CHAPTER 5 : LEAN SYSTEM

i. Assume each container contains 55 parts, determine the number of containers
D = 7000 units/ days

L = 0.02 day + 0.08 day
α = 0.10

C = 55 units

N = D.L (1+ α)
C

N = 7000 * (0.02+0.08)(1+0.10) = 14
55

ii A proposal to revise that plant layout would cut materials handling and waiting time
per container to 0.05 day. Determine the number of containers that would be needed.

D = 7000 units/ days
L = 0.02 day + 0.05 day

α = 0.10
C = 55 units

N = D.L (1+ α)
C

ANSWER N = 7000 * (0.02+0.05)(1+0.10) = 9.8 ≈ 10
55

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Calculate the number of Kanban's needed at the ABC company for the following two products produced in factory that
works eight hours per day, five days per week

Description Product 1 Product 2
Usage 300/week 150/day
2 week
Lead time 1 week 30 units
Containers size 20 units
15 percent 0
Safety stock

Variable Product 1 Product 2
Daily demand (D) 300/5 150
5 days
Lead time (L) 15% 10 days
Safety stock (SS), α 20 0
30
EOQ/C 17.25 ≈ 8 cards
# of kanbans = 50 cards

EXERCISE D.L (1+α)\ 18+50 = 60 cards
EOQ

Total number of Kanbans
in the system

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Value stream mapping (VSM) is a qualitative lean tool

for eliminating waste (or muda) that involves a current

state drawing, a future state drawing, and an
implementation plan.
Value stream mapping (VSM) is a hands-on process to
create a graphical representation of the process,
material and information flows within a value stream
Value stream mapping (VSM) spans the entire value chain,
from the firm’s receipt of raw materials to the delivery of
finished goods to the customer.

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SELECTED SET OF VSM ICONS
SLIDE 54

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VALUE STREAM MAPPING

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VSM EXAMPLE Elapsed Time from order to delivery : 30 days
Value Added Time : 1 hour, 25 minutes

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JIT is a manufacturing philosophy involving an integrated set of procedures/activities designed to
achieve a volume of production using minimal inventories
A highly coordinated processing system in which
goods move through the system and services are
performed just as they need

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• A system that organizes the resources, information flows, and decision rules that enable a
firm to realize the benefits of JIT principles

To eliminate waste

by:

producing the needed items, at the right time, and the exact quantity

1
2
3
4

5 ▪ Enjoy! :)

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▪ 3 images and description

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Reduced ▪ Reduced labor ▪ Increased
inventory (up to cost (up to productivity
30%)
90%) Reduced
manufacturing &
▪ Reduced lead storage space (up to ▪ Increased ▪ Improvement of
time (up to flexibility and quality (up to
90%) 50%) adaptability to 90%)

changes

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▪ 2 Columns ▪ Ideal lot size is one
• Balanced production is more
▪ Large lots are efficient
• Faster production is more efficient efficient
• Inventory provides safety • Safety stock is waste
• Inventory smoothest production • Inventory is the root of all evil

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The JIT production system is the result of the mandate to
eliminate waste. It is composed of the following elements:

Form of multifunctional shop into manufacturing cells to
workers and general- utilize labor more efficiently

purpose machines

Only the items they need corresponds to a standard
and control the inventory quantity of production or size

requires less space and of container
capital investment than
systems that incur large Production in small lots
because of the enormous
inventories amount of time required to

system to work well, set up the machines.
quality must be extremely

high

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Supply Chain is a network of
supplier manufacturing,
assembly, distribution and
logistics facilities that
perform the functions of
procurement of materials,
transformation of these

material into intermediate and
finished products and the

distribution of these products
to customers.

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Supply Chain Management
is primarily concerned with the
efficient integration of suppliers,
factories, warehouses and stores
so that merchandise is produced

and distributed in the right
quantities, to the right locations

and at the right time, and to
minimize total system cost
subject to satisfying service

requirements.

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• The supply chain is about “moving” – or “transforming” – raw materials and ideas into products or
services and getting them to customers.

• Logistics is about moving materials or goods from one place to another. Logistics is, in that sense, the
servant of design, production, and marketing. But it is a servant that can bring added value by quickly
and effectively doing its job.

• The following areas of logistics management contribute to an integrated approach to logistics within
supply chain management.

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SUPPLIER

A supplier, a provider of goods or services or a seller with whom the buyer
does business, as opposed to a vendor, which is a generic term referring to all
sellers in the marketplace. The supplier provides materials, energy, services, or
components for use in producing a product or service. These could include
items as diverse as sugar cane, fruit, industrial metals, roofing nails, electric
wiring, fabric, computer chips, aircraft turbines, natural gas, electrical power,
or transportation services.

