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April 10, 2012

GE and Lean Innovation

By Esteban Pedraza April 10, 2012

The opening of GE’s new GeoSpring Hybrid Electric Water Heater plant in Kentucky isn’t just a great endorsement for American Manufacturing but an affirmation of Lean’s ability to help improve a company’s competitive edge in today’s global marketplace. The events that have taken place at GE and GE’s Appliance Park in Louisville read like a case study straight out of a Lean handbook.

In the 1980s America was in an industrial decline and when the GE facility could no longer compete with production costs in Asia, for reasons such as an increase in wages and a decrease in the selling price of products, GE began moving production to the Asian plants. As expected GE was able to reduce labor cost and save on materials, but over time the cost savings from outsourcing was outweighed by the negative impact on GE’s competitiveness. The following examples are just a few problems GE encountered:

  • A longer and more complex supply chain emerged; this slowed the information feedback loop and impaired the company’s ability to respond to problems and customer needs in a timely manner.
  • Cycle time was affected.
  • GE had to carry more inventory in the U.S. for products made in China.
  • A lack of communication due to functional departmentalization led to some loss of overall product knowledge (core competencies) by employees.

What did GE do to address these problems? They invested millions of dollars in Appliance Park.   In addition to the problems brought on by outsourcing, two major events helped initiate the investment. The first was the availability of job-creation incentives from the state and federal governments and the second was a competitive labor costs as a result of the 2009 Competitive Wage Agreement between GE and IUE-CWA Local 761. But according to GE the company had not invested in Appliance Park because the culture “wasn’t right to invest”. How did GE address the culture problem? They embarked on a lean initiative that “maximizes customer value while minimizing waste and identifies employees as the most valuable resource a company has”, said a GE spokesperson.

GE’s upper management is showing their commitment to changing the company’s manufacturing culture by investing not just in the building with a multimillion dollar renovation but in their people. Investment in the people has been done through lean training and employee empowerment. The empowerment has removed barriers that would keep any employee from taking positive action that would lead to better quality and/or performance.  According to GE’s Appliance Lean Leaders and employees, the way of thinking and the way things are done at Appliance Park have changed:

  • Everyone is involved in the manufacturing process setup from Engineering to sourcing to production. (cross functional approach)
  • We focus on removing non-value added work from the design process through production
  • One team with one goal mindset
  • Communication is essential (information boards, visual tools, etc.)
  • Everything is built around supporting the operator getting the product out the door
  • Focused on greater customer satisfaction
  • Renewed emphasis on quality and technology
  • We Learn by doing and leverage the power of collaboration
  • Operators take pride in what they do

Using lean practices and tools, GE has reported cutting cycle time by 50%, eliminated 20% of the parts included in the GeoSpring final assembly, and reduced equipment investment by 30%.  GE’s lean journey is demonstrating that Global competitiveness can be accomplished when the right tools are used in the right way.

According to a report by Boston Consulting Group (BCG), labor cost in China have risen dramatically and shipping and fuel costs have skyrocketed, this means China is not as cheap as it used to be and the United States is poised to bring back jobs from China. The report also points out that by 2015, it will only be about 10% cheaper to manufacture in China. If the BCG report is correct then the question for the United States will not be what company’s want the jobs but what companies have the capability (structure and culture) to compete in a global market.

With the freedom that a consumer has, in today’s global market, to go almost anyplace for a product that meets their quality and price requirements companies must be agile enough to meet consumers changing needs. As GE is showing us, the place can be the United States and the way to get it done can be through American Manufacturing.

January 17, 2012

Top 10 reasons to attend the 2012 Texas Manufacturers Summit

By Jennifer Wilson January 17, 2012

Manufacturing is an exceedingly important industry sector in our state – maintaining our strength is a key economic driver. We’ve rewritten the rules regarding ROI on conferences. Gone are the days when you spent three days out of the office only to return with fragments of useful information. Join us this coming February for an informative day of learning that impacts every facet of your business!

