Lean manufacturing principles and applications

Lean Manufacturing

Best Practices in Lean Manufacturing Processes for Mass Customization

Manufacturers are seeking greater levels of product and service differentiation to extend their product lifecycles while also attaining cost reductions through process efficiencies and the use of lean manufacturing techniques. The use of mass customization across all product lines and build-to-order specifically are redefining manufacturing strategies from being purely efficiency driven to being significant from a selling standpoint as well (Sharma, LaPlaca, 476). Lean process efficiency applied to mass customization, build-to-order, configure-to-order and engineer-to-order delivers financial results when these lean manufacturing techniques are integrated with supply chain, manufacturing scheduling, and product systems. Table 1, Financial Impact of Lean Manufacturing Applied to Build-to-Order Workflows shown in the Appendix of this analysis provides financial analysis of the financial benefits manufacturers can realize when they automate these product workflows. To attain these levels of financial performance however, lean manufacturing techniques including Six Sigma is often applied to the quoting, sales and product configuration, manufacturing workflows and logistics processes to ensure the highest level of performance possible. The intent of this analysis is to evaluate how lean manufacturing techniques are delivering financial performance improvement based on more efficient process execution and continual improvement choosing the best possible mass customization strategy given internal constraints, resources, and strengths (Cavusoglu, Cavusoglu, Raghunathan, 16, 17).

Applying Lean Manufacturing Techniques to Mass Customization

Manufacturers who often adopt and continually strive to improve their mass customization, build-to-order, configure-to-order and engineer-to-order strategies rely on value stream mapping to find areas of relative strength or weakness (Chandandeep, 405, 406). In conjunction with value stream mapping, manufacturers are also relying on the Six Sigma DMAIC process (Reidenbach, Goeke, 46, 47) illustrated in Figure 1, Six Sigma DMAIC Process.

Figure 1: Six Sigma DMAIC Process

Source: (Reidenbach, Goeke, et.al.)

Each of these five areas of the Six Sigma methodology collectively contribute to ensuring manufacturing processes that are being transformed to greater efficiency, or made leaner, still stay focused on customers' unmet needs. The fact that lean manufacturing implementations are most successful when they are anchored in the unmet, urgent needs of customers is a critical point of this use of the DMAIC methodology in general and Six Sigma specifically (Hallgren, Olhager, 978. 979). The prioritization of customer needs throughout the entire Six Sigma process is also captured in the Voice of the Customer synthesis which occurs as part of the DMAIC methodology over time (Reidenbach, Goeke, 45, 46). Implicit in Six Sigma are the initially conflicting dual roles of optimizing performance and reduction of costs of a process while at the same time creating enough agility and lean-based workflows to keep the processes (and therefore the entire company) more customer- and demand-driven and responsive.

The use of lean manufacturing processes, principles and techniques are especially relevant in the context of creating mass customization, build-to-order, configure-to-order, and engineer-to-order workflows. The implications of including Six Sigma workflows into product designs also become especially relevant in the context of product lifecycle management (PLM) synchronization and planning (Kumar, Wellbrock, 15). The implications of Six Sigma process improvements for one specific product generation need to be included and integrated into each subsequent product generation to be effective in attaining lean manufacturing benchmarked performance objectives (Searcy, 34, 35). This continual progression of process improvement the catalyst of which is lean manufacturing techniques is what makes the attainment of longer-term financial metrics of performance shown in Table 1, Financial Impact of Lean Manufacturing Applied to Build-to-Order Workflows attainable. As Six Sigma methodologies' contributions to mass customization are primarily in the removing of unpredicted variability in the context of actual manufacturing strategies (Hallgren, Olhager, 979, 980) the definition of customization of each specific strategy is needed. Table 2, Definition of Mass Customization Production Strategies provides the necessary framework for determining to just what extent Six Sigma needs to be used as a lean manufacturing strategy. Each of these levels of customization are associated with a unique set of DMAIC requirements and variations in how the Voice of the Customer phases of the Six Sigma methodologies are managed throughout PLM strategies.

Table 2: Definition of Mass Customization Production Strategies

Sources: (Cavusoglu, Cavusoglu, Raghunathan, 12 -- 28) (Hallgren, Olhager, 976 -- 999) (Kumar, Craig, 194 -- 214) (Sharma, LaPlaca, 476 -- 486)

Measuring Performance of Lean Manufacturing

In using lean manufacturing techniques to make mass customization strategies more effective, the development of benchmark performance scoring is critical (Searcy, 45, 46). These measures of performance vary significantly across manufacturers, yet lean manufacturing initiatives share a common basis in core areas of measurement. These common areas of measurement to evaluate the performance of lean manufacturing initiatives include company-specific, Sales, Quote and Order, Customer Service, and Warranty & Returns (Hallgren, Olhager, 978, 979). Depending on the intersection of lean manufacturing process and level of product customization as defined by to-order strategy a subset of the metrics shown in Table 3: Comparison of Lean Manufacturing Metrics and Performance are often used.

Table 3: Comparison of Lean Manufacturing Metrics and Performance

Areas of Measurement

Baseline: What is Measured

Resulting Performance

Company-specific

Project costs and expenses

Use as a baseline for defining ROI

Number of orders per year

Determine configuration's impact on inventory turns

Current inventory and costs

Inventory turn savings

Customer Data

Lifetime cost per customer; avg. deal size by customer

Sales

Order cycle time

Order cycle times reduction of 37% or more recorded with mftrs contacted

Cost of Sales

Days Sales Outstanding reduction from 54 to 24 days on average

Cross-sell and up-sell revenue

Increase of 47% on aggregate

Average sales price per order

Increase from 6% to 31%

Quote and Order

Average costs to complete an order

89% reduction in cost per order

Special Pricing Requests

Over 90% ROI on automating Special Pricing Requests

Bad or incomplete orders

Incomplete order reductions of 36%

Customer Service

Number of customer complaints

82% reduction in cost of simple requests

Revenue lost to churn

69% when cross-selling is used with quote-to-order

Number of calls on order status

Median level of 16,000 per week to 100

Warranty and Returns

Reduction in warranty cost on customized products

13% reduction at a minimum

Labor cost reductions

Decrease order re-work from 17% to 2%

Conclusion