Lean Deployment in

Supply Chain:
Materials

Presentation Objectives
Foundation: Lean Thinking
A Culture Shift The Lean Journey In
Supply Chain
Highlights of the Transformations at
CPS Energys Materials Team
Our Future State - Relentless Pursuit of
Perfection

Foundation: Lean Thinking

What is Lean
The term Lean is an outside term to
describe the Toyota Production System
It is a philosophy based on eliminating waste
and defining value from the customers
perspective.
Lean is rooted in observation go and see,
analyze the situation and ask why the
problem occurs.
It is a philosophy of continuous improvement
and learning.
Lean means dependence on people.

The Foundation
The foundation to Lean is to gain an
understanding of a few key principles:

Waste
Standardization
Visual Management
Strategy Deployment
Continuous Improvement
The Pillars JIT and Jidoka

The goal is to improve quality, reduce

lead time and reduce cost

The Seven Wastes

The main restriction to profitability,

efficiency and flexibility:
1. Defects, Mistakes, Corrections
2. Overproduction (over acquisition)
3. Transportation
4. Waiting
5. Inventory
6. Motion
7. Over Processing

The Cost Principle

The cost principle is based that in a
competitive market, the customer sets
the price:
Price Cost = Profit

Price [VA + NVA + Waste] = Profit

Value added work is what the customer
is willing to pay for all else is a form
of waste (cost).

Standardization
Standardization is the essential if you
are going to have any form of
improvement
Standardization can be obtained by
finding best practices and applying
them as the way to do the work
This is true until another best practice
or a better method is found, therefore,
becoming the new standard

Visual Management System

It is key to
measure and
monitor your
operations
This must be
displayed where
all can see and
understand
Strategies,
improvements,
problems and
goals are
displayed

Strategy Deployment

It is important to get the team involved in

strategy deployment
Our Supply Chain Director has to main
strategy objectives:
1. Reduce Lead Time
2. Improve Quality

The Materials groups strategy must support

Supply Chains strategy
The Supervisors strategy must support the
Material groups strategy
This is the nature of goal alignment bottom
up

Continuous Improvement
Continuous
improvement is
not an event, but
way of doing
business
It is key to train
your managers
and supervisors
on how to solve
problems
Root cause
analysis
becomes part of
their role

JIT and Jidoka

The Pillars of Lean

Best Quality Short Lead Time Lowest Cost

JIT

People
Process
Technology
Goal Alignment and Strategy Deployment
Train People: Problem Solving
Work Processes: Standardized
Philosophy: Understand and Eliminate Waste

Jidoka

Culture Shift: The Lean

Journey

Lean Supply Chain

Perfect first-time quality: quest for zero
defects, revealing & solving problems
at the source.
Building and maintaining relationships
with suppliers: collaborative risk
sharing, cost sharing, and information
sharing arrangements.
Continuous improvement: reducing
costs, improving quality, increasing
productivity and information sharing.

Go to the Gemba
Gemba in Japanese means where the
truth can be found.
As Lean practitioners, we must go and
see where the problem occurs to
thoroughly understand the situation.
Supervisors and team members must
be intimately involved in quality issues.
Going to the Gemba (actual place) will
increase the speed of resolution of
problems.

Importance of Standardization

Stadardization is backbone of Lean.

It consists of three elements:
1. Pace of customer demand
2. Sequence of doing things or sequence of
processes
3. How much inventory or days on hand is
needed to accomplish the work

It is impossible to improve any

process until it is standardized.

Waste Creation

Muda
Waste
Mura
Unevenness

Muri
Overburden

Building the Foundation

Train employees to identify waste
Build a culture of stopping to fix
problems
Get quality right the first time
Standardize work processes and tasks
Train employees to solve problems and
work together towards common goals
Go and See mentality
Become a learning organization

The Lean Supply Chain

Order
Management

Customer

Supplier

Customer Mgt
Supplier Mgt
Logistics

Engineering
Planning &
Scheduling
Construction

Customer Compliance
Feedback Mechanism

Shared Accountability
BOM Accuracy
Schedule Accuracy

Planned System
Event Management
Pull Replenishment
Reduced Lead Time

Cross Docking
Yard Control
Receiving Schedule
Delivery Frequency

Pick Up Frequency
Pick Up Verification
Supplier Compliance
Feedback Mechanisms

Total Cost of Ownership

Easier to
Identify

Unit
Price
Freight

Duties

Cost

&Fees

Planning
Purchasing
QC

Harder to
Identify,
Measure
and Relate
to Purchase

Warehouse
& Inventory

Lead Time

Poor Quality

Late

Impact

Impact

Delivery

(Internal)

Impact

Field Failures

Service

General
Admin.

Total Cost of Ownership

TCO is the cornerstone of the Lean Supply
Chain.
TCO encompasses all the costs associated
with the acquisition, use, and maintenance of
a good or service.
In theory, TCO may include all costs
originating with the conception of a
construction/service idea, all the way through
rework once the product or service has been
provided to the end customer.
So what is the paradigm shift that is required
in CPSEnergy today?

Manifestation of Costs
Although many of the TCO costs are
hard to see and quantify.. Where do
they manifest themselves?

Inventory Carrying Costs

Administrative Overheads
Cost of Capital
Damage
Insurance
Transfers
Obsolescence
Shrinkage
Space to Handle Excessive
Inventory
Storage Systems

2%
9%
5%
2%
4%
5%
3%
5%
%

So the focus is not on

inventory.
But rather how we manage our
excessive inventory!!

Highlights of the
Transformation
Supply Chain: Materials
Management

Breaking Down the Walls

Our department was segregated into 4
groups:
MRP Buyers Stores Salvage
We introduced a customer first team
where we combined and reclassified
departments into teams:
MA Team Warehouse Team Customer
Material Flow
Information Flow

Are Key Strategies for FY09

Lead Time Reduction Baby A3

Lean Warehousing Implementation
Reverse Logistics Group Formation
Quality Improvement with Fleet
(Beginning Stages)
Inventory Reduction Project: Milk Runs
with Techline (Beginning Stages)

Lead Time Reduction

Value Stream Perspective

Lean Warehousing

Reverse Logistics

Right Direction?

Future State
Pursuit of Perfection

Visualizing the Supply Chain

1.
2.
3.
4.
5.
6.
7.
8.

Right
Right
Right
Right
Right
Right
Right
Right

Materials
Quantity
Time
Place
Source
Price
Quality
Service

Can we answer
these questions?
What process are in
place?
What are the
moments of truth?
What are the failure
modes?

Value Stream Mapping

Lean Thinking
1. Specify Value by
Product
2. Identify the Value
Stream
3. Make the Product
Flow
4. At the Pull of the
Customer
5. In Pursuit of
Perfection

Learning to See
1. How Does the
Process Work?
2. Can we Agree on
Performance?
3. Can we be Involved?
4. How will we
Improve?

Mapping the Supply Chain

The challenges
80% of the supply chain activities are
invisible to those accountable
Multiple suppliers, multiple customers,
multiple third parties
High variability in material behavior,
transportation modes
High variability in lead time, supply and
demand
High variability in supplier performance and
capability
The extended enterprise is not always visible
Data is not always abundant

The Future State

What are the customers expectations?

What is the rate of customer demand?
What processes are non value added?
Where is the First Time Quality an issue?
Where is availability an issue?
Where are excessive inventories?
Where can we implement flow and pull?
Where do we go and see?
What can we see? What can we do?
What projects must be prioritized?

Questions or Comments?