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Lean Manufacturing Requires Top Management Commitment - Top Management’s Role in a Lean Manufacturing Transformation

26. July 2018 08:37

The failure of companies to successfully implement ‘lean manufacturing’ is widely known, with some estimating that 50% to 90% of all efforts fail.

Much has been written and reviewed regarding the root cause of these failures. I will instead focus on one company’s successful implementation.

My employer was a wholly owned subsidiary of a much larger corporation.  The product does not contain complicated technology; the complexity is in the breadth of the product offering.  This is a build to order business, where the main product line had several hundred thousand possible configurations (now over 1 million), lead times from order to ship of ten days with no minimum/maximum order quantity. 

The year before we began our lean implementation, the company generated $5.6 million in net profit after tax on sales of $83 million.  Three years later the average revenue per unit had decreased 25% (volume increased from 7,000 to 10,000 per week), labor cost per hour increased 11%, sales increased to $90 million and net profit after tax increased to $12.6 million.  That’s not a typo, sales up 8%, price per unit down 25%, labor cost up 8% and net profit after tax as a percent of sales up 100%. Profit continued to increase each year as the TPS journey continued.

None of the more common business solutions were implemented, manufacturing did not relocate off shore, only one process was automated, there were no layoffs or outsourcing.

Twenty years later the entire corporation still embraces lean manufacturing while their competitors are moving manufacturing offshore and/or pursuing the traditional approaches to cost cutting. The competitive advantage is significant. The top manufacturing executive at a major competitor once told me “we’ve done lean” but several years later began moving operations to Mexico. A sales executive at another competitor complained of losing business to my former employer due to a price difference of 30%.

This effort to begin the lean journey began in April 1994, when the executives responsible for the subsidiary first learned of the Toyota Production System as a result of touring TMMK in Georgetown, KY. They were impressed with what they observed and began reaching out to Toyota in an attempt to gain some type of support in implementing lean manufacturing.  After many attempts, about a year later Toyota suggested our company send two managers to a local Toyota supplier for six months to learn TPS at that location.  I was a manufacturing manager responsible for about one third of the operation at the time and was one of the people who accepted the assignment.  The other was the manager of our manufacturing engineering group. 

We learned early in the assignment this was our full time role for six months.  Our positions were temporarily backfilled and we were not to return to our positions (or the plant) until the assignment was complete. During that time we were fully immersed in transforming one manufacturing cell, working with the local kaizen team.  Upon returning to our company, I become responsible for organizing and leading our own kaizen team.

Three additional people from inside our organization were assigned to the team and we were given all necessary tools and resources. These three individuals were highly valued in the company, a manufacturing engineer, another manufacturing manager and a manager of engineering responsible for technical services.

 During our time at the Toyota supplier we were fortunate enough to meet several people from the Toyota Supplier Support Center and attend one of their workshops.  After beginning our own transformation we had many questions and contacted them for advice. It was suggested our executives write another request for assistance. 

An excerpt from the letter;

“As we consider our path for growth, we see many similarities with where we are today and where GHSP was three years ago.  We are quickly outgrowing our plant space and machine capacity and manage to meet decreasing customer lead times only by increasing inventory.  We have, however, made an intentional decision not to add equipment or building.  Through implementing the disciplines within TPS, we believe equipment capacity will increase, the need for plant expansion will be eliminated, and service to our customers will improve.  Our goal is to reduce our lead time from one week to twenty-four hours.”
 
Fortunately, we were soon visited by TSSC and were given three ‘homework assignments’ to test the company’s resolve.

  • Eliminate the work in process (WIP) between frame welding and cabinet welding, about 1200 pieces (one day supply)
  • Put all metal components from our stamping lines in small containers that could be lifted by one person (parts were in large tubs at the time, sometimes over 1000 pieces per tub, requiring forklifts to move).  For some parts there would be only twenty in a small container, which would take 20 seconds to produce.
  • Combine the two assembly lines and four low volume assembly cells into one line, three meters long, with four people.  There were over 100 people across three shifts in that products assembly area at the time!

We were to keep TSSC informed of our progress and were also permitted to ask questions as necessary to assist us in this work. 
Great progress was made on eliminating the WIP and moving to small containers, but we had no idea how to begin work on the third assignment.  In July of that year TSSC agreed to support us in this effort.

Two years of effort was required to secure support from Toyota for our lean effort.  This required determination from the executive team to continue pursuing assistance for that entire period of time, dedicating two full time resources for six months in an effort to develop our own in house ability, dedicating other full time resources to begin the journey, and following up on the ‘homework’ to prove their commitment to TSSC.

