Lean Manufacturing: Outsourcing Production, Ensuring Quality, and Eliminating Waste

Increasing costs are a stark reality for today’s cannabis manufacturer. Companies can address those increasing costs and create a more competitive marketplace by implementing and managing “lean manufacturing” practices. This tutorial offers a broad overview of lean manufacturing.

Outsourcing your production can be an excruciating experience. However, selecting a contract manufacturer (“supplier”) for your production with a strong lean culture and proven lean systems, is your best insurance for avoiding price increases. Also, it helps to ensure that your cost and quality objectives are met and will continue to be met.

There are lean programs and lean definitions, but the sole purpose of lean involves driving waste from all aspects of the business. Lean manufacturing, a Japanese philosophy, is simply the elimination of waste through continuous improvement.

Developing the Scope of Work

Planning and creating clear expectations are the key to successful outsourcing for your product’s manufacturing all the way through to the final packaging. Develop a thorough, exact set of specifications or requirements that paint a clear picture of your desired outcome. Include everything from the supplier’s vendor selection, product and packaging design, date and method of shipment, and everything in between. Milestones are critical during the supplier planning and approval phase, the launch phase, and during production. Developing the initial contract is the most important step in the outsourcing process, although it’s not the only critical step.

Values and Culture

Subcontractors may not necessarily share your values, or they may not have a culture that is conducive to continuous improvement. Your supplier evaluation should include a review of the subcontractor’s philosophy, employee morale, housekeeping, teamwork, and their commitment to continuous improvement. Underutilized human potential (the ninth form of waste) is essential to a successful outsourced project. This is often overlooked, and it encompasses the greatest opportunity for achieving production cost, quality, and delivery objectives.

Managing the Scope of Work

Buyers who have their own set of requirements or needs may negotiate your production contract. While the production, sales, and quality teams may all have different expectations or needs from that of the buyer. This is a recipe for a very difficult customer and supplier relationship. This is the time to focus on common goals to ensure that all the needs of the affected teams are met. An experienced program manager will ensure the scope of the work is clear to all parties, from the negotiation stage to completion. A competent program manager will also ensure the scope of work is met, while educating customers and suppliers of the documented agreement. You should get what you agreed to pay for! Defining that in the beginning and managing those expectations is crucial to a successful outsourced product.

A responsibility, accountability, consultation, and information (RACI) matrix is an effective tool for clarifying and ultimately managing the scope of work. RACI defines who is responsible for which deliverables: planning setup, reporting, delivery, transportation, and so forth.

Supply Chain Management

The scope of work needs to define responsibilities for not only your supplier, but also for your supplier’s responsibility to manage their supply base. For example, you don’t want an ingredient substituted for in your finished product, not be told about that change, and subsequently not have it identified on the product’s label. Substitutions are not uncommon, and many times occur somewhere in the supply chain. Any substitution needs to be identified and properly addressed.

Lean Manufacturing Principles

Specific expectations should be spelled out in the scope of the work for continuous improvement, in adherence to the lean manufacturing principles outlined below.

Assessing Lean Capabilities

The easiest and most telling place to start assessing a supplier’s lean capabilities is in housekeeping. This area is critical to eliminating waste and to the overall quality of your manufactured product. The supplier’s work areas, warehouse, and office should be organized, labeled, and in showroom condition. The supplier should ensure that only those things required for the work area are present in that area. Everything in the work area should be labeled, have a home, a purpose, and always be accessible to the operator.

Housekeeping and cleaning are drop-dead issues for regulatory agencies. For good insight, visit all the regulatory agency websites and written materials governing your organization’s expectations regarding cleaning.

Forms of Waste
The Japanese have a word, Muda, which literally translates as “futility;” in lean this is called “waste.” There are seven forms of waste identified in lean manufacturing; there are additional forms of waste sometimes identified by different authors. We believe there are two additional, important forms of waste for a total of nine.

• Defects: reworking or scrapping product is an unnecessary cost and motion

• Waste in the production process: corrected with line balancing

• Overproduction: making things not required by the customer

• Wait time: operators should never have to wait for material

• Transportation: an opportunity to optimize the process

• Inventory: too much or too little raw material, work-in-process, finished goods, and so on

• Unnecessary motion (of employees)

• Unsafe or nonergonomic work conditions

• Underutilized human potential: skills, talents, and creativity (ask your employees)

Lean philosophies should be applied throughout the supplier’s organization. Look for applications in the manufacturing suite, packaging operation, warehouse, quality control, and anywhere you believe that waste can be eliminated. Companies tend to overlook the administrative process; this area doesn’t get the focus it deserves. While it’s true there are a lot of opportunities to improve manufacturing, no part of a business is exempt from the need to eliminate waste.

When assessing a supplier’s capabilities, review their approach to dealing with each of the seven primary forms of Muda or waste.

Defects
Ensure the supplier counts all defects, tracks trends, and makes decisions based on that data. “The ‘cost of quality’ isn’t the price of creating a quality product or service, it’s the cost of not creating a quality product or service.” – W. Edwards Deming.

Waste in Production
Suppliers should balance their process using effective line balancing practices, and they should design their process to the time available to complete the work (TAKT time).

Overproduction
Suppliers should manufacture to their customer’s needs. It is very easy to tie up a lot of money in raw material, work-in-process, or finished goods.

