Value Stream Mapping

Transcription

1 UNIVERSITY OF NEW SOUTH WALES SCHOOL OF MECHANICAL AND MANUFACTURING ENGINEERING SEBEL Value Stream Mapping Project Final Report Juan Gutierrez Student ID: Master of Engineering Science Specialisation of Manufacturing Engineering and Management Project 6 UOC (GSOE0006) June 2013 University Supervisor: Associate Prof. Sami Kara Industry Supervisors: Michael Huang (Director Postgraduate Research) (Plastics Manager)

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3 CERTIFICATE OF ORIGINALITY I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, nor material which to a substantial extent has been accepted for the award of any other degree or diploma at UNSW or any other educational institution, except where due acknowledgement is made in the thesis. Any contribution made to the project by others, with whom I have worked at UNSW or elsewhere, is explicitly acknowledged in the document. I also declare that the intellectual content of this report is the product of my own work, except to the extent that assistance from others in the project s design and conception or in style, presentation and linguistic expression is acknowledged. (Signed).

4 ABSTRACT This project was commissioned to study the feasibility of one of the most complex and representative core products of Sebel Furniture (a well known furniture manufacturing company, based in Sydney, Australia) by comparing its current operations in a centralized model, to a future state in a de-centralized logistics model. The method for doing this was Value Stream Mapping, a Lean manufacturing methodology to identify non-value-added activities along the processes, and reduce Lead Time (LT) and costs by removing those wastes. It is important to mention that, although most of the information in this report corresponded to real data, some assumptions were made, given constraints such as time and the fact that, by the time this report was written, the company was yet working on some of the projections for the future business model. Through the development of the project, Value Stream Maps (VSM) for the family product Postura Plus Shell range were documented on its centralized and de- centralized logistics, main wastes and non-value-added activities were identified, as well as considerations for improvement were raised. This report also shows a basic simulation model of how the VSM would looks like in an improved state, and how each scenario differs from the others. Results showed risks of the future decentralized logistic model of the company regarding complexity of operations planning and inventory management, as well as it describes how successful could it be in terms of a shorter lead time, if an action plan were implemented.

5 ENDORSEMENT This report has been reviewed by the company representative of Sebel Furniture. It contains confidential information of Sebel Furniture. Date:.. Michael Huang Plastic Molding Department Manager Sebel Furniture

6 ACKNOWLEDGEMENTS It has been great honor to perform this project at Sebel Furniture Company. I am very thankful to Mr. Pat Varanasi (Operations Manager) for giving me the opportunity of put into practice my knowledge, whilst I acquired a different experience in a different sector of the industry. I would like to take opportunity to express my gratitude to Mr. Paul Fiddling (Engineering Manager), Michael Huang (Plastics Manager) and Armin Asadi (Manufacturing Engineer) for providing all facilities and support to meet my project requirements, as well as to my Project Supervisor Prof. Sami Kara (Director Postgraduate Research UNSW) for his guidance. I am also thankful to Graeme Love (Supply Chain Manager) and Jacky Chan (Planning and Assembly Manager) for helping me to understand the project better, and to all people I had the pleasure to meet and interview for their willingness to help me completing the assigned tasks. Although there may be many who remain unacknowledged in this humble note of gratitude there are none who remain unappreciated.

7 TABLE OF CONTENTS Glossary... viii List of figures... ix List of tables... x List of abbreviations... xi List of appendices... xii INTRODUCTION... xiii 1. COMPANY PROFILE PROJECT DESCRIPTION... 1 PROJECT BACKGROUND... 4 VSM PROJECT IMPACT OVER COMPANY S STRATEGY... 5 PROJECT PLAN MATERIALS AND METHODS... 7 CURRENT STATE... 8 FUTURE STATE RECOMMENDATIONS IMPROVED STATE CONCLUSIONS REFERENCES APPENDIcES... 28

8 1. GLOSSARY Kaizen: A Japanese word that means "change for the better." Kaizen is a combination of maintenance, problem solving, and innovation that is generally performed by a team.(4) Lead Time (LT): The time spent between the original customer order for a particular product and its final delivery to the customer.(3) Lean manufacturing: An approach to manufacturing that seeks to reduce the cycle time of processes, increase flexibility, and improve quality. Lean approaches help to eliminate waste in all its forms.(3) Order-to-cash cycle: Normally refers to the business process for receiving and processing customer sales.(4) Takt time: The rate at which the customer requires your company to manufacture products.(3) Third Party Logistics (3PL): A firm that provides service to its customers of outsourced (or "third party") logistics services for part, or all of their supply chain management functions.(4)

