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visit MIT OpenCourseWare at ocw.mit.edu. [CLASSROOM CHATTER] ALLEN HAGGERTY: OK, it's 0900. We're going to get started. As a reminder, my
name is Al Haggerty. And we're going to try
to get you oriented here in what we call this, The
Start of Your Lean Journey. There we go. So by the time we
get done, you're going to be able
to differentiate between Lean and Six Sigma. And I know that one
of the attendees today mentioned that
that's why they came. We're going to talk
about the 5S tool. That's a derivative of
the original Japanese Lean concepts. And we're going
to able to define the difference between
Lean and a lean enterprise and stakeholders and
recognize why lean six sigma principles are being implemented
in aerospace, because it's turned out to be a very,
very, very valuable tool. And the fact that today
is day one of a journey, It's not something that you
just do once and finish. And I was reviewing some
of the latest changes, and my wife said, gee, you've
done this a lot of times. What are you doing? I said, we're on version six. And she said, what? You changed it six times? And I said, this is
continuous improvement. So we're going to
talk about that. This is a excerpt from The
Machine That Changed the World. And some time, if you get
a chance, get that book. And Womack and Jones, an ex-MIT
professor, he's still alive, and he's still kicking, and
very, very interesting guy-- developed a whole bunch of data. But it started with the
automobile industry. The book The
Machine That Changed the World is about the
automobile industry. And in the late 1800s,
cars were brand new, and they were assembled by hand. And then Henry Ford
revolutionized the production of cars. And the big thing
that he came up with was interchangeable parts. Because before that,
we handmade parts. And he came up with
the concept, that if we could make all the
parts the same, we could put them
in an assembly line. And that started
the mass production. Well, along came Toyota,
after World War II. And Toyota made this
huge improvement in how we build cars. Part of it was the concept of
statistical process control, in terms of how they
literally made the parts. But they invented the
whole concept of lean. And as you may know, last year,
2007, which just finished, the Toyota production now
exceeded General Motors production for the first time. And from market
capitalization, numbers of shares times the
value of the stock, they're the largest
automobile manufacturers. And as you know, we've gone
through a lot of problems with Chrysler, was part
of the Daimler-Benz until just recently, when
Cerberus just bought them back. But our automobile
industry is in trouble. I just read the other day that
General Motors lost $36 billion last year. Part of that was
buying back the rights of the displaced workers,
the severance pay and that kind of stuff,
and their health care, and so forth. But you can see the difference
between, if you look at this, the auto production
in the US, these guys, and with the ups and downs. And every time you
do one of these, we get these giant layoffs. The nice, smooth
Japanese production is as a function of Lean. They continue to improve, and
they have a stable workforce. Their products continue
to be better and better. I do a lot of
jogging, and if you jog along the road
and all that, you take a look at the old cars. The old cars that
come down the road-- there are Hondas and Toyotas and
the Japanese-owned automobiles. The old Chevys and
the old Fords, I mean, you see some of them. But they don't last as long. And a good reason is-- the fact
is that these cars, I mean, I tell industry groups. I mean, you ask any
college kid about driving a car after 200,000
miles, and they'll say, yeah, I got a Corolla,
or I got a Camry. I've got a Honda. And there's a reason for it. Because the fact is
that they have all the bells and whistles. And all the bells and
whistles keep working. So we just talked about that. In the post-world War II
period, General MacArthur wanted to rebuild the
industry as part of his-- he was the Supreme Allied
Commander in Japan, and he tried to get
the industry going. And he brought Deming
from MIT, basically, to help get the [INAUDIBLE]
a bunch of experts. And he instituted a lot of the
statistical process control. And the Japanese took it for
granted-- not for granted. They said they did
it with a passion. Whereas, in the US, we didn't. And therefore, their
cars and their products have worked
significantly better. So if you take a look at
the early craft concept that was used in the Industrial
Revolution in past, just think of a
jeweler, a watchmaker. Each one of those little
parts was made by hand and filed by hand, put together. And if you wanted
to become a jeweler, you became an apprentice. And then you became
a journeyman. And then you became
a master craftsman. And that was how, in fact,
you made the kinds of parts. And if, in fact, you could think
of a better way of doing it, the master craftsmen
would do it. But it was not spread anywhere. I mean, maybe he would teach
his apprentice, or so forth. But mass production, which
we just talked about, Henry Ford, that
kind of concept, if we were going
to build years ago, if I was going to
build 12 Apaches, we'd put 14 parts in the
line, 14 sets of everything. Why 14, if we're
going to build 12? Because we're going
to scrap them. We don't do that anymore. But that was typical
what we would do. And that's pure waste. And the concept was mass
production, reduce the cost, get the efficiency up. And there's no question that
this was a lot more productive than the master build it one
