Off the ropes

Kysor//Warren battling back from near-death experience

By TONY ADAMS
Ledger-Enquirer.com

Five years ago, commercial refrigeration manufacturer Kysor//Warren was like a punch-drunk boxer, knees wobbly from too many blows to the midsection.

Poor planning, execution and leadership were poisoning the once-proud and vibrant company. It appeared more than ready to topple face down onto its industrial concrete floors.

"I felt at that point and time it was a miracle that we still had a company," said Lee McDaniel, a 24-year employee and one of two plant managers at the Columbus-based company.

"Some new management was brought in and took us in the wrong direction and, really, we backstepped," said Charles Roy, the other plant manager. "We lost a lot of business, our customers. We lost some good employees."

But the workers who make supermarket refrigeration cases and cooling systems that keep your milk, eggs, meat and produce safe to eat still had some fight in them. A turnaround specialist, Ralph Schmitt, was hired as president and immediately set to work organizing an operation in disarray.

Dale Sizemore, Kysor's technical services manager, remembers how depressing and chaotic the plant had become. Excess equipment was tossed in tractor-trailers. The aisles were clogged with materials.

"It was a death trap. There was stuff just piled everywhere," he said.

Keeping it 'lean'

One of the solutions the company turned to was "lean manufacturing." It essentially means purchasing just enough supplies and materials for the orders you have. That keeps inventories low and the plant efficient.

Commercial refrigeration manufacturers work on an extremely tight turnaround times. Kysor//Warren may receive orders to outfit a grocery store or delicatessen less than a month before equipment is to be installed.

The company also put in place a system in which employees give feedback about "best practices" on a daily basis. That information is dissected by managers at the end of the day to determine if can be useful on what essentially is a long assembly line.

"It's brainstorming with folks on the floor," said Roy, who manages the Mutec Drive plant that makes rack cooling systems and metal buildings that house the units. "They're the experts at what they do. They know the best ways to do it, the most efficient ways to do it. If you're looking to improve a process, get everybody involved."

The third element behind Kysor//Warren's turnaround effort has been to improve the company's reputation. As turmoil engulfed the company, quality control plunged. Some key customers walked away, including much of the company's business with Wal-Mart, the world's largest retailer.

That was critical because the commercial refrigeration industry is a fairly small fraternity. Hill Phoenix and Hussman, both with plants in Atlanta, are Kysor's top competitors.

Lose a large customer and as much as 20 percent of your business could go out the door. For Kysor, 10 customers make up about 80 percent of its business.

U-M hospital takes page from Toyota

Adopting automaker's game plan of cutting pointless tasks could boost care, trim costs.

Sharon Terlep / The Detroit News

The University of Michigan Health System is borrowing the waste-cutting tools of Toyota Motor Corp., applying the Japanese automaker's philosophy to everything from how patients make appointments to the way doctors scrub in.

U-M is one of the first medical centers in the United States to apply to health care the corporate culture known as the "Toyota Way," a strategy based on eliminating pointless work and empowering employees. By using the principles pioneered by the world's second-largest automaker, the Ann Arbor institution hopes to improve patient care and cut administrative and other costs.

"Basically, instead of producing 50 cars with the screw in the wrong place, this strategy is 'we'll fix it now and make sure it never happens again,' " said Dr. John Billi, U-M associate vice president for medical affairs. "We're trying to do exactly that in health care."

The initiative, called the Michigan Quality System, is a centerpiece of U-M's five-year plan to boost patient volume by 3 percent a year at the 865-bed operation and maintain a 3 percent profit margin. The health care system has a $1.2 billion annual budget and sees nearly 44,000 admissions a year.

More hospitals and medical centers are adopting such philosophies, and many are seeing results similar to those at U-M, said Ron Wince, chief executive officer of Arizona-based consulting company Guidon Performance Solutions.

"The approach provides not just process-improvement tools," he said. "It's a complete holistic philosophy for helping every worker improve work every day."

Docs take factory lessons

Waste, when Toyota's principles are applied to health care, essentially means any effort that hampers a patient's overall experience. That could include lengthy waits to see a physician or return visits to the doctor.

The Toyota Production System is the best known automotive application of the widely popularized manufacturing approach known as lean manufacturing, which many credit Henry Ford with developing in the early 1900s.

The concepts behind Toyota's strategy involve zeroing in on waste, finding ways to eliminate it, involving employees in creating a better process and continuing to find ways to improve. U-M is getting help from several experts in the manufacturing field, including a crew from General Motors Corp.

Another of Toyota's key concepts is to eliminate potential errors by producing products one-at-a time, from start to finish, rather than stockpiling. The automaker used American grocery stores as model of efficiency. In a grocery store, shelves are stocked with a minimum amount of goods so products aren't wasted and it's easy to tell when something is running out.

In health care, the one-at-a-time approach could mean taking a patient's call, pulling the patient's records, scheduling a visit and performing the exam that day, rather than creating a backlog of appointments or letting people crowd a waiting room. That way, if something goes wrong, it's easy to target where the problem happened and fix it right away.

Already at U-M, the Toyota approach has produced dramatic results. The hospital's sports medicine department is a prime example.

Patient wait times plunge

Patients used to have to wait weeks for an appointment. That's because doctors wanted to review each case to make sure an orthopedic visit was necessary. Doctors would sometimes take several days to read the files the staff had pulled.

It turned out that virtually every patient was deemed a good candidate for a visit.

Using the Toyota system, doctors' review of patients' records is unnecessary. Instead, the staff has a list of basic criteria and is authorized to determine whether a patient gets seen.

The new wait time: Usually less than 24 hours.

Similar changes are under way in the radiation oncology department. Patients used to go through a three-step process that required three separate visits that sometimes stretched over a week.

Under the new system, patients call for an appointment, receive an evaluation and treatment plan, and can begin radiation as soon as that day.

"I've noticed that they're trying to expedite and do things the same day. It's so nice," said Flint's Midge Robbins, 64, who's received radiation for bone cancer on and off over 23 years at U-M. She called Thursday for an appointment and was treated Friday morning.

"When they scheduled my appointment, the woman seemed totally engulfed in helping me," she said. "It's a good feeling when you're in a situation like this."

Dr. Theodore Lawrence, chairman of U-M's Department of Radiation Oncology, was initially skeptical that an auto-style approach could apply to health care.

"Patients aren't Toyota," he said, describing his initial impression.

"But when you look at what they're doing, there's a remarkable applicability to health care."

Lean manufacturing - how technology helps

Today's 'Luddites' are the Lean practitioners who ignore the benefits technology can bring in creating an even 'Leaner' environment so a simple review of 'Lean Manufacturing' will help.

Most people reading this will assume that the Luddites in the title are those who have not embraced the lean manufacturing message, but in fact the Luddites are the many Lean practitioners who ignore the benefits technology can bring in creating an even Leaner environment. To try and understand why these practitioners are seen as Luddites, a simple review of Lean Manufacturing will help. * The basics of 'Lean Manufacturing' - most Lean practitioners will take you through a multi-step process towards your 'Lean' goal: SKU (Stock Keeping Unit) Analysis.

Analyse the production volume created by each of the products (SKUs) that you make.

Typically, it is claimed, about 6% of your SKUs will make up 50% of the production volume, so you concentrate on these items first.

* Value Chain - build Value Chain Maps for your high volume products and remove non value added activities (booking in and out of stores, unnecessary movements, etc) from the process.

* Flow production - create flow production for the high volume products by dedicating resources to them and move to a fixed sequence, fixed quantity production schedule.

The aim is to make every SKU on every cycle of the schedule.

* Process improvement - work to improve the production further, typically by reducing setup times so you can reduce the quantities on each cycle, thus making the cycles faster.

As your process improves you can move to a fixed sequence, variable quantity schedule.

* Single piece flow - ultimately you make your process agile enough to enable single piece flow (batch quantity of one), allowing you to implement a variable sequence, variable quantity schedule.

What have you achieved?

- You have taken non value added activities out of the process, and you have made the process more agile by reducing setup times so you can now make exactly what the customer wants, but at what expense?

You have created production cells by dedicating resources to particular products or product groups.

The benefits of cellular production are well documented, and rightly so within the context of certain manufacturing regimes.

This is particularly pertinent for companies that have more than a fair idea of what type of product, part or component is going to be manufactured on a particular machine on a regular basis.

However, for other, more Make-to-Order-oriented, or less consistent/predictable, manufacturing routines the lack of flexibility cellular production can bring may prove less than ideal.

For example, if increased demand overloads one cell it could be difficult for the manufacturer to use the capacity of other cells to help out due to the artificial 'walls' that have been created between the cells.

No account may have been taken of the margins produced by your products.

Lower volume products with variable demand may actually contribute more to your bottom line that the high volume products, yet you gain no help in managing the production of these products.

Both of these issues are caused by the segregation of your products and the creation of production cells, which raises the question: * Why are Production Cells Required for Lean?

- To answer this question we need to look at the origins of Lean Manufacturing.

The original concepts of eliminating the waste caused by non value added tasks, setups, etc can be traced back some decades, with the Toyota Production System often held up as the classical example.

In those days MRP was the only IT based production control system in town, and the simplistic scheduling built into MRP was incapable of handling a very agile process.

With no IT solution available the early Lean practitioners looked to what we would now call Visual Production Control (VPC), typically based on kanbans and supermarkets, but again this technique could not cope with a large, flexible and agile production facility.