9 List of figures Figure 1. Sebel s strategy vs VSM impacts 5 Figure 2. Project s Gantt Chart 6 Figure 3. Pareto analysis for sales margin of core family products 7 Figure 4. Postura Plus Shell chair 8 Figure 5. Plastic molding process 9 Figure 6. Assembly process 9 Figure 7. Postura Plus Shell VSM Current (Centralised) State 10 Figure 8. Receiving/Dispatching Process 12 Figure 9. Seats WIP 12 Figure 10. Die change 13 Figure 11. Frames sorting 13 Figure 12. PMD Manual operation 14 Figure 13. Assembly sequence 14 Figure 14. Sebel new business model 15 Figure 15. Postura Plus Shell VSM Future (Decentralised) State 17 Figure 16. Postura Plus Shell VSM Improved (Centralised) State 22 Figure 17. Postura Plus Shell VSM Improved (Decentralised) State 23 Figure 18. Comparison of proportional value-added time 25

10 List of tables Table 1. Product Process Matrix 7 Table 2. Cost-benefit analysis (Monthly operating cost comparison) 18 Table 3. Opportunities for improvement 19

11 List of abbreviations 3PL: Third Party Logistics ATO: Assembly-to-Order BOM: Bill of Materials C/T: Cycle Time CPPD: Concurrent Product and Process Development DFX: Design for Everything DIFOT: Delivered in full on time DS: Direct Selling EOQ: Economic Order Quantity ERP: Enterprise Resource Planning LT: Lead Time MRP: Material Requirements Planning MTO: Make-to-Order MTS: Make-to-Stock MTTF: Mean Time to Failure MTTR: Mean Time to Repair NSW: New South Wales OEE: Overall Equipment Effectiveness PFD: Process Flow Diagram PMD: Plastic Molding Department QA/QC: Quality Assurance / Quality Control S&OP: Sales and Operations Planning SA: South Australia TPM: Total Productive Maintenance VSM: Value Stream Mapping WA: Western Australia WIP: Work-in-Process WO: Work order

12 List of appendices Appendix 1. Sources and calculations matrix 28 Appendix 2. Warehouse receiving PFD 29 Appendix 3. PMD Seat PFD 30 Appendix 4. PMD Plug PFD 32 Appendix 5. PMD Pin PFD 33 Appendix 6. Assembly PFD 34 Appendix 7. Warehouse dispatch PFD 36 Appendix 8. Masterbatch purchasing order data and receiving date 37 Appendix 9. Frames purchasing order data and receiving date 38 Appendix 10. Postura Plus Shell Sled Charcoal BOM 39 Appendix 11. Polypropylene inventory 40 Appendix 12. Masterbatch inventory 41 Appendix 13. Seat inventory 42 Appendix 14. Plug inventory 43 Appendix 15. Pin inventory 44 Appendix 16. Finished goods inventory 45 Appendix 17. Seat PMD WO, packing list and production sheets 46 Appendix 18. Plug PMD WO and packing list 50 Appendix 19. Pin PMD WO and packing list 51 Appendix 20. Assumed PFDs for Improved VSM 52

13 INTRODUCTION Sebel Furniture was going through radical transformations as a company by restructuring its business model to optimize their operations and moving to a new site location. One of organization s existing problems was the enormous amount of products and product families, reason why the future model was looking to reduce and optimize the product families. The aim of this project was to examine the feasibility of Postura Plus Shell range (Figure 4), one of the most significant (in terms of sales margin) and complex family products of the firm (in terms of operations), from the perspective of its current centralized state and the projected future decentralized logistics model, as well as identify possible wastes along the processes by using Value Stream Mapping (VSM), a lean manufacturing principle focused on detect non-value-added activities to eliminate/reduce them, shortening thus, the "order-to-cash cycle" of a product. The challenge was to adopt the new concept of value stream provisions so that the mapping not only captures material and information flow on a factory level, but encompasses material and information flow pre/after factory. This exercise was an essential input for the company to make simulations and benefit/cost analysis about reducing its lead times and freight cost in two of its main sales points (Western Australia, WA and Queensland) by decentralizing its assembly and warehousing operations in these hubs as well as acquiring the figure of a Third Party Logistics (3PL) for consolidation of its core components in China. This report briefly describes the company s profile, project scope and how the VSM analyses contribute to the company's strategy. Following, a depiction of the VSM was made for its current and future state, as well as potential Kaizens were identified. Next, an improved state based on the implementation of pointed considerations for improvement was made for both, a centralized and a decentralized logistics model and finally, results and main findings of the project are mentioned.

