Link-Belt Case Study - Q3 2010 Managing Times

MANAGING TIMES

Q3.10

S h a r i n g

S o l u t i o n s

f o r

Y o u r

L e a n

LeanSigma Improvements Propel Momentum at Link-Belt

8 Lean ROI Guest Viewpoint: Capturing the Financial Benefits of Lean

12 Q&A with President of Carlisle Engineered Transportation Solutions, Inc.

15 Phifer Uses TPM to Resolve Minor Issues & Improve Quality

J o u r n e y

PUBLISHER’SNOTE

Getting into Alignment

A

lignment. Structure. Support.

Linkage. These are the threads of a common theme that emerge as you read through the articles contained in this issue of Managing Times.

Consider Link-Belt and their commitment to the Link-Belt Production System which is sustained by management support, kaizen as a way of life, and lean as a means for driving cultural transformation. The company aggressively leverages lean as a strategy for growth and gaining significant competitive advantage. Their Japanese parent, Sumitomo Industries, recognizes LinkBelt as their leading lean example. LinkBelt’s top-to-bottom, customer-to-supplier alignment has resulted in solid, measurable improvements that retain high-quality talent and deliver revenue, profitability and customer satisfaction.

Guest columnist Bill Schwartz challenges clients to leverage lean as a strategic tool for growth by converting waste into dollars. Schwartz talks about the importance of marrying the lean journey to financial performance by capturing and monetizing the gains and understanding the true financial benefit of any and all improvement activity. Companies who align lean with key performance measures have a better opportunity to leverage improvements into meaningful business performance and organic growth.

Carlisle Engineered Transportation Solutions is aligning itself more closely with the customer. The company improved performance in spite of a significant volume decline last year. Their structured approach toward measurement and tracking ensures alignment keeps initiatives on track and helps them to deliver better performance.

I challenge you to think about your lean progression and the alignment you create through the right leadership behaviors, through structure, through strategy deployment, through key performance metrics and more. Are your business results what you want them to be? If not, maybe you should consider a “tune-up” to realign your continuous improvement activities to your critical business performance measures and leverage the gains for significant differentiation and profitable growth.

Anand Sharma Co-founder & CEO TBM Consulting Group, Inc. asharma@tbmcg.com

Q3 .10

MANAGING TIMES

Publisher Anand Sharma: asharma@tbmcg.com Executive Editor William A. Schwartz: bschwartz@tbmcg.com Managing Editor Angela Scenna: ascenna@tbmcg.com Featured Columnists Laura Jackson Anand Sharma

Bill Schwartz Tonya Vinas

Contributors Jessica Conyers David Drickhamer Jim Forshee Matt Goessling Angela Scenna

Melissa Slater Fred Sutter Scott Varnnasdall Ken Van Winkle Mike Voigt

Art Direction and Design IONA design www.ionainteractive.com Printing Carter Printing & Graphics, Inc. www.carterprintingnc.com Published in Durham, NC 4400 Ben Franklin Boulevard Durham, NC 27704 TBM, the TBM logo, and LeanSigma® are registered trademarks of TBM Consulting Group, Inc. If you would like to receive this journal via email, send your vital information including email address to tbm@tbmcg.com

On the cover: The Link-Belt model HC-278 Conventional Truck Crane has capacity of 300 tons and a maximum boom length of 330 feet.

K

enneth Cameron, Carlisle Operating System (COS) Manager at the Carlisle Transmission Group in Fort Scott, KS recently completed Kaizen Instructor Training along with nine other COS managers from his company…Brad Morris is now COS Champion at Carlisle Tire & Wheel…Steven Randazzo, COS Manager for Carlisle Tire & Wheel earned a promotion to Paint Department Manger. He will have a dual role in both departments…CRC Changchun China, one of the two main train manufacturers in China is launching a long-term engagement with TBM China…The Meihua Group, a young private Chinese company that makes about one-third of the total worldwide MSG is launching a long term engagement with TBM China. David Johnson recently joined Steris as Vice President of Global Manufacturing. The TBM Medical Products & Pharmaceutical Practice recently launched work with four new client sites: Zimmer in Parsippany, NJ, Catalent in St. Petersburg, FL, Steris Manufacturing in Whippany, NJ and Cleveland, OH. Congratulations to the following Lean Certification Graduates in Mexico: Martin Guzmán Barrera from Copreci, Jorge Zambrano and Luis Rodríguez Ibarra from Carrier, Juan Gerardo Uribe Vázquez, and César Andrés Peralta Ramirez from Aramark, Miguel Angel López López, José Luis Arellano Nebrada, and Roberto Carlos Navarro Romo from Telas del Hogar SA de CV…The following Owens Corning associates completed Lean Certification Program Leader training: John Misud, Jon Verhoff, Steve Matrisciano and Francisco Aguilar….Congratulations to the following Lean Certification graduates from GEX in India: Rahesh Nandula, Arun Kumar, Uma Shankar, Hitesh Trivedi, Anita Sharma, Vishwanath, Dilip N, Kantharaj Dev, Prabash Kashyap, Satish Chandra, Hari Krishna, Shripad Hegde, and Sanjit Singh....Congratulations to the following Lean Certification graduates from Owens

Corning in China: Xia Yan, Xujin Tu, Jianxing Xu, Hao Yi, Binghai Kang, Ying Zhou, Zhongyi Lu. Congratulations to the following LeanSigma® Green Belt Graduates: Tony Groves of Hayward Pool Products, Jennifer Cook, Dean Lazenby, Greg Baird and Stephanie Hawkins of Owens Corning.

Dr. Rieinhard Kleyna of WIKA Instruments in Germany recently earned certification as a LeanSigma Black Belt.

Welcome! Peggy Yang joined TBM China as marketing manager…Charles Chen rejoined the TBM China team as a senior management consultant primarily supporting two Armstrong plants in China…Sonja Loth recently joined TBM Europe as Marketing and Business Development Manager for Germany. She is fluent in German, English and French.

Darragh MacNeill joined TBM as Senior Management Consultant on Team Germany / Eastern Europe. He comes from IBM Global Business Services and has experience with numerous CI, Lean Supply Chain and Lean Product Development engagements.