So the practitioners back then took the obvious step, they simplified the production control problem by building product based cells, so VPC would work.

The term 'counter intuitive' is often used by Lean practitioners to describe some of the logic that drives their advice, but the most counter intuitive thing they promote is the idea that in the 21st century a very simple, some would say primitive, visual production control system is still the best, if not the only, way to control your production.

* The value of computer software - in virtually every field of human endeavour, computers have enabled us to control processes more accurately and efficiently, and a few examples that spring to mind are, as follows.

* Cars - my first car was a Morris 1100.

It had a 1098cc engine that produced 48bhp giving a top speed that would not trouble the new speed cameras on the M4, and it did about 30miles/gal.

My last petrol car had a three litre V6 engine that produced well over 200bhp, it was much bigger, faster and heavier than the 1100, but it also did about 30miles/gal.

How?

Mostly by using a computerised engine management system of the type that has made all our cars much more efficient over the last 30 years or so.

* Aircraft - the new Typhoon Eurofighter is designed to be aerodynamically unstable, because this allows it to turn faster in dogfights.

If it had been built 30 years ago with a simple non-computerised flight control system, the pilot would not have been able to fly it.

* Manufacturing - most new production equipment is computer controlled, which makes it more flexible, agile, accurate, repeatable, etc But, despite these advances, we are repeatedly told by our 'Lean' practitioners that IT has no place in our production control system, and we should use techniques that could have been implemented in the 19th century, never mind the 21st.

It is this dedication to antiquated production control techniques that has earned some Lean practitioners the title 'The Luddites of Lean'.

It is also interesting to note that if you buy a new piece of computer controlled production equipment, you are then expected to shackle its flexibility by putting in a cell that only makes a few products.

Yet by using IT, particularly Advanced Planning and Scheduling (APS) software, the Lean philosophy can be pursued towards its ultimate objective, making only what the customer ordered, when the customer wants it.

In other words Make to Order (MTO).

So how would you implement an APS based Lean project?

* The Basics of APS based Lean Manufacturing - nstall APS - as well as the direct improvement in the visibility and control of your production process, your APS will also allow you to analyse your process to determine where you need to concentrate your efforts to achieve the flexibility and agility you desire.

* Process improvement - work to continuously improve your production by removing non value added activities, reducing setup times, etc, so you can reduce the quantities in each batch.

As your process agility improves you can make smaller and smaller batches, but always maintain the variable sequence that gives you true flexibility.

* Make to order - ultimately you make your process agile enough to enable MTO (batch quantity of one), allowing you to implement a variable sequence, variable quantity schedule across all your manufacturing resources.

Right from the start of this process you are also empowering your planner to make scheduling decisions against your company-wide Key Performance Indicators (KPIs).

For example, this week you may have to take the utilisation hit by making small bathes so you can meet your delivery targets, but next week you may be able to dynamically aggregate some smaller batches to improve utilisation because the delivery profile is different.

Plus, because you have retained the flexibility to make any product on any capable equipment, you can use capacity from all your capable resources to satisfy orders for high margin products with irregular demand.

Lean and unseen

Jun 29th 2006 DES PLAINES, ILLINOIS

From The Economist print edition

Unlike General Motors and Delphi, most of America's manufacturers are thriving

BY LOSING over $10 billion last year, General Motors (GM) at last managed to get its workers' attention. The troubled carmaker announced this week that 35,000 employees—nearly a third of its hourly paid workforce—have accepted the company's incentives to retire early on generous terms. GM expects that the job cuts will save it $1 billion a year. They are part of an overhaul that GM says will lower its annual fixed costs by $5 billion, giving it a better chance to reverse its fortunes. Delphi, a bankrupt car-parts maker that used to be part of GM, announced that 12,600 of its workers have also agreed to accept early retirement.

These huge cuts in an industry at the heart of American manufacturing have fed a popular belief that anyone who makes things in the United States is struggling against an onslaught of foreign competition. Whether American firms are building plants overseas as a way to exploit cheap labour, or closing down factories because they cannot compete any more, the widespread assumption is that the country's entire industrial base is being “hollowed out”. “Our media act as if American manufacturing is going to grind to a halt at around two o'clock this afternoon,” says Cliff Ransom, an independent analyst who scours America for the most assiduous metal-bashers.

But someone forgot to tell American manufacturers the bad news. Most of them have enjoyed roaring success of late. Net profits have risen by nearly 9% a year since the recession in 2001 and productivity has been growing even more rapidly than is usual during economic expansions (see chart). The country's various widget-makers, moreover, show no sign of losing their innovative edge.

Even in the automotive industry, GM and Delphi are arguably the exceptions. America has hundreds of car-parts makers, most of which are profitably supplying the plants of foreign carmakers such as Toyota and Honda, which this week announced that it will build a new plant in Indiana, to open in 2008. Caterpillar, which drove a harder bargain than GM and Ford did a few years ago with the United Auto Workers union, has since achieved huge gains in efficiency.

Capital equipment and durable goods-makers such as Caterpillar, General Electric, an industrial conglomerate, and Boeing, an aerospace giant, have always been the strongest bits of America's manufacturing base. Their position is the most secure, says James Womack of the Lean Enterprise Institute, a think-tank in Cambridge, Massachusetts, because there is so much knowledge embedded in what they make. Even when a company such as Boeing stumbles over its efficiency, as it did a few years ago, its intellectual property gives it room to recover. These days, however, American manufacturers of all sorts—not just the big durable-goods makers—are quickly improving their efficiency.

Take Littelfuse, a firm that makes fuses and other equipment to protect the electrical circuits in everything from cars and mobile phones to the machines in its customers' factories. It recently started three new production lines in an area of its plant in Des Plaines, Illinois. The sophistication of the equipment, the skills of the workers and the quality of the output are all admirable. But something else about the new 10,000 square foot (930 square metres) assembly area is even more impressive: it used to be a warehouse for the site. Littelfuse gained the space by drastically cutting back its need to store raw materials, unused scrap, unfinished goods and other sorts of wasteful material. After starting a new “lean manufacturing” drive three years ago, the plant took inches off its waistline. It now receives its raw materials—such as resins and high-grade zinc—“just-in-time” to pull them through its production line.

The same sort of thing is happening all over America. Manufacturers were already outpacing their rivals in rich countries during 1995 to 2000, when their productivity was growing by 4.0% a year. After 2000, the country's metal-bashers somehow managed to raise their productivity growth by another notch, to 5.1% a year, according to the Bureau of Labour Statistics. No serious economist thinks that America can maintain such a torrid rate of productivity growth over a longer period; indeed, the pace has already eased in the past year or two. But there are signs that America's productivity in manufacturing has been boosted by forces inherent in the structure of the economy, so that the sector should continue to thrive.

Until recently, it was hard to judge whether America's manufacturers might eventually lose a step once the effects of the 1990s information-technology boom tailed off. Research by Dale Jorgenson of Harvard University and Kevin Stiroh of the New York Federal Reserve Bank showed that IT drove much of America's productivity burst between 1995 and 2000. In a new paper, Messrs Jorgenson and Stiroh, along with Mun Ho of Resources for the Future, a think-tank, have compared the late 1990s with the productivity growth of the past five years. Not only has productivity growth accelerated further—by another 0.7% a year, to 3.2%—but the forces behind it also appear to have become more broadly based.

The economists looked at the entire private sector, not just manufacturing, and suggested that there could be several explanations for the recent strong performance. Because American firms are finding myriad ways to raise productivity, and are not merely riding one wave of innovation from the IT boom, the economists think that productivity growth will settle at a rate above what America achieved in the two decades before 1995. Over the next decade, they expect private businesses as a whole to boost productivity by 2.6% a year. That would be good news. Manufacturers, which are boosting productivity even more rapidly than the rest of the economy, should do even better.

Gordon Hunter, Littelfuse's chief executive, is confident that America can maintain its edge in manufacturing. He is an engineer from the north of England who spent much of his earlier career working for Intel, a semiconductor firm, in California. American firms will keep on improving their productivity, he says, because of a business environment that embraces innovation. “Being flexible and willing to learn are skills that America still excels at,” he says. Eventually, perhaps even GM will get the hang of it.

Lean manufacturing: It’s popular, but it’s not easy

By Corinne Kator, Associate Editor
Modern Materials Handling June 29, 2006

Lean manufacturing has become a worldwide trend. Approximately 60% of discrete-parts manufacturers in the United States have adopted lean initiatives, says Ralph Rio, research director at ARC Advisory Group, and the concept is at least as popular in Europe and Asia.

“If you’re not doing it,” says Rio, “you’d better get it in gear.”

But going lean isn’t easy. “Only 30% of lean programs are successful in terms of the bottom line,” Rio told attendees of an ARC strategy forum held this week in Boston. “Another 30% are muddling along, close to breaking even” he says, “and the other 40% are underwater and failing.”

A successful lean program requires a significant culture change, according to Steve Habrich, materials manager at Husqvarna Turf Care and a speaker at the forum. “Make sure you bring everybody into the fold,” Habrich says, explaining that top-level managers must fully support a lean initiative and employees and suppliers must understand the value of the program.

Another hallmark of a successful lean program, says Rio, is an electronic kanbans program. Habrich agrees, calling electronic kanban signals “the only way to go.”

