Published in the September issue of FF Journal
By Kevin J. Duggan
Left: Having established self-healing flow, Hypertherm associates not only build the product but also see the timing of the value stream and take action to fix problems without management intervention.
Achieving optimal success requires manufacturers to leverage lean manufacturing — here’s how to do it
September 2013 - In the post-recession reality of U.S. business, one key to success is a company’s ability to leverage its manufacturing operation for growth. Although applying lean principles can eliminate waste and improve productivity, further steps are necessary to achieve the operational excellence for a manufacturer to run a smooth operation and thrive.
In recent years, a few unique companies have taken a different approach to lean. Hypertherm, based in Hanover, N.H., is one of these companies. Its objective has been not to only reduce waste, increase efficiency or be cost-effective. Instead, it is leveraging its operation for top-line business growth, even with the challenges of building a variable-demand, high-tech product for custom applications and consumer use.
The company, which produces plasma cutting torches for the metal cutting industry, is a prime example of a U.S. manufacturer that has achieved these goals.
Lean techniques in metalforming
In the world of metalforming and the fabrication of metalforming equipment, applying basic lean tools—5S, setup reduction, TPM and kaizens—is straightforward. But when we begin thinking about value stream flow in high-mix, low-volume environments, where customer orders are inherently unpredictable, it becomes challenging. Flow in FFJ-0913-manufacturing-simage1these environments has traditionally been difficult to establish and maintain using the basic tools, primarily because lean techniques were developed from the automotive industry, where demand is leveled and the sequence of production is fixed.
That is not the case in the metalforming industry. Although some products are made on a repeat basis for certain customers, the product mix is typically high, the volume for any individual product can be low, and the variety of customer orders can be somewhat random. Equipment may be built for a specific application, or perhaps to fit with another manufacturer’s system (such as an x–y CNC table).
And then there is the consumable side of the business, which requires quick responses for a large variety of individual parts. This inherent uncertainty has made creating flow difficult, as organizations generally lack an effective method for structuring production for flow given the applications of their products and the unpredictability in customer orders. As a result, many metalformers assume the lean techniques that originated with the automotive industry will not be effective for their businesses. That’s actually not correct.
Most efforts at creating flow or implementing lean principles have centered around the use of kaizen events, where management selects an area of the operation to target for a specific improvement based on a Pareto diagram or impact-versus-efforts chart. A team is selected to make that improvement followed by a day-long or week-long event designed to improve the target area and make the desired improvement a reality. Overall, the goal with this approach is to look at where performance is lacking in the operation and select the kaizen activity that will achieve the biggest “win” for the company within the shortest amount of time. While management intends to create a culture of continuous improvement, the end result becomes akin to the popular Whac-A-Mole arcade game.
In operations, this is the equivalent of selecting the biggest source of pain in a business right now and doing what we can to fix it. When we are finished, we move on to the next target with our continuous improvement “hammer” and repeat the process over and over. While this approach seems to increase efficiency and perhaps lower cost in the impacted area, it usually takes many years to achieve any overall business results.
An exemplary firm
In the mid-2000s, Hypertherm took a different approach to lean. Instead of running kaizens to eliminate waste and be efficient, it designed its end-to-end value streams to flow by using a set of principles and guidelines. It then focused on having each associate understand how the design of flow worked and how the product was built and delivered to the customer. The intention was to have the people who build the product responsible for its flow to FFJ-0913-manufacturing-simage2the customer, without the need for management assistance.
To achieve this state, Hypertherm wanted to take value streams to the next level by creating a “self-healing” flow. In this self-healing flow, the associates would not only build the product, but they would be able to see the timing of the value stream. They could tell if the flow from receiving to shipping was normal or abnormal. They would know what to do if the flow was normal, and also what to do if that flow started to become abnormal. And when the flow began to become abnormal, they would take action to fix it without management intervention, before the flow of product stopped.
This objective of having the people who build the product be able to see flow and fix it before it stops without management is the very definition of operational excellence, where “each and every associate can see the flow of value to the customer, and fix that flow before it breaks down.” That phrase has been adopted as our company’s service mark, and it became Hypertherm’s destination for all of its continuous improvement efforts.
Hypertherm has more than 1,300 associates, and in its 40-plus-year history has never had a layoff. The company is vertically integrated, building parts that most U.S. manufacturers outsource to low-cost countries, things like PC boards, small parts, high-volume machining, and wire harnesses. More than 95 percent of its supply chain is in the U.S., within 200 miles of Hanover. And, while it builds all of its products domestically with locally sourced labor, it sells 60 percent to countries outside the U.S., including 24 percent to low-cost countries. That’s something only about half a percent of U.S. manufacturing companies do.
