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© 2006 Prentice Hall, Inc. 16 – 1
Operations ManagementOperations ManagementJust-in-Time and Lean Production SystemsJust-in-Time and Lean Production Systems
© 2006 Prentice Hall, Inc.
Alan D. SmithAlan D. Smith
© 2006 Prentice Hall, Inc. 16 – 2
OutlineOutline
Global Company Profile: Green Global Company Profile: Green Gear CyclingGear Cycling
Just-in-Time and Lean ProductionJust-in-Time and Lean Production
SuppliersSuppliers Goals of JIT PartnershipsGoals of JIT Partnerships
Concerns of SuppliersConcerns of Suppliers
© 2006 Prentice Hall, Inc. 16 – 3
Outline – ContinuedOutline – Continued
JIT LayoutJIT Layout Distance ReductionDistance Reduction
Increased FlexibilityIncreased Flexibility
Impact on EmployeesImpact on Employees
Reduced Space and InventoryReduced Space and Inventory
© 2006 Prentice Hall, Inc. 16 – 4
Outline – ContinuedOutline – Continued
InventoryInventory Reduce VariabilityReduce Variability
Reduce InventoryReduce Inventory
Reduce Lot SizesReduce Lot Sizes
Reduce Setup CostsReduce Setup Costs
SchedulingScheduling Level SchedulesLevel Schedules
KanbanKanban
© 2006 Prentice Hall, Inc. 16 – 5
Outline – ContinuedOutline – Continued
QualityQuality
Employee EmpowermentEmployee Empowerment
Lean ProductionLean Production
Building a Lean OrganizationBuilding a Lean Organization
5 S’s5 S’s
Seven WastesSeven Wastes
JIT In ServicesJIT In Services
© 2006 Prentice Hall, Inc. 16 – 6
Learning ObjectivesLearning Objectives
When you complete this chapter, you When you complete this chapter, you should be able to:should be able to:
Identify or Define:Identify or Define:
VariabilityVariability
KanbanKanban
5 S System5 S System
Seven WastesSeven Wastes
© 2006 Prentice Hall, Inc. 16 – 7
Learning ObjectivesLearning Objectives
When you complete this chapter, you When you complete this chapter, you should be able to:should be able to:
Describe or Explain:Describe or Explain:
Just-in-time (JIT) PhilosophyJust-in-time (JIT) Philosophy
Pull SystemsPull Systems
Push SystemsPush Systems
The Goals of JIT PartnershipsThe Goals of JIT Partnerships
Lean ProductionLean Production
Principles of Toyota Production SystemPrinciples of Toyota Production System
© 2006 Prentice Hall, Inc. 16 – 8
Green Gear CyclingGreen Gear Cycling
Designs and manufactures high Designs and manufactures high performance travel bicycles (bike-in-a-performance travel bicycles (bike-in-a-suitcase)suitcase)
Strategy is mass customization with low Strategy is mass customization with low inventory, work cells, and elimination of inventory, work cells, and elimination of machine setupsmachine setups
Major focus on JIT and supply-chain Major focus on JIT and supply-chain managementmanagement
One day throughput timeOne day throughput time
Focus on qualityFocus on quality
© 2006 Prentice Hall, Inc. 16 – 9
Just-In-Time and Just-In-Time and Lean ProductionLean Production
JIT is a philosophy of continuous JIT is a philosophy of continuous and forced problem solving that and forced problem solving that supports lean productionsupports lean production
Lean production supplies the Lean production supplies the customer with their exact wants customer with their exact wants when the customer wants it without when the customer wants it without wastewaste
Key issues are continual Key issues are continual improvement and a pull systemimprovement and a pull system
© 2006 Prentice Hall, Inc. 16 – 10
Waste ReductionWaste Reduction
Waste is anything that does not Waste is anything that does not add value from the customer point add value from the customer point of viewof view
Storage, inspection, delay, waiting Storage, inspection, delay, waiting in queues, and defective products in queues, and defective products do not add value and are 100% do not add value and are 100% wastewaste
© 2006 Prentice Hall, Inc. 16 – 11
Waste ReductionWaste Reduction
Faster delivery, reduced work-in-Faster delivery, reduced work-in-process, and faster throughput all process, and faster throughput all reduce wastereduce waste
Reduced waste reduces room for Reduced waste reduces room for errors emphasizing qualityerrors emphasizing quality
Reduced inventory releases assets Reduced inventory releases assets for other, productive purposesfor other, productive purposes
© 2006 Prentice Hall, Inc. 16 – 12
Variability ReductionVariability Reduction
