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论老子

道,领导也。领导必需要不断呼唤,教导下属以及以身作则。下属的过和错皆因领导懒惰。

 
 
 

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Chapter 13: Waste of Over-production  

2012-06-24 12:18:13|  分类: Buffer Mentality |  标签: |举报 |字号 订阅

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Over-production is not seen as a waste in most manufacturing companies. They preferred to use over-production as a buffer. Early over-production is almost always considered as favorable. This is because the customer orders are no longer urgent. The workers can take a breather and are not being pressured by the delivery datelines. Every factory understands the good effect of having early over-production but not its adverse effect.

However, at Toyota Motor Corporation, its Vice President, Taiichi Ohno thought otherwise. He classified over-production as the number one waste. Why?

He said, “If we allow over-production, all the other wastes will be camouflaged.”

This argument hit right at the nerve of the workers. If every worker were to focus on over-production, nobody will bother if there is any other form of waste in the production system. When the workers do not make an effort to evaluate if there is any waste at his work station, who will remember the philosophy of lean production is to eliminate wastes.

 

Illustration #1: Over-production at General Motors and Ford Corporation

 

Since the beginning of 2004 General Motor and Ford Motor, the two largest car makers in the United States, have been offering discounts up to US$ 1,500 per car that they sell in the North American market. Up till August 2006 (the time of writing) this discount is still on offer for most car models produced by them. They are barely profitable.

If the discount of US$ 1,500 per car were not necessary in order to push their cars out of their showrooms, the profitability of these two companies would be in the billions (of dollars). But the real market situation was such that they have to give out this amount of discount. Otherwise, their car show rooms will not be able to send these vehicles out to the customers.

In contrasting, in the same North American car market during the same period of time, Toyota Motor did not offer any discount and yet their cars are selling as fast as their factory could produce them. It is the third largest in terms of motor sales in this market.

The reason why General Motors and Ford Motors have to offer discounts is they performed rather poorly in curtailing the over-production of cars, especially models where demands was lower than their forecasts.

For a manufacturing company, over-production is the biggest sin. Toyota Motor strongly believes in this. It had designed and installed car assembly lines with flexible capacity that beats according to the sales volume required. If the sales volume of a particular model is coming in strongly, it simply loads in more orders for this model through the production planning system. If the sales volume slides, it loads in lesser orders through their production planning system.

At any time, Toyota Motor tries to achieve a balance between the sales volume and rate of production for any given model. In other words, they actively change the production capacity of the assembly plant in response to the actual sales demand dynamically. Toyota Motor always tries to match the sales demand of any model by reacting to the market signal. If the demand is high, they produce more cars. If the demand is low, they simply produce lesser number of cars. They do not allow a situation where they over-produce, even a single car unit.

By not over-producing any car model, no car would get stagnant in the show room. Without any dead stock, slow moving, or idle cars, they do not have to offer any discount to push them out to the customers. Toyota Motor diligently practices a demand-pull type of production system.

In General Motors and Ford Motors, their philosophy is different. They do not believe over-production is evil. They do not believe over-production single-handedly killed off their profit margins even though it actually did in the form of discounting. Discounts offered withered whatever margin left to produce a profit for them as the opening paragraph had illustrated.

Instead, they blame their predicament on simply not having enough orders or demand not as strong as predicted. Years back, they had made forecasts on the potential market acceptance of the new models that they were going to build. With this forecast, they built the factory or revamped an existing factory and geared these assembly plants towards producing the said forecasted volume.

But forecasting itself has two major flaws: First, a forecast, being a forecast, is never accurate. The upside and downside margin of error can be quite great. The irrefutable truth is a forecast can never be right.

Second, the forecast usually offers a smooth linear projection of the potential sales volume. The smoothened projection does not take into account of the seasonal changes in demand.

The General Motors and Ford Motors assembly plants ignored the fact that forecasts inherently come with the above-mentioned two major flaws. They continued to churn out cars in the quantity as per what the forecast says. If the production rate is greater than the sales rate, stock of cars begins piling up at the show rooms.

This unhealthy stock level did not signal the assembly line to slow down the production of cars but rather the fingers point at the sales people, blaming them of not doing their job. Nobody remembers the past reasons of why they had made a forecast that is not accurate or does not account for the seasonal fluctuations. The immediate focus is to get the cars moved off the show rooms.

Most of the time, the strategy to move slow moving stocks of cars is to lower the selling price by giving out a price discount. I believe their financial team had careful crunched the financial numbers that points to a better strategy to offer discounts than to cut down the volume of cars to be produced. Since the fixed cost portion of the balance sheet could not be reduced, the sunk cost has to be recouped from selling a higher volume of cars.

