These latter demands were met by a team of expediters moving through the plant with a “hot list.” These were orders which were either long overdue for shipment or in which the sale would be lost if the product was not reconfigured to the new specification. The expediters visited departments in sequence and ordered the workforce to make just one item of a batch—a “partial”—so they could take that part immediately to the next department and move it to the head of the line in that department. In an extreme situation, when Pat Lancaster agreed that an order absolutely had to be expedited all the way through the company, it was possible to get a machine built in less than four weeks. However, when this was done, the schedule of every other machine in the plant slipped, creating the need for more expediting.
This system of order-taking and production sounds chaotic—and it was. But it was and is the standard method in most of the industrial world for making products when there is considerable product variety, long lead times, and a complex production process. To make matters worse, the production and sales technique of batch-and-queue soon had an exact analog in product development in Lantech’s departmentalized engineering process.
To create a new design, it was necessary for the marketing staff, engineers skilled in several specialties, the purchasing staff, and operations planners to work together. The marketing group determined what the customer wanted. (“A machine able to wrap forty four-thousand-pound pallet loads per hour in a fifteen-by-fifteen-foot work area at a cost of fifty cents per pallet.”) The chief engineer then translated these desires into engineering specifications. (“A turntable able to support a four-thousand-pound pallet load, a turntable motor of x horsepower capable of y rotation speed, a control system able to direct the wrapping procedure automatically, etcetera.”)
Next, a mechanical engineer designed the moving mechanical parts, notably the roll carriage and the turntable. Another mechanical engineer then designed the frame and an electrical engineer designed the control system to meet the engineering specification. The manufacturing engineer then designed the fabrication tools. Once the product design and tools were finalized, an industrial engineer from the Production Department figured out how to get the product to progress by steps through the plant.
The Engineering Department was initially quite small, with only a half dozen engineers, but even then the communication barriers between the one-person “departments” were substantial as the design was moved from marketing group to chief engineer to mechanical engineer to electrical engineer to industrial engineer. A considerable amount of rework and backtracking was required to get from the initial concept to a complete, production-ready design. (The prime cause of the backtracking was that the design didn’t fit the needs of the next specialist in the line—“there’s not enough room for my control panel,” etcetera—and was sent back for modification. A frequently employed alternative to sending the design back was to secretly redesign it.) As Lantech grew and more engineers were added, these communication problems got worse.
What was more, each engineer typically had a stack of projects on her or his desk, so that expediters soon appeared in engineering as well as in the plant to get “rush” projects through the system. In practice, it typically took a year to introduce a minor improvement in a family of machines and three or four years to introduce a new family suited to a different task, such as wrapping small bundles. The “continuous flow time,” by contrast, was only a few weeks for minor improvements and six months for a new family of machines. The progression of a design through the design and engineering system is shown in Figure 6.3 .
F IGURE 6.3: L ANTECH P RODUCT D EVELOPMENT S YSTEM
The three major activities undertaken in Pat Lancaster’s new company—development of new designs, management of information on what to make, and physical production of the machines—were all conducted in a classic batch-and-queue manner. And they were conducted with great success.
Looking back, Pat Lancaster summarized his dream of becoming a highly successful inventor, manufacturer, and entrepreneur. “After 1973, we were selling a top-priced product which had major performance advantages over competitor products due to my patent position. Over the next fifteen years Lantech grew to 266 employees and $43 million in sales. We could and did deliver late because of conflicting demands for efficiency versus speed within the production process. We offered so-so quality in terms of manufacturing defects in machines delivered to customers. We took more than a year to develop ‘new’ machines which differed only in very minor ways from previous models. But we were way ahead of the competition and we made tons of money. For fifteen years my dream came true.”
Then, on June 26, 1989, Lantech lost a patent infringement suit against a competitor offering lower-priced clones of Lantech machines. (The suit concerned a new generation of patents Lantech had obtained in the mid-1980s as follow-ons to its original patents obtained in the early 1970s.) This threw open the market to every packaging machinery firm. “By the end of 1989, clones with roughly comparable performance started to appear everywhere and the bottom fell out of my pricing. I was still turning a small profit but I knew worse was coming as soon as the business cycle turned down. In my heart I knew that Lantech was ‘walking dead.’”
Pat Lancaster is by nature a highly dynamic individual. So he had plenty of ideas on what to do. In fact, he tried many of the remedies popular in the American business community at that time. His first approach was to reorganize the firm into profit centers for “standard products” and “specials” (those requiring extensive customization). This was to increase accountability and to move the highly customized products out of the path of easier-to-make “mass-production” machines. Then, as sales flattened, he considered laying off employees and shrinking Lantech—what we now call “downsizing.” However, Lancaster was convinced that no firm had ever been saved by cost cutting and retrenchment alone.
He needed a new way to think about his business and sought it in the Total Quality Management (TQM) movement. After a visit to Milliken, the South Carolina textile giant, he came back to Louisville with plans for putting the voice of the customer first and foremost. The old “good enough” standard for delivered defects and customer service was quickly replaced with talk about perfection.