Farewell! Jim Scott, a long time TBM consultant and BPK expert recently left TBM to work at a contract manufacturing company in North Carolina…and TBM consultant, Paula Paben recently accepted a new job closer to home so she can spend more time with her family.

PUBLISHER’S NOTE. LEAN COMMUNITY NEWS

A publication of TBM Consulting Group 4400 Ben Franklin Boulevard Durham, North Carolina 27704 800.438.5535 www.tbmcg.com

LEANCOMMUNITYNEWS

Managing Times | Q3.10 www.managingtimes.com

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LeanSigma Improvements Propel Growth Momentum

CASESTUDY

Link-Belt defies economic downturn with aggressive expansion plan

By Tonya Vinas, Editorial Consultant and Freelance Writer

Challenge >

CASE STUDY

Link-Belt introduced lean manufacturing and other improvement-focused practices to the plant floor through its productionengineering department in 1994. But as was the case at many manufacturing companies in the 1990s, this effort was limited to production and never resulted in an enterprise-wide culture change. Enthusiasm for lean programs waned over the years, but Sumitomo executives began encouraging Link-Belt managers to revisit lean processimprovement as a way to meet strategic growth goals as the competitive pressure of global economics escalated in the 2000s.

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Client >

Solution >

The Link-Belt Construction Equipment Company is a leader in the design, manufacture and sale of telescopic and lattice boom cranes, with headquarters in Lexington, Ky. The current company was formed in 1986 as a joint venture between FMC Corp. and Japan’s Sumitomo Heavy Industries, although the original Link-Belt was patented in 1874. Sumitomo became sole owner and parent company in 1989. Link-Belt is known for its innovative design and sells its high-quality cranes to construction-industry customers all over the world. Link-Belt’s product line consists of lattice trucks, lattice crawlers, telescopic crawlers, all-terrain cranes, rough-terrain cranes and hydraulic truck cranes.

Link-Belt invested heavily in its people through training, creating a centralized continuous-improvement office, and implementing a job-retention plan during the economic slowdown. Its first kaizen event solved a tenacious supply-chain problem by forming a long-term commitment with a preferred component supplier. The supplier relocated to the Link-Belt campus using space freed up by inventory reductions, a model Link-Belt wants to use with other key suppliers. The company also began reorganizing into value-streams by common key processes, which consolidated and simplified planning. Additionally, Link-Belt started using Design for LeanSigma for product innovation after voice-of-thecustomer research identified the need for a new crane attachment. About 53% of employees have now participated in lean activities as part of their daily work, but the company has a current goal of 70% participation by year-end 2010.

Results > Link-Belt’s inaugural supplier-development project resulted in fast, substantial and highly visible improvements. This rekindled a spirit of process improvement throughout the company, which despite being in one of the hardest hit industries of the Great Recession, stuck to an aggressive growth strategy. Through its reorganization and realignment of resources to support lean systems, Link-Belt has gained significant competitive advantage through cycle-time and waste reductions, supplier engagement, and speed and innovation of new product development. Among Sumitomo Heavy Industries companies, Link-Belt is now recognized as a leading lean example.

2006 was a year of dubious distinction for Link-Belt Construction Equipment Co. During that year, the first hints of economic trouble began bubbling in other industries.

Meanwhile, lean management made a re-appearance at Link-Belt through a new relationship with TBM Consulting Group that continues today.

Link-Belt’s strategic goals included sales and market growth, and leaders weren’t going to abandon this plan despite a deepening crisis that would ultimately become The Great Recession. Link-Belt leaders asked TBM for help in creating the Link-Belt Production System (LBPS).

The bold decision to defy popular “bunker mentality” tactics during the down turn has paid off by returning short-term financial and operational improvements (see Results From LeanSigma Improvements Since 2006) and — most importantly — by positioning the company for dramatic growth as the global economy recovers.

The Link-Belt Production System The Link-Belt Production System concentrates on shortening the time between the customer order and the shipment of the product through the elimination of waste.

Key Points • Management support driving sustainment.

• Kaizen Breakthrough methodology focuses on time and immediate results.

• Being a lean organization supports a cultural transformation.

Since 2008, Link-Belt has significantly expanded and upgraded its manufacturing capabilities. The company has invested more than $25 million in formed and lattice-boom production capabilities, becoming one of the few crane builders in the world manufacturing its own formed boom. In 2009, Link-Belt began a second, $10 million expansion that will house manufacturing of large telescopic boom cranes.

Managing Times | Q3.10 www.managingtimes.com

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CASESTUDY (continued) Results from LeanSigma Improvements Since 2006 Cumulative new-hire cost avoidance: $1,326,000.

• $1,098,000: In 2007-2008, the company saw an average telescopic product demand increase of nearly 30% and was able to quickly increase capacity and efficiency in telescopic crane assembly. They accomplished this by balancing work content, operating entirely on one shift while achieving all-time records on assembly start schedules.

• $228,000: Kaizen activity in lattice boom Manufacturing and Receiving used lean tools to identify and eliminate waste while balancing work to takt time, resulting in the savings.

Inventory reduction (total inventory): $2,800,000.

• $400,000: 2006-2007; Pull system implementation of sheet-metal parts (fenders, hoods, steps, etc). In addition to freeing up cash from idle raw materials and WIP, Link-Belt was able to reduce rework and scrap goods substantially by eliminating batch outside storage through the implementation of kits by unit/machine supporting one unit flow.

• $1,300,000: 2007-2009; Implementation of a kit pull system from current suppliers for lattice boom weld on components resulted in sustainable reductions of inventory and eliminated many wastes associated with high inventory levels and poor parts presentation to welders.

• $1,100,000: 2008-2009; Implementation of a kit pull system from current supplier of formed boom sub-weldment components allowed sustainable reductions in inventory and created easy visual management of product flow through multiple processing steps.

Operator cycle-time reductions: 8-28% cycle time reductions: The key focus of lean activity has been eliminating non-value added activity (NVA). Identifying and eliminating NVA improved productivity and quality by allowing operators to focus on the value-added steps. Creating a standardized work place reduced the dependency on tribal knowledge and developed cross-functional teams that can react quickly to changes with minimal impact to the customer.

