-
- News
- Books
Featured Books
- smt007 Magazine
Latest Issues
Current IssueBox Build
One trend is to add box build and final assembly to your product offering. In this issue, we explore the opportunities and risks of adding system assembly to your service portfolio.
IPC APEX EXPO 2024 Pre-show
This month’s issue devotes its pages to a comprehensive preview of the IPC APEX EXPO 2024 event. Whether your role is technical or business, if you're new-to-the-industry or seasoned veteran, you'll find value throughout this program.
Boost Your Sales
Every part of your business can be evaluated as a process, including your sales funnel. Optimizing your selling process requires a coordinated effort between marketing and sales. In this issue, industry experts in marketing and sales offer their best advice on how to boost your sales efforts.
- Articles
- Columns
Search Console
- Links
- Events
||| MENU - smt007 Magazine
Driving Changes with Lean Manufacturing
December 31, 1969 |Estimated reading time: 6 minutes
Results of a competitive threat, poor financial performance, labor unrest, loss of a major contract, or a senior leadership team that wants the business to be its best typically drive the need for change in a manufacturing facility. Nearly 95% of activities in a facility can be attributed to waste. Lean manufacturing is a business strategy focused on eliminating this process waste.
By Kevin Maddy, RVSI
Roughly 5% of the activities in a manufacturing business add value to the product. Conversely, 95% of activities represent waste, meaning a company does not get paid for them. Waste consists of over-production, transportation, excessive inventory, over-processing, unnecessary motion, and quality problems. Wastes increase cost and delay delivery of the product, which, in turn, increases the time from order to cash. Introduced by the Toyota Motor Company years ago, lean manufacturing is a business strategy focused on eliminating process waste.
Statistics indicate that only 10% of industry has implemented lean manufacturing. It may be a well-kept secret to developing a competitive advantage for any company. Its use by venture capital and private equity firms - as well as contract manufacturers (CMs) and electronics manufacturing services (EMS) providers - is growing exponentially as a way to improve operating margins and enterprise value rapidly.
The business strategy of lean represents a unique culture that grows and improves with time. Generally, financial performance improvements begin to surface in a short period, typically within 12 to 36 months. Improvements include:
- Gross margin: 10-300%
- Cash flow: >50%
- Inventory turns: 20-200%
- Floor space reduction: 35-50%
- Sales/employee improvements: 25-200%
- Customer satisfaction: step-function improvement.
Such improvements energize workers to advance the process flow and eliminate items that disrupt the order-to-cash cycle. Examples include process variability, supply chain management, machine uptime, capacity, quality systems, and employee training. Figure 1 illustrates some benefits a company can realize by implementing a lean manufacturing strategy.
Lean also focuses on step-function improvements in communications - formal and informal. For example, place information on the floor so each employee knows the status of key operating parameters in the plant, especially cash, profitability, and customer satisfaction. This highlights the task at hand and creates a means to rally a specific cause. Co-locate production leadership, quality, and engineering on the shop floor with the machine operator. This helps solve problems faster and more effectively. Employees become engaged in this type of restructuring and excited about sharing input and getting involved. Company pride improves as everyone is excited about the prospects a lean facility exhibits.
There are five critical elements to successfully implementing this process: leadership, vision and planning, execution, present-day focus, and follow-up. Lack of leadership is the primary reason that lean implementations fail. Lean is easy to comprehend, but difficult to execute because managers often do not “walk the walk.” Leadership is the most important investment a company can make during a transition to lean because, without it, the time and money invested will not be maximized.
There are nine success factors required within the leadership component to achieve a successful transition:
1. Address the 5%. Fortunately, 95% of employees are committed to the company. If provided with a plausible explanation of why change is needed, as well as a solid plan and training, most will support it. However, there are the few who do not have the capacity, ability, desire, or need to be supportive. The noise, disruption, and harm to the leadership team’s credibility are not needed. Taking the appropriate steps sends a strong message to everyone that management is committed.
2. Invest in employee training. Allocate 40-50 hours per employee for training. Everyone needs to understand what they are being asked to do, why they are being asked this, and what to expect in the near future. Topics vary depending on the specific situation, but may include quality systems, accountability, customer expectations, dynamics of change resiliency, fundamental awareness lean principals, coaching and mentoring leadership, gage training, standard work, or process mapping. The payoff on this investment will be significant. Much of the training can be accomplished on the job during work hours.
3. Management must walk the talk. Managers often forget where the money is made - on the floor. Those on the floor know how to do the job efficiently and need management’s support. As the leader, this means getting out of the office and walking around to see what can be done to help make the employees’ jobs easier.
4. Accountability and discipline. By nature, people need rules and enforcement. They need to know what is expected from them, and the consequences for not doing what is expected. Rules must be fair and consistently applied. This covers the entire gambit from attendance to how many parts are expected to be produced hourly on a machine. It is management’s responsibility to ensure everyone is trained in the application of a rule and then enforce it. Many facilities have rules but, for some reason, management does not choose to enforce them. They believe enforcement will cause labor unrest, but it actually increase it. Not addressing the enforcement issue causes confusion and results in noise and disruption. Along with accountability and discipline comes sense of urgency. It is the leadership’s responsibility to maintain a sense of urgency in a people-oriented manner. This attitude breeds an organization that continually improves.
5. Take the time to care. Take the time personally to say thank you to an employee. Loyalty and commitment are expected from employees, so why shouldn’t they be given the same back?
6. Communicate. Communication takes many forms. It includes metrics to relay business performance, changes in the business, and in the direction the company is taking. In general, the more employees know about the state of the business and the changes that are going to occur, ahead of time, the smoother the transition will be. It may be helpful to lay out a 12-month time line so that everyone knows what to expect. Then, report to them on a monthly basis. The value is tremendous and relieves stress and strain that come with change. Every employee also should understand what is happening in the market, who the competition is, and how they compare.
7. Listen. The experts are on the floor working everyday. Provide them with an environment that allows them to express their ideas, and then work to implement them. If the ideas are not going to be implemented, make sure they know why. Perhaps with input, the idea can be improved.
8. Create a set of goals to which everyone can relate. Goals should be set that are important to the financials and customer base. They should be easy to understand and achievable within a two-year time. For example, 98% on-time
delivery, 50% reduction in lead time, and 50% reduction in floor space. These goals are straightforward and something that everyone can appreciate. By nature, they will increase cash, capacity, and customer satisfaction, while decreasing cost.
9. Hire a leader with experience. A transition to lean is fundamentally different from how traditional companies manage. It also is complex. That is why performance increases are so significant. Therefore, it bodes well to hire a leader experienced with lean implementations to coach, mentor, plan, and execute.
Conclusion
In this demanding market, companies who adopt a lean manufacturing strategy have a chance at not only surviving, but flourishing. This is true for CMs and EMS providers who must provide a high-quality product with fast lead times at competitive prices. By eliminating unnecessary waste, companies can experience step-function improvements in profitability and cash flow, as well as improved customer and employee satisfaction.
Kevin Maddy, president, RVSI Inspection LLC, may be contacted at (631) 273-9700; e-mail: kmaddy@rvsi.com.