“A Day of Lean”Embracing the Toyota Production System (TPS) and the Triple Bottom Line Philosophies of Sustainability

Dennis M. GawlikMarch 28, 2006

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Agenda• The Need for Sustainable Business Practices

• Tools for Supply Management (Lean, etc.)

• “FedEx Short”

• Toyota Production System (TPS)

• Triple Bottom Line• “Sourcing Local”

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Human Population:Fundamentals of Growth

20052005

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Digging Deeper

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What the

Future Might Bring?

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The Living Company:Habits for Surviving in a Turbulent Business Environment

Studied companies around the world:• Older than Royal Dutch/Shell (200 years old)• Had successfully weathered some fundamental

change in the world around them - such that they still existed today with their corporate identity intact

40 Corporations met this criteria 40 Corporations met this criteria (Dupont, Sumitomo, Uniliver…)(Dupont, Sumitomo, Uniliver…)

The Living Company, Arie de Geus, Harvard Business School Press, 2002

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The Living Company:Habits for Surviving in a Turbulent Business Environment

Long Lived Companies were (learning org):• Sensitive to their Environment Sensitive to their Environment

(i.e. surroundings, it’s environment, etc.) (i.e. surroundings, it’s environment, etc.) • Cohesive – Strong Sense of Identity• Tolerant & Decentralized• Conservative in Financing

“…an organization’s true nature is that of a community of humans…”, Arie de Geus

The Living Company, Arie de Geus, Harvard Business School Press, 2002

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• The Top 3 Most Sustainable Corporations in the World

• ToyotaToyota• AlcoaAlcoa

• BPBP

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A New (Long-Term) Vision“ In my mind I have a dream vehicle – it is ‘a vehicle that

makes the air cleaner the more one drives it,’ ‘a safe vehicle that does not harm people in any way,’ ‘a vehicle that serves as a base for sending and receiving information,’ ‘and a vehicle that actually improves one’s health.’”

Katsuake Watanabe, President, Toyota Motor Corporation

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• Rankings by Country

• 3232 Great BritainGreat Britain

• 2020 United StatesUnited States

• 99 GermanyGermany

• 7 Sweden

• 6 Canada

• 5 Japan

• 21 Other

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ISM Principles of Social Responsibility

• Community

• Diversity

• Environment• Ethics

• Financial Responsibility• Human Rights

• SafetyISM Principles - 2004

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Supply Management Effects Many Areas:

• Design

• R&D

• Sourcing & Securing Materials/Sub-Assemblies/Services

• Assembly

• Packaging

• Logistics/Transportation

• Disposal - Reuse/Recycle/Refuse

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“Revitalization the Supplier Diversity Value Proposition Through Supply Chain Effectiveness”, SBC Knowledge Ventures, L.P., 2003., pg. 232.

SM InputSM Input SM Input SM Input

SM InputSM Input

SM Input

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Different Approaches/Tools for

Sustainable Procurement

Industrial EcologyLife Cycle Assessment

(LCA)Waste – TPS, Lean, Six Sigma,

Natural Step, Local Supply, ISO14001 Certification, etc.

Triple Bottom Line & Balanced Scorecard

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Triple Bottom Line Approach

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Supply Management Benefits

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Balanced Scorecard

The Balanced Scorecard; Translating Strategy into Action,

Robert Kaplan and David Norton , Harvard Business School Press, 1996.

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A New Field: Industrial Ecology• The means by which humanity can deliberately approach and maintain

sustainability, given continued economic, cultural, and technological evolution.

• An industrial system needs to be viewed not in isolation from its surrounding systems, but in concert with them.

• This is a systems view. One seeks to optimize the total materials cycle from virgin material, to finished material, to component, to product, to obsolete product, and to ultimate disposal. Factors to be optimized include resources, energy, and capital.

• Principles: (1) Close material loops, (2) Don’t discard waste that has energy content, (3) Eliminate materials (e.g., heavy metals) that upset system, and (4) Deliver function with fewer materials.*

* Industrial Ecology; Graedel, Thomas, and Brad Allenby, Second Edition, 2003.

