Lean Principles Applied to Extended Value Stream Mapping

To Achieve a Costs Savings in the North American

Automotive Industry
by
Daniel A. Ramos
A Research Paper
Submitted in Partial Fulfillment of the
Requirements for the
Master of Science Degree
10
Manufacturing Engineering
3 Semester Credits
The Graduate School
University of Wisconsin-Stout
May 2010
Author:
Title:
The Graduate School
University of Wisconsin-Stout
Menomonie, WI
Ramos, Daniel A.
Lean Principles Applied to Extended Value Stream Mapping to Acltieve
a Cost Savings il1 tlte Nortlt American Automotive Industry
Graduate Degree/ Major: Master of Science in Manufacturing Engineering
Research Adviser: James Keyes, Ph.D.
MonthfVear: May, 2010
Number of Pages: 72
Style Manual Used: American Psychological Association, 6
th
edition
Abstract
In 2007, Toyota surpassed General Motors as the world's largest automaker. This
signaled the beginning of a very challenging time for N O1ih America's automakers. Amidst a
worsening global economy and slumping consumer demand, the SUV and pick-up truck sectors
found themselves in deep crisis. Sales plummeted between 2007 and 2008. It became
imperative for these automakers to provide better value for consumers by implementing costs
savings. This paper deals with one such cost savings that was achieved through the application
oflean principles to an extended value stream. Value stream maps were used as the instrument
to study and identify improvement 0ppoliunities. The lean improvement methodology also
relied on value stream maps to model the proposed improved versions ofthe extended value
stream. By passing on part of the savings to the consumer, the automaker was able to provide
better value to its customers. As predicted by the literature, the lean principles for improving
2
extended value streams resulted in a successful cost savings implementation that benefitted the
automaker, its supplier, and most importantly consumers.
3
The Graduate School
University of Wisconsin Stout
Menomonie, WI
Acknowledgments
First and foremost, I would like to thank my advisor Dr. Jim Keyes for his constant support,
4
guidance, and understanding throughout the thesis writing process. I would also like to thank Dr.
Danny Bee for his encouragement and sound advice during my studies at the University of
Wisconsin-Stout. I am paliicularly grateful to Dr. Pete Heimdahl for encouraging me to apply to
the Master of Science in Manufacturing Engineering. Last but not least, I would like to thank
my family for their suppOli.
5
Table of Contents
............................................................................................................................... Page
Abstract ....................................................................................................................... 2
List of Figures ............................................................................................................. 8
Chapter I: Introduction ............................................................................................... 9
Statement of the Problem ............................................................................... 10
Purpose of the Study ...................................................................................... 11
Assumptions of the Study .............................................................................. 12
Definition of Terms ....................................................................................... 13
Limitations of the Study ................................................................................ 16
Methodology .................................................................................................. 17
Chapter II: Literature Review ................................................................................... 19
North America's Awakening to Lean Manufacturing .................................... 19
Principles of Lean ........................................................................................... 20
Ford's Contributions to Lean Manufacturing ................................................. 20
The Beginnings of Lean Production ............................................................... 22
The Objective of a Lean Production System .................................................. 23
Jidoka: A First Pillar of the Toyota Production System ................................. 24
Just-in-Time: A Second Pillar of the Toyota Production System ................... 24
The Role of Standardization in the Toyota Production System ...................... 25
The Role Stabilization in the Toyota Production System ............................... 25
At the He31i of the Toyota Production System ............................................... 27
Value Stream Mapping ................................................................................... 27
6
Extended Value Stream Mapping ................................................................... 29
Extended Value Stream: Future States ........................................................... 30
Cooperation in Extended Value Streams ........................................................ 32
Chapter III: Methodology ......................................................................................... 34
Subject of the Study .... ................................................................................... 35
Instrumentation ... ... .... .......... ......................................................................... 35
Data Collection ...................................................................... .. ..................... 36
Data Analysis ................................................................................................ 37
Current state analysis (future state I) ................................................ 37
Future state II analysis ...................................................................... 42
Ideal state analysis ............................................................................ 46
Limitations of the methodology .................................................................... 52
Chapter IV: Results ................................................................................................... 54
Results of the CUlTent State Extended Value Stream Map ........................... 55
Table 1: Results of Extended Value Stream Improvements ......................... 55
Results ofIdeal State Extended Value Stream Map ..................................... 56
Results of the Lean Implementation ............................................................. 58
Chapter V: Discussion .............................................................................................. 60
Limitations of the Study ............................................................................... 61
Development of the Current State Extended Value Steam Map .................. 62
Development of the Ideal State Extended Value Stream Map ..................... 63
Future state II .................................................................................... 63
Ideal state .......................................................................................... 63
7
Implementation of the Ideal State Extended Value Stream Map .................. 65
Conclusions ............................................................................ .................. ...... 66
Recommendations ... .................................. : .................................................... 67
Center of knowledge .......................................................................... 67
Value stream manager .............................................................. .. ....... 67
Value stream continuous improvement ............................................. 67
Value stream mapping up-front ........................................................ . 67
References .............. ................................................................................................. 68
Appendix A: Takt Time Calculation ...................................................................... 70
Appendix B: Process Cycle Efficiency Calculation ........................................ ...... . 71
Appendix C: Expected Cost Savings Calculation ................................................... 72
8
List of Figures
Figure 1: Framex-Universal current state extended value stream map ....................... .40
Figure 2: Framex Facility current state value stream map .................................... .41
Figure 3: Framex-Universal future state II extended value stream map ...................... .44
Figure 4: Framex Facility future state II value stream map ................ .. ...... .. .......... .45
Figure 5: Framex-Universal ideal state extended value stream map .......................... .49
Figure 6: Framex-Mexico facility ideal state value stream map ................................ 50
Figure 7: Framex Canada facility ideal state value stream map ................................ 51
9
Chapter I: Introduction
The pressure on American vehicle manufacturers to remain competitive has never been
greater. Competition from foreign automakers and decreasing consumer demand have forced
domestic car companies to focus on reducing costs while revamping product lines to include
vehicles that are more appealing to consumers. In short, domestic car companies are striving to
provide better value in order to survive.
In The Machine That Changed the World, Womack, Jones, and Roos (1990) made the
case that lean manufacturing would eventually unseat the mass production model of the early
American automakers such as Ford and General Motors. American companies, the authors
asserted, would have to embrace lean manufacturing to remain competitive with their Japanese
counterparts. Indeed, in 2007, Toyota assumed the rank of the world's largest auto maker. It is
now clear that lean production philosophy, as embodied in the Toyota Production System, has set
a new standard of competition in the global automotive industry.
In NOlih America, auto makers and their suppliers are grappling with the problem of
having to reduce costs while increasing the value passed on to consumers. Adopting lean
manufacturing practices is not only a matter of being competitive these days, it is also a matter of
staying in business (Womack, 2009).
The SUV and pick-up truck sectors have been the hardest hit in this economic downturn.
High gas prices and lower demand have created an urgent need to implement costs savings to
make up for lost revenues. If auto makers and their suppliers can reduce costs, pali of those
savings can be passed on to consumers providing them with better value. These savings can also
help to improve profit margins.
10
Statement of the Problem
Framex is a Tier 1 supplier of body frames for pick-up trucks and SUV's. It operates
facilities in Mexico and Canada and supplies frames to Universal who is a leading US automaker
based in Michigan. As requested by the companies involved, the names "Universal" and
"Framex" have been used instead of the real company names. Framex's Canadian facility
specializes in the production of steel frames , while its Mexican facility specializes in the
production of aluminum frames. In 2005, when the pick-up platform was launched, the cost of
shipping aluminum frames from Framex Mexico to Michigan was considered relatively
inexpensive. At that time, the American dollar was stronger. Fuel and aluminum prices were
relatively low and a specialized teclmology approach was acceptable (Pinkham, 2005). These
conditions no longer held true in 2008.
The basic problem is as follows. 90% of the pick-up trucks built at Universal's Michigan
assembly plant are built with steel frames shipped from Canada. However, the other 10% are
aluminum frames shipped from Mexico. While Framex Canada is located 126 miles away from
Universal's Michigan location, Framex Mexico is located over 2000 miles away. Given the new
economic circumstances of 2008, it would be ideal if both types of frames could be shipped from
the Canadian Framex facility. However, moving Framex's entire manufacturing operations from
Mexico to Canada is simply not possible within the time constraints of this field problem.
This study will deal with the problem of reducing Universal's cost of purchasing
aluminum frames from Framex, currently shipped from Mexico. In March of 2008, Universal
asked Framex to implement changes to its manufacturing operations that will result in a
significant cost savings. Universal requires that the cost savings be implemented in time for the
new model year change due in August of 2008.
11
Purpose of the Study
The purpose of this study is to implement lean improvements in the manufacturing
operations of aluminum frames supplied by Framex to Universal ' s Michigan assembly plant.
