October, 2014

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Article Index

MN Economic Outlook
Article by: Dr. Ernest Goss

September survey results mark the 22nd straight month Minnesota’s Business Conditions Index has remained above growth neutral. The index slipped to a very healthy 66.3 from August’s regional high of 66.9.

Lean Leader of the Month-Lorena Kay Grimm
Article by: Lorena Kay Grimm

Lorena Kay Grimm is currently the Division Lean Manager with Parker Hannifin Corporation, Oildyne Division in New Hope, MN. She has been with Parker Hannifin Corporation for 7+ years.

Bermo's Lean Journey: It's All About Lead Time
Article by: John Hehre

By many measures, Bermo is a very successful company. Founded in 1947, this mid-sized family owned business provides stampings, fabrications and assemblies primarily for the agriculture, transportation and electronics industries.

Gear up for Better Results! Part 2
Article by: Warwick Alcock

Is process improvement enough? This may sound like a heresy: high-performance operating processes are necessary — but not sufficient — for a company’s success. So says Michael Hammer, a world renowned expert in process engineering.

MN Economic Outlook

September survey results mark the 22nd straight month Minnesota’s Business Conditions Index has remained above growth neutral. The index slipped to a very healthy 66.3 from August’s regional high of 66.9.

Components of the index from the September survey of supply managers in the state were new orders at 73.6, production or sales at 70.5, delivery lead time at 61.8, inventories at 65.2, and employment at 60.5. “Durable goods producers and nondurable goods manufacturers, including food processors, continue to report very healthy growth. Firms in the state with ties to vehicle manufacturing are also expanding at a healthy pace.  For the 12 month period ending in August, government data show that average weekly wages in Minnesota have expanded by a solid 2.6 percent.  Our surveys indicate that wage growth will remain healthy for the last quarter of 2014,” said Goss.

Dr. Ernest Goss of Creighton University, used the same methodology as The National Association of Purchasing Management to compile this information. An index number greater than 50 percent indicates an expansionary economy, and an index under 50 percent forecast a sluggish economy, for the next three to six months.

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Lean Leader of the Month-Lorena Kay Grimm

Lorena Kay Grimm is currently the Division Lean Manager with Parker Hannifin Corporation, Oildyne Division in New Hope, MN. She has been with Parker Hannifin Corporation for 7+ years.

Brief description of companies product and service offering:
Oildyne provides top quality, compact hydraulic components and systems. Our compact hydraulic power units are completely self-contained with an AC or DC motor, gear pump, reservoir, internal valving, load hold checks, and relief valves. These units are used in many industrial and mobile hydraulic applications.

Where did you receive your Lean training/experience?
On the job. Parker has a very robust training program, as well as the use of external senseis, and a lot of coaching and feedback from higher level lean managers.

How, when, and why did you get introduced to lean and what fuels the passion for Continuous Improvement?
I was introduced to lean with a previous employer; probably in the mid 90’s. At the time I was in various Purchasing and Inventory Control roles and loved the idea of using kanban systems, third tier audits, and five S. With Parker, lean is a part of everything that we do. The more that I learned about lean, the more that I taught the concepts to others, and through teaching it was reinforced even more. Personally I prefer structure and hate waste, but love to be creative and make work fun; which I think makes lean a natural fit for me. I also love to develop people and see them be successful, so I think it’s cool that I get to help teams achieve their goals.  

What are your current Lean oriented activities?
Recently we have been documenting the repeatable tasks within the Engineering departments and using lean tools to eliminate waste. Also working on continuous improvements in our layered audit process, reducing lead time in several of our manufacturing value streams, and improving the way we use High Performing Teams to solve problems; both in the shop and in the office.

What were the lessons learned in leading or training your team on a Lean project?
Something that I learned is how important it is to teach lean concepts to everyone on the team; not just those that you think would benefit from it. I remember when a mentor advised me to teach a High Performance Team on how to create a value stream map. I thought that it would be a waste of their time to learn about the definitions of mapping icons, and frequency of supplier deliveries, etc. But I learned first-hand that there is greater engagement and participation when everyone really understands and is on the same page.

What are the next steps in the Lean journey for your company?
There are several next steps for us at Oildyne, but I would say one big step is in changing the way we look at Five S. We can do the Sort, Straighten and Shine; but are ready to take it to the next level and focus more on the Standardize and Sustain.

How would you describe peer-to-peer education & training to your colleagues?
Best practice sharing: through peer audits and feedback, best practice presentations, or networking.

Lorena Kay Grimm is the Division Lean Manager with Parker Hannifin Corporation, Oildyne Division in New Hope, MN. She has been with Parker Hannifin Corporation for 7+ years.

