Category: Supply Chain

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Managing The Burning Platform

David Henry in the UK presented an interesting question on The Whiteboard. He said:

During this economic downturn, is the long term philosophy of lean put at risk by the short term focus on cost reduction? Is that necessarily a bad thing? Does this urgency give opportunity for greater engagement with line management and provide the catalyst for change?

My first thought was a quote cited by Steven Spear from an Emergency Medical Technician:

Air goes in and out. Blood goes round and round. Any variation on this is a bad thing.

Translating, keeping the patient at least marginally alive is always the first priority. And of course that makes sense. It buys time, and that is what is needed.

So back to David’s question.

It is really easy to say that, in these emergencies, long term thinking doesn’t matter. But I contend that it is even more important right now. This is a time for action. It is not a time for panic.

This means that as the company’s leaders look to how to navigate through this rough time, they need to take the time to reflect, develop multiple ideas, and bias execution toward short-term survival and sustainable solutions.

For example, some companies got caught short with a mountain of inventory, and need to convert it to cash. They can always just take the brute force approach and hammer it down by manual micro-management. The problem comes up when sales and production volumes return. They didn’t use the brute force approach at higher volumes because it was impossible to manually manage everything. But whatever they did do at that time (1) is what got them into the problem in the first place and (2) is what they will do next time unless they address the core problem(s).

So, yes, take the necessary short-term actions. But at the same time, look in the mirror and say, out loud, “We are responsible for this.” Embrace that statement, even if it is not completely true. That is what self-empowerment is all about.

Then go and understand the dynamics of your supply chain, what causes orders to actually be placed, why the excess stuff was there (because somebody thought it was necessary), and what changes you can make (mostly to your thinking) that will change the system.

By the way, it is very easy to say “implement kanban” at this point, and yes, that works. But I honestly think a prerequisite is firmly embracing, owning, the concept that what you did before DIDN’T work.

This is one situational example of how to turn these devastating times into opportunities to emerge ready to maneuver when opportunities present themselves. The barriers are mostly between our ears.

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Watch out for drug names that look, sound alike

Watch out for drug names that look, sound alike – Yahoo! News

One of the most common errors made in the health care industry is medication – giving the wrong stuff to the patient. There are a lot of root causes, and this article highlights one of them.

I certainly understand that the commercial pharmaceutical industry wants to establish and maintain brand awareness. And I am equally certain that they don’t really consider it "their problem" if "someone doesn’t pay attention" and prescribes the wrong medication; dispenses the wrong medication; administers the wrong medication or takes the wrong medication.

This is one of the problems with a complex system – where a problem originates in one part, but is only felt in another part.

Ultimately the solution is fairly simple. Assign an alpha-numeric code, not to the brand, but to the formulation, including the strength / dosage. Use that code for all bar coding, RF tags, database records, prescriptions, etc.

If it would help, combine that code with colored labels, backgrounds, shapes, etc. Anything to help visual distinguish one product from another.

This is, of course, not a 100% bullet-proof solution. But humans are really poor at distinguishing similar looking words from one another. We don’t see letters, we hear the sounds. This is an appropriate case where technology, which is well suited for this kind of thing, can be a big help.

Will it eliminate all errors? Of course not. Mislabeling or mixing mistakes are also common. But this would attack the problem cited in the article at its root. Then the companies can name their products anything they want, and we also eliminate all kinds of overburden on the already overworked attorneys.

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Financial Transparency – Is it important?

Steve Fonseca asks an interesting question on The Whiteboard.

Are lean companies really transparent with their customers and suppliers as to cost/profits. Is this a lean principle or not, or to what extent?

I am going to offer an opinion, then perhaps other readers can chip in.

First, there is no real definition of what is, or is not a “lean principle.”
Second, there are infinite shades of the term “financial transparency.”
Thus, there is no definitive answer to the question.

So, in my view, I don’t really see a correlation. Nor do I see a significantly greater degree of openness as a prerequisite to success with infusing a culture of continuous improvement.

Toyota is publicly traded, and as such, is really restricted by insider trading laws on how much financial information they can share with customers / suppliers short of sharing it with everyone.

Anyone else? What have you seen out there? Does a degree of financial transparency, above and beyond what is normal in business relationships, offer a significant competitive advantage, or drive continuous improvement faster?

