Creating a Lean Product Portfolio

Chris Harris recently co-authored a book titled Capitalizing on Lean Production Systems to Win New Business: Creating a Lean and Profitable New Product Portfolio, which can help an organization take its current Lean knowledge and translate it into a step-by-step methodology to win and launch new business. I asked Chris: “Why is it necessary to plan for new products in the context of a Lean enterprise system?” Here’s his answer:

Production facilities that have had success implementing their Lean enterprise systems may have more to gain by utilizing their Lean thought process to quote and win new business; planning in a Lean context can take place before the new product ever hits the production floor. Common questions can now be answered in the context of a facilities’ current Lean enterprise system.

 For example, those in a Lean facility have likely gained an effective understanding of their machine capacity through the optimization of their equipment utilizing small batch production. They may have an efficiently run plan based upon the most efficient changeover sequence. If they do, when a new product comes about, they must investigate how that new product would fit into the sequence to effectively know how the new product will fit into their production system.

There are other issues to consider, such as:

• How will this new product flow through the current production system? A rough value stream map may help with this question.
• Where will the purchased parts be purchased, how much will they cost, and how much inventory is needed? The Plan For Every Part (PFEP) may help to determine location, cost, and delivery frequencies leading to an answer to this question.
• Will people need to be hired or will the current amount of labor be sufficient? Standardized work for the new product before it is ever produced may help with this question.
• How will the final assembly areas and work-in-process (WIP) areas receive their material for production and be scheduled for production in the current production system. Understanding the importance of a timed delivery route utilizing a tugger and how a new product fits into that route may help in answering this question.
• How will you ensure that the new product is launched successfully on time? Constructing a plan with a three-team approach to develop a new product acquisition and launch plan may help in this area.

These are certainly not all of the areas that must be considered when attempting to win new business, but they do offer some insight in to how a Lean enterprise system can systematically plan -- not only how to win new business, but how that new business will fit into their current system and be profitable! 

What do you think of Chris's ideas on creating a new product portfolio? How do you think an effectively running Lean system within an organization can help secure new business?

True Cost Versus Piece Price in the Supply Chain

Chris Harris is one of the authors of a new book titled Lean Supplier Development: Establishing Partnerships and True Costs Throughout the Supply Chain, and I recently asked him the following questions in an email: "Why shouldn't the decision of where to source a purchased component be made on piece price alone? And, just what is 'true cost' and why should it be considered?

Here is Chris Harris' concise reply:

"The piece price of an component -- the comparison of one supplier’s piece price to another’s -- is typically the driving factor for selection of one supplier over another. But unfortunately, piece price only tells us a fraction of the cost that is actually borne by your organization when sourcing a component. The piece price only takes into account the price for which the supplier is willing to sell the item -- it usually includes the supplier’s manufacturing costs and overhead costs and profit, but it may or may not include factors such as the cost to you, the customer, for transportation of the component to your location and many other concealed costs.

When you evaluate a supplier’s cost, I believe you should always use a true cost methodology. The true cost methodology does indeed consider the piece price as a part of the equation but also takes into account other costs that fall into one of three categories: change costs (the cost of switching from one supplier to another), risk costs (the cost that you can reasonably predict could occur in the course of doing business with a supplier), and ongoing costs (the costs you'll bear during the duration of time that the new supplier is providing you with product)."

What are your considerations when purchasing parts or components? Do you use any type of "true cost" model?