Lean Manufacturing

Overview

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 Outline

1. Lean Manufacturing
2. 5S & Visual Controls
3. Kaizen
4. Value Streams
5. Pull Manufacturing
6. Mistake Proofing
7. Quick Changeover
8. Six Sigma
9. Lean Accounting
10. Theory of Constraints
11. Human Factors

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Lean Manufacturing

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 Definitions

◼ Value - A capability provided to a customer at the right

time at an appropriate price, as defined in each case by the
customer. Features of the product or service, availability,
cost and performance are dimensions of value.

◼ Waste - Any activity that consumes resources but creates

no value (waste).

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 What is Lean?

◼ Lean production focuses on eliminating waste in processes

(i.e. the waste of work in progress and finished good
inventories)
◼ Lean production is not about eliminating people
◼ Lean production is about expanding capacity by reducing
costs and shortening cycle times between order and ship
date
◼ Lean is about understanding what is important to the
customer

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 Thinking Lean

◼ Specify value
◼ can only be defined by the ultimate customer
◼ Identify the value stream
◼ exposes the enormous amounts of waste

◼ Create flow
◼ reduce batch size and WIP

◼ Let the customer pull product through the value stream

◼ make only what the customer has ordered

◼ Seek perfection
◼ continuously improve quality and eliminate waste

From Lean Thinking by Womack and Jones

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 Benefits

◼ Lean provides tangible benefits

◼ Reduces costs not just selling price
◼ Reduces delivery time, cycle time, set-up time

◼ Eliminates waste

◼ Seeks continuous improvement

◼ Improves quality
◼ Improves customer ratings and perceptions
◼ Increases overall customer satisfaction
◼ Improves employee involvement, morale, and company
culture
◼ Helps “transform” manufacturers

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 Toyota Production System (TPS)

◼ Quality, Cost, Delivery

◼ Shorten Production Flow by Eliminating Waste
◼ Just In Time
◼ The Right Part at the Right Time in the Right Amount
◼ Continuous Flow
◼ Pull Systems
◼ Level Production
◼ Built-In Quality
◼ Error Proofing – Poka Yoke
◼ Visual Controls
◼ Operational Stability
◼ Standardized Work
◼ Robust Products & Processes
◼ Total Productive Maintenance
◼ Supplier Involvement 8
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 Types of Waste

◼ Overproduction
◼ Excess inventory
◼ Defects
◼ Non-value added processing
◼ Waiting
◼ Underutilized people
◼ Excess motion
◼ Transportation

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 Lean vs. Traditional Manufacturing

◼ Half the hours of engineering effort

◼ Half the product development time
◼ Half the investment in machinery, tools and equipment
◼ Half the hours of human effort in the factory
◼ Half the defects in the finished product
◼ Half the factory space for the same output
◼ A tenth or less of in-process inventories

Source: The Machine that Changed the World, Womack, Jones, and Roos, 1990.

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 Lean vs. Traditional Manufacturing

◼ 99.9% Customer Schedule Attainment

◼ Defects of 15 PPM or less
◼ 4-6 Inventory Days of Supply
◼ 92%+ Operational Availability
◼ Leveled, Sequenced Production
◼ Order to Customer Use - Hours, not weeks
◼ Functioning Supplier Partnership
◼ Strong Production Control Function

Examples: Tier 1 Suppliers: Johnson Controls Seating, Litens Automotive Partnership,

Cadimex, Denso Manufacturing, Toyota Motor Corporation.

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 Barriers to Lean

◼ Implementing Lean Can Be Difficult Because it is

Counterintuitive from a Traditional Paradigm:
◼ Buying multiple small machines rather than one big
machine that offers economies of scale.
◼ Shutting down equipment when maximum inventory
levels are reached rather than running flat out.
◼ Using standards to continuously improve.

◼ There is no step-by-step cook book

◼ There are some basic steps but the how-to varies from
organization to organization
◼ Requires an assessment of the company in order to map
out the strategy
◼ Company culture plays a big part in the how-to

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 Implementing Lean

◼ Gain top Management “Buy In” and Support

◼ Perform overall company assessment tied to company
strategic, operational, and marketing plans
◼ Develop strategic lean deployment plan
◼ Integrate customized training with lean to improve specific
skill sets, leverage training resources
◼ Team Building, Communications, Problem Solving, Change
Management, Lean Manufacturing Tools
◼ Conduct “Kaizen blitz” high impact events
◼ 5S, Manufacturing Cell, Set-Up Reductions, Inventory
Reductions, Work Standardization
◼ Use an enterprise wide approach to help “Transform” a
client’s culture and the way they do business.

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 Progress Toward Lean

◼ Smaller lot sizes

◼ Increased capacity / throughput
◼ Higher inventory turns
◼ More available floor space
◼ Improved workplace organization
◼ Improved quality : reduced scrap / re-work
◼ Reduced inventories : raw, WIP, FG
◼ Reduced lead times
◼ Greater gross margin
◼ Improved participation & morale

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 Lean Is A Journey

◼ The Journey never ends

◼ Toyota estimates it is only 50% waste-free

◼ Where can we begin? Where can we improve?

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5S & Visual Control

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 5S and Visual Control

◼ 5 Elements of 5S
◼ Why 5S?
◼ Waste
◼ Workplace observation
◼ Sort
◼ Straighten
◼ Shine
◼ Standardize
◼ Sustain
◼ Visual Factory

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 5 Elements of 5S

◼ Sort
◼ Straighten
◼ Shine
◼ Standardize
◼ Sustain

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 Why 5S?

• To eliminate the wastes that result from “uncontrolled” processes.

• To gain control on equipment, material & inventory placement and position.
• Apply Control Techniques to Eliminate Erosion of Improvements.
• Standardize Improvements for Maintenance of Critical Process Parameters.

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 Types of Waste

◼ Overproduction
◼ Delays (waiting)
◼ Transportation
◼ Process
◼ Inventories
◼ Motions
◼ Defective Products
◼ Untapped Resources
◼ Misused Resources

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 Elimination of Waste

5 S Element Waste/ Improvement Item Deliverable

Systematic Organization Elimination of finding. Reduced Costs
Reduction of part selection errors. Improved Quality
Increased Product Options

Sorting-Visual Elimination of finding. Reduced Costs

Placement Elimination of nonconformances. Increased Safety
Elimination of motion. Improved Quality
Reduction of part selection errors. Increased Product Options.

Scrubbing Clean Increased safety. Increased Safety

Preventive maintenance. Improved Quality
Increased equipment knowledge.

Standardization Control Increased equipment life. Improved Quality

Higher morale. Consistent Delivery
Clean environment. Improved Safety
Increased visibility of nonconformances.

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 Waste Identification

◼ What waste can be identified in the following photos?

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 After 5S

◼ Clear, shiny aisles

◼ Color-coded areas
◼ Slogans & banners
◼ No work in process

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 Workplace Observation

◼ Clearly define target area

◼ Identify purpose and function of target area

◼ Develop area map

◼ Show material, people, equipment flow

◼ Perform scan diagnostic

◼ Photograph problem areas

◼ Develop a project display board (area)

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 Sort

◼ When in doubt, move it out

◼ Prepare red tags
◼ Attach red tags to unneeded items
◼ Remove red-tagged items to “dinosaur burial ground”
◼ Evaluate / disposition of red-tagged items

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 Straighten

◼ Make it obvious where things belong

◼ Lines
◼ Divider lines
◼ Outlines
◼ Limit lines (height, minimum/maximum)
◼ Arrows show direction
◼ Labels
◼ Color coding
◼ Item location
◼ Signs
◼ Equipment related information
◼ Show location, type, quantity, etc.

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 Shine

◼ Clean everything, inside and out

◼ Inspect through cleaning
◼ Prevent dirt, and contamination from reoccurring

◼ Results in
◼ Fewer breakdowns
◼ Greater safety
◼ Product quality
◼ More satisfying work environment

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 Standardize

◼ Establish guidelines for the team 5-S conditions

◼ Make the standards and 5-S guidelines visual

◼ Maintain and monitor those conditions

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 Sustain

Determine the methods your team will use to

maintain adherence to the standards

◼ 5-S concept training

◼ 5-S communication board
◼ Before and after photos
◼ One point lesson
◼ Visual standards and procedures
◼ Daily 5-minute 5-S activities
◼ Weekly 5-S application

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 Visual Factory Implementation

◼ Develop a map identifying the “access ways”(aisles,

entrances, walkways etc.) and the “action” areas.
◼ Perform any necessary realignment of walkways, aisles,
entrances.
◼ Assign an address to each of the major action areas.
◼ Mark off the walkways, aisles & entrances from the action
areas
◼ Apply flow-direction arrows to aisles & walkways
◼ Perform any necessary realignment of action areas.
◼ Mark-off the inventory locations
◼ Mark-off equipment/machine locations
◼ Mark-off storage locations (cabinets, shelves, tables)
◼ Color-code the floors and respective action areas

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Kaizen

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 What is Kaizen?

