Manufacturing Executive

In Praise of Buffers

By Chris Chiappinelli | Published: July 22, 2009

Not long ago I flogged Toyota for what I consider a failed demand pull system. Lots of Lean Matters readers weighed in on the topic and made many good points. My assertion, Cliffs Notes-style: Today’s large manufacturers cannot maintain a pure pull-based system, under which a customer order activates production of the ordered good. The white space between those two events is simply too vast, and the customer too impatient.

I had this argument in mind the other week when I spoke to Allen Friedman, president of the Americas division of Celerant Consulting, which Friedman describes as a “behavioral change implementation consultancy.” The company specializes in large-scale process reengineering in a slew of manufacturing and non-manufacturing industries, and “lean thinking is part of every project [we] do,” he said.

I asked Friedman about the efficacy of pull systems, and I like the answer he gave:

“You need to segment your product and your demand into several different quadrants and understand which should truly be on a pull basis (one to one … lot size of one), which products you can build up to a certain level of standardization and customize to finish, and which you should actually make to stock because it’s stable, repeatable, predictable demand,” he said. Then you need to blend different supply chain strategies to suit the resulting mix.

Celerant’s own experience helps underscore his point.

“We very much believe that we need to have a full-time workforce, but we also want to have some buffer capacity to deal with the peaks and valleys,” he explained. “So we plan to have a small portion of our consultants on a contractor basis, and we’ll use that buffer to help us flex as business lines go up and down.”

That’s the basic point I was trying to make in the Toyota blog. Buffer stock isn’t the devil that some in the lean community make it out to be. The truth is that most manufacturers cannot fulfill customer needs by reacting to demand. They must create buffers against an unpredictable marketplace. The cost of producing safety stock is easier to bear than the cost of getting caught without enough product to suit customer demand.

On a separate note, one little secret that came to light is that a company like Celerant, which earns millions for each of its engagements, isn’t working from some carefully guarded playbook of lean transformation. “I’d love to tell you that it’s all secret sauce and protected intellectual capital,” Friedman told me. “But to a large degree, it’s a lot of hard blocking and tackling and discipline and rigor and structure.”

That means your company has just as much chance of success — if it keeps its head in the game.

Another tip: Semantics matter. Maybe you’ve tried to implement lean and hit a wall, or you’ve heard some of your managers malign lean in the past. At Celerant, the terminology they use depends on the client’s mind-set. “A lot of times clients are turned off by lean, Friedman said. “ ‘Oh, we tried that, that doesn’t work.’ ” In such cases, throw out the lean dictionary and talk up the benefits. If the wizard behind the curtain turns out to be lean, so be it.

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A Lean Resource to Consider

By Chris Chiappinelli | Published: July 8, 2009

I had an interesting conversation with Bob Browning of Savage Sports last week. Bob runs the supply chain for the company’s Savage Arms subsidiary, which makes an assortment of rifles, shotguns, etc. The company is deep into a lean transformation that helped it win the 2009 Progressive Manufacturer High Achiever Award in the supply chain category.

Savage put a slight twist on conventional wisdom in building out its lean initiative. Experts advise against trying to bake lean into the entire organization at the start, instead taking piecemeal steps toward a company-wide initiative. And while Savage followed that advice in starting with a simple two-bin pull system on the factory floor, it approached the education angle differently.

In fact, Bob attributed Savage’s success to the ubiquity of the lean philosophy in the early days of the program.

“We actually had every hourly employee trained in lean,” he told me, including office staff, planners, and plant floor workers. “I think that’s really the foundation you have to work from.”

To do that, Savage worked with the Massachusetts Manufacturing Extension Partnership, which provided the training. The Mass MEP is part of a national program of resources for manufacturers, and many lean companies have gotten their start by working with their local extensions.

My advice: Do the same yourself. The fate of the MEP changes with the whims of Washington — just last year the program was on the chopping block, and this year legislators are considering expanding the MEP — so use it while you’ve got it.

Another reason to check out their services: The MEP recently teamed with the Society of Manufacturing Engineers to roll out a Competitive Manufacturing Toolkit.

Meanwhile, Bob Browning and his Savage cohorts continue to find new ways to lean out the organization. “We’re constantly reinforcing the lean philosophy and the journey of lean,” he says. “It never ends.”

But how it begins is probably more important than any other factor in determining whether it succeeds. And training all team members sounds like a good first step.

For more on Savage’s story of lean transformation, stay tuned for a profile in the September issue of Managing Automation.