  1. Competitive advantage. You need to figure out how to evolve your business and this Summit is an important gathering for people like you – people figuring out how to make their business succeed in challenging times.
  2. See all the best tools in one place. You will meet with established leaders, Texas resources and creative innovators to find the right tools and technologies to take your business to the next level.
  3. Real-world solutions to your real-world problems. Summit sessions and keynote presentations are designed to highlight how forward-thinking users are accessing current and new technologies to drive change in their organizations.
  4. Stay ahead of the curve. Leaders who understand how to be collaborative, flexible and transparent will be the most sought-after employers.
  5. Topnotch Keynote Speakers. Dr. F. Barry Lawrence, Director, Industrial Distribution Program at Texas A&M University System; Representative Joe Straus, Speaker of the House and Mr. Richard Fisher, President & Chief Executive Officer, Federal Reserve Bank of Dallas.
  6. Breakout Sessions. Three tracks: Mix and match or stick with one track all day! Choose from informative tracks on Policy & Regulatory Issues, The Business of Manufacturing, and Innovation & Growth during four sessions.
  7. Case studies from experts detailing practical advice and best practices for all manufacturers, large, medium and small.
  8. Meet & Greet. Network with fellow senior-level manufacturers and manufacturing support organizations in an interactive environment throughout the Summit.
  9. Exhibitors. Visit Summit exhibitors for a taste of the latest and greatest resources and technologies to support your manufacturing operations.
  10. We’ll be there – of course! TMAC is a proud sponsor of this important inaugural event. Join us for the Welcome Reception on February 14th and stop by our booth and breakout sessions during the Summit on the 15th. But don’t wait! Registration ends soon!

Planning on attending? Use #txmfgsummit2012 on Twitter and share the event on LinkedIn and Facebook.

November 15, 2011

Cha-Cha-Cha-Changes

By jcrosswell November 15, 2011
Change sign

Are you open to change?

When implementing Lean transformation projects one concept that I have always included in the training material is R=Q X A:

(R)esults = the (Q)uality of the solution times the (A)cceptance.

Recently I have worked on a large transformation project that includes a significant quantity of classroom training and Rapid Improvement Events (RIE) over several months. In the past there have been some disappointing experiences with companies that seem to want to implement Lean  only to go through the motions - and ending up in a place where they could not sustain the improvements they made. The culture of the company that I am currently working with is very traditional and relatively resistant to change. The management is knowledgeable of the benefits that can be achieved by using Lean practices but they are reluctant to make significant changes. My working partner and I are helping the RIE teams develop Lean processes. We agree the changes the teams have come up are low risk and are very doable. In fact, since we began working with this company we have always agreed that common Lean techniques such as cellular flow could be applied to almost all the customer’s value-streams.

However my partner and I do disagree significantly on our approach.

Since this organization has proven to be very conservative, I have taken the approach of supporting the limited changes they approve whereas my colleague continues to try and persuade them to embrace larger changes. In some cases his approach has intensified their resistance. I see it as a “human relations” issue. I agree that the company will get better results with more significant changes, but since management is very conservative I support their limited approvals. So far this has worked well and is continuing to improve. Once the employees gain experience with the limited changes they are taking more initiative to continue improving their processes. The teams have actually continued the changes to some processes to the point we originally estimated could have been achieved by making the larger change initially. I think either approach could be the most appropriate depending of the situation. I would like to hear from others who have had similar experiences and your success using one or the other approach:

A)     Accepting a limited amount of change to begin with, relying that the small successes will help continuous change become part of the culture

B)      Pushing for higher expectations and risk that larger changes will be resisted or not approved.

Which has worked better for you?

Related Post:
How to get Results: R=Q x A

November 3, 2011

What is Value?

