Resources of positive probability of creating a defect, this has to be captured in the process flow diagram. In this session, we will see how this can either take the form of scrapping the flow unit, which means we just drop it from the flow, or re-working the flow unit, which means repeating some of the operations that has happened before the defect. Either way, defects show up in the process flow diagram and have the potential to make a resource bottleneck that without these rework loops would not be a bottleneck. Moreover, in addition to just changing the flow of the flow unit through the process flow diagram defects also increase the variability in the process. Think about it, a defect probability of 10% at a resource, doesn't mean that exactly every tenth unit is defective, but it's a probability statement that leads to variability in the flow. And we already know that variability in flow Is a big enemy in a lean operation. How do we deal with variability and flow? We're going to repeat our old tension between buffer or suffer, and we'll once again notice that there's no easy answer to this tension. Let's ignore the effects of variability for a moment and turn our attention to the following process. So three step process with processing times being five minutes the first resource, four minutes at the second, and six minutes at the third. Where is the bottleneck? Assuming though that there is a defect probability 50% at the second resource. With a 50% probability, the floor unit following the work at step two has to be scrapped. Well, in the past we have done if analysis. We have looked at the capacity of the resources is simply one over five units per minute, one over four units per minute and one over six. We multiply this with 60 minutes in an hour, we get capacity of 12 units per hour, 15 units per hour, and ten units per hour. So would we really say that this step is the bottleneck? We have not considered the fact of the scrap rate. If you want to consider that, the units that goes through step two, only half of them will actually make it to step three. How do we factor that into the analysis? I want you to rethink about how we take our process flow diagrams when we have multiple types of flow units. In this case, we often look backwards and as ourselves what is the demand for each of the resource that is needs to be served. Now assume that we have a demand of D flow units. How many units do we have to be serving at station number three? We have to reach serving D units. Everyone that needs to get served, one to one, has to go through section number three. How does it look for station number two? Well, I have to serve two times D in order to get D units for outputs of station three. Similarly, also at station one I have to produce 2D because the half of the unit will be scrapped at station two. If I now look at the demand relative to capacity, which we then refer to as the implied utilization I actually can find the bottleneck. 2D divided by 12, 2D divided by 15, 1D divided by ten. So the implied utilization is at the maximum and it's the first step over here. So we would call this step the bottleneck. And you see how the scrap rate actually is impacting where we have the bottleneck in our process. Instead of scrapping a flow unit, I can also rework it. Rework means I'm going to repeat one or several operations and after the rework is done, the flow unit that was previously defective becomes a good flow unit. Consider the following example here. I have three process steps. The first process step has a processing time of five minutes and never does a defect. The second process step is a four minute processing time and with a 30% probability, makes a defect. However, I'm going to catch that defect right at the completion of the step two and if I going to repeat the operation, I'm going to spend another four minutes, I'm going to fix the flow unit. Let's assume for now that re-work also always works and fixes the unit in the first pass of the re-work. And then finally, I have a third step here in the process with a processing time of two minutes. Where's the bottleneck? Well, a very naive analysis would suggest that we just take the processing times to one over the processing time to get the capacity levels so that means one over five units per minute. One over four and one over two. However, rather obviously this analysis misses the effect of re-work. Re-work can make an activity that previously has been a none-bottleneck step a bottleneck just because it sucks up extra capacity for the re-work load. So a better analysis goes something like that. Instead of saying that my processing times. Five minutes, four minutes, and two minutes. I have to acknowledge that for the second step, with a 70% probability, it would take me indeed four minutes. That means everything goes well. However, with a 30% probability, It's going to take me four plus four minutes. So the expected processing time, is simply 0.7 times 4, plus 0.3 times 8, which is equal to 5.2 minutes. No impact on the processing times, it's the first and last steps. So five and two minutes, and I see here that the true capacity really, the true capacities are 1/5, 1/5.2, and 1/2. Which reveals that really, the second step is the bottleneck. Alternative calculation to the same idea is to use the calculations of implied utilization, which we have in the example of processes with multiple flow units. Just call the flow rate demand. Let's just assume that we're processing here at a certain unknown rate, and we're pleasing a certain demand rate. Let's called this demand rate D. If we start with D, we realize that the demand rate for the first step is simply D. For the last step, it's going to be D. However, for the second step here the demand rate is really 1.3 D. That is simply revealing that for 30% of the flow unit, I'm going to add another round of processing at the second step and so the flow has to be 1.3 D. If you read them, we call our definition of implied utilization as the ratio of demand to capacity, you're going to get D divided the capacity of one over five, which is 5D. Then 1.3D divided by the capacity of 1/4 and finally D divided by 1/2 which is 2D. So you notice here that this is 5.2D which is a highest imply utilization making the second step indeed the bottleneck. Now the strength of the effect of defects creating a variability in a process. Consider the following example of a two set process. Both sets have a processing time of five minutes. Both steps also have a probability of 50% of creating a defect. In that case the processing time goes up to ten minutes because it requires an extra five minutes of