From Supply Chains to Value Streams

Fifteen years ago I first began to study lean supply chains, by observing Toyota’s inbound parts supply chain and later their aftermarket parts distribution system. This was the beginning of a fascinating journey with Unipart, Tesco and many other firms, during which we learnt a great deal about assembling all the elements that transform a supply chain into a value stream that flows towards the consumer in line with demand. 

It is very encouraging that interest in lean supply chains is growing again. Many manufacturers are now ready to extend their lean efforts to their suppliers. Leading retailers are also challenging their suppliers to produce and ship in line with their lean distribution systems. As lean takes root in healthcare delivery organizations their suppliers will also come under similar pressures. Despite their differences, the issues to be addressed in turning their supply chains into value streams are very similar. Here is my list of six questions that need to be addressed in any supply chain.

First ask why, if it only takes minutes of value creating time to make a product and only a few days to ship it to consumers, are our supply chains typically several months (or even years) long? Even if we add a few days buffer stock to cope with real variations in demand from end consumers the gap is still huge – a few days compared with several months. You only need to walk and then map your supply chain from end-to-end to see the scale of the opportunity. 

Second, ask what can be done to close the gap between the use of the product and when and how it is ordered or purchased? For example, we have been staggered to see the amount of supplies hidden away in cupboards in every hospital ward – literally thousands of pounds worth - all because of the rather chaotic reordering and unreliable and infrequent delivery from central stores. This is not only extremely wasteful but means reorder signals sent to suppliers bear very little relationship to actual use in the ward or theatre. The closer the order signal is to actual use the less volatility is passed upstream and the smaller the buffer stock required to guarantee availability.

Third, ask what can be done to increase the frequency of production or delivery at every point down the chain? Picking up just the right amount of products from several suppliers on milk rounds rather than waiting for several days for suppliers to send you a full truck means you need to carry less cycle stock. It also levels the workload, improves the accuracy of picking and delivery and results in much better truck utilization. 

Fourth, ask how to synchronize the rate of production with the pattern of demand? In our experience this begins with digging behind the point optimization, the short-term plan changes and the fire-fighting to discover the underlying stability in our order and product flows. Then it involves establishing a common rhythm to make and to ship Every Product Every Cycle (EPEC). Then it involves using the lean tools to speed up the cycle from roughly every month to exactly every week and ultimately to making and shipping every product required by consumers every day. And finally, it involves linking every step in a dramatically compressed flow that responds quickly and accurately to demand. As a result you need to carry less safety stock at each point down the value stream.

Fifth, ask what are the win-win gains that will encourage partners to work together that can only be achieved through collaboration – both between functions and between firms? The biggest win-win is often smoother order signals in return for closer synchronization of production with demand. 

Sixth, ask who is going to be the architect of this end-to-end value stream redesign? Who is going to put all the pieces of the value stream together?  Who will take the tough decisions about the appropriate division of labour, the right degree of risk-sharing and the correct location of suppliers to enable the value stream to flow? 

Being able to respond quickly and exactly to local customers is a critical competitive advantage for all kinds of manufacturers in advanced economies. It is interesting that this responsiveness is achieved by focusing on stability and time compression, rather than flexibility and fire-fighting. And it ends up costing less rather than more!

Turning supply chains into value streams does not happen overnight. It takes time and requires a clear overall vision of where you are going and an understanding of the most effective sequence of actions to get there. 

To help plan your lean supply chain journey we decided to bring our knowledge and experiences together for the first time at our first Lean Supply Chain Forum. This will take place in Birmingham one month from now on June 5th.

Those booking early will also be able to join us to visit one of the best lean warehouses at Unipart in Bagington, near Coventry, the day before, followed by dinner. We look forward to seeing many of you there.   

Yours sincerely
Professor Daniel T Jones

Making Healthcare Lean

A conference like no other you have attended. For the first time those involved in taking lean into healthcare across the world are coming together to brainstorm what a lean future for healthcare will look like. The fact that almost every one of the experts I invited immediately said they were enthusiastic to come, tells me that The First Global Lean Healthcare Summit on 25-26 June is timely (http://www.leanuk.org/pages/lean_summit.htm). It also gave me a challenging juggling act to fit them all into the programme.

In my experience the early wins from creating flow through value streams in hospitals will not be sustained unless we go further to build the right kind of leadership and management systems to manage what are collections of processes that need careful synchronisation, and the right kind of support from supply chain partners.

For the first time we are bringing the whole industry together - connecting pioneering lean stories in hospitals with similar stories from the supply industry feeding the healthcare system. Enriched by insights into leading lean transformations in two of the best lean examples in the UK, Unipart in distribution and Tesco in retailing.

