'Lean' Manufacturing Offers Remedy to Spare-Parts Crisis.

The principles of "lean manufacturing," which were adopted by the automotive industry in the 1970s, could prove useful to the Defense Department's ongoing efforts to obtain spare parts more quickly and at lower prices. For the Pentagon, this could result in improvements to the readiness of the military force.

The shortage of spare parts to support its weapons systems--especially those parts needed to maintain a growing population of older platforms--has long been viewed as a challenge for the Defense Department. This predicament has been further complicated by a recent shift to drive down operating costs by reducing the department's inventories of spare parts.

Instead of maintaining a redundant system of buying and stocking parts within its own warehouses, the Pentagon wants to develop partnerships with vendors who will provide equipment as needed. Yet, these vendors also are moving to adopt lean practices for inventory management.

Some experts fear that slashing excess production capacity and trimming on-hand inventories will jeopardize the Defense Department's ability to obtain spare parts--especially as demand increases during a crisis. As vendors re-size their operations to supply the Pentagon's peacetime needs more efficiently, where will government obtain additional capability to support sudden surges in demand?

The answer is that the application of lean techniques will improve parts availability and increase responsiveness to demand spikes. Furthermore, this approach may help to mitigate many of the concerns associated with a shrinking defense industrial base.

The concept of producing parts just-in-time was introduced first during the early 1970s, at the peak of the oil crisis. While many automotive companies were struggling to remain viable, it became clear that something different was happening at the Toyota Motor Company.

This company weathered the storm much better than its competitors. As a result, managers across Japan and around the globe sought to rake a closer look at what has since become known as "lean manufacturing."

They ultimately found that Toyota had achieved its vision of creating profit through cost control. In other words, the company had shown that by better managing what it could control--its internal operations--it could thrive despite changes in the operating environment. This is precisely what the Defense Department is trying to do today. By restructuring its methods for supplying spare parts, it seeks to ensure timely deliveries, even if the environment changes quickly.

Lean manufacturing allows factories to produce parts on a scale that much more closely matches their demand. Lean facilities need not manufacture huge batches of items in order to be cost-effective. Instead, they can restrict production to just what is needed to fill current orders. Thus, they no longer find it necessary to maintain huge warehouses of excess inventories. More importantly, they can shift their production capacity from producing parts that currently are not needed to those with an identified demand.

Because of this flexibility, they can meet their schedules, even after trimming production capacity and inventories. This flexibility can help them cope with unforeseen increases in demand--even as suppliers move to slash their excess capacity. They can do this by addressing a core enabler of lean manufacturing--variation management.

Variation Management

As the Toyota Motor Company perfected its lean approach to manufacturing automobiles, the company emphasized minimizing the sources of factory variation. For example, Toyota recognized that, in order to reduce inventories, cycle times, and product cost, it would need to stabilize factory workflow, making production scheduling much more predictable.

For that reason, the company attempted to level out the demand for parts throughout its factory and supply chain. By first controlling the spikes in workload within its final assembly shops, the demand for its components--those put together earlier in the production sequence--became much more predictable.

Without this action, the just-in-time delivery of parts to the assembly line would have been nearly impossible. After all, suppliers only can deliver parts on demand if they know precisely when those parts are needed.

Thus, variation management is a critical ingredient of lean manufacturing. This approach targets those sources of disruption that impede the flow of an item as it moves through production--from raw materials to finished product. The goal is to eliminate those sources of variation that most affect the facility.

By dampening factory disruption caused by materiel defects, equipment breakdowns, late supplier deliveries, and spikes in customer demand, interruptions to the production flow can be eliminated. As a result, work schedules become more predictable across the factory. Parts that make up larger assemblies arrive from suppliers on time. Delays resulting from rest failures are reduced.

This methodology was discussed in a study of the aircraft industry. Out of all the companies that participated, only those which deliberately sequenced their actions to target variation demonstrated the benefits of lean manufacturing. Those facilities did not begin, for instance, by slashing inventories. Instead, they first controlled those sources of disruption that caused them to carry excess parts. By doing this, they ultimately reduced inventories faster and further than those that had directly executed reductions.

Lean facilities have found that precise control of the production enables them to divert their efforts from day-to-day expediting, in favor of definite planning for anticipated, as well as unforeseen increases in demand. It is these definite plans that offer the Defense Department the means to improve its access to spare parts.

Facilities that have made this shift successfully have demonstrated a distinct characteristic of "lean" thinking: It is counterintuitive by nature. This is especially evident in its effects on industrial capacity. Despite introducing what may appear to be constraints, lean factories have shown that their production capacities may actually grow. Gains in productivity--achieved by reducing the time used to perform non-value activities-can more than offset the loss of factory space and supply sources, possibly resulting in an improved capability to support military peacetime needs.

Yet, the potential to boost production capacity is not sufficient alone to satisfy the Pentagon's industrial base concerns. As companies become more efficient, they are likely to cur back on their reserve capacity levels. These reserves serve a critical role in maintaining industrial readiness. They traditionally have enabled factories to satisfy sudden surges in demand resulting from an armed conflict. A lean industrial base, instead, would satisfy those sudden surges through manufacturing flexibility.

The supply of aircraft parts is a case in point. One may anticipate that the demand for aircraft spare parts will skyrocket during a crisis. But, in reality, only a fraction of its components are likely to see a substantial demand increase. While the demand for some may grow, the need for others may drop.

The installation of structural repairs, for instance, may drive up the usage rate for oversized fasteners. This demand would likely force airframe mechanics to reduce substantially their non-critical maintenance activities. This, in turn, would cut back on the usage of nominal fastener sizes. Since lean suppliers use flexible equipment to fabricate a range of items, they can respond by shifting their emphasis from turning out nominally-sized fasteners, in favor of producing those diameters and grip lengths currently in demand.

Lean techniques also improve suppliers' ability to obtain needed raw materials more cost effectively--even those items with historically long lead-times. If production shops are aligned based on shared-processing characteristics, a common material may support the production of a wide range of items.

A shop that produces titanium fasteners, for example, would have access to a continuous stream of forged titanium stock. This material can be fabricated into whatever particular fastener currently is needed--without increased cost or delay.

These flexible fabrication shops also enhance the surge capabilities of factories with complex assemblies. Unconstrained by parts shortages, assembly shops can add work-shifts or weekend operations to expand their output.

Thus, a lean manufacturing base can respond more effectively to a changing environment even without a large reserve of capacity. Its ability to shift its output quickly can play a valuable role in supporting weapon-system maintenance.

However, only by raking an active role as a "lean customer" can the Defense Department expect to realize the broadest benefits of this approach. By participating in the transformation of its suppliers, it can serve to both ensure and facilitate their progress.

A lean customer must understand that high inventories and long production cycle times are merely symptoms of a larger problem. The focus should be on the suppliers' ability to draw down sources of factory variation. This will ensure that reductions in inventories and schedules will nor adversely affect their ability to provide parts on time.

A customer would be well served by tracking direct indicators of this problem, in conjunction with inventory and cycle-time reductions. One such metric is cycle-time variation, or the severity of the swings in the time it takes for successive units to roll off the production line.

Acting as a lean customer, the Defense Department has begun to take an active role in promoting these techniques. It has started a program to procure spate parts through long-term agreements that encourage the manufacturing base to become more efficient.

Stephen Ruffa, a senior manager at the Defense Department, is the lead author of "Breaking the Cost Barrier: A Proven Approach to Managing and Implementing Lean Manufacturing."