OpEx Review February 2013

OpEx

A TBM Consulting Group Publication

Review

February 2013 | Issue 1

Powering Up:

Operational Excellence Supercharges Growth and Margins at Hubbell

By David Drickhamer Hubbell’s management approach pushes the company inexorably toward better quality, faster responsiveness, higher new product success rates, and healthier profit margins. It all adds up to a potent competitive advantage.

There’s no Hubbell Way. No Hubbell Production System or Hubbell Business System. The management approach used by the $3 billion manufacturer of electrical and electronic products leverages all of the familiar lean tools and techniques. But it’s just how they do business.

“We use lean and Design for LeanSigma, along with policy deployment, to help us stay focused on the vital few areas that we want to improve every year. It’s a natural part of everything we do,” says Tim Powers, Chairman of Hubbell’s Board of Directors.

Powers became Hubbell’s President and CEO in 2001,

and Chairman in 2004.

David Nord took over the roles of President and CEO for the company this past December. “For us, lean is a management methodology rather than an activity.”

Headquartered in Shelton, Conn., Hubbell operates manufacturing facilities in (continued on page 3)

Also in this issue: 2| Leading Thoughts: Right Leader, Right Time 6| Big Picture: Enterprise-Wide Value Stream Mapping 8| Case Study: An ERP Go-Live Recovery Story 12| Q&A: Using Lean as a Growth Weapon www.tbmcg.com

Leading Thoughts

Right Leader, Right Time It wasn’t long after Tim Powers moved from the CFO to the CEO role at Hubbell in 2001 that TBM was invited to visit some of the company’s factories to evaluate the improvement potential.

We had worked with several divisions of the company starting in 1996, and had helped them make major operational improvements with clear financial returns. But the divisions were all managed separately at that time. So our efforts never expanded to the corporate level or across the company.

February 2013 | Issue 1

Publisher: Anand Sharma: asharma@tbmcg.com Executive Editor: Angela Scenna: ascenna@tbmcg.com Associate Editors: David Drickhamer Jon Katz Tonya Vinas

When I met with Tim in 2001 to share our initial findings, the markets where Hubbell competed were not growing, so sales had been flat, and net income had been falling. We saw some major opportunities for Operational Excellence and said to Tim that the company could conceivably double its sales without hiring any new people or building new space.

That was the potential. The problem was that many of the division managers were comfortable with the current performance. They needed something that would open their eyes. Sitting down with Tim later that day, in a couple of hours we developed Hubbell’s “2x4” strategy. It included: 1. Cutting total inventory by ½ by 2004 (from $300 million)

Contributors:

2. Increasing net income by 2 percentage points each year through 2004

Jonathan Chong Anand Sharma Ken Van Winkle Art Direction and Design: Crossbow Group crossbowgroup.com Printing: Carter Printing & Graphics, Inc. carterprintingnc.com

3. Increasing market share by 2 percentage points by 2004.

We calculated that the financial benefits from these targets—which Hubbell ultimately exceeded—would free up $150 million in cash and increase net income by $75 million in 2004.

The rest, as they say, is history. TBM worked with the company to reduce inventory, leverage overhead, and free up floor space so they could consolidate operations. Tim didn’t make any promises to Wall Street, but investment analysts noticed when the company’s cash flow and earnings started to improve, which pushed up the stock price.

Tim’s visionary leadership during this transformation was exemplary. There’s nothing like steadily improving Operational Excellence performance—and appreciating stock options—to keep an Operational Excellence program rolling forward.

Anand Sharma Chairman & CEO, TBM Consulting Group, Inc. asharma@tbmcg.com 2 | OpEx Review | February 2013 | www.tbmcg.com

(continued from page 1)

Hubbell’s operating margins have followed an upward trend for the past 10 years, even through the 2008-2009 Recession.

Hubbell Operating Profit Margins

16% 14% 12%

the United States, Canada, Switzerland, Puerto Rico, Mexico, China, Italy, the United Kingdom, Brazil and Australia, as well as joint ventures in Taiwan and Hong Kong. For more than 12 years, Hubbell managers and employees have used lean manufacturing practices to improve quality, boost productivity and increase operating margins (See chart on right). Hubbell employees have participated in hundreds of kaizen events on the shop floor, in its administrative areas, with suppliers, and with distributor customers.

“This year our operating profit will be around 15 percent,” Powers reports. “That’s the highest that it’s ever been. When we began our lean journey we were in the middle to upper single digits. We’ve steadily built that up over time. But there’s more improvement to be had.”

