Tag Archives: inventory

Profitless Part Proliferation

3 Replies

leadwireI wrote a post a little more than five years ago about Variety Reduction Program (VRP), an amazing but little known product design optimization tool.  At the time I referred to VRP as an idea whose “time had not yet come.”  Last week, as I gave a short presentation on VRP, I realized that five years later its time apparently still has not come.  In the interest of creating more interest around this significant technique, the following post expands on my epistle from 2011 and provides a couple of tangible examples of that significance from my own experience.

First, I think the technique deserves a new, mnemonic and alliterative moniker:  Profitless Part Proliferation.   I suggest this clarification because the word “variety” has an unfortunate positive connotation in the sense of greater customer selection, and therefore turns off sales and marketing folks before you can explain that VRP is not about product line trimming.  That was my initial experience in my own company many years ago.  “Just another anti-customer maneuver by operations,” I heard.  In fact, VRP aka P3 is about trimming needless part variety and all of its associated costs (e.g. drawings, inspection, purchase orders, stocking locations, etc.)

Secondly, I would like to call attention to the false sense of profitability that is often created through the addition of new parts and assemblies.   Minimizing the functional cost of material (the one that shows up on variance reports) for a single product looks good on paper, but almost always creates huge overhead costs arising from complexity.  Engineers and cost accountants typically focus on the apparent profit from product X, but ignore the resulting system costs.   They can’t see the forest for the trees, so to speak.   The following two examples for common part commodities, one a purchased part and the other a sub-assembly, speak to this problem:

O-rings.  A project was initiated to examine O-ring specifications and dimensions – things like durometer, chemical resistance, temperature range, ID and OD.   The first thing we realized was that there was no single repository for this information.  Our computer part master record contained dozens of fields to support ordering and costing, but most important design information was squished unintelligibly into a description field.  After cataloging specs and dimensions for O-rings, we realized that twenty-nine different O-rings were stocked.  Our discoveries:

  • Our information system made it difficult for designers see what was already available when they were choosing parts. It was just faster and easier to go to a supplier catalog. An alarming amount of part variety arose simply from poor design tools.
  • Once we were able to view O-rings as a part type from a design standpoint, we realized there was considerable overlap in specs and dimensions. Of the twenty-nine O-rings we cataloged, we determined that all production needs could be handled by only five O-rings.
  • Of the five remaining O-rings, one had metric dimensions because of unanticipated tolerances with mating parts. Rather than deal with correcting the mating parts, a unique O-ring was selected as a “bushing.”  Incidentally, that particular new part required the addition of a new supplier.

The rub was that the most robust O-rings cost a few cents more than marginally acceptable specifications.  Cost accountants argued that using the most robust  O-rings would increase product cost, ignoring the additional costs of maintaining two-dozen unneeded parts.  In fact, as we were a low-volume high-variety producer, we pretty much had to order months of supply for every one of the different O-rings anyway.  Finally, engineers argued that the cost of an engineering change – particularly a drawing change – was too great.  “We have better things to do” I heard.   Fact is, engineers are typically not rewarded for fixing up old parts; they are recognized for designing something new. Ultimately, however, some concessions were made in the interest of experimentation and the O-ring variety was reduced.

Lead wires.  A more egregious example of Profitless Part Proliferation was the variety of lead-wire assemblies. As a manufacturer of electro-mechanical products, my company built thousands of different lead-wire assemblies to support perhaps three dozen product families. At one point we dedicated a full bay of ASRS storage to lead-wires.  Still, lead-wire assembly stock-outs represented a major cause of late customer deliveries. Lead-wires were cut and terminated in large batches owing to the long set-ups on the machine.  While working on set-up reduction of the lead-wire machine, a production team lead astutely wondered why many lead-wires differed by insignificant lengths, as little as 1/32”.  During a project launched to catalog the variety in gauges, stranded or solid, terminations, insulation color and material – and many other specs – we did in fact identify an important opportunity just in lead-wire length variety.  This variety, we suddenly realized, stemmed from a single statement regarding the length of the connection leads outside the end item enclosure.  Sales and technical literature read something like this “Lead-wire length:  12” outside enclosure.”  In fact, our customers would have been happy with “at least 12” outside enclosure.”   Twelve and one-half inches would have been fine, as would twelve and one-thirty second inches, and so on.  The authors of VRP advised us to be clearer regarding which dimensions should be fixed and which could be variable within a range.   Once the product specification was changed to reflect “at least 12 inches outside,” the number and type of lead-wire assemblies plummeted!  So did the stock-outs.