Knowledge as a foundation
The company discovered early on that finding areas to improve and putting people together to brainstorm to improve them does not achieve operational excellence. Running kaizen events and using brainstorming techniques does not lead to a comprehensive, end-to-end design of product flow. It only sub-optimizes certain areas, and at management’s discretion.
To create a true end-to-end flow that worked in its high-mix, variable-demand and shared-resource environment, Hypertherm had to understand the interaction between customer demand, product families, shared resources and heijunka, which is load-leveling scheduling.
Product and process families
The first step in creating flow for operational excellence is to establish product families. This is done by examining all the products produced and grouping them by process similarity and variation in total work content times. To create flow, we typically look for an 80 percent similarity in process content and no higher than a 30 percent variation in total work content time. While it is still possible to create flow if we exceed these thresholds, it becomes more challenging the more we deviate from our 80/30 guideline.
However, in the metalworking industry, as well as many others, most products typically share or flow through the same machines or processes. In cases like this, normal product family analysis does not yield meaningful results, as the products can be too similar in terms of the processes through which they flow.FFJ-0913-manufacturing-simage3
In these instances, rather than use product commonalities to structure our flow, we can instead look to process families by using process commonalities as our organizing principle. Because there is no way to know what a customer will order on any given day, we would look for typical flows through which the various products for our many different customers might go.
For example, we might have four punching machines that all are capable of producing any order a customer sends us once we set them up with the proper tooling. From our matrix, we could discover that there are a certain number of tools that typically are used when we do the punching and, after punching, we typically deburr and then bend the product.
Therefore, we could align one of the punch presses outfitted with these tools permanently in the carousel, along with a deburring station and a bender to create a one-piece flow area. Parts are then punched, deburred and bent in a short amount of time. With flow being established through this area, we can eliminate the scheduling of each process (along with expedites) and the management requirement of supervising these three separate processes.
A good process family matrix can unveil this and much more. Understanding the commonality of flow of product and materials used is also important. Certain types of materials may require different routing through different machinery. Grouping these machines together and creating a streamlined flow can result in quick lead times, daily deliveries and so on.
Forming a process family can eliminate much of the chaos in inherently unpredictable manufacturing environments. By ensuring that products are consistently routed to certain machines where the required tooling is already present, we eliminate changeover times and increase the predictability in outcome and turnaround time at each machine.
Once we have created flow through a few processes, the next step is to extend the flow from the receiving area to the shipping area. When attempting this door-to-door flow, we usually encounter a machine in the factory that is a shared resource. This is usually a piece of monument equipment that cannot be moved or is too expensive to purchase and put into each of our process families.
While shared resources can be a challenge, principles like the concept of sequenced first in/first out (FIFO) can help us address them. Rather than having a single FIFO lane that feeds work from a process family to a shared resource (causing bottlenecks and expediting), we would set up a series of FIFO lanes and then sequence work through them. This configuration of multiple FIFO lanes with a fixed sequence regulates the flow of multiple products through the shared resource, ensuring each product gets its fair turn.
With multiple FIFO lanes, parts also can be segregated into individual FIFO lanes according to some relevant characteristic, perhaps by heating temperature in the case of a heat treat oven. We would then cycle through each FIFO lane according to a predefined sequence, using something called a mix indicator (e.g. a sign that says “next job”) to inform everyone in the shop where the process is in its sequence of production. We might even set separate thresholds for production in each FIFO lane, as represented by the vertical lines in each lane in Figure 2. If parts have accumulated beyond the line, then we know we have enough of them to run a batch. Otherwise, we skip that particular lane and move on to the next one.
In this manner, we can set up what is called a guaranteed turnaround time (GTT) at the shared resource. This means a part that is delivered to the shared resource and is in a FIFO lane will be completed and delivered to the next process within “X” amount of time, guaranteed. The result is predictability of flow through process families and shared resources. We can tell customers that they will receive their parts within a guaranteed amount of time, and not need management to make it happen. In fact, we will find that if management steps in and begins to prioritize and expedite, all orders will be affected, and we will drift back to relying on management to get the product to the customer. While there will be times where management has to step in and make a decision, the best decision they can make is one that will resume the normal, designed flow, not one that creates an exception.
Once we have designed and implemented flow (and there is a little more to it than stated here), the next step is to make the flow visual so each person can see and understand if flow is normal or abnormal. The goal with our visuals is to make the operation so transparent that a visitor could walk into our factory and tell us if we are on time to meet customer demand without asking any questions.
A color-coded system that is consistent throughout the operation is a great help. Imagine lines taped on the floor for a FIFO lane in the colors green, yellow and red. If inventory is in the green section of a FIFO lane, that is normal. The yellow section means “starting to become abnormal,” and a red section means a reaction is needed.