◼ Kaizen (Ky’zen)
◼ “Kai” means “change”
◼ “zen” means “good (for the better)”
◼ Gradual, orderly, and continuous improvement
◼ Ongoing improvement involving everyone

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 How to Kaizen

◼ Identify the customer

◼ Deming Cycle
◼ Plan – identify what to change and how to do it
◼ Current state
◼ Future state
◼ Implementation plan
◼ Do – execute the improvement
◼ Check – ensure the improvement works
◼ Act – future and ongoing improvements
◼ Repeat

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 Identify the Customer

◼ Value added is always determined from the customer’s

perspective.
◼ Who is the customer?
◼ Every process should be focused on adding value to the
customer.
◼ Anything that does not add value is waste.
◼ Some non-valued added activity is necessary waste (“NVA-
R”)
◼ Regulatory

◼ Legal

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 Types of Waste

◼ Overproduction
◼ Excess inventory
◼ Defects
◼ Non-value added processing
◼ Waiting
◼ Underutilized people
◼ Excess motion
◼ Transportation

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 Identify the Current State

◼ Crucial first step in process improvement

◼ Deep understanding of the existing processes and
dependencies
◼ Identify all the activities currently involved in developing a
new product
◼ Observe the process first hand
◼ Identify Value Added (VA), Non-Value Added Required
(NVA-R), and Non-Value Added (NVA)
◼ Generally creates more questions than answers

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 Brainstorm and Analyze

◼ Kaizen team brainstorming to develop new process

◼ Post improvement ideas on map or by category
◼ Workflow

◼ Technology

◼ People / Organization

◼ Procedures

◼ Develop detailed future state map

◼ New workflow

◼ Value Add and Non-Value Add

◼ Cycle times

◼ Identify Kaizen “bursts” (immediate radical change)

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 Implementation Plan

◼ Think global / systems optimization

◼ Maximum impact to process
◼ Speed of implementation – create small victories
◼ Cost-benefit analysis

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 Execute

◼ Develop a concise, achievable milestone plan

◼ Communicate the plan to everyone
◼ Suppliers

◼ Team members

◼ Customers

◼ Track activities in public

◼ Celebrate small victories and publicly analyze failures

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 Check and Sustain

◼ Meet regularly (weekly?) to review status of open

implementation items
◼ Re-evaluate Future State regularly (quarterly?) for
additional improvement
◼ Track results on a public Kaizen Board

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 Kaizen Blitz

◼ Total focus on a defined process to create radical

improvement in a short period of time
◼ Dramatic improvements in productivity, quality, delivery,
lead-time, set-up time, space utilization, work in process,
workplace organization
◼ Typically five days (one week) long

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 Kaizen Blitz - Agenda

◼ Day 1: Setting the scene

◼ Meet the team, training
◼ Day 2: Observe the current process
◼ Flowchart, identify waste, identify root causes

◼ Day 3: Develop the future state process

◼ Brainstorm and flowchart (typically the longest day!)

◼ Day 4: Implement the new process

◼ Plan, communicate, implement, modify

◼ Day 5: Report and analyze

◼ Performance vs expectations

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 Roadblocks

◼ Too busy to study it

◼ A good idea but the timing is premature
◼ Not in the budget
◼ Theory is different from practice
◼ Isn’t there something else for you to do?
◼ Doesn’t match corporate policy
◼ Not our business – let someone else analyze it
◼ It’s not improvement – it’s common sense
◼ I know the result even if we don’t do it
◼ Fear of accountability
◼ Isn’t there an even better way?

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Value Streams

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 Outline

◼ What are Value Streams?

◼ Identifying the Value Streams
◼ Value Stream Mapping
◼ The Current State
◼ The Future State
◼ Implementing Change
◼ Roadblocks

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 What Are Value Streams?

A Value Stream is the set of all actions (both value added

and non value added) required to bring a specific product
or service from raw material through to the customer.

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 Types of Value Streams

•“Whenever there is a product (or service) for a customer,

• there is a value stream. The challenge lies in seeing it.”
• 3 enterprise value streams:
◼ Raw Materials to Customer - Manufacturing
◼ Concept to Launch - Engineering
◼ Order to Cash - Administrative Functions

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 Identifying the Value Stream

◼ The starting point is to learn to distinguish value creation

from waste in your whole value stream
◼ By putting on waste glasses!
◼ By choosing a product family
◼ By assembling the team and taking a walk together up the
value stream
◼ And drawing a map of what you find!

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 Value Stream Mapping

◼ Helps you visualize more than the single process level

◼ Links the material and information flows
◼ Provides a common language
◼ Provides a blueprint for implementation
◼ More useful than quantitative tools
◼ Ties together lean concepts and techniques

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 Value Stream Mapping

• Follow a “product” or “service” from beginning to end,

and draw a visual representation of every process in the
material & information flow.
• Then, draw (using icons) a “future state” map of how
value should flow.

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 The Current State
Typical Steps to Complete a Current State Drawing

◼ Document customer information

◼ Complete a quick walk through to identify the main
processes (i.e., how many process boxes)
◼ Fill in data boxes, draw inventory triangles, and count
inventory
◼ Document supplier information
◼ Establish information flow: how does each process know
what to make next?
◼ Identify where material is being pushed
◼ Quantify production lead time vs. processing time

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 The Current State

◼ Where and how large are the inventories in the physical

flow?

Hint: Carefully distinguish buffer stocks, safety stocks, and

shipping stocks. Then determine “standard inventory” for
current system design and capabilities.

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 The Current State

◼ How reliable is each transport link (on-time delivery

percentage) and how many expediting trips per year are
needed?

Note: By multiplying quality data from by on-time delivery

data you can calculate the “fulfillment level” each facility as
perceived by the next downstream customer. The is a key
measure from a total value stream perspective.

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 The Current State

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 The Current State

◼ Typical Results
◼ 80 – 90% of total steps are waste from standpoint of
end customer.
◼ 99.9% of throughput time is wasted time.
◼ Demand becomes more and more erratic as it moves
upstream, imposing major inventory, capacity, and
management costs at every level.
◼ Quality becomes worse and worse as we move upstream,
imposing major costs downstream.
◼ Most managers and many production associates expend
the majority of their efforts on hand-offs, work-arounds,
and logistical complexity.

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 The Future State

◼Completed in a day with the same team

◼Focused on:
◼ Creating a flexible, reactive system that quickly adapts to
changing customer needs
◼ Eliminating waste
◼ Creating flow
◼ Producing on demand

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 The Future State

◼ Activities aligned with our business strategy

◼ Efforts focused on NET improvements for the company
◼ Metrics supportive of fundamental change

◼ Simple, constant communication of our plans and

achievements as an enterprise

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 The Future State

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 Implementing Change

Don’t Wait!
You need a plan!
• Tie it to your business objectives.
• Make a VS Plan: What to do by when.
• Establish an appropriate review frequency.

• Conduct VS Reviews walking the flow.

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 Implementing Change

◼Critical Success Factors

◼ Management must understand, embrace, and lead the
organization into lean thinking
◼ Value stream managers must be empowered and
enabled to manage implementations
◼ Improvements must be planned in detail with the
cross functional Kaizen teams
◼ Successes must be translated to the bottom line
and/or market share

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 Implementing Change

Each Value Stream needs a Value Stream Manager

Process 1 Process 2 Process 3

“Customer”

Kaizen

The conductor of implementation:

•Focused on system wins
•Reports to the top dog
The Value
Stream Manager

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 Implementing Change

Typical Results
◼ Throughput time falls from 44 days to 6 (87%)
◼ Wasted steps fall from 65 to 27 (60%)

◼ Transport distance falls from 5300 miles to 1100 miles

◼ Demand amplification is reduced from 20% to 5%

◼ Inventories shrink by 90% percent

◼ Defects are reduced to the same rate at the start of the

process as at the end
◼ Throughput time shrinks to within customer wait time,
meaning all production is to confirmed order

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 Roadblocks

◼ 75 years of bad habits

◼ Financial focus with limited cost understanding
◼ A lack of system thinking and incentives
◼ Metrics supporting a 75 year old model
◼ Limited customer focus
◼ Absence of effective operating strategies

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 Roadblocks

◼ Traditional approaches do not focus on the value stream

◼ Create “perfect competition” at the next level of supply
upstream, by attracting many bidders.
◼ Improve bargaining power through scale economies in
raw materials buys as well.
◼ Turn up the competitive pressure with reverse auctions
where possible.
◼ Demand continuing price reductions in multi-year
contracts whatever happens to volume.
◼ Note the lack of process analysis of the value stream!
◼ “Market will insure lowest costs & highest efficiency!”

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 Roadblocks

◼ Margin squeezing rather than true cost reduction.

◼ Persistent shortfalls in quality and delivery reliability.

◼ Low-ball bidding and the engineering change game.

◼ Collapse of “partnership” and “trust” in economic downturns

(2001!), replaced by “survival of the fittest”.

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 Wrong Ways to Address Roadblocks

◼ Programs of the month (band aids)

◼ Meetings, meetings, meetings, meetings
◼ Silo optimization

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Pull Manufacturing

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 Outline

◼ Why Pull Manufacturing?

