ChiefExecutive.net

Lean Manufacturing’s Next Life

March 8 2010 by David Drickhamer

Toyota’s quality and public relations troubles – still unfolding at press time – have prompted some to question the company’s widely touted production system. But despite the company’s failure to live up to its own lofty aspirations (See “Lean Gone Wrong?” below), there’s no denying that the lean manufacturing model Toyota created – and which countless companies have since sought to emulate – now defines world-class manufacturing practices around the world.

In fact, a new generation of lean standard bearers continues to apply the well-known process improvement tools and managerial practices to deliver double-digit productivity and customer service improvements year after year after year. They’ve found that the push to never stop getting better, perhaps Toyota’s biggest legacy, comes down to culture and people. As evidenced by the three case studies that follow, the end results are not only a lower cost structure, but operational advantages that customers notice, care about and, most importantly, are willing to pay for.

Making the Numbers

“Compared to our direct competitors, we are the only company that really grew over the last seven or eight years,” reports Alexander Wiegand, CEO of WIKA Alexander Wiegand SE. He attributes that growth to the Klingenberg, Germany-based company’s ability to leverage ongoing process improvements into tangible benefits that its customers value. Selling more than 40 million gauges, thermometers and other measurement instruments annually, the 60-year-old, family-owned company has slashed manufacturing lead times and delivery times. It now ships some high-quality, customized products in just three to five days. 

Perhaps most key, WIKA has made the financial connection that some lean adopters have found elusive. “Since 2002 we have improved our EBIT margin every year by about 1 percent,” says Wiegand. Given the company’s high percentage of sales in the U.S., that margin improvement is even more impressive when you consider the devaluation of the U.S. dollar that occurred over that time period. “That’s the bottom line,” says Wiegand. “It’s not all coming from lean, of course, but more than half of that improvement is the result of our lean activity.”

In 2008 WIKA posted record sales of €515million. Even though orders declined when the recession hit, WIKA was able to increase productivity by 5 percent this past year. Before the company implemented lean manufacturing, whenever sales would slow, productivity would follow suit. Assembling product in work cells, where detailed performance is tracked and reported for each shift, has increased transparency and increased management control.

“I know a lot of companies who say they’re doing lean, but the basic way they produce is still the same,” says Wiegand. “They just did a little bit of 5S, a little bit of kanban [a signaling system related to just-in-time production]. They have some results, but not real results.” To Wiegand, the ideal lean operation holds zero inventory with minimal work-in-process and parts flowing one piece at a time through final assembly and shipment.

I know a lot of companies who say they’re doing lean but the basic way they produce is still the same.

How the drive for ever-lower inventory levels reduces order lead times is one of the counterintuitive characteristics of the lean methodology. Ware housing lower quantities of product exposes weaknesses in a production process, and thereby requires operations to be more agile and responsive, which subsequently increases the factory’s ability to fulfill orders quickly. WIKA fully embraced lean after initial efforts at its factory in Georgia dramatically increased on-time delivery rates, solving a persistent weakness. Order lead times had been running anywhere from four to six weeks. Today they range from five to 10 days. Quality has also improved, from a customer reject rate of around 10,000 defects per million opportunities (about 1 percent), to below 2,000 today with a long-term target of 500 by 2012.

Management attention, which starts with CEO participation at project meetings where improvement teams report process changes and subsequent performance gains, has been key to WIKA’s progress. “I still participate one or two times a year in a kaizen [Japanese for ‘continuous improvement’] workshop,” says Wiegand. “Everybody in the company knows that I am always very interested in the results and seeing what has changed.”

These workshops extend beyond WIKA’s factories. Employees work on distribution processes, quality management and product development. A kaizen event in the corporate office cut the time it takes to build the annual budget, starting in each subsidiary, from eight weeks down to four weeks. Order processing used to require two to three days; now it’s measured in hours. Such gains come from using lean tools to identify the best methods for doing something and then standardizing those methods across the company.

In 2010 one of WIKA’s top priorities is to improve sales effectiveness worldwide, including the number of sales calls per engineer and the quality of those calls. WIKA will be using kaizen workshops to improve the work of the inside sales organization and increase the time that sales reps can spend with customers.

“Sales and new product development are two areas that often have broken and ineffective processes, which leads to lost sales and missed revenue opportunities,” notes Anand Sharma, CEO of the lean and Six Sigma consulting firm TBM Consulting Group, based in Durham, N.C. “Symptoms include poor anticipation of customer needs, last-minute design changes, manufacturing difficulties and delayed product launches.” The recent recession, he adds, has pushed more managers – forced by economic circumstances to improve their effectiveness – to call in help from their internal lean experts.