The Principles of the Lean Business System: #6 Partnering. Lean in the 21 st Century Series Professor Peter Hines

Transcription

1 The Principles of the Lean Business System: #6 Partnering Lean in the 21 st Century Series Professor Peter Hines

2 Our Webinar Welcome Webinar will last about 1 hour We will invite you to complete a few Polls Q&A session Lean in the 21 st Century

3 Welcome! Frederick Taylor invented the business system used by organizations throughout the 20th Century Cost is the focus Scientific Management System Functionally organized by expertise Built for internal efficiency Not fit for the global, competitive environment of the 21 st century Relies on traditional management to be effective Objective is to minimize the time it takes to do value added processes 90% of problems in business are caused by management, 10% by the workman. F. W. Taylor, 1912 Peter Hines has invented a business system of the 21 st Century People are the focus Value Management System Organized by value delivered Built for productivity in an extended enterprise Fit for the global, competitive environment of the 21 st century Relies on leadership disposition and language to be effective Objective is to reduce or eliminate non-value added activities Professor Peter Hines Co-founder Lean Enterprise Research Centre, Cardiff University Chairman, S A Partners Adjunct Professor, University of South Australia

4 How we see creating a 21 st century business system Research conducted by Professor Peter Hines identified 5 key elements of success:- Link business system to a one to two year strategy through Policy Deployment Dismantle traditional, siloed, functionally-focused business processes Deploy human resources aligned to value to be delivered Develop leadership to be effective in a 21 st century business system space Synchronize business systems with suppliers and customers We encapsulate this in an evolutionary business model rooted in time tested customer, quality and lean thinking The Lean Business Model

5 The Lean Business Model Original source: Professor Peter Hines Benchmarking Toyota s Supply Chain: Japan vs U.K. Long Range Planning, February, Volume 31, Number 6, pp , 1998, ISSN

6 The Principles

7 .this requires a different mentality towards supply chain integration Traditional Role New Role % of Buyer s Time Admin Quality Quality Problems problems Expediting information & parts Market testing via competitive quotes Price negotiation Cost Reduction & Cost Planning Supplier Measurement & Improvement Activity Supplier Strategy Component Development Strategy Admin Negotiation Additional New Activities

8 Poll #1 How much of your purchasing time is value added? 0-10% 11-20% 21-40% 41-60% 60%+ Please select one answer

9 Competitive Advantage in Toyota Japan Value Added Competitive Gap UK Value Added Indexed Competitive Gap Apportionment Assemble % 1st Tier % 2nd Tier % 3rd Tier % 4th Tier % Raw Materials % Total 100% % 100% Toyota s Primary Source of Competitive Advantage is in its ability to manage & develop its Supply Chain

10 A World Class Supplier Base: Toyota Japan (mid 90s) Measure Toyota Supplier UK Supplier Gap Delivered Quality 5.1 ppm 1250 ppm 244x Value Added per employee On Time Delivery 76.9K 29.6K 2.6x 99.96% 89.28% 268x

11 Poll #2 How much of your total sales are bought in content? 0-20% 21-40% 41-60% 61-80% % Please select one answer

12 Network Sourcing Model Overview 1. A tiered supply structure with a heavy reliance on small firms 2. A small number of direct suppliers with individual part numbers sourced from one supplier but within a competitive dual sourcing environment 3. High degrees of asset specificity among suppliers and risk sharing between customer and supplier alike 4. A maximum buy strategy by each company within the semi-permanent supplier network, but a maximum make strategy within these trusted networks 5. A high degree of bilateral design employing the skills and knowledge of both customers and suppliers alike 6. A high degree of supplier innovation in both new products and processes 7. Close, long-term relations between network members involving a high level of trust, openness and profit sharing 8. The use of rigorous supplier mapping and measurement increasingly giving way to supplier self-certification 9. A high level of supplier coordination by the customer company at each level of the tiered supply structure 10. A significant effort made by customers at each level individually to develop their suppliers

