Kanban | Supply Regulation Autopilot

I didn’t realize how complicated and involved the production process  for a simple car could be until I decided to take a closer look. Working with finances, and so having little idea about the production,I admit  that, at first, I did not appreciate the complexity of the responsibilities of the production manager in our car replica plant.  This changed when I value stream mapped of one of the simplest parts the company was producing – the car seat (value stream mapping is a technique used to evaluate the flow of materials needed for providing the product to a customer – a post about VSM coming up). I thought the map of the whole car production would look somewhat like the New York City subway map and so I expected that the map of the silly car seat would be more like a close up of one station with a few bus lines crossing it, etc.. After I tried to draw the map of all the parts, services, processes, etc. that go into making a simple, leather car seat with a few metal parts, one rubber and one foam part inside I realized that it would probably take me less time to draw a map of the subway system.

“How is it possible to manage purchasing all of the parts needed, the flow of the material and work in progress, etc. of the whole car?” I thought. I guess it is possible with a large team of people who know what they are doing and perhaps some good computer software designed for it. But even then – some excess inventory is necessary to make sure no worker will run out of necessary material.

There is a better way, though. Instead of an expensive and inefficient supply department or computer software you can learn about one of Toyota’s most awesome inventions which will certainly manage the whole flow of material and work-in-process for you. I am not exaggerating here – Kanban is a simple invention that takes a huge load of unnecessary frustration off of the production manager’s back so that he or she can focus on things that really require a human touch.

Obviously Kanban is a Japanese word which is composed of two words: “kan” – visual and “ban” – card. Originally Toyota’s Kanbans were cards, but a Kanban can be a box or even a square drawn on a table.

This is how simple Kanban is: You might remember from the previous post (One Piece Flow) the pen company called New Way Pens (although you will not have to have read it to understand the following example). Frank and Dorothy were two of a few employees who were making pens. Frank’s job was to watch a little dent located between his and Dorothy’s work stations. If the dent was empty, he would take a piece of wire and make a spring which would then be placed in that little dent. That little dent played the role of a person or department responsible for providing all necessary materials to the respective work stations. Here is how Frank and Dorothy’s Kanban works (now pay close attention, we are talking about something that replaced a complicated computerized system):

- If the dent, or Kanban is full (there is a spring sitting inside) no more springs are needed.

- Empty Kanban means “Dorothy needs another spring”.

Congratulations! You just successfully graduated from the Kanban 101 course! Kanban 102 doesn’t take that much longer (and there is no need for Kanban 103).

Here is another example of a Kanban. A supplier brings ink cartridges to New Way Pens every Monday and Wednesday. Instead of going to the ordering department and interrupting Bob who is in the middle of making a phone call and ordering more plastic tubes – The supplier simply goes to the production plant and finds a red box with the label “ink cartridges, 300 pieces”. He looks inside and finds it empty. He fills the Kanban with 300 cartridges, gets Dorothy’s signature and leaves.

Now, there are actually two red boxes with the “ink cartridges, 300 pieces” label on them. Both are located by Dorothy’s work station. The one that is closer to Dorothy is the box she takes the cartridges from and puts them into the plastic pens etc. The other – right behind the first one is now full of ink cartridges. Once the first box is empty – she simply switches the boxes and starts taking the cartridges out of the 2nd box. The 1st box is now empty and waiting for the supplier. The fact that the Kanban is empty simply means: “We are ordering 300 ink cartridges. Please put them here. Thanks!”.

Obviously there are other ways to set up the production system at New Way Pens. What I described above is actually not the best way I can think of but this is a simplified version. But really – Kanbans don’t get much more complicated than this.

One of the first stages of implementing the Toyota System in a production company, or in other words – leaning the company – is replacing the Mass Production system with the One Piece Flow system. Kanban is the no-brainer tool that makes it possible. Besides the fact that it is simple it also works for us on an autopilot. The principle can also be applied in other companies which are not necessarily manufacturing plants, such as  hospitals, offices, schools and many other industries.