JIT systems require managers to JIT systems require managers to reduce variability caused by both reduce variability caused by both internal and external factorsinternal and external factors
Variability is any deviation from the Variability is any deviation from the optimum processoptimum process
Inventory hides variabilityInventory hides variability
Less variability results in less Less variability results in less wastewaste
© 2006 Prentice Hall, Inc. 16 – 13
Causes of VariabilityCauses of Variability
1.1. Employees, machines, and suppliers Employees, machines, and suppliers produce units that do not conform to produce units that do not conform to standards, are late, or are not the standards, are late, or are not the proper quantityproper quantity
2.2. Engineering drawings or specifications Engineering drawings or specifications are inaccurateare inaccurate
3.3. Production personnel try to produce Production personnel try to produce before drawings or specifications are before drawings or specifications are completecomplete
4.4. Customer demands are unknownCustomer demands are unknown
© 2006 Prentice Hall, Inc. 16 – 14
Pull Versus Push SystemsPull Versus Push Systems
A pull system uses signals to A pull system uses signals to request production and delivery request production and delivery from upstream stationsfrom upstream stations
Upstream stations only produce Upstream stations only produce when signaledwhen signaled
System is used within the immediate System is used within the immediate production process and with production process and with supplierssuppliers
© 2006 Prentice Hall, Inc. 16 – 15
Pull Versus Push SystemsPull Versus Push Systems
By pulling material in small lots, By pulling material in small lots, inventory cushions are removed, inventory cushions are removed, exposing problems and emphasizing exposing problems and emphasizing continual improvementcontinual improvement
Manufacturing cycle time is reducedManufacturing cycle time is reduced
Push systems dump orders on the Push systems dump orders on the downstream stations regardless of downstream stations regardless of the needthe need
© 2006 Prentice Hall, Inc. 16 – 16
JIT and Competitive JIT and Competitive AdvantageAdvantage
Table 16.1Table 16.1
JIT Requires:JIT Requires:
© 2006 Prentice Hall, Inc. 16 – 17
JIT and Competitive JIT and Competitive AdvantageAdvantage
Table 16.1Table 16.1
Which Results In:Which Results In:
Which Yields:Which Yields:
© 2006 Prentice Hall, Inc. 16 – 18
SuppliersSuppliers
JIT partnerships exist when a JIT partnerships exist when a supplier and purchaser work supplier and purchaser work together to remove waste and drive together to remove waste and drive down costsdown costs
Four goals of JIT partnerships are:Four goals of JIT partnerships are: Elimination of unnecessary activitiesElimination of unnecessary activities
Elimination of in-plant inventoryElimination of in-plant inventory
Elimination of in-transit inventoryElimination of in-transit inventory
Elimination of poor suppliersElimination of poor suppliers
© 2006 Prentice Hall, Inc. 16 – 19
JIT PartnershipsJIT PartnershipsSuppliersSuppliers
Few suppliersFew suppliersNearby suppliersNearby suppliersRepeat business with same suppliersRepeat business with same suppliersSupport suppliers so they become or remain Support suppliers so they become or remain
price competitiveprice competitiveCompetitive bidding mostly limited to new Competitive bidding mostly limited to new
purchasespurchasesBuyer resists vertical integration and subsequent Buyer resists vertical integration and subsequent
wipeout of supplier businesswipeout of supplier businessSuppliers encouraged to extend JIT buying to Suppliers encouraged to extend JIT buying to
their supplierstheir suppliersTable 16.2Table 16.2
© 2006 Prentice Hall, Inc. 16 – 20
JIT PartnershipsJIT PartnershipsQuantitiesQuantities
Share forecasts of demandShare forecasts of demandFrequent deliveries of small-lot quantitiesFrequent deliveries of small-lot quantitiesLong-term contractLong-term contractMinimal paperwork to release order (EDI or the Minimal paperwork to release order (EDI or the
Internet)Internet)Little or no permissible overage or underageLittle or no permissible overage or underageSuppliers package in exact quantitiesSuppliers package in exact quantitiesSuppliers reduce production lot sizesSuppliers reduce production lot sizes
