1 00:00:00,000 --> 00:00:02,520 The following content is provided under a Creative 2 00:00:02,520 --> 00:00:03,970 Commons license. 3 00:00:03,970 --> 00:00:06,330 Your support will help MIT OpenCourseWare 4 00:00:06,330 --> 00:00:10,660 continue to offer high quality educational resources for free. 5 00:00:10,660 --> 00:00:13,320 To make a donation or view additional materials 6 00:00:13,320 --> 00:00:17,190 from hundreds of MIT courses, visit MIT OpenCourseWare 7 00:00:17,190 --> 00:00:18,370 at ocw.mit.edu. 8 00:00:20,797 --> 00:00:22,380 EARLL MURMAN: So let's just take stock 9 00:00:22,380 --> 00:00:27,360 a little bit on why we're going to do this next module. 10 00:00:27,360 --> 00:00:30,210 Did you guys have some troubles with supply chain management 11 00:00:30,210 --> 00:00:32,775 in your factories on this last round of simulation? 12 00:00:32,775 --> 00:00:33,510 AUDIENCE: We did. 13 00:00:33,510 --> 00:00:34,440 EARLL MURMAN: We did. 14 00:00:34,440 --> 00:00:36,150 And how about the suppliers down there? 15 00:00:36,150 --> 00:00:38,730 Did you have a lot of visibility of what was going on 16 00:00:38,730 --> 00:00:39,930 with your customers? 17 00:00:39,930 --> 00:00:41,580 AUDIENCE: For all I know, they're building houses. 18 00:00:41,580 --> 00:00:42,300 EARLL MURMAN: They're building houses. 19 00:00:42,300 --> 00:00:43,175 AUDIENCE: [INAUDIBLE] 20 00:00:43,175 --> 00:00:43,863 [LAUGHTER] 21 00:00:43,863 --> 00:00:45,030 AUDIENCE: And not very well. 22 00:00:45,030 --> 00:00:46,947 EARLL MURMAN: And we heard yesterday from Jeff 23 00:00:46,947 --> 00:00:50,430 at Gorton's, about how critical his supply 24 00:00:50,430 --> 00:00:52,770 chain was in the transformation of Gorton's 25 00:00:52,770 --> 00:00:54,450 to a lean enterprise. 26 00:00:54,450 --> 00:00:57,420 And we heard also, a little bit at Aspect Medical about supply 27 00:00:57,420 --> 00:00:58,230 chain. 28 00:00:58,230 --> 00:01:02,760 So supply chain is a really critical area 29 00:01:02,760 --> 00:01:05,700 of a lean transformation. 30 00:01:05,700 --> 00:01:09,270 And here's just a quote, that 7% of the companies 31 00:01:09,270 --> 00:01:11,488 today are effectively managing their supply chain. 32 00:01:11,488 --> 00:01:13,030 Now, that's a little bit out of date. 33 00:01:13,030 --> 00:01:13,890 It's 2003. 34 00:01:13,890 --> 00:01:15,750 But only 7%. 35 00:01:15,750 --> 00:01:19,350 But they're 73% more profitable than the other manufacturers. 36 00:01:19,350 --> 00:01:21,810 So who are some of the companies you think about, you might 37 00:01:21,810 --> 00:01:24,810 think about, that are well-known for good supply chain 38 00:01:24,810 --> 00:01:25,320 management? 39 00:01:25,320 --> 00:01:25,950 AUDIENCE: Dell. 40 00:01:25,950 --> 00:01:26,430 EARLL MURMAN: Dell. 41 00:01:26,430 --> 00:01:27,210 AUDIENCE: Walmart. 42 00:01:27,210 --> 00:01:27,870 EARLL MURMAN: Walmart. 43 00:01:27,870 --> 00:01:28,320 AUDIENCE: UPS. 44 00:01:28,320 --> 00:01:29,028 AUDIENCE: Toyota. 45 00:01:29,028 --> 00:01:32,570 EARLL MURMAN: UPS, Toyota, OK, exactly. 46 00:01:32,570 --> 00:01:36,040 OK, so here's our objectives for this module. 47 00:01:36,040 --> 00:01:37,415 At the end of this module, you'll 48 00:01:37,415 --> 00:01:39,500 be able to recognize the importance of suppliers 49 00:01:39,500 --> 00:01:40,250 in the enterprise. 50 00:01:40,250 --> 00:01:43,160 I think you probably know that, going into the module. 51 00:01:43,160 --> 00:01:45,310 We're going to talk about the four key attributes 52 00:01:45,310 --> 00:01:47,080 of a lean supply chain. 53 00:01:47,080 --> 00:01:49,660 One of them is aligning the design, the product design, 54 00:01:49,660 --> 00:01:53,420 or whatever your area is with the supply chain. 55 00:01:53,420 --> 00:01:55,450 There needs to be an alignment there. 56 00:01:55,450 --> 00:01:58,360 One is having the suppliers participate in your material 57 00:01:58,360 --> 00:01:59,320 flow. 58 00:01:59,320 --> 00:02:00,880 I saw someone for the supplier table 59 00:02:00,880 --> 00:02:02,650 coming up here, delivering parts. 60 00:02:02,650 --> 00:02:06,340 That's participation in this material flow; Having them 61 00:02:06,340 --> 00:02:08,440 actually involved in the design and development 62 00:02:08,440 --> 00:02:13,850 of your product; and then the information flow. 63 00:02:13,850 --> 00:02:16,180 And so then, also, most organizations 64 00:02:16,180 --> 00:02:19,360 have a legacy supply chain that they have to transform. 65 00:02:19,360 --> 00:02:21,352 Aspect Medical was lucky. 66 00:02:21,352 --> 00:02:22,060 It was a startup. 67 00:02:22,060 --> 00:02:23,712 But we heard from Jeff, for example. 68 00:02:23,712 --> 00:02:24,670 The company's been in-- 69 00:02:24,670 --> 00:02:26,830 Jeff, 1889? 70 00:02:26,830 --> 00:02:27,770 AUDIENCE: 1849. 71 00:02:27,770 --> 00:02:29,020 EARLL MURMAN: 1849-- 72 00:02:29,020 --> 00:02:33,830 OK, they had a legacy supply chain they had to deal with. 73 00:02:33,830 --> 00:02:36,890 This picture diagrammatically shows 74 00:02:36,890 --> 00:02:39,985 how suppliers interact with both the product development 75 00:02:39,985 --> 00:02:40,830 and production. 76 00:02:40,830 --> 00:02:45,060 So remember, the customer is the one that specifies the value. 77 00:02:45,060 --> 00:02:47,155 And then the role of product development, 78 00:02:47,155 --> 00:02:48,530 or engineering, which Annalisa is 79 00:02:48,530 --> 00:02:50,420 going to talk about this afternoon, 80 00:02:50,420 --> 00:02:53,480 is really to develop a design which, when produced, 81 00:02:53,480 --> 00:02:55,760 meets those customer expectations. 82 00:02:55,760 --> 00:02:57,090 OK? 83 00:02:57,090 --> 00:02:59,760 And one of the things that happens in a lean supply chain 84 00:02:59,760 --> 00:03:02,183 is to get those suppliers involved early, 85 00:03:02,183 --> 00:03:03,600 not think of them as something you 86 00:03:03,600 --> 00:03:05,560 add on at the end of your design, 87 00:03:05,560 --> 00:03:08,280 but to get them working with you during the design. 88 00:03:08,280 --> 00:03:11,520 And in the aerospace area, typically, 60% to 80% 89 00:03:11,520 --> 00:03:14,130 of the product value, that is, the dollar 90 00:03:14,130 --> 00:03:16,650 value of the product, is outsourced to the suppliers. 91 00:03:16,650 --> 00:03:18,900 And now, we saw that yesterday at Aspect Medical. 92 00:03:18,900 --> 00:03:21,480 They didn't give us the numbers, I don't believe, 93 00:03:21,480 --> 00:03:23,490 but they don't make anything. 94 00:03:23,490 --> 00:03:25,110 They assemble things. 95 00:03:25,110 --> 00:03:26,220 OK? 96 00:03:26,220 --> 00:03:29,160 John Coolidge said that they're a final assembler. 97 00:03:29,160 --> 00:03:31,410 So a lot of the value of that product, 98 00:03:31,410 --> 00:03:32,690 they buy from suppliers. 99 00:03:32,690 --> 00:03:36,200 So suppliers are absolutely critical to their success. 