PRODUCER

A producer that receives services, materials, supplies, energy, and
components to use in creating finished products, such as dress shirts,
packaged dinners, air-planes, electric power, legal counsel, or guided
tours. (Note that supply chain management for services may be more
abstract than those for manufacturing).

CUSTOMER

A customer that receives shipments of finished products to deliver
to its customers, who wear the shirts, eat the packaged dinners,
fly the planes, or turn on the lights.

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INTEGRATION OPERATION PURCHASING DISTRIBUTION

- Part of good planning - As important as - The purchasing area of - The supply chain ends
is setting up strategy is to keeping a supply chain management when the product lands on
strong supply chain, day- makes sure a company
integration, which to-day operations are the has everything it needs store shelves where
means that everyone backbone of the work to manufacture products, customers can buy them or

involved in the manufacturers do. including materials, their front door (if they
manufacturing process Managers monitor the supplies, tools and purchase them online). But
work being performed
communicates and equipment. getting products there
collaborates. and make sure it. means having a well-
everything remains on planned shipping process.
- Coordination / - Supplier alliances,
integration activities, track. supplier management and - Transportation
- Demand management, management, customer
Global integration MRP, JIT ERP and TQM strategic sourcing relationship management,
problem, performance network design and service

measurement. response logistics.

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01SUPPLY CHAIN INTEGRATION

When supply chYoauincanpsaimrptlyicimippraesnstysourwauodriekncefaonrd
common goal. Requires intrafirm functionaladd a unique zing and appeal to your
Presentations. Easy to change colors,
integration. Based on efforts to changephotos and Text. Get a modern
PowerPoint Presentation that is beautifully
attitudes & adversarial relationshipsdesigned. You can simply impress your
audience and add a unique zing and
02 CUSTOMER RELATIONSHIP MANAGEMENTappeal to your Presentations. Easy to
change colors, photos and Text. Get a
modern PowerPoint Presentation that is
beautifully designed.
Advantages that accrue from sourcing from
larger global market e.g. Lower cost & higher
quality supplier. May involve operating exposure,
which is risk found in foreign setting
03 NETWORK DESIGN

Crucial for firms to know if procedures
are working

01 LONG TERM
RELATIONSHIPSYou can simply impress your audience and
add a unique zing and appeal to your

02 Presentations. Easy to change colors,

SUPPLIER MANAGEMENTphotos and Text. Get a modern
PowerPoint Presentation that is beautifully

–IMPROVE PERFORMANCEdesigned. You can simply impress your
audience and add a unique zing and
appeal to your Presentations. Easy to

1. Supplier evaluation - Determining supplierchange colors, photos and Text. Get a
modern PowerPoint Presentation that is
capabilities beautifully designed.

2. Supplier certification- Third party or
internal certification to assure product
quality and service requirement

03 STRATEGIC PATNERSHIPS
Successful and trusting relationship with top –
performing supplier

Demand management match demand to
available capability

Linking buyers & supplier via MRP and
ERP systems

Use JIT to improve the PULL of material to
reduce inventory levels

Employ TQM to improve quality compliance
among supplier

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01 TRANSPORTATION MANAGEMENT
Tradeoff decisions between cost &
timing of delivery / customer service
via trucks, rail, water & air

02 CUSTOMER RELATIONSHIP MANAGEMENT
Strategies to ensure deliveries, resolve
complaints, improve communication &
determine service requirement.

03 NETWORK DESIGN
Creating distribution network based on
trade off decision between cost &
sophistication of distribution system. .

Expanding the supply chain 01 02 Increasing supply chain
responsiveness
- Expanding partnership and
building facilities in foreign - Supply chain will Firms will increasing
markets need to be more flexible and responsive to
- The expansion involves : customer needs
• Breadth – foreign manufacturing,
office& retail shop, foreign - need to benchmark industry performance
supplier & customers and meet improve on continuous basic
• Depth – second and third tier
supplier & customer - Responsive improvement will come from
03 more effective and faster & service
delivery system

The greening of supply 04 Reducing supply chain costs
chain
Cost reduction achieved through:
- Supply chain will work harder to Reduced purchasing costs, Reducing waste, Reducing excess inventory,
reduce environment degradation reducing non- value added activities, Continuous Improvement through

- Recycling and conversation are Benchmarking- improve over competitors’ performance, Trial & error
growing alternative in response Increased knowledge of supply chain processes
to high cost of natural resources

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FIGURE : illustrates a simplified supply
chain for the florist. Each of the suppliers,
of course, has its own supply chain (not
shown). For example, the supplier for the
arrangement materials may get baskets
from one supplier and pots from another.
The suppliers in the florist’s supply
chain play an integral role in its ability to
meet its competitive priorities, such as top
quality, delivery speed, and customization.

