Lean Thinking for the Canadian Auto Industry: The Next Leap

1. Lean Thinking forthe Canadian Auto Industry:The Next Leap A Presentation by James P. Womack President, Lean Enterprise Institute APMA Conference & Convention Hamilton, Ontario April 12, 2000 www.lean.org

2. Who Are We? Firms Intellectual Partners Partner Companies Individuals Lean Enterprise Institute Lean Enterprise Europe Consultants Non-profits Lean Institute Brasil www.lean.org

3. Our Objective • To distill and simplify the core knowledge of lean thinking (from Henry Ford as transformed by Toyota) • To “bundle” this knowledge in plain language guides to action, presented in workbooks and seminars • To pursue the next leap in lean thinking through breakthrough exercises, as described in books www.lean.org

4. How We Work • Web site - to create a community • Corporate partnersfor financial support, brainstorming, and breakthrough experiments — Delphi Automotive, United Technologies, Lockheed Martin, Invensys, Canada Post • Eventsto bring our community together • Publications and seminarsto summarize and teach our knowledge • Books and breakthrough projectson new dimensions of lean thinking www.lean.org

5. Coming in May: Lean Enterprise Institute Canada Larry Cote, Director Ottawa-based, Canada-wide Non-profit for education and research Assessments Seminars Publications and fulfillment See www.lean.org for details www.lean.org

6. Lean Thinking The Fundamental Insight & Objective: Shift the focus of management from existing organization, technologies, and assets to the product! Differentiate value from waste (muda) Enhance value and remove waste by looking down, not up!!! www.lean.org

7. Lean Thinking In Summary • Accurately specify value by product • Identify the value stream • Make the product flow • At the pull of the customer • In pursuit of perfection www.lean.org

8. When Machine Was LaunchedOnly a Decade Ago (1990): North American auto industry was characterized by: • Weak product development teams with long development cycles and high costs • Vertically integrated, high-cost supply base • Batch and queue production systems pushing out high-cost products with many defects • A push retailing system unchanged for 70 years www.lean.org

9. Only Ten Years Later: North American industry becoming lean: • Strong product development teams designing better and more interesting products faster and cheaper • Dramatic de-integration of supply chains • Lean production systems creating flow and pull for lower cost and higher quality • First experiments in rethinking factory-to-customer Congratulations! www.lean.org

10. The Consequence: • A dramatic reduction in work-in-process inventories (but not yet in finished goods) www.lean.org

11. Inventory Turns Manufacturing and Automotive Automotive Manufacturing ’77 ’79 ’81 ’83 ’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 www.lean.org Source— US Department of Commerce, Bureau of Economic Analysis

12. The Consequence: • A dramatic reduction in work-in-process inventories (but not yet in finished goods) • A dramatic boom in vehicle sales driven by steady reductions in real product prices based on productivity gains www.lean.org

13. The Consequence: • A dramatic reduction in work-in-process inventories (but not yet in finished goods) • A dramatic boom in vehicle sales driven by steady reductions in real product prices based on productivity gains • A surge in OEM & supplier dollar profits www.lean.org

14. The Consequence: • A dramatic reduction in work-in-process inventories (but not yet in finished goods) • A dramatic boom in vehicle sales driven by steady reductions in real product prices based on productivity gains • A surge in dollar profits • Dramatic decline of imported units as a fraction of regional consumption and a lull in the trade debate www.lean.org

15. The Consequence: • A dramatic reduction in work-in-process inventories (but not yet in finished goods) • A dramatic boom in vehicle sales driven by steady reductions in real product prices based on productivity gains • A surge in OEM dollar profits • A dramatic decline in finished unit imports (but not yet in parts) and a lull in the trade debate • An overwhelming feeling that the North American industry has made a lean leap! www.lean.org

16. However… The boom in the sales has also been financed by participants in the Canadian industry: • OEMs, Tier 1s, and Tier 2s are at best 4% ROS businesses • Your stocks have managed to miss the entire bull market of the 1990s • Real wages (salary plus bonuses and options) are stagnant • Prosperity based on a weak dollar! No wonder customers love the Canadian auto industry, but…what about you! www.lean.org

17. How Can You Do Better? • Reward your investors and… • Reward yourselves as employee/investors! I assume you want to grow your company share of a continuing boom market, but you also want to: How can you do this in the next decade? www.lean.org

18. A Hopeless Path: Raise Prices • Watch the formation of 6-8 global OEM groups (e.g., VAG, DCM, Ford, GM, Toyota) • Participate in formation of First Tier groups (e.g., Delphi, Visteon, Magna) • Wait for the re-emergence of price leadership! • Hopeless because: • 6-8 OE groups with multiple badges per group and roughly equal global shares is too many for price signaling! • 8-10 First Tier groups with multiple product families and roughly equal shares is too many for price signaling! • And…in any case…price leadership will depress sales! Forget it! www.lean.org

19. The Lean Solution • Fix your current business to take out large chunks of waste/cost inside • Rethink the value proposition so your customer obtains something different and better • Optimize the entire value stream in collaboration with customers & suppliers to remove more waste www.lean.org

20. Step One: Fix Your Current Operations • “Lean” is now conventional wisdom! • Most of you have introduced: -- Cells -- TPM -- “Pull scheduling” -- IS0 9000/QS 9000 -- Quick set ups -- dedicated product development teams -- Poka yoke -- Six sigma -- Kaizen, kaizen, kaizen! www.lean.org