14 2. COMPANY PROFILE Sebel began in 1951 with the production of Mobo toys and a new furniture range based around the innovative Stak-a-Bye chair. In the late 1960s the decision was made to drop the toy side of the business and concentrate entirely on the furniture range. The company went on to introduce many innovations, from being the first to replace wooden chairs at schools with Polypropylene, to classic ergonomic designs. Since then, and still behind each Sebel product today, is a genuine manufacturing culture which is focused on making products that have the latest ergonomics (Form), work at a practical level (Function) and are built to last (Quality). In 2011, the organization became part of KI the leading furniture supplier in the USA for education, healthcare, corporate and government markets. KI has sales offices and licensed manufacturing facilities throughout the world, including now Australia, the United States, Canada, Latin America, Europe, India, China and other Asian countries. (The website of Sebel) 3. PROJECT DESCRIPTION WHAT IS VALUE STREAM MAPPING? Developed during the work conducted by Taiichi Ohno at Toyota in the 1960 s and 70 s, at its basic level VSM is a systematic methodology to identify wasted time and actions in a manufacturing process. In more recent times VSM it has been used to re-engineer businesses because it identifies unnecessary effort and resources to permit simplification and streamlining of operations processes. It is useful to explain the meaning of several key concepts used in VSM. These are: what waste is, what constitutes value-adding, along with what is needless non-value-adding and what is necessary non-value-adding. VSM is used to investigate processes to identify improvement opportunities lying in their wastefulness and lack of fluidity.

15 Waste is one of the seven wastes identified by Toyota. These are: Overproduction: Producing items for which there are no orders. Waiting Time: Employees standing about. Inventory at stand-still. Unnecessary Transport: Moving material unnecessarily or long distances. Over-processing: Using more steps to produce a product than necessary. Excess Inventory: Retaining unnecessary inventory between process steps. Unnecessary Movement: Any wasted motion by man or machine. Defect: Making incorrect product. Value is from the customer s perspective, the customer being the person who uses the output. Value-adding actions and resources are those which create value for the customer. Non-value-adding is everything done in the process which contributes no value for the customer but which they are forced to pay for when they buy the product or service. Necessary non-value-adding are those actions in a process that must be done to make the product but create no value for the customer. Unnecessary non-value-adding is removed and necessary non-value-adding is minimized to the least possible. Value Stream Mapping Methodology In VSM we follow a process from start to finish monitoring and measuring what happens within, and between, each process step. For each process step we record the variety of resources used in the step, the amount of their usage and the range of times each resource is in use as a block of information specific to that step. The measured variables are collected together in a variable block. From the information collected during data gathering the process is drawn as a flow diagram showing the times and resources used at each step and the time delay between each step. This diagram is called the current state map. Inventory movements between steps are identified by the I inside a triangle. Under the triangle is noted the range of times the inventory can take to be moved. A visualization of the location of value-add and non-value-add steps is presented as a line across the bottom of the page which jumps up during a

16 value-adding step and stays low for all other times. The current state map is scrutinized step by step to identify which of the functions and actions performed in the step/process add customer-value and which do not. The non-valueadding actions and resources are analyzed to find where they can be minimized through time-saving and cost-saving improvements. A secondary benefit of timing the process steps and measuring the rate of throughput is identification of the bottleneck steps. The bottlenecks can be redesigned to lift their capacity and so increase the output rate of the whole process. The reengineered process is drawn on a new flow chart known as the future state map. It shows all the steps and information flows in a redesigned, simplified and more efficient process. Investigation VSM requires spending time in the workplace recording the details of people, product, equipment and information movements. It is necessary to record and time the range of variables that occur in each process step during the operation. It also requires viewing written records related to the process in order to record dates, quantities, delays, stoppages, breakdowns, operating decisions, absentees, etc that impacted on the performance of the operation during the period being analyzed. The believability of the analysis is only as good as its completeness of its content and the truthfulness and honesty it contains. When there are provable facts extracted from documented evidence and recorded site observation there can be belief in the findings from the investigation. Analysis The worth of VSM becomes self-evident during the analysis phase. Once a business or manufacturing process is drawn as a series of steps and described in numerical terms, the inherent oddities and inconsistencies become evident. The first analysis performed is to compute a ratio of total customer-valueadding time to total process time to see how customer-effective the process is. Often this figure is in the single digits. A low customer-value-adding ratio

17 indicates a process design without the customer s wishes being considered. The fortunate aspect of non-customer-oriented processes is the great scope offered to cut big amounts of waste and cost from them. Other important factors to identify during the analysis are the variability between good and poor performance in each of the process steps and the time that inventory is standing still between steps. Poor inventory speed is an indicator of too much work-in-progress not leveled to the bottleneck rate. The problems identified in the process are quantified in terms of the customer-non-value-adding time they take. Identifying Improvements Opportunities for improvement readily present themselves as the analysis is conducted. When developing proposals it is ideal if that the users of the process are included in identifying the solutions so they take ownership for the future implementation. During the analysis simplifications in process steps are identified, procedural changes to stop wasted actions show themselves, and equipment and process modifications needed to increase throughput rates become evident. The selected improvements are included in the redesigned future state map of the process. (Sondalini.2009) PROJECT BACKGROUND Sebel was drastically modifying its business model, which between others, included a reduction of its products range in order to simplify its operations, a downsizing of its production facilities and a re-design of its supply chain for its core products. This reengineering process implied a study of the core products in the current state Value Stream compared to a future state Value Stream in a centralized and decentralized logistics model. The project consisted of analyzing the manufacturing operations of the company as well as its process flows and supply chains, to define its different type of wastes and actual value-added time, in order to identify potential