◼ The Problem of Inventory
◼ Just In Time
◼ Kanban
◼ One Piece Flow
◼ Demand / Pull
◼ Standard Work & Takt Time
◼ Production Smoothing

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 Why Pull Manufacturing?

Lean manufacturing is really about minimizing the

need for overhead
◼ which is about concentrating precisely on only what
is necessary
◼ which is about linking interdependent supply
system decisions, and actions
◼ which needs to be visual, responsive and simple to
manage

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 Push Vs. Pull Scheduling

◼ Push Scheduling
• traditional approach
• “move the job on when finished”
• problems - creates excessive inventory
◼ Pull scheduling
• coordinated production
• driven by demand (pulled through system)
• extensive use of visual triggers
(production/withdrawal kanbans)

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 Inventory Hides Problems

Work in process inventory level

(hides problems)

Unreliable Capacity
Scrap
Vendors Imbalances

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 Lowering Inventory Reveals Problems

Accommodate lower inventory levels by:

•Reducing variability
•Eliminating waste
•Streamlining production and material flows
•Accurate information

Unreliable WIP Capacity

Scrap
Vendors Imbalances

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 What is Just-in-Time?

◼ Management philosophy of continuous and forced problem

solving (forced by driving inventory out of the production
system)
◼ Supplies and components are ‘pulled’ through system to
arrive where they are needed when they are needed.

Goal: Achieve the minimal level of resources required to

add the necessary value in the production system.

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 Objective of JIT

◼ Produce only the products the customer wants

◼ Produce products only at the rate that the customer
wants them
◼ Produce with perfect quality
◼ Produce with minimum lead time
◼ Produce products with only those features the customer
wants

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 JIT Principles

◼ Create flow production

• one piece flow
• machines in order of processes
• small and inexpensive equipment
• U cell layout, counter clockwise
• multi-process handling workers
• easy moving/standing operations
• standard operations defined

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 Quality enables JIT

◼ Processes are easy to understand—visible

◼ Quality issues are apparent immediately
◼ Scope of problems are limited because of lower
inventory levels
◼ TQM management methods are very important

Quality of execution typically determines how

low inventories can be reduced!

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 How to accomplish JIT production
1) Design Flow Process
7) Improve Product Design -Link operations
-Standard product configuration -Balance workstation
-Standardize and reduce capacities
number of parts -Re-layout for flow
-Process design with -Emphasize preventive 2) Total Quality Control
product design maintenance -Worker responsibility
-Quality expectations -Reduce lot size -Measure: SQC
-Reduce setup/changeover time -Enforce compliance
-Fail-safe methods
-Automatic inspection

6) Reduce Inventory More

-Look for other areas Concurrently
-Stores Solve Problems 3) Stabilize Schedule
-Transit -Root Cause -Level schedule
-Carousels -Solve permanently -Underutilize capacity
-Conveyors -Team approach -Establish freeze
-Line and specialist windows
responsibiity
5) Work with Vendors -Continual education
-Reduce lead times
Measure Performance 4) Kanban Pull
-Frequent deliveries
-Emphasize -Demand pull
-Project usage
improvement -Backflush
requirements
-Track trends -Reduce lot sizes
-Quality expectations

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 Kanban

◼ Japanese word for card

◼ Authorizes production from downstream operations based
on physical consumption
◼ May be a card, flag, verbal signal, etc.
◼ Used often with fixed-size containers
◼ Kanban quantities are a function of lead-time and
consumption rate of the item being replenished (min
qty=(demand during lead-time + safety stock)/ container
quantity)

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 Kanban Squares

X X X

X
X X

Flow of work
Flow of information
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 Kanban Card

Unique Part #
46-281247p1 Description
27” Al Rim
Qty
Where to find
part when bin 23 Kanban Qty
is empty Where to return
Stock Loc: Line Loc: filled Kanban
RIP 1 Asm. 1
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 Quality at the Source

◼ For JIT & Kanban to work, quality must be high

◼ There can be no extra inventory to buffer against
the production or use of defective units

◼ Producing poor-quality items, and reworking or rejecting

them is wasteful

◼ The workers must be responsible for inspection &

production quality

◼ The philosophy is, “NEVER pass along defective item”

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 One Piece Flow

◼ A philosophy that rejects batch, lot or mass processing as

wasteful.
◼ States that product should move (flow) from operation to
operation, only when it is needed, in the smallest
increment.
◼ One piece is the ultimate (one-piece-flow)

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 Continuous Flow

• Line up all of the steps that truly create value so they occur
in a rapid sequence

• Require that every step in the process be:

• Capable – right every time (6 Sigma)

• Available – always able to run (TPM)

• Adequate – with capacity to avoid bottlenecks

(right-sized tools)

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 Pull Production

◼ Actual customer demand drives the manufacturing process.

◼ It creates a system of cascading production and delivery

instructions from downstream demand to upstream production in
which nothing is produced by the upstream supplier until the
downstream customer signals a need.
◼ The rate of production for each product is equal to the rate of
customer consumption.

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 Pull Production

• Through lead time compression & correct value

specification, let customers get exactly what’s wanted
exactly when it’s wanted:

• For the short term: Smooth pull loops to reduce

inventory

• For the near term: Make-to-order with rapid response

time

• For the long term: Diagnostics and prognostics in a

stable relationship to take out the surprises for
consumers and producers

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 Pull System

Leveled assembly
instructions
Production A Fab Vendor
C
Schedule A
B Sub
A
Fab Vendor
Customers Final Assy

Sub Fab Vendor

Vendor

Fab Vendor

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 Standardized Work
◼ Standardized work consists of three elements:
◼ Takt time
Matches the time to produce a part or finished product
with the rate of sales. It is the basis for determining
workforce size and work allocation.
◼ Standard in-process inventory
The minimum number of parts, including units in
machines, required to keep a cell or process moving.
◼ Standard work sequence
The order in which a worker performs tasks for various
processes.
◼ Once a standard work is set, performance is measured and
continuously improved

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 Work Balancing / TAKT Time

◼ Work balancing maximizes operator efficiency by matching

work content to TAKT time
◼ TAKT time is the rate at which customers require your
product
◼ TAKT time is calculated as follows:

Available work time per day

Daily required customer demand in parts per day

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 Production Smoothing / Leveling

◼ Averaging both the volume and the production sequence of

different model types on a mixed-model production line.

◼ Example: Toyota Manufacturing

Toyota makes 3 car models - a convertible, hardtop, and an
SUV. Assume that customers are buying nine convertibles,
nine hardtops, and nine SUVs each day. What is the most-
efficient way to make those cars?

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 Production Smoothing / Leveling

Leveling production also helps to avoid the problem of excess

inventory of finished vehicles. The vehicle plants make the
different types of cars at about the same pace that customers buy
those cars. They can adjust the pace of production as buying
patterns change.
As the result, dealers only need to maintain a minimal inventory of
cars to show and sell.

Parts Factory Car Factory Dealer

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 Production Smoothing / Leveling
Toyota solved the problem by production leveling.
If customers are buying nine convertibles, nine hardtops, and nine
SUVs each day, Toyota assembles three of each in the morning,
three of each in the afternoon, and three of each in the evening. It
also distributes the production of convertibles, hard tops, and SUVs
as evenly as possible through each shift: convertible, hard top, SUV,
convertible, hard top, SUV, and so on.

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 Wrap-up - Pull Manufacturing

Lean manufacturing is really about minimizing the

need for overhead
◼ which is about concentrating precisely on only what
is necessary
◼ which is about linking interdependent supply
system decisions, and actions
◼ which needs to be visual, responsive and simple to
manage

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 Mistake Proofing
(Poka Yoke and Error Proofing)

93
 Outline

◼ What is Mistake Proofing?

◼ Everyday Examples
◼ Effectiveness
◼ Error Proofing and SPC
◼ Inspection Techniques
◼ Types of Poka Yokes

[email protected] 94
 What is Mistake Proofing?

• The use of process or design features to prevent errors or their

negative impact.
• Also known as Poka yoke, Japanese slang for “avoiding
inadvertent errors” which was formalized by Shigeo Shingo.
• Inexpensive.
• Very effective.
• Based on simplicity and ingenuity.

[email protected] 95
 Everyday Examples
3.5 inch diskettes cannot be inserted unless diskette
is oriented correctly. This is as far as a disk can be
inserted upside-down. The beveled corner of the
diskette along with the fact that the diskette is not
square, prohibit incorrect orientation.

Fueling area of car has three error-proofing devices:

1. insert keeps leaded-fuel nozzle from being inserted
2. tether does not allow loss of gas cap
3. gas cap has ratchet to signal proper tightness and
prevent overtightening.

New lawn mowers are required to have a safety bar

on the handle that must be pulled back in order to
start the engine. If you let go
of the safety bar, the mower blade stops in 3
seconds or less.

[email protected] 96
 Evidence of the Effectiveness
◼ AT&T Power Systems is first US manufacturer to win the Deming
prize. Average outgoing defects reduced by 70%.
◼ A washing machine drain pipe assembly line produced 180,000 units
without a single defect (6 months).
◼ TRW reduced customer PPM’s from 288 to 2.
◼ Federal Mogul: 99.6% less customer defects and 60% productivity
increase
◼ DE-STA-CO: reduced omitted parts 800 to 10 ppm with a 15-30%
productivity increase.

