LEAN ENTERPRISE Angelo Angeleri

Rick Grimes

IBM Corporation

Introduction After a decade of down sizing, reengineering and Enterprise Resource

Planning (ERP) implementation, many manufacturing executives are still looking

for that successful “formula” that will give them a competitive advantage,

sustainable growth, and profit. They are also discovering that the rigors of the fast-

paced, customer-driven Internet age have raised the bar for speed and quality in

customer service.

Instead of focusing on their existing organizations and outdated definitions of

value, successful companies are adopting principles based upon lean thinking and

the lean enterprise. The corner stone of lean ideas is to provide only what the

customer wants, when he wants it, and faster than ever through a value stream that

flows smoothly at the “pull” of the customer and does not create any waste.

Satisfying the customer means winning, pursuing perfection in what you do.

At its most basic level, a lean approach produces a product only after the

company receives the order. Market “pull” initiates activity, rather than “pushing”

products from the factory into glutted distribution channels. The concept has far

reaching impact in today’s digital economy.

IBM has found that, from an electronic industry perspective, there are

challenges in changing the enterprise, especially if lean production is adopted as a

key business strategy for entire end-to-end (E2E) business process.

Moving from the factory floor into the enterprise with lean concepts presents

challenges because value streams become more complex and contain additional

characteristics that need to be defined and analyzed. These value streams usually

require an E2E business process understanding and not just a departmental view of

the process. This is evident when optimizing shared services such as HR and

Finance, when incorporating lean concepts into engineering, development, or in

implementing cross-functional applications such as ERP, PDM, CAD, etc.

With cross-functional applications, value streams have more cross-stream

reliance and inter-linkages. Executing and sustaining change in this environment is

often underestimated with a lean approach. IBM has found that the approach

required is one that integrates three areas of business transformation and addresses

them concurrently. By integrating the organization’s people, business processes,

and information technology tools simultaneously, IBM has overcome the

challenges of implementation.

This paper addresses lean ideas and how to apply the principles in creating real-

world, lean enterprises. It discusses electronic industry trends, the impact of the

Internet, increasing product design complexity (mass customization), and the need

for value stream alignment, to enable Design (anywhere) for Manufacturing

(anywhere), or DFM. It provides lean insight into creating customer and

stockholder value in e-business design, and recounts recent lessons learned both

from IBM clients and the transformation of the IBM Corporation.

Lean Manufacturing The definition and benefits of lean manufacturing are embodied in Toyota’s

Automotive Lean Production System. Toyota recently provided the results of their

lean approach to the world’s leading automobile manufacturers and data indicates

that Toyota’s lean manufacturing approach requires half the human labor, half the

manufacturing space, half the investment tools, and half the engineering hours to

produce a vehicle. The results are an order of magnitude better than anything

produced using traditional mass production techniques, proving lean

manufacturing is one of the most important organizational paradigms for the next

decade.

But lean manufacturing principles can be applied to any organization in any

industry; although its origins are firmly in automotive production environment, the

principals are transferable and often referred to as lean thinking. Lean thinking

applies to all activities including product development and the DFM process. The

starting point is to recognize that only a small fraction of the total time and effort

in any organization actually adds value for the end customer. By clearly defining

value for a specific product from an end customer’s perspective, all non-value

activities, or waste, can be targeted for removal.

IBM’s discrete-event simulator now enables trading partners to analyze supply

chain management (SCM) cause and effect activities and find the most profitable

alternatives. The simulator uses pull-based replenishment versus push-based

replenishment through non-linear, discrete-event simulation to understand the

impacts upon collaborative SCM activities. A company can test new strategies

without committing scarce resources, while gaining 1) quantitative evidence

regarding the change and the benefits derived; 2) education for management

throughout the supply chain on the value of adopting new strategies.

Applied across product development, supply chain management, customer

relationship management, and human resources, lean enterprise techniques

revolutionize the way products are ordered, manufactured and delivered.

Electronic Industry Observations and Manufacturing Trends Today electronic companies are trying to reduce costs, risks, and increase

market responsiveness and profits. In the product development process today, the

new frontier for cost reduction and revenue improvement initiatives is the complex

and collaborative Design for Manufacturing process.

IBM has found that the design and manufacturing of complex electronic

systems, in some companies, is still based upon individual departments of various

engineering (Electrical Design, RE, SW, Mechanical, Industrial Design, etc.) and

manufacturing disciplines. Understanding and improving these diverse processes

and their inter linkages is critical. Few products are created by one department or

organization alone, so to enable the value creating steps to flow continuously, the

entire set of value stream activities across DFM processes must be identified along

with the information flow that occurs between the activities.