at a time kind of a thing, of a craft person. But here's a big difference. Inspection was a second stage. We would build it and
inspect it, build the part and inspect it. Today, in Lean thinking, we
build the quality process into the production of the part. And we're going to show you
later on that inspection does not catch all the errors,
does not catch all the errors. In fact, I guess the
poker chips that we just saw before was a good
demonstration of that. And another
significant improvement is that the master, the master
carpenter, the master furniture builder, the master
bricklayer, any innovation was driven by the guy
that was doing the work. Here, we had industrial
engineers and manufacturing engineers, expert periodic
improvements to the process. Under the Lean concept, we want
every worker to contribute, every worker to contribute
in terms of being able-- there's no question, that
the real experts in the job, are the people that
do it every day. And trying to glean
that information is part of the value
of Lean thinking. And the biggest thing is really
the focus on the customer. See here the craft-- the jeweler was focused on the
task of building that watch. The mass production
focused on automobiles. Well, we still want
to build automobiles. But the focus was
on the product. Here, on the Lean
thinking, we're trying to deliver
value to the customer. And we'll talk more
about that later on-- but trying to deliver value. Want to deliver a Mach 1.6,
supercruise high payload, vertical-- or short-- takeoff
and vertical landing aircraft, called an F-35, to
the war fighter. That's the value. And we want to be able to do
it for $35 million apiece. That is the value
to the Air Force, which is the macro customer. The pilot and the mechanic
are the detail customers of how we think-- so big, big difference in the
way we approach the concept. Now, we talked about Six Sigma. Six Sigma was developed
by Motorola in the '80s. Now, not too many people
wear pagers anymore. But when I was a
young engineer, I remember that it was sort
of like a status symbol to have a pager. I never got one of
the darn things. But pagers were a big deal. And Motorola pioneered
that business. And they had 80% market share. Until, once again, the Japanese
and the Koreans came along, and they added a whole bunch
of features to those things, where they could tell you-- when the buzzer went off,
they could tell you who it was and where they were coming
from and what time it was, and a whole bunch of features. And they delivered it to
the United States cheaper. And all of a sudden, Motorola's
business went in the tank. And they tried to analyze
what was going on. And they decided that-- they did a Pareto analysis. And we'll teach you
about Pareto charts here. But they basically
made a ranking of what the issues were. And one of the biggest
issues was the fact is that they had to scrap and
rework a bunch of these pagers. And their quality was not
as good as the Japanese, and they didn't last as long. The pagers didn't last as
long, for quality reasons. And so they said,
how can we fix this? And basically started to apply
the Deming statistical process control to the various design
processes, manufacturing processes, and so forth,
to improve their quality. And they regained
their market share. They regained their
market share on the pager. So anyway, Motorola,
in the '80s-- in fact, I live in Scottsdale,
Arizona, now. And the Motorola facility was
the one there that did that. But it was improving quality
by eliminating defects. And the concept is
reduce variation. We're going to talk
a lot about that. But under Lean, we're
trying to remove waste. And waste is not
the fact that people come to work every
day to waste things. It turns out that
waste is-- the fact is, if this is the
perfect way of doing it, and we're doing it now, the
difference between what we're doing now and how good it could
be is a definition of waste. The Six Sigma is focused on
those issues, a variation that, in fact, causing a
problem, we focus on the flow. And you're going to hear the
term pull, versus push, and so forth, as we go through this. And we're trying to
get rid of the waste to improve the
business performance. And it's a lot of
small improvements, many of them coming
from the workers who do the job every day. And I had to work in a-- Boeing sent me to Japan. And I worked in a Japanese
factory for a week and after two days
of training, had to improve the productivity
of a Japanese worker, who was making large
industrial air conditioners. And that guy was 55 years old. And he was moving so fast. And my job was to improve
his productivity by 30%. And I thought to myself,
there is no worker in the United States that's
working as hard and as fast as this guy. And he was doing all these jobs. And I had to figure out that
literally, it was a repetitive job and try to improve. But it was a combination. I did it, but it was a
combination of a whole bunch of small things. And that's what
we're trying to do. So we're going to learn a lot
about variation and the fact that variation causes
problem and the fact-- we're going to talk about flow
and how to get the waste out of the process. AUDIENCE: Question. ALLEN HAGGERTY: Yes, sir? AUDIENCE: A simple [INAUDIBLE]. Where does the name
Six Sigma come from? ALLEN HAGGERTY: Statistics. AUDIENCE: OK. ALLEN HAGGERTY: Yeah. There's a chart we're
going to show you later on, the day after
tomorrow, that will actually explain that. But basically, in statistics,
sigma, in terms of variation-- so one sigma is 30% of the part,
two sigma is 66%, three sigma, so forth. Six Sigma is 99.99999%
perfect kind of stuff. AUDIENCE: [INAUDIBLE]
standard deviation. ALLEN HAGGERTY: Standard
deviation in statistics. I just came from