Source: Productivity Inc. and Shingo prize prof iles

[email protected] 97
 Mistake Proofing ROI

◼ Dana corporation has reported a $500,000 savings resulting from a

$6 device.
◼ Ortho-Clinical Diagnostics (Johnson & Johnson) saved $75000
annually by discovering a new use of Post-It® notes.
◼ AT&T Power Systems (Lucent Technologies) reported net saving of
$2545 per device (3300 devices).
◼ Weber Aircraft reports saving $350,000 during their first year of
implementation of approximately 300 devices.
◼ GE Aircraft Engines spends a minimum of $500,000 on any in-flight
shut-down (IFSD). Spending $10,000 to stop one IFSD yields 50:1
benefit.

[email protected] 98
 1-10-100 Rule

The 1-10-100 rule states that as a product or service moves

through the production system, the cost of correcting an error
multiplies by 10.

Activity Cost
Order entered correctly $1
Error detected in billing $ 10
Error detected by customer $ 100

Dissatisfied customer shares the experience with others…

[email protected] 99
 The difficulties with human error
Why existing tools are not enough

Motorola findings:

...it became evident early in the project that achieving a C p

greater than 2 would go only part of the way. Mistake-
proofing the design would also be required ... Mistake-
proofing the design is an essential factor in achieving the
[total number of defects per unit] goal.

Smith, B. IEEE Spectrum 30(9) 43-47

[email protected] 100
 Error proofing & SPC

◼ SPC is good at detecting shifts in the process mean or

variance. Changes to the process must be ongoing to be
readily detected.
◼ Human errors tend to be rare, intermittent events. They are
not readily detected by control charts.
◼ Use error-proofing (not SPC) to reduce defects caused by
human error

Motorola got an order of magnitude closer to their goal

using a combination of SPC and error-proofing.

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 “Be more careful” not effective

◼ “The old way of dealing with human error was to scold people, retrain them, and
tell them to be more careful … My view is that you can’t do much to change
human nature, and people are going to make mistakes. If you can’t tolerate
them ... you should remove the opportunities for error.”
◼ “Training and motivation work best when the physical part of the system is well-
designed. If you train people to use poorly designed systems, they’ll be OK for
awhile. Eventually, they’ll go back to what they’re used to or what’s easy,
instead of what’s safe.”
◼ “You’re not going to become world class through just training, you have to
improve the system so that the easy way to do a job is also the safe, right way.
The potential for human error can be dramatically reduced.”

Chappell, L. 1996. The Pokayoke Solution. Automotive News Insights, (August 5): 24i.
LaBar, G. 1996. Can Ergonomics Cure ‘Human Error’? Occupational Hazards 58(4): 48-51.

[email protected] 102
 What Causes Defects?

1. Poor procedures or standards.

2. Machines.
3. Non-conforming material.
4. Worn tooling.
5. Human Mistakes.

Except for human mistakes these conditions can be

predicted and corrective action can be implemented to
eliminate the cause of defects

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 Inspection techniques

Inspection Techniques Description

Judgment Assesses quality of production outputs or
sorts out defects from good product.
Informative Assesses process by inspecting outputs and
using information gained to control the
process (a feedback loop).
Source Assesses beforehand whether the conditions
necessary for high quality production to exist.

[email protected] 104
 Poka yoke

Mistake-proofing systems
Does not rely on operators catching mistakes
Inexpensive Point of Origin inspection
Quick feedback 100% of the time

[email protected] 105
 Seven Guidelines to Poka Yoke Attainment

1. Quality Processes - Design “Robust” quality processes to achieve zero defects.

2. Utilize a Team Environment - leverage the teams knowledge,experience to
enhance the improvement efforts.
3. Elimination of Errors - Utilize a robust problem solving methodology to drive defects
towards zero.
4. Eliminate the “Root Cause” of The Errors-Use the 5 Why’s and 2 H’s approach.
5. Do It Right The First Time - Utilizing resources to perform functions correctly the
“first” time.
6. Eliminate Non-Value Added Decisions - Don’t make excuses - just do it !
7. Implement an Incremental Continual Improvement Approach - implement
improvement actions immediately and focus on incremental improvements; efforts
do not have to result in a 100% improvement immediately.

[email protected] 106
 Poka Yoke Systems Govern the Process

Two Poka Yoke System approaches are utilized in manufacturing

which lead to successful zero defect systems:
1. Control Approach
Shuts down the process when an error
occurs.
Keeps the “suspect” part in place when an operation is
incomplete.
2. Warning Approach
Signals the operator to stop the process and correct the
problem.

[email protected] 107
 Common Mistake proofing Devices

◼ Guide Pins
◼ Blinking lights and alarms
◼ Limit switches
◼ Proximity switches
◼ Counters
◼ Checklists

[email protected] 108
 Methods for Using Poka yoke

Poka yoke systems consist of three

primary methods:
1. Contact
2. Counting
3. Motion-Sequence
Each method can be used in a control
system or a warning system.
Each method uses a different process
prevention approach for dealing with
irregularities.

[email protected] 109
 Contact Methods

Do not have to be high tech!

Passive devices are sometimes the best method. These can be as
simple as guide pins or blocks that do not allow parts to be seated
in the wrong position prior to processing.

Take advantage of parts designed with an uneven shape!

A work piece with a hole a bump or an uneven end is a perfect
candidate for a passive jig. This method signals to the operator
right away that the part is not in proper position.

[email protected] 110
 Counting Method

Used when a fixed number of operations are required within a process, or

when a product has a fixed number of parts that are attached to it.
A sensor counts the number of times a part is used or a process is
completed and releases the part only when the right count is reached.

[email protected] 111
 Motion-Sequence Method

The third poka yoke method uses sensors to determine if a motion or a

step in a process has occurred. If the step has not occurred or has
occurred out of sequence, the the sensor signals a timer or other device to
stop the machine and signal the operator.

This method uses sensors and photo-electric

devices connected to a timer. If movement does
not occur when required, the switch signals to stop
the process or warn the operator.

[email protected] 112
 Types of Sensing Devices

Sensing devices that are traditionally used in poka yoke systems

can be divided into three categories:
1. Physical contact devices
2. Energy sensing devices

3. Warning Sensors

Each category of sensors includes a broad range of

devices that can be used depending on the process.

[email protected] 113
 3 Rules of POKA YOKE

◼ Don’t wait for the perfect POKA YOKE. Do it

now!
◼ If your POKA YOKE idea has better than
50% chance to succeed…Do it!
◼ Do it now….improve later!

114
 Quick Changeover
Single Minute Exchange of Dies

115
 Outline

◼ Changeover and Changeover Time

◼ Traditional Setup
◼ SMED
◼ SMED Process Steps
◼ Ideas for Improvement

[email protected] 116
 Changeover Defined

◼ Changeover is the total process

of converting a machine or line
from running one product to
another

[email protected] 117
 Changeover Time Defined

• Changeover time is the total elapsed time

between the last unit of good production
of the previous run, at normal line
efficiency, to the first unit of good
production of the succeeding run, at full
line efficiency.

[email protected] 118
 Traditional approach

◼ Setup is given and fixed

◼ Therefore,
◼ Use highly skilled setup personnel

◼ Minimize product variety

◼ Combine lots

◼ Make large batches

[email protected] 119
 Another way

◼ Setups CAN be improved!

◼ Small lot production REQUIRES short setups
◼ Setup time reduction of 90% and more is common

[email protected] 120
 Benefits of setup reduction

◼ Better quality
◼ Lower cost
◼ Less inventory

◼ Better flexibility
◼ Better worker utilization
◼ Shorter lead time and more capacity
◼ Less process variability

[email protected] 121
 Classification of setup activities

◼ Type 1
◼ Gathering, preparing, and returning tools, fixtures, etc.
◼ Type 2
◼ Removing previous setup, mounting next setup on machine
◼ Type 3
◼ Measuring, calibrating, adjusting
◼ Type 4
◼ Producing test pieces, further adjustment until parts are good

[email protected] 122
 What is SMED?

◼ Single Minute Exchange of Dies is changing process tooling

in 9 minutes or less.
◼ The process was developed by Shigeo Shingo at Mazda,
Mitsubishi and Toyota in the 1950’s and 1960’s.
◼ Separate internal and external activities.
◼ Convert internal activities to external activities.
◼ Streamline all activities.

[email protected] 123
 Single Minute Exchange of Dies

◼ Internal set-up activities.

Elements in the changeover which can only be done when
the machine is stopped.
◼ External set-up activities.
Elements that can be performed when the machine is
running.

[email protected] 124
 Why SMED?

◼ Reduced inventories.
◼ Improved productivity.
◼ Higher quality levels.
◼ Increased safety.
◼ Improved flexibility.
◼ Reduction in throughput time.
◼ Improve operator capabilities.
◼ Lower manufacturing costs.

[email protected] 125
 SMED Methodology

◼ Identify internal and external steps

◼ Convert internal steps to external
◼ Improve all aspects of the setup operation
◼ Abolish setup

[email protected] 126
 The SMED Process

◼ Preliminary Stage – Observe and record.