These improvements needed to be implemented within a period of six months and result in a cost
savings for Universal. If Universal can reduce its costs, some of the savings can be used to
increase its profit margins. Some of the savings can also be passed on as incentives to
consumers, thereby providing better value.
To achieve the purpose of this study, the researcher will use a lean manufacturing
approach based on extended value stream mapping. The process of extended value stream
mapping in this study can be broken down into three sub-problems. The first sub-problem is to
establish the CUlTent state of Framex manufacturing and supply operations. The current state
extended value stream map will serve as a baseline for comparison with the proposed future
state. The second sub-problem will be to analyze the current state and propose changes that will
improve transpOliation links and optimize manufacturing locations. This will result in an ideal
state extended value stream map. The third sub-problem will be to carryout the lean
improvements and evaluate whether the implementation ofthe ideal state was successful.
A lean manufacturing approach is expected to yield benefits for Universal, Framex, and
most importantly for the consumer. As with any lean implementation, a reduction of non-value
added activities is expected as a results of process improvements. A leaner transpOliation
network is also expected as a main outcome including reduced inventories and lead times.
12
Assumptions of the Study
This study assumes that Universal and Framex will share the burden of financing any
investments required for this cost savings initiative. In other words, the researcher assumes that
Universal and Framex will work cooperatively. This assumption is fundamental to a successful
extended value stream implementation (Dolcemascolo, 2006).
It is also assumed that changes in manufacturing location or equipment will not affect the
quality or reliability of the product. This assumption provides the rationale for not planning for
product validation after the lean implementation is done.
This field problem will be focused on improving the extended value stream. The
researcher assumes that lean production is already taking place within each of the individual
manufacturing locations. Theoretically, the implementation of lean manufacturing within
individual facilities should happen before the extended value stream can be optimized (Jones &
Womack, 2002).
Furthermore, this study assumes that market conditions will remam stable once the
project is completed. Market conditions include cost of materials, fuel prices, and labor. Stable
market conditions also include a stable consumer demand. If market conditions change
drastically immediately after the project is complete, the benefits may not materialize as
anticipated.
Lastly, it is assumed that Universal only pays the cost of shipping of finished goods from
Framex to its pick-up truck assembly plant. Any transportation of PaIts between Framex
facilities is paid by Framex.
13
Definition of Terms
Changeover time. The time required to adjust a piece of manufacturing equipment to
enable it to make a different product. It is measured as the time between the last good piece of
the previous product to the first good piece of the next product being made at a workcell or
workstation (Duggan, 2002).
Current state extended value stream map. An extended value stream map representing
what is actually in the status quo. It is based on data obtained from observations (Jones &
Womack, 2002).
Cycle time. The time that elapses between two consecutive parts exiting a process O\Tash
& Poling, 2008).
Extended value stream. The series of steps, both value added and non-value added,
required to bring a product or service from material inputs to the customer. These include steps
between facilities and within facilities, as well as transp0l1ation links (Jones & Womack, 2002).
ERP System: Enterprise Resource Planning system (Nash & Poling, 2008).
Facility value stream map. Same as a value stream map. The use of word facility is
used in contrast to extended value map (Jones & Womack, 2002).
Future state I. An improvement over the CUlTent state where all the facilities In an
extended value stream have been converted to lean production (Jones & Womack, 2002).
Future state II. An improvement over the current state where all the facilities in an
extended value stream have been converted to lean production and transp0l1ation has been
optimized (Jones & Womack, 2002).
Heijunka. The discipline of leveling the quantity and mIX of parts being produced
(Rother & Shook, 1999).
14
Ideal state. An improvement over the current state where all the facilities in an extended
value stream have been converted to lean production, transportation has been optimized, and
location of facilities has been optimized (Jones & Womack, 2002).
Inter-modal cross-dock. A cross-dock that unloads cargo from a truck and loads this
same cargo onto a train (Jones & Womack, 2002).
Jidoka. Refers to automation smart enough to detect defects and halt production when
they occur (LikeI', 2004).
Kaizen. Incremental improvement to a process or a product within a manufacturing
context (Rother & Shook, 1999).
Kaizen burst. This is a planned improvement initiative usually identified on a future
state value stream map (Rother & Shook, 1999).
Kanban. A request signal to produce or withdraw upstream materials in a production
process (Rother & Shook, 1999).
Lead-time. The amount of time elapsed between the order of a product or service to the
time of delivery (Jones & Womack, 2002).
Lean manufacturing. An approach to production based on the philosophy of eliminating
all waste from production operations. In lean manufacturing, production only occurs when there
is a demand from a downstream process (Rother & Shook, 1999).
Non value-added worl{. Work done by a supplier that the customer is not willing to pay
for (Rother & Shook, 1999).
Pacemaker process. The process that receives the production orders and originates the
pull signal for the value stream (Rother & Shook, 1999).
15
Process cycle efficiency. The ratio of value added time to the total lead-time for a value
stream map
Pull production. The production of pat1s based on a signal received from a downstream
process (Womack & Jones, 1996)
Push production. The production of pat1s without a signal received from a downstream
process (Rother & Shook, 1999).
Tald time. The rate of production required to keep up to the rate of customer orders
(Rother & Shook, 1999).
Tier 1 supplier. A company that sells to an auto maker
Value.
Value can only be defined by the ultimate customer. It is only
meaningful when expressed in terms of a specific product (a good
or a service, and often both at once), which meets the customer's
needs at a specific price at a specific time. (Womack & Jones,
1996, p.16)
Value stream. The series of steps, both value added and non-value added, required to
bring a product or service to the customer (Jones & Womack, 2002).
Value stream map. A diagrammatic representation of a value stream from material
inputs to the delivery of finished good to the customer. Value stream maps contain symbols and
information characterizing the flow of materials and infonnation within a facility. In the case of
extended value stream maps, the transp0l1ation links and multiple facilities are included
(Womack, 2006).
16
Value-added work. Work done by a supplier that the customer is willing to pay for
(Nash & Poling, 2008).
WIP: Work in process. Unfinished parts accumulated between processes waiting to be finished
(Nash & Poling, 2008).'
Limitations of the Study
This paper will not analyze which product family will result in the value stream with the
best improvement oppOliunities. Instead, the value stream selection is driven by a customer
request.
In this study, the extended value stream is limited to Framex's North American supply of
aluminum pick-up frames to Universal's assembly plant in Michigan. Many value streams exist
between Universal and Framex, consisting of several products and locations, but these will not
be studied here.
Any proposed changes to the extended value stream must be implemented within 6
months: between March and August of2008. This rapid return on investment strategy
demonstrates the urgency that Universal places on this project. In contrast, a typical return on
investment period is one year.
A lean transformation of the individual plants would be a multi-year project and does not
fit with the timing requirements. The researcher will limit this study to lean improvements that
benefit the extended value stream. Lean initiatives within plants will only be undeliaken if they
support improvements to the extended value stream.
All lean initiatives will need to be implemented within the limitations of the existing ERP
system. No significant changes to information systems will be considered in this study.
Finally, the details of the business case that support the lean implementation will not be
addressed. Instead, the researcher will limit the analysis of the value stream to lean
manufacturing metrics.
Methodology
17
In this study, the researcher used an extended value stream mappmg methodology
developed in Seeing the Whole (Jones & Womack, 2002). In this book, the authors deal with
improvements to a value stream that involves multiple manufacturing locations. This scenario
corresponds closely to the relationship between Universal and Framex in the context of their
NOlih American operations.
In general, value stream mapping consists of three steps (Rother & Shook, 1999). The
first step involves the analysis of the current state. A current state map records what is actually
happening initially at the level of manufacturing and transpOliation operations. Lean metrics
such as non-value added time and travel distances are recorded. This data is used later as a
baseline to determine whether the value stream has become leaner.
18
The second step consists of proposing lean improvements. Lean principles, such as one-
piece flow, reduction of waste, and minimization of transportation links, are the basis for lean
improvement ideas. In the third step, the plans for improving the value stream are implemented
and a future state is achieved. The objective is to achieve a value stream that is as close as
possible to ideal state. The same metrics that were used to characterize the cUlTent state are re-
evaluated to see whether the value stream has in fact become leaner and whether non-value
added work has been reduced. In general, the value stream methodology also allows for
continuous improvement. Rother and Shook (1999) call this "the present becomes future" cycle
(p. 101). In the case of this study, a single iteration of the future state will be attempted due to
time constraints.
Chapter II: Literature Review
North America's Awakening to Lean Manufacturing
19
Although lean production has been practiced by Toyota since the 1950s, the widespread
study of lean in North America started in the early 1990s with the publication of The Machine
ThaI Changed the World (Womack et aI., 1990). That book surveyed the global automotive
industry and compared global efficiencies and trends. It documented the fact that some Japanese
manufacturers were applying fundamentally different concepts in their approach to vehicle
development and manufacturing. Ultimately, The Machine ThaI Changed the World came to
represent something of an awakening for the North American auto industry. Womack and his
research team at MIT in the early 1990's employed the term "lean" to describe this business
model pioneered by Toyota. Since then, interest in lean manufacturing has resulted in a steady
stream of books, articles, and seminars on the topic, all explaining the Toyota Production System
(Blanchard, 2007). It is clear that lean has gained acceptance in the North American
manufacturing community, despite the fact that widespread implementation of lean is still a work
in progress.