100 00:03:36,200 --> 00:03:38,173 Then, when it gets to production-- 101 00:03:38,173 --> 00:03:39,590 and Annalisa is going to talk more 102 00:03:39,590 --> 00:03:42,590 about the interaction of product development and production, 103 00:03:42,590 --> 00:03:44,630 where the value is created and delivered back 104 00:03:44,630 --> 00:03:46,820 to the customers-- you want to have your suppliers 105 00:03:46,820 --> 00:03:48,068 as partners. 106 00:03:48,068 --> 00:03:49,610 So you have to think of the suppliers 107 00:03:49,610 --> 00:03:51,260 as part of your enterprise. 108 00:03:51,260 --> 00:03:54,350 And we call that the extended enterprise. 109 00:03:54,350 --> 00:03:57,050 So today, you want to think about those guys 110 00:03:57,050 --> 00:03:59,480 at the back table as part of your enterprise. 111 00:03:59,480 --> 00:04:02,300 They're not somebody you just send orders to and get parts 112 00:04:02,300 --> 00:04:03,860 from. 113 00:04:03,860 --> 00:04:05,820 OK, now what does a supply chain look like? 114 00:04:05,820 --> 00:04:08,390 Well, here is a generic picture, starting 115 00:04:08,390 --> 00:04:12,890 with the end user, customer, the prime, all the way 116 00:04:12,890 --> 00:04:14,570 down to some raw material supplier. 117 00:04:14,570 --> 00:04:16,445 And usually, these are in tiers-- first tier, 118 00:04:16,445 --> 00:04:19,130 second tier, and third tier suppliers. 119 00:04:19,130 --> 00:04:21,860 And as you move down the supply chain, 120 00:04:21,860 --> 00:04:23,900 each tier represents a smaller proportion 121 00:04:23,900 --> 00:04:24,800 of the mean business. 122 00:04:24,800 --> 00:04:26,190 But they're very critical. 123 00:04:26,190 --> 00:04:27,310 So let's just get a little example. 124 00:04:27,310 --> 00:04:29,643 We have an interesting group here, a very diverse group. 125 00:04:29,643 --> 00:04:31,340 So let me call on some people. 126 00:04:31,340 --> 00:04:33,410 And tell us a little bit about where 127 00:04:33,410 --> 00:04:36,720 you fit in in your supply chain and how far up and down you 128 00:04:36,720 --> 00:04:37,220 can see. 129 00:04:37,220 --> 00:04:40,410 So Tam, you're with Intel. 130 00:04:40,410 --> 00:04:45,560 OK, where in Intel do you fit in this? 131 00:04:45,560 --> 00:04:50,308 Are you a prime, or are you a supplier to a prime? 132 00:04:50,308 --> 00:04:51,710 AUDIENCE: I'm not really sure. 133 00:04:51,710 --> 00:04:54,080 I worked at [INAUDIBLE]. 134 00:04:54,080 --> 00:04:59,480 So I would say I [INAUDIBLE] the facility that's prior to 135 00:04:59,480 --> 00:05:02,110 and lean part of [INAUDIBLE]. 136 00:05:02,110 --> 00:05:06,252 EARLL MURMAN: OK, so a couple of things here-- first of all, Tam 137 00:05:06,252 --> 00:05:07,960 is in product development, and he doesn't 138 00:05:07,960 --> 00:05:09,220 know what his supply chain is. 139 00:05:09,220 --> 00:05:10,100 Right? 140 00:05:10,100 --> 00:05:10,930 OK? 141 00:05:10,930 --> 00:05:12,970 Is that what I hear? 142 00:05:12,970 --> 00:05:13,990 Who's your end customer? 143 00:05:13,990 --> 00:05:16,270 Do you know? 144 00:05:16,270 --> 00:05:17,920 AUDIENCE: [INAUDIBLE] 145 00:05:17,920 --> 00:05:20,410 EARLL MURMAN: OK, so that's not the end customer. 146 00:05:20,410 --> 00:05:23,880 But you have a manufacturing-- that's your customer, 147 00:05:23,880 --> 00:05:25,630 is the manufacturing facility. 148 00:05:25,630 --> 00:05:27,730 And what are they making? 149 00:05:27,730 --> 00:05:28,813 AUDIENCE: Powder products. 150 00:05:28,813 --> 00:05:29,855 EARLL MURMAN: A product-- 151 00:05:29,855 --> 00:05:30,940 AUDIENCE: Or end products. 152 00:05:30,940 --> 00:05:32,565 EARLL MURMAN: And are they then selling 153 00:05:32,565 --> 00:05:34,996 that to Hewlett-Packard, or somebody? 154 00:05:34,996 --> 00:05:37,030 AUDIENCE: [INAUDIBLE] 155 00:05:38,662 --> 00:05:39,370 EARLL MURMAN: OK. 156 00:05:39,370 --> 00:05:42,640 And so they go to some customer from Intel. 157 00:05:42,640 --> 00:05:47,153 And then eventually, some end user, like Donna? 158 00:05:47,153 --> 00:05:47,997 AUDIENCE: Lynn. 159 00:05:47,997 --> 00:05:48,830 EARLL MURMAN: Sorry. 160 00:05:48,830 --> 00:05:50,690 Lynn-- she's using her computer. 161 00:05:50,690 --> 00:05:51,590 She's the end user. 162 00:05:51,590 --> 00:05:52,427 AUDIENCE: Yes. 163 00:05:52,427 --> 00:05:54,260 EARLL MURMAN: OK, so let's pick a different. 164 00:05:54,260 --> 00:05:57,038 Luis-- Luis, you're with the US Air Force. 165 00:05:57,038 --> 00:05:57,830 AUDIENCE: Yes, sir. 166 00:05:57,830 --> 00:05:58,760 EARLL MURMAN: OK. 167 00:05:58,760 --> 00:06:02,810 Now where are you in this supply chain here? 168 00:06:02,810 --> 00:06:07,010 AUDIENCE: Well, we're a developer. 169 00:06:07,010 --> 00:06:10,573 So we would be a customer. 170 00:06:10,573 --> 00:06:11,990 EARLL MURMAN: You'd be a customer. 171 00:06:11,990 --> 00:06:12,490 OK. 172 00:06:12,490 --> 00:06:15,560 And who might be the end user of what you develop? 173 00:06:15,560 --> 00:06:17,485 AUDIENCE: The Space Wing, the 45th Space Wing. 174 00:06:17,485 --> 00:06:18,860 EARLL MURMAN: Oh, the Space Wing. 175 00:06:18,860 --> 00:06:20,300 AUDIENCE: The 45th Space Wing. 176 00:06:20,300 --> 00:06:21,120 EARLL MURMAN: OK, Space Wing. 177 00:06:21,120 --> 00:06:21,800 OK. 178 00:06:21,800 --> 00:06:25,850 And sitting where you sit as a customer, how far 179 00:06:25,850 --> 00:06:30,220 down the supply chain do you interact with people? 180 00:06:30,220 --> 00:06:34,540 AUDIENCE: Not very far down, because we have a contractor 181 00:06:34,540 --> 00:06:36,100 that does all that for us. 182 00:06:36,100 --> 00:06:38,620 EARLL MURMAN: OK, so your contractor's is 183 00:06:38,620 --> 00:06:40,570 Lockheed or Northrop Grumman? 184 00:06:40,570 --> 00:06:41,450 AUDIENCE: [INAUDIBLE] 185 00:06:41,450 --> 00:06:43,783 EARLL MURMAN: OK, so you interact with a contractor, who 186 00:06:43,783 --> 00:06:45,080 interacts with the suppliers. 187 00:06:45,080 --> 00:06:45,890 OK. 188 00:06:45,890 --> 00:06:47,917 Now Carlos, you're with Cargo? 189 00:06:47,917 --> 00:06:48,500 AUDIENCE: Yes. 190 00:06:48,500 --> 00:06:50,827 EARLL MURMAN: OK, and in Mexico, right? 191 00:06:50,827 --> 00:06:51,410 AUDIENCE: Yes. 192 00:06:51,410 --> 00:06:56,137 EARLL MURMAN: OK, so do you do food products? 193 00:06:56,137 --> 00:06:56,720 AUDIENCE: Yes. 194 00:06:56,720 --> 00:06:59,550 EARLL MURMAN: OK, so where would you be in this supply chain? 195 00:07:02,203 --> 00:07:04,370 AUDIENCE: [INAUDIBLE] are on the prime manufacturers 196 00:07:04,370 --> 00:07:04,750 [INAUDIBLE]. 197 00:07:04,750 --> 00:07:06,333 EARLL MURMAN: OK, so you're the prime. 198 00:07:06,333 --> 00:07:07,940 And who might be your customers? 199 00:07:11,320 --> 00:07:12,415 AUDIENCE: [INAUDIBLE] 200 00:07:12,415 --> 00:07:12,830 EARLL MURMAN: Huh? 201 00:07:12,830 --> 00:07:13,750 AUDIENCE: [INAUDIBLE] 202 00:07:13,750 --> 00:07:14,770 EARLL MURMAN: OK. 203 00:07:14,770 --> 00:07:17,050 And then, how far down the supply chain 204 00:07:17,050 --> 00:07:18,300 do you [INAUDIBLE]? 