Boeing helicopters. I was on there for
a week last week, helping them on the
[? root end ?] fatigue problem on the Apache Attack helicopter
advanced composite rotor blade program. And there's a
[? root end ?] problem, and I was there to fix it. But we literally
take six specimens. It has nothing to
do with Six Sigma, per se, but six specimens, and
then run out the fatigue test and determine what the high
confidence 99.999% stress level is that we can guarantee
the life of the part. And so it's used a lot. We talk about the fact that Lean
optimizers flow and eliminates waste. Six Sigma stresses quality for
the elimination of variation. And certain companies have put
all their focus on Six Sigma. And other companies
have adopted Lean. And over the last
10 or 15 years, we've seen a convergence
of companies that use both, and the idea being is, that if
the basic quality problem is something that we can apply Six
Sigma methods, it makes sense. But quite often,
in the big picture, the flow is all mixed up. And therefore,
we're concentrating on eliminating the
waste in the flow. So there's a lot of
companies that, in fact, instead of having a Six Sigma-- General Electric, for example-- and instead of a pure
Lean, have, in fact, merged those two. And so you can see
here, Rockwell Collins calls it Lean
Electronics, Textron-- Six Sigma. The Air Force new
system is AFSO21. Boeing now calls it Lean +. And that's a change just
in the last two years. So all of these things
have merged together. So we're going to talk about
the fundamental concepts that underscore both of those. We were talking about
someone mentioned, early in the icebreaker, and why
they were going to come here, they wanted to learn the terms. There's a bunch of terms that
we're going to expose you to over the next three days. And these terms are
the language of Lean. And we'll go through those. And believe it or not, when
you take your value test at the end, you'll be a
lot more knowledgeable and to be able to explain
really what those are. So that's good. And I won't go through
those at this point. So we talked about the 5S. There are literally
five terms in Japanese that began with the S word. And I can't pronounce them. But they have been
translated into English to mean Sort, Straighten,
Scrub, Standardize, and Sustain. And I'm not sure
you can see this, but this is a typical factory
sorting area, receiving inspection, where
the parts come in, and they get sorted
and inspected. And this is before. And if you can see
that right now, there's a place for everything,
and everything's in its place. And that has a huge
impact on the ability to get the job done efficiently. Let me just relate that
to your father's tool box, your father's toolbox
on his workbench, or the plumber that you see,
or the mechanic on your car. And they're in a toolbox. I know that ratchet wrench
is in here somewhere. What our job is to do,
as the converse of that in terms of sorting
and straightening, is to be able to say,
I want our mechanic on the line to have
all the tools so that he can be like a surgeon. He can be a surgeon-- scalpel, right. And it's all right there, and
he knows exactly where it is. And we want to
give him the parts and the paper and the tools-- OK, the parts that
I need right here, the tools that I need to do
the job, and instructions, so that he knows what to do
next, if it's, in fact, he's building multiple products. So we want to be more efficient. And we'll find
out that actually, straightening out and sorting
out is a big improvement. So we're going to
do an exercise. Everybody go into your
notebook, into your R notebook. And there's a piece
of paper that says, 5-S Exercise, 5-S exercise. It looks like this. Now, what we're
going to do is we're going to do a 5S exercise. And we're going to
measure our improvement. We're going to put
metrics on this. And we're going to, in fact,
put you in shifts of 30 seconds. And what a good job to do-- when I tell you to turn
the page, I'll time you. You've got 30 seconds. And what we want you to do--
you'll see a bunch of numbers. Don't look, a
bunch your numbers. And what we want you to do
is to find the number one, cross it out, then
find number two, cross it out, number
three, up to 49. You have to do it in order-- 1, 2, 3, 4, 5, 6, 7, 8, 9, 10. Find the number. Cross it out. Find the number. Cross it out. And then stop when
I tell you to stop. Ready? Set? Go. OK. AUDIENCE: 8. AUDIENCE: 4. AUDIENCE: 9. ALLEN HAGGERTY: 9. AUDIENCE: I didn't get any. ALLEN HAGGERTY: OK. [LAUGHTER] AUDIENCE: 3. ALLEN HAGGERTY: So round
one, the highest was 11. The average-- the average
might have been 5 or 6, something like that. So I'm just going to
say, OK, that's cool. OK, so now what we're doing is
that we're talking about 5S's. The second S is we're
going to sort these. We're going to sort these. And what we've
done is that we've removed some waste
out of the system, and we've removed the
numbers between 50 and 90. And for our product,
we don't need those. So what you're going to
do is the same thing. We're going to go in order. Find the 1, Cross it out. Find the 2. Cross it out. Find the 3. OK? And on your mark, get set, go. Stop. OK. [CHUCKLING] It's
a killer, right? How many? AUDIENCE: 10. AUDIENCE: 10 AUDIENCE: 11. AUDIENCE: 13. ALLEN HAGGERTY: 13. AUDIENCE: 19. ALLEN HAGGERTY: 19. AUDIENCE: 32 ALLEN HAGGERTY: 32? AUDIENCE: [INAUDIBLE]. ALLEN HAGGERTY: 22. AUDIENCE: 15 ALLEN HAGGERTY:
Highest number was 22. And the average is about
11, roughly, around 2. OK. We've had a productivity
enhancement. We've gone from 11 up to 22. Now we're going to do
what we call set in order, or straighten. And just think about a factory. We install the rack system
