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Getting to the core

Getting to the core

01/10/2007 | Channel: Manufacturer, Retail

Matthew Moore looks at how Tesco have brought lean thinking full circle


Last month it was announced that Toyota has overtaken General Motors to become the largest car manufacturer in the world. This is no mean feat, as GM had previously held the title since 1931, and as recently as the 1980s Toyota was considered a marginal player on the world car market. A major contributory factor to Toyota’s success is its highly efficient, incredibly well organised production system, the principles of which form the basis of lean manufacturing, the cross-sector improvement methodology that has been successfully used to increase efficiency in supply chains.

Organisations who rely on a supply chain cannot afford to ignore the benefits of introducing a lean system. Tesco have been applying principles based on the Toyota Production System (TPS) to their own supply chain since 1996, with great success.

The foundations of lean were laid by Henry Ford at the turn of the 20th Century when he pioneered an integrated production system that he called ‘flow production’. After the Second World War, Toyota took these concepts and adapted them into their own system.

There are two main principles at the heart of lean. The first involves changing the supply chain from a ‘push’ to a ‘pull’ system, which equates to the manufacturing and conveyance of only ‘what is needed, when it is needed, and in the amount needed’. In the TPS this is referred to as ‘Just in Time (JIT)’.

JIT utilises a toolset called ‘Kanban’, which refers to a system of signs that are used to indicate when a part is required by a stage in the supply chain. In using this system, inventory is kept low as parts are only supplied as and when they are needed, and are therefore ‘pulled’ from the customer end instead of the traditional ‘push’ from the supplier end. Taiichi Ohno, credited as the co-creator of TPS, said about inventory: “The more inventory a company has, the less likely they will have what they need.”

Tesco have recently implemented a system using radio barcodes which owes much to the Kanban system, only in place of signs it uses microchips and radio waves to automatically monitor stock levels and inform when they are low. In doing so, they have brought Kanban full circle, as the system was created in the 1940s following a study carried out by Toyota management on US supermarkets.

In order for this system to work, it requires high levels of trust and teamwork between the different components of the supply chain, both internally and externally, and it is this that would appear to be the greatest challenge for the UK Food Sector. The Food Process Innovation Unit at Cardiff University carried out a study into the practicalities of implementing lean methods into the Food Sector, and concluded that trust and contract complexity between buyer-suppliers is significantly different between the Food Sector and the Automotive Industry.

Traditionally, despite the Code of Practice introduced by the Office of Fair Trading in 2001, the Food Sector has opportunistic buying practices and few written contracts, meaning that the trust required for an effective lean system is not immediately evident. But the huge benefits that are possible mean that the buyer-supplier relationship can and should be tempered to a win-win situation for both parties.

This co-operative philosophy runs throughout lean thinking, internally as well as externally. In order for the system to truly work, the concepts of lean must be applied not just to the supply chain, but to all parts of the organisation, including support departments such as product development, quality, human resources, marketing, finance, purchasing, and distribution. A happy by-product of a successful lean system is that will bring all of these areas out of their traditional silos by making them work together to reduce waste and create a ‘pull’ system of flow, thus reducing duplication and increasing communication.

John Morgan, author of “The Lean Six Sigma Improvement Journey” and a director of Catalyst Consulting, who specialise in lean implementations, puts it this way: “We want to change outcomes, but we need to realise that they are themselves the outcomes from our systems. Not the computer systems, but the way we work together and interact. And these systems are the product of how we think and behave. So, if we want to change the outcomes, we have to change our systems, and to do that, we have to change our thinking. We need to adopt thinking that focuses on improving value for the customer, by improving and smoothing the process flow, and eliminating waste.”

Eliminating ‘waste’ in an organisation’s processes is the other main Lean principle. This directly relates to the core Lean philosophy of providing value, both to the organisation and to customers. Everything that fails to provide value either to the process or the customer is a waste of time, effort and resources and as such should be removed. Research carried out by the Cardiff Business School has shown that only five per cent of manufacturing activities add value; 35 per cent are necessary non-value adding, while 60 per cent provide no value at all.

“Lean working means simply operating without fat - or waste,” says Stephen Walsh of Burge Hughes Walsh Partnership, a leading training and consultancy firm in systems design and manufacturing, who are experts at applying lean concepts. “Waste occurs in everything and the trick is to recognise it and then change the operation to eliminate or reduce it. Waste shows itself as a cost to the business, which means financial losses. It also steals time, which means less output, which in turn means customers having to wait.”

Taiichi Ohno identified seven main forms of waste as adversely affecting most organisations:
Overproduction - producing ahead of demand and risking a change in the market Waiting - downtime in the production or supply line
Transportation - unnecessary movement of products between work places
Defects - errors in the process or the product
Inventory - products or their components that are not yet required but take up floor space
Motion - having to move people or their equipment further than is necessary
Overprocessing - bad design of parts so they don’t meet the expected level for customer value.

At its core, lean is a collection of various tools that improve an organisation’s processes and systems and eliminate waste, from data-driven statistical tools, to simple theories designed to approach problems from a different perspective (one lean tool involves asking ‘why’ five times when a problem occurs in order to truly get to the root cause). In the case of supply chain, the tool with perhaps the greatest benefit is Value Stream Mapping.

This is a tool whereby all the activities required to design, order, produce and deliver products or services to customers are clearly mapped out in sequence. This develops an understanding of what adds value, what is waste, and from here the ideal value stream can be created. A value stream map is the first step in any implementation of lean values, as it depicts all the organisations activities from a lean, value-adding perspective.

Another lean tool relevant to supply chain is ‘Jidoka’, which creates a flexible and cost-effective quality control system by incorporating it into the process. At each step in the chain the product or service is checked for quality, instead of a final check at the end. This enables savings to be made by catching defects early and eliminating wasteful activities in subsequent steps if the product or service is defective.

Before embarking on what believers call ‘The Lean Journey’, it is important to realise that it is a journey that requires dedication and perseverance, and it is not an easy thing to implement. IBM, for example, spent a year planning before rolling out its first pilot project. “The key to the Toyota Way,” said Taiichi Ohno, “…is not any of the individual elements.... but what is important is having all the elements together as a system. It must be practiced every day in a very consistent manner - not in spurts.”

As such, lean demands a fundamental rethink of how the organisation is going about its business and what its priorities are. The concepts are largely common sense; the challenge lies in implementing them in an existing organisation, and as with any change initiative that will depend on the willingness and commitment to making such changes.

This commitment must begin at the top and permeate all levels of the organisation. It’s a long journey, but the efforts required are well rewarded by the benefit of having a streamlined supply chain that gives the customer what they want, when they
want it.

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