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MIT OpenCourseWare http://ocw.mit.edu
16.660 / 16.853 / ESD.62J Introduction to Lean Six Sigma Methods January (IAP) 2008
For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.
Lean Supply Chain Basics
Impact of Supply Chain Management
“Only 7% of companies today areeffectively managing their supplychain. However, these companiesare 73% more profitable than other
manufacturers.”
Deloitte & Touche Study, October 2003
Lean Supply Chain Basics V6.2 - Slide 2 © 2008 Massachusetts Institute of Technology
Learning Objectives
At the end of the module, you will be able to: • Recognize the importance of suppliers in
the enterprise • Describe key attributes of a lean supply
chain 1. Alignment of supply chain design with product
characteristics 2. Supplier participation in material flow and
logistics 3.Supplier involvement in design and development 4.Seamless information flow
• Discuss methods for the improvement of existing supply chains
Lean Supply Chain Basics V6.2 - Slide 3 © 2008 Massachusetts Institute of Technology
Suppliers Are Critical In The Value Chain
Customer
Production
Supplier Network
Product Development
Value Specified
Value Created
Value Delivered
Early Involvement
Suppliers as Partners
Producible Design Meeting Value Expectations
Typically, 60-80% of Value Added by Suppliers
Lean Supply Chain Basics V6.2 - Slide 4 © 2008 Massachusetts Institute of Technology
Lean Supply Chain Basics V6.2 - Slide 5
What Does a Supply Chain Look Like?
End-user
Customer
Prime Mfg./ Supplier
First Tier Supplier
Second Tier Supplier
Material Supplier
Raw Material Supplier
As you move down the supply chain, each successive tier represents a smaller percentage of the Prime’s main business base than the previous tiers.
© 2008 Massachusetts Institute of Technology
Lean Supply Chain Basics V6.2 - Slide 6© 2008 Massachusetts Institute of Technology
Material Tier Two’s Tier One’s Prime Customer
Orders
Orders
Orders
Orders
Orders
Communications across the supply chain is liketossing orders over a brick wall!
Current State of ManySupply Chains
Orders
Lean Supply Chain Exercise
1. Gather your team around easel paper or a chart.
2. Discuss each concept on the list below.
3. On your chart, write a prioritized list of concepts that would best create a lean supply chain.
• Collaboration • Long lead times
• Efficient supply chain with little flexibility
• One supply chain for all products
•
•
Limited communication
Localized focus on
• Supplier commitment to long term relationship
continuous improvement • Internal corporate focus
• Responsive and agile • Build to order
•
•
Based on product characteristics
Enterprise approach
•
•
Visibility of demand
Continuous improvement activities that include suppliers & customers
Lean Supply Chain Basics V6.2 - Slide 7 © 2008 Massachusetts Institute of Technology
Key Attributes of a Lean Supply Chain
1. Alignment of supply chain design with product characteristics
2. Supplier participation in material flow and logistics
3. Supplier involvement in design and development
4. Seamless information flow
Lean Supply Chain Basics V6.2 - Slide 8 © 2008 Massachusetts Institute of Technology
1 - Matching Supply Chains with Products
• “Push” supply chain is focused on efficiency for meeting predictable demand at lowest cost.
• Typically for long product lifecycle and mature or commodity items
• “Pull” supply chain is focused on responsiveness for unpredictable demand to avoid inventory & stock outs.
• Typically for shorter product life cycle, customitems
• The reality is that a given product may have components of both the efficient and responsive supply chain designs. This approach has been labeled the Hybrid Supply Chain.
Lean Supply Chain Basics V6.2 - Slide 9 © 2008 Massachusetts Institute of Technology
Different supply chain designs require different practices
2 - Supplier Participation inMaterial Flow and Logistics
• Just-in-time deliveries Eliminates inventory - but parts must show up on time!
• Kitting for point-of-use Eliminates unpacking, looking for parts - requires supplier involvement in production system design
• Vendor-Managed Inventory Vendor owns it, keeps track of it, until it is used
• Third Party Logistics Have FedEx handle these?
Different supply chain designs require different practices
Lean Supply Chain Basics V6.2 - Slide 10 © 2008 Massachusetts Institute of Technology
Atlas V Launcher SupplierKitting and Direct Delivery
Vendor-Supplied Tubing (Old Method) Vendor-Supplied Tubing (New Method)Conventional Packaging, handling and Inventory Reusable Container and Shadow Boards
Category Reduction Inventory Carrying Cost $35,000 per ship-set Internal Handling Cost $12,000 per ship-set Cycle-Time 20 weeks to 14 weeks
Lean Supply Chain Basics V6.2 - Slide 11 Source: Lockheed Martin Missiles and Space Systems © 2008 Massachusetts Institute of Technology
Photographs removed due to copyright restrictions.
