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:
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:
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.
In today’s manufacturing arena equipment reliability is paramount, thus we are seeing more and more companies trying to implement Total Productivity Manufacturing (TPM). TPM is not a program that can be implemented over night and takes commitment at all levels of the organization to be successful. One major indicator of a successful TPM program is Overall Equipment Effectiveness (OEE). This OEE number can be challenging to obtain for most companies and involves six major areas of equipment losses: Setups and Adjustments, Breakdowns, Idling and Minor Stoppages, Start-ups, running at Reduce Speed, Defects and Rework.
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!
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 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.
Any activity that increases the market form or function of the product or service. (These are things the customer is willing to pay for.)
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.
When setting out on the journey to become a Lean organization, companies often miss the true importance of utilizing Value Stream Mapping. Often companies overlook implementing Step Four (Value Stream Mapping product families), as outlined in Chapter 11 of Lean Thinking. This can be a critical mistake in creating a sustainable Lean Initiative.
Value Stream Mapping should be viewed as the backbone of any Lean Initiative and process improvement endeavors. Simply picking trouble areas for improvement without examining the entire value stream of the product family or families utilizing the resource can create undesirable results long term. Value Stream Mapping provides us with the information necessary to understand the actual flow of materials, resources and information through all processes from start to finish for the family of products or services chosen. By obtaining this knowledge, we can see where flow is interrupted and where to start making improvements that increase the flow across the value stream. Simply attacking a troubled area in the process without understanding the true value stream could introduce additional WIP (work in process) and inefficiencies in the processes, thus increasing the process lead time across the overall value stream.
Value Stream Mapping provides us with a tool to start process improvement through a systematic approach. We start by mapping the current state for a particular product family from start to finish usually within the four walls of a facility. From this current state map, we apply Lean tools to create a future state map with an improve process lead time focused on eliminating waste and creating flow across the entire value stream. This future state map dictates where and what type of Kaizen Events (Improvement Events) will be required to meet the future state map objectives. The results of our future state map implementation are evaluated against the performance metric objectives developed for the future state value stream. The future state accomplished through our deployment of Kaizen Events is now our current state for the value stream. A period of evaluation should be performed and the value stream mapping process repeated to create a new future state map. This process could take place several times in the journey to become a World Class Company. Typically value stream mapping plans should be developed with implementation to be completed within (6 -12) months. This process is repeated for all value streams across the organization to achieve world class improvement results. The true value in value stream mapping is the creation of process improvement plans that can be implemented systematically across the company with sustainable results.
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.
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?
For the last 18 months, I’ve been working with a company that has been seriously pursuing a Lean initiative. Often, I see companies that claim to pursue lean only to realize they’re just dabbling. They haven’t adopted the principles of lean to guide all facets of the business – but that’s not what’s happening here. . At this company, the way they measure business and operations has presented a serious obstacle. Left unaddressed, this obstacle will limit the companies’ ability to move forward in their lean initiative. Continue reading “Management Constraints vs. Physical Obstacles” »