VIP

VIP

VIP

VIP

Chicago 41966 N. US Hwy 45 Antioch, IL 60002 001 (847) 395-7076

Boston 12 Crowell Street Haverhill, MA 01830 001 (978) 372-3469

Europe 33 Wharfe Grange Wetherby LS22 6SS UK

011 44 1 937584617

Australia 119 Hawthorn Road Caulfield Victoria 3161 011 61 (03) 9523 7955

All materials contained herein are the sole property of Value Innovation Partners, Ltd. and unauthorized use is strictly prohibited without the expressed written consent of Value Innovation Partners, Ltd.

The Agenda
Who we are Brief overview Why Supply Chains are not Lean Designing a Lean Supply Chain Model A Case Study Questions and Answers

All rights reserved VIP 04/2004

Who We Are
Value Innovation Partners, Ltd. was founded by a group of business practitioners with offices in Boston, Chicago, Leeds, UK & Melbourne, Australia.

Experience Experience

Professionals with an average of 20 years of industry experience Clients in all major business sectors Recognized leaders in Lean Enterprise, Lean Supply Chain, ABC Analysis, Pharmacovigilance, Six Sigma, Lean Office and Lean Healthcare Participate in the analysis and implementation of solutions Deliver innovative, hands-on, creative approach Establish long-term relationships

Involvement Involvement

Results Results

Quantifiable and sustainable benefits Transfer critical skills Improve customer satisfaction, working capital, revenue and processes

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Partial Client List

Medical Devices Manufacturing
Dentsply Avery Dennison Werner Ladder Oleo International ICI Dulux Munters M/A-Com Horizon Medical FabCon Ethicon, Inc. Medtronic, Inc B Braun Innovative Surgical Products

Building Products
Werner Ladder American Standard ICI Dulux Trane Dayton Superior

Distribution
Avery Dennison Graphic Packaging ICI Dulux Werner Ladder

Print/Packaging
Avery Dennison Graphic Packaging Cardinal Health Keller Crescent CCL Labels

Pharmaceutical Food & Beverage

Mars Kerry Foods RHM ABF Allied Domecq Johnson & Johnson Roche Medeva Pfizer Lilly McNeil Pharmacia & Upjohn Parke-Davis Bayer

Biomed
Bayer Braun

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VIPs Proven Methodology

VIP employs a structured 4-step process. (Benefits realized throughout the process)
Continuous Long-Term Goals Implement

4.

CONTINUOUS IMPROVEMENT

How to Implement

3.
VIP, LTD.

NORMALIZATION

What to Implement

2.

IMPLEMENTATION

Create Design

Verify Concept Dramatic ShortTerm Goals

1.

ASSESSMENT

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Evolution of Lean
TQC Employee Involvement Waste Elimination Supplier Development

TQM

JIT JIT

World Class Mfg Lean Enterprise Lean Sigma

Business Process Reengineering Cost Management (ABC)

BPM BPM Lean Lean

Six Sigma

6 6

1970s

1980s
Mid 1800s: Interchangeable parts Late 1800s: Pork disassembly lines Chicago 1913: Moving assembly line at Ford Pre-WW2: Toyoda invents Jidoka on looms

1990s

2000s

Post-WW2: Toyota Develops a Production System For High-Variety, Low Volume. 1980s: MIT Study of Toyota 1996: James Womack Documents General Applications of TPS and For Any Organization and Calls It Lean Thinking. All rights reserved VIP 04/2004

The Definition of Lean Enterprise

A Group of individuals, functions, and sometimes legally separate but operationally synchronized organizations. The value stream defines the Lean Enterprise. The objectives of the Lean Enterprise are to:
correctly identify and specify value to the ultimate customer / consumer in all its products and services analyze and focus the value stream so that it does everything from product development and production to sales and service in a way that activities that do not create value are removed and actions that do create value proceed in a continuous flow as pulled by the customer.
James Womack: Lean Thinking

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Six Sigma - The Short Story

Pioneered by Motorola in 1980s
Discovered that products with high first-pass yield (the amount of product that made it through defect-free) seldom failed in use Focused on creating strategies to reduce defects in own products Won Baldrige Award in 1988

Some key players in Six Sigma history

Mikel Harry - one of the original Motorola architects who later founded Six Sigma Academy Jack Welch, CEO General Electric Larry Bossidy, CEO Allied Signal

What Six Sigma Is(6)?

