TOCICO 2009 Conference TOCICO. All rights reserved.

Transcription

1 TOCICO CONFERENCE 2009 Integrating Lean, TOC, Six Sigma and ERP: Tying Them Together Presented By: Russell M. Field Date: June 8,

2 Who s this guy? 2

3 All together, now: Profit = (Price Cost) x Volume 3

4 So What is this session about? It s NOT about Lean Manufacturing, TOC, Six Sigma or ERP; It IS about relating them functionally to each other; It IS about synergy and interactions between these elements, and It IS about their relationships to the rest of the business enterprise 4

5 How much can we cram into 50 minutes? We ve got 50 minutes to develop an integrated view of these business elements: Lean Manufacturing Theory of Constraints (TOC) Six Sigma Enterprise Resource Planning (ERP) Business strategy and management, including Finance OF NECESSITY, this will be a very high-level overview of these elements, highlighting basic points regarding their integration at the enterprise level. 5

6 Agenda Who s this guy? What s all the hubub? The puzzle Deployment Managing the event horizon Minding the dollars (or how not to ) 6

7 DISCLAIMER Although I am employed by The Boeing Company, the material contained in this presentation ti has not been sponsored or endorsed by The Boeing Company. No association of this material with The Boeing Company, its policies or practices is expressed or implied. The concepts and information herein are freely available from many sources, and their sharing and dissemination is highly encouraged. However, please do not use the slides themselves without my permission as their format and configuration are particularly identified with me. Thanks! Russ Field 7

8 What s all the hubub? b? 8

9 What are we trying to accomplish with these tools/approaches? Improve competitive posture Increase Profit Manage the entire business Leverage synergistic relationships between these concepts Prevent Initiative conflicts Avoid suboptimization Maximize resource utilization and bang for the buck 9

10 Is Lean all we have to do to be successful? or TOC? or [insert flavor]? or Six Sigma? or ERP? Which should I choose? Are any of these The Answer? 10

11 FIRST, a little background What does it take to run a business? 11

12 Critical business functions Pi Primary business functions must include: Management strategy/policy formulation, tactical execution oversight Sales & Marketing market niche identification, characterization ti Finance accounting and reporting Additional functions may include: Engineering Manufacturing Procurement/Materiel Human Resources 12

13 Sing a song of Delphi Who does lean, yet struggles as a business? Delphi Shingo Prize > 20 times GM (parental relationship with Delphi, NUMMI* partnership with Toyota) Ford (Shingo Prize) Your unit/group/company? Womack s bicycle frame company *New United Motor Manufacturing, Inc. 13

14 James Womack and Merlin Metalworks: Setting the stage... Time: 1995 Claim to fame ~2 weeks from order placement to shipment STAGE RIGHT ~4 months inventory of titanium tube stock (big $$) STAGE LEFT ~4 months inventory of semi-finished bike frames (bigger $$) CENTER STAGE A conglomeration of equipment, processes and convoluted flows 14

15 James Womack and Merlin Metalworks (1995) Leaned out processes Cellularized and simplified the manufacturing gprocesses and resources Drew down raw tube and semi-finished frame inventory (8 mo. to ~2 days) Developed and built flexible, quick-changeover welding fixture COD to reduce bookkeeping and improve cash flow Problems? Supplier not motivated to cut lot size or shipment frequency (Boeing, P&W, GE ---- Merlin) Custom bicycle customer base equated longer flow time with quality and value Bank wanted traditional collateral inventory, equipment, receivables Lessons Don t let the pursuit of conceptual purity y( (Lean or otherwise) blind you to what the customer wants Changing supply chain mindsets, while critical, is harder than changing your own Traditional financing sources may not understand low-capital manufacturing Reference: 15

16 The problem is not the failure of specific concepts but, rather, not understanding the entire supply chain and managing the business in a holistic manner! There s more to successfully managing a business than implementing silver bullet concepts!!! 16

17 The puzzle 17

18 So, what do Lean, TOC, 6 Sigma and ERP (collectively) do? Generally speaking, Lean, TOC, 6 Sigma and ERP do two things: I. Provide strategic perspectives The nature of waste Excess inventory and flowtime as liabilities Unnecessary resource activation Role and source of quality Engineering g design vs. conformance Built-in vs. inspected-in Cost control vs. cost driver Flow of money - parts, materials, information and other process outputs Process management Design, standardization, expression, evaluation (including metrics) and control Improvement vs. stagnation ti and loss 18

19 What do Lean, TOC, 6 Sigma and ERP (collectively) do? II. Provide tactical ti tools Describe the current and future states Quantify performance and conditions to help identify opportunities Link Enterprise Vision/Enterprise business units/current state/future state Support strategic decision-making processes 19

20 And how should we use these tool sets? Help align action plans with business goals Formulate mission/vision/goals i i i / Develop products/services Identify target markets Develop strategies Set policies and procedures Set priorities Select processes and identify resources Manage daily performance and emergent situations BUT - WE must make these decisions! 20

21 The pieces 21

22 Lean Manufacturing Main objective: Remove waste (non-value-added added activities) Key question: What should I be doing/not doing? Examples: 5S Value-stream mapping Inventory and process control mechanisms (e.g. kanban and andons) Lean = Effectiveness 22