Essentially, lean manufacturing seeks to produce a product that is exactly what the
customer wants, when the customer wants it, while minimizing all non-value added activities in
production (Womack & Jones, 2005). In the literature, value is simply defined as what the
customer is willing to pay for. Non-value added activities are generally understood to be either
waste, or incidental activities that are necessary but add no value to the product. The best
example of a non-value added activity is quality assurance. Quality inspections do not add value
to a product; they merely detect defects before they reach the consumer.
20
Principles of Lean
The Lean Institute lists five principles of lean philosophy (Lean Enterprise Institute,
2008). These are:
1. Value should be specified from the point of view of the customer, and it should
relate to a specific product family
2. The value stream must be identified. This means identifying all the actions and
steps that need to happen to bring a product to the customer
3. Make the value-creating steps flow. This requires optimizing the value stream for
the product family. Batch production and depal1mentalization of skills are
impediments to flow
4. Produce according to customer pull. Once the production system has been setup
according to the above principles, production can be scheduled in accordance to
actual customer demand
5. Pursue perfection. This principle acknowledges that there are endless
opportunities for improvements. A truly lean enterprise will engage in continuous
improvements of the value stream
Ford's Contributions to Lean Manufacturing
Lean manufacturing is modeled mainly after the Toyota Production System. However,
even Toyota bOlTowed some concepts from Henry Ford (Womack et aI., 1990). Although Ford
is known as the inventor of mass production, he also originated the concept of continuous flow
(he called itjlOYI' production) which is an important building block for lean production. His flow
production concept was best exemplified by his car assembly line at Highland Park. In this line,
vehicles traveled along a moving conveyor setting a constant pace for assembly operations. In
21
order to feed the main line he had to organize feeder processes in a way that approximated
cellular manufacturing, where components were assembled in areas of continuous flow. Toyota
would later take note of these practices and integrate them into their own production philosophy.
Some of Ford's practices have even been described as approximating lean production
within an emerging mass production system (Womack et ai., 1990; Dennis, 2007). Ford's
accomplishments were revolutionary for the times. Ford's mass production system increased
productivity by fine-tuning the division of labor, decreasing capital expenses through large size
batching, and infrequent changeover times. Standardized work practices were another major
component of the success of the Ford system. Standardized work at Ford subscribed to the "one
best way" philosophy pioneered by W. Taylor. Taylor took the responsibility for work
procedures out of the hands of the operators and mandated that the industrial engineers would
henceforth design the work. Here again Ford helped to lay the groundwork for a lean approach.
Toyota would later adopt standardized work, but not as a static approach. Instead, at Toyota,
standardized work involves continuously improving work procedures mainly with the help of the
people on the assembly line (Liker, 2004).
These were the tenets of Ford's mass production system that at the beginning of the
twentieth century were on their way to displacing the traditional craft approach to vehicle
production (Dennis, 2007). In so doing, Ford was making industrial history by making cars
relatively affordable while providing higher paying jobs to low skilled labor. Ford's mass
production system was so successful that it essentially became the benchmark for vehicle
production in the first half of the twentieth century in North America and Europe. Automotive
industrialists visited from all over the world to see Ford's mass production system, including
Toyota (Womack et ai., 1990).
22
The Beginnings of Lean Production
Mass production remained unchallenged until about the 1960s when a new production
system, pioneered by Toyota, started to increase its market share at the expense of the American
big three (Womack et aI., 1990). The post-war 1950s was a time of economic hardship in Japan
characterized by limited access to capital funds and impOliation of goods. The Toyota motor
company, who had been put to work assembling military trucks by the Japanese wartime
government, was now returning to its core business of manufacturing civilian vehicles. In a bid
to study America's successful automotive industry, Eji Toyoda visited Ford's Rouge Plant in
Detroit in 1950. What he saw there was impressive. Neveliheless, Eji Toyota was clever
enough to understand that mass production was wholly unsuited for Japan's post war reality.
Not only was Japan's car market smaller than America's, it was also more diverse in its needs.
Furthermore, bOlTowing capital in the quantities necessary to finance a mass production
operation would not have been possible as post-war Japan was cash strapped. Right from the
stmi, Toyota's operating principles were forged in an environment marked by extreme scarcity.
Toyota recognized that in order to produce cars for its domestic market it would have to
do more with less. It needed to take a radically different approach from what Eji Toyoda
observed at Ford (Liker, 2004). Furthelmore, Japan's economic situation along with Toyota's
own cash flow problems were of such a magnitude that Toyota saw itself forced to ask for one
qumier of its workers to retire. This move resulted in a strike that would eventually result in a
deal where Toyota signed-up to secure employment for its remaining staff. Toyota would now
have to devise a survival strategy that hinged on getting the most from its remaining resources:
namely modest capital assets and a permanent work force.
23
The Objective of a Lean Production System
After the strike of 1950, Toyota would be guided by one overarching objective: to
eliminate all waste while producing exactly what the customer. wants (Liker, 2004;
Dolcemascolo, 2006). All other effo11s in the Toyota Production System would support this
objective. Taiichi Olmo, former Chief Engineer at Toyota and architect of the Toyota Production
System, identified seven wastes of manufacturing that the Toyota Production System would seek
to el iminate. The elimination of these wastes is the basis of the guidel ines for implementing lean
improvements in value streams. These wastes are reported by Dolcemascolo (2006, p. 4):
1. Overproduction
2. Transpo11ation
3. Unnecessary inventory
4. Inappropriate processing
5. Waiting
6. Excess Motion
7. Defects
24
Jidoka: A First Pillar of the Toyota Production System
The fact is that Ohno was not staliing from scratch III his quest to match Ford's
productivity. In addition to being inspired by Ford's continuous flow invention, Ohno was
drawing on the ideas of his Toyota predecessors. Most notably, Ohno would eventually integrate
Jidoka as one of the pillars of the Toyota Production system. The concept of Jidoka, or
automation with intelligence, was in fact pioneered by Sakichi Toyoda, Eji's uncle in the late
1800s when Toyoda was in the business of fabricating looms for the textile industry (Mass &
Robertson, 1996). This concept was a great technological leap as well as a philosophical tour-
de-force. Essentially, when a thread broke in the weaving process, the loom was not allowed to
go on producing defective material (waste). This became the original instance of Jidoka.
Just-in-Time: A Second Pillar of the Toyota Production System
The other pillar of the Toyota Production System, Just-in-Time (lIT), came from
Japanese observations of American supermarkets during the early visits of Taiichi Ohno in the
year 1956 (Liker, 2004). The Japanese observed that supermarket shelves were easily
replenished in the US. When the product was below a certain level, this would trigger re-
stocking of the item. There was only enough stock on hand to supply to the immediate
customers. The significance of JIT was that it was integrated into the Toyota Production System
in the form of Kanban tools. These Kanban tools are the signaling apparatus that allows a pull
system to exist (Jones & Womack, 2002). This is completely different from the mass production
approach of having multiple orders sent simultaneously to multiple manufacturing locations in
the production process. In a JIT operation, an upstream process only produces when a
downstream is asking for a unit of production. This simpler and more efficient solution to satisfy
demand is at the heart of pull production.
25
The Role of Standardization in the Toyota Production System
While JIT and Jidoka are known as the pillars of the Toyota Production System, the
foundation of the Toyota Production System consists of standardization and stability (Dennis,
2007). Like in the mass production system, standardization ensures that work is carried out in a
predictable and well thought-out manner. Unlike in the mass production system, in the Toyota
Production System, the purpose of standards is not to impose a static way of doing things. The
opposite is in fact true (Nicholas & Avi, 2006). In the Toyota Production System, standards
exist so they can be continuously improved. Through Kaizen sessions, a cross-functional team
gets together to target improvements based according to strategic company direction (lmai,
1997). The purpose of a Kaizen session is primarily to eliminate waste by making incremental
improvement to processes. The intimate knowledge held by workers is critical to the success of
Kaizen sessions.
The Role Stabilization in the Toyota Production System
In the lean system, even before there can be standardization there must be stability
(Dennis, 2007). The Toyota Production System emphasizes the importance of a stable
environment. Without a stable environment, any lean improvements would be swept away in the
chaos of clutter, unpredictable breakdowns, and material fluctuations. Several key disciplines
were integrated into the lean production system by Ohno to reinforce stability. 5-S, for example,
is a visual management tool that is meant to eliminate clutter and helps to see what is out of
place (Gapp, Fisher, & Kobayashi, 1998). In 5-S, there is a place for everything, and everything
has its place. The power of 5-S comes from the fact that it is a visual tool: it can provide an
assessment at a glance. A person can see immediately if their environment is out of place
because a 5-S'ed environment has visual markers for the storage location of things. Most
26
importantly, 5-S makes underlying problems apparent so they can be addressed. In this respect,
5-S is also a star1ing point for discovering and solving problems.