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The Importance of Heijunka

My friend Tom poses an interesting question to production managers:

“If I ask you to produce different quantities and types of products every day, what quantity of people, materials, machines, and space do you need?”

Of course the answer is usually, at best, inarticulate and, at worst, a blank stare. There isn’t any way to know. Add to this the well-established research of the “bullwhip effect” which amplifies the magnitude of these fluctuations as you move up the supply chain, and it is easy to see the suppliers are really set up to fail.

Then he asks another question:

“If I ask you to produce the same quantities and types of products every day, or every hour, could you then answer the question?”

And, of course, the answer is that this is a “no brainer.” It would be very easy.

So the rhetorical question to ask is: Why does Toyota place such emphasis on heijunka?”
But my question is “Why don’t we all do it?”

Heijunka is a process of dampening variation from the production schedule. In English it is called “production leveling.” It comes in two steps:

  • Leveling the daily workload – smoothing out variations in the overall takt time.
  • Leveling the product mix within the daily work load – smoothing out variations in the demand from upstream processes.

Production leveling, however, is difficult, and the management has to have the fortitude to do it. Honestly, most don’t. They don’t like to deliberately set the necessary inventory and backlog buffers into place. So I’d like to explore some of the consequences of not doing it and then ask if these costs are worth it.

Consider this analogy.

Take a look at what modifications are necessary for a vehicle to traverse a rough, irregular road. The suspension must be beefed up, more power is required, the drive train is far more complex for 4×4. The road itself is unmarked, so the driver does not know where he is or where he is going without sophisticated navigation equipment.

Most of this additional hardware is actually unnecessary most of the time. But it might be needed, so it has to be there… just in case.

The driver of this vehicle is primarily concerned with what is right in front of the vehicle, and far less concerned about what is a mile (or even a few dozen meters) up the road. He will deal with that problem when he comes to it. Driving in this environment requires skill, training, experience, and continuous vigilance. People do this for recreation just for these reasons.

Now smooth out the road. Straighten out the hard curves. Give it some pavement. Put in signs so it is possible to navigate as you go. The same speed can be maintained by a vehicle which is lighter, has less power, a simpler drive system, a simpler suspension. Even though the engine is smaller, it is more efficient because it can run at a constant power output, the sudden accelerations are not necessary. Everything is easier.

The vehicle is much less expensive and much more efficient. The driver’s task is far simpler.

When you allow outside-induced variation to work its way through your system, you are putting potholes in the road. You are introducing sudden turns, sudden changes. Sometimes you are washing out entire bridges. People must be more and more vigilant and they simply miss more things. Their mental planning horizon shrinks to what they are working on right now, and maybe the next job. They certainly aren’t checking what they need tomorrow. They will worry about that in the morning.

The Effect on Materials

Even in the worst managed operations, people generally want to be able to provide what they are supposed to. They are motivated to be “good suppliers.” They also intrinsically understand that if they are idle (not producing) this is not good. Even if they are not provided with the tools and resources to do so, they will do the best they can to succeed – even if those things hurt the overall organization.

(I should note that most “management by measurement” systems actually encourage people to do things that hurt the overall organization, but that is another article.)

When these well meaning people encounter problems, they try to mitigate the effects of those problems with the resources they have available.

  • If their upstream suppliers do not deliver reliably they will add inventory so they have what they need.
  • Likewise, if their upstream suppliers do not deliver good quality, they will add some more inventory to make sure they have enough good material.
  • If there is quality fallout within their own process, they will add inventory and up production to cover that. By the way, that increase of production also increases the demand on the upstream suppliers, sometimes in unpredictable ways.
  • If their customers have irregular demand patterns, they will add inventory so the customers can have what they need, when they need it.
  • If there is batch transportation either upstream or downstream from them, they have to accumulate inventory for shipping.
  • If there are on a different shift schedule from either their customer or supplier, inventory accumulates to accommodate the mismatch.

Do you notice a theme here? The key point is: Without the system level view from their leadership, and without the problem solving support, all they can do is add inventory to cope.

Without leveling, any variation in demand will propagate upstream. At each step, two things happen:

  1. Processes that accumulate and batch orders progressively add to the amplitude of the variation.
  2. Irregularities within each process are added to the variation that comes from the customer.