to help locate the numbers. And the numbers go from the
bottom to the top and from left to right. OK, that sort of
makes sense, right? Bottom to the top,
left to right. And that'll help you. So start over on the left,
and then go up, and then go to the right side. And we'll talk about it. OK. Stand by. On your mark, get set, go. Good. OK, so round three,
39 was our top. Now, the average is certainly,
like, approximately 30. Good. OK. Now you see that
straightening paid off. The third S is what
we call scrubbing. It's tough to scrub
a piece of paper. I mean, so but
basically, cleaning the factory, if you think
of an electronics factory, if you had a dirty
electronics factory, and somebody put a chip
down, you'd ruin the chip. I mean, that's a simple example. But there's lots of processes. We make composite-- I just
said I was in a [? root end ?] factory, making rotor blades. Composites have to
be absolutely clean. So having a factory that
is clean helps product. But I can't do
something on that one, so we're just going
to skip that next one. OK, the next one is what
we call standardize. And we've created a system
of ordering the numbers from the lowest to the
highest, from the left to the right, and top to bottom. We've put one
number in each box, OK, make it easy
to get our tools. And we know where our plans are. So we now know where
the screwdriver is. We now know where the wrench
is, and that kind of stuff. OK. Stand by. Ready, set, go. OK. AUDIENCE: 49. ALLEN HAGGERTY:
[INAUDIBLE] whoa. [LAUGHTER] AUDIENCE: 49. AUDIENCE: 49. AUDIENCE: 49. ALLEN HAGGERTY: You
can see, on round four, we basically did it. We significantly
improved the average. Why don't you review that. AUDIENCE: [INAUDIBLE]
roughly, looking at the range and
the eyeball, mean, we started out real low, kind
of consistent, consistently bad, right? As we went through sort
of intermediate steps, notice the variation
actually got bigger. Some people took to the
improvements quickly. Other people didn't. There was actually
more variation. In fact, at this
last step, we had a weird bimodal distribution. I have a lot of 30s and
a lot of teens, right? Some people got that
system, some didn't. But the really good system,
with some odd exceptions, brought both that our
performance went up and very important,
got our variation down. There was actually just a
couple of outliers here. Almost everybody was on track. ALLEN HAGGERTY: Now, basically,
let me translate that to an aircraft example. Years ago-- I mean, I started
in this business in 1962-- they would give a worker a
job ticket, a job ticket, and said-- the supervisor would get
together at 7 o'clock in the morning and
say, OK, you're going to build the
horizontal stabilizer today. You've done that before. We know how to do it. Here's the job ticket. Clock in on the job. You'd go clock in on the job. And it would tell you
that, in fact, you had to go to the blueprint crib. And you'd pull out the
blueprints for that, and you'd spread them out. And then it would tell you
that you had a part kit. And you'd go to
the parts control, and you'd get that kit. And then it says,
whoop, I need this tool. And you'd go to the tool
crib and get the tools. And now, we start at 7 o'clock. It's about 7:30, and
you've been trying to get your stuff together. Today, we don't do it that way. Today, you get your parts
and your instructions. In fact, F-18, Apache,
and those kind of things, are paperless, paperless. So you have a computer
that right now and tells you a illustrated
way of getting the job done. And it's right in front of you. And the parts are right there. The tools are
delivered with the job, or they're at your
workplace all the time. And you can see, you can
see, from 5 to 6 to 49, how this is important in
terms of being able to sort, straighten, and standardize. OK? So now you know what 5S is. Now, the fifth S is sustain. And what that really means
is that clean factory we saw, the fact is, that at
the end of the day, you want to be able to put
the tools back in the rack where you found them, so that
you know exactly tomorrow morning, when we start,
exactly where they are. We want to continue to
have a clean factory, so that if we drop a chip,
or something like that, we're not running anything. So it's tough. This is like clean your bedroom. Yes, Mother. Right? I've cleaned it. I want it clean next week, too. Right? Keep it clean. And as they say here,
it's hard to achieve. I used to do a walk-through
and created the Golden Broom Award, the golden broom. And we literally had
a hardware store broom that we sprayed with gold paint. And we'd walk the
factory to make sure that the folks that had the
cleanest shop, the sheet metal shop, the machine shop, we
want them to keep it clean. Aerospace is the largest
exporter in the United States. When we talk about the
balance of payments, the aerospace
industry always leads in terms of number of exports. It's a [? flagshop ?] industry. Obviously, today,
everything is air-shipped. You've got FedEx and
UPS. And UPS, there's a very large fleet. It's not just brown trucks. They've got a large
number of cargo travels. But we get products-- it used
to be only high-value products. Now we get a lot of things. Sushi is flown in
daily; fresh iced tuna flown in from Taiwan every day. It's hard to believe-- flies right into San Francisco. So we move people and goods with
our global positioning system, and so forth, and
our satellites. We've got wonderful
information now that we never had
from our satellites. Obviously, national security
and the concept of, hopefully, going back to the moon and
Mars, and the innovation that that technology
provides, made aerospace an exciting place to work. But some terrific work
