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Lean Frontier Summit Focuses on Transformation into Lean Enterprise

Tuesday, October 9th, 2018

On September 20-21,2018, Lean Frontiers held their annual Lean Leadership Summits at the Westin Hotel on Jekyll Island.  This was my fifth year to be invited as a speaker at the conference. This year’s summit continued the combination of Lean Management,/Lean Accounting, and Lean H.R./People Development summits that was begun last year.

Co-founder Dwayne Butcher explained last that year that “It’s about time that the whole enterprise be involved in becoming a Lean company. Lean is a business model and must therefore include every part of the business, including those in Executive Leadership, Accounting, HR, Sales, Product Development, Supply Chain. We need to breakdown the silos between these departments.”

Between the keynote speakers, there were four tracks related to Lean Management/Lean Accounting, and Lean H.R./People Development.  Besides giving my own presentation, “How Reshoring and Lean are Helping Rebuild Manufacturing,” based on my new book Rebuild Manufacturing – the key to American Prosperity, I attended the keynotes and several of the sessions in the Lean Management and Lean Accounting tracks.

Lean Frontiers is not a consulting firm. Its sole focus is to provide learning opportunities to

address:  Enterprise?wide adoption of Lean and the foundational skills needed to become a Lean company.

Co-founder Jim Huntzinger, said, “The first Lean Accounting Summit was held in 2005, and out of that summit, Lean Frontiers was born.  Lean is still perceived as a program with short term results by too many, and we need to make the transition to Lean as a business model.  We need to traverse unclear territory — trust the process to go from current condition to the target position. We can use XYZ Thinking:  If we do X, then we will get Y, but if we get Z instead, then we will learn.”

Mike DeLuca of the Lean Enterprise Institute introduced a Lean Accounting A3 for attendees to provide ideas on how to achieve the aspiration of having Lean Accounting be self-sustaining within five years.

Jim announced that the Journal of Cost Management has taken an interest in the summit and has a booth in the foyer. Lean Six Sigma Master Black Belt Gary Kapanowski, who is a Guest Editor for the Journal, invited attendees to sign up to contribute articles to the magazine in the coming year as they are interested in running more stories about Lean in the magazine.

Then, he introduced the first keynote speaker, Karen Martin, author and President of the Karen Martin Group, spoke about her new book, Clarity First.  Clarity was a concept that she introduced in her book, The Outstanding Organization, wherein she looked at common patterns at companies and individual performance. She covered four areas: clarity, focus, discipline, engagement in her previous book and was asked by her readers to expand on the topic of clarity.  She discussed “what is clarity and what it is not,” saying that “it is coherence, precision, and elegance. Information needs to be complete accurate and easy to understand. Think of your target audience as your customer. The opposite of clarity is ambiguity, which complicates, slows, frustrates, increases risk, and is expensive. Ambiguity is manmade and different than lack of certainty. Strategic ambiguity can be useful for certain purposes. “

She asked: “What type are you? Clarity pursuer, clarity avoider, clarity blind” She stated, “Children have a natural curiosity but it gets stamped down when they ask why. Same thing can happen at work. Close to curiosity is humility about how you are communicating and how you are being received. We have 180+ cognitive biases that affect communication. Rushing hampers clarity; take time to be clear. Fear can be underlining lack of clarity. Fear can be biggest reason for resistance to Lean transformation.

She explained that clarity liberates purpose, priorities, process, performance, and problem solving:

Purpose – great way to get people engaged about what you do.

Priorities – defining true north.

Process – Value stream thinking is critical to defining process

Processes: documented, current, followed, consistently monitored, regularly improved; Standard work description is necessary for each task

Problem solving – CLEAR

C = clarity

L = learn

E = experiment

A= access

R = Rollout

In conclusion she recommended, “Infuse clarity into your organization…You need a scoreboard at all levels of company showing how you are doing.”