18 Kaizens for the company to improve its performance and reduce its costs and total Lead Time. Expected outcomes from the project were as follows: 1 Identified organizational processes or activities as potentially wasteful 2 The value chain broken down into its constituent processes/activities 3 Established relationship between processes/activities 4 Estimated average working time required to complete each process/activity 5 Identified average waiting time between processes/activities 6 Calculated total working time, wasted time, and efficiency 7 Analysis of current and future state model 8 Optional: A "what if?" alternative (a second such picture, "optimal future state threshold" Value Stream Map). If one or more changes were instituted, what would the future state look like in terms of total working time, wasted time, and efficiency? VSM PROJECT IMPACT OVER COMPANY S STRATEGY A relationship between the main aspects of Sebel strategy and the VSM analysis can be seen in Figure 1. Figure 1. Sebel s strategy vs VSM impacts

19 PROJECT PLAN Figure 2. Project s Gantt Chart

20 4. MATERIALS AND METHODS During the development of this project an office space with a desktop computer, as well as office supplies were assigned for Sebel. 30% 27% 30% 25% 20% 15% 10% 5% 11% 8% 7% 4% 4% 3% 2% 2% 2% 0% Figure 3. Pareto analysis for sales margin of core family products The choice of Postura Plus Shell range as the core product to focus on, was based on a Pareto analysis of the most representative family products in terms of sales margin (see Figure 3) as well as on the analysis of processing complexity for a pre-selection of family products (Table 1). PRODUCT Hobnob chair Postura Plus Shell range Postura Plus 460 OP Desk Postura Plus 260/310 REQUIRED PROCESS Assembly Plastic Receiving Moulding Upholstery Basic Despatch Table 1. Product Process Matrix

21 The method for the construction of the VSM analysis was as follows: 1 Brief explanation of the situation through interview with functional managers (as shown in Appendix 1). 2 Data collection: For collection of times and distances data at the plant, I adapted the standard tool of Process Flow Diagram (PFD) to the specific needs of the company and the project (see Appendices 2 to 7) to use it for on-site inspections. Other information was obtained from the MFG-Pro (organizational MRP software) consultations, functional performance reports, documented records, photos, videos, interviews with processes responsible and finally, some assumptions were made, mainly regarding future projections and an improved state (Appendix 1). 3 Process analysis and Mapping: Collected data were typed into spreadsheets as well as the drawing of the VSM. I decided to utilize MS Excel, given the ease to link processes data from PFDs to the VSM as well as between the different scenarios of the VSM through the formulation of the cells. Therefore not only VSM picture, but a basic model was created to modify according to the business needs and to be used on upcoming events and other core family-products. Nevertheless, this information could be easily incorporated into a MS Visio file or an Arena simulation. 4 Review and validation: Periodical reports for review were ed to Sebel's Supervisors, as well as several meetings were held for progress validation. CURRENT STATE In an attempt to have a whole picture of the different possible scenarios for the organization, Sebel s management decided for this project to involve the mapping of a current, future and a improved state, if possible. For this, a decision was made of focusing in only one of the core family-products of the company: Postura Plus Shell range; however, this was a very representative product to work given its financial Figure 4. Postura Plus Shell

22 significance and the comprehensiveness of its operations (as shown on Figure 3 and Table 1). Apart from upholstery, this product encompasses all the internal operative processes of Sebel: Figure 5. Plastic molding process Receiving: Local plastic raw materials and basic supplies such as screws and materials for packaging, and critical components such as metal frames from overseas (China). Plastic Molding: This product contains 3 different plastic parts: one seat, two plugs and two pins (Appendices 3 to 5), all of which are produced inhouse, in an injection process which commonly implies a mix of 97% of Polypropylene (PP) and 3% of Masterbatch (color base). See Figure 5. Assembly: Postura plus Shell requires manual assembly of frame plugs and pins into the seat (as shown in Figure 6 and Appendix 6). Dispatch: Sebel ships finished goods to its local (New South Wales NSW - metro and country areas) and interstate customers (Queensland, Western Australia WA -, Victoria, South Australia SA - and Tasmania) as well as to clients from overseas (mainly New Zealand and Honk Kong). Figure 6. Assembly process

