1 September 2005

Lean works

It's not easy, but new manufacturing process will reap rewards.

By Dave Gleditsch

On the path toward global competitiveness and industry dominance, manufacturers today need to continue refining and improving operational efficiencies. A hybrid mix of "lean" initiatives and practices helps reduce inventory, tighten supply cycles, and ultimately, reduce the cost of making goods. The benefits and basic principals of lean are widely known. However, many organizations struggle to gain a foothold. Or, perhaps more commonly, lean initiatives stall and sometimes are eliminated due to a lack of understanding of what it takes to make and sustain the lean transformation.

Husqvarna Turf Care and American Standard are two manufacturers that knew they had to change from their old ways and decided lean was the way to go.

Husqvarna, a manufacturer of commercial mowing equipment, needed to improve on-time delivery of service parts requirements, adjusting quickly to seasonal requirements and customer demand variations, while integrating a recently acquired product line.

American Standard, a multi-billion dollar, global, diversified manufacturer, had to revitalize an old corporation in the face of challenging economic conditions. The management team embarked on a strategic initiative to liberate working capital, improve productivity, and increase margins by deploying and managing an enterprise-wide lean and flow transformation across more than 100 factories in 35 countries.

Tool for change

American Standard and Husqvarna initiated these changes by linking lean implementation efforts with compelling business problems. Ongoing reviews of project expectations and key performance metrics ensured resources deployed were working on the right projects to drive improvements on the business problems. Cultural change occurred by ensuring everyone, from laborers to executive management, had the right tools, leadership support, and incentives to fully achieve and sustain lean capability.

Lean and flow transformations helped drive American Standard's margin growth, market share leadership, and valuation increase. The initial impetus for change came from an emergency need to service a substantial leveraged-buyout debt and avoid breaking-up the plumbing products, air conditioning, and vehicle control divisions. As inventory turnover levels tripled, the company came to realize enormous market share gains though improved customer satisfaction with flexible and predictable on-time shipments.

Because of an acquisition, Husqvarna needed to integrate an additional product line into an already full facility. To further complicate matters, the consolidation needed to take place during a seasonal peak in demand. The plant also was working to improve order fill and the profitability of its service parts division by shortening build and ship cycle times. In addition, Husqvarna adopted a new system for managing service parts requirements on-line, allowing it to adjust quickly to seasonal needs, customer demand, and changing facility design.

The Husqvarna lean project exceeded its original goals. A new mixed-model production line started that incorporated the additional products, yet resulted in a floor space savings of 12%. At the same time, cycle time was slashed by 50%, and productivity improved by 10%. On-time shipping performance for service parts improved from 50% to 95%.

The following are some common characteristics that led to the success of these projects.

Do everything with the customer in mind

Often, the goals of lean practices are to cut costs and improve internal operations. However, it is essential to broaden this scope when undergoing a true lean transformation. A manufacturer should keep their customer at the forefront of the planning and implementation process. A key to success is including the customer in every single metric you choose.

If you are not sure what needs your customers have, just ask. Will shortened cycle times improve customer satisfaction? Would vendor managed inventory help your customer improve service and cut costs? How will reducing the number of suppliers and components benefit your ultimate customer?

Always keeping the customer in mind is the dilemma American Standard faced when it slashed the cycle time to build a new toilet from three weeks to three days. Despite this improvement, to purchase that product off the end of the line, it took 17 days to navigate the order management system. Eventually the sales and ordering programs caught up to the shortened production schedule, but the lesson was clear: What good is improved productivity if the gains don't fully translate to the customer?

One size does not fit all

Manufacturing optimization programs often look more like religious conversions than process improvement efforts. There are a variety of best practices and methods that will drive significant lean improvements. American Standard had a significant variety of products and manufacturing processes:

• Commercial air handling systems, residential air conditioning, and gas furnace products
• Plumbing products chinaware, acrylic whirlpool tubs, steel sinks, and brass faucets
• WABCO break controls, compressors, electronics, sway control, and stabilization products

All of these products went to various markets around the globe, and the company produced them at 100 factories in 35 countries.