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New Performance Measurement Concept:

The Life Cycle Assessment (LCA)• An objective process to evaluate the environmental burdens

associated with a product, process, or activity by identifying and quantifying energy, material usage, and environmental releases, to assess the impact of those uses and releases on the environment, and to evaluate and implement opportunities to effect environmental improvements.

• The assessment includes the entire life cycle of the product, process or activity, encompassing extracting and processing raw materials; manufacturing, transportation, and distribution; use/reuse/maintenance; recycling; and final disposal.

The Society of Environmental Toxicology and Chemistry

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“Introduction to LCA for Purchasing Agents”, City of Seattle, 10 May 2001, Rita Schenck, IERE.

CSCMP 032806 21Purchasing Power: Harnessing Institutional Procurement for People and the Planet

Lisa Mastny, World Watch Paper 166, July 2003.

3. Recycle

2. Reuse

1. Redesign

4. Refuse

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“ FedEx Short”

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Waste• Any activity or action that adversely affects the value

equation, i.e., reduces value• Waste is a symptom of problems with a process

(continuous improvement addresses)• Waste is • Paradigm shift -Some Tools:

TPS, Lean, Kaizen, JIT, TQM, Six Sigma, Natural Step, ISO14001 Certification, Local Supply…

lost profit!

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• Savings From:• Materials and Energy Substitutions

• Reducing the Materials, Energy, and Water Used Per Product

• Redesign

• Reducing, Reusing, and Recycling Scrap Material

• Reusing and Recycling Returned Products

• Packaging, Transportation, and Approval Cycles

The Sustainable Advantage; Bob Willard, New Society Publishers, 2005

Reduction of Waste Creates Reduced Expenses in Manufacturing *

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History of Lean

• Henry Ford was one of the first CEO that target the “elimination of waste” and use of flow. He used the concepts and principles in his automotive, mining, hospital and farming industries that he controlled.

• Toyota, under the leadership of Taiichi Ohno used these same Lean ideas of “eliminating waste”, flow, pull systems, etc. recorded by Henry Ford

• Toyota has become the champion of Lean.

• Toyota became the largest automotive company in the world in 2006

Brief History of Lean

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LEAN

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LEAN vs. TRADITIONAL

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Delivery

0

5

10

15

1st Qtr 2ndQtr

3rdQtr

4thQtr

Mon

ths

UsThemOthers

The Toyota Production

System (TPS)• Goal: The absolute elimination of waste

• Lowest cost

• Highest quality

• Shortest time

85 90 95 100

Qual

ity

Yield

OthersThemUs

0

5

10

15

20

25

30

35

40

Costs

UsThemOthers

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Define ValueValue

Stream Flow Pull

Perfection

Womack & Jones’s Five Steps

Lean Solutions; How Companies and Customers Can Create Value and Wealth Together; James P. Womack and Daniel T. Jones, Free Press, 2005

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Lean at Alaska Airlines

Current Suppliers

New Suppliers

Select Supplier

s

RFP Process

Selection of

Suppliers

Continuous Benchmarking

Alaska has just started it’s journey

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Waste Definition

Waste is…

Any action, process or product that adds cost, without adding value as perceived by our customer.

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Typical Symptoms of Waste• Excessive Cycle, Lead or Flow Time• Excessive costs• Poor quality• Inflexible production systems• Late deliveries• Excessive inventories• Dependency on work-around production• Reactive fire-fighting• Daily management by exception

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Capacity = (Available run time) x (Production rate)

Increased available run time = More capacity

Decreased set up time = Increased available run time

Before: Available Run TimeSet upTime

Available Run TimeSet upTime

After:

Create More Capacity

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Boeing Boeing (LEAN)(LEAN)

AirbusAirbus

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Waste Reduction at Alaska Airlines

• Focuses on the thorough and systematic elimination of waste throughout the value chain

Purchase Tickets

BoardingPass

&Baggage

check

Security Board TravelBaggage

& Depart

Deplane

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• 14 Principles14 Principles• Long Term View• Continuous Flow• Pull Systems• Level Workload• Get Quality Right• Visual Controls• Standardize Tasks

• Use Reliable Tech• Leaders Understand Work• Develop People/Teams• Respect Suppliers• See for Yourself• Decisions by Consensus• Learning Organization