Rio also recommends augmenting a lean initiative with a Six Sigma program. Forum speaker Shawn Usher says this is the way his company, Solectron, has approached continuous improvement. Selectron used lean techniques to make initial improvements, he says, and then turned to Six Sigma projects to do more statistical measurement and analysis.

Lean's Next Step

By Beth Stackpole

More than a decade ago, Honeywell International Inc.'s aerospace division was on top of its game. Considered to be an industry leader, the division was riding high on its successes, leveraging lean principles to drive efficiencies throughout its manufacturing operations.

What a difference a few years can make. By the mid-90s, that same Honeywell division found itself desperately searching for a rebound. Competition was up, market share was down, and customers were complaining that, while product quality was good, Honeywell's pricing was at a premium and it took far too long for the company's new designs to make their way to market.

"That was when the light bulb went on and we realized we had to do something to change our development paradigm," explains Cliff Fiore, a certified black belt Six Sigma and lean expert in Honeywell's Aerospace division (Phoenix). "The question was, could we apply the benefits and gains we had enjoyed from our Six Sigma-based manufacturing world to how we produce products? That set the stage for us to go down the path."

The path that Honeywell traveled is one a handful of manufacturers are only now ready to explore: Applying lean principles to the practice of product development. Lean, popularized over 20 years ago as a series of techniques aimed at wringing waste out of manufacturing processes and operations, is now gaining a toehold among experts and early adopters like Honeywell, who view the methodology as a way to develop better products faster, with less waste, and at a reduced cost. Well-documented successes of lean concepts such as value-stream mapping, flow, kaizen, poka yoke, and reuse at manufacturing leaders such as Toyota Motor Co. have prompted many to consider spreading the gospel of lean to product development functions as the next logical step.

Product lifecycle management (PLM) software vendors, perhaps with an acute sense of timing and a nose for opportunity, have recently stepped up their message around the role PLM can play in lean product development. While their pitches vary, most play up how PLM's core data management, workflow, collaboration, business process, and project management capabilities can serve as conduits for an injection of waste-saving lean principles. They also say the tool sets are critical to delivering the visibility required to promote reuse in both product design and sourcing strategies while discouraging waste -- administrative or otherwise.

"The movement now to include product development is really a function of the fact that companies have been successful in implementing lean initiatives in production and the supply chain," notes Marc Lind, vice president of marketing at Aras Corp. (Lawrence, MA), one of the PLM vendors actively talking up lean product development as part of its PLM pitch. "But you need to have lean thinking applied throughout the company in order to maximize the impact of lean initiatives. It started by getting your own production house in order [and] was extended to suppliers who fed the production area; now the next logical step is product development, which feeds production with new products."

New product development may be the next logical step for lean, but it's not necessarily a straight shot. In the tangible world of manufacturing, it's easy to see and measure scrap and rework and identify areas of waste that can be eliminated by applying lean practices such as kaizen. Not so in the case of product development. Here, the flow is about information, not physical materials, and waste in the process is much more difficult to pin down.

For example, many experts contend that the iterative process so closely associated with design is essential to creativity and, if identified as waste and stripped away, could ignite problems within product development. There are also huge cultural barriers to getting engineers to embrace many of the repetitive and standardized development models associated with lean because they believe these undermine innovation and creativity.

Nevertheless, making the connection between lean practices and product development, with PLM as the enabling technology, is important, analysts contend, and not just some vendor sales blather. Lean puts product lifecycle management in the context of process improvement, thus providing a great starting point for manufacturers to consider PLM as part of any continuous program for improving how they build and design new products. Along with PLM, technologies such as portals, workflow, and ERP -- which didn't exist on any grand scale 10 years ago -- can also make the difference between succeeding or failing with a lean initiative, experts say.

The Two Sides of Lean

There are varying interpretations of what constitutes lean product development. At one end of the spectrum is the idea that Web-based collaboration tools and enterprise PLM platforms can facilitate information sharing and promote reuse within the design process, reducing wasted steps and giving manufacturers a start on the road toward lean. Taking that a step further is the notion of designing products that are conducive to lean manufacturing -- leveraging sourcing and program-management components within PLM, for example, to promote common parts and reuse of designs in other platforms.

On the other end of the scale is lean design, a methodology exemplified by Toyota, which espouses a radically different approach to product development. Leveraging mentoring, knowledge management, and concurrent engineering, this approach is centered on learning what works and what doesn't and creating a culture that doesn't just seek out the best solution, but rather applies knowledge where it makes sense to spark future product designs. (For more on the Toyota approach, see the sidebar on the facing page.)

Michael Kennedy, CEO of Targeted Convergence (Coppell, TX), a teaching company built on the premise of lean design, is the author of the book, Product Development for the Lean Enterprise, which chronicles the Toyota experience with this nascent methodology. Kennedy is a firm believer in the need for American manufacturers to fully embrace the radically different new-product development paradigm, which he says is delivering new-product development productivity surges in the area of 400% for Toyota through techniques like knowledge sharing across projects, concurrent engineering, re-use, and keeping projects on schedule.

"It's a whole different paradigm and it really isn't lean," Kennedy says. "It's a learning-focused product development process, not a waste removal process."

Even so, Kennedy admits, there are merits to applying traditional lean practices to product development. "There's a lot of waste in the product development process -- things like waiting for a drawing to flow from a designer to a production planner -- and those can certainly be removed," Kennedy explains. "From that perception of lean, all the basics of lean production will flow... and companies can achieve 30% to 40% improvements in productivity."

Aras' Lind contends that the kinds of productivity boosts associated with lean product development -- not the wholesale paradigm shift typified by Toyota -- are substantial, and what most manufacturers are equipped to swallow. The alternative -- getting engineers to unlearn classical methodologies and embrace something totally foreign -- is an uphill battle most companies aren't willing or able to fight. "It's very hard to get engineers who've been working for 10 or 15-plus years and are schooled in a certain way of operating to change their behavior, especially when all the rules of nature as they know it are turned upside down," Lind says.

Therefore, the path of least resistance is what Aras refers to as lean product development or designing for lean manufacturing. "You're taking into account core considerations for lean manufacturing during product development, upstream," he explains, "as opposed to waiting for the product to be released to manufacturing to let them figure it out."

According to Lind, under this premise, dashboard functions and program management functions, all part of the PLM platform, help the design team address early on in the process such questions as: Does the new product fit into an existing lean family? Are there existing preferred suppliers that are qualified for lean? Are there ways to poka yoke (mistake-proof) this product as part of the design?

Promoting such lean approaches is essential to improving design processes, but manufacturers need to be careful not to go too far in applying lean concepts to the overall development process, according to Marc Halpern, research director at Gartner Group (Stamford, CT). Not all iterations and errors in the design process are waste, Halpern says. Errors that can increase the knowledge pool around the design and promote better innovation and reuse are an important and healthy part of the creative process, he explains. Thus, manufacturers need to apply lean concepts in consideration of the unique aspects of product development.

"You want to apply the philosophy of lean, but you don't necessarily want to copy actual lean approaches from manufacturing to design," Halpern says. "Manufacturing processes are very serial, whereas design processes are highly iterative -- but iterations often add value to the design. It's almost like good and bad cholesterol: by simply focusing on cutting out the fat, you could prolong problems for the company."

PLM's data management and collaboration capabilities can help add structure to the creative chaos that is design, according to Todd Black, marketing communications manager at CoCreate Software Inc. (Fort Collins, CO). For example, CoCreate's OneSpace.net offering is positioned around a team design principle, pushing the idea of concurrent engineering to the next level to encourage a free exchange of ideas and less reinvention of the wheel, Black says. OneSpace.net's dynamic modeling capabilities let anyone change designs at a much later date in the process than more traditional history-based design tools, he says.

"Concurrent engineering helps with trying to make sure the entire team is working on a design, but we're taking it one step further to make sure it's not a serial process where one person has ownership," Black says.

Calling All Poka Yokes

At Freudenberg-NOK (Plymouth, MI), it was PLM's program management functions that sparked a lean product development push. The company, a $1 billion producer of elastomeric seals and custom molded products, was using Aras PLM to manage its advanced product quality planning (APQP) processes. As an extension of that effort, the company began leveraging lean concepts as part of its development processes, according to Thomas Gill, director of CAE technology and support. For instance, the group created a checklist of 80 standard tasks related to product development as part of its mission to reuse components and to make design practices more defined and repeatable, Gill says. They also began designing with poka yoke in mind -- for instance, putting a notch in a particular area of a component to ensure no mistakes were made on the shop floor, he explains.

"We've been doing lean [in manufacturing] for so long, it's just ingrained in everyone," Gill says. "When we looked at what we were actually doing with PLM and product development, there was lean all over the place."

At Honeywell, the decision to experiment with lean within product development was a deliberate move to orchestrate a comeback. The first step, according to Fiore, was to do a baseline assessment to fully understand the degree of design inefficiencies. The assessment showed that the Honeywell group was great at winning new business, but that its development ranks were drowning in requests for new designs and projects and didn't have any guidance around prioritization. Also, the workforce was changing at the time, Fiore says. Many of Honeywell's long-standing engineers were moving on, leaving a gap in product knowledge and preventing teams from leveraging existing product portfolios in new designs, he explains.

By applying lean principles around process and workflow, Honeywell was able to achieve a 15% productivity improvement just by fostering communication between management and engineers about resource constraints and what projects to prioritize, Fiore says. Through knowledge management and reuse strategies, the firm has been able to reduce cycle times by 40%, Fiore says, using a homegrown product repository and PDM applications as the enabling technologies.