205 00:07:18,300 --> 00:07:20,300 AUDIENCE: We're the last, the last [INAUDIBLE].. 206 00:07:20,300 --> 00:07:20,900 EARLL MURMAN: You see all the way 207 00:07:20,900 --> 00:07:22,358 down the supply chain [INAUDIBLE].. 208 00:07:22,358 --> 00:07:23,930 AUDIENCE: [INAUDIBLE] 209 00:07:23,930 --> 00:07:25,490 EARLL MURMAN: OK, I'd like to call one more group here. 210 00:07:25,490 --> 00:07:26,510 And I don't know much about it at all, 211 00:07:26,510 --> 00:07:28,260 someone from the Veteran's Administration. 212 00:07:28,260 --> 00:07:30,923 So Doug? 213 00:07:30,923 --> 00:07:33,340 Yeah, you're working with health care and stuff like that. 214 00:07:33,340 --> 00:07:35,260 AUDIENCE: Yes, I'm basically at the end user. 215 00:07:35,260 --> 00:07:36,095 EARLL MURMAN: OK. 216 00:07:36,095 --> 00:07:37,720 AUDIENCE: I work in the lab department. 217 00:07:37,720 --> 00:07:38,595 EARLL MURMAN: Oh, OK. 218 00:07:38,595 --> 00:07:41,830 AUDIENCE: So I'm actually a customer. 219 00:07:41,830 --> 00:07:45,460 And I provide results to the physicians. 220 00:07:45,460 --> 00:07:51,320 And I interact with the [INAUDIBLE].. 221 00:07:51,320 --> 00:07:52,700 EARLL MURMAN: OK, cool. 222 00:07:52,700 --> 00:07:53,300 OK. 223 00:07:53,300 --> 00:07:56,810 So you can see that these are just different examples 224 00:07:56,810 --> 00:07:57,530 of supply chain. 225 00:07:57,530 --> 00:08:00,740 Now, one of the things that comes out 226 00:08:00,740 --> 00:08:02,660 a little bit in this little exercise 227 00:08:02,660 --> 00:08:04,850 we did, but is really a very true thing, 228 00:08:04,850 --> 00:08:08,300 is that most people in a non-lean supply chain 229 00:08:08,300 --> 00:08:12,070 don't have much visibility up or downstream in that supply 230 00:08:12,070 --> 00:08:12,570 chain. 231 00:08:12,570 --> 00:08:15,170 And so what they get is what we call-- they 232 00:08:15,170 --> 00:08:17,220 get the orders over the wall. 233 00:08:17,220 --> 00:08:19,652 So you might give an order for reagents, 234 00:08:19,652 --> 00:08:21,110 and they don't even know it's going 235 00:08:21,110 --> 00:08:23,235 to come until, all of a sudden, it arrives, if it's 236 00:08:23,235 --> 00:08:25,170 a non-lean supply chain. 237 00:08:25,170 --> 00:08:27,543 So there's a lack of visibility. 238 00:08:27,543 --> 00:08:29,960 If you're in the supply chain, there's not much visibility 239 00:08:29,960 --> 00:08:31,820 upstream or downstream, what's happening, 240 00:08:31,820 --> 00:08:34,580 until all of a sudden, you get something, a request, 241 00:08:34,580 --> 00:08:35,783 and you have to react to it. 242 00:08:35,783 --> 00:08:38,450 And that's kind of what you have at the back of the table there. 243 00:08:38,450 --> 00:08:42,350 You don't have much visibility of what's happening up here. 244 00:08:42,350 --> 00:08:46,790 And so that means you're in a very response mode. 245 00:08:46,790 --> 00:08:47,690 OK. 246 00:08:47,690 --> 00:08:51,720 So now let's do a little exercise. 247 00:08:51,720 --> 00:08:55,620 Here are some attributes of supply chains. 248 00:08:55,620 --> 00:08:59,430 And what we want you to do is gather around your easel charts 249 00:08:59,430 --> 00:09:02,320 and discuss these a little bit. 250 00:09:02,320 --> 00:09:05,145 And write down, which of these attributes 251 00:09:05,145 --> 00:09:08,535 do you identify with what you might think as a lean supply 252 00:09:08,535 --> 00:09:11,460 chain, realizing we haven't really covered that topic yet? 253 00:09:11,460 --> 00:09:14,310 But this is part of how we're going to go about it. 254 00:09:14,310 --> 00:09:16,080 And talk a little bit about what you think 255 00:09:16,080 --> 00:09:20,110 might be the top three priorities for a lean supply 256 00:09:20,110 --> 00:09:20,610 chain. 257 00:09:20,610 --> 00:09:22,350 So let's just say, for example, you 258 00:09:22,350 --> 00:09:25,950 picked all these as representing a lean supply chain and not 259 00:09:25,950 --> 00:09:26,760 those. 260 00:09:26,760 --> 00:09:29,430 Which of these are the three most important, 261 00:09:29,430 --> 00:09:31,810 do you think, to have a lean supply chain? 262 00:09:31,810 --> 00:09:34,950 So let's spend about 10 minutes doing that, 263 00:09:34,950 --> 00:09:36,090 around your easel charts. 264 00:09:36,090 --> 00:09:38,880 And then we're going to see what we collectively come up with, 265 00:09:38,880 --> 00:09:39,940 a lean supply chain. 266 00:09:39,940 --> 00:09:40,440 OK? 267 00:09:40,440 --> 00:09:42,165 AUDIENCE: Should we invite our suppliers now? 268 00:09:42,165 --> 00:09:43,590 EARLL MURMAN: Yeah, you can invite your suppliers 269 00:09:43,590 --> 00:09:44,070 if you'd like. 270 00:09:44,070 --> 00:09:44,570 Sure. 271 00:09:44,570 --> 00:09:47,160 [LAUGHTER] 272 00:09:47,160 --> 00:09:50,760 That sounds like a good practice. 273 00:09:50,760 --> 00:09:52,280 OK. 274 00:09:52,280 --> 00:09:54,770 So let's see. 275 00:09:54,770 --> 00:09:58,310 Let me call on the table up here, 276 00:09:58,310 --> 00:10:01,490 table in the northeast corner, northwest 277 00:10:01,490 --> 00:10:02,780 corner of the building. 278 00:10:02,780 --> 00:10:06,050 What are your top characteristics 279 00:10:06,050 --> 00:10:07,280 of a lean supply chain? 280 00:10:07,280 --> 00:10:09,080 And why did you pick them? 281 00:10:09,080 --> 00:10:10,763 Someone want to give us that briefing? 282 00:10:10,763 --> 00:10:11,930 AUDIENCE: Well, [INAUDIBLE]. 283 00:10:11,930 --> 00:10:12,870 AUDIENCE: [INAUDIBLE] 284 00:10:12,870 --> 00:10:14,245 AUDIENCE: The first one we picked 285 00:10:14,245 --> 00:10:15,335 was responsive and agile. 286 00:10:17,880 --> 00:10:20,790 We need our supplier to give us what we need, when we need, 287 00:10:20,790 --> 00:10:22,300 and in a timely manner, so that we 288 00:10:22,300 --> 00:10:26,440 can make those [INAUDIBLE] quota enterprise approach, 289 00:10:26,440 --> 00:10:27,450 so the end to end. 290 00:10:27,450 --> 00:10:30,200 So just knowing what the other processes means we 291 00:10:30,200 --> 00:10:33,940 don't end up with national [INAUDIBLE].. 292 00:10:33,940 --> 00:10:37,200 And then we had [INAUDIBLE] with collaboration and continuous 293 00:10:37,200 --> 00:10:39,930 [INAUDIBLE] activities with the supplier customers-- again, 294 00:10:39,930 --> 00:10:42,480 just partnering with our suppliers 295 00:10:42,480 --> 00:10:45,498 and not just [INAUDIBLE]. 296 00:10:45,498 --> 00:10:46,290 EARLL MURMAN: Good. 297 00:10:46,290 --> 00:10:47,690 OK. 298 00:10:47,690 --> 00:10:49,660 Good choices, good choice and good priorities. 299 00:10:49,660 --> 00:10:52,800 How about back here? 300 00:10:52,800 --> 00:10:55,177 AUDIENCE: We did collaboration and supplier commitment 301 00:10:55,177 --> 00:10:57,510 with long-term relationship, which probably go together. 302 00:10:57,510 --> 00:10:58,770 Because if you're going to have a long-term relationship, 303 00:10:58,770 --> 00:11:00,240 you're going to work together. 