A discipline meant to prevent unforeseen downtime is Total Productive Maintenance, or
TPM (Black & Hunter, 2003). In a Total Productive Maintenance environment, workers
themselves take responsibility for performing basic maintenance on the equipment they operate
on a daily basis. This seemingly small contribution from the operators makes a big difference on
the reliability of the equipment and most importantly to the overall stability of the operations.
Breakdowns do not occur as often and operators can concentrate on adding value to the product
instead of dealing with downtime due to unreliable equipment.
Lastly, the practice of heijunka as a stabilizing discipline helps to level the demand on
production (Liker, 2004; Rother & Shook, 1999). Firstly, the production mix is leveled to avoid
making one large batch of one pali followed by another large batch of another pal1. Batching
ultimately leads to hidden quality issues. In a lean operation, it is preferable to mix the type of
pal1s produced by running small batches more frequently. Heijunka also means stabilizing the
volume thus avoiding spikes in production. Instead of making the number of parts exactly as
requested in the daily release schedule, the manufacturer should use historical demand data in
order to make a daily average number of pa11s while keeping a standard inventory of pm1s.
27
At the Heart of the Toyota Production System
At the heaIt of the Toyota Production System, there is one important idea: that people
make all the difference. Through their creativity and their engagement, workers provide the
driving force that sustains lean manufacturing (Dennis, 2007). Unlike in the mass production
system, lean manufacturing personnel are involved in making decisions about the processes that
they operate. In fact, the Toyota philosophy is to push down the responsibility for improving
processes. Not only are plant workers encouraged to paIticipate in decision-making, they are
expected to do so. Through process kaizens, associates engage in waste reduction, problem
solving, and cost savings. Employee suggestion programs, for example, are a common way for
employees to be involved in the improvement of the company. Thus in a lean production
environment, all employees, even those doing repetitive work, are expected to think critically
about their work and contribute to the continuous improvement of work standards. For this
reason, some have called the Toyota Production System the Thinking Production System (Liker,
2004).
Value Stream Mapping
Value stream mapping was originated by Mike Rother and John Shook in collaboration
with James Womack (Womack, 2006). Rother and Shook's value stream map idea was based on
a similar a technique used by Toyota called in/ormation and materials jlovv diagrams. In
configuring value stream maps, Rother and Shook intended to capture process information,
materials flow, and information flow for a given product family. Although value stream maps
were developed within the context of the automotive industry, they have become popular in other
fields such as health care and the service sector.
28
The value stream mapping process begins with a map of the current state. The current
state should faithfully depict the operations as they are happening at the present time (Rother &
Shook, 1999). Both value and non-value added steps are shown in, a value stream map.
Information flows also appear and are considered just as important as material flows. Icons are
used to depict processes, material flows, and information flows. In addition, part accumulations
in the fOlm of WIP, inventories, and safety stocks also appear in the value stream. Special
alTOWS are used to depict "pull" or "push" production. In addition to icons, value stream maps
also record lean metrics inside data boxes located beneath process icons. Data boxes typically
include cycle times, changeover times, and travel distances. The types of metrics used to
populate the data boxes are chosen according to the specifics of the value stream being mapped
and the industry under consideration. In general, a timeline is also plotted along the bottom of
the value stream to track metrics used for cumulative quantities such as total lead time, total
travel distance, and total value added time. These cumulative quantities help to characterize the
value stream and serve as a baseline for later comparison.
The power of value stream mapping comes from its usefulness in integrating and
representing all the important elements of the lean enterprise (Tapping, Luyster, & Shuker,
2002). Once the current state value stream map has been drawn, improvement oppo11unities can
now be identified in a visual manner in conjunction with an assessment of the metrics. With
respect to improving the current state value stream, Rother and Shook (1999) take the view that
the main objective in a lean enterprise is simply for any process to only make what the next
downstream process requires, within the sho11est lead-time, at the highest quality, and at the
lowest cost. To attain this lean objective, they identified the following lean principles for
achieving a lean future state value stream map (Rother & Shook, 1999, p. 44)
1. Produce to the takt time
2. Develop continuous flow wherever possible
3. Use supermarkets where continuous flow does not extend upstream
4. Send the customer schedule to only one production process: the pacemaker
5. Level the production mix
6. Create pull by releasing consistent increments of work at the pacemaker process
7. Develop the ability to make every part every day. (p.44)
Extended Value Stream Mapping
29
The extended value stream map goes a step further. In the extended value stream map,
the flow of value is mapped from the supplying facilities through to the customer's facility
(Womack & Jones, 2002). Transportation between supplying facilities and transpOliation to the
customer's facility is considered. A closed loop supply network is formed with product moving
down stream and demand moving upstream. The concept of extended value stream mapping
does not require the practitioner to map the supply chain back to the extraction of raw materials
from the ground. For practical purposes, the extended value stream map can be limited to the
number of suppliers that are useful to the value stream manager (Drickhamer, 2003).
Just as in facility value stream mapping, extended value stream mapping stalis with a
representation of the CUlTent state. Since the flow of materials and information between facilities
is the main consideration in extended value stream mapping, the focus of lean improvements
shifts to addressing issues at interfaces between facilities. These include minimizing
transpOliation between facilities and minimizing inventories of finished goods (Jones &
Womack, 2002). In order to achieve the goal of a lean extended value stream, Jones and
Womack (2002, p.43) proposed the following guidelines:
30
1. Produce at a rate that is consistent with the customer' s takt time
2. Keep minimal inventory
3. Minimize the number of transport links
4. Minimize the amount of information processing while ensuring clarity of available
information
5. Minimize the lead time to deliver a product to the customer
6. Changes made to improve the extended value stream map should ideally have no
associated cost or at worst have very little associated cost
Extended Value Stream: Future States
When making improvements to an extended value stream, the very first step is to address
the implementation of lean production in the individual facilities (Jones & Womack, 2002).
Building a lean supply chain staris from the bottom up. Any company in the supply chain that is
not prepared to implement lean within its own facility will be of little help in sustaining an
extended value stream. The term future state I, therefore, describes the state of the supply chain
when all suppliers have convelied to lean production within their own facilities.
Future state II, on the other hand, deals with transportation and communications links
between facilities. In their book Seeing the Whole, Jones and Womack (2002) recommend direct
transportation links between upstream suppliers and downstream customers, instead of
intermediate warehousing or cross-dock facilities. Moreover, just as with value stream mapping
within a single facility, it is recommended that suppliers and customers be linked by a kanban
type of information flow meant to establish a pull system between upstream suppliers and
downstream customers. These are analogous to kanban loops within a facility. For instance,
31
large once-a-week batch loads should be replaced by milk runs whose transportation loops
connect several facilities.
Before achieving a Future state II, suppliers and customers must work cooperatively
toward a lean extended value stream. It is critically important that suppliers and customers strive
toward what Dolcemascolo (2006, p. 39) refers to as an "open book policy". Suppliers and
customers need to disclose oppOliunities for improvements. Ultimately, this means cost
information may also have to be shared in order to select lean improvement projects that make
sense for all. For example, if a supplier is buying raw material at a high price, but the customer
can negotiate a lower price, then there is obviously an oppOliunity for improvement. Without
disclosure of costs, this simple extended value stream improvement could not happen. This open
book policy then leads to the possibility of re-drawing the extended value stream map on a
collaborative footing. Only then can extended value stream maps be truly optimized.
Beyond future state II, there is one last type of future state called the ideal state (Jones &
Womack, 2002). In the ideal state, the overriding principle is to compress the value stream as
much as possible while bringing the value stream closer to the end customer. This literally
means bringing production operations geographically closer together as well as closer to the
customer. This is similar to including all operations within a single workcell. Compressing the
extended value stream and moving it closer to the customer, however, has to be balanced against
the possibility that the customer may be located in a high cost region. In this case, moving
operations may be undesirable due to labor costs in the high cost region. Unless new labor
saving technologies can be used, moving to all operations to a high cost region cannot be a
foregone conclusion. High local labor costs may well justify keeping supplier operations in a
32
lower cost region. Striking this balance represents a major improvement opportunity for the
extended value stream.
Cooperation in Extended Value Streams
Sharing the costs of investments is discussed in the literature as an element of extended
value stream improvement that is sometimes necessary. The concept is simple. A supplier sells
a product to a customer for a profit, despite the existence of waste in supplier's pOliion of the
extended value stream. In theory, value stream improvements should not cost anything to
implement (Tapping et aI., 2002). In practice, however, extended value stream improvements
can often involve significant changes to manufacturing locations and equipment and therefore
investments may be required. It is unlikely that a supplier will pay for these changes despite a
positive return on investment. If the value stream improvements disproportionately benefit the
customer rather than the supplier, it becomes even more unlikely that the supplier will make such
investments. In this scenario, the customer will need to assist the supplier in making the
necessary changes. Jones & Womack (2002) characterize this collaboration as the need to have
the "winners compensate the losers" (p.73). This suggests that extended value stream thinking
should occur early in the development of plant operations to avoid in-eversible non-lean extended
value streams. It also suggests that changing economic conditions, like currency fluctuations,
fuel price increases, and labor costs, should prompt the periodic review of extended value stream
maps.
