Lean thinking for the canadian auto industry the next leap
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Lean Thinking for the Canadian Auto Industry: The Next Leap. A Presentation by James P. Womack President, Lean Enterprise Institute APMA Conference & Convention Hamilton, Ontario April 12, 2000. Who Are We?. Firms. Intellectual Partners. Partner Companies. Individuals.

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Lean thinking for the canadian auto industry the next leap

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


Lean thinking for the canadian auto industry the next leap

Who Are We?

Firms

Intellectual Partners

Partner Companies

Individuals

Lean Enterprise Institute

Lean Enterprise Europe

Consultants

Non-profits

Lean Institute Brasil

www.lean.org


Lean thinking for the canadian auto industry the next leap

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


Lean thinking for the canadian auto industry the next leap

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


Coming in may

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


Lean thinking for the canadian auto industry the next leap

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


Lean thinking in summary

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


When machine was launched only a decade ago 1990

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


Only ten years later

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


Lean thinking for the canadian auto industry the next leap

The Consequence:

  • A dramatic reduction in work-in-process inventories (but not yet in finished goods)

www.lean.org


Inventory turns

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


The consequence

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


The consequence1

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


The consequence2

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


The consequence3

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


However

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


How can you do better

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


A hopeless path raise prices

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


The lean solution

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


Step one fix your current operations

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


Step one fix your operations with all these inputs why are there so few useful outputs

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


What can you do

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


Typical current state map

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


Create a future state by combining eliminating tasks

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


Create a future state by introducing rigorous pull

Create a Future State by Introducing Rigorous Pull

The “Supermarket” for materials

www.lean.org


The future state

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


Once you ve learned to map

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


Step two rethink value

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


Most likely answer

Most Likely Answer

# 1 today

# 2 when the problems with # 1 become apparent!

www.lean.org


A likely transitional path

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


Key point for all suppliers during this transition

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


As the tiers align and transition nears completion

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


Step 3 optimize the whole

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


Lean thinking for the canadian auto industry the next leap

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


Lean thinking for the canadian auto industry the next leap

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


Lean thinking for the canadian auto industry the next leap

Spaghetti World

Assembly

Components

Piece Parts

Process

www.lean.org


Lean thinking for the canadian auto industry the next leap

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


Lean path for a second leap

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


Lean path to the future

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


Lean thinking for the canadian auto industry the next leap

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


It s up to you

It’s up to you!

www.lean.org


Lean thinking for the canadian auto industry the next leap

www.lean.org


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