304 00:11:00,240 --> 00:11:01,448 EARLL MURMAN: Good rationale. 305 00:11:01,448 --> 00:11:04,080 AUDIENCE: Visibility of demand, so you can see what's coming; 306 00:11:04,080 --> 00:11:05,407 and just continually improving. 307 00:11:05,407 --> 00:11:06,990 EARLL MURMAN: Continuous improvement-- 308 00:11:06,990 --> 00:11:08,045 OK, good. 309 00:11:08,045 --> 00:11:10,670 And you had some others up there that you put a lower priority. 310 00:11:10,670 --> 00:11:12,378 AUDIENCE: I mean, the enterprise approach 311 00:11:12,378 --> 00:11:14,970 made sense, of looking at the whole envelope. 312 00:11:14,970 --> 00:11:20,220 And build to order, so that your activities 313 00:11:20,220 --> 00:11:23,670 are driven by the customer requests and the responses. 314 00:11:23,670 --> 00:11:25,930 EARLL MURMAN: OK, good. 315 00:11:25,930 --> 00:11:27,720 OK, let's take one more. 316 00:11:27,720 --> 00:11:30,730 And then how about up here with all the colored dots. 317 00:11:30,730 --> 00:11:32,910 It looks to me like you did the multi-voting. 318 00:11:32,910 --> 00:11:33,882 That's good. 319 00:11:33,882 --> 00:11:35,850 [LAUGHTER] 320 00:11:35,850 --> 00:11:39,520 Someone want to tell us about that? 321 00:11:39,520 --> 00:11:41,130 AUDIENCE: Yeah, we [INAUDIBLE]. 322 00:11:41,130 --> 00:11:44,040 We say that this customer is just good. 323 00:11:44,040 --> 00:11:47,918 When we came to the queue that [INAUDIBLE] continuous grouping 324 00:11:47,918 --> 00:11:52,370 was [INAUDIBLE]. 325 00:11:52,370 --> 00:11:56,050 Together, it's collaboration and the holistic enterprise 326 00:11:56,050 --> 00:11:56,550 approach. 327 00:11:56,550 --> 00:12:00,620 EARLL MURMAN: OK, so we're seeing some commonality here. 328 00:12:00,620 --> 00:12:02,370 Let's see, let me just look at the others. 329 00:12:02,370 --> 00:12:08,470 I see the same things on the remaining ones here. 330 00:12:08,470 --> 00:12:12,410 OK, so I think you guys got pretty much-- 331 00:12:12,410 --> 00:12:12,910 very good. 332 00:12:12,910 --> 00:12:15,820 You're already beginning to identify what a lean supply 333 00:12:15,820 --> 00:12:18,473 chain is, before you even have heard about it, so to speak, 334 00:12:18,473 --> 00:12:20,390 which is part of the purpose of this exercise. 335 00:12:20,390 --> 00:12:22,682 Another thing we see is the priorities are a little bit 336 00:12:22,682 --> 00:12:23,740 different between tables. 337 00:12:23,740 --> 00:12:27,420 And this reflects what happens in the real world, 338 00:12:27,420 --> 00:12:33,110 is that different organizations might have different priorities 339 00:12:33,110 --> 00:12:35,610 as to what they think is most important in a particular time 340 00:12:35,610 --> 00:12:37,788 with their supply chain, for whatever reason 341 00:12:37,788 --> 00:12:38,830 you picked at your table. 342 00:12:38,830 --> 00:12:40,715 But maybe they're having difficulty 343 00:12:40,715 --> 00:12:42,090 with collaboration, or something, 344 00:12:42,090 --> 00:12:44,040 so collaboration is going to be more important 345 00:12:44,040 --> 00:12:45,415 right now in getting their supply 346 00:12:45,415 --> 00:12:47,400 chain lean than something else. 347 00:12:47,400 --> 00:12:50,182 The only thing I would add-- that the build to order, 348 00:12:50,182 --> 00:12:52,140 I understand why you put it there as a response 349 00:12:52,140 --> 00:12:53,280 to the customer. 350 00:12:53,280 --> 00:12:56,520 But that's actually a way of describing a non-lean supply 351 00:12:56,520 --> 00:12:58,380 chain, where you ship orders, and they 352 00:12:58,380 --> 00:13:00,120 send you back materials. 353 00:13:00,120 --> 00:13:02,100 But you don't really engage them at all 354 00:13:02,100 --> 00:13:04,583 in the design of the product. 355 00:13:04,583 --> 00:13:06,750 You just send them an order, and they send it back-- 356 00:13:06,750 --> 00:13:10,260 kind of send me the blueprint and send me back the parts, 357 00:13:10,260 --> 00:13:12,850 and let's negotiate on price, type of thing. 358 00:13:12,850 --> 00:13:16,710 So the ones that are identified here as a lean supply chain are 359 00:13:16,710 --> 00:13:20,550 collaboration-- you got that; responsive and agile-- 360 00:13:20,550 --> 00:13:23,115 you got that; based on product characteristics-- 361 00:13:23,115 --> 00:13:24,990 I don't think we had anybody come up on that, 362 00:13:24,990 --> 00:13:27,780 but we're going to talk about that in a minute; 363 00:13:27,780 --> 00:13:30,270 enterprise approach; a commitment 364 00:13:30,270 --> 00:13:34,120 to a long-term relationship; a visibility of demand, 365 00:13:34,120 --> 00:13:36,720 which was getting over that brick wall barrier; 366 00:13:36,720 --> 00:13:38,800 and the continuous improvement. 367 00:13:38,800 --> 00:13:40,615 So we're on the same page. 368 00:13:40,615 --> 00:13:43,240 OK, so let's move on now to the second main learning objective. 369 00:13:43,240 --> 00:13:45,650 So you can now recognize the attributes of a lean supply 370 00:13:45,650 --> 00:13:46,150 chain-- 371 00:13:48,790 --> 00:13:50,230 I mean, the main attributes. 372 00:13:50,230 --> 00:13:53,450 Here are the four we're going to talk about. 373 00:13:53,450 --> 00:13:56,290 And the first one is alignment with the product 374 00:13:56,290 --> 00:13:57,860 characteristics. 375 00:13:57,860 --> 00:14:00,160 And this may be a little bit theoretical, 376 00:14:00,160 --> 00:14:03,890 but you can think of it, in theory, 377 00:14:03,890 --> 00:14:05,120 of two ends of the extremes. 378 00:14:05,120 --> 00:14:09,880 One is you have a push system, where somebody builds 379 00:14:09,880 --> 00:14:12,546 parts and sends them to you. 380 00:14:16,210 --> 00:14:19,168 They build their parts, thinking about some demand that 381 00:14:19,168 --> 00:14:19,960 might be out there. 382 00:14:19,960 --> 00:14:21,970 And then they're ready to send them 383 00:14:21,970 --> 00:14:23,770 when somebody makes an order. 384 00:14:23,770 --> 00:14:25,970 And the other extreme would be a pull supply chain, 385 00:14:25,970 --> 00:14:28,053 where they don't build anything until you ask them 386 00:14:28,053 --> 00:14:33,970 for that, in some way respond to the customer demand. 387 00:14:33,970 --> 00:14:36,010 And in some sense, supply chains are 388 00:14:36,010 --> 00:14:37,810 a combination of push and pull. 389 00:14:37,810 --> 00:14:41,560 These are theoretical concepts at the end of a spectrum. 390 00:14:41,560 --> 00:14:48,400 But a push supply chain might be most prevalent in a commodity 391 00:14:48,400 --> 00:14:54,040 area, where you're maybe still in the economies of scale 392 00:14:54,040 --> 00:14:54,820 mentality. 393 00:14:54,820 --> 00:14:57,198 Let's build as many as we can and ship 394 00:14:57,198 --> 00:14:58,240 to the demand that comes. 