Extended value stream mapping, therefore, provides a visual summary of how value
travels between supplying facilities into the customer's facility. In order to implement lean
production in the extended value stream it is necessary to have lean implemented in the
individual locations first. Using the principles developed in the Toyota Production System,
33
which seeks to eliminate waste, a lean future state for the extended value stream map can be
achieved. The last step in improving the extended value stream is to consider the possibility of
compressing the extended value stream and bringing it closer to the customer. Cooperation
between customer and suppliers is critical to realizing and Ideal State.
34
Chapter III: Methodology
The purpose of this study was to implement lean improvements in the manufacturing
operations of aluminum frames supplied by Framex Mexico to Universal's Michigan assembly
plant. Universal required that Framex implement a costs savings within six months of its
original request. Cost savings resulting from product changes were out of the question since
Universal wanted to carryover the frame design into the new model year - also because of cost
savings. This meant that process, logistics, and manufacturing locations all needed to be taken
into consideration when Framex was investigating possible lean improvements. The
methodology prescribed by Jones and Womack (2002) was adopted because it addressed the
specific areas where Framex had to find cost savings.
This chapter will identify the subject of the study in terms of an extended value stream. It
will also identify value stream maps as the instrument used to collect data and analyze the
extended value stream. Next, this chapter will demonstrate how lean principles discussed in the
literature were used to generate improvement ideas for the extended value stream. Finally, an
ideal state extended value stream map will be created by working through future states I and II,
according to the methodology al1iculated by Jones & Womack (2002) in Seeing the Whole.
35
Subject of the Study
The subject of the study was the extended value stream consisting of the Framex
manufacturing facility located in Mexico and the transportation of aluminum frames up to
Universal's pick-up truck assembly plant in Michigan. At the outset of the study, Framex was
purchasing aluminum coils that were stamped into components PaIts (brackets, gussets, cross
members, etc.) and then were welded into frame sub-assemblies. The three sub-assemblies were
then bolted together and finally e-coated for corrosion protection. The frames assemblies were
then put into containers and shipped via truck over to Laredo, Texas where a cross-docking
operation took place. The containers were removed from the truck and transferred onto a train
that would transpolt the frames the rest of the way to Michigan.
Instrumentation
The instrument used to study the extended value stream under investigation was the value
stream map. Value stream maps are used to provide a visual representation of the value stream.
Processes, material flows, and information flows appear on the value stream map. Extended
value stream maps also include transpOlt link infOlmation as well as information about
geographic locations. In addition, value stream maps also contain information about the takt
time that sets the production pace for the value stream under investigation. In this study, the takt
time is constant. Improvements to the extended value stream map had to conform to a constant
takt time of 63.4 seconds, per appendix A.
The value stream map is also used to collect lean metrics data, which quantifies the
elements in a value stream. For example, value added and non-value added times were recorded
for each process. Because it is a visual instrument, a value stream map is well suited for quick
visual reference and efficient analysis. Furthermore, value stream maps also have a temporal
36
element. In general, a value stream will be represented either in a current state map or in a future
state map. Extended value stream mapping methodology makes use of several future states:
future state I, future state II, and finally the ideal state value stream map.
Data Collection
The following lean metrics were selected in order to establish a method for evaluating
and comparing the lean states of the extended value streams:
1. Lead times (days)
2. Value added time (seconds)
3. Process cycle efficiency (percentage)
4. Raw materials inventory (days)
5. Work in progress inventory (days)
6. Finished goods inventory (days)
7. Transportation distance (miles)
8. Transp0l1ation time (days)
Standard data taken from work instructions was used to populate the value stream data
boxes. Cross-functional meetings that included production supervisors, logistics personnel ,
project managers, and sales personnel were held. The purpose of the meetings was to plan and
implement the costs savings. Each member was responsible for validating the data obtained
from documented sources. Once the data was compiled, the extended value stream maps were
populated by entering the data into the data boxes in the value stream maps.
37
Data Analysis
The lean principles discussed in the literature provided guidance in identifying lean
improvements to both facility and extended value streams. Working meetings were held to bring
together the team with the aim of bringing the extended value stream in line with lean principles
as stated in Seeing the Whole (Jones & Womack, 2002). The following lean principles for
extended value streams were used to drive improvements at every step of the way toward the
ideal state:
1. Produce at a rate that is consistent with the customer's takt time
2. Keep minimal inventory
3. Minimize the number of transpOli links
4. Minimize the amount of information processing while assuring the clarity of available
information
5. Minimize the lead-time to deliver a product to the customer
6. Changes made to improve the extended value stream map should ideally have no
associated cost or at worst have very little associated cost
The future state principles used to step through the progression of future state I, future state II,
and finally the ideal state were:
1. Future state 1: implement lean production within the individual facilities
2. Future state II: install pull between facilities & install loops between facilities
3. Ideal state: geographically compress the value stream
Current state analysis (future state I). The analysis of the CUlTent state extended value
stream map was conducted using lean principles. The analysis of the current state began
immediately with a focus on improving transportation links i.e. working toward a future state II.
38
This is because the Framex facility had essentially implemented lean production. Therefore, in
this study the CUlTent state and future state I are the same.
The first step in the analysis of the current state was to create an extended value stream
map. This allowed the team to locate the areas where the value stream was not lining-up with
lean principles. The following key elements were identified as essential to building a current
state extended value map:
The transp011ation link between the aluminum supplier and Framex
The Framex Mexico facility
The transp011ation link between Framex Mexico and the inter-modal (truck-to-train)
cross-dock at Laredo, TX
The transp011ation link between the cross-dock at Laredo and the Universal assembly
plant in Michigan
The current state extended value stream was consequently mapped with these elements as
shown on Figure 1. Lean metrics data for each of the elements was obtained in order to
complete the value stream map. The cross-functional team members obtained the data by
consulting and validating process documentation. It was then handed over to the project
manager to populate the value stream map with the data. Obtaining the lean metrics data for the
Framex facility, however, required an extra step. A separate facility value stream map for
Framex Mexico (Figure 2) had to be created. Once again the data for the facility value stream
map was provided by the cross functional team. Once the facility value stream map was created,
the aggregate lean metrics were used in data box for Framex Mexico in the extended value
stream map (Figure 1). The facility and the extended value stream maps were analyzed using
lean principles.
39
The analysis yielded several key observations. The facility value stream map for Framex
(Figure 2) showed that the value added time of 188 seconds relative to the lead-time of23.0123
days resulted in an extremely low process cycle efficiency of 0.0194%. Looking fUliher
upstream within the Framex value stream, the team felt that the safety stocks of raw materials
(10 days) and finished goods (10 days) were too high and that an oPPOliunity existed to improve
process cycle efficiency by reducing inventory. However, getting rid of the safety stock would
require management buy-in. The safety stocks were put in place to deal with unforeseen supply
problems and rush orders that had occurred in the past year.
The extended value stream map in Figure 1 made it clear that the transpOliation link
between Framex and Universal had become a problem. In response to urgent calls from
Universal, Framex had to fly material to Michigan six times in the last year. This transpOliation
link included trucking, a cross-dock, and then rail transpOli. The team felt that the transpOliation
lin1e between Framex and Universal was too unreliable and time consuming. The lead-time for
that transpoliation link was 14 days, which was perceived by all to be essentially inventory on
the road. The cross-dock in particular had been a source of delays at customs. When the
extended value stream was evaluated, the value added time of 118 seconds vs. the total lead-time
for the extended value stream of 37 days resulted in a process cycle efficiency of 0.0121 %,
worse than for the facility value stream.
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Current State
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T olal CIT ::: 24 seconds
Value Add: 12 seconds
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24.0000 I I 12.0000 seconds I AIT = 118.0000soconds
seconds RM= 10.0 day-:;
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FG= 10.0 days
0.0194%

42
Future state II analysis. To redraw the extended value stream map (Figure 3), the
general concept that the team pursued was moving away from using rail transport and instead
shipping finished goods by truck directly from Mexico to Michigan. Cutting out the cross dock
was in line with the principle of reducing the number of transport links. Two transpOli links
were in fact eliminated: the cross-dock and the rail transport. The elimination of the cross-dock
would also allow a pull system to be established between facilities: another aim of lean extended
value streams. This is shown by a transpOli loop in the extended value stream map in Figure 3.
This transport loop, with a transpOli time of seven days, was expected to eliminate the need for
expedited shipments.
