Lean Principles in Action
Abstract
The electrical products industry is one characterized by fierce competition, declining margins, and legislative regulations, all that have forced the majority of electrical product manufacturers to rethink their business models. This article describes a successful story from a leading electrical products manufacturer and its journey towards lean, which to date, has saved the company over $65 Million in hard ?dollar savings.
Background
Tefen has worked closely with one of the world's leaders in Power and Control products. With worldwide consolidated sales exceeding $9 Billion in 2002, the company has roughly 200 manufacturing plants worldwide, with about half of them in North America.
In North America, Tefen has specifically worked with a division known for quality switchboards, switch gear, breakers, and other electrical components used within the energy, building, industry and infrastructure markets. The company faces stiff competition from General Electric, Siemens, and Westinghouse Electric in most categories. Given the level of world-class competition, the company has continually pursued strategies to improve its cost position, quality, and overall order fulfillment processes.
In the industry, this company is renowned for its ability to tailor its products to meet the specific needs of its clients. The ability and willingness to customize has created a competitive edge for them, while at the same time created operational challenges. Engineer to Order (ETO) products with a high degree of variability can often drive long lead time from design to production, large inventories, obsolescence, design control issues, production complexity, and inefficient scheduling, among other problems.
From 1996 to 2001, the highly competitive North America market and economic downturn drove steady margin erosion. In response, the company launched an enterprise-wide initiative to reduce manufacturing costs by 20-25% within two years at select manufacturing sites. Further, it set goals to build the skills base necessary to generate lasting continuous improvement, drive consistency in production systems, and optimize key areas of the supply chain.
A major plant in South Carolina was chosen as a key ETO facility to target for manufacturing cost improvement. With its 258,000 square feet of production space, large dollar opportunity, and products of strategic significance, it was a logical target. Tefen was engaged to understand the current state operation, define improved methods by applying Lean techniques, and then drive rapid implementation. The stated goal was to reduce conversion costs by a minimum of 20%.
The Situation at South Carolina
During the first week of the 3 week long diagnostic phase, Tefen worked with plant personnel to understand the current state of the operation. The Motor Control Center product (MCC), along with the Fabrication area (Fab), were the subjects of particular focus. Here, a number of key findings highlighted the need for dramatic operational improvement. Specifically, it was uncovered that the two areas of focus were characterized by:
- Long changeover times - Excessive WIP and Raw Material - Excessive active part numbers - Long lead times - A functional layout with poor material flow - High order variability - Inefficient labor utilization - Inefficient order entry processes - High level of overproduction and rework - High transportation costs
These underlying issues hindered the company's performance at the plant level, which in turn, diminished the overall corporate operating result. Besides diminished cash-to-cash cycle time efficiency, the plant experienced
less than optimal order fulfillment performance, low inventory and asset turns, and high overall supply chain costs.
The Solution
During the second and third weeks of the diagnostic, Tefen defined a number of key levers to drive significant conversion cost savings. To conduct the diagnosis and quantify tangible savings, a number of tools and techniques were employed. For example, Value Stream Maps were created for both the "current state" and envisioned "future state" of the facility. Besides providing powerful visuals of the operations, these maps were used to quantify cycle times, inventory levels, number of operators, and the ratios of productive times to lead times. Another key analysis looked at the demand data to understand the volume/product/order mix. By coming to grips with the level of variation, smarter scheduling and better flow techniques could be devised. A full listing of analyses and the associated tools used to conduct them are shown below in Figure 1.
In Figure 2. the levers for savings and associated key activities are detailed. At the core of Lean is speed ? process cycle-time efficiency is the overall defining Lean metric that paints the picture of a manufacturing plant's health. By applying Lean principles, Tefen was able to identify ways to dramatically improve cycle time efficiency, which in turn, pointed the way to a 21% reduction in conversion costs. Recommendations focused on several key areas including improved material handling through a revised layout, reduced touches and dedicated handlers, reduced changeover times through standardized work, a flexible workforce operating within a flowing cellular line, and a scheduling system based on customer "pull" rather than forecasted "push." In addition, Tefen recommended implementing a Constant Daily Output (CDO) system to produce the high volume products to a schedule. Instead of ramping production up and down in response to order volume, production of high volume material would be leveled based on order volume history.
Getting Results
Having identified what to fix, the next step was to put together a workable roll-out plan and begin implementation. Prior to the diagnostic, the pervasive culture at the SC plant was a typical one. There was a lack of urgency for improving things ? inefficiencies were accepted as the normal mode of operation. One of the by-products of the three week diagnostic was an awakening among plant personnel. By including plant personnel as an integral part of the diagnostic process, new possibilities became apparent to them. Word spread and when it came time for implementation, there was more of a willingness to change. Further, Tefen's "Go-Fast" implementation approach instilled a true sense of urgency and importance throughout the plant. The "Go-Fast" approach is designed to obtain significant results within 10 weeks, achieve more than 50% of the targeted savings within 6 months, and foster a continuous change culture.