◼ Stage 1 – Separate internal and external activities.
◼ Stage 2 – Convert internal activities to external activities.
◼ Stage 3 – Streamline all activities.
◼ Stage 4 – Document internal and external procedures.

[email protected] 127
 Preliminary Stage
Observe and record
◼ Team-work
◼ Recorder
◼ Overall duration (from last product to first good product).
◼ Describe the change (from what to what?).
◼ Record the equipment used.
◼ Timers
◼ Time each step
◼ Fact collectors
◼ Breakdown the steps into actions – as much detail as possible.

[email protected] 128
 Stage 1

Separate internal and external activities.

◼ Study each internal step and ask if it could be external.
◼ Common issues:
◼ Dies in remote storage racks.
◼ Spanners not available.
◼ Raw material checks.
◼ Lifting equipment not available.

[email protected] 129
 Stage 2

Convert internal to external.

◼ Ask why the remaining internal steps can’t be external.
◼ Re-examine the true function of each step.
◼ Common issues:
◼ Cold dies – using material to heat the dies.
◼ Imaginary center lines and reference planes.
◼ No record of settings.

[email protected] 130
 Stage 3

Streamline all activities.

◼ Analyze the elements (facts), and discuss all possible
ways of improving the step.
◼ Study the external activities as well as the internal
activities.
◼ Common issues:
◼ Fastenings – Are bolts needed? If so remember that
only the last turn tightens a nut or bolt.
◼ Standardize bolt heads.
◼ Standardize die heights.

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 Stage 4

Document the procedures.

◼ Write down the new internal and external procedures.
◼ Fill in an action sheet to ensure that the new procedures
can be achieved.
◼ Review the whole activity to determine “What went
well?”, “What went badly?” and three changes that the
team would make before the next SMED activity.

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 The SMED System - Results
C ompany Machine Before improvement After improvement Red’n

T Manufacturing 1 80t single shot press 4 hours 0 mins 4 mins 18 sec 98%

S Metals 1 100t single shot press 40 mins 2 mins 26 sec 94%

H Press 1 30t single shot press 50 mins 48 sec 98%

TT Industries 1 50 oz injection moulding 1 hour 10 mins 7 mins 36 sec 89%

m/c

Expanded Metal Co. 4’6” lath press 4 hours 30 mins 11 mins (note: NOT 96%
SMED)

S Engineering Machining C entre 139 minutes 59 mins 29 secs 57% *

AM Bottlers Bottling plant 32 mins 43 secs 23 mins 33 secs 28% *

E Finishing Paint Plant 56 mins 26 secs 23 mins 12 secs 59% *

* After one SMED exercise

Ref 1: Modern Approaches to manufacturing improvement – the Shingo System,

Shigeo Shingo, ISBN: 091529964x

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Six Sigma

134
 Outline

◼ What is Six Sigma?

◼ Phases of Six Sigma
◼ Define

◼ Measure

◼ Evaluate / Analyze

◼ Improve

◼ Control
◼ Design for Six Sigma
◼ Green Belts & Black Belts

[email protected] 135
 What is Six Sigma?

A Vision and Philosophical commitment to our

consumers to offer the highest quality, lowest cost
products

A Metric that demonstrates quality levels at

99.9997% performance for products and processs

A Benchmark of our product and process capability

for comparison to ‘best in class’

A practical application of statistical Tools and Methods

to help us measure, analyze, improve, and control our
process

[email protected] 136
 Why Companies Need Six Sigma

1. Reduces dependency on “Tribal Knowledge”

- Decisions based on facts and data rather than opinion

2. Attacks the high-hanging fruit (the hard stuff)

- Eliminates chronic problems (common cause variation)
- Improves customer satisfaction

3. Provides a disciplined approach to problem solving

- Changes the company culture

4. Creates a competitive advantage (or disadvantage)

5. Improves profits!

[email protected] 137
 How good is good enough?

99.9% is already VERY GOOD

But what could happen at a quality level of 99.9% (i.e., 1000 ppm),

in our everyday lives (about 4.6)?

• 4000 wrong medical prescriptions each year

• More than 3000 newborns accidentally falling

from the hands of nurses or doctors each year

• Two long or short landings at American airports each day

• 400 letters per hour which never arrive at their destination

[email protected] 138
 Six Sigma as a Metric


Sigma =  = Deviation
( Square root of variance )

Axis graduated in Sigma

-6
-5
-4
-3
-2
-1
-7

1
2
3

5
6
7
0

4
between + / - 1 68.27 % result: 317300 ppm outside
(deviation)
between + / - 2 95.45 % 45500 ppm

between + / - 3 99.73 % 2700 ppm

between + / - 4 99.9937 % 63 ppm

between + / - 5 99.999943 % 0.57 ppm

between + / - 6 99.9999998 % 0.002 ppm

[email protected] 139
 3 Sigma Vs. 6 Sigma

The 3 sigma Company The 6 sigma Company

◼ Spends 15~25% of sales dollars on cost of ◼ Spends 5% of sales dollars on cost of failure
failure

◼ Relies on inspection to find defects ◼ Relies on capable process that don’t produce
defects

◼ Does not have a disciplined approach to ◼ Use Measure, Analyze, Improve, Control and
gather and analyze data Measure, Analyze, Design

◼ Benchmarks themselves against their ◼ Benchmarks themselves against the best in

competition the world

◼ Believes 99% is good enough ◼ Believes 99% is unacceptable

◼ Define CTQs internally ◼ Defines CTQs externally

[email protected] 140
 Six Sigma ROI
Motorola ROI
1987-1994
• Reduced in-process defect levels by a factor of 200.
• Reduced manufacturing costs by $1.4 billion.
• Increased employee production on a dollar basis by 126%.
• Increased stockholders share value fourfold.

AlliedSignal ROI
1992-1996
• $1.4 Billion cost reduction.
• 14% growth per quarter.
• 520% price/share growth.
• Reduced new product introduction time by 16%.
• 24% bill/cycle reduction.

[email protected] 141
 Six Sigma as a Philosophy

 is a measure of how much

Internal &
External
Prevention & variation exists in a process
Appraisal
Failure
Costs
Costs
Old Belief
Costs

Old Belief
4 High Quality = High Cost

Quality
Internal & Prevention &
External Appraisal
Costs Failure Costs Costs

New Belief 4
New Belief
5
High Quality = Low Cost
6

Quality

[email protected] 142
 Six Sigma Tools

Process Mapping Tolerance Analysis

Structure Tree Components Search

Pareto Analysis Hypothesis Testing

Gauge R & R Regression

Rational Subgrouping DOE

Baselining SPC

[email protected] 143
 Problem Solving Methodology

Phase 1:
Define

Phase 2:
Characterization
Measure

Phase 3:
Breakthrough
Analyze
Strategy

Phase 4:
Improve
Optimization
Phase 5:
Control

Projects are worked through these 5 main

phases of the Six Sigma methodology.
[email protected] 144
 Define Phase

◼ Define Process
◼ Define Customer requirement

◼ Prioritize Customer requirement

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 Define Phase

◼ SIPOC Model Kano Analysis

◼ Customer Survey CTQ Diagram
◼ Customer Requirement Analysis
◼ QFD Literature Review
◼ Standard / Regulation Review

[email protected] 146
 Measure
Characterize Process

Evaluate Control
Understand Process Maintain New Process

Improve
Improve and Verify Process

[email protected] 147
 Measure Phase

Define Understand Collect Process

Problem Process Data Performance

Defect Define Process- Data Types Process Capability

Statement Process Mapping - Defectives - Cp/Cpk
Project Historical - Defects - Run Charts
Goals Performance - Continuous Understand Problem
Brainstorm Measurement (Control or
Potential Defect Systems Evaluation Capability)
Causes (MSE)

[email protected] 148
 Measure
Characterize Process

Evaluate Control
Understand Process Maintain New Process

Improve
Improve and Verify Process

[email protected] 149
 Evaluate / Analysis Phase

◼ Data Analysis
◼ Process Analysis
◼ Formulate Hypothesis
◼ Test Hypothesis

[email protected] 150
 Measure
Characterize Process

Evaluate Control
Understand Process Maintain New Process

Improve
Improve and Verify Process

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 Improvement Phase

◼ Generate Improvement alternatives

◼ Validate Improvement
◼ Create “should be” process map
◼ Update FMEA
◼ Perform Cost/Benefit analysis

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 Design of Experiments (DOE)
◼ To estimate the effects of independent Variables on Responses.

◼ Terminology
➢ Factor – An independent variable
➢ Level – A value for the factor.
➢ Response - Outcome

X Y
PROCESS

[email protected] 153
 Measure
Characterize Process

Evaluate Control
Understand Process Maintain New Process

Improve
Improve and Verify Process

[email protected] 154
 Control Phase

Control Phase Activities:

- Confirmation of Improvement
- Confirmation you solved the practical problem
- Benefit validation
- Buy into the Control plan
- Quality plan implementation
- Procedural changes
- System changes
- Statistical process control implementation
- “Mistake-proofing” the process
- Closure documentation
- Audit process
- Scoping next project

[email protected] 155
 Control Phase

Control Plan Tools:

1. Basic Six Sigma control methods.

- 7M Tools: Affinity diagram, tree diagram, process
decision program charts, matrix diagrams,
interrelationship diagrams, prioritization matrices,
activity network diagram.