Philosophy: Promote excellence in all business processes -- improve productivity, profits, and customer satisfaction Methodology: A 5-phase process for continuous improving quality by reducing inherent variability Statistic: Numerically describes amount of variation in a process Benchmark: Normalized measure to compare performance of many processes and process types Goal: 6 Sigma performance -- a process which produces less than 3.4 defects per million opportunities (DPMO). A tool reduce or eliminate variation
All rights reserved VIP 04/2004

Lean, Six Sigma, or Lean Sigma ?

QUESTIONS Which should we do first? What are the prerequisites of each? Can I do them concurrently? Which will deliver the biggest bang for the buck?
What tool(s) should we focus our efforts on?

Six Sigma -- 6:
Six Sigma, a vehicle for strategic changean organizational approach to performance excellence. Six Sigma creates transformational change throughout the organization, processes, culture and customers. Six Sigma creates transactional change by applying tools and methodologies targeted at reducing variation and drastically improving processes. Six Sigma (6): 99.99966% accuracy 3.4 defects per million

6 Sigma tactics

6 5 4

Tools: Tools Design for Manufacturability Design for Six Sigma, 6 Tolerancing Product Scorecard Tools: Tools: Process characterization (mapping, MSA, etc) Process optimization (DOE, etc) Tools: Seven basic tools (paretos, fishbones, etc) Tools: Common sense Tribal knowledge

Lean tactics

3 1-2

Where is your organization? What kind of tools should you be using?

All rights reserved VIP 04/2004

The Agenda
Who we are Brief overview Why Supply Chains are not Lean Designing a Lean Supply Chain Model A Case Study Questions and Answers

All rights reserved VIP 04/2004

Is This Your Supply Chain Process?

A. SUPPLIER

RECEIVING INSPECTION

M / C SHOP 2 M / C SHOP 1

PROCESS

RECEIVING RM STORE

TEST WIP STORE

INSPECTION

FGS

COMPONENT STORE

SUB - ASSEMBLY

FINAL ASSEMBLY

SHIPPING

Complex Layout Conflicting objectives Protectionist Attitude Barrier to Teamwork / Problem solving Lead to . . . Long Lead Times, High Inventory, High Costs, Long Lead Times, High Inventory, High Costs, Poor Quality & Unresponsiveness Poor Quality & Unresponsiveness
All rights reserved VIP 04/2004

Complex Distribution
Order Order Order

Manufacturing

Local Warehouse

Regional Warehouse

Local Warehouse

Leads to . . . Long Lead-times Long Lead-times High Stocks High Stocks Poor Service Poor Service Many Parties Involved Many Parties Involved Poor Quality Poor Quality High Logistic Costs High Logistic Costs
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FAX

Customer Warehouse

Which of These Add Value?

Please Indicate: Indicate
Expediting
P MR

VA NVA

GRNs

Receiving Inspection

Planning
Start End

Purchasing

Suppliers

CAD System Customers Distribution Management

Production Engineering

Materials Handling Stores/ Kitting

Accounts Shop Floor Data Collection

Automated Warehouse

Manufacturing Direct Operator Robot Conveyors Supervision

All rights reserved VIP 04/2004

WIP

WASTE

. . . Any Resource consuming Activity that delivers NO Value to the Customer

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Lean Operations: Means Identifying and Eliminating Waste PEOPLE

Motion Processing Fixing Defects Waiting

TYPES OF WASTE

TAIICHI OHNO, ARCHITECT OF THE TOYOTA PRODUCTION SYSTEM

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A QU Y LIT

Inventory

Making Too Much

Moving Things

TITY UAN Q

Where are Businesses Today?

