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Module IModule I Supply Chain:Supply Chain:

Present Frustrations Present Frustrations and Lean to the Rescueand Lean to the Rescue

WebinarWebinarCalifornia Space AuthorityCalifornia Space Authority

November 3, 2009November 3, 2009

Bo W. OppenheimBo W. Oppenheim

C-2009 Bohdan W. Oppenheim 3

Instructor:Instructor: Bohdan "Bo" W. Oppenheim, Ph.D.Bohdan "Bo" W. Oppenheim, Ph.D.

LOYOLA MARYMOUNT UNIVERSITY, Los Angeles, since 1981– Professor of Mechanical and Systems Engineering – Graduate Director of Mechanical Engineering– Director, US Department of Energy Industrial Assessment Center, 2000-2007– Coordinator, Lean Aerospace Initiative Educational Network (MIT based) (http://lean.mit.edu

)– Founder and Co-Chair: Lean Systems Engineering Working Group, INCOSE,

www.incose.org/practice/techactivities/wg/leansewg/ EDUCATION

– PhD, 1980, U. of Southampton U.K., in System Dynamics– Naval Architect, 1974, MIT– M.S, 1972, Stevens Institute of Technology, Ocean Systems– B.S. (equiv.), 1970, Warsaw Technical Univ., Mech. Eng. and Aeronautics (MEL)

INDUSTRIAL EXPERIENCE– 125 industrial plants assessed for Productivity/Lean– Author (with S. Rubin) of POGO simulator for U.S. liquid rockets – Consultant in dynamics, lean, productivity, quality, and systems engineering for

Northrop (1985-1990), The Aerospace Corporation (1990-1994), Boeing (2002-2004), Global Marine Development (1974-77), 50 other firms and governmental institutions

http://lean.mit.edu/

http://www.incose.org/practice/techactivities/wg/leansewg/


End-user

Customer

Prime Mfg./Supplier

First TierSupplier

Second TierSupplier

Material Supplier

Raw Material Supplier

Moving down the supply chain, we see each successive tier representing a smaller percentage of the Prime’s main business base and the previous tiers.

LAI Lean Academy™

What do we mean by Supplier Network?


• Global competition is a fact• Brutal race without the finish line• Today’s competition means competing with the global best • Yet, instead of aligning our U.S. companies for better

competition, we spend our energies on conflicts between buyers and suppliers

• Modern programs: 70-95% of value provided by suppliers

Global CompetitionGlobal Competition

Key to winning global competition:Key to winning global competition:

Better buyer-supplier relations!Better buyer-supplier relations!


• Supplier selected by lowest bid

• Distrustful, even hostile relationship

• Unrealistic mutual expectations

• Complaints about quality, lead times,

price, service

• Lawyers involved in writing and

executing contracts

Traditional Procurement SystemTraditional Procurement System

Is this the way to conduct business in Is this the way to conduct business in global competition?global competition?


• Bad Requirements/Specs• Quality Assurance (QA)• Standards• Lead times• Price

• Bureaucracy and poor communications

Typical FrustrationsTypical Frustrations


Poor requirements and specificationsPoor requirements and specifications• Both buyer and supplier should share the blame• Buyer:Buyer: prepares incomplete, ambiguous,

unclear, mutually conflicted and unstable requirements and specifications

• Supplier:Supplier: makes inadequate effort to draw the complete, crystal clear, stable and unstated requirements and specs from the buyer

Frequent FrustrationsFrequent FrustrationsMutual Expectations Poorly Defined.Mutual Expectations Poorly Defined.


Typical Quarrels About QualityTypical Quarrels About Quality• Lack of trust between buyer and supplier• Test procedures not explained to the supplier• Making outgoing inspection incompatible with test

expectations • Double inspections (and costs and time)

Frequent FrustrationsFrequent FrustrationsNot meeting mutual expectations.Not meeting mutual expectations.


Quarrels about Lead TimesQuarrels about Lead Times• Buyer to supplier:

– Your lead times are too long– You do not have Lean– You are not competitive

• Supplier to buyer:Supplier to buyer: – Your specs delivered too late– Your specs have errors– You do not tell us how you will test the system



QuarrelsQuarrels about Price about Price• Buyer to Supplier:Buyer to Supplier:

– You are too expensive, not competitive– You do not have Lean

• Supplier to Buyer:Supplier to Buyer: – Your price is not fair, impossible to meet– You operate on cost-plus luxury but demand

fixed price from us!