2. Statistical Process Control (SPC)

- Used with various types of distributions
- Control Charts
•Attribute based (np, p, c, u). Variable based (X-R, X)
•Additional Variable based tools
-PRE-Control
-Common Cause Chart (Exponentially Balanced
Moving Average (EWMA))
[email protected] 156
 What is Design for Six Sigma (DFSS)?

Customer-driven design of Drives quality measurement

processes with 6 capability. and predictability improvement
in early design phases.
Predicting design quality up
front. Utilizes process capabilities to
make final design decisions.
Top down requirements
flowdown (CTQ flowdown) Monitors process variances to
matched by capability flowup. verify 6 customer
requirements are met.
Cross-functional integrated
design involvement.

[email protected] 157
 DFSS Methodology & Tools

DESIGN FOR SIX SIGMA

Initiate, Under- Develop Develop Test

scope, stand design detailed design and
and plan customer concepts design and implement
the needs and and high- control/test full-scale
project specify level plan processes
CTQs design

Define Measure Analyze Design Verify

DELIVERABLES

Team CTQs High-level Detailed Pilot

Charter Design Design

TOOLS

◼ Mgmt Leadership ◼ Customer Research ◼ FMEA/Errorproofing

◼ Project ◼ QFD ◼ Process Simulation
Management ◼ Benchmarking ◼ Design Scorecards

[email protected] 158
 Green Belts & Black Belts
◼ GE has very successfully instituted this program
◼ 4,000 trained Black Belts by YE 1997
◼ 10,000 trained Black Belts by YE 2000
◼ “You haven’t much future at GE unless they are selected to
become Black Belts” - Jack Welch
◼ Kodak has instituted this program
◼ CEO and COO driven process
◼ Training includes both written and oral exams
◼ Minimum requirements: a college education, basic statistics,
presentation skills, computer skills
◼ Other companies include:
◼ Allied Signal -Texas Instruments
◼ IBM - ABB
◼ Navistar - Citibank

[email protected] 159
 Green Belts & Black Belts
Time on
Consulting/ Related
Task Mentoring
Projects
Training

Utilize
Green Belt Statistical/Quality
technique Find one new
2%~5% 2 / year
green belt

Lead use of
technique and
communicate new
ones

Black Belt 5%~10% Two green belts 4 / year

Master Consulting/Mentor
80~100% Five Black Belts 10 / year
ing/Training
Black Belt

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Activity Based Costing
and
Lean Accounting

161
 Outline

◼ What is Activity Based Costing?

◼ Cost Accounting Systems
◼ Traditional Cost Systems
◼ Activity Based Costing
◼ Implementing ABC
◼ Benefits & Limitations of ABC
◼ Lean Accounting

[email protected] 162
 What is Cost Accounting?

◼ Cost Accounting involves the measuring, recording, and

reporting of product costs
◼ Both the total cost and the unit cost of products are
determined

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 Traditional Cost Systems

◼ Although it may be impossible to determine the exact cost of

a product or service, every effort is made to provide the best
possible cost estimate
◼ The most difficult part of computing accurate unit costs is
determining the proper amount of overhead cost to assign to
each product, service, or job

[email protected] 164
 Overhead Costs

◼ A single predetermined overhead rate is used throughout the

year for the entire factory operation for the assignment of
overhead costs
◼ In job order costing, direct labor hours or costs are commonly
used as the relevant activity base
◼ In process costing, machine hours are commonly used as the
relevant activity base

[email protected] 165
 Activity-Based Costing

◼ Allocates overhead to multiple activity cost pools and assigns

the activity cost pools to products by means of cost drivers
◼ An activity is any event, action, transaction, or work sequence
that causes the incurrence of cost in producing a product or
providing a service
◼ A cost driver is any factor or activity that has a direct cause-
effect relationship with the resources consumed

[email protected] 166
 Activity-Based Costing

◼ Allocates costs to activities first, and then to the products,

based on the product’s use of those activities
◼ Activities consume resources
◼ Products consume activities

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 Activity-Based Costing

◼ Not all products or services share equally in activities.

◼ The more complex a product’s manufacturing operation, the
more activities and cost drivers it is likely to have.

[email protected] 168
 Unit Costs under ABC

Activity-based costing involves the following steps:

1 Identify the major activities that pertain to the manufacture of
specific products and allocate manufacturing overhead costs to
activity cost pools.
2 Identify the cost drivers that accurately measure each activity’s
contributions to the finished product and compute the activity-based
overhead rate.
3 Assign manufacturing overhead costs for each activity cost pool to
products using the activity-based overhead rates (cost per driver).

[email protected] 169
 Benefits of Activity-Based Costing

◼ ABC leads to more activity cost pools with more relevant cost
drivers
◼ ABC leads to enhanced control of overhead costs since
overhead costs can be more often traced directly to activities
◼ ABC leads to better management decisions by providing more
accurate product costs, which contributes to setting selling
prices that will achieve desired product profitability levels

[email protected] 170
 Benefits of ABC

◼ ABC leads to better management decisions. More accurate

product costing helps in setting selling prices and in deciding to
whether make or buy components.
◼ Activity-based costing does not, in and of itself, change the
amount of overhead costs.

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 Limitations of ABC

◼ ABC can be expensive to use, as a result of the higher cost of

identifying multiple activities and applying numerous cost
drivers
◼ Some arbitrary overhead costs will continue, even though
more overhead costs can be assigned directly to products
through multiple activity cost pools

[email protected] 172
 When to Use ABC

◼ Product lines differ greatly in volume and manufacturing

complexity
◼ Product lines are numerous, diverse, and require differing
degrees of support services
◼ Overhead costs constitute a significant portion of total costs
◼ The manufacturing process or the number of products has
changed significantly
◼ Production or marketing managers are ignoring data provided
by traditional cost systems and are using bootleg cost
information to make pricing decisions

[email protected] 173
 Activity-Based Management

◼ ABM is an extension of ABC, from a product costing system to

a management function, that focuses on reducing costs and
improving processes and decision making

[email protected] 174
 Lean Accounting

◼ Lean Accounting is intended to replace traditional accounting and

measurement systems; it is not intended be an additional
analysis. Lean Accounting is right for companies that are well on
the path toward lean manufacturing.
◼ Lean Accounting is more than a set of tools relating to
measurement, capacity usage, value, and continuous
improvement. Together these tools become a lean business
management system that is radically different from traditional
management.

[email protected] 175
 Lean Accounting – The Lean Transition

◼ An important role for finance and accounting people in the lean

organization is to actively support and participate in the transition
to a lean enterprise.

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 Lean Accounting – Management Accounting

◼ A cornerstone of the lean business is performance measurement.

We have few measurements that are focused on the creation of
customer value and the achievement of business strategy.
◼ Measurements are primarily non-financial and are established for
cells, value streams, plants, and corporations. Simplified costing
and financial planning methods support these measurements.

[email protected] 177
 Lean Accounting – Business Management

◼ To manage the business we need timely and valid information.

Decisions are made using lean principles, not the traditional mass
production mentality.
◼ Replace the department-focused structure with an organization
that is focused on customer value and the value streams. Drive
the business from value to the customer.

[email protected] 178
 Lean Accounting – Operational Accounting

◼ The problems of standard costing need to be addressed. Standard

costing is an excellent costing method for traditional mass
production; but standard costing is actively harmful to lean
organizations.
◼ Replace standard costing with value stream costing. Value stream
costing eliminates most transactions and does not rely on
allocation and full absorption of costs.

[email protected] 179
 Lean Accounting – Financial Accounting

◼ While the majority of Lean Accounting affects internal processes,

Lean principles are applied equally to the company’s financial
accounting. There is much waste to be eliminated.
◼ Finance and accounting people in the average American company
spend more than 70% of their time on bookkeeping and very little
time on analysis and improvement.

[email protected] 180
Theory of Constraints

181
 Outline

1. Introduction to Constraints
2. Five Steps Of Theory of Constraints
3. Drum Buffer Rope
4. Issues with TOC
5. Measurements

[email protected] 182
 Constraints

Any system can produce only as much as its critically constrained

resource

Constraint

60 units 70 units 40 units 60 units

Per day Per day Per day Per day

Maximum Throughput = 40 units per day

[email protected] 183
 Significance of Bottlenecks

◼ Maximum speed of the process is the speed of the slowest

operation
◼ Any improvements will be wasted unless the bottleneck is
relieved

[email protected] 184
 Theory of Constraints

◼ Purpose is to identify constraints and exploit them to the

extent possible
◼ Identification of constraints allows management to take
action to alleviate the constraint in the future

[email protected] 185
 Theory of Constraints

◼ Assumes current constraints cannot be changed in the

short-run
◼ What should be produced now, with current resources,
to maximize profits?
◼ Question cannot be answered by traditional accounting methods

[email protected] 186
 Theory of Constraints

◼ Based on the concepts of drum, buffer and ropes

◼ Drum
◼ Output of the constraint is the drumbeat
◼ Sets the tempo for other operations
◼ Tells upstream operations what to produce
◼ Tells downstream operations what to expect

[email protected] 187
 Theory of Constraints

◼ Buffer
◼ Stockpile of work in process in front of constraint
◼ Precaution to keep constraint running if upstream operations
are interrupted

◼ Ropes
◼ Limitations placed on production in upstream operations
◼ Necessary to prevent flooding the constraint

[email protected] 188
 What is the Theory of Constraints?