Most business processes are around 3
C fli gh O orr ve ec ta rn t rr ig leg R iv es ht a al Pa ta la s de M y u (a liv dv is ro ra ll ic ha ll n ca W er e pr t b ire nd y rr oc ill o f fro ie tr led e s m rs 1s an ss ) ba i t C IRS sf gg ng er la s ss ag e M (a ai ll l ca rr ie rs ) of ca lls

99% results in: 99% results in:

20,000 lost articles of 20,000 lost articles of mail per hour mail per hour 5,000 incorrect 5,000 incorrect surgical operations surgical operations per week per week 200,000 wrong 200,000 wrong prescription drugs prescription drugs each year each year
fa ta lit y

DPMO
1000000 100000 10000 1000 100 10 1 0 0

IR S

an sw

er s O nt

21 %

im e

Even at 99.9% quality Even at 99.9% quality (= 4.6 sigma) (= 4.6 sigma)
20,000 wrong drug 20,000 wrong drug prescriptions per year prescriptions per year Two short or long Two short or long landings at OHare landings at OHare airport each day airport each day

Process Sigma
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D (0 om .4 es 3p t pm ic a ) irli

ne

ra te

Weve taken a simple process . . .

Management

Employees
PACK & SHIP

Order

RECEIVE

PRODUCE

Customer

All rights reserved VIP 04/2004

. . . & Complicated it!

Customer Order

Sales & Marketing

Design & Develop Purchasing Operations

Quality

Customer Finance Service & Admin

Customer Delivery

FUNCTIONAL MEASURES
Finance Related Efficiencies Utilization Variances

DEPARTMENTAL BARRIERS
Bureaucracy Delays

SYSTEMS BARRIERS
Island of Autonomy Aligned to Functions

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Approaches to improvement
LEAN APPROACH
Focus on the 95% Non-Value Added Resources Through . . . Total Quality Control Total Waste Elimination Enforced Problem Solving Total Involvement

TRADITIONAL APPROACH
Focus on Value Added Resources through . . .

95%

5%

Time Study Work Study Piecework Utilization Automation

Accept Imposed Quality Requirements

Challenge/Reduce the Need for Imposed Quality Requirements

All rights reserved VIP 04/2004

The Agenda
Who we are Brief overview Why Supply Chains are not Lean Designing a Lean Supply Chain Model A Case Study Questions and Answers

All rights reserved VIP 04/2004

Excellence in supply chain management requires integration of four key levers

Suppliers Manufacturing Distribution Retail Facilities and Partnerships Supply Chain Business Processes Organization Information Technology
Forecasting Enterprise-wide Backbone
Shop Floor Control System Warehouse Mgt. System Marketing Management System
Supply / Demand Planning Procurement Management Build Order Management
CREDIT 1234 5678 1234 5678 CARD VALIGOO XX/XXX/X XX/X 9012 PAUL 9012 XX/X D D X/XXX/XX X/XXX/XX FISCHER FROTHR M U

Demand Creation

Consumer

All rights reserved VIP 04/2004

The supply chain has five key processes

Supplier Manufacturer Local Markets Retailer / Consumer

The Focus
Supply Demand Planning Supply / /DemandPlanning
Forecasting DRP, MPS, MRP Procurement Planning

Demand Creation
Market Development Promotion Management Category Management

Procurement Management Build

Material Specification Supplier Selection Requisitioning / Deployment Payables Management

Raw Material Management Shop Floor Control Inventory Control Package to Order

Order Transmission Order Management Inventory Allocation

Transportation Planning Load Building Invoicing and Collection

All rights reserved VIP 04/2004

Close Coupled Logistics . . . Linking Production & Supply to Demand

MATERIAL SUPPLY

PROCESS MANUFACTURING

ASSEMBLY

PACKAGING

DISTRIBUTION

. . . Synchronize All Steps in the Process Eliminate the Cause of the Pause !