3 - Supplier Involvement in Design and Development
Wire Harness CoverWire Harness Cover
JDAM Tail KitJDAM Tail Kit
StrakesStrakes
Mk-84 WarheadMk-84 Warhead
StrakesStrakes
Launch LugsLaunch Lugs
ContainerContainer
Courtesy of Boeing. Used with permission. Lean Supply Chain Basics V6.2 - Slide 12 © 2008 Massachusetts Institute of Technology
SOURCE: Karen E. Darrow (The Boeing Company), “The JDAM Experience: Lean Principles in Action,” Presentation at the SAE Aerospace and Automated Fastening Conference & Exhibition, September 22, 2004.
PRODUCT VALUE CREATION• Original cost est. - $68+ K• Final actual cost - $15 K• Unit costs reduced > 75%• Total savings > $2.9 B
Courtesy of Boeing. Used with permission.
Early Supplier Integration
SUPPLIER VALUESUPPLIER CREATIONVALUE CREATION
•• Major modification toM systemajor modification to systemarchitecturearchitecture•• FromFrom ““partitioned architecturepartitioned architecture””
toto ““integrated architectureintegrated architecture””
•• Reduced Wiring /Reduced ConnectorsWiring / Connectors•• Reduced unit costReduced unit cost
•• Improved reliabilityImproved reliability
•• Re-allocatedRe-allocated ““Work ShaWor rerk Sha e””SUPPLIER INTEGRATIONSUPPLIER INTEGRATION
•• Part ofPart of proposp alaropos l teamteamPRODUCT VALUE CREATION•• Understood project goalsU -nderstood project goals - • Original cost est. - $68+ KGOAL CONGRUENCYGOAL CONGRUENCY
•• Understood requirementUnderstood requirement • Final actual cost - $15 K
for low cost, seamlessfor low cost, seamless • Unit costs reduced > 75% assemblyassembly • Total savings > $2.9 B
Lean Supply Chain Basics V6.2 - Slide 13 Ref: Lean Enterprise Value, pp 138-140, 206-207 © 2008 Massachusetts Institute of Technology
4 - Seamless Information Flow Requires communication on many levels
Customer Supplier
Strategic & Business
Objectives & Progress
Contracts/Deliverables
Design & Config
Hardware
Enterprise Management
Program Management
Procurement & Contracts
Engineering
Manufacturing Operations
Enterprise Management
Program Management
Procurement & Contracts
Engineering
Manufacturing Operations
Integrated Information Technology EnvironmentLean Supply Chain Basics V6.2 - Slide 14
© 2008 Massachusetts Institute of Technology
Exostar Trusted Workspace
Exostar Offerings
Courtesy of Boeing. Used with permission. Copyright 2007 Exostar Proprietary and Confidential Lean Supply Chain Basics V6.2 - Slide 1515
© 2008 Massachusetts Institute of Technology
EXOSTAR Facilitates Supply Chain Management Streamlining
At Rolls-Royce the eProcurement implementation has produced a number of quantitative and qualitative benefits, including:
• Rationalizing the direct supplier base from more than 5,000 to several hundred
• Reduction in cost of goods of up to 20%;
• Reduction in inventory value levels as much as 80%;
• Reduction in errors due to the elimination of manual re-keying of buying data;
• Reduced cycle time, in some cases by up to 80%;
• Near-elimination of paper and fax processes.
• Improved relations with suppliers, who have benefited from reduced transaction costs and improved efficiency.
Lean Supply Chain Basics V6.2 - Slide 16 © 2008 Massachusetts Institute of Technology
Improving Supply Chains
Lean Supply Chain Basics V6.2 - Slide 17 © 2008 Massachusetts Institute of Technology
Prime Contractor Owns The Vision
Supplier Owns The Vision
Lean Assessment
& Value Stream
Mapping
• Enterprise-Level Analysis
• Product-Level Analysis
• Basis for Improvement Plans
Lean Strategy & Deployment
Plan
• Common Objectives
• Common Metrics • Plans of Action • Timelines
• Compelling Interests
• Building the Relationship
• Understanding Context
• Commitment to Go Forward
Education & Orientation
Lean Engagements
• Improvement Workshops
• Additional Training
Continuous Improvement
Work Outstanding Issues
Program Value Stream
No
Yes
Supplier Selection
• Critical Path • Cost • Quality • Cycle Time • Delivery
Lean Ready?
Example: Hicksville Machine Works Corp.
