Lean Principles can help in apprehending threats to your business and implementing systems of prevention and recovery
You may have come across the recent eye-catching headline:
Is it really a surprise? We all expect that large manufacturing companies with complicated products have complicated sourcing strategies spanning the globe. But what about here, what about our furniture manufacturers in Leinster, window manufacturers in Munster or builders in Galway running out of materials to operate their businesses?
This is our current reality. Coronavirus is having just as much of an impact on our pork processors and machinery exporters who have worked tirelessly to get their products into the Chinese market. It’s also impacting those of us sourcing our products from there.
The stark reality is the nexus of supply chains that traverse the globe is China as is the global manufacturing industry and an alternative may no longer be viable. China has become a significant point of failure and, whether we realise it or not, there are very few businesses exempt from this risk.
A leading contributor to our exposure to this risk is an interpretation of a key Lean Principle. Following the “right-first-time” and “just-in-time” approaches drives us to maintain low levels of inventory and to only produce product as needed. All too often this gets over-simplified as zero or near zero levels of stock being the goal, when in fact the lean principles are urging us to create more robust processes. Processes which consistently and constantly perform at the same pace. More importantly, robust processes will have the mechanisms to ensure we think about the threats to our business and put in place systems of prevention and recovery.
Do we really want to think about what would happen if our essential utilities – water, electricity and cloud services – weren’t designed this way?? Why should we not all think this way?
In our day-to-day business, it is very easy to source materials from anywhere in the world. You pick up a phone, place an order through the web, send an email. You don’t think about the logistics chain in between that brings the goods from your suppliers’ door to yours or, from yours to your customers. You don’t need to but as we continue to strive for the cost advantage, these chains are growing and getting more complicated and the more complicated, the more inherent the risk.
Surely there has to be a better way? Well right now the die is cast and the next few months are going to stress a lot of people and the organisations we are all working so hard to make successful. But we can learn from this. We need to learn to understand our supply chains, we need to balance our inventory levels with contingency and we need to design for potential hazards to our business.
One such way is a simple form of risk assessment called a FMEA, Failure Mode & Effects Analysis – a simple reliability tool with a complicated name! It’s a very effective way to capture the inherent risk in a process or identified problem. By quantifying three characteristics of the risk-
we can rank the risks and provide clarity on the order and urgency in which they should be addressed.
There are 4 situations where a FMEA is a highly effective tool:
If we take an example of 3 risks for the current state of an Irish Manufacturer, a FMEA may look as follows:
If you were to look at the results, based on the RPN, you would be forgiven for thinking the most urgent risk to address is the Decommit by Supplier when in fact it is the risk with the highest Severity which should be addressed first. The Pandemic…. and let’s face it, any normal organisation would have talked themselves out of designing for this ☹.
Following the FMEA guidelines, Severity is given the most weight when addressing risk, followed by “Severity X Occurrence”, or Criticality. In this example, Supplier decommits, would be the second risk to address and a means of doing so could be with contracts and penalty clauses. This would reduce the Occurrence score and therefore the Criticality score.
A key concept is to continually reduce the RPN to acceptable levels by considering and implementing tactics to reduce the Severity and Occurrence scores and increase the Detection/Mitigation. In this example, a mitigation strategy for all three could be to use generic or common parts in product designs as much as possible allowing more possible suppliers. A revised FMEA for this scenario could be:
This has a significant reduction in the RPN scores which could now be considered acceptable.
At LBSPartners, we know the value in being prepared and how to be prepared. If you are looking for a partner to support you in your futureproofing journey, we would welcome the chance to talk with you about how our expertise can help you take that journey.
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