Lean Manufacturing and Strategic Asset Management
Lean Thinking and Strategic Asset Management
An MRO Software White Paper
November 2003
Johan Arts
Director of Industry Marketing
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MRO Software
100 Crosby Drive
Bedford, MA 01730
Tel: +1 (800) 244-3346
Fax: +1 (781) 280-2202
1. Introduction 3
2. Lean principles 3
3. Strategic Asset Management 6
4. Lean thinking and risk 8
5. Summary and conclusion 8
6. About MRO Software 9
7. How MRO Software has adopted lean thinking 109
8. Sources: 109
1. Introduction
The principles of lean thinking are applied in manufacturing companies around the world with great success because of their impact on company performance. However, if not executed with the appropriate support systems and infrastructure in place, an improvement project based on lean thinking can adversely impact the company’s risk and can lead to serious business disruption.
This paper investigates the impact of lean thinking on one of the support functions, the Maintenance Department. By removing waste from the value stream, the dependency on reliable performance of the assets (people, tools and machines) dramatically increases. Reliable assets become an absolute prerequisite for running the business. There simply is less and less room for error.
Companies that are implementing lean thinking should consider strategic asset management approaches that help improve the reliability of assets while optimising the cost of maintenance and operations across a wide range of asset classes.
2. Lean principles
Lean thinking is all about the removal of waste from the value chain. Waste is defined as any (human) activity which absorbs resources but creates no value. This definition includes mistakes which require rectification, production of items no one wantsof no market value and processing steps which aren’t actually needed. Lean thinking provides a way to specify value, line upprioritize value-creating actions in the best sequence, conduct these activities without interruption whenever someone requestswhen requestedthem, and perform them more and more effectively. In short, lean thinking is lean because it provides a way to do more -- and more with less -- and less while coming closer and closerproviding customers exactly what they want.
Historically, manufacturing companies are organised organized in “functions” and “departments.” The grouping of workers and assets along functional lines appears to be a logical choice to manage tasks as efficiently as possible. However, the movement of goods and services from one function to the next and the coordination and planning required introduces tremendous delays and other forms of waste.
Today, companies can realize significant gains by implementing a lean enterprise. The lean alternative is to reorganizealigns the work of functions and departments along the lines of the value stream with dedicated specific work cells and assets that are dedicated to performing certain tasks. By using this approach, unnecessary and non-value value-adding activities can be removed from the system leading to a more efficient process.
Porsche AG
An example of an automotive company that has adopted the lean manufacturing principles is Porsche AG, the famous sports car manufacturer. Their lean initiative was started in 1991 and over a five-year period, Porsche doubled its fundamental productivity in operations while cutting defects in supplier parts by 90 percent and first-time-through errors in-house by more than 55 percent. By 1997, it had launched two highly manufacturable (full production) products after only three years of development work, cut the needed manufacturing space in half, shortened lead times from raw materials to finished vehicle from six weeks to three days, and cut parts inventories by 90 percent
Table 1: Porsche Results[1]
| |1991 |1993 |1995 |1997 |
|Time | | | | |
|A. Concept to launch |7 years |- |- |3 years |
|B. Welding to finished car |6 wks |- |5 days |3 days |
|Inventories |17.0 |4.2 |4.2 |3.2 |
|Effort |120 |95 |76 |45 |
|Errors | | | | |
|A. Supplied Parts |10,000 |4,000 |1,000 |100 |
|B. Off the assembly line |100 |60 |45 |25 |
The principles of lean thinking can be defined in five key concepts that are outlined below:
Value
The critical starting point for lean thinking is value. Value can only be defined by the ultimate customer or purchaser. And it’s only meaningful when expressed in terms of a specific product which meets the customer’s need at a specific price at a specific price.
Value stream
The value stream is the set of all the specific actions required to bring a specific product through the three critical management tasks of any business:
problem-solving; task running from concept through detailed design and engineering to production launch,
the information management; task running from order order-taking through detailed scheduling to delivery and the physical transformation; task proceeding from raw materials to a finished product in the hands of the customer.
Flow
Once value has been precisely specified, the value stream for a a specific product fully mapped by the lean enterprise, and obviously wasteful steps eliminated, it’s time for the next step in lean thinking: Make the remaining value-creating steps flow. Instead of having activities performed by distinctive departments, all of the activities pertaining to the completion of a product or service should be organized in a single, uninterrupted flow.
Pull
Once a company has placed its revenue generating assets in a flow concept, the next step is to start making product only when there is actual demand from a customer, instead of working against a forecast. This concept is called “pull” and ensures that no waste in the form of unwanted products is being created.
