LEAN MANUFACTURING Business Bottom-Line Based

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LEAN MANUFACTURING Downloaded by [37.44.207.184] at 07:43 15 January 2017

Business Bottom-Line Based

John X. Wang

Boca Raton London New York

CRC Press is an imprint of the Taylor & Francis Group, an informa business

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CRC Press Taylor & Francis Group 6000 Broken Sound Parkway NW, Suite 300 Boca Raton, FL 33487-2742

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© 2011 by Taylor and Francis Group, LLC CRC Press is an imprint of Taylor & Francis Group, an Informa business No claim to original U.S. Government works Printed in the United States of America on acid-free paper 10 9 8 7 6 5 4 3 2 1 International Standard Book Number: 978-1-4200-8602-7 (Hardback) This book contains information obtained from authentic and highly regarded sources. Reasonable efforts have been made to publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials or the consequences of their use. The authors and publishers have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright holders if permission to publish in this form has not been obtained. If any copyright material has not been acknowledged please write and let us know so we may rectify in any future reprint. Except as permitted under U.S. Copyright Law, no part of this book may be reprinted, reproduced, transmitted, or utilized in any form by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying, microfilming, and recording, or in any information storage or retrieval system, without written permission from the publishers. For permission to photocopy or use material electronically from this work, please access www.copyright. com (http://www.copyright.com/) or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400. CCC is a not-for-profit organization that provides licenses and registration for a variety of users. For organizations that have been granted a photocopy license by the CCC, a separate system of payment has been arranged. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging-in-Publication Data Wang, John X., 1962Lean manufacturing : business bottom-lined based / John X. Wang. p. cm. Includes bibliographical references and index. ISBN 978-1-4200-8602-7 1. Lean manufacturing. 2. Cost control. I. Title. TS155.W3893 2011 658.5--dc22

2010005440

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To

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Zurich, Switzerland

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Vienna, Austria College Park, Maryland Erie, Pennsylvania Ann Arbor, Michigan Chicago, Illinois Cedar Rapids, Iowa Tucson, Arizona The cities have engineered my dreams.

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Preface......................................................................................................................xv About the Author................................................................................................ xvii 1. Introduction: Five Stages of Lean Manufacturing...................................1 1.1 Lean Manufacturing.............................................................................1 1.2 Industrial Dynamics and Bullwhip Effect........................................3 1.3 Three Toolboxes for Lean Manufacturing.........................................5 1.3.1 Toolbox 1: From 5S to Kanban................................................5 1.3.1.1 The 5S System............................................................5 1.3.1.2 Cellular Manufacturing...........................................6 1.3.1.3 Kaizen.........................................................................7 1.3.1.4 Kanban........................................................................7 1.3.2 Toolbox 2: From Lean Metrics to Standard Rate..................8 1.3.2.1 Lean Office.................................................................8 1.3.2.2 Single Minute Exchange of Die (SMED)................8 1.3.3 Toolbox 3: From Takt Time to Workflow Diagram..............8 1.3.3.1 Total Productive Maintenance.............................. 10 1.3.3.2 Value Stream Mapping........................................... 11 1.4 Let’s Play a “Lean” Game: Manufacturing a Gyrocopter.............. 11 1.4.1 Materials, Tools, and Steps for Manufacturing the Gyrocopter........................................................................ 12 1.4.2 Establish an Assembly Line for Manufacturing Gyrocopters............................................................................. 13 1.4.3 Develop Cost Functions for Manufacturing Gyrocopters............................................................................. 15 1.4.4 Ground Rules and Course for Playing the Lean Manufacturing Game............................................................ 15 1.4.4.1 Ground Rules........................................................... 15 1.4.4.2 Course of the Game................................................ 16 1.4.4.3 End the Game.......................................................... 17 1.4.5 Bullwhip Effect Typical Results for Playing the Lean Manufacturing Game............................................................ 17 1.5 Five Stages of Lean Manufacturing: Business Bottom-Line Based..................................................................................................... 19 2. Put Business Bottom Line First: Transfer Function for Production Cost....................................................................................... 23 2.1 Production Transfer Function........................................................... 23 2.2 Short-Term vs. Long-Term Production Transfer Functions........... 24 vii