Figure 1. Improvement Lever Key Activities Reduce Overproduction Waste - Schedule starts based on a pull system Align Lead Time Information Flow - Define lead time across all systems Improve Material Flow - Cellular layout and elimination of excess storage Reduce Order Variability - Produce 80% of volume to a daily demand Improve Labor VA Utilization - Flexible work force, 5S discipline, shorter C/O Reduce Transportation Costs - Load consolidation and lane simplification Improve Order Processing - Develop Constant Daily Output order generator Standardize Work Methods - Improve C/O, eliminate multiple handling Improve Inventory Management - Constant daily production on top 80%, use stores
At the SC plant, a number of dramatic changes were made which drove significant savings in a relatively short amount of time. Within the first 10 weeks, over 40% of the targeted 6 month goal was achieved, 30% greater than what was predicted.
Numerous changes were implemented to increase efficiency and reduce inventory. In the MCC area, a pull approach was employed to reduce WIP by employing a build trigger for the main structure. Prior to the implementation, structures and a related component were scheduled separately and were connected together at an area called plug-in. This created WIP of structures and the component waiting for their mates. By triggering the structure build when the component was done, the structure WIP at plug-in was dramatically reduced. In addition, the entire structure line was redesigned to balance the stations, shorten the cycle time, reduce space, and reduce the raw material inventory needed at the line. Production space was reduced by introducing U-shaped work cells in both the structure line and wiring areas
In the wiring area of MCC electronic work instructions were employed to allow the wirers to always have the latest revision print, reducing rework as well as part shortages.
To further drive efficiency and reduce unnecessary material handling, kitting and "milk run" concepts were implemented. With these techniques, fewer operators were needed as productivity rose with more time on task.
In the Fab area, the other area of particular focus in South Carolina, additional improvements were implemented. A cellular layout based on material flow and capacity analysis was created. Changeover times were greatly reduced by division of internal and external work content to maximize operator value-add time. Further, a constant daily output (CDO) scheme was implemented to help reduce the effects of variability. Level loading of Fab production was accomplished by observing the 80/20 rule where 80% of the volume is driven by 20% of the part types. For the remaining 20% of the volume, which reflected special customer orders, lead time was greatly reduced by using a Supermarket to provide a buffer to demand variability. The Supermarket technique allowed for a lead time reduction from 6 to 2 days.
Other improvements impacted the entire plant, beyond the MCC and Fab areas. Scrap reduction of over $40K month was accomplished via coil re-banding. At the plant, raw material arrives on a coil. When a part type is finished at its CDO quantity, the coil is taken off the press and re-banded instead of becoming scrap. Previously, before the re-banding implementation, 21% of raw material became scrap. Improvements in the Tool crib added another $100K in inventory reduction.
Implementation of actionable performance metrics solidified the overall gains and instilled a culture of continuous improvement. The metrics enabled a focus on reducing waste and drove operator empowerment at the cellular level. KPI's are now tracked at the plant level, the department level and the cell level to illuminate cost/efficiency, service level, quality, and continuous improvement. Examples of KPI's implemented include: CDO Stability, Supermarket space requirements, Planned schedule versus actual, and the percent of good parts out.
Looking forward, the outlook for further improvement is bright. About 60% of the total identified savings will be realized according to schedule. The remaining savings are on track to be realized within a year and a half of the implementation start.
About Tefen Tefen is a publicly traded, international operations consulting firm with seven offices in United States, Europe and Israel. The firm has over twenty years of experience in improving the overall operational effectiveness of Fortune 500 clients around the world. Tefen designs and implements solutions that enhance operational performance throughout an organization. The main areas of focus include operational excellence, manufacturing, quality, customer service, research and development, and supply chain management. All of Tefen's support programs are ISO 9001 and TCS (Total Customer Satisfaction) certified. Our hands-on approach has achieved success in delivering quantifiable and value-driven results. The company has remained profitable since its inception and currently employs over 250 professionals worldwide, 40 of whom are certified Six Sigma Black Belts.
Adam Sommers is the author and Partner at Tefen (http://www.tefen.com/). For questions or further information regarding this article, please contact Raymond Cheng, Marketing Manager, at info@tefen.com.
