WEBVTT 00:00:00.000 --> 00:00:02.520 The following content is provided under a Creative 00:00:02.520 --> 00:00:03.970 Commons license. 00:00:03.970 --> 00:00:06.330 Your support will help MIT OpenCourseWare 00:00:06.330 --> 00:00:10.660 continue to offer high quality educational resources for free. 00:00:10.660 --> 00:00:13.320 To make a donation or view additional materials 00:00:13.320 --> 00:00:17.190 from hundreds of MIT courses, visit MIT OpenCourseWare 00:00:17.190 --> 00:00:18.370 at ocw.mit.edu. 00:00:20.797 --> 00:00:22.380 EARLL MURMAN: So let's just take stock 00:00:22.380 --> 00:00:27.360 a little bit on why we're going to do this next module. 00:00:27.360 --> 00:00:30.210 Did you guys have some troubles with supply chain management 00:00:30.210 --> 00:00:32.775 in your factories on this last round of simulation? 00:00:32.775 --> 00:00:33.510 AUDIENCE: We did. 00:00:33.510 --> 00:00:34.440 EARLL MURMAN: We did. 00:00:34.440 --> 00:00:36.150 And how about the suppliers down there? 00:00:36.150 --> 00:00:38.730 Did you have a lot of visibility of what was going on 00:00:38.730 --> 00:00:39.930 with your customers? 00:00:39.930 --> 00:00:41.580 AUDIENCE: For all I know, they're building houses. 00:00:41.580 --> 00:00:42.300 EARLL MURMAN: They're building houses. 00:00:42.300 --> 00:00:43.175 AUDIENCE: [INAUDIBLE] 00:00:43.175 --> 00:00:43.863 [LAUGHTER] 00:00:43.863 --> 00:00:45.030 AUDIENCE: And not very well. 00:00:45.030 --> 00:00:46.947 EARLL MURMAN: And we heard yesterday from Jeff 00:00:46.947 --> 00:00:50.430 at Gorton's, about how critical his supply 00:00:50.430 --> 00:00:52.770 chain was in the transformation of Gorton's 00:00:52.770 --> 00:00:54.450 to a lean enterprise. 00:00:54.450 --> 00:00:57.420 And we heard also, a little bit at Aspect Medical about supply 00:00:57.420 --> 00:00:58.230 chain. 00:00:58.230 --> 00:01:02.760 So supply chain is a really critical area 00:01:02.760 --> 00:01:05.700 of a lean transformation. 00:01:05.700 --> 00:01:09.270 And here's just a quote, that 7% of the companies 00:01:09.270 --> 00:01:11.488 today are effectively managing their supply chain. 00:01:11.488 --> 00:01:13.030 Now, that's a little bit out of date. 00:01:13.030 --> 00:01:13.890 It's 2003. 00:01:13.890 --> 00:01:15.750 But only 7%. 00:01:15.750 --> 00:01:19.350 But they're 73% more profitable than the other manufacturers. 00:01:19.350 --> 00:01:21.810 So who are some of the companies you think about, you might 00:01:21.810 --> 00:01:24.810 think about, that are well-known for good supply chain 00:01:24.810 --> 00:01:25.320 management? 00:01:25.320 --> 00:01:25.950 AUDIENCE: Dell. 00:01:25.950 --> 00:01:26.430 EARLL MURMAN: Dell. 00:01:26.430 --> 00:01:27.210 AUDIENCE: Walmart. 00:01:27.210 --> 00:01:27.870 EARLL MURMAN: Walmart. 00:01:27.870 --> 00:01:28.320 AUDIENCE: UPS. 00:01:28.320 --> 00:01:29.028 AUDIENCE: Toyota. 00:01:29.028 --> 00:01:32.570 EARLL MURMAN: UPS, Toyota, OK, exactly. 00:01:32.570 --> 00:01:36.040 OK, so here's our objectives for this module. 00:01:36.040 --> 00:01:37.415 At the end of this module, you'll 00:01:37.415 --> 00:01:39.500 be able to recognize the importance of suppliers 00:01:39.500 --> 00:01:40.250 in the enterprise. 00:01:40.250 --> 00:01:43.160 I think you probably know that, going into the module. 00:01:43.160 --> 00:01:45.310 We're going to talk about the four key attributes 00:01:45.310 --> 00:01:47.080 of a lean supply chain. 00:01:47.080 --> 00:01:49.660 One of them is aligning the design, the product design, 00:01:49.660 --> 00:01:53.420 or whatever your area is with the supply chain. 00:01:53.420 --> 00:01:55.450 There needs to be an alignment there. 00:01:55.450 --> 00:01:58.360 One is having the suppliers participate in your material 00:01:58.360 --> 00:01:59.320 flow. 00:01:59.320 --> 00:02:00.880 I saw someone for the supplier table 00:02:00.880 --> 00:02:02.650 coming up here, delivering parts. 00:02:02.650 --> 00:02:06.340 That's participation in this material flow; Having them 00:02:06.340 --> 00:02:08.440 actually involved in the design and development 00:02:08.440 --> 00:02:13.850 of your product; and then the information flow. 00:02:13.850 --> 00:02:16.180 And so then, also, most organizations 00:02:16.180 --> 00:02:19.360 have a legacy supply chain that they have to transform. 00:02:19.360 --> 00:02:21.352 Aspect Medical was lucky. 00:02:21.352 --> 00:02:22.060 It was a startup. 00:02:22.060 --> 00:02:23.712 But we heard from Jeff, for example. 00:02:23.712 --> 00:02:24.670 The company's been in-- 00:02:24.670 --> 00:02:26.830 Jeff, 1889? 00:02:26.830 --> 00:02:27.770 AUDIENCE: 1849. 00:02:27.770 --> 00:02:29.020 EARLL MURMAN: 1849-- 00:02:29.020 --> 00:02:33.830 OK, they had a legacy supply chain they had to deal with. 00:02:33.830 --> 00:02:36.890 This picture diagrammatically shows 00:02:36.890 --> 00:02:39.985 how suppliers interact with both the product development 00:02:39.985 --> 00:02:40.830 and production. 00:02:40.830 --> 00:02:45.060 So remember, the customer is the one that specifies the value. 00:02:45.060 --> 00:02:47.155 And then the role of product development, 00:02:47.155 --> 00:02:48.530 or engineering, which Annalisa is 00:02:48.530 --> 00:02:50.420 going to talk about this afternoon, 00:02:50.420 --> 00:02:53.480 is really to develop a design which, when produced, 00:02:53.480 --> 00:02:55.760 meets those customer expectations. 00:02:55.760 --> 00:02:57.090 OK? 00:02:57.090 --> 00:02:59.760 And one of the things that happens in a lean supply chain 00:02:59.760 --> 00:03:02.183 is to get those suppliers involved early, 00:03:02.183 --> 00:03:03.600 not think of them as something you 00:03:03.600 --> 00:03:05.560 add on at the end of your design, 00:03:05.560 --> 00:03:08.280 but to get them working with you during the design. 00:03:08.280 --> 00:03:11.520 And in the aerospace area, typically, 60% to 80% 00:03:11.520 --> 00:03:14.130 of the product value, that is, the dollar 00:03:14.130 --> 00:03:16.650 value of the product, is outsourced to the suppliers. 00:03:16.650 --> 00:03:18.900 And now, we saw that yesterday at Aspect Medical. 00:03:18.900 --> 00:03:21.480 They didn't give us the numbers, I don't believe, 00:03:21.480 --> 00:03:23.490 but they don't make anything. 00:03:23.490 --> 00:03:25.110 They assemble things. 00:03:25.110 --> 00:03:26.220 OK? 00:03:26.220 --> 00:03:29.160 John Coolidge said that they're a final assembler. 00:03:29.160 --> 00:03:31.410 So a lot of the value of that product, 00:03:31.410 --> 00:03:32.690 they buy from suppliers. 00:03:32.690 --> 00:03:36.200 So suppliers are absolutely critical to their success. 