Powers adds that the company’s quality levels, in-stock rate, on-time delivery and make-to-order lead times are all the best they’ve ever been as well. The steadily improving operational and financial performance reflects a core organizational capability that he describes as “speed with certainty.” When confronted by a market opportunity or the need to defend against a competitive threat, because of their highly disciplined management approach, Hubbell is able to respond quickly with a high probability of success, Powers explains.

“From my point of view, that’s one of the most important competitive advantages that you can develop in a company.

We haven’t fully arrived yet, but we’re certainly much better than we’ve ever been,” he adds.

10% 8% 6% 4% 2% 0% 01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

Source: Hubbell annual reports

Lesson Learned Hubbell began its lean journey in the aftermath of the economic recession in the early 2000s. When its business slowed down because of the widespread decline in capital spending, the company’s inventory levels ballooned, leading to some costly and painful adjustments. That experience pushed the management team to become more disciplined and establish better management processes so the company would weather down business cycles better in the future.

Those process improvements were tested eight years later.

Hubbell’s sales took a hit during the 2008-2009 Recession like almost every other industrial company, but the company’s profit margins leveled out rather than falling, as they had during the previous down cycle. Because it was more responsive to day-to-day demand changes, Hubbell’s business units had much less inventory to manage and the inventory adjustments that they did have to make weren’t that significant. (continued on page 4) OpEx Review | February 2013 | www.tbmcg.com | 3

Hubbell vs. S&P500 200.0%

2,519 days

180.0% 160.0% 140.0% 120.0% 100.0% 80.0% 60.0%

Source: StockCharts.com

40.0% 20.0%

-20.0% 2003

2004

Hubbell

2005

2006

2007

2008

2009

2010

2011

2012

In recent years Hubbell’s record of steady earnings growth has been recognized—and rewarded—by investors.

S&P 500

Achieving such resiliency wasn’t easy or straightforward.

Two years after beginning to implement lean practices, after making significant and highly visible process improvements within its factories, the management team noticed that those efforts and productivity gains were not translating into significantly better financial performance. Using the policy deployment process—also known as strategy deployment or hoshin kanri—they subsequently started picking a few areas to focus on where improvements would translate into more meaningful results.

“I spend some of my time talking to analysts about policy deployment, believe it or not,” says Powers. “I talk about selection of the vital few, and shortened new product development cycle times. When people understand it, they really buy into our management process. We have a lot of supporters of our stock, as evidenced by our share price. A good portion of that is because of steady improvements over time utilizing our management methodology.”

The baseline goal for Hubbell business managers is to generate sufficient productivity improvements every year through lean and new capital investments to offset inflation.

Management conversations revolve around the metrics and projects that will enable the company to achieve those goals. These conversations focus primarily on the “reds and yellows,” those projects and metrics highlighted on progress 4 | OpEx Review | February 2013 | www.tbmcg.com

reports that are behind target, which require immediate countermeasures for the goals to be realized.

One example of a policy deployment initiative was the implementation of a universal ERP system. Following a very deliberate three-year plan spelled out on the policy deployment matrix, Hubbell replaced 18 legacy systems with a single information management system. This system in turn, by presenting “one version of the truth,” has enabled the company to identify new opportunities for improvement and monitor progress in every business unit. Newly acquired companies follow the policy deployment process as part of their introduction to the Hubbell way of doing business, as well as making the transition to the new system.

Design for LeanSigma Another key element of the Hubbell management approach that has paid huge dividends is Design for LeanSigma (DFLS).

The new product development process incorporates production process planning and implementation using rapid, team-based product and process design within a lean framework. It starts by listening to the “voice of the customer” to identify the attributes that customers both want and are willing to pay for.

Each project has a final report out, just like a kaizen event, that documents the cycle time reductions and the specific features incorporated into the product and how those features correspond to customer needs.

Connecting Industry Standardization and Lean Tim Powers, Hubbell Chairman of the Board

“It has taken a process that was too long, and not as successful in terms of the number of products that we launched, to a much more disciplined process with a shorter cycle time and a much higher rate of success,” Powers reports. “Our hit rate on new products has risen, and our lead time to invent and deploy a new product has been reduced by half over a three-year period.”

In conclusion Powers says the management team is just as enthusiastic about lean today as they were in the beginning.