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2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10

Lean Manufacturing: Optimize Short-Term Production Transfer Function............................................... 24 2.2.2 Six Sigma: Optimize Long-Term Production Transfer Function................................................................... 24 Short-Term Transfer Function for Production................................. 25 Transfer Function for Marginal Cost................................................ 27 The Law of Diminishing Returns: Key to Understanding Lean Manufacturing........................................................................... 29 Transfer Function for Average Fixed Cost.......................................30 Transfer Function for Average Variable Cost.................................. 32 Transfer Function for Average Total Cost........................................ 33 Transfer Function for Long-Term Cost Analysis............................ 35 Goal Tree and Success Analysis: From Goal Setting to Successful Goal Setting.................................................................. 38

3. Understanding the Voice of Customers: The Essential Elements.......43 3.1 Voice of Customers: Relentlessly Customer Focused.....................43 3.2 Voice-of-Customers Capability: Critical Elements......................... 45 3.2.1 Top-Level Leadership and Sponsorship............................. 46 3.2.2 Turn Voice of Customers into Stories with Business Values....................................................................................... 46 3.2.3 Independent but with Traction across the Organization and Beyond..................................................... 47 3.2.4 Strategic Asset Informing Policy, Strategy, Operations, and Communications....................................... 47 3.2.5 Right Level and Mix of Skills and Experience in the Team and Wider Networks................................................... 48 3.3 Voice of Customers’ Role and Responsibilities............................... 49 3.4 Analyzing Voice of Customers: Law of Demand........................... 50 3.4.1 The Law of Diminishing Marginal Utility......................... 51 3.4.2 The Law of Equi-Marginal Utility per Dollar.................... 51 3.4.3 Condition of Consumer Optimum: Utility Maximization.......................................................................... 53 3.5 Maximizing Utility to Customers..................................................... 53 3.5.1 Use Indifference Curve to Represent Customers’ Level of Preference.................................................................54 3.5.1.1 Degree of Substitution............................................54 3.5.1.2 Perfect Substitution................................................. 55 3.5.1.3 Perfect Complements.............................................. 56 3.5.2 Use Budget Line to Reflect Customers’ Purchase Power...................................................................... 57 3.5.2.1 Budget Line, Consumption Possibility Line, Budget Constraint................................................... 57 3.5.2.2 Budget Equation...................................................... 58 3.5.2.3 Shifts of Budget Line............................................... 58

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3.5.2.4 A Change in Prices.................................................. 59 3.5.2.5 A Change in Income............................................... 59 3.5.2.6 Consumer Optimum.............................................. 60 3.6 Kano Model: Integrate the Elements for Voice of Customers....... 61 4. Balance Production and Demand: Value Stream Mapping..................63 4.1 What Are Value Streams?..................................................................63 4.2 What Is Value Stream Mapping?.......................................................64 4.3 How to Complete Value Stream Mapping....................................... 66 4.4 Guidelines for Developing Value Stream Mapping....................... 68 4.5 Kaizen Event Analysis for Value Stream Mapping........................ 71 4.5.1 Purpose.................................................................................... 71 4.5.2 Benefits..................................................................................... 71 4.5.3 Kaizen Event Analysis Guideline........................................ 72 4.6 Business Bottom-Line Analysis of Value Streams.......................... 73 4.6.1 Value Stream Measures......................................................... 74 4.6.2 Traditional Product-Costing Systems: Problems with Overhead........................................................................ 76 4.6.3 Activity-Based Costing (ABC)..............................................77 4.6.4 How Is Activity-Based Costing Different from Traditional Product Costing................................................. 79 5. From Lognormal to Cobb–Douglas Distribution: Lean Production Analysis............................................................................83 5.1 Technology: The Production Function.............................................83 5.2 Long-Run and Short-Run Production Functions............................84 5.2.1 Long-Run Production Function............................................85 5.2.2 Short-Run Production Function........................................... 86 5.3 Three Stages of Production................................................................ 87 5.4 Lognormal Distribution..................................................................... 92 5.5 Cobb–Douglas Production Function................................................ 94 5.6 Quantifying Additional Profit from Productivity Gains.............. 96 5.6.1 Could Sell More Products if Produced More..................... 97 5.6.2 Could Not Sell More Products if Produced More.............. 97 5.7 Total Factor Productivity.................................................................... 98 5.7.1 Constant Returns to Scale..................................................... 98 5.7.2 Assess Total Factor Productivity.......................................... 99 5.7.3 New Product Development: Demands for Factor Inputs.................................................................... 101 6. Business Cycles and Demand Fluctuations: Time-Critical Analysis and Decision Making................................................................ 103 6.1 Business Cycles and Demand Fluctuations.................................. 103 6.2 Regression Analysis: Understanding Customer Demand Statistically......................................................................... 107

