Wk5 Discussion 2

CHAPTER thirteen JIT/Lean Production CHAPTER OUTLINE Introduction 13.1 The Lean Perspective on Waste 13.2 The Lean Perspective on Inventory 13.3 Recent Developments in Lean Thinking 13.4 Kanban Systems Chapter Summary CHAPTER OBJECTIVES By the end of this chapter, you will be able to: • Discuss the Lean perspective on waste, and describe the eight major forms of waste, or muda, in an organization. • Discuss the Lean perspective on inventory. • Describe how the concepts of the Lean supply chain and Lean Six Sigma represent natural extensions of the Lean philosophy. • Explain how a two-card kanban system works, and calculate the number of kanban cards needed in a simple production environment. PORSCHE’S “SHOCK THERAPY” PAYS OFF

IF imitation is the sincerest form of flattery, Porsche—a perennial winner in the J.D. Power and Associates annual quality study and the firm whose profit margins are among the highest in the auto industry—is prepared to make the most of it with its thriving Lean consulting business. The luxury carmaker is already well known to its European competitors as the manufacturer that carries the smallest material inventories. In fact, it keeps a current inventory level of only 0.8 workdays. Porsche has mastered the just-in-time (JIT) method, assembling only the parts it needs and only when it needs them. It smoothes progress every step of the way with sophisticated time- and labor-saving techniques. Working closely with its many suppliers and transportation providers, the company manages a components flow so precisely tuned to its assembly process that car and engine parts can be delivered right to the factory floor and can be installed moments later in the individual cars for which they were ordered. Porsche virtually eliminated warehousing in 2009,

freeing up space and capital in the process of improving efficiency, scheduling, waste reduction, and the accuracy of its delivery dates. These benefits have flowed to its suppliers as well, since only the most disciplined and committed can live up to Porsche’s high standards. With lower inventories and minimal fallback levels, these suppliers enjoy increased efficiency and shorter response times. Customers benefit in several ways, too, from lower prices for Porsche’s cars to precise product delivery schedules that ensure customer satisfaction at the dealership. Where does the imitation come in? With such enviable and lucrative results from its well-planned JIT processes, Porsche soon realized it could also profit by selling advice about how to streamline operations and reduce waste. Thus, in 1994, the Porsche Consulting subsidiary was born, with offices in Italy and Brazil to begin with and, by 2014, additional sites in Atlanta, Georgia and Shanghai, China. Customers of the consulting subsidiary include such manufacturing giants as Deutsche Lufthansa AG, Volkswagen AG, and Meyer Werft GmbH. They and about 150 other corporate clients stand to learn much from Porsche’s run-in with near-insolvency in 1993. That watershed experience left the company battered by high inventory, excess factory space, weak sales, a legacy of inefficient and labor-intensive work processes, and a net loss of $162 million. The company had no alternative, says a former Porsche executive, but to resort to “shock therapy” to turn itself around. So Porsche looked to Toyota, the pioneer in implementing JIT and Lean production techniques. Toyota already had a consulting wing, and from its trainers, Porsche learned how to fine-tune its manufacturing processes and develop new relationships with its suppliers that made JIT operations a feasible remedy. Its embrace of JIT and continuous improvement was soon complete, and every production step is now carefully defined and perfectly orchestrated to maximize resources and minimize waste. For example, Porsche uses small, standardized containers for shipments of its parts orders and loads the empty containers on the same trucks that deliver full ones so they can make a

closed transportation circuit. The height of the tow trains in its manufacturing plants is calibrated to match that of the racks in its order- picking departments, so workers can simply slide containers full of parts onto the driverless transport system that takes them to the engine assembly line. JIT has now been widely adopted in the auto industry, and thanks in part to Porsche Consulting, it is transforming many other industries, including not only auto parts suppliers but also airplane and furniture manufacturers, airlines, construction companies, and even hospitals. One of Porsche Consulting’s recent clients was a German manufacturer of cruise ships that now employs a JIT system to reduce inventory from its 1,800 suppliers and has set up its own in-house training academy to ensure that the improvements take hold permanently. Porsche helped shorten service time for Lufthansa’s Airbus 340 planes by 10 days, and the airline’s catering division, which produces more than 400 million meals a year for other passenger airlines, is now working with Porsche to improve its own logistics. Shorter highway construction schedules and reduced costs for staff and equipment were the goals of another Porsche client, the biggest construction company in central Europe. As if happy clients weren’t enough, the enviable financial results of Porsche’s car manufacturing unit are themselves an advertisement for Porsche Consulting. Its operating margin for one recent quarter was 19 percent versus 11 percent for Volkswagen’s Audi and 9.5 percent for Mercedes-Benz. Says the head of Porsche Consulting, “Many clients come to us and say, ‘Please turn us into the Porsches of our industries.’” Sources: Based on N. Joseph, “Porsche Consulting Sets Up Shop in Atlanta,” Autoblog, July 21, 2011, www.autoblog.com/2011/07/21/porsche-consulting-sets-up-shop-in-atlanta/; “Typical Porsche: No Superfluous Parts,” Porsche Consulting, no. 10, January 2011, www.porscheconsulting.com/pco/en/press/ porscheconsultingmagazine/issue10/; A. Cremar, “Porsche ‘Shock Therapy’ Spurs VW, Lufthansa Efficiency Drive,” Bloomberg Businessweek, December 8, 2010, www.businessweek.com/news/2010-12-08/porsche- shock-therapy-spurs-vw-lufthansa-efficiency-drive.html.