Shipping via trucks, however, posed a brand new problem. Trucks would be about two
times more expensive than shipping by rail on a per frame basis. The solution that the team
came up with was to increase containerization density. In other words, if the same trailer could
take twice as many palis then there would be no cost penalty for using truck transpOli.
UnfOliunately, the finished goods containers were owned by Universal and they did not agree to
make changes to the finished goods containers. The finished goods containers had to conform to
standard sizing for material handling purposes. Therefore, future state II was conceived using
existing finished goods racks while shipping twice as many trucks per day. It was recognized
that this was a sub-optimal solution to the density issue and a permanent solution would have to
be found in the ideal state, prior to implementation. The future state II with new trucking
arrangement is shown on the extended value stream map in Figure 3. Future state II was not
implemented. However, it was a necessary intermediate step toward the ideal state.
43
Neveliheless, moving away from rail transpOJi was step in the right direction because of
the smaller amount of inventory on the road at any given time. Trucks would now only take
seven days to make it to Michigan vs. the 14 days using intermodal transpOJi. This improvement
in lead-time was expected to increase the process cycle efficiency of the extended value stream.
The inventory of finished goods at Framex Mexico facility (Figure 4) could now be potentially
decreased by a corresponding seven days at the facility i.e. from 10 days to three days.
However, management at Framex Mexico plant was not in favor of going to three days of
inventory and settled on six days of inventory as a precautionary measure. This decrease in
finished goods inventory down to six days at the Framex facility is shown on Figure 4.
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Total CfT = 24 second
Add: 12 seconds

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100000 pieces per Year
(Takt Time 63.4 seconds)
ead Time = 9.0123 days
A I T = 118_0 seconds
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ransporl Time = 0_0 days
M= 0.0 days
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G=6.0days

VI
46
Ideal state analysis. In the ideal state map as shown on Figure 5, the cross-functional
team concentrated on the principle of moving the value stream closer to the customer while
being mindful of cost implications. The obvious idea initially proposed by the team was to
manufacture the aluminum frames in Canada and then ship them to Michigan. After all, the
Canadian facility was already shipping steel frames to Universal. This idea however was
considered not feasible for several reasons. First, labor costs in Canada would be several times
higher than in Mexico and given that welding operations were labor intensive, this was
considered as not feasible by the team. Furthermore, the welding equipment at Framex Mexico
was a shared asset with other production programs and it could not leave Mexico. To complicate
matters fUliher, the welding equipment in Canada had the same problem: it was strictly for steel
applications and could not be converted, as it too was shared with other production programs.
Moving the entire Mexican operations to Canada, or to the US for that matter, was an even more
remote proposition.
The break-through solution that the cross-functional team proposed was to take
advantage of some, but not all, of the existing capabilities in Canada. In paliicular, the
operations that Framex Canada could undeliake were the final bolting assembly and the e-
coating operations. This would allow sub-assemblies to be shipped in high-density WIP bins to
Framex Canada for final assembly prior to being shipped to Universal in Michigan. Since the
design of the aluminum frame and the steel frame where only slightly different, the final bolting
assembly station in Canada could be retooled for a very modest cost so it could process both
designs. The business case showed that the cost of retooling the bolting station could easily be
recovered from the cost savings. The e-coating operations could also be done at Framex Canada
with no tooling or equipment changes. All that was needed was a small readjustment of the
47
chemistry in the e-coating process to accommodate coating both steel and aluminum frames.
Both bolting and e-coating operations were highly automated in Canada so labor costs were not
an issue. Therefore, in the ideal state, optimization of the extended value stream meant that only
final assembly and e-coating would be done at Framex Canada (Figure 7), while stamping and
welding would remain at Framex Mexico (Figure 6). This is how the project team was able to
comply with the lean principle for extended value streams of geographically "compressing" the
value stream.
48
Moving the final two operations to Framex Canada also addressed the issue of
containerization density. Now Framex Mexico was a supplier to Framex Canada lined by a pull
loop (see Figure 5). Framex Mexico would be shipping welded sub-assemblies instead of
finished goods. These smaller sub-assemblies could be nested to increase containerization
densities by more than 200%. The cost of transportation via trucks would be more than
compensated by the increase in containerization densities. However, in order to ship nested sub-
assemblies from Mexico to Canada, new WIP containers to be owned by Framex were needed.
The business case showed that, although expensive, new WIP containers would pay for
themselves. However, the team concluded that the burden of the investment should be shared
with Universal. The costs of the new WIP container were discussed between Universal
purchasing and Framex sales. It was determined that a net cost savings for the overall extended
value stream was achievable and Universal agreed to compensate Framex for the costs of the
new WIP containers. This agreement made it possible to move forward with the implementation
of the ideal state. This solution had a positive effect on the value stream map for Framex Mexico
since no finished goods stock would be needed there in the ideal state as shown in Figure 6.
Instead, the team decided to keep a supermarket of aluminum sub-assemblies at Framex Canada
in case of fluctuations in the supply of components from Framex Mexico.
Framex - Universal
Ideal State
Extended Value Stream Map
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MEXICO AND CANADA ARE HALVED
TRUCK LEAVE
TOIai crr.
ValueAdd: 118 s.
ONGER 2YJD;V \AI
Distance Tra'wel'ed: 2324 01 .
Transport Time: 7
RM: Sd.
WP: 3d.
FG:2d.
_S.0 r--
000 (118.0 se<:onds)
day
s
-
tra\el
23241T'i1es
_ 0.5,--
looc
day
s

126
nil
es
Lead Time' 22.5123
VAiT' 116.0 . e<:onds
PCE = 0,0199'%
Tr""sport Time 7.5
RM10.0d.
IMP - 3.0d.
FG 2.0d.
Ir8\eled = 2450 nil es
Figure 5. Framex-Universal ideal state extended value stream map
49
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Ideal State
Value Stream Map
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BOLTING

Total err :: so seconds
Value Add' 24 seconds
t-NA - 26 seconds
Framex
CANADA
Framex Canada Facility
Ideal State
Value Stream Map
PAINTING
CORROSION

Total err:: 24 seconds
VCllue Add: 12 seconds
NVA - 12 seconds
Distance Traveled: 20 It
0""
5.0
d,y
I S I 50.0 seeonds
24.0 seeonds
Dislance Traveled: 300 ft.
24.0 seconds
12.0 seconds I
2.0 days
I
Customer Dem;,nd:
100000 plecos perVo"r
(Ta1o:J Time 63.4 seconds)
Lead Time:: 7.0 days
l IVA IT:: 36.0 seconds
RM:: 5.0 days
WIP :: 0.0 dB'1S
FG:: 2.0 days
peE:: 0.0195%
VI
52
Limitations of the Methodology
The value stream maps that were used did not integrate the business case analysis. This
was a significant limitation of this methodology. In this study, the project manager was in
charge of leading the cross-functional team in the development of value stream maps. On the
other hand, sales were in charge of the business case analysis. Sales used a spreadsheet to keep
track of the business case. As a result, two types of documents were used to communicate how
the cost savings were achieved. At times, this caused some confusion. Most people knew how
to interpret one or the other of the documents - not both.
Another limitation of the methodology was that value stream maps display single values
for lean metrics as opposed to statistical distributions. The accuracy of lead times for shipping,
for example, was questioned many times by management. The historical data had simply not
been collected in a disciplined way to provide the confidence in the data that was sought. As a
result, there was some risk that the ideal state would not materialize exactly as planned.
NeveltheJess, the cross-functional team was confident that the ideal state was configured
correctly and that the cost savings would be achieved successfully.
Furthennore, the application of the methodology was limited by the fact that there was no
time for anyone person to walk the full length of the value stream in order to confirm all of the
lean metrics, as recommended by the literature. Especially with an extended value stream, this
would have been very difficult to do. Instead, data was taken from documents such as standard
work instlUctions, shipping records, and inventory logs. It was the responsibility of team
members to validate their data contributions.
53
Finally, the idea of neatly developing the various future states in sequence, instead of in parallel,
was not practical. The team felt that future states I, II, and the ideal state could be done in
parallel. Often all three maps were worked on side-by-side. Fortunately, no one felt that the
results were compromised by taking this approach.
54
Chapter IV: Results
The purpose of this study was to implement lean improvements in the manufacturing
operations of aluminum frames supplied by Framex to Universal. Framex is a frame
manufacturer that operates out of Mexico and Canada. Universal is a major US vehicle
manufacturer whose pick-up truck assembly plant is located in Michigan and buys frames from
Framex. Universal requested that improvements be implemented within a period of six months
resulting in a cost savings for Universal.
In order to achieve the purpose of the study, the Framex cross-functional team employed
an extended value stream mapping methodology guided by lean principles. First, a current state
extended value stream map was constructed based on lean metrics obtained by the cross-
functional team. Then, extended value stream maps were created for the future state II and for
the ideal state.
This chapter will address each of the three sub-problems presented at the beginning of
this paper. First, the results of the current state extended value stream map will be presented.