These are just two of many specific examples where parts proliferation was pointless and profitless.  Now, before you say to yourself, “Oh that would never happen in my factory,” I’d encourage you to choose a common commodity of a purchased or manufactured part, and investigate the variety.   Please share a story for our readers about your discoveries. (One lucky commenter will be selected to attend GBMP’s 12th annual Northeast L.E.A.N. Conference coming in October to Worcester, MA. I am delighted to reveal our four exceptional Keynote presenters will be: Art Byrne, John Shook, Steven Spear & Dr. Eric Dickson (not to mention the forty other educational, informative, motivational and fun breakout sessions).

Shigeo Shingo was quoted as saying “The worst waste is the waste we cannot see.”   Help us to see by sharing an example from your experience.   I’d hate to think that I’ll be reflecting again in another five years on an idea whose time still has not yet come.

O.L.D.

BTW: GBMP’s calendar of Shingo Institute workshops is jam packed through October. Check it out here and join us for a workshop (or two) soon.

lfxAlso, I’m happy to share that GBMP’s online streaming video subscription service which we launched in March and call Leanflix  is receiving terrific reviews. We are so glad that we have been able to provide convenient, low-cost, on-demand video training content to meet the varied and ongoing training needs of so many in our Lean community. If you haven’t checked it out, I hope you will set aside a little time this week to do so.

– Bruce

 

Lines

1 Reply

linesAs any conference-goer can attest, the shortest distance between two points is not a straight line when that line is the lunch line.   At Lean conferences like the ones I attend it’s especially incongruous to hear stories all morning about customer service and flow, and then later stand in a long line at the lunch buffet.  (I confess, I’m not sure if I should be classified as the customer waiting for service, or inventory in queue before the serving process.  Can someone please help me clear up my role in that scenario?)

In this context, the recent LEI Transformation Summit in Orlando was noteworthy not only for its excellent theme, speakers and learning sessions, but also for its luncheon arrangements. On day one of the conference, I entered the dining room with the expectation that there would be iPhone time – time for emails and maybe a game of Words With Friends – while I stood in the lunch queue.  But there were no lines.  No waiting.  I watched intently as conference-goers streamed into the dining room and, hardly breaking stride, moved through one of four double-sided serving lines.

After lunch I asked Rachel Regan, LEI’s conference organizer, how they managed to avoid lines.  “Do you have a system?” I asked.  “Yes,” she replied, “we have a rule of thumb:  one two-sided table for every hundred attendees.”   She added, “We also try to choose meals that don’t require too much assembly, like sandwiches, because that can cause delays, and we keep the serving tables close together so there’s a better distribution of flow. The hotels like to spread the tables out, but people then tend to flock to the nearest table.  And we make sure that food is replenished frequently to avoid a line stop.”   Rachel thought for a moment and finally offered, “To be honest, we also had a little luck today because one of plenary sessions before lunch ended a little early and the other a little late, so this staggered the groups at the lunch line.”

I thanked Rachel for sharing her thoughts about the lunch line standardized work.  I thought to myself, “TPS works everywhere.”

This could have been the end of my post, but as luck would have it, the second day of LEI’s conference was opened by Jamie Bonini of TSSC co-presenting with Margarette Purvis, CEO of the New York City Food Bank and perhaps the most eloquent and passionate Lean advocate that I have heard in many years.   Her challenge: to reduce hours of waiting for food at their pantries.  Bear in mind, these are not queues of over-stuffed conference-goers like me waiting in a warm conference center.  The pantry serves persons with a critical need for nourishment, who stand in the cold, waiting to feed their families.  The pantries are their lifelines.  And as Ms. Purvis put it, “ They should not suffer the indignity of waiting for hours in line for a meal.”    Enter TSSC with an offer to help eliminate the pantry lines.  This compelling example of TPS employed for the public good is documented in the following link— many small changes for the better that came from the dedication of the NYC Food Bank staff under the generous guidance of TSSC. I encourage you to take a couple minutes to study it:   http://www.tssc.com/nfp-fbny.asp.   I thought to myself once again, “TPS works everywhere.”