Perfection
Once companies have implemented all of the above lean principles, it often dawns on those involved are often made aware that there is no end to the process of reducing effort, time, space, cost and mistakes while offering a product which is ever more close to what the customer actually wants. A strive for perfection can drive additional rounds of improvement.
Example: Bicycle manufacturing Part I – Applying the Lean Principles[2]
In order to explain the transformation to a lean enterprise, an example of bicycle manufacturing is hereby explained in more detail.
Traditional bicycle manufacturing
The key functional activities in the bicycle manufacturing process are tube cutting, tube bending, mitering, welding, washing and painting of the frame and handle bars, and final assembly of the complete bike. Most traditional manufacturing companies have organized their production layout along the lines of these functional groupings.
Figure 1: layout of traditional bike manufacturing plant
For each stage of manufacturing, machine automation has been introduced to remove manual labor from the process. Because changeover times on these machines were lengthy, parts are usually produced in large batches.
In order to manage the production process, a planning system is used that generates work orders based on a forecast, taking into account the inventories of parts and subassemblies. Due to the batch sizes for part production, the total lead times for the bikes are usually quite lengthy. In addition to that, the batch sizes also lead to high inventories of subassemblies and parts that put pressure on the working capital.
Lean bicycle manufacturing
In the continuous flow layout, the production process is laid out in the sequence of the process steps required to make the bike, removing all requirements for non-value added movements between functional departments.
Figure 2: layout of lean bicycle manufacturing plant
In the new, flow-oriented layout, single large machines have been replaced or broken into multiple small machines. Now so that bikes can proceed continuously, one at a time, from tube cutting, to mitering, to bending, to welding, to washing, to painting and to final assembly without ever stopping. In order to realize this, changeover times have been reduced using SMED or like approaches. The inventory between the stations has been reduced and is moved from stage to stage using a pull-based system such as kanban. The size of the work teams can be geared to the production volume of the cell.
The benefits of this approach includeis lower working capital because of reduction reduced of work work-in in-process inventories, the ability to respond to shifts in customer demands and in some cases, lower capital requirements (space, machines etc).
3. Strategic Asset Management
Strategic asset management (SAM) maximizes the performance of fixed, physical or capital assets that have a direct and significant impact on achieving corporate objectives. Companies and organizations depend on vital assets to drive their business; however, they often see them as individual, stand-alone objects operating in the background. In reality, companies comprise a collection of strategic assets that are tightly inter-dependent and exist as a single system that should be managed as a unified enterprise at higher levels in the organization.
Strategic asset management strives to maximize asset performance for the lowest total cost of ownership while taking into account risk, safety and compliance and managed management with a limited set of resources.
To get continuous flow systems to flow for more than a minute or two at a time, every machine/asset must be completely “capable;” that is, they must always be in proper condition to run precisely when needed and every part made must be exactly rightcorrect for the process. The reliability of the assets is the responsibility of the maintenance department which who are is responsible for the asset management function. Strategic asset management helps companies to maximize the asset reliability and performance required for a lean manufacturing implementation.
Example bicycle manufacturing: Part II – An unplanned downtime situation
Now, let’s take our bicycle manufacturing example and overlay the implications of a machine breakdown in either scenario.
Traditional bicycle manufacturing
On a given morning, the operator of the tube-bending machine is scheduled to bend 100 aluminium tubes and finds out that the electric motor of the machine doesn’t won’t start anymore. The maintenance department was behind in their its preventive maintenance program and the motor had missed a few badly needed revision tasksinspections and repairs. Luckily for the operator, all of the tube-bending machines are located in the tube-bending department, and some of the newer machines have multi-size tube bending capabilities. So the operator informs the maintenance department of the problem, moves the production batch to the other tube-bending machine and completes the job. Furthermore, Because these bended bent tubes are only necessary for the production run of the week after next, so even in if case the machine that broke down was the only one that could perform the required task, there was ample time for the operator to get the maintenance department to perform a rush repair job.
Lean bicycle manufacturing
Now that the bicycle plant has been changed to the flow-oriented layout, the impact of the breakdown has changed significantly. The tube-bending machine is placed in-line ofwithin the aluminium bike production line. A breakdown of the tube-bending machine therefore now affects the production output of the entire line. More importantly, because the planning system has been changed from forecast-based production with production of parts in advance, to pull-based production based on demand signals, the impact of a breakdown is that a real customer demand cannot be fulfilled. The reliability of the tube-bending machine becomes a critical prerequisite for the performance of the entire production line for aluminium bikes.
