Calfform Interfaces manufactures LCD displays and interfaces for industrial equipment, vehicles, and media, communication, and information devices. My executive team and our board have been watching employees throughout our two plants work on lean manufacturing ideas for a little more than a year. We see lots of evidence that they’re trying to improve — cleaned and organized work areas, visual boards throughout the plant pointing to current up-to-the-hour performance, employee teams creating room-size maps of product value streams, and kaizen events every week.
Unfortunately, we have yet to see any change to our bottom line; profits have been flat since lean kicked off. What’s also disconcerting is that some operational measures, which initially improved, have begun to worsen. I continue to field calls from dissatisfied customers — new and old — who point to quality and delivery problems. Our sales director also is in my ear constantly, complaining of the new pull system with customers and how it makes it difficult for her staff to sell. Suppliers also are angry with the new “just in time” requirements we’re placing on them.
Two years ago we were an acceptable — if not spectacular — manufacturer. Sure, Calfform did have some quality issues as well as problems with mismanaged inventories. And customers have never been completely happy. At that time the new manufacturing director convinced my fellow executives, our employees, and me that lean manufacturing was the way to go. Now I’m not so sure; we’ve got a complex market of customers and products, and I’m beginning to think that lean is just too simple for Calfform. We’re not a local company that operates as one customer pulling one product, but a global company with constantly changing markets, thousands of SKUs, and hundreds of customers.
Can lean work at Calfform? How much longer should the manufacturing director and employees stick with lean? When will the lean results start rolling in?
* The Challenge incorporates hypothetical persons, companies, and products and does not portray the actions of any actual persons, companies, or products.
By Philip E. Quigley, CFPIM, PMP, and Douglas Lada, PMP
Calfform has seen some good results from its initial lean efforts. The first steps of lean — cell manufacturing, quality, proactive maintenance on equipment, cross training of people — are being done and they will have impact. In order to maximize the total value of lean efforts, however, the flow of material into the plant (supplier management) must be integrated with planning on how and what the plant will produce to meet customer orders (demand management).
For example, we know of a plant that produced a key subassembly for a heavy equipment maker in the Midwest. The plant had a superb layout with cells, robotics, six sigma quality, well-trained employees, etc. The management was dedicated to continuous improvement, but the plant was still in chaos. Expedited orders were the order of the day, customers were constantly complaining, and costs had increased, especially shipping and transportation costs because late orders had to be air-shipped. So what was wrong?
After careful questioning, “The Memo” was identified. The Memo was an agreement between the Division CEO and Sales VP with the plant’s largest customer. The agreement stated that the customer could change orders for new assemblies on a daily basis and the plant would deliver the next day. Since the plant was in Southern California and the customer had several locations in the Midwest, next-day delivery was difficult, if even possible. Delivery by truck took three to five days if the material was in stock, and the fabrication and assembly time was three to five days if it was not. If raw material was not available, then it could take an additional 10 days. Plant management had no alternative but to expedite material and air ship the subassemblies.
It would be easy to blame the CEO and VP of Sales, but they were facing tough competition and this account was 60% of the plant’s business. Except for the delivery clauses, the contract was good for the plant. Forecasts from the customer on its demand would be shared, joint committees were set up to deal with quality issues, new designs, etc. The CEO was relying on his plant management team to solve the scheduling problems.
Solving the problem was actually simple after the team broke the rules on lean. The solution was to set up two feeder warehouses. The first warehouse would be close to the customer’s final assembly plant and two weeks’ worth of inventory would be kept there. After careful analysis, it was found that 60% to 70% of the weekly demand was for two or three specific subassemblies. The balance of customer demand was for six other configurations. The warehouse then had a mix of the required assemblies based on forecasts from the customer. The forecasts and actual orders were carefully monitored. When material was pulled, it created new supply orders to replenish the on-hand stock in the warehouses. Regular truck runs were scheduled and product was shipped from the plant to the remote warehouses to keep the supply pipeline filled. Immediately, there was improvement in order fulfillment for the customer and shipping costs went down dramatically.
