The “Lean” Challenge in Demand-Driven Value Chains
by Aamer Rehman and Kelly Thomas
A May 2007 USA Today article entitled “Toyota’s
Success Pleases Proponents of ‘Lean’” may have left some
readers confused. On one hand, it attributes Toyota’s
success to lean manufacturing. On the other hand, it
quotes survey results from management consulting firm
Bain & Company stating that just 19 percent of companies
that have tried lean are happy with the results.While
the key concepts surrounding lean have existed for more
than 40 years, the bottom-line savings and operational
performance—in terms of inventory turns or order-fulfillment
performance—have been below target, especially in
environments beyond simple make-to-replenish.
Still, the concepts of lean manufacturing are fundamentally
sound and pragmatic, and there is significant
interest among industry professionals to use lean manufacturing
to realize demand-driven order fulfillment.
What is standing in the way of better results? Recent
trends have contributed to a sense of skepticism about
the adaptability of lean techniques, eroding adoption of
the principles across all industry sectors.
One of these trends is mixed-mode manufacturing,
where elements of build to order, engineer to order, and
assemble to order can be applied to support an everincreasing
product portfolio and fluctuating demand
profile. This operational model is more complex than the
simple make-to-replenish model, and lean practitioners
are having a hard time adapting the principles to it.
Another complicating factor is the extended enterprise
or value chain, where value-added activities are extending
beyond a company’s four walls. In this case, the materialcontrol
techniques using the traditional manual/visual
methods are no longer sufficient to synchronize material
flow. More and more companies are calling for an electronic
pull mechanism to adapt to the visibility, speed and flexibility
required.
The other key factor for slow adoption of lean is the
lack of knowledge and process discipline to enable a
closed-loop continuous improvement, or kaizen, culture.
[Kaizen is a Japanese term for creating continuous improvement;
it focuses on quality, communication, teamwork
and a willingness to adapt to change.] This kind of culture
is critical to realizing a quick plan-do-check-act cycle for
factory personnel.
But several obstacles to routinely achieving this iterative
process present themselves in today’s fast-moving,
short-cycle manufacturing environment. There may be high
employee turnover, eroding the knowledge base established
over many years that fosters a systematic, “best-practice”
approach to operations. Also, as manufacturing becomes
less centralized and more distributed, it gets more difficult
to sustain consistency across plants and practices. The
solution is in standardization of both processes and systems.
(Also see Interviews with GM’s Adriana Karaboutis on
page 12 and with reengineering guru James Champy on
page 45.) A structured approach can eliminate maverick
shop-floor behavior and channel shop-floor innovations
so they can become cross-plant best practices.
While, in the past, lean practitioners preached technology
solutions as an obstacle to lean adoption, today
they are calling for a combined process and technology
deployment model that can address complex fulfillment
challenges. Partly, this is because planning, scheduling
and execution are converging, and the hierarchical levels
among them are diminishing, due to the need for quick
decision support in a lean environment. But there is also
a dawning realization that it is hard to achieve return on
investment and total cost of operations savings for lean
plants using the solutions of the past.
There are three levers companies can use to adapt lean
principles across the enterprise. One is the use of various
material-control techniques adapted for multi-mode
manufacturing. A second is the deployment of advanced
technology solutions that provide standardized workflows
and “what-if ” exceptions management. A third is the
application of lean process-transformation approaches
offered by service providers. Such offerings address the
training, design, deployment and roll out of new processes
and systems, depending on where a company is in its
journey to an evolved lean manufacturing model.
Before we explore these levers further, let’s revisit
some of the basic principles of kanban.
The kanban system
The kanban control system is probably the most wellknown
pull-type mechanism for multi-stage production systems. Pull-based production paces a factory to actual
customer demand and keeps the factory floor synchronized
through a set of real-time, pull (kanban) signals.
The goal of pull-based production is to create a smooth
material flow throughout the supply chain. This is achieved
by flowing product in small batches (to reduce lot size),
pacing the processes to Takt Time (the “drumbeat” that
sets the production pace in the plant), to avoid overproduction,
and replenishing according to signals originating
from downstream operations.