13 Network Sourcing Model Overview 1. A tiered supply structure with a heavy reliance on small firms 2. A small number of direct suppliers with individual part numbers sourced from one supplier but within a competitive dual sourcing environment 3. High degrees Organisation of asset specificity among suppliers & and Structure risk sharing between customer and supplier alike 4. A maximum buy strategy by each company within the semi-permanent supplier network, but a maximum make strategy within these trusted networks 5. A high degree of bilateral design employing the skills and knowledge of both customers and suppliers alike 6. A high degree of supplier innovation in both new products and processes 7. Close, long-term relations between network members involving a high level of trust, openness and profit sharing Common Destiny & Relationship 8. The use of rigorous supplier mapping and measurement increasingly giving way to supplier selfcertification 9. A high level of supplier coordination by the customer company at each level of the tiered supply structure 10. A significant effort made by customers at each level individually to develop their suppliers Measurement & Improvement

14 Network Sourcing Model Overview 1. A tiered supply structure with a heavy reliance on small firms 2. A small number of direct suppliers with individual part numbers sourced from one supplier but within a competitive dual sourcing environment 3. High degrees Organisation of asset specificity among suppliers & and Structure risk sharing between customer and supplier alike 4. A maximum buy strategy by each company within the semi-permanent supplier network, but a maximum make strategy within these trusted networks 5. A high degree of bilateral design employing the skills and knowledge of both customers and suppliers alike 6. A high degree of supplier innovation in both new products and processes 7. Close, long-term relations between network members involving a high level of trust, openness and profit sharing 8. The use of rigorous supplier mapping and measurement increasingly giving way to supplier selfcertification 9. A high level of supplier coordination by the customer company at each level of the tiered supply structure 10. A significant effort made by customers at each level individually to develop their suppliers

15 1. Tiered Supply Structure Thin and Crispy: Few Layers Deep Pan: Many Layers Key Characteristics & Activities: Small Firms Module rather than component purchasing Consolidation of catalogue parts e.g. fixings Re-tiering of less important suppliers Closer relationships with the vital few Closer design linkages Higher percentage of costs from smaller (cheaper) suppliers

16 2. Small Number of Direct Suppliers with Multiple Sourcing Mazda Few Direct Suppliers Toyo Kogyo Delta Kogyo Mazda 3 Seats Mazda 6 Seats 1/3 rd 1/3 rd 1/3 rd Zone of Intense Competition

17 3. High Degree of Asset Specificity The degree to which suppliers make specific investments concerned with their ability to supply any one particular company The greater the degree of asset specificity, the greater the degree of risk sharing in new projects & short term opportunism by ether trading partner Trust is fundamental - Asset specificity is not the cause but a consequence of the strategies 4 types of asset specificity Physical asset specificity - e.g. dies, moulds & tooling Dedicated asset specificity - e.g. investment in production capacity Human asset specificity - e.g. education for one customer Site asset specificity - e.g. location close to customer firm

18 4. Maximum Buy Strategy The individual participant in an excellent network enacts a maximum buy strategy while the whole network enacts a maximum make strategy Keep as much as possible in your semi-permanent supplier network Degree of value adding is low Toyota - accounts for 22% of total costs (materials, tools & finished parts GM - traditionally accounts for 50%

19 Network Sourcing Model Overview 1. A tiered supply structure with a heavy reliance on small firms 2. A small number of direct suppliers with individual part numbers sourced from one supplier but within a competitive dual sourcing environment 3. High degrees of asset specificity among suppliers and risk sharing between customer and supplier alike 4. A maximum buy strategy by each company within the semi-permanent supplier network, but a maximum make strategy within these trusted networks 5. A high degree of bilateral design employing the skills and knowledge of both customers and suppliers alike 6. A high degree of supplier innovation in both new products and processes 7. Close, long-term relations between network members involving a high level of trust, openness and profit sharing Common Destiny & Relationship 8. The use of rigorous supplier mapping and measurement increasingly giving way to supplier selfcertification 9. A high level of supplier coordination by the customer company at each level of the tiered supply structure 10. A significant effort made by customers at each level individually to develop their suppliers