By the time this hits your supply base, it is a tsunami. First the beach goes dry as it looks like the order base has dried up. (This is why you need to constantly reassure your suppliers with a forecast – because they can’t see regularity in your orders.) Then all of that water comes rushing in at once – and your suppliers can’t cope. Worse, they may have allocated the capacity elsewhere because they were tired of waiting on you. Lead times go up, things get ugly.

But even internally, all of this self-protection just adds more and more noise to the system.
So they add more and more inventory.

For a management team that is reluctant to deliberately add some inventory or backlog buffer to contain sources of variation and protect the rest of the system here is some news: Your people are already doing it, and in aggregate, they are adding FAR more inventory than would be needed with a systematic approach. They can only see the local problems, and each is just trying to be reliable – even if their efforts work in the opposite direction and actually introduce more variation into the system.

The Effect on People

I live in the Pacific Northwest of the USA. A fact of life living here is that, occasionally, the earth literally moves under our feet. I can tell you from experience that this is psychologically unsettling.

In our factories we do the same thing to people when the schedule changes every day. In the name of flexibility we shift requirements up and down. Add to that chasing shortages and hot list jobs around, and the daily work place is chaos. People are not sure if they are succeeding. Or, at best, they declare victory because they were not buried today.

Daily kaizen? That is just not going to happen in this environment. When you start talking about introducing flow, you threaten the self-protecting inventory buffers, and I can assure you that you will have a fight on your hands. Why? Because your people believe they need these buffers to get the job done – the job you want them to do. Now you are taking that away? Are you insane?

This is why it is critical to establish a basic takt as early as possible, then immediately start aligning the expectation to just meeting that takt.

Anything that keeps people from meeting takt becomes a problem and must be addressed. This is jidoka. Heijunka is a block in the foundation of the TPS “house” for a reason. Unless people are standing on solid ground, they can’t even consider anything like “just in time” or “stop and respond to problems” because they are spending all of their mental bandwidth just trying to figure out what is going on hour by hour.

Conclusion

When I was a military officer, we were trained in tactics designed to present our opponent with a constantly changing picture of what was happening. We wanted to inject as much confusion and uncertainty as possible. The mechanics of defeat on the battlefield are simple: The force subjected to this first shifts from action to reaction. They lose initiative, and therefore lose psychological control. Next the horizontal control linkages start breaking down. Each sub-unit starts to feel isolated from the others. They feel less a team and more on their own. Then, as more and more of their attention is shifted to self-preservation, the vertical chain of command breaks down. Each sub-unit is now mentally isolated and can be defeated in detail.

Ironically many factories are managed such that the workers on the shop floor are subjected to exactly these same conditions – and we wonder why they have a cynical view. We are defeating ourselves.

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Why I Don’t Like Two-Bin Systems

On the surface, a “two bin system” seems a great, simple solution to a part resupply process that could otherwise get complex.

And, on the surface, I don’t argue with that.

But two-bin has some limitations. And because it is so simple to set up, those limitations are frequently not understood or taken into account.

What is “Two Bin?”

Although it may be obvious to all, I want to define “two bin” to reduce the chance that what is “obvious” is actually less so.

“Two bin” is a simple pull system. The parts are supplied by two rotating containers. When a bin is empty, it is returned to the supplying process to refill. The second bin supplies parts while the first one is being filled.

The same system can be applied to things much bigger than “bins.” I have seen carts carrying fabricated steel parts weighing many hundreds of pounds set up the same way.

When does it work?

In general, two-bin is OK when two criteria are met:

  1. The parts are relatively cheap. That is you don’t worry too much about having more than you actually need. This comes with a warning, however. It is easy to have a ton of money tied up in relatively small excesses of hundreds of parts. It does all add up.
  2. This is critical: The time to replenish and return a full bin is short compared to the time to use the parts contained in a full bin.

In this scenario, the first bin is empty, and long before the Team Member has emptied the second bin, the first one is safely returned and is behind it on the shelf.

So What’s The Problem?

There are problems at two levels. I am going to emphasize the practical one, then talk about the philosophical one.

At The Practical Level

First, let me explain how this system would work if it were being done with kanban cards as signals.

One of the rules of kanban cards is that the card is removed from the container when the first part is consumed. That is, the container is NOT empty.