that was done here at MIT in terms of studying
the evolution of products and innovation-- this is in green color-- I guess that's sort of green-- the number of major typewriter
companies in the world. And you can see it goes
up and down like that. And at the peak,
at the peak, there were 75 companies
making typewriters. Now, my mother was a secretary. And her favorite typewriter
was a Smith Corona. Well, Smith was a
typewriter company, and Corona was a
typewriter company. And they merged, and they
made good typewriters. Ultimately, Remington
made typewriters. And then IBM made typewriters. And when I was a
young engineer-- and some of you may
have seen these, but you can't even find them
anymore-- the typewriter that had a ball on
them, the IBM Selectric. And instead of having
keys that went like this, the little ball would just flip
to the right position and type. And the really good typist
could type much faster on those things. And it was a status symbol
for the secretaries, if you get an IBM
Selectric typewriter. But what happened is that
the advent of the computer later on-- I mean, you can't even
find typewriters today. I mean, they're in museums. What the research
has indicated is that, when a invention happened,
a whole bunch of people jump into the industry. And then as the product
stabilizes, where innovation, they've gotten about all the
gadgets into it that make it better, the process, not
the product innovation, but the process innovation--
who can make the typewriter more efficiently, and deliver it
to the customer at lower cost, and there's some consolidation-- Smith and Corona get together
and become one company. And they, in fact, the
numbers of companies reduce. Automobile industry--
I mean, I can-- and Earl and I, we can
remember Hudson automobiles, when we were kids, Hudson
automobiles and Studebaker and Nash. You folks probably have never--
you might have heard of them. But the Studebaker company
started in the world in making Conestoga
wagons to go out West. And then they wind up
making early automobiles. And in the late '40s,
after World War II, they had a very unique company. The automobile
industry has gone down from cars, enclosed
steel body cars-- look at all this. There were a whole bunch of
companies in that industry. And now we have three
in the United States. And then, a couple of
years ago, Chrysler was not really a US company. It was Daimler-Benz. So the same product phenomenon
happened in automobiles. And here we are here. There's a chart that I sent
[? Analisa ?] the other day. We had 54 aerospace
companies in 1940. And that has consolidated
down to where you've got, in the
commercial airplanes, you've got Boeing and Airbus. Then you've got some
big Embraer and Cessna and some of the folks
that make business jets. But the number of companies is
really dramatically reduced. And the same phenomenon would
have been predicted down here, except during the Cold War, it
was important to keep companies alive and keeping what we call
a warm base or a hot base, in order to be able
to produce them. But the question is, as
happened here and here, as the efficiency improved,
only those companies that had a better business model
really stayed in the business. And so the question is, are
we in trouble in aerospace? We hope not. But the point is, the
very fact that we're doing Lean, Lean Six Sigma,
and transforming ourselves into very, very
efficient companies, hopefully that will, in
fact, sustain the industry. So that's something
to keep in mind. Because we used to say,
in Pentagon budgeting, that only the healthy
tigers survive. The weak ones get eliminated. And so the name of the
game is to keep going. So the question is, the industry
that came of age in a court order cannot survive with an
obsolete business strategy. And so we're going to
talk about that strategy. Now, for many, many years,
starting with World War II, the name of the game was high
priority, develop the aircraft. This is even pre-missiles. And the way we got the price
was, what was the cost? The government would
audit the cost, and then you'd put 10% or
15% profit on top of that. And that determined
what the price was. Over the last 10 or
15 years, the customer has gotten a lot smarter. And it said, you
know, look, this is what we're willing
to pay, and this is what we think is reasonable profit-- same as this, 10% or 15%. And if we're going
to buy it from you, you better get your cost down. Otherwise, A, you don't
get the business, or B, you don't make any money. So the customer
determines the price. And we in industry have to lower
the cost to achieve the profit. So when we go through
a design process, our design has to come up
with the fact is that we've got to meet the range-- you guys are aero
engineers-- range and payload and reliability
and maintainability, and so forth, all
of those specs. But one of the key
specifications-- we're going to talk more about
this when we talk about cost-- one of the key specifications
now is achieving the cost. So we talk about design
to cost, design to cost. And we keep iterating the design
until we achieve that cost. And those companies that
don't iterate the design to achieve the cost
at the beginning wind up not making
money, not making money-- so big issue. So we use Lean to
help us achieve and to make sure that
we're efficient in all of our processes. So here's some basic data. Now, this is the return
on invested capital. And here, this is the average
of the capital goods companies. These are the big companies
in the United States that manufacture. These are not
service industries. These are big capital--
make big equipment. And you can see that basically,
almost 8% margin, net margin. And you can see over here,
