Smaller companies get lean and mean

By Mary Jo Feldstein
Of the Post-Dispatch
04/15/2004


(P-D)

Faced with global competition, many smaller manufacturers say it's time to cut the fat or die.

To slim down operations, some are using the principles of lean manufacturing, a management philosophy Toyota executives created nearly 60 years ago.

Most big manufacturers, such as Boeing and Emerson, have been running lean for years. But many smaller companies were overwhelmed by such revolutionary changes in thinking about production. They were struggling just to get their products out the door.

Now, manufacturers of all sizes are forced to be more efficient.

Some need to cut costs because overseas rivals employ workers who earn less and don't expect health benefits. Others need a less-expensive way to make more of their products. And still others are pressured by larger companies they work with to get lean.

"It's just to remain competitive," said Chet Marchwinski, a spokesman for the Lean Enterprise Institute in Brookline, Mass. "For manufacturers, the last three years have been very, very rough."

Experts like Marchwinski say lean is a way for companies to save money by making the most of America's skilled-labor force rather than by cutting jobs.

They say a growing number of companies are trying to go lean, but many are struggling to implement it.

Lean is just one of several production philosophies that manufacturers are using to become more efficient. Some elements overlap. All have the same goal.

An online survey by the Lean Enterprise Institute found that 74 percent of nearly 1,000 companies, mostly manufacturers, were in the planning or early implementation stages for lean manufacturing. Only about 4 percent said lean had become their standard way of operating.

There is help for small-to-midsize manufacturers that can't afford a team of consultants or a full-time director of lean.

The nonprofit Missouri Enterprise Business Assistance Center offers training, as do many larger companies looking to streamline their suppliers.

Emerson has offered training programs to its suppliers for about eight years, Chief Operating Officer Edward L. Monser said.

He considers Emerson about halfway to being lean internally and about 25 percent of the way within its supply chain.

"I would love to be bold enough to say that we're done, but we're far from done," Monser said. "Where we have implemented lean, we've seen tremendous results."


Flip the company

The genius of lean manufacturing is its simplicity. The doctrine appears to preach the obvious: Limit waste, keep a clean work space and encourage employees to seek efficiencies.

The challenge of lean is its totality.

The concept asks companies to cut waste across the production process, from material ordering to packing and shipping as well as throughout every department, from human resources to sales.

Some of its tenets, such as allowing employees to shut down machines and reducing inventory to nearly nil, are polar shifts from traditional manufacturing principles.

Too often, chief executives use a few lean initiatives as a way to downsize rather than convert employees into believers, experts said.

Pat Bergin, director of lean at Esselte's plant in Union, Mo., describes himself as a lean zealot.

By adopting the philosophy, Esselte, a maker of office supplies based in Stamford, Conn., estimates that it has driven down waste by 40 percent and saved $20 million companywide.

Now, it's using that $20 million to absorb price increases, make acquisitions and roll out a branding initiative that includes television advertising.

"On a personal note, it keeps people here employed," said Bob Pugh, the Union plant manager. "We're under stiff competition."

The plant's 500 jobs make it the largest employer in that Franklin County city.

When the company started streamlining in 2002, Chief Executive Magnus Nicolin made the workers a promise: If they became more efficient, he wouldn't cut jobs.

Then, in the August heat, Nicolin and other top executives walked the plant floor. That week, Esselte started reorganizing the Union facility, the company and its culture.

"If those top executives don't get involved, these programs become flavors of the month or the year," said Doug Maki, a Milwaukee-based consultant in lean manufacturing.

"To do lean effectively, you basically flip your company on its ear. It's no longer command and control," Maki said. "It requires the empowerment of all employees to start thinking, 'This is my business.'"


Journey to change

The first week at Esselte was a kaizen event.

Kaizen is the basis for much of lean manufacturing. It's a Japanese term that means continuous improvement to eliminate waste. Kaizen events are seminars on how to get rid of waste.

Some changes are simple.

At Esselte, large dumpsters were replaced with smaller garbage cans. Employees became accountable for what they threw away, and they started tossing less.

Traditional manufacturing uses estimated sales figures to determine production quantity. It's called a batch or push system.

Lean manufacturing uses a pull system. Ideally, workers make only what has been ordered, reducing inventory.

When Esselte made the switch to lean, the Union plant had stockpiles of inventory stacked floor to ceiling. It had $75,000 to $100,000 worth of hanging-file-folder rods getting dirty and bent on the plant floor, Bergin said.

Now, they don't make the rods unless a small plastic card tells them that another batch has been used. In lean lingo, the plastic card is a kanban.

One day this month, being lean meant that the rod machine shut down.

"In the old days, we would have been freaking out," Bergin said. "We would be in a panic."