But today, this integration alone will not enable the lean enterprise to meet

customer demands and effectively compete in terms of time to market, cost,

quality, global market participation, and customer service. To accurately specify value,

the entire value stream must be identified, including customers’ activities.

The Internet has enabled customers to pull the design from upstream steps. This

ability has created a new class of savvy customers, intolerant of imperfect goods and late

deliveries, that are now able to dissect pricing variations across global divisions and in

seconds compare dozens of companies’ product offerings. The explosion of the Internet

has taken the concept of mass customization beyond anyone’s expectations, and

businesses and consumers now demand customized products meeting exactly their

specifications and delivery. Following these trends, consumer electronic companies must

be able to produce products tailored to customer needs, quickly, and at a reasonable cost.

This requires looking at the entire business model of a company and in many cases

redefinition of the business.

IBM’s Microelectronics Division re-engineered its custom chip order design services

via the Internet. To reduce the turnaround time to design custom ASIC chips, and avoid

the expense of multiple proprietary and 3rd-party design tools, IBM built an online

service that reduced turnaround time from 3-4 weeks to overnight.

To achieve mass customization, electronic companies must manage cost and time by

integrating information and processes throughout the extended enterprise. This

integration is not just between design and manufacturing, but includes sales, customer

fulfillment, and administration. The enterprise must adapt to market changes which

includes the way it acquires necessary intellectual property, skills, resources, knowledge,

technology, and other key pieces of the puzzle that affect the speed with which products

are brought to market.

The U.S. consumer electronics industry is quickly evolving into a provider of work

style and lifestyle solutions and the next wave of consumer electronic products that

customers will want and/or need is driving more complexity into the DFM process.

Looking ahead to the build-out of the Internet, we find the demand for the convergence of

communications, computers and consumer electronics, the growth of handheld

computers, organizers, two way pagers and Internet-ready cell phones show a trend

towards more embedded electronics and software content. This will exhibit itself in the

growth of new electronic products and technologies in the years to come.

The demand for more complex and custom products will require better linkages in the

DFM process and better information management capabilities than exist today. The DFM

process will increase in importance as more sophisticated packaging evolves, as will

interactions between other domains such as electrical and software design.

Based upon technology trends:

� The need for automation to aid in design management will steadily increase;

� Design complexity will increase;

� The number of design process and checking steps that must be successfully

enacted to complete a design must be optimized;

� Design team size involved with a single design entity will increase;

� Design interactions across multiple design domains will increase.

These trends lead to the following lean enterprise requirements for DFM:

� Align the value streams;

� Align organization to value stream;

� Breakdown existing barriers.

Running Lean Across Design and Manufacturing The goal in engineering is to design or change a product in such a way that it is

ready for production when it hits the manufacturing floor. Designs that do not

achieve this goal often result in higher manufacturing costs, and delay the

introduction of the new product. While design for manufacturing may require

more time during the initial design phase, the lost time will typically be made up

when the product enters the manufacturing stage.

A product that has been designed for manufacturing can begin realizing

benefits of the design even before it leaves the development area. Most companies

today still think of DFM as the standardization of data, tools, or translators that

enable engineering to transfer relevant data to manufacturing. By extending our

definition of DFM to include the design anywhere/manufacture anywhere concept,

the value streams become enriched with greater alignment than ever before.

Companies striving to improve time to market and shorten product life cycles

often broaden the DFM initiative to include the design (anywhere) for

manufacturing (anywhere) value stream. This extension not only addresses

standardization and transfer of product objects such as product data, but now

includes design rules, capacity models, conversion cost analyses, options

management, design data translations, manufacturing tooling data, process

instructions and test information. Aligning the organizations to these value stream

elements requires that loyalty to product flow and lean thinking to be expanded

across all functions.

The first task towards incorporation of the above elements is to align and

standardize the design and development processes to a common product life cycle.

The common processes at this point will allow for effective and consistent

program management and facilitate the design anywhere objective. Consistency in

the development processes will enable design sites to repeatedly develop quality

products, efficiently and quickly. This will support a rapid prototype process

within the engineering development cycle as well as streamline overall cycle time

to production. This requires flexible systems and processes and a development

discipline and controls of the product data at defined stages of the life cycle.