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6.2.1 Demand Forecasting on Binary Scale............................... 110 6.2.2 Demand Forecasting on Ordinal Scale............................. 112 6.2.3 Demand Forecasting on Count Scale................................ 113 6.3 What Is Time Series Analysis?........................................................ 114 6.3.1 Trend...................................................................................... 115 6.3.2 Seasonal................................................................................. 117 6.4 Smoothing Techniques..................................................................... 118 6.4.1 Single Exponential Smoothing........................................... 119 6.4.2 Double Exponential Smoothing......................................... 122 6.4.3 Holt–Winters with an Additive Seasonal Term............... 123 6.5 Summary............................................................................................ 123 7. How Demand Fluctuation and “Exogenous Shocks” Influence the Bottom Line............................................................................................ 125 7.1 How to Shockproof Your Company: A Lesson from Frank Lloyd Wright...................................................................................... 125 7.2 Business Risk Assessment............................................................... 129 7.3 Risk Quadrant Chart........................................................................ 130 7.4 Develop a Business Risk Management Plan................................. 136 7.4.1 Why Would You Develop a Risk Management Plan and Risk Management Table?............................................. 137 7.4.2 When Would You Develop a Risk Management Plan?....................................................................................... 137 7.4.3 How Do You Develop a Risk Management Plan?............ 137 7.4.3.1 Step 1: Identify the Risks...................................... 138 7.4.3.2 Step 2: Analyze and Evaluate the Risks............. 138 7.4.3.3 Step 3: How Will You Manage or Treat the Risks?...................................................................... 139 7.4.3.4 Step 4: Monitor and Review Risks...................... 140 7.4.4 Also Remember: Communicate and Consult................... 141 7.4.5 Who Is Responsible?............................................................ 141 7.4.6 Who Has Ultimate Accountability?................................... 141 7.4.7 Who Approves the Risk Management Plan?.................... 142 7.5 Risk Assessment Matrix................................................................... 142 7.5.1 Examples of Application of a Risk Assessment Matrix............................................................... 143 8. Lean Production: Business Bottom-Line Based.................................... 145 8.1 Approach for Identifying Productivity Improvements............... 145 8.1.1 Process Flow Diagram......................................................... 145 8.1.2 Inventory and Material Purchases..................................... 145 8.1.3 Cellular Manufacturing....................................................... 146 8.1.4 Material Flow........................................................................ 146 8.1.5 Automation............................................................................ 146 8.1.6 Quick Changeover................................................................ 146