This is not an awareness raising conference, but a chance for those really interested in lean healthcare to join a serious and structured brainstorming and vision sharing exercise. This will begin with briefing papers ahead of the conference and a summary of the discussions afterwards. Our objective is that every delegate will go away from the Summit with their own action plan and vision.

The best way to gain most from this very rich material is to bring a group of colleagues with you, who can continue to implement lean together after the Summit. For this reason we are offering groups a discount - bring five and only pay for four, bring ten and only pay for eight etc.

Attending The First Global Lean Healthcare Summit will probably be the best investment you will make in your lean journeys this year. We look forward to seeing you in June. If you have any further questions do not hesitate to contact us at LEA.

Best wishes
Professor Daniel T Jones 

P.S. LEA has taken this initiative on behalf of our Lean Global Network of 12 lean institutes across the world. Interest in lean healthcare is now global and it will be a truely global summit. Please alert anyone you know who might be interested in coming.

Crossing the Lean Threshold

Lean transformations are increasingly bumping up against a common threshold. We may be very familiar with most of the lean tools. We may also have learnt to see our value streams and how to redesign them, at least within our own organisations, which is a big step forward. But until recently we have had less clarity about what lean management and lean leadership really looks and feels like. 

 

It is therefore not surprising that while management is often keen to encourage lean campaigns to eliminate waste and to create flow, they often balk at the point when it becomes necessary for them to fundamentally change the way they run the business. Once this threshold is reached however employees quickly spot that they are being asked to change the way they work while management continues as before. The inevitable result is that the campaign loses stem, momentum is lost and those determined to do lean begin to jump ship for leaner challenges elsewhere.  

 

In my experience the only way to really understand how lean managers successfully lead a continuing and deepening transformation is by watching them at work and by getting them to reflect on what they are doing and why. It is not something you can learn from theory or in the abstract, but only from practice. And there are still only a very few places where you can see it. The most obvious example and the unique strength underlying the lean movement is of course Toyota. Another example in the UK is Unipart. 

 

Fortunately a growing number of senior ex Toyota managers like John Shook, who have also spent some time in traditional organisations, are now beginning to reflect on their experiences. Recent books like Satoshi Hino’s Inside the Mind of Toyota and Pascal Dennis’s Getting the Right Things Done also throw a great deal of light on the subject. Once again we are trying to describe an interlocked set of thoughts, mental models and practices that fit together into a new management system. This is my attempt to begin to summarise them. 

 

• All value is the result of a value stream. Every value stream needs a manager with a future state plan. They need to convince the functions and  top management to give them the resources to achieve their plan. Key tools for this are the value stream map and the A3 plan. 
• The strategic direction of the business needs to be clear and visible to everyone – as the driver for a policy management process to align planning and problem solving activities throughout the organisation. Top management must also take responsibility for reducing overburden and unnecessary variation so that value streams can flow quickly in line with demand. 
• Brilliant results come from managing today’s process, not from juggling metrics of past performance. Good visual management should enable everyone to very quickly grasp the current progress of every value stream. Management must frequently “go and see” whether the plan is being met and what help is needed to do so, rather than fight fires. 
• Every value stream, however lean, will be always be subject to changes and interruptions. The problems revealed by these interruptions point to the opportunities for improvement and should be made as visible as possible. Responsibility for tracking the root causes and solving these problems, using the scientific method, should be given to those close to the problem itself. 
• The most important task of a lean leaders at every level in the organisation is to develop the capabilities of their people, in particular deepening their knowledge of their value streams and the process of solving problems to improve it. The most effective way to do this is by asking the right questions, rather than giving instructions and answers. This however is just the beginning.

 

All these elements knit together to build an organisation that is continually learning, improving and adapting to changing circumstances. What makes lean so powerful is that it is much more than a set of tools or even a set of principles for redesigning value streams. It is about fundamentally changing the way we manage and work together at every level in the business. The challenge is to learn to act ourselves into this new way of managing. 

Best wishes

Professor Daniel T Jones

 

Little and Often

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
Professor Daniel T Jones

Wasting Customers Time

Have you ever thought of sending an invoice to companies you have bought things from, for the amount of your time they caused you to waste trying to get their product or service to work properly? If you were to add up all this wasted time over the year and change it at your daily rate you would be owed a considerable sum! More important if many people began to do this it might prompt these providers to fundamentally rethink how they design their products and how they serve their customers. 

Think also what you would do if your customers started doing this to you, particularly if you could see that their wasted time is mirrored in wasted time (and hence additional unnecessary cost) in your organisation. In most cases we simply can not see this potential win-win opportunity, preferring a quick and cheaper (possibly outsourced) fix we can forget about. Which is fine until your competitor sees how to turn this opportunity to their advantage. 