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One Piece Flow

 

Most people associate Henry Ford with the development of the Mass Production (also known as Series Production) system. The more cars Ford produced the lower the cost of making an individual car. In many respects the Toyota System is the very opposite of the Mass Production System (as the alternative name of the Toyota Production System – “One Piece Flow” suggests). Toyota’s most famous manager, Taiichi Ohno surprised many by attributing his understanding of the Toyota Production System to. . . Henry Ford.

Toyota System vs. Mass Production System

In a traditional factory it is easy to see how larger volumes are more economic than smaller volumes. Here is a very simplified example: if a small company pays it’s workers $100,000 a month and during that time produces 100 kit cars – the cost of making a kit car is $1,000 plus material. If they increase their production to 150 kit cars per month – each set will now cost them less than $700 plus material. $700 is much less than $1,000 so viva the Mass Production System! Now we can lower our prices and sell more cars and enjoy larger profits! Away with anything that tries to argue against the Mass Production System!

Believe it or not, some managers actually stop their interest in the Toyota System at this point. The fact is that we haven’t even started our search for the differences between the Toyota Production System and the Mass Production System. Everyone at Toyota will agree that selling 150 pieces of something is better than selling 100 pieces. The difference is how much it actually costs us to produce them. Now – let’s really start comparing the two opposite systems:

One Piece Flow vs. Series Production

Imagine two companies manufacturing exactly the same product, something simple, let’s say… pens – same shape, same color – no difference whatsoever. Here is how they are made in the factory called Good Old Way Pens (since I don’t actually know how pens are made – keep in mind that the point of this exercise is to show the idea behind the two production systems):

1. Once a month, from three different suppliers, 2000 sets of plastic tubes (a set consists of two pieces), 2000 ink cartridges and enough metal wire to make 2000 springs are purchased.

2. Frank  puts the wire into a machine that forms it into    a spring. When the spring is made he throws it into a box. When the box is full (it has 100 springs inside), he takes it to Stephen’s station, comes back and starts filling another box.

3. At the same time Dorothy takes the plastic tube, puts in the ink cartridge and drops it into the box. When the box is full (it has about 100 tubes with ink cartridges inside) she takes it to Stephen.

4. Stephen adds the spring to the set and puts it in a box. After 100 of those sets he takes them to Martha.

5. Martha closes the pen with another plastic tube and screws it in. The pen is made and ends up in a box.

6. Once a week a salesperson comes to Martha to collect the ready pens (about 400 of them). They are then distributed to stores, etc.

Pretty simple.

Now, let’s take a look at New Way Pens’ production. It also hires 4 employees and they are the exact clones of Frank, Dorothy, Stephen and Martha. Here is how pens are produced:

1. Twice a week suppliers bring 300 sets of plastic tubes, 300 ink cartridges and enough wire to make 300 springs.

2. Frank notices that a small, white dent on the desk between him and Dorothy is empty. “Dorothy needs a new spring!” – he thinks so he takes the wire, puts it into a machine that turns it into a spring and puts it on the little dent

3. At the same time Dorothy takes the plastic tube, puts in the ink cartridge, grabs the spring from the dent and puts it on the cartridge inside the tube. She then put the whole thing on the dent between her work station and Martha’s work station.

4. Martha grabs it, screws another plastic tube and the pen is ready. She puts it into a box which is emptied every day at noon. The pens are immediately distributed to the stores.

You might ask: “What happened to Stephen?”. No worries. He is happy with his position in a different section of New Way Pens and occasionally subs for Frank, Dorothy or Martha (you know – people get sick sometimes, etc.).

I wish I could demonstrate in this article how it is that the second company with the same number of work force can produce more pens and each costs them less than the costs of the first, traditional example. I am planning to make a simple demonstration video for you and post it soon on this page to show that the One Piece Flow system is much more productive than the Mass Production system. For now let me mention just a few kinds of expensive muda that exists in Good Old Way Pens.