Next, the results of lean improvements will be shown in terms of the future state II and ideal
state. Finally, the success of the implementation of the ideal state will be assessed by reporting
to what extent the lean metrics materialized according to the proposed ideal state. The costs
savings achieved will be repOlied.
55
Results of the Current State Extended Value Stream Map
The first sub-problem consisted of establishing the CU1Tent state of Framex manufacturing
and supply operations. This sub-problem was addressed by creating an extended value stream
map (Figure 1) that connected Framex Mexico to its customer Universal located in Michigan.
Lean metrics were collected based on what was actually happening in the value stream. The first
row in Table 1 shows the lean metrics collected for the current state.
Table I
ReslIlls o/Exlellded Valli e Slreolll!lIIpro\'elll enIS
Lean metrics
Transport Transport
Value Process Raw Finished distance
Lead added c}c1e materials goods Transport Transport finished
EVSM Stat e
time time eflkiency inventory WlP inventory distarce times goods
( days) (sec.) (%) ( days) (days) (days) (miles) (days) (miles)
Current State 37.0 118 0.0121 10 10 2225 14 2225
Future State 2 26.0 118 0.0172 10 6 2225 7 2225
Idea I State 22.5 118 0.0199 10 2 2450 7.5 126
Implemented 21.5 118 0.D208 10 3 2 2450 6.5 126
Noles. EVSM = Extended Value Stream Map. Transport distance = distance from Franl ex final shipping facility
to Universal receiving plant. Transport time = transport ation time between Fr amex fina I shipping fac il ity to
Universal receiving plant. In purchase contracts, transport of finished goods is paid by UniversaL See last two
columns.
time
finished
goods
(days)
14
7
0.5
0.5
framex Universal
Dail y Daily
Transport Transport
costs costs
($) ($)
0 7231
0 8900
4900 252
4900 252
56
For the current state in pa11icular, the ratio of the value added time (118 seconds) to total lead-
time (37 days) resulted in a process cycle efficiency of 0.0121%. The lead-time of 37 days,
which is inversely prop0l1ionai to the process cycle efficiency, breaks down into days of
inventory and days of parts in transit. The inventory consisted of 10 days ofraw materials in the
form of aluminum coils, three days of WIP in a supermarket of stamped components, and
another 10 days of finished goods safety stock. FUl1hermore, the transp0l1ation time was made
up of two days for trucking to Laredo, two days for the cross-docking operation, and still another
10 days of rail transp0l1 to Michigan.
Results ofIdeal State Extended Value Stream Map
The second sub-problem consisted in analyzing the current state and proposing changes
that would improve transportation links and optimize manufacturing locations. The result was an
ideal state extended value stream map as shown on Figure 5.
This second sub-problem was addressed by re-configuring Framex as a regionally
optimized supplier. This was done by first proposing a future state II extended value stream map
that replaced intermodal shipping by a direct trucking route to Michigan. The resulting lean
metrics for the future state II are shown in the second row in Table 1. The ideal future state
integrated the transportation improvements, and took the final step toward an ideal state by
proposing that the finishing operations and the shipping point be moved to Framex Canada.
The improvements to the current state that resulted in a future state II involved the
elimination of the cross-docking operation as well as rail transit. The decision was made to
deliver finished goods via truck directly from Framex Mexico to the Universal assembly plant in
Michigan. Direct trucking would now take seven days instead of the previous 14 days. The
transp0l1ation time, and therefore the lead-time, was now decreased by seven days. The finished
57
goods inventory could have been reduced from 10 days down to three days but management
decided to take a cautious approach that saw the finished goods inventory reduced to six days.
The decrease in days of finished goods and days of transport resulted in a new lead-time of 26
days for future state II. The ratio of the value added time (118 seconds) to the new total lead-
time (26 days) resulted in an improved process cycle efficiency of 0.0 172% for the future state
II.
The ideal state lean improvements involved reducing the number of trucks per day
required to ship frames to Universal. This was achieved by shipping sub-assemblies instead of
fully assembled finished frames. Framex Mexico became a supplier to Framex Canada who was
now the new shipping point. The advantage of this was that nested sub-assemblies could be
shipped in much higher densities from Framex Mexico to Framex Canada in new WIP
containers. Framex Canada would continue to ship finished goods in Universal's standard size
shipping containers. The results was that the twice a day trucking could be reduced to once per
day trucking. This resulted in cutting the transportation costs down by half relative to future
state II. The transpOltation time between the two Framex facilities remained at 7 days. A minor
drawback resulted that 0.5 days would be necessary to ship finished goods between Framex
Canada and Universal at a distance of 126 miles.
The new shipping arrangement, however, had to be supported with final bolting and e-
coating at Framex Canada. There was no longer a need to keep an inventory of finished goods in
Mexico. That meant that the 6 days of finished goods that used to exist in Mexico were
eliminated in favor of keeping only 2 days of finished goods inventory at Framex Canada. In
order to deal with demand surges, management at Framex decided that raw materials that used to
number 10 days at Framex Mexico would now be shared as five days of aluminum coils in
58
Mexico and five days of sub-assemblies in Canada. Figures 5 through 7 show the new raw
materials aITangement at the Framex facilities while Table 1 shows a total of 10 days of raw
material. The resulting ratio of value added time of 188 seconds to 22.5123 days lead-time
resulted in an improved process cycle efficiency of 0.0199%.
Results of the Lean Implementation
The third sub-problem was to canyout the lean improvements and evaluate whether the
implementation of the ideal state was successful.
The final sub-problem was accomplished by fully implementing the ideal state extended
value stream map. Three weeks were required to stabilize the lean metrics at the target levels of
the ideal state. The resulting process cycle efficiency exceeded the planned value from ideal
state extended value stream.
One further improvement was made at the request of the plant Manager at Framex
Canada. The plant manager believed that seven days of transport time could be improved. A
call for bids was held in order to find a faster and more reliable transport company. Several
companies were found that would guarantee shipments with only 6.5 days of transit time. One of
these was chosen. Therefore, the new ratio of value added time of 118 seconds to the new total
lead-time of 21.5 days now resulted in a process cycle efficiency of 0.0208%. The results were
that the lean metrics were either met or exceeded during implementation.
59
As far as achieving a costs savings, Universal now was receiving pmis shipped from
Framex Canada, which meant they only needed to pay for freight travelling 126 miles instead of
2225 miles. In the implemented state Framex was paying most of the transportation costs.
However, because of high-density WIP bins, Framex could transport material more efficiently
than Universal could in the current state. This resulted in a 29% cost savings for the overall
extended value stream to be shared between Universal and Framex. Extended over the expected
life of the program, the resulting cost savings was estimated at $2.5 million. A cost savings
calculation for the extended value stream is shown in Appendix C. Even after Universal
compensated Framex for their internal shipping costs increases, for WIP containers, and for
modest retooling, Universal still achieved a large cost savings. Compensation was handled
tlu'ough increased piece prices paid to Framex.
60
Chapter V: Discussion
The purpose of this study was to implement lean improvements in the manufacturing
operations of aluminum frames supplied by Framex to Universal. Universal requested that
improvements be implemented within a period of six months resulting in a cost savings for
Universal.
Chapter I covered the economic and market conditions that drove Universal, the vehicle
manufacturer, to seek cost reductions in the value stream that linked its pick-up truck assembly
plant to Framex. Chapter II surveyed the literature relating to the development of the Toyota
Production System and established the lean principles used in this paper. Chapter III explained
the extended value stream mapping methodology used to produce lean changes to the Framex-
Universal value stream. The analysis presented in chapter III resulted in a proposal for an ideal
state extended value stream map, which was subsequently used as the standard for the
implementation of the cost savings. The results of the implementation were presented in terms
of lean metrics in Chapter IV.
This chapter will first restate the limitations of the study. It will then discuss the results
and provide perspective on the findings of this paper. The conclusions will highlight the major
achievements of this study. Finally, recommendations for improving the practical applications of
lean principles to extended values streams will be made.
61
Limitations of the Study
In this study, the value stream being investigated for improvements and cost savings was
selected by the customer. This means no analysis was undertaken to determine which of the
possible product families would be the best suited for value stream improvements.
The extended value stream that involved the supply of aluminum frames to Universal's
Michigan assembly plant was identified as the subject of the study. Other value streams that
existed between these two companies were not addressed in this paper.
A firm time restriction existed in this study. The changes and improvements had to be
completed within a six-month period between March and August of 2008. This end date
coincided with the rollout of the new model year. The new model year was not a complete
redesign of the pick-up truck. In fact, many pat1s, such as the frames, required no changes.
FUl1hermore, the implementation of lean production in the individual facilities was
outside the scope of this study. Changes within facilities were only unde11aken if they were
meant to supp0l1 improvements to the extended value stream. This was the case with inventory
reduction. This was also the case with the retooling of the bolting station at Framex Canada.
The facilities were already using pull production and one-piece-flow so this limitation did not
affect the results.
