1 om3 chapter 17 lean operating systems © 2012 cengage learning. all rights reserved. may not be...

1OM3 Chapter 17 Lean Operating Systems© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEAN OPERATING SYSTEMS

CHAPTER 17

DAVID A. COLLIER AND JAMES R. EVANS


CHAPTER 17 LEAN OPERATING SYSTEMS

LO1 Explain the four principles of lean operating systems.

LO2 Describe the basic lean tools and approaches.

LO3 Explain the concept of lean six sigma and how it is applied to improving operations performance.

LO4 Explain how lean principles are used in manufacturing and service organizations.

LO5 Describe the concepts and philosophy of just-in- time operating systems.



we’re getting a lot of complaints from the nursing

staff about the condition of the storeroom. They are repeatedly telling us that it is hard to locate supplies quickly—it’s too messy.” Rachel Thompson, the materials manager at Memorial Hospital, heard this comment from a staff member as they began their meeting. Another staff member, Alan, responded, “That’s not our fault. The inventory and ordering processes take too long so we need to overstock.” Rachel interrupted, “Let’s not get defensive. The overall goal is to make the storeroom easy to use. Our mission is to provide exceptional health care and having the right items in stock for the doctors and nurses is what we’re paid to do! The storeroom should be designed so that someone who has never seen it before can find an item within 30 seconds. Any ideas?”



Can you cite any personal experiences in your work or around your school where you have observed similar inefficiencies (how about your dorm or bedroom)?

What do you think?



• Lean thinking refers to approaches that focus on the elimination of waste in all forms, and smooth, efficient flow of materials and information throughout the value chain to obtain faster customer response, higher quality, and lower costs.

• Manufacturing and service operations that apply these principles are often called lean operating systems.- Lean concepts were initially developed

and implemented by the Toyota Motor Corporation.



Principles of Lean Operating Systems

1. Eliminate Waste: Eliminate any activities that do not add value in an organization. Includes overproduction, waiting time, transportation, processing, inventory.

2. Increase Speed and Response: Better process designs allow efficient responses to customers’ needs and the competitive environment.

3. Improve Quality: Poor quality reduces yields, requiring extra inventory, processing time, and space for scrap and rework.

4. Reduce Cost: Simplifying processes and improving efficiency translates to reduced costs.



Exhibit 17.1 Common Examples of Waste in Organizations



Lean Tools and Approaches

The 5Ss are derived from Japanese terms: seiri (sort), seiton (set in order), seiso (shine), seiketsu (standardize), and shitsuke (sustain).

• Sort: Each item is in the proper place.• Set in order: Arrange materials so that they

are easy to find and use.• Shine: Clean work area.• Standardize: Formalize procedures and

practices.• Sustain: Keep the process going.




Visual Controls• Visual controls are indicators for operating

activities that are placed in plain sight of all employees so that everyone can quickly and easily understand the status and performance of the work system.

• Examples: Electronic scoreboards in production processes, painted areas on the floor where certain boxes and pallets should be placed, employee pull cords to stop production, signal lights on machines, and even Kanban cards.




Single Minute Exchange of Dies (SMED)• SMED refers to quick setup or changeover of

tooling and fixtures in processes so that multiple products in smaller batches can be run on the same equipment.

• Reducing setup time frees up capacity that can be producing output, and therefore, generating revenue.

• Example: Yammar Diesel reduced a machine setup from 9.3 hours to 9 minutes!




Small Batch and Single-Piece Flow• Batching is the process of producing large

quantities of items as a group before being transferred to the next operation.

• Single-piece flow is the concept of ideally using batch sizes of one.- To utilize single-piece flow, a company must

be able to change between products quickly and inexpensively by reducing setup times.




Quality and Continuous Improvement • Quality at the source requires doing it right

the first time, and therefore eliminates the opportunities for waste.

• As an organization continuously improves its processes, it eliminates rework and waste, thus making the processes leaner.




Total Productive Maintenance (TPM)• TPM is focused on ensuring that operating

systems will perform their intended function reliably.

• Goals:- Maximize equipment effectiveness and eliminate unplanned downtime.

- Create worker “ownership” of equipment.- Improve equipment operation through

employee involvement activities.



Lean Six Sigma

• Lean tools focus on streamlining processes, while Six Sigma tools focus on root causes of problems.

• Both are complementary and often used together, focusing on customer requirements and dollar savings and apply to both manufacturing and nonmanufacturing.

• Lean Six Sigma draws upon the best practices of both approaches.

• Often Lean Six Sigma is an important part of implementing a strategy built upon sustainability.



Lean Six Sigma

Key differences between lean and Six Sigma:• Lean is focused on efficiency; Six Sigma is

focused on effectiveness.• Lean tools are more intuitive and easy to

apply; many Six Sigma tools require advanced training (e.g., statistical methods.

• Companies might start with lean principles and evolve toward more sophisticated Six Sigma approaches.



Lean Manufacturing and Service Tours

The Timken Company is a leading manufacturer of highly engineered bearings and alloy steels and related products. Lean examples:

• Eliminate waste: Eliminate non-value-added steps from processes.

• Increase speed and response: Radically reduce cycle time for new product development with integrated supply chain.

• Improve quality: Utilizing Six Sigma process variation tools and ISO 9000 quality standards.

• Reduce cost: Using technology to reduce costs.