One result of lean manufacturing implementation is the need for maintenance departments need to put in placeinstall programs that help improve and manage the reliability of the critical assets. In order to achieve this, maintenance departments must master a set of core competences that are related to the asset management function and put in place the required improvement programs. Strategic asset management provides maintenance and asset managers with a framework and process to make decisions on improvement programs and to make the right decisions in relation to the corporate objectives.
Within the strategic asset management methodology, companies can deploy individual techniques such as Total Productive Maintenance (TPM), Reliability Centered Maintenance (RCM) to increase the asset reliability, Just-in-time (JIT) or Vendor Managed Inventories (VMI) to manage their parts inventories, or Activity Based Costing (ABC) or Zero-based Budgeting (ZBB) to improve their understanding of costs.
The implementation of a strategic asset management program directly affects the ability of the company to achieve its corporate objectives:
➢ Revenue protection and enhancements through higher asset reliability
➢ Cost control and reduction through enterprise visibility of maintenance activities across sites and asset classes
➢ Risk mitigation and legal compliance through the implementation of standards based work processes and common standards for safety and health related processes
➢ Competitive advantage through better execution and lower cost for maximum performance
While implementing a strategic asset management program requires people that have the right skills and experience, the investment in a software solution to support the strategic asset management program can provide significant benefits:
➢ Reduction of the number of systems required – one system across all asset classes and geographies
➢ Reduction of in total cost of ownership
➢ Reduction of the number of integration points
➢ Visibility of asset performance of assets and workforce using a common set of standards for benchmarking
➢ Flexibility to adjust the solution to changing requirements and work processes
➢ Embedded best practices leading to easy adoption by the users
4. Lean thinking and risk
An easy way to explain the impact of lean thinking on the risk profile of the company is to think in terms of insurance. If you an organization considers the a “buffer stock” as a type of insurance policy that can reduce the risk that a customer order cannot be shipped, then and the implementation of the lean principles drives the company to remove these buffer stocks, then and the risk of non-delivery increases.
The company needs to take out another insurance policy in the form of more reliable assets that help to mitigate this risk. Strategic asset management helps companies to implement better asset management programs that help to increase asset reliability.
5. Summary and conclusion
By removing waste from the value chain, the dependency on reliable performance of the assets (people, tools and machines) dramatically increases. Reliable assets become an absolute prerequisite for running the business.
Strategic asset management provides a framework for improving the reliability of assets while working in a resource-constrained environment.
Using the Strategic Asset Management Methodology, companies can evaluate when to apply specific maintenance philosophies and techniques such as RCM, TPM etc. SAMM also provides a standardized approach to manage projects using a risk-based approach.
Strategic asset management also provides lower cost of ownership alternatives by supporting the implementation of a single asset management platform across multiple asset classes. This provides management with better visibility of asset performance and standardized work processes across the organization.
6. About MRO Software
MRO Software is the leading provider of strategic asset management solutions. The Company’s integrated suite of applications optimizes performance, improves productivity and service levels and enables asset-related sourcing and procurement across the entire spectrum of strategic assets.
The Company’s asset management solutions allow customers to manage the complete lifecycle of strategic assets including: planning, procurement, deployment, tracking, maintenance and retirement. Using MRO Software’s solutions customers improve production reliability, labor efficiency, material optimization, software license compliance, lease management, warranty and service management and provisioning across the asset base.
MRO Software (Nasdaq: MROI) is a global company based in Bedford, Mass., with approximately 900 employees, 10,000 customers and more than 260,000 end-users. The Company markets its products through a direct sales organization in combination with a network of international distributors. MRO Software has sales offices throughout North America, Europe, Asia/Pacific and Latin America. Additional information on MRO Software can be found at . MRO SoftwareTM is a trademark of MRO Software, Inc.
7. How MRO Software has adopted lean thinking
MRO Software’s Strategic Asset Management Methodology (SAMM) incorporates the lean principles. The methodology helps companies to identify value, map out the value stream, compress the value stream and strive for perfection. Instead of focusing only on the removal of waste, the SAMM approach provides guidelines for improving asset reliability and performance. By combining lean and value thinking with robust risk-based project management approach, MRO Software provides companies with a solid foundation to implement improvement programs.
8. Sources
Certain parts of this white paper are excerpted from the book “Lean Thinking” by James Womack and Daniel Jones, Free Press, 1996.
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[1] The Porsche case is an excerpt from the book “Lean Thinking” by J. Womack and D. Jones and has a number of footnotes with assumptions and details on how calculations for this table are made.
[2] The Bicycle case is an excerpt from the book “Lean Thinking” by J. Womack and D. Jones.
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