How to Win With Lean

Our last two columns developed the notion that a Lean/continuous improvement program is most effective when the initiative ties directly to a market-driven business strategy. Now we will illustrate this idea through a case history. The name of our subject company is withheld for competitive reasons, but all other information is factual. We will call this company Computer Chassis, Inc. (CCI).

NEW OPPORTUNITIES WITH LEAN

The high technology phenomena in California's Silicon Valley have led to a burgeoning sheet metal industry. During most of the past 20 years, hundreds of independent suppliers working at or near capacity have kept the original equipment manufacturers' (OEM) market supplied with chassis, cabinets, frames, and other fabricated components. One of these suppliers is CCI, a producer of complex welded chassis and cabinetry with a focus on medical electronics and electronic instrument markets.

CCI's owners recognized both the growing demand and the business opportunities associated with applications of Lean business practices and other world class continuous improvement methodologies. Some key customers who were crafting their own Lean capabilities requested that small lots of product be delivered at frequent intervals (sometimes daily) at a cost equal to or below historical levels. As these demands mounted, CCI's management saw a clear, potentially tremendous competitive advantage in being among the first fabricators capable of participating in a Lean supply chain.

EVOLUTION OF THE STRATEGY

The first step was to completely understand the customers' needs. Much earlier, the company recognized and responded to high-tech OEM requirements for technical help in sheet metal design and prototyping for new products. By combining industrial design and mechanical engineering skills with state-of-the-art computer aided design systems, CCI established itself as part of several customers' new product development teams.

This same entrepreneurial spirit addressed the Lean/just-in-time (JIT) delivery challenge by launching a formal Lean implementation program to better understand the customers' requirements for JIT performance and to respond appropriately. A Lean consulting firm was engaged to provide education, training and technical support.

Using this assistance, CCI worked through a series of learning events, conducted value stream mapping exercises, and ran a number of Kaizen events focused on setup time reduction, order entry lead time reduction, setting up pilot weld assembly cells, and improving paint quality.

Concurrent with the pilot projects, the first demand pull JIT delivery program was being set up with a key customer. Figure 1 illustrates the nature and sophistication of the demand pull systems developed in the early stages of this Lean implementation. The first application resulted in 17,000 shipments without a single late delivery.

Over time, the company gained a unique insight into the needs of their high-tech OEM customers. This understanding led to a strategic turn in the Lean effort which was rooted in the realization that CCI was really engaged in more than one business. "Lean" to one customer meant something entirely different from what it meant to another. How frequently orders were placed and the number of units per order varied widely by customer (or even by different buyers within a customer organization). Clearly, prototypes, infrequent small orders, and pilot runs required fundamentally different manufacturing capabilities than did routine deliveries of repetitive products.

Trying to meet these diverse requirements in a common manufacturing environment would be a "one-size-fits-all" approach that would probably fail. In other words, CCI discovered that the manufacturing mission (see Lessons in Lean, April 2008) is distinctly different for the diverse market segments that it serves, where a "market segment" is a common set of expectations associated with a group of buyers. Again, these buyer groups may be stand-alone customer accounts or different buyers employed by the same customer. Note, too, that this diversity is compounded by the classification of customers into those who are Lean adopters and those who are not.

In Figure 2, the relationship between the degree of repetition, the customer profile, and the manufacturing mission is illustrated. With this concept in mind, the company began to plan a "bold stroke" application of Lean techniques that would enable it to offer high-level performance to every segment of its market. (See Sidebar on next page)

IMPLEMENTATION OF THE STRATEGY

CCI first identified customers fitting the profiles shown in Figure 2. Most fabricators have customers in all of these categories. Some customers may fit into multiple categories.

Note that at CCI most customers place orders for prototypes. In fact, the company's support of custom design and prototyping of new products not only led to strong partnerships, but also helped CCI secure the high volume, repetitive business as its customers' new products were introduced and began to mature in the marketplace. Early experience with this new product development cycle and the successful pilot Lean led to the value streams and basic manufacturing strategy illustrated in Figure 3.

