3/2014, In English, Tutkimus ja innovaatiot

Cross Functional Supply Chain Management – How to recognise the need for it and how to implement it?

1. Introduction

Companies are continuously facing challenges in changing global markets. This means that the manufacturing processes must be optimised; there is a constant need for higher product development speed, manufacturing flexibility, eliminating waste and to improve controlling processes. (Azharulm & Kazi 2013.) Many companies have chosen Lean, which originates from Toyota Production System (TPS), in order to improve or even to rescue their company, but many have failed. For example, only less than ten percent of the companies in UK have accomplished a successful Lean implementation (Bhasin 2012.) Many have turned into external consultants and struggled to sustain the results after the consultants have completed their projects. Instead of using external help, Toyota has a different approach towards Lean. TPS is an integrated system where each team member, leader and every worker in each level own, operate and continuously improve their processes. (Liker & Convis 2012, 144).

The original problem of the case company, Lahden Autokori Oy, was poor reliability of deliveries. There was no clear picture of root causes of the problems, but a lot of strong opinions which department caused most of the deviations. The bottlenecks needed to be identified in order to make the process flow again. On the other hand, to be able to eliminate the bottlenecks, the abnormalities in the processes must first be detected (DeLong 2011.) In order to find the bottlenecks and root causes the research method was built around the idea of finding the deviations by seeing them visually. This article explores how the research results support the fact, that the company is lacking of cross functionality and how it could benefit from Lean. Being cross functional has different dimensions and definitions. One of the definitions, which is used for cross functional management, is “working together for the benefit of the company” (Chuda 2013, 157). Ford & Randolph (1992, 269) define it as involving people from two or more different departments/different areas to undertake a task on either a temporary or permanent basis. “TPS is a system where everything is connected“ (Modig & Åhlström 2013, 139.)

Many studies have examined Lean methods and tools, and how to implement Lean successfully. The case company tried Lean transformation in year 2009, but failed. The case company filed for voluntary bankruptcy in September 2013 just after the research results were completed, however, it got a second chance and is owned by Scania CV AB (starting at 1st of May 2014). Scania has been practising Lean since 1997, and it’s evitable that the LAK will undergo its own version of Lean transformation as a method to survive in the business. This article gives a concrete picture, through the case study, of how to identify the need for cross functional management and what kind of Lean methods and tools should be implemented. The literature review introduces the philosophy behind the Lean, and emphasises the use of visualization. The Lean leadership is introduced as an integrated system for daily management, where KPIs are reported from bottom up to give a clear picture of expected versus actual results. As the objective is to change the organisation’s management system, the Lean transformation approach is presented. After the literature review, the research method is presented followed by the analysis and conclusions.

2. Literature review

The literature review focuses on Lean by first introducing the matter of flow through three laws of Lean (Modig & Åhlström, 2013). Visualization is important part in Lean when recognising the abnormalities in the processes, therefore some visual tools are presented (Mann 2010). As KPIs help to measure the process and to identify when and what is going wrong, this chapter introduces visual KPIs, and emphasises them as a way to raise accountability among the operators. In the end, Lean transformation and the success factors are presented.

2.1 Lean and matter of flow

Lean is about having a series of activities or solutions to minimize waste and non value adding (NVA) operations and improve the value added (VA) processes (Azharul & Kazi 2013, 171). In Lean, high flow efficiency is prioritised over high resource efficiency (Modig & Åhlström  2013, 127). When the focus in the organisation is not in the flow, it can result from lack of cross functionality, when the organisation may consist of sub-optimised departments, which operate in isolation. These isolated departments often focus on maximising their own resources. (Modig & Åhlström  213, 99.) According to Bhasin (2012, 441) in most organisations, sub-cultures can be found. If the aims and the needs of the departments are not the same, there is a risk of ending up in a situation where the departments have different goals.