Wait Time
Operators should be treated like surgeons. They should have everything they need within their reach to perform their jobs. Changeovers should be planned and choreographed so there is no wait time and no special tools are required. An effective documented preventive maintenance program will reduce wait time and production interruptions.

Operators should never have to wait for materials to be blended for compression, a solution to be mixed for the filler, or for bottles to be filled with product. An effective preventive maintenance program properly implemented and managed, along with precision planning and scheduling, can eliminate a large source of wait time.

Transportation
Poorly designed internal material routes result in unnecessary transportation hours and congested traffic. Repeatedly handling material, and not having material stored near the point-of-use creates waste. This should be done in compliance with your specific governing manufacturing guidelines per the U.S. Food and Drug Administration (FDA), United States Department of Agriculture (USDA), standards organization, and so on.

Inventory
Suppliers should set inventory levels (raw material, work-in-process, and finished goods) at their lowest comfort level based on your demands. Too much inventory ties up money and can lead to obsolescence. It must be stored, counted, and rotated-all of that requires resources.

Unnecessary Motion
This entails nonvalue-added activities like moving material, multiple times handling material, and inspecting material. (Sometimes you need to inspect things, but inspection is a nonvalue-added activity, and is the result of a process that produces defects).

The Cost of Injuries
All injuries are preventable. They are 100% wasteful and destroy trust in management and hurt morale. Suppliers must have an aggressive safety program that focuses on prevention and includes all disciplines. The safety program must set priorities that address the highest risks. Injuries at your supplier’s facility will affect your costs and security.

Underutilized Human Potential
This is the most costly and nonrecognized form of waste. Not including all employees in solving problems in their areas or in making needed improvements, not soliciting everyone’s ideas, not listening, poor or ineffective leadership, poor personnel interactions, a lack of common goals between departments and shifts, and poor morale all result in a tremendous amount of waste.

Employees want to be a part of the solution. Employee empowerment is essential to your suppliers and to your success.

Your outsourcing system should evaluate the supplier’s level of empowerment, participative decision-making, gain sharing, and continuous improvement initiatives. You should determine if the supplier has a formal program to solicit employee ideas. Employees can identify waste in an operation better than any other source. They will tell you if asked, and if they feel it is their best interest to do so. Suppliers should involve their employees, and everyone should feel a sense of ownership for housekeeping and organization.

If the supplier does not have effective leadership, teamwork, and high morale, you should find another supplier. Everyone must be on-board. Your outsourcing system should provide an evaluation of your supplier’s leadership effectiveness.

Quality

Quality and lean are synonymous. W. Edwards Demming once said, “Quality is conforming to specifications.” Conforming to specifications is achieved through documented systems and job instructions so the process is repeated. Employee training and reducing variation between shifts can best be addressed with documented repeatable systems and job instructions. To ensure system compliance, process audits should be a very important part of your system. If your supplier does not have documented systems and process audits, it does not have a repeatable process, and it is not manufacturing to specifications.

Key Performance Metrics and Goal Setting

Suppliers should track and post key performance metrics, so everyone knows how they are performing, and what their goals should be. Ensure that each area of your business is driven by specific goals that drive continuous improvement, and that each goal ties into the company’s long-term goals, and that your organization agrees with those goals. Ensure that your supplier focuses on first-time quality throughput for your product. If you have to reprocess your product, it will cost both more time and money.

The cost of improving your supplier’s process should be the supplier’s responsibility, along with the costs associated with receiving defective materials. You are expected to deliver quality products; your suppliers should have the same expectation. Remember, inspection does not assure quality; only a process that is in control will produce consistent quality.

Your supplier telling its employees to work harder, or to offer more suggestions may create a short-term improvement (known as the Hawthorne Effect). However, identifying the systemic inefficiencies within an organization will provide sustainable improvement, and will help create the culture necessary to keep you competitive. Developing a culture where all employees have the skills needed to identify waste, take ownership for quality, solve problems, and the motivation to care about the long-term success of the company, are essential in today’s global market. You need to be able to evaluate your suppliers’ culture as it relates to lean and continuous improvement.

Evaluating processes for the elimination of waste through continuous improvement in your supplier’s production processes, material, work-in-progress, administrative policies, and rules is an effective way for you to ensure that you are receiving value. That will reduce the pressure on your bottom line.

Outsourcing production can be very successful, but you cannot assume that any supplier will perform to your expectations-unless you have controls in place to ensure accountability. You will require a constant flow of information, a frequent presence, frequent milestone reviews, rewards and penalties, and a very clear initial document that clarifies all your requirements.

Outsourcing production can expand your production capabilities and help you grow. But you cannot outsource the responsibility for delivery and quality!

Paul M. Reece is a Certified Lean Executive with the Michigan Manufacturing Technology Center in Plymouth, Michigan. He has more that 40 years of experience in working for the Federal government, and as a company owner and executive. Mr. Reece introduced a “lean culture” and implemented “lean principles” at all of his factories. Leonard B. Antosiak is president of Pharmaceutical Production TechSource, Inc., in Ann Arbor, Michigan, and has been working in the pharmaceutical industry for more than 34 years. Direct correspondence to: ppt@2020comm.net

How to Cite This Article

P.M. Reece and L.B. Antosiak, Cannabis Science and Technology2(1), 44-46 (2019).