This control discipline limits the amount of inventory
to a fixed maximum for each manufacturing cell, where the
maximum is equal to the number of kanbans circulating
within the cell. That’s where things get sticky. Unfortunately,
a simple kanban control system does not perform well
in environments dealing with high demand or process
variability. For example, one would like to have a large
number of kanbans at times of high demand to enable
quick response. But one would like to have a small number
of kanbans at times of low demand to reduce inventory
costs, since the number of kanbans is equal to the target
inventory of finished parts.
In reality, manufacturers need the flexibility to choose
dynamically between large and small numbers of kanbans.
But it is commonly accepted that kanban control does
not work well when demand and flow of parts are highly
variable, thereby making it impractical for production environments
in the high tech and industrial sectors, in particular.
In environments with custom products, product-mix
variations, seasonality or highly variable demand, simple
kanban control is not sufficient. Fortunately, there are
material-pull techniques other than kanban control that
support the changing production landscape, but still
adhere to the core principles of lean manufacturing.While
proven, these techniques are more complex than traditional
kanban control and therefore require sophisticated technology
and process support.
In high-mix, low-volume, demand-driven environments,
pacemaker-level planning and scheduling must take a
number of factors into account. First, there is the need to schedule build-to-order, make-to-stock and assembleto-
order items on the same production resources. Then,
there are the start-of-life and end-of-life issues associated
with parts planning and ordering. Finally, a set of
sequencing rules based on order configurations and
changeover matrices for products must be established
while still achieving mix and capacity leveling. In such
complex situations, planners must be able to create
“what-if ” scenarios quickly to assess the impact of
changes on inventory targets, product mix and capacity
utilization before publishing a feasible level plan. The new paradigm
In the old paradigm, the kanban signals keep all inhouse
and external operations synchronized with the pacemaker.
These signals are consumption-based and initiate
production of specific parts and quantities upstream to
consuming operations. Such kanbans are well-suited for
low mix and repetitive production.
In the new paradigm, production authorization is not
only driven by inventory-replenishment signals, but also
by capacity signals from downstream operations. The
processes and systems must have the capability to adopt
new techniques as the production model transitions to a
mixed-mode manufacturing model. It must be able to
apply a manual kanban approach when appropriate but
ramp up to electronic material-control techniques when
required.
These techniques have been developed over the past
10–15 years and include CONWIP (constant work-inprogress,
to control the total inventory in the system),
POLCA (paired-cell overlapping loops of cards with
authorization, effective when there are capacity constraints)
and hybrid CONWIP and kanban. An appropriate
combination of these techniques can be used to synchronize
upstream and downstream operations with the
pacemaker schedule.
Technology requirements
The solutions required to deploy lean principles and
at the same time react quickly to demand volatility in
today’s complex, demand-driven manufacturing environment
must be able to:
- Handle hybrid make-to-stock, make-to-order,
assemble-to-order and engineer-to-order fulfillment
models using a single technology framework
- Support additional material-control techniques
beyond traditional kanban control to manage highvariety
and custom-engineered products for which
dedicated flow lines and simple visual control
methods are not practical
- Use a single application platform capable of addressing
lean requirements during design, operate, sustain
and improve phases of a lean program
- Standardize on a technology platform that can handle
plant to plant variations in terms of business rules,
user experience, reporting and integration with
legacy systems
- Provide a closed-loop environment to drive structured
kaizen improvements using real-time metrics on the
shop floor
- Maintain the same level of simplicity, user control
and visibility for which lean is known, while making
the enterprise roll-out of a lean program possible
The i2 Lean Transformation Life-Cycle solution has
been designed to meet these challenges. It offers a comprehensive
set of capabilities that support design, deployment,
operation and improvement phases of a leanmanufacturing
program. The solution combines principles
of the Toyota Production System, various material-control
techniques, a flexible application platform, rich scheduling
and execution capabilities, quick what-if scenario assessment
capabilities and real-time metrics for driving kaizen
improvements.
The solution is compatible with lean manufacturing
principles of level production, as well as with mix management,
synchronized pull and Six Sigma’s DMAIC
(define, measure, analyze, improve and control) approach
for continuous improvement and process control. In these
ways, it can help companies operate in a hybrid mode to
achieve the successful adoption of lean manufacturing
across the extended enterprise.
In summary, i2 strongly believes that it is possible to
employ lean principles across the extended enterprise if
companies are willing and able to invest in a comprehensive
methodology based on more sophisticated pull techniques
and more advanced software solutions. If so, they
can create a long-lasting lean transformation across their
extended enterprises.
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