They see new opportunities to improve every day. “It’s been tremendously rewarding to see such improvements in a company that has always been a market leading company,” adds Powers.

“We’ve now raised our financial performance into a market leading position along with our products and our people.”

The company is now self-sufficient, in that it provides all training internally, and it certifies CI experts as green belts and black belts; it requires a year of running kaizen events and making process improvements to get to the first certification level. Their objective now is to spread the knowledge deeper into the company to further accelerate the rate of change.

“With the foundation we have put in place over the last several years we are able to increase our ‘speed’ while maintaining our confidence in successful execution,” concludes CEO and President Dave Nord. “This confidence will allow us to increase the pace of execution in everything we do.” 

Tim Powers, Hubbell’s Chairman, led the electrical industry’s e-business organization (IDEA) from 2004 to 2006. The role dovetailed nicely with the company’s lean implementation efforts because it focuses on removing waste and speeding up business transactions.

“A typical order for us is under $2,000, and it has three-and-a-half line items,” Powers explains. “We take 4,000 orders per day.

So you have to buy the materials. You have to build the components. You have to put most of them in inventory. You have to be able to invoice them, put them on a truck with a packing list, and eventually collect payment.

There are lots of touches. The best way to improve productivity across the entire industry is to have the format of such information be uniform so that distributors and manufacturers can manage that inventory and information in a mechanized way.”

Hubbell recently reached a point with one of its largest customers where all of their transactions—order entry, shipment, invoicing, payments, returns, etc.—are all processed electronically. As Powers explains, it takes time for everyone to agree on and implement standard processes across an industry. Those efforts are finally beginning to bear fruit.

OpEx Review | February 2013 | www.tbmcg.com | 5

Big PICTURE

Enterprise-Wide Value-Stream Mapping

By Jonathan Chong, TBM Director of Business Development

Every business leader talks about how they put their customers first. Why then is almost every company organized by department to maximize functional efficiency? An organization that truly puts its customers first requires a horizontal, crossfunctional structure and a collaborative culture that maintains its customer orientation in the face of conflicting priorities.

Creating an enterprise-wide value-stream map gives senior business leaders the strategic perspective to jumpstart collaboration and leverage functional efficiencies based on customer needs.

6 | OpEx Review | February 2013 | www.tbmcg.com

Within TBM we describe this customer-centric approach as enterprise-wide value-stream management. An enterprise-wide value-stream aligns functional activities with the specific values that a particular set of customers want. For example, a company may have one enterprise value-stream serving specialty customers and another enterprise value-stream serving retail customers. By managing each value stream separately, companies can develop, commercialize, and deliver new products and services that cater to each customer type in a shorter period of time, with higher success rates and lower costs. To get started, business leaders first have to turn their organization on its side and look at every step required to create a new product, bring it to market, make it, and deliver it; and how each activity is currently being coordinated with every other activity. An enterprisewide value-stream map can provide this perspective.

As described in the illustrations there are several key differences between an operations-level value-stream map and an enterprise-wide value-stream map. First, the enterprisewide value-stream map contains several subordinate value streams. Since each data box within the map can represent a large business unit or a manufacturing operation, it often requires an additional level of detail, which is represented by a secondary process map.

VALUE-STREAM MAPS The Operations-Level Map:10,000 feet

The Enterprise-Wide Map: 30,000 feet

Narrow orientation mapping ONE operation or business process within an enterprise

System-wide orientation mapping MULTIPLE processes and operations — must occur in parallel or in lock-step to deliver a final outcome

Typically has THREE KEY components

1

 Information Flow  Cross functional, supporting sub-value streams

 Information Flow  Material Flow  Value Added vs. Non-Value-Added Time

Spotlights key improvement opportunities

(i.e., Sales, Marketing, Product Development, Operations, Supplier Management)

2

within a single operation or process

3

Shortcoming:

4 LOW

 Enterprise-wide departmental cadence and process synchronization

Creates Awareness of all activities (from beginning to end)

that must be synchronized in order to deliver a product or service offering

Benefit: Encourages cross-functional interaction in situations where functional barriers might prevent a timely, profitable introduction of a new product or service.

No visual awareness or recognition of other elements that might impact your ability to effectively implement a process

Difficulty Level:

Typically has MULTIPLE components

(This approach visually demonstrates the opportunities and barriers that exist in cross-functional interactions.)

Difficulty Level:

HIGH

The big challenge in implementing enterprise-wide VSM is its scope.