• Supplier worked with prime to implement lean
• Prime (Boeing) provided expertise and training for5S, Statistical Process Control, and Set-up TimeReduction
• Savings shared, plus many additional benefits:
“... a good example of what good team work between a vendor and sincere Boeing personnel, ... can do. ... my Company is much more competitive than ever before. Following are some of parts we were able to reduce the unit prices on:
P/N Previous Unit Price New Unit Price 17P2A5224-1NC $1815.00 $751.68 17P2A5821-1 $1992.00 $639.33 17P2A5829-1NC $2531.72 $1024.00
These types of savings will apply to all parts we manufacture.” -Jack Spezio, President
Courtesy of Boeing. Used with permission. Lean Supply Chain Basics V6.2 - Slide 18 © 2008 Massachusetts Institute of Technology
Supply Base Stratification- Five Levels
Strategic Alliance
Certified Gold, Silver, Bronze, Probation
StrategicallyImportant
Core High Performing, Standard, Potential, Legacy
Disengaged
Lean Supply Chain Basics V6.2 - Slide 19 Courtesy of Boeing. Used with permission. © 2008 Massachusetts Institute of Technology
Future State in Lean Relationships
SubcontractorPrime
Customer
SubcontractorSubcontractor
““EmergingEmerging”” LeanLeanVirtual Team without boundaries enabling continuous innovation
““OldOld”” ApproachApproachRigid vertical
interfaces and control
Customer
Prime
““CurrentCurrent”” LeanLeanCollaborative
with rigid organizational
interfaces
Customer
Prime SubcontractorSubcontractor
Lean Supply Chain Basics V6.2 - Slide 20 © 2008 Massachusetts Institute of Technology
PrimeSubcontractor
Supply Chain Management is a leanenterprise core competency
Lean Supply Chain Wrap Up
• Suppliers are critical to lean enterprise success
• Supply chains need to be understood and designed to meet the needs of the product enterprise needs
• Legacy supply chains can be improved through win-win customer-supplier teamwork.
Supply Chain Management is a lean enterprise core competency
Lean Supply Chain Basics V6.2 - Slide 21 © 2008 Massachusetts Institute of Technology
Exercise
• What aspects of a Lean Supply Chain can you implement today to improve your enterprise’s performance?
• Spend the remaining time capturing these on an easel chart for your team’s use.
Lean Supply Chain Basics V6.2 - Slide 22 © 2008 Massachusetts Institute of Technology
Reading ListBozdogan, K., Deyst, J., Hoult, D., Lucas, M., “Architectural Innovation in Product Development ThroughEarly Supplier Integration”, R&D Management, Vol 28, No 3, 1998, 163-173.
Dyer, Jeffrey H., Collaborative Advantage: Winning through Extended Enterprise Supplier Networks, NewYork: Oxford University Press, 2000.
Dyer, Jeffrey and Nobeoka, Kentora, “Creating and Managing High-Performance Knowledge-SharingNetwork: The Toyota Case,” Strategic Management Journal, 21, 2000, 345-367.
Fine, C., Clockspeed: Winning Industry Control in the Age of Temporary Advantage, Reading, MA: Perseus Books,1998
Fisher, M.L., “What is the Right Supply Chain for your Product,” Harvard Business Review, Vol. 75 (2),Mar/Apr, 1997, 105-116.
Ghemawat, Pankaj, "Distance Still Matters, The Hard Reality of Global Expansion." HBR. Sept, 2001
Kraljic, "Purchasing Must Become Supply Management," HBR, September - October 1983
Liker, J.K. and Yu, Yen-Chun, “Japanese Automakers, U.S. Suppliers and Supply-Chain Superiority,” MITSloan Management Review, Vol. 42 (1), Fall 2000, 81- 94.
Liker, J.K., Kamath, R. R., Wasti, S.N., and Namagachi, M., “Supplier Involvement in Automotive ComponentDesign: Are There Really Large US/Japan Differences?, Research Policy, 25, 1996, 59-89.
MacDuffie, J.P. and Helper, S., “Creating Lean Suppliers: Diffusing Lean Production Through the SupplyChain,” California Management Review, 39, 1997, 118-115.
Sako, Mari, “Supplier Development at Honda, Nissan and Toyota: Comparative Case Studies ofOrganizational Capability Enhancement,” Industrial and Corporate Change, 13 (2), 2004, 281-308.
Simchi-Levy, D., Kaminski, P., Simchi-Levy, E., Designing and Managing Supply Chains, McGraw-Hill, 2002.
Takeishi, Akira, “Knowledge Partitioning in the Interfirm Division of Labor: The Case of Automotive ProductDevelopment,” Organization Science, Vol. 13 (3), May-June 2002, 321-338.
Venkatesan, "Strategic Sourcing: To Make or Not to Make," HBR, November-December, 1992Lean Supply Chain Basics V6.2 - Slide 23
© 2008 Massachusetts Institute of Technology
Acknowledgements
• Kirk Bozdogan - MIT LAI • Tom Callarman - ASU • Al Haggerty - MIT, Boeing (ret.) • Greg Harris - Univ. of Alabama in Huntsville (UAH) • Dick Lewis - Rolls-Royce (ret.) • Tim Mead - DAU • Hugh McManus – Metis Design • Earll Murman - MIT • Sue Siferd – ASU • Kenneth Sullivan -UAH • Stan Weiss - Stanford Univ, Lockheed Martin (ret)
Lean Supply Chain Basics V6.2 - Slide 24 © 2008 Massachusetts Institute of Technology