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The Move to Lean: Inventory Management at the Foundation
December 31, 1969 |Estimated reading time: 10 minutes
Managing and maintaining accurate inventory levels is one of the most challenging, yet critical, aspects of an EMS/OEM relationship. Materials make up as much as 90% of an EMS company’s business costs; therefore, effective inventory management is a competitive necessity for survival.
By Ajay Agarwal Figure 1. Material storage on the shop floor prior to the supermarket concept.
Historically, EMS companies stored inventory in large warehouses for as long as three to six months. In this warehouse model, they pay for the inventory - as well as the space to store it - ahead of its use in final products. EMS companies also then have a significant amount of money tied up while the materials sit in a warehouse. The fact is that EMS companies don’t get paid to buy and store materials. They get paid to make products and ship them to OEM customers. Therefore, buying and storing materials in warehouses is a non-value-added activity. Furthermore, under this traditional warehouse model, raw materials are ordered based upon customer forecasts (Figure 1). As any veteran manufacturing professional knows, there are two things true about product demand forecasts: 1.) they always change, and 2.) they are not very accurate. In these ways, a traditional warehouse model creates financial risks up and down the supply chain.
To combat inventory challenges, companies such as Solectron Corporation have been implementing lean manufacturing principles; and are adopting the supermarket-inventory model, based on just-in-time (JIT) and pull-manufacturing concepts. This is a key component of their lean strategies. Solectron’s Guadalajara location is a lean “engine” site, with an effective supermarket model in place.
Supermarket Sets the Stage for Lean
The Guadalajara site’s lean initiative aims to improve quality and productivity, while also improving inventory management processes at the foundation of the supply-chain system. A primary objective behind lean is to identify a win-win situation for OEM customers, suppliers and EMS companies by identifying and eliminating waste or “muda”, which can come from a number of avenues:
- Product/assembly correction;
- Product overproduction;
- Unnecessary product, material or operator motion;
- Waiting due to batch production or large inventories in between subsequent processes or steps;
- Over-processing due to a poor understanding between supply-chain partners on exact order quantities, quality specs and requirements;
- Excess inventory and accumulation of products when they are made ahead of schedule.
Solectron is focused on decreasing and eliminating these wasteful activities when possible to streamline its supply-chain practices and improve the entire manufacturing process. As part of that effort, the company is using the supermarket model to manage inventory more effectively. Under this model, the company orders parts from suppliers based on actual consumption, which drastically reduces the amount of inventory sitting at a warehouse waiting to be processed. Moreover, the site maintains only enough raw material inventories to support line production for one to two days. This new model has enabled the Guadalajara facility to reduce space by 10%, saving $80,000 per month in rent. Line downtime due to part shortages also improved from an average of six hours per week to zero hours per week after establishing the supermarket model.
Figure 2. Water spider shopping for parts in supermarket to be delivered to point-of-use.
At the actual manufacturing plant, materials are supplied to the production line instantly by water spiders, or material handlers. In Japan, where lean manufacturing and the supermarket-inventory model was launched at Toyota, the person who delivers parts is called a “mizusumashi”, or water spider (Figure 2). This person delivers parts from the supermarket to the point-of-use at a set time, and on a fixed delivery route. This streamlined supermarket system requires increased supply-chain partner collaboration, but minimizes work-in-process (WIP) inventory and tracks inventory quantities and locations better. This ensures a more flexible and efficient supply chain where assembling quality products remains the focus.
Changing Business Processes: Visual and Physical Layouts
Before implementing the supermarket model, management teams must evaluate business processes, as well as space configurations and inventory layouts, and make changes to accommodate the lean model. The Guadalajara management team spent several months evaluating its business processes and space configurations, and made numerous changes before the supermarket model was up and running - as it is a vital part of an end-to-end value stream. Before adopting the supermarket model, the team:
- Created manufacturing cells to
- improve product and material flow.
- Used parts consumption on the line to calculate the number of shelves and bins required for material handling in the supermarket and at the points-of-use (Figure 3).
Figure 3. Supermarket side view.
- Designated the supermarket area and sized it to support the estimated work production for each part number.
- Created a standard work sequence for water spiders.
- Established a clear material flow for all work sequences from entry point (receiving), storing, exit point (picking) and delivery routes to the point-of-use with material flow moving in one direction (Figure 4).
Figure 4. Supermarket top view.
- Implemented simple, visual-management controls with part labels displayed at each storage location, and applied to the load-face and pick-face of the row. The labels included part numbers and descriptions, minimum/maximum quantity levels, supermarket addresses, usage location, delivery location and part descriptions.
- Identified shelves and aisles and ensured that racks and storage spaces met ergonomic guidelines. Gravity-assisted, tilted shelves and roller racks were used to allow gravity feed of containers, maintaining a first-in/first-out (FIFO) system, so materials could be fed from the back of the shelf and picked from the front, always being taken and replenished from left to right.
- Arranged to have all materials within reach of the shortest water spiders without the need for ladders or step stools.
- Implemented processes that ensured line operators would not waste time opening boxes to find, sort and count parts before they could use them.
- Stored all parts in the supermarket exactly the same way they would be used on the line by operators.
- Unpacked materials/boxes prior to putting parts in the supermarket to optimize storage space; and ensure space was sized for the type, quantity and readiness of parts at the point-of-use.
- Identified and maintained minimum/maximum quantities via visual controls.