00:03:36.200 --> 00:03:38.173 Then, when it gets to production-- 00:03:38.173 --> 00:03:39.590 and Annalisa is going to talk more 00:03:39.590 --> 00:03:42.590 about the interaction of product development and production, 00:03:42.590 --> 00:03:44.630 where the value is created and delivered back 00:03:44.630 --> 00:03:46.820 to the customers-- you want to have your suppliers 00:03:46.820 --> 00:03:48.068 as partners. 00:03:48.068 --> 00:03:49.610 So you have to think of the suppliers 00:03:49.610 --> 00:03:51.260 as part of your enterprise. 00:03:51.260 --> 00:03:54.350 And we call that the extended enterprise. 00:03:54.350 --> 00:03:57.050 So today, you want to think about those guys 00:03:57.050 --> 00:03:59.480 at the back table as part of your enterprise. 00:03:59.480 --> 00:04:02.300 They're not somebody you just send orders to and get parts 00:04:02.300 --> 00:04:03.860 from. 00:04:03.860 --> 00:04:05.820 OK, now what does a supply chain look like? 00:04:05.820 --> 00:04:08.390 Well, here is a generic picture, starting 00:04:08.390 --> 00:04:12.890 with the end user, customer, the prime, all the way 00:04:12.890 --> 00:04:14.570 down to some raw material supplier. 00:04:14.570 --> 00:04:16.445 And usually, these are in tiers-- first tier, 00:04:16.445 --> 00:04:19.130 second tier, and third tier suppliers. 00:04:19.130 --> 00:04:21.860 And as you move down the supply chain, 00:04:21.860 --> 00:04:23.900 each tier represents a smaller proportion 00:04:23.900 --> 00:04:24.800 of the mean business. 00:04:24.800 --> 00:04:26.190 But they're very critical. 00:04:26.190 --> 00:04:27.310 So let's just get a little example. 00:04:27.310 --> 00:04:29.643 We have an interesting group here, a very diverse group. 00:04:29.643 --> 00:04:31.340 So let me call on some people. 00:04:31.340 --> 00:04:33.410 And tell us a little bit about where 00:04:33.410 --> 00:04:36.720 you fit in in your supply chain and how far up and down you 00:04:36.720 --> 00:04:37.220 can see. 00:04:37.220 --> 00:04:40.410 So Tam, you're with Intel. 00:04:40.410 --> 00:04:45.560 OK, where in Intel do you fit in this? 00:04:45.560 --> 00:04:50.308 Are you a prime, or are you a supplier to a prime? 00:04:50.308 --> 00:04:51.710 AUDIENCE: I'm not really sure. 00:04:51.710 --> 00:04:54.080 I worked at [INAUDIBLE]. 00:04:54.080 --> 00:04:59.480 So I would say I [INAUDIBLE] the facility that's prior to 00:04:59.480 --> 00:05:02.110 and lean part of [INAUDIBLE]. 00:05:02.110 --> 00:05:06.252 EARLL MURMAN: OK, so a couple of things here-- first of all, Tam 00:05:06.252 --> 00:05:07.960 is in product development, and he doesn't 00:05:07.960 --> 00:05:09.220 know what his supply chain is. 00:05:09.220 --> 00:05:10.100 Right? 00:05:10.100 --> 00:05:10.930 OK? 00:05:10.930 --> 00:05:12.970 Is that what I hear? 00:05:12.970 --> 00:05:13.990 Who's your end customer? 00:05:13.990 --> 00:05:16.270 Do you know? 00:05:16.270 --> 00:05:17.920 AUDIENCE: [INAUDIBLE] 00:05:17.920 --> 00:05:20.410 EARLL MURMAN: OK, so that's not the end customer. 00:05:20.410 --> 00:05:23.880 But you have a manufacturing-- that's your customer, 00:05:23.880 --> 00:05:25.630 is the manufacturing facility. 00:05:25.630 --> 00:05:27.730 And what are they making? 00:05:27.730 --> 00:05:28.813 AUDIENCE: Powder products. 00:05:28.813 --> 00:05:29.855 EARLL MURMAN: A product-- 00:05:29.855 --> 00:05:30.940 AUDIENCE: Or end products. 00:05:30.940 --> 00:05:32.565 EARLL MURMAN: And are they then selling 00:05:32.565 --> 00:05:34.996 that to Hewlett-Packard, or somebody? 00:05:34.996 --> 00:05:37.030 AUDIENCE: [INAUDIBLE] 00:05:38.662 --> 00:05:39.370 EARLL MURMAN: OK. 00:05:39.370 --> 00:05:42.640 And so they go to some customer from Intel. 00:05:42.640 --> 00:05:47.153 And then eventually, some end user, like Donna? 00:05:47.153 --> 00:05:47.997 AUDIENCE: Lynn. 00:05:47.997 --> 00:05:48.830 EARLL MURMAN: Sorry. 00:05:48.830 --> 00:05:50.690 Lynn-- she's using her computer. 00:05:50.690 --> 00:05:51.590 She's the end user. 00:05:51.590 --> 00:05:52.427 AUDIENCE: Yes. 00:05:52.427 --> 00:05:54.260 EARLL MURMAN: OK, so let's pick a different. 00:05:54.260 --> 00:05:57.038 Luis-- Luis, you're with the US Air Force. 00:05:57.038 --> 00:05:57.830 AUDIENCE: Yes, sir. 00:05:57.830 --> 00:05:58.760 EARLL MURMAN: OK. 00:05:58.760 --> 00:06:02.810 Now where are you in this supply chain here? 00:06:02.810 --> 00:06:07.010 AUDIENCE: Well, we're a developer. 00:06:07.010 --> 00:06:10.573 So we would be a customer. 00:06:10.573 --> 00:06:11.990 EARLL MURMAN: You'd be a customer. 00:06:11.990 --> 00:06:12.490 OK. 00:06:12.490 --> 00:06:15.560 And who might be the end user of what you develop? 00:06:15.560 --> 00:06:17.485 AUDIENCE: The Space Wing, the 45th Space Wing. 00:06:17.485 --> 00:06:18.860 EARLL MURMAN: Oh, the Space Wing. 00:06:18.860 --> 00:06:20.300 AUDIENCE: The 45th Space Wing. 00:06:20.300 --> 00:06:21.120 EARLL MURMAN: OK, Space Wing. 00:06:21.120 --> 00:06:21.800 OK. 00:06:21.800 --> 00:06:25.850 And sitting where you sit as a customer, how far 00:06:25.850 --> 00:06:30.220 down the supply chain do you interact with people? 00:06:30.220 --> 00:06:34.540 AUDIENCE: Not very far down, because we have a contractor 00:06:34.540 --> 00:06:36.100 that does all that for us. 00:06:36.100 --> 00:06:38.620 EARLL MURMAN: OK, so your contractor's is 00:06:38.620 --> 00:06:40.570 Lockheed or Northrop Grumman? 00:06:40.570 --> 00:06:41.450 AUDIENCE: [INAUDIBLE] 00:06:41.450 --> 00:06:43.783 EARLL MURMAN: OK, so you interact with a contractor, who 00:06:43.783 --> 00:06:45.080 interacts with the suppliers. 00:06:45.080 --> 00:06:45.890 OK. 00:06:45.890 --> 00:06:47.917 Now Carlos, you're with Cargo? 00:06:47.917 --> 00:06:48.500 AUDIENCE: Yes. 00:06:48.500 --> 00:06:50.827 EARLL MURMAN: OK, and in Mexico, right? 00:06:50.827 --> 00:06:51.410 AUDIENCE: Yes. 00:06:51.410 --> 00:06:56.137 EARLL MURMAN: OK, so do you do food products? 00:06:56.137 --> 00:06:56.720 AUDIENCE: Yes. 00:06:56.720 --> 00:06:59.550 EARLL MURMAN: OK, so where would you be in this supply chain? 00:07:02.203 --> 00:07:04.370 AUDIENCE: [INAUDIBLE] are on the prime manufacturers 00:07:04.370 --> 00:07:04.750 [INAUDIBLE]. 00:07:04.750 --> 00:07:06.333 EARLL MURMAN: OK, so you're the prime. 00:07:06.333 --> 00:07:07.940 And who might be your customers? 00:07:11.320 --> 00:07:12.415 AUDIENCE: [INAUDIBLE] 00:07:12.415 --> 00:07:12.830 EARLL MURMAN: Huh? 00:07:12.830 --> 00:07:13.750 AUDIENCE: [INAUDIBLE] 00:07:13.750 --> 00:07:14.770 EARLL MURMAN: OK. 00:07:14.770 --> 00:07:17.050 And then, how far down the supply chain 00:07:17.050 --> 00:07:18.300 do you [INAUDIBLE]? 