The company ended up deploying a combination of lean and flow techniques to re-align and optimize production and material replenishment process. Six Sigma techniques helped in the redesign processes to maximize capabilities. Specifically, the Toyota Production System setup reduction techniques went in all divisions and rate-based line balancing took place in repetitive automotive and high-volume air conditioning production lines. For high variety, mixed-model production lines, they used workflow-balancing techniques at or below operational take time targets. For processes paced by a major machine, they used theory of constraint and pacemaker process design.

It is essential you provide structure and support for your company's set of best practices. Drive and support your defined method by taking advantage of opportunities when the going gets tough, but commitment sends a compelling and clear message.

Show me the money

Lean does not happen overnight. However, with appropriate focus and enabling technologies, progress can occur faster than you think. Establishing solid momentum, continuing the pace of improvement over time, and ensuring the proper focus to sustain performance requires lean implementations be the number 1, 2, or 3 priority on everyone's list of objectives. As soon as this falls to number 5, 6, or 7, the program will lose its way.

Ultimately, the most important champions of lean efforts are the financial leaders of the organization. It is absolutely essential to "connect the dots" of any investment in activity or technology for lean programs, with corresponding bottom-line financial improvement. To do this effectively, the financial results of lean efforts build momentum and resources needed to be successful and supported at the enterprise level.

How good are we entitled to be?

For breakthrough performance to be evident at the level of a large corporation, it requires the continual deployment of an ongoing series of breakthroughs. One of the best ways to keep the demand for these ongoing initiatives is to have a quantified vision of just "how good are we entitled to be."

It is extremely important to have solid metrics on the current state condition and to quantitatively target the improvement level for each project. However, in order to continue to stretch performance to world-class levels, you must always quantify the level of performance that would guarantee industry-leadership and near-perfect process capability. This process of entitlement visioning stretches the limits of potential success and enables out-of-the-box thinking when implementing designs. It also enables consensus on how far improvement efforts should continue. You have to look at three time frames of performance: current, next level, and entitlement vision.

Think big with respect to process

The sum total of incremental improvement efforts can be very powerful over time. However, huge breakthroughs are usually available by effectively aligning processes at a macro level and eliminating large elements of waste by looking at the overall flow of products, information, and material.

American Standard and Husqvarna used process mapping and synchronization models to map out breakthrough improvements by streamlining overall process times, reducing unnecessary movement, hand-offs and communications.

There are enormous benefits by stepping back from the processes that you may have been very close to for many years. Take time to vision new process relationships that can drive significant cycle time reduction, dramatically eliminate non-value added work, while creating improved flexibility. Use concrete tools and processes, such as value stream mapping and product synchronization, to ensure optimum and sustained results.

Deploy technology to foster change

Technology plays a huge role in the success of any lean transformation. Husqvarna invested in newer technology conveyance, flexible paint systems, and enterprise applications to support high quality, high flexibility, and low-cost manufacturing in their green field plant design. American Standard invested millions of dollars developing lean manufacturing software, deploying Six Sigma analysis tools, enabling round-the-clock design teams with engineering modeling systems, standardizing product process equipment, and in general, giving people the skills and tools to get the job done. As a result, Wall Street analysts attributed American Standard's lean and flow programs with delivering an incremental $120 million per year in bottom-line operating earnings.

Pull is better than push

Demand-pull, kanban systems—which are a form of replenishment signals used to transmit information regarding the movement or production of products—that exploit simple, visual management systems went out across American Standard and Husqvarna. Pushing a forecasted demand through a series of processes can lead to wasted time, transactions, expediting, and management resources. Constructing, by process design, an extensive use of kanban throughout the network leads to highly automated management, faster real-time response, and increased flexibility to handle change, either dictated by customer demand or in response to process variation. Despite the considerable investments made in new forecasting technology, there is not a forward-predictive model that can analyze the ongoing permutations and combinations of events that create daily variability and uncertainty to effectively schedule a complex manufacturing business versus the quality of a well-designed pull production system that responds to the actual events as they occur.