Do you have a unique application of TPS that you would like to share?  Please comment.

O.L.D.

BTW: Speaking of conferences, don’t miss the upcoming 26th Internatinoal Shingo Conference, May 5-9 in Sandusky, Ohio.  I’ll be there and hope to see you too.

Nice Round Numbers

3 Replies

I was working recently with a company that is targeting inventory reduction as a top priority.   I stressed that reducing the causes of inventory is a better perspective.  The analogy of inventory as a deep river that covers many rocks (wastes) is one most of us are familiar with, and one that I experienced firsthand early in my own Lean journey.

When our discussion turned to causes of inventory, there was an outpouring of reasons from the group:

  • “We run for absorption,” a production manager exclaimed.  “We don’t want idle machines or people.”
  • A buyer added, “We order earlier if we think there will be a delivery problem.”
  • A machine shop supervisor confided, “We gang parts with similar set-ups to improve machine utilization.”

These defensive postures provided too much inventory too soon.   The consensus however was that in these instances too much inventory was preferable to the alternatives.

One inventory planner however suggested a cause of excess inventory that had nothing to do with protection: rounding.  “There are so many ways to round order modifiers, but we don’t consider the consequences.   For example, if an EQQ is calculated at 27 pieces, I’ll round it up to 30.  Or maybe a safety stock of 187 pieces will be rounded to 200.”

roundnumbersThe list of round numbers continued:  anticipated yield (to cover defects), scrap factors (to cover breakage by the consumer), overage allowance, pan sizes (to cover standard package quantities) and minimum order quantities, safety stock and order point quantities, fixed and variable lead-times, and n-days stock on hand.   Every one of these quantities were rounded – always up.

The planner continued,  “These round numbers apply to each part, but when you put the part into a multi-level bill of material the modifiers are compounded!  It’s much worse.  A simple rounding of safety stock at one level, for example, pyramids inventory at every level beneath it.”

As she spoke, I recalled my own experience years before as a materials manager tracking down mysterious purchases of seldom-used parts.  No actual customer need had triggered the order of these parts.  They were driven entirely by order modifiers rounded up to nice round numbers.

I responded to the planner, “Good observation!  Perhaps we should rename order modifiers to order magnifiers.”

How many order magnifiers are there on your part master?  When was the last time you reviewed them?  Are they nice round numbers?  What portion of your total inventory is the result of nice round numbers?   Please share a story.

O.L.D. 

BTW – My next free webinar will be on Tuesday, February 11, from 3:00-3:45 p.m. EST.  The topic is “Tips for Manager Gemba Walks”.  Hope you can join me.  Click here to register.


You can learn about all of GBMP’s public lean training events here  – from benchmarking Plant Tours to Lean Accounting Workshops, Six Sigma Green Belt Certificate programs and more.

Stagnation Nation

2 Replies

Twenty years ago, I was introduced to a graphical method for, as it was put to me, “sharing what you see” with others. It was referred to as a material and information flow diagram, or M&I for short. Brian S., a consultant from TSSC who was assisting my factory, pointed to a diagram he had sketched earlier in the day and said “This is how we see the current condition of line X and I’d like to confirm it with you before we proceed.” I gazed at the drawing, a little reminiscent of a process map, but with symbols like striped arrows, and starbursts and, in particular, headstones.stagnation

“Headstones!” I exclaimed to Brian, “What do they represent?”

“Stagnation”, he replied, “of either material or information.” He continued, “like stagnant water: not flowing, smelly, a bad thing.” He pointed to a process box labeled ‘Assembly.’ “See here, there are eight days of queue in front of assembly,” he said. “That’s stagnation.”