00:07:18.300 --> 00:07:20.300 AUDIENCE: We're the last, the last [INAUDIBLE].. 00:07:20.300 --> 00:07:20.900 EARLL MURMAN: You see all the way 00:07:20.900 --> 00:07:22.358 down the supply chain [INAUDIBLE].. 00:07:22.358 --> 00:07:23.930 AUDIENCE: [INAUDIBLE] 00:07:23.930 --> 00:07:25.490 EARLL MURMAN: OK, I'd like to call one more group here. 00:07:25.490 --> 00:07:26.510 And I don't know much about it at all, 00:07:26.510 --> 00:07:28.260 someone from the Veteran's Administration. 00:07:28.260 --> 00:07:30.923 So Doug? 00:07:30.923 --> 00:07:33.340 Yeah, you're working with health care and stuff like that. 00:07:33.340 --> 00:07:35.260 AUDIENCE: Yes, I'm basically at the end user. 00:07:35.260 --> 00:07:36.095 EARLL MURMAN: OK. 00:07:36.095 --> 00:07:37.720 AUDIENCE: I work in the lab department. 00:07:37.720 --> 00:07:38.595 EARLL MURMAN: Oh, OK. 00:07:38.595 --> 00:07:41.830 AUDIENCE: So I'm actually a customer. 00:07:41.830 --> 00:07:45.460 And I provide results to the physicians. 00:07:45.460 --> 00:07:51.320 And I interact with the [INAUDIBLE].. 00:07:51.320 --> 00:07:52.700 EARLL MURMAN: OK, cool. 00:07:52.700 --> 00:07:53.300 OK. 00:07:53.300 --> 00:07:56.810 So you can see that these are just different examples 00:07:56.810 --> 00:07:57.530 of supply chain. 00:07:57.530 --> 00:08:00.740 Now, one of the things that comes out 00:08:00.740 --> 00:08:02.660 a little bit in this little exercise 00:08:02.660 --> 00:08:04.850 we did, but is really a very true thing, 00:08:04.850 --> 00:08:08.300 is that most people in a non-lean supply chain 00:08:08.300 --> 00:08:12.070 don't have much visibility up or downstream in that supply 00:08:12.070 --> 00:08:12.570 chain. 00:08:12.570 --> 00:08:15.170 And so what they get is what we call-- they 00:08:15.170 --> 00:08:17.220 get the orders over the wall. 00:08:17.220 --> 00:08:19.652 So you might give an order for reagents, 00:08:19.652 --> 00:08:21.110 and they don't even know it's going 00:08:21.110 --> 00:08:23.235 to come until, all of a sudden, it arrives, if it's 00:08:23.235 --> 00:08:25.170 a non-lean supply chain. 00:08:25.170 --> 00:08:27.543 So there's a lack of visibility. 00:08:27.543 --> 00:08:29.960 If you're in the supply chain, there's not much visibility 00:08:29.960 --> 00:08:31.820 upstream or downstream, what's happening, 00:08:31.820 --> 00:08:34.580 until all of a sudden, you get something, a request, 00:08:34.580 --> 00:08:35.783 and you have to react to it. 00:08:35.783 --> 00:08:38.450 And that's kind of what you have at the back of the table there. 00:08:38.450 --> 00:08:42.350 You don't have much visibility of what's happening up here. 00:08:42.350 --> 00:08:46.790 And so that means you're in a very response mode. 00:08:46.790 --> 00:08:47.690 OK. 00:08:47.690 --> 00:08:51.720 So now let's do a little exercise. 00:08:51.720 --> 00:08:55.620 Here are some attributes of supply chains. 00:08:55.620 --> 00:08:59.430 And what we want you to do is gather around your easel charts 00:08:59.430 --> 00:09:02.320 and discuss these a little bit. 00:09:02.320 --> 00:09:05.145 And write down, which of these attributes 00:09:05.145 --> 00:09:08.535 do you identify with what you might think as a lean supply 00:09:08.535 --> 00:09:11.460 chain, realizing we haven't really covered that topic yet? 00:09:11.460 --> 00:09:14.310 But this is part of how we're going to go about it. 00:09:14.310 --> 00:09:16.080 And talk a little bit about what you think 00:09:16.080 --> 00:09:20.110 might be the top three priorities for a lean supply 00:09:20.110 --> 00:09:20.610 chain. 00:09:20.610 --> 00:09:22.350 So let's just say, for example, you 00:09:22.350 --> 00:09:25.950 picked all these as representing a lean supply chain and not 00:09:25.950 --> 00:09:26.760 those. 00:09:26.760 --> 00:09:29.430 Which of these are the three most important, 00:09:29.430 --> 00:09:31.810 do you think, to have a lean supply chain? 00:09:31.810 --> 00:09:34.950 So let's spend about 10 minutes doing that, 00:09:34.950 --> 00:09:36.090 around your easel charts. 00:09:36.090 --> 00:09:38.880 And then we're going to see what we collectively come up with, 00:09:38.880 --> 00:09:39.940 a lean supply chain. 00:09:39.940 --> 00:09:40.440 OK? 00:09:40.440 --> 00:09:42.165 AUDIENCE: Should we invite our suppliers now? 00:09:42.165 --> 00:09:43.590 EARLL MURMAN: Yeah, you can invite your suppliers 00:09:43.590 --> 00:09:44.070 if you'd like. 00:09:44.070 --> 00:09:44.570 Sure. 00:09:44.570 --> 00:09:47.160 [LAUGHTER] 00:09:47.160 --> 00:09:50.760 That sounds like a good practice. 00:09:50.760 --> 00:09:52.280 OK. 00:09:52.280 --> 00:09:54.770 So let's see. 00:09:54.770 --> 00:09:58.310 Let me call on the table up here, 00:09:58.310 --> 00:10:01.490 table in the northeast corner, northwest 00:10:01.490 --> 00:10:02.780 corner of the building. 00:10:02.780 --> 00:10:06.050 What are your top characteristics 00:10:06.050 --> 00:10:07.280 of a lean supply chain? 00:10:07.280 --> 00:10:09.080 And why did you pick them? 00:10:09.080 --> 00:10:10.763 Someone want to give us that briefing? 00:10:10.763 --> 00:10:11.930 AUDIENCE: Well, [INAUDIBLE]. 00:10:11.930 --> 00:10:12.870 AUDIENCE: [INAUDIBLE] 00:10:12.870 --> 00:10:14.245 AUDIENCE: The first one we picked 00:10:14.245 --> 00:10:15.335 was responsive and agile. 00:10:17.880 --> 00:10:20.790 We need our supplier to give us what we need, when we need, 00:10:20.790 --> 00:10:22.300 and in a timely manner, so that we 00:10:22.300 --> 00:10:26.440 can make those [INAUDIBLE] quota enterprise approach, 00:10:26.440 --> 00:10:27.450 so the end to end. 00:10:27.450 --> 00:10:30.200 So just knowing what the other processes means we 00:10:30.200 --> 00:10:33.940 don't end up with national [INAUDIBLE].. 00:10:33.940 --> 00:10:37.200 And then we had [INAUDIBLE] with collaboration and continuous 00:10:37.200 --> 00:10:39.930 [INAUDIBLE] activities with the supplier customers-- again, 00:10:39.930 --> 00:10:42.480 just partnering with our suppliers 00:10:42.480 --> 00:10:45.498 and not just [INAUDIBLE]. 00:10:45.498 --> 00:10:46.290 EARLL MURMAN: Good. 00:10:46.290 --> 00:10:47.690 OK. 00:10:47.690 --> 00:10:49.660 Good choices, good choice and good priorities. 00:10:49.660 --> 00:10:52.800 How about back here? 00:10:52.800 --> 00:10:55.177 AUDIENCE: We did collaboration and supplier commitment 00:10:55.177 --> 00:10:57.510 with long-term relationship, which probably go together. 00:10:57.510 --> 00:10:58.770 Because if you're going to have a long-term relationship, 00:10:58.770 --> 00:11:00.240 you're going to work together. 