Most functional area activities are NOT synchronized but must work together and converge to deliver a desired organizational outcome. Since the map covers all functions within an enterprise, it takes a greater degree of organizational fortitude and leadership from the very top to make its implementation successful.

Like a process-level value-stream map, the enterprise-wide value-stream map identifies immediate opportunities to improve execution and performance. It also shows executives and functional managers where and why value streams need to be synchronized in order to deliver the best value to specific customer segments in the most efficient way.

Making the process failures and opportunities visible gets everyone looking at one version of the truth and leaves no room for excuses.  For more information abut enterprise-wide value-stream mapping contact Jonathan Chong directly at jchong@tbmcg.com.

OpEx Review | February 2013 | www.tbmcg.com | 7

CASE STUDY

Client The largest and most complex division of a publicly traded company—that wishes to remain anonymous—with factories in the United States and Mexico. It manufactures and markets highly customized products through retail outlets worldwide.

Challenge

Recovering from an ERP Implementation Gone Awry How one company bounced back from a potential $5.9 million loss

After a new ERP system went “live,” the company could barely get product out the door. After several months of intense manual efforts—including major overtime on the shop floor and a doubling of orderentry personnel—the unit had improved the situation to some extent, but performance gains had stalled at around 70 percent of where they were before the installation of the new system. Excessive product defects, increased labor requirements, and order expediting were still costing $118,000 per week.

Delayed deliveries and poor customer service were also eroding the company’s dominant market share.

Solution

A steering committee led by top management targeted four key problem areas that needed to be fixed to get the business aligned with customer needs again. Utilizing TBM’s well-defined LeanSigma methodology and highly structured improvement approach, we worked with the client on: 1) scheduling 2) shop-floor simplification 3) order entry/customer service processes 4) inventory management Visual management and disciplined daily management processes accelerated and sustained the process changes in each of these areas.

Results Within 12 weeks, all of the improvement plans had been implemented, performance was improving, and the company began working to rebuild its reputation and recover lost market share. They reduced past-due orders by over 90 percent from over 7,000 orders to less than 500, and cut workin-process inventory in half. Order-entry time fell from over 10 days to less than two days, and the business had reduced order-entry head count back to original staffing levels.

8 | OpEx Review | February 2013 | www.tbmcg.com

It wasn’t the first business unit in the company to implement the corporate-mandated ERP system. Managers knew what to expect, or thought they did. Several years ago the company had even snapped up a competitor financially weakened by a botched ERP implementation, so managers understood that there could be risks. Their IT consultants assured everyone that changing over to the new ERP system—even though their products were fairly complex and highly customized— would go smoothly. What could possibly go wrong?

ERP systems are supposed to streamline processes so that businesses run faster, smarter, and more profitably. And they usually deliver, sooner or later. In this case, a few weeks after the new ERP system was turned on, the business could “barely ship product,” in the words of one executive. Internal quality defects jumped from less than 4 percent of orders to more than 11 percent. Needing to ship around 650 orders per day, past-due orders ballooned from around 500 to over 7,000, prompting a number of disgruntled customers to cancel orders and find alternative suppliers.

All of these issues added up. Unbudgeted costs included: external consultants, additional customer service reps, manufacturing, customer service and order-entry overtime,

higher scrap rates and premium freight. In total, the ERP implementation issues were costing $118,000 per week— potentially $5.9 million per year—and were reducing margins by 3.6 points. Management cited the unexpected costs as a drag on earnings in the company’s quarterly financial report to shareholders. (continued on page 10)

Processes Targeted for Immediate Improvement

1. Order entry

2. Scheduling

3. Shop floor

There was no standard work for entering orders, which came in by mail, fax and email. Orders vary from basic to complex.

Using a “perfect order” metric, which is defined as complete and accurate orders, the order-entry improvement team simplified, standardized and error-proofed the order-entry process.

In contrast to the previous ad hoc approach to production scheduling, the new system allows optimization by customer types. It looks at due dates and prioritizes expedites using a visual process (colored folders) and a scheduling wheel.

There was limited process documentation, standard work, or visual management. The shopfloor team simplified and standardized production processes, and created work instructions that everyone could understand.

Day-to-day problem-solving tools helped supervisors drive a variety of significant improvements in their areas.

4. Inventory management Incompatibilities between the new system and the company’s legacy system contributed to inventory increases and replenishment failures. A comprehensive review of all procured materials re-established replenishment types, which improved material availability and allowed inventory levels to be reduced significantly.