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Don Your Rally Caps for the American Car Industry

By Chris Chiappinelli | Published: July 1, 2009

It’s easy to take potshots at the American auto industry these days; a one-eyed drunk could hit that target. I’d rather take a minute to praise it.

Amid a fusillade of attacks targeted at their management (in)abilities and cost-containment failures, American carmakers, it seems, have dedicated themselves to eliminating one of the core lean wastes: defects. A recent Bloomberg article on car quality reported that J.D. Power’s annual rankings showed sizable improvements among Ford, Chrysler, and GM vehicles. The article quotes David Sargent, vice president of automotive research at J.D. Power, as saying that “the difference in reported problems between Toyota, Ford, and Chevrolet brands is ‘statistically insignificant.’ ”

Of course, this is no overnight effort. Take a look at this passage from an EPA case study of GM, filed under the “Lean Manufacturing and the Environment” heading:

In the early 1990s GM realized that it was not sufficient to just lean GM’s operations, as GM (and the customer) directly bears the costs of supplier waste, inefficiency, delays, and defects. GM assigned a group of engineers to work more closely with its suppliers to reduce costs and to improve product quality and on-time delivery.

Back in the 1990s, GM and its domestic counterparts had some catching up to do in the quality arena. But the effort was well worth it. Few things destroy customer value as quickly as a product that doesn’t work properly. (A notable exception to this, in my opinion, was the public reaction to the Ford Explorer after the widespread failures of its Firestone tires and the resulting rollovers. The dangerous defects appeared to do little to crimp the Explorer’s popularity, indicating either a strange faith in Ford or a strange disregard for safety among those who professed that their SUV purchases were all about safety.)

As GM and Chrysler remake themselves post-bankruptcy and Ford looks to resurrect its glory days, all three will boost their cause immeasurably by chasing defects out of their products. In fact, that might be the single most important contributor to a Big Three rally.

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Maintaining Lean After an Acquisition

By Chris Chiappinelli | Published: June 24, 2009

The rumors over the weekend that SAP is readying a big acquisition (in the $2 billion range, according to German newspaper Welt am Sonntag — via Bloomberg), got me to thinking about lean practices in the context of a growing company.

Our economic woes have backed many manufacturing companies against the ropes. But in every storm there are those who sail ahead, and the most progressive and well-run companies tend to consider bad times simply a precursor to good times. With that mind-set, some leading manufacturers are pursuing acquisition strategies amid the doom and gloom that has kept others frozen in fear.

But how to maintain lean practices when you’re growing? It begins with an integration strategy. Here, the case of SAP rival Oracle is instructive. A savior or predator in the M&A world, depending on your vantage point, Larry Ellison and team have nonetheless excelled at integrating acquired companies into the Oracle architecture.

That’s not to say the decisions attached to an acquisition aren’t troublesome. No one wants to think of workers as flotsam, but that’s what an acquisitive company must do. And when it comes to lean, whichever workers remain with the newly integrated company must know up front that their work processes will change. Only early, rigorous training and thorough monitoring will ensure that your company’s lean practices seep into the newcomers’ routines, and stick.

Ralph Bernstein of the Lean Insider blog has some additional thoughts on valuing a company in a lean-based framework, and the differences between lean-focused M&A and traditional acquisitions.

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Finding Working Capital

By Chris Chiappinelli | Published: June 17, 2009

Yesterday morning on CNBC I watched a clip of Vikram Pandit’s appearance at the National Summit in Detroit. The Citi CEO was asked whether he thought that, under current circumstances, manufacturers were having a hard time getting financing for working capital. The short version of his answer: Yes.

The uninitiated might not think so. I just saw a Web ad from HP touting 0% financing, and another 0% pitch from an IT provider I can’t recall because I sent it to my delete box so quickly. Software vendors have joined the parade of low-cost cash, too, as we covered not long ago. Businesses seem to have many cheap options for IT purchases.

But those are only the most visible suppliers to manufacturers, and many of those manufacturers, in times of trouble, treat IT upgrades as a nice-to-have, not a necessary element of doing business. You don’t see employees — one of the biggest expenditures for any manufacturer — offering 0% financing or payment deferments. As long as they’re still working, they’re getting paid every period. And raw materials suppliers won’t keep shipping to your facility if their invoices aren’t paid in a jiffy.

