Manufacturing Operations Management and Aerospace Talk

Comparing Lean Manufacturing and Six-Sigma Continuous Improvement Efforts

Lean Manufacturing and Six Sigma practitioners use slightly different terminology and methodologies for process improvement, but they are really more similar than different. Let’s compare the different terminology and methods.

The term kaizen is used in two ways: (1) kaizen is used to represent the general continuous improvement process which would be similar to the general DMAIC process in Six Sigma practices, and (2) in relation to kaizen workshops which are intense rapid problem solving activities to tackle problems identified as high priority.

Six Sigma practitioners use the DMAIC process to systematically reduce variability in a manufacturing process. Lean practitioners refer to the Toyota problem solving methodology and to kaizen events. For diving down into specific urgent issues once they are uncovered, the Toyota Problem Solving process and the 8-Discipline (8D) process are very similar. The 8D process seems more appropriate to quality issues because it directly adds a step to contain the problem. Both are explained below.

DMAIC

Six Sigma practitioners use the DMAIC process to systematically reduce variability in a manufacturing process.

Define – This phase focuses on defining the project goalsand activities and identifying the issues that need to be addressed.

Measure – In this phase information about the target process is gathered. Metrics are used to determine current performance and to identify problems and issues.

Analyze – This phase involves identifying the root causes of the defects using appropriate statistical tools.

Improve – In this phase solutions to address the problems identified are applied. Lean methods such as 5S, Standardized work content, cellular manufacturing layouts, mistake-proofing, Total Productive Maintenance are applied.

Control – This phase involves institutionalizing the improvement methods. Policies, procedures and other management systems are modified to achieve the goals.

Performance results are periodically monitored to ensure that the improvements are sustained.

However, TPS practitioners have adopted an extended problem-solving methodology that puts more emphasis on identifying the root cause.


 

Toyota Problem-Solving Process

Initial Problem Perception – The initial problem reported by employees is documented. Problem may seem vague and complicated at the beginning.

Clarify Problem – Getting a better grasp of the situation requires an observation of the problem at the site with an open mind. Pareto diagrams use bar graphs to sort problems according to their severity, frequency, nature and source and point out the most important problems in the area.

Initial Point of Cause (POC) – Identify targets for improvements and a likely cause to use as a starting point for further cause exploration.

Investigate Root cause – Answer the “Why?” question five times to narrow down to the real root cause.

Countermeasure – Define a countermeasure to eliminate the root cause identified. 

Evaluate – It is critical to allow time or a few units to pass through the new process before we evaluate the effectiveness of the corrective action.

Standardize – Only after verification of the effectiveness of the corrective action, should we proceed to standardize the solution by modifying work instructions and standard manufacturing procedures.


Kaizen Workshops

When analyzing the macro value stream of a company, continuous improvement efforts can seem too big to tackle. It is often easier to divide the macro value stream into several smaller subprocesses. If critical problems are identified in smaller subprocesses they can be tackled with kaizen workshops.

A kaizen workshop is an intensive rapid improvement model that emphasizes creativity and radical improvement. The methodologies of value stream mapping and the Toyota problem-solving process are implemented in a compressed time frame. The workshops are typically full time for 3 to 5 days and participants analyze the current process, develop a new lean process and perhaps even begin implementation.

The team size should be limited to no more than 15. The kaizen workshop is headed by the manager responsible for the process (“process owner”) and should include people form the work area, and customers and suppliers to the process.

Preparing for a kaizen workshop involves the following:
• Identify process scope, customer, suppliers, and symptoms to tackle
• Create value stream map for current process
• Collect relevant metrics, facts and documents describing the current process
• Post the current state map in the workshop room

The kaizen workshop includes the following steps:
• Analyze and assess non-value added activities in current practices
• Brainstorm different improvements
• Develop recommendations for new process
• Create value stream map for new process
• Use a “parking-lot” list for potential process improvements with lower priorities
• Obtain management approval on recommendations
• Plan and initiate process improvements

After the kaizen workshop it is important to:
• Follow up to make sure the new process is implemented
• Measure the effect of the new process on process metrics
• Develop visual controls and standardize the new process
• Prepare presentation to management on process improvements and recognize the team achievements
• Review items left in the “parking-lot” for future improvements
• Select the next area to tackle for process improvement


8D Problem Solving Process

When responding to quality issues in the plant or supply chain, the 8-Disciplines (8D) process is often used because it adds steps to immediately contain the problem. The Toyota Problem-Solving process and the 8D process have a lot of similarities but in many ways do not exactly align. The 8D process has an emphasis on corrective and preventive actions which are more appropriate to obvious quality issues, and the Toyota Problem-Solving process has more emphasis on defining the problem which might not be obvious on productivity issues.