OpEx Review | February 2013 | www.tbmcg.com | 9

CASE STUDY

Righting the Ship Over an intense 12-week period, a team of TBM consultants worked with the company’s executives, operations managers and IT team members to turn things around. Their objective was—at minimum—to return the business to its performance levels prior to the ERP system implementation by reducing transaction complexity, simplifying and standardizing business and production processes, training and certifying all system users and locking down information and material flows.

At a high level the TBM team followed the DMAIC process.

Starting with an overview of the current situation, they worked with the client’s managers to define the current problems, measure and analyze the data, establish quantifiable recovery goals and create detailed project plans to fix the situation. A steering committee, which included high-level executives and a TBM representative, met every week. They monitored the progress of the four improvement teams assigned to each major problem area.

“ The level of commitment was very obvious at all levels throughout the organization.

The prevailing attitude was and is that they would do whatever it takes to serve their customers better.”

— Ken Van Winkle, Senior Consultant, TBM Consulting Group

10 | OpEx Review | February 2013 | www.tbmcg.com

“The commitment by the senior management team at the company was unquestionable,” recalls Ken Van Winkle, TBM Senior Management Consultant. “Everyone attended the regularly scheduled steering committee meetings and participated in the 12-week recovery plan every day as needed.”

The underlying problem, as indicated by the doubling of the company’s order-entry personnel, was that customer service people couldn’t enter orders quickly or accurately. That’s a big issue when every product you ship must be customized in some way. “Such complexity is not what ERP systems were traditionally designed to manage,” Van Winkle notes.

After three months, the improvement plans had been executed, and the organization was in full recovery mode. Testifying to the culture of the organization, there was virtually no pushback against the changes that had to be made to improve the company’s performance.

The results: Past-due orders

Order-entry errors

DOWN

DOWN

Order-entry productivity UP

OVER

22%

90% “The level of commitment was very obvious at all levels throughout the organization. The prevailing attitude was and is that they would do whatever it takes to serve their customers better,” says Van Winkle.

To maintain forward progress, TBM helped each work area implement SQDC boards (safety, quality, delivery, and cost) for monitoring and reporting current performance. A floorlevel management process for monitoring that performance (managing for daily improvement) established a system for assigning responsibility and addressing abnormalities as they arise. The engagement also included the creation of an assessment process for key personnel using a skills matrix.

Going forward the expectation is that everyone in critical roles will be required to achieve a defined skills “certification” level.

On the cost front, annual operating costs have been reduced by millions of dollars, and are well on their way back to pre-ERP implementation levels, which will return $6 million to the bottom line.

“Within weeks of implementing the SQDC boards,” recalls Van Winkle, “I was in the facility when one of the area managers presented the performance of his area to the CEO. He did better than people at many organizations who have been doing it for years. That’s a sign of a company with

to less than 500.

39%

Total number of people needed to enter orders reduced from 38 to 23.

Average time to enter an order

Work-in-process inventory

REDUCED

REDUCED

10 DAYS

6 WEEKS

2 DAYS

3 WEEKS

Internal defect rate DOWN

50%

back to pre-ERP system levels in most areas, and by 75% in one critical production area.

talented people who own the process, own the problems, and own the solutions. The CEO thanked him and his team personally for their commitment and dedication.” 

OpEx Review | February 2013 | www.tbmcg.com | 11

Q&A

How Milbank Manufacturing Uses Lean as a Strategic Weapon for Growth Could you briefly describe your results from implementing lean manufacturing?

When we started down the lean path at Milbank seven years ago, we expected to see all of the typical benefits: reductions in lead time, increases in quality, and overall increases in operating effectiveness and customer response capabilities. We realized all of those benefits. We freed up a tremendous amount of cash through lead time and inventory reductions, and that allowed us to reinvest, diversify and grow our business.

An interview with Lavon Winkler, President & CEO, Milbank Manufacturing Company

12 | OpEx Review | February 2013 | www.tbmcg.com

It seems like your markets are fairly mature.

How did you identify those growth opportunities?

About a year and a half ago we realized we didn’t really understand our true competitive advantage. I define competitive advantage as

Since joining Milbank in 2005, President and CEO Lavon Winkler has led the implementation of lean principles and practices into every area of the company. His leadership philosophy is to educate, develop and motivate managers to consistently exceed financial and operational targets. Lavon began his career with Butler Manufacturing Company as a design engineer, where he held positions in engineering, sales, construction management and manufacturing operations, before moving into senior management.