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24 This general view about the business corresponded to the first part of the project, a general induction for a basic understanding of the business. After this, data collection and analysis stage began in the order in which Sebel executed its processes/activities; as a result, a description of the current state of the company s VSM for Postura Plus Shell (Figure 7) was as follows: 1. A customer accepted, commonly by or fax, a quote from Sebel and during the course of the day, the Sales Rep enters the accepted quote into Direct Selling, DS (organizational software for Sales and Customer Service processes). Usually the next day, Customer service department carries out a double-checking of basic data (product codes, etc.) uploaded from Sales and places an official order on the system. However, given corporate policies, orders were accepted indiscriminately regardless type of customer, product or quantity ordered, normally offering 6 weeks or less of LT to the customer, which resulted in low service levels and represented high inefficiencies for the firm. 2. There is an overnight interface process between DS and MFG-Pro (corporate MRP software), which groups and incorporates new sales orders into MFG-Pro as new material requirements. This process represented one more waiting day. 3. Planners release purchasing orders according to stock level and suppliers' LT. It could take around 1 to 2 days for obtain a response from suppliers, depending on the component. Parallel to it, internal Work Orders (WO) can be released for scheduling of Plastic Molding Department (PMD), assembly or dispatch. Purchasing orders are not only placed as a result of sales orders but also depending on a minimum safety-stock and suppliers usually deliver partial shipments. For purposes of this exercise, I tracked an specific order for which the total supplier' LT was 6.5 weeks (Appendices 8 and 9), which represented an overdue on the time promised to the customer and 64% of the total LT on the VSM for this order, as well as a significant volume of Work-in-Process (WIP), since production of plastic seats for this order was scheduled and ran regardless the lack of metal

25 frames for assembly of the chairs. Additionally, it seems that one of the reasons for this order of frames to take such a long time was also a special event (Chinese year celebrations), which should have been considered in advance for Sebel on its MRP process. 4. Warehouse receives supplies (components and finished goods), unloads containers/trucks and stores them; this operation could take an average of 8 hours if performed by one Figure 8. Receiving/Dispatching Process Appendix 1). However, even when inventory LT for the seat was roughly 2 days, there was around 5 stillages of physical WIP during weeks (Figure 9), which demanded a considerable storage space. More details can be seen in the respective PFD (appendices 2 to 7). operator, with similar values for a loading operation. After this, there is a transfer movement of the merchandise on the MFG-Pro to the respective department, which implies one day for the total LT of the VSM for receiving and one more for dispatch, given that this area operates on a single shift of 8 hours per day (Figure 8). 5. According to the VSM principle of taking a picture of a specific moment, by the time this exercise was carried out, the level of stock for the various components of the product was taken into account (Appendix 10), all of them personally checked on the store. From these quantities (Appendices 11 to 16), inventory LT were calculated, in the case of plastic raw materials assuming a proportion of PP on silos and masterbatch on store, correspondent to the sales margin of the family-product (7%). For WIP of plastic parts, metal frames and finished goods, inventory LT was calculated as a relationship of the quantity and its real rate of production (as shown in Figure 9. Seats WIP

26 6. Once PMD's MRP is planned and production scheduled, a WO is released to the shop floor, as shown in Appendices 17 to 19. There, plastic injection molding processes take place for each of the required parts, whose details can be seen in the respective PFD as well as explanation about some calculations is given in Appendix 1. During the analysis of this process, there was a long die change time (Figure 10), particularly for the seat (3 hours), which added to 2 hours of waiting time caused by a breakdown, plus 1 hour till the first good part was obtained, represents a total Changeover time (C/O) of 6 hours for an order of barely 260 units, a low uptime rate of 78% Figure 10. Die change and 65% of performance. Although there are queue times between most of the activities along the VSM, there is a relevant queuing time for a part as a result of the way the process flows in batches. For instance, Postura Plus Shell was temporarily kept in a stillage with capacity of 168 units; given that the Cycle Time (C/T) is 225 seconds, it means that the first part on the batch waits almost 11 hours (around 1.5 shifts of production) to go to the next process (assembly). It is also important to mention that, although volumes of scrap material are relatively high on PMD (around 11% for the seat), most of it could be reused for some products after a simple reprocessing. 7. In regards to the assembly process, the total setup time includes the activity of frames' sorting (Figure 11), which consists of the separation of different items from the stillages when containers are received at the warehouse. It usually takes around 1 shift of 8 hours (1 day) for two Figure 11. Frames sorting