In this type of system, the number of containers circulating is +1 over the number of cards circulating. If you think about it, this makes sense. Let’s say there are five cards circulating, and the container size is 10. If all of the full containers were on the rack, and one part is used from the first container, then the rules state that the card is removed and signals bringing another bin.

If production stops at that point, the worst-case scenario of kanban is realized: The card is returned with another bin of 10 parts. There are now 5 full bins on the shelf, each with a card attached, plus the one bin of 9 parts.

What this has to do with two-bin: Two bin is mathematically identical to a one-card kanban loop.

At a practical level: Do the math for kanban. If your system, with your replenishment quantity and times won’t work with one kanban card, a two-bin won’t work either.

At a Philosophical Level

The problem comes in in practice. Two-bin is easy to set up, and frequently the people doing so don’t do the math. And it usually works.

What results is a pull system that has locked down the number of circulating containers (two), and if there are perceived problems the reflex is to alter the quantity of parts in each bin.

If the system is running a little close to the edge, the materials people will up the parts quantity per-bin from, say, seven parts to ten parts.

Then the system fails.

Why?

With kanban, you signal for replenishment when the first part is removed from the bin. Having more parts in the bin means it takes longer to empty the bin. Your supplier has more time to return with a full bin.

With two-bin, you signal for replenishment when the last part is removed from the bin. Having more parts in the bin means it takes longer to empty the bin. Adding more parts to the bin delays the notification to your supplier that you have started using parts.

While it doesn’t always happen, there are cases when adding even a few parts to the bins will cause two-bin to fail because of this.

No matter what system you use, you must thoroughly understand how it works, why it works. You must think through (and try) every step of the process, not just talk about it.

You must ask questions and understand every detail:

  • If there are hundreds of bins, and they all have part-specific labels, how will they be sorted and routed to the appropriate supplying process?
  • How will the bins be used to visually manage the replenishment process?

These are questions with obvious answers in card systems (that use generic bins), but are frequently not well thought through in the rush to implement the “simpler” circulating bin systems.
Also keep in mind: If you are not constantly monitoring actual use, execution and results against your assumptions and expectations of what should be happening, you might be using pull, but you are not applying the Toyota Production System.

So?

  • Go ahead and use two-bin if you want to. Just do the math and make sure it will work for you.
  • However, if you use cards, or other signals, anywhere consider the complexity you are introducing with more than one system. The rules are different depending on the parts. Remember, you are asking your customers to keep track of all of this.
  • Generally speaking, if your system is operating close to the edge, it is better to use more containers that are smaller. Things will circulate more quickly, and your supplying process will have a much better picture of your consumption patterns.
  • Remember – your objective is to move closer to single-piece-flow. If you move away from that (with bigger containers) you are doing the opposite of kaizen.
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A Systematic Approach to Part Shortages – Part 3

The third element of this organization’s successful drive to eliminate part shortages was a systematic approach to problem solving. They made it a process, managed just like any other process, rather than something people did when they had time. Even though this is “Part 3” of this series, in reality they put this into place at the same time, and actually a little ahead, of kanban and leveling.

The Morning Market

The idea of the “morning market” came from a chapter in Imai’s book “Gemba Kaizen.” He describes a process where the previous day’s defects are physically set out on a table and reviewed first thing in the morning – “while they are fresh” hence the analogy to the morning markets.

This organization had been trying to practice the concept of a morning market for a few weeks, and was beginning to get it into an actual process. Because supplier problems constituted a major cause of disruption, they set up a separate morning market for defective purchased parts.

That process branched yet again into a morning market for part shortages. And this evolved into a bit of a mental breakthrough.

They started looking at process defects.

Every shortage, every day, was recorded on the board.

Each morning the previous day’s shortages were reviewed. They were grouped into three categories based on knowledge of the cause – just like outlined in the book.

  • “A” problems – they knew the cause, knew the countermeasure, but had some excuse reason why it could not be implemented right away.
  • “B” problems – they knew the cause, but did not have a good countermeasure yet.
  • “C” problems – knew the symptom (parts weren’t there) but didn’t know why.

The mental breakthrough was systematically investigating the reason each and every shortage occurred. What they found was that in the vast majority of cases it was an internal process breakdown, rather than some problem at the supplier, that caused the shortage. This was a bit of a revelation.

They began systematically fixing their processes, one problem at a time.