Muda (Waste) is often invisible and is costly

First of all, notice that in the Good Old Way Pens factory there is a lot of inventory all over the place. Thousands of plastic tubes, ink cartridges, etc. – basically pens in different stages of production. Besides the fact that they all cost money, since they lay in different boxes for awhile the reality is that they are occasionally moved, lost, found, moved again, lost again and never found, etc. If the engineering department decides to change something – hundreds of pieces already made are thrown away, etc. Some of those pens are defects, because at some point the machine that makes springs broke and all day long was producing defects. The worse thing is that because there is so much inventory – no problems are really visible. Why? Because even if there are problems – everybody always has something to do. There are always boxes full of work-in-process that need to be advanced, etc.

The workers in the production line are, in a way, producers and clients. For example Dorothy is the client, Frank is the producer. Frank doesn’t even start making the next spring until Dorothy orders it (remember – the Toyota System is also called Just In Time). How does Dorothy order a new spring? Its simple: by emptying the dent between her and Frank’s station. The dent is called Kanban (an article about Kanban – one of the greatest inventions of the Toyota System is coming soon). All Frank needs to worry about is making sure the Kanban is full again and his client (Dorothy) is happy with his product. Dorothy’s job is to make her client, Martha, happy, etc.

The number of work-in-process pens can be counted on one hand. Pretty much no inventory here. What if the spring machine brakes? As soon as Dorothy starts putting the spring on the cartridge, she will immediately notice there is something wrong and the production stops until new springs are produced. The production will stop, but the visible problem will be taken care of – another stone removed from the bottom of Ohno’s river.

This article only touched on some of the many benefits of the One Piece Flow System. Are there any strong points of the Mass Production System? One characteristic that is often brought up as the advantage is the Series Production’s ability to cover for defects, malfunction, sick leave and other kinds of waste, as none of those problems stops the production because there is always a mass of work-in-process to work on. However, this is the traditional system’s biggest weakness, as it merely covers the problem for a while.  Of course we don’t like to see problems, but it’s better to see them and fix them than discover them belatedly and suffer in the long run because of waste.  Better to feel the pain in your stomach and get to the hospital in time to have your appendix removed than to have no feeling.  Sure you would be saved the pain, but at what cost?

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Toyota System perspective

The Toyota System inspires people to examine things from the right angle. Looking at the same issue from two different perspectives may lead to clashing conclusions. For example: compare these two equations:

Cost + Profit = Price

Price – Cost = Profit

The two equations are mathematically identical. However, the thinking behind each of them is completely different.

Cost + Profit = Price

The equation: Cost + Profit = Price is used by conventional businesses. The management regularly sits down and plans what the profits should be in the upcoming period. They then add the costs which, obviously, is a given, right? (after all, who controls the costs? Not us – our suppliers do). Costs plus profit equals price. Now they know how much they need to charge the customer for their product or service. What if the competitor has better prices? Well, they will just add a gadget or two thus increasing the value of the product.

Taiichi Ohno – the Toyota System’s co-creator rebelled against this traditional way of doing business. For him it was obvious that the market or the invisible hand sets prices – not the manufacturer (unless the manufacturer wants to lose money in which case either overpricing or under pricing will do the trick). This should be obvious to us too.  After all, didn’t we learn in the beginning of our economics courses about the law of supply and demand? The customer decides how much he is willing to pay for the product. The founders and leaders of the Soviet Union tried to ignore this principle and for decades their governments set the prices of almost every commodity.  As we know, that didn’t work out too well.

The Lean Philosophy goes against looking at business from the Price = Cost + Profit point of view for at least two reasons:

• Price is a given. We as manufacturers don’t have any control over it. It is the sacred privilege of the customer to set the price.
• Manufacturers do have control over the costs! Eliminating muda, or waste, lowers the costs. Backing away from the mass production system and thus decreasing inventory as well as getting rid of all other kinds of muda lowers the costs.

