Equipment replacement decisions and lean manufacturing
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Robotics and Computer Integrated Manufacturing 18 (2002) 255265
Equipment replacement decisions and lean manufacturing
William G. Sullivan, Thomas N. McDonald, Eileen M. Van Aken
Grado Department of Industrial and Systems Engineering, Virginia Polytechnic Institute and State University, Blacksburg, VA, USA
Traditional manufacturing systems are built on the principle of economies of scale. Here, the large xed costs of production are
depreciation-intensive because of huge capital investments made in high-volume operations. These xed costs are spread over large
production batch sizes in an effort to minimize the total unit costs of owning and operating the manufacturing system. As an
alternative to batch-and-queue, high-volume, and inexible operations, the principles of the Toyota Production System (TPS) and
lean manufacturing have been widely adopted in recent years in the US . In this paper, we illustrate an equipment replacement
decision problem within the context of lean manufacturing implementation. In particular, we demonstrate how the value stream
mapping (VSM) suite of tools can be used to map the current state of a production line and design a desired future state. Further, we
provide a roadmap for how VSM can provide necessary information for analysis of equipment replacement decision problems
encountered in lean manufacturing implementation. r 2002 Elsevier Science Ltd. All rights reserved.
Keywords: Lean production; Equipment replacement; Cellular manufacturing; Value stream mapping
Traditional manufacturing systems are built on theprinciple of economies of scale. Here, the large xedcosts of production are depreciation-intensive becauseof huge capital investments made in high-volumeoperations. These xed costs are spread over largeproduction batch sizes in an effort to minimize the totalunit costs of owning and operating the manufacturingsystem. Large work-in-process inventories are alsocharacteristic of traditional manufacturing. The resul-tant batch and queue operation produces largenumbers of a particular product and then shiftssequentially to other mass-produced products.As an alternative to batch-and-queue, high-volume,
and inexible operations, the principles of the ToyotaProduction System (TPS) have been widely adopted inrecent years throughout the US . Application ofTPS principles have led to lean manufacturing (alsocalled lean production, or lean thinking ) in whichproduction and assembly cells consisting of product-focused resources (workers, machines, oor space, etc.)are closely linked in terms of their throughput times andinventory control. These cells are typically U-shapedor rectangular and lend themselves to (1) smooth(balanced) work ow across a wide variety of products,(2) elimination of waste, (3) high quality output, (4)
exible operation, and (5) low total unit productioncosts. Economic benets attributable to lean manufac-turing include reduced lead-time and higher throughput,smaller oor space requirements, and lower work-in-process .In factories using lean manufacturing, large machines
characteristic of batch-and-queue processes (typicallyreferred to as monuments) are often no longer alignedwith lean work cells and are not needed or desired.Instead, smaller more exible machines are typicallyorganized into work cells devoted to the production of afamily of products [1,46]. Workers then operate themachines in the cell to minimize the cycle time for afamily of products, minimize inventory, and maximizequality.In existing factories, eliminating monuments and
investing in new, smaller machines can be troublesometo managers who were responsible for originallyapproving a high-volume batch-and-queue manufactur-ing process. Scrapping a massive piece of equipment,which still has a sizeable book value, can be viewed asadmitting that a mistake was made years ago byinvesting in manufacturing technology that quicklybecame obsolete. Therefore, the decision to abandon(or replace) high-volume monolithic machines in favorof cellular manufacturing systems that employ TPS andlean manufacturing principles can be extremely difcult
0736-5845/02/$ - see front matter r 2002 Elsevier Science Ltd. All rights reserved.
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for managers to make, fraught with subjective factorsbeyond economics.The purpose of this paper is twofold: (1) to provide a
roadmap to illustrate how value stream mapping (VSM)and its associated tools can be used to design a desiredfuture state aligned with lean manufacturing principlesand (2) to examine the economic aspects of replacementdecisions created by lean manufacturing systems usinginformation on anticipated cost savings from VSM. Webegin with a discussion of VSM and its associated tools,how they are used to map a current state and design afuture state. We then use a hypothetical example toquantify the typical economic benets associated withlean manufacturing. Lastly, we analyze the economictrade-offs arising from a decision to invest in a futurestate including work cells that replace a high-volumetransfer line.