Adam Sommers, a Partner with Tefen USA, has over 15 years operations management and strategic planning experience. His background and expertise is in all aspects of organizational improvement including manufacturing productivity, supply chain management, and business strategy. Adam has worked with leaders in a variety of industries including Aerospace, Energy, Telecom, Electronics, Medical Devices, and Travel. Currently, he is helping an $8B Power Distribution equipment manufacturer achieve significant productivity gains via a focused Lean/Six Sigma program. Prior to Tefen, he ran the corporate strategic planning function for The Columbia Energy Group, a Fortune 200 diversified energy company. Adam received his MBA from The Wharton Business School and a BS in Aerospace Engineering from Polytechnic Univers
 Google News Updated : Fri, 10 Oct 2008 23:49:19 GMT John McCain, Barack Obama on healthcare - Los Angeles Times
Los Angeles Times - How workable are the presidential candidates' health reform plans? Here's a summary of their proposals and a list of online resources for more information. In this economy, don't count on comprehensive health reform Fact Check: Would Obama fine businesses that don't offer health care? Publ.Date : Fri, 10 Oct 2008 23:27:40 GMT Two Banks in Midwest Fail - Wall Street Journal
Wall Street Journal - By JEFF BATER WASHINGTON -- The Federal Deposit Insurance Corp. on Friday announced the closings of two banks, bringing to 15 the number of federally insured banks that have failed this year. Two banks fold, bringing total to 15 failures this year Regulators shut small banks in Mich., Ill. Publ.Date : Fri, 10 Oct 2008 23:14:00 GMT GOP Alleges Nonprofit Voter Fraud - CBS News
CBS News - (CBS) This week Sen. John McCain and his running mate, Gov. Sarah Palin, went after one of the nation's leading voter registration groups which focuses its efforts minorities and low-income families and now being investigated for voter fraud. McCain Campaign Calls for Investigation of ACORN-Obama Ties Voter fraud accusations mar presidential campaign Publ.Date : Fri, 10 Oct 2008 23:21:41 GMT Notes on a Milk Scandal - Wall Street Journal
Wall Street Journal - By JOSEPH STERNBERG | FROM THE WALL STREET JOURNAL ASIA It's a question I'd never expected to spend much time thinking about. France pulls tainted Chinese food Tainted milk prompts new Chinese standards Publ.Date : Fri, 10 Oct 2008 18:28:15 GMT Emptying the Pac-10 notebook - ESPN
ESPN - USC is a perfect 8-0 vs ASU this decade, last losing to the Sun Devils in 1999. Over the 8 wins, USC has averaged 39.8 PPG. The Trojans are going for their 400th victory at the Coliseum. Trojans sense an opportunity with Arizona State USC, ASU to avoid second Pac-10 loss Publ.Date : Fri, 10 Oct 2008 22:31:02 GMT Wall Street, markets continue roller coaster - Bizjournals.com
Bizjournals.com - A roller coaster week on Wall Street ended with the Dow Jones Industrial Average down 128 points Friday after bouncing back from almost 700 points down in the day. Video: Wild Swings Drive Morning Trading Worst Week on Wall Street Ends Down Publ.Date : Fri, 10 Oct 2008 21:29:25 GMT Conflict Resolution Marked Career of Nobel Laureate Martti Ahtisaari - Voice of America
Voice of America - By Andre de Nesnera Conflict resolution marked the career of former Finnish president Martti Ahtisaari who has received this year's Nobel Peace Prize for his efforts to secure peace in various regions of the world. Video: Ex-Finland President Wins Nobel Peace Prize Martti Ahtisaari gets a deserved Nobel Peace Prize for a (failed) plan Publ.Date : Fri, 10 Oct 2008 21:23:27 GMT Add RSS Feeds to My Website |
PARLOT::Ebooks, Scripts,
Websites, and more... There are some very simple guides for delegation.Most people delegate... Read More If Baby Boomers can get botox and tummy tucks, then... Read More Kinds of Workplace ConflictsLet's start by identifying where conflicts happen.... Read More Did you know that an airplane in flight is off... Read More How Companies Are Like FamiliesLike a family, a company is... Read More In today's tough retail environment the retailer needs all the... Read More Most people just want to be appreciated. If you're a... Read More In September 2004, President Bush signed the $146 billion tax... Read More TO: All Parents [and Employers and Managers]From: Your Child and/or... Read More As the business world enters a period of hyper-competitiveness, every... Read More Most agendas for a meeting look like this.* Budget* Payroll*... Read More "We are so different and individualistic that we can't work... Read More Check Out Your E-HabitsAnother week has ended. And, despite moving... Read More "Without the chance to meaningfully participate in steering one's own... Read More Increasing shareholder value is the most important driver for organisations... Read More I suspect all of you out there have someone that... Read More Maximization methodologies have long been used in business to produce... Read More There is no sure fire route to commercial success, but... Read More Managing, supervising, being a team leader is the hardest job... Read More Ineffective communication is a major, yet avoidable, obstacle to business... Read More To develop and deliver a great Leadership Talk, you must... Read More Why is it imperative to have a company E-Mail Policy?... Read More GROUP DECISION-MAKING: Many managers feel they are well-versed in areas... Read More Telecommuting or virtual work opens up a wider net of... Read More A bold title, don't you think? I mean, change is... Read More
Adsense
websites
Delegation: When to Delegate, Who to Delegate to
A Corporate Facelift With Sound Bytes
Managing Workplace Conflicts
Focus on Outcomes to Keep Your Business On-Course
Is Your Company in Need of Family Therapy?