So what’s a cash-strapped manufacturer to do? Well, stop making as much product up front — but wait, the recession has already cut inventory for most manufacturers, an organic remedy to a persistent working-capital issue. In fact, the economic doldrums have forced the hand of nearly all manufacturers. A recent Aberdeen Group study found that “inventory management processes and technologies are being actively re-evaluated today by 91% of companies.”

This underscores the notion that nothing beats adversity for chasing the skeletons out of a company’s closet. But don’t stop at inventory slimming. Another bag of bones is forecasting. The same Aberdeen report found that among best-in-class manufacturers, forecast accuracy at the product-family level stands at 87%. That’s light years beyond the performance of average Joes in the industrial space. (This article on sales & operations planning deals with the issue in more depth.)

I got after Toyota for this not long ago, and it goes for all manufacturers. It’s no coincidence that those forecasting leaders averaged a cash conversion cycle time of 15 days. That may just be the holy grail of working capital, and it’s worth working toward.

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A New Era of Thrift

By Chris Chiappinelli | Published: June 15, 2009

Perhaps prematurely, I’m contemplating the scars that our Great Recession might leave behind. The foremost task, of course, is to leave it behind. But when we do, I wonder what might linger. I suspect that the economic reckoning we’re living through will not be cast off with a shrug and a burst of energy.

Consider the Great Depression, which left scars so deep that decades later, grandmothers across the country still stocked kitchen drawers with reused aluminum foil, while their husbands flicked off light switches as if darkness could ward off destitution. The Depression lived on in those people for the rest of their days. Later generations, born free from such fear, added material comfort to the list of American birthrights that once included only life, liberty, and the pursuit of happiness. SUVs were leased, second homes financed, with nary a nickel in the coin jar to back them up. Manufacturers here and abroad enjoyed the spoils, and everyone grew prosperous, it seemed. On the sidelines, victims of the greatest economic carnage this country has seen shook their heads. They’d learned from a different curriculum.

This makes me wonder what curriculum we’re learning from now. We can measure a whole raft of economic KPIs and declare boom or bust, but all those numbers issue from what we feel. The great question is not whether we will emerge from this recession, but how? Will the fear of economic failure that so many of us have experienced over the past 12+ months remain in our bloodstream?

I think it will. And the consequence will be a new era of thrift. We’ve seen it even in the quarterly numbers of the software providers we cover here at Managing Automation. Businesses are looking to patch what they have instead of buying up to the latest release. Consumers, too.

This is not music to manufacturers’ ears. Their challenge will be to add value to products and services while keeping costs down. Sounds familiar, of course, but it may be more necessary now than ever. And it’s also the best endorsement I can think of for lean operations. Our grandparents ran lean households for many years after the immediate trauma of the Great Depression passed. We — consumers and manufacturers alike — should be prepared to do the same.

— Chris Chiappinelli, Editor, ManagingAutomation.com

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Lean for the Rest of Us

By Chris Chiappinelli | Published: June 15, 2009

A recent press release announcing a partnership between lean software provider Invistics and lean consultancy Camelot IDPro AG called out specialty chemical, consumer products, pharmaceuticals, and electronics companies as laggards in honing lean manufacturing processes. The release stated that in these “non-traditional” lean environments, the high level of variability and product mix inherent has stunted lean progress. It got me to wondering where the readers of Lean Matters consider themselves among their industry peers when it comes to lean efforts.

Where would you rank your company on the journey to lean manufacturing? Are you leading or lagging your industry peers? And has the amount of volatility in your production processes affected your progress or your concept of lean?

Let us know what it looks like from where you stand. To contribute to our straw poll, just add your comments to this blog.

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Ending Product Proliferation

By Chris Chiappinelli | Published: June 3, 2009

Time-to-market reigns as a must-follow metric for manufacturers these days. CEOs, product managers, and PR specialists sweat one new product launch after the next. Challenges abound: How quickly can we discover and develop the latest product? How soon can we create the associated supply chain, including securing production materials and establishing distribution channels and new ways of marketing and selling?

So many questions. Here’s mine: Do consumers really want it all? Our grocery shelves, for instance, bear the signs of excessive proliferation. Why settle for plain old orange juice when what you really want is calcium-infused, low-sugar, antioxidant-rich orange juice? And what about pudding? You think you like chocolate? Actually, what you really like is low-fat, sugar-free, swirl pudding with a SpongeBob toy inside.

Are manufacturers tapping new markets this way, or just fragmenting the old ones?

This product diversification also challenges the limits of lean manufacturing. The natural inclination for a company that expands its offerings is to increase complexity in the production cycle. More changeovers, more machinery, more configurations, and more cooks in the kitchen with varying loyalties.