Two very simple examples illustrate the point, but I am sure you can think of many others that you have experienced recently. First, try changing the name on a business bank account. This sounds incredibly simple. But after receiving three letters followed by four new but unusable cheque and paying-in books all with the right name on the cover and the wrong name on the cheques and you wonder whether this organisation can really be trusted to look after your money! 

Almost certainly this is the result of a broken process rather than incompetent staff. Try to fix the problem in person the next time you visit the local branch and all they can suggest is that you waste even more of your time (and money) by sending the whole lot back with a letter of complaint! You can bet that no one is going to find the root cause of this probably often repeated error so that it stops happening. 

This is not surprising when you realise that the right first time on time capability of most office processes as opposed to production processes is incredibly low, often between 10 and 30%. Yet this kind of problem happens all the time within and between businesses. How much of your and your customers’ and your suppliers’ time is spent on invoice reconciliation? 

Second, the delight in getting a new PDA with all the latest functionality turns sour when you give up after two frustrating hours trying to get the software to synchronise with your other computers. You feel a bit better when the technical expert you call in (and pay for) takes a further three hours before finally getting it to work. Although it often feels like it, I am sure I am not alone in suffering these problems. 

Which is staggering, when you think how many thousands of unnecessary hours must be being wasted installing the thousands of PDAs and other devices being sold every week. The problem here is that the feedback loop from the installation problem back to the designers does not work. Each expert tries to fix the problem and move on, carrying their knowledge with them till they come across this problem again. We have all experienced help lines that don’t help. In many cases they are not even part of the problem solving loop back to product development. 

Just as you can tell a great deal about an organisation and its management by observing what goes on the shop floor, you can also learn a great deal about how they think about their customers from observing the detail of your experience of using them. As customers we know there is little we can do to fix these problems apart from complaining. So we learn to quickly forget all the problems we encounter as we get on with managing our lives. 

However for an organisation seeking to improve customer service and at the same time reduce its cost to serve this information is gold dust. Just think what you could do if you could get direct feedback from every problem from every customer. You could turn each of their problems into a Kaizen opportunity in your organisation. 

Yours sincerely
Professor Daniel T Jones

Asking Questions

It is always refreshing going to the gemba – actually walking a value stream all the way through an organization. This is where I learn to collect the questions to think about next. There is no doubt in my mind that all managers should walk their value streams as frequently as possible. By asking the right questions you can quickly discover almost all the things that need to be done. And because everything ends up on the shop floor it also reveals a lot about how management actually thinks. After all the shop floor is a reflection of management!

In one company making good progress with lean, an operator was showing me his daily production instructions. We discussed the problems that were holding him up that day. I then asked how often he was able to complete his daily plan. Without hesitation he replied - never! So what do they do then? They just change tomorrow’s plan! This was very revealing to the senior manager accompanying me, who was the proud architect of the central planning system that was “optimising” production in each operation in each of their plants. This prompted a very interesting discussion when we met the management team later that day. 

In another company I followed a top manager on a whirlwind tour to rally the troops. Accompanied by an army of staff he offered the shop floor team all the assistance they needed to accomplish their work, before he ran off to his next appointment. They looked baffled, because it was clear no one had told him they did not actually have enough work to do – the problem lay elsewhere. They were held up waiting for engineering drawings to arrive and for suppliers to deliver the right parts. Other departments were responsible for sorting out these problems.  

In truth these events could have happened in most of our organizations, and not just in manufacturing. The reality is that as soon you begin asking the five whys across departments the trail goes cold. Because no one is responsible for the value stream as it flows through the organization. Once someone is appointed to be the value stream manager the first thing they need to do is to ask lots of questions. 

One place to start asking questions is with planning or scheduling. Most planners were trained on simulations which assume that if only the world would behave according to the plan things would work out as they should do. To them improving the plan is all about collecting more data, improving data accuracy, getting better forecasts etc. When problems occur they find it difficult to acknowledge the extra volatility their frequent changes to the plan create – which usually make the situation worse and not better.

Toyota starts from a completely different assumption. They assume that even the best processes will continually be subject to frequent interruptions. So they pay a lot of attention to tracking progress in real time and to designing lean response processes to get back on track as quickly as possible – so plans are actually met every day! They also take responsibility for actively leveling and filtering out the noise in orders being passed to operations, in order to create as much stability for them as possible.