that the return on the invested capital is 11% or 12%. And you hear some of the
aerospace companies-- In fact, it's
interesting, as we've taught this course, how many of
these companies were down here. Boeing and Lockheed,
and so forth-- we were all down here
about five years ago. And we've, in fact,
become more efficient. OK, this is 2007. So actually, it's funny
to watch those things. We're becoming more
and more-- and Rockwell used to be down here, and
they've gone way up here. And actually, Clay
Jones is the CEO. I met him back in 2002. And he came to see
McDonnell Douglas, because we were doing Lean. And he wanted to
learn how to do it. And he went back. And now they have
Lean Electronics. And they've done very,
very well, done very well. So the point of the story is
that the aerospace industry has been moving up into
what we call the green zone. So we have red, yellow, green
and a lot of the military charts and a lot of
industry charts now as a way of communicating--
red, yellow, green, just like a stoplight chart-- not so hot, caution, great. And the aerospace industry,
as it's become Lean, is moving in that direction. And it's a gratifying
phenomenon. We typically have underperformed
capital goods manufacturers. But Lean is driving us
to the right-hand corner, which is great. We're talking about enterprises. And that's a key word in Lean. And there's lots of different
kinds of enterprises-- Programs-- Joint Strike Fighter
or the Boeing 787 Dreamliner, the Global Positioning System. Then you have a
multi-program enterprise, for example, Raytheon. I have Raytheon marine
electronics on my big sailboat. And we'll show
you that later on. The United Technologies is
Sikorsky, Pratt & Whitney, Carrier air conditioning,
the Otis elevator company-- lots of products,
lots of programs. And then we've got the national
and international enterprises, the aerospace enterprise,
our whole aerospace industry, military and
commercial; the European Airbus and the other
companies, the EADS. So we can have enterprises that
overlap each other, intersect. And we'll show you how they
can, in fact, be connected. So what is an enterprise? And it says, one or
more organizations will have related activities,
a unified operation, and a common business purpose. So here we are here
with the end user. And Lean, we focus
on the end user. And remember, just
a new concept-- is the end user the
airline that buys a 787? Or is it the pilot and
the maintenance mechanic, because those are
the real end users, and we want to make it
easier for the pilots and easier for the maintainers? And then engineering's job is to
conceive a product design that achieves the value that we want
to deliver to the end user. And then manufacturing
operations and our supplier network add
the value to create the product. And there's a bunch of
supporting organizations-- finance, that keeps the
books; the human resources people, that acquire
the personnel and provide the benefits, and
so forth, and do the training; legal, obviously; and
then product support. In a military
environment, one-third, roughly, one-third of
the total life cycle cost is the acquisition. How much do we pay for the
development and the production? But 2/3 are the operations
and support costs. And it turns out, that if
you put the product out in the field, and we've
got a good customer here, the maintenance cost,
the training cost-- think about training pilots. 50 years ago, it cost
$100,000 to train a pilot. Today it's in the millions. But the amount of
money for spare parts and repair and overhaul-- so
2/3 of the lifecycle costs are in the product support area. So all of these are
part of an enterprise. And you can see the
intersections of-- the product development guys
send specs to the suppliers to build the parts. They also send specs
down to manufacturing with the blueprints to
do it, and so forth. So you can see those
intersections there. So if you basically
have a headquarters-- this could be the
headquarters of what used to be McDonnell
Douglas in St. Louis. And then you've got
a factory there. And it turns out that we,
in fact, have suppliers. And we, in fact, go out to
our second and third-tier suppliers. What's a second and
third-tier supplier? We buy titanium from
outfits like RMI. We're buying titanium
from Russia today. They have a huge
source of titanium. We get Alcoa--
obviously, aluminum. And so those are
first-tier suppliers. But we also then go down below
that to our machine shops. That Hicksville machine
shop on Long Island makes big machine parts for us. And we have to make sure
that that whole supply chain is, in fact,
synchronized and working. Boeing is having trouble
right now on the 787s, because of the fact that
the supply chain was a major new innovation, the way
they were going to, in fact, build this airplane. Because they gave
design responsibility to major subcontractors, who
flowed that down to sublevels. And some of those
parts didn't flow up on the same very, very
aggressive schedule that they put in
place for the 787. So supply chain is
a key part of it, and they're all part
of the Lean enterprise. So here's a multi-program
business unit. You've got the end user. OK, let's say that an airline-- but the end user is like
a pilot and a mechanic. And you've got employees
on the F/A team. Boeing was the prime. Northrop Grumman
made the aft section. On that Joint Strike Fighter,
the F-35, Lockheed is prime. Northrop Grumman is
making the aft section. British Aerospace is
making the Ford cockpit. So those are partners. You've got detail
suppliers that make actuators and that
make alternators, and that kind of stuff. You've got the
unions, the IAM, which is the machinist union in St.
