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Lean University --
Lean Articles
Lean Six
Sigma training
by Bill Gaw
Most CEOs
are now realizing manufacturers can't outdo their
competitors by clever marketing alone. To improve or
maintain profit margins when the business cycle turns down
requires concrete manufacturing action on a practical level:
changing facilities, updating processing technologies,
adjusting workforce practices, and perfecting information
and management systems.
A focus on
improving five elements of manufacturing efficiency and
effectiveness can have an immediate, significant, positive
impact on overall business profitability. For companies with
prior programs of cost reductions through a continuous
improvement program, it may be time to revisit the target
objectives and revitalize efforts to achieve or exceed
original performance goals.
This is a
review of the five critical elements of improving
manufacturing performance.
Performance
measurement
Financial numbers may tell us we’re winning the
war, but it takes performance measurement to show us how to
focus our energy and efforts to win each of the battles
along the way.
Today, the
performance scorecard is a performance measurement system
that helps companies pursue key success factors. The
scorecard uses internal and external benchmarking and
employs a relevant cascading method of performance goal
setting. Achievements are acknowledged and celebrated when
they happen and not at the traditional annual review.
For a
balanced scorecard process to be motivational, it must
provide timely and accurate data. Simplicity is a key to the
validity of measurements and the tractability of problems to
their root cause. Data collection design must employ simple
and easy-to-maintain databases to assure data integrity.
When people are trained in this process and are permitted to
participate in relevant goal-setting, performance
measurement can motivate teams to higher achievements,
including the exceeding of growth and profit expectations.
So what
kind of results can you expect when a management team
introduces the process of the balanced scorecard? First,
people will become motivated and focused on the continuous
improvement of their company’s critical success factors.
Second, personal and team achievements will become
recognized and rewarded, creating an exciting, winning work
environment.
Teamwork
will improve and employee retention will rise. Finally, and
most important is the company-wide euphoria as bottom-line
results improve and financial pressures no longer create a
stressful and defensive work environment.
Reduce
waste
There is a negative correlation between waste rates
(the percentage of rejects) and productivity. Its magnitude
is amazing.
In a
process plant, changes in the waste rate (measured by the
ratio of scrap and rework to total cost, expressed as a
percentage) leads to dramatic operating improvements.
Reducing the percentage of waste by only 0.1 percent can
lead to a 3 percent improvement in productivity.
The
strength of this relationship is more surprising when we
discover that a decision to boost the production throughput
rate (which ought to raise productivity because of the large
fixed components in labor and capital costs) causes waste
ratios to increase. Therefore, in theory, productivity and
waste percent should increase together. The fact that they
do not indicates the truly powerful impact that waste
reduction has on productivity.
A study of
companies successful at reducing waste will invariably show
they developed a culture of gradual, continuous improvement.
This culture is the foundation for project implementation
success.
The
Japanese call it kaizen: a management culture of gradual,
continuous improvement. We describe it as a tenacious focus
on process improvement.
If you
doubt the power of gradual, continuous improvement, you need
to study the careers of Vince Lombardi and Tiger Woods.
Their huge success stories are testimonials to kaizen. Vince
Lombardi focused his players on the continuous improvement
of the execution of basics; that's kaizen. Tiger Woods
attributes his success to his relentless quest for a better
swing, for higher quality gamesmanship and a daily pursuit
of perfection; that's kaizen.
In
business, the elimination of waste is one of three focuses
of kaizen. A checkpoint system and the Five Ws and One H are
important elements of the kaizen attack on waste.
The kaizen
check point system for waste reduction includes:
• manpower;
• technique;
• methods;
• time;
• facilities;
• jigs and fixtures;
• materials;
• production volume;
• inventory;
• place; and,
• way of thinking.
The Five Ws
and the One H of kaizen include:
• Who - Who does it? Who is doing it? Who
should be doing it? Who else can do it? Who else should do
it?
• What - What to do? What is being done? What
should be done? What else can be done? What else should be
done?
• Where - Where to do it? Where is it done? Where
should it be done? Where else can it be done? Where else
should it be done?
• When - When to do it? When is it done? When
should it be done? What other time can it be done? What
other time should it be done?
• Why - Why does he do it? Why do it? Why do it
there? Why do it then? Why do it that way?