“ We’re taking market share each and every day, just by leveraging and promoting the basic benefits that we’ve achieved by implementing lean.”

something that we are doing that no one else is doing— the real reason customers buy our products and services.

We had done all kinds of customer surveys, of course. We knew we were the industry leader. We knew we had incredible domestic market share [greater than 50 percent] in our core business. But we didn’t really understand why our customers bought from us. So we sponsored a blind, third-party survey to learn more about why our customers prefer Milbank.

Prior to doing this customer study, in our discussions with existing and prospective customers, we would always talk about our 85 years in business and our five decades of market leadership in meter sockets. We’d talk about family ownership. We learned from the study that these are not the reasons our customers buy from us. In fact, those points were way down the list.

What we discovered is that the real reason our customers buy from us is: 1) When they need our product, it will be in our stock, 2) When they need a product that they don’t stock and we don’t stock, the lead times are still very short, 3) Product quality and reliability, and 4) When we tell them that we will ship a product and have it to them by a certain date, we hold true to that commitment. Price is a secondary consideration.

What did you do with that knowledge?

Once we understood our real competitive advantage, we decided to use it as a strategic weapon. Many companies in our industry through the 2008-2009 downturn cut back their workforce so much that their ability to respond to customers went downhill. So, we looked strategically at who we could target in a somewhat predatory fashion. Then we promoted Milbank based on what we learned about why people buy from us. (continued on page 14)

About Milbank Manufacturing Company Winner of TBM’s Perfect Engine site award in 2010, Milbank Manufacturing Company supplies wholesale electrical distributors and home centers with electrical products (primarily meter sockets and enclosures) for utility, contractor and industrial, and OEM markets. It has three primary product lines: 1) electricity meter mounting enclosures and related supplies, 2) commercial and industrial electrical enclosures, and 3) p ower generation equipment (standby generators, solar modules and wind turbines). The 86-year-old, privately owned company employs 540 people at three manufacturing facilities and a training/R&D facility in Kansas City, Mo.; Concordia, Mo.; and El Dorado, Ark.

OpEx Review | February 2013 | www.tbmcg.com | 13

Q&A

The results have been absolutely incredible. We are heavily dependent on the residential housing market. During the Recession new construction fell 75 percent from where it was in 2005, and it hasn’t gained back much ground. Yet, we’re taking market share each and every day by leveraging and promoting the basic benefits that we’ve achieved from implementing lean.

Lean-Driven Operational Improvements at Milbank 2005

2012 YTD

Stock availability

91.1%

97.0%

How would you characterize the continuous improvement (CI) culture at Milbank?

Sales orders ontime

55.3%

98.6%

One of the recent conclusions that we’ve come to as a management team is that we need to be much more deliberate about cultural development at Milbank. A few months ago we started studying the essence of the culture at Toyota and other companies, evaluating the attributes of those cultures that we can bring to Milbank to further instill the essence of what lean is about.

Lead time

85 Days

19 Days

9.7

2.8

Work in process inventory (WIP), $

$4,100,000

$787,000

Annual WIP turns

14

75

600,000 sq.ft.

400,000 sq.ft.

One discovery that took us a while to realize is that the Toyota Way—as Jeffrey Liker writes about in his books—is really not about the philosophy, and it’s certainly not about the tools and techniques. The Toyota Way is what resides in the hearts and minds of each individual worker at Toyota. That’s what we’re working to understand.

Why do you think so many companies struggle with sustaining process improvements?

One of the main reasons that I was hired at Milbank was my experience with lean at a couple of other companies. When I first came on board I spent a lot of time educating my senior

Medical incident rate

Floor space

staff about what lean is and what lean is not. Part of that was going to gemba. We did field trips to other companies to see what they had done so the folks on my management team could understand what we could do through lean.

One of the places that we went was Wiremold’s facility in West Hartford, Conn. When we were talking to the general manager of that facility, I asked him what his number one challenge is as it relates to lean. Without hesitation he looked me

Financial Benefits from Milbank’s Lean Initiatives

•S elf-funded all growth and new technology development

• L aunched a new operating division focused on renewable energy: PowerGen

•E liminated $4.5M in long-term debt in 2007

• I ncreased metering business domestic market share by 12%

• Excellent return for shareholders

Milbank accomplished all of this during a period when the U.S. residential construction market fell 75 percent from its peak in 2005.

