Today, supply chains need to be agile and adopt operating models that are based on the creation of material and information flow, pulled by real customer demand. This type of SC is more resilient to disruptions and has a lower cost to serve. To achieve this supply chain, all types of waste must be eliminated, stocks must be optimized, suppliers must be brought closer, and all relevant performance indicators must be continuously improved. Only with this transformation will it be possible to reduce Lead Times and achieve breakthrough improvements in terms of quality, costs, and delivery.
The company that underwent this transformation is part of a big international corporation that produces water-heating devices such as water heaters and boilers for the domestic appliance market. Since its foundation, the company has been growing while focusing on improving the quality of its products and processes, and during this improvement, key structural changes have occurred in its operations. Today, the company is a product-development center for the corporation, taking a dominant position in the European market.
Within the scope of a quality improvement strategy, the company was experimenting with different Lean tools, such as a single-minute exchange of die (SMED), a two-bin system (full-box/empty-box KANBAN), or a scheduling and synchronization system. This approach aimed to eliminate defects, however, this result came to a halt after the ‘low hanging fruit’ exploitation.
On top of the quality issues, the company always had too much inventory coverage (50 days), while having a low service level (9% of deliveries missed), resulting in inefficiency and loss of sales. This occurred because it had too much stock of unneeded products and little of what was needed immediately. The fact that the production planning was based on order forecasting was contributing to this problem as forecasting always implies some level of error.
Thus, it was becoming hard for the company to create further improvement as the KPIs were demonstrating undesirable results. Hence, the major challenge was to develop and implement a new improvement strategy with initiatives that implement a real E2E demand-driven and agile system.
The company decided to adopt a system change to meet the proposed challenge, replacing the push system with a pull-flow system based on the Total E2E flow management. A team of people from different departments and external consultants was built to take part in the improvement project. They began by analyzing the current processes and flows which allowed them to identify the root causes for potential improvement followed by the solution design.
Root cause analysis
One of the main problems in production was the assembly schedule accuracy - only 50% - showing that the previously implemented synchronization system was not working well as there were many line stoppages and schedule changes. Also, operators in the assembly line were isolated from each other, working procedures were not standardized, and the line balancing was not well coordinated. All this was impacting both line efficiency and customer service negatively.
Moreover, the orders’ planning system was based on demand forecasts, sometimes misleading production, leading to a very high finished goods inventory – 15 days – as well as the inventory of parts and raw materials.
The project’s solutions design contemplated a set of initiatives that aimed to solve all these factors, and, above all, boost overall productivity.
Another issue identified was related to people’s attitude towards the KAIZEN™ practices. People in leadership assumed that the company was already practicing all the relevant KAIZEN™ tools - which was not the case on the shop floor.
Management was not giving due relevance to continuous improvement practices, prioritizing daily fine-tuning, help chain, and crisis management. This limited mindset of the high-level team was hindering the achievement of the desired performance results.
The entire production flow was redesigned into a practical pull-flow system with stable daily production planning and elimination of all evident types of Muda.
The first step was to give training to the project team to make them understand the concept behind the pull model and recognize the importance of this improvement. After that, the team was able to analyze the current state using value-stream mapping to define the future vision and organize the project plan.
The new line design integrated more lines and the plant space was optimized. In addition, with the creation of flow and consequent elimination of muda, cycle times and changeover times decreased. The variety of product references was reduced and small containers were located within a hand’s reach in fixed locations. This was complemented by the adoption of standard work in the workstations.
In terms of finished goods pull-planning and leveling, the main improvements were to use forecasts only for monthly capacity planning (S&OP), but not for order planning (S&OE). To do that, a pull planning algorithm was applied daily to compare the replenishment level with the current stock of finished goods, so that when the amount of actual stock was below the replenishment level, a replenishment order was generated.
Production orders were listed on KANBAN cards, and these were assigned to production on a logistics box. With this new system, the source of planning data was no longer forecasts, but real pull orders, ensuring stable production.
Moreover, Mizusumashi shuttle lines were adopted along with KANBAN parts. The idea behind the Mizusumashi was to be constantly picking trolleys using the information of needed parts for the upcoming production cycle. The KANBAN parts include the process of replacing empty parts containers with full containers.
With the supply chain paradigm shift, the company achieved significant gains in the main targets to improve: total inventory coverage was reduced by 20 days, the customer service level improved by 5.5%, and the achievement of the assembly-line production schedule increased by 42%. In terms of the efficiency of the assembly line, it improved by 26%, as well as operators’ overall productivity.
With such outstanding results, it became evident that the pull-flow system for the supply chain was the way forward. At the time, the company became confident about the future, being certain that, with the support of all employees, every year could be a better year in terms of efficiency results if the right improvement practices were taken.
This use case is a summary of the full case printed in the book ‘KAIZEN™ in Logistics and Supply Chains’ by Euclides A. Coimbra in the following chapters:
- Chapter 2: The Story of Company A: No Kaizen, No Pull Flow!
- Chapter 17: The KAIZEN™ Pull-Flow Life of Company A
More details & explanations can be obtained by reading the chapters or by contacting the author, Euclides A. Coimbra.