The level of commitment required to gain the assistance of Toyota in the lean journey;

  • Two years of effort to gain support
  • Two department managers on full time temporary assignment offsite to learn TPS for six months
  • Four people dedicated to implementing TPS prior to gaining outside support

 
The work with TSSC began with focusing on the assembly department. The typical lean tools were used to balance the line to takt time. However, will all the effort to balance and kaizen the line it did not meet the production objectives without overtime.  We implemented many lean tools and were in a constant state of motion kaizen. Team members were trained, line leaders   were trained, supervisors were trained, and the union committee was trained. 

We learned training will not solve the problem. TSSC did not provide solutions to our problems but instead worked to develop our ability to find solutions on our own. Learning by doing enabled us to find solutions to each problem. This is when we began the long journey of seeing the problems that were preventing success and finding ways to solve them. After many years in operation, we did not recognize all the problems that our team members had to work through every minute of their work day.
 
Some of the problems:

  • Quality defects from the paint line and other internal suppliers
  • Part shortages
  • Parts mis-identified
  • Ergonomic problems, including ‘hard’ work
  • Poor tool/equipment reliability
  • Product build information not presented in an easy to use format (for the most part team members had to remember how to build every product configuration, which was virtually impossible as the product line expanded)
  • Congestion
  • Large lot sizes ran better than small orders due to material and information flow so small orders were left incomplete.
  • Team members arrive at line late after break, leave early before break
  • Team member periodic struggle causes short term delay that propagates through the line/area/plant.

Even with all these problems, and more, this company was profitable. However, if it continued with the original manufacturing methods investments in equipment, floor space, containers, racking, etc. were required due to increased unit volume.

The solution was to continue to work on eliminating the problems. It is hard work and people can become discouraged.  In this case, we stayed on the path, following the philosophies and principles of TPS and implemented technical tools that were appropriate for the current condition.

Problem solving ability was developed by working to eliminate each of the issues that prevented success one at a time. Initially it was thought that TPS was creating these problems, but these were longstanding issues that were simply exposed as the lean journey made progress.

The focus went well beyond implementing technical tools, but of course the tools had to be used. Heijunka, or production smoothing, is one of the foundations of lean manufacturing, but many practitioners overlook or skip this step. They find it difficult to level schedules when customers don’t order in a level manner or when factory lead time makes it difficult. Lean implementation without including leveling may yield some results but will not achieve the level of improvement realized in this example. We had to think deeply about the obstacles, find what was preventing us from being able to level and address each problem one at a time.

The first obstacle was a paradigm that orders could not be leveled.  It was believed that production schedules had to vary daily as customer demand varied, perhaps not exactly but we could certainly not schedule the same quantity every day.  In reality daily production could be scheduled for the same overall quantity every day because the factory needed 62 hours to produce a product but the order to ship lead time was 10 days. This was achieved by determining an appropriate daily quantity and the production sequence was simply oldest due date first.

If increases in customer order volume created a risk of late shipments we scheduled daily overtime to absorb the spike in volume. This allowed us to notify team members in advance rather than the typical practice of informing them of overtime the day before. We also analyzed the volume projections to determine if an increase in the level production target was necessary.
If customer order volume dropped we continued to produce at the level volume until the line needed to be stopped for a day or two.  This almost never actually occurred, new orders would be produced as they were received in this case.

None of the operations I have worked with easily adopted this concept, including plants within this same corporation. They struggle with an apparent conflict with ‘the seven wastes’ and their traditional thinking. In this example, while we struggled with the concept, we knew through experience that following the principles of TPS was the correct path to follow.

First requirement
Senior executives have to be committed to lean manufacturing. In this example the entire executive team actively supported gaining assistance from Toyota, enlisting key internal people in the effort and providing enough human and financial resources for as long as required. 
 
 
Second requirement
Adequate internal human resources need to be allocated. The financial payback in this example was $7,000,000 per year after tax (increasing annually) at a cost of less than $300,000 per year (pre-tax) for the kaizen team. At that time TSSC did not charge for their support, however, with outside support estimated to cost $250,000 per year the ROI is still extremely positive. 
Too often, companies attempt to implement lean by having employees with full time responsibilities assigned to the ‘lean project’. I have had clients assign this to only the plant manager or some other unlucky individual without any relief of their existing duties. It should come as no surprise that these efforts failed.

Until the culture has matured to the point where lean manufacturing is truly the way of doing business the need for dedicated people exists. 

Third requirement
Follow the principles, philosophies and technical tools of lean manufacturing.  It is a complete system, don’t attempt to choose which to follow and which to change or neglect.
 

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