Understanding Value Stream Decision Making Value Stream Capacity Understanding Value Stream Decision Making

Understanding Value Stream Capacity The production quantity that can be achieved at each step in the value stream or production process. There are usually one or two production steps (cells, machines, or work centers) that constrain the flow through the value stream or business unit. We need to identify the production capacity at each step in the value stream (or production flow) so that we can understand the flow through the entire process. Where is the data required for this analysis? On the Value Stream Maps 2

Analyzing the capacity Productive capacity Value added activities Provides value to the customer Comes directly from customer pull Non-productive capacity Non-value-added activities Change-overs, unplanned maintenance, making for stock, defects/rework, etc. Also meetings, 5S, improvement activity Available capacity Capacity that is not currently being use for productive or non-productive activities. 3

OEM Value Stream Map Welding Shipping Supplier Supplier Customer Purchase Forecasts Demand Forecasts S&OP 3,000 per Month Order Kanban Machine Shop Welding Assembly Shipping Shipping Shipping Qty = 30,000 C/T = 70s Batch = 1500 Set Up = 10,800s Scrap = 10% Rework = 20% Downtime = 15% Inspection = 10% Insp Time = 120s # cells = 8 Crew Size = 4 # of people = 34 Shifts = 1 Qty = 15,000 C/T = 180s Batch = 600 Set Up = 1200s Scrap = 5% Rework = 10% Downtime = 5% Inspection=100% Insp Time = 30s # cells = 5 Crew Size = 1 # of people = 10 Shifts = 2 Qty = 3,000 C/T = 210s Batch = 20 Set Up = 600s Scrap = 0% Downtime = 0% Insp Time = 60s # cells = 2 Crew Size = 5 C/T = 120s Batch = 1 Set Up = 0s Rework = 2% Inspection=0% Insp Time = 0s # cells = 1 # of people = 1 DATA BOXES

Standard Cycle Time C/T Cycle Time: How often a part or product is completed by a process. (or: the time taken for an operator to go through all his/her work elements before repeating them.) C/T Cycle time includes all processes VA & NVA Cycle time is measured by tracking it with a stop watch We match the cycle time to the customer takt time The process is “under control” if the cycle time is consistent

Crew size and number of cells Crew size - the number of people in the cell or operation required to produce to the cycle time recorded on the Value Stream Map # of cells = the number of cells running in parallel. Similar cells, working on the same products and performing the same process step. Crew size = 5 # of cells = 1

Calculate the Capacity for the Machine Shop Supplier Supplier Customer Customer Purchase Forecasts Demand Forecasts S&OP 3,000 per Month Order Kanban Machine Shop Welding Assembly Shipping Shipping Shipping Qty = 30,000 C/T = 70s Batch = 1500 Set Up = 10,800s Scrap = 10% Rework = 20% Downtime = 15% Inspection = 10% Insp Time = 120s # cells = 8 Crew Size = 4 # of people = 34 Shifts = 1 Qty = 15,000 C/T = 180s Batch = 600 Set Up = 1200s Scrap = 5% Rework = 10% Downtime = 5% Inspection=100% Insp Time = 30s # cells = 5 Crew Size = 1 # of people = 10 Shifts = 2 Qty = 3,000 C/T = 210s Batch = 20 Set Up = 600s Scrap = 0% Downtime = 0% Insp Time = 60s # cells = 2 Crew Size = 5 C/T = 120s Batch = 1 Set Up = 0s Rework = 2% Inspection=0% Insp Time = 0s # cells = 1 # of people = 1 DATA BOXES

Calculate the employee capacity Step 1. Calculate the Total Available Employee Time (#employees x #days x Labor Hrs per shift) Step 2. Calculate the Employee Productive Time (Qty per Month x Cycle Time x Crew Size) Step 3. Calculate the Emp. Productive Capacity Percentage. (Employee Productive Time / Total Available Time) Step 4. Calculate the change-over time, scrap & rework time, downtime, inspection time. C/O = (quantity/batch size) x Change-over time Scrap/rework = (Qty produced / (1- (scrap + rework %) ) * (scrap + rework%) x Cycle Time x Crew Size D/T = Downtime% x Total Available Time Inspection= (Total produced + scrap/rework) x Inspection % x Inspection time Over-production = OP Qty x Cycle Time * Crew Size 5S & Clean-up = 5S Time x #Employees x #days Meetings = Meeting Time x #Employees x #days TPM = TPM Time per day * #days Step 5. Calculate the Total Non-Productive Time Sum of Step 4 Step 6. Calculate the Emp. Non-Productive Capacity Percentage Total Non-Prod Time / Total Available Time Step 7. Calculate the Emp. Available Capacity Percentage. 100% - (Prod. Capacity + Non-Prod Capacity)

Machine Shop Capacity - employees

Machine Shop Capacity Cell output is driven by Employee Time rather than Machine Time. There is more machine capacity than employee capacity

Capacity Calculations when you have Multiple Product Families Calculate the weighted average of the cycle time, change-over, etc.

Machine Shop can only make 30,000 parts Value Stream Capacity Value Stream demand = 3,000 units/month Takt Time = 180 sec Average product has 5 welded sub-assy Average sub-assy has 2 machined components Machine Shop makes 30,000 items Welding Shop welds 15,000 sub-assy Assembly assembles 3,000 units Shipping ships 3,000 units Maximum Capacity is 3,000 units because Machine Shop can only make 30,000 parts

Decision Making

Decision Making Methodology Does this decision make sense operationally? Use the Value Stream Performance Measures to evaluate the effect on the operational measures in the Box Score Do we have the capacity or can we do it? Value Stream Capacity Analysis Understand the flow of products through the Value Stream Use Value Stream Maps to populate the capacity analysis What is the cash flow impact? Value Stream costing What costs will actually be impacted?

