THE IMPACT OF WORLD-CLASS MANUFACTURING PRACTICES ON SMALL MANUFACTURERS - by
David K. Johnson

Flexibility

The second major benefit of lean manufacturing is increased flexibility. Reducing WIP (Work In Process inventory) has the effect of unclogging the production system. By reducing WIP, lead times are also reduced making companies more responsive to their customer’s needs. Being responsive and flexible is one of the key enablers of supply-chain integration, because of the impact that flexibility can have on minimizing the bullwhip effect.

To understand how WIP affects lead times one must first realize that in most companies up to 95 percent of the lead-time involved in producing products is actually non-value added time. Because the majority of this non-value added time is a result of inventory waiting in queues to be processed, lead times can be greatly reduced by reducing required inventory buffers.

In the following example, we see how in a traditional batch and push production system excessive WIP can create unnecessarily long lead-times. In this example the company has invested substantial capital in equipment and has consequently decided to focus on equipment utilization and economies of scale. This has led them to the practice of large production runs in order to minimize equipment downtime. Imbalances in the line cause WIP to back up in front of the slower processes, resulting in a system where the material spends most of its time waiting to be processed. In this example, material requires 56,045 minutes to move through the system. However only 605 minutes of that time is actual value added processing time. The reminder of the 56,045 minutes is consumed while waiting to be processed. This longer then necessary lead-time creates a problem when a company decides to produce more than one product. In the example, if the customer would like to purchase a red square, the producer would be unable to meet their request because the production system is clogged with blue circles. Most companies choose to deal with this problem by simply carrying huge amounts of finished goods inventory. In the example, the producer would be forced to carry enough finished red squares to last through the three-week circle production run plus the time required to purge the circles through the system. The approach of carrying massive amounts of finished goods inventory creates its own problems. Carrying excessive finished goods inventory ties up more capital than would otherwise be needed, and exposes the company to the risks of spoilage and obsolescence. Quality problems are not caught at the source, and other inefficiencies are hidden under a lake of inventory. Using finished goods inventory to compensate for a lack of flexibility does not allow the producer to match production with actual customer demand and intensifies the bullwhip effect.

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Copyright © 2005. David K. Johnson. All Rights Reserved.