COST REDUCTION for Improving Productivity

Rajnish Kumar Dy CVO

What is Productivity
Output/Input Increased Production with lesser input of assets- manpower, material

To appreciate improvement in productivity, without going into theory we will understand

The Toyota Production System

Story of Worlds Most Efficient Manufacturing System

Why study Toyota?

In 2003
Total annual profit on March 2003 was $8.23 billion- larger than combined earnings of GM, Chrysler and Ford. Profit margin was 8.3 times higher than industry average. Toyota shares rose 24% from their 2002 values. Market capitalization was $105 billion as of 2003 higher than total of Big 3.

In 2002, Lexus outsold BMW, Cadillac and Mercedes Benz in the US for the third year in a row.
In 2003, sold more vehicles than Ford and Chevrolet.

The company has made profit every year over the last 25 years and has approximately $20-$30 billion in cash on a consistent basis.

More laurels
In 2003, Toyota recalled 79% fewer vehicles in US than Ford and 92% fewer than Chrysler. According to Consumer Reports, 15 out of the 38 most reliable models from any manufacturer over the last seven year came from Toyota/Lexus. According to J.D. Powers ranking for initial quality and long-term durability, Lexus was #1 most reliable car in 2003 followed by Porsche, BMW and Honda.

Not a single Toyota car is on the dreaded vehicles to avoid list published by Consumer Reports. About 50% of the GMs and more than 50% of the Chryslers are to be avoided.
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How did it happen?

Incredible consistency comes from operational excellence. The operational excellence is based on the quality improvement tools and methods developed by Toyota (under the TPS): such as JIT, kaizen, one-piece-flow, jidoka, and heijunka! These technique triggered a lean revolution in the manufacturing sector. Of course, Toyota system is much deeper and in fact is at a philosophical level! Toyota Way 14 principles which constitute this philosophy.

The Toyota Way

4P model Philosophy (Long-term thinking) Process (eliminate waste) Kaizen People and partners (Respect, Challenge them to achieve more, Grow leaders) Problem-solving (Continuous improvement and learning) Genchi genbutsu

What is Toyotas idea?

Taiichi Ohno (founder of TPS)
All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-valueadded waste.
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Truths from the TPS philosophy

Often the best thing you can do is to idle a machine, stop producing parts. Often it is best to selectively add and substitute overhead for direct labor. It may not be a top priority to keep your workers busy making parts as fast as possible. It is best to selectively use information technology and often better to use manual process even when automation is available and would seem to justify its cost in reducing your headcount. Identify activities that add value to raw material, and get rid of everything else.
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Truths from the TPS philosophy

Start with the customer, by asking yourself what value are we adding from the customers perspective? The only thing that adds value in any type of process, is the physical or information transformation of that product, service or activity into something the customer wants. Comparison of people and material in your shop dont make them wait. Because it transforms into your internal and external customer becoming impatient.

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Story from the beginning

Starts with Sakichi Toyoda who grew up in predominantly farming community in late 1800s. Weaving was a major industry promoted by the Japanese government. By 1894, Sakichi began to make manual looms that were cheaper but of better quality (more features and less failures). Started working on his own to develop power-driven loom. This approach of learning and doing yourself became integral part of TPS (genchi genbutsu). Among his inventions was a special mechanism to automatically stop a loom whenever a thread broke building in quality as you produce the material (jidoka or poka-yoke).

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Toyota story
The mistake-proof loom became Toyodas most popular model and in 1929, his son Kichiro, negotiated the sale of patent rights to Platt Brothers of England for 100,000. In 1930, these funds were used to start building the Toyota Motor Corp. Kichiros contribution to the Toyota philosophy JIT. What is JIT? marriage between the Fords idea of assembly line and US supermarket system of replacing products on the shelves just in time as customer purchased them.

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Toyota story
Post-WWII, rampant inflation meant getting paid by customers was very difficult. Cash-flow problems lead to pay cuts. When situation worsened, 1600 workers were asked to retire voluntarily. The resultant work stoppages and public demonstrations by workers led to resignation of Kichiro. Eiji Toyoda took over as president. Eijis main contribution leadership towards development of the TPS. Eiji hired Taiichi Ohno as the plant manager and asked him to improve Toyotas manufacturing process so that it equals the productivity of Ford.
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Toyota story
Taiichi Ohno benchmarked the competition by visiting Ford and studied Henry Fords book. Impressed with Fords philosophy of eliminating waste. Ford itself didnt seem to practice it. Took idea of reducing inventory by implementing pull system from the US supermarkets. Pull system was implemented by Kanban cards. Ohno also took ideas from Deming when he was lecturing in Japan about quality and productivity.