All rights reserved VIP 04/2004

Lean Sigma DMAIC Approach

Lean Sigma & Process Improvement
Phases
Balance / Time / $Inventory
Time

Typical Process
Capability

Capability / Variability / $COPQ

Lean/ Supply Chain

Step 1

Step 2

Step 3

Step 4

Six Sigma

Deliverables
Select projects within the process Understand current state and potential factors Confirm Vital Few factors Optimize, Implement Sustain

D efine M easure A nalyze I mprove C ontrol

Voice Of the Customer Value Stream Mapping Product Family Matrix Muda Matrix Cycle Time Measurement 5S, Quick Hits, OTD, LT Sequence Of Events Spaghetti Diagram Takt Time Determination Mixed Model Line Balance Vendor Managed Inventory Heijunka, Kanban, Pull OMS, Visual Management Flexing, Daily Rate Planning Quality Basics Minitab, Basic Graphical Analysis Z Calc, Capability metrics Measurement Systems Analysis Cause& Effect, FMEA Statistical Hypothesis Testing Design Of Experiments, Tolerance Poka Yoke SPC, Control Plan

Improving Balance
Enhances Process Capabilities
Improved Process
Time

Improving Capabilities
Enhances Process Balance

Balanced Steps
Step 1 Step 2 Step 3 Step 4

Reduced Variation

Customer Focused Quality

All rights reserved VIP 04/2004

The Agenda
Who we are Brief overview Why Supply Chains are not Lean Designing a Lean Supply Chain Model A Case Study Questions and Answers

All rights reserved VIP 04/2004

Introduction: $100M Division of J&J

The Division is a fully integrated operating
company within Johnson and Johnson

The Division is located in Irvine, CA, and employs

approximately 300 people and has global revenues exceeding $200 million

The Division is worldwide leader of processing

solutions for hospital instruments and medical devices

As a new company in the early 90s, The Division

significantly changed the competitive landscape in the sterilization industry
All rights reserved VIP 04/2004

Overview
A. Why they needed change? B. How they prepared? C. How they approached change? D. How they changed? E. Benefits
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Situation as of January 2000:

Why They Needed Change Why They Needed Change

A number of company-wide corporate quality projects Tiger teams attempting to improve product performance Functional organization NOT accustomed to working in a
cross-functional environment Low inventory turns (4 annual) WIP rejects exceeded 10% Scrap/rework not tracked Warranty costs over 3% of total revenue Over 60% of incoming items inspected 70-80% of non-value added activity identified in Supply Chain

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Project Scope: Initial Approach

How They Approached Change How They Approached Change

Senior Management organized a cross-

(DMAI2C) METHODOLOGY

functional team to review Supply Chain process The Supply Chain approach:

Control

Team was chartered with a mission to fix Team was given a 5 step project
Keep business running Results in three (3) months Process focus Hire consultant Pre-Analysis Current Data Analysis Identify opportunities Propose Redesign Define process flow Performance metrics Make Business Case Identify effort/ timetable/resources Implement Execute plan

Innovate Improvement

Analyze

Measure

Define

3 Months

4 Months

All rights reserved VIP 04/2004

Project Scope and Approach

Scope
Assess and define Process
map of existing Supply Chain for each for the five The Division product categories. Provide an ABC analysis. Compare maps and costing to relevant benchmarks. Define strategies, categories, techniques that will enable The Division to lower cost and improve customer satisfaction. Provide Cost/Benefit Provide redesigned Supply Chain
Original Actual

Benchmark

ABC Analysis Map

Cost/ Benefit

Design

Implementation Plan

Original
Actual

4/27 5/14

5/12 5/24

5/24 6/1

6/2 6/22

6/14 7/7

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STD 100: Process Flow (Value Stream Analysis)

1 hour
Cell One

24 hours
Apply Epoxy

2.5 hours
Cell Two Leak Test

2 hours
Cell Three Test Control Enclosure Test Control Panel

2.5 hours
Cell Four Test Pneum.

