or the number of units scheduled to be produced, whichever is lower. The calculation for determining sequence performance is as follows:
where “actual number of units built to schedule” equals the number of units built on a given day in the scheduled order.
Overall equipment effectiveness (OEE):
Overall equipment effectiveness (OEE) is a metric that measures the availability, performance efficiency, and quality rate of your equipment. It is especially important to calculate OEE for your constraint operation.
- A higher throughput rate reduces the time your equipment spends in process, thereby decreasing your total DTD time.
- More stable processes improve your production predictability, thereby improving your BTS.
- Higher throughput and lower rework and scrap costs lead to improved total costs.
OEE is calculated using the following formula:
OEE = equipment availability × performance efficiency × quality
The calculation for determining equipment availability is as follows:
“Operating time” is the net available time minus all other downtime (i.e., breakdowns, setup time, and maintenance). “Net available time” is the total scheduled time minus contractually required downtime (i.e., paid lunches and breaks).Do not compare OEE results for non-identical machines or processes. An OEE comparison should be done only at time intervals for the same machine or the same process; otherwise, it is meaningless.
The value-added to non-value-added (VA/NVA) ratio is a metric that compares the amount of time in your work process spent on value-added activities to the amount of time spent on non-value-added activities.
- It makes non-value-added activities evident.
- It focuses your lean improvement efforts on the elimination of waste and the reduction of lead time.
- It provides a common metric for your management, sales, engineering, production, and procurement departments to communicate their priorities to each other and conduct cross functional improvement activities.
VA/NVA ratio is calculated using the following formula:
Lean thinking is way to improve processes. Lean thinking helps to increase value and minimizes waste. Although, Lean Thinking is usually applied to the production process to improve efficiency, it can be applied to all the facets in the organization. The advantages of applying the lean methodology are that it leads to shorter cycle times, cost savings and better quality.
Lean thinking embodies five basic principles.
Value is determined by the customers. It is about customer demands and what the customers are able and willing to pay for. To find out the preferences of the customers regarding the existing products and services, methods like, focus groups, surveys and other methods are used. However, to determine the customer preferences regarding new products, the DFSS method is used. The voice of the customer (VOC) is very important to determine the value of a product. The opposite of value is waste or muda. Consider a company, ABC, which manufactures mobile handsets. According to the sales manager, the sales are getting affected due to the high price of the handset. However, according to the customer feedback the customers are shifting to other manufacturers due to absence of facilities like radio and MMS in the handsets of ABC Company. So, ABC Company should be able to determine the value of the product according to customer feedback and install radio and other facilities in the handsets which the customers are looking for. The product will have value only if it fulfills customer demands. Value plays a major role in helping to focus on the organization’s goals and in the designing of the products. It helps in fixing the cost of a particular product and service. An organization’s job should be to minimize wastage and save costs from various business processes so that the cost demanded by the customers lead to maximum profits for the organization.
Identifies Value Stream
Value stream is the stream or flow of all the processes which include steps from the development of the design to the launch and order to the delivery of a specific product or service. It includes both value added and non-value added activities. Waste is a non issue added activity. Although it is impossible to achieve 100% value added processes, yet Lean methodologies help make considerable improvements. According to the Lean Thinking, there should be a partnership between the buyer and the seller and the supply chain management to reduce wastage. The supplier or the seller can be categorized according to the need. He can be classified as non-significant or significant supplier or a potential partner. The classification can help to solidify and improve relations between the supplier and the customers or supplier and the organization.
Value Stream Mapping
It can be defined as the process of identifying and charting the flows of information, processes, and physical goods across the entire supply chain from the raw material supplier to the possession of the customer. Value Stream Mapping is a basic planning tool for identifying wastes, designing solutions. and communicating lean concepts.
The Beneﬁts of Value Stream Mapping are :
- Highlighted Dependencies.
- identified Opportunities for the Application of Speciﬁc Tools and Strategies
- improved understanding of highly complex systems
- Synchronized and prioritized Continuous Improvement activities
Objectives of Value Stream Mapping:
- Visualization of Material and Information Flows
- Facilitate the Identiﬁcation and Elimination of Waste and the Sources of Waste
- Support the Prioritization of Continuous Improvement activities at the plant and Value Stream levels
- Support Constraint Analysis
- Provide a common language tor Process Evaluation
Types of Value Stream Maps:
- Production: Raw Material to the Customer
- Design: Design to Concept Launch
- Administrative: Order-taking to Delivery
States of Value Stream:
1. Current State – the existing conditions in the value stream
2 Future State – reflects the future vision of the value stream
Steps for making a Current state map
- Determine the type of map. with a traditional process flow chart. Be very general at first and add uniform detail as you go along. Pay particular attention to critical paths. Be sure to include elements such as inspection and test, waste is waste, their productivity is of equal importance.