The power of this graphically explicit M&I tool was immediately apparent. At a glance, the entire process condition from incoming purchased material to customer shipment was far more obvious. I studied the diagram, staring alternately at the piles of WIP on the actual floor and then back at the headstones before each process box on the M&I. “Hmm,” I answered as I summed up the days of inventory, “this looks like cumulatively about fifty-six days of inventory in queue across the entire process. Or should I call it “stagnation?”

“Call it inventory if you like, but it’s stagnating together with the associated production orders,” Brian answered.

“When will you teach me more about this M&I tool?” I asked.

“Wait a little,” Brian responded. “We’ll show you more when we think you’re ready.”

About a year after this early lesson, Learning to See was published, introducing the world to Value Stream Mapping (VSM). Perhaps the most significant technical method in the last 20 years, VSM has created the opportunity for its practioners to “see” their workplaces in a new way. Today the prescriptive VSM symbology, nearly identical to that in TSSC’s M&I method, has been copied into hundreds of derivative value stream mapping books and can be seen on the walls of factories, offices and clinics around the world. I wonder, however, why the judgmental headstone (stagnation) was replaced by a more nondescript triangle symbol (inventory) when the ideas were translated from Toyota to the rest of us.

“You can make your own symbols up,” Brian S. told me at a later time, “as long as you all understand what they mean.” But I think I’ll stick with the headstone rather than the triangle. Because fear of reducing inventory continues to be one of the biggest problems lean implementers face today, let’s make it as ugly as possible.

How about at your facility? Is it inventory or stagnation? I’d love to hear from you.

O.L.D.

BTW – There’s still time to sign up from my next free webinar on Tuesday, January 14, 3:00-3:45 p.m. EST. The topic is Value Stream Mapping: Mistakes and Faux Pas. Hope you can join me. Click here to read more and register.

Thankful for Inventory

Leave a reply

ThankfulI heard a tongue-in-cheek radio ad for a local tobacco shop yesterday extolling the secondary benefits derived from tobacco, namely the tobacco sales tax.  Supposing the moneys actually go to fund their publicized causes (road and bridge improvements, aid to expectant mothers and of course a mandated marketing campaign decrying the dangers of tobacco) we should be “thankful”, according the ad, for tobacco.   The bizarreness of this premise inspired the following parody:

Be thankful for inventory!

  • It’s an asset, like ‘money in the bank.’ Though not quite as liquid as cash, this asset can be used as collateral to borrow from the bank – perhaps to buy more equipment to build or store more inventory.
  • Larger inventory lots reduce the need for costly changeovers.   Optimizing these quantities is axiomatic to absorption and equipment utilization.
  • Inventory is a protection against machine downtime.   Who would risk deliveries to customers by producing only what is needed when pesky machine breakdowns are likely?
  • In slow periods, building inventory to forecast keeps our workers and equipment busy.   (And once we figure out how to forecast future needs accurately it will reduce overtime in peak periods as well.)
  • Purchasing economical lot sizes reduces piece costs, which of course increases profits.  Right?  Is a container load such a bad thing?  In any event, ordering overseas purchases would be problematical without pallet load lot-sizing.
  • Larger lots reduce sampling inspection costs and associated paperwork. Our quality system requires minimum lots to conform to sampling standards.  We’ve calculated the EOQs and these are our targets.
  • Larger lots reduce stock-outs.  If we are constantly running out of parts our customers will be affected.  We should be thankful for safety stock.  After all, safety is one of the most basic principles of Lean.

These premises unfortunately have about the same validity as those in the tobacco shop advertisement.   Inventory, like cigarettes, is an addiction with short-term perceived benefits but long-term negative consequences.  And bizarre as these premises may appear, they’ve all been uttered to me recently by well-meaning managers who struggle to see inventory as a symptom of many business problems.

Can you add to the list?  What are some other reasons that we are “thankful” for inventory?  Please share a couple.    And have a Happy Thanksgiving!

O.L.D. 

BTW:  My next free webinar is fast approaching.  Sign up here for “Tea Time with Toast Dude.”  The topic will be “Killer Measures”, traditional measures that can derail your lean implementation.  Hope you can join me on Tuesday, December 10 from 3:00 – 3:40 p.m. EST.  Read more & register.