The company's demand pull focused factory, quick-turn, and specials/prototype value stream managers are each accountable for meeting specific, well-defined manufacturing missions aligned with the needs of the market (see Figure 3).

This strategy fits with the fundamental nature of the high-tech market. As new products are designed and prototyped, the proto team works closely with customer engineers to solve design and process problems.

The team objective is to move production to the quick-turn value stream which will then produce the small, intermittent lots that satisfy early demand while the product matures. If the product "hits," it is then moved to the demand pull value stream (or focused factory) to be run in daily quantities synchronized with the customer's consumption rate.

This strategy also aligns supporting (office) resources with market segments. The approach integrates people into teams with the proper focus and potential for meeting world class performance standards. The ability to transition seamlessly from one stage of production to another has proven to be a unique competitive advantage for CCI.

VALUE STREAM FEATURES

The implementation of the strategy ultimately required that the three value streams be physically and organizationally isolated to the degree possible. This was done through a major factory re-layout and rearrangement project accompanied by a realignment of factory leadership and the labor force.

As a part of this program, the optimum location of shared resources such as paint and miscellaneous assembly was also determined.

The application of Lean tools in the three value streams was an appropriate "mix and match" designed to support the specific mission of each factory sub-set. In effect, Lean concepts and techniques provide the essential processes, systems and skills to meet the demands placed on each group. Characteristics of each value stream can be summarized as follows:

PROTOTYPE/SPECIALS (VS 1)

1. Versatile, quick-change CNC punch/laser capability
2. Standard CNC brakes used to develop production bending approach
3. Hardware insertion
4. Full spot welding/welding capability
5. Flexible, highly skilled workforce ("problem solvers")
6. An integrated front-end support team
7. Work-order-driven-production

QUICK TURN (VS 2)

1. Automated CNC punching cell and stand-alone CNC punch capability shared by downstream cells
2. Downstream form/hardware/spot weld/weld cells focused on part families
3. Cross-trained people who are able to balance workloads and keep the flow
4. Emphasis on fast setup, error proofing, housekeeping, and process improvement
5. Front-end (office) resources shared with Demand Pull value stream
6. Work-order-driven-production
7. Queuing limited by physical Kanbans (maximum number of parts or hours of work per Kanban location)

DEMAND PULL (VS 3)

1. Dedicated, stand-alone CNC punching
2. Dedicated CNC brakes, hardware insertion and welding
3. Some cross training, but employees tend to be dedicated to work stations
4. Emphasis on standard work, fast setup, error-proofing, housekeeping, and process control
5.Front-end (office) support shared with Quick Turn value stream
6. Demand-driven Kanban, no work orders
7. Replenishment of lower level parts driven by pull signals

A common feature of all these value streams is a close-coupled layout that minimizes material handling and facilitates communication and workload balancing.

RESULTS

Significant improvements in all key performance metrics directly resulted from CCI's strategy-driven Lean program. These improvements grew out of gains made at the cell and value stream levels, including setup time reduction, faster through-put, better linearity, on-time schedule performance, and greater first-pass yields.

Most importantly, CCI created a unique value proposition that embedded them in their customers' Lean supply chains and threw up significant barriers to competition. The company more than tripled its size in five years, with most of the growth coming from the traditional customer base. Profitability is well above average because costs are low and value added services reduce downward pressure on pricing.

A few fabrication shops, including CCI, have come to understand the critical relationship between an effective business strategy, a supportive manufacturing strategy, and the technologies of Lean and other contemporary continuous improvement tools.

In an industry characterized by fierce competition and at times, too much capacity, understanding and exploiting these concepts can spell the difference between growth and prosperity and mediocrity and stagnation.

David Dixon is the executive vice president of Technical Change Associates and a registered professional engineer with more than 35 years of experience in lean manufacturing, Six Sigma and other improvement initiatives. For more information, visit www.technicalchange.com, or call 801-621-8980