Lean & TOC

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Definition and use of Lean & Theory of Constraints on improving operational excellence. A self test on are you really using Lean & Theory of Constraints the right way

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Lean & TOC

  1. 1. Advanced Manufacturing Consultancy Sdn. Bhd. Lean & Theory of Constraints Proven methodologies of increasing profitability JR Victor Sr.Consultant and Director, Advanced manufacturing Consultancy Sdn. Bhd. 1. Introduction Current industry trend demands manufacturers to keep reducing prices. Change in Demand is volatile and Time to Market & Time to Volume has become a key determining factor in keeping ahead of competition. Situation dictates that keeping ahead of competitors is not a prestige but a necessity for survival in the industry. To be ahead companies need to continuously reduce their operating expenses, improve Quality and adapt to ever changing Demand patterns. This has necessitated world class companies to focus on three key areas which are SPEED, FLEXIBILITY & PREDICTABILITY. Lean & Theory of Constraints are leading edge manufacturing methodologies which identify and eliminate Non-Value-Add activities in manufacturing environment in order to achieve Speed, Flexibility & Predictability. 2. Lean Manufacturing Lean Manufacturing was first used as a structured way of improving productivity in Toyota. Though not formally called Lean at Toyota the concepts and Tools used to solve problems were quite identical to Lean manufacturing as it is implemented by most companies today. Lean aims at improving flow in manufacturing environment. In order to do that hindrances to a smooth and short flow of parts are looked for and eliminated. These hindrances are called Waste. Lean categorises waste into 8 major groups: Excess Inventory Maintaining excess inventory of raw materials, parts in process, or finished goods Overproduction Producing more than is needed before it is needed Motion Any wasted motion to pick up parts or stack parts Transportation Wasted effort to transport materials, parts, or finished goods into or out of storage Waiting Material awaiting to be processed or to be transported Over processing Doing more work than is necessary Correction Repair or Rework Unutilized Human Resources Not using operators to their maximum ability The concept of Waste and improving flow starts with a focused view on what contributes to Value as determined by customer. Once Value is understood as whatever the customer is willing to pay for, then any activity, process or behaviour in the shop-floor that does not add value is considered as Waste. Using this thought process of eliminating waste in order to improve flow and do only what the customer considers as value has made many companies save millions of Dollars. Typical gains a company first embarking on Lean could be: 40% Reduction in Inventory 30% improvement in Cycle Time 4-5% improvement in Quality Reduced Rework rates up to 20% - 30% 30% savings in space 3. Theory of Constraints The theory of Constraints (TOC) is a highly effective process of ongoing improvement, always focusing all efforts towards the system’s goal. The theory was founded by the Israeli physicist, Dr.Eliyahu Goldratt in the early 70’s and made popular through his book, The Goal in the early 80’s. Manufacturing and business solutions towards increased profitability 2009 Advanced Manufacturing Consultancy Sdn. Bhd. All rights reserved
  2. 2. Advanced Manufacturing Consultancy Sdn. Bhd. TOC stresses that a system with a goal will always have a limitation or a constraint which prevents it from achieving higher results. Identifying this and focusing improvement efforts on the constraint gives a leverage point to achieve higher performances towards the goal. Dr. Goldratt has identified a 5 steps approach in TOC which will allow any business to do just that: 1. Identifying the system’s constraint 2. Decide how to exploiting the constraint 3. Subordinating everything else to the above decision 4. Elevate the constraint 5. Go back to step 1. But avoid inertia to cause a system constraint William Dettmer in his book ‘Breaking the Constraints to World-Class Performance’, describes TOC as “…the application of the scientific method to the challenges of managing complex organizations” TOC describes a system (a manufacturing organization is also a system) as being similar to chains or network of chains. Each chain has links differing in strength, size and capability. In any independent chain, there is one link that is weaker than the rest; this is the weakest link. The weakest link determines the maximum performance of the chain – it is the constraint to system performance (Fig.1). Applying the 5 steps approach as describes above, an