- Add in inventory points, transportation elements. vendor facilities and customer end points.
- Attach the functional groups and information ﬂows (be sure to Identify exactly what information is being transferred).
- Develop and attach data to all elements (Lead times, setup time & process times, transportation distances and times).
Steps for making a Future state Map and Work plan
- Use the current state map as your base line.
- Utilizing the 7 waste type deﬁnitions, go through each element, one at a time and determine which elements contain waste Attach some measurement of scale to the waste.
- Look possible applications of. Quality at the Source, SMED. Batch Size Reduction. Cellular Manufacturing. Point- of-Use and Kanban systems. Attach some measurement of scale to your expectation of productivity gains.
- Make estimates 0f the resources required to accomplish the changes. Pay particular attention to the human resource requirement (critical). Be very careful not to overestimate the available human resources.
- Select the low hanging fruit consistent with your available resources during a selected time frame (first cycle no more than 6 to 10 weeks).
- Redraw your map consistent with your change selections.
- With the selected make a detailed work plan of who, what when an how. Regular progress reviews should be scheduled. Plan deviations need to be agreed to in advance.
- At the conclusion of the work adjust the map to reflect any deviations. This is now your current state map. Decide whether to go for another cycle or to change map subjects.
Makes Value-Creating Steps Flow
Flow is the step-by-step flow of tasks which move along the value streams with no wastage or defects. Flow is a key factor in eliminating waste. Waste is a hindrance which stops the value chain to move forward. A perfect value-stream should be one which does not hamper the manufacturing process. All the steps from the design to the launch of the product should be coordinated. The synchronization would help to reduce wastage and improve efficiency. Customer satisfaction is the utmost to make the value flow. It is important to consider the customer demands and the time of the demands.
The current state of the physical work flow is plotted on spaghetti charts. A spaghetti chart is a map of the path that a particular product takes while it travels down the value stream. The product’s path can be matched to that of a spaghetti and hence the name. There is a great difference between the distance in the current set-up and the Lean setup. The difference in the two distances is known as muda.
Pulls Customers towards Products or Services from the Value Stream.
Traditional systems were ‘push’ systems. The conventional manufacturers believed in mass production. Mass production means that a product is produced cheaply in bulk. The product is then stored and the manufacturers hope that the produced products would find a market. The Lean Thinking advocates the ‘pull’ system. The manufacturers who adopt this principle do not produce a product unless it is demanded by the customer. According to this principle, the value stream pulls the customer towards products or services. Therefore, the manufacturer would manufacture nothing unless a need is expressed by the customer. The production gets underway according to the forecasts or according to a pre-determined schedule. In short, nothing is manufactured unless ordered for by the customer. If a company is applying a Lean methodology and the principle of pull, it means that it would require quickness of action and a lot of flexibility. As a result, the cycle time required to plan, design, manufacture and deliver the products and services also becomes very short. The communication network for the value chain should also be very strong in the value chain so that there is no wastage and only those goods are produced which are required by the customers. The biggest advantage of the pull system is that non-value added tasks such as research, selection, designing and experimentation can be minimized.
Perfection is one of the most important principles of Lean Thinking. This is because continuous improvement is required to sustain a process. The reason behind sustaining a process is to eliminate the root causes of poor quality from the manufacturing process. There are various methods to improve perfection and Lean Masters work towards improving it.
Lean masters are individuals from various disciplines with a common goal. They are individual contributors who focus on the process to improve quality and performance. Their work is to achieve efficient results. The results either may be for their own organization or for their suppliers. The best way to achieve perfection with the suppliers is through collaborative value engineering, supplier councils, supplier associations, and value stream mapping between customers and suppliers. It is significant that the above mentioned principles be followed diligently in order to reduce wastage and deliver quality products and services to the customers. The customers and the suppliers must work in collaboration to achieve good results. The effort of Lean Thinking should be to minimize wastage from the value stream and improve efficiency. The Lean Thinking can be applied with the help of committed leadership, a persuasive change agent and well–informed employees and suppliers.
Some of the Tools used in Lean
5S is the name of a workplace organization method that uses a list of five Japanese words: seiri, seiton, seiso, seiketsu, and shitsuke. They can be translated from the Japanese as “sort”, “set in order”, “shine”, “standardize”, and “sustain”. It eliminates waste that results from poorly organised work place.
It is a manufacturing term referring to a system to notify management, maintenance, and other workers of a quality or process problem. The centerpiece is a device incorporating signal lights to indicate which workstation has the problem. The alert can be activated manually by a worker using a pull cord or button, or may be activated automatically by the production equipment itself. The system may include a means to stop production so the issue can be corrected. Some modern alert systems incorporate audio alarms, text, or other displays. It acts as a real-time communication tool for the plant floor that brings immediate attention to problems as they occur – so they can be instantly addressed.
