LESSON 2 Push and Pull Systems 29 August 2014

Lesson Objectives Upon completion of this lesson, you should be able to: Differentiate push, pull, and hybrid systems Demonstrate use of the Kanban tool Explain the function and benefits of a base-stock inventory policy

Lesson Topics This lesson will cover the following topics: Types of Production Strategies Kanban Base-stock Inventory Policy

What’s In It For Me? If you understand push and pull type systems, you’ll: Be able to tailor questions to the methodology the contractor is using, and Understand where methodology’s risk will occur.

Lesson Introduction How are push and pull production strategies used by your contractors?

Types of Production Strategies Lesson Topics: Types of Production Strategies Kanban Base-stock Inventory Policy

Types of Production Strategies There are three general production strategies: Push Pull Hybrid

Push Production Push production is based on forecasted demand There are many real-world examples of pure push production Common when: Demand is stable (i.e., low demand variability) and the end user won’t wait until you produce something Make-to-Stock Strategy (Pure “Push”) Components Sub-Assemblies Finished Products Inventory Pull Push

Pull Production Pull production is based on actual or consumed demand. One of the main principles of Lean manufacturing There are not many real-world examples of pure pull production systems

Pull Production (cont.) Appropriate when: Demand is unstable, although pull prefers stable demand The end user does not require instant gratification The business does not want to risk procurement of the wrong materials or build-up of the wrong end item due to the inventory investment costs and opportunity costs involved The plant has standard processes and long term supplier relationships Make-to-Order Strategy (Pure “Pull”) Components Sub-Assemblies Finished Products Inventory Pull Push

Pull System Benefits Pull systems: Limit inventory in a plant or in a pipeline Reduce lead time through the plant Make quality problems visible Give more predictable lead times to customers

Push vs. Pull Push Production Hybrid Production Pull Production Strategy Make-to-Stock Assemble-to-Order Make-to-Order Based on Forecasted demand Combination Actual demand Use when demand is Stable (low demand variability) Unstable (demand variability) Use when customers Want instant gratification or when they don’t differentiate between competitors’ products They want it fast but also want to have choice in final product Are willing to wait a short amount of time for their product or want customization Inventory (finished goods) Large None Limit Work-In-Progress (WIP) in system Old: Does not limit WIP Modern: Does limit WIP Some subassembly WIP no finished Product WIP Deliberately sets a limit on WIP

Hybrid Production Inventory is principally at the Push-Pull Boundary Make-to-Stock Strategy (Pure “Push”) Components Sub-Assemblies Finished Products Inventory Pull Push Assemble-to-Order Strategy (“Hybrid”) Components Sub-Assemblies Finished Products Inventory Pull Push Make-to-Order Strategy (Pure “Pull”) Components Sub-Assemblies Finished Products Inventory Pull

Question and Answer This type of production strategy is used when demand can not rely on actual numbers but, instead, has to be forecasted: Push system Pull system Hybrid system

Question and Answer A contractor with an aircraft spare parts contract experiences large demand variability. The spare parts use materials and subassemblies that are common across other product lines and have a high probability of use. Which production approach should they use? Push system Pull system Hybrid system

Exercise 1: Push vs. Pull Small Group Exercise Find a partner or work in a trio Refer to Module 3, Lesson 2, Exercise 1 CMM100_M3_L2_E1_Exercise_FINAL.docx Read directions on the Push vs. Pull exercise Complete the activity; be prepared to share your responses Time allowed: 30 minutes

Exercise 1: Push vs. Pull SCENARIO Custom Cable, Inc. (CC) is sub-contracted to provide shielded cables to Stockton & Gamble, Inc. (S&G) for inclusion in a Light-duty Fighting Vehicle System (LVS). CC has inventory issues that risk S&G’s ability to fulfill its contract. At CC’s manufacturing plant: excessive Work-In-Process (WIP) inventory most of the workstations appear to be operating at maximum capacity. CC will release the entire work order in question to the shop floor at once in an attempt to push the job through as quickly as possible. You meet with CC to discuss Push, Pull, and Hybrid systems and how CC might benefit from selecting the most appropriate system to use.