21. Step One: Fix Your OperationsWith all these inputs, why are there so few useful outputs? • Lack of product-focused management • Focus on individual points rather than the whole www.lean.org

22. What Can You Do? • Appoint a value stream manager for each product • Map each product’s value stream • Take everyone on a walk along the value stream and learn to see www.lean.org

23. Michigan Steel Assembly #2 Stamping Spot Weld #1 Spot Weld #2 Inspection Assembly #1 State StreetAssembly 500 ft coils Twice aweek 18,400 pcs/mo -12,00 “L” -6,400 “R” Tray = 20 pieces 27,600 sec. avail 27,600 sec. avail 27,600 sec. avail 27,600 sec. avail 27,600 sec. avail 27,600 sec. avail 2 Shifts Typical Current-State Map PRODUCTION CONTROL I I I I I I I 188 sec 23.6 days

24. Weld & Assemble Total work = 168 sec Create a Future State by Combining & Eliminating Tasks Takt = 60 sec C/O = 0 Uptime = 100% 2 shifts www.lean.org

25. Create a Future State by Introducing Rigorous Pull The “Supermarket” for materials www.lean.org

26. Michigan Steel Weld & Assemble Stamping State StreetAssembly 500 ft coils Daily Milk Run 18,400 pcs/mo -12,00 “L” -6,400 “R” , Tray = 20 pieces 27,600 sec. avail 27,600 sec. avail 2 Shifts The Future State PRODUCTION CONTROL (Forecast only) 169 sec 4.5 days

27. Once You’ve Learned to Map • Make someone permanently responsible for each product family • Require them to maintain an accurate current state • Require them to envision a future state with fewer wasted steps, maximal flow, and pure pull • Tell them to achieve and stabilize the next future state quickly ( < three months) • Continue this cycle until you achieve perfection! www.lean.org

28. Step Two: Rethink Value Does your customer want: # 1: To buy parts from many suppliers via web-based reverse auctions? Or # 2: To obtain solutions to a few basic problems from a small number of hassle-free, cost-effective providers working in collaborative relationships? www.lean.org

29. Most Likely Answer # 1 today # 2 when the problems with # 1 become apparent! www.lean.org

30. A Likely Transitional Path: • Tiering will continue progressively: Tier 1 component systems suppliers; Tier 2 component suppliers; Tier 3 piece part suppliers • The emergence of Tier .5 module suppliers will depend on fundamental OE decision whether to modularize vehicle architecture • The number of players in each Tier will fall due to the cost & hassle of managing large numbers of suppliers, even with the help of the web • As N falls, collaborative arrangements based on value stream analysis and target pricing will work better than arms-length bids www.lean.org

31. Key Point for All Suppliers During this Transition: • You can make a living in any Tier if you run your business properly! The challenge is to decide what Tier you are going to be in, pick your partners, and redesign your business accordingly www.lean.org

32. As the Tiers Align and Transition Nears Completion: • Firms at the next level (toward the customer) will want their suppliers to solve problems rather than sell them parts, components, or modules • Solutions are hassle-free, cost-effective and sustained through the life-cycle of the product in production and in use • All solutions presume steadily falling prices to the customer and steadily improving quality www.lean.org

33. Step 3: Optimize the Whole • Map the entire value stream -- downstream to customers; upstream to raw materials • Make someone responsible for the entire stream • Envision an “ideal state” in which all wasted steps have been removed and response time to the customer approaches zero • Ask what technologies in what location will be necessary? www.lean.org

34. Highland Park RunningBoards Commutators Front Axles Assembly Radiators Gas tanks Rear Axles 250,000 Vehicles Per Year, One Model, Three Days Throughput Time www.lean.org

35. The Rouge Annealing Stamping Painting Assembly Washing Welding Brazing 2.5 Million Vehicle Kits Per Year, Many Models, Weeks of Throughput Time www.lean.org

36. Spaghetti World Assembly Components Piece Parts Process www.lean.org

37. DEARBORN MALAYSIA PRODUCT INFO FROM MRP INFO BY PHONE NORFOLK LIVONIA BURTON EDISON BUFFALO BROWN- VILLE MATA- MOROS BROWNS- VILLE FORD CROSS- DOCK FACILITY BOX SCORE FOR WIPER ARM/BLADE VALUE SREAM (BURTON TO EDISON ONLY): TOTAL STEPS: 55; VALUE CREATING STEPS: 8; TOTAL TIME: 7WKS; VALUE CREATING TIME: 21 MIN www.lean.org

38. Lean Path for a Second Leap: • We’ve recently been conducting many of these macro-mapping exercises at LEI • They clearly show enormous waste in production & distribution systems after first “lean leap” • Waste is the “bank” for higher margins, share prices, and wages even with lower product prices • But how can you make a withdrawal? www.lean.org

39. Lean Path to the Future: Our recommendation: • Conduct a joint mapping exercise with all the value stream players for every product family • Identify waste/cost savings and the investments needed to achieve the savings • Devise a simple formula to divide the loot and share the investment cost so that everyone wins! The one sure way to create a win-win-win Canadian automotive industry! www.lean.org

40. Emerging Lean Value Stream? Front ends Moldings Cockpits Gaskets Interiors Assembly Power Chassis Modules Glass Tubes Screws Many units; many models; Highland Park redux! www.lean.org 40

41. It’s up to you! www.lean.org

42. www.lean.org