395 00:14:58,240 --> 00:15:02,330 In a mature environment, that probably works pretty well. 396 00:15:02,330 --> 00:15:03,190 OK. 397 00:15:03,190 --> 00:15:07,960 So paperclips-- we're going to use some paper clips tomorrow 398 00:15:07,960 --> 00:15:09,130 on one of the exercises. 399 00:15:09,130 --> 00:15:11,368 People making paper clips-- 400 00:15:11,368 --> 00:15:13,660 they kind of know about what the demand is going to be. 401 00:15:13,660 --> 00:15:15,702 It doesn't change that rapidly, so they can maybe 402 00:15:15,702 --> 00:15:17,710 do a push supply chain type thing. 403 00:15:17,710 --> 00:15:21,010 Where a pull supply chain, you have some specialized part, 404 00:15:21,010 --> 00:15:22,780 at the other extreme. 405 00:15:22,780 --> 00:15:25,270 We're going to show you, in a little bit, an example 406 00:15:25,270 --> 00:15:28,720 from Lockheed Martin, where one ship set a year of tubes 407 00:15:28,720 --> 00:15:31,342 for an Atlas V rocket, they don't 408 00:15:31,342 --> 00:15:32,800 want to make those tubes until they 409 00:15:32,800 --> 00:15:35,950 know that the rocket's about ready to be re-sent. 410 00:15:35,950 --> 00:15:38,740 So the point is that your product may be made up 411 00:15:38,740 --> 00:15:39,820 of different components. 412 00:15:39,820 --> 00:15:42,250 And the supply chains that go with those 413 00:15:42,250 --> 00:15:44,710 may be managed somewhat differently. 414 00:15:44,710 --> 00:15:46,160 One size doesn't fit all. 415 00:15:46,160 --> 00:15:48,660 So that's what it means to align your product-- 416 00:15:48,660 --> 00:15:52,370 your supply chain with the product characteristics. 417 00:15:52,370 --> 00:15:57,950 OK, supplier participation in material flow and logistics-- 418 00:15:57,950 --> 00:16:00,260 just-in-time deliveries-- I think everybody's 419 00:16:00,260 --> 00:16:02,760 pretty much familiar with that, that that's really 420 00:16:02,760 --> 00:16:05,702 an output of the Toyota production system and all. 421 00:16:05,702 --> 00:16:07,160 And of course, the crucial thing is 422 00:16:07,160 --> 00:16:08,952 that the parts have to show up when needed, 423 00:16:08,952 --> 00:16:12,800 because just-in-time parts go right to the assembly line. 424 00:16:12,800 --> 00:16:15,750 And so if they don't show up when needed, 425 00:16:15,750 --> 00:16:17,690 then everything else gets impacted. 426 00:16:17,690 --> 00:16:20,330 On the other hand, the advantage is there's no inventory. 427 00:16:22,980 --> 00:16:26,780 And if there are any issues that come up on quality type things, 428 00:16:26,780 --> 00:16:28,340 you can correct them right away. 429 00:16:28,340 --> 00:16:33,947 OK, so just-in-time deliveries; kitting for point-of-use-- 430 00:16:33,947 --> 00:16:35,780 we talked about that a little bit yesterday. 431 00:16:35,780 --> 00:16:39,660 And let's put that off, because the next example shows that. 432 00:16:39,660 --> 00:16:43,220 Vendor-managed inventory-- this is where the inventory, instead 433 00:16:43,220 --> 00:16:49,700 of being owned by the customer, is taken care of by the vendor. 434 00:16:49,700 --> 00:16:52,301 Let me give you an example of that. 435 00:16:52,301 --> 00:16:57,710 So JDAM is a Joint Direct Attack Munition. 436 00:16:57,710 --> 00:16:59,420 We have a picture of it coming up later. 437 00:16:59,420 --> 00:17:01,640 It's made in East St. Louis. 438 00:17:01,640 --> 00:17:05,980 And one of the parts for that is made in California. 439 00:17:05,980 --> 00:17:07,733 I think it's a tail cone, or something. 440 00:17:07,733 --> 00:17:09,150 And when I went through this plant 441 00:17:09,150 --> 00:17:11,520 in East St. Louis, Missouri, there's 442 00:17:11,520 --> 00:17:15,030 a video camera on the ceiling in the loading 443 00:17:15,030 --> 00:17:17,200 dock, where they receive parts. 444 00:17:17,200 --> 00:17:18,930 So what's that video camera for? 445 00:17:18,930 --> 00:17:21,329 Well, the supplier in California is 446 00:17:21,329 --> 00:17:25,020 looking at what the inventory is there in East St. Louis 447 00:17:25,020 --> 00:17:27,180 and seeing when it's time for them to ship more. 448 00:17:27,180 --> 00:17:32,520 So they're managing the inventory of that product. 449 00:17:32,520 --> 00:17:34,740 And third party logistics-- this is, instead 450 00:17:34,740 --> 00:17:38,860 of that organization shipping, or the receiving organization 451 00:17:38,860 --> 00:17:41,400 shipping, they delegate that to FedEx. 452 00:17:41,400 --> 00:17:43,890 And FedEx, they hire FedEx to handle all the shipping. 453 00:17:43,890 --> 00:17:48,850 And so UPS and FedEx and those big companies, like Atlas Air-- 454 00:17:48,850 --> 00:17:51,062 do you guys do that? 455 00:17:51,062 --> 00:17:55,185 AUDIENCE: [INAUDIBLE] we have [INAUDIBLE].. 456 00:17:55,185 --> 00:17:56,852 EARLL MURMAN: Pull their elements, yeah. 457 00:17:56,852 --> 00:18:06,167 So there's a big business in these third-party logistics. 458 00:18:06,167 --> 00:18:07,500 So let's look at an example now. 459 00:18:07,500 --> 00:18:09,292 And think about these on this next example, 460 00:18:09,292 --> 00:18:11,220 and how many of them do we see? 461 00:18:11,220 --> 00:18:14,670 OK, so this is the Atlas V. The Atlas V is a large launch 462 00:18:14,670 --> 00:18:16,230 vehicle. 463 00:18:16,230 --> 00:18:19,000 The Atlas V and the Delta IV are the largest launch vehicles. 464 00:18:19,000 --> 00:18:20,710 These are big rockets. 465 00:18:20,710 --> 00:18:21,900 OK? 466 00:18:21,900 --> 00:18:24,360 And they receive tubes, when they 467 00:18:24,360 --> 00:18:28,920 have to put together a rocket, and what they call a ship set. 468 00:18:28,920 --> 00:18:31,920 They call that a ship set. 469 00:18:31,920 --> 00:18:36,590 And a ship set of tubes cost $180,000. 470 00:18:36,590 --> 00:18:38,630 And now, how do they come? 471 00:18:38,630 --> 00:18:42,230 Well, in the old way, they came as separate parts. 472 00:18:42,230 --> 00:18:45,950 A ship set has 199 parts in it. 473 00:18:45,950 --> 00:18:48,410 And they came all in their own packing boxes, 474 00:18:48,410 --> 00:18:51,380 separately, wrapped up in foam, and stuff. 475 00:18:51,380 --> 00:18:54,518 And you've got all this waste and lots of stuff coming in. 476 00:18:54,518 --> 00:18:55,310 That's the old way. 477 00:18:55,310 --> 00:18:58,930 The new way is they come in this kit. 478 00:18:58,930 --> 00:19:03,613 And everything, all 199 parts, with these five major tubes-- 479 00:19:03,613 --> 00:19:05,030 they have the connectors and all-- 480 00:19:05,030 --> 00:19:06,290 come as a kit. 481 00:19:06,290 --> 00:19:08,660 And they not only come with the hardware, 482 00:19:08,660 --> 00:19:10,265 but the tools to assemble them. 483 00:19:10,265 --> 00:19:12,140 And usually, the instructions that go with it 484 00:19:12,140 --> 00:19:13,408 are right with that. 485 00:19:13,408 --> 00:19:15,950 So there were some [INAUDIBLE] cards yesterday about kitting. 486 00:19:15,950 --> 00:19:17,370 And this is what kitting is about. 