Goerlich’s is a manufacturer of replacement exhaust systems for automobiles and light trucks. Its customers are distributors throughout the United States who in turn supply exhaust systems to local muffler shops. Goerlich’s success depends upon their ability to respond quickly to customer demand. Since output from the shop cannot be accurately predicted, the company maintains an extremely high level of Finished Goods inventory.
LeanFlo was asked to develop a baseline index for an entire process, using the Lean Stream Manager© (LSM). The process had three steps: (1) Milling, (2) Cutting, and (3) Bending. It began with output from the Mill, went to the Cutter and then to the Bender. In this state the calculated LSM measure for the value stream was negative. Negative means that scheduled capacity will never keep up with demand unless resolved by ad-hoc interventions.
After baseline, a second ‘what if’ scenario was developed to determine if anticipated improvements at the Cutter would result in an overall improvement for the value stream.
The changes were implemented. Then actual value stream was compared to the LSM calculations. The value stream improved somewhat and this was supported by the LSM calculations. But the calculations showed something else. Just making improvements to the Cutter did not have a significant affect on the overall value stream.
Because of the high quantity of WIP created at the Mill, capacity at the Bender needed to be adjusted constantly, as the ‘pushed’ demand from the Mill changed over time. LSM calculations were used again to adjust Bender capacity to this constantly changing demand.
The developed calculations took into account: (O) Number of hours, (K) Wait time, (N) Setup time, and (G) Number of finished pieces, where (D1) Material from the Mill (D2) Slave demand from the Cutter replaced G in subsequent iterations. The general formula is: LSM = G / (O – (K + N)).
LSM was used to set an equilibrium point, where Parts/ Hour and LSM were approximately equal at 450 units per hour. At this point, production velocity was optimal, inventory was minimal and improved gross margin expectations were set - where production and delivery goals will most likely be realized
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Since the difference in LSM between the first and last states was 495, the expected improvement in Gross Margin was 4.95%. This was due to significant reductions in WIP that resulted from sight increases in capacity relative to demand at strategic intervals in the manufacturing cycle as suggested by the Lean Stream Manager©.