 
Form the Team – The 8D process recognizes the importance of assembling the right team and places it as the first step. A small team is needed with the right mix of skills, experience and authority to resolve the problem and implement solutions. Ensure that everyone on the team has the time and inclination to work on the problem together.

Formal meetings should initiate the effort and monitor progress. The company’s Corrective Action Database should be used to document findings, decisions and progress.

Describe the Problem – It is critical to define a clear problem. The problem statement provides the starting point for investigation. Terms used in the description must be understood by the entire team. Problem description should include the following:
(a) Who – Who is affected by the problem? Who first observed the problem? To whom was the problem reported to?
(b) What – What type of problem? What has the problem?  What is or isn’t happening? What is the physical evidence?
(c) When – When did it first happen? When was it first observed? Is it a recurring problem? How often? What is the trend? (random, cyclical, continuous)  Has it been observed before?
(d) How Much – What is the magnitude of the problem? How many units or components are affected? How much cost (labor and material) is associated to this problem?
(e) Why – Why is it a problem? What is the impact? What processes are affected? Is production stopped completely or partially? Is there a work-around? Are customer delivery dates impacted?

Contain the Problem – Identify interim containment actions to prevent further cost impact from the problem. Is the problem tied to a machine? Is it tied to a supplier component? Are more lots affected by this problem? Suppliers must be informed as soon as possible about issues to prevent further shipments with problems. Inventory parts which might be affected must be identified and inspected.  If problem
has a life-threatening consequence, products in the field have to be identified for potential recall.

Identify the Root cause – An investigation and failure analysis is performed to determine the root cause of the problem. It is not enough to identify the first-level or intermediate-level causes of the problem. The true root cause has to be uncovered and corrected or a similar problem will eventually manifest itself.

Root cause analysis may start with brainstorming sessions among team members and move on to data analysis that further explores multiple potential causes. Different kinds of charts and diagrams are used in data analysis including histograms, Pareto charts, scatter charts, and concentration and affinity diagrams.

It is important to document the analysis discussion, findings and conclusions using cause-and-effect charts and fault tree diagrams. A five-whys type of analysis is also useful to understand all the intermediate-level causes between the root cause and the problem manifestation.

Corrective Actions – This discipline entails identifying all possible corrective actions to address the root cause of the problem. The owners of the corrective actions, the target dates for completion and the rationale behind each should be documented. It is sometimes a good idea to have a preliminary evaluation of the corrective action to test its effectiveness before wasting time and money on fully
implementing an incorrect solution.

Corrective action includes further containment of potentially affected similar production or inventory based on the root cause identified. If problem has a life-threatening consequence, products in the field have to be identified and notifications issued for recall or repair.

Permanent Correction – Once the corrective actions have been defined and tested, the next step it to implement them and verify their effectiveness. If the corrective actions are found to have deficient effectiveness it might be necessary to return to the prior step and create new corrective actions.

Preventive Actions – Lessons learned from the above investigation and corrective actions might be able to benefit other processes or areas with similar vulnerabilities even if not affected under the current
situation. Preventive measures should be outlined if its possible to prevent similar problems in the future. Preventive actions, like corrective actions, require owners and target dates.

Acknowledge Success – The last step of the 8D process is management’s formal recognition of the accomplishments of the team. This demonstrates the commitment of the management team to the continuous improvement process and is good internal publicity for the effectiveness of these initiatives.


The Continuous Improvement Tracking System

Common to any methodology is the need to document findings, actions and results. A key component of the enterprise manufacturing and quality system is the database that will document and track on-going process improvement efforts includng corrective actions ensuring a consistent review process and verification of effectiveness of any corrective action. The same database log can be used to track and resolve productivity or quality problems. The effectiveness of process improvements should be reflected and documented in relation to improvements in key operational metrics. Consider tracking all your process improvement efforts in one place.