There are three main laws which prevent units to flow in the processes: Little’s law, variation and bottlenecks. (Modig & Åhlström  2013, 31). The formula of the Little’s law is: Lead time = Work in progress (WIP)/Cycle time. Lead time is total amount of units or people in the process and the average time for how long it takes to complete a single production unit or serve a person. Lead time is related to the boundaries set around the process. (Modig & Åhlström 2013, 34 – 35.) When there is an increased focus on flow effiency, the lead time naturally shortens and there are less inventories, which means that there is less cash tied in the process. The second law focuses on reducing variation from the processes. Variation exists everywhere as it’s the law of nature and based on normal distribution. However, when it comes to demands (customer needs) and to supply (the organisation’s resources), in order to reach the consistent processes, variation should be controlled and minimised. (Modig & Åhlström 2013, 100-101.) The third law focuses on minimising the waste by eliminating the bottlenecks and focusing on the flow through having a control over the process. (Liker & Convis 2012, 91.)

2.2 Visualising the metrics, finding the normal state

It is crucial to measure right things, at the right time in the supply chain process, in order to have immediate corrective actions. (Azharul et al.2013, 170). Companies often fail to develop appropriate performance measurement metrics (KPIs) related to efficiency as the metrics are usually based on finance. (Gunasekaran et al. 2004; Gunasekaran et al. 2007.) In Lean management, the KPIs are visualized and controlled, and the purpose is to focus on the process to make it easy to compare expected versus actual performance (Mann 2010, 53). Based on Azharuls (2013) study the time-related measures are the most significant for Lean performance evaluation and measurements. In fact, time is a crucial concept in TPS, where all the workers are expected to perform value-added work in perfect synchronization and in takt. (Liker & Convis 2012, 91.) For example, in the case company takt time is one day, meaning that the bus (work in progress, WIP), is moved from one station to another once a day, and one bus per day is produced.

In Lean, visualization is strongly emphasized. The methods and tools are based on the visual effects in order to see what is normal and what is not normal. Basic lean tools such as 5S, Value Stream mapping and Kanban are all based on visual effect (Masaaki 1997, 63; Väisänen 2013; Hanover 2011). The first basic and commonly used method is a Japanese method for housekeeping – 5S. It includes five stages: sort, straight, shine, standardize and sustain. The goal of 5S is to improve continuously order and cleanliness, which is seen as a base for eliminating waste, and helps to identify the abnormalities in the process (FactorySystems 2014.) Value Stream mapping is a method, where a chosen process is visualized by drawing the process phases including work in progress (WIP), process time, waiting time and inventories. It’s used for identifying the bottlenecks, and it gives a good picture of the present state of the process. (Väisänen 2013.) Kanban too, as 5S and Value Stream mapping, supports the idea of improving the flow. Kanbans are signals, which indicate what work needs to be done and when. (Hanover 2011.) In order to stop and notify the abnormalities, one needs to recognize and see the normal state first (DeLong 2011). All the three methods mentioned above support to see the normal state. In addition, statistical tools can also be used visually, for example Control charts, Pareto charts and histograms. The purpose of all of these methods and tools is to find the vital few (bottlenecks), and eliminate them in order to decrease variation in the processes and eventually stabilize and control the process.

2.3 Lean transformation

The success of Lean transformation normally depends upon organizational characteristics, which means that there is no such approach as “one size fits them all” for implementing Lean (Shah & Ward 2003). There is no universal formula how to implement Lean, but some general rules apply. According to Monden (2012) implementation should start (before the techniques) with making a schedule, setting a goal and providing education and after that the first technique 5S is implemented (Monden 2012, 28). Having carefully crafted implementation plan for the change is a key for succeeding in implementing Lean, as otherwise organization might get distracted by the daily challenges and other problems they’ll face. (Chaneski 2005; Monden 2012; Bhasin 2012.) The purpose of the plan is to manage the Lean implementation and to keep the people focused on the plan. Another key factor is to involve the key people from the organization. These people should have enough power and should be responsible for the processes. The plan should be visible for all the stakeholders, and it works as a road map for the organization. The third key factor for the success of Lean transformation is belief and taking the courage to step on the Lean path, as people will change, if they see and witness the benefits. (Chaneski 2005; Bhasin 2012.) In addition, Monden (2012) emphasizes the meaning of upper management being involved in implementation, and also having a project team comprising all the organization levels. Implementation should start with selecting a pilot project, and eventually move from downstream processes to upstream processes, meaning from lower levels to the top level of an organisation (Monden 2012, 25 – 28.) Bhasin (2012) would engage all the employees to implement the changes, and develop the skills in order to remove any fear and anxiety towards the transformation. Success in implementation lies with the people, and the organisations can not afford to have any negative sub-cultures, if they wish to succeed (Bhasin 2012; Womack et al. 2005).