Getting its engineers to buy into these new practices was not nearly as difficult as Fiore had initially expected. "Things were so fundamentally bad, they'd have to look at parts on carts to try to find a product match," Fiore says. "Once they saw how these tools and practices made their jobs easier, they started to embrace them."

Fiore's division at Honeywell has been working on lean product development for a couple of years, and Fiore has been called in to help more than a dozen Honeywell sites follow suit. While word is getting out, he says it's still early in the process. "Six Sigma and lean [have] been around in the manufacturing world for over 20 years," Fiore says. "We're now only two or three years into trying to break through the walls in non-manufacturing applications. The jury is still out."

Boeing Signs Agreement to Mentor Woman-Owned Missile Defense Supplier

The Boeing Company
6/20/2006 10:55:04 AM

ST. LOUIS, June 20, 2006 -- The Boeing Company [NYSE: BA], which develops missile defense solutions for the U.S. Missile Defense Agency and other customers, has signed an agreement to mentor Wildwood Electronics, a woman-owned small business in Huntsville, Ala., that supports several of those programs.

Wildwood Electronics provides electronic components, cable harness fabrication, environmental testing and quality assurance for the Arrow, Avenger and Ground-based Midcourse Defense (GMD) systems, and the Surface-Launched Advanced Medium Range Air-to-Air Missile (SLAMRAAM) system. Boeing is the prime contractor for Avenger and GMD and a subcontractor for SLAMRAAM. Arrow is a co-production program with Israel Aircraft Industries.

Under the one-year Mentor-Protégé agreement, Boeing will help Wildwood Electronics establish "lean" processes in manufacturing and business management across the organization, improving the company’s ability to compete for future defense contracts.

"We are proud to be associated with Wildwood and with this Mentor-Protégé agreement, the latest in a series that Boeing has established with small and disadvantaged companies," said Pat Shanahan, vice president and general manager of Boeing Missile Defense Systems. "Mentor-Protégé agreements are a priority for Boeing because they promote the growth of suppliers and strengthen the U.S. defense industrial base."

"Wildwood is honored to be associated with Boeing as a protégé under this agreement," said Becky Owens, president, Wildwood Electronics. "This agreement will allow us to access Boeing’s vast training resources and lean manufacturing assessment and assistance to help open doors of opportunity for our company and prepare us to respond to customer requirements."

The U.S. Department of Defense Mentor-Protégé Program pairs large companies with eligible small businesses to enhance their capabilities and enable them to successfully compete for larger, more complex prime contract and subcontract awards. Besides the agreement with Wildwood Electronics, Boeing Missile Defense Systems has Mentor-Protégé agreements with All Points Logistics in Huntsville, Ala.; Aleut Technologies in Anchorage, Alaska; and DK Communications in Colorado Springs, Colo.

A unit of The Boeing Company, Boeing Integrated Defense Systems is one of the world’s largest space and defense businesses. Headquartered in St. Louis, Boeing Integrated Defense Systems is a $30.8 billion business. It provides network-centric system solutions to its global military, government and commercial customers. It is a leading provider of intelligence, surveillance and reconnaissance systems; the world’s largest military aircraft manufacturer; the world’s largest satellite manufacturer; a foremost developer of advanced concepts and technologies; a leading provider of space-based communications; the primary systems integrator for U.S. missile defense; NASA’s largest contractor; and a global leader in sustainment solutions and launch services.

Where's the Magic? Is Manufacturing Software Delivering Results?

Support for lean, improved visibility into operations drive in vestment in plant-floor technology.

Saturday, July 01, 2006
By Doug Bartholomew

If there's a technological "silver bullet" out there, nobody's found it yet.

For years, manufacturers anticipated instant benefits when they installed new software packages. ERP, CRM, SCM -- all seemed to promise a world in which production bottlenecks and late shipments would be eliminated by the powers of technology, and the lofty goal of pull-based manufacturing would be made easy, if not painless.

Wake up and smell the machine oil.

While new technologies can be helpful and sometimes empowering for production workers, they generally are anything but easy or pain-free. Many companies found that installing these complex systems, getting them to talk to other systems already in place, and then getting people to understand and use them, was a challenging and costly undertaking.

By contrast, process changes, both across-the-board as well as those made in continuing increments, often yield real gains in productivity, operational efficiency and expanded capacity.

Although some ERP buyers expected a magic transformation of the business, most found that the real payback came from longer-term process improvements. Because ERP systems were designed for the business top-down, they had scant real-world connection with the plant floor. By contrast, the plant was the setting for lean manufacturing initiatives and other process improvement efforts that were yielding their own significant gains, usually sans technology.

A continuing pain point for many manufacturers lies in the disconnect between the plant floor and the enterprise. ERP software vendors have begun taking measures to close this gap, but at many companies there remains a chasm of uncertainty between what the people in the plant know and do, and what the managers in the office think is happening.

Connecting With Lean

For instance, one area where process and technology are starting to come together is lean and ERP. A number of ERP software packages now include modules that support lean principles. In addition, software from some lean-specific vendors such as Austin, Texas-based Factory Logic supports lean activities and offers a smooth handoff of information to enterprise systems.

In a December 2005 survey, Factory Logic reported that more companies are beginning to apply or consider applying systems to support lean production and scheduling methods. One reason is that manufacturers have experienced consistent problems as a result of depending on spreadsheets to track and support lean activities.

"Companies are now recognizing the need to go beyond the spreadsheets they are currently using within their lean pilots to reach the next stage of improvement," Factory Logic's Web site states. The company's survey also found that while two-thirds of respondents use spreadsheets for lean efforts, more than half said they are currently making IT investments in operations to augment this capability.

Interestingly enough, three-fourths of manufacturers in the survey reported troubles with data integrity arising from manual data entry. And, not surprisingly, 71% reported too much time spent on data collection and manual calculations. Historically, data collection has been a sticking point for those committed to lean initiatives, because data recording tends to be viewed as an activity that doesn't add value to the product.

Of course, as operations grow in complexity, technology becomes a necessity, as manufacturers must balance multiple orders and far greater product variety. As Factory Logic reports, "Many companies have begun by using spreadsheets but have quickly found that they need something more substantial in order to handle the real-life complexities of producing leveled production schedules and supplier demand projections while responding effectively to sometimes volatile customer demand."

In an effort to help bridge the gap between the plant-floor and SAP, Factory Logic offers level scheduling and kanban management modules that can be used in concert with SAP. Factory Logic refers to this as "the supply-chain synchronization layer" between SAP's ERP and an MES system on the plant floor.

Few manufacturers are ready to toss out their proven plant-floor control systems in favor of new systems. Older automation systems, in fact, tend to be kept around and used for a decade or more, with the newer stuff just getting bolted on as needed.

Now, with today's emphasis on real-time data from the plant floor, there's a new urgency to find ways to, if not upgrade, at least tap the data provided by these older automation and control systems.

"One problem we hear from executives at manufacturing companies is that although they spent hundreds of millions of dollars on plant-floor automation and IT, they never have any idea how the business is doing, except at the end of the month," observes Peter Martin, vice president of performance management at Invensys, a manufacturing software firm headquartered in Foxboro, Mass.

One problem is that many older plant-floor control systems, although installed years or even a decade ago, may not be fully utilized even today. "A lot of IT systems already installed have tremendous capabilities," Martin says. Instead of going out and buying newer plant-floor systems, Martin believes the answer may lie in greater utilization of existing systems put in 10 or 15 years ago.

"You go into a plant today and it's common to see a Honeywell or FoxPro or other system that is only being utilized at the 10% to 15% level," Martin adds. He recommends that manufacturers seek ways to knit these older systems together to more fully utilize their capabilities. "Most companies end up stitching together their legacy applications for manufacturing," adds Colin Masson, research director for manufacturing operations at AMR Research.

To enable manufacturers to more fully utilize their older plant-floor controls, Invensys released a new system in April called Infusion that is designed to tap the data in these older systems and connect them with enterprise systems. "This provides an infrastructure that lets the whole plant work as a single IT computing world," he adds. The goal is to provide managers with greater visibility into production. "Executives can see whether they are losing or making money, and whether they are satisfying customers or not, and why."

Some companies that are trying this system are Dynegy and BASF. "We call it asset performance management," Martin says. "Manufacturers need a very good model for measuring, analyzing and improving the business."

AMR's Masson concurs that there is a pressing need among manufacturers today for this integrated view of production. "We call this layer that sits on top of legacy solutions 'operations process management,' " Masson says. "We are seeing a lot of interest in this breed of manufacturing intelligence solution."

Masson says the key drivers for companies seeking new or more responsive systems to provide plant-floor information are compliance, including track and trace functionality; greater product variety, necessitating more frequent changeovers; and the ability to rapidly introduce new products. "There is more spending going on for manufacturing operations as a result of these needs," Masson says.

"Increasing regulatory compliance is a business driver," he adds. "If you don't have this capability, then you must rewrite your system or go out and buy a new one."

In many cases, companies have ended up putting together their own systems to get the functionality they need to run and manage their operations. "There isn't an ERP for manufacturing," Masson points out. "Most manufacturers have to assemble a solution from multiple vendors to meet their manufacturing needs."