Table 16.2Table 16.2
© 2006 Prentice Hall, Inc. 16 – 21
JIT PartnershipsJIT PartnershipsQualityQuality
Minimal product specifications imposed on Minimal product specifications imposed on suppliersupplier
Help suppliers meet quality requirementsHelp suppliers meet quality requirementsClose relationships between buyers’ and Close relationships between buyers’ and
suppliers’ quality assurance peoplesuppliers’ quality assurance peopleSuppliers use poka-yoke and process control Suppliers use poka-yoke and process control
chartscharts
Table 16.2Table 16.2
© 2006 Prentice Hall, Inc. 16 – 22
JIT PartnershipsJIT PartnershipsShippingShipping
Scheduling inbound freightScheduling inbound freightGain control by using company-owned or Gain control by using company-owned or
contract shipping and warehousingcontract shipping and warehousingUse of advanced shipping notice (ASN)Use of advanced shipping notice (ASN)
Table 16.2Table 16.2
© 2006 Prentice Hall, Inc. 16 – 23
JIT LayoutJIT Layout
Table 16.3Table 16.3
Reduce waste due to movementReduce waste due to movement
Layout TacticsLayout Tactics
Build work cells for families of productsBuild work cells for families of productsInclude a large number operations in a small areaInclude a large number operations in a small areaMinimize distanceMinimize distanceDesign little space for inventoryDesign little space for inventoryImprove employee communicationImprove employee communicationUse poka-yoke devicesUse poka-yoke devicesBuild flexible or movable equipmentBuild flexible or movable equipmentCross train workers to add flexibilityCross train workers to add flexibility
© 2006 Prentice Hall, Inc. 16 – 24
Distance ReductionDistance Reduction
Large lots and long production Large lots and long production lines with single-purpose lines with single-purpose machinery are being replaced by machinery are being replaced by smaller flexible cellssmaller flexible cells
Often U-shaped for shorter paths Often U-shaped for shorter paths and improved communicationand improved communication
Often using group technology Often using group technology concepts concepts
© 2006 Prentice Hall, Inc. 16 – 25
Increased FlexibilityIncreased Flexibility
Cells designed to be rearranged Cells designed to be rearranged as volume or designs changeas volume or designs change
Applicable in office environments Applicable in office environments as well as production settingsas well as production settings
Facilitates both product and Facilitates both product and process improvementprocess improvement
© 2006 Prentice Hall, Inc. 16 – 26
Impact on EmployeesImpact on Employees
Employees are cross trained Employees are cross trained for flexibility and efficiencyfor flexibility and efficiency
Improved communications Improved communications facilitate the passing on of facilitate the passing on of important information about important information about the processthe process
With little or no inventory With little or no inventory buffer, getting it right the first buffer, getting it right the first time is criticaltime is critical
© 2006 Prentice Hall, Inc. 16 – 27
Reduced Space and Reduced Space and InventoryInventory
With reduced space, inventory With reduced space, inventory must be in very small lotsmust be in very small lots
Units are always moving because Units are always moving because there is no storagethere is no storage
© 2006 Prentice Hall, Inc. 16 – 28
InventoryInventory
Inventory is at the minimum level Inventory is at the minimum level necessary to keep operations runningnecessary to keep operations running
JIT Inventory TacticsJIT Inventory Tactics
Use a pull system to move inventoryUse a pull system to move inventoryReduce lot sizesReduce lot sizesDevelop just-in-time delivery systems with suppliersDevelop just-in-time delivery systems with suppliersDeliver directly to point of useDeliver directly to point of usePerform to schedulePerform to scheduleReduce setup timeReduce setup timeUse group technologyUse group technology
Table 16.4Table 16.4
© 2006 Prentice Hall, Inc. 16 – 29
Reduce VariabilityReduce Variability
Inventory levelInventory level
Process downtimeScrap
Setup time
Late deliveries
Quality problems
Figure 16.1Figure 16.1
© 2006 Prentice Hall, Inc. 16 – 30
Inventory Inventory levellevel
Reduce VariabilityReduce Variability
Scrap
Setup time
Late deliveries
Quality problems