organization is able to: 1. What out what is the weakest link to their performance 2. Focus improvement actions on the constraint 3. Use leverage force the constraint has on the system (it determines maximum performance of the system) to improve the system performance within a very short period of time Figure 1 This chain analogy can be seen in a manufacturing environment through the following example. In a production line where there are several resources through which raw material flows through, not all resource can produce a part at the same speed or volume at any given time. The capacity, like the link in the chain varies in size, strength and reliability. There will be one resource or station which will form the weakest link- this will be the constraint of the production line Companies who have moved into TOC have significant improvement seen within a period of anywhere between one month to about 3 months. The typical improvements are: 70% reduction in Inventory (using TOC Drum Buffer Rope Material management Methods) 30% increase in bottleneck machine performance without adding capital (within about 2 weeks) 40% more tools completed at Tool Rooms On-Time-Delivery improved from 65% to 98% within 3 months Capital avoidance amounting to millions of Dollars 3. Lean & Theory of Constraints Lean and Theory of constraint has become proven methodologies in many factories who have become World Class in standard. While companies have been using problem solving techniques and continuous improvement programs for many years these two methodologies put those improvement programs in a structured and orderly manner so that results are seen much faster. Results are also able to be linked to bottom line profitability. This is because these methodologies continuously help the companies to focus on two underlying factors which are critical in business: 1. Lean’s Customer Focused approach (by channeling efforts towards reducing all waste which does not add value from customer’s point of view) 2. TOC’s focus Constraints/bottleneck (constraints are the limiting factor in any organization from making more profits) Manufacturing and business solutions towards increased profitability 2009 Advanced Manufacturing Consultancy Sdn. Bhd. All rights reserved
  3. 3. Advanced Manufacturing Consultancy Sdn. Bhd. While helping companies to focus on efforts which matter most where it matters most these methodologies also generally suggest solutions which do not cost much to implement. In short they propose ‘Low Cost, No Cost’ solutions in early stages of Lean implementation. This enables companies to save a lot in investments on improvement projects. In our experience we have seen companies saving up to Millions of Dollars as Quick-Win gains within the first year of Lean implementation. This gives companies an advantage to use savings to improve on more serious plans such as automation, R & D, market expansion etc. The other major benefit of Lean and Toc is that, if implemented in the right way, there is a set of Right Performance Measurements which ensure continuity of progress and also sustainability of improvements. 4. Are you Lean? In today’s industrial world most companies claim that they are into Lean in some way. It could be formal or informal use of Lean concepts. Some basic questions need to be answered: 1. Do you plot and manage a value stream map? 2. Do your continuous improvement programs have a real impact on bottom line financial results? 3. Is your first solution to increasing production volume, buying more machines? 4. Are your constraints well identified? 5. Are you exposed to a measurement called product velocity ratio? (Ratio between value added process time and total process time) If you answered ‘NO’ to more than 2 questions, you may be not Lean or may be not using the right Lean and TOC approach. Lean and TOC are powerful tools of increasing profitability. Its right use with the right knowledge will improve Speed - addressing Time to Market & Time to Volume problems. It improves Flexibility – able to change to different customer requirements with a very short period of time. It improves Predictability – Quality, On-Time- Delivery and Customer satisfaction is improved Advanced manufacturing Consultancy Sdn. Bhd. is a consultancy firm specializing in: • Consulting and Training in Theory of Constraints • Consulting and Training in Lean Manufacturing • Lean Sigma development • Certification programs in Lean & LEANSIGMA • LeanSigma for Operational Cost Reduction in Service, Healthcare & Manufacturing Industries • Factory audits and assessments Website: www.amc-sb.com Email: mailto:enquiries@amc-sb.com Fax: +605-526 1090 Manufacturing and business solutions towards increased profitability 2009 Advanced Manufacturing Consultancy Sdn. Bhd. All rights reserved