Next Generation Lean:
What a lead-time reduction initiative
revealed about QRM
Paul D. Ericksen, President and CEO, Build-To-Demand, Inc.
•
•
Retired John Deere Supply Management Executive
Former Chief Procurement Officer, Oshkosh Truck Corporation
Slide 1
Next Generation Lean
Agenda
1.
2.
3.
4.
The Lawn Mower Business (3 slides)
Lean Supply Chain Case Study (10 slides)
Next Generation Lean (7 slides)
References
Slide 2
The Lawn Mower Business
Traditional Lawn Mower Order Fulfillment
– Sales occur through OEM-associated dealerships.
– No competitive product offerings.
– OEMs set product pricing.
– Dealer’s accept and sell whatever the OEM
factories produce and deliver to them.
– Minimum pressure on OEMs to shorten lead-times.
Dealerships offer limited market exposure.
The Lawn Mower Business- 1 of 3
Slide 3
The Lawn Mower Business
Contemporary Lawn Mower Order Fulfillment
– Sales occur through Big Box Stores.
– Multiple competitive brands offered.
– Product pricing “negotiated”.
– Big Box Stores stock only show-room inventory.
– Require un-forecast short-fuse replenishment of stock.
– Maximum pressure on OEMs to shorten lead-times.
Big Box Stores offer significant market exposure.
The Lawn Mower Business- 2 of 3
Slide 4
The Lawn Mower Business
• 2/3rds of all lawn mower sales occur in 1/4th of the
year, i.e. March, April and May--- when grass grows.
• OEMs selling through Big Box Stores have
traditionally supported short-fuse stock replenishment
requirements through pre-built inventory.
• Tremendous amounts required due to high seasonality.
A significant competitive advantage could be obtained if the
Big Box Store “marketing channel” could be supported
through a strategy of short lead-time order fulfillment.
The Lawn Mower Business- 3 of 3
Slide 5
Lean Supply Chain Case Study
Taking advantage of this competitive opening would require
a new and different performance strategy…
A focus on short supplier leadlead-times!
In 1996 a collaboration was initiated with Rajan Suri
and the University of Wisconsin- Madison’s Center for
Quick Response Manufacturing to develop and
implement this strategy.
Lean Supply Chain Case Study- 1of 10
Slide 6
Traditional Supply Management
Performance Focus
Price
On-Time
Delivery
As-Delivered Quality
Lean Supply Chain Case Study- 2 of 10
Slide 7
Defining “true” Lead-Time
Manufacturing Critical-path Time* (MCT)
The typical amount of calendar time from when a customer
creates an order, through the critical-path, until the first enditem of that order is delivered to the customer.
MCT Raw+ MCT
Operations
+ MCT
Contingency
+ MCT Logistics
MCT Total =
A visual, non-threatening time proportional representation of order fulfillment capability.
* Metric was developed through collaboration with Rajan Suri, of the University of
Wisconsin- Madison, and its Center for Quick Response Manufacturing.
Lean Supply Chain Case Study- 3 of 10
Slide 8
Manufacturing Critical
Critical-path Times
Manufacturing CriticalCritical-path Time Comparison
MCT in 2002 Days
140
MCT in 1995 Days
120
100
80
60
40
20
0
MCTs--- “true” lead times--- of suppliers across the commodity spectrum were reduced such that the
restock expectations of the Big Box Stores could met with minimal pre-built finished goods inventory.
• Overall, the average MCT reduction across the 200 product line suppliers was 78%.
Lean Supply Chain Case Study- 4 of 10
Slide 9
Impact of Supplier MCT Reduction on
Executive Level Financial Exhibits
• Finished Goods Inventory
• Was reduced by $890 millions.
• This translated into a $107 million savings in carrying costs.
• Customer Fill-Rates were either maintained or improved.
• This included Incremental Sales--- those based on demand not
anticipated in the initial forecast.
• Performance possible due to increased shorter supplier MCTs.
• Incremental Sales generate higher earnings.
• Increased volume.
• increased margin, i.e. not fixed cost allocations.
