How to Implement Lean in a Productivity Project

Transcription

1 [ Improve. Innovate. Achieve. Succeed. ] Supply Chain & Materials Strategy: Uncovering hidden opportunities John Kim, President John Kim and Associates Johnk@johnkimconsulting.com

2 John Kim - President John Kim President, JKA, LLC: 12+ year member of the Shingo Prize Board of Examiners. John is considered a leader in the design, development and mobilization of Enterprise Wide Lean Systems. As an operations executive (plant manager, general manager and VP operations) at The Hon Company and Danaher Corporation, John learned the keys to implementing Lean from his Japanese coaches while running multiple operations across the US. With 25+ years of experience, John has become an internationally renown speaker on Lean Healthcare, Lean (Executive) Leadership, Lean Management Systems, Lean in Business processes and Enterprise Wide Lean Transformations. John has spent the last 17+ years in executive consulting and his team helps organizations mobilize and implement Lean management systems in sectors including Oil and Gas, Pharma, Manufacturing, Continuous Flow/Process Manufacturing, Healthcare, Medical Devices, and Financial Services. Following a 20+ year manufacturing career, John became one of the early pioneers in applying Lean principles across the extended Enterprise (i.e. sales, marketing, manufacturing, supply chain, engineering, field service, finance, distribution, etc.), John was amongst the first to use and apply Lean to specifically drive key performance metrics such as: revenue, EBIT, working capital, cash and speed to market. Working in numerous industries, John has learned the importance of aligning one s approach and methodology for Lean with the type of processes (e.g. Manufacturing vs. Information vs. Healthcare vs. Financial), type of industry and local culture of each organization (i.e. one size does not fit all). As an early pioneer in applying Lean and Lean principles to non-traditional applications, John is credited with developing a proprietary approach to applying Lean Principles into Business Processes (VSMi ) resulting in one of the first approaches to understanding and improving information flows and transactional processes (quoting, engineering, billing, contracts, etc.). It was this approach that has enabled JKA clients to move seamlessly between traditional lean manufacturing (cost center focused improvements) and business processes (i.e. income statement and balance sheet) focused improvements. Lean Experience: manufacturing (engineer to order, machining, assembly, low/medium volume high volume, continuous flow), product development, supply chain, distribution/logistics/, sales, marketing, finance, mining operations, design engineering, technology development, manufacturing engineering, quality/regulatory, QHSE, compliance, legal, etc. Industry experience: Manufacturing, mining and processing, pharmaceuticals, technology development, oil and gas (exploration, global supply chain, regional supply chain, drilling operations), medical devices (global manufacturing, product development, global distribution), insurance, healthcare, banking/financial services, nuclear power, defense, aerospace, transportation, and others. Clients include: GE Healthcare, GE Life Sciences, GE Capital, GE Transport, Marten Transport, Baxter Healthcare, Genzyme, Snap On Tools, International Paper, Dover Industries, The Hon Company, Parker Hannifin, Lockheed Martin, Northrop Grumman, US Army, Bank of America, Microsoft, Baptist Health System, Baystate Health System, US Oil, Terex Utilities, Schlumberger, M-I SWACO, Transocean, and more Slide 2

3 Supply Chain What is meant by the term Supply Chain? Supplier à Facility Facility à Warehouse/Distribution Distribution à Customer Plant à Customer Supply Chain is a term representing many systems, processes and tools encompassing both materials/services inbound to an organization and outbound to your customers Slide 3

4 Materials Strategy What is Materials strategy? Conscious decisions we (as materials/operations leaders) make that determine: The rules by which we will play the game (i.e. support operations) The processes that will be used and/or developed The tools that will be made available The skills/capabilities that must be developed for our teams to deliver performance Excellence in Operations Financial performance Not enough organizations take the time to think about their materials strategy. As a result, we continue to play the game with the assumption that the tools, processes and capabilities of the past are the most appropriate for our future Slide 4

5 Materials Systems: What are materials systems? Materials systems are the various ways an organization can choose to signal the need for materials (make or buy items), and execute replenishment/fulfillment. MRP (lot for lot, safety stock, min/max ) Kanban Vendor managed Inventory (VMI)?? The appropriateness of the system selected, design/configuration of the systems selected, and integration of the systems directly impact what is possible within operations The most common failure modes of most materials systems is the implementation of only pieces of the system (e.g. Kanban = Kanban cards, Heijunka = Heijunka board, PFEP = formula, etc.) Slide 5

