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Reduce Cost
Partially electronic and paper based information flows that
need improvements. Are two beds necessary? Labor intensive
process with much waiting in practice.
10. Some companies use a technique called heijunka, which is a Japanese term that
refers to production smoothing in which the total volume of parts and
assemblies are kept as constant as possible. Research and write a short paper (2
pages max) about this technique and how it relates to lean principles. Try to
illustrate a case study of a company that has used it.
A Google search reveals about 60,000 hits for “heijunka.” For lean managers
who accept the notion that leveling by volume and mix produces benefits
A typical heijunka box has horizontal rows for each member of a product
family, in this case five. It has vertical columns for identical time intervals of
In this example, the shift starts at 7 a.m. and kanban are withdrawn by a material
handler every 20 min. for distribution to the pacemaker point along the value
stream. (In a lean production system of this type, there is only one pacemaker
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Whereas the slots represent the timing of material and information flow, the
kanban in the slots each represent one pitch of production for one product type.
In the case of Product A, the pitch is 20 min., and there is one kanban in the slot
for each time interval. However, the pitch for Product B is 10 min., so there are
Used as illustrated, the heijunka box consistently levels demand by short time
increments, 20 min. in this case. This is in contrast to the mass-production
Production process stability introduced by leveling makes it vastly easier to
introduce lean techniques ranging from standard work to continuous flow cells.
When every process is leveled by volume and mix, it is a different world for
This information was excerpted from “Heijunka: Leveling Production,”
11. Research and write a short paper (two pages maximum) on applications of the
5S principles in service organizations, such as a hospital. If possible, provide
some pictures that illustrate the results of using the 5S principles
A Google search of “5s hospitals” reveals over 6 million hits, and of course, the
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One excerpt from Quality Digest, “Athens Hospital Improves Processes by
http://www.qualitydigest.com/inside/twitter-ed/athens-hospital-improves-
“We wanted the Healthcare Performance Group to provide the training, the
structure, and the facilitation for a period of time to do a 5S project in the lab.
By using the 5S system—sort, straighten, shine, standardize, and sustain—we
“Employees say this is now a much better place to work, and there is not as
In particular, the 5S project increased the lab’s storage capacity by 64 percent,
freed up counter space by 30 percent, and reduced body fluid processing times
12. Tooltron Manufacturing uses a Kanban system for a component. Daily demand
is 800 units. Each container has a combined waiting and processing time of 1.2
days. If the container size is 50 and the alpha value (a) is 15 percent, how many
kanban card sets should be authorized? What is the maximum authorized
inventory?
Using Equation 17.1 we have
K = d*(p + w)(1 + )/C = 800(1.2)(1 + .15)/50 = 22.1 or 22 Kanban
cards should be authorized. The maximum authorized inventory is K*C =
13. Lou’s Bakery has established that JIT should be used for chocolate chips due to
the high probability of the kitchen heat melting the chips. The average demand
is 130 cups of chocolate chips per week. The average setup and processing time
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a. How many Kanbans are required for the bakery?
Using Equation 17.1 we have
b. What is the maximum authorized inventory?
c. If the average setup and processing time is reduced to 3/8ths of a day due to
better training and retention of experienced employees, what are the answers
to (a) and (b)?
Maximum authorized inventory = K*C = 5*2 = 10 cups
14. Due to rapid changes in technology, a telecommunications manufacturer decides
to produce a router using just-in-time methods. Daily demand for the router is
10 units per day. The routers are built on racks that hold four at a time (i.e., the
container size). Total processing and waiting time is 3.75 days. The process
manager wants a safety factor of only 5 percent.
a. How many Kanbans are required?
b. What is the maximum authorized router inventory?
c. If you assume that one-half of the racks are empty and one-half full at any
given time, what is the average inventory of routers?
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d. What are the answers to a to c if due to process improvements the total
processing and waiting time is reduce from 3.75 to 2.75 days?
K = d*(p + w)(1 + )/C = (10 units/day)(2.75 days)(1 + 0.05)/4 = 7.2 or
about 7 Kanbans
15. An automobile transmission manufacturer is considering using a JIT approach
to replenishing its stock of transmissions. Daily demand for transmission #230
is 25 transmissions per day and they are built in groups of six transmissions.
Total assembly and waiting time is three days. The supervisor wants to use an
alpha value (α) of 1, or 100 percent.
a. How many Kanbans are required?
b. What is the maximum authorized inventory?
c. What are the pros and cons of using such a high alpha value ()?