1 hour
Cell Five Electrical Safety Test

1 hour
Cell Six

10 hours
Chamber Temp. Test

1 hour
Cell Seven

Value Added Total VA 7.5 hours

Cell Three = Test enclosure Test Control Panel Cell Four = Test Pneum Cell Five = Electrical Supply Test Cell Six = Cell Seven=

17%
2 hours

Non-Value Added Total NVA 37.5 hours

Cell One = Apply Epoxy = Cell Two (Leak Test) = Chamber temperature test =

83%
1 hour 24 hours 2.5 hours 10 hours

2.5 hours 1 hour 1 hour 1 Hour

Total Cycle Time = 45 Hours Total Cycle Time = 45 Hours

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Where was the opportunity?

Estimated Cost Estimated Cost Reduction ==$2.0M Reduction $2.0M

Building A Business Case

$1.3M $1.0M $500K $200K $0 Wait Time (Warehouse) 30 days

The Division Warehouse Costs $400K Supplier Lead-time 7 days

Inc. Reject Rate 10% 100 (Warranty) Raw Mat Assembly Customer 50 MFG Cycle Corrective Inv Cost Complaints Assembly Cost Time Action $1.3M $1.2M $859K $796K 44 hours $1.7M

Inspection/ Tests $746K

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Pareto of Rejects: Q & R Parts

72% of Rejects were found at Final Test 72% of Rejects were found at Final Test
35 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% A B C D E F G H I J K L M N

Frequency of Rejects

30 25 20 15 10 5 0

A. B. C. D. E. F. G. H. I. J. K. L. M. N.

Circuit board defective Valve, solenoid, switch defective Incorrect display/no display Power Interrupt Leaks Missing P/N, S/N. other ID tag Bent Pin/Damaged Part Missing hole; other manufacturing defect Missing connector, part Loose connection Bad connector Power supply out of spec. Disk drive malfunction Incorrect air flow Total =

Frequency 32 14 14 13 12 9 6 5 3 2 2 2 2 1 117

Percent 27% 12% 12% 11% 10% 8% 5% 4% 2% 2% 2% 2% 2% 1% 100%

Cum. Frequency 32 46 60 73 85 94 100 105 108 110 112 114 116 117

Cum. % 27% 39% 51% 62% 72% 80% 85% 89% 91% 93% 95% 97% 99% 100

Functional Test

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Pareto of Problems (Top 50 Components)

80% of Rejects fall into 6 categories 80% of Rejects fall into 6 categories
Item A. B. C. D. E. F. G. H. I. J. K. L. M. N. O. P. Q. R. S. T. U. Operator Error Defective Part Missing Part Circuit Board Defects Leaks Part Damaged Missing P/N, S/N, other ID Incorrect Display Valve, Solenoid, Switch Defective Power Interrupt Bent/Pin/Damaged Part Missing Hole Missing Report No Power Missing Connector; Part Loose Connection Bad Connector Incorrect Part Power Supply Out of Spec Disk Drive Malfunction Incorrect Air Flow Total = Freq. 112 107 75 71 46 34 29 17 14 14 6 5 4 4 3 2 2 2 2 2 1 552 % 20% 19% 14% 13% 8% 6% 5% 3% 3% 3% 1% 1% 1% 1% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.2% 100% Cum. Freq. 112 219 294 365 411 445 474 491 505 519 525 530 534 538 541 543 545 547 549 551 552 552 Cum. % 20% 39% 53% 66% 74% 80% 85% 88% 91% 94% 95% 96% 97% 98% 98.3% 98.6% 98.9% 99.2% 99.5% 99.8%

