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An Application of Value Stream Mapping in InternationalLogistics System

Rafael S. Gutierrez, Ph.D., Haydee Barajas, Maria E. Galaviz, and Luis C. Martinez

Department of Mechanical and Industrial EngineeringUniversity of Texas at El Paso500 West University AvenueEl Paso, Texas 79968-0521

This paper describes the application of a lean logistics approach for the part procurement and customer shipping network for an international manufacturing organization. The objective is to improve Companyslogistics system by identifying current problems in transportation and inventory using Lean ManufacturingPrinciples. This study includes the mapping of the entire logistics system to identify the problems of thecompany, and logistics concepts to improve inventory and transportation resource utilization and customer satisfaction.

KeywordsValue stream mapping, logistics

1. IntroductionThe authors developed this study as a Senior Project course requirement in the Industrial Engineering

program at the University of Texas at El Paso, the industrial project study was focused in the analysis of theinternational logistics system for a major manufacturer of industrial gloves in El Paso-Juarez area to

provide potential areas of improvement and recommendations.The Company has grown into a global operation organization with manufacturing plants in Asia, Europe,Mexico, and the United States with distribution centers in the United Kingdom, France, Germany, Belgium,India, Southeast Asia and North America. This project was focused on their two manufacturing operationsin El Paso- Juarez area. The trucks that move finished goods to Europe and Charlotte have to be fullyloaded and trucks used to transport product to Canada and Asia may transport partial carrier loads (LTL). Amethodology was developed to improve customer service, resource utilization, and finished goods and rawmaterials transportation. The toolkit applied consisted of the use of value stream mapping, inventoryanalyses, and simulation tools, prior implementation with the objective to validate recommendations

2. Literature ReviewThe most important step in implementing lean manufacturing is the Value Stream Mapping as Womack and

Jones [7] said Identifying the value stream for each product line is the next step in lean thinking. In the book called Learning to See, Rother and Shook [6] gave a better definition of value stream mappingwhich is known as Material and Information Flow Mapping. A value stream map basically is a drawingthat represents the total supply chain. A supply chain is a global network that is used to deliver productsand services from raw materials to end customers through and engineered flow of information and physicaldistribution [1].Transportation and inventory play vital roles in supply chain management. As Bertazzi and Speranza [3]indicated that the total transportation cost can be drastically reduced if the frequencies of transportation arereduced or minimized. In most practical systems, the transportation costs are volume dependant because of this, by utilizing efficiently the trucks capacities, transportation costs are minimized. Mahmoud [5]

Abstract

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considered that the creation of a central stocking point by consolidating is a powerful economic force in thestrategic planning of logistics systems. Substantial economies of scale result from the necessary aggregatesafety stock being reduced whenever decentralized inventories are centralized into fewer points. Inventorylevels are often the cause of increased costs in companies. Exchange curves are tools that provide anoptimal range for operation of the inventories. These curves provide a range of optimal A/r ratio of valuesthat will result in different options for the number of replenishments per year (N) and the total dollar valueof inventory (TCS). Exchange curves can be used by upper management to decide on backorder policy.Specifically, the exchange curve shows the trade-off between average dollar value of aggregate inventoryversus the maximum allowed backorder delay [2].

3. Methodology

3.1 Survey of Existing OperationsA survey of existing operations to map and document the current process flows for finished goods and rawmaterial was developed to identify problems, resource utilization levels and current practices of doing

business. Likewise, future needs were identify to assess the space and equipment requirements. Overall process and material flow charts are required to identify the complexity of the manufacturing operations.This information was gathered through observation and direct interviews with employees in the facility.Total Value Stream Maps were created for the manufacturing and distribution facilities including, CurrentState Map, Problem Identification Map and Future State Map. Two major problems were identified:inventory levels and transportation problems. Based on the information gathered, raw materials weretransported in trucks which they were loaded to 50% of their capacity. The finished goods inventory stayedin their facility up to three days for customers shipments.

3.2 Analysis of shipping and storage consolidationThe first problem analyzed was the transportation and storage consolidation for finished goods and rawmaterials. The rationale considered for this analysis was based on that manufacturing facilities share a rawmaterials warehouse, close located to their manufacturing facilities, trucks were not loaded at full capacity,and manufacturing facilities were required of daily shipments of raw materials. The rationale for consolidation of finished goods inventory was based on commonality of customers, proximity betweenfacilities, production facilities share shipping criteria: full trailers for Europe and USA, and make-to-order shipments for Canada and Asia.

