Value-Chain Report -- From Lean Manufacturing To Lean Customization

Dec. 21, 2004
Is your supply chain ready?

While some manufacturers are transitioning to lean production systems -- which emphasize lot sizes of one and are driven by demand-based pull signals -- others are still mired in a "mass-production mindset," says Tim Costello, former manufacturing VP at Applied Materials Inc., Santa Clara, Calif., a manufacturer of equipment for the semiconductor industry. However, leading manufacturers are already embarking on the next evolution -- "from lean manufacturing to lean customization," Costello told executives at the recent annual conference of the Assn. for Manufacturing Excellence in Boston. Lean customization requires the ability to turn out unique, build-to-order products in lots of one -- often by implementing "postponement" strategies that delay the point of final product configuration. Costello, who is now CEO of Builder Homesite Inc. in Austin, Texas, emphasized that lean manufacturing initiatives should seek to link production to demand by eliminating finished goods inventories, abolishing reliance on MRP planning systems, and linking customers to the shop floor. Another key is reduction of "wait" time in the value stream, starting with the collection of data at each step of the process-including office and service-related activities. "You need to model the entire value chain, not just redesign the factory floor," Costello emphasized. Value-stream mapping, he explained, involves measuring the time associated with all activities in the plant and office and calculating the work-to-wait ratio. "You want to try to manage every second of the day." In addition to eliminating wait time (and other wastes) internally, manufacturers who are serious about becoming lean will view the entire value chain as a single production process. "You have to adopt the attitude that your supplier's waste is your waste, and that you own the entire supply chain -- all the way back to raw materials." As a starting point, Costello advised that executives ask themselves who in their company is "responsible for the design and performance" of the value chains they participate in. "Who owns the map? Who tracks it? Whose office do you go to when you want to see every single vendor and carrier in the chain? "In most companies," he lamented, "no one owns it. Nobody feels accountable for the supply-chain system."

Supply-Chain Problems Reduce Stock Price, Study Asserts ByJohn S. McClenahen Just about everyone has assumed that supply glitches have some impact on a company's performance. But now Vinod Singhal, associate professor of operations management at Georgia Institute of Technology, and Kevin Hendricks, associate professor of operations management at the University of Western Ontario, are putting a monetary figure on it. Using 861 public companies as their base, the two professors calculate that once a supply-chain malfunction is announced, stock prices plunge an average of 8.62%, and shareholder wealth decreases by at least $120 million per company. Parts shortages, production problems, and customer-requested changes are among the most common causes of supply-chain problems. But, significantly, the professors contend it makes no difference who or what causes the problem; stock prices still tumble. In their study, stock price fell 8.29% when a company's internal problems caused the glitch; 11.97% when a supplier was at fault; and 8.48% when a customer was the cause. "Even if it's not your fault, you're still going to pay," observes Singhal. John Sheridan is a former senior editor with IndustryWeek. John S. McClenahen is an IndustryWeek senior editor based in Washington, D.C.

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