120

100.0% 90.0%

100

80.0% 70.0% 60.0%

80

60

50.0% 40.0%

40

30.0% 20.0% 10.0%

20

0
100%

0.0% A B C D E F G H I J K L M N O P Q R S T U

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The Division Balanced Scorecard

How They Measure Up! Where to Improve! How They Measure Up! Where to Improve!
Metric Customer Satisfaction Outcome Measures Perfect Order Customer Satisfaction 1st Pass Yield Rate On-Time Delivery Them 81% TBD 95% 91% Best Diagnostic Measures 99.5% 99.9% 98% 99.5% Order Fill Rate Warranty Costs Line Fill Rate Compliance Them TBD 3% 94.2% 0 Recall Best 99% 1% 99.2% 0 Recall

Cycle Time Costs Assets

Order Fulfillment Total Supply Chain Cost (% of revenue) Cash-Cash Cycle Days of Supply Inventory Turns

7D 8.4% 144 D 114 D 2.8 T

2 D Supply Chain Response Time Production Plan 6% Sales Days Outstanding Manufacturing Costs 42 D Forecast Accuracy 48 D Obsolescence (Revenue) 45 T

14 D TBD 75 D -50 +/2%

6D 95% 30 D -10 +/< 1%

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Total Supply Chain Management Costs

How they measure up? Goals for improvement! How they measure up? Goals for improvement!
16
14.1
14.3

14

13.3
11.7

Best in Class
Median
THEM

Percentage of Revenue

12 10 8
6.4 9.9

10.4

8.8

8.1
7.3
6.5

8.6
7.3
7.0

8.4

6
4.3

5.8

4 2 0
Automotive Chemical

3.9
3.0

Packaged Goods

Semiconductor

Medical

THEM ASP

Definition: Order Management, Material Acquisition, Inventory Carrying, and Supply Chain Finance, Planning, and MIS Costs Source: PRTM Benchmarking Study, 1996/1997 E&Y Benchmarking Study, 1997/1998 All rights reserved VIP 04/2004

Pre Analysis & Analysis Phase

They Knew Where to Start They Knew Where to Start

20% of components represented 80% of material cost and inventory 15% of components were 90% of all WIP rejects Only 50 key components (over 3,000 items) represented 80% of cost of
goods sold 15 of 110 suppliers provided approximately 85% of incoming raw material dollars Single-sourced suppliers deliver over 80% of incoming raw components No supplier certifications or part certification process in place No corrective action program in place
Project scope focused on 20% of components and 15% of suppliers Project scope focused on 20% of components and 15% of suppliers Source of problem components were different that originally identified Source of problem components were different that originally identified Non-value added activity contributed to a great deal of costs Non-value added activity contributed to a great deal of costs
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Project Organization
Project Sponsor Advisory Committee Senior Management from Operations, Engineering and Quality VP of Operations

Project Lead Group Leader, Procurement

Consultant VIP

Kanban Team Inventory Manager Mfg Manager Senior Buyer Demand Planning Finance

Supplier Qual./Parts Certification Team Project QA Supervisor Mfg Engineering Buyer QA Tech QA Supplier Marketing

Core Team Sales Manager IT Director Procurement Mgr Mfg Engineer Mfg Manager Quality Director Inventory Mgr

Q&R Study Procurement Mfg Engineer Design Engineer Finance Marketing

Reliability/App Testing Mfg Engineer Design Engineer Procurement Manager Manufacturing Support Marketing