Louis, the United Auto Space Workers, in Boeing,
Philadelphia. Society and Congress are
stakeholders in this thing, because the fact is that
Congress is paying for it, and society is depending
on these products, A, for transportation,
and for defense, and so forth, corporately
to shareholders. So all of these
are stakeholders, because they've got a
piece of the action. If we shut down a plant,
if we shut down a plant-- we shut down a plant
in Columbus, Ohio, and there's a whole
bunch of people that aren't working there anymore. There's a responsibility to
the shareholders to get value. But on the other hand,
part of the stakeholders, in terms of society, is,
for example, the communities that we serve. And so all corporations today--
most of the big corporations-- try to be good community
neighbors and in fact, try to do things
that don't hurt. But I mean, I was on
a consulting contract last February, in Detroit,
when Ford said they're going to cut 30,000 people. Whoa, boy, talk
about sad people. So here, what we're
trying to do is have value for all of the stakeholders. Obviously, the value--
we want the best value delivered to the customer. We've promised performance. We've promised price. We've promised reliability
to the end users. Our employees, we're saying
to you, make good products. We'll sell a lot. You'll have jobs
for your families. The unions-- it's
the same situation. The shareholders'
return on investment-- you buy a share stock, and
you want to get dividends, and you want to see
the stock price go up. The partners-- Northrop
Grumman and Lockheed are working together. The suppliers--
and this is Eaton, that makes electrical stuff. And it's [INAUDIBLE] that
makes actuators and Honeywell that does flight controls. And then society--
we're trying to, in fact, have the benefits
of being able to fly and go see your grandkids
kind of thing. So what is a Lean enterprise? And a good definition--
and in fact, he just came back in the room. But Professor Murman,
Professor Murman pulled together a bunch of
professors here from MIT about five or six years ago
and wrote this book, The Lean Enterprise Value-- Insights From MIT'S Lean
Aerospace Initiative. And it says, "A lean enterprise
is an integrated entity that efficiently creates value
for the multiple stakeholders by employing lean
principles and practices." And you remember, these
are all of the elements that it takes to
create an enterprise. And what we're trying
to do is to create value for all people in the
total supply chain and in the enterprise. Let me take it the
other way around. We have an army officer here. The Air Force spent 20
years developing the F-22. It was called the
Advanced Tactical Fighter. The Air Force wanted that
for $35 million apiece. it took 20 years to develop, and
you can add inflation on that, and whatever. But the point is, today's
F-22 costs $180 million, $180 million. The Air Force wanted to buy
750 of them, 750 of them. And what happened is
that Congress said, we can't afford $180 million
aircraft and buy 750 them. And what happened is over
time, now the Air Force can only buy 183, 183. And they wanted 750. Now, there's a lot
of pressure right now to try to keep the line going. And whether that
happens or not, I mean, the chances are we'll never get
to what the customer wanted. And the issue here
was the fact is that the value that the customer
wanted, the end customer, was not delivered. Because from a strategic
and tactical standpoint, having greater numbers
gives you an advantage. The problem is we're
not going to be able to get that advantage,
because we're buying less. So delivering value
is a big deal. My favorite example--
and I'll probably talk about it tomorrow--
is that, if I told you that I have a wonderful Ford
Focus outside on the curb, and if you sign right
here, it will only cost you $60,000 for the Ford
Focus, and you say, Al, I don't think I want that, right? The point is that intuitively,
we know what value is. And $60,000 for a Ford Focus
doesn't intuitively compute. And so the name of the game
is the market people tell us what is it that
the customers want. And it could be a Mach 1.6 $35
million Joint Strike Fighter kind of a thing. Or it can be a $220
million large 747. Or it can be a laptop
computer for $900. But we all know intuitively what
the features and the attributes that we're looking for and
what we sort of want to pay. And if, in fact, we
can conceive the design and iterate the design
and get the waste out of it, so that we can deliver
that value to the customer, we'll be able to sell them. And the enterprise will thrive. And all those stakeholders,
all the stakeholders have a piece of the action. And we've got happy employees
and happy communities and happy shareholders. So we talked about business
acquisition, market research, engineering, define
the requirements, iterating the product
design, and coming up with robust processes
to make repeatably, to get the variation out
of them at high quality, managing the supply
chain down through the second and third
tiers and [INAUDIBLE],, efficiently producing these. And then, obviously, we have to
deliver them to the customers and then support them
for the life cycle. And so those are those
big lifecycle processes. But then there's a bunch of
supporting infrastructure-- finance, information technology,
human resources, and so forth. And Lean applies to these, too. Every one of these processes
can be more efficient. I used to do Lean
lectures at Boeing, in addition to my job as vice
president of engineering. And I had a contracts
administration person, who's actually a lawyer. And all of a sudden,
he says, Al, I got it. I can see why we want to be
able to get on contract sooner. Because we have a whole bunch
of people trying to wait for the contract go ahead. And these guys are
still fooling around, trying to get the
terms and conditions. And so they were trying to get
the contracts administration folks even leaner. So that's the book. And I heartily recommend
that you get it, Jim Womack and Dan Jones and Dan Bruce. And The Story of
Lean Production-- How Japan's Secret Weapon
in the Global Auto Wars Will Revolutionize Western
Industry-- and it has spread from the
automobile industry in Japan to the aerospace industry. And now, hopefully, Detroit's
going to get the message. But a three-star
general in the Air Force said, "Can the concepts
and principles and practice of the Toyota
Production System be applied to the military
aircraft industry?" And they gave a contract,
a sturdy contract to MIT. And in the early '90s, the
answer was a resounding yes. And if we focus lean
on enterprise valuation and creation-- and Professor Murman
for more than 10 years led this whole effort and