rework. What's the flow rate going to be in this process? Well, let's think of all the scenarios that can happen. In the best case, ;both of them create a good flow unit. Let's take G here for good flow unit, and that happens with a probability of one over four. And in this case we're going to get a flow of one unit every five minutes. However, it's also possible that the first step messes up, and the second one does the flow unit correctly. Guess that's also probability of one over four. Now, what happens? In this case, the first resource will take ten minutes to complete the work. However, the second resource is done after five minutes and is then out of work. We say that this process starved at resource two. Resource two is starved of work, and the flooring goes down to 1/10. Now, the opposite can happen of course as well. The second step messes up. The first one operates correctly. Again, the temperance was a probability of 1/4, and in this case, you notice that the first step doesn't have any place to put the flow yet, right? Because these guys are still not working on the floor unit. And so we say in this case, the first resource is blocked. And then finally, of course, if both of them missed out which was also happening with the probability of 1/4 I've also already did a process called the process completed every ten minutes. So you notice that on average the flow rate is actually dramatically slower than one unit every five minutes. That is because of the variability. If you want to avoid blocking and stopping, we can put the buffer between the first step and the second step. This gets us back to the idea of buffer or suffer. The bigger the buffer, the lower the likelihood that the first step gets blocked and the second step gets stopped. So inventory protects us from variability and thus helps us to obtain a good flow rate. Consider the following method from the lean literature. Think about inventory as water in a river. You're operating a boat on a canal and in the river unfortunately there are a bunch of rocks. These rocks correspond to all the hiccups that can happen in a process such as defects, setup times, and other complications. Now on the one hand, we as the operators of this boat, we prefer not to bump into these rocks. And so we have an incentive to pour a lot of water in this river so that we get high above the rocks. The problem, however, is that now that we have so much water in the river, we'll never see these rocks. These rocks are not exposed, and they stay in the river forever. The same applies to inventory. If you put so much inventory into the system, then we buffer every eventuality out of the way. We start taking the pressure off process improvement. So the Toyota production system with the lean literature argues actually the opposite. Instead of buffering system, we should reduce the buffers so that we expose problems. We should do this gradually instead of taking all the water out this river at once. But gradually step by step will reduce the water level and expose the most significant rock. Once we've identified the rock, we go after the underlying root cause, we get rid of the rock, and again, start leveling the water level. So as you notice, this creates a certain paradox. On the one hand, you need some inventory in the process just to lubricate the flow and to deal with sea buffer or suffer a paradox. But on the other hand, too much inventory in the system and people start slacking off. They have no reason any more to work hard or to improve the process any further. To control the amount of inventory in the process, the Toyota production system has to developed a concept Kanban cards. Imagine we are selling these beautiful little black boxes to our customer, but the customer demand. The end customer demand is here on the right. If an internal supplier and also departments that supplies us with containers that include nine of these black boxes. Once we have emptied one of these containers, we're going to take the cargo stickers that is attached to the containers and we'll remove that card to the department that is feeding us with the black boxes. This sticker on this card is called to Kanban card. It's also known as the work authorization form. Now, folks in departments supplying us, they have to sit there idle, waiting until we provide them with a Kanban card. At that time, it looks very unproductive but it certainly better than producing inventory. So only when these guys are going to get our Kanban card, our work authorizations, are they able to produce the next set of nine units. By definition, the working forces inventory is never bigger than the number of Kanban cards. This allows us to keep a cap on inventory, and this allows us to control the inventory level. Just like with the board on the river on the previous slide. In the early days of the process, when there are still defects or other problems, we issue an extra couple of cards. As the process gets better, we remove some cards in the system and we put more pressure on the process improvement. Now you notice how this system is implementing a pull system. Rather than everybody in the process working as hard as they want and pushing the work forward, it is the demand that drives the system. Through the Kanban cards, the system pulls the work through the process as opposed to pushing it. Buffer or suffer, they fix provide a reason for us to hold inventory. Since we as the managers like a good, continuous flow through the process, it is tempting to us to buffer the flow. These buffers then avoid the resources is a starved or get blocked. The flow must go on, and so buffers help with the flow. The problem is however, that buffers are not particularly lean. In fact, I would argue they're as unlean as it can get, and if you remember our discussion, from the seven sources of waste from the productivity module, inventory is really the worst of all the seven sources of waste. One reason is they make us comfortable with slack. And they just make it more likely that the operators in the process just get used to defects as opposed to continuously trying to improve the process. We saw that Kanban is for us as mangers of way to keep a cap on inventory. To control how much inventory can be in the system. And by setting the right number of Kanban, we can adjust the inventory in the process to our current process capability. The Kanban processor is based on the idea of pull. Instead of pushing work into the process, Kanban implements that pull where machines and operator only get activated if there's downstream demand from them. Not because of idle time or input availability, but because of the need for output.