Complaints about Poor CommunicationsComplaints about Poor Communications• “Over the wall“ • Bureaucratic ineffective communications• Hands-off relationships• No engineer-to-engineer access


Supplier/buyer

Buyer/supplier


Hostility, confrontation and Hostility, confrontation and exploitation have no place in exploitation have no place in

modern supply chain.modern supply chain.

Frequent FrustrationsFrequent Frustrations


What is Lean?What is Lean?• Management and cultural paradigm that made Toyota No. 1

• Called Toyota Production System (TPS)

• Introduced to the US as “Lean” by Womack

• Lean = "slimmed down” Lean = "slimmed down” • LeanLean = organization of work within a company

and between all cooperating companies which is based on the elimination of waste from all activities (Womack)

To the Rescue: Lean ThinkingTo the Rescue: Lean Thinking


Fundamentals of Lean ThinkingFundamentals of Lean Thinking• Three concepts are fundamental to the understanding

of Lean Thinking

– Value

– Waste

– The process of creating Value with no Waste

To the Rescue: Lean ThinkingTo the Rescue: Lean Thinking


Introduction to Lean

Value to the CustomerValue to the Customer

• All customer expectations are met

• Product delivered to the buyer as follows: – As promised– With expected and “first time right” quality– Within the expected lead time– At the price agreed– With nice service


Introduction to LeanIntroduction to Lean

Value to the SupplierValue to the Supplier• Long-term relationship with the buyer, steady

business• Fair price enabling to stay in business• Alignment with the buyer against outside

competition • Receiving requirements/specs early enough to

enable preparations for design/production• Receiving specs which are final, correct, clear• Direct ongoing communications when needed


WasteWaste• Anything other than the minimum amount

of equipment, materials, parts, space and employee’s time, which is absolutely essential to the delivery of Value

• The work element that adds no value to the product or service

• Waste only adds cost & time

Introduction to LeanIntroduction to Lean


Introduction to LeanIntroduction to Lean Ohno’s Seven Types of WasteOhno’s Seven Types of Waste

1. Over-production Creating too much material or information

2. InventoryHaving more material or information than you need

3. Transportation Moving material or information

4. Unnecessary MovementMoving people to access or process material or information

5. WaitingWaiting for material or information, or material or information waiting to be processed

6. Defective OutputsErrors or mistakes causing the effort to be redone to correct the problem

7. Over-processingProcessing more than necessary to produce the desired output

LAI Lean Academy™


1. Specify value: Value is defined by customer in terms of specific products

2. Identify the value stream: Map out all end-to-end linked actions, processes and functions necessary for transforming raw materials into products, after eliminating waste

3. Make value flow continuously: Make the remaining linked value-creating steps “flow” per common takt time

4. Let customers pull value: Customer’s “pull” cascades all the way back to the lowest level supplier, enabling the super-efficient just-in-time production

5. Pursue perfection: Pursue continuous enabling just-in-time production. Pursue continuous process of improvement striving for perfection

6. Respect People

LAI Lean Academy™

Introduction to LeanIntroduction to Lean Six Lean Principles for Creating Value without wasteSix Lean Principles for Creating Value without waste


• Emphasis on Value• Obsessive reduction of waste• Mutual interest• Crystal clear requirements, specifications• Consensus on testing and QA• Seamless partnership and communications • Culture (partnership, sharing, alignment, trust,

honesty, openness, teamwork)• Lean throughout the enterprise

To the Rescue: “Lean Thinking”To the Rescue: “Lean Thinking”


Characteristics of Lean Supply ChainCharacteristics of Lean Supply Chain

1. Quality

• The supplier has an obligation to adopt quality initiatives of world-class companies

• The contracting company has the burden of explaining in minute detail its requirements, nuances, and required QA steps, in a timely manner

• The supplier has the burden of assuring that all requirements/specs are at hand and are clear and precise

• Both sides strive for close cooperation and coordination throughout the program

• Any and all issues are resolved competently in real time

• The supplier creates exactly the product expected

• The product is always perfect, nobody ever complains

• No incoming inspection or certifications needed on individual pieces

• Test/inspection required by contract is always “pass”