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8.3

8.4 8.5

8.6

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8.1.7 Quality Control..................................................................... 146 8.1.8 Preventive Maintenance...................................................... 146 Quantifying Additional Profit from Productivity Gains............ 147 8.2.1 Productivity Improvement: Could Sell More Products if Produced More................................................. 148 8.2.2 Inventory Cost: Couldn’t Sell More Products if Produced More..................................................................... 148 Case Study of a Gyrocopter Manufacturer: Improving Profitability......................................................................................... 149 8.3.1 Productivity Index as a Measure of Profitability............. 149 8.3.2 Change the Right Things.................................................... 150 8.3.3 Green Manufacturing: Maintaining the Value of Gyrocopter Products............................................................ 151 8.3.4 Reduce Changeover Time on the Gyrocopter Assembly Processes............................................................. 151 8.3.4.1 Estimated Savings Reduce Changeover Time......................................................................... 152 8.3.4.2 Estimated Implementation Cost.......................... 154 8.3.4.3 Estimated Simple Payback................................... 154 8.3.4.4 Recommendation.................................................. 154 Implement Cellular Manufacturing............................................... 154 8.4.1 How to Incorporate Cellular Manufacturing................... 155 8.4.2 Benefits of Cellular Manufacturing................................... 156 Example of Cellular Manufacturing: Organize Gyrocopter Production Equipment into Cells to Reduce Inventory and Process Time...................................................................................... 157 8.5.1 Estimated Savings................................................................ 159 8.5.2 Estimated Implementation Cost......................................... 159 8.5.3 Estimated Simple Payback.................................................. 160 Example of Gyrocopter Manufacturing: Eliminate Intermediate Spooling Operation................................................... 160 8.6.1 Estimated Savings................................................................ 160 8.6.1.1 Increased Output................................................... 160 8.6.1.2 Labor Savings........................................................ 161 8.6.1.3 Reduction of WIP Inventory................................ 162 8.6.1.4 Other Savings........................................................ 162 8.6.1.5 Total Cost Savings................................................. 162 8.6.2 Estimated Implementation Cost......................................... 162 8.6.3 Simple Payback..................................................................... 163

9. Manage Production and Inventory Costs............................................... 165 9.1 Theory of Constraints: “The Drum Is a Bottleneck”................... 165 9.2 Identifying and Exploring Constraints.......................................... 166 9.3 The Five Focusing Steps and the Continuous Improvement Goal............................................................................ 167

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9.4 The General Application of Theory of Constraints to Operations: Drum–Buffer–Rope Approach.................................. 168 9.5 Plant Types for Operations.............................................................. 171 9.6 The Thinking Processes for Implementing Theory of Constraints......................................................................................... 172 9.7 Learning as Actively Addressing Constraints.............................. 173 9.8 Learning to Negotiate the Meaning of Constraints..................... 175 9.9 Accounting Systems for Lean Manufacturing.............................. 176 9.9.1 Minimal Path Sets................................................................ 177 9.9.2 Socratic Method.................................................................... 178 9.10 Case Study: Marion Gyrocopter Corporation (MGC).................. 180 9.10.1 What Is the Problem?........................................................... 180 9.10.2 How Do You Know?............................................................. 180 9.10.3 What Is Our Recommendation?......................................... 180 9.10.4 How to Change?................................................................... 180 9.10.5 What Is Your Expected Result?.......................................... 181 9.11 Conclusion about the Case Study................................................... 183 10. Kanban: Align Manufacturing Flow with Demand Pull................... 185 10.1 Kanban-Based Systems.................................................................... 185 10.2 Why Use Kanban?............................................................................. 188 10.3 How Kanban Works.......................................................................... 189 10.4 The Rules for Kanban....................................................................... 190 10.5 Steps for Implementing Kanban..................................................... 191 10.6 Types of Kanban................................................................................ 193 10.6.1 Dual-Card Kanban............................................................... 193 10.6.2 Single-Card Kanban............................................................. 193 10.7 Kanban Development....................................................................... 193 10.8 Kanban Design to Achieve Manufacturing System Objectives........................................................................................... 194 10.8.1 Unit Cost Coupled with Operation-Focused Engineering........................................................................... 195 10.8.2 The Manufacturing System Design Decomposition....... 196 10.9 Kanban Card Calculation................................................................ 200 10.10 Summary............................................................................................ 203 11. Jidoka: Implement Lean Manufacturing with Automation................ 205 11.1 What Is Jidoka?.................................................................................. 205 11.2 Ladder Logic: A Tool to Implement Jidoka.................................... 206 11.3 Boolean Functions for Ladder Logic.............................................. 210 11.4 Implement Jidoka Using Ladder Logic.......................................... 213 11.4.1 Logic Operations in Ladder Diagrams.............................. 213 11.4.2 Implementation of Ladder Diagrams................................ 216 11.5 Additional Functionality for Manufacturing Autonomation................................................................................ 216