And they then go to work on the problems – using the common scientific approach to problem solving through root cause analysis and experimentation, which every manager and engineer learns from the day they join the company. So the second place to ask questions is in operations itself. What are the most frequent causes of interruption in the value stream and is there a problem solving capability ready to solve them? It is staggering how much attention Toyota continues to place on problem solving and on improving the basic stability (right first time on time capability and equipment availability) in every activity.

The third place to ask questions is in the other functions like purchasing, marketing and sales, human resources and engineering. For instance I continue to be amazed how many firms are reluctant to take full responsibility for reconfiguring their supply base and synchronising the operations of their suppliers with their own. Almost certainly they have too many suppliers, who are usually too far away to respond quickly enough. Compressing their end-to-end value streams could remove layers of cost while also minimising its impact on the environment. 

Likewise I am also surprised how many firms are reluctant to challenge their existing distribution channels. Some firms are learning that selling direct to end customers through the web generates additional sales, rather than cannibalising existing channels. They are also learning that listening to customers can show how to eliminate unnecessary costs while improving customer service. Once you begin a win-win dialogue with customers who you know by name the opportunities for improvement are endless. Just watch what happens when Tesco surprises the world with it launches its new convenience retailing format in California early next year.

So the question to think about is who is asking the right questions about how to improve each value stream in your organization? 

I wish you a relaxing Christmas break.

Yours sincerely

Professor Daniel T Jones

Changing Reasons for Going Lean

Two questions from very different perspectives illustrate how the reasons for going lean are changing. First from Denmark, where a few years ago they were very worried about losing manufacturing jobs to low wage countries to the east. Since then Dansk Industri, the national industry association has run one of the most successful campaigns I have seen to encourage their members to go lean. As a result they are not just retaining manufacturing jobs in Denmark, but they are also running out of people to fill manufacturing jobs! At the same time they liberalised their labour market and unemployment is now very low, even amongst young people.

So their question was “how can we use lean to enable our existing employees to produce two or three times as much in the future?” As population ages and declines in many European countries, as well as in Russia and Japan, this question will be asked more frequently. We are going to need to find ways to produce the goods and deliver the services with less people, or to increase immigration. To achieve this means going beyond streamlining today’s processes and fundamentally redesigning tomorrow’s products, production processes and supply chains.

The second question was from a group of very senior managers from China. They are very enthusiastic to embrace lean, and could see how lean can help make locally produced goods more affordable to local consumers. But they realise that to meet the growing economic aspirations of their citizens they will have to do so in ways that require fewer resources and that create less environmental pollution and greenhouse gasses. So they were interested in “how can they use lean to save resources and avoid pollution?” In other words, how can lean help us also become green?

Lean thinkers are used to tracking the time and effort as a product moves through an organisation and to distinguishing the few minutes it takes to create the value customers are paying for from the month or more that it spends in the organisation. Compressing throughput time from several months to a few days clearly requires far less space and energy. It almost certainly also uses less materials and produces less scrap and obsolescent stock. The ability to produce in line with demand also reduces the inventories (and hence storage space and energy costs) in the pipeline all the way to the end consumer.

But the really significant gains come from compressing supply chains by relocating value creating steps closer together, and where possible also closer to customers. Most organisations are unaware that their products take between three months to a year or more to travel through their current supply chains, often going back and forth across the globe before reaching the customer. Although current wage cost differentials and low transport costs encourage this trend, if we look at total supply chain costs much of this does not make economic sense, as we described in Lean Solutions.

If we also start tracking the energy and emissions from all the processing, storage and transportation steps across supply chains and convert them into units of CO2 per product we will also be able to see the environmental footprint of each end-to-end supply chain, We know from earlier work that the most polluting part of the supply chain for consumer goods is the trip to the supermarket and then storing the goods in our refrigerators and freezers at home until we eat them. But it also shows the choices we will increasingly have to make between for instance air freighting more and more products across the world or enabling people to fly across the world.

Beyond this the next step is to fundamentally rethink the product. A few weeks ago, tucked away inside the Financial Times I noticed a very interesting quote from the R&D Director of Toyota. He announced that their third generation hybrid engine to be launched in three years time would be “half, the size, half the weight and half the cost” of the current generation engine in the Prius. With characteristic understatement he said he thought a lot of people “might be quite surprised at this”.

They should not have been – Toyota began their green technology quest back in 1990 when Eiji Toyoda, the post war genius who built the post war Toyota, questioned whether it was a good idea for Toyota to keep making cars with conventional technology. At each stage Toyota has clearly announced their green intentions in their Annual Report – which everyone ignores - and then fulfilled them! Will the next generation diesel engine make such a dramatic leap in resource use and cost? What preparations are your organisations making to meet the green challenges of the future?

Yours sincerely
Professor Daniel T Jones