The Toyota System prefers this way of looking at the price/cost/profit correlation:

Price – Cost = Profit

Here is what we call Lean Thinking:

1. We ask the customer what he wants and how much he is willing to pay for it.
2. We eliminate muda and thus lower the costs of creating the product and doing business in general.
3. We then subtract this cost from the price (handed to us by the invisible hand) and what is left is our profit.

After we lean ourselves, to some extent we can even become resistant to recession or even an economic crisis. If we were not lean and our customers stopped buying as much as they used to ,the only way to reduce costs is laying off workers or going bankrupt.

But if our costs are already low, all we have to do is give up some profits and keep the workforce until economy improves. The Toyota System makes businesses more independent and recession resistant.

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Muda | What is it?

The way a business operates is by people moving, thinking, going somewhere to get something, coming back, moving again, etc. People make things move and change. A company succeeds because many activities are put together in an organized fashion to produce something that the customers consider more valuable than their money.

Some time ago I was put in charge of a production plant. Our market was small but our products were known for their great quality and so people came to us instead of our competitors. At some point my boss became fascinated with the Toyota System and wanted me to look into it. It took me awhile before I started reading the books he had given me (he was a pretty patient boss, but beyond that – just as the Toyota managers, he also understood that it is better for me to be converted to the Lean Philosophy than trying to force it upon me – much more effective in a long run). I will be honest – at that point I didn’t have to deal directly with the production side of the business. I actually avoided the shop floor at any cost. After all, I didn’t go to a college to get my hands dirty, I told myself. I preferred my clean, quiet office and the soothing clicking sound coming from my laptop.

One of the first concepts that caught my attention as I was studying the writings of Shigeo Shingo was the concept of Muda (which in Japanese means “waste” or “uselessness”). I was sitting in my office trying to focus on the book I was reading over the sounds of banging, filing and thumping coming from the production shop. Here is Shingo telling me that at least some of that noise will never be converted into profit. “No way,” thought I. Our workers are good guys and they are some of the most skillful craftsmen in town. They know what they are doing and surely they would not want to do anything that doesn’t add to the value of our products.

Shingo seemed unrelenting though. He claimed that only a small percentage of our workers’ efforts actually add to the value of our products. In other words – most of their activities our customers are not willing to pay for. I thought it was a crazy idea, but guess what? After reading it I started actually feeling bad for the guys and for all that effort they were putting into their work. So, I decided to look into it.

One day I came in after hours to the largest production room and, with the help of a trusted worker, installed a video camera under the ceiling right above a ventilation tube. The next day, around noon, that same worker came to my office and told me that a few guys noticed something strange under the ceiling and tried to take it down using any tool they could find and throwing screws and other objects at it. I decided that perhaps we didn’t need any more filming that day and went to take the camera down.

As you can imagine the workers were not very pleased when they found out they were secretly filmed, but eventually they believed me when I assured them that they were not being spied on but that I was simply interested in how their work could be improved so that they could be more effective and at the same time move less.

I watched the video with a stopwatch in my hand and to my amazement I realized that on average – about 70% of the workers’ time was spent doing things that did not add to the value of our products! And I am not saying they were goofing off. They were working – pretty much all that time, but only 30% of it they were actually filing, drilling, putting in screws, welding, etc. The rest they were looking for tools, picking up the screws from the floor, walking to the nearest polishing machine, etc. Obviously that experience was an eye opener for me. Shingo definitely got my attention.

Muda is any kind of activity that the customer will not pay for. Looking for tools is muda, making too many items that then acquire dust is muda, making 100 parts that eventually get thrown away because the engineering department changed the shape a little bit is muda, disorganization that makes people stand and wait to be told what to do next is muda, buying and installing a cool little gadget on a car that impresses only our engineers but no customers is muda also. All those things need to be eliminated and this is one of the main points Shingo and other guys from Toyota make.