00:11:00.240 --> 00:11:01.448 EARLL MURMAN: Good rationale. 00:11:01.448 --> 00:11:04.080 AUDIENCE: Visibility of demand, so you can see what's coming; 00:11:04.080 --> 00:11:05.407 and just continually improving. 00:11:05.407 --> 00:11:06.990 EARLL MURMAN: Continuous improvement-- 00:11:06.990 --> 00:11:08.045 OK, good. 00:11:08.045 --> 00:11:10.670 And you had some others up there that you put a lower priority. 00:11:10.670 --> 00:11:12.378 AUDIENCE: I mean, the enterprise approach 00:11:12.378 --> 00:11:14.970 made sense, of looking at the whole envelope. 00:11:14.970 --> 00:11:20.220 And build to order, so that your activities 00:11:20.220 --> 00:11:23.670 are driven by the customer requests and the responses. 00:11:23.670 --> 00:11:25.930 EARLL MURMAN: OK, good. 00:11:25.930 --> 00:11:27.720 OK, let's take one more. 00:11:27.720 --> 00:11:30.730 And then how about up here with all the colored dots. 00:11:30.730 --> 00:11:32.910 It looks to me like you did the multi-voting. 00:11:32.910 --> 00:11:33.882 That's good. 00:11:33.882 --> 00:11:35.850 [LAUGHTER] 00:11:35.850 --> 00:11:39.520 Someone want to tell us about that? 00:11:39.520 --> 00:11:41.130 AUDIENCE: Yeah, we [INAUDIBLE]. 00:11:41.130 --> 00:11:44.040 We say that this customer is just good. 00:11:44.040 --> 00:11:47.918 When we came to the queue that [INAUDIBLE] continuous grouping 00:11:47.918 --> 00:11:52.370 was [INAUDIBLE]. 00:11:52.370 --> 00:11:56.050 Together, it's collaboration and the holistic enterprise 00:11:56.050 --> 00:11:56.550 approach. 00:11:56.550 --> 00:12:00.620 EARLL MURMAN: OK, so we're seeing some commonality here. 00:12:00.620 --> 00:12:02.370 Let's see, let me just look at the others. 00:12:02.370 --> 00:12:08.470 I see the same things on the remaining ones here. 00:12:08.470 --> 00:12:12.410 OK, so I think you guys got pretty much-- 00:12:12.410 --> 00:12:12.910 very good. 00:12:12.910 --> 00:12:15.820 You're already beginning to identify what a lean supply 00:12:15.820 --> 00:12:18.473 chain is, before you even have heard about it, so to speak, 00:12:18.473 --> 00:12:20.390 which is part of the purpose of this exercise. 00:12:20.390 --> 00:12:22.682 Another thing we see is the priorities are a little bit 00:12:22.682 --> 00:12:23.740 different between tables. 00:12:23.740 --> 00:12:27.420 And this reflects what happens in the real world, 00:12:27.420 --> 00:12:33.110 is that different organizations might have different priorities 00:12:33.110 --> 00:12:35.610 as to what they think is most important in a particular time 00:12:35.610 --> 00:12:37.788 with their supply chain, for whatever reason 00:12:37.788 --> 00:12:38.830 you picked at your table. 00:12:38.830 --> 00:12:40.715 But maybe they're having difficulty 00:12:40.715 --> 00:12:42.090 with collaboration, or something, 00:12:42.090 --> 00:12:44.040 so collaboration is going to be more important 00:12:44.040 --> 00:12:45.415 right now in getting their supply 00:12:45.415 --> 00:12:47.400 chain lean than something else. 00:12:47.400 --> 00:12:50.182 The only thing I would add-- that the build to order, 00:12:50.182 --> 00:12:52.140 I understand why you put it there as a response 00:12:52.140 --> 00:12:53.280 to the customer. 00:12:53.280 --> 00:12:56.520 But that's actually a way of describing a non-lean supply 00:12:56.520 --> 00:12:58.380 chain, where you ship orders, and they 00:12:58.380 --> 00:13:00.120 send you back materials. 00:13:00.120 --> 00:13:02.100 But you don't really engage them at all 00:13:02.100 --> 00:13:04.583 in the design of the product. 00:13:04.583 --> 00:13:06.750 You just send them an order, and they send it back-- 00:13:06.750 --> 00:13:10.260 kind of send me the blueprint and send me back the parts, 00:13:10.260 --> 00:13:12.850 and let's negotiate on price, type of thing. 00:13:12.850 --> 00:13:16.710 So the ones that are identified here as a lean supply chain are 00:13:16.710 --> 00:13:20.550 collaboration-- you got that; responsive and agile-- 00:13:20.550 --> 00:13:23.115 you got that; based on product characteristics-- 00:13:23.115 --> 00:13:24.990 I don't think we had anybody come up on that, 00:13:24.990 --> 00:13:27.780 but we're going to talk about that in a minute; 00:13:27.780 --> 00:13:30.270 enterprise approach; a commitment 00:13:30.270 --> 00:13:34.120 to a long-term relationship; a visibility of demand, 00:13:34.120 --> 00:13:36.720 which was getting over that brick wall barrier; 00:13:36.720 --> 00:13:38.800 and the continuous improvement. 00:13:38.800 --> 00:13:40.615 So we're on the same page. 00:13:40.615 --> 00:13:43.240 OK, so let's move on now to the second main learning objective. 00:13:43.240 --> 00:13:45.650 So you can now recognize the attributes of a lean supply 00:13:45.650 --> 00:13:46.150 chain-- 00:13:48.790 --> 00:13:50.230 I mean, the main attributes. 00:13:50.230 --> 00:13:53.450 Here are the four we're going to talk about. 00:13:53.450 --> 00:13:56.290 And the first one is alignment with the product 00:13:56.290 --> 00:13:57.860 characteristics. 00:13:57.860 --> 00:14:00.160 And this may be a little bit theoretical, 00:14:00.160 --> 00:14:03.890 but you can think of it, in theory, 00:14:03.890 --> 00:14:05.120 of two ends of the extremes. 00:14:05.120 --> 00:14:09.880 One is you have a push system, where somebody builds 00:14:09.880 --> 00:14:12.546 parts and sends them to you. 00:14:16.210 --> 00:14:19.168 They build their parts, thinking about some demand that 00:14:19.168 --> 00:14:19.960 might be out there. 00:14:19.960 --> 00:14:21.970 And then they're ready to send them 00:14:21.970 --> 00:14:23.770 when somebody makes an order. 00:14:23.770 --> 00:14:25.970 And the other extreme would be a pull supply chain, 00:14:25.970 --> 00:14:28.053 where they don't build anything until you ask them 00:14:28.053 --> 00:14:33.970 for that, in some way respond to the customer demand. 00:14:33.970 --> 00:14:36.010 And in some sense, supply chains are 00:14:36.010 --> 00:14:37.810 a combination of push and pull. 00:14:37.810 --> 00:14:41.560 These are theoretical concepts at the end of a spectrum. 00:14:41.560 --> 00:14:48.400 But a push supply chain might be most prevalent in a commodity 00:14:48.400 --> 00:14:54.040 area, where you're maybe still in the economies of scale 00:14:54.040 --> 00:14:54.820 mentality. 00:14:54.820 --> 00:14:57.198 Let's build as many as we can and ship 00:14:57.198 --> 00:14:58.240 to the demand that comes. 