Exercise 1: Push vs. Pull Populate the table Push Pull Hybrid   Push Pull Hybrid Description Inventory Advantages Disadvantages Conditions when most appropriate

Case Study Activity Individual Activity Refer to the case study’s Domestic Vehicle Ordering and Inventory Management System section (pages 3-5) and The Scion Experience section (pages 14-18) Identify which production strategy is used to fulfill domestic orders for Toyota’s Scion Be prepared to share your response

Kanban System Lesson Topics: Types of Production Strategies Kanban Base-stock Inventory Policy

A Kanban card is a visual signal that something needs to be done Kanban System (1 of 4) Kanban: A tool used in Just-In-Time systems to control material flow Limits Work-in-Process/ inventory buildup Synchronizes Process steps Customer demand Based on visual commands/cues A Kanban card is a visual signal that something needs to be done

Kanban System (2 of 4) Ex: Inventory is limited to the number of cards between two production steps Pull tool used in Lean Manufacturing Nothing is produced/processed unless a demand signal from downstream is received Synchronizes/coordinates flow Between operations With customer demand

Kanban System (3 of 4) Kanban card rules: A card not attached to goods is a signal to Produce goods, or Move goods If all cards are attached to goods, then Stop processing at that production step

Kanban System (4 of 4) Kanban signals need not be physical cards Kanban squares Electronic signals Empty material racks Any visual signal that works for the processes using it

Scenario 1: Kanban System Large Group Scenario Refer to Module 3, Lesson 2, Scenario 1 CMM100_M3_L2_S1_Scenario_FINAL.docx Read directions on the Kanban example Complete the activity as a class

Example: Kanban System (cont.) Legend Kanban Card Kanban Card Path Empty Slot Card Empty Slot Card Card Card Layup Station 1 Card Card Autoclave Station 2

Kanban is a tool used in this system: Question and Answer Kanban is a tool used in this system: Statistical Process Control Six Sigma Just-In-Time Ishikawa Cause and Effect

How does a Kanban limit work-in-process inventory? Question and Answer How does a Kanban limit work-in-process inventory? Work is only released when all Kanban cards are attached to items Work is only released when a Kanban card is available Work is only released when new Kanban cards are added to the system

Exercise 2: Kanban System Small Group Exercise Find a partner or work in a trio Refer to Module 3, Lesson 2, Exercise 2 CMM100_M3_L2_E2_Exercise_FINAL.docx Read directions on the Kanban System exercise Complete the activity; be prepared to share your responses Time allowed: 30 minutes

Exercise 2: Kanban System You are visiting a company that is going through performance reviews and using a kanban to keep the meetings on time. Answer the following: What is the drum? What is the drumbeat? What is the rope? What is the buffer? Is this a Kanban system? If yes, what device provides the Kanban signal?

Base-Stock Inventory Policy Lesson Topics: Types of Production Strategies Kanban Base-stock Inventory Policy

Base-stock Inventory Policy Base-stock policies: Limit inventory in the pipeline Allow control over the total amount of inventory Are pull systems; as inventory leaves, you release an order for the same amount Like a Kanban, it keeps a limited amount of inventory in the system Commonly used when ordering from parts suppliers

Base-stock Inventory Policy (cont.) Orders are placed: At constant time intervals In quantities to keep total inventory in the pipeline and on-hand constant The key is to determine how much inventory should be in the pipeline to manage the tradeoff between: Inventory investment Service level

Example: Base-stock Inventory Policy (1 of 3) You need to account for all raw material sitting in the company’s stockroom as well as the raw material in transit due to an order that was placed previously. Orders (O), Lead Time (L) = 3 weeks Pipeline Inventory (I) On order/ In transit inventory Beginning Inventory (BI) at beginning of week 4 Replenishment order in pipeline Inventory Supplier’s Inventory I Supplier Company Inventory BI4company Order placed on week 3 O3 Order placed on week 2 O2 Order placed on week 1 O1

Example: Base-stock Inventory Policy (2 of 3) Procurement needs to remember to eliminate the amount used by production during the period of interest so that an accurate amount of inventory need is calculated. Supplier’s Inventory I Supplier Company Inventory BI4Company Order placed on week 3 O3 Order placed on week 2 O2 Order placed on week 1 O1 + O1 -D4 D4

Example: Base-stock Inventory Policy (3 of 3) Supplier’s Inventory I Supplier Company Inventory BI4Company This week’s order O4=D4 Order placed on week 3 O3 Order placed on week 2 O2 + O1 + O1 -D4 D4 Inventory in system at start of week 4 = BI4Company + O3 + O2 + O1 Inventory in system at end of week 4 = BI4Company + O1 - D4 +O3 +O2 +O4

Question and Answer What is the purpose of a base- stock inventory policy? Increase WIP inventory at point of origin Limit total inventory in the pipeline and on-hand Increase the inventory levels onsite

Question and Answer In which manner are orders placed when using a base-stock inventory policy? In quantities to keep inventory on hand constant In quantities to keep total inventory in the pipeline and on-hand constant In quantities to match on-hand inventory with last year’s inventory levels

Summary Having completed this lesson, you should now be able to: Differentiate push, pull, and hybrid systems Demonstrate a Kanban Explain the function and benefits of a base-stock inventory policy

Summary (cont.) You can now: Question the amount of inventory flowing through a system, Question the amount of inventory flowing across a factory floor, Question how inventory is controlled in the factory (so that the Government doesn’t pay for excess inventory), Understand what types of questions to ask for what types of production model is being used