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Bermo's Lean Journey: It's All About Lead Time

By many measures, Bermo is a very successful company. Founded in 1947, this mid-sized family owned business provides stampings, fabrications and assemblies primarily for the agriculture, transportation and electronics industries.

Bermo plant

The company has been ISO certified since 2004 and TS certified since 2009. A strong and proactive customer service organization has resulted in many long term customers. The company continues to evolve in terms of manufacturing technologies and practices, replacing older technology with more productive equipment to gain improvements
in quality, cost or product breadth. Expansions into related product areas are carefully considered and monitored closely. Engineers work with customers to improve the manufacturability of their designs. The company provides just in time inventory for many customers yet is able to keep inventory turns at a respectable eight to ten turns per year. Delivery performance is around 98%. Despite all this apparent success however, the company is not satisfied. They face strong competition from domestic and overseas suppliers and are constantly looking for ways to build or improve their competitive advantage.

Bermo began their Lean Journey in 2008 using The Toyota Way as a starting point. They spent a year and a half working with the usual tools like 5S and conducting many Kaizen Blitzes. Performance measures tended to focus on the implementation of tools rather than relevant business performance measures like inventory turns and lead time. Although the use of these Lean tools did result in some localized improvements, they did not provide the overall improvements that the company was looking for. Lead times in particular, did not improve and in some cases became longer. Most of Bermo’s customers are large, lean and sophisticated companies with well-established supply chains. They have the power to demand rapid deliveries of small quantities on short notice. Failure to provide the product on time will frequently cause the customer’s line to stop temporarily. Needless to say, these customers do not tolerate interruptions in supply for long.

Two options to satisfy customers’ demand for immediate shipment are higher inventory levels or frequent production runs with smaller batch sizes. In theory, high inventory achieved through longer production runs results in lower unit costs due to the fact that setup costs are spread across a higher quantity of parts.  The expected lower costs rarely materialize, however. Higher inventory levels are at risk from changes in product design and latent quality problems. The need for longer production runs decreases the flexibility required to respond to changes in customer demand. Furthermore, when hot jobs show up and are inserted into the schedule, the benefits of longer production runs are lost and frustration levels increase.Smaller batch sizes, however, increase the number of jobs and associated complexity. More production runs can increase unit costs. It quickly became clear to a few key people that decreasing lead time was a key success factor to continued improvements. Dramatically shorter lead times increase flexibility, reduce complexity on the shop floor and begin to expose many of the hidden problems that are common in production. “It’s easy to get side tracked with the many tools and theories of lean.  We are finding that the best way to monitor one’s lean journey is to simply measure lead time and the value added percentage within that lead time.”  said Brett Saburn, CI Coordinator. BERMO adopted the Value Added Ratio, the ratio between direct labor content and the overall elapsed time for the job, as a very visible indicator of lead time. Typically, a job might spend as much as 90% of its time sitting around without being worked on and that wait time is clearly waste. The measure is easy to calculate – divide the direct labor by the amount of time between the first and last clock times. Lead time improvement is more relevant to the  success of the business than previous measures. Lean tools, like setup time reduction and 5S, are used to drive improvement instead of solutions in search of problems.

Large scale change in an organization also requires cultural changes and Bermo has adopted some effective ideas here as well. One of the benefits of lead time reduction is less frustration on the shop floor. One of the measures in place is morale. During the daily meeting, the members of the department decide if the previous day was good, OK, or bad and indicates this by a green, yellow or red mark on the chart. Yellow and red marks get comments and suggestions. These suggestions are turned into idea for solutions. This measure and others are all shown on the department’s idea board so improvements are visible to all.

Additional evidence of successful improvements can be seen throughout the factory. In a typical instance at a press brake, setup time reduction has resulted in the four tools most commonly required for setup and adjustment are magnetically attached to the front of the press, while any additional tools are mounted on a shadow board out of the way on a cart. The adoption of cellular manufacturing is also an excellent way to improve performance. It is more difficult to implement in a job shop where different jobs will cross a wide variety of facilities. Bermo is working steadily to implement cells where appropriate.

Bermo credits their progress to a number of other factors as well. They are implementing the Entrepreneurial Operating System, or EOS. The structure provided by that system has improved accountability for everything from small changes on the shop floor to strategic initiatives. They are also quick to praise the peer to peer networking available through the Manufacturers and Leaders Alliance programs. They take full advantage of the educational seminars and training programs as well. Folks are Bermo are clearly not satisfied with their position, but they have made considerable progress along the way.