6 Supply Chain and Materials Strategy How do Supply Chain and Materials strategy interact? The design, configuration, capabilities and appropriate utilization of your supply chain serves as a direct input into the approaches and techniques you can use to support your materials/services needs within operations Examples: A supplier with a same day lead time vs. 10 day lead time fundamentally changes how you may choose to set up an item for replenishment (i.e. materials strategy) Choosing the configure (or not maintain) your enterprise system with inappropriate lead times, misapplication of order multiples, wrong criteria for lot sizing, etc. The continual development of new (appropriate) capabilities within your organization will create your incremental and breakthrough opportunities Slide 6

7 Supply Chain Metrics Measuring Supply Chain and Materials performance a) Tactical/Operational Exception report maintenance On time placement of PO/WO Vendor OTD Supplier Quality b) Business performance Income statement Materials management cost (indirect labor productivity) PPV (adjusted) Premium freight Supply chain related scrap/rework costs Balance sheet Inventory $ Inventory turns Slide 7

8 How Effective is your Supply Chain strategy? Effectiveness measures how we are doing compared to what is possible. E.g. Days on hand vs.. supplier lead time.. What will you see? No correlation whatsoever Can we do better than what we see? % Inventory dollars compared to actual consumption Type I = Top 80% of consumption Type II = Next 15% of consumption Type III = everything else Both of the above represent significant (hidden) opportunities to impact financial performance and create excellence in operations Slide 8

9 Liquidation of Type III s Actions included: ü Burn down of existing stocks (NO replenishment) ü Re-distribute Stocks from locations where they might be a III into warehouses where that same item is an I ü Substitution of items into existing drilling programs ü Communication with Engineering/Materials (about substitution) Actions included: ü Return to Supplier ü Put on excess inventory ü Sell Sell Sell ü Inter-Company transfer ü Return to Supply Chain ü Sold to Alpine Identified $2.1mm of Type III inventory for disposition. Actions to be taken by 11/15. Tracking to begin 11/1 Since 49% of our Inventory $ was in slow or non moving items, we had to find (and force ) a way to drive the consumption of Type III s Slide 9

10 things to remember There is a direct correlation between your Strategy for materials, the materials systems you select and the development of your supply chain and sourcing strategies Sourcing strategies/decisions are (too) often made in isolation with terms that may not support the needs of operations, be consistent with the processes in place, the income statement (true cost to operations) and/ or the balance sheet (impact of inventory) Too many Plans for every part (PFEP) are in fact Formulas (copied) unto every part results in blind application of math Most companies do not have (execute) a materials strategy surviving the day by completing lists, expediting parts and addressing concerns The good news you do not have to fix everything to make significant improvements in performance Slide 10

11 Supply Chain: What to do.. Where to look What to do where to look for opportunity What is your strategy for ensuring availability of supply for your operation? What order/replenishment systems are in play for your organization What scenarios have been communicated (within materials) to ensure appropriate consideration/use/set up for each system? (Nearly all businesses have products that by definition have different lead times) Have you actually ever overlaid the your product lead times against the materials strategies and materials systems in place? Many organizations have let MRP, Kanban or the System control what is done vs.. a) Asking what do we need to do to support operations b) Selecting and configuring the system (kanban or MRP) to do what we need the system to do Slide 11

12 Supply Chain: Hidden opportunities Operating Expense à Operating Income à EBIT Landed cost: look for hidden costs within your materials systems (e.g. premium freight, indirect labor (hourly & salary, E&O ) PPV strategy: review actual PPV contribution Inventory à Balance Sheet à EBIT Review the actual operating performance of your decisions Days on hand vs.. supplier lead time (i.e. inventory turns by item) % of Inventory dollars supporting bottom 5% of consumption Use process reviews & data analysis not for the purpose of improving the number, but instead to evaluate the effectiveness (to the business) of the systems you have in place Slide 12

13 Supply Chain and Materials Key takeaways What is your materials strategy (to best support the needs of your operations) What are the key materials systems in use today? Are the systems the most appropriate for your business? Make sure someone is making a conscious (informed) decision for what kind of materials system to use for a given item? Whatever you choose to do (within materials), do well encourage your staff to think how materials/information flow across departments Self fund your improvement activities (income statement & balance sheet) Provide/develop the right processes and tools for your needs Developing the right knowledge, understanding, skills and capabilities in your front line staff is how you achieve Operational Excellence. Set goals based on what is possible Slide 13