References

“The Toyota Way”, Jeffrey K. Liker, McGraw Hill, 2004

“Lean Six Sigma”, Michael L. George, McGraw Hill, 2002

 “Root Cause Analysis”, Bjorn Andersen and Tom Fagerhaug, ASQ Quality Press, 2006

Manufacturing data bolsters hopes for recovery

Link to article with good news to start the year right...

WASHINGTON - An unexpectedly strong report on manufacturing activity Monday bolstered confidence that America's factories will help sustain an economic recovery.

The report by a private trade group signals that industrial production is likely to keep expanding in coming months, economists said. That could lead, in turn, to increased hiring and job creation.

The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index read 55.9 in December after 53.6 in November. A reading above 50 indicates growth.

It was the fifth straight month of expansion and the highest reading for the index since April 2006. Analysts polled by Thomson Reuters had expected a reading of 54.3.

http://www.msnbc.msn.com/id/34687608/ns/business-stocks_and_economy/

Northrop Grumman HQ to D.C. area

Another lost of A&D jobs for California :(

Another big defense contractor, Northrop Grumman, is moving its headquarters to the Washington area, where rivals Lockheed Martin and General Dynamics have shown the advantage of close proximity to the Pentagon, the White House and Capitol Hill.

Northrop Grumman’s announcement that it will relocate from Los Angeles by 2011 comes in the middle of a hard-fought competition with Boeing, another rival, over an Air Force contract for aerial refueling tankers worth $35 billion. The Air Force is expected to issue final bid specifications for the planes sometime this month.

Positioning Northrop close to where decisions about defense are made is critical for the company’s success, according to Loren Thompson, the chief operating officer of the Lexington Institute.

“It’s time for Northrop to put its culture of being an outsider behind it. It still behaves like a company that is alien to Washington a lot of the time,” Thompson said, noting that Lockheed and General Dynamics have both been more successful. “There’s a lesson there.”

As the defense industry has shrunk, all of the contractors began to look more and more alike, and it was only a matter of time, Thompson said, before management sought a geographical edge. “How well are you going to know the Obama team from several thousand miles away?” Thompson said.

Let's hope Northrop doesn't decide to move manufacturing jobs also.
Read the rest at: http://www.politico.com/news/stories/0110/31149.html

Overall Equipment Effectiveness (OEE) or Overall Resource Effectiveness?

Can you manage what you can't measure? Some cowboy managers probably do, but most managers would agree that consistent reliable metrics across operations help manage the business effectively. The topic of metrics gets much attention lately and there is much talk on OEE (Overall Equipment Effectiveness) as one of the preferred metrics. However, when using metrics that combine several metrics into one, we should use caution and mitigate the risk of hiding important information as a result of these combined metrics.

OEE is a fine metric, especially in industries where the manufacturing process revolves around a few expensive pieces of equipment. It is one of several metrics we should consider for KPI’s (Key Performance Indicators). More interesting to me are the components of OEE, which are also all good metrics, and how these should be defined differently for different industries. In other words, the principles behind OEE can be applied to multiple industries and types of manufacturing, but one OEE definition does not work the same for everyone.

Why are we interested in metrics like OEE?

Because we need metrics to answer management questions and aid decision making. Questions on the minds of the management team might change periodically depending on the business priority of the day but usually include questions like the following:

• How am I doing? What is our current capacity, status, schedule attainment?
• What can I make today? What is current work-in-process and raw material status?
• Where should I make it? What is current assignment of resources to production among facilities – internal and outsourced?
• Where am I underperforming?

How does OEE help answer these questions?

OEE is an overall efficiency metric defined as OEE = Availability x Performance x Quality. It is an overall health type metric for the company. However, it is only as good as how we define its components: “equipment”, “availability”, “performance, “quality”.

OEE or ORE?

Personally, I do not like the use of the word "equipment" in the definition. A more appropriate term would be "resource". In other words, think of it as Overall Resource Efficiency and we have a metric applicable to a broader range of industries since equipment is not the primary critical resource for every type of manufacturing. Of course, we can just leave the word equipment in there to avoid creating yet another new term, but think “resource” when you see the word “equipment”.