The Toyota Way; 14 Management Principles from the World’s Greatest Manufacturer; J. Liker, 2004

The Toyota Production System (TPS)The Toyota Production System (TPS)

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• “Seeing Ahead” – Commitment to Hybrid• Harmonized Objective’s with Society• Socio Tech – Customer Ready/

No Performance Compromise• Hybrid as Core Competency• “Own” Customer Perception of Leadership• Innovation• Sustainable Mobility

Toyota – Proactive & Forward Thinking

Lorinda Rowledge, Bainbridge Graduate Institute, 2005

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CSCMP 032806 39Purchasing Power: Harnessing Institutional Procurement for People and the Planet,

Lisa Mastny, World Watch Paper 166, July 2003.

My Eye Opener

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Mapping the Territory IMark Milstein

Copyright, Mark Milstein, 2005.

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Mapping the Territory IIMark Milstein

Today

Tomorrow

Internal External

Innovate & Reposition

Establish Reputation & Right to Operate

Set Shared Vision of the Future

Eco-effectivenessSystems thinkingCradle-to-cradleClosed loopsBiomimicryTechnological innovation

Eco-EfficiencyEMSISO 14001Waste reductionRisk managementPollution prevention

Sustainable developmentCommunity capitalismBase of the pyramidInclusive capitalismBrownfield redevelopment

Take-back legislationGreen design (DfE)Industrial ecologyLife cycle managementFull cost accountingStakeholder managementCorporate social responsibility

Based on Mark Milstein, 2005.

Reduce Cost

& Risk

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Purchasing Program

…an effort to purchase products and services with a reduced effect on the environment and human health. In addition to improved environmental performance, many environmentally preferable products work as well or better than traditional products and

.Institutional Purchasing Program; New American Dream Web Site; http://www.newdream.org/procure/index.php

can even save money…

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Implementing Industrial Ecology Principles

• Xerox Europe• Waste-free products through product

stewardship throughout whole life cycle

• End-of-life equipment take-back

• Quality manufacturing process

• Design for Environment (DFE) supports product recovery

• Reprocessed reusable components & reused as virgin parts

• 2000 parts reduced to 250 [simplify disassembly/re-use]

• Bonus – hired and additional 400 people

• 1997 Net Savings of over $80M

• Potential disposal cost converted to revenue stream

• Improved environmental performance, customer satisfaction, and financial performance

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“Large Plant - Profitable Sustainability”

• International Paper Androscoggin Mill: Highly polluting mill cleaned up through extensive use of stakeholder engagement, closing of materials loops, taking new approaches to waste reduction, and toxics use reduction

                                                  

                          

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Logs

CHIPPER

CHP

CHPOCC

PULPER

DIGESTER

Fiber

Paper Machine

“Finished Goods

Box Plants

ExchangeSales

DirectDomestic

Export Sales

Digester converts chip solution to fiber

Paper Mill

Pulping Facility

At the Androscoggin Mill, wastes became raw materials for new production processes

Customers

LQR

CHM

LegendOCC - Old Corrugated CartonsCHM - ChemicalsLQR - Black liquorCHP - Wood chipsFBR - Fiber

CO 2

ASH

Steam

Specialty Minerals Produces Precipitated Calcium Carbonate

Contractor produces AshCrete

Androscoggin Energy generates electricity with high temp steam

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“Innovation - Profitable Sustainability”

• S.C. Johnson Landfill Gas Plant (Johnson’s Wax, Windex, Pledge)• Built gas turbine plant supplied by fuel from

nearby landfill instead of consuming energy from new coal fired plants built by local electric utility

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The Vancouver, WA facility (Matsushita Kotobuki Electronics Industries of America, Inc. (MKA)) receives television components from an overseas supplier in durable plastic trays. The trays also eliminate the need for wooden pallets. Empty trays are nested and shipped back to the supplier in intermodal containers. Annual savings exceed $65,000.

http://www.deq.state.or.us/wmc/packaging/bp/bpreusablecontainers.pdf

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Profitable Sustainability at Matsushita Kotobuki Electronics Industries of America, Inc. (MKA); Case Study for BGI Sustainable Operations, Dwight Collins, Dennis Gawlik and Karl Ostrom; 2005.