The details of the business case were not presented. The logic behind the business case
was driven largely by the extended value stream improvements. In some cases, however, the
value stream had to change in order to ensure that the business case remained positive. This was
the case when the team realized it would have to increase shipping density to compensate for
increase transp0l1ation costs.
62
A limitation that was not recognized at the outset as being significant was the fact that
value stream maps did not contain costs data. This limitation became apparent when extended
value stream map changes were presented to management. Management was consistently
looking for business case information to justify the value stream changes. The lack of a side-by-
side presentation of costs slowed down the initial buy-in for the proposed changes.
Development of the Current State Extended Value Stt"eam Map
The creation of the current state extended value stream map increased the cross-
functional team's awareness of its supply operations. Before getting together to create sketches
of the value stream, the flow of value from Framex to Universal was unclear. Once the lean data
was collected and mapped on the value stream map, the team became more confident in
proposing improvement ideas and more skillful at identifying opportunities. Extended value
stream mapping helped the team to see the whole operation and understand how it could be
improved.
In this study, the team approach to value stream mappIng was crucial. Each team
member was able to bring specialized knowledge to the table in order to ensure that the value
stream maps were representative of what was actually happening in the plant and in the logistics
routes. The creation of the current state map was pivotal in terms of getting the cross-functional
team to speak the language of value stream mapping. On the other hand, the sales function was
also a key success factor because sales people were the link to customer cooperation and cost
sharing.
63
Development of the Ideal State Extended Value Stream Map
Future state II. The creation of the future state II value stream map was straightforward.
Using the lean principle of reducing transportation links led the team to the logical conclusion
that the cross docking operation should be eliminated. Doing this would allow a geographically
extended pull loop to be implemented between Framex and Universal. FUlihermore, the team
felt that 14 days of transport time was excessive. Even before the value stream maps were
drawn, this transportation link was known for causing unnecessary delays.
Ideal state. The creation of the ideal state map began with a challenge that arose from the
future state II map. Although the removal of the cross-dock resulted in decreasing the transport
time from 14 days to seven days, the problem remained that two trucks per day would now be
required to meet the daily requirements. Two trucks per day had the effect of increasing
transport costs relative to the current state. This increase in transport costs did not fit with the
expectations set by the literature that states that lean improvements should not incur costs. The
team concluded that lean metrics and costs needed to be looked at concurrently because
improving a single individual lean metric on its own would not automatically lead to overall
lower costs.
The team accepted the challenge to find a way to turn the transportation improvements
into a costs savings. This is how the idea of increasing the shipping density came up. The team
concluded that the only way to increase shipping density was to ship sub-assemblies instead of
full assemblies and then to have the parts assembled as close to the customer as possible. This is
how Framex Canada was drawn into the extended value stream map.
64
The way the future state II scenario naturally evolved into an ideal state was a pleasant
surprise to the team. This development confirmed that the theory developed in Seeing the Whole
(Jones & Womack, 2002) cOlTelated well with real life and that the team was on the right track.
With the implementation of increased densities, the transportation costs were now lower
by about 29% relative to the current state as shown on Table 1. Since Framex Canada was the
new ship point, keeping a finished goods safety stock in Mexico no longer made sense. The lean
principle of compressing the value stream in order to bring it closer to the customer motivated
the team to keep sub-assemblies in Canada in the form of raw materials. That way they could be
used to respond quickly to a surge in demand.
The literature also proved correct regarding the need for cooperation between supplier
and customer. The cost of WIP containers represented a significant investment that Framex
could not take-on alone. It was in Universal's best interest to compensate Framex for the cost of
WIP containers and for its increased transpOli costs. This ensured that costs savings were
implemented. The team member from sales was pivotal in negotiating this cost recovery from
the customer. This also showed that in general, improvements to the extended value stream may
require significant investments to be recovered through costs savings.
65
Implementation of the Ideal State Extended Value Stream Map
It took the team less than one month to work through the various stages of value stream
mapping and arrive at the ideal state extended value stream map. By April 2008, value stream
maps, business cases, and timelines had been firmed. Procurement and design of the WIP
containers and equipment modifications had been kicked-off.
In August when the changes had to be rolled-out, there was still some unceliainty as to
whether the actual implementation would match with the ideal state. In the first couple of weeks
after rollout, the target lean metrics were not immediately realized. It took about three weeks to
reach the target metrics. In the case of transportation, a last minute improvement opportunity
was recognized by management whereby the transportation time from Mexico to Canada was
decreased by one day, resulting in yet another improvement in the process cycle efficiency.
66
Conclusions
The results of this study were a success from the point of view of lean metrics as well as
cost savings. All parties involved benefited from this success.
The process cycle efficiency in the implemented state, i.e. the time spent on doing value
added work, increased by 72% relative to the current state. This improvement was driven by the
reduction in lead-time which itself was due to transp0l1ation improvements and bringing the
extended value stream closer to the customer.
Overall transp0l1ation costs decreased by 29%: from $7231 per day to $5152 per day.
Since Universal only had to pay for finished goods transportation, their transportation costs
dropped from $7231 to $252 per day. The cost savings achieved by Universal in this way were
used to compensate Framex for their increase in transportation costs and for their investments.
The costs saving generated by applying lean principles to this extended value stream over five
years, the life of the program, were expected to be $2.5 million. The expected cost savings
calculation is shown in Appendix C
A win-win-win scenario occurred here. Framex was awarded a higher piece price to
cover a share of the cost savings plus investment recovery. Universal's operating costs
decreased as result of buying frames at a lower total cost, including product and transportation
costs. Perhaps most importantly, consumer benefitted because they could now get better value
on their purchase of a new pick-up truck due to incentives supp0l1ed by the manufacturer's lower
operating costs.
Overall, the conclusions of this paper match with the outcomes predicted in the literature.
Cooperation between Framex and Universal, including sharing in the cost savings, motivated all
parties to work toward a leaner extended value stream. The process cycle efficiency increased at
67
each step of the value stream map development. The only major unforeseen development was
the transpoliation cost increase in future state II that fortunately resulted in net transpoliation
cost decrease in the ideal state.
Recommendations
The following recommendations are based on the lessons leamed during the planning and
implementation of the extended value stream lean improvement.
Center of knowledge. A value stream mapping team with specialized knowledge should
be established in order to assist future improvements or costs savings exercises that require
special knowledge of the application oflean principles to extended value stream.
Value stream manager. Project managers should be trained as value stream managers
and should be responsible for the continuous improvement of the value stream. In the
automotive industry, project managers have unique cross-functional knowledge that would make
them the ideal value stream manager. Executive management needs to support their role as value
stream managers in order for this recommendation to be implemented successfully.
Value stream continuous improvement. A standard set of lean metrics should be
selected based on careful consideration of customer values and requirements. Then, a database
should be established to store and maintain lean metrics. Periodic updates to the lean metrics
should occur in order to support periodic reviews of extended value stream maps. This would be
the basis for the continuous improvement of value stream maps.
Value stream mapping up-front. Regional optimization using extended value stream
mapping should also be considered before plant locations are built. Value stream mapptng
would be a useful too when planning new greenfield or brownfield expansion projects.
68
References
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nd
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Properties - Map3
Categoties
-
Custom Data
Entelptise
l"m!ml
----.
Appendix A
Takt Time Calculation
Setup 'I Tlmeline 1 Graph 1
Available Work Time
Hours Per Shift :
Break Minutes Per Shift :
Shifts Per Day:
Da;'S Per "'l/eek:
Days Per Month:
Takt Time
8
40
5
20
Customer Demand ---------
[IiJilllilll
/ IYear
4 t4l weeks
Takt Time -----------
63.4 [ seconds
pieces / piece
Display Format: [63 seconds G
T akt Goal I Percentage
Inventory Lead Time: [ Based on T akt Time
1 I Cancel I I Help ~ ___ ~ L ____ ~
OK
70
Appendix B
Process Cycle Efficiency Sample Calculation
For the implemented ideal future state ...
PCE = VAT
Implelllellted L dT'
ea lme
118sec.
PCEilllplelllell/(xl = 7 3333h
2 1. 5 days .' ours
day
3600sec.
hour
118sec.
PCEilllplelllellttri = 7 3333h 3600 xl 00%
21 Sd
. ours sec.
. aysx x
day hour
PCEilllplelllellled = 0.0208%
71
Appendix C
Expected Cost Saving Calculation
For the extended value stream ...
Cos tSa v ings Pr ogmlllLife = DailySavings x 5 years
Cos/Savings Pr ograllll,ife = (TransporlalionCostscllrrelllSlale - TramporlalionCosts IclealSlale) X 5 years
$7231 $5152 24 o days
CoslSavtngsprogralllLife = (--- ) x 5years x -----"---
day day year
$2079 24 o days
CostSavtngs Pr ograllll,ife = ( ) x 5 years x -----"---
day year
$2079
Cos/SavtngsPr ogralllLife = (---) x 1200days
day
CostSavings ProgralllLife = $2,494,800
72