Floor-space reduction: 20,000 square feet: Implementation of JIT delivery for sheet metal kits freed up 20,000 square feet of warehouse space that supported the strategic decision to move Qualex (sheet metal and lattice boom weld on components) in as an on-site supplier.

Lead time reduction: 60-75% lead time reduction: Created on-site supplier (Qualex) to manufacture sheet metal kits resulting in an overall shortened lead time (60-15 days). Link-Belt’s strategic decision to manufacture telescopic formed boom shells resulted in 62% reduction in lead time, ensuring JIT delivery with minimal work in process and inventory.

Part-travel reduction: As high as 27% (receiving area) Average 5S increase/event: 197% Corrected safety items: 286

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Team Members, left to right, front to back: (Front Row) Ned Snow, Marvin Hitch, Bill Stiltner, Mike Bennett, Mike Clevenger (Back Row) Bob Brant, Tim Ritchie, Jimmy Barber, Jerry Lamour, Roger Staneck after a machining center shop floor Kaizen event.

At the CEMEX plant in New Braunfels, TX, this 50 ton RTC-8050 Series II unloaded an 800 foot long, 28,000 pound conveyer belt for an aggregate plant. The machine also helped hang 1,100 pound steel sheets to repair chute work on an 85 foot-high wash plant roof; Paul Zink, Jim Forshee, Russell Hopper & Scott Vannarsdall reviewing an area model designed in a Vision/Planning Kaizen Event; Negotiator, Bob Gendreau, during a business process mapping Kaizen event; and an RTC unit going through the final paint touch up and decal process.

Project Results in Long-Term Supplier Commitment Link-Belt’s first project with TBM focused on relations with Qualex, which supplies the company with components fabricated out of sheet metal.

According to VP/Manufacturing Jim Forshee, a 35-year veteran of the company, Link-Belt was purchasing fabricated components from as many as four suppliers from as far away as 200 miles. MRP for batch production drove the process, and lots of excess inventory was being stored outside, so damage and scrap was high.

“We struggled for years to improve the process without making progress,” Forshee said. “With the help of TBM, we designated Qualex our preferred supplier and invited them to participate in a business-process kaizen.”

A dramatic turn-around resulted. The two companies now have a long-term commitment, codified in the relocation of Qualex to Link-Belt’s Lexington, Ky., campus. Now the fabricated components are produced, supplied and consumed using one-piece flow and simple visual signals. First-year results included:

• Inventory reduction of $400,000, or 80%.

• Reduction from 200 miles to 200 feet for component transport.

• Queue sizes down by 25%.

• WIP down 25%.

• Damage/rework reduced 50%.

• Purchasing lead time from 60 days to 15 days.

Today Qualex is taking on more work and expanding its capabilities in response to increased orders from Link-Belt.

According to Forshee, the success of the Qualex project reinvigorated a process improvement spirit at the company. “It happened quick, and the rest is history. In one week’s time, you could see the results of your effort. We went from ‘stay in your own department’ to highly cross-functional improvement efforts with lots of employee involvement. That wasn’t necessarily in place in years past.”

company’s growth strategy and are essential to making everything from simple process improvements to innovative new products a reality.

The company’s internal lean office — created early in the TBM relationship — originally consisted of one production engineer. Currently, Lean Systems Manager Scott Vannarsdall, who joined Link-Belt two years ago, heads the Lean Systems Office. The staff also includes a lean systems engineer, MDI technician, lean office coordinator, and a Design for LeanSigma engineer.

One of the first challenges for the new lean office was to organize the plant into value streams by process: boom fabrication, welding and machining; large structural frame fabrication, welding and machining; and final assembly. Value-stream leaders and teams now make daily operational and planning decisions within their groups.

Creating a Centralized ContinuousImprovement Office In addition to investing in equipment and other capital, Link-Belt has invested extensively in human resources. These “people” investments are the bedrock of the

Protecting Vital Human Resources In addition to creating the lean office and empowered value streams, Link-Belt leaders made a commitment to maintain their core workforce during the recession, slowing down production and asking for volManaging Times | Q3.10 www.managingtimes.com

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CASESTUDY (continued)

––––––––––––––––––––––––––––––––––

“

Not laying off people was a

more expensive option but they wanted to be ready for customers when the downturn reversed.

”

~ Ken Van Winkle, a TBM consultant

working with Link-Belt.

––––––––––––––––––––––––––––––––––

untary time off from employees, who would not be paid but would keep healthcare benefits while off work. (So many employees volunteered that not all could be accommodated.) The company also relied on the flexibility of a stable contract labor force, which it had in place. (Contract employees at LinkBelt work full time, receive profit sharing, and often are asked to join the company as core employees.)

This commitment to preserve ties with loyal employees was a key strategy to protecting the most important component of customer value-creation.

Linking Productivity to Growth Goals The direct connection between a LeanSigma process-improvement focus and Link-Belt’s growth imperative played out clearly in another project that focused on improving efficiency of a production line that assembled both the hydraulic truck crane and the rough-terrain crane.

Vannarsdall suspected waste in the process because the two products had major variations in cycle times and materials. As the team was working on improvement in 2007, they received word to expect an up-tick in orders the next year. (As large capital purchases, construction cranes have long purchase cycles).

“We were halfway through this project when we saw demand increase,” Vannarsdall said. “It made sense at that time to separate the lines into two. We looked at it before, but we never realized what a big impact it had on waste. After we really understood what was going on there, we realized that we were overstaffed [in assembly].”

The single line became two much more efficient lines. And, assembly for all models was moved onto one shift instead of three,

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Managing Times | Q3.10 www.managingtimes.com

which is a more efficient use of operators and allows for immediate attention from daytime support staff when problems arise.

Vannarsdall is particularly proud of how fast the team completed the transformation in response to anticipated customer demand.

“By August 2007, we converted roughly 83,000 square feet of manufacturing facility and created a new supermarket area, and had it running for both products. We did this without missing any customer requirements.”

Focusing on Customer Needs Going forward, Link-Belt is focusing on identifying the unmet needs of customers and then meeting them, whether the need is for faster and more flexible response or an entirely new product. For example, reducing lead time is the impetus behind the company’s capital investments. In the case of telescopic booms, bringing the fabrication and welding in-house will reduce total lead time by a minimum of 50%. Link-Belt traditionally purchased the booms from suppliers with facilities in Germany and Belgium with a lead time of as long as 10 months. “It really hampered our ability to be flexible,” Forshee said.