Over time things got better. Simultaneously they were implementing the kanban system. Kanban comes with its own set of possible problems, like cards getting lost. Once again, when they found problems they went into the morning market and were systematically addressed.

After a few months into their kanban implementation, for example, they started turning in card audits with far less than 2% irregularities, and then it was not unusual for a card audit to find no problems at all. Why? They had addressed the reasons why cards end up somewhere other than where they should be. Instead of blaming people, they looked for why people acting in good faith would not follow the process.

This was also an attitude shift – assume a flaw in the process itself, or in communication, before looking for “who did it.”

Eventually the warehouse team had their own morning market. As did the receiving team. As did the parts picking team. As did assembly. Each looked at any case where they were not able to deliver exactly what their downstream customer needed.

About 8 months into this, another group in an adjacent building, was trying to work through their own issues. They came over for a tour. One of the supervisors, visibly shaken, came to me and said

“Now I get it. These people work together in a fundamentally different way.”

And they did. They worked as a team, focusing on the problems, not on each other.

And that, readers, is the goal of “lean manufacturing.” If you aren’t working toward that, then you aren’t really implementing anything.

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A Systematic Approach to Part Shortages – Part 2

For kanban to work well, there has to be a solid foundation under it. That foundation is production leveling or heijunka.

Before I get to far into this, though, I would like to point something out: At the mention of leveling, people who are only just learning about kanban will point out all of the good reasons why leveling is difficult. Here is a key point: The problems caused by running kanban without good leveling pale in comparison to the total chaos that ensues if you try to run MRP without leveling. I’ll stay out of that little rabbit hole until another day though.

Production leveling has two parts.

  1. Leveling the production volume.
  2. Leveling the production mix.

The operation I described in Part 1 was relatively small, so it was a simple matter to set up a totally manual system to do this. By small I mean they had two major assembly lines running at a rates on the order of 10 units / day. The product was about the size and complexity of a medium to large-sized photocopier (though not a photocopier). The assembly lines had about half a dozen positions each. There were several hundred parts from about as many suppliers. (Different story.)

The objective in leveling volume is for the production line to see demand as an image of the takt time, and to protect that signal from variation in actual orders and shipping. At the same time, the shipping dock was to see deliveries to the finished goods buffer at takt time, regardless of minor and medium problems in production.

To accomplish this they separated the “big lump” of inventory that typically existed in shipping into two physically separate buffers.

The Withdrawal Loop

Customers, unfortunately, rarely order at takt time. The purpose of the buffer in shipping was to absorb this variation and make the actual demand appear as if it arrived exactly at takt. The organization also tried to take out some of the bigger spikes in customer orders by working with dealers to get more transparency into actual customer order patterns; as well as trying to level actual promise-to-ship dates at least weekly if they couldn’t get it to daily. That helped a lot. A more sophisticated order entry system would have worked better, but that luxury wasn’t in place yet.

Back to the buffers. Each unit in shipping had a withdrawal kanban card attached to it. As orders were released, a unit would be pulled from this buffer and shipped. The withdrawal card went back to the production control department. Those cards were placed in the inventory management box. This box had series of slots that indicated authorized inventory levels. A card in one of the slots indicated inventory we didn’t have, an empty slot indicated inventory on-hand.

There were limit markers at near each end of the row of slots. As long a the end of the row of cards stayed between those limit markers, everything was regarded as OK. They did not try to chase a particular level of inventory with production.

The scheduled production rate was 10 units / day.

Each morning Production Control would take 10 cards from their box and put them into the leveling box in shipping. That box had slots that corresponded to times of day. The cards were evenly distributed at the takt-time interval. As that time came up, shipping would take the withdrawal card from the box, go to the end of the production line, attach their card to a unit, and move it to the shipping buffer.

This seemed like a lot of trouble, but it served a purpose. It was to hide the irregularities of shipping schedules and actual order dates from assembly. They saw a clean, paced signal exactly at takt time. The process was designed so that assembly saw a perfect customer, even if the customers were far from perfect.

If management didn’t like the size of the shipping buffer, they knew exactly what problem(s) must be solved to reduce it – they needed to improve the dealer ordering and management processes so dealers would stop using deep reorder points and ordering weeks worth of product at once.

