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 [14]. 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

    1. Introduction

    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 [14]. Application ofTPS principles have led to lean manufacturing (alsocalled lean production, or lean thinking [4]) 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 [2].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 [911]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 [4] 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 [13] 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 [17]. 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 [17]. VSM is divided into two components: bigpicture mapping and detailed mapping [12]. 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 [12]:

    * 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 [12], 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 [12]:

    * 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 [17].



    I ++I

    1 day


    3 days


    4 days


    Supplier 4 Week Forecast

    Weekly FAX

    Weekly Schedule Daily ShipSchedule



    Shipments Daily


    60/30 Day Forecast

    Daily Order

    Production Lead Time

    9 days2.75 hrs

    Value Added Time

    165 minutes60 min45 min30 min 1 day30 min

    CT = 30 min

    CO = 10 min

    2 Shifts

    CT = 30 min

    CO = 66 min

    2 Shifts


    CT = 45 min

    CO = 25 min

    2 Shifts

    CT = 60 min

    CO = 90 min

    2 Shifts


    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 [19]. 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 [17]. 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 [17].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

    Table 1

    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,

    unnecessary inventory

    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

    sufcient attention

    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[17], to create a feasible fu...


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