If your organization is beginning the “LEAN Journey” or if you are having difficulty executing your Kanban ordering, perhaps this blog volume 20 will help you. These formulas for “standard/ordering” and “inter-process” Kanban were derived from work we did at Toyota Industrial Equipment (TIEM) during the early days of the 1990’s, but may also be relevant in your organization. As you might suspect, the standard Kanban calculation formula is generally meant for external ordering, and the inter-process Kanban calculation is generally used only when material is transferred (moved) internally. When reviewing these formulas to be used as guides, I have presented the suggested formulas and considerations. These formulas have been used in a variety of JIT and Kanban driven environments since I left Toyota (TIEM) and have helped create enormous value in the form of: shorter order lead times, shorter processing time, less inventory expense, less handling, less space, better quality, lower engineering costs, less overall waste, lower financial costs, etc. for those who choose to take deployment seriously. The use of Kanban must be executed with high discipline! Anything less is likely to result in errors and shortages of supply. The implementation of Kanban alone in an organization is not likely to produce the intended benefits mentioned above! This is where the culture of many organizations MUST be tackled at the same time (as discussed in our previous blogs). Every associate must understand the seriousness of their actions and the consequences of not performing their role in the overall process.
True value creationrequires that every associate understand their role in executing to plan AND perform that role as intended!
As has been stated in other articles/blogs, this example of methods used or previously used at a Toyota operation are only meant as examples for consideration in your organization. Hopefully you will benefit from this and previous “ideas” we have included in our blog postings.
In this volume of our blog, we are presenting a document that was pulled from our early archives that illustrates (at a high level) “Total Cost Management” and “Total Supply Chain Assessment” leading to Supply Chain Improvement.
The first graphic entitled “Total Cost Management” provides a summary of the various actions in various assessment phases. These phases include Pre-Selection Data made up of product segmentation, gap analysis inputs, cost data, and competitive product teardown/analysis. This information feeds into various phases including Total Cost Model, Continuous Improvement Process, Total Supply Chain Value Workshop (incl. Product Design Changes/Logistics/Process Improvement/Administrative Kaizen), and an Action Plan (incl. cost drivers, sources, plan schedules). The Cost Agreements coming out of the Action Plan filtering led to Management Review and Commitment, which in turn inform and are informed by Key Metrics that support quality, cost, delivery, and customer considerations.
The second graphic entitled “Pre-Selection Data” provides a little more insight into the Pre-Selection phase elements. The discussion of Competitive Product Teardown/Analysis should not be minimized! Such an approach can and will provide valuable information regarding contributors to quality, cost, supply chain enhancements. Depending on which competitors you decide to analyze, you will also gain knowledge of valuable customer satisfaction drivers! An additional consideration: when we conducted competitive teardown and analysis at our Toyota company, we included the participation of every associate who participated in making or supplying the various components as we considered re-designs or new designs. These associates were able to help our engineers understand various machining and assembly advantages from the different designs. We held workshops with combined attendance of plant and management associates, and engineers to make the most of the multitude of recommendations.
To be clear, this approach to Total Cost Management is not only appropriate for manufacturing organizations, but it can also be readily adapted for call centers, bank processes, product design across business sectors, government supply chains and processes, healthcare businesses, etc. I have personally used this approach or an adaptation in nearly every sector. Hopefully you too will gain or help others benefit from our Total Cost Management Model example!