SUPPORTING FACILITIES FACILITATING GOODS

This is the physical resources These are the materials
should be available before the purchased or consumed by
service which is going to support customer or provided by the
the service operation. company.
Ex: Maintenance services Ex: Packaging

EXPLICIT SERVICES IMPLICIT SERVICES

Explicit service is the benefits readily This is the Psychological
observable or sensual benefits from benefits that obtain to the
delivered operation for the customers which customers from using a
is an essential feature for the operation particular service.
Ex: Local delivery service, FedEx delivery Ex: Internet Service
service

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Figure: Suppliers are often identified by their
position in the supply chain. Here, tier 1
suppliers provide major subassemblies that
are assembled by the manufacturing firm,
tier 2 suppliers provide tier 1 suppliers with
components, and so on. Not all companies
have the same number of levels in their
supply chains. For example, companies that
engineer products to customer specifications
normally do not have distribution centers as
part of their supply chains. Such companies
often ship products directly to their
customers.

Improve operations Increasing globalization
Increasing levels of outsourcing Increasing importance of e-commerce
Increasing transportation costs
Complexity of supply chains
Competitive pressures Manage inventories

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ELEMENT TYPICAL ISSUE

Customers Determining what customers want
Forecasting Predicting quantity and timing of demand
Incorporating customer wants, mfg., and time
Design

Processing Controlling quality, scheduling work

Inventory Meeting demand while managing inventory costs

Purchasing Monitoring supplier quality, delivery, and relations

Suppliers Monitoring supplier quality, delivery, and relations

Location Determining location of facilities

Logistics Deciding how to best move and store materials

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LOGISTIC

The movement of materials and information within a
facility and incoming and outgoing shipments of
goods and materials

LOGISTIC MANAGEMENT

Logistics management may be defined as “the art and science of obtaining, producing,
and distributing material and product in the proper place and in proper quantities.” It is
a rapidly evolving business discipline that involves management of order processing,
warehousing, transportation, materials handling, and packaging—all of which should be
integrated throughout a network of facilities..

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• The objective of inventory management has been to
keep enough inventory to meet customer demand and
be cost effective.

• The high cost of inventory has motivated companies to
focus on efficient supply chain management and
quality management.

• They believe that inventory can be significantly
reduced by reducing uncertainty at various points
along the supply chain.

• In many cases, uncertainty is created by poor quality
on the part of the company or its suppliers or both.

• This can be in the form of variations in delivery
times, uncertain production schedules caused by late
deliveries, or large numbers of defects that require
higher levels of production or service than what
should be necessary, large fluctuations in customer
demand, or poor forecasts of customer demand.

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Examples of inventory held in processes, operations or supply networks

Process, operation Physical inventories inventories Information
or supply network in databases
inventories Queues of customers

Hotel Food items, drinks, At check-in Customer details,
toilet items and check-out loyalty card holders,
catering suppliers

Hospital Dressings, disposable Patients on a waiting Patient medical
instruments, blood list, patients in bed records
waiting for surgery,
patients in recovery
wards

Credit card application Blank cards, form Customers waiting on Customers’ credit and
process letters the phone personal information

Computer manufacturer Components for Customers waiting Customers’ details,
assembly, packaging for delivery of their supplier information
materials, finished computer
computers ready
for sale
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• items are typically component parts or materials INDEPENDENT DEMAND • items are final or finished products that
used in the process of producing a final product. DEPENDENT DEMAND are not a function of, or dependent on,
internal production activity.
• If an automobile company plans to produce 1000
new cars, then it will need 5000 wheels and • Independent demand is usually
tires (including spares). determined by external market conditions
and, thus, is beyond the direct control of
• The demand for wheels is dependent on the the organization.
production of cars—the demand for one item
depends on demand for another item.

The starting point for the management of inventory is customer demand. Inventory exists to meet customer
demand. Customers can be inside the organization, such as a machine operator waiting for a part or partially
completed product to work on.

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It is generally estimated that carrying costs range from • any cost that grows linearly with the number
of units in stock is a carrying cost.
10 to 40% of the value of a manufactured item. CARRYING / • are the costs of holding items in inventory.

HOLDING COST • Any cost that increases linearly with
the number of orders is an ordering
In general, as the order size ordering ORDER COST cost.
costs and carrying costs increase. SHORTAGE COST
• Are the costs associated with
the amount of inventory on hand the carrying replenishing the stock of inventory
cost , whereas shortage costs . being held.

stockout costs, occur when customer

demand cannot be met because of
insufficient inventory.

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Respond rapidly to changes-in the market
or customer orders.

Minimize variances in logistics service.

Minimize inventory to reduce costs.
Consolidate product movement by
grouping shipments
Maintain high quality and engage in
continuous improvement.

Support the entire product life cycle and
the reverse

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