The second warehouse was a feeder warehouse for selected castings — the critical long-lead parts. Again, there was a mixture of regular demand material and inventory to cover the odd orders. The planned levels were carefully calculated based on demand, shipping times, etc. In this case, the cost of the warehouse was paid for by the casting supplier, which received good terms on payment and a joint planning process, which included sharing of planned production schedules.
For the cost of two small feeder warehouses, the customer became totally pleased (and talks of canceling the contract went away), overtime costs were virtually eliminated, and transportation costs were dramatically reduced. The main cost was in breaking a perceived rule of lean operations to fulfill demand without any established inventory.
What to do at Calfform?
Calfform needs to take several steps to get its lean strategy generating more profit and sales. First, it must carefully review its current activities and assess how well they are working and take action where they aren’t.
Calfform makes equipment for other companies — not the consumer. Therefore, Calfform needs to understand its customer’s business and how they plan and produce. Will a small, intermediate warehouse or stockroom from which the customer can pull its products solve problems for both the customer and Calfform? The key is to have the material readily available, give the customer options, and balance minimum levels to ensure customer satisfaction with maximum levels to prevent excessive inventory.
The last step is an analysis of Calfform’s supply chain. Can small amounts of carefully planned inventory increase flexibility of the plant to meet schedule changes without adding excessive costs? This requires detailed analysis, but the payoffs can be substantial in reducing overtime, material expediting costs, and transportation costs.
Calfform should not walk away from its lean strategy, but it should carefully analyze both its customers and supply chain to make common-sense adjustments in its implementation to ensure success for everyone. The multitude of lean initiatives must be reviewed to define specific steps and return-on-investment targets, which are then regularly measured with key performance indicators.
Here are five actions that Calfform should focus on right now:
- Does the product flow match the product demand? Is it smooth or are there large fluctuations? Should they look to reduce batch sizes to better align with changing demand?
- What are customers’ specific complaints regarding quality?
- Has Calfform looked at the design engineering process to see if less expensive parts of equal quality can be used rather than what the design engineer specified?
- Has Calfform correctly and completely identified all waste elements (i.e., non-essential work, transportation costs, inventory, etc.)? What is the plan to reduce or eliminate these unnecessary costs?
- What should Calfform do for its suppliers to ease the added costs they are incurring? Can they improve payment terms? Should they share forecasted demand on a regular basis (weekly, daily)?
Phil Quigley is a Senior Portfolio Manager with CSC (www.csc.com). He has extensive experience in Material and Operations management, new product development, and systems implementation. He has spoken at national conventions of APICS and IBF and local chapters of APICS and PMI. He writes a monthly column, “The Management Perspective” for the APICS Advantage Magazine, and is a member of the editorial board. Mr. Quigley teaches at California State University, Fullerton. He is a certified Fellow (CFPIM) for APICS and a certified Project Manager (PMP) for PMI. He may be reached at pquigley2@csc.com
Doug Lada is a Senior Program Manager with CSC. He is responsible for all support and training activities related to the RapidResponse implementation at a major CSC client. Doug’s background includes developing and managing multiple Program Management Offices (PMOs), management of large international multisite system implementations, and the management of software development, implementation services, and project management services at several Supply Chain Management and Warehouse Management System software providers. Doug is a certified PMP with the PMI and he teaches at the local PMI chapters’ PMP Exam preparation courses. Doug can be reached at dlada@csc.com
By Randy Littleson
Competitive necessities are driving many manufacturers to become more customer-focused, and lean manufacturing techniques are a powerful and proven means to support these supply chain management transformations. By ensuring the right processes and supporting tools are in place, Calfform can be successful with lean, and leverage lean manufacturing into competitive advantage.
Successful lean manufacturers know that lean is a corporate vision that touches everyone — design to product management to marketing and beyond the four walls to external suppliers and trading partners.