Process downtime
Figure 16.1Figure 16.1
© 2006 Prentice Hall, Inc. 16 – 31
Reduce Lot SizesReduce Lot Sizes
Figure 16.2Figure 16.2
200 200 –
100 100 –
Inve
nto
ryIn
ven
tory
TimeTime
QQ22 When average order size When average order size = 100= 100average inventory is average inventory is 5050
QQ11 When average order size When average order size = 200= 200average inventory is average inventory is 100100
© 2006 Prentice Hall, Inc. 16 – 32
Reduce Lot SizesReduce Lot Sizes Ideal situation is to have lot sizes Ideal situation is to have lot sizes
of one pulled from one process to of one pulled from one process to the nextthe next
Often not feasibleOften not feasible
Can use EOQ analysis to calculate Can use EOQ analysis to calculate desired setup timedesired setup time
Two key changesTwo key changes Improve material handlingImprove material handling
Reduce setup timeReduce setup time
© 2006 Prentice Hall, Inc. 16 – 33
Lot Size ExampleLot Size Example
DD == Annual demand Annual demand = 400,000= 400,000 units unitsdd == Daily demand Daily demand = 400,000/250 = 1,600= 400,000/250 = 1,600 per day per daypp == Daily production rate Daily production rate = 4,000= 4,000 units unitsQQ == EOQ desired EOQ desired = 400= 400HH == Holding cost Holding cost = $20= $20 per unit per unitSS == Setup cost (to be determined)Setup cost (to be determined)
Q =Q = 2DS2DSHH(1 -(1 - d/p d/p))
QQ22 = = 2DS2DSHH(1 -(1 - d/p d/p))
S S = = = $2.40= = = $2.40((QQ22)()(HH)(1 -)(1 - d/p d/p))
22DD(3,200,000)(0.6)(3,200,000)(0.6)
800,000800,000
© 2006 Prentice Hall, Inc. 16 – 34
Lower Setup CostsLower Setup Costs
Figure 16.3Figure 16.3
Sum of ordering Sum of ordering and holding costsand holding costs
Holding costHolding cost
Setup cost curves Setup cost curves ((SS11, S, S22))TT11
SS11
TT22
SS22
Co
stC
ost
Lot sizeLot size
© 2006 Prentice Hall, Inc. 16 – 35
Reduce Setup CostsReduce Setup Costs
High setup costs encourage large High setup costs encourage large lot sizeslot sizes
Reducing setup costs reduces lot Reducing setup costs reduces lot size and reduces average size and reduces average inventoryinventory
Setup time can be reduced through Setup time can be reduced through preparation prior to shutdown and preparation prior to shutdown and changeoverchangeover
© 2006 Prentice Hall, Inc. 16 – 36
Reduce Setup TimesReduce Setup Times
Figure 16.4Figure 16.4
Use one-touch system to eliminate Use one-touch system to eliminate adjustments (save 10 minutes)adjustments (save 10 minutes)Step 4Step 4
Step 5Step 5Training operators and standardizing Training operators and standardizing work procedures (save 2 minutes)work procedures (save 2 minutes)
Repeat cycle until subminute Repeat cycle until subminute setup is achievedsetup is achieved
Initial Setup Time
Step 2Step 2
Move material closer and improve material handling
(save 20 minutes)
Step 1Step 1
Separate setup into preparation and actual setup, doing as much as possible while the
machine/process is operating (save 30 minutes)
Step 3Step 3
Standardize and improve tooling
(save 15 minutes)
90 min —90 min —
60 min —60 min —
45 min —45 min —
25 min —25 min —
15 min —15 min —13 min —13 min —
——
© 2006 Prentice Hall, Inc. 16 – 37
SchedulingScheduling
Schedules must be communicated Schedules must be communicated inside and outside the organizationinside and outside the organization
Level schedulesLevel schedules Process frequent small batchesProcess frequent small batches
Freezing the schedule helps Freezing the schedule helps stabilitystability
KanbanKanban Signals used in a pull systemSignals used in a pull system
© 2006 Prentice Hall, Inc. 16 – 38
KanbanKanban
1.1. User removes a User removes a standard sized standard sized containercontainer
2.2. Signal is seen by Signal is seen by the producing the producing department as department as authorization to authorization to replenishreplenish
Part numbers Part numbers mark locationmark location
Signal marker Signal marker on boxeson boxes
Figure 16.6Figure 16.6
© 2006 Prentice Hall, Inc. 16 – 39
Scheduling Small LotsScheduling Small Lots
AA BB CCAA AAAABB BB BB BB BB CC
JIT Level Material-Use ApproachJIT Level Material-Use Approach
AA CCAA AAAA BB BB BB BB BB CC CCBB BB BB BBAA AA
Large-Lot ApproachLarge-Lot Approach
TimeTimeFigure 16.5Figure 16.5
© 2006 Prentice Hall, Inc. 16 – 40
More KanbanMore Kanban