Of course, having a layer of operations process management information to aggregate plant-floor data in one place in a meaningful format is no silver bullet for manufacturing. Nonetheless, says Masson, "It can be used to break down the various silos of information for something such as quality management."

Such a quality view would combine information from R&D, the warehouse, core production and the operations lab. "You may have quality data in three or four systems," Masson says. "But it's not integrated into a single view of quality. Operations process management can be used to do this, and it's a much lower cost option than replacing the entire array of systems."

"A lot of spending is going into putting a manufacturing intelligence layer atop legacy applications to enable companies to look at performance information," he says.

SAP, among others, has already caught the operations process management wave. "They are encouraging companies to do what I call 'leave and leverage' their existing platforms but to add an intelligence layer and to create manufacturing-to-enterprise workflows," he explains.

ERP software vendors are a natural to embrace the "leave and leverage" approach to plant-floor systems because it enables them to provide a means to connect the enterprise with production-something most have lacked until very recently. Concludes analyst Masson, "Integrating manufacturing sites with enterprise processes is where I see the most activity today."

Making the NHS into a lean machine

By Nick Triggle
Health reporter, BBC News

Productivity is now the buzz word in the NHS.

With the health service facing a £512m deficit in England, pressure is growing on number crunchers to save money.

But could a practice developed by car manufacturers Toyota nearly 60 years ago hold the answer to the NHS's problems?

The Lean philosophy was developed by Toyota in the 1950s and 1960s to improve the efficiency of car production.

It was used to ensure the 10,000 components of a car were ready at the right time of the production line to allow the fastest possible production of motor vehicles.

Lean encourages managers to look at how customers and goods flow through their systems to unlock bottlenecks and inefficiencies.

In doing so it defines value-adding activity solely as those which affect the customer and estimates 90% of all actions within organisations are wasted because they add no value.

The principles have been adopted by organisations as diverse as Tesco and the Royal Navy and now NHS chief believe it could help the NHS out of its financial quagmire.

Unsurprisingly, for a concept developed by the car industry, supporters like to use an analogy of how traffic flows on roads to illustrate how it could benefit the NHS.

In a report by the Lean Enterprise Academy UK, a think-tank set up to promote the technique, the authors suggest readers imagine a two-lane road capable of taking 1,000 vehicles an hour.

Jams

It warns jams could occur if slow-moving lorries are allowed to travel in both lanes, blocking the movement of faster cars.

The report said a similar effect can be seen in A&E departments where patients are assessed and placed in a waiting list according to priority.

Instead, it said A&E patients should be divided into two categories - those that need to be admitted into hospital with serious injuries or condition, who should be seen on a priority basis, and those that just need patching up and can be seen on a first come, first serve basis.

The method was adopted by Flinders Medical Centre in Adelaide, Australia, two years ago and saw average waiting times fall by 25%.

We know that our case for extra finding will fall on deaf ears unless we cut out waste in the system
Gill Morgan, of the NHS Confederation

Professor David Ben-Tovim, the officer in charge of redesigning care at the Adelaide centre, said it had transformed the way care was provided after coming close to meltdown.

"Before, our emergency department was so congested it was an unsafe place to be."

Lean has also proved successful in the UK, the report said.

The Royal Bolton Hospital has used it to redesign its pathology department. Looking at how blood samples were tested it realised the process was being unnecessarily slowed down.

Journeys were being made across the hospital because equipment was located in different rooms and there were delays taking blood samples for testing because staff waited until they had a batch of samples before sending them off.

The hospital took simple measures, such as moving equipment, knocking rooms together and analysing samples as they come in.

Design

The changes have meant that the time taken to process blood samples was cut from 24 hours to three.

Hospital chief executive David Fillingham said: "When we started out, some people were very sceptical. But I've never seen anything that energises staff in this way."

Daniel Jones, chairman of the academy and report author, said if Lean principles are to be adopted by the NHS across the board, it needs to alter the way it looks at care.

"The problem is that the NHS looks at the patient / doctor interaction when it is designing services.

"But really it is a whole series of different departments and what is important is the interaction between the departments as the patient goes through the system. That is what we are trying to address."

The NHS Confederation, which represents health service managers, has been so impressed with the techniques that it believes if could be a possible solution to the deficits problem.

Chief executive Gill Morgan said: "We know that our case for extra finding will fall on deaf ears unless we cut out waste in the system.

"Lean works because it is based on doctors, nurses and other staff leading the process and telling us what adds value and what doesn't."

But others remain more sceptical.

John Appleby, chief economist at the King's Fund health think-tank, said the NHS was certainly inefficient in places, but the challenge was addressing that in what is a complicated system.

"Care could be designed better, but quite often change requires time and money which isn't always available.

"The second issue is how you define productivity. If it is patients treated per pound spent, then you ignore potentially important aspects of health care such as spending time with a doctor discussing your health.

"Health care is such a complicated system that you cannot compare it to car factories."

Tool for productivity, quality, throughput, safety

5S is a system that originated in Japan that is now a common tool for improving workplace productivity, quality, throughput and safety

5S is a system that originated in Japan that is now a common tool for improving workplace productivity, quality, throughput and safety. It can be used in any environment including the factory floor, warehousing and storage, workshop and the office. Many companies implementing lean manufacturing start with a series of 5S events to remove the workplace clutter and improve workflows between processes.

The 5S system is based around five Japanese words all starting with the letter 'S', and hence has been given the name 5S.

There are several systems promoted in the Western world that use slightly differing definitions of these words, but the methodology does not vary.

Seiri = Sort You must first ask what is actually needed in an area.

This is similar to spring-cleaning.

If you don't use it, get rid of it or store it in the right place.

Define how much is needed and identify where it should be placed (information, tools, equipment, material, etc) and put what is left in a logical order.

Seiton = Straighten or Set in Order Everything has its own place and should be located where it is to be used and organized for a smooth flow.

Often referred to as 'A place for everything, and everything in its place'.

This phase includes colour coding, labelling and other methods of easy identification.

Seisou = Shine or Sweep Develop methods for ensuring the plant/office is 'tour ready'.

When a plant/office has a clean layout it is easy to recognise something out of place, or a source of contamination/defect.

Seiketsou = Standardise Define standards to ensure that things stay tidy, orderly and clean.

Shitsuke = Sustain Developing a system of constantly assessing performance and challenging for improved methods.

While 5S systems have been used by the Japanese since the 1980s, many Australian companies are only just introducing these concepts.

Predominantly used in the manufacturing sector, they can now be found deployed in diverse industries such as banking, mining, construction and many other industries.

5S is used to manage the work area more effectively and should not be confused with other programs such as TPM (total productive maintenance) that are more machine and equipment focused, even though the concepts are similar.

One Australian consulting company has adapted the concept and called it 'work area management', or WAM, as a way to de-emphasise the Japanese terminology.

The Japanese Industrial Safety and Health Association found that companies that have implemented a 5S program have made significant impacts on the safety and productivity of their workforce.

The following table identifies the impact of the introduction of the 5S system as we know it today.

The results were based on information from Toyota, Matsushita and Tachi.

Some of the key findings are similar to that found in Australia and New Zealand today - larger companies have implemented, or are aware of 5S, while the small to medium enterprises rarely know that a method exists to improve their workplace.

How does 5S work?

Lean manufacturers will often identify the bottlenecks in their processes, or services (equipment or turn around time for maintenance and repairs), and then decide that a 5S activity should take place to improve the throughput of that process or service.

A team will be formed to review the workplace layout and workflows following some initial training.

As with all Lean tools, 5S is about eliminating waste and maximising value-added work.

To this end, 5S uses its process to create and maintain an organised, clean and efficient setting that enables the highest level of value-added performance.

This means eliminating search, travel, transporting materials, inventory.

It achieves its ends by introducing organisation and orderliness, eliminating unneeded materials and establishing self-discipline.

Training will often include the completion of a workplace assessment, and/or 'Waste Hunt' using the criteria of the five 'S's.

Action will be identified during this process to streamline the workflows.

This is then followed by a 'Red Tag' event - any item not required is removed, or 'tagged' pending a decision on where it should be stored.

Excess equipment/material is often sold off, donated, recycled or removed to its rightful place.

This is part of the 'Sort' process.

Once any surplus items have been removed the team then decides where, how much and how remaining items should be stored.

This often includes colour coding, installation of storage systems, shadowboards, labelling, etc This is known as 'Set in Order'.

This is also a good time to really challenge the existing workflows, and try to reduce retrieval times for tools, equipment, material and information.

A good guide is that material should be capable of being retrieved 'Right First Time' within 30 seconds in the immediate workarea, and 2 minutes within a department.

If you cannot achieve this then you should go back and ask the basic question - 'Is this the right place for this item/s?'.

A clean-up and often a new coat of paint is applied in the next step - 'Shine'.

This step, if implemented properly, will install a sense of pride in the workplace and ensure that it is easy to keep in pristine condition - 'Tour Ready'.

The next step is to 'Standardise' methods for maintaining the workplace in the new condition - maintenance standards (no oil leaks or spillages), cleaning standards and frequencies, lubrication standards, storage standards, etc Most companies neglect to do this step and often find that their plant/process/office reverts back to the original state over a period of time.

The final step is to develop a method of 'Sustaining' improvements in the workplace.

This is often done through a series of ongoing assessments carried out by the work area team and supported by management.

Impact on safety Implementing a 5S program will improve safety and reduce the risk profile of a work area, but it does not focus on safety directly.