Are we interested in every piece of equipment or every resource in this metric? I would say, No. We should only be looking at critical resources―resources that are critical because they are very expensive (big investment) or because they are potential constraints in the manufacturing process. Otherwise we are diluting focus from where it should be. It may be that in your industry some specialized labor skills are the most important resources. In that case, you might actually consider changing the term, because some people might not like the idea of being considered “equipment”.

Components of OEE

Each one of the components of OEE provides valuable information and should be looked at individually in addition to OEE. Several different metric definitions could feed into the components of OEE depending on the industry. A few examples are listed below.

OEE = Availability x Performance x Quality

Availability

• Ratio of Operating Time to Planned Production Time
• Percent of calendar hours that equipment was available for production or equipment up-time
• Percent of calendar hours product is not held idle by constraints like availability of parts, skilled resources, or equipment

Performance

• (Ideal Cycle Time x Total Pieces)/Operating Time
• (Total Pieces/Operating Time)/Ideal Run Rate
• Standard Labor Hours/Actual Labor Hours

Quality

• Good Pieces / Total Pieces
• (Actual Labor Hours – Rework Labor Hours)/Actual Labor Hours

Note that all these metrics are constructed so the elusive target is 100%. But don’t feel bad if your result is 70% or 80% instead of 95%. Since OEE can be defined slightly different according to the industry it is hard to use general benchmarks. Plus most companies are tracking all equipment (not just critical equipment) and that is just puffing up the OEE number to make them feel better. Industry benchmarks are nice but not required; any company can simply monitor each metric and make its own improvement goals based on past performance.

Still confused? Here are some more references to further confuse on the OEE subject :)

“Improving return on industrial assets”, MBT Magazine, 9-1-2009

http://www.mbtmag.com/article/365621-Improving_return_on_industrial_assets.php

“Overall Equipment Effectiveness” at Wikipedia

http://en.wikipedia.org/wiki/OEE

Are We Focused on the Right Borders?

We worry about losing manufacturing jobs to China, India, or Mexico, but how about Arizona, Oregon, or Alabama? The Milken Institute published in June a report demonstrating that state policies make a difference―some states have been increasing their manufacturing base while others like California have been losing manufacturing jobs. We hear a lot about how the US needs to improve federal regulations and trade policies to be more competitive in manufacturing, but are we doing enough at the state level to incent growth in manufacturing? Can we learn from our neighboring states?

What can state government do?

The state government can help create a pro-manufacturing climate that will keep manufacturers in the state and help bring new ones in. This can be done through tools like:

• Tax credits to offset certain costs
• Improvements in infrastructure including transportation, communications, and utilities
• Help to create and attract a skilled workforce
• Access to credit and research funds
• Promotion of industries or products
• Convening of key stakeholders to increase cooperation and create economies of scale
• Alleviating the burden of bureaucratic complexity

Why should state government do something?

Research shows that for every job created in manufacturing, 2.5 jobs are created in other sectors. At the upper bounds, electronic computer manufacturing and aerospace have multiplier effect of 12-16 jobs. Yes, 15 other jobs are dependent on one job created in that industry. Losing manufacturing jobs not only adversely affects the direct industry but also many local supplier industries. Manufacturing is an industry that creates wealth for its workers and drives broad upward social mobility.

Some suggestions

1. Smart Regulation—Efficient, Stable

Streamline regulatory processes with the assistance of information technologies and targeted incentives that reward efficiency. More transparency and accountability should be built into the process by allowing citizens to evaluate their interactions with government agencies through Internet-based tools. Impose deadlines on government processes similar to the deadlines in the patent processes.

Provide stability in government programs that span multiple terms. Protect new business investors from sudden change in regulations.

2. Enhanced Incentives—Accessible, Accountable

The state can provide a single point of entry for businesses seeking information about incentives and a clear, easily navigable website.

Instead of penalizing businesses with taxes on investments the state should allow an accelerated asset depreciation schedule, provide a low-interest loan guarantee to help finance upgrades to new technologies, and offer an additional tax credit if the new equipment will result in lower carbon output.

The state could provide a publicly accessible website detailing who has received incentives, and it should implement provisions that will recoup lost tax revenue if firms fail to create a certain number of jobs or leave the state within a certain period of time.

3. A Public Awareness Campaign for Modern Manufacturing

The manufacturing field needs help with public image. Conduct an industry-led statewide public awareness campaign to highlight the attributes of modern manufacturing, its important role in the economy, its record of environmental stewardship, and the high-wage employment opportunities it provides.