There is something else I’ve learned about muda. It has little to do with production but much to do with realizing how inspired the Toyota Production System or Lean Philosophy is. After learning about the concept of muda and seeing what difference it makes when one constantly tries to eliminate it I started wondering about what I do after work and, guess what? I found lots of things in my daily activities that could be classified as muda. Don’t get me wrong – I’d be the last person to call entertainment or fat in my diet muda – those are important parts of a happy life. But I started thinking about which of my activities add value to the things I am trying to accomplish in my life: a good relationship with my family, some goals that I hope to accomplish one day, etc. and you know what? I found there was even more muda in my life than there was in my factory. Just something to think about.

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Lean Philosophy | Idea behind

Shigeo Shingo, leading expert on the Toyota Production System, used an awesome analogy which shows what the Toyota Production System is all about. It’s simple. There are only three elements in the analogy:

• a ship – representing a business, let’s say – a production plant,

• expensive (for the purpose of our analogy) water – representing inventory, and

• rocks – represening all sorts of waste (like overproduction, the time workers have to wait for the materials they need, transportation, defects, machines breaking down and etc., etc.)

In a conventional factory this is how rocks are dealt with: More water is pumped in to cover them. “The ship must sail” – a conventional manager thinks – “I must prevent the factory from stopping at all costs”. Why? “Because it’s expensive! Pumping in more water will cost less than hitting the rocks and stopping the ship!” And it’s true. Just as it is true that getting gasoline a few miles sooner than normal will cost you less than paying for your car’s tune-up or installing traffic lights is more expensive than carefully crossing a busy street without a light. In other words – adding more water may be a cheaper solution, but it is only a short term solution, and will not actually solve the problem. As the water evaporates, the rocks will surface again and more water will have to be purchased to cover them.

In a company operating in harmony with the Lean Philosophy, every time the ship hits a rock is a happy moment as it presents a new opportunity to remove another problem. Once the rock is removed it will never be hit again. Plus – some water can be pumped out (keep in mind – it’s precious. It can be resold or at least there will be no need to  purchase more for a while ).

So, if the Toyota Production System is a new concept for you – do not fear, because it’s simple. All we do is keep removing rocks and laugh at our competitors who are now paying for more water while we sit and wonder: “Since we don’t have to pay for all that inventory anymore, should we lower our prices or treat ourselves to a bonus?”.  The Toyota System just makes sense: removing real problems makes much more sense than  covering them up, which, in the long run, can become very expensive.

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The Toyota System | Is it worth it?

Imagine there was a lottery offering real business opportunities instead of cash. You win the biggest prize: a sure position as a manufacturing plant manager. Your phone rings and this is what you hear: “Hi, this is the Teach A Man To Fish Lottery. We would like to congratulate you again on your victory and inform you that we have just learned about another person who picked the same numbers as you, which means that we now have two winners – you and Mr. Fish from Alaska.  Our plan is to give each of you a managerial position in a separate plant.  Since you were the original lottery winner, we offer you the choice of which plant you’d like to work in.”

To make a long story short – you send your trusted manufacturing expert to both of the plants and this is what you learn from her report:

• both plants are located in the same town

• both are producing exactly the same products

• each factory has the same number of employees, however

• factory A offers better quality products than factory B

• factory A delivers its products 2 weeks from the moment they are ordered by the customer while factory B can guarantee no less than one month delivery time

• factory A’s annual sales are double its competitor’s

• factory A has less than half of the amount of money invested in material and work-in-process than factory B

• a quick survey shows that many of the workers in factory A like their jobs and their favorite day of the week is Monday while factory B’s employees’ favorite days of the week are Friday, Saturday and Sunday and the labor turnover in factory B is significantly greater than its local competitor’s

Which factory would you choose to own and manage? Your choice is as easy as the choice between the Toyota Production System over the conventional way of managing production.

The Toyota System site is for you if:

• you are considering the implementation of the Toyota Production System in your factory, office, hospital, post office, etc. but first you want to make sure it’s worth the trouble, or

• you want to understand the System better, or

• you are looking for ways to help your managers or employees understand and appreciate (or even be converted to) the Lean Philosophy, or

• you want to share your experience implementing Lean Manufacturing with the world

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