20 5. Bilateral Design The role of subcontractors in new product development Subcontractors supply 70% of the value of end products. Therefore they should play a major role in the introduction of new products Make to Customer Drawings Networking Sourcing Bilateral Design Supplier Black Box or Catalogue Parts

21 Lean Sourcing Target Target cost 15% Innovation Target cost Stepwise savings with IPD 3-5% 3-5% 3-5% Continuous improvements Continuous improvements with Category Management Kaizen cost 3-5% Time

22 6. High Degree of Supplier Innovation Supplier do not wait to be asked for ideas Suppliers always seeking ways to help you in terms of product, process or people Preferred Customer syndrome

23 7. Close Long Term Trusting Relationships Goodwill Trust Tough but fair High pressure but shared rewards

24 Network Sourcing Model Overview 1. A tiered supply structure with a heavy reliance on small firms 2. A small number of direct suppliers with individual part numbers sourced from one supplier but within a competitive dual sourcing environment 3. High degrees of asset specificity among suppliers and risk sharing between customer and supplier alike 4. A maximum buy strategy by each company within the semi-permanent supplier network, but a maximum make strategy within these trusted networks 5. A high degree of bilateral design employing the skills and knowledge of both customers and suppliers alike 6. A high degree of supplier innovation in both new products and processes 7. Close, long-term relations between network members involving a high level of trust, openness and profit sharing 8. The use of rigorous supplier mapping and measurement increasingly giving way to supplier selfcertification 9. A high level of supplier coordination by the customer company at each level of the tiered supply structure 10. A significant effort made by customers at each level individually to develop their suppliers Measurement & Improvement

25 8. Supplier Measurement: Current State Map Check vs Production Plan STEEL MILL SCHEDULING Check vs Sales Plan COMMERCIAL Order (3 months in advance) Promise (Negotiation) Call off weekly or by day Steel Service Centre Coils 2 shifts 3 Month Forecast Weekly Order Fax Revision PRODN. CONTROL 5 Month Forecast Daily Order With Time slots Vehicle Assembler 12,000pcs/mo Tray = 14 off 2 shifts Iron & Steel Making Individual Schedules Revisions to Missed Deliveries Weekly Schedule & Revisions Coils 3 Days Weekly Schedule by Day Shipping Schedule 1 x hours Hot roll Pickle Pack Dispatch Slit Dispatch Blanking Pressing Assembly Paint Assembly Dispatch I I I I I I I I I I I C/T = 120 hrs (includes cooling) C/T = 15 min C/O = 10 min C/T = 4min/coil C/O = 45 min Uptime = 55% 2 shifts 27,000 secav C/T = 1 sec C/O = 20 min Uptime = 70% 27,000 secav EPE 10 Days C/T = 1 sec C/O = 30 min Uptime = 70% 27,000 sec av EPE 10 Days C/T = 13 min C/O = 0 min Uptime = 85% 2 shifts 27,000 secav C/T = 1 hour C/O = Uptime = 65% 2 shifts 27,000 secav C/T = 9 min C/O = 0 min Uptime = 85% 2 Shifts 27,000 secav 2 Days 2 Days 3 Days1 Day16 Days 10 Days Lead Time 3 Days 2 Days 6 Days 0.6 Days 0.27 Days 1.2 Days = 47 to 69 to 32 Days days VA Time = 7262 sec 1200 Sec. 900 Sec. 240 Sec. 1 Sec. 1 Sec. 780 Sec Sec. 540 Sec. (121 min)