00:14:58.240 --> 00:15:02.330 In a mature environment, that probably works pretty well. 00:15:02.330 --> 00:15:03.190 OK. 00:15:03.190 --> 00:15:07.960 So paperclips-- we're going to use some paper clips tomorrow 00:15:07.960 --> 00:15:09.130 on one of the exercises. 00:15:09.130 --> 00:15:11.368 People making paper clips-- 00:15:11.368 --> 00:15:13.660 they kind of know about what the demand is going to be. 00:15:13.660 --> 00:15:15.702 It doesn't change that rapidly, so they can maybe 00:15:15.702 --> 00:15:17.710 do a push supply chain type thing. 00:15:17.710 --> 00:15:21.010 Where a pull supply chain, you have some specialized part, 00:15:21.010 --> 00:15:22.780 at the other extreme. 00:15:22.780 --> 00:15:25.270 We're going to show you, in a little bit, an example 00:15:25.270 --> 00:15:28.720 from Lockheed Martin, where one ship set a year of tubes 00:15:28.720 --> 00:15:31.342 for an Atlas V rocket, they don't 00:15:31.342 --> 00:15:32.800 want to make those tubes until they 00:15:32.800 --> 00:15:35.950 know that the rocket's about ready to be re-sent. 00:15:35.950 --> 00:15:38.740 So the point is that your product may be made up 00:15:38.740 --> 00:15:39.820 of different components. 00:15:39.820 --> 00:15:42.250 And the supply chains that go with those 00:15:42.250 --> 00:15:44.710 may be managed somewhat differently. 00:15:44.710 --> 00:15:46.160 One size doesn't fit all. 00:15:46.160 --> 00:15:48.660 So that's what it means to align your product-- 00:15:48.660 --> 00:15:52.370 your supply chain with the product characteristics. 00:15:52.370 --> 00:15:57.950 OK, supplier participation in material flow and logistics-- 00:15:57.950 --> 00:16:00.260 just-in-time deliveries-- I think everybody's 00:16:00.260 --> 00:16:02.760 pretty much familiar with that, that that's really 00:16:02.760 --> 00:16:05.702 an output of the Toyota production system and all. 00:16:05.702 --> 00:16:07.160 And of course, the crucial thing is 00:16:07.160 --> 00:16:08.952 that the parts have to show up when needed, 00:16:08.952 --> 00:16:12.800 because just-in-time parts go right to the assembly line. 00:16:12.800 --> 00:16:15.750 And so if they don't show up when needed, 00:16:15.750 --> 00:16:17.690 then everything else gets impacted. 00:16:17.690 --> 00:16:20.330 On the other hand, the advantage is there's no inventory. 00:16:22.980 --> 00:16:26.780 And if there are any issues that come up on quality type things, 00:16:26.780 --> 00:16:28.340 you can correct them right away. 00:16:28.340 --> 00:16:33.947 OK, so just-in-time deliveries; kitting for point-of-use-- 00:16:33.947 --> 00:16:35.780 we talked about that a little bit yesterday. 00:16:35.780 --> 00:16:39.660 And let's put that off, because the next example shows that. 00:16:39.660 --> 00:16:43.220 Vendor-managed inventory-- this is where the inventory, instead 00:16:43.220 --> 00:16:49.700 of being owned by the customer, is taken care of by the vendor. 00:16:49.700 --> 00:16:52.301 Let me give you an example of that. 00:16:52.301 --> 00:16:57.710 So JDAM is a Joint Direct Attack Munition. 00:16:57.710 --> 00:16:59.420 We have a picture of it coming up later. 00:16:59.420 --> 00:17:01.640 It's made in East St. Louis. 00:17:01.640 --> 00:17:05.980 And one of the parts for that is made in California. 00:17:05.980 --> 00:17:07.733 I think it's a tail cone, or something. 00:17:07.733 --> 00:17:09.150 And when I went through this plant 00:17:09.150 --> 00:17:11.520 in East St. Louis, Missouri, there's 00:17:11.520 --> 00:17:15.030 a video camera on the ceiling in the loading 00:17:15.030 --> 00:17:17.200 dock, where they receive parts. 00:17:17.200 --> 00:17:18.930 So what's that video camera for? 00:17:18.930 --> 00:17:21.329 Well, the supplier in California is 00:17:21.329 --> 00:17:25.020 looking at what the inventory is there in East St. Louis 00:17:25.020 --> 00:17:27.180 and seeing when it's time for them to ship more. 00:17:27.180 --> 00:17:32.520 So they're managing the inventory of that product. 00:17:32.520 --> 00:17:34.740 And third party logistics-- this is, instead 00:17:34.740 --> 00:17:38.860 of that organization shipping, or the receiving organization 00:17:38.860 --> 00:17:41.400 shipping, they delegate that to FedEx. 00:17:41.400 --> 00:17:43.890 And FedEx, they hire FedEx to handle all the shipping. 00:17:43.890 --> 00:17:48.850 And so UPS and FedEx and those big companies, like Atlas Air-- 00:17:48.850 --> 00:17:51.062 do you guys do that? 00:17:51.062 --> 00:17:55.185 AUDIENCE: [INAUDIBLE] we have [INAUDIBLE].. 00:17:55.185 --> 00:17:56.852 EARLL MURMAN: Pull their elements, yeah. 00:17:56.852 --> 00:18:06.167 So there's a big business in these third-party logistics. 00:18:06.167 --> 00:18:07.500 So let's look at an example now. 00:18:07.500 --> 00:18:09.292 And think about these on this next example, 00:18:09.292 --> 00:18:11.220 and how many of them do we see? 00:18:11.220 --> 00:18:14.670 OK, so this is the Atlas V. The Atlas V is a large launch 00:18:14.670 --> 00:18:16.230 vehicle. 00:18:16.230 --> 00:18:19.000 The Atlas V and the Delta IV are the largest launch vehicles. 00:18:19.000 --> 00:18:20.710 These are big rockets. 00:18:20.710 --> 00:18:21.900 OK? 00:18:21.900 --> 00:18:24.360 And they receive tubes, when they 00:18:24.360 --> 00:18:28.920 have to put together a rocket, and what they call a ship set. 00:18:28.920 --> 00:18:31.920 They call that a ship set. 00:18:31.920 --> 00:18:36.590 And a ship set of tubes cost $180,000. 00:18:36.590 --> 00:18:38.630 And now, how do they come? 00:18:38.630 --> 00:18:42.230 Well, in the old way, they came as separate parts. 00:18:42.230 --> 00:18:45.950 A ship set has 199 parts in it. 00:18:45.950 --> 00:18:48.410 And they came all in their own packing boxes, 00:18:48.410 --> 00:18:51.380 separately, wrapped up in foam, and stuff. 00:18:51.380 --> 00:18:54.518 And you've got all this waste and lots of stuff coming in. 00:18:54.518 --> 00:18:55.310 That's the old way. 00:18:55.310 --> 00:18:58.930 The new way is they come in this kit. 00:18:58.930 --> 00:19:03.613 And everything, all 199 parts, with these five major tubes-- 00:19:03.613 --> 00:19:05.030 they have the connectors and all-- 00:19:05.030 --> 00:19:06.290 come as a kit. 00:19:06.290 --> 00:19:08.660 And they not only come with the hardware, 00:19:08.660 --> 00:19:10.265 but the tools to assemble them. 00:19:10.265 --> 00:19:12.140 And usually, the instructions that go with it 00:19:12.140 --> 00:19:13.408 are right with that. 00:19:13.408 --> 00:19:15.950 So there were some [INAUDIBLE] cards yesterday about kitting. 00:19:15.950 --> 00:19:17.370 And this is what kitting is about. 