Lean, Just-in-time,and Toyota Production System

Lean, Just-in-time, and Toyota Production System DSC 335 Zhibin Yang Assistant Professor, Decision Sciences

Toyota: The Auto Giant Source: Market cap data from Reuters.com (as of 4/18/06)

Toyota: Growing Market Share 2007 January Toyota Motor Sales (TMS) reported best-ever January sales of 175,850 vehicles, an increase of 5.1% over January 2006. GM reported deliveries of 247,464 vehicles in January, down 19.7% from January 2006. Ford’s January sales totaled 166,835, down 19% compared with a year ago. Chrysler Group reported sales for January 2007 of 156,308 units; an increase of 1% compared January 2006, based on Solid Retail Sales

Toyota Production System – Key to Success A production system that is steeped in the philosophy of the complete elimination of all wastes and what imbues all aspects of production with this philosophy in pursuit of the most efficient production method. From www.toyota.co.jp/en

Eight Types of Waste Waste Definition Overproduction Manufacturing an item before it is needed. Inappropriate Processing Using expensive high precision equipment when simpler machines would suffice. Waiting Wasteful time incurred when product is not being moved or processed. Transportation Excessive movement and material handling of product between processes. Motion Unnecessary effort related to the ergonomics of bending, stretching, reaching, lifting, and walking. Inventory Excess inventory hides problems on the shop floor, consumes space, increases lead times, and inhibits communication. Defects Quality defects result in rework and scrap, and add wasteful costs to the system in the form of lost capacity, rescheduling effort, increased inspection, and loss of customer good will. Underutilization of Employees Failure of the firm to learn from and capitalize on its employees’ knowledge and creativity impedes long term efforts to eliminate waste.

House of Toyota Highest quality, lowest cost, shortest lead time by eliminating wasted time and activity Just in Time (JIT) Takt time One-piece flow Pull system Culture of Continuous Improvement Jidoka Manual or automatic line stop Separate operator and machine activities Error-proofing Visual control Operational Stability Heijunka Standard Work TPM Supply Chain

Just-in-time (JIT): Pull vs. Push System In a push system, such as an Material Requirements Planning (MRP) system, we look at the schedule to determine what to produce next Driven by pre-determined production schedule In a pull system, such as JIT, we look only at the next stage of production and determine what is needed there, and then we produce only that Driven by demand JIT uses Kanban system to implement a pull system

Kanban System What is Kanban? “ card” or “visible record” How to use it? A Kanban is attached a container, when the container is filled with items produced When the container is free up, the Kanban is removed from the container and put back to the receiving post

(cont’d) Kanbans are used to control flow of production A free kanban at the receiving post signals need for production Production stop, if all kanbans are used Kanbans are recycled when a container is unloaded at the next step of production More kanban  more containers used at the same time  larger WIP

Pull System – Kanban System Receiving post Kanban card for product 1 Kanban card for product 2 Fabrication cell O 1 O 2 O 3 O 2 Storage area Empty containers Full containers Assembly line 1 Assembly line 2

The Kanban System Storage area Empty containers Full containers Receiving post Kanban card for product 1 Kanban card for product 2 Fabrication cell O 1 O 2 O 3 O 2 Assembly line 1 Assembly line 2

The Kanban System Each container must have a card Assembly always withdraws from fabrication (pull system) Containers cannot be moved without a kanban Containers should contain the same number of parts Only good parts are passed along Production should not exceed authorization

Calculate Number of Containers Two determinations Number of units to be held by each container Determines lot size Number of containers Estimate the average lead time needed to produce a container of parts Little’s law WIP = (demand rate)  (time in system per unit)

Number of Containers WIP = (average demand rate)  (average time a container spends in the manufacturing process) + safety stock WIP = kc kc = d ( w + p )(1 + α ) k = d ( w + p )(1 + α ) c where k = number of containers d = expected daily demand for the part w = average waiting time p = average processing time c = number of units in each container α = policy variable

Capacity Utilization and JIT Utilization of stations in your LT game 2 4-2-2 configuration, 0.5 day delivery promise (contract 3) 60% at station 1 50% at station 2 40% at station 3 Is high utilization always a good thing? Long lead time Large WIP

Capacity Utilization of JIT 10 20 30 40 50 60 70 80 90 100 30 10 20 % Capacity Utilization 60 Production Lead Times (days) 40 50 Traditional Manufacturing JIT Manufacturing

Increasing Production Capacity Reduces Manufacturing Lead Times Only slight increases in production capacities can lead to: Significant reduction of manufacturing lead times Significant reduction of work-in-process inventory Queuing models can be used to analyze waiting-line production problems

We know from queuing theory that the average time in the system (manufacturing lead time ) is: If we have an average lead time in mind, we can solve for the required production rate : Necessary Production Capacity

Work-in-Process Inventory We also know from queuing theory that the average number of jobs in the system (work-in-process inventory) is:

Exercise: Necessary Production Capacity A production manager believes reducing the firm’s manufacturing lead time will give the firm a significant competitive advantage. Two days is the lead time goal. Currently, jobs are arriving at the rate of 6 per day and the operation can process an average of 6.125 jobs per day. What is the current average lead time for a job? What is the necessary production rate to achieve the two-day lead time goal?

(cont’d) Current Lead Time Necessary Production Rate Conclusion

Exercise: Reduction in WIP In the preceding exercise, the production rate was increased from 6.125 jobs per day to 6.5. This 6% increase in the production rate yielded a 75% reduction in manufacturing lead time! How much of a reduction in WIP will result from the 6 % production rate increase?

Example: Reduction in WIP WIP before production rate increase WIP after production rate increase Conclusion

Managed System “Stressing” JIT is a system of enforced problem solving. One approach is to lower inventory gradually to expose problems and force their solution. With no buffer inventories to rely on, in times of production interruptions, problems are highly visible and cannot be ignored. The job of eliminating production problems is never finished. Continuous improvement - a practice the Japanese call kaizen - is central to the philosophy of JIT.

Stress the System to See Problems We must lower the water level! Visible Production Problems are Only 5% of the Total! Quality Problems Material Shortages Machine Breakdowns Workload Imbalances Worker Absenteeism Out-of-Spec Materials Quality Problems In-Process Inventory

Lean, Just-in-time,and Toyota Production System

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