Every organization needs a vision and a set of goals to be reached. In conventional supply chain management, the managers focus is on following the key performance indicators (KPIs) through periodic reports (weekly, monthly etc.) The reports can be sub-optimized and are written from that particular department’s point of view, when there is a risk of bias reporting. The goal is to meet the schedule, whatever it takes, which leads managers to invent their own ways to succeed. (Mann 2010, 10 – 11.) At Toyota, the goals are determined by the board of directors, a process from top to down. To make it down to up process, Toyota has implemented daily accountability process through KPIs connected to the main KPIs determined by the board. The system is visualised and bases on kaizen (continuous improvement). At each level the targets and KPIs are connected to the main goal. (Liker & Convis 2012, 148 – 149.) The targets and goals are discussed on a daily basis at each level of organisation with a carefully planned agenda. (Mann 2010, 23 – 104). The leadership is integrated in daily accountability meetings, where KPIs are compared expected versus actual. The targets come from top and the actuals come from down making the organisation communicate cross functionally. The method is called leader standard work (Mann 2010, 23).

3. Research context and method

The research method chosen is an empirical action research, including a quantitative method approach and observations. In an environment where there is the suspicion of lack of cross functional management, action research method with quantitative method approach was seen as the best method to avoid any misunderstandings by presenting the findings as numeric facts. (Dick 2014.) The idea of the action research method was built around leader standard work presented by Mann (2010, 37 – 39), but covering only the upper level of the organisation; The method covered meeting practice held twice a week, where the responsible operators (i.e. upper level managers and directors) were accountable for raising deviations and being responsible for taking actions. The method was followed through a visual tool (white board), where all departments had their response times visualised based on the schedule/takt. The method was called TITO. The original idea of the method is from Scania Slupks, Poland, and the original name of the method is “Get orders to flow”, created by J. Dabrowska-Balasz. The idea of the tool was to take first steps towards cross functional communication and tie the organisation more closely together by discussing through the KPIs (response time).

Figure 1: TITO, a visual tool, white board

In figure 1 the visual tool is presented. Each bus or a batch of buses has an own card, which is located on the white board according to the time schedule of the whole supply chain process, from order to delivery. The white board is divided into two sections: one where the orders flow, and the other section where the deviations and warnings are written and followed. The first section of the white board is divided according to the response times to show when each operator should have completed their work. Section 1 in figure 1 includes four phases: luovutus (delivery), valmistusvaihe (production), hankintavaihe (purchase), suunnitteluvaihe (designs). If operators knew they’re delayed from the schedule, they had to announce either a warning (yellow magnet) or a deviation (red magnet) and put the magnet on the card. Red magnet (deviation) indicates that the delivery date is in real danger. Yellow magnet (warning) indicates that the delivery date might be in danger. In section 2 the deviations and warnings were written on the board and followed according to the agreed follow-up dates. The research data was collected through section 2.

