IENG 451 / 452 Lean Processes: Economics & Systems Thinking IENG 451 - Lecture 15 Lean Processes: Economics & Systems Thinking 11/17/2018 IENG 451 Operational Strategies (c) 2016 D.H. Jensen

Toyota’s “New” Necessities Fragmented Markets Tough Competition Fixed / Falling Prices Rapid Technological Change High Capital Costs Need for Capable Workers … this goes beyond manufacturing automobiles … 11/17/2018 IENG 451 Operational Strategies

Lean is a Response to Necessity Dysfunction in Mass Production Worker Alienation Adversarial relationship Little involvement in problem solving Production Primacy - (Quality Secondary) Inspection vs. improvement Re-work vs. improvement Over - Specialization Machinery High capital investment Unit efficiency and utilization vs. Global productivity Engineering & Labor Sub-specialties Communication walls Results of the “Historic Bargain” Management “has skin in the game” Workers become a fixed cost Labor, Engineering & Management become tenured 11/17/2018 IENG 451 Operational Strategies

Economics of Lean Systems Old World Economics (before 1972 … 1985 … ish) Economies of Scale reigned supreme Market share was stable and only changed by Marketing Effort Unit efficiencies were the focus of improvement efforts Price Equation: Price was a dependent variable the equation was: Price = Cost + Profit where: Cost was fixed by negotiated agreements with suppliers (or labor) and could be weaponized by market share (big companies could squeeze suppliers) Profit (margin) was common across the industry and could be weaponized to maintain market share (barrier to market entry) 11/17/2018 IENG 451 Operational Strategies

Economics of Lean Systems New World Economics (after 1972 … 1985 or whenever you got the memo) Customer choices reign supreme Market share is un-stable and is changed by disruptive forces Global efficiencies are the focus of improvement efforts Price Equation: Profit is the dependent variable the equation is: Profit = Price – Cost where: Price is fixed by global market forces and can only be weaponized by disruptive innovations Cost is the more variable variable and can only be weaponized by continual improvement of the system 11/17/2018 IENG 451 Operational Strategies

Thinking in Lean Systems What does the SYSTEM need? Focus is on VALUE: Who are our customers External Internal Operationalized: What do they need from us? How are we doing with respect to our targets? What are our top problems? What are we doing about our top problems? What else can we improve? How do we involve more people in our improvement efforts? 11/17/2018 IENG 451 Operational Strategies

Thinking in Lean Systems Customer FOCUS: Focus on Productivity Focus on Quality Focus on Cost Focus on Delivery Focus on Safety & the Environment Focus on Morale (no … that is not a repeat … it is a leverage point!) We think of small productivity improvements … within the context of our system …, to make an impact for our customers (large productivity) 11/17/2018 IENG 451 Operational Strategies

House of Lean CUSTOMER FOCUS: JUST IN TIME INVOLVEMENT: JIDOKA Highest Quality, Lowest Cost, Shortest Lead Time by continually eliminating Muda JUST IN TIME INVOLVEMENT: JIDOKA Flexible, motivated team members continually seeking a better way (Intelligent Human-Machine Systems) STANDARDIZATION STABILITY 11/17/2018 IENG 451 Operational Strategies

IENG 451 Operational Strategies Questions & Issues 11/17/2018 IENG 451 Operational Strategies (c) 2016 D.H. Jensen