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Project Scope
JIT Deliveries Scope ID and deliver top 80% of components to manufacturing floor Improve delivery process Support JIT process Increase no. of purchases to partners Provide training Enhance cross- functional activity Supplier Selection and Qualification Establish process for qualifying suppliers Parts Certification Establish process for zero incoming insp. for top 20 items Improve quality of incoming goods Improve quality of product to field service Provide training Enhance crossfunctional activity Q&R Study Analyze (6) comp. Evaluate specs & requirements Improve speed to market DFM initiative Reduce total costs Provide training Enhance crossfunctional activity Design review Gap analysis Map process Application Testing Evaluate the adequacy of current method of testing Improve quality of goods Provide training Enhance crossfunctional activity Objectives Improve quality of supplier Stronger supplier relationships Improve comm. Provide training Establish/clarify roles and responsibilities Supplier rationalization Supplier Qualification survey Performance measures Map process Supplier qualification Map To Be process Roles and Resp Release SOP Final M.C. present to roll-out implementation plan

Techniques

Kanban/Consignment/ Stockless Make to order Map process

Performance measures Quality audits Corrective action

Design Checklist Trend analysis

Deliverables (10/30)

JIT Process Map To Be Documentation Procedure Pilot Kanban Final M.C. present to rollout implementation plan

Parts Certification Map To Be process Documentation Release SOP Final M.C. present to roll-out implementation plan

Design review Assessment Ties to 5.1 Final M.C. present to roll-out implementation plan

Gap Analysis Test reduction plan

Results

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STD 100 (Pilot): Current State

Data Flow Suppliers Procurement Parts Req. (min/max levels 10-14 days) (re-order point)
Excel spreadsheet

Data Flo

12mo forecast
Excel spreadsheet

Customers

7 Days

MFG Production Plan

Monthly build schedule

Excel spreadsheet

Warehouse 45 D Cell 1 Warehouse $742K

$249K $50K

Inj. Pump
$99K

Cell 2
$176K $50K

Cell 3
$230K $50K

Cell 4
$103K $50K

Cell 5
$284K $50K

Cell 6
$175K $50K

Cell 7 14 Units of Safety Stock 6 Units of Safety Stock

Build Cycle = 44 hours Reject rate = 8% Build Cycle = 44 hours Reject rate = 8% WIP Inventory = $1.4M Lot rejects = 50% WIP Inventory = $1.4M Lot rejects = 50% Turns = 4.8 Safety Stock = $252K Turns = 4.8 Safety Stock = $252K Lead-time = 7 days Kit deliveries = 20 Lead-time = 7 days Kit deliveries = 20 Total Lead-time = 67 days Warehouse = $742K Total Lead-time = 67 days Warehouse = $742K All rights reserved VIP 04/2004

Source: August 30, 2001

(weekly shipments)

90 day forecast

STD 100 (Pilot): Future State 8/30/2001

Suppliers Weekly Build Schedule 90 forecast 60 forecast 30 forecast (pull) Inj. Pump
$99K

12mo forecast

Daily Del.

Warehouse (Consigned Material Only)

I Cell 1 k
$6K $24K

I Cell 2 k
$22K

I Cell 3 k
$14K

I Cell 4 k
$88K

I Cell 5 k
$18K

I Cell 6 k Cell 7

I Customers k
(ship daily)

2 bin Kanban system

Current Activity

Build Cycle = 44 hours Build Cycle = 44 hours WIP Inventory = $643K WIP Inventory = $643K Turns = 7 Turns = 7 Lead-time = 1 day Lead-time = 1 day Total Lead-time = 10 days Total Lead-time = 10 days

Reject rate = 8% Reject rate = 8% Lot rejects = Unknown Lot rejects = Unknown Safety Stock = $170K Safety Stock = $170K Kit deliveries = 10-15 Kit deliveries = 10-15 Warehouse space = 47 pallets Warehouse space = 47 pallets

10 Units of Safety Stock

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Kanban/Consignment Process Model

Supplier 1. Long distance supplier Planning i Point of Use Make to Order

Cell 1
Consignment Final

Cell 2 Cell 3 Ship directly to customer

2. Exact supplier

Stockless

Assembly

Cell 4 Cell 5 Cell 6

3. Local supplier

Daily deliveries

Schedule k

Cell 7
Final Assay Schedule MRP

By Supplier

Net Requirements Weekly

schedule Note: All receipts are Bar coded All Kanban material delivery to point of use (daily) All material NOT INSPECTED Only consigned material stored in Warehouse Local suppliers visually replenish from locations/or e-mail Long distant suppliers are e-mailed and faxed

