Lean Transformation through Value Stream Mapping

Recently I got the opportunity to interact with Phil Coy, Chief Technology Officer for Future State Solutions and our discussion roamed around Lean Transformation using value stream mapping. I thought to share the excerpts with my readers as there were quite a few learnings for me and I am sure these will help all of us in one way or other.

Future State Solutions is a key player in Value Stream Enterprise Management (VSEM) space and have redefined the utilization of the methodology for Lean Transformation. I was keen to know how their solutions could help the organizations earn or save dollars specially in these tough times and Phil told me that since companies today are faced with a myriad of challenges including fluctuating demand, continual product innovation, customer pressure to respond faster while maintaining exceptional quality, and increased global competition, it makes a perfect scenario for them to step in and contribute. He reminded me that Lean principles have been proven in many companies to provide significant financial benefits. Typical savings from a successful lean initiative are 40% inventory reduction, 50% decrease in space required, 40-50% reduced distance moved, 20-30% labor reduction, 50-80% lead time reduction, all the while improving on-time delivery to high levels, typically 95% or better. Phil added, "While lean transformation has a compelling history with tremendous potential to improve the bottom line, the “staying power” of lean initiatives however has been much less than stellar. Surveys referenced by the Lean Enterprise Institute indicates that a very high percentage (around 80%) of lean initiatives realizes only marginal improvement and are either dropped or stalled. Clearly there are obstacles to lean transformation that have not been consistently overcome."

Phil emphasized that their product VSEM is a complete lean transformation software solution to manage all of the data in a lean (and green) initiative and to implement lean principles of takt time, pull, flow, heijunka, and kaizen within a quantitative model of the operation of a value stream and it is extremely helpful challenging situations where there are many product variations with unique cycle times and changeover times, when there are different routings for each product variation, when there are alternate routings for many products, when there are shared resources, when demand changes daily or weekly, or when the business moves from make-to-stock to make-to-order.

Phil Coy’s response for my other question where I wanted him to throw light on the top business functions or activities or areas that he thinks, are not given due importance in this recessionary period in manufacturing organizations worldwide was very straight forward. He started with quoting the founder of Toyota Production System, Taichi Ohno, who said, “All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes.” He said that the 1st thing that the organizations lack in this period is to put energized efforts to become more efficient or in lean terms, to increase the flow of value creation and eliminate waste. The frozen financial credit markets and downward cycling demand have created a “fear” that has resulted in “spend nothing” attitude. So an opportunity to educate and implement lean has been squandered. With demand is starting to ramp back up, more and more companies are coming to realize that they face major challenges to meet increasing demand after having so aggressively shed people and equipment.

The next big thing that the organizations missed giving the importance it deserved as per Phil was “Green”. He says that reducing environmental impact from operations opens up another dimension to elimination of waste. In too many organizations, Operations are completely separated from Environmental, Health and Safety (EHS) functions. Phil emphasized that there is clear and strong evidence is that green initiatives create significant cost savings instead of increasing cost as per popular perception and in addition, provide a strategic advantage to differentiate products from competition.

I had doubts if Future State Solutions can help in highlighting the importance of areas identified above and assist in improvements in these and he clarified that Future State Solutions supports lean transformation with a very complete software solution integrated with a proven methodology that allows companies of all sizes and complexities to actually realize the benefits of lean principles and lean techniques. Specifically, companies can use VSEM to identify product families properly, to stratify demand and variation requirements, to create value streams with a quantitative model for business decision making, to set buffering strategies and sizes of supermarket inventories and kanban quantities, and to establish production sequencing and optimum lot sizes. The result is a balanced value stream that supports the demand requirements of volume and mix at every process with staffing levels, working schedules, and machine resources identified. This quantitative model is then used in Sales and Operations Planning to review long-term capacity requirements and in short-term scheduling to create load-leveled heijunka schedules at the pacemaker process.