A bottleneck is a term used about a step in a process that limits the output of the overall process or a work in the production cell which has the longest cycle time. Bottleneck analysis should be done when planning a capacity expansion, as the process step which is the bottleneck needs to be address first. Only improving the capacity to other process steps will not increase the overall process throughput, as they still will be limited by the bottleneck process step. Bottleneck analysis identify which part of the manufacturing process limits the overall throughput and improve the performance of that part of the process. It improves throughput by strengthening the weakest link in the manufacturing process.
Continuous flow is the act of moving a product through the production process from start to finish without stopping. In pure continuous flow, the cycle time equals the lead time, as the product never sits in a queue waiting to be worked on. Contrast this to batch and queue production in which larger groups of parts move as a unit and then wait for an operator to have time to work on them. Continuous flow production, when done well can significantly reduce costs as there is less sorting through piles, movement of material, etc. It lowers inventory level. It improves on time delivery as it takes less time for the correct parts to move through the system when there are not incorrect parts piled up in front of them. It delivers high quality as mistakes in continuous flow affect one part. In batch production, they can affect several, and can take a long time to identify.
A gemba is the term used to describe personal observation of work – where the work is happening. The original Japanese term comes from gembutsu, which means “real thing.” It also sometimes refers to the “real place.” This concept stresses:
- Observation: In-person observation, the core principle of the tool
- Value-add location: Observing where the work is being done (as opposed to discussing a warehouse problem in a conference room)
- Teaming: Interacting with the people and process in a spirit of Kaizen (“change for the better”)
Production leveling, also known as production smoothing or – by its Japanese original term – heijunka is a technique for reducing the Mura (Unevenness) which in turn reduces muda (waste). The goal is to produce intermediate goods at a constant rate so that further processing may also be carried out at a constant and predictable rate. It is a form of production scheduling that purposely manufactures in much smaller batches by sequencing (mixing) product variants within the same process. It reduces lead times (since each product or variant is manufactured more frequently) and inventory (since batches are smaller).
Hoshin Kanri (Policy Deployment):
It can be defined as the process used to identify and address critical business needs and develop the capability of the employees, achieved by aligning company resources at all levels and applying the PDCA cycle to consistently achieve critical results. Policy Deployment is a method that increases the effectiveness of your organization. It adds focus and balance to the company’s objectives by meeting the needs of all stakeholders such as customers, employees, shareholders, suppliers and the environment. Policy Deployment limits the number of objectives and improvement projects and prevents internal inconsistencies. Through a process that strengthens mutual understanding and alignment, Policy Deployment establishes commitment for the company’s objectives and the necessary means. Moreover, these tools are so powerful that you can also use them in the subsequent transfer to the shop floor. All this will result in clarity about everyone’s contribution to the team’s and company’s objectives. At the same time Policy Deployment is an ideal report structure.
Autonomation describes a feature of machine design to effect the principle of jidoka. It may be described as “intelligent automation” or “automation with a human touch.” This type of automation implements some supervisory functions rather than production functions. At Toyota this usually means that if an abnormal situation arises the machine stops and the worker will stop the production line. It is a quality control process that applies the following four principles:
- Detect the abnormality.
- Fix or correct the immediate condition.
- Investigate the root cause and install a countermeasure.
Automation aims to prevent the production of defective products, eliminate overproduction and focus attention on understanding the problems and ensuring that they do not reoccur.After Jidoka, workers can frequently monitor multiple stations (reducing labor costs) and many quality issues can be detected immediately (improving quality).
KPI (Key Performance Indicator)
A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs at multiple levels to evaluate their success at reaching targets. High-level KPIs may focus on the overall performance of the enterprise, while low-level KPIs may focus on processes in departments such as sales, marketing or a call center.
Muda is anything in the manufacturing process that does not add value from the customer’s perspective. Eliminating muda (waste) is the primary focus of lean manufacturing.
Root Cause Analysis
It is a problem solving methodology that focuses on resolving the underlying problem instead of applying quick fixes that only treat immediate symptoms of the problem. A common approach is to ask why five times – each time moving a step closer to discovering the true underlying problem. It helps to ensure that a problem is truly eliminated by applying corrective action to the “root cause” of the problem.
Smart Goals are Goals that are: Specific, Measurable, Attainable, Relevant, and Time-Specific. It helps to ensure that goals are effective.
It is “Documented procedures” for manufacturing that capture best practices (including the time to complete each task). Must be “living” documentation that is easy to change. It helps to eliminates waste by consistently applying best practices. Forms a baseline for future improvement activities.
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