487 00:19:17,370 --> 00:19:18,290 OK? 488 00:19:18,290 --> 00:19:26,080 And now, they make about one or two of these rockets a year, 489 00:19:26,080 --> 00:19:27,740 or a small number. 490 00:19:27,740 --> 00:19:29,885 So they keep their suppliers informed when 491 00:19:29,885 --> 00:19:31,010 they're going to need that. 492 00:19:31,010 --> 00:19:34,490 And all this is managed as one. 493 00:19:34,490 --> 00:19:37,160 So they don't ship these until-- 494 00:19:37,160 --> 00:19:38,240 this is a pull system. 495 00:19:38,240 --> 00:19:39,797 They don't ship it until they know 496 00:19:39,797 --> 00:19:42,380 that they're going to need it, because it's an expensive thing 497 00:19:42,380 --> 00:19:44,030 to have in inventory. 498 00:19:44,030 --> 00:19:54,930 And all this 199 parts is one record in their MRP system. 499 00:19:54,930 --> 00:19:58,350 instead of 199 different parts they're checking, following, 500 00:19:58,350 --> 00:20:00,540 they follow one-- 501 00:20:00,540 --> 00:20:05,940 so the great reduction in costs, handling costs, and carrying 502 00:20:05,940 --> 00:20:07,530 costs in cycle time. 503 00:20:07,530 --> 00:20:09,780 So some of those things we saw on the previous slide-- 504 00:20:09,780 --> 00:20:14,610 kitting, vendor-managed inventory, pull system, 505 00:20:14,610 --> 00:20:18,700 you see in situations like this. 506 00:20:18,700 --> 00:20:20,827 OK, let's now turn to supplier involvement 507 00:20:20,827 --> 00:20:21,910 in design and development. 508 00:20:21,910 --> 00:20:24,327 And oh, by the way, this is a little bit of a segue slide, 509 00:20:24,327 --> 00:20:27,460 because this is this JDAM munition I mentioned before. 510 00:20:27,460 --> 00:20:33,340 And the JDAM part is it's a retrofitted tailcone 511 00:20:33,340 --> 00:20:36,520 on a otherwise dumb bomb. 512 00:20:36,520 --> 00:20:37,960 And it turns into a smart bomb. 513 00:20:37,960 --> 00:20:42,530 It has a receiver in it and GPS system, and so on. 514 00:20:42,530 --> 00:20:44,440 And all of this, by the way, comes in a kit. 515 00:20:44,440 --> 00:20:45,650 Here's what it looks like. 516 00:20:45,650 --> 00:20:46,697 OK? 517 00:20:46,697 --> 00:20:47,530 So that's a kitting. 518 00:20:47,530 --> 00:20:53,230 But more importantly, here, when the JDAM was developed, 519 00:20:53,230 --> 00:20:54,880 it was done very uniquely. 520 00:20:54,880 --> 00:20:58,090 This is an Air Force procurement. 521 00:20:58,090 --> 00:21:00,790 And when they formed the proposal team 522 00:21:00,790 --> 00:21:02,980 to bid on it, a competitor proposal team, 523 00:21:02,980 --> 00:21:04,760 they had McDonnell Douglas, at that time, 524 00:21:04,760 --> 00:21:06,640 and Lockheed bidding. 525 00:21:06,640 --> 00:21:11,140 That proposal team actually had the key suppliers on it. 526 00:21:11,140 --> 00:21:14,080 And it also had an Air Force representative 527 00:21:14,080 --> 00:21:15,220 on the proposal team. 528 00:21:15,220 --> 00:21:17,080 They were proposing to the Air Force, 529 00:21:17,080 --> 00:21:19,218 but there was an Air Force representative on it. 530 00:21:19,218 --> 00:21:21,760 The Air Force representative was not on for business reasons. 531 00:21:21,760 --> 00:21:23,343 The Air Force representative was on so 532 00:21:23,343 --> 00:21:26,470 that the designers understood the requirements of the Air 533 00:21:26,470 --> 00:21:28,800 Force. 534 00:21:28,800 --> 00:21:31,860 So they understood the requirements. 535 00:21:31,860 --> 00:21:33,870 They had what they call gold congruency. 536 00:21:33,870 --> 00:21:36,603 All the members of this team knew what 537 00:21:36,603 --> 00:21:37,770 they were trying to achieve. 538 00:21:37,770 --> 00:21:41,430 They were trying to achieve the winning bid that satisfied 539 00:21:41,430 --> 00:21:43,070 the Air Force customer needs. 540 00:21:43,070 --> 00:21:44,280 OK? 541 00:21:44,280 --> 00:21:46,860 That was what drove all their decisions. 542 00:21:46,860 --> 00:21:50,700 And so they understood what the costs, the requirements were. 543 00:21:50,700 --> 00:21:52,640 Now, what did they do? 544 00:21:52,640 --> 00:21:56,660 They got the designers, and the subcontractors 545 00:21:56,660 --> 00:21:58,170 were involved in the design. 546 00:21:58,170 --> 00:22:01,770 And this turned out, that in the process, 547 00:22:01,770 --> 00:22:05,990 the subcontractors had to rearrange their expected work 548 00:22:05,990 --> 00:22:06,680 share. 549 00:22:06,680 --> 00:22:11,030 Some subcontractors gave up a portion and others gained. 550 00:22:11,030 --> 00:22:14,990 So actually, if you think about it from a narrow point of view, 551 00:22:14,990 --> 00:22:18,410 you're giving up some business, so that you can gain some. 552 00:22:18,410 --> 00:22:22,080 But they knew that that was important to win the contract. 553 00:22:22,080 --> 00:22:23,690 And so they reallocated work share. 554 00:22:23,690 --> 00:22:27,440 Specifically, they had some partitioned electronics 555 00:22:27,440 --> 00:22:28,310 on separate boards. 556 00:22:28,310 --> 00:22:30,310 And they realized, that if they integrated those 557 00:22:30,310 --> 00:22:32,630 on the same board, they could greatly reduce the costs, 558 00:22:32,630 --> 00:22:34,400 and so on. 559 00:22:34,400 --> 00:22:36,650 And the result was, where they originally 560 00:22:36,650 --> 00:22:40,250 thought this unit was going to cost $68,000 per unit, 561 00:22:40,250 --> 00:22:44,190 in the end, it cost $15,000 per unit. 562 00:22:44,190 --> 00:22:45,860 And Boeing now-- 563 00:22:45,860 --> 00:22:47,500 McDonnell Douglas was bought by Boeing. 564 00:22:47,500 --> 00:22:48,750 Boeing is making these things. 565 00:22:48,750 --> 00:22:50,433 That's the plant in East St. Louis. 566 00:22:50,433 --> 00:22:51,350 And everybody's happy. 567 00:22:51,350 --> 00:22:52,642 Boeing is making lots of money. 568 00:22:52,642 --> 00:22:54,920 The Air Force is getting lots of supplies. 569 00:22:54,920 --> 00:22:56,930 But look how much cost reduction they 570 00:22:56,930 --> 00:22:58,820 had by getting those designers involved 571 00:22:58,820 --> 00:23:01,670 in the development, subcontractors involved 572 00:23:01,670 --> 00:23:04,260 in the development and design. 573 00:23:04,260 --> 00:23:06,930 OK, then the fourth attribute is the seamless flow 574 00:23:06,930 --> 00:23:08,990 of information. 575 00:23:08,990 --> 00:23:10,597 And this is a busy picture, which 576 00:23:10,597 --> 00:23:11,680 we don't want to read all. 577 00:23:11,680 --> 00:23:14,770 But the point is that we got here the system 578 00:23:14,770 --> 00:23:17,020 integrator, the Aspect Medical. 579 00:23:17,020 --> 00:23:19,630 And we have over here the supplier. 580 00:23:19,630 --> 00:23:21,520 And in a non-lean supply chain, what 581 00:23:21,520 --> 00:23:26,888 would happen is, over here, an engineering of the supplier, 582 00:23:26,888 --> 00:23:27,930 they may have a question. 583 00:23:27,930 --> 00:23:31,262 They would go up to their sales department. 584 00:23:31,262 --> 00:23:32,970 That would come over here to procurement. 