2. Lean manufacturing
Lean manufacturing has been increasingly adopted asa potential solution for many organizations, particularlywithin the automotive [3,7,8] and aerospace manufacturing industries. Although a number of prin-ciples and tools appear to be derived from Just-in-Time,cellular manufacturing, and World Class Manufactur-ing, lean manufacturing has emerged relatively recentlyas an approach that integrates different tools to focus onthe elimination of waste and produce products that meetcustomer expectations [4,12].Womack and Jones  used the term lean thinking to
label the thinking process of Taiichi Ono and the set ofmethods describing the Toyota Production System.James-Moore and Gibbons  dene key areas offocus, each with associated principles, within the leanmanufacturing approach: exibility, waste elimination,optimization, process control, and people utilization.These areas of focus and principles can be operationa-lized using specic tools and techniques. A number ofauthors have dened the portfolio of tools/techniques toimplement lean manufacturing [12,14,15]. In this paper,we demonstrate how (VSM) can be used as a means toidentify where waste occurs within the transfer line[4,16].A value stream is dened as all the value-added and
non-value-added actions required to bring a specicproduct, service, or combination of products andservices, to a customer, including those in the overallsupply chain as well as those in internal operations[4,17]. VSM is an enterprise improvement technique tovisualize an entire production process, representinginformation and material ow, to improve the produc-tion process by identifying waste and its sources . AVSM, both current and future state, is created using apre-dened set of icons (shown in Fig. 1). VSM creates a
common language about a production process, enablingmore purposeful decisions to improve the value stream.A value stream map provides a blueprint for
implementing lean manufacturing concepts by illustrat-ing how the ow of information and materials shouldoperate . VSM is divided into two components: bigpicture mapping and detailed mapping . Beforestarting detailed mapping of any core process, it is usefulto develop an overview of the key features of that entireprocess. The overview will help accomplish the follow-ing :
* Visualize the ows.* Identify where waste occurs.* Integrate the lean manufacturing principles.* Decide who should be on implementation teams.* Show relationships between information and physical
Visualizing the ow creates the ability to see where,when, and how both the information and product owsthrough the organization. As dened in , there areseven wastes that can occur in a system.
1. OverproductionFProducing too much or too soon,resulting in poor ow of information or goods andexcess inventory.
2. DefectsFFrequent errors in paperwork or material/product quality problems resulting in scrap and/orrework, as well as poor delivery performance.
3. Unnecessary inventoryFExcessive storage and delayof information or products, resulting in excessinventory and costs, leading to poor customer service.
4. Inappropriate processingFGoing about work pro-cesses using the wrong set of tools, procedures orsystems, often when a simpler approach may be moreeffective.
5. Excessive transportationFExcessive movement ofpeople, information or goods, resulting in wastedtime and cost.
6. WaitingFLong periods of inactivity for people,information or goods, resulting in poor ow andlong lead-times.
7. Unnecessary motionFPoor workplace organization,resulting in poor ergonomics, e.g., excessive bendingor stretching and frequently lost items.
To describe and create an overview of a productionprocess, big picture mapping is used [12,18]. Fig. 2 is ageneric example of a big picture map for current statesituation in a hypothetical transfer line. Fig. 2 encapsu-lates the ve basic phases in the big picture mappingexercise :
* Dene customer requirements.* Map information ows.
W.G. Sullivan et al. / Robotics and Computer Integrated Manufacturing 18 (2002) 255265256
* Map physical ows.* Link physical and information ows.* Complete the map by making the above information
visual and include a timeline of total lead-time vs. thevalue-added time.
Information concerning product family, customerdemand (when, where, how many, and how often),parts to be manufactured, packaging requirements, andcustomer stock to be held are gathered during thecustomer requirements phase. The information ow
Fig. 1. VSM icons .