“The core idea in the Theory of Constrains

is that every real system such as a
profit-making enterprise must have at least one constraint”.

[email protected] 189
 What is TOC? (continued)

“There really is no choice in the matter. Either you manage

constrains or they manage you. The constraints will
determine the output of the system whether they are
acknowledged and managed or not”

Noreen, Smith, and Mackey, The Theory of Constraints and its Implecations for Management Accounting (North River Press, 1995)

[email protected] 190
 How does TOC help companies?

1. Focusing improvement efforts where they will have the

greatest immediate impact on the bottom line.

2. Providing a reliable process that insures Follow

Through!

[email protected] 191
 Five Steps Of TOC

1. Identifying the constraint

2. Decide how to exploit the constraint

3. Subordinate everything else to the decision in step 2

4. Elevate the constraint

5. Go back to step 1, but avoid inertia

[email protected] 192
 Theory of Constraints

2. Identify the 3. Use bottlenecks

bottlenecks properly

1. Identify the 4. Synchronize all

appropriate other processes to
measures of value the bottlenecks

6. Avoid inertia and 5. Increase the

return to Step #1 bottleneck’s capacity
[email protected] 193
 Steps in the TOC Process

Identify the system constraints

◼ Internal
◼ External
◼ Process constraints
◼ Machine time, etc. ◼ Material constraints
◼ Insufficient materials
◼ Policy constraints
◼ No overtime, etc. ◼ Market constraints
◼ Insufficient demand

[email protected] 194
 Steps in the TOC Process

◼ Decide how to exploit the constraint

◼ Want it working at 100%
◼ How much of a buffer?

[email protected] 195
 Steps in the TOC Process

◼ Subordinate everything else to the preceding decision

◼ Plan production to keep constraint working at 100%
◼ May need to change performance measures to “rope”
upstream activities

[email protected] 196
 Steps in the TOC Process

◼ Elevate the constraint

◼ Determine how to increase its capacity
◼ Repeat the process
◼ Always a new constraint

[email protected] 197
 Drum Buffer Rope

◼ Drum-Buffer-Rope for Shop Floor Control

◼ Drum: The Pace Setting Resource - constraint
◼ Buffer: The amount of protection in front of the resource
◼ Rope:The scheduled staggered release of material to be in line with
the Drum’s schedule.

A Pull System
Buffer

60 70 40 60

Rope Constraint
(Drum)
[email protected] 198
 Lean: How DBR Supports it
Fundamentally, Don’t Build Until Needed

◼ Overproduction avoided because DBR is “pull” system

◼ Inventory minimized because only buffer at constraint

◼ Transportation reduced because “unbuilt material” doesn’t move

◼ Processing waste minimized because “unbuilt material”

◼ Unnecessary Motion decreased because don’t build unneeded

◼ Waiting is eliminated at the constraint –only place that counts

◼ Defects avoided because of “small lot”, non conformance, and corrective action

[email protected] 199
 Issues with TOC

◼ Upstream operations must provide only what the

constraint can handle
◼ Downstream operations will only receive what the
constraint can put out
◼ Constraint must be kept operating at its full capacity
◼ If not, the entire process slows further

[email protected] 201
 Issues with TOC

◼ Advantages
◼ Improves capacity decisions in the short-run
◼ Avoids build up of inventory
◼ Aids in process understanding
◼ Avoids local optimization
◼ Improves communication between departments

[email protected] 202
 Issues with TOC

◼ Disadvantages
◼ Negative impact on non-constrained areas
◼ Diverts attention from other areas that may be the next constraint
◼ Temptation to reduce capacity

[email protected] 203
 Issues with TOC

◼ Ignores long-run considerations

◼ Introduction of new products
◼ Continuous improvement in non-constrained areas
◼ May lead organization away from strategy
◼ Not a substitute for other accounting methods

[email protected] 204
 Measurements

Conventional Wisdom
◼ Net profit?
◼ Efficiency?
◼ Utilization?
◼ Return on Investment?
◼ Cash Flow?

“Are you using the right measurements?”

Jonah in The Goal

[email protected] 205
 Measurements

TOC Wisdom
◼ Throughput
◼ Inventory
◼ Operating Expense

[email protected] 206
 Traditional vs JIT, TQM and TOC

Traditional Ranking JIT, TQM and TOC

◼ Operating expense ◼ Throughput

◼ Throughput ◼ Inventory or Assets

◼ Inventory or Assets ◼ Operating expense

All Three methods attack the underlying assumption that crated a problem related to
inventory levels. They ask:

WHY DO WE NEED INVENTORY TO PROTECT THROUGHPUT ?

[email protected] 207
 The “Cost World”

◼ Decreasing “OE” is definitely #1 because we have

relatively high control of our expenses.
◼ Increasing “T” is always important, but it ranks #2
because we are at the mercy of the marketplace and
have less control over sales.
◼ Inventory tends to fall into a “grey area” that we don’t
know exactly what to do about; it is a “necessary evil”
that must be lived with to protect sales.

[email protected] 208
 The “Throughput World”

◼ Increasing “T” is unquestionably #1 because it has the

greatest potential impact on the bottom line.
◼ Decreasing “I” is #2 because excess WIP and finished
goods jeopardize future throughput.
◼ Decreasing “OE” is #3 because significant reductions
(workforce reductions) usually jeopardize future
throughput.

[email protected] 209
 Financial Issues

◼ TOC is a management tool, not a financial tool

◼ Not used to determine inventory values
◼ Not used to allocate overhead to inventory
◼ Does not comply with GAAP
◼ Does indicate how to use available resources most
effectively

[email protected] 210
 Conclusion

◼ In the throughput world, constraints become the main tools

of management and the previous tool, product cost, can be
discarded.

[email protected] 211
Human Factors

212
 Outline

1. Ergonomics
2. Knowledge Management
3. Rewards & Recognition
4. Safety & Health
5. Effective Teams
6. Conducting Effective Meetings

[email protected] 213
Ergonomics

214
 WHAT IS ERGONOMICS?

- It is the practice of arranging the environment to fit the person

working in it.

- Ergonomic principles help reduce the risk of potential

injuries from :
* Overuse of muscles * Bad Posture
* Repetitive motion

- Objective of ergonomics is to accommodate workers

through the design of:
* Tasks * Controls * Tools
* Work stations * Displays * Lighting & equipment

[email protected] 215
 WHAT MAKES AN EFFECTIVE PROGRAM?

- Management commitment and employee involvement

are essential.

- Management can provide:

* Resources ( Time, people, financial )
* Managing & motivating forces behind effort

- Employees can provide:

* Intimate knowledge of the jobs performed
* Identification of existing & potential hazards

- Together they provide the solutions to the issues.

[email protected] 216
 CAUSES & CONTRIBUTING FACTORS

SHORT TERM INJURIES/Acute exposures:

- Identifiable accident or trauma caused injury
LONG TERM INJURIES/Chronic exposures
- Problems builds over time, no specific accident source

UNSAFE CONDITIONS UNSAFE ACTIONS

- Weight of object - Improper lifting/lowering
- Size & shape - Twisting with a load
- Height of work - Excessive reaching
- Housekeeping - Lifting beyond capacity

[email protected] 217
 HAZARD PREVENTION & CONTROL

ENGINEERING CONTROLS
- Eliminate the task or unnecessary movement.
- Reduce weights of loads, increase handling capacity of
equipment.
- Workspace modifications.
- Use handles or “easy grip” surfaces.
- Investigate quality problems that may cause stresses.
- Lift properly, keeping loads close to body.
- Logical, convenient controls and displays.

[email protected] 218
 HAZARD PREVENTION & CONTROL
CONTINUED
ADMINISTRATIVE & PROCESS CONTROLS
- Work rest or break scheduling.
- Training in proper lifting techniques & ergonomics.
- Job orientation, training and follow up.
- Rotation between high & low stress tasks.
- Housekeeping.
- Video study and evaluation of job tasks.
- Use of effective job safety analysis program.
- Enforcement of existing procedures.

[email protected] 219
 ERGONOMIC MODIFICATION PROCESS

1) Identify existing or potential problems

- Analyze injury data
- Interview staff & employees
- Observe work activity
- Conduct initial ergonomic evaluation

2) Identify & evaluate risk factors involved.

3) Review data, info. with Management and employees.
4) Design & implement corrective measures.
5) Monitor & evaluate effectiveness of corrective measures.

[email protected] 220
 WORK PRACTICE CONTROLS

The key elements of an effective work practice program are:

- Instruction in proper work techniques.