3.3 Simulation Modeling for What-If Scenario AssessmentBased on the raw material and finished goods consolidation analysis, simulations were created using thesimulation software Arena 5.0 [4]. The simulations were created with the purpose of providing thecompany with a useful instrument to effectively apply proposed consolidation schemas. These simulationscan be used as tools for transportation planning and cost estimations since the number of orders, order sizesand delivery dates can be input in the models. The program would then deliver an estimate of the number of trucks needed as well as the transportation cost for the consolidation of materials.

3.4 Validation using Simulation of the Overall Transportation and Storage ConsolidationThe analysis consisted of developing dynamic conditions for the recommendations of transportation andstorage consolidation. These simulations were proposed as tools for transportation planning and cost

estimations. The simulation modeling tool provided an estimate of the number of trucks needed as well asthe transportation cost for the consolidation of finished goods and raw materials. The simulation effort

provided us that 3 days is the lowest cost value for the number of days waiting to consolidate a truck load.

3.5 Analysis of Future Total Value Streams Once the results from the consolidation schemas, simulations, and Exchange Curves were obtained, therewas necessary to construct the Future Total Value Stream Maps of both facilities to demonstrate theimprovements made with respect to the original Current Total Value Stream Maps. The most important

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improvement was in raw material inventory, days in inventory were reduced from 4 days to 1 day. Thefinished goods inventory remained the same given that both manufacturing facilities are shipping at thesame rate that they are producing.Regarding the transportation problem, the number of days that a truck waits to comply with the customersshipping requirements was reduced from 3 days to only 1 due to the use of consolidation of finished goodsorders. As a consequence of the results mentioned above, the total time in plant was significantly reducedfrom 13 to 9 days.The main improvement in facility B was reflected in the raw material inventory. The inventory time instorage was reduced from 30 days to only 1day. The finished goods inventory decreased from a range of 2to 3 days to one day. As in the facility A, facility B produces at the same rate that is shipping. However,this facility did have a reduction of inventory due to the fact that the transportation issue was forcing todelay finished goods shipments from the warehouse, was resolved with the consolidation. Pertaining to thenumber of days that a truck waits to comply with customers shipping requirements, it remained the same,since unlike facility A, facility B does keep its finished goods in the warehouse while waiting toconsolidate a truck load. All these improvements led to a decrease of the in facility time from 44 days toonly 14. Table 1 is shown a comparison between current and future state.

4. Project Suggestions from Employees

After the completion of this initial effort, company employees participate in group discussions to review,analyze and identify the impact of these changes in the current transportation and methods for all theoperating procedures of the logistics operations. Flow diagrams and lean manufacturing concepts were usedas a basis of understanding these operating procedures. Furthermore, recommendations and new ideas werediscussed and approved to improve the value stream maps and current organization practices.

5. ConclusionsThe use of value stream mapping was required to state a clear understanding and awareness of theOrganizations dynamics. The toolkit applied in this study was proposed to the organization and wasselected from a variety range of tools. The use of simulation tools with value stream mapping offers

opportunities to reduce gaps between practitioners expectations and potential outcomes beforeimplementation. Currently, the organization is applied the recommendations of this study in their practicesin transportation and consolidation of shipments.

References

1. Alber, K.L. and W. T. Walker, 1997, Supply Chain Management: A PractitionersApproach, The Educational Society for Resource Management, pp.203-210.

Table 1. Comparison between Current and Future Total Value Stream Maps.

Current (Days) Future (Days)RM Time in Storage 4 1 FG Time in Storage 1 1 Waiting Time 3 1 In-Plant Time 13 9 RM Time in Storage 30 1 FG Time in Storage 2-3 1 Waiting Time 1 1 In-Plant Time 44 14

Facility A

Facility B

Total Value Stream Maps Company Facility Performance Measure

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2. Aucamp, D.C., 1997, Aggregate backorder exchange curve, IIE Transactions , v 22. pp. 281-287.3. Bertazzi, L, and M. Speranza, 1996, Minimization of Logistic Costs with given Frequencies, Pergamon,

vol. 31. No. 4 pp. 327-340.4. Kelton, D. W., Sadowski, R.P., and D. A. Sadowski, 1998, Simulation with Arena , New York: McGraw

Hill.5. Mahmoud, M. M, 1992, O ptimal Inventory Schemes: A Portfolio Effect Analysis , Journal of Business

Logistics, v 13.No. 1, pp.193- 213.6. Rother, M., and J. Shook, 1998, Learning to See , Lean Enterprise Institute, MA.7. Womack, J P., Jones, D. T., and D. Roos, 1990, The machine that Changed the World: The story of Lean

Production,, New York: Harper Perennial.