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12. Pull System, One-Piece Flow, and Single Minute Exchange of Die (SMED).............................................................................................. 221 12.1 Establish a Pull System..................................................................... 221 12.1.1 What Is a Push System?....................................................... 221 12.1.2 What Is a Pull System?.........................................................222 12.2 Why Use Pull Systems and One-Piece Flow?................................222 12.3 Overcome Barriers: Two Old Beliefs...............................................223 12.3.1 Inventory Protects................................................................223 12.3.2 Large Batches Reduce Changeover Time.......................... 224 12.3.3 Inventory Hides Problems.................................................. 224 12.3.4 Reduce Changeover Time by Reducing Changeover Time................................................................. 224 12.4 Single Minute Exchange of Die (SMED)........................................225 12.5 How to Implement Single Minute Exchange of Die (SMED)...... 227 12.5.1 Formal Method..................................................................... 228 12.5.2 Key Elements to Observe.................................................... 228 12.5.3 Effects of Implementation................................................... 229 12.6 Case Study: Flow Management of an Integrated Circuit Packaging Work-in-Process System................................................ 230 12.6.1 Bill of Materials (BOM)........................................................ 232 12.6.2 Data Mining.......................................................................... 232 12.6.3 Computer-Integrated Manufacturing (CIM).................... 232 12.6.4 Semiconductor Manufacture Processes............................ 232 12.6.5 Data Mining.......................................................................... 233 12.6.6 Ant Colony Optimization...................................................234 12.6.7 Run-to-Run Control.............................................................234 13. Lean Manufacturing Business Scorecards............................................. 237 13.1 What Are Lean Manufacturing Business Scorecards?................ 237 13.2 How Have Lean Manufacturing Business Scorecards Been Evolved?.................................................................................... 238 13.3 Lean Manufacturing Business Scorecard for Planning and Policy Deployment.................................................................... 240 13.3.1 Business Plan Process.......................................................... 242 13.3.2 Manufacturing Councils..................................................... 242 13.3.3 Policy Deployment............................................................... 242 13.3.4 Marion Production System (MPS)...................................... 243 13.3.5 Total Productive Maintenance (TPM)............................... 244 13.3.6 Manufacturing Engineering (ME)..................................... 244 13.3.7 Energy Management Efficiency Program......................... 245 13.4 Lean Manufacturing Business Scorecards for Problem Solving and Continuous Improvement.......................................... 245 13.4.1 Dashboards............................................................................ 246 13.4.2 Scorecards.............................................................................. 246 13.4.3 Total Value Management (TVM)........................................ 247

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Single Point Lessons (SPLs)................................................. 247 Shutdown Monitoring......................................................... 248 Best Practice Replication...................................................... 248 Six Sigma............................................................................... 248 13.4.7.1 Define...................................................................... 248 13.4.7.2 Measure.................................................................. 249 13.4.7.3 Analyze................................................................... 249 13.4.7.4 Improve................................................................... 249 13.4.7.5 Control.................................................................... 250 13.5 Building the Business Intelligence Strategy.................................. 250 Downloaded by [37.44.207.184] at 07:43 15 January 2017

13.4.4 13.4.5 13.4.6 13.4.7

Bibliography......................................................................................................... 255 Index...................................................................................................................... 259