Through voice-of-the-customer work, Link-Belt identified another opportunity to fulfill an unmet need. Customers wanted to be able to pick up a panel (such as for a wall) with a crane, rotate, and then set it in place using two hooks. Link-Belt engineers decided to use Design for LeanSigma as the process to create the new attachment. The resulting hydraulic offset fly attachment provides the advantage of reduced set-up time for customers because they can now do the required job with less equipment being transported to the construction site. While Link-Belt does not yet have formal feedback

on the new attachment, the company is confident it will attract new customers and new orders.

Design for LeanSigma® – a unique approach to new product development, production process planning and implementation by using rapid, team-based product and process design within a lean framework generating results that are a quantum leap from traditional or concurrent engineering approaches.

Today, Link-Belt has a lean product development room, which includes extensive visuals and measures of safety, quality, cost and delivery.

“We always looked for opportunities for improvement,” said Design Engineering Vice President Bruce White. “But we never had a continuous-improvement tool to house it under as we do today.”

Indeed, creating a cohesive continuousimprovement mindset and infrastructure — along with executive commitment to stick with growth goals while protecting valuable human resources — have put Link-Belt in a much-envied position as the construction industry rebounds.

“We’re posed to rapidly take advantage of increased orders,” Forshee said. “This is the first time that we’ve made these types of capital investments and plans so that we are ready for the next cycle rather then waiting for the orders to pick up and then make the investment. By that time, it’s too late.”

Wanting to give back to a community that helped them grow their business, Buck’s Crane Service, Rudd Equipment and Industrial Contractors of Evansville, IN, each donated LinkBelts for Evansville’s Thunder on the Ohio Unlimited Hydroplane Race. Lifting boats were a 75 ton RTC-8075, a 90 ton HTT-8690 and a 65 ton HTC-8665. The boat weighed just under 7,000 pounds dry. After a boat flipped, however, it weighed up to 15,000 pounds.

Managing Times | Q3.10 www.managingtimes.com

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Lean ROI Guest Viewpoint A Three-Step Process for Capturing the Financial Benefits of Lean

STRATEGICVISIONING

Translating lean gains into superior shareholder value

By Bill Schwartz, Managing Director of TBM’s Medical Products and Pharmaceutical Consulting Practice

W

Bill Schwartz was a math major in college and he still likes the numbers. He is currently Managing Director of TBM’s Medical Products and Pharmaceutical Consulting Practice. He challenges clients to leverage lean as a strategic tool for growth by implementing strategy deployment and driving culture change.

e hear the question all of the time.

“We see the immediate benefits from our lean projects and events. We understand the power of the process. Why don’t we see it on the P&L statement?” The CFO, who frequently isn’t participating directly, might even put it more bluntly, “On that kaizen event you say you improved productivity in that workcell by 50%. But next week’s payroll will be the same as this week. Where’s the return?”

At the tactical level, whether it’s a kaizen event, a lean project, or an A3, translating such ground-level activity into financial gains follows a three-step process in which the ultimate responsibility for capturing the benefits depends on management action.

The first step is making the improvements, applying the lean tools and methodology to eliminate waste, improve productivity, reduce inventory, and improve flow.

The second step is to physically free up the resources. This could be floor space,

labor hours, machine time, material utilization, or plant capacity.

The third step is the specific action that management takes to capture the gains.

For example, if a kaizen project frees up floor space on the factory floor, management action starts by roping it off and not allowing it to be backfilled with miscellaneous material and equipment. But it hasn’t been converted to dollars yet. Monetizing such gains happens when the company is able to close an outside warehouse, or use the floor space for additional production and avoid the need to invest in new buildings in order to grow.

If you generate productivity gains in an area, supervisors and managers must follow through and permanently remove the labor from that area. You don’t want to go back in two weeks and find the same number of operators on the line. Management can then reduce total labor hours by eliminating overtime or temporary help, or through attrition. Of course, freeing up labor and

Leverage Waste Into Dollars Step 1

Step 1

Step 3

Eliminate Waste

Free Up Resources

Management Action

STRATEGIC VISIONING

Yield

8

• Reduce Scrap • Flows to P&L (standard cost system)

Labor Hours

• Free up labor (OT, attrition, temps) • Reduce Hours or Add Volume (increases productivity)

Machine Time

• Reduce CapEx (cash plus future fixed cost) • Add Volume (increases productivity)

Plant Capacity

• Redce Footprint (reduces final cost) • Add Volume (increases leverage) All of these actions increase ROA

Managing Times | Q3.10 www.managingtimes.com

floor space creates an opportunity to bring in more work and do it with existing employees, thereby eliminating any potential need for layoffs and improving return on assets. Such actions convert the waste that has been eliminated into hard returns.

If a project improves yield, by reducing scrap for example, the money can flow out pretty quickly with less material usage.

Unfortunately, such gains can get lost in a standard cost accounting system. Here the reduction will show up as a material usage variance that can be difficult to trace. If standard cost builds in a 2% scrap rate—in effect saying that it’s okay to throw away 2% of material—when process improvements reduce scrap rates management must revise the standard.

Every lean project or event will free up capacity in one form or another, be it production capacity, inventory storage space, asset utilization or working capital. When your teams free up those resources, it is management’s responsibility to follow through and capture those gains and translate them into financial returns.

Make no mistake about it. The lean journey is all about generating shareholder value. It starts by focusing on the customer and responding to and serving customers well in order to grow. But in the end it comes down to generating maximum value.

Lean enables superior value creation by both increasing profit and reducing the assets required to generate it.

Shareholder value can be expressed as a simple equation of profit over assets, or return on assets (ROA). Profits consist of revenues minus costs; and assets consist of net working capital plus fixed assets (see chart on page 10). This may be obvious to most business managers, but it’s important for the management team to think about these

factors when marrying their lean journey to financial performance. The actions, process improvements and investments that they decide to pursue will increase or decrease ROA. It’s important to remember that most people in an organization, even supervisors and department managers, don’t fully understand financial statements or what effect their actions can have on the numbers.