00:19:17.370 --> 00:19:18.290 OK? 00:19:18.290 --> 00:19:26.080 And now, they make about one or two of these rockets a year, 00:19:26.080 --> 00:19:27.740 or a small number. 00:19:27.740 --> 00:19:29.885 So they keep their suppliers informed when 00:19:29.885 --> 00:19:31.010 they're going to need that. 00:19:31.010 --> 00:19:34.490 And all this is managed as one. 00:19:34.490 --> 00:19:37.160 So they don't ship these until-- 00:19:37.160 --> 00:19:38.240 this is a pull system. 00:19:38.240 --> 00:19:39.797 They don't ship it until they know 00:19:39.797 --> 00:19:42.380 that they're going to need it, because it's an expensive thing 00:19:42.380 --> 00:19:44.030 to have in inventory. 00:19:44.030 --> 00:19:54.930 And all this 199 parts is one record in their MRP system. 00:19:54.930 --> 00:19:58.350 instead of 199 different parts they're checking, following, 00:19:58.350 --> 00:20:00.540 they follow one-- 00:20:00.540 --> 00:20:05.940 so the great reduction in costs, handling costs, and carrying 00:20:05.940 --> 00:20:07.530 costs in cycle time. 00:20:07.530 --> 00:20:09.780 So some of those things we saw on the previous slide-- 00:20:09.780 --> 00:20:14.610 kitting, vendor-managed inventory, pull system, 00:20:14.610 --> 00:20:18.700 you see in situations like this. 00:20:18.700 --> 00:20:20.827 OK, let's now turn to supplier involvement 00:20:20.827 --> 00:20:21.910 in design and development. 00:20:21.910 --> 00:20:24.327 And oh, by the way, this is a little bit of a segue slide, 00:20:24.327 --> 00:20:27.460 because this is this JDAM munition I mentioned before. 00:20:27.460 --> 00:20:33.340 And the JDAM part is it's a retrofitted tailcone 00:20:33.340 --> 00:20:36.520 on a otherwise dumb bomb. 00:20:36.520 --> 00:20:37.960 And it turns into a smart bomb. 00:20:37.960 --> 00:20:42.530 It has a receiver in it and GPS system, and so on. 00:20:42.530 --> 00:20:44.440 And all of this, by the way, comes in a kit. 00:20:44.440 --> 00:20:45.650 Here's what it looks like. 00:20:45.650 --> 00:20:46.697 OK? 00:20:46.697 --> 00:20:47.530 So that's a kitting. 00:20:47.530 --> 00:20:53.230 But more importantly, here, when the JDAM was developed, 00:20:53.230 --> 00:20:54.880 it was done very uniquely. 00:20:54.880 --> 00:20:58.090 This is an Air Force procurement. 00:20:58.090 --> 00:21:00.790 And when they formed the proposal team 00:21:00.790 --> 00:21:02.980 to bid on it, a competitor proposal team, 00:21:02.980 --> 00:21:04.760 they had McDonnell Douglas, at that time, 00:21:04.760 --> 00:21:06.640 and Lockheed bidding. 00:21:06.640 --> 00:21:11.140 That proposal team actually had the key suppliers on it. 00:21:11.140 --> 00:21:14.080 And it also had an Air Force representative 00:21:14.080 --> 00:21:15.220 on the proposal team. 00:21:15.220 --> 00:21:17.080 They were proposing to the Air Force, 00:21:17.080 --> 00:21:19.218 but there was an Air Force representative on it. 00:21:19.218 --> 00:21:21.760 The Air Force representative was not on for business reasons. 00:21:21.760 --> 00:21:23.343 The Air Force representative was on so 00:21:23.343 --> 00:21:26.470 that the designers understood the requirements of the Air 00:21:26.470 --> 00:21:28.800 Force. 00:21:28.800 --> 00:21:31.860 So they understood the requirements. 00:21:31.860 --> 00:21:33.870 They had what they call gold congruency. 00:21:33.870 --> 00:21:36.603 All the members of this team knew what 00:21:36.603 --> 00:21:37.770 they were trying to achieve. 00:21:37.770 --> 00:21:41.430 They were trying to achieve the winning bid that satisfied 00:21:41.430 --> 00:21:43.070 the Air Force customer needs. 00:21:43.070 --> 00:21:44.280 OK? 00:21:44.280 --> 00:21:46.860 That was what drove all their decisions. 00:21:46.860 --> 00:21:50.700 And so they understood what the costs, the requirements were. 00:21:50.700 --> 00:21:52.640 Now, what did they do? 00:21:52.640 --> 00:21:56.660 They got the designers, and the subcontractors 00:21:56.660 --> 00:21:58.170 were involved in the design. 00:21:58.170 --> 00:22:01.770 And this turned out, that in the process, 00:22:01.770 --> 00:22:05.990 the subcontractors had to rearrange their expected work 00:22:05.990 --> 00:22:06.680 share. 00:22:06.680 --> 00:22:11.030 Some subcontractors gave up a portion and others gained. 00:22:11.030 --> 00:22:14.990 So actually, if you think about it from a narrow point of view, 00:22:14.990 --> 00:22:18.410 you're giving up some business, so that you can gain some. 00:22:18.410 --> 00:22:22.080 But they knew that that was important to win the contract. 00:22:22.080 --> 00:22:23.690 And so they reallocated work share. 00:22:23.690 --> 00:22:27.440 Specifically, they had some partitioned electronics 00:22:27.440 --> 00:22:28.310 on separate boards. 00:22:28.310 --> 00:22:30.310 And they realized, that if they integrated those 00:22:30.310 --> 00:22:32.630 on the same board, they could greatly reduce the costs, 00:22:32.630 --> 00:22:34.400 and so on. 00:22:34.400 --> 00:22:36.650 And the result was, where they originally 00:22:36.650 --> 00:22:40.250 thought this unit was going to cost $68,000 per unit, 00:22:40.250 --> 00:22:44.190 in the end, it cost $15,000 per unit. 00:22:44.190 --> 00:22:45.860 And Boeing now-- 00:22:45.860 --> 00:22:47.500 McDonnell Douglas was bought by Boeing. 00:22:47.500 --> 00:22:48.750 Boeing is making these things. 00:22:48.750 --> 00:22:50.433 That's the plant in East St. Louis. 00:22:50.433 --> 00:22:51.350 And everybody's happy. 00:22:51.350 --> 00:22:52.642 Boeing is making lots of money. 00:22:52.642 --> 00:22:54.920 The Air Force is getting lots of supplies. 00:22:54.920 --> 00:22:56.930 But look how much cost reduction they 00:22:56.930 --> 00:22:58.820 had by getting those designers involved 00:22:58.820 --> 00:23:01.670 in the development, subcontractors involved 00:23:01.670 --> 00:23:04.260 in the development and design. 00:23:04.260 --> 00:23:06.930 OK, then the fourth attribute is the seamless flow 00:23:06.930 --> 00:23:08.990 of information. 00:23:08.990 --> 00:23:10.597 And this is a busy picture, which 00:23:10.597 --> 00:23:11.680 we don't want to read all. 00:23:11.680 --> 00:23:14.770 But the point is that we got here the system 00:23:14.770 --> 00:23:17.020 integrator, the Aspect Medical. 00:23:17.020 --> 00:23:19.630 And we have over here the supplier. 00:23:19.630 --> 00:23:21.520 And in a non-lean supply chain, what 00:23:21.520 --> 00:23:26.888 would happen is, over here, an engineering of the supplier, 00:23:26.888 --> 00:23:27.930 they may have a question. 00:23:27.930 --> 00:23:31.262 They would go up to their sales department. 