Lean Supply Chain Case Study- 5 of 10
Slide 10
Traditional Supply Management
Performance Focus
Price
On-Time
Delivery
As-Delivered Quality
Lean Supply Chain Case Study- 6 of 10
Slide 11
Quality Performance
84% average improvement in supplier quality.
Lean Supply Chain Case Study- 7 of 10
Slide 12
Delivery Performance
73% average improvement in supplier on-time delivery.
Lean Supply Chain Case Study- 8 of 10
Slide 13
Purchased Material Impact on
Factory Operational Performance
Supplier Related Downtime
35
30
Days*
25
1995
2003
20
15
10
5
0
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Month
Production is stopped when parts are not available due to either quality
related rejections or late deliveries.
Lean Supply Chain Case Study- 9 of 10
Slide 14
Cost Reduction
• Prices go down when costs go down.
• Costs go down when waste goes down.
• MCT reduction is an effective strategy for delivering waste reduction.
Lean Supply Chain Case Study- 10 of 10
Slide 15
Next Generation Lean
Case Study Supplier Improvement Process:
The actions that delivered the supplier MCT reductions
were;
Lean
Yet the delivered impacts far exceeded what is normally
delivered by Lean.
• The difference was that the Lean activities undertaken were
solely based on their MCT reduction potential!
• MCT--- a QRM Metric--- was a unifying factor in compounding
Lean impact, i.e. a Next Generation Lean metric!
Next Generation Lean - 1 of 7
Slide 16
Next Generation Lean
“Time is the shadow of waste…”
Simon Nagota
Former Vice President, Supply Management
Toyota Motor Company
Next Generation Lean- 2 of 7
Slide 17
Next Generation Lean
“All we are doing is looking at the time line,
from the moment the customer gives us an
order to the point when we collect the cash.
And we are reducing that time by removing
the non-value added wastes.”
Taichi Ohno
Founding Father
Toyota Product System
Next Generation Lean- 3 of 7
Slide 18
Next Generation Lean
“Time is money…
and probably a lot more money than you’d think!”
Rajan Suri, PhD.
Founding Father
Quick Response Manufacturing
Professor of Industrial Engineering at the University of WisconsinMadison
Next Generation Lean- 4 of 7
Slide 19
Next Generation Lean
• Current Lean principles are “spot on’, but gaps
exist on how they have been applied to industry.
• QRM provides the metric and strategy needed to
close these gaps and to amplify Lean impact
such that it impacts executive level financial
exhibits.
• Next Generation Lean--- based on QRM--provides a structure for achieving these results
by building upon --- not replacing--- current Lean.
Next Generation Lean- 5 of 7
Slide 20
Next Generation Lean
Build-To-Demand: The Lean End-Game™
• MCT, a metric of “true” lead-time, quantifies a company’s
ability to fulfill short-lead orders.
• The closer a company is to being build-to-demand capable,
the closer that company is to being Lean.
• Next Generation Lean helps manufacturers understand what
should be the goal of all Lean efforts--- MCT reduction--- as
well as quantifies leanlean-ness.
Next Generation Lean- 6 of 7
Next Generation Lean
Additional Next Generation Lean Insights:
•
•
•
NGL quantifies Lean progress through the MCT metric.
NGL facilitates company definition of order fulfillmentbased competitive strategies.
NGL expands the Supply Management contribution to
company finances beyond basic piece-price.
Next Generation Lean- 7 of 7
Resources
• Managing the Extended Enterprise, Purchasing Today, February, 2001.
• Improving Asset Management and Order Fulfillment at Deere &
Company’s C&CE Division, Interfaces, Vol. 35, No.1, January-February
2005.
• Filling the Gap: Rethinking Supply Management in the age of Global
Sourcing and Lean, APICS, February, 2005.
• Lean’s Trinity – One company’s journey to improved price, quality and ontime delivery, Industrial Engineer, October and November, 2013.
• Next Generation Supply Management, Industry Week, bi-monthly Blog
http://www.industryweek.com/blogger/paul-ericksen
Electronic copies of the above are available at no charge from Build-To-Demand, Inc.
Paul D. Ericksen
[email protected]
References- 1 of 1
Slide 23