Pros – provides safety stock for emergency situations and process breakdowns,
Cons – high inventory levels with increased number of Kanbans, may
require more debt financing of inventory, defeats the objectives of JIT
Case Teaching Notes: Community Medical Associates
Overview
Community Medical Associates (CMA) is a large urban health care system with two
hospitals, 25 satellite health centers, and 56 outpatient clinics. CMA had 1.5 million
outpatient visits and 60,000 inpatient admissions the previous year. Long patient
waiting times, uncoordinated clinical and patient information, and medical errors
plagued the system. Doctors, nurses, lab technicians, managers, and medical
students in training were very aggravated with the labyrinth of forms, databases, and
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communication links. Accounting and billing were in a situation of constant
confusion and correcting medical bills and insurance payments. The complexity of
the CMA information and communication system overwhelmed its people.
Today, CMA uses an integrated operating system that consolidates over 50
CMA databases into one. Health care providers in the CMA system now have
access to these records through 7,000 computer terminals. The next phase in the
development of CMAs integrated system was to connect it to suppliers, outside labs
and pharmacies, other hospitals, and to doctor’s home computers, that is, the entire
value chain. The case allows the students to apply lean principles to a large and
complex health care network and think about the nature of the value chain. This
case is best assigned to individual students or student teams and the class discussion
can range from 20 to 30 minutes depending on what the instructor wants to
emphasize. Like many cases in the OM text, we try to get students out of the goods-
producing factory and into a service-providing organization.
Case Questions and Brief Answers
1. Explain how CMA used the four principles of lean operating systems to improve
performance.
One objective of this question is to have students apply lean principles to a complex
Lean Principles
Eliminate Waste
Increase Speed and Response
Improve Quality
Reduce Cost
Example: Kaiser Permanente implemented a $4 billion e-health care system for their
services. They note in one sentence “Handicapped by a paper-based information
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2. Using information from the case, sketch the original paper-based value chain
and compare it to a sketch of the modern electronic value chain that uses a
common database. Explain how the performance of both systems might
compare..
Students will draw many different structures based on their background and
One student example CMA Current State
The paper-based system with many data sets is slow, huge opportunity for errors,
Some students will draw the paper based system in a series fashion and then draw
One student example CMA Future State
Patient
Physician hand
written notes
Is patient
record available?
Yes
Patient Delay or
Reappointment
Medical records,
insurance and
databases
Medical files
stored in multiple
pharmacy, etc.)
No
Patient
Enters
Physician notes
Electronically
entered and
patient
treatment
Is patient
Complete medical
record available?
Yes
Patient Delay or
Reappointment
Medical records,
insurance and
billing entered
into one common
database
Patient medical
files stored in one
location and
accessible via 7,000
computer terminals
No
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Connecting the CMA system to pharmacies, suppliers, home health care
One undergraduate student team wrote below their diagrams “The
performance of the value chain was improved by eliminating hand-written
Also, some student teams did a value-added and non-value added table citing
Probably the best approach to answer Q#2 is to draw the original paper-
based system as a value chain that has linear (serial) and parallel activities
3. What is a total annual record retrieval cost savings with the old (paper-based)
versus new (electronic) systems?
Old System Costs
Total Outpatient Record Retrieval Cost = 1,500,000*($4.46)(1.4) = $9,366,000
New System Costs
Total Outpatient Record Retrieval Cost = 1,500,000*($1.32)(1.4) = $2,772,000
Total Annual Record Retrieval Savings = $10,650,480 – $3,152,160 =
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4. Does this CMA improvement initiative have any effect on sustainability? If so,
how? If not, why?
Yes, reducing waste such as less paper and transport and energy costs, for
example, are categories of environmental sustainability (see Exhibit 1.6).
5. Using lean principles, can you simultaneously improve the speed and quality
while reducing waste and costs? What are the tradeoffs? Justify.
Speed of system increase
The principles of Six Sigma, Lean, Cost of Poor Quality, Continuous
Improvement, and so on, all argue for simultaneous improvements, so the
Teaching Plan
(1) Explain how CMA used the four principles of lean operating systems to improve
performance.
(2) Using information from the case, sketch the original paper-based value chain and
compare it to a sketch of the modern electronic value chain that uses a common
database. Explain how the performance of both systems might compare.
(3) What is a total annual record retrieval cost savings with the old (paper-based)
versus new (electronic) systems?
(4) Does this CMA improvement initiative have any effect on sustainability? If so,
how? If not, why?
(4) Using lean principles, can you simultaneously improve the speed and quality
while reducing waste and costs? What are the tradeoffs? Justify.
You can end the case by saying something about how information systems and
operations (process and value chain) knowledge and expertise are converging for
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many organizations. That is, informating (automating) a poorly designed process is
often a source of failure in practice.