Weekly build

Warehouse Manufacturing Procurement Suppliers

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Benefits JIT Deliveries

Three (3) Months Quick Hits Three (3) Months Quick Hits

Inventory reduction of $1.5M within three (3) months Supplier lead time reduced by 60-70% Reduced warehouse space by 20% Eliminated 50% of transactional WIP/warehouse Improved sales/operations planning/manufacturing communication process

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Parts Certification/Supplier Qualification

Submitted only eleven (11)

component parts to Part Certification Process (based on Pareto Analysis)

Submitted only eighteen (18)

suppliers to Supplier Qualification Process

Reject (WIP) fell from over 10% to

less than 2% in less than six (6) months
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Benefits
Quick Hit Benefits Three to Six Months Quick Hit Benefits Three to Six Months

Eliminated incoming inspection Reduced headcount Reduced rework at suppliers by 50% Reduced MRB by 70% Cost warranty costs by 20% (estimated) Eliminated paperwork and handling by 70% Improved cash-to-cash cycle Improved Communication Process between quality, manufacturing, and suppliers
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Benefits Realized from Project Scope

JIT Deliveries Scope ID and deliver top 80% of components to manufacturing floor Improve delivery process Support JIT process Increase no. of purchases to partners Provide training Enhance cross- functional activity Supplier Selection and Qualification Establish process for qualifying suppliers Parts Certification Establish process for zero incoming insp. for top 20 items Improve quality of incoming goods Improve quality of product to field service Provide training Enhance crossfunctional activity Q&R Study Analyze (6) comp. Evaluate specs & requirements Improve speed to market DFM initiative Reduce total costs Provide training Enhance crossfunctional activity Design review Gap analysis Map process Application Testing Evaluate the adequacy of current method of testing Improve quality of goods Provide training Enhance crossfunctional activity Objectives Improve quality of supplier Stronger supplier relationships Improve comm. Provide training Establish/clarify roles and responsibilities Supplier rationalization Supplier Qualification survey Performance measures Map process Supplier qualification Map To Be process Roles and Resp Release SOP Final M.C. present to roll-out implementation plan Rationalize suppliers Assess top 13 suppliers 100% agreement of specs (pilot only parts) Reduce rejects Headcount reduction (1)

Techniques

Kanban/Consignment/ Stockless Make to order Map process

Performance measures Quality audits Corrective action

Design Checklist Trend analysis

Deliverables (10/30)

JIT Process Map To Be Documentation Procedure Pilot Kanban Final M.C. present to rollout implementation plan

Parts Certification Map To Be process Documentation Release SOP Final M.C. present to roll-out implementation plan Reduce warranty costs Certify top 20 components (St 100) Reduce rejects Headcount reduction (3)

Design review Assessment Ties to 5.1 Final M.C. present to roll-out implementation plan

Gap Analysis Test reduction plan

Results (12/30/01)

Reduce inventory by $900k, ($676 as of 11/26) Reduce handling/ transactions Reduce warehouse space pallets by 50 Headcount reduction (2)

Reduce warranty costs Reduce design cycle time

Reduce test cycle time Reduce number of tests

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Lessons Learned
Replace team members that do not participate Insure accountability do not miss scheduled events or activities Communicate, Communicate, Communicate Get as many people interested in training and participation Deliver Quick Hits early and often Do not let consultants lead or do the project work or let clients abdicate responsibility to lead

All rights reserved VIP 04/2004

The Agenda
Who we are Brief overview Why Supply Chains are not Lean Designing a Lean Supply Chain Model A Case Study Questions and Answers

All rights reserved VIP 04/2004