• Built a new National Training Center

14 | OpEx Review | February 2013 | www.tbmcg.com

“ Innovation has been an outpouring of what we’ve done with lean.”

right square in the eye and said, “Sustainment. Being able to sustain the progress that we make.”

I tell you—even though I had some experience with lean— that was really disheartening. I figured that if anyone had figured out sustainment, surely Wiremold had. Since then I’ve attended TBM’s Executive Exchanges each year and had a chance to talk to business leaders at a lot of companies. It’s nearly universal that they cite sustainment as their number one challenge.

How does lean fit into your innovation efforts?

Our PowerGen division that we started three years ago is focused on renewable energy, which is quite a bit different from our core business. That’s where a lot of our innovation work has been focused.

We are in the process of rolling out a device that monitors and manages local energy sources and uses. It constantly runs algorithms and controls inputs and outputs so that the customer has the lowest possible power bill. There’s even a predictive component to it. We have four other technology projects in the works as well.

That innovation has been an outpouring of what we’ve done with lean. Lean has freed up a tremendous amount of cash. We’re able to satisfy the financial needs of our owners,

and are able to fund business expansion based on cash from operations. We have no debt. We have a $10 million operating line of credit that we’ve only touched for four days over the past four years.

What should other CEOs understand in order to make lean work most effectively?

Lean is so counterintuitive that making the leap takes a lot of trust and faith. Here’s the deal, though. Any time you start a new business, any time you start anything that’s new, it’s going to be difficult. You’re going to run into problems. You’re going to stumble and fall down and have to get up again.

You’re going to have days when you’re discouraged and go home and look in the mirror and wonder why you’re doing it. But you have to keep driving forward because you know in the end that it will be fruitful.

The reasons so many companies get a year or two into lean and then say ‘the heck with it,’ are false expectations and not being fully committed. They believe huge financial benefits will come immediately. They don’t understand what they’re signing up for.

Today even our owners and our board talk about what kind of shape we’d be in if we hadn’t done lean. They wonder if we’d even still be here. Instead, we’re financially healthy, investing in the future, growing the business, and funding it all from cash generation.  OpEx Review | February 2013 | www.tbmcg.com | 15

Book Review

The Lean CEO Must ‘Lead by Example’ In The Lean Turnaround, Art Byrne stresses the importance of executive involvement for lean transformations to be successful.

If you’re an executive who still views lean as a “manufacturing thing,” your company’s continuousimprovement efforts are bound to fail, says lean strategist Art Byrne in his latest book, The Lean Turnaround: How Business Leaders Use Lean Principles to Create Value and Transform Their Company (McGraw-Hill, 2013).

attending kaizen events and establishing the financial ties to a lean program.

Currently an operating partner at private-equity firm J.W. Childs Associates L.P., Byrne draws on his experience as the former CEO of Wiremold Company and group executive for Danaher Corp. to describe how leadership-driven lean initiatives can transform struggling companies. Over the years he has attended and participated in many of TBM’s annual Executive Exchange conferences.

Byrne advises boards of directors to act swiftly to ensure that their leaders are fully behind their lean initiatives. As chairman of several of J.W. Childs’ portfolio companies, he has replaced several CEOs who didn’t really buy into the value of lean.

“Both Art and TBM had great relationships with Yoshiki Iwata, the founder of Shingijutsu,” recalls Anand Sharma, TBM’s President and CEO. “When Wiremold was making a lot of acquisitions, rather than leave the integration to chance, I remember how Art always led the first day of training for the first kaizen event. He would personally teach the management team and show them how the operation could become better and improve.”

Too many executives leave lean programs in the hands of operations people. The result is an “increasingly narrow focus on cost or inventory reduction,” he writes. “This greatly reduces its effectiveness. It also helps explain why only about 5 to 7 percent of the companies that attempt to implement lean do so successfully.”

“My experience in private equity has confirmed my belief that you can improve the value of any company and make a lot of money by using lean management and lean strategy,” writes Byrne. “It’s taught me that if the CEO doesn’t buy into lean, you need to act quickly to replace him to avoid sub-optimizing your investment return.”

About Art Byrne Art Byrne started his lean journey in manufacturing and now uses this very approach in his present position in a private-equity firm.

Byrne emphasizes such leadership practices in his book, writing that CEOs must “lead by example” to achieve significant results. This includes performing gemba walks,

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