Lean efforts will affect both the numerator and denominator of this equation.

A typical lean initiative, whether it’s a project or event, will generate double-digit improvements in profits by decreasing costs or improving labor productivity, and create double-digit improvements in asset utilization by reducing inventories, floor space and working capital and future investment requirements. Organizations have achieved and documented such returns from a lean kaizen event or project over and over again, even if they’ve already attacked a process in the past and sustained the gains.

For example, if we start out with a 1:1 ratio for ROA (profits:assets), and a lean project increases profits by 20% and reduces asset requirements by 20% (1.2 ÷ 0.8), the

––––––––––––––––––––––––––––––––––

Make no mistake about it.

The lean journey is all about generating shareholder value. It starts by focusing on the customer and responding to and serving customers well in order to grow.

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Managing Times | Q3.10 www.managingtimes.com

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STRATEGICVISIONING (continued)

REVENUE

Translating Lean Gains into Shareholder Value

= Net Working Capital

+

NET WORKING CAPITAL

PROFIT

-

Costs

= Fixed Assets

-

New Customers

+

-

Existing Customers

-

Material

+

Labor

+

Fixed Costs

Receivables

+

D.S.O.

+

Inventories

+ FIXED ASSETS

ASSETS

Shareholder Return

COSTS

Revenue

• Innovation • Market Segmentation • Existing Customers

New Products

Buildings

+

=

• • • • • •

Scrap Value Engineering Productivity O.E.E. Throughput Consolidation

• Accuracy • Velocity • Throughput

+ • Revenue • Capital Expenditures • Footprint

Equipment

source: TBM Consulting Group, Inc.

net gain is a 50% increase in shareholder value (from 1 to 1.5). That’s leverage. Such gains can really add up if a company can continually improve both the numerator (profits) and the denominator (assets).

Business leaders at The Wiremold Company (West Hartford, Conn.) in the 1990s understood this. During that decade the company made more than 15 acquisitions. They integrated more than half of those acquisitions into their existing fixed footprint, leveraging those fixed assets while growing sales and improving profitability to generate enormous compound growth in shareholder value.

Hayward Pool Products (Elizabeth, N.J.) offers a more recent and detailed example. Hayward acquired a marginally profitable heat pump company with a 45,000-sq.-ft. facility, 43 salaried and hourly people and annual volume of 3,700 units.

They brought the product line into

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Hayward’s existing plant in Clemmons, N.C., manufactured it with less than 10 people and drove sales through the company’s existing distribution channel. They then tripled sales on the strength of their sales network and by putting the Hayward brand on the product. In the end they more than tripled sales without increasing their fixed asset structure.

Lean projects and a lean culture can contribute to superior shareholder returns by enabling innovation, reducing scrap, improving productivity, improving equipment utilization, boosting throughput and effectively integrating acquisitions, as the Hayward example illustrates. Such initiatives can also improve velocity and reduce inventory, receivables, and facility requirements. There are high- and low-level performance metrics for all of these that can be tied to the direct financial benefits of lean. Revenue per square foot, for example,

is an indicator of facility productivity that pushes people to think about how to add revenue or volume without adding buildings.

Framing lean in terms of increasing shareholder value takes the focus away from the tools or creating impressive but isolated areas of excellence. No matter how long a company has been working at it, managers who target and work on specific factors of the ROA equation can link a company’s business strategy and vision to its lean journey, thereby maximizing shareholder returns.

–––––––––––––––––––––––––––––––––– This article first appeared on the LeanROI.org website. LeanROI.org is an online research project exploring the factors that can make lean initiatives more successful and sustainable by achieving and documenting hard financial returns. The site is developed and managed by David Drickhamer, freelance writer and former editor of Industry Week.

TBM NAMES PELLA CORPORATION WINNER OF 2010 CORPORATE “PERFECT ENGINE” AWARD

LEANCHAMPIONS

On June 22, 2010, Anand Sharma, TBM president and CEO, presented Pella Corporation with the 2010 “Perfect Engine” award recognizing the commitment to a continuous improvement philosophy and its success as a “Lean” enterprise.

The award was presented to Pella’s President and Chief Executive Officer (CEO) Pat Meyer on behalf of the company’s Engineered Technologies Division (ETD). Based in Pella, Iowa, Pella is a family-owned, professionally-managed, privatelyheld company that manufactures a full range of high-quality residential and commercial windows and doors for new construction, remodeling and replacement projects.

“The Perfect Engine” refers to the precision

TBM honored Pella Corporation’s Engineered Technologies Division (ETD) team with its “Perfect Engine” Award in 2010. Pella is the only company to have earned the coveted award twice in history.

interworking of human resources and physical

Honoring Pella Corporation’s leadership in continuous improvement are front row from left:

assets to achieve outstanding productivity results

Gina Singer, Pella Corp Kaizen promotion office (KPO) manager; Brian Kingery, Pella Corp ETD director of opera-

that create business agility, growth and profitability.

This annual award honors a manufacturer that has been successful in implementing LeanSigma® methodologies throughout the entire organization

tions; TBM CEO Anand Sharma presenting the Corporate “Perfect Engine” award to Pella Corporation President and CEO Pat Meyer, and Jim Meyer, President and Chief Operating Officer (COO) of Pella’s ETD (no relation to Pat Meyer.) Back row, from left: Larry Ehlinger, Pella Corp director of engineering and Bill Schwartz, TBM executive vice president.

and throughout its value chain.

Approaching nearly 17 years on its lean

in 2003 and this is the second time we have

journey, Pella continues to use the LeanSigma

recognized the company for its achievements.

approach to extensively innovate, develop and

Pella has demonstrated significant success gaining

launch new products and has leveraged its

market share and building brand loyalty through

competitive advantages into growth in sales and

its LeanSigma transformation and commitment

productivity. From 1993 to 2010, the company

to investing in the workforce.”

has executed more than 10,000 kaizen events

“The Pella team is truly honored to again

leveraging lean to aggressively support its growth

earn the ‘perfect engine” award as we rely on lean

initiatives. Some of Pella’s recent results include:

principles to drive continuous improvement in

• The ability to utilize improvements to

our Engineered Technologies Division and

profitably diversify and grow, even in a

throughout the business to add value and help

down economy

create better views for our customers in the

• A steady ability to maintain short customer

process,” Meyer said.

delivery-to promise-lead times

• The ability to maintain or reduce price for several consecutive years LEAN CHAMPIONS

“Pella earned this year’s Perfect Engine award because of its proven ability to use lean as a strategic tool for growth,” said Anand Sharma, Founder and CEO of TBM Consulting Group.