585 00:23:32,970 --> 00:23:35,940 It would come down here to get answered-- 586 00:23:35,940 --> 00:23:39,660 lots of vertical communication paths. 587 00:23:39,660 --> 00:23:41,250 What you want in a lean supply chain 588 00:23:41,250 --> 00:23:44,130 is a lot of horizontal communication paths. 589 00:23:44,130 --> 00:23:46,890 And you need to align it with the level of the organization. 590 00:23:46,890 --> 00:23:49,890 So you would like engineers talking with engineers. 591 00:23:49,890 --> 00:23:53,610 Now, sometimes we give this talk at a government procurement 592 00:23:53,610 --> 00:23:54,110 audience. 593 00:23:54,110 --> 00:23:55,700 They say, oh, that's illegal. 594 00:23:55,700 --> 00:23:57,100 Can't do that. 595 00:23:57,100 --> 00:23:59,845 It may be, but that means it's also not lean. 596 00:23:59,845 --> 00:24:00,345 OK? 597 00:24:03,090 --> 00:24:04,410 Those things can be changed. 598 00:24:04,410 --> 00:24:05,460 OK? 599 00:24:05,460 --> 00:24:08,190 But you have to have some clear guidelines 600 00:24:08,190 --> 00:24:09,810 about what's communicated, who has 601 00:24:09,810 --> 00:24:11,670 responsibility to communicate. 602 00:24:11,670 --> 00:24:13,920 But you want these people on the phone 603 00:24:13,920 --> 00:24:17,100 and on email contact, sharing information, 604 00:24:17,100 --> 00:24:20,430 to have a flexible, responsive supplier. 605 00:24:20,430 --> 00:24:22,530 OK, so we've got a lot of information flow. 606 00:24:22,530 --> 00:24:26,138 Common databases-- you want to be accessing the same database. 607 00:24:26,138 --> 00:24:28,680 You want to have members on the same integrated product team. 608 00:24:28,680 --> 00:24:30,420 We'll talk about that tomorrow. 609 00:24:30,420 --> 00:24:32,760 You want to be exchanging technical data at this level, 610 00:24:32,760 --> 00:24:37,420 not going up and down, and some other things here, 611 00:24:37,420 --> 00:24:38,532 which we won't go into. 612 00:24:38,532 --> 00:24:39,990 But clearly, that's a different way 613 00:24:39,990 --> 00:24:44,220 of doing business from an environment where you 614 00:24:44,220 --> 00:24:47,310 have a non-lean supply chain. 615 00:24:47,310 --> 00:24:51,120 OK, another example of smooth information flow is Exostar. 616 00:24:51,120 --> 00:24:54,780 Exostar is a company, an organization, 617 00:24:54,780 --> 00:24:58,770 which manages the interactions between major aerospace 618 00:24:58,770 --> 00:25:00,780 companies and their suppliers. 619 00:25:00,780 --> 00:25:03,390 So it's like a hub in the supply chain. 620 00:25:03,390 --> 00:25:09,480 They have 34,000 participants in this system. 621 00:25:09,480 --> 00:25:11,610 And it's all electronic. 622 00:25:11,610 --> 00:25:16,740 So suppose Boeing wants to buy some kind of, say, actuators. 623 00:25:16,740 --> 00:25:18,750 Instead of going to all the actuator companies, 624 00:25:18,750 --> 00:25:22,080 they go through Exostar, who manages that transaction. 625 00:25:22,080 --> 00:25:26,850 And it's all very paperless. 626 00:25:26,850 --> 00:25:29,840 And it's just been a huge savings. 627 00:25:29,840 --> 00:25:33,120 And here are some results from Rolls Royce, which 628 00:25:33,120 --> 00:25:37,980 is one of the members, some of the metrics 629 00:25:37,980 --> 00:25:42,090 that go with their participation in Exostar. 630 00:25:42,090 --> 00:25:45,390 Instead of having several thousand suppliers, 631 00:25:45,390 --> 00:25:48,570 they deal with several hundred; reduction 632 00:25:48,570 --> 00:25:51,000 of cost of goods purchased of up to 20%, 633 00:25:51,000 --> 00:25:54,600 because of this integrated supplier management; 634 00:25:54,600 --> 00:25:58,020 system inventory levels down 80%; 635 00:25:58,020 --> 00:26:00,630 error reduction down, because they're not manually 636 00:26:00,630 --> 00:26:03,240 entering in a lot of data; reduced cycle times 637 00:26:03,240 --> 00:26:06,810 as much as 80%; basically, elimination of paper; 638 00:26:06,810 --> 00:26:08,850 and improved relations, who have benefited 639 00:26:08,850 --> 00:26:13,910 from this reduced transaction costs. 640 00:26:13,910 --> 00:26:18,290 OK, so now let's move to the last topic of the module. 641 00:26:18,290 --> 00:26:20,828 And that is, how do you improve the existing supply chains? 642 00:26:20,828 --> 00:26:22,620 Well, we already heard from Jeff yesterday. 643 00:26:22,620 --> 00:26:24,240 You work with your suppliers. 644 00:26:24,240 --> 00:26:26,030 OK? 645 00:26:26,030 --> 00:26:28,040 You look at your value stream. 646 00:26:28,040 --> 00:26:31,520 You try to find out, who are your critical suppliers? 647 00:26:31,520 --> 00:26:33,620 You want to work with them. 648 00:26:33,620 --> 00:26:35,450 So who's on the critical paths? 649 00:26:35,450 --> 00:26:39,238 Where are the high-cost items or the long-lead items, and so on? 650 00:26:39,238 --> 00:26:41,030 And Jeff just couldn't have said it better. 651 00:26:41,030 --> 00:26:42,753 Yesterday, he said, when they started 652 00:26:42,753 --> 00:26:44,420 their lean transformation, they went out 653 00:26:44,420 --> 00:26:46,003 and let their suppliers know that they 654 00:26:46,003 --> 00:26:47,115 weren't dropping them. 655 00:26:47,115 --> 00:26:49,240 They were just going to deal with them differently. 656 00:26:49,240 --> 00:26:50,450 OK? 657 00:26:50,450 --> 00:26:57,925 If the supplier is ready to become a lean organization-- 658 00:26:57,925 --> 00:26:59,230 now, they may not be ready yet. 659 00:26:59,230 --> 00:27:00,855 They may not have the right management, 660 00:27:00,855 --> 00:27:02,273 or they may not be educated. 661 00:27:02,273 --> 00:27:03,940 They might not have taken a Lean Academy 662 00:27:03,940 --> 00:27:05,920 and learned the importance of this. 663 00:27:05,920 --> 00:27:07,810 Then they've got to do some prep work. 664 00:27:07,810 --> 00:27:10,040 But if they're lean-ready, then they can go out. 665 00:27:10,040 --> 00:27:13,480 And the prime will actually work with the supplier. 666 00:27:13,480 --> 00:27:16,000 They'll go out, and they'll run Kaizen events with them. 667 00:27:16,000 --> 00:27:18,190 They might lend them a lean expert 668 00:27:18,190 --> 00:27:19,690 to be on site for a while. 669 00:27:19,690 --> 00:27:22,130 They might invite them to their training programs. 670 00:27:22,130 --> 00:27:25,060 We taught one of these Lean Academies at Raytheon, 671 00:27:25,060 --> 00:27:26,290 up the road-- not Raytheon-- 672 00:27:26,290 --> 00:27:29,200 Textron Systems, up the road, here in Wilmington, Delaware. 673 00:27:29,200 --> 00:27:32,140 A couple of years ago, Hugh and I and Jackie taught that. 674 00:27:32,140 --> 00:27:35,163 And they invited their suppliers to the class. 675 00:27:35,163 --> 00:27:37,330 They had about five suppliers, some from California, 676 00:27:37,330 --> 00:27:39,250 some from Colorado. 677 00:27:39,250 --> 00:27:40,840 They build their relationship. 