Prior to the afternoon keynote speaker, Jean Cunningham announced the awardees for the Lean Enterprise Institute’s Lean Accounting professor and student awards.  Professor Laurie Burney of Baylor University and her student, Katie Kearny of KMPG received the award for their research on Lean Accounting that will be published this fall.

Harry Moser, founder and head of the Reshoring Initiative was the afternoon keynote speaker. He spoke on “TCO/Reshoring:  Simplify your Lean Journey, Improve Employee Morale.”  Harry developed the Total Cost of Ownership (TCO) calculator that quantifies he hidden costs of doing business offshore, which is free for companies to use at www.reshorenow.org. Harry highlighted the fact that the tide turned in 2016 between offshoring and reshoring as reshoring increased by 500% and offshoring fell by 75%.  Reshoring and Foreign Direct Investment (foreign companies setting up plans in the U.S.) are responsible for an increase of nearly two million jobs in the U.S.  He reminded the audience that Lean leaders, W. Edwards Deming, John Shook, and Jim Womack all advised companies to identify the “true cost,” and that offshoring multiples the wastes to be eliminated through Lean:  overproduction, waiting transport, overprocessing, inventory, motion, and defects. He stated that among the top ten reasons for reshoring are:  “quality/rework/warranty issues, freight costs, inventory, intellectual property risk, rising wages, and communication problems.”

He said, “By understanding the advantage of producing near the consumer, and the small TCO gap instead of the large price gap, U.S. companies can justify domestic investment, process improvement, automation, training, etc., and they do not have to sacrifice quality, delivery, time-to-market, or employees to be competitive and profitable.”  He announced two awards for reshoring for 2019: the first Sewn Products Reshoring Award and the second Metalworking Reshoring Award.

In conclusion, he invited attendees to cooperate with the Reshoring Initiative by testing Made-in-USA impact on volume and price, incorporating TCO in your lean efforts, and documenting their reshoring cases.

The day ended with a Townhall Conversation on “The Lean Economy” in which panelists Jim Huntzinger, Tom Jackson, Harry Moser, and Bill Waddell discussed how Lean business and practice can be one of the most profound impacts for elevating a strong economy.

On Friday morning, Mike Wroblewski, author of Creating a Kaizen Culture and President of Dantotsu Consulting LLC, was the keynote speaker on the topic of “Leading a Lean Transformation.”  He said, “Most companies measure performance by EBITDA, which he defined as earnings before interest, taxes, depreciation and amortization. Cutting heads is the first thing management does to improve EBITDA by reducing costs. Which path are you on? Lean can be like the path to hell. You need upper management support but you also need lower level support. There are two things you can control – your effort and your attitude.”

He was taught Lean by Shifeo Shinzo from Japan in 1985 when he worked at Hill-Ron. He shared, “We did Kaizen events all week for SMED and after repeated Kaizen events, we got our die change from one hour down to 4 1/2 minutes.” He admonished, “ Kaizen needs to be your way life. It’s the culture. Lean isn’t meant to find blame faster. What do you do in the course of the day? Check email, respond to emails, make phone calls, plan, etc. How much time should you spend in Gemba? You should be spending 80% of your time in the Gemba. The standard you walk by is the standard you set for others.”

Space doesn’t permit me to highlight all the excellent breakout presentations during the summit.  If you haven’t started on your Lean journey, I recommend that you do so soon. If you are already on a Lean journey,I encourage you to put next year’s Lean Leadership Week on your calendar.

 

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Lean Leadership Summit Focuses on Essentials to Becoming a Lean Company

Tuesday, December 12th, 2017

After being delayed for a few weeks because of Hurricane Irma, Lean Frontiers held its annual Lean Accounting Summit in Savannah, GA on October 24th and 25th.  This was my fourth year to be invited as a speaker at the conference. This year’s summit was different in that the Lean Accounting Summit was combined with Lean Management and Lean People Development into Lean Leadership to include the people development aspect of being a lean enterprise. Co-founder Dwayne Butcher, said, “It’s about time that the whole enterprise be involved in becoming a Lean company. Lean is a business model and must therefore include every part of the business, including those in Executive Leadership, Accounting, HR, Sales, Product Development, Supply Chain. We need to breakdown the silos between these departments.”