- Documented a written process to handle minimum/maximum quantity exceptions, out-of-stock and overflow.
- Established supermarket rules and metrics to measure effectiveness and identify problems in the supermarket process, allowing for continuous improvement (kaizen).Supermarket in Action
Once business processes are in place, the supermarket model works on three basic premises: inventory orders based on consumption, production lines operating on a pull vs. push system and reduction of buffer stock.
Orders Based on Actual ConsumptionCustomer forecasts change frequently, which is a continuous challenge for the manufacturing supply chain. Today, companies are finding it is more cost-effective and less risky for their supply chains to function on smaller, more frequent shipments. This promotes more accurate ordering based on actual customer consumption figures. It also reduces the amount of inventory sitting in a warehouse drastically, thus removing the risk of large excessive inventories and obsolete parts, keeping only enough inventory on-hand to support production for one to two days. However, it requires close collaboration and good communication among partners in the supply chain, as each must have more visibility into each other’s businesses to ensure the right number of products are ordered, assembled and delivered to meet product demand.
The supermarket model works effectively because of smaller, more frequent shipments and orders. However, given that the lean concept is new to the electronics industry, it still is evolving, which brings challenges. For example, international supply orders currently require longer lead times. For the supermarket model to work its best, more suppliers need to commit to lean. Fortunately, international suppliers are recognizing the benefits of lean and supermarket practices; and Solectron and other companies are working to establish best practices and better options to work with international suppliers to reduce lead times and receive international supply shipments more frequently.
Pull vs. Push on the LineOnce business and ordering processes are established and in-use, inventory is delivered to the shop floor (using the clear-material-flow best practices). On the shop floor, water spiders replenish raw materials to point-of-use on the production line. The water spiders pick and put away materials with real-time supply replenishment (at least every one to two hours on a fixed route). Using the same cart for picking and pulling, water spiders deliver materials to the workstations via predefined quantities, material delivery routes and standard work sequences. This ensures that the manufacturing line has the right amount of inventory at the right time, while reducing the waiting time for parts replenishment to the line bin drastically, and minimizing WIP inventory. As a result, inventory is stocked more frequently, but in smaller quantities.
To promote continuous-flow manufacturing, eliminate functional barriers and improve product-identification times, all materials are stored within reach of the water spider, with clearly identified drop-off zones on the assembly line. Material pick-time metrics are established with a maximum amount of time (often less than five seconds per part number) to ensure there are no product-delivery holds. The water spider delivers products from the back of the cell so the operator can continue to work from the front of the cell. Once dropped on the line, all supplies are within reach of the line operator and available at any time, even on lines where material changeover is transparent to the line operator when changing from Model A to Model B.
Slashing Buffer StockThe key to managing the supermarket model - with its emphasis on eliminating excess inventory - is reducing the buffer stock needed, yet ensuring enough access to inventory to respond to market-demand increases. For example, the Guadalajara facility used to have 48 hours of WIP sitting on the shop floor. Today, it has 12 to 14 hours of shop floor WIP on-hand, with two hours of inventory on-the-line or at point-of-use. After every 12-hour shift, material is replenished in the supermarket, and every hour the water spider takes material from the supermarket to the production line. Solectron Guadalajara also has established a system where the total traveling distance from a supermarket to a line is less than 20 meters per trip. This number previously was more than 288 meters per trip when material was issued from a central warehouse. With this system, the water spider can manage all material delivery, so the line never sees a material shortage and can focus on making the product. These processes allow for improved inventory management and visual control of abnormalities.
The Guadalajara facility has determined that 12 hours of inventory on the shop floor, with one extra hour of inventory at the actual production line, provides the buffer stock it needs to respond to any changes in demand. The hours of inventory on-hand vary depending on the facility and products being manufactured. This is determined based on preliminary analysis and data. With the water spiders’ focus on material delivery and the lines’ focus on assembly, line output increases and product quality improves. In other inventory-replenishment systems, the person working on the line often has to leave the workstation to get materials as needed. In the supermarket model, this streamlined process of picking and putting away ensures that picking materials to the water spider cart is safe, user-friendly and fast. The fact that the line operator can focus on assembly, and that water spiders can focus on supply replenishment, ensures that enough stock is on hand, and overall product quality and productivity improve.
ConclusionWith its implementation of lean, Solectron has the supermarket model operating in a number of its plants. Various local suppliers are working under the pull system to deliver materials directly to the supermarket in small lots, more frequently. The benefit of this model is that the whole supply chain can view consumption in real time and can determine what products and quantities they need to meet customer demands. The supermarket model eliminates large warehouses stocked with inventory, and ensures the supply chain does not waste resources making products without corresponding levels of demand.
With the supermarket inventory model and water spider material-delivery system, each person at Solectron focuses on a specific task. This means that product quality remains the focus. Solectron treats line operators as if they were doctors - with each work station as critical as an operating room. Solectron’s operators should not need to leave their workstations to find and bring parts to the line, leaving their product under production unattended, as this may lead to quality issues.
The adoption of the supermarket model is helping Solectron improve productivity and product quality; and is enabling the company to have better inventory management for an effective and collaborative supply-chain system.
Ajay Agarwal, served as Guadalajara site lean leader, Solectron. For information, contact Dmitry Lipkin at (408) 957-8500; e-mail: dmitrylipkin@solectron.com.