Visuals should be throughout the manufacturing floor as well, especially at shared resources. Because shared resources influence the flow of many products, we would put heavy emphasis on seeing when flow begins to become abnormal and what to do about it. Parts backing up at a shared resource would enter the red zone, which would signal that an action needs to be performed, such as having a helper begin to manually clean the parts or assist in prepping them for the shared process. This doesn’t usually take more labor, as the labor to do this comes from the downstream process that is waiting for the parts. Cross-training to enable this is important.
This common color scheme can be used anywhere in the operation, even in nontraditional places of flow such as the shipping department. For example, we can put down color-coded lines in shipping to indicate timing and ship frequency for our products. As parts are produced throughout the day, they are loaded into the shipping area, and there would be an expectation that certain parts would show up in shipping by certain times during the day.
By using a system like the one in Figure 3, it becomes possible to determine if the entire factory is on time just by looking at the shipping area: No questions, meetings, printouts or reports would be needed because all the information required to determine timeliness is visually accessible to anyone.
The message here is that achieving operational excellence is done by designing end-to-end flow in manufacturing and the office using principles and guidelines, not through performance-based management objectives or having teams brainstorm solutions. It’s a radical change in the way we have been taught lean and the way we have applied the tools of continuous improvement. Those tools have taken us only so far, and the success of companies like Hypertherm involves truly understanding the difference.
A focus on offense
While most companies use lean tools to cut costs and be more efficient, Hypertherm knew the key to its competitive success was to provide innovative products to the metal cutting industry. To do this, it had to give management time to focus on technology and the voice of the customer. The company found this time by applying the principles of operational excellence, which eliminated the need for management to oversee or run the operation.
In fact, Hypertherm’s design of flow is so strong that it has been able to answer a question most other manufacturers have not: When we get an order from the customer, how will each person know what to work on next? The answer is by following the design principle of only scheduling one point in the entire value stream, and Hypertherm has devised a way of applying this principle in its environment to the point where production control is no longer needed.
Orders flow from the single schedule point onto color-coded visual boards that are capable of signaling which product is in most urgent need of replenishment, all based on customer orders. The associates at Hypertherm simply look at the thermometer boards, as they call them, use the visuals to determine which products are lowest in quantity, and then apply their standard work to replenish them. If there is a problem with the flow, every associate is able to see and fix it before it becomes catastrophic, eliminating the need for management involvement. The flow is so robust that even a visitor can tell if the flow is normal or abnormal, just by looking at the visual indicators.
As a result, a typical day for a production team leader who is responsible for manufacturing and delivering product to customers involves spending time meeting directly with sales associates to go over upcoming orders to ensure on-time customer delivery. He or she also spends time in training, training others, finding ways to improve product flow, and helping production associates fix the flow before it breaks down, which happens only once or twice per week.
The same principles that enable the shop floor to function without management at Hypertherm also enable the associates who work in the office to see flow and fix it before it breaks down. In the Accounts Payable department, the associates created a visual board listing all tasks in need of completion and the frequency with which they need to be done (twice a day or once a week, for example).
As the associates get together at preset times during the day to complete work in flow, a visual signal next to each task indicates whether the work was completed on time. Any associate in the organization, including members of the management team, can tell if Accounts Payable is on time simply by looking at the visual board, which virtually eliminates the need for status checks, interruptions, and meetings on the flow. (See Figure 7.)
The supply chain
It takes more than flow through the shop floor and the office to ensure delivery of product to the customer. That’s why Hypertherm’s leadership applied its same philosophy of operational excellence to many of its suppliers.
While Hypertherm’s suppliers are set up on pull systems that require little to no management oversight or intervention, the company raised the bar by asking suppliers to provide not just parts, but to provide “kits” that match Hypertherm’s high-mix schedule.
Metal Works, a sheet metal fabricator located in Londonderry, N.H., supplies Hypertherm with one of these kits. Fred Pierce, president of Metal Works, knows that his time is most valuable when spent with customers, not running the operation. And increasing the company’s value proposition to its customers is critical, as it is for all companies in the metal fabrication industry. “The mentality in the metalworking industry is changing from providing customers with sheet metal to offering services and solutions to customer problems,” says Pierce.
To address this shift, Metal Works has begun applying the principles of operational excellence. On the technical side, the company performed a product family analysis and identified common tooling needed to support process flow. This tooling is permanently loaded into the carousel of a punch press to enable flow for a family of products, resulting in reduced lead time.
When the company supplies Hypertherm a kit of sheet metal parts fixed on returnable crates, each crate has a picture of the Metal Works parts that form the kit as well as a picture of that part’s fixed inventory location. Operators at Metal Works can easily see what parts are needed and ensure they are loaded correctly for shipment.