Supplier 4 Week Forecast
Weekly Schedule Daily ShipSchedule
60/30 Day Forecast
Production Lead Time
9 days2.75 hrs
Value Added Time
165 minutes60 min45 min30 min 1 day30 min
CT = 30 min
CO = 10 min
CT = 30 min
CO = 66 min
CT = 45 min
CO = 25 min
CT = 60 min
CO = 90 min
CNC Milling Drilling CNC Turning
Fig. 2. Current state value stream map of transfer line.
W.G. Sullivan et al. / Robotics and Computer Integrated Manufacturing 18 (2002) 255265 257
phase gathers data on the customer forecast and howthis information is processed within the organization aswell as forecast information given to suppliers. Physicalows are concerned with inbound raw materials/components and internal processes. For incoming rawmaterials information on demand, number of deliveries,delivery quantities, packaging, and lead-times is col-lected. Internal processes use information concerningthe key steps within the organization, processing time ofeach step, machine downtime for each process, inven-tory storage points, inspections, rework loops, cycletime, set-up time, number of workers, and operationhours per day. Linking the physical and informationows is concerned with the type of scheduling informa-tion used, work instructions, and what is done whenproblems arise. To complete the map, a time line isadded at the bottom of the map recording theproduction lead-time and the value added time.
Detailed mapping is done after the big picture map iscomplete . The standard seven tools dened as partof detailed VSM are outlined in Table 1 and described infurther detail in Appendix A. These tools are aimed athelping to identify waste in any system [12,20,21].The next step in the VSM process is to map the
proposed future state . This is shown in Fig. 3 for thelean work cell that replaces the hypothetical transferline. The eight questions that must be answered toconstruct the future state map are listed in Table 2 .The ve rst questions are concerned with basic issuesrelated to the construction of the future state map. Thenext two questions deal with technical implementationdetails such as the details of the control system (e.g.,heijunka). They help dene non-mapping details suchas production mix, order release time, etc. Finally, thelast question in Table 2 is related to the denition ofeffort or actions needed (kaizen) to migrate from the
Detailed VSM tools [12,20,21]
Detailed VSM tool Description of tool Key categories of waste targeted
Process activity mapping Classies processes as operations, transports, inspections, delays,
storages, and where communications occur
Waiting, transportation, inappropriate
processing, unnecessary motion,
Attempts to eliminate unnecessary activities, simplify and combine
activities, resequence operations for reduced waste
Supply chain response matrix Evaluates and portrays inventory levels and critical lead-time
Waiting, unnecessary inventory,
Evaluates the need to maintain stock within the context of short
lead-time replenishments by identifying large sectors of time and
Production variety funnel Visual mapping technique that plots the number of variants at
each stage of the manufacturing process [12, p. 33]
Inappropriate processing, unnecessary
Provides understanding of how the supply chain operates and the
accompanying complexity that needs to be addressed
Helps identify where buffer stocks may be held prior to
customization, where to target to inventory reductions, and
where to make changes in the processing of products
Quality lter mapping Identies where quality problems exist Defects
Classies defects as either product, service, or internal scrap
Each defect is mapped along the supply chain
Establishes both internal and external quality levels
Demand amplication mapping Graph of quantity against time Unnecessary inventory, overproduction,
Used either within an organization or along the supply chain
Highlights the bullwhip effect
Used to see the extent of amplication as orders move upstream,
gain insight into batch scheduling policies, and analyzing inventory
Decision point analysis Determines where the point at which the value stream goes from
pull to push
Overproduction, waiting, unnecessary
Aids in the assessment of processes that operate both upstream
and downstream from the decision point
Allows the develop of what if scenarios to view the operation of
the value stream if the decision point is moved
Physical structure mapping Provides an overview of the value stream Transportation, unnecessary inventory
Helpful in determining industry outlook, how the industry
operates, and in focusing attention to areas that are not receiving
W.G. Sullivan et al. / Robotics and Computer Integrated Manufacturing 18 (2002) 255265258
current to the future situation. The nal step in the VSMprocess is to develop an action plan to implement thefuture state.In many cases, the future state can be designed using
these questions in a straightforward manner, using onlythe manual approach prescribed in Rother and Shook, to create a feasible fu...