For the contribution in Green Initiatives from his organization, he said that a complete integration of lean with “green” supports energy, resource, and non-product outputs identified at the process level and reported. This includes a complete carbon footprint based on the value stream model that can become the baseline GHG inventory for emissions management and ISO 14000 compliance. Sustainability reporting consistent with GHG Reporting Protocol standards includes Scope 1, Scope 2, and Scope 3 reporting. The integration of lean with green is a powerful combination using the lean focus on process and process improvement to implement “green” objectives consistent with environmental initiatives.

Phil shared a case study with me on how could VSEM helped an organization achieving the Lean Objectives. He shared the need and challenge as, “A specialty steel company approached us with a problem – they had too much inventory and knew it. But they didn’t know how much less they could run with before impacting customer delivery and they “didn’t know how to know.” They provide around 400 different products requiring 25-30 processes involving milling, plating, normalizing, slitting, cutting, etc. Of the 400 products, there are several dozen independent “flow paths” through the value stream. Their lean initiative had begun a few years before with a 5S effort and some individual kanbans but their efforts lately had stalled. The core of their operations remained as a tangle of processes that they couldn’t seem to unravel”.

The solution in his own words - Our involvement began with a three-day (from a total of 8 days) assessment using data extracted from their SAP ERP system. The result of the assessment was a value stream map generated from their data that calculated the EPEI (Every Part Every Interval) for each process. This reflected the specific demand for each process based on only the products that the process runs. The overall bottleneck process was a particular mill. Drilling down into the details further, we found that sequence of products was essential to reducing changeovers, particularly by segregating by surface type and then sequencing from wide to narrow widths. Planning for changeovers was further challenged by the fact that a changeover was needed after a certain number of coils or hours of processing time even with the same product being run. Adding this next level of detail into the data model led to a fresh calculation of EPEI. The EPEI forms the basis of the queue length needed to support production at the takt time requirement. In effect, this gave them a quantifiable basis for the queue lengths that they would then load as manufacturing lead times for their MRP calculation. As a result, they began a “WIP burn down” strategy to lower their WIP to match the lead times.

Result and Business Impact achieved was a whopping 9000% return on investment. Over the course of 60 days, the customer could reduce their inventory by over $16 million (30-40%) without change to any of their operating procedures.

I wanted to know if organizations like Future State Solutions have a vision of having their own IT systems that help in implementing the solutions for their customers or are planning to use respective ERP systems for integrating their solutions. Phil highlighted that there is no need of re-inventing of wheel as ERP holds the full set of data that they need for implementing VSEM. The typical ERP system is designed from a financial perspective and captures the details to record the financial impacts properly. In some instances, though, the detail provided in ERP is not enough, for example, there’s a difference if the operator must be physically present throughout a machine production cycle or not or if a portion of changeover can be done off-line to production. Phil thinks that all of this data must be captured, managed, and then combined in order to analyze opportunities for improvement. He added, “Our lean solution includes this lean and green data repository held as a database. Data is easily imported in common file formats from data pulled from ERP systems, PLM or CRM systems, and from the myriad spreadsheets and personal databases spread around the organization. Typically we begin from an ERP and use as much information as possible and then drill down from there as opportunities to improve are identified.” Again, Phil feels that data accuracy and reliability is a huge challenge for many businesses. So orientation of Future State Solutions is to begin simply, use all that is readily available, identify where the data is missing, prioritize processes based on the opportunities for improvement, and then drill down in those processes to capture more detailed data as necessary.

Overall, the interaction was very informative for me and I tend to believe that tools like VSEM will rule the Lean and Green initiatives in near future.

Phil Coy is CTO of Future State Solutions, the leading provider of integrated lean and green business software solutions. Future State Solutions’ products enable businesses to successfully implement and sustain lean transformation and to support energy and environmental initiatives with a lean approach - enabling business decision makers to consider the triple bottom line of people, planet and profit.