When the producer and user are not When the producer and user are not in visual contact, a card can be usedin visual contact, a card can be used
When the producer and user are in When the producer and user are in visual contact, a light or flag or visual contact, a light or flag or empty spot on the floor may be empty spot on the floor may be adequateadequate
Since several components may be Since several components may be required, several different kanban required, several different kanban techniques may be employedtechniques may be employed
© 2006 Prentice Hall, Inc. 16 – 41
More KanbanMore Kanban
Usually each card controls a specific Usually each card controls a specific quantity or partsquantity or parts
Multiple card systems may be used if Multiple card systems may be used if there are several components or there are several components or different lot sizesdifferent lot sizes
Kanban cards provide a direct Kanban cards provide a direct control and limit on the amount of control and limit on the amount of work-in-process between cellswork-in-process between cells
© 2006 Prentice Hall, Inc. 16 – 42
More KanbanMore Kanban
In an MRP system, the schedule can In an MRP system, the schedule can be thought of as a build authorization be thought of as a build authorization and the kanban a type of pull system and the kanban a type of pull system that initiates actual productionthat initiates actual production
If there is an immediate storage area, If there is an immediate storage area, a two-card system can be used with a two-card system can be used with one card circulating between the one card circulating between the user and storage area and the other user and storage area and the other between the storage area and the between the storage area and the producerproducer
© 2006 Prentice Hall, Inc. 16 – 43
Kanban SignalsKanban Signals
Work Work cellcell
Raw Raw Material Material SupplierSupplier
KanbanKanban
Purchased Purchased Parts Parts
SupplierSupplier
Sub-Sub-assemblyassembly
ShipShip
KanbanKanban
KanbanKanban
KanbanKanban
KanbanKanban
Finished Finished goodsgoods
Customer Customer orderorder
Final Final assemblyassembly
KanbanKanban
Figure 16.7Figure 16.7
© 2006 Prentice Hall, Inc. 16 – 44
The Number of CardsThe Number of Cardsor Containersor Containers
Need to know the lead time needed to produce a container of parts
Need to know the amount of safety stock needed
Number of kanbans =Number of kanbans =
Demand during Demand during SafetySafetylead timelead time ++ stockstockSize of containerSize of container
© 2006 Prentice Hall, Inc. 16 – 45
Number of Kanbans ExampleNumber of Kanbans Example
Daily demandDaily demand == 500500 cakes cakes
Production lead timeProduction lead time == 22 days days(wait time + (wait time + material handling time + material handling time + processing time)processing time)
Safety stockSafety stock == 1/21/2 day day
Container sizeContainer size == 250250 cakes cakes
Demand during lead time Demand during lead time = 2= 2 days days x 500x 500 cakes cakes = 1,000= 1,000
Number of kanbans Number of kanbans = = 5= = 51,000 + 2501,000 + 250
250250
© 2006 Prentice Hall, Inc. 16 – 46
Advantages of KanbanAdvantages of Kanban
Allow only limited amount of faulty or Allow only limited amount of faulty or delayed materialdelayed material
Problems are immediately evidentProblems are immediately evident
Puts downward pressure on bad Puts downward pressure on bad aspects of inventoryaspects of inventory
Standardized containers reduce Standardized containers reduce weight, disposal costs, wasted space, weight, disposal costs, wasted space, and laborand labor
© 2006 Prentice Hall, Inc. 16 – 47
QualityQuality
Strong relationshipStrong relationship JIT cuts the cost of obtaining good JIT cuts the cost of obtaining good
quality because JIT exposes poor quality because JIT exposes poor qualityquality
Because lead times are shorter, Because lead times are shorter, quality problems are exposed soonerquality problems are exposed sooner
Better quality means fewer buffers Better quality means fewer buffers and allows simpler JIT systems to be and allows simpler JIT systems to be usedused
© 2006 Prentice Hall, Inc. 16 – 48
JIT Quality TacticsJIT Quality Tactics
Use statistical process controlUse statistical process control
Empower employeesEmpower employees
Build fail-safe methods (poka-Build fail-safe methods (poka-yoke, checklists, etc.)yoke, checklists, etc.)