Applying the philosophy of lean requires a fundamental shift in the way you think about business processes. Lean philosophy is all about eliminating waste. Any action or process that does not add value in the eyes of the customer is waste and should be prevented or eliminated. For example, lean means you should:
- View the activities in your processes from the perspective of your customer. Which activities in the process add value for the customer?
- Think from the perspective of the part, product, or service as it goes through the process. Walk the path that a part travels. Look for ways to reduce the distance traveled.
- View the process as end-to-end, not just as individual steps. Don’t optimize individual areas while sub-optimizing the whole.
- Look for ways to standardize processes across products.
The journey to successfully implementing a lean program requires you to take the following steps:
- Determine the value of your product or service from your customer’s point of view. This is not limited only to the features they want, but also includes what they would knowingly be willing to pay for. Once you have this information, you have a roadmap for creating a lean enterprise.
- Map out the end-to-end process that takes your product from raw material to the customer. This includes value-adding steps and non-value-adding steps.
- Review your map and look for areas where you can flow work from one processing step to the next without the need for any inventory between the two steps. This is referred to as single-piece flow.
- If you can’t flow from one process to the next, then you need to set up a pull system and hold small amounts of inventory. The inventory is held in supermarkets, from which the processing step pulls what it needs (a kanban system controls the flow of material from the supermarket to the processing step). Determine the minimum level of inventory that can be achieved and still not disrupt or halt production. Also set a maximum inventory to prevent unnecessary and costly build up.
- Review your map to eliminate any process that does not add customer-perceived value. If a process does not add value for your customer, why are you wasting resources doing it?
- Relentlessly and continuously eliminate waste, including over production, wherever you can find it.
The focus of lean manufacturing is execution — the actual transformation of materials into a product that is valued by customers. Without the proper tools, constant changes in supply, demand, and products are difficult to manage, impossible to predict, and can trigger steady margin erosion and market-share loss. To effectively respond to these inevitable changes, supply chain visibility and supply chain collaboration are becoming critical for lean manufacturing success.
Lean manufacturing is a philosophy, not a set of tools. To be successful, a company must adopt lean philosophies for improving flexibility through the elimination of waste first and then use supply chain management tools to implement it. The right tools quantify the flexibility so you can rapidly evaluate the true capability of the system to respond to a specific change. These capabilities accelerate the adoption of lean processes throughout manufacturing organizations by supporting lean initiatives by allowing manufacturers to rapidly respond to real-world volatilities.
With the correct methodologies in place, supported by the right tools, lean manufacturing can minimize inventory and waste, shorten lead times, and consistently deliver on promise dates.
Randy Littleson is vice president of marketing with Kinaxis (www.kinaxis.com), the provider of an on-demand service that empowers multi-enterprise manufacturers with the integrated demand-supply planning, monitoring, and collaborative response capabilities required in today’s complex and dynamic world. Randy can be reached at rlittleson@kinaxis.com
Step on your soapbox! Here's your chance to debate and discuss this month's Challenge and past Challenges with other readers. Check out the IW Manufacturing Business Challenge thread in the IndustryWeek Forums. Add your comments, or read what others have to say. Click here to view now
How has your company worked to implement and then sustain lean improvements? In approximately 500 words, tell us about your efforts. If it meets IW’s publishing criteria, it will be posted in the Archives section of this website. E-mail your solution to info@iwchallenge.com. If you wish to be identified with the Solution, please include your name, title, company and a telephone number where you can be reached. IWMBC selects Reader Solutions from those submitted and reserves the right to edit submissions for length and clarity.
Tell us about a Challenge your company is currently facing. If it passes editorial muster, the IW Manufacturing Business Challenge experts will offer solutions in an upcoming e-newsletter. Send your Challenge to challenges@iwchallenge.com. If you wish to be identified with the Challenge, please include your name, title, company and a telephone number where you can be reached.
www.industryweek.com
www.kinaxis.com
www.csc.com
To unsubscribe to the IW Manufacturing Business Challenge e-newsletter, send a blank e-mail to unsubscribe@iwchallenge.com.