2. Lead time

• Program cost increases with time, so the shortest possible lead time for all suppliers is critical for competitiveness

• The supplier lead time should be the lead time for his raw materials plus touch labor time plus only a small margin

• The buyer has every right to expect that all suppliers implement Lean manufacturing, in the entire supply chain

• The contractor, who is supposed to be the expert in the field of making the parts, should be involved in the planning and design seamlessly

• Advising the design team on the best form/fit/function, shortest lead time, maximum quality and lowest cost

• The supplier should be involved early enough, and not called at the last moment



3. Quantity3. Quantity

• The buyer must be able to order the number of pieces need and no more

• If the supplier insists that the buyer buys 1000 pieces when he needs 5 pieces, the relationship is wrong

• This is enabled by a long-term partnership between buyer and supplier

• The buyer can and should insist that the supplier implement Lean with JIT capabilities



4. Price4. Price

• Must be fair, enabling the (Lean) buyer to be competitive and the (Lean) supplier to survive in a healthy condition

• Squeezing suppliers dry is shortsighted, it kills them in the long term

• Tens of thousands of suppliers have disappeared in recent years

• US manufacturing industry is bleeding, dying, going overseas

• Squeezing suppliers leads to de-facto exploitation of workers: low wages, tough working conditions, no fringe benefits, turnover – all detrimental to Lean

• Both large corporations and suppliers are to be blamed for the lack of Lean Thinking

• Reverse bidding is OK for buying toilet paper but not aerospace components



• Long-term Trusted Partnership with Strategic and Critical Suppliers

• Supply base reduction, e.g., – One supplier for strategic parts– Two for critical parts– Several for commodities (toilet paper)

• Shared digital product description with common software and computer platforms, 3D models

• Just-in-time deliveries• Kitting• Vendor-Managed Inventory• Third Party Logistics• Paperless procurement

LAI Lean Academy™

Lean Supplier NetworkLean Supplier Network Some “Best” Practices for Lean Supply Chain Management


Customer

SubcontractorSubcontractorPrime

““Emerging” LeanEmerging” LeanVirtual Team withoutboundaries enabling

continuous innovation

““Old” ApproachOld” ApproachRigid vertical

interfaces and control

Customer

Prime

Subcontractor

““Current” LeanCurrent” LeanCollaborative

with rigidorganizational

interfaces

Customer

PrimeSubcontractorSubcontractor

LAI Lean Academy™

Lean Supplier NetworkLean Supplier NetworkFuture State in Lean RelationshipsFuture State in Lean Relationships


Womack's Maxim for Lean in Manufacturing

• Converting a traditional batch-and-queue production system to lean flow yields these effects:

– Doubles the productivity in the entire system – Cuts production throughput times by 90%– Reduces inventories in the entire system by 90%– Cuts errors in half – Cuts time to market for new products in half– Expands product families at modest additional costs– Vastly improves work morale

50% !50% ! 90% !90% ! 2x !2x !

Benefits from LeanBenefits from Lean


SummarySummary

• Present Relations between Buyers and Suppliers are burdened by frustrations

• Energy is wasted on conflict resolution

• It would be better spent creating Lean Supply Chains, fighting against foreign competition

• Lean Thinking provides powerful improvements

Lean Supply Chain yields vastly more profits, shorter Lean Supply Chain yields vastly more profits, shorter lead times, higher quality, and better morale.lead times, higher quality, and better morale.


Planned Future WebinarsPlanned Future Webinars

MODULE II. Fundamentals of Lean And Quality MODULE III. The Do's and Don'ts of Specifications, Requirements and

Testing• The latest knowledge on how the supplier and buyer should cooperate to

develop the best consensus-based requirements that lead to the "first time right" delivery at minimum cost.

MODULE IV. Lean Enablers for Systems Engineering for Suppliers and

Buyers• Selection of lean enablers dealing with supplier relations, the do's and don'ts

for transactions involving the buyer and supplier, based on the new body of knowledge called Lean Enablers for Systems Engineers.

MODULE V. Implementation and Closure• Training (who, how long, how); Standardization of Skill Sets; Mentoring;

Development of Standards, Best QA; Visual Controls; 5 S's; Global competition

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