Instead, the operator now spends the day doing maintenance on the machine, finding problems in the production process or cleaning, Bergin said.

Line 48 is the model in Union. It once took 90 minutes to change over the machine from legal- to letter-size file-folder production. Now, it takes about five minutes. But even Line 48 is not fully lean.

It still has too much raw-material inventory. Reams of paper sit next to the line.

But in lean, the conversion is never complete.

"Lean takes a certain amount of patience, and some people would argue a lot of patience," said Peter Ward, who teaches lean management and other industrial engineering philosophies at Ohio State University. "Typically, we're talking about a journey of four to five years before we see dramatic changes."

He said it's tough to persuade executives and shareholders to keep investing resources in lean manufacturing when the business is losing money. It's particularly hard, he said, because analysts put so much emphasis on quarter-to-quarter performance, and reducing inventory hurts balance sheets in the short term.

"What you generally do is explain that right from the start," Ward said. "Talk to analysts about the improvements. Say this is what you expect, but the cash flow will be better. And eventually, the balance sheet will be better."


Keeping jobs

Chief executives need to take their excitement to the shop floor.

At first, middle-managers can be apprehensive. They fear that finding inefficiencies will reflect poorly on them. And, Ward said, some employees think getting lean is synonymous with downsizing.

But once it's implemented, working conditions improve, and employees have more ownership of the product, Ward said.

He has studied hundreds of union and non-union shops and has found nearly equal implementation and success rates.

Marchwinski said the companies that understand the power of lean manufacturing bring in new products or reduce staff through attrition.

"If you let people go under the name of lean, they're not going to participate in the process," Marchwinski said.

Clayton-based plastics maker Spartech Corp. is using lean principles to expand its production without building new plants or buying new equipment.

Spartech hired a director of lean in December and hopes to see benefits by May or June, the second half of its fiscal year.

Chief Executive Brad Buechler said lean will help Spartech to increase production capacity and switch production lines faster.

Tacony Corp. said it was able to move operations from Taiwan to St. James, Mo., in part because of lean manufacturing.

For Tacony, operating its vacuum production lines overseas meant monthslong lead times, high levels of inventory and language barriers.

Tacony was paying workers $4.20 an hour in Taiwan, but plant manager Jim Fleming said the competitive edge of having design capabilities and product in the St. Louis area outweighs the superficial cost advantages of overseas labor.

When Tom Gann joined Siegel-Robert in August 2000, the company had nine plants. Several were running six or seven days a week, and on-time delivery was below 80 percent.

Then, it got lean.

Siegel-Robert now has fewer plants, each running five days a week with on-time delivery rates of about 99 percent.

Jobs were lost in the process, but fewer than if the company went bankrupt or moved its operations elsewhere, said John Fargher, a regional vice president with the Missouri Enterprise Business Assistance Center who consulted with Siegel-Robert and Tacony on how to get lean.

Gann spent 60 days in China determining whether some operations should be moved there. It still makes more sense to stay in the United States, he said.

"Right now, there is no plan to move work offshore to anywhere. The idea is to grow the business right here in the U.S.," Gann said. "Had we not done this, we would have had to chase the low-wage rates around the world."

Lean lingo

Value added: Any activity that increases the market value of the product or service; improvements the customer is willing to pay for.

Pull system: Ideally, companies make only what has been ordered, reducing inventory. By contrast, traditional manufacturing, known as a batch or push system, uses estimated sales figures to determine production quantity.

Kanban: A signaling device that authorizes the next step in a pull system. It is the Japanese word for "sign" or "signboard."

Continuous flow: Producing and moving one item at a time or a small, consistent batch of items through a series of processing steps. Each step makes just what is required by the next step. It's also known as single-piece flow.

Jidoka: A system that allows machines and operators to detect an abnormal condition and immediately stop work to fix the problem. This is one of two pillars of the Toyota Production System, the basis of lean manufacturing.

Just-in-time production: Make and deliver just what is needed, when it is needed, in the amount needed. This reduces inventory, improves cash flow and helps to keep a clean workspace. It is the other pillar of the Toyota Production System.

Kaizen: Continuous improvement of an entire procedure or an individual process to create more value with less waste. There are two levels: System or flow kaizen focuses on the overall value stream; process kaizen focuses on an individual procedure.

Source: Lean Enterprise Institute

Weeding out waste
Lean manufacturing is the systematic elimination of waste, which can occur at various points in production:

TYPES OF WASTE

Producing parts before they're needed
Excess inventory
Waiting along the production line
Wasted motion
Transportation
Manufacturing errors
Extra processing
Underutilized employees

Source: Missouri Enterprise Business Assistance Center

Reporter Mary Jo Feldstein

News source: STL Today