“Pella was the first Perfect Engine award recipient

Managing Times | Q3.10 www.managingtimes.com

11

LEADERSHIPINSIGHTS

Q&A with Fred Sutter, President/Carlisle Engineered Transportation Solutions Inc.

By Tonya Vinas, Editorial Consultant and Freelance Writer

Alignment Specialist, Fred Sutter, President of Engineered Transportation Solutions Inc., a subsidiary of diversified manufacturer, Carlisle Companies Inc., doesn’t like to put limits on lean management — especially when it comes to serving customers.

Q: When were you first exposed to lean?

My first exposure was in the late ’80s/early ’90s. I worked for a big multi-national company that had created a lean office focused on business process improvement.

They actually coined the phrase BPI. Experts helped the subsidiary companies put together standard work, processes and systems to improve efficiency and effectiveness in non-manufacturing departments. I was working in the sales and marketing area at the time, and we used those tools to improve our sales and marketing processes.

Q:

So your first exposure was in a nonmanufacturing application. Did that help to shape how you view lean as a leader today?

The success and results that I saw then help me today to stay the course and get the organization focused on keeping lean as a top priority in all of our functions. I’ve seen the outcome. I know what happens when we stick to the course.

Q:

LEADERSHIP INSIGHTS

In what functional areas of your business are you using lean principles?

We do kaizen events everywhere. I stress all the time that there are opportunities to create standard work and drive efficiency

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Managing Times | Q3.10 www.managingtimes.com

and improvement whether it’s manufacturing or non-manufacturing. Sales, marketing, finance, HR — all of those functions can benefit from the creation of standard work and systems. There’s inefficiency everywhere.

Q: Speaking of which . . . how do you use standard work in your personal life?

I travel a lot, and I have a standard way that I pack my suitcase every time. I didn’t realize this until I saw the movie “Up In The Air.” [The movie’s main characters travel frequently for business.] I saw what they did and said, “I think I do that.”

Q: Often, lean fails to achieve sustainable benefits at large, global, publicly held companies. Efforts either die of neglect or are uprooted by market fluctuations and/or leadership changes. What’s different about Carlisle?

The current CEO is a big believer in lean, and he also has a strong manufacturing background. The lean principles very much resonate with him, and the commitment to lean starts at the top. Frankly, it has not been an uphill battle at all. The entire company has embraced this.

Q: Was that so even during the sharp drop in sales your division had in 2009 due to the global economic crisis?

Absolutely. My view of lean is that it is a culture and a mindset. It is a way of driving quality, productivity, efficiency and better service to your customers. It doesn’t matter if it is a good economic time or a bad economic time — the benefits are there. In fact you can argue that in tough economic times, lean makes things better.

Q: How so?

Lean really helped this company by enabling us to identify opportunities for efficiency and cost savings. What we saw overall in this downturn was that the performances of the very lean companies were not as negatively affected. At Carlisle we’re seeing lower volumes and higher costs, so we’re feeling pressure from both sides. Lean has helped us to mitigate those pressures.

Q:

What about commitment and motivation at the operator level during difficult times? Does lean help there?

Obviously the downturn creates a lot of concern in people’s minds. But we find the whole lean process is very motivating for our employees. They want to contribute, and they appreciate that someone asks for their opinion. Last year we ran over 120 kaizen events in our business, and just over 20 percent of our employees participated in kaizens. I continue to be amazed at how engaged and excited our employees are. The kaizen process itself is a great motivator.

inventory requirements were reduced. In 2009, we had significant COS-related cost savings. We are far from done, but our employees are becoming increasingly engaged in COS and have recognized that the role they play as individuals makes a significant difference in the overall success of Carlisle.

Q:

Much of your improvement focus at the moment is on distribution. How come?

It’s really about improving the management of our cash flow, reducing our inventory, and improving our customer service levels all at the same time. It’s easy to reduce inventory, but if you do it and sacrifice service levels, that won’t help the company in the long run.

Q: Can you give me the highlights?

When we started, we had 22 distribution centers in North America, which for a lean-oriented company is a fairly significant amount. The first thing we did was consolidate a number of our smaller DCs

Q:

Your company has its own processimprovement methodology known as the Carlisle Operating System (COS). How does COS provide a competitive advantage?

COS has been deployed enterprise-wide and is driving improvements in our core manufacturing and business operations. It enabled us to reduce factory space as our operations became more efficient, and

Managing Times | Q3.10 www.managingtimes.com

13

LEADERSHIPINSIGHTS

(continued)

Q: Such as?

Our volume declined last year, but we improved our inventory turns by more than 10 percent, which is tough to do. But it’s worth it. We believe service is one of our key differentiators.

Q:

––––––––––––––––––––––––––––––––––

“

We do kaizen events everywhere.

I stress all the time that there are opportunities to create standard work and drive efficiency and improvement whether it’s manufacturing or non-manufacturing. Sales, marketing, finance, HR — all of those functions can benefit from the creation of standard work and

Q:

systems. There’s inefficiency everywhere.

”

~ Fred Sutter, President of Engineered

Transportation Solutions Inc.

––––––––––––––––––––––––––––––––––

14

Managing Times | Q3.10 www.managingtimes.com

into our larger DCs to get some economies of scale. Now we are introducing lean concepts such as finished goods supermarkets and pull systems so we can better connect supply to our customer’s demand. We’ve also implemented a Sales Inventory Operations Planning (SIOP) process where we look at our demand, supply and production rates on a monthly basis. We do a demand-planning session, a supply-planning session and an operations-planning session; and all three departments work together to ensure we have the right product at the right place at the right time for our customers.

Are customers looking to you to help them control their inventory levels?

