These days aluminum gutters for houses, at least in the U.S., are mostly built to order, on-site at the house. Rolls of materials are brought to the job site, where they are cut to length, end caps are formed, and the gutters are installed. A plant in the Midwest makes much of the material that installers use—the rolls of painted aluminum. While these rolls of aluminum are not complex, there is variation in the width of the gutters, the length, and the colors. They also are packaged in different boxes, depending on the customer.
This company originally adopted the build-to-order model. Deliveries were mostly made on time, but the process of getting raw materials, scheduling operations, building the product, moving the finished goods to a warehouse, and then shipping those goods from the dozen or so shipping docks was chaotic, to say the least. There was inventory everywhere. Yet the plant regularly was short of critical materials needed for the gutters ordered. Costs of expediting shipments to large customers were getting higher and higher. People were added and laid off with regularity. A big problem was the seasonality of the business. Big box warehouse stores like Home Depot bought large quantities of gutters in the spring and early summer and then business dropped dramatically for the rest of the year. So a large number of temporary workers were added in the peak season.
The Midwestern gutter plant decided to hire a consultant who used to work for the Toyota Supplier Support Center. The consultant said the unthinkable—the overall operation would be leaner if the plant would build select products to store away in inventory! This meant selectively adding some waste. They followed the consultant’s advice.
He knew there is not one type of finished goods inventory, but four types. The first is real built-to-order product that should be set in a staging lane to be put on a truck immediately. The second is seasonal product for high-volume items the plant knows it will sell, that should be built steadily throughout the year and accumulated in a seasonal inventory buffer, which then will be drawn down in the busy spring/summer season. The third is safety stock, which is inventory used to buffer against unexpectedly high demand for products that are not in the seasonal buffer; it is customer-driven variation. The fourth is buffer stock, which is held to cushion against downtime in the factory, so customers will continue to get their product even when machines are down for repair; it is plant-driven variation.
On the consultant’s recommendation, each of these four types of inventory was stored in a separate area at the aluminum gutter plant, so that everyone would always be able to see how much inventory of each type was available (Toyota Way Principle #7).
The inventory was replenished by using the kanban system (cards instructing the production line to make a certain quantity of a certain end product) explained in Chapter 9. For example, the largest amount of inventory is the seasonal inventory buffer. It is built up during the off-season and reaches a peak just before the spring, when sales are highest. There is a pre-specified amount of seasonal buffer and, based on that forecasted amount, kanban is used by the production cell to make only that remaining number of packages needed. In front of the inventory is what looks like a clothesline labeled with months of the year. For example, the amount that should be completed by August, based on a constant level of production over the year, has a sign saying “August.” In August, if the inventory pile is larger than should be built by that time, the pile of inventory will have moved beyond the August sign and everyone will know that there is an excess inventory problem needing to be solved.
In kanban, discussed in Use “Pull” Systems to Avoid Overproduction, the information flow begins with the customer order and works backward through the operation. In this company, a final cutting and packaging (one-piece flow) cell gets customer orders that it has to build to order. But when those orders are low, the workers do not have to sit around with nothing to do. They can build to the seasonal inventory buffer or build to replace any safety stock or buffer stock that has been used. The seasonal inventory, safety stock, and buffer stock that need to be built are represented by kanban cards. The cards are sorted by a planner into a visual scheduling box called a “heijunka box,” which levels the schedule. For each product, the box says what to make at 8:00 a.m., 8:10 a.m., 8:20 a.m., etc. Cards are put in the slots and delivered to the production cell. These tell the cell what to make and pace the work of the cell. As the cell uses materials, like the painted aluminum product, a kanban is sent back to the prior operation asking it to make more. Pull has been established all the way back to suppliers, like the paint supplier.
At the suggestion of the TPS consultant, other improvements were made, such as standardizing work procedures, reducing changeover time, and putting in error-proofing devices (discussed in Build a Culture of Stopping to Fix Problems, to Get Quality Right the First Time and Standardized Tasks Are the Foundation for Continuous Improvement and Employee Empowerment). The result was a very smooth flow of product through the facility, so smooth that all outbound shipping could be handled through two docks with the other 10 closed down. In addition, the plant achieved incredible performance improvements. The overall lead time for making product was reduced by 40%, changeover time was reduced by 70%, WIP of painted product was reduced by 40%, inventory obsolescence was reduced by 60%, and on-time delivery was close to 100%. A typical lean transformation!