In my last couple of blogs, I explored how FLOW is the key to making money in Lean companies, and that flowing everywhere (and I really mean EVERYWHERE!) is something Lean CFO’s and other Lean leaders should always strive to do.
Let’s get right to it. Next up are two more manufacturing support areas that are rich with opportunities to make FLOW happen: Procurement and Planning & Scheduling.
Traditionally, companies use their ERP systems to manage procurement. After all, they’ve usually invested a ton of money, blood, sweat and tears to getting the systems up and running, populated with what is thought to be accurate data, adapted their forms and work flow, etc. to their ERP systems. They then use the system to generate purchasing forecasts that are meant to match production. Purchasing then prepares and sources purchase orders to suppliers. So how come there is often too much inventory, the wrong inventory, poor quality, long lead times and late delivery? And why is there so much muda?
A Lean value stream, on the other hand, relies on Purchasing to do just-in-time supply of materials to maximize FLOW and also to minimize spending on material costs. You receive what you need, when you need it, and at the quality required to minimize (and eventually eliminate) waste. The flat-out best way to do this is by incorporating purchasing activities into the value stream.
The best solution for Lean will almost always involve implementing visual systems. In this case, it’s best for the shop floor to signal directly to the pre-certified supplier when to ship more raw materials. This is known as supplier kanban. The pull system created in the value stream will establish minimum and maximum inventory levels in supermarkets. When the minimum level has been reached, the kanban signal is sent to the supplier, who delivers directly to the exact location on the shop floor.
If supplier kanban from the shop floor cannot be done, it’s best to set up your key suppliers to make frequent deliveries at standard times to replenish pull system supermarkets.
Either of these methods will reduce the lead-time of raw materials into the value stream and will improve FLOW.
Planning & Scheduling
In a traditional manufacturing environment, The Planning & Scheduling department often makes me think of the Wizard of Oz
Planners and schedulers work behind the scenes manipulating lots of data to produce a schedule for production. Their input data might include sales forecasts, actual customer orders, scheduled orders from the ERP system, and so on. They then grind up all the data and spit out a shop floor schedule, which often results in too much inventory, overproduction and a lack of FLOW.
The great news is that Lean practices, when fully implemented and functioning properly, largely eliminate the need for scheduling and planning of operations. Lean is a make-to-order environment, so actual demand becomes the actual “schedule.” No more wizards behind the curtain!
Often the only operation that needs to be formally scheduled is the bottleneck operation, which is usually where you find the longest cycle time in the value stream. Because it ultimately controls how much can be produced in a given span of time, it is where FLOW is critical. The pull system on the shop floor will create the visual work rules for all of the operations before and after the bottleneck, so most other operations don’t need a schedule. What they need to work on what is visible to them next.
To Sum up
In truly Lean companies, we see a new type of CFO at work; I’m calling this person the “Lean CFO.” Of course, the Lean CFO is responsible for eliminating the concepts of “indirect labor” from the company. Beyond that, the Lean CFO leads – I repeat LEADS – the company’s effort to break down the functional silos of “manufacturing support departments.”
Eliminating waste across production operations creates the capacity to move manufacturing support work into the value stream. Future state value stream maps should put support work into the FLOW of production. Where it belongs.
This new type of CFO will lead the way, even wading into areas of operations and support where they usually don’t go, but where there are always opportunities to apply continuous improvement and make better Lean. And better FLOW.
Continuous productivity improvements of 15-20% per year will not happen if your company only focuses on Lean in operations. We just learned how flowing manufacturing support results in productivity gains and improved Lean FLOW. But it can’t stop there!
In the book The Lean Business Management System – Lean Accounting: Principles & Practices Toolkit, BMA Press, 2007 (of which I was a co-author) we stated right off the bat: “Because it is integrated, a lean system will resist a piecemeal approach to making improvements … in fact, attempting to do so will usually undermine rather than improve business results.” This means the Lean CFO really does belong in the middle of things.
He or she needs to turn the organization’s attention to an area often overlooked when it comes to implementing Lean practices – The Office. I’ll tackle that in my next blog. We’ll try to see how making FLOW happen in areas that we often don’t think of as value added can make an important contribution to your company’s Lean strategy.