Content in chapter 3 (The Machine that changed the world)
Supply Chain to Support Lean Production
The production of a car involves enginering and fabricating more than 10,000 major components and assembling them inot around 100 major subassemblies - engines, transmissions, steering gears, suspensions, and so on.
Toyota took a new approach to organize this supply 10,000 major components. It termed the suppliers of complete sub-assemblies as first tier suppliers. These first-tier suppliers form an integral part of the new product development team. They are given responsibility for detail engineering the sub-assembly. They are given the performance specification of the subassembly, which is developed with them as a part of the team developing the new car. The supplier has to deliver the prototype for testing and once approved, the production order was given. Thus the detailed engineering of the subassembly was done by the tier 1 supplier. The tier 1 suppliers were encouraged to talk among themselves about ways to improve the design process. Each first- tier supplier formed a second tier of suppliers for components.
Toyota takes some equity in some supplier companies and these companies are encouraged to take equity in Toyota. Toyota also acts as banker for its supplier group providing loans to finance the machinery for new products.
Toyota share personnel also with suppliers. It provides work-force when load surges and also deputes its managers. Toyota encourages its suppliers to produce for other companies also.
Kanban system: Kanban system is used in Toyota production system to implement Just-in-time (JIT). As a container of parts was used up, it was sent back to the previous step or the supplier and this becomes the signal to make one more container of parts. Reduction of inventories in the JIT system means any error will disrupt the production. But the power of JIT idea is to involve everybody in quality and timely production by removing safety stocks or nets.
It took Eiji Toyoda and Ohno more than twenty years to fully implement JIT within the Toyota supply chain. They succeeded and created a highly productive, high quality, responsive supply chain.
Problem of supplying 10,000 parts for making a car.
Henry Ford's solution: Do everything in your factory.
Alfred Sloan's solution for GM - Do it all in your own company but set up decentralized parts making divisions.
Toyota's Lean Solution to Parts Supply
At the very outset of product development, the lean producer selects all the tier I suppliers. Lean producers assign a whole subassembly as a component to a first-tier supplier.
The first-tier suppliers assign their engineers as resident design engineers to the lean development program of the final assembler. The development typically starts two to three years prior to production. As product planning is completed with the help of various resident design engineers of various suppliers, the basic design of the subassembly is handed over to the respective supplier for detailed engineering. The detailed engineering is done with support from design engineers of tier 2 suppliers.
The lean producer takes care to learn an enormous amount about the supplier's production cost and quality. Such interchange take place because a rational framework exists for deciding price that gives adequate profit to the supplier. The contract between the buyer and seller establishes ground rules for quality assurance, ordering and delivery, proprietary rights, material supply and pricing over a long-term. The contract lays the basis for a cooperative relationship between the company and suppliers.
Lean Supply Practices
The system of establishing prices: The lean producers work on target pricing and costing. The lean assembler sets a target price for the car and with the suppliers, figures how the car can be made for this price while allowing reasonable profit for both the assembler and the suppliers. The basis of the system is "market price minus" rather than "supplier cost plus" rule.
To achieve target cost, both the assembler and the supplier use value engineering. Value engineering is used during design and it is also used during the entire production phase. We need to emphasize that industrial engineering is used during design as well as during the production phase. Actually, lean systems incorporate industrial engineering objective of efficiency and profit improvement through elimination of waste in the project right from the inception of the new product development. In lean systems, managers take a much more active part in the efficiency improvement by involving all their people in efficiency improvement along with other objectives.
Womack et al. comment that cost reduction is more focused in lean systems as costs can be ascertained more quickly and accurately due to short set up times and batch quantities.
Declining Prices and Costs: A second feature of lean supply is continually decreasing prices over the life of a model in components as well as the assembly. Lean producers and supply chain managers believe that learning curve benefits overcome inflation and plan for reduction in prices and costs.
There are agreements to share the cost decrease achieved in collaboration and for keeping the cost reduction benefits achieved by the supplier alone during the life of the model. So there is incentive to participate in the cost reduction activities during the entire life cycle of the product.
Delivery Schedule: In lean supply chains, the universal practice is to deliver components directly to the assembly line many times in a day, with no inspection of incoming parts.
Production smoothing (Heijunka): Lean producers try to smooth production not through inventory buildups but through other means and share ups and downs with supply chain.
Supplier Associations: A final feature of lean supply is the supplier associations where the first tier suppliers of the company meet to share new finding on better ways to make business. That how the supply chain improvement effort is carried out. These supplier meets have been extremely important for disseminating such new concepts as statistical process control (SPC) and total quality control (TQC) in the late 1950s and early 1960s, value analysis and value engineering (VE) later in the 1960s, and the computer aided design (CAD) in the 1980s.
Investigating “The Way” for Toyota suppliers: A quantitative outlook on Toyota's replicating efforts for supplier development
Type: Case study
Author(s): Phillip Marksberry
Source: Benchmarking: An International Journal Volume: 19 Issue: 2 2012
Development of lean supply chains: a case study of the Catalan pork sector
Type: Research paper
Author(s): Catalina Perez, Rodolfo de Castro, David Simons, Gerusa Gimenez
Source: Supply Chain Management: An International Journal Volume: 15 Issue: 1 2010
Improving construction supply chain collaboration and performance: a lean construction pilot project
Type: Research paper
Author(s): Per Erik Eriksson
Source: Supply Chain Management: An International Journal Volume: 15 Issue: 5 2010
Lean supply chain and its effect on product cost and quality: a case study on Ford Motor Company
Type: Case study
Author(s): H.M. Wee, Simon Wu
Source: Supply Chain Management: An International Journal Volume: 14 Issue: 5 2009
Strategic considerations in the development of lean agri-food supply chains: a case study of the UK pork sector
Type: Case study
Author(s): David H. Taylor
Source: Supply Chain Management: An International Journal Volume: 11 Issue: 3 2006
The making of a lean aerospace supply chain
Type: Case study
Author(s): L.M.J. Michaels
Source: Supply Chain Management: An International Journal Volume: 4 Issue: 3 1999
An Analysis on Application of Lean Supply Chain Concept for Construction Projects. Full Text Available
By: Baladhandayutham, T.; Venkatesh, Shanthi. Synergy (0973-8819). Jan2012, Vol. 10 Issue 1, p25-36. 12p.
Modelling and analysis of workflow for lean supply chains. Full Text Available
By: Ma, Jinping; Wang, Kanliang; Xu, Lida. Enterprise Information Systems. Nov2011, Vol. 5 Issue 4, p423-447.
A Lean Supply Chain Manifesto. Full Text Available
By: Reese, Andrew K. Supply & Demand Chain Executive. Aug/Sep2006, Vol. 5 Issue 7, p23-27.
Build and Manage a Lean Supply Chain. Full Text Available
By: Srinivasan, Mandyam M.; Srinivasan, Tanushree; Choi, Emily W. Industrial Management. Sep/Oct2005, Vol. 47 Issue 5, p20-25.
Reinventing Lean: Introducing Lean Management into the Supply Chain (Google eBook)
Butterworth-Heinemann, 26-Jul-2010 - Technology & Engineering - 328 pages
Lean Supply Chain: Collected Practices and Cases
Productivity Press, 2006 - Business & Economics - 136 pages
Lean Supply Chain Management: A Handbook for Strategic Procurement
Jeffrey P. Wincel
Productivity Press, 2004 - Business & Economics - 239 pages
Lean SCM Consultants
Lean concept has been used in supply chain and warehousing
Lean Supply Chain Management - Principles and Practices - Prof Deborah Nightingale - 2005