4. Centers for Excellence—Education, Innovation, and Entrepreneurship

Create a network of education, training, research, and business incubation centers around the state to develop a qualified work force, to invent and commercialize advanced techniques, and to assist
manufacturing start-up businesses.

Subsidize the cost of training the underprivileged in low-employment regions. To encourage at-risk young people to work in manufacturing, they could receive a higher personal tax deduction for their first five years in manufacturing jobs. Manufacturers offering a hiring bonus to those who complete a training program should receive a tax credit equal to the bonus. Manufacturers could earn a tax credit for creating positions at or above the company’s median wage. Manufacturers could also receive a tax credit equal to the amount they paid for an employee’s education or training, and the amount would not be considered taxable income for the employee.

References

“Manufacturing 2.0 – A More Prosperous California”. Milken Institute, June 2009
http://www.milkeninstitute.org/

The Role of Quality Management within the Lean Manufacturing Philosophy

The Toyota Production System recognizes that managing quality is as important as managing just-in-time strategies in a Lean Manufacturing philosophy.

Quality management topics like Six Sigma, DMAIC, and Jidoka are important in the context of Lean Manufacturing because the ultimate goal is to eliminate waste in the value stream and one of the most common types of waste is the correction waste. Correction waste happens when it is necessary to work around poor quality in components or material from suppliers or it is necessary to repair, rework or scrap defective product units.

Six Sigma techniques and strategies are widely used in conjunction with Lean Manufacturing initiatives to help eliminate waste attributed to poor quality by providing the tools to focus on the right problems, diagnose the right root-cause of issues, and apply corrective action as quickly as possible. Six Sigma methodology uses statistical tools to systematically analyze processes and reduce process variations leading to better quality and performance.

Quality management requirements can be viewed sometimes as creating a burden of cost and time on the manufacturing process. The potential burden on the overall value stream should be a considered, but more importantly we should continually stress the benefits of predictable consistent quality to the entire team and identify the cost of poor quality to the overall performance of the organization.

Quality metrics are as important as throughput, cycle-time and schedule adherence metrics in our overall assessment of a Lean organization.  Metrics are needed to narrow areas that require attention for continuous improvement (Kaizen) initiatives, and to quantify the organization’s ongoing improvement achievements. We cannot improve what we cannot measure.

Quality management starts in product and process design. Concepts like Poka-yoke and Jidoka stress that the design of a product and process should eliminate the probability of error whenever possible, making the correct process visually obvious, and making any errors immediately visually obvious. Standardization, visual work instructions, and automated inspection are some of the tools used to minimize the potential for errors.

Automation in inspection, record keeping, and verification steps can relieve some of the burden of quality processes. Automation is also a double bonus because every time we can take some manual clerical steps out of the process, we are not only cutting down cycle time and labor, but we are also eliminating potential points of human error in the equation.

Statistical sampling and auditing methodologies allow us to further reduce the cost of inspection procedures by providing the appropriate quality confidence level with less than 100% inspection requirements. Automated data collection and statistical software tools are able to continuously monitor multiple processes and increase oversight as needed on suppliers and internal processes that are falling out of normal parameters. These tools greatly decrease overhead when compared to other traditional manual oversight methodologies.

Technology solutions can automate analysis in the background and alert assigned personnel automatically based on defined rules that are consistently implemented by the system. Technology can be viewed as a sidekick that is performing analysis on the side and bringing to the attention of the operator any out of control condition as soon as it is detected.

Another aspect of Toyota’s Lean philosophy is a culture of stopping to fix problems right away--the earlier the better. In order to do this we need (1) tools to help us achieve quality the first time, (2) tools to monitor processes that are susceptible to variables like environmental conditions, material variances, equipment wear and tear, or operator training, and (3) an efficient corrective action process.

Six Sigma practitioners use the DMAIC process to systematically reduce variability in a manufacturing process. Lean practitioners also refer to the Toyota problem solving methodology and kaizen workshops. All of these different methodologies can come together in a Corrective Action system to track all continuous improvement efforts. A  Quality Management System and Corrective Action System are essential to documenting and tracking the entire problem-solving process ensuring a consistent review process and a closed-loop methodology that verifies effectiveness of the corrective action or reopens the problem for further analysis. The corrective action system can be used to also track and resolve productivity problems that are not related to quality issues.