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Toyota story
Deming told the Japanese industry about meeting and exceeding customer satisfaction. Also broadened the definition of customer to include both internal as well as external customers. The next process is the customer became the most significant expression for JIT, because in a pull system it means the proceeding process must always do what the subsequent process says. Otherwise JIT wont work.

Demings PDCA (plan-do-check-act) cycle led to KaizenContinuous improvement.

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Ford vs. Toyota

Fords mass production system was designed to make huge quantities of limited number of models. Toyota needed a system to make low volumes of different models using the same assembly line. Ford had cash and a large market. Toyota needed to turn cash around quickly. Toyota didnt have the resources for huge volumes of inventory and economies of scale afforded by Fords mass production system.

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Ford vs. Toyota

The mass production system was focused on short-term costs. Make bigger machines and through economies of scale drive down cost. Automate to replace people if it can be justified in terms of cost. Then the business world got the quality religion from Deming, Juran, Ishikawa and other quality gurus. Combining these Toyota developed the TPS which focused on speed in the supply chain: Shortening lead time by eliminating waste in each step of a process leads to best quality and lowest cost, while improving safety and morale.
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Ford vs. Toyota

Toyota system demonstrates that focusing on quality actually reduced cost more than focusing only on cost.

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14 Toyota-Way Principles
Section I Long-term philosophy Principle 1: Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals. Section II The Right processes will produce the right results Principle 2: Create continuous process flow to bring problem to the surface. Principle 3: Use pull system to avoid overproduction. Principle 4: Level out the workload (heijunka). (work like a tortoise not the hare.) Principle 5: Build the culture of stopping to fix problems to get quality right the first time.
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14 Toyota-Way Principles
Principle 6: Standardize tasks are the foundation for continuous improvement and employee empowerment. Principle 7: Use visual control so no problems are hidden. Principle 8: Use only reliable, thoroughly tested technology that serves your people and processes. Section III Add value to the organization by developing your people and partners Principle 9: Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.
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14 Toyota-Way Principles
Principle 10: Develop exceptional people and teams who follow your companys philosophy. Principle 11: Respect your extended network of partners and suppliers by challenging them and helping them improve.

Section IV Continuously solving root problem drives organizational learning Principle 12: Go and see for yourself to thoroughly understand the situation (genchi genbutsu). Principle 13: Make decisions slowly by consensus, thoroughly considering all options, implement decisions rapidly.
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14 Toyota-Way Principles
Principle 14: Become a learning organization through relentless reflection (hensei) and continuous improvement (kaizen).

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Eliminating Waste (Muda)

First question the TPS asks is What does the customer want from this process? (both internal as well as external customers). This defines value. Through the customers eyes, we can then observe the process and separate the value-added steps from the non-value added steps. This can be applied to any process manufacturing, or a service.

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Types of waste
Overproduction: Producing items for which there are no orders, which generates such wastes as overstaffing and storage and transportation costs because of excess inventory. Waiting: Workers having to stand around waiting for the next processing step, tool, part etc. Or no work because of stockouts, lot processing delays, equipment downtime, and capacity bottlenecks. Unnecessary transport: Carrying WIP long distances, creating inefficient transport, or moving parts in and out of storage facility.

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Types of waste
Over-processing or incorrect processing: Taking unneeded steps to process the parts. Inefficient processing due to poor tools and product design, causing unnecessary motion and producing defects. Waste generated when providing higherquality products than is necessary. Excess inventory: Excess raw material, WIP or finished goods causing longer lead times, obsolescence, damaged goods. Extra inventory hides problems such as production imbalances, late deliveries from suppliers, defects, equipment downtime, and long set-ups. Unnecessary movements: Any wasted motion employees have to perform during the course of their work, such as looking for, reaching for, or stacking parts, tools etc. Walking is a waste.
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Types of waste
Defects: Production of defective parts or correction. Repair or rework, scrap, replacement production, and inspection mean wasteful handling, time and efforts. Unused employee creativity: Losing ideas, skills, improvements, and learning opportunities by not engaging or listening to your employees.