26 Future State Map STEEL MILL SCHEDULING Forecast Transmission (Supply Chain Syvchronisation) Orders Coil 600 Steel Service Centre Coils 2 shifts Daily Order Coil 600 PRODN. CONTROL 5 Month Forecast Daily Order With Time slots OXOX Vehicle Assembler 12,000pcs/mo Tray = 14 off 2 shifts Iron & Steel Making coil coil Batch tote Batch tote x hours Hot roll Pickle Pack Dispatch Slit Dispatch Assembly Blanking Pressing Dispatch & Paint F I F O C/T = 120 hrs (includes cooling) RFT = 85% C/T = 15 min C/O = 10 min C/T = 4min/coil C/O = 5 min Uptime = 85% 2 shifts 27,000 secav C/T = 1 sec C/O = 5 min Uptime = 85% 27,000 secav EPE Day C/T = 1 sec C/O = 5 min Uptime = 85% 27,000 sec av EPE Day C/T = 60 min C/O = 0 min Uptime = 65% 2 Shifts 27,000 secav 1 Day 1 Day 7 Days 1 Day 1 Day 1200 Sec. 900 Sec Sec. 1 Sec. 1 Sec. 1 Day 3600 Sec. 4 Hours Lead Time = 11.5 days VA Time = 6902 sec

27 9. & 10. Category Management: Supplier Coordination & Development A process where one partner in a relationship modifies or influences the behaviour of the other partner with a view to mutual benefit Supplier coordination - activities made by a customer to mould their suppliers into a common way of working so that competitive advantage can be gained particularly by the removal of inter-company waste Supplier development - activities made by the customer to help improve the strategies, tools and techniques employed by suppliers to improve their competitive advantage, particularly by removing intra-company waste Both of these are required simultaneously

28 Kyoryoku Kai (Supplier Associations) The Supplier Association may be defined as a mutually benefiting group of a company s most important suppliers brought together on a regular basis for the purpose of strategic alignment, planning and operational improvement designed to produce world class standards of quality, cost, delivery and innovation.

29 The Logic of Supplier Associations A team of a customer and key strategic suppliers Devolving strategy and policy through the supply chain to create a common sense of purpose Strengthening trust and the relationship Sharing knowledge and expertise Developing and learning together Eliminating waste - non value added activities both in and between firms

30 Toyota s Kyoho kai Basic philosophy towards suppliers Long term relations Creation and maintenance of cooperative relations Multiple sourcing of parts Optimal make/buy ratio often weighted towards the latter

31 Organisation of Tokai Kyoho Kai Activities Frequency Description General assembly Board meeting Meeting with supplier senior staff Groups: Cost Quality Safety Section meeting: 1, 2, 3 Others 1 per year 6 per year 2 per year 1 per month 1 per month Election of board members, activities, budgets Report/request from Toyota top management Development of close communications Improvement of suppliers management through process improvement Improvement and development of communication and management Kyoho news

32 Poll #3 In your dealings with suppliers are you: Mostly Day to Day Activities? Mostly Organisation & Structure? Mostly Common Destiny & Relationship? Mostly Measurement & Improvement? A Good Balance? Please select one answer

33 Poll #4 What further activity would you like? Please select one or more answers

34 Further Questions If you would like to discuss anything coming out of the webinar please contact me at: or +44 (0) Please also link up with me at: uk.linkedin.com/in/profpeterhines/ Or join me at my Lean Business System LinkedIn group: Business-System ?trk=myg_ugrp_ovr See also the previous webinars at:

35 European Events Accelerating Business Performance How to create Culture of Business Improvement, (Dublin, Belfast & London) Date: 14 November Dublin, 15 November - Belfast, Date: 3 December - London, Learn Share Grow Achieve Lean Excellence at Aimia Foods, Haydock, UK) January For further information please contact jo.maniatt@sapartners.com Or visit for our full event schedule

36 Australian events Lean Thinking *a 1 day introduction to Lean Principles. Sydney, Brisbane, Adelaide and Melbourne in November Lean Team Member* a 4 day workshop for Lean Practitioners Sydney Nov 13, Brisbane 2-5 Dec 13 and Melbourne 9-12 Dec 13 Lean Leadership a 2 day workshop for senior managers Sydney 2-3 Dec 13 and Brisbane 9-10 Dec 13. * Internationally recognised qualification accredited by Cardiff University For further information contact Chris Butterworth on , chris.butterworth@sapartners.com or visit our website