23 Theory of Constraints Main objective: Relieve barriers to the flow of money Key question: Which processes/conditions should I target first/next? Examples: Concept and definition of constraint The Five Focusing Steps Concept of shifting constraints TOC = Money Flow 23

24 Six Sigma Main objective: Reduce variation/optimize value-added added activities Key question: How can I mistake-proof those processes? Examples: Design of Experiments Statistical ti ti Process Control Poka-yoke 6 σ = Efficiency 24

25 Enterprise Resource Planning Main objective: Manage business data Key question: What s my baseline? Examples: Record and maintain process, product and resource data Help manage volume, variety and variation of business data Support business processes and decision-making ERP = Business Data Management 25

26 Putting the pieces together 1 Leadership and management Lean = Effectiveness 6 σ = Efficiency Continuous Process Improvement (CPI) TOC = Money Flow ERP = Business Data Management Bottom-line performance Quality - COST - Delivery around a core of Continuous Process Improvement! 26

27 Deployment... 27

28 Common approach Strategy t Formulation Lean 6 Sigma TOC ERP Tactical Execution Org 1 Org 2 Org 3 Org N Different organizations will implement strategies in different ways 28

29 Deployment - like sands through the hourglass 2 Strategy Formulation Lean 6 Sigma TOC ERP OPERATIONS PLANNING { Coordination Integration Action planning Tactical Execution Org 1 Org 2 Org 3 Org N Common, cohesive plan & goals with enterprise-level view 29

30 Forging Forward... Managing The Event Horizon 30

31 Wastes Scrap/rework Excess Flowtime Excess Inventory Overtime NVA activities Flowtime Inventory 3 Stable Performance No Scrap/rework No Excess Flowtime No Excess Inventory No Overtime No Underutilized resources BIG LEAN Lean TOC Six Sigma ERP Baseline Costs & Capacity My Business Liberated Capacity Equipment Facilities Personnel 31

32 What to do? Once all waste excess to the baseline business plan is driven OUT (not just moved around), further improvement will yield only additional capacity (opportunity) in some sense. If we don t, aren t prepared to or can t leverage that additional capacity, are we really gaining anything from further improvement activity? Remember Womack s bicycles and the philanthropic shops 32

33 What to do? Fill in the hole, or Reduce the capacity (but not TOO much!) Flowtime Inventory } These are NOT decisions the tools can make FOR us!! Stable Performance No Scrap/rework No Excess Flowtime No Excess Inventory No Overtime No Underutilized resources Baseline Costs & Capacity My Business Liberated Capacity Equipment Facilities Personnel 33

34 Cost Absorption Impacts on Lean Operations Decisions Minding the Dollars (or how not to ) 34

35 We re almost done... 35

36 Why are we going here? Primary business functions must include: Management Sales & Marketing Finance Additional functions may include: Engineering Manufacturing Procurement/Materiel Human Resources 36

37 Relationships... Enterprise External Supplier unting st Accou Policy Cos y} } Competitive comparison Internal Supplier 37 One link vs. another, or an external supplier

38 Calculating Cost with Overhead Absorption The ERP Operations Cost calculation (basic formula) ((Setup Time/EOQ)+ Run) x Operations Rate The Cost Absorption-based b Operations Rate (simplified) Budget/Forecast Standard Hours = $ per Std Hr 38

39 Cost Absorption Issues Seesaw Three products A, B & C - take 5, 3 and 2 standard hours respectively (total 10 std. hrs.) $800/day total costs = $80/std. hr. (Operations Rate) 39

40 4 Cost Absorption Issues Process Improvement Before AFTER Std Hrs. Rate ERP Cost Std Hrs. Rate ERP Cost A 5 $400 A 3 $300 B 3 $ C hrs. $800 B 3 $ C hrs. $800 B&C are now perceived as being more costly, though h the only change has been to A... 40

41 Cost Absorption Issues Process Improvement Extended Supply Chain Impacts Tier II Tier I ERP Cost A $300 Product ABC inventory B 300 > P d t XYZ i t C 200 Product XYZ inventory Part A is sold to Product Line ABC, while Parts B & C are sold to Product Line XYZ; XYZ s inventory both components and used-ons increases because A was improved... 41

42 Situation Cost Absorption policy is not designed for competitive costing estimated costs cannot be used for competitive decisions without additional manipulation links are treated as cost centers, wherein costs are allocated to sales YET... Cost data is used for many analyses and business decisions, i especially at the link level. AND... Links are often held accountable for inventory costs as derived from system Cost data. PLUS...Cost absorption policies inhibit use of calculated costs for pursuing Lean Manufacturing opportunities 42

43 All together, now: Profit = (Price Cost) x Volume 43

44 Contact Information and Q&A Russ Field (253)

45 About [Presenter] Russell M. Field is a business process analyst with Boeing Commercial Airplanes. Experienced in process and resource description as part of major ERP/MRP system implementations, he is a former Continuous Quality Improvement (CQI) facilitator t and team leader, Statistical Process Control analyst, and instructor on aspects of integrating ERP/MRP systems with Lean Manufacturing techniques. With a Bachelor of Science in Business Administration, Russ has been a featured speaker at various North American functions including APICS chapter meetings, SSA Global Users conferences, the Continuous Process Improvement Symposium, and the IIE Conference in Hermosillo, Mexico. 45