- Employee training & conditioning.
- Regular monitoring.
- Feedback.
- Adjustments.
- Modification.
- Maintenance.

[email protected] 221
 WORK AT WORKING SAFELY

Awareness of ergonomics and the causes of related disorders

is critical in prevention efforts:

- Cooperate with employer in making related design

changes in the workplace.
- Be aware of signs & symptoms indicating a possible
problem or injury caused by poor workplace design.
- Participate in hazard controls initiated by employer.
- Be aware of job-specific techniques used to alleviate
ergonomic issues.
- Follow doctor’s instructions, if under treatment.

[email protected] 222
Knowledge Management

223
 Why Knowledge Management?

Knowledge is: Knowledge results in:

❖ The cutting edge of organizational ❖ The “learning organization” (Mayo
success (Nonaka, 1991) & Lank, 1995)
❖ The engine transforming global ❖ The “brain-based organization”
economies (Bell, 1973, 1978) (Harari, 1994)
❖ Leading us toward a new type of ❖ Intellectual capital” (Stewart, 1994)
work with new types of workers ❖ “Learning partnerships” (Lorange,
(Blackler, Reed and Whitaker, 1993) 1995)
❖ The element that will lead to the ❖ Obsolete capitalists economies
demise of private enterprise and radically different societies
capitalism (Heilbruner, 1976) (Drucker, 1993)
❖ The sum total of value-added in an
enterprise (Peters, 1993)
Conclusion
❖ The “mobile and heterogeneous
[resource that will end the] Knowledge is fast becoming a
hegemony of financial capital [and primary factor of production (e.g.,
allow employees to] seize power” Handy, 1989, 1994; Peter, 1993; Drucker, 1992)
(Sveiby & Lloyd, 1987)
[email protected] Source: Theseus International 224
Management Institute, February 2000
 Barriers to Knowledge Management Success

Results From International Survey:

❖ Organizational Culture 80%
❖ Lack of Ownership 64%
❖ Info/Comms Technology 55%
❖ Non-Standardized Processes 53%
❖ Organizational Structure 54%
❖ Top Management Commitment 46%
❖ Rewards / Recognition 46%
❖ Individual vice Team Emphasis 45%
❖ Staff Turnover 30%

Earnst & Young KM International Survey, 1996

[email protected] (431 senior executive responses) 225
 Summary

❖ Embodies a theory for knowledge management, with

validated key elements as design inputs
❖ Enterprise-wide approach in the design of a knowledge
management system
❖ Systems’ perspective throughout the various phases of
system design
❖ Integrates both integrative management and systems
engineering disciplines into a single construct to ensure
successful design, implementation, and management of
a knowledge management system.

If taking a true systems approach, a knowledge management

system will enhance efficiency, effectiveness, and innovation
through leveraging its enterprise’s intellectual assets.

[email protected] 226
Rewards & Recognition

227
 Rewards & Recognition

Seven steps for a rewards and recognition system

1. Develop a rewards and recognition strategy.

• Starting with the organization’s priorities and values,
determine the behaviors you want to recognize (these
are your strategic objectives) and the strategic
initiatives you may need to take within each facet of
your pride and recognition program.

[email protected] 228
 Rewards & Recognition

Seven steps for a rewards and recognition system

2. Review your formal awards.

• You may need to make adjustments to the awards
programs you already have to ensure they support your
strategic objectives.

[email protected] 229
 Rewards & Recognition

Seven steps for a rewards and recognition system

3. Align your informal awards.

• Your informal awards also need to reinforce your overall
directions and values. The key here is to customize your
informal awards to fit your culture and employees.

[email protected] 230
 Rewards & Recognition

Seven steps for a rewards and recognition system

4. Determine the reinforcing day-to-day managerial

behaviors.
• What we are looking at here is ‘walking the talk’. The
management team at all levels needs to be aware of
how their day-to-day decisions and actions affect
employees’ behavior. Organizational health surveys and
other feedback mechanisms may assist managers in
gaining this understanding and in making adjustments
where required.

[email protected] 231
 Rewards & Recognition

Seven steps for a rewards and recognition system

5. Align other management systems.

• Consider whether other systems such as performance
management, training, resource allocation and staffing
support your pride and recognition strategy and
program.

[email protected] 232
 Rewards & Recognition

Seven steps for a rewards and recognition system

6. Establish a feedback system.

• An on-going approach to monitoring and improving the
program will ensure it continues to promote the
changing culture and directions of your organization.
You might consider integrating reward and recognition
indicators with financial and other performance
measures.

[email protected] 233
 Rewards & Recognition

Seven steps for a rewards and recognition system

7. Market the program.

• Bring attention to your activities, not only within your
organization, but also to other departments and
external agencies and associations.

[email protected] 234
Safety & Health

235
 Cost of Accidents

◼ Direct Costs
◼ Medical Costs (including worker’s comp)

◼ Indemnity Payments

◼ Indirect costs
◼ Time Lost (by worker and supervisor)

◼ Schedule delays
◼ Training new employees

◼ Cleanup time / equipment repairs

◼ Legal fees

[email protected] 236
 Legal Issues and Liability

◼ As a result of safety violations:

◼ You can be named in a law suit
◼ Criminal charges may be filed against you

◼ You can be cited by an enforcement agency

◼ You can be fined by an enforcement agency

◼ Your lab/workplace can be shut down by an enforcement

agency

[email protected] 237
 Accident Causes

◼ Unsafe Conditions
◼ Easiest to correct (and very cost effective)
◼ Easiest to prevent
◼ Safety audits
◼ Safety inspections
◼ Maintenance schedules for equipment
◼ Encouraging employee reporting
◼ Good housekeeping

[email protected] 238
 Accident Causes

◼ Unsafe Acts
◼ Most difficult to address
◼ Changing behavior isn’t easy
◼ Best prevented by developing a “safety culture”

[email protected] 239
 Establishing Accountability

◼ Charge back systems

◼ Safety goals
◼ Accident costs
◼ Equipment damage
◼ Lost time
◼ Accident rates
◼ First aid #s
◼ Workers comp #s
◼Loss ratios (including automobile rates)
◼ Safety Activities
◼ Safety meetings, inspections, using PPE

[email protected] 240
 Defining Responsibilities

◼ Employee responsibilities include:

◼ Recognizing safety hazards
◼ Reporting safety hazards

◼ Maintaining good housekeeping

◼ Working safely

◼ Using personal protective equipment (PPE)

◼ Making the most of safety training

[email protected] 241
 Defining Responsibilities

◼ Employer responsibilities include:

◼ Providing access to information
◼ Haz Com - MSDSs, written program
◼ Bloodborne Pathogens – written program
◼ Lab Safety – chemical hygiene plan

[email protected] 242
 Defining Responsibilities

◼ Employer responsibilities (cont.)

◼ Providing training
◼ Hazard Communications
◼ Annual & within first 30 days of employment, also when new hazards
are introduced
◼ Quarterly safety training (required by state)
◼ Special programs
◼ Laboratory
◼ Bloodborne pathogens
◼ Respirators
◼ Forklifts

[email protected] 243
Effective Teams

244
 Your Organization Can Benefit from Teams

◼ Team output usually exceeds individual output.

◼ Complex problems can be solved more effectively.
◼ Creative ideas usually are stimulated in the presence of other
individuals who have the same focus, passion, and excitement.
◼ Teams both appreciate and take advantage of diversity.
◼ Support arises among team members.

[email protected] 245
 The Importance of Creating High
Performance Teams

◼ Characteristics of High Performing

Teams
◼ Small Size
◼ Complimentary Skills

◼ Common Purpose

◼ Specific Goals

◼ Mutual Accountability

[email protected] 246
 The Five Stages of
Team Development
◼ Forming
◼ Storming
◼ Norming
◼ Performing
◼ Adjourning

[email protected] 247
Conducting Effective Meetings

248
 Conducting Effective Meetings
◼ Preparing for the Meeting
◼ Set Objectives – problems to solve, issues to
address, decisions to be made
◼ Select Participants
◼ Set a Time and Place
◼ Plan the Agenda
◼ Distribute the Agenda and Relevant Materials in
Advance
◼ Consult with Participants
Before the Meeting

[email protected] 249
 Conducting Effective Meetings

◼ Conducting the Meeting

◼ Begin the Meeting with the Agenda

◼ Establish Specific Time Parameters

◼ Control the Discussion

◼ Use Problem Solving Techniques
◼ Encourage and Support
Participation by All
Members

[email protected] 250
 Conducting Effective Meetings

◼ Conducting the Meeting

◼ Encourage the Clash of Ideas, but
Discourage the Clash of Personalities
◼ Exhibit Effective Listening Skills

◼ Reach a Consensus
◼ End the Meeting by
Clarifying What
Happens Next

[email protected] 251
 Conducting Effective Meetings
◼ Follow Up after the Meeting
◼ Spend the Last Five Minutes Debriefing the
Meeting Process.
◼ The Best Time to Share Your Reactions to
the Meeting Is Right After It Has Ended
◼ Brief Memo Summarizing
Discussions, Decisions, and Commitments
(minutes)

[email protected] 252
 The End
(or really only the beginning…)

253