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February Newsletter from the Lean Academy |
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I still encounter a degree of confusion about one of the key mental
models that gets in the way of lean thinking. Making products in
batches and accumulating a full load before dispatching a truck are
fundamental to mass production thinking. It also intuitively fits
with our distant memory of harvesting crops and storing them to last
through the winter. But you can find it everywhere, from seeing and
treating patients in batches to flying as many passengers as possible
in ever larger aircraft.
We have through the years seen regular accusations that smaller
deliveries just-in-time make producers more vulnerable to disruptions
in supply. We have also seen the assertion that little and often is
worse for the environment, with many half-empty smaller trucks
replacing fewer fully-loaded larger trucks. Unfortunately life is not
as simple as this and to really understand what is going on you need
to look at real facts in real situations, not at simulation models.
It is also necessary to shift our focus beyond our own activities in
order to look at the supply chain as a whole.
One flaw in this argument is the experience that focusing on asset
utilisation and keeping equipment as busy as possible does not
actually achieve the desired result! Otherwise why would we typically
find equipment in a mass production system only producing good
products 30% of the time? And why is it that by focusing on improving
capability, availability and flexibility lean producers can regularly
increase this to 85% and above?
Exactly the same applies to truck utilisation. A few years ago, when
supermarkets waited for suppliers to deliver full truck loads to
them, truck utilisation was no more than 50%. Now that most
supermarkets are picking up products from their suppliers more
frequently, truck utilisation is also much higher.
There is a common myth that congestion in Toyota City is because they
send lots of little trucks to their suppliers to pick up parts very
frequently. In fact Toyota works with fewer direct suppliers, each of
whom supplies five times more part numbers than western suppliers. It
sends the largest trucks allowed on Japanese roads on regular milk
rounds to these suppliers, arriving back at the assembly plant
completely full. The congestion comes from trying to produce so many
cars in one town. Indeed the congestion would be much worse if truck
utilisation was as poor as in most mass production systems.
This kind of thinking also overlooks the costs incurred elsewhere in
the supply chain from making and shipping in big batches. It is often
associated with a belief that demand is chaotic and unpredictable,
rather than self-inflicted volatility from the way our planning
systems work. Forecast driven batch production inevitably leads to
continuous short term plan changes to respond to spikes and shortages
despite warehouses full of stock and to overtime and expedited
shipments. The costs of all this is in someone else's budget or in
overheads, but they are not in the plan.
This is however the tip of the iceberg, when you factor in lost
sales, discounted or obsolete stock, rework, inspection and the extra
capacity and stocks to meet demand spikes and supply failures. The
ideal supply chain is one in which lead times are as short as
possible, production is driven by actual demand and production is
capable of making every product as frequently as possible in line
with demand.
But how can you justify more frequent deliveries from your suppliers?
Probably only when you learn how to level your production and make
every product frequently. Then you will begin to see the savings
through your supply chain. It might then make sense to cooperate with
other firms to pull products from your suppliers on more frequent and
predictable shared deliveries.
On the other hand as on-line shopping grows regular deliveries to
homes will replace the most environmentally damaging trip of all -
consumers driving to pick up products from the store.
Lean thinking is not about zero inventories or the smallest trucks.
It is about developing a common steady rhythm across the supply chain
in line with demand, guarded from supply disruptions and real
fluctuations in demand by just the right amount of standard
inventories, possibly held off-line. Little and often is right
thinking despite being counterintuitive.
Yours sincerely
Daniel T Jones
Chairman, Lean Enterprise Academy
PS. I will be speaking about the true potential of little and often
through every supply chain at the invitation only Retail Supply Chain
Summit at Unipart in Oxford on April 27, at the ECR Sweden Conference
on March 19-20 and together with Ian Glenday and speakers from
Kimberley Clark and Kraft Foods at our Mini-Plenary session at the
ECR Europe Conference in Milan on May 10. We will outline the
practical steps to making one, shipping one and selling one in your
supply chain at our first one day Lean Supply Chain Forum in
Birmingham on June 5. Details of these and our regular public
workshops on creating flow in healthcare and manufacturing on March
28-30 can be found on our web site at http://www.leanuk.org.
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