That is a synchronized flow of processes, materials, and information in response to real-time events across the entire manufacturing process, which is supply chain synchronization. You should deploy the right kanban technology for the right pull solution, whether pulling component parts through the manufacturing process, managing a supermarket level of product between an OEM and the supplying factory, or managing electronic kanban re-supply from suppliers, sub-contractors, sister plants, and contract manufacturers. It is possible if you deploy best-practice kanban technology that you can outpace your push-oriented competition in cost performance, customer satisfaction, and working capital management.

Reducing risk and disruption

American Standard developed a clearly defined process: One step at a time, which reduced wasted time, confusion, and team frustration caused by a lack of program focus. The company followed a systematic management model to ensure it completed the right work before moving on to the next step in the process; the Six Sigma DMAIC (Define-Measure-Analyze-Improve-Control) is a good method for accomplishing this.

Look for modeling software applications to manage likely changes prior to physical implementation and shop floor disruption. Software applications that create a trusted factory knowledge base ensure that analyses occur with validated process-centric data, not transactional or financial-oriented data that can be misleading. Formalized kanban management systems can provide the right best practice algorithms, and integrated kanban, as a closed-loop and engineering change controlled process, can help reduce the risk of stock-outs from bad data or poorly managed change.

You get what you pay for

American Standard recognized the value of building momentum and in motivating the people that did the heavy lifting with financial incentives. In short, they realized to achieve desired breakthrough results, you must provide visible and meaningful incentives, not just the casual "good job." Across the board, incentives help drive adoption and support.

Lean leaders

An Aberdeen Group study found "leaders in lean" focus on competitive advantage as priority one, not necessarily an individual metric, but an overall level of performance to lead their industry. There is a strong correlation with best-in-class companies that have leadership in cycle times, on-time delivery performance, return on assets, and working capital. Suppliers that took the lead in embracing lean methods with American Standard ultimately won out on new and larger shares of business. y

Behind the byline

Dave Gleditsch is chief technology officer of Pelion Systems, a software and services provider. Prior to Pelion, he was corporate vice president of manufacturing technology at American Standard Co. His e-mail is dave.gleditsch@pelionsystems.com.

Lean manufacturing at a basic level Lean manufacturing is an operational strategy to achieve the shortest possible cycle time by eliminating waste. It comes from the Toyota Production System, and its key thrust is to eliminate waste and reduce incidental work. The technique often decreases the time between a customer order and shipment, and it should radically improve profitability, customer satisfaction, throughput time, and employee morale. The benefits generally are lower costs, higher quality, and shorter lead times. The term lean manufacturing represents half the human effort in the company, half the manufacturing space, half the investment in tools, and half the engineering hours to develop a new product in half the time. The characteristics of lean processes are: Make to order; single-piece production; just-in-time materials/pull scheduling; short cycle times; highly flexible and responsive processes; highly flexible machines and equipment; quick changeover; continuous flow work cells; collocated machines, equipment, tools, and people; compressed space; multi-skilled employees; empowered employees; and high first-pass yields with major reductions in defects. Lean manufacturing incorporates the use of "Heijunka," level sequential flow, "Takt" time, the heartbeat or pace of the production system, continuous flow manufacturing, cellular manufacturing, and pull production scheduling techniques such as "Kanban." Lean manufacturing is in direct opposition with traditional manufacturing approaches characterized by use of economic order quantities, high capacity utilization, and high inventory. In changing from a traditional environment to one of lean production, cultural issues will emerge quickly, as well as resistance to change. A managing change program needs to accompany the effort.