Other Savings for MKAFigure 2:Waste Reduction Record

(1998 – 2003)

Solid waste

1998 235 tons

2003 84 tons

Recycled Cardboard

1998 210 tons

2003 840 tons

Recycled Wood pallets

1998 89 tons

2003 480 tons

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Giving, Stewardship and Sustainability

• More than $2.4 million given in 2005 for conservation, recreation and stewardship causes

• In 2004, engaged 124,000 people in donating a more than 324,000 hours of volunteer service to the outdoors

• Presently finalizing a company strategy to build on long standing commitments to sustainability. For example: • Continuing as a leader in Green Building design and development• Implementing purchasing standards requiring paper products to come from

responsibly managed forests• Seeking to reduce waste and expand recycling ability through a new waste

management contract• Working with vendors to assure responsible disposal and recycling of

electronic waste – specifically computer monitors

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Is ‘Sustainability’ Supply Management good enough?

Is a ‘Sustainable’ and ‘Lean’ Business model good enough?

“Next Steps for Sustainable Supply Management”

Where is the next Paradigm shift in

sustainable supply management

likely to occur?

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Antony Burgmans,Chairman – Unilever N. V.

“The solutions of the past are often not robust enough under the conditions of global change and need to be re-thought and re-implemented.”

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Transformation Requires a New, Modern Mind, Paradigm &

Strategy• “Sustainable” development won’t work (in

the long-term)• Eco-efficiency as the dominant norm• CSR as an emergent norm• Triple bottom line as an operational metric• Sustainability reports as legitimizing• Technology solving the problems it creates

“’Radical Sustainabiity’ A Call for Fundamental Change”, John R. Ehrenfeld; Bainbridge Graduate Institute, Intensive, MGT 566, March 2005, pg. 4.

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John Ehrenfeld, 2005

“Sustainability is the possibility that human and other forms of life will flourish on the Earth forever”

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Current Sustainable Development• Phase 1: • Adam Smith and

The Industrial Age

Phase 2:

Phase 3: Holistic System View Controlled ConsumptionLocal * & No-Growth

Triple Bottom Line Life Cycle Assessment/AnalysisTPS/Lean / Reduce Waste/ Continuous Improvement

* Dr. H. Thomas Johnson, Portland State University /Bainbridge Graduate Institute.

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Value Creation at the Nexus New Worldview for A Sustainable/Economic System

NATURAL CAPITAL

Integrative & Restorative Interaction

with Natural Eco-System Constraints &

Resources

HUMANPROSPERITY

OptimalContribution to

Employees, Customers,Community,

Global Society

MANUFACTURED CAPITALWorld Class Level of Organizational Excellence,

Superb Business Design, Product & Service Design,Production Capability, Core Competence Development

Jill Bamburg and Lorinda Rowledge.; Bainbridge Graduate Institute, 2005

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Purchasing Power: Harnessing Institutional Procurement for People and the Planet Lisa Mastny, World Watch Paper 166, July 2003.

• Ultimately, “green” purchasing shouldn’t simply be about buying environmentally preferable products. It should also be about consuming less in general. Institutions should find ways to meet their needs without buying new products – for instance, by eliminating unnecessary purchases and extending the lives of products currently in use.

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Strategic Rationale:Sustainable Supply Management

• Risk Management• License to Operate• Customer Demand & Market

Pressure• Regulatory Requirements• Eco-Efficiencies• Resource Availability• Stakeholder Pressure &

Expectations• Product/Service

Differentiation

• Competitive Advantage• Reduced Cost of Capital• Innovation & Technology

Development• Growth Opportunities: New

Products, New Markets, New Businesses

• Employee Recruitment & Retention

• Engagement Mechanism• Ideology, Ultimate Purpose

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• Professionalism – Enlightened Approach• Systems Focused – Process Involvement• Results/Profit Driven• Individual Focus (Mgnt Support)• Continuous Improvement • Waste Reduction – TPS, LEAN & LCA focus

and• Controlled Business Consumption• Think Globally, Act Locally; No-Growth

Summary of Sustainable Supply Management Practices

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Thank you

“When one tugs at a single thing in nature, he finds it attached to the rest of the world.”

John Muhr