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Michael Balle

Michael Ballé: Learning To Think in Terms Of Lead Time

By Michael Balle, co-author of The Gold Mine and The Lean Manager - Last updated: Saturday, May 1, 2010 - Save & Share - Leave a comment

“Some people imagine that Toyota has put on a smart new set of clothes, the kanban system,” writes Shigeo Shingo more than twenty years ago, “so they go out and purchase the same outfit and try it on. They quickly discover they are much too fat to wear it! They must eliminate waste and make fundamental improvements in their production system before techniques like kanban can be of any help.”

Lean IS about having no back-up inventory (or at least not much) and no workaround system, but it’ about getting there, not deciding this arbitrarily. We’ve all seen companies who do exactly what Prof. Austin fears: they benchmark, set aggressive target levels for their inventories and… stop delivering. Conversely, we also know that adding inventory across the board doesn’t help much. We looked at inventory per plant in a large company with about twenty plants worldwide, and the relationship is clear: the higher the inventory, the poorer the on-time delivery performance.

You can’t decree just-in-time – that’s the whole point – you must strive towards it. As you do so, you will notice many wasteful operations you can take out of your costs and so “lean” your system. Leaning is a verb rather than a state. No one is ever”lean”, but you can lean your current operations. Taiichi Ohno taught us to do so by focusing on lead-time. If managers can be trained to think in terms of lead-time, they will learn how to lean their operations and eliminate waste. In practice, there are four aspects of working with lead-time: 1) protect the customer, 2) control lead-time, 3) reduce lead-time and 4) take out the waste.

PROTECT THE CUSTOMER

I was recently visiting an automotive supplier and we looked at their delivery performance – they had trouble putting exactly the parts the customer wanted in each customer truck (the customer didn’t help by sending truck at variable hours, sometimes days, and with demand variation, but, hey, it’s the customer). The debate was about putting MORE stock in finished goods in order to protect the customer. Yet this is not about going to the MRP and increasing the safety stock in the scheduling calculation – this was about understanding lead-time. The customer takes a part a minute on its own line. Which means a box every thirty minutes. Over two shifts, this means 50 box deliveries. Now, the company stacked pallets of boxes in production and sent them to the shipping area approximately every four hours. Rather than a lead-time of 30 minutes to get a box in shipping, the company created a lead-time of four hours to get a pallet. As the truck came once within the day, but at variable times, sometimes there were more parts waiting in shipping than needed for the truck, and sometimes less.

The first aspect of lead-time is customer delivery lead-time: how long is the wait for a customer to get the parts back to its line – in a supermarket, you shouldn’t wait more than the travel time it takes to bring the parts back. Just-in-time is having the parts ready for the customer whenever he wants to pick them up. If the truck can come at any time during a eight hour slot, this probably means having more parts ready in advance more than strictly necessary: leaning this system would require discussing conveyance precision with the customer.

The point is that this is not about increasing finished good stock through more demand in the MRP. This is about holding the right stock at the right place, and making such decisions by understanding the customer lead-time and the production lead-time. The first issue with a just in-time system is having the right stocks at the right place and making sure there are only good parts in these stocks (when in doubt, protect the customer again with 100% final inspection).

CONTROL THE LEAD-TIME

The next step is looking at how good we are at predicting when parts will be ready for the next step. In most operations, it’s relatively easy to predict when parts enter the system – that’s the production schedule. But then, once in the pipe, all sorts of things happen and it’s hard to be certain about the order in which parts actually come out at the other end of the pipe. The second key exercise of lean is understanding this in detail – which involves controlling the lead-time of the process. We should be able to predict accurately when parts (or any kind of work) come out because we should know precisely the lead time of each part – and what kind of variation affects it.

Lead-time variation can be due to many sorts of instability, from scheduling decision (the MRP believes some parts are more urgent than others or a customer yells loudest) to machine instability (number 8 is down again) or labor instability (joe didn’t show up this morning) and so on. The lean exercise is to visualize such lead-time instabilities and try to work with the people on the ground to fix them. Kanban is a usufel tool to do so precisely because it’s so inflexible – and will show up variation by, essentially, stopping the process. In this sense, kanban is a great tool for kaizen.

REDUCE THE LEAD-TIME

Once the lead-time is more-or less under control, one usually understands better the key drivers for lead-time. Essentially, these are:

TAKE OUT THE WASTE

Experience show that as you control and then reduce your lead-time, waste will appear, and appear again, and again. Too many forklifts, too many people, too many parts in stock, too much capacity, too many equipments and so on. In reducing lead-time, you will also find many opportunities to use less equipment. For instance, by lowering the amount of stock in the warehouse, you can close the top racks, and no longer need the huge forklifts necessary to place large crates of material high-up, and so on.

The challenge of leaning a system is to also make it more reliable. Customer satisfaction is the number one aim of lean, and so we need to constantly make sure that quality and delivery are 100%. By having the stocks at the right place, we can then lower the water in the river and drive kaizen without affecting customers. To do so, managers need to learn to think in terms of lead-time: visualizing, controlling, and reducing.

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