4. Findings

The aim of the analysis was to find the bottlenecks from the supply chain process in order to see what prevents the flow, and why the deliveries are being delayed. The analysis revealed a lot more: not only the bottlenecks, but also the lack of cross functional management in the organisation. The most important findings through the data and observations were:

  1. The theoretical process lead time, the time from order to expected delivery, was 62 days, not 80 days as previously expected. The total process time of manufacturing the buses was actually 22 % less than expected.
  2. Two of the departments were indicated as bottlenecks in the process: Sales and R&D/Design. The defined response times, for both of the departments, are at the early stage of the supply chain process, and if the response times were not met, the problems accumulated at the end causing severe consequences.
  3. The amount of deviations, which caused the actual delays of the deliveries, was three times greater than the amount of warnings, and more importantly, the deviations were accumulated at the end of the production process, where they were more critical with respect to on time delivery.
  4. Even though the response times were defined and agreed, it was noticed during the research, that the operators, who had to deliver the drawings or another deliverables, were not fully aware of their response times. It was also observed, that the response times were not followed regularly. Also there were no adequate systems to support the following of the response times.

All of these findings conclude, that the organisation is lacking of cross functional management. This will be more discussed in chapter 5.

4.1 Theoretical lead time, variation

Variation is one of the Lean laws, which prevent the unit to flow (Modig & Åhlström 2013.) The variation of the time, when order as received into the internal supply chain process, varies a lot. This is explained in the figures below.

Figure 2: The theoretical lead time, histogram
Figure 3: The theoretical lead time, boxplot

In figure 2, there can be seen a huge variation of theoretical lead time (starting from the point when the order comes in the process and ending when the bus is expected to be delivered). The bars in the histogram are spread widely, and the blue curve in the figure is very flat. So, the figure shows, that the orders were received into the process between 180 and 30 days before the bus was expected to be delivered. It is clear, if there is only 30 days time to deliver a bus instead of agreed 80 days, the organisation struggles to have the information, materials, drawings etc. in time. Figure 3 confirms the fact, that the most of the orders were received a lot later than expected. The boxplot shows (grey box with black lines on each side), that more than 75% of the orders are received into the process less than 80 days before the expected delivery. Both of the figures (figure 2 and 3) indicate the significant fact, that the organisation lives in an false assumption, where it has 80 days time to complete a bus, but the reality states, it only has 62 days in average.

4.2 Bottlenecks in the process

The bottlenecks were identified in time line and also in departments.

Figure 4: Bottlenecks in time line

In figure 4 the amount of deviations and warnings can be seen in time line. There are two spikes (inside the red circles), one at the end of the production line, but also at day 40 – 45. Having such an amount of deviations and warnings at days 40 – 45 indicates mostly that the drawings were not completed in time by the design/R&D department. At the end of the production line the deviations were mostly announced by the production manager, which meant that the problems were not indicated earlier during the process.

There are two departments, which can be identified as the bottlenecks in the process: Sales and R&D/Design. R&D and Design departments are very close to each other and the functions are mixed, therefore these two should be observed as a one department. Sales and R&D/Design departments make total of 71% of the deviations and warnings in the process.

Figure 5: Amount of deviations and warnings R&D, Design and Sales are the bottle necks.
Figure 6: The solution time: Sales and R&D are the worst when seeking for solutions.

In figure 7 the pie chart shows the amount of deviations and warnings per department. The average time to have a solution was 8 days (green line in figure 8). In figure 8 it can be seen, that Sales has a quite big variation in having the information for the rest of the organisation in time, even though the boxplot (the grey box) is located under the green line. In Sales (figure 8), the grey box without the black line indicates that 50% of the problems have been solved before 8 days, but in some cases it has taken even 40 days to have the final information. Also R&D struggles to have their solutions in reasonable time. In fact, the problem solving has taken constantly more than 10 days, as the grey box is located above 10 days. The root causes in general, for the deviations and warnings, were mainly missing information or the order was received too late (less than 80 days), also the drawings were late due to the lack of resources and naturally due to lack of information.

4.3 Amount of deviations and warnings

The amount of deviations and warnings were analysed. Total amount of deviations were 100 and warnings 32.