00:23:31.262 --> 00:23:32.970 That would come over here to procurement. 00:23:32.970 --> 00:23:35.940 It would come down here to get answered-- 00:23:35.940 --> 00:23:39.660 lots of vertical communication paths. 00:23:39.660 --> 00:23:41.250 What you want in a lean supply chain 00:23:41.250 --> 00:23:44.130 is a lot of horizontal communication paths. 00:23:44.130 --> 00:23:46.890 And you need to align it with the level of the organization. 00:23:46.890 --> 00:23:49.890 So you would like engineers talking with engineers. 00:23:49.890 --> 00:23:53.610 Now, sometimes we give this talk at a government procurement 00:23:53.610 --> 00:23:54.110 audience. 00:23:54.110 --> 00:23:55.700 They say, oh, that's illegal. 00:23:55.700 --> 00:23:57.100 Can't do that. 00:23:57.100 --> 00:23:59.845 It may be, but that means it's also not lean. 00:23:59.845 --> 00:24:00.345 OK? 00:24:03.090 --> 00:24:04.410 Those things can be changed. 00:24:04.410 --> 00:24:05.460 OK? 00:24:05.460 --> 00:24:08.190 But you have to have some clear guidelines 00:24:08.190 --> 00:24:09.810 about what's communicated, who has 00:24:09.810 --> 00:24:11.670 responsibility to communicate. 00:24:11.670 --> 00:24:13.920 But you want these people on the phone 00:24:13.920 --> 00:24:17.100 and on email contact, sharing information, 00:24:17.100 --> 00:24:20.430 to have a flexible, responsive supplier. 00:24:20.430 --> 00:24:22.530 OK, so we've got a lot of information flow. 00:24:22.530 --> 00:24:26.138 Common databases-- you want to be accessing the same database. 00:24:26.138 --> 00:24:28.680 You want to have members on the same integrated product team. 00:24:28.680 --> 00:24:30.420 We'll talk about that tomorrow. 00:24:30.420 --> 00:24:32.760 You want to be exchanging technical data at this level, 00:24:32.760 --> 00:24:37.420 not going up and down, and some other things here, 00:24:37.420 --> 00:24:38.532 which we won't go into. 00:24:38.532 --> 00:24:39.990 But clearly, that's a different way 00:24:39.990 --> 00:24:44.220 of doing business from an environment where you 00:24:44.220 --> 00:24:47.310 have a non-lean supply chain. 00:24:47.310 --> 00:24:51.120 OK, another example of smooth information flow is Exostar. 00:24:51.120 --> 00:24:54.780 Exostar is a company, an organization, 00:24:54.780 --> 00:24:58.770 which manages the interactions between major aerospace 00:24:58.770 --> 00:25:00.780 companies and their suppliers. 00:25:00.780 --> 00:25:03.390 So it's like a hub in the supply chain. 00:25:03.390 --> 00:25:09.480 They have 34,000 participants in this system. 00:25:09.480 --> 00:25:11.610 And it's all electronic. 00:25:11.610 --> 00:25:16.740 So suppose Boeing wants to buy some kind of, say, actuators. 00:25:16.740 --> 00:25:18.750 Instead of going to all the actuator companies, 00:25:18.750 --> 00:25:22.080 they go through Exostar, who manages that transaction. 00:25:22.080 --> 00:25:26.850 And it's all very paperless. 00:25:26.850 --> 00:25:29.840 And it's just been a huge savings. 00:25:29.840 --> 00:25:33.120 And here are some results from Rolls Royce, which 00:25:33.120 --> 00:25:37.980 is one of the members, some of the metrics 00:25:37.980 --> 00:25:42.090 that go with their participation in Exostar. 00:25:42.090 --> 00:25:45.390 Instead of having several thousand suppliers, 00:25:45.390 --> 00:25:48.570 they deal with several hundred; reduction 00:25:48.570 --> 00:25:51.000 of cost of goods purchased of up to 20%, 00:25:51.000 --> 00:25:54.600 because of this integrated supplier management; 00:25:54.600 --> 00:25:58.020 system inventory levels down 80%; 00:25:58.020 --> 00:26:00.630 error reduction down, because they're not manually 00:26:00.630 --> 00:26:03.240 entering in a lot of data; reduced cycle times 00:26:03.240 --> 00:26:06.810 as much as 80%; basically, elimination of paper; 00:26:06.810 --> 00:26:08.850 and improved relations, who have benefited 00:26:08.850 --> 00:26:13.910 from this reduced transaction costs. 00:26:13.910 --> 00:26:18.290 OK, so now let's move to the last topic of the module. 00:26:18.290 --> 00:26:20.828 And that is, how do you improve the existing supply chains? 00:26:20.828 --> 00:26:22.620 Well, we already heard from Jeff yesterday. 00:26:22.620 --> 00:26:24.240 You work with your suppliers. 00:26:24.240 --> 00:26:26.030 OK? 00:26:26.030 --> 00:26:28.040 You look at your value stream. 00:26:28.040 --> 00:26:31.520 You try to find out, who are your critical suppliers? 00:26:31.520 --> 00:26:33.620 You want to work with them. 00:26:33.620 --> 00:26:35.450 So who's on the critical paths? 00:26:35.450 --> 00:26:39.238 Where are the high-cost items or the long-lead items, and so on? 00:26:39.238 --> 00:26:41.030 And Jeff just couldn't have said it better. 00:26:41.030 --> 00:26:42.753 Yesterday, he said, when they started 00:26:42.753 --> 00:26:44.420 their lean transformation, they went out 00:26:44.420 --> 00:26:46.003 and let their suppliers know that they 00:26:46.003 --> 00:26:47.115 weren't dropping them. 00:26:47.115 --> 00:26:49.240 They were just going to deal with them differently. 00:26:49.240 --> 00:26:50.450 OK? 00:26:50.450 --> 00:26:57.925 If the supplier is ready to become a lean organization-- 00:26:57.925 --> 00:26:59.230 now, they may not be ready yet. 00:26:59.230 --> 00:27:00.855 They may not have the right management, 00:27:00.855 --> 00:27:02.273 or they may not be educated. 00:27:02.273 --> 00:27:03.940 They might not have taken a Lean Academy 00:27:03.940 --> 00:27:05.920 and learned the importance of this. 00:27:05.920 --> 00:27:07.810 Then they've got to do some prep work. 00:27:07.810 --> 00:27:10.040 But if they're lean-ready, then they can go out. 00:27:10.040 --> 00:27:13.480 And the prime will actually work with the supplier. 00:27:13.480 --> 00:27:16.000 They'll go out, and they'll run Kaizen events with them. 00:27:16.000 --> 00:27:18.190 They might lend them a lean expert 00:27:18.190 --> 00:27:19.690 to be on site for a while. 00:27:19.690 --> 00:27:22.130 They might invite them to their training programs. 00:27:22.130 --> 00:27:25.060 We taught one of these Lean Academies at Raytheon, 00:27:25.060 --> 00:27:26.290 up the road-- not Raytheon-- 00:27:26.290 --> 00:27:29.200 Textron Systems, up the road, here in Wilmington, Delaware. 00:27:29.200 --> 00:27:32.140 A couple of years ago, Hugh and I and Jackie taught that. 00:27:32.140 --> 00:27:35.163 And they invited their suppliers to the class. 00:27:35.163 --> 00:27:37.330 They had about five suppliers, some from California, 00:27:37.330 --> 00:27:39.250 some from Colorado. 00:27:39.250 --> 00:27:40.840 They build their relationship. 