Plant level consolidated value stream costing w/ inventory change We will be focusing on the OEM Value Stream to show the impact of improvements and various decisions within the value stream

OEM Value Stream Map Welding Shipping DATA BOXES Supplier Supplier Customer Customer Purchase Forecasts Demand Forecasts S&OP 3,000 per Month Order Kanban Machine Shop Welding Assembly Shipping Shipping Shipping Qty = 30,000 C/T = 70s Batch = 1500 Set Up = 10,800s Scrap = 10% Rework = 20% Downtime = 15% Inspection = 10% Insp Time = 120s # cells = 8 Crew Size = 4 # of people = 34 Shifts = 1 Qty = 15,000 C/T = 180s Batch = 600 Set Up = 1200s Scrap = 5% Rework = 10% Downtime = 5% Inspection=100% Insp Time = 30s # cells = 5 Crew Size = 1 # of people = 10 Shifts = 2 Qty = 3,000 C/T = 210s Batch = 20 Set Up = 600s Scrap = 0% Downtime = 0% Insp Time = 60s # cells = 2 Crew Size = 5 Qty = 1,000 C/T = 120s Batch = 1 Set Up = 0s Rework = 2% Inspection=0% Insp Time = 0s # cells = 1 # of people = 1 DATA BOXES

Value Stream Costing & Box Score Value Stream Performance Measures / Costing & Capacity feed the Box Score

Scenario: Should the company outsource production vs Scenario: Should the company outsource production vs. improve the value stream? The OEM Value Stream is expecting to receive a 20% production rate increase within the next 2-3 months We have received a quote from a supplier for a group of sub-assemblies we currently produce in-house for $127.00 per unit due to the Machine Shop constraint. We have a Future State Map with planned improvement projects that we have identified. Decision: Compare the two options

Impact of 20% Production Rate Increase to the Machine Shop The constraint is overloaded with the projected rate increase Current State Rate increase

Compare the options - Capacity Outsource sub-assembly to handle 20% increase in production rate Outsource sub-assembly Current State Rate increase

Look to the Box Score 3 Dimensional view of the impact to the Value Stream

Using Value Stream Costing Decisions using simple Value Stream Costing Outsource sub-assembly Current State

Another Option: Improve the Value Stream We have calculated the impact to the OEM Value Stream of outsourcing the sub-assemblies Now we will look at the impact of our planned improvements so that we can compare the two options. Value Stream Mapping and Value Stream Performance Measures are key tools used to improve the Value Stream We will target non-productive activities to eliminate waste and generate capacity

Understanding the Benefits of Lean Improvement Planned improvement - Did we free-up enough capacity for the production rate increase?

Rate Increase after Continuous Improvement Continuous Improvement has generated enough capacity, but what about the Box Score? Kaizen results 20% Increase

In-house with Improvements Box Score - Decisions Using the Box Score to show the impact of lean improvements – What looks best? In-house with Improvements 20% Rate Increase 51 95% 80% 12.00 $400.25 55% 29% 16% $995,802 $445,092 $1,440,894 $2,244 49

Targeting More Improvement Value Stream performance measures drive continuous improvement.

Box Score showing results of improvement On-going improvement creates more capacity and frees-up people

New Value Stream Capacity Improvements free up 2 people from Machine Shop. 1 person added to Welding

Scenario: Should the company insource production that was previously outsourced? Assuming we have the capabilities, now we need to know if we have the capacity We are considering bringing an outside process in-house due to the capacity we have generated in the Machine Shop There are 394 units per month that go for outside processing and the cost is $91.38 / pc. The machine shop has the capacity to handle this increase. Calculate the impact to the Value Stream if we bring this process in-house.

Box Score – Impact of Outside Process being brought in-house Current State Future State Outside Proc. / In-house 53 99% 90% 7.87 $387.02 59% 15% 26% $994,145 $399,120 $1,393,265 $0 37

Value Stream Costing showing Decision to bring in-house What are the costs that will change?

Scenario: Should the Value Stream transfer work from Value Stream to Final Assembly? It has been determined that one of the sub-assemblies could be welded directly in Final assembly during installation. This will lead to better quality and less rework Final Assembly is part of the Systems Value Stream

Work Transfer to another Value Stream OEM Current State Capacity

Two OEM processes to be impacted Production rate was reduced by work transfer from the OEM Value Stream Welding & Assembly each freed-up 1 employee to be part of the Final Assembly cell in the Systems Value Stream

Work Transfer Impact Box Scores / Decisions

Overall Work Transfer Effect Costs that actually were affected in the OEM Value Stream 2 employees 2 machines

Overall Work Transfer Effect Before and after – no overall cost impact – budget only

What have we learned? You must understand the production quantity that can be achieved at each step in the value stream or production process . You must understand the one or two production steps (cells, machines, or work centers) that constrain the flow through the value stream or business unit. To understand the impact of planned changes, you must analyze the impact on flow. Where do you find this? On the Value Stream map. 39

What have we learned? Making the best decisions demands the best possible analysis of value stream Use the value stream maps as your source.