By raikman November 3, 2011

Does that activity add value?  The answer can provoke friendly debates, heated arguments, tears, hurt feelings, and the occasional fist fight.  And that’s just among lean project team members!  It can be even worse between lean practitioners and front-line workers, whether they are in a factory, warehouse, retail store, or office. 

Think about it from this perspective:  How would you feel if someone told you ‘What you do all day long is not a value-add activity’?  That is the reason it is important to make a"Value Added" distinction between the person performing an activity, and the activity itself

Yet despite the difficulty of defining value, it is a key skill for any successful lean practitioner.  In the book Lean Thinking by Womack & Jones (1996) they proposed a basic approach to implementing lean that consisted of a five step process.  The authors stated that “Specifying value accurately is the critical first step in defining lean thinking”. 

In other words, before you can move forward in applying various lean concepts it is important to begin with a clear understanding of what constitutes a value-add – and non-value-add – activity.  In the book mentioned above the authors address this topic further by noting that:

“Value can only be defined by the ultimate customer.   And it’s only meaningful when expressed in terms of a specific product (a good or a service, and often both at once) which meets a customer’s needs at a specific price at a specific time.”

Several years ago I investigated the topic of value in order to make a presentation at an engineering conference.  What I discovered was that different writers had different explanations of value-add.  Consider these definitions from that research:

Value is added by changing the form of something or by moving it closer to the customer

 Activities that must be performed to meet customer requirements

Value-added time may be thought of as any time spent on actually transforming the product toward its final configuration.

Value-added steps (or activities) are those that matter to the customer (external or internal); all others are nonvalue added.   If there is disagreement over whether a step is value or nonvalue-added, it is best to err on the side of calling it value-added.

  •   Patrick Shannon “The Value-Added Ratio”  Quality Progress, [March 1997]

Any activity that increases the market form or function of the product or service.  (These are things the customer is willing to pay for.)

  •   MEP Principles of Lean Manufacturing  [1999]

The overarching themes seen in these definitions are two-fold:

1)      Change to materials OR information

2)      Something for which a customer will pay

In other words, if an activity results in a change to materials OR information AND if a customer would be willing to pay for that activity, then said activity should be classified as value-add.  Examples in the world of manufacturing include tasks such as cutting, welding, assembling, and painting.  In terms of service processes, examples include checking in a person at a hotel, answering technical questions via a helpdesk, mowing a lawn, and assisting a customer with the use of a new product. In the world of transactional processes, examples of value-add activities include capturing customer requirements, analyzing data, writing reports, making key decisions, and communicating needed information. 

Of course, there are always some activities that fall into a ‘grey zone’ in terms of value-add.  In the manufacturing arena two examples are tooling costs and setup charges.  Many firms routinely charge fees associated with activities associated with these two process steps.  Yet neither of them result in a physical change to materials. 

Another such example is inspection.  In some industries a supplier is required by contract to inspect their product before sending it to the customer.  So in essence the customer is willing to pay for this activity.  Yet inspection does not result in a physical change to a product.  In office processes inspection or review activities are very common.  Such steps are often put in place due to some problem that may have occurred months or years ago.

So should these tasks that fall into the ‘grey zone’ be classified as value-add activities?  From a lean purist standpoint, I would say no.  But from a practical standpoint I would be willing to accept that they are value-add.  At the end of the day, it is more important that you agree on a definition of value-add at your firm, and are consistent in how it is used.

In Part 2 of Defining Value we will explain a fundamental lean measure to use when examining the level of value-add in a process: Process Cycle Efficiency.  Also covered is an explanation of this measure in terms of both typical and world-class firms for various types of business processes.  Finally, Part 2 will include a discussion of how to categorize activities performed due to regulatory and similar requirements.

April 14, 2011

Competing With Low-Cost Rivals

By rbergs April 14, 2011

After listening to the webinar Leading Strategies for Manufacturers Against Low-Cost Competitors, presented by Mark Hehl of Hehl & Associates, through IndustryWeek, I found it validating that many of the concepts that we, at TMAC, discuss with our customers were some of the best ways to compete.