I wonder if we’re using the market as a drawing board these days, speeding to store shelves whatever idea bubbles to the surface. It seems that we’re heading toward a lot size of one, a time when my orange juice will taste and look nothing like anyone else’s orange juice. Or are we? I, for one, see a backlash ahead. The overbearing insistence on new product development and shrunken time to market will hit a wall.

But that’s just me. Ultimately, the market will provide an answer. Consumers decide with their wallets which products succeed. For now I’ll stick to plain old juice.

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The New Talent Pool

By Chris Chiappinelli | Published: May 28, 2009

Jobless claims in the United States fell slightly this past week, leading some onlookers to herald a near-term end to the payroll bloodletting. I think we’ll see more carnage before things truly get better, but I’d love to be wrong on that score.

The report emerged against the backdrop of General Motors’ move to an assisted-living facility, with the U.S. government serving as its private nurse. GM’s descent into Chapter 11, like Chrysler’s, has brought with it many temporary layoffs and many permanent ones as well. The prediction of a much smaller domestic auto industry in coming decades tells me that many of these people will need to look elsewhere for work — and many already have, turning to retraining and reeducation for help.

What I wonder is how these former auto workers will influence the industries to which they relocate. As the birthplace of lean manufacturing, the automotive assembly line hosts hundreds of thousands of workers steeped in lean dogma. As they start over in different arenas, I suspect they’ll help introduce lean to workshops across the country that otherwise wouldn’t have warmed to the philosophy. It might start small — suggesting the use of a whiteboard, or asking what a work cell’s takt time is. Slowly, like migrants driven to new locales by the chaos of war, transplants from the automotive industry may well alter the complexion of the places where they land.

While we’re on the subject, for anyone in need of advice on restarting a career or finding retraining opportunities, visit the Department of Labor’s CareerOneStop website.

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Hunting for Energy Savings

By Chris Chiappinelli | Published: May 20, 2009

First off, I want to thank Lean Matters’ readers for turning out in force to read and comment on last week’s post, “Why Didn’t Lean Save Toyota?” The debate it sparked speaks to the passion our readers have for the lean philosophy and its practices. The comments continue to pour in, and once they slow to a trickle I’ll jump in to respond to what has been a steady stream of good insight.

This week, Lean Matters shifts focus from one automaker to another. A recent article on factory-based energy savings by Gretchen Hancock, a sustainability project manager at GE, reminded me of a conversation I had late last year with Bill Allemon, who heads facilities-based energy management at Ford. Hancock’s article describes “energy treasure hunts” at GE — collaborative efforts to root out opportunities for energy savings, a concept developed at Toyota as part of lean manufacturing and honed at GE, she says. Ford has instituted its own brand of energy hunting. Regardless of the methodology, the practice itself is advisable, as it strips unnecessary costs and resources from the manufacturing process — muda that can rob the customer of value.

A few years back, Ford set itself to the challenge of reducing energy consumption by 3% BTU per vehicle every year. This contrasts slightly with the energy hunts Hancock describes, which sound more free-wheeling — setting employees upon a factory to document wasteful lighting, pumps left on unnecessarily, and the like. But the two work in concert. If you establish a goal for energy reduction, then you can let the energy hunters loose to help your company reach that milestone.

Set the goal high. At Ford, Bill Allemon says, “If we have a number that’s too soft, then I’m not sure we’re going to get people active and interested.”

Allemon manages a team of six engineers dedicated to energy management, each of whom has a specialty: one for power-train facilities, one for assembly processes, another for stamping, plus a lighting expert, a compressed air expert, and someone well-versed in paint technologies.

Allemon has a wealth of energy management technology at his disposal; your company might not. That’s no barrier to entry when it comes to energy reduction. Allemon points to some old-fashioned tools that are just as vital in bringing to heel a major source of wasted energy: compressed air. “There’s people killing themselves trying to squeeze $5 out of the cost of an F150,” he says, while Allemon and his team tell them, “Look, two guys and a wrench; here’s the amount of money you can save, and here’s the amount of air leakage. I mean, if it was water, you’d be drowning by now. ”

Energy consumption is a great area for a company to focus on during a downturn, when a drop in the electric bill can give much-needed breathing room to the operating budget. See how far you can get with some simple energy hunts — once you set some benchmarks for progress.

For more on Ford’s energy-saving projects, see the article, “Driving Energy Efficiency.” Feel free to share some of the ways you’ve reduced energy waste in your operations.

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