Exhibit Extra Timken’s DMAIC Toolkit for Lean Six Sigma



Lean Manufacturing and Service Tours

Southwest Airlines has consistently been profitable, even though it cannot capitalize on economies of scale available to larger airlines. Lean examples:• Eliminate waste: Southwest minimizes idle time

by fast airplane turnaround.• Increase speed and response: Standardized the

type of aircraft used (Boeing 737).• Improve quality: Simplified processes to reduce

variability in flight schedules.• Reduce cost: Short setup and turnaround times

translate to higher asset utilization and lower costs.



Just-in-Time Systems

• Just-in-Time (JIT) was introduced at Toyota a half-century ago.

• Traditional factories use a push system, which produces finished goods inventory in advance of customer demand using a forecast of sales. - Parts and subassemblies are “pushed” through

the operating system based on a predefined schedule that is independent of actual customer demand.

- Push systems typically have long setup times and large batch sizes, resulting in high WIP inventories.




• In a pull system, employees at a given operation go to the source of the required parts, such as machining or subassembly, and withdraw the units as they need them. - By pulling parts from each preceding

workstation, the entire manufacturing process is synchronized to the final-assembly schedule.

- Finished goods are made to coincide with the actual rate of customer demand, resulting in minimal inventories and maximum responsiveness.




• JIT systems are based on pull-production, synchronizing the entire manufacturing process to the final assembly schedule.

• This results in smaller inventory between production stages, lower costs, and less physical capacity requirements.



Operation of a Just-in-Time System

• A Kanban is a flag or a piece of paper that contains all relevant information for an order: part number, description, process area used, time of delivery, quantity available, quantity delivered, production quantity, and so on.- Kanban cards are circulated within the

system to initiate withdrawal and production items through the production process.

- The Kanban cards are simple visual controls.



Exhibit 17.2 A Two-Card Kanban JIT Operating System



Number of Kanban Cards Required

K = d (p + w)(1+ ) [17.1] C

Where:K = The number of Kanban cards in the operating system.

d = The average daily production rate as determined from the master production schedule.

w = The waiting time of Kanban cards in decimal fractions of a day (that is, the waiting time of a part).

p = The processing time per part, in decimal fractions of a day.

C = The capacity of a standard container in the proper units of measure (parts, items, etc.).

= A policy variable determined by the efficiency of the process and its workstations and the uncertainty of

the workplace, and therefore, a form of safety stock usually ranging from 0 to 1. However, technically there is no upper limit on the value of .



Operation of a Just-in-Time System

• The number of Kanban cards is directly proportional to the amount of work-in-process inventory.

• Managers and employees strive to reduce the number of cards in the system through reduced lead times (p or w), lower α values, or other improvements.



Solved Problem

Bracket Manufacturing uses a Kanban system for a component part. The daily demand is 800 brackets. Each container has a combined waiting and processing time of 0.34 days. The container size is 50 brackets and safety factor () is 9 percent.

a) How many Kanban card sets should be authorized? b) What is the maximum inventory of brackets in the

system of brackets? c) What are the answers to (a) and (b) if waiting and

processing time are reduced by 25%?d) If we assume one-half the containers are empty and

one-half full at any given time, what is the average inventory in the system for the original problem?



Solution

Using Equation 17.1:

a) K = d (p + w)(1+ )=(800 units)(.34)(1 + .09)=5.93 6 C 50

Thus, 6 containers and 6 Kanban card sets are necessary to fulfill daily demand.

b) The maximum authorized inventory is K×C = 6×50 = 300 brackets.

c) K = d (p + w)(1+ )=(800 units)(.255)(1 + .09)=4.45 5 C 50

Thus, 5 containers and 5 Kanban card sets are necessary to fulfill daily demand. The maximum authorized inventory is now K×C = 5×50 = 250 brackets.

d) The average inventory under this assumption is 300/2 = 150 brackets.



JIT in Service Organizations

• Service organizations are increasingly applying JIT.

• Firms have reduced order cycle time, office space requirements, and inventory investments, and have increased profits.

• However, lean techniques can be detrimental to customer services that are based on human interactions.



JIT Difficulties at Starbucks

Lean principles can’t be blindly implemented in services without considering its effects on customers, as Starbucks is discovering. Starbucks began to roll out “better way” initiatives—a series of process improvements using lean principles. Starbucks initiated a “lean team” that goes around the country with a Mr. Potato Head toy that they use in a lean training program for Starbuck managers. Managers learn how to assemble the toy in less than 45 seconds and apply the learnings to their store processes. However, customer service encounters may have suffered as one customer wrote: “Customers come into Starbucks—at least they did—to experience something that could only happen without lean, friendly banter with the barista, sampling coffee or a pastry, etc. Lean is best suited to assembly lines and factories, not so for managing human interaction, which is never a repeatable routine.”



Exhibit 17.3 Example JIT Characteristics and Best Practices



Community Medical Associates Case Study

1. Explain how CMA used the four principles of lean operating systems to improve performance.

2. Using the information from the case, sketch the original paper-based value chain and compare it to a sketch of the modern electronic value chain that uses a common database. Explain how the performance of both systems might compare.

3. What is the total annual record retrieval cost savings with the old (paper-based) versus new (electronic) systems?

4. Does this CMA improvement initiative have any effect on sustainability? If so, how? If not, why?

5. Using lean principles, can you simultaneously improve speed and quality while reducing waste and costs? What are the tradeoffs? Explain your reasoning.

1 om3 chapter 17 lean operating systems © 2012 cengage learning. all rights reserved. may not be...

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