Expose poor quality with small Expose poor quality with small lot JITlot JIT
Provide immediate feedbackProvide immediate feedback
Table 16.6Table 16.6
© 2006 Prentice Hall, Inc. 16 – 49
Employee EmpowermentEmployee Empowerment
Empowered employees bring their Empowered employees bring their knowledge and involvement to daily knowledge and involvement to daily operationsoperations
Some traditional staff tasks can move to Some traditional staff tasks can move to empowered employeesempowered employees
Training, cross-training, and fewer job Training, cross-training, and fewer job classifications can mean enriched jobsclassifications can mean enriched jobs
Companies gain from increased Companies gain from increased commitment from employeescommitment from employees
© 2006 Prentice Hall, Inc. 16 – 50
Lean ProductionLean Production
Different from JIT in that it is Different from JIT in that it is externally focused on the customerexternally focused on the customer
Often called the Toyota Production Often called the Toyota Production System (TPS)System (TPS)
In practice, JIT, Lean Systems, and In practice, JIT, Lean Systems, and TPS are often essentially the sameTPS are often essentially the same
© 2006 Prentice Hall, Inc. 16 – 51
Toyota Production SystemToyota Production System
Work shall be completely specified as to Work shall be completely specified as to content, sequence, timing, and outcomecontent, sequence, timing, and outcome
Every customer-supplier connection must Every customer-supplier connection must be directbe direct
Product and service flows must be simple Product and service flows must be simple and directand direct
Any improvement must be made in Any improvement must be made in accordance with the scientific method at accordance with the scientific method at the lowest possible level of the the lowest possible level of the organizationorganization
© 2006 Prentice Hall, Inc. 16 – 52
Lean SystemsLean Systems
Use JIT techniquesUse JIT techniques Build systems that help employees Build systems that help employees
produce perfect partsproduce perfect parts Reduce space requirementsReduce space requirements Develop close relationships with Develop close relationships with
supplierssuppliers
© 2006 Prentice Hall, Inc. 16 – 53
Lean SystemsLean Systems
Educate suppliersEducate suppliers Eliminate all but value-added Eliminate all but value-added
activitiesactivities Develop the workforceDevelop the workforce Make jobs more challengingMake jobs more challenging Reduce the number of job classesReduce the number of job classes
© 2006 Prentice Hall, Inc. 16 – 54
The 5 S’sThe 5 S’s
Sort/segregateSort/segregate
Simplify/straightenSimplify/straighten
Shine/sweepShine/sweep
StandardizeStandardize
Sustain/self disciplineSustain/self discipline
Safety
Support/maintenance
© 2006 Prentice Hall, Inc. 16 – 55
Seven WastesSeven Wastes
OverproductionOverproduction
QueuesQueues
TransportationTransportation
InventoryInventory
MotionMotion
Over-processingOver-processing
Defective productDefective product
A broader perspective
suggests other resources like
energy and water are wasted but should not be