The second task towards alignment is to standardize the transfer and conversion

of a product data package in such a way that it will truly feasible to realize the

build anywhere concept. The process to transfer and convert this data quickly and

correctly will determine the cost of the transfer, the time to accomplish a factory

transfer, the time to ramp up production, and the ability to produce a consistently

high quality product. This sets the standard for metrics that will measure cost, time

and quality of a DFM process.

As lean thinking contends that because value streams flow across design and

manufacturing, it needs to be organized around its key value streams. For design

(anywhere) the value streams focus on product data, design rules, capacity models,

conversion cost analyses, options management, and design data translations. For

manufacture (anywhere) the value streams focus on the product data package,

manufacturing tooling data, process instructions, test information, factory,

equipment, production, and quality. Such an end-to-end value analysis allows an

enterprise to manage the entire value stream for products, setting common

improvement targets and rules for sharing gains and work effort. It provides the

view to align the value streams and the design and manufacturing organizations to

the value stream.

Removing wasted time and effort represents the biggest opportunity for

performance improvement. Creating flow and pull starts with radically

reorganizing individual process steps, but the gains become truly significant as the

entire steps link together. As this happens, layers of waste become visible and the

process continues towards the theoretical end point of perfection, where every

asset and every action adds value for the end customer. In this way, lean thinking

represents a path of sustained performance improvement, and not a one- off

program.

A major challenge facing DaimlerChrysler was process standardization across

five product platforms and standardization resulting from the merger with

Daimler-Benz. Working with IBM, DaimlerChrysler improved the Wiring Harness

Design process by defining a common best-in-class process. This resulted in

significant cycle time reductions through improvements in the product

development process.

Creation of the Lean Enterprise The creation of a complete value stream design for the lean enterprise can be a

large and difficult task. Diverse groups within a single design enterprise need to

use the same design process approach, but may need to use (or change to) different

design management systems. It is imperative that a standard for representing this

important design data be developed and adopted to enable design process

methodology to be portable across compliant design managers. Further, the overall

business value stream may demand the use of multiple design management

systems for different areas of the value stream, and potentially even multiple

design management tools working on the same area of the value stream.

e-business is the cornerstone to enabling the lean enterprise by reaching new

markets, building customer loyalty, reducing transaction costs, building global

collaboration, and tightening supply chain linkages. The realization of the Lean

Enterprise is enhanced by ebusiness designs that can be competitively advantaged

and calibrated to changing customer priorities. This capability provides for greater

customer pull, which affects all elements of the end to end value stream.

As lean thinking contends the organization must view itself as just one part of

an extended supply chain, it needs to think strategically beyond its own

boundaries. IBM has found that the development of an e-business strategy forces

companies to evaluate value streams that drive profit and shareholder value.

Strategic e-business elements include a determination of the targeted customers

and the value that will be delivered to both the customer and the shareholder based

upon the competitive position in the market and scope of the business design.

In summary there are many challenges to implementing a lean enterprise and

the benefits of providing value to the customer and eliminating waste can be

significant. Breaking down the barriers to change, and aligning the

Design/Manufacturing value stream and organization are steps in eliminating

waste. To enable Design (anywhere) for Manufacturing (anywhere), an end-to-end

value stream analysis is required to understand and optimize the cross stream

reliance and inter linkages. A key enhancement for the lean enterprise is e-

business: web technology is fundamental to new business strategies and value

stream mapping.

Key Lean Thinking Principles The starting point is to recognize that only a small fraction of time and effort in

any organization actually adds value for the customer. By clearly defining value

for a specific product from an end customer’s perspective, all non-value activities,

or waste, can be targeted for removal.

Few products are created by one department or organization alone, so to enable

the value creating steps to flow continuously; it requires the entire set of value

stream activities across the DFM value stream to be identified along with the

information flow that occurs between the activities.

To accurately specify the value steam for DFM activities, the customer’s

activities must be included to enable the feedback provided by customer facing

systems such as the Internet. DFM needs to be organized and aligned around its

key value streams.

Removing wasted time and effort represents the biggest opportunity for

performance improvement. Creating flow and pull starts with radically

reorganizing individual process steps, but the gains become truly significant as the

entire steps link together. As this happens more and more layers of waste become

where every asset and every action adds value for the end customer.

As lean thinking contends the organization must view itself as just one part of

an extended supply chain, it follows that it needs to think strategically beyond its

own boundaries. Strategic e-business elements include a determination of the

targeted customers and the value that will be delivered to both the customer and

the shareholder based upon the competitive position in the market and scope of the

business design.