27 people to classify a container (6 stillages). Given that the analyzed WO was for only 96 units, the assumed time corresponds to one stillage, which is almost one hour and a half. This time plus the real time spent to setup the assembly line for a new product, represents a total C/O time of 2 hours, which, once again, given such as small WO, has a negative impact on the process uptime rate (57%) and performance (55%). The design of the chair is complex and, even when during the molding process seats require, between others, manual operations such as putting a timber block at the back during the cooling time to avoid deformations (as shown in Figure 12), the assembly liaisons (frame, plugs and pins) are not simple and demands excess of handle time and tooling such as hammers to align components. Additionally, this is a modular design which obtains different product references using same components by only changing the frame; however, plugs and pins are not required for the product functionality of this particular reference (sled), so their incorporation into the product means overdesign and overproduction, with all the respective costs' implications. Moreover, chairs are grouped in stacks of 5 units, which, depending on the order, are covered with a plastic bag tied on the bottom, and heated into an oven. However, given the dimension of the containers, this operation is frequently undone at the warehouse in order to fit more chairs per Figure 13. Assembly sequence Figure 12. PMD Manual operation stack, which means a waste of time, energy, material and money. Unlike the PMD C/T of almost 11 hours for a batch of 168 seats of Postura Plus Shell, assembly works in batches of around 40 units (C/T of barely 47 min) which depicts a lack of production rhythm (Takt time) and could represent a bottleneck.

28 8. After the internal operations of the company, which represents barely 20% of the total LT, exists again a transportation activity for delivering the finished goods to local, interstate and overseas customers, that could encompasses truck transportation from Sebel to wharf or rail, shipping time (on rail or on the water) and then, truck again to pick up products and deliver them to clients. This transit times are quite variable depending on the exact location of the customer (see Figure 7) with an average of 3 days for NSW, 10 days for interstate, 23 days for overseas, and accounts for an average of 17% of total LT on the VSM. As a result of the exercise, for a Current State of the VSM, there is an average of 71 days of total LT (10 weeks) for Postura Plus Shell, from which 2% (1.4 days) correspond to activities that add value to the product and for which customers would be willing to pay for, and the rest 98% (70 days) represents Non-value-added time. 80% of this LT stands for external operations, with 46 days of supplying transportation time (64%), an average of 12 days shipping time (17%) and 14 days of internal operations (20%). FUTURE STATE New factory layout, readiness and relocation Product Portfolio rationalisation Organisation structure to support the new model Supply Chain for all "outsource" products and setting up consolidation (3PL) in China New Sales office model (warehouse, assembly, order entry, orders management) Logistics requirements and systems/process design to support order fulfilment IT system to support the New model Figure 14. Sebel new business model

29 In the future, Sebel will change in many aspects (as shown in Figure 14) such as the rationalization of its product portfolio, a downsizing and new layout of its NSW operations facilities from m2 to around 6000 m2, as well as a redesign of its supply chain logistics, from a centralized to a decentralized model, which implies to transfer its assembly and warehousing operations to two of its main sales points: Queensland and WA. The objective of this strategy is to reduce transit time and cost for those two new operation hubs, by receiving components directly from China to be assembled (at least for core products which does not require upholstery) and shipping finished goods from the hub, instead of receiving and processing at Sydney to return final products to each state. The future state of the VSM for Postura Plus Shell range is based on its current one, and mostly considers changes on the Supply Chain' Logistics of Sebel, as the most critical aspect in terms of LT and given that the company was still working on many other projections about its future business model. According to this, the future VSM shows a summarized graphic representation of the current state for Sebel locations at NSW, Victoria, SA, Tasmania and New Zealand, since their operations will remain centralized on the Sydney facilities, while for Queensland and WA, a figure of a 3PL on China was included for consolidation of overseas components to be shipped directly to each of the hubs (Hong Kong included) and plastic components are to be send from the manufacturing facilities in NSW (see Figure 15). For purposes of the exercise, operations of molding, assembly and warehouse at Sebel NSW and its dependent locations, are considered to remain the same, whilst an additional day for the expected response from 3PL to new orders, has been included, as well as warehousing, inventories and/or assembly operations were calculated according to the respective proportion of sales; for instance, warehousing and assembly at the 3PL correspond to 33% of the current values (12% for Queensland, 11% WA, 10% Hong Kong). Additionally, transit time of overseas components between NSW and the hubs, was eliminated and direct shipping times from China to hubs were incorporated.