• How - How to do it? How is it done? How should it
be done? Can this method be used in other areas? Is there
any other way to do it?
Reduce
WIP
Cutting work-in-process (WIP) inventories for a given
level of output creates a significant positive effect on
productivity. In some case studies, a reduction of WIP by
0.1 percent produced a 9 percent rise in productivity.
There is a
huge body of empirical evidence about the benefits of
reducing WIP. From studies of both Japanese and American
companies, we know that cutting WIP leads to faster, more
reliable delivery times, lowers reject rates (faster
production cycle times reduce inventory obsolescence and
make possible rapid feedback when a process starts to
malfunction), and cuts overhead costs. We now know it also
drives up productivity.
The trouble
is, simply pulling work-in-process inventory out of a
factory will not, by itself, lead to such improvements. More
likely, it will lead to disaster. WIP is there for a reason,
usually for many reasons; it is a symptom, not the disease
itself.
A long-term
program for reducing WIP must attack the reasons for its
being there in the first place: erratic process yields,
unreliable equipment, long production changeover and setup
times, ever changing production schedules, and suppliers who
do not deliver on time. Without a cure for these deeper
problems, a factory's cushion of WIP is often all that
stands between it and chaos.
Elimination
of the stockroom
Material handling and inventory storage are two of
manufacturing’s high-cost, non-value-added activities. The
elimination of the stockroom, as it is known today, should
be a strategic objective of all manufacturers. Moving
materials to their point-of-use is not a new concept, the
auto industry has done it from its beginning and all
industries have had success with point-of-use, low-cost
hardware.
Supply
chain development is the key, and it’s time to realize
that there is much more to increasing supplier contribution
to gross profits than simply placing purchase orders with
the lowest price bidder. Strategic outsourcing that focuses
on getting the right materials to the right place at the
right time must replace beating-up on suppliers for price
reduction alone.
To increase
factory floor space to build a new multi-function tester, a
manufacturer of electronic component test equipment decided
to convert stockroom space into a production area. None of
the new tester parts entered the remaining stockroom and all
common parts were relocated to their consuming production
areas as point-of-use inventory. The key to making this
project a success was the development of a powerful supplier
support network that provided timely and innovative
point-of-use logistical support. High communications
integrity, scheduling flexibility/responsiveness, superior
quality, special materials transportation/storage racks and
a positive continuous improvement mind set were some of the
characteristics of the developed relationship. Three years
after the start of the project, the manufacturer is a market
leader and most of the credit goes to its supplier
development team and the powerful supplier support network
it helped develop.
Business
people in pursuit of point-of-use logistics should be
advocates of:
• business integrity;
• day-to-day supplier cooperation;
• free exchange of information;
• responsive decision-making; and,
• supplier profit sharing.
Supplier
development and strategic outsourcing requires a top-down
commitment and investment to produce a team of professionals
that can make it happen.
A
commitment to ongoing learning
Without making a commitment to ongoing learning, a
factory will gain no more from the above four elements than
a one-time boost in performance. To sustain the leverage of
plant-level operations, managers must pay close attention
to, and actively plan for, learning.
A factory's
learning rate, the rate at which its managers and operators
learn to make it run better, is at least of equal importance
as its current level of productivity. A factory whose
productivity is lower than another's, but whose rate of
learning is higher, will eventually surpass the leader.
Reducing
chaos and enhancing learning do not conflict. They make for
a powerful combination and a powerful lever on
competitiveness. A factory that manages change poorly, that
does not have its processes under control, and is distracted
by the noise in its system learns too slowly, if at all, or
learns the wrong things.
In
such a factory, new equipment will only create more
confusion, not more productivity. Equally troubling,
managers and workers in such a factory will be slow to
believe reports that a sister plant, or a competitor's
plant, can do things better than they can. If the evidence
is overwhelming, they will simply argue, "It can't work
here, we're different."
Indeed
they are, and less productive too.
Bill Gaw’s manufacturing
experience spans more than 35 years. During those years,
Bill has held positions as a shop expeditor, production
planner, buyer, manufacturing manager, director and
president. Bill has participated in four successful
financial turnarounds. For more information, visit www.bbasicsllc.com.
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