Many companies have realised this and have now included safety into their 5S programs, and now call these either 6S or 5S+1 programs.

The Japanese Industrial Safety and Health Association found that companies that have implemented a 6S program made even further gains on their safety and productivity results.

Ideally, the new 6S system will follow the following sequence - Sort, Set in Order, Safety, Shine, Standardise, Sustain.

Once the original clutter is removed then safety, work practices, access, risk exposure, etc can be assessed and actioned.

When we start 'Setting in Order' we can review the new process for ergonomic risk and repetitive use injury risk and ensure that appropriate systems are built into the new methods.

The introduction of Safety as the sixth 'S' allows us to create and maintain an organised, clean, safe and efficient setting that enables the highest level of value-added and risk-free performance.

Companies that have included Safety into their existing 5S program, and are now reaping the benefits of lower risk profiles, include US Defense Forces, Boeing, Northrop Grumman, and many food processors and pharmaceutical manufacturers (HACCP and food contamination risks).

Industries with high risk profiles - metal industry, mining, construction - have the most to gain yet many are unaware of 5S and 6S systems.

Recent discussions with senior officials within an Australian State Government Workplace Health and Safety Department revealed that they were also unaware of the impact of 5S and 6S programs.

In 2004, the UK construction industry introduced a '5C' program as an equivalent to the manufacturing 5S programs.

There are some crucial differences between the application of a 5S system and a 6S system.

Many Lean companies will use 5S to improve productivity in a bottleneck work area or to balance workloads between processes.

Their focus is on lead-time reduction.

6S is an ideal tool for workplace health and safety officers to address risk profiles in a work area or reduce cross-contamination risk.

By converting your existing 5S system to a 6S system you can benefit immensely - if you are already doing Lean you have the foundations there.

By incorporating safety as the sixth 'S', it is easy to align safety goals with business objectives using a common tool.

Toward a leaner finance department

Borrowing key principles from lean manufacturing can help the finance function to eliminate waste.

Richard Dobbs, Herbert Pohl, and Florian Wolff

Waste never sleeps in the finance department—that bastion of efficiency and cost effectiveness. Consider the reams of finance reports that go unread and the unused forecasts, not to mention duplicate computations of similar data, the endless consolidation of existing reports, and mundane activities such as manually entering data or tailoring the layout of reports.

The impact is significant. In a recent exercise that benchmarked efficiency at consumer goods companies, the best finance function was nine times more productive than the worst (exhibit). Production times also varied widely. Among the largest European companies, for example, it took an average of 100 days after the end of the financial year to publish the annual numbers: the fastest did so in a mere 55 days, while the slowest took nearly 200. This period typically indicates the amount of time a finance department needs to provide executives with reliable data for decision making. In our experience with clients, many of these differences can be explained not by better IT systems or harder work but by the waste that consumes resources. In a manufacturing facility, a manager seeking to address such a problem might learn from the achievements of the lean-manufacturing system pioneered by Toyota Motor in the 1970s. Toyota's concept is based on the systematic elimination of all sources of waste at all levels of an organization.1 Industries as diverse as retailing, telecommunications, airlines, services, banking, and insurance have adopted parts of this approach in order to achieve improvements in quality and efficiency of 40 to 70 percent.



We have seen finance operations achieve similar results. At one European manufacturing company, for example, the number of reports that the finance department produced fell by a third—and the amount of data it routinely monitored for analysis dropped from nearly 17,000 data points to a much more manageable 400.

Borrowing from lean
In our experience, the finance function eludes any sort of standardized lean approach. Companies routinely have different goals when they introduce the concept, and not every lean tool or principle is equally useful in every situation. We have, however, found three ideas from the lean-manufacturing world that are particularly helpful in eliminating waste and improving efficiency: focusing on external customers, exploiting chain reactions (in other words, resolving one problem reveals others), and drilling down to expose the root causes of problems. These concepts can help companies cut costs, improve efficiency, and begin to move the finance organization toward a mind-set of continuous improvement.

Focusing on external customers
Many finance departments can implement a more efficiency-minded approach by making the external customers of their companies the ultimate referee of which activities add value and which create waste. By contrast, the finance function typically relies on some internal entity to determine which reports are necessary—an approach that often unwittingly produces waste.

Consider, for example, the way one manufacturing company approached its customers to collect on late or delinquent accounts. The sales department claimed that customers were sensitive to reminders and that an overly aggressive approach would sour relations with them. As a result, the sales group allowed the accounting department to approach only a few, mostly smaller customers; for all others, it needed the sales department's explicit approval—which almost never came. The sales department's decisions about which customers could be approached were neither challenged nor regularly reviewed. This arrangement frustrated the accounting managers, and no one would accept responsibility for the number of days when sales outstanding rose above average.

The tension was broken by asking customers what they thought. It turned out that they understood perfectly well that the company wanted its money—and were often even grateful to the accounting department for unearthing process problems on their end that delayed payment. When customers were asked about their key criteria for selecting a manufacturing company, the handling of delinquent accounts was never mentioned. The sales department's long-standing concern about losing customers was entirely misplaced.

In the end, the two departments agreed that accounting should provide service for all customers and have the responsibility for the outstanding accounts of most of them. The sales department assumed responsibility for the very few key accounts remaining and agreed to conduct regular reviews of key accounts with the accountants to re-sort the lists.

Better communication between the departments also helped the manufacturing company to reduce the number of reports it produced. The company had observed that once an executive requested a report, it would proceed through production, without any critical assessment of its usefulness. Cutting back on the number of reports posed a challenge, since their sponsors regularly claimed that they were necessary. In response, finance analysts found it effective to talk with a report's sponsor about just how it would serve the needs of end users and to press for concrete examples of the last time such data were used. Some reports survived; others were curtailed. But often, the outcome was to discontinue reports altogether.

Exploiting chain reactions
The value of introducing a more efficiency-focused mind-set isn't always evident from just one step in the process—in fact, the payoff from a single step may be rather disappointing. The real power is cumulative, for a single initiative frequently exposes deeper problems that, once addressed, lead to a more comprehensive solution.

At another manufacturing company, for example, the accounting department followed one small initiative with others that ultimately generated cost savings of 60 percent. This department had entered the expenses for a foreign subsidiary's transportation services under the heading "other indirect costs" and then applied the daily exchange rate to translate these figures into euros. This approach created two problems. First, the parent company's consolidation program broke down transportation costs individually, but the subsidiary's costs were buried in a single generic line item, so detail was lost. Also, the consolidation software used an average monthly exchange rate to translate foreign currencies, so even if the data had been available, the numbers wouldn't have matched those at the subsidiary.

Resolving those specific problems for just a single subsidiary would have been an improvement. But this initiative also revealed that almost all line items were plagued by issues, which created substantial waste when controllers later tried to analyze the company's performance and to reconcile the numbers. The effort's real power became clear as the company implemented a combination of later initiatives—which included standardizing the chart of accounts, setting clear principles for the treatment of currencies, and establishing governance systems—to ensure that the changes would last. The company also readjusted its IT systems, which turned out to be the easiest step to implement.

Drilling down to root causes
No matter what problem an organization faces, the finance function's default answer is often to add a new system or data warehouse to deal with complexity and increase efficiency. While such moves may indeed help companies deal with difficult situations, they seldom tackle the real issues. The experience of one company in the services industry—let's call it ServiceCo—illustrates the circuitous route that problem solving takes.

Everyone involved in budgeting at ServiceCo complained about the endless loops in the process and the poor quality of the data in budget proposals. Indeed, the first bottom-up proposals didn't meet even fundamental quality checks, let alone the target budget goals. The process added so little value that some argued it was scarcely worth the effort.

Desperate for improvement, ServiceCo's CFO first requested a new budgeting tool to streamline the process and a data warehouse to hold all relevant information. He also tried to enforce deadlines, to provide additional templates as a way of creating more structure, and to shorten the time frame for developing certain elements of the budget. While these moves did compress the schedule, quality remained low. Since the responsibility for different parts of the budget was poorly defined, reports still had to be circulated among various departments to align overlapping analyses. Also, ServiceCo's approach to budgeting focused on the profit-and-loss statement of each function, business, and region, so the company got a fragmented view of the budget as each function translated the figures back into its own key performance indicator (KPI) using its own definitions.

To address these problems, ServiceCo's managers agreed on a single budgeting language, which also clearly defined who was responsible for which parts of the budget—an added benefit. But focusing the budget dialogue on the KPIs still didn't get to the root problem: middle management and the controller's office received little direction from top management and were implicitly left to clarify the company's strategic direction themselves. The result was a muddled strategy with no clear connection to the numbers in the budget. Instead of having each unit establish and define its own KPIs and only then aligning strategic plans, top management needed to link the KPIs to the company's strategic direction from the beginning.

Getting to the root cause of so many problems earlier could have saved the company a lot of grief. Once ServiceCo's board and middle management determined the right KPIs, the strategic direction and the budget assumptions were set in less than half a day, which enabled the controller's office and middle management to specify the assumptions behind the budget quickly. The management team did spend more time discussing the company's strategic direction, but that time was well spent. The result was a more streamlined process that reduced the much-despised loops in the process, established clear assumptions for the KPIs up front, and defined each function's business solution space more tightly. The budget was finalized quickly.