The Production Loop

When units were withdrawn from the end of the line, they were actual pulled from a FIFO buffer. In this case, the buffer held about 4 hours of production. Why? Most problems in production were cleared within that time. Only a bigger problem would starve the buffer and affect the withdrawal loop. Thus the purpose of this buffer was to make assembly appear as a perfect supplier to their perfect customer. They could supply exactly at the agreed-upon takt time.

Each of these units had a production kanban card attached to it. When shipping came to pull a unit, they would pull the production card and leave it in a kanban post. They would attach their withdrawal card and take the unit. Thus switching the cards transfers ownership of the product from one loop to the next. Since a kanban card authorizes a specific quantity to be in a specific location, if someone wants to take something somewhere else they need to attach a card authorizing them to do so. That was the case here.

The production cards went to the front of the assembly line. There were three slots there. One green, one yellow, one red. If everything was running smoothly, the card would go into the green slot, and when the next unit was started, the card would be pulled from the box and attached to the unit.

If the line were a little bit behind, there might still be a card in the green slot. Then the next card would go into the yellow slot. This would automatically signal the assembly manager that there was something that needed some attention.

The next card would end up in the red slot. This was the point when, if they weren’t already there for a known problem, they were in “line stop” mode. Anyone who could be helping to clear the problem should be helping to clear the problem. Why? The money machine has stopped running. Everyone is now being paid only because the shareholders are lending them money. The idea is to get the money machine running as quickly as possible, and it is the most important thing. This was a simple phased escalation process, and was part of their overall andon / escalation system.

Did it work?

All I can say is that it worked a hell of a lot better than what they were doing before. It took two or three serious tries to get this into place and keep it working, and they probably fell off the wagon a couple of times after that. There were always immense pressures to “reduce inventory” at the end of the quarter, for example, which would have management directing to starve out the shipping buffer, or push it out early. But, in general, when it was working, overtime was lower, things were more predictable, problems were identified very quickly.

But…

Yes, it looks like a lot of manual work involved. But I want to be really clear – the total time spent moving all of these cards around was a fraction of the time that had previously been spent investigating status, working action messages, making calls to find out what was happening, etc, etc. For some reason people seem to think that deliberate activities raise the total amount of labor involved, and that somehow, the time spent running after information and chasing problems is free.

Setting a standard and following it injects an element of stability and calm into an otherwise chaotic workplace. Once this basic foundation is in place it is far easier to improve overall efficiency because now there is an actual process to improve.

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A Systematic Approach to Part Shortages – Part 1

The short story of assembly problems is lack of parts. Part shortages drive all kinds of waste, including: juggling the schedule; expediting; bigger lots or batches – and all of these things end up causing shortages later on in a self-reinforcing death spiral.

So how did an assembly shop which built about 10 units / day, and suffered between a dozen and 20 line-stopping part shortages a day end up eliminating all but a few (3-5) a week?

Three things, more or less at the same time. This post talks about the first:

Implement a kanban system to replace MRP ordering. They systematically studied how kanban is supposed to work, and, over a few months, put in a kanban system which I am proud to say was really pretty good. The assembly line was fed by kit carts which were picked at takt time from a small supermarket on the shop floor. The supermarket held a day or two of parts. The parts with local suppliers were replenished right from the receiving dock. Parts which had to still be purchased in larger quantities were stored in a warehouse area, and the shop floor supermarket was replenished from the warehouse daily.

The daily warehouse replenishment established the concept of isolating the problem. Their daily replenishment allowed them to set up the shop floor supermarket as if all of their suppliers were delivering daily.

All parts in the shop-floor supermarket and the warehouse were under kanban control. This means they had kanban cards physically attached to the parts (if they were separate) or the containers.

Some things they learned over time:

  • The rules of kanban state that the card should be pulled and placed in the post when the first part is removed from the container. The quickly learned this was far more likely to happen if they secured the card in a place where it was in the way of either opening the container (over the folding lid, for example) or had to be moved (e.g. picked up) to get the first part out. At that point the card is in the person’s hand and he has to put it somewhere.
  • The number 1 reason for lost cards was that “put it somewhere” was a pocket.
  • The number 1 reason why the card ended up in a pocket was that the kanban post was more than a step away from the place where the card was pulled. That meant the person put it in the pocket “for a second” while he got the parts.

In the above case the countermeasure was simple. Put kanban collection points everywhere where parts are handled.