00:27:40.840 --> 00:27:44.350 They understand what the value-stream mapping, 00:27:44.350 --> 00:27:46.100 that value stream is. 00:27:46.100 --> 00:27:49.960 They come up with their plans to develop a lean strategy 00:27:49.960 --> 00:27:52.840 in that organization. 00:27:52.840 --> 00:27:55.480 And they have some mutual workshops and Kaizen events 00:27:55.480 --> 00:27:58.450 and a kind of a continuous improvement cycle. 00:27:58.450 --> 00:28:00.730 So this is the way a lean organization 00:28:00.730 --> 00:28:01.780 works with its suppliers. 00:28:01.780 --> 00:28:02.380 It helps them. 00:28:02.380 --> 00:28:05.433 It invests in them. 00:28:05.433 --> 00:28:06.850 Actually, we have some people here 00:28:06.850 --> 00:28:08.260 from the Veterans Administration. 00:28:08.260 --> 00:28:09.802 Rockwell Collins, which we've already 00:28:09.802 --> 00:28:12.820 talked about in this Lean Academy, 00:28:12.820 --> 00:28:14.950 starting to see that some of their major costs 00:28:14.950 --> 00:28:16.930 were their health care for their employees 00:28:16.930 --> 00:28:18.520 in the Cedar Rapids area. 00:28:18.520 --> 00:28:21.730 So they started working with the Cedar Rapids hospitals 00:28:21.730 --> 00:28:23.050 to help them become lean. 00:28:23.050 --> 00:28:24.550 Because they knew, in the long term, 00:28:24.550 --> 00:28:25.930 it was going to benefit them. 00:28:25.930 --> 00:28:29.740 And they loan their lean experts to Mercy Hospital 00:28:29.740 --> 00:28:30.700 in Cedar Rapids. 00:28:30.700 --> 00:28:34.600 And they're doing gratings now. 00:28:34.600 --> 00:28:39.230 OK, here's one example from Boeing about Hicksville Machine 00:28:39.230 --> 00:28:42.950 Works on Long Island and some of the benefits that came out. 00:28:42.950 --> 00:28:47.180 And these benefits that Hicksville came from Boeing, 00:28:47.180 --> 00:28:49.538 they're going to use with other customers. 00:28:49.538 --> 00:28:51.830 Boeing invested in it, and they'll use other customers. 00:28:51.830 --> 00:28:54.450 That's OK, because everybody's going to win. 00:28:54.450 --> 00:28:57.010 So those are typical type things. 00:28:57.010 --> 00:29:00.790 Now, as you do this, you start treating your supply base 00:29:00.790 --> 00:29:02.290 more strategically. 00:29:02.290 --> 00:29:06.460 Instead of a supply base being all the same, you're strategic. 00:29:06.460 --> 00:29:08.800 So certain ones you have strategic alliances with, 00:29:08.800 --> 00:29:13.510 these might be really critical partners. 00:29:13.510 --> 00:29:16.510 For instance, Rockwell Collins has a strategic alliance 00:29:16.510 --> 00:29:19.870 with Boeing, because they build flight decks. 00:29:19.870 --> 00:29:22.600 Your suppliers-- you'll certify them, 00:29:22.600 --> 00:29:25.898 so that-- say a gold supplier is very reliable. 00:29:25.898 --> 00:29:27.940 You might not do any inspection on something that 00:29:27.940 --> 00:29:29.190 comes in from a gold supplier. 00:29:29.190 --> 00:29:31.495 It just goes directly online, because you 00:29:31.495 --> 00:29:34.585 know that they have their processes under control, 00:29:34.585 --> 00:29:36.460 and that they've inspected it before it left, 00:29:36.460 --> 00:29:38.890 and taken the quality responsibility. 00:29:38.890 --> 00:29:40.510 Where, someone who is on probation 00:29:40.510 --> 00:29:41.680 might be just the opposite. 00:29:41.680 --> 00:29:43.555 You're not having good performance from them, 00:29:43.555 --> 00:29:45.160 so you have a lot of quality control. 00:29:45.160 --> 00:29:48.250 Then you might have your people out in their-- 00:29:48.250 --> 00:29:50.810 they might be having troubles with their production system. 00:29:50.810 --> 00:29:53.520 And so you're sending help out there to help them. 00:29:53.520 --> 00:29:56.050 OK, strategically support-- important suppliers 00:29:56.050 --> 00:29:58.480 might have, say, some particular kind of materials, 00:29:58.480 --> 00:30:01.210 some titanium, or something, that maybe there's 00:30:01.210 --> 00:30:03.430 only one supply for. 00:30:03.430 --> 00:30:06.010 So that one, you want to treat strategically. 00:30:06.010 --> 00:30:08.240 These are the commodity items-- 00:30:08.240 --> 00:30:10.458 a core. 00:30:10.458 --> 00:30:12.250 And then these are the ones you get rid of. 00:30:12.250 --> 00:30:13.630 They're just not performing. 00:30:13.630 --> 00:30:17.020 So supply chain management is a core competency 00:30:17.020 --> 00:30:19.320 of a lean organization. 00:30:19.320 --> 00:30:21.930 OK, where are we going in the future? 00:30:21.930 --> 00:30:24.750 The old approach is the build-to-order. 00:30:24.750 --> 00:30:27.583 The customer sends an order to the prime. 00:30:27.583 --> 00:30:29.250 The prime sends it back to the customer. 00:30:29.250 --> 00:30:31.042 The prime puts it down to the subcontractor 00:30:31.042 --> 00:30:32.790 or the subcontract-- 00:30:32.790 --> 00:30:35.160 so a lot of interfaces, rigid interfaces, 00:30:35.160 --> 00:30:39.730 lack of communication, distrustful relationships. 00:30:39.730 --> 00:30:41.910 The prime beats up on their supplier-- 00:30:41.910 --> 00:30:44.820 get your costs down, that type of thing. 00:30:44.820 --> 00:30:49.140 Current lean is much more collaborative 00:30:49.140 --> 00:30:51.510 with sharing a lot of information. 00:30:51.510 --> 00:30:53.670 So you might invite your suppliers in 00:30:53.670 --> 00:30:57.070 and give them your sales forecasts, your business plans. 00:30:57.070 --> 00:31:00.893 That's very proprietary information for most companies. 00:31:00.893 --> 00:31:02.310 But if it's an important supplier, 00:31:02.310 --> 00:31:04.350 you want them to know what the visibility is. 00:31:04.350 --> 00:31:06.210 Emerging lean is like with the JDAM, 00:31:06.210 --> 00:31:08.940 where you actually form almost like a company 00:31:08.940 --> 00:31:10.020 for that project. 00:31:10.020 --> 00:31:12.570 And you open up your proprietary databases 00:31:12.570 --> 00:31:15.090 for design and development. 00:31:15.090 --> 00:31:18.970 And there's some examples in our book about that. 00:31:18.970 --> 00:31:20.500 OK, so wrap up-- 00:31:20.500 --> 00:31:25.150 suppliers are critical to the lean enterprise success. 00:31:25.150 --> 00:31:27.790 Supply chains need to be understood and designed 00:31:27.790 --> 00:31:30.190 to meet the needs of the product. 00:31:30.190 --> 00:31:32.080 Legacy supply chains can be improved 00:31:32.080 --> 00:31:34.960 through win-win customer supplier teamwork. 00:31:34.960 --> 00:31:38.850 And it's a core competency of a lean organization.