Getting started
It takes time to introduce lean-manufacturing principles to a finance function—four to six months to make them stick in individual units and two to three years on an organizational level. A new mind-set and new capabilities are needed as well, and the effort won't be universally appreciated, at least in the beginning.

Integration tools can be borrowed: in particular, a value stream map can help managers document an entire accounting process end to end and thus illuminate various types of waste, much as it would in manufacturing. Every activity should be examined to see whether it truly contributes value—and to see how that value could be added in other ways. Checking the quality of data, for example, certainly adds value, but the real issue is generating relevant, high-quality data in the first place. The same kind of analysis can be applied to almost any process, including budgeting, the production of management reports, forecasting, and the preparation of tax statements. In our experience, such an analysis shows that controllers spend only a fraction of their time on activities that really add value.

The challenge in developing value stream maps, as one European company found, is striking a balance between including the degree of detail needed for high-level analysis and keeping the resulting process manual to a manageable length. Unlike a 6-page document of summaries or a 5,000-page tome, a complete desk-by-desk description of the process, with some high-level perspective, is useful. So too is a mind-set that challenges one assumption after another.

Ultimately, a leaner finance function will reduce costs, increase quality, and better align corporate responsibilities, both within the finance function and between finance and other departments. These steps can create a virtuous cycle of waste reduction.

About the Authors
Richard Dobbs is a partner in McKinsey's London office, and Herbert Pohl is a partner in the Munich office, where Florian Wolff is an associate principal.

This article was first published in the Spring 2006 issue of McKinsey on Finance. Visit McKinsey's corporate finance site to view the full issue.

Notes
1Anthony R. Goland, John Hall, and Devereaux A. Clifford, "First National Toyota," The McKinsey Quarterly, 1998 Number 4, pp. 58-66; and John Drew, Blair McCallum, and Stefan Roggenhofer, Journey to Lean: Making Operational Change Stick, Hampshire, England: Palgrave Macmillan, 2004.

Lean insight: 'Five Whys' problem-solving

Author: The Lean Learning Center
Issue: 5/2006

Applying the right lean tool for a given problem follows directly from mastery of the lean principles. This article provides an explanation of the “Five Whys” problem-solving tool.

Proper uses of the tool:

1) As a structured approach to solve problems as they occur
2) As a framework for a team to work through a more complex problem

Improper uses of the tool:
1) To emphasize the person or blame, turning the Five Whys into the Five Whos.
2) To emphasize documentation at the expense of applying the tool. When problem-solving becomes a tedious, desk-intensive process, it is a punishment that gets used as little as possible.

Description of Five Whys tool, how-to
The Five Whys is a simple process to follow to solve any problem. It starts with writing or having an effective problem statement. Problem statements determine the direction we head next. If we get it wrong, every step that follows will be wrong. Problem statements should describe the current condition, use data where possible, and describe the gap in performance. You should also be open to changing the problem statement as you learn more during your investigation. In writing problem statements, you should avoid describing the solution, postulate as to the expected cause, be vague or ambiguous or combine multiple problems into one.

Some examples of good problem statements include:

Currently entering data into two different systems; tasks are on average 20 percent late from scheduled time

Overall customer complaints are up 50 percent
The No. 3 press is consuming $2,000 in repairs monthly
Once the problem statement is determined, you can begin using the Five Whys to determine the root cause. Ask why to the problem statement and then ask why to that again five times. Five is not a magic number; sometimes it might be two, others nine. You should not try to jump whys, but precede one why at a time. You can test each answer to your "why" by asking, "If I remove this, will the previous answer go away?" If the answer is no, you haven’t answered why correctly and you should explore it further. If you can’t immediately answer a why, go and observe or collect data until you can see the current condition clearly enough to answer. Because of this, you may not complete a Five Why in one conversation, but may have to observe, collect data and other activities at each level of why. You have gotten to the end, or the root cause, when you can describe the cause of the problem in terms of an activity, connection or flow.

An example follows with the problem that a key piece of equipment failed.
Why did the equipment fail? Because the circuit board burned out.
Why did the circuit board burn out? Because it overheated.
Why did it overheat? Because it wasn’t getting enough air.
Why was it not getting enough air? Because the filter wasn’t changed.
Why was the filter not changed? Because there was no preventive maintenance schedule to do so.

That is now a root cause that can be solved. By focusing on the question WHY, we are more likely to avoid using the other W question: WHO.

The purpose is to fix the system, not just remove the symptom. If we aren’t clear about the difference between symptoms and problems, we will not find the root cause effectively. Symptoms are the part we see – the part on the surface. Symptoms are how we know we have a problem. Problems themselves are the cause of that symptom. As an example, if I see oil on my garage floor and I clean up the oil, is the problem fixed? No, you just fixed a symptom of the problem, not the problem. The problem is the engine leaks.

Once the root cause is determined, a countermeasure to the problem must be found. Creativity and lean tools are your most powerful allies in this part of the process. Focus on nothing but the root cause in determining the proper countermeasure. All the other work from problem statement to the Five Whys helps to get you to this point.

A vital final step of the process is verifying that the solution worked. This should be done by first seeing that the countermeasure is sustainable and then making sure that the original condition – the symptom – has been eliminated. There are two purposes. The first is to ensure we met our objective: eliminating the adverse condition. The second is where learning occurs. By verifying each countermeasure, we learn what works and what doesn’t, improving our knowledge both of the process we are trying to manage and improve in addition to problem solving process itself.

Variations on the tool
The Five Whys can be built into many other problem solving processes. Many companies create proprietary problem solving processes that are based on having a common way to communicate or save for learning and history. The Five Whys can be utilized as a formal part of a larger process or by the user to determine the root cause, which then gets input into the formal process. Also, tools, such as Six Sigma, can help find the answer to each successive ‘why’ being asked, but does not replace the process of digging down layer by layer.

How tool relates to rules and principles
The Five Whys most obviously and directly relates to the principle of Systematic Problem Solving. Without the intent of the principle behind you, the Five Whys will likely be a shell of a process and not used effectively.

Key behaviors that must accompany the Five Whys include: 1) surfacing problems quickly; 2) using them as opportunities to move closer to the ideal state; and 3) focus on the process, not on blaming the person. The principle of Create a Learning Organization is also greatly enabled through the practice of the Five Whys. The Five Whys can become the primary driver of daily learning about the management and improvement of the process.

By finding the root cause and then verifying the effectiveness of the countermeasure, deep knowledge of the process can become institutionalized.

About the author:
The Lean Learning Center was established in 2001 to help companies overcome the barriers to successful lean transformation. In conjunction with its corporate partner Achievement Dynamics, a provider of management consulting, the center provides a full complement of lean transformation services. Partners Jamie Flinchbaugh and Andy Carlino have recently authored a book titled The Hitchhiker’s Guide to Lean, published by the SME. For more information visit www.hitchhikersguidetolean.com.

Keeping track of stuff requires better visibility

BARRY ELLIOTT

We are doing some particularly interesting work for a client these days. The client is in the business of moving things from one point to another, sometimes for itself and sometimes for others. Nothing unusual in that. Physically moving the stuff - doing the storing and trucking and flying and so on - from Point A to Point B isn't the only challenge. Keeping track of it is also both important and difficult.

In this space we have often discussed such approaches as lean manufacturing, just-in-time inventory and new technologies that have delivered considerable gains in supply chain efficiency and visibility for companies in a number of industries. Reduced lead times, improved shipment accuracy, better customer service and increased regulatory compliance are just a few of the benefits.

But many companies that have invested in track-and-trace technologies and visibility programmes have yet to realise the full potential. To convert visibility into business value and to optimise supply chains, it is imperative that companies take a holistic approach.

Even minor delays and blockages can cause major problems in customer-facing operations, as well as for suppliers and business partners. Many companies struggle to locate products, assets and equipment and verify that they have been properly maintained or are ready for use. Some compensate for the lack of visibility by building slack into their supply chains, which may allow or cause containers that have cleared Customs and are ready for release to sit in ports for several days - and incur unnecessary demurrage charges. Not to mention damage or pilferage of the contents.

Furthermore, consider the effect of major delays such as a container ship held up in some bottleneck en route. Knowing about the blockage within an hour, rather than a few days, can mean the difference between huge losses in sales and increases in costs, rather than something a lot less.

Although it's important to be aware of the risks of major events and disruptions, companies also recognise that a large amount of value can be unlocked from everyday supply chain events, policies and practices. Reliable status and availability information can create much greater flexibility and power throughout the supply chain - both "upstream" (such as transport planning) and "downstream" (such as demand planning, product availability, and distribution capacity). In other words, shipments could be redeployed on the fly and minor problems solved before they become major blockages.

By refining processes and practices and strategically levering powerful new visibility tools and technologies, companies can not only establish cost-effective buffers and safety nets, but also significantly reduce supply chain lead-times and variability. And, with the ability to identify evolving issues earlier and take corrective actions sooner, they'll greatly reduce their risk exposure.

Meanwhile, companies that are unable to track shipments along every step of the distribution chain and identify threats and emerging problems will find themselves - as well as their brands and customers - at much greater risk.

Visibility has been a hot topic for supply chain executives for several years, but what does it really mean? Better visibility allows companies to analyse data in aggregate, and respond faster to issues that directly and indirectly affect the flow of goods from factory to the customer's shopping cart, but is increased visibility enough? Just keeping track of the stuff doesn't really add value.