There is no doubt that our customers — especially our large OE customers — are migrating to more Just-in-Time inventory planning. We’ve seen them dramatically reduce the amount of inventory that they carry. Frankly, in today’s environment, you have to have those principles in order to be effective. With some of our key customers, we are starting to set up finished-goods kanban systems. Basically, it is coupling our supply chain with our customer’s, and we’re seeing great success.

How do you balance the drive for efficiency with high standards for customer service?

We’re establishing key performance indicators that we’re holding each of the functional areas responsible for. We review those with them on a monthly basis. We roll all of these up into a Web-based application, and that’s what we use to measure and drive performance improvement. People know we’re going to review it and have questions, so everyone wants to be on track.

And the important thing about key-performance indicators is that you have to have a balanced scorecard. Saving money is great, but when we look at driving long-term value for our customers and shareholders, it’s about service and quality and safety. We know we have to look at all of these things.

Working on just one is not going to get us where we want to be.

Phifer Uses TPM to Resolve Minor Issues and Improve First Quality

TECHTALK

By Laura Jackson, Continuous Improvement Engineer, Phifer, Inc.

and reliability. At Phifer, Inc., a manufacturer of insect screens, solar screens, drawn wire, interior

Billy Payne, International & Distribution Screening Supervisor. “It establishes communication, accountability, and ownership between production, maintenance, and supervision.”

solar control fabrics, engineered products and outdoor designer fabrics, workers operate large machines with countless, small, fast-moving parts.

We use TPM to ensure that equipment performs

Total Productive Maintenance (TPM) is a discipline that

our most critical value-added work with efficiency

maximizes equipment

and accuracy.

In contrast to employees on a traditional assembly line, the value-added work of Phifer machine operators is ensuring that the equipment performs as required. Operators on a continuous process line develop a keen sense of how their equipment is running, and can quickly differentiate normal sounds and vibrations from abnormal ones. In the coating department at Phifer, supervisors, mechanics, and operators use a simple TPM log sheet to keep small problems from turning into big ones.

productivity and reliability.

During the first six months that Phifer used the TPM log sheets, the company, identified, recorded and resolved over 400 issues. While kaizen events in this area have historically focused on higher-level quality and productivity opportunities, the TPM sheets have had just as much of an impact. Correcting a bunch of little issues that keep the equipment in better shape prevents the bigger scrap and equipment uptime problems.

The end result: a 20 percent improvement in first quality productivity.

“I do not believe there is another tool in use on today’s production floors that can generate as powerful an impact as this TPM log sheet,” says

The process begins when operators notice an abnormality with the equipment. They document the issue on a log sheet and raise a flag mounted next to the sheet to alert the mechanic that an issue has occurred. Since the process is designed to address minor problems, the majority of the issues can be repaired immediately. The mechanic lowers the flag after performing the necessary corrective action. He then documents his activities, date and completion time on the log sheet . If the issue could not be resolved, he indicates the status and the item remains open.

Every hour, as the supervisor walks through the area, he or she checks the TPM log for new items. He talks to the specific operator who logged the issue to better understand the problem and that the mechanic’s response met the operator’s expectations. Essentially, the supervisor “closes the loop.” When the supervisor is satisfied that the issue is resolved, he initials the item and closes it out.

“The operators spend their whole day with the equipment; they know how it should work.

They see problems, and can identify potential ones, much quicker than we can,” says Johnny Johnson, Senior Coating Maintenance Manager.

“In the past during departmental meetings, I was bombarded with complaints about problems about which I knew nothing. Now, the operators have greater control. Basically, they can’t complain if they haven’t logged the issue.”

The TPM log sheet also improves communication among maintenance personnel. “We had times when equipment was tagged out at the end of one shift and those coming on had no idea what the problem was. Now, we can see what

was wrong and who was working on it. The sheet also allows us to see if it is a reoccurring problem as well as what has already been done to resolve it,” Johnson adds.

Even though this system has yielded excellent results for Phifer, it is usually a reactive response to a minor equipment failure. Recently, we began using the approach to proactively improve preventative maintenance procedures.

Maintenance personnel and CPI resources analyzed log sheet data from several months and looked for reoccurring issues that might point to deeper problems that could be avoided by modifying maintenance plans. We categorized the problems and set a baseline and goal for each type of issue, thereby converting “random abnormalities” into “process variations” that we can plan for and predict.

How did a simple log sheet produce such dramatic results? The answer has less to do with the TPM sheet itself and more to do with how it is used. If nothing happened when an item was logged, operators would have lost faith and quickly stopped documenting problems. But since their efforts drive action, the operators continue to identify equipment abnormalities.

“Everybody has bought into the program,” Payne concludes. “After implementation, we were amazed at the number of issues that were logged, but we were even more amazed at the results it has generated.”

TECH TALK

Total Productive Maintenance (TPM) is a discipline that maximizes equipment productivity

Managing Times | Q3.10 www.managingtimes.com

15

CONSIDERTHIS

Lean Sigma Global Summit September 14–17, 2010: Las Vegas, NV

Sept. 14–17, 2010 Brochure available online: www.tbmcg.com/globalsummit

The LeanSigma Global Summit provides an extraordinary opportunity to immerse yourself in innovative, strategic thinking that will help you transform your continuous improvement initiatives. There will be 125-150 delegates from all walks of manufacturing—all looking for techniques, insights, and inspiration for breathing new life into their

CONSIDER THIS

continuous improvement initiatives.

16

The summit is appropriate for senior leaders, operations management and continuous improvement teams.

Managing Times | Q3.10 www.managingtimes.com

The blockbuster agenda is sure to make a big impact.

20 Breakout Sessions in Four Great Tracks Breakout sessions run on Wednesday and Thursday, September 15 and 16. There are four concurrent sessions with multiple presentations in each of the following four tracks: Innovation & Growth, Leadership Strategies & Culture Change, Supply Chain Management, and Next-Level Lean Tools & Techniques. Choose from 20 breakout sessions with rich content in every track.

Panel Discussion: Strategies for Leveraging Lean to Support and Fuel Growth Initiatives A team of executive panelists will offer ideas and guidance for continuous improvement leaders who need and want to better align their lean initiatives to company's strategic vision for differentiation, growth and profitability.