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31 As a result of the transition of the supply chain logistics to a decentralized model for the two new hubs, a projection of Future State of the VSM shows significant reductions on the LT for Queensland (-10 days) and WA (-18 days); however, given that operations at the rest of the sales points was considered to remain as it currently is, there is just an slight increase of 0.2% in terms of total average value-added time (from a current 2% to 2.2% in the future). Taking this into account, the challenge for the company was to carry out a cost-benefit analysis to evaluate in what extend it is worth to establish a 3PL to decentralize assembly and warehouse for those two markets, to save some money and transit times for the hubs. OPERATING MONTHLY COST ANALYSIS current future difference % $/h nsw 30 $/h outsource 43 PMD (labour) 20 Assembly (labour) 10 Rent Rent/month 170,000 64, ,400-62% Material handling Freight cost/month 250, ,000-20,000-8% Trucks costs 45,000 67,500 22,500 50% Labour Direct 144, ,616-30,384-21% Energy Energy $/month 60,000 60, % Sub-tot 669, , ,284-20% -1,599,408 year Table 2. Cost-benefit analysis (Monthly operating cost comparison) A very basic analysis based on assumptions, was performed considering some of the monthly operating costs which could be subject to change (Table 2), such as rent (given the downsizing of the current Sydney facility from to 6000m2 and 2 new warehouses for the hubs, assuming 800m2 each), transportation costs (given changes on the supply chain logistics), direct labor and energy. This comparison shows that, even when there is a cost reduction regarding decentralization, most of the savings corresponds to the downsizing.

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34 5. RECOMMENDATIONS During the documentation of the current state and projection of the future VSM, wastes and non-value-added activities were identified, as well as main opportunities for improvement (Kaizens highlighted in purple on the maps) and suggestions were raised on the following action plan based on the 5W2H methodology (What?, Why?, When?, Who?, Where?, How?, How much?) shown in Table 3. Assumptions for prioritization were made regarding costsbenefit for the organization and it is recommended for the company to establish project teams to work on each of the considerations. IMPROVED STATE Considering the elimination/mitigation of the main non-value-added activities and wastes after implementation of the Kaizens, an improved state of the VSM was projected for a centralized and decentralized logistics model in Figures 16 and 17, and data modifications were highlighted on purple on the maps and respective PFDs (Appendix 20). Assumptions were made as follows: Planning of the operations would be immediately after a customer places an order, given that double-checking at customer service would not be necessary, and there is a comprehensive and robust ERP software that avoids overnight interfaces and make easier the planning task. Suppliers LT could be reduced in at least 4 weeks given that Sebel would plan its demand based on accurate forecasts, which would be periodically updated and shared with 3PL and suppliers, so that, they could plan their production and inventories in advance to respond to weekly orders from the company. Receiving and dispatching times are halved at the warehouse as a result of less merchandise volume (not shipment of finished goods from NSW to Queensland and WA) and better packaging and loading methods.

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37 As a result of better preventive maintenance and setup practices at PMD, C/O time and breakdowns would be reduced to half, while setup time for assembly would disappear once frames' sorting is eliminated by linking components to orders directly from supplier/3pl site. Value-added time would increase if potential bottlenecks are prevented by balancing the process flow (batch sizes). As a result, for an Improved state of the VSM if Sebel decides to keep its operation centralized, there is an average of 35 days of total LT (5 weeks) for Postura Plus Shell, from which 5% (1.7 days) correspond to activities that add value to the product, and the rest 95% (33 days) represents Non-valueadded time. 74% of this LT stands for external operations, with 14 days of supplying transportation time (40%), an average of 12 days shipping time (35%) and 9.2 days of internal operations (26%). On the other hand, if Sebel goes for the decentralized model, in an Improved state of the VSM there would be an average of 27 days of total LT (less than 4 weeks) for Postura Plus Shell, from which 7% (1.7 days) correspond to activities that add value to the product and for which customers would be willing to pay for, and the rest 93% (25 days) represents Non-value-added time.

38 6. CONCLUSIONS According to previous researches, a common value-added time for most of the companies regardless the industry sector, is around 5% of the total LT; however, for world-class manufacturing companies such as Toyota, 20% of its LT corresponds to value-added time (Figure 18). Sebel s VSMs describes how, barely 2% of the total LT represents value-added time, by just changing from a centralized to a decentralized model, in the future the company would have 2.2% of value-added time. Nevertheless, through the parallel improvement of some other aspects, in the short-medium term, the value-added time of the organization could account for between 5 and 7% of the LT and place the firm on track towards a world-class performance in the medium-long term. Proportional Value-added time World Class Common Ideal Improved Future Current Sebel 0% 5% 10% 15% 20% Figure 18. Comparison of proportional value-added time Findings on this report are the result of the construction not only of VSM diagrams, but a parameterized model which could be used for any familyproduct and/or different scenarios by simply changing data. A future decentralized supply chain logistics would be successful to the extent that Sebel is able to handle the complexity that this model depicts;

39 that is, the company s Sales and Operations Planning (S&OP) should be carried out based on its demand planning by forecast techniques. Moreover, based on the S&OP and forecast periodic updates, the MRP process for each of the operative locations should be accurate in order to match at the hubs, components from different sources, as well as not to lose the saved time and cost as a result of idle times and overstock, which involves a reassessment of inventory policies regarding Safety Stock and Safety Lead Times for every sales point. All this, requires a comprehensive, robust and reliable ERP software, which additionally, facilitates to have handy information for the management, to expedite the decision making process. The 3PL figure would play a critical role in the decentralized model as it could represent the inventory's trade-off for the hubs, as a result of fluctuations on demand.