The inspection and genealogy data recorded during manufacturing is not only used for performance metrics and root-cause analysis. In regulated industries, historical data is required to allow process certification and audits. Regulatory and audit considerations are becoming more common in many industries. Regulatory guidelines from agencies like ISO, FDA, FAA, DoD, or ASME are all aimed at encouraging process control and quality assurance throughout the entire manufacturing process in order to achieve consistent quality results at the end. This general goal of the guidelines should be embraced as a goal to eliminate waste of poor quality due to deficient quality management processes.

In today’s highly outsourced manufacturing practices, it is critical that the requirements for quality management reach out to partners and suppliers.

Manufacturers have tackled regulatory requirements in the past with tons of paperwork, labor intensive validation processes, and a variety of disconnected systems and spreadsheets. Many of these old processes require double validation because manual procedures are prone to error. However, modern manufacturing and quality management systems are able to streamline and automate processes making it possible to improve productivity while enforcing compliance.

Bringing Back the Romance for Lean Six Sigma

This is a link to a blog entry I liked. Hope you like it too...

http://www.sixsigmaiq.com/article.cfm?externalid=829

Are We Giving IT Conflicting Objectives in Manufacturing?

“To innovate or not to be”― that should be the question. These days we often see CIO’s with a cost cutting agenda as a primary goal. Should the CIO be relegated to a penny-pinching job or viewed as an architect in the company’s future growth?  

Manufacturing companies are facing a major change in the business marketplace. The emergence of global markets, rapid technology changes, and better informed and more demanding customers have rewritten the rules of manufacturing. Achieving and sustaining a competitive edge today requires that manufacturing companies use information strategically to turn the new rules of the market to their advantage.

To innovate or cut cost? Can we afford to keep IT in cost-cutting mode much longer? Many manufacturing companies don’t think so. As an indicator, we are not seeing the 15%-20% declines in technology purchases that we saw during the 2001-2002 downturn. Instead we are only seeing 2%-4% declines because some companies are looking at their technology investments more strategically. A survey performed by Managing Automation for 2009 spending revealed that even though companies have tighter budgets this year, they are still spending on strategic technology to improve productivity and enable new capacity and new markets.

Many manufacturers are realizing that they cannot survive tied down by paper intensive processes in their supply chains and their shop floors. Paper-based processes that prevent quick upgrades to the product line and prevent real-time visibility of status and issues.  Manufacturers tied down by slow old processes will not be able to compete in the new marketplace.

Technology solutions are available and maturing, but the CIO needs to embrace a new role in the company. The CIO must learn about the processes required to manage processes in the supply chain and the manufacturing shop floors. These are areas that have not been traditionally supported by enterprise IT departments. 

To innovate or standardize? To customize or integrate? Do we use best-of-breed solutions or try to implement a solution with a broad footprint? Some CIO’s might favor taking the easy path and focus on one ERP vendor to provide a complete solution for their enterprise. However, we often see companies spending much more creating custom extensions to their ERP systems, and ending up with less functionality than if they would have integrated a COTS solution in the first place. Just because a solution works for the Accounting department, does not mean that it works for the shop floor and the supply chain. It is vital to spend time understanding what competencies will enable the company’s business plan and what different solutions are being used in industry and by competitors.

It is often difficult for the internal IT department to resist the urge to be creative and develop their own custom solutions. If the IT department has a history of developing custom solutions, it would be prudent to hire a neutral third party consultant to evaluate alternate solutions available commercially, like MES and MOM systems.

To optimize or centralize? Many CIOs have been cutting cost by standardizing and centralizing IT solutions for the corporation. However, these strategies might not work for the manufacturing shop floors that need to sustain 24x7 up time, provide good response performance, and not slow down the production line. It is common to install local shop floor systems with high availability platforms and integrate these to centralized ERP systems.

The IT department must work through this change of agenda and must help the company invest wisely. Efficient manufacturing and supply chain processes can be an effective competitive weapon. The CIO must be an architect and must invest in best-of-breed technology that will provide change agility, best quality, great customer support, and enable increased capacity to handle future demands.

Is Offshoring Fad Fading?

There are signs that U.S. manufacturing companies might be reconsidering the amount of work they send offshore.