Over the next few years this focus was supplemented with a process of “value-driven culture change” to create an empowered organization, build trust, and knock down departmental barriers. The original senior management team, which had been composed of hierarchical personalities accustomed to a top-down, command-control style, was replaced by a new group of managers willing to work in a team-based organization. (Lancaster is the only senior manager remaining from the 1970s.) In addition, extensive training was conducted in team processes, team leadership, and individual interaction.
These programs were an essential start, but they lacked a direct link to Lantech’s core activities. As Bob Underwood, a longtime production worker, put it in retrospect: “We learned to respect each other and wanted to work together in teams, but we were all revved up with nowhere to go.” The factory was still a mess. Product development was still too slow. The sales force was still playing games to beat the lead-time problem.
The third approach to the crisis was a new production method called “Max-Flex.” The idea was to dramatically reduce lead times by building inventories of major components—machine frames, roll carriages, turntables, control modules—far in advance and then mixing and matching the components to build complete machines to customer specification very quickly once orders were confirmed. The objective was to overcome Lantech’s pricing disadvantage by promising more rapid delivery of machines with customer-specified features.
On one level the performance of the new Max-Flex concept was impressive—lead times fell from sixteen weeks to four. But the costs were enormous. Engineering change orders were frequent in Lantech’s business now that it had become highly competitive. These changes were both to add product features to keep up with the competition
and to rectify defects discovered in service. Therefore, it was often necessary to work backwards, “retrofitting” changes into the mountain of components built in advance. Obviously, the cost of carrying this mountain of “just in case” components was substantial, and Lantech began looking for a new warehouse to store components as storage space in its plant was exhausted. But most exasperating, despite Lantech’s best efforts at planning production, cases quickly arose where one critical component needed to complete a machine was lacking. (Taiichi Ohno noted long ago that the more inventory you have, the less likely you are to have the one part you actually need.) The solution was a new team of expediters to move the missing component through the production system.
Yet a fourth approach to the crisis was better technology. A new scheduling system, based on the next generation of MRP, was installed in 1990. It permitted every worker to have direct access to the status of every machine in production and to input their own data as they moved a part or a whole machine ahead. This permitted every worker to get work orders from a terminal at his workstation and, in theory, to feel full “control” over his activities. (As Pat Lancaster noted: “It seemed to be a wonderful marriage of technology and democracy. Everyone could look into the computer to see what was going on all over the plant and get their work orders immediately. Our slogan was ‘Data to the people.’”)
The new system required a new computer, a new Management Information System Department with four people on the day shift and three more on the night shift to keep all of the data current, and direct inputting of every work task by workers on the plant floor as they completed it. As Jose Zabaneh, Lantech’s manufacturing director, noted, “Pretty soon workers were fully in ‘control,’ yet the system was wildly inaccurate because many items simply never got entered and there was no means of catching errors. The old MRP system was slow but 99 percent accurate. Our new ‘democratic’ MRP system was a complete catastrophe; instead of information we had given muda to the people.” To compound the situation, the magnitude of inputs and changes was causing the computer to run very slowly. Lantech’s information technology consultant recommended that the best solution would be a much more powerful and expensive computer.
By the end of 1991, Lantech’s orders began to fall for the first time, despite price reductions, and the factory was finding it nearly impossible to respond to continuous shifts in demand. As Pat Lancaster summarized the situation later, “We began losing money for the first time and our fundamental ideas on how to run the business were in a meltdown.” Then he discovered lean thinking.
The Lean Revolution
Ron Hicks does not look like a revolutionary. He looks like an accountant (although he was trained as an industrial engineer) and talks in dispassionate tones. But he brought a revolution when he came to work at Lantech as vice president of operations in March of 1992.
He had learned how to be a revolutionary while working at the Danaher Corporation, a collection of fifteen manufacturing companies collected by Steve and Mitchell Rales in the 1980s. Quite improbably, these two youthful entrepreneurs from Washington, D.C., had become acquainted with the lean concepts pioneered by Taiichi Ohno, and the firm had convinced some of Ohno’s Japanese disciples to establish operations in the United States in 1987 to support Danaher’s conversion effort. They grasped that lean thinking could revolutionize their firms, which had initially been bought because they were attractively priced, as part of their effort to diversify out of their core real estate business. One of these firms was Hennessy Industries of Nashville, Tennessee, a manufacturer of automotive repair tools and garage lifts. Ron Hicks was working there as vice president of operations.
Ron Hicks remembers the day in 1989 when “the light went on.” “I went to visit the Jacobs Brake Company in Bloomfield, Connecticut, another Danaher company, and discovered they had followed Ohno’s advice by completely eliminating their traditional production departments. They had installed work cells in which all of their machines were realigned into the actual processing sequence needed to make specific product families of truck engine components. Each part was then manufactured in a continuous flow with absolutely no buffer stocks between steps using a concept they called ‘single-piece flow.’