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Preface About 50 miles east of the Mississippi River, I found myself back in Galesburg, a western Illinois city of 34,000 and the birthplace of poet Carl Sandburg. In September 2004, Maytag closed Galesburg’s refrigeration products factory, whose history goes back to the period when the farming industry was developing in the Midwest around 1904. Having taught Design for Lean Six Sigma courses for Maytag in Galesburg, I founded Carl Sandburg College’s Center for Manufacturing Excellence, representing the beautiful city’s continued pursuit for world-class manufacturing. Today’s manufacturing companies face unprecedented challenges in reliability, efficiency, flexibility, and cost saving because of: • Escalating material and labor costs that trim margins • Global competition that is driving down prices and lead times • Ever increasing shareholder expectations for profit and sales growth. Having transformed product design and manufacturing at companies ranging from Maytag and Visteon to General Electric, I see the limitation of traditional Lean manufacturing, which comes in the form of techniques regarding a particular tool or toolbox, yet the factory floor, like everything in the global community, is profoundly driven by business bottom lines. Business executives, manufacturing leaders, and engineers often ask me how to revitalize Lean Six Sigma. Delivering real bottom-line results from manufacturing improvements has proven to be much harder than expected for most companies. Total quality management (TQM), zero-defect manufacturing, and business process reengineering have dropped off the landscape for taking much too long and failing to deliver the promised results. Lean Six Sigma is now experiencing the same fundamental difficulty under the waves of economic shocks and global competition. The following eight key features make this new book unique and timely:



1. Shifting the paradigm to a Lean manufacturing based on business bottom line, dramatic gains can be achieved systematically using focused improvement strategy and methodology presented by the book. 2. Based on business bottom line, transformed Lean manufacturing approaches improvement from the global, system perspective, rather than through trying to improve individual departments or functions in isolation. xv

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Preface

3. The book will show you how to turn the difficult challenge of understanding leverage points for generating bottom-line results into a systematic process that can be used over and over. 4. Based on business bottom line, Lean manufacturing enables value flow through the factory most effectively by reallocating the most overloaded resources that determine the maximum flow rate of production and making value flow through these bottlenecks. 5. Facilitating manufacturers to optimize production through their critical bottleneck in order to meet market demand rapidly, the book outlines the case studies between world events and the manufacturing efficiency, and present Lean manufacturing strategies and techniques designed to accelerate responses to current and future events on the floors of the world’s manufacturing facilities. 6. Based on the business bottom line, Lean manufacturing increases manufacturing income and reliability, and improves customer satisfaction and delivery performance consistently. 7. Streamlining with business bottom lines, the transformed Lean manufacturing offers a way forward for manufacturing and project operations coping with global competition and other market forces. The book will show you how to harness these market forces by following the effective rules to reduce production and inventory costs. 8. The book will show you how to revitalize Lean Six Sigma by aligning it with business bottom line and thus delivering results that your executives, business leaders, and customers are expecting.

Written in the Christmas holiday season, this is also a preface to a New Year. When manufacturing businesses boom, the influx of new payroll money creates jobs throughout the local economy, as company employees begin buying new homes, cars, and other goods and services. Because of this “multiplier effect,” good Lean manufacturing also impacts the bottom line of every home. Like I am sharing the book with my wife and two sons, I expect you will share the book with your family, colleagues, and friends.

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About the Author Dr. John X. Wang, the founder and Chief Master Black Belt of the Lean Six Sigma Institute of Technology, directs Lean manufacturing to improve business bottom line. As a leading expert in reliability engineering, Six Sigma, and Lean manufacturing, Dr. Wang has taught training courses at Panduit Corp., Maytag Corp., Visteon Corp., and General Electric—Gannon University Co-Op Graduate Programs. Wang has served as Reliability Engineering and Design for Six Sigma manager at Maytag (where he led reliability engineering best practices and Design for Lean Six Sigma training), as a Six Sigma Master Black Belt certified by Visteon (where he led Design for Six Sigma training programs), and as a Six Sigma Black Belt certified by General Electric (where he led Design for Six Sigma best practice projects). Wang has authored and coauthored four engineering books and numerous professional publications on business communication, decision making under uncertainty, risk engineering and management, Six Sigma, reliability engineering, and systems engineering. Having taught engineering and professional courses at Gannon University and National Technological University, Wang has been speaking and presenting at various international and national engineering conferences, symposiums, professional meetings, seminars, and workshops. Wang is an American Society for Quality Certified Reliability Engineer and an International Quality Federation Certified Master Black Belt. He received a B.A. (1985) and M.S. from Tsinghua University, Beijing, China; and a Ph.D. (1995) from the University of Maryland at College Park. Wang lives in Vail, Arizona, with his wife and two sons.

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