Granted some companies have had good reasons for creating divisions offshore like reaching emerging markets, but many have been moving work offshore as a pure cost cutting measure. It has been a mantra among supply chain managers for the last ten years.

A recent study by Archstone, shows that many are now reconsidering and looking closer at the numbers given the volatility of oil prices, transportation costs, global economies and currencies.

In addition, during these tough competitive times companies are not just looking to cut cost, they are also looking to improve market share by improving not just price but also company image through quality, customer service and innovation. 

The recent study revealed that in the last three years, manufacturers have seen a significant increase in costs related to off-shoring manufacturing including:

·         Ocean freight costs have increased 135%, highlighting risks and cost volatility.

·         The global commodity price index has risen by 27%.

·         The Chinese Yuan has gained 18% in value compared to the U.S. dollar.

·         Chinese manufacturing wages have risen by 44%.

In addition to the rising costs of conducting business on a global basis, the study found several soft cost issues, which affect the true cost of off-shoring, including:

·         Slower Cycle/Delivery Time (59% of respondents)

·         Reduced Supply Chain Flexibility and Responsiveness (56% of respondents)

·         Lost Visibility, Coordination and Control Over the Supply Chain including Quality (50% of respondents)

·         Bottlenecks in Logistics Networks (e.g., ports, transportation) (50% of respondents)

The study found that almost 90% of the companies surveyed are considering or have begun changing their manufacturing and supply strategy and are being more and more selective in making off-shoring decisions. U.S. manufacturers have become increasingly aware of the need for a more sophisticated total cost model that considers factors such as supplier price and terms, delivery costs, operations and quality costs, customer-centric supply capabilities and other situational costs that arise.

This return to basics for manufacturers is coming at a time when we need it most as part of the economic recovery. Perhaps we start seeing more U.S. brand products that are actually made in the United States.

 ###

Applying Lean Manufacturing 5S methodology to Information Systems

While we are going around making the plant shine with 5S initiatives in every department, why not apply some of the same principles to the information systems?

 

5S focuses on effective workplace organization and standardization.The goal of 5S is to simplify the work environment and eliminate distractions to improve quality, efficiency, and safety. The name “5S” is based on the following five Japanese words in parenthesis that begin with S: Seiri (Sort), Seiton (Set in Order), Seiso (Shine), Seiketsu (Standardize), and Shitsuke (Sustain).

 

Sort – Focuses on eliminating unnecessary items from the workplace. Review logs and reports used on the shop floor periodically and determine if they are still necessary. Remove or replace obsolete manuals collecting dust on the shelves. Use value stream mapping to identify wasteful steps in the information flow, red tag them and start initiatives to eliminate them. Application screens used by the mechanic on the shop floor should remove information that is not really needed to perform the job.

 

Set in Order – Organize the flow of information on the shop floor along with production. Designate areas for charts on bulletin boards, label areas for manuals. Minimize paperwork that travels with the product and standardize how identification and information will be attached to the product or transportation bin. Procedures should be simple and clearly identify the next step. For online information, make sure that the mechanic’s screen is simple with clear menu choices for online documentation required to perform the job.

 

Shine – Post responsibility and schedule for inspection and update of logs and manuals used on the shop floor. Periodically audit procedures with shop floor personnel and update procedures if required. Everyone on the shop floor should participate and provide feedback. Everyone should be proud of the procedures used on the shop floor or should be supporting initiatives to improve the procedures.

 

Standardize – Derive standards, patterns and models for best practices that can be applied to other areas. Establish a central shared repository for these best practices with change control and governance procedures.  

 

Sustain – Focuses on developing a methodology for sustaining the improvements made using the first four steps. Take extra effort to publicize the standards published and the achievements of different areas. Motivate initiatives for knowledge transfer to improve other areas and maintain a cycle of continuous improvement process throughout the company.

 

Should we apply 5S at the office, at home? Let’s not get carried away :-)

 

References:

 

I’m collaborating on a new guidebook that will be published by the MESA organization: “MESA
Lean Manufacturing Strategic Initiative Guidebook.” Please visit http://www.mesa.org for more information on this guide which is full of great process improvement ideas. Joining the MESA organization is easy and gives you access to great information.

 

For more information on 5S visit: http://en.wikipedia.org/wiki/5S_(methodology)