John Hehre is a senior operations executive and provides interim management and project based consulting to mid-sized private companies in need of transformative change. He can be reached at jhehre@cprocess.com.

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Gear up for Better Results! Part 2

Is process improvement enough? This may sound like a heresy: high-performance operating processes are necessary — but not sufficient — for a company’s success. So says Michael Hammer, a world renowned expert in process engineering.

The Gallup Organization’s State of the American Workforce Report very clearly illustrates the truth of this statement. While 30% of the American workforce are engaged and inspired at work,

  • 20% of employees are actively disengaged (spreading discontent), and
  • 50% are not engaged (present, but not inspired by their work or their managers).

That’s a whopping 70% of employees who are underperforming!

What’s more, Gallup’s research shows that the top 25% of teams generate the most revenue: they have the most entrepreneurial energy, generate the most innovative ideas, and create the most customers. They are also the least costly employees: they have 50% fewer accidents, 41% fewer quality defects, and incur less healthcare costs, than the bottom 25%.

The engagement problem cannot be addressed superficially, for example, by simply firing unengaged or underperforming workers. Research shows that disengagement is a symptom of a deeper problem that lies squarely at the feet of management. If employees don't understand, or are confused about, how they contribute to their and the company's performance -- that’s a problem that managers and leaders have to solve.

What are the implications of the Gallup findings? Firstly, if you’re going to improve performance meaningfully, it’s important to understand your organization holistically, and not just zero in on one improvement method, such as process improvement, as if it’s some sort of a silver bullet.

The diagram below provides a balanced, holistic perspective on performance improvement. It draws on the the essential features of leading performance models such as the Baldrige Criteria for Performance Excellence, the European Framework for Quality Management, the ISO 9000 Management System, and the Toyota Production System — performance frameworks that have been used very effectively by many manufacturers to drive results.

Performance Model

The Implementation Triad
Note that the performance model focuses on driving Results (on the right hand side of the model). Let’s consider the implementation triad to begin with. For a manufacturer to perform well, people and processes must be clearly focused on the Results (outcomes or goals) that are vital to company success.

Key questions:

  • Are the Results you expect clear to your process owners and teams?
  • Are your Processes fine-tuned to drive results?
  • Are your People engaged?

If, as the Gallup Research indicates, 70% of your people are disengaged, then results will be hugely sub-optimized regardless of how lean your processes are, or how well defined your goals are. It’s important to improve, not just one, but all three elements of the implementation triad.

The Enabling Triad
W Edwards Deming, the improvement expert who helped Japanese industry recover from WWII and then set the standard for quality in industry, correctly pointed out that American companies are over-managed and under-led.  When diagnosing the root cause of disengaged employees, the Gallup research points to poor management. Good, inspiring and engaging Leadership is needed for employees to be engaged and aligned, so leadership is a vitally important enabler of performance. Effective leaders have an intimate understanding of Customer needs, and drive an effective Strategy that delivers value to those needs. Did Steve Jobs model that kind of behavior at Apple? You bet.

Other Performance Enablers
Good leaders focus on what actually matters to the company. Apart from being good motivators of people, leaders blend into their strategic thinking the company’s competitive Differentiators (which we referred to in the August edition of the Gear Up for Better Results! article), they stay on top of competitive Trends, promote healthy Values, and foster the rapid feedback loops that are essential to organizational Learning (i.e. improvement and innovation).

It’s a lot to think about, but here is the key point. Process improvement is vitally important for optimizing performance and driving results to the bottom line. But process improvement isn’t the only lever at your disposal. A manufacturing company is an integrated system of performance drivers and enablers that must be developed, aligned and focused on producing results.

Too much elephant to swallow? Not really. Start small. As we stated in the previous article, focus on the critical differentiators that really matter to your company. But don’t just improve processes or you will hit a ceiling. Even perfectly designed processes will not bring about great performance if the human context is unhealthy. So be sure to engage and motivate all of your people, too.

Back to the Gallup research. Imagine if your company provided great leadership based on what actually matters, and doubled the number of engaged employees. Your employees will be twice as effective, they’ll create far more customers, your company will grow, your costs will decrease, you’ll create more margin, and your business will thrive like never before! 

Top Three Takeaways

  1. Improve processes, but don’t stop there. Build a performance system.
  2. Get leaders focused on what matters strategically, and engage all your employees.
  3. Start small. Understand the basics, and do them very well.

(This is the second of a series of articles on optimizing manufacturing performance.)

Warwick Alcock is a management consultant who helps leadership teams with strategy and business performance improvement. He has extensive experience working with companies both in Minnesota and abroad. He can be contacted at warwick@agilityfirst.com.

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