40 7. REFERENCES 1. Sebel s corporate website. Viewed 4 March 2013, 2. Mike Sondalini. How to do Value Stream Mapping. Viewed 8 March 2013, 3. Toolingu, Quality training, Lean Manufacturing. Viewed 7 June 2013, 4. Wikipedia. Viewed 7 June 2013,

41 8. APPENDICES Appendix 1. Sources and calculations matrix DATA/INFORMATION SOURCE SUPPORT / DEFINITION APPENDIX CALCULATION Times for Sales Rep to entry data on Direct Selling after customer approve the quote and Customer Service to double-check it and officially release the order Time for interface between Direct Selling and MFG-Pro Time to perform the planning and purchasing processes for the daily requirements from MFG-Pro PMD Production schedule time Assembly schedule time Customer Service Management Planners Planners PMD Management Assumption Bill of Materials (BOM) MFG-Pro report 13.6 (Product structure inquiry) 10 Average LT for plastic raw material from the time an order MFG-Pro reports 5.7 (Purchase order maintenance) and Planners 8 is placed to the time it is (Supplier performance) received Average LT for overseas components from the time an order is placed to the time it is received Warehouse receiving (unloading) and despatch (loading) times Planners Warehouse Supervisor and Clerk MFG-Pro reports 5.7 (Purchase order maintenance) and (Transactions item by item inquiry) Cycle time (C/T) On-site inspection Effective operation time (Operation run time / piece) x batch size Changeover time (C/O) On-site inspection, Setup time to prepare the Work Station (WS), Downtime of machine from last product (last Daily day register independent of batch size order) to first good product (next order) excel file Actual production time PFDs Total time spent to complete a work order Total production time per order Actual production time that does not include downtime Available time PFDs events (planned maintenance, breakdowns, lunch Actual production time - C/O time periods and breaks) 2 to 7 Uptime (%) PFDs Proportion of the net available working time Actual prod t / Available time Performance (%) PFDs Proportion of the real time in producing of an order (Tot units produced * C/T) / Actual production time Shifts PMD Management Quality (%) PFDs, Work order packing list, PMD Operator production sheet 9 2 to 7, 17 to 19 Good parts prod / Tot parts prod or 1 - Defectives % Batch On-site inspection # of operators involved on the process People On-site inspection Defectives rate PFDs, Work order packing list, PMD Operator production # defective products / tot prod sheet Productivity On-site inspection, PFDs Good parts / Total production time per order Movement of product between processes, normally Transportation PFDs using a fork lift truck to manoeuvre product around the factory t spent waiting to be processed at a WC, which Waiting time PFDs depends on workload and schedule. waiting for machines (breakdowns), products, people, information, etc Inventory quantities Inventory lead time Shipping/delivering times average On-site inspection, MFG-Pro reports 3.2 (Inventory detail by item inquiry) and (Transactions by item inquiry) Warehouse Clerk / Credit Manager Units in stock represented in terms of the required time to produce them Takt time Rate (rhythm) at which the company should produce to satisfy the demand Demand Financial statement Sales Expected response time from Planning and suppliers to 3PL in a future assembly state management Suppliers production LT Planners Sales composition per market Account management Shipping LTs Supply Chain Management Projected cost of outsourced assembly Account management Inventory quantity / productivity Averages Tot yearly time available for production / Demand Average sales for postura plus chair

42 Appendix 2. Warehouse receiving PFD

43 Appendix 3. PMD Seat PFD

44

45 Appendix 4. PMD Plug PFD

46 Appendix 5. PMD Pin PFD

47 Appendix 6. Assembly PFD

48

49 Appendix 7. Warehouse dispatch PFD

50 Appendix 8. Masterbatch purchasing order data and receiving date

51 Appendix 9. Frames purchasing order data and receiving date

52 Appendix 10. Postura Plus Shell Sled Charcoal BOM

53 Appendix 11. Polypropylene inventory

54 Appendix 12. Masterbatch inventory

55 Appendix 13. Seat inventory

56 Appendix 14. Plug inventory

57 Appendix 15. Pin inventory

58 Appendix 16. Finished goods inventory

59 Appendix 17. Seat PMD WO, packing list and production sheets

60

61

62

63 Appendix 18. Plug PMD WO and packing list

64 Appendix 19. Pin PMD WO and packing list

65 Appendix 20. Assumed PFDs for Improved VSM

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