was very, very successful in developing a body of
knowledge, a body of knowledge that really works. All the major aerospace
companies are using it. It does produce value. In fact, now we're
trying to spread it to the health care industry
and other organizations. But Lean does pay off. And in fact, the Air
Force said, you've got this great
body of knowledge. And we now know
that it does work. How do we spread
that and diffuse it, so that it's being
taught in colleges? And the Lean Academy, of
which this is a piece, was created about five
years ago to disseminate this whole body of knowledge
by conducting courses like you're in right now. So here's some examples. This was General
Dynamics and then Lockheed on the Atlas program. You can actually see that
on the initial development, it used to take
48 and 1/2 months. And they actually got
it down to 36 months and down at 27
months, ultimately got it down to 18 months,
going through a series of major changes and going
through the Lean processes to, in fact, achieve
what they wanted. The F-18, Super Hornet-- huge change in requirements-- more payload, three
times greater ordnance bringback when they
land on the carriers, 40% increase in unrefueled
range, five times more survivable,
designed for growth, big change in reduced support
costs, and multi-mission. And they did it within budget,
did it on schedule-- well, actually, ahead of schedule-- 1,000 pounds underweight. And there's a high correlation
between those program management practices
and our Lean enterprise. And that's all the
way from trying to do all of these various
missions, as you can see here. It's one of the big success
stories of industry. And Rockwell Electronics-- we
mentioned Clay Jones before-- 25% improvement in productivity,
46% reduction in inventory, cycle time
reduction-- big deal-- 75%. And it also works in the
office, on technical manuals, on paper-processing, accounting,
publishing cycle time-- 72% reduction,
work-in-process reduction-- 70%, 38% productivity
improvement. So it does apply everywhere. And we're going to give you some
exercises that talk about it. Kanban is a Japanese word. And it's a Lean tool
that we use a lot. We use it in the office in
terms of processing engineering drawings, and we use it
in out in the factory. And there's several
ways of making it apply to the movement
of material and parts in the factory or
information, information like in drawings and the
parts cards, and so forth. And sometimes it's
actually done with a card. And we're going to go through
some Kanban exercises here. But basically, what
it says is that-- you remember, I
told you originally, if we were going to
build 12 Apaches, that I'd put 14 parts out there. And you'd give all 14
forgings to a machinist and say, here's a job card. Go do it. Now we give him one. And we, in fact, when he
finishes machining that, he looks over here. And there's a card that says
he can go get his next piece. And then he puts a card in. And we move it. We do single piece flow. Because if he makes a mistake on
12 forgings in machining them, we've got 12 rework
parts and 12 scrap parts. So empty part-- one way of
doing it is an empty parts bin. So in fact, he
sees an empty one. The parts guy fills it up. An open space on the
production floor-- we paint yellow
boxes on the floor. And so if the part is
there, I grab that part. And when it's empty, the
production control guy says, oop, give
him another part. So that's another
way of doing it. It reduces inventory. It reduces scrap and rework. And then we do the same
thing with engineering. You can have racks on the
wall for them to do that. So it took 30 years
for Toyota to develop all aspects of this system. And you can see that they
did their early experiments with Kanban in the '50s. it took them 10 years, and
they put it company-wide. And then they drove
it all the way down to their first, and second,
third-tier suppliers. And they're continuing to
develop what we call the Toyota Production System. Boeing now, for
example, calls that the BPS, the Boeing Production
System, which is basically the Toyota Production System. And they're very,
very proud of that. So how long do you think it
might take a large aerospace company to implement
Lean thinking across their enterprise,
starting with the knowledge now available? So in your folders, you've
got some cards, colored cards. I think they're 3 by 5 cards. They're colored cards. OK. How long do you
think it would take? There's a blue card for 20
years, a red card for 10, green for 5, and yellow. How long do you think it
would take a large aerospace company to implement Lean
across their enterprise? Just hold up the card at-- blue card? OK, you can hold them up. Wow, I see a bunch of red
cards, yup, red and blue. You're right. It takes a long time. I mentioned to you, that
was in addition to being vice president of
engineering, I was the head of Lean for Boeing
Integrated Defense Systems. And when you think about
the Apache and the C-17 and the F-15 and the F-18 and
the Chinook and the Apache-- and I had all of those-- it takes a long time to get
all the organizations up to speed and to drive all
these principles down. And it's just a lot of work,
and it's a continuous journey. So welcome. You've taken step one. And the takeaways on
this is that Six Sigma started with the Japanese
automobile industry, and then the electronics
industries, and now into the aerospace industries. And I mentioned to you now that
the hospitals and the health care people are interested. And if you watch, next time you
go to the hospital or your mom and dad go to the
hospital, and all that, and you see the bill
for an operation, or something like that, you know
how very, very expensive it is. My daughter-- my sister just had
both knees replaced-- $70,000. Can you believe that? And Medicare paid
for that, because she was having trouble walking. But I mean, $70,000 is a
lifetime of [INAUDIBLE].. But our medical business could
stand some Lean thinking. And enterprise has a core
and extended boundary-- and the extended
boundary-- the employees, and the suppliers,
and the communities, and the stockholders. And certainly, today is
step one of learning this. And you can continue to bring it
back and keep thinking about it in almost anything you do. So just on a card, on
one of those white cards, just write down,
for example, for your particular department-- I guess we're a
little late here. But anyway, write
down just quickly who are the stakeholders. If you've had an
internship in industry, an internship in industry,
just write down-- you don't have to
put your name on it-- write down who the stakeholders
were for that function. If you were in
engineering design, who was the stakeholders? Put it down. OK?