“What really amazed me was that on the day of my visit they were conducting an improvement exercise and had decided that the work flow for a particular item would be much smoother if they moved a massive machine from one position to another. They decided to do it early in the morning, got the moving team together almost instantly, moved the machine, and were back in production in a few hours.
“In my fourteen years as an operations manager at the General Electric Company, where I worked before moving to Hennessy, it would have taken an act of Congress to move such a large machine. But these guys just did it, and it worked. I suddenly realized I was living in a different world.”
By March 1992, when Hicks received a phone call from Pat Lancaster, he had transformed himself from a “concrete head” into a lean thinker and was ready for a new challenge. Lancaster had screened hundreds of applicants in his search for a new operations vice president and was sure that Ron Hicks had the ability to transform a manufacturing operation. The question was exactly how and how fast.
In the newly empowered spirit of Lantech, Ron was invited to Louisville and interviewed by those he would manage. His simple proposal came as a revelation: Lantech would immediately form teams to rethink the value stream and flow of value for every product in the plant, and then every step in order-taking and product development. Lantech would line up the essential activities required to design, order, and manufacture a stretch-wrapping machine and perform them in sequence, one machine, one design, one order at a time. Batches, queues, backflows, and waste—muda of all sorts—would be banished. The value stream —the irreducible minimum set of activities needed to design, order, and make a stretch-wrapper—would flow smoothly, continuously, and rapidly.
Ron Hicks was hired and immediately went to work with a simple plan: Disaggregate the four basic types of machines flowing through Lantech’s departmentalized, batch-and-queue production system; eliminate all of the production departments; create a production cell—four in total—for each type of machine; and then line up all of the activities required to make each machine within a cell and perform them in a continuous flow. This was the kaikaku phase in the Lantech plant, the time to completely tear things apart and recombine them in a totally different way.
The T/V model, which was soon replaced by the new Q model, was the acid test. A team of Lantech’s best workers was selected to rethink the flow and quickly, in only one week, devise and put into production the plan—shown in Figure 6.4 .
The sawing operation was located immediately adjacent to the machining operation, which was only a few steps from the welding operation. Although it was still necessary for all four models to share a massive, centralized paint booth, continuous flow picked up again with sub-assembly and final assembly. Testing and crating were placed at the end of the line and conducted by the work team. Even though only eight machines were made each day—one per hour—an imperceptibly moving track was installed in final assembly as a pacing device.
F IGURE 6.4: F LOW OF Q L INE
Each morning the saw operator would start production of a new machine on the hour. A kit of all the frame parts required for the machine was prepared by the saw operator by the end of the hour and rolled about three feet to the machining station. From there it would proceed about four feet to welding. Fourteen hours later—about half of this due to the curing time required by the paint booth—a completed machine was ready for shipping.
To make this simple system work, Lantech had to change a generation of industrial thinking about how to do work and how to work together. Because all of the jobs were directly linked, with no buffers, it was necessary that everyone think about standard work, which is to say the best way to get the job done in the amount of time available and how to get the job done
right the first time, every time. (By design, either the whole cell is working or nothing is working.) Every step of every job was soon charted by the work team and posted for everyone to see.
Similarly, because in this new system machines are only made when ordered—remember that production lead time has fallen from sixteen weeks to fourteen hours so there is no need to build machines ahead of time on speculation in order to permit rapid deliveries—it was important to introduce the concept of takt time. This is the number of machines to be made each day to meet the orders in hand divided into the number of hours in the day. (With production at eight machines per eight-hour day, takt time is one hour.) The important point about takt time was that when orders did not require the full utilization of equipment and workers, takt time was increased. The machinery was slowed down and each of the multiskilled workers in the Q cell performed several of the jobs in the cell while excess workers were put on other tasks around Lantech. This reversed the age-old tendency to work ahead and build inventories if no orders were immediately on hand.
Two other concepts were needed as well. Lantech had to right-size many of its tools and devise a number of new tools so that smaller saws and machining tools could be fitted in the work cells. (As it turned out, the excess workers freed up by rethinking production flow were able to make most of the tools needed.) Finally, Lantech had to learn how to perform quick changeovers on all of its tools so it could make all of the parts for each machine and a variety of product options for successive machines with very little downtime.
When the new cell concept was proposed, many of the production workers were baffled or dismayed. As Bob Underwood, one of the most skilled workers on the floor, noted: “We were used to a system in which each of us had a set of hard-earned skills—welding, machining, and, in my case, the ability to adjust nonconforming parts so they would fit. We were used to doing our own work as we saw fit at our own pace in our own department. As long as we met our daily production quota we were left alone. What’s more, the real kick in the work was ‘fire fighting,’ in which the Lantech Volunteer Fire Department went into crisis mode to get an emergency order through the system or eliminate a sudden production bottleneck. I was one of the best fire fighters at Lantech and I loved it.”
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