When the wheelable empty crates come into the shop at Metal Works, everyone knows they represent a signal from Hypertherm indicating the need for more parts. The crates are filled at preset times, giving predictability to the replenishment of Hypertherm’s raw materials and also to the production of products at Metal Works. No management is needed to fill the orders because everyone at Metal Works understands that an empty crate, with a fixed number of spaces or slots, represents a binary request for a certain number of parts, and the pictures show what parts are needed.
Because the crates are delivered to Metal Works at standard times throughout the day, every employee at Metal Works is able to easily see the flow of value and know if it is about to become abnormal, a key component of operational excellence. All of this is done without any need for regular scheduling, planning, or production control input. The binary signals are sent from Hypertherm to Metal Works, and the supplier replenishes the parts.
Further increasing Metal Works’ value proposition is the fact that Hypertherm has set an organizational goal of being a zero-landfill company by 2020, meaning the company will not create any material waste in any aspect of its business, from production to the office and even the cafeteria. Using returnable crates helps Hypertherm achieve this goal while at the same time limiting the cost of packaging and consumables.
Metal Works is not the only supplier looking to increase the value-added proposition for Hypertherm. At New Hampshire Precision Metal Fabrication Inc., another metalworking business that supplies Hypertherm, CEO Mark Poirier has invested in technology that allows the flexibility to produce a variety parts with little or no changeovers to better support its customers. The investment is enabling the company to provide customer solutions without incurring an additional cost.
The net result of the work Hypertherm has done with these suppliers and others is the creation of a supply chain that flows without (or with very little) management intervention. And it was achieved using the same principles of operational excellence used within Hypertherm’s own four walls.
The key to growth
Hypertherm’s success stems from running the factory autonomously through the principles of operational excellence. Even with its complex, high-mix, custom application and unpredictable consumable manufacturing environment, Hypertherm has been able to apply these principles and grow its top line by designing its production so front-line associates can fix the flow before it breaks down, freeing company management to work on offense activities.
So what’s next for this high-performance company? What are they striving for? According to Jim Miller, Hypertherm’s vice president of manufacturing, “Going forward, we’re going to keep pushing the envelope for how autonomous our operations can be in terms of not relying on management for their day-to-day functioning. We want to be focused on customers and the needs of our business so we can continue to grow globally and challenge our associates.” FFJ
THE EIGHT PRINCIPLES OF OPERATIONAL EXCELLENCE
Achieving operational excellence is done by following a step-by-step process for designing and implementing flow, making normal and abnormal flow visual, then have abnormal flow “self-heal” without management. In fact, a good test for operational excellence is to see if a visitor can tell if an operation is operating on time without asking any questions. If a visitor can tell whether the operation is on time, every employee should also be able to tell.
The step-by-step process to achieve operational excellence is as follows:
1. Design lean value streams.
2. Make lean value streams flow.
3. Make flow visual.
4. Create standard work for flow.
5. Make abnormal flow visual.
6. Create standard work for abnormal flow.
7. Have employees in the flow improve the flow.
8. Perform offense activities.
These principles need to be applied in sequential order, and there can be quite a bit of depth involved in applying them given how complex manufacturing operations have become.
OPERATIONAL EXCELLENCE IN THE OFFICE
In every organization, acquiring new business is key to remaining competitive. A few years ago, a European company was having difficultly capturing new business. By the time it fulfilled a customer request for a quote, the customer often had already awarded the work to someone else. Everyone knew that the quicker the organization provided quotes, the higher the hit-rate would be for acquiring new business.
Providing quotes more quickly in this case did not mean having employees work harder or faster. It meant designing flow into the quoting process, using workflow cycles to create a fast and stable guaranteed turnaround time (GTT) for the quoting process. At this company, every incoming quote went through an initial triage-like processes to roughly determine its complexity and the amount of time it would take to complete. Knowing that the amount of time to complete quotes for repeat business differed from custom jobs, the company created separate flows for the two types of quotes, separate workflow cycles to process them, and separate GTTs for each workflow cycle.
At preset times, all personnel needed to complete a customer quote would assemble and flow the work along fixed pathways. Representatives from Customer Service, Purchasing, Engineering and other disciplines participated to ensure all knowledge needed to complete a quote was present at the time required. There was even a visual mechanism in place to temporarily add more employees to the flow if the quantity of quotes in need of processing exceeded a pre-established threshold.
The company now completes all quotes in one day, boasts a high hit-rate, and has increased its top line growth as a result of applying operational excellence in the office.
Kevin Duggan is the founder and president of the international training and advisory firm Duggan Associates and the Insititute for Operational Excellence, both in North Kingstown, R.I. His latest book, Design for Operational Excellence: A Breakthrough Strategy for Business Growth, was published by McGraw-Hill in 2011. He can be contacted through www.instituteopex.org.