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 ActivitiesReduce Overproduction Waste - Schedule starts based on a pull systemAlign Lead Time Information Flow - Define lead time across all systemsImprove Material Flow - Cellular layout and elimination of excess storageReduce Order Variability - Produce 80% of volume to a daily demandImprove Labor VA Utilization - Flexible work force, 5S discipline, shorter C/OReduce Transportation Costs - Load consolidation and lane simplificationImprove Order Processing - Develop Constant Daily Output order generatorStandardize Work Methods - Improve C/O, eliminate multiple handlingImprove 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 TefenTefen 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