678 00:27:40,840 --> 00:27:44,350 They understand what the value-stream mapping, 679 00:27:44,350 --> 00:27:46,100 that value stream is. 680 00:27:46,100 --> 00:27:49,960 They come up with their plans to develop a lean strategy 681 00:27:49,960 --> 00:27:52,840 in that organization. 682 00:27:52,840 --> 00:27:55,480 And they have some mutual workshops and Kaizen events 683 00:27:55,480 --> 00:27:58,450 and a kind of a continuous improvement cycle. 684 00:27:58,450 --> 00:28:00,730 So this is the way a lean organization 685 00:28:00,730 --> 00:28:01,780 works with its suppliers. 686 00:28:01,780 --> 00:28:02,380 It helps them. 687 00:28:02,380 --> 00:28:05,433 It invests in them. 688 00:28:05,433 --> 00:28:06,850 Actually, we have some people here 689 00:28:06,850 --> 00:28:08,260 from the Veterans Administration. 690 00:28:08,260 --> 00:28:09,802 Rockwell Collins, which we've already 691 00:28:09,802 --> 00:28:12,820 talked about in this Lean Academy, 692 00:28:12,820 --> 00:28:14,950 starting to see that some of their major costs 693 00:28:14,950 --> 00:28:16,930 were their health care for their employees 694 00:28:16,930 --> 00:28:18,520 in the Cedar Rapids area. 695 00:28:18,520 --> 00:28:21,730 So they started working with the Cedar Rapids hospitals 696 00:28:21,730 --> 00:28:23,050 to help them become lean. 697 00:28:23,050 --> 00:28:24,550 Because they knew, in the long term, 698 00:28:24,550 --> 00:28:25,930 it was going to benefit them. 699 00:28:25,930 --> 00:28:29,740 And they loan their lean experts to Mercy Hospital 700 00:28:29,740 --> 00:28:30,700 in Cedar Rapids. 701 00:28:30,700 --> 00:28:34,600 And they're doing gratings now. 702 00:28:34,600 --> 00:28:39,230 OK, here's one example from Boeing about Hicksville Machine 703 00:28:39,230 --> 00:28:42,950 Works on Long Island and some of the benefits that came out. 704 00:28:42,950 --> 00:28:47,180 And these benefits that Hicksville came from Boeing, 705 00:28:47,180 --> 00:28:49,538 they're going to use with other customers. 706 00:28:49,538 --> 00:28:51,830 Boeing invested in it, and they'll use other customers. 707 00:28:51,830 --> 00:28:54,450 That's OK, because everybody's going to win. 708 00:28:54,450 --> 00:28:57,010 So those are typical type things. 709 00:28:57,010 --> 00:29:00,790 Now, as you do this, you start treating your supply base 710 00:29:00,790 --> 00:29:02,290 more strategically. 711 00:29:02,290 --> 00:29:06,460 Instead of a supply base being all the same, you're strategic. 712 00:29:06,460 --> 00:29:08,800 So certain ones you have strategic alliances with, 713 00:29:08,800 --> 00:29:13,510 these might be really critical partners. 714 00:29:13,510 --> 00:29:16,510 For instance, Rockwell Collins has a strategic alliance 715 00:29:16,510 --> 00:29:19,870 with Boeing, because they build flight decks. 716 00:29:19,870 --> 00:29:22,600 Your suppliers-- you'll certify them, 717 00:29:22,600 --> 00:29:25,898 so that-- say a gold supplier is very reliable. 718 00:29:25,898 --> 00:29:27,940 You might not do any inspection on something that 719 00:29:27,940 --> 00:29:29,190 comes in from a gold supplier. 720 00:29:29,190 --> 00:29:31,495 It just goes directly online, because you 721 00:29:31,495 --> 00:29:34,585 know that they have their processes under control, 722 00:29:34,585 --> 00:29:36,460 and that they've inspected it before it left, 723 00:29:36,460 --> 00:29:38,890 and taken the quality responsibility. 724 00:29:38,890 --> 00:29:40,510 Where, someone who is on probation 725 00:29:40,510 --> 00:29:41,680 might be just the opposite. 726 00:29:41,680 --> 00:29:43,555 You're not having good performance from them, 727 00:29:43,555 --> 00:29:45,160 so you have a lot of quality control. 728 00:29:45,160 --> 00:29:48,250 Then you might have your people out in their-- 729 00:29:48,250 --> 00:29:50,810 they might be having troubles with their production system. 730 00:29:50,810 --> 00:29:53,520 And so you're sending help out there to help them. 731 00:29:53,520 --> 00:29:56,050 OK, strategically support-- important suppliers 732 00:29:56,050 --> 00:29:58,480 might have, say, some particular kind of materials, 733 00:29:58,480 --> 00:30:01,210 some titanium, or something, that maybe there's 734 00:30:01,210 --> 00:30:03,430 only one supply for. 735 00:30:03,430 --> 00:30:06,010 So that one, you want to treat strategically. 736 00:30:06,010 --> 00:30:08,240 These are the commodity items-- 737 00:30:08,240 --> 00:30:10,458 a core. 738 00:30:10,458 --> 00:30:12,250 And then these are the ones you get rid of. 739 00:30:12,250 --> 00:30:13,630 They're just not performing. 740 00:30:13,630 --> 00:30:17,020 So supply chain management is a core competency 741 00:30:17,020 --> 00:30:19,320 of a lean organization. 742 00:30:19,320 --> 00:30:21,930 OK, where are we going in the future? 743 00:30:21,930 --> 00:30:24,750 The old approach is the build-to-order. 744 00:30:24,750 --> 00:30:27,583 The customer sends an order to the prime. 745 00:30:27,583 --> 00:30:29,250 The prime sends it back to the customer. 746 00:30:29,250 --> 00:30:31,042 The prime puts it down to the subcontractor 747 00:30:31,042 --> 00:30:32,790 or the subcontract-- 748 00:30:32,790 --> 00:30:35,160 so a lot of interfaces, rigid interfaces, 749 00:30:35,160 --> 00:30:39,730 lack of communication, distrustful relationships. 750 00:30:39,730 --> 00:30:41,910 The prime beats up on their supplier-- 751 00:30:41,910 --> 00:30:44,820 get your costs down, that type of thing. 752 00:30:44,820 --> 00:30:49,140 Current lean is much more collaborative 753 00:30:49,140 --> 00:30:51,510 with sharing a lot of information. 754 00:30:51,510 --> 00:30:53,670 So you might invite your suppliers in 755 00:30:53,670 --> 00:30:57,070 and give them your sales forecasts, your business plans. 756 00:30:57,070 --> 00:31:00,893 That's very proprietary information for most companies. 757 00:31:00,893 --> 00:31:02,310 But if it's an important supplier, 758 00:31:02,310 --> 00:31:04,350 you want them to know what the visibility is. 759 00:31:04,350 --> 00:31:06,210 Emerging lean is like with the JDAM, 760 00:31:06,210 --> 00:31:08,940 where you actually form almost like a company 761 00:31:08,940 --> 00:31:10,020 for that project. 762 00:31:10,020 --> 00:31:12,570 And you open up your proprietary databases 763 00:31:12,570 --> 00:31:15,090 for design and development. 764 00:31:15,090 --> 00:31:18,970 And there's some examples in our book about that. 765 00:31:18,970 --> 00:31:20,500 OK, so wrap up-- 766 00:31:20,500 --> 00:31:25,150 suppliers are critical to the lean enterprise success. 767 00:31:25,150 --> 00:31:27,790 Supply chains need to be understood and designed 768 00:31:27,790 --> 00:31:30,190 to meet the needs of the product. 769 00:31:30,190 --> 00:31:32,080 Legacy supply chains can be improved 770 00:31:32,080 --> 00:31:34,960 through win-win customer supplier teamwork. 771 00:31:34,960 --> 00:31:38,850 And it's a core competency of a lean organization.