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Eliminating Waste
First step in removing non-value added steps from a process is to map the process. Map the value stream following the actual path taken by the part in the plant. Walk the full path yourself One can draw the path on a layout and calculate the time and distances traveled (spaghetti diagram). Traditional cost saving focuses on value-added items and try to improve those. TPS focuses on the entire value stream to eliminate the nonvalue adding items.
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Traditional process improvement vs. TPS

Traditional approach focuses on identifying local efficiencies. Go to the equipment, the value-added processes, and improve uptime, or make the cycle faster, or replace the person with automated equipment. In TPS, large number of non-value-added steps are squeezed out. One way to achieve this is through cell formation (cellular manufacturing), which should ideally result in one-piece flow of products or services.

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Benefits of One-Piece Flow Cell Formation

Builds in quality Every operator is an inspector and works to fix problems in station before passing them on. If defects do get passed on, they are detected quickly and problem can be immediately diagnosed and corrected. Creates flexibility If shorter lead times, more flexibility to respond and make what customer really wants. Pushes for setup time reduction. Creates higher productivity Every easy to spot the busy or idle station and easier to calculate the value-added work. Frees up floor space Because of inventory storage reduction.

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Benefits of One-Piece Flow

Improves safety Smaller batches means simpler transportation system and less accidents because of forklifts. Improves morale People do high percentage value-added work and can see the results of their work faster. Reduces cost of inventory Obvious!

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Pull system to avoid overproduction

Milk example weekly batch or daily purchase? Next purchase triggered when you start using the only bottle of milk you have. Not an example of zero-inventory, but still a pull system. Because of demand uncertainty and lead-times, in many cases inventory is necessary to allow for smooth production. Hence TPS follows the supermarket model or keeping a small amount in stock. As soon as customers take products away, they are replenished. Each demand instance triggers a part being pulled from upstream. The triggering mechanism is called Kanban which means cards, signboard or a poster.
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Kanban system
At Toyota, empty bin (a kanban) is send upstream after a demand instance. It is a signal to refill it with a specific number of parts or send back a card with detailed information about the part location. Even today, one can see Kanban cards and bins moving on the shop-floor. Instead of using sophisticated computer scheduling techniques, this is a simple, effective and visual system of managing and ensuring the product flow and JIT production system.

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Kanban system
Gas tank example. Toyota philosophy about kanban: Kanban is an organized system of inventory buffers and as per TPS, inventory is waste, whether it is in pull system or push system. So kanban is something you strive to get rid of. Toyota uses kanban to force process improvements.

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Kanban system
Suppose we have four kanban cards for a particular products. One each for four bins of products. TPS will conduct studies in which one of the kanban cards (along with the corresponding bin) is thrown away. Now, if the machine breaks down, the downstream process will run out of parts 25% faster. The stress in the system will cause production shutdowns, and will force teams to come up with process improvements.

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Not just pull

Purely from the production perspective, it should be noted that Toyota also uses push system where pull simply cannot be implemented. Examples? In such cases, the emphasis in on lead-time reduction. Nowadays, because of Toyota experimenting e-kanban cards, combination of push and pull system is used whenever necessary.

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Level out the workload (heijunka)

1. 2. 3. Demand uncertainty may lead to bumpy production schedule if one-piece-flow is followed literally. TPS realizes that strict build-to-order system will again build-up inventory and increase waste (Muda). Hence TPS tries to even out the production by consolidating orders. Three-pronged approach: Elimination of Muda (non-value-added) Muri (overburdening people or equipment) Mura (unevenness) Toyota achieves the combination of JIT and heijunka by following the principle of change-to-order (not build-toorder) by delayed customization.
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Jidoka- Autonomation
Hence we need a method to detect defects when they occur and automatically stop production so an employee can fix the problem before the defect continues downstream. Jidoka is also referred to as autonomation equipment endowed with human intelligence to stop itself when it has a problem. In-station quality is much more effective and less costly than inspecting and repairing quality problem after the fact. Lean manufacturing dramatically increases the importance of building things right the first time. With very low levels of inventory, there is little buffer to fall back on in case there is quality problem.
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Some Basics Concepts of TPS

1. Smooth Flow and Produce to Takt Time 2. Produce to Order 3. Make system observable and correct

problems as they occur

4. Integrate Worker Skills

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Barriers to Implementation
Early abandonment Costs History of conflict and distrust Resistance of supervisors Lack of supportive infrastructure

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Back to Cost Reduction

Manpower Material

Reduce Waste Improve utilization

By proper management of TIME and SPACE
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How?
Use Toyota Methods

Proper Monitoring of all Systems Expected savings of Rs 15-20 Crore in DLW which is 1% of our Total Budget
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Questions?

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