  • The first time they tried putting a pull system in for parts ordering they hadn’t put in heijunka (production volume and mix leveling) first. That was a problem, and “problem” is an understatement.

The countermeasure was (obviously) to simultaneously implement a schedule leveling system to drive the upstream system at takt. More about that in Part 2.

  • They invariably had some parts where they had more than they needed.

The countermeasure was “black cards” (though I would have preferred bright orange cards) that signified “excess inventory.” These cards allowed them to maintain kanban control of all inventory, but they did not signal replenishment.

When a card was pulled, the shop floor coordinator would scan a barcode on the card. This scan triggered an order release to the supplier, and authorized the supplier to ship the indicated quantity.

Actual card from this organization being scanned.
Actual card from this organization being scanned.

They had agreements with the suppliers that there would be an email acknowledgment of the order within 2 hours. When the card was scanned, it was placed in a slot labeled with the time when the acknowledgment was expected. When (if) that time passed and the acknowledgment had not been received, the card went to the buyer who phoned the supplier. “Did you get my order? I need the acknowledgment within 2 hours like we agreed.”

This served two purposes. First, it verified receipt of the order and eliminated a known cause of shortages. Second it “trained” the suppliers that this time the customer actually expected them to honor the agreement. They really didn’t want that call from the buyer who had better things to do.

Once the acknowledgment was received, the card went to the receiving dock. Here it was placed in a slot that indicated the day (and later on, the time window) when those parts were supposed to arrive.

Like the above case, if the time passed, the card went to our poor hapless buyer. He phoned the supplier with a simple question: “Where’s my parts?”

This reinforced that, once again, there was an expectation to honor agreements. They really didn’t care that much (at this point) what the supplier’s lead time was. Only that it was honored. The main objective when starting out was simple consistent execution.

When the parts came in, the card was retrieved, matched with the order to verify, then scanned again to trigger a receipt transaction. If there were exceptions – guess what – another phone call.

The card was then attached to the container. Since the card specified the storage location, put-away was fairly straight forward. No location lookups required.

The previous condition had been that there was no matching of receipts against expectations. Thus if parts were late, or didn’t show up at all, no one noticed until they ran out. Big problem. By trapping and surfacing problems at the two main failure points in the system, most of those problems went away after a few months.

For the purists who are reading – yes, this process has some compromises and probably is a bit obsessive on checks. Call those training wheels until there is a sense of balance. All I can say is that it worked and, in the long run, ended up to be a lot less work than chasing down and expediting shortages all day.

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Supplier Selection: Beyond Quality, Delivery, Cost

Do you have a responsibility to make sourcing decisions on anything other than Quality, Delivery, Cost? This news item about a mass-fatality industrial fire in China opens up some interesting thoughts about sourcing over here.

For future reference after the link dies, the lead of the story is:

A fire at an illegal shoe factory in eastern China has left 34 people dead..

That, by the way, is a great lead. It summarizes the whole thing in a few words:

  • China
  • illegal factory
  • fire
  • 34 dead

The rest is just syntax glue. But, as usual, I digress. What the hell is the point?

Just to be clear, by the way, the original breaking-news story in no way implies that this factory was producing for export, or for that matter, for any other company. So the story is just a lead-in for this post.

Back to the lead of this article: What is your obligation, as a purchasing company, to consider things other than quality, delivery, cost in your sourcing decision?

With the rush to source in China, it is very easy to overlook even obvious things like quality. Just ask Mattel. But if gross violations of China’s internal health, safety and environmental regulations give a potential supplier a cost advantage, do you know it? Do you make a conscious decision to let that “advantage” stand? Or do you go and look for yourself, and include only suppliers which comply with the letter and the spirit of the law – as well as “do the right thing?”

Chinese health, safety and environmental regulations, by the way, are in many cases stricter than what you find in the USA or Europe. Compliance and enforcement, though, is… ah… spotty.

This is, in my mind, an ethical decision, not a legal or financial one. I can only raise the question and let you answer it in your own mind.

One more thing. This was reported on the BBC. The only way I can read BBC news on the internet in China is to go through my corporate VPN. If you try to access BBC News on a normal internet connection, you will get a “Server not responding” error because BBC is not considered appropriate for the Chinese people to read. Frankly, it seems a little arbitrary since every other news service is more or less accessible. Maybe I will start another blog sometime and just talk about “other stuff.”