Putting lean manufacturing to the test By Ken Horseman Vermont wants to keep manufacturing in the state, and despite the offshoring trend, the state showing steady growth in numbers of manufacturing jobs. One of the reasons is the partnership between the Vermont Training Program of the Vermont Department of Economic Development and the Vermont Manufacturing Extension Center (VMEC). Vermont Governor James Douglas increased the training budget, and more companies are using lean manufacturing to increase productivity and lower cost. IBM Burlington Product: Semiconductor Products Number of Employees: 6,000 Years in Business: 47 Location: Essex Junction, Vt. IBM is Vermont's largest private employer. IBM's initial training, which started in May, consisted of "Lean 101" classes and "Value Stream Mapping," a method for understanding business processes to help identify and prioritize specific strategies to reduce lead time, minimize waste, and improve productivity. The Vermont Training Program of the Department of Economic Development partially subsidized the training by giving IBM a $50,000 grant. This was the first lean manufacturing training grant awarded under this program to IBM. The project focused on 14 etch chambers. After maintenance work, these tools were difficult to re-qualify for production, causing delays and undesirable product defect trends. Project/Solutions: The maintenance team attended classes on lean manufacturing taught by VMEC. The team used value stream mapping to define what was involved in each step from the time a tool goes down until it is back in production. Their goal is to achieve stability in the tool set, thereby reducing the cycle time required to process product. The maintenance team identified wasted time associated with spare parts, ranging from acquiring parts kits from the supply crib, to getting the parts they needed, to determining which parts to replace. The team addressed business control issues and secured funding to have two complete spare parts kits available in the line at all times. They established a standard procedure to use all the parts in a kit instead of attempting piecemeal repairs, and developed a system to easily locate equipment needed to test for chamber leaks after servicing. Results: The 14 tools showed a 42% increase in operating hours. The first-time-right performance for maintenance soared from less than 50% in some cases, to near 90%, while their turnaround time reduced by 40%. Chip defect levels also dropped, amounting to a 30% improvement in quality (good chips per wafer) and revenue for the high volume product they monitored. There is now an effort under way to apply lean principles to the entire manufacturing product flow in Burlington. "It's part of our ultimate goal to map everything that happens from customer order, to marketing, to supply chain, through manufacturing, to packaging and test, and shipment," said Stephanie Marsiglio, an engineer and lead facilitator on Burlington's lean team. Questech Metals Product: Decorative Tiles Number of Employees: 50 Years in Business: 14 Location: Rutland and Middlebury, Vt. Situation: Questech Metals produces decorative for new construction and remodeling. The company has had consistent, steady growth and sales continue to increase. The Department of Economic Development asked VMEC to work with workers to evaluate opportunities to improve processes in the front office and on the shop floor. Solution: Using value stream mapping, the Questech team mapped their current state, identified opportunities for change, and developed their future state map. Implementation teams worked on various projects, such as set up reduction, materials usage, work in process levels, finished goods inventory and SKU mix levels, and standardized work/work sequences throughout the company. Result: Questech has seen an immediate impact from applying lean principles. With little or no investment, start up time on the key piece of production equipment was reduced 50% to 75%. Materials usage savings amounted to approximately $200 a day and reduced the volume of hazardous waste requiring costly disposal. Standardized work practices throughout the line improved quality levels and decreased scrap. By changing the sequence of work elements in the buffing area, the line has increased output without increasing labor. They have more closely linked their capacity to produce higher work content pieces, such as trim, to their order scheduling system. While the company feels they are still learning where new bottlenecks are throughout the facility, they have been able to achieve a consistent flow linked to the demands of their customers. They are also moving toward a 50% reduction in production lead time. Due to the improvements made, and analysis of SKU mix levels, Questech has been able to reduce finished goods inventory by 40%. This has freed up operating capital, and their investment in inventory is now much lower each month. The company generated a consistent, positive cash flow every month. Behind the byline Ken Horseman is with the Vermont Department of Economic Development. His e-mail is ken@thinkvermont.com.