Figure 7: Bottle necks in time line, yellow warnings
Figure 8: Bottle necks in time line, red deviations

In figure 5 and 6 the amount of deviations and warning can be seen. There are three times more red deviations (N=100) as there are the yellow warnings (N=32). Red warning means that the delivery will be delayed and the yellow means that the delivery date might be in danger. Warnings have been mainly identified at the time where the drawings should have been completed (40 – 45 days), but the deviations have been clearly accumulated at the end of the process, meaning just before the bus is delivered. Both of these findings conclude, that the process is not controlled, which is seen as poor reliability of the deliveries.

4.4 Response times

The research method was based on response times and following them. If the response times were not met, the responsible operator had to announce them. At first, people felt very uncomfortable about visualizing the problems and to announce deviations and warnings. Earlier the organisation culture was used to handling the deviations in their own departments, in their own offices, so the TITO-method was a real cultural shock for the organisation. Operators felt that they were being blamed, when deviations and warnings were brought up. There needed to be a change in the organisational culture. One of the main findings of the case study was that the operators did not have tools to follow the schedule and takt time, or some of them were not even aware of their actual response times. In addition the agreed response times have been agreed many years ago and therefore there is a suspicion of if those are valid anymore. This was based on the fact that warning signs were not detected and announced early enough; therefore they were announced as deviations by the production manager.

5. Discussions and conclusions

The findings of the research indicate the fact, that the case company is missing effective cross functional management. The fact of having less time than expected reflects of lack of control in the process. There were no common rules in the organisation, in this context there were no common response time rules. Agreed common response time rules would help the organisation to control the variation. According to the observations, the Sales department does not know the deadlines for each change the customer would like to make, and this was considered to be one of the most critical issues in causing the deviations in the process. The changes were made too late in order for the entire supply chain to react. Additionally, the other departments were also lacking adequate control in their response times, which in fact defines the response times (deadlines) for the Sales also. This is indicated, when most of the deviations were found during the production process and then announced by the production manager. The deviations were, for example caused by the missing drawings, missing information, or issues which were not caused by the production itself. Lacking adequate control of the response times, means lacking of process management. There were no systems to identify the problems, or even if some departments had their own systems, the systems did not provide information for the other departments. There were no cross functionality between the control systems. Instead of identifying which department is guilty, the research concludes, that the organisation lacked common tools, methods and culture of managing the process cross functionally. None of the departments is guilty.

The case company has started to develop a new way of managing the internal supply chain process, which means changing the old cultural habits. There are a lot of positive indicators to support the organisation to succeed according to the literature review. These are: support from upper management, engaging the internal staff to implement the changes and the real motivation. (Monden 2012; Bhasin 2012). The support comes from Scania, which has implemented Lean already since 1997, and the motivation derives from a will to survive in the business. The organisation has realised, it needs to change.

There are three main issues to be improved in the organisation. First, the organisation should implement leader standard work from downstream to up-stream (Mann, 2010). With leader standard work the organisation has daily follow up meetings in each department, and the actions are visualised. Secondly, the KPIs should be integrated and reported in the daily meetings. For the case company, the response times are the most critical at this point and those need to be followed in order to control the process and detect the deviations and warnings earlier. KPIs should be reported from down to up, not just by the supervisors, creating accountability through the organisation. Also the response times agreed years ago, should be re-evaluated. Third, there should be examined other cross functional processes in the organisation and start to improve them. There are different cross functional processes, where the unit flows through the entire organisation, for example whenever a design change or a new innovation is implemented. These processes should also be controlled through visual planning and KPIs.

All of these three points focus on controlling the process by empowering people through reporting the KPI’s and to be accountable for their daily actions in order to achieve the targets. By having a control over the processes, abnormalities can be easier detected and improved. So, eventually the aim is to control, improve, eliminate waste and finally make the unit flow, which will lead the company to have a better reliability of the deliveries and eventually decrease the actual lead time. After the cross functional management is implemented in the organisation, the company is ready to implement other Lean techniques, like 5S is strongly recommended.

Author

Miia Nietosvuori, Master’s student of International Business Management, Lahti University of Applied Sciences, miia.nietosvuori@phnet.fi

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