Is Manufacturing in China Really a Better Deal?

While the talk focused on China, which is by far not the only low-cost manufacturing country, many of the findings are common regardless of the country.  Companies are lured by the low-cost promised on their purchase order, but neglect to consider unexpected costs associated with doing business outside of the US.

bottle manufacture

Image via Flickr by D W S

With China specifically, there is a steady increase in labor rates as workers demand more money and become more skilled.  Ironically, while China has a large population, the one-child rule has limited the available work force, again leading to increases in wages.  As current workers become better trained, there is a problem with retention of workers, requiring factories to compete for the highly skilled.  The bottom line is increased labor rates are only a small part of the story, fluctuating exchange rates and inflation, are usually ignored when deciding to use off-shore suppliers.

Going the Distance

Off-shore suppliers have other associated supply-issue costs like on-time delivery, quality expectations, communication barriers, and cultural issues.  Time and time again, I’ve heard horror stories of a delivery being late. Instead of using (the planned) surface means of shipping, air transportation is all of the sudden needed, adding a cost of up to 8 times more than originally budgeted.  In the beginning of the relationship, the quality of the parts is adequate, but as time goes on, the quality starts to degrade. With communications, especially if there are significant distances between the supplier and the company (say Texas to China) if something is wrong, it may take a day or two to communicate the issue, let alone resolve it.  Some cultures do not discuss problems at the time corrective action could (and should) be taken. These additional, usually unforeseen, costs are driving companies to bring their manufacturing facilities back to North America – so the logical question is How do we keep them from leaving in the first place?

Keeping Manufacturing Stateside

Implement Lean Methodologies. Lean isn’t exclusive to the plant floor; it can be implemented in administrative processes too!  Lean focuses on cost containment, reduction and/or elimination of waste, and increasing capacity without increasing personnel or equipment.  A poor Lean implementation can cause more problems than it solves. Lean is a journey, not a destination. Industryweek’s recommendation was to hire an external organization to aid in your Lean deployment.

Competitor and/or Market Intelligence.  Look into what your customers want: What is important to them?  Talk to customers who purchase from competitors and see what they like and dislike.  Look for weaknesses, and exploit them.

Innovate. Quite simply look at new products for existing markets, new markets for existing products, and new services that you can offer customers.  Companies that innovate earn double the profit of companies that do not.  When was the last time you introduced a new product?

Offer Superior Customer Service. Determine what your customer really wants.  How? Ask.  Using Lean in the administrative side of the business, your customer service representatives can be more flexible and often respond faster, something that it is difficult for off-shore competitors to do.

What Does it All Mean?

The entire webinar can be summed up:

If you implement Lean, you can use the savings to innovate, offer superior customer service and competitor intelligence.

The presentation was interesting and informative; I recommend it as valuable food for thought for any manufacturer or business owner.

Are you considering moving your manufacturing operations overseas? Have you moved your manufacturing operations back from overseas? Why? Have you implemented any of the suggestions above? What was your experience?

February 17, 2011

3 Lessons Learned from Evergreen Solar’s Mistakes

By tpryor February 17, 2011
Solar panel

Image via Wikipedia

Evergreen Solar recently announced they are firing 800 workers at their Massachusetts factory and moving all solar panel production to China. The February 6, 2011 issue of Bloomberg Business Week interview of Evergreen’s CEO exposes how they could have prevented the firings.                               

1. Management built too big of a factory. 75% too big! If the company had used Lean principles, they would not have overbuilt. 

2. Management took on too much debt to start the company. See #1 for a reason for the big debt. 

3. Management ran out of cash. Cash is the lifeblood of any company, even profitable ones. China offered management cash in exchange for moving the jobs to China.

Everyone makes mistakes. Learning from mistakes is a key trait of successful leaders. What mistake provided you or your organization its greatest lesson?

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