How important are supply chain visibility, flexibility and security? An interesting Unisys article offers the following:

- Out-of-stock rates on retail shelves are 8%.

- Product counterfeiting now accounts for 5-10% of all global trade, or roughly $350 billion.

- 50% of companies have logistics asset operations that consume at least 5% of revenue and 17% of companies spend at least 10% of revenue on it.

- 50% of companies have manual asset management processes.

- Logistics and transport costs account for 9.5% of the US gross domestic product.

- Theft and diversions affect 1-3% of goods in the supply chain.

- Lead-time variability from one supply chain node to another ranges from 40% (by sea) to 95% (by air)

Visibility means different things to different organisations, of course. Next week, we'll detail an approach Unisys has developed to help customers understand why visibility matters, how they can most effectively create it and how to lever it to drive operational improvements. The approach is based on the belief that visibility only matters if it leads to improved performance and increased business value.

Looking To Get Lean? A&D Companies Turn to MES for Manufacturing Excellence

Tuesday, June 06, 2006

Kevin Reale, Simon Jacobson

According to the “Aerospace and Defense Industry IT Spending Profile, 2005-2006: Get Lean and Improve Your Data Utilization,” the application of lean manufacturing practices and better data utilization and analysis throughout the organization are major factors in A&D IT spending.

In a recent study, 51% cited ERP-related spending of the A&D IT budget as most important, while only 16% identified manufacturing operations as most important. For several A&D manufacturers, making an ERP investment is fertile enough ground, as many are considering ERP for the first time, with business pressures having tested the scalability and capacity of incumbent MRP packages. Despite ERP commanding the lion’s share of the IT budget, though, investments in manufacturing efficiencies should not go overlooked.

As business process transformations continue in the A&D sector, companies have a number of logical post-ERP implementation investments that they should consider. Foremost among these are those that increase the usability of data now available to improve processes and eliminate redundant and outdated legacy systems in the manufacturing environment.

Going paperless in the manufacturing environment creates tremendous opportunity for reducing waste and creating continuous improvement. Seeing immediate benefits in productivity and quality are not uncommon with MES deployment—see “MES Provides Long-Term Revenue and Market Benefits Beyond Easy-to-Quantify Operational Cost Savings.”

Case Study: Lockheed Martin flies lean

We recently spent time onsite with Lockheed Martin to get a first-hand view of its project to remove paper and manual processes across multiple programs, including the Joint Strike Fighter initiative, and manufacturing facilities.

Lockheed has been practicing lean manufacturing techniques for several years, as we found in a walk around its facilities, SQDCP metrics (safety, quality, delivery, cost and people) as well as 5S and pull-based replenishment processes were in abundance. These activities are all critical to eliminating waste.

Lockheed also identified waste in its ability (or inability) to respond to product/process changes, track job progress, and poka yoke (error proof) its production operations. The old method included planners making changes to existing drawings, and these changes being manually distributed to the plant floor, opening up the possibility of costly inefficiencies.

Back in early 2000, the company developed requirements to automate the process to make the operation work smarter and more efficiently. These requirements turned into electronic work instruction (EWI), which is based on the MES technology provided by Visiprise. The EWI solution, initiated in 2002 and scheduled for completion by the end of this year, is expected to be deployed to four different facilities throughout the United States.

The goal of this project is to eliminate the time, error potential, and resource management constraints that paper-based processes and a legacy mainframe system created and push efficiencies and common practices into the manufacturing environment. EWI allows for real-time communication of product/process changes, electronic assignment/tracking of work, and job level interlock—that is, only qualified production personnel can start a job assignment.

In our discussion, Lockheed identified the three initial benefits.

Quality management

By going paperless on the shop floor, Lockheed now has a standardized mechanism to better collect and examine data related to the three key metrics that organizations can use to track their quality performance: time, cost, and variance (see “Quality Management, Part II: Unify and Conquer”). It can now manage quality metrics, such as hours per unit (cost, time) and scrap and rework (cost, variance) on an individual program basis. Manufacturing planners can also now put immediate holds on orders not yet released to production and on works in progress to eliminate further quality spills.

Organizations starting down the paperless path should seek the ability to perform root-cause analysis beyond manufacture to understand the reasoning behind systemic quality issues and then remedy them with further training, process and product redesign, and supplier rationalization. This is the main benefit from this centralized quality data capture.

Lean production systems/corporate-wide performance management

The basic elements of lean manufacturing are waste elimination, continuous improvement, one piece workflow, and customer pull. When these elements target cost, quality, and delivery, you have the basis for a lean production system.

One of the challenges any aircraft program faces early in its lifecycle is engineering change notifications (ECNs) and additional product variants. The velocity at which these changes and new items can be communicated to the production floor, as they relate to engineering data and work instructions, distinguishes Lockheed from competitors. It can better reduce waste, enable error-proofing, and create continuous improvement in the manufacturing process and at human capital levels.

Elimination of waste

Lean manufacturing identifies seven types of waste:

Over-production
Inventory
Conveyance
Correction
Motion
Processing
Waiting
To improve quality and reduce costs related to these, Lockheed, using EWI, improved the following processes:

Work instructions
Order process time
Order visibility
Quality record tracking processes
Nonconformance processes
Engineering change processes
Getting people onboard

Despite the benefits of going paperless, Lockheed still has difficulty with change management. With the introduction of paperless work order dispatch and data collection, some shop-floor workers needed to be educated on basic computer skills, which were organized in tandem with the union to ensure buy in from all 10,000 workers affected by this technology.

However, once system adoption is standardized and operators are individually tied tightly to performance of a program, companies need to identify skills gaps, and then provide the necessary training to remedy these skills gaps.

The other training aspect to consider involves new employees. According to the Commission on the Future of the U.S. Aerospace Industry, the aerospace workforce is aging, with an estimated 27% of workers eligible to retire by 2008. Lockheed expects to be delivering approximately one F-35 Joint Strike Fighter aircraft per day when it reaches peak production around 2012. Bringing new production assets online and ramping up new employees to manage these assets in the coming years should be made easier with the level of automation EWI provides.

Conclusion: manufacturing needs to take off in A&D

After several years of lackluster performance, the A&D market for MES is showing signs of renewed vigor, jumping to $57M in 2004 from an estimated $23M in 2001, nearly a 150% leap, AMR Research data shows. A market opportunity is also surfacing in A&D with the large primes that need, within their extended supply networks, technology integration across distributed manufacturing to encourage faster new product development and introduction (NPDI).

As A&D manufacturers continue their demand-driven journeys and build out their supply networks to be more agile and responsive for delivery of a predictable quality product, manufacturing’s role should not be overlooked. While A&D companies are intent on ERP investments, projects such as Lockheed Martin’s EWI initiative should be considered to unearth opportunities for waste reduction and quality improvement, data collection, and workforce management improvements, which will only enhance the data that is used to feed the ERP beast.

© Copyright 2006 by AMR Research, Inc.

Lean Provision Is Tesco's Secret Weapon in Battle with Wal-Mart

CAMBRIDGE, Mass., June 7 /PRNewswire/ -- The key behind the success of Tesco PLC's loyalty card program, recently described in a page-one story in The Wall Street Journal, is Tesco's lean provision system that efficiently delivers exactly what customers really want, exactly when they want it, and exactly where they want it.

"Tesco in Britain is a pioneer in lean provision," said James Womack, co-author with Daniel Jones of Lean Solutions: How Companies and Customers Can Create Value and Wealth Together (Free Press; October, 2005; hardcover).

The British retailer's lean provision system allows it to respond rapidly to the wealth of data collected from its 12 million Clubcard users that give discounts to frequent shoppers, explained Womack.

Tesco's lean provision system combines point-of-sale data, cross-dock distribution centers, and frequent deliveries to many stores along "milk-runs" to stock the right items in a range of retail formats. These include Tesco Express convenience stores at gas stations and busy intersections; Tesco Metro (small supermarkets in cities); traditional Tesco supermarkets in cities and suburbs; Tesco Extra ("big box" superstores in suburbs); and Tesco.com for web shoppers.

"The range of retail formats, plus detailed knowledge about specific consumers and rapid replenishment of each store, will progressively permit Tesco to offer each household convenient variety at lower total cost," Womack explained, founder and chairman of the nonprofit Lean Enterprise Institute (LEI).

He said the strategy has worked "brilliantly," permitting Tesco to establish the lowest cost position among British retailers (including Wal-Mart's Asda chain) while posting progressively higher margins and steadily increasing its share in every format.

Tesco's has 31% of the U.K. market share, nearly double the 16% held by Asda, according to the Journal story. Last month, Wal-Mart abandoned an eight-year effort in South Korea by selling its 16 stores there to a local competitor. Tesco, which plans to open a chain of small stores on the U.S. West Coast next year, has 39 Korean stores.

Lean: It's Not Just for Manufacturing Anymore

Wednesday, June 07, 2006
Judy Sweeney

Who would have predicted James Womack, the author and evangelist for lean manufacturing, would embark on a crusade to apply lean concepts to the healthcare, retail, and distribution industries?

Breaking out from their original context, lean manufacturing concepts have expanded well beyond the factory floor and into the rest of the enterprise. In fact, lean techniques are being applied in industries outside of manufacturing. Almost every organization can use kaizen events and value stream mapping to eliminate wasteful steps across business processes.

Lean is on the move

In a recent AMR Research survey of 77 discrete man