Policy & Procedure Manuals - Tools For Greater Productivity and Efficiency
Productivity Through Positive Reinforcement
Process and Procedures Investments - How to Get Money Back
Setting a Pitiful Example: Twenty-six Warnings to Heed *
Outsourced Learning: Are You Ready for Learning BPO?
Quick Tip - Effective Meetings Have a Complete Agenda
Managing Dickheads
Operating on Perpetual Overload?
Managing Motivation
Building Shareholder Value Through Your People
Squeezing the Blood Out of that Old Turnip
Creative Writing - business principles produce more quality work, faster
Innovation, Idea Selection, Valuation
Managing People - Why Is It So Difficult?
Communicating Effectively In The Workplace: Four Vital Steps
Turbo Charge Your Career With The Most Powerful Leadership Tool Of All: The Leadership Talk Part 3
Why Your Business Needs an E-Mail Policy
Group Decision Making : Are the Decisions Really Made by the Group?
You?re Hired, Now Go Home: Managing Workers at a Distance
Five Reasons Why Leaders Fail to Create Successful Change
Affordable and Reliable Web Hosting Starting at $4.49/Month
What Every Manager Should Know About How to Become An Effective Executive
In his book, The Effective Executive, Peter Drucker pointed out... Read More
How to Keep a Good Employee: Look, Listen, Learn
Recently a client told me a wonderful story about how... Read More
Is Your Business Ethical?
Ethics - in a profession or trade - is that... Read More
Best Workplaces
The Best Workplaces report (Financial Times, April 28, 2005) notes... Read More
Guidelines For Conducting A Good Meeting
Okay, so you've figured out what kind of meeting is... Read More
Innovation Management ? Eliciting Dominant Ideas
Creativity can be defined as problem identification and idea generation... Read More
Organizational Culture and Creative Blocks ? the Similarities
Few Decision makers see the link between between creativity and... Read More
How to Make the Best of it - Take Your Weather with You
I once worked in a place where there were three... Read More
More Computer Consulting 101 Hiring Tips (Part 2 of 2)
Does your company need to retain the services of a... Read More
Its a Training Issue!
There's a common phrase used by Organizational Development and Human... Read More
A Corporate Facelift With Sound Bytes
If Baby Boomers can get botox and tummy tucks, then... Read More
Introducing the 15 Frameworks of Successful Self-Employed Professionals
A framework is a way of thinking, a point-of-view, a... Read More
Popular Business Misconceptions Cost You Money!
Faulty information costs you money! Which of these popular business... Read More
How Managers Can Turn Failures Into Successes
Although there are real, external reasons for managerial difficulty ?... Read More
Truth or Consequences: How to Give Employee Feedback
In the bestseller, Good to Great, Jim Collins discovered that,... Read More
Employees - Treat Them the Way They Expect to be Treated
When you have to deal with one of your team... Read More
Are You Prepared for a Disaster?
Yesterday I look at my calendar and saw that my... Read More
How to Meet Quality Standards with ISO 9001
In today's hectic business environment, it is vital that we... Read More
Quick Tip - Effective Meetings Begin With Goals
Goals are critically important for the success of a meeting.... Read More
Your Organization Is Only as Good as Your People
Let's begin by singing the jingle from an old US... Read More
A Facilitators Guide to Running a Stakeholder Analysis Workshop
This facilitator's guide to running a stakeholder analysis workshop is... Read More
Identifying Potential in Ourselves and Others
If there is someone nearby as you read this look... Read More
Hidden Consultants Within Your Organization
You've all heard the old joke about a consultant being... Read More
Check Your Communication Skills
Use this check list to assess your communication skills.Focus* Do... Read More
My Companys Leadership Sucks!
Maybe it's the season or just a more buoyant job... Read More
Business Management |