Keynote Presentations Keynote presentations from CEOs, operations leadership and lean experts.

Anand Sharma, President & CEO of TBM Consulting Group responsible for translating Strategy Deployment into a American management process for achieving breakthrough objectives.

Anand will host the event and share insights throughout the conference.

Registration To register, visit www.tbmcg.com/GlobalSummit or call 800.438.5535. The event is held approximately 30 minutes away from tourist attractions at a conference center setting appropriate for a professional gathering.

David Mann, Independent Lean Consultant and author of Creating a Lean Culture: Tools to Sustain Lean Conversions will speak on Generating Senior Leadership Engagement in a Lean Transformation.

David Johnson, Vice President Global Manufacturing, Steris Manufacturing will speak on Rapid Lean Transformation in a Regulatory Environment.

Denny Van Zanten, Corporate VP, President & COO Heritage Division, Pella Corporation will speak on Using Lean to Create a Better View.

Jeff Northern, Senior Advisor, Field Operations, TPG Capital, L.P. and Donald Maier, Senior Vice President, Operations, Armstrong World Industries will speak on Full Potential Process for Lean and Strategy Deployment.

Keni Thomas, former Army Ranger, Award-Winning Country Music Artist and Spokesperson for the Hero Fund will speak about his experience as an Army Ranger during the Black Hawk Down mission in Mogadishu, Somalia.

Blackhawk Down Army Ranger to Speak at the LeanSigma Global Summit Business leaders love to study leadership. They read about it, talk about it, preach about it, and post motivational sayings about it in their offices — especially during difficult times. Few of them, however, have had to lead a team through 18 hours of urban warfare that wounded 78 comrades and killed 18 countrymen. Former Army Ranger Keni Thomas has, and he will share what he learned about leadership, training, teamwork and planning when he speaks at the 2010 LeanSigma Global Summit.

Thomas and his fellow Rangers distinguished themselves while deployed in Mogodishu, Somalia, in 1993 for the Oct. 3 fire fight that was later recounted in the book and movie “Blackhawk Down.” He is a recipient of the Bronze Heart for Valor for his role in the battle.

Now a motivational speaker and musician, Thomas shares his story with a variety of groups, delivering the overarching message that when properly trained people understand how crucial their contributions are to a team, they will perform exceptionally in difficult circumstances.

“I don’t talk about colonels and generals who were in high positions,” Thomas said recently from his home in Nashville. “These were just young guys, and they weren’t in charge of anyone but themselves. But knowing they were being counted on, they stepped up to greatness. They knew that if they fell out, the person next to them was going to get let down.”

Thomas also discusses how ongoing, consistent training — although difficult and frustrating at times — was crucial to eliciting exceptional individual performance during the battle, a message that business leaders need to hear as they are often pressured to trim training budgets to cut costs.

Managing Times | Q3.10 www.managingtimes.com

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MANAGING

TIMES

TBM LeanSigma® Institute 2010 Schedule Highlights

Australia Melbourne, Victoria 03.9521.8654 Brazil São Paulo 55.11.5051.7490 China Pudong, Shanghai 86.21.6888.6671 France Lyon 33.472.91.32.88 Germany Heidelberg 49 (0) 6221.825.835 India Gurgaon 91.124.437.5995 Mexico Monterrey 52.81.50.00.91.36 Switzerland Geneva 41.22.710.77.70 United Kingdom Derby 44.1332.367378

LEAN CONFERENCE: LeanSigma Global Summit Don’t miss this extraordinary opportunity to immerse yourself in innovative, strategic thinking that will transform your continuous improvement initiatives. Choose from 20 breakout sessions with rich content in four tracks. We’ve added a panel discussion focused on how to leverage lean to support and fuel growth initiatives. Ample time for networking and learning.

• September 14-17, 2010 – Las Vegas, NV Go to www.tbmcg.com/GlobalSummit for more information.

KAIZEN TRAINING: Kaizen Breakthrough Experience Participate in a live Kaizen event at a lean manufacturing site. Experience the dramatic bottom-line improvement and efficiency you can quickly achieve and sustain as your kaizen team implements lean tools in an actual business operation.

• October 11-15, 2010 at Carlisle SynTec in Carlisle, PA Go to www.tbmcg.com/kbe for workshop details, to select your kaizen team and register for the workshop.

International Lean Excellence Conference A lean user conference for mid-level managers and leaders managing the daily implementation of lean inside their organizations. Contact Donna Hopkins in the UK office for more information and registration.

• November 3-4, 2010 at Carlisle Brake in Pontypool, Gwent, Wales

EXECUTIVE SEMINAR: Leveraging LeanSigma for Growth An interactive two-day workshop for senior manufacturing executives who wish to create a clear, concise and compelling vision and leadership roadmap for business transformation. This workshop focuses on using the powerful and proven tools of LeanSigma, the Kaizen Breakthrough methodology, and Value Innovation to create unique competitive advantages and a high-performance culture for exceptional growth in sales and earnings.

• December 7-8, 2010 in Durham, NC Go to www.tbmcg.com/llg for more information and additional workshop dates throughout the globe.

WEBINAR: Strategy Deployment: Best Practices and Leadership Behaviors that Deliver Breakthrough Results Hosted by Kevin Quinn, VP Manufacturing, Pactiv Corporation and Dan Sullivan, Principal with TBM Consulting Group, Inc. Pactiv Corporation committed to continuous improvement over three years ago but their management team decided it needed to step-up the pace by building a better process for bridging the gap between planning and execution. Learn how they utilize Policy Deployment (otherwise known as goal deployment, strategy deployment, or Hoshin Kanri) to align people, plans, process and performance. Gain insight to a management process that translates 3-5 year goals for market share growth, profitability, cash flow and innovation and creates focus on annual objectives, business processes and measurable targets that unite and align the entire organization.

• Download the webcast at www.tbmcg.com/webcast/8-13

TBM Consulting Group, Inc. 4400 Ben Franklin Blvd.

Durham, NC 27704 www.tbmcg.com

Corporate Headquarters Durham, North Carolina 800.438.5535

PRESORTED FIRST CLASS MAIL US POSTAGE PAID RALEIGH, NC PERMIT #2483

Q3.10