Lean Deployment in Supply Chain: Materials

1. Lean Deployment in Supply Chain: Materials

2. Presentation Objectives • Foundation: Lean Thinking • A Culture Shift – The Lean Journey In Supply Chain • Highlights of the Transformations at CPS Energy’s Materials Team • Our Future State - Relentless Pursuit of Perfection

3. Foundation: Lean Thinking

4. 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 customer’s 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.

5. 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

6. The Seven Wastes • The main restriction to profitability, efficiency and flexibility: • Defects, Mistakes, Corrections • Overproduction (over acquisition) • Transportation • Waiting • Inventory • Motion • Over Processing

7. 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).

8. 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

9. 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 Visual Management System

10. Strategy Deployment • It is important to get the team involved in strategy deployment • Our Supply Chain Director has to main strategy objectives: • Reduce Lead Time • Improve Quality • The Materials group’s strategy must support Supply Chain’s strategy • The Supervisor’s strategy must support the Material group’s strategy • This is the nature of goal alignment bottom up

11. 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 Continuous Improvement

12. Best Quality – Short Lead Time – Lowest Cost JIT Jidoka Goal Alignment and Strategy Deployment Train People: Problem Solving Work Processes: Standardized Philosophy: Understand and Eliminate Waste JIT and Jidoka The Pillars of Lean People Process Technology

13. Culture Shift: The Lean Journey

14. 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.

15. 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.

16. Importance of Standardization • Stadardization is backbone of Lean. • It consists of three elements: • Pace of customer demand • Sequence of doing things or sequence of processes • How much inventory or days on hand is needed to accomplish the work • It is impossible to improve any process until it is standardized.

17. Waste Creation Muda Waste Mura Unevenness Muri Overburden

18. 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

19. 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

20. Easier to Identify Harder to Identify, Measure and Relate to Purchase Unit Price Duties &Fees Freight Cost Planning Purchasing QC Warehouse & Inventory Lead Time Impact Poor Quality Impact (Internal) Late Delivery Impact Field Failures Service General Admin. Total Cost of Ownership

21. 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?

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

23. Inventory Carrying Costs • Administrative Overheads 2% • Cost of Capital 9% • Damage 5% • Insurance 2% • Transfers 4% • Obsolescence 5% • Shrinkage 3% • Space to Handle Excessive Inventory 5% • Storage Systems ½%

24. So the focus is not on inventory…. But rather how we manage our excessive inventory!!

25. Highlights of the Transformation Supply Chain: Materials Management

26. 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

27. 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)

28. Lead Time Reduction

29. Value Stream Perspective

30. Lean Warehousing

31. Reverse Logistics

32. Right Direction?

33. Future State Pursuit of Perfection

34. Right Materials Right Quantity Right Time Right Place Right Source Right Price Right Quality Right Service Can we answer these questions? What process are in place? What are the moments of truth? What are the failure modes? Visualizing the Supply Chain

35. Lean Thinking Specify Value by Product Identify the Value Stream Make the Product Flow At the Pull of the Customer In Pursuit of Perfection Learning to See How Does the Process Work? Can we Agree on Performance? Can we be Involved? How will we Improve? Value Stream Mapping

36. 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

37. The Future State • What are the customer’s 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?

38. Questions or Comments?