Did you know one of the leading steel mills was able to cut down the lead time by 60% just by implementing lean principles?
The large division of a steel mill had been losing money for many years. The parent company was seriously considering shutting down. Apart from the poor financial performance, the division had a lot of cash tied-up in inventory, had a higher lead time and delivery performance problems.
In the case of this organisation, they were not working as an ideal steel mill. While there is a series of standard objections, one of the most important is local optimization. This organisation’s measurement and reward systems were typical like – everyone was only trying to maximize the efficiency of the individual operating unit.
This certainly results in a different set of operating rules at each unit. One unit wants to run by grade, another by thick to thin, others by wide to narrow, light to dark, and so on. Usually, this optimal schedule can, and often do lose sight of the customer promised date. Also, these queues extended lead times, hide defects, increased handling damage, added difficulty to the scheduling process, tied up cash and space, caused excessive expediting, etc.
The organisation began by educating the management teams on the lean transformation journey. The goals for inventory reduction and on-time delivery were set, and commitment was attained. Brief overview introduction classes were provided to all the employees about lean. Then scheduling rules were removed, internal teams were formed to circulate the process, kanban controls were initiated, etc.
Inventory Reduction through Lean Tools
Inventory reduction goals were pushed down the verticals of the organization. These goals were readily understood at the unit level: Kanban limits, i.e. a specific number of coils allowed in front of an operating unit, were to be reduced to an agreed amount over a specific period of time. Apart from that, other prime factors in achieving World Class operating performance was done by controlling the order booking. Strict capacity loading rules were implanted to assure that the mill was not overloaded.
Within the span of 10 months, $16 million was generated by inventory reduction, lead times were cut by 60%, the average lot size was cut by 65%, average coil mass was increased by 9%, on-time delivery improved by 40%, profitability improved by $5 million and much more. The same can happen in your organisation. So, have you implemented lean tools?