Lean Manufacturing Just In Time

The amount of inventory that we must carry will be based on the relationship of customer lead time to our cumulative lead time and delivery lead time, and additional factors such as capacity constraints, lot sizing policies, and customer service objectives.

Inventory is a trading currency. It can be used to trade for time or capacity. We compensate for the difference between customer lead time and our logistics pipeline time by trading time for inventory. When faced with capacity constraints, we build things earlier than needed to satisfy future demand peaks—trading inventory for capacity.

We usually meet demand from external customers from either production or inventory. On a day-to-day basis, the decision will be based on inventory availability. From a strategic perspective, however, the decision and supporting systems should be based on lead time relationships and projected demand versus capacity. Don't use customer service as an excuse for high inventory levels. You can also provide good customer service through lead time reduction.

The five steps that follow should form the basis for the campaign to reduce lead times and inventory.

Use item data and product structures to construct graphical representations of each product, similar to the flip-flop bill of material in Figure 3. Not only will this provide a picture of cumulative lead time, but it will help point out where lead time reduction efforts should be focused. Understand the detailed elements that make up cumulative lead time for all your products. For purchased items, break down the lead times into the tasks that are performed by your company, your supplier, and other orga­nizations. Analyze the lead times of manufactured items. Get a handle on your delivery lead times for each product. How much time is spent picking, packing, and shipping? What are the transit times to warehouses, customers, or major geographical areas? Work with your customers to find out how much time is spent between their receiving your product and having it available for use.

This involves knowing what your customers expect in terms of the time between their giving you an order and their receipt of the product. As this allowable lead time is most often influenced by the competition, you need to compare your delivery times and performance with that of your competitors. Overall, you need to know if you are losing product sales because the competition can satisfy the customer faster. Don't forget about the impacts of cost and quality in this comparison, however.

Discover the dead space! Bash the bureaucracy! Recognize the redundancies! Identify the idleness! Qualify the queues! As you examine each area of your logistics pipeline, look for waste. Try to identify the candidates for lead time reduction. Sometimes these are obvious, such as mailing purchase orders to your suppliers when they could be sent electronically. Others will require a more detailed analysis; for example, comparing the average actual manufacturing lead times to those used by your planning systems. Many of the information systems you currently use can provide much of this data—use them!

Make your system give you the data you need to do the analyses discussed so far. When you find disparities between actual practice and what the system plans or expects, bring the system into line. For example, if the system is using 6 days as the manufacturing lead time, and the actual average is 4 days, change the planning parameter in the system. Don't stop there. Find out why the system value was wrong. Was it because it was calculated

using the routing? If so, find the standards in the routing that are out of whack and correct them.

Review all of the variables used by your system for planning and scheduling. Look for those that need to be changed to more closely reflect reality, or that could be modified to affect a lead time or inventory reduction.

It's difficult to wage war on many fronts, so first of all you must decide where to attack. If you're losing the battles on delivery in a ship-from-stock environment, you should be concentrating on the distribution and delivery processes. Reducing manufacturing lead time can wait for later, when it becomes the constraint.

The real key is to focus your initial efforts on that portion of the cumulative lead time and delivery lead time that falls within the customer lead time. If the customer lead time remains constant, your lead time reductions from that end will bring more of the cumulative lead time within the customer lead time bracket.

As you begin to address improvements in manufacturing pro­cesses, focus first on the critical path. In manufacturing opera­tions, concentrate on the bottleneck resource within the critical path. You'll probably find that it's a bottleneck for many of your products. Address manufacturing lead times on two fronts— increase capacity where it makes sense, and improve your pro­duction methods and processes.

Work with your suppliers to reduce purchase lead times, again using the critical path of your cumulative lead time for focus. Remember that as you reduce lead time in one area, the critical path may change. Keep your cumulative lead time representations up to date. They should serve as maps and battle plans in deciding where to concentrate your forces.

There is no truce in the war on lead times. To fight that war effectively, we have to:

• Understand our lead times and how they are related.

• Establish manufacturing and inventory policies that reflect these relationships.

• Gather intelligence about where the weak spots are located.

• Seek and destroy the enemy! Wipe out inefficiencies and waste in our logistics pipeline at the points where it does the most good in advancing the forward edge of the battle area.

• Take a little R&R before the next battle!

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