PGP23

Term V

Lean Systems

Session 19 and 20

Dr. G. Anand
Associate Professor
QM & OM Area
IIM Kozhikode
anandg@iimk.ac.in

Transfer/Delivery Batches
• Large process batch takes long time to
process and increases the production lead
time.

• One way to reduce production lead time

and WIP for a process batch of any size is
to use lot splitting and move the lot to
subsequent operations in smaller transfer
batches
 Benefits of lot size reduction

Benefits of lot size reduction

• Large batch into small batches
– Production lead time is reduced
– Lower lead time variability
– Carrying cost
• The smaller items at an operation or in the system, the lower the
accrued carrying costs
– Setup and Handling cost
• Small batch requires more setups and more material transfers
compared to large batch.
– Quality
• Defects are often batch specific. The larger the batch, the more
units affected
• With smaller lot sizes, engineering changes and redesign
improvements can be introduced sooner and incrementally
instead of waiting until all of a current large batch is completed
 Benefits – contd.
• Flexibility
– Large WIP ahead of every operation
reduces the ability of a process to adjust to
changes in products or demand.
• Whatever the nature of change, it takes longer
time for large-batch operations to respond
because the change is not felt until the pre-
existing WIP is processed first.
– Little’s law:
• WIP = [Lead Time] * [Throughput Rate]
• Lead Time = WIP / [Throughput Rate]

When cannot we have smaller

lot sizes?
 Case for Larger process batches
• Not able to reduce the setup time

• A bottleneck operation is one where the production

capacity is less than the demand placed upon it. It
is a resource where scheduled work exceeds work
capacity. It is overloaded.

• An almost-bottleneck operation in one where

capacity is barely adequate, one which could
become a bottleneck if additional jobs are imposed
on it or current jobs are rescheduled carelessly.

Small Buffer stock

• Buffer stock (or safety stock) is the excess
inventory held between stages of a process to
avoid running short.
– Reasons are uncertainty about demand and
uncertainty about lead time.

• Demand variability:
– To reduce demand variability, produce the same
quantity of an item in each time period.
– When demand cannot be leveled, then the production
should mimic demand, that is, Stop-go, Stop-go,
producing as close to demand as possible.
 Small Buffer stock
• Lead Time variability
– Variability in internal
(process) lead times
stems from variability in
equipment functioning,
setup times, worker
absenteeism and skill
level, material and
product defects etc.

– It can be reduced by
preventive maintenance
of equipment, setup
improvement, production
quality control and
standardized operations. Photograph obtained from:
http://www.ute-inc.com/images/Manufactoring.jpg

Actions needed for

Small Lot
Production
 Facilitating Small Lot Sizes
• Process Batches
– Shorter setup times enable smaller production batches.

• Purchase Quantities
– Reducing the size of purchased quantities requires
reducing the cost of order placement and processing.
– One way to reduce order costs is to move some of the
responsibility for purchasing from the purchasing
department to the production department and even to the
shop floor, where supervisors and workers place the
orders.
– Another way is to reduce the number of suppliers and to
develop standard agreements and trusting partnerships
with them.

Facilitating Small Lot Sizes

• Transfer Batches
– As the cost of material handling goes down, smaller
transfer batches become more economical.
– The cost of material handling is function of
• Distance over which materials are moved.
• The number of steps or transactions involved in the move.
• The complexity or sophistication of material handling system.
– To accomplish this,
• Layout needs to be improved (U shaped layout)
• Keiretsu (Supplier cluster)
• Kanban
• Use of standard containers
 Facilitating Small Lot Sizes
• Delivery and Shipping Batches:
– Per unit transportation cost must be reduced to make
small deliveries
– Use smaller trucks for short-distance deliveries, or to
use larger trucks, but visit more customers on each
trip (Milk Run).
– Smaller shipments result in overall savings from
smaller inventories of incoming and finished
materials, higher quality materials, and better
responsiveness to short-term demand

Class Exercise