This is where Toyota Motor differs. It views the factory’s fixed cost as something that can be reduced accordingly. It moves a large portion of the factory costs to the variable cost portion of the balance sheet. If the sales volume is not up to the factory’s full capacity, cutting down the production capacity accordingly will reduce the factory’s total operating costs.

However, what Toyota Motor believes is much more than the eyes can see as illustrated in the previous paragraph. It believes over-production leads to the provision of additional resources which should not be there in the first place.  These resources are additional factory space, warehousing space, administrative processing and sales discounts which are counter-productive. It hurts the bottom line.

Comparing the super lean Toyota Motor car operations with the American car makers that were built-in with all these unnecessary resources, the net profit margin for Toyota cars must be much higher than that of the American car makers.  

I believe the American car makers prefer to bet their profits on designing cars that fetch higher margins, for example, the cross-over vehicles, mini-trucks and SUV’s (Sport Utility Vehicles). They do not believe in cutting down their cost of production as much as possible whereas Toyota Motor plays a very different ball game altogether. It bets on two fronts.

First, it wants to achieve a reasonably healthy profit margin by striving for the lowest cost of production through using minimum resources.

Second, if their design is turns out to be a delight with the customers, they are going to make more money out from a better than expected sales volume. Margins will be made on both fronts.

 

Illustration #2: Hewlett-Packard Wafer Fabrication plant

 

In Hewlett-Packard (wafer fabrication), it takes more than 60 process steps to process a piece of wafer. The long lead time required forces the production planning department to build up more than one month of buffer stock for the finished goods. No one would consider the stock of finished good wafers as a waste of inventory because they think eventually all these wafers will be used up in the subsequent intermediate assembly process.

However, due to fierce market competitions, changes or improvements were frequently made to the inkjet cartridge designs. For each design change, it requires instantaneous revision made to the wafer fabrication process. Under this circumstance of frequent upgrading of the wafer design, many of these completed good wafers were being scrapped. Each piece of wafer costs a few hundreds US dollars.

In order to reduce the good wafer scrapped, the management decided to classify the early over-production of wafers as a form of waste. To prevent early over-production of wafers I introduced a zero-stock production planning system. In less than three months after implementation of the zero-stock production planning system, the stock of over-production was reduced to less than half a day. Meanwhile, the stock of work-in-progress was reduced to less than half a shift throughout the entire chain of production process. The inventory turns was well over 20 turns a year.

 

Illustration #3: Kanban assembly line

 

A mobile phone buzzer factory in Shenzhen asked me to implement lean production system in its factory. There are 11 assembly work stations for the front-end assembly line. I promised to increase it productivity by 30 percent by thoroughly eliminating all the waste found in these 11 work stations.

To begin with, I installed a Kanban assembly line where only one Kanban of work-in-process is allowed to sit in between two adjacent work stations. With this system in place, over-production was totally eliminated. I then proceed to look for all the waste along these 11 work stations and remove all them.

I followed Taiichi Ohno’s advice. That is the first thing is to eliminate the waste of over-production. In less than 3 months, the productivity increased by 33 percent. Following Figure 13-1 is a list of the major wastes that were eliminated from the 11 work stations.

 

Figure 13-1: Waste identified and subsequently eliminated

Process

Waste identified

Corrective action

Apply glue to the base of the body

Distant movement of both hands

Placed one output tray on each side of glue machine

Place magnetic disc into the body

No waste

Nil

Affix magnet to body

Substantial idle time

Assist the placing of magnetic disc into the body

Remove magnet from body

Substantial idle time

Assist the placing of magnetic disc into the body

Measure the gap of the magnetic disc

Wrist need to swing 60 degrees to drop measured unit away from unmeasured units

Designed a container that separate the measured units from the unmeasured units

Apply glue for copper coil

Apply glue at a batch size of 10 pieces even though the tray holds 30 pieces.

Reduce the WIP to 1 kanban and apply glue to all 30 pieces at one go. Trays were re-circulated at 1/3 previous frequency.

Affix copper coil to body

Affix 10 pieces per tray

Affix all 30 pieces at one go. Trays were re-circulated at 1/3 previous frequency.

Inspect assembled copper coil

Frequently idle while waiting for the upstream process

Add a new task to arrange the units onto a new kanban tray

Weld copper wire and remove excess wire

Spent 1/3 the time arranging the units before welding.

Designed a new kanban tray

Inspect the welded wire

Spend almost half the time arranging the units with the coil facing up

Share the same kanban tray

Count units produced

Place one unit onto each cavity of the tray

Share the same kanban tray pre-assigned to carry 60 units per tray

 

Figure 13-2: Example of Kanban system for two adjacent work stations



 


 

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