Between the keynote speakers, there were three tracks related to Lean Management, Lean Accounting, and Lean People Development.  Besides giving my own presentation, “Rebuild Manufacturing – the key to American Prosperity,” based on my new book of the same name, I attended all of the keynotes and some of the sessions in the Lean Management and Lean Accounting tracks.

Lean Frontiers is not a consulting firm. Its sole focus is to provide learning opportunities to address:  Enterprise?wide adoption of Lean and the foundational skills needed by Lean companies. Dwayne announced a new program, the Lean Learning Pod, that will be taught by Jean Cunningham on Lean accounting. Participating companies will meet in a virtual manner on a regular basis, and Jean will be a mentor to the companies.

Jim Huntzinger, said, “The first Lean Accounting Summit was held in 2005, and out of that summit, Lean Frontiers was born.  Lean is still perceived as a program with short term results by too many, and we need to make the transition to Lean as a business model.  We need to traverse unclear territory — trust the process to go from current condition to the target position. We can use XYZ Thinking:  If we do X, then we will get Y, but if we get Z instead, then we will learn.”

He introduced the first keynote speaker, Art Byrne, former Wiremold CEO, author of Lean Turnaround and now a consultant. He has been practicing Lean since 1982 when he was a General Manager at a General Electric facility. He wrote his book and then wrote the Lean Turnaround Action Plan to show what would happen if a company becomes Lean. The reader is supposed to be management of fictitious company – United Gear & Housing.  He asked, “What is Lean?” His answer was, “It is strategy to run any business to remove waste to deliver more value to customers.”

He described United Gear as a traditional batch company with long set ups of 2-3 hour, a six-week lead time, and a strong management team.  The company is purchased, and the new owner make it clear that everything has to change to with Lean as the strategy.  They will have to:  lead from the top, transform people, increase gross by 5 – 7. Puts, reduce inventory by $70 M increase value, and reduce set up by 90%.  He said, “The present capacity = work + waste., and waste is typically 60%.  I particularly liked his comment. “Think about the stupidity of putting all the same machines in the same department as if the machines liked to be near each other. Instead, we should be putting the machines in the sequence of operations to be performed to go from batch to continuous flow. You could rearrange the machines into cells to go from raw material to finished product. Fewer people would be doing the work, and lead time could drop dramatically from 6 weeks to 2 days.”

He said the Wiremold strategy was to: “Constantly strengthen our base operations, achieve 100% on-time delivery, 50% reduction in defects every year, do 20 inventory turns/year, double in size every 3 to 5 years, use visual control and 5S, do one piece flow and standard work, do Kaizen, use a Pull system, and stretch targets.”

In his concluding comments, he said, “Standard cost accounting and lean don’t go together. The key is for senior management to function as one team.”

In her presentation on “Overcoming Barriers to WOW Results,” Cheryl Jekiel, CEO of the Lean Leadership Resource Center, said that the International Labour Organization for the United Nations asked her to develop and teach a class on Lean HR to be taught in 46 countries.  She had to develop the course for others to use to teach. In developing the course, she used the following working definition of Lean:

  • 7 common practices to improve
  • It’s about the customer
  • Measurable improvement
  • Problem Solving
  • Repeatable processes
  • Overall involvement
  • Visual management
  • Engaging leadership

She said, “HR can make the difference in the results. HR owns the things that are the obstacles. HR has a role in the culture of the company and can weave improvement into activities. HR owns talent strategies: hiring, training & Development, performance management, and reword systems. HR can build lean competencies into job design. The greatest is the waste of human development. Most companies don’t tsp into the power of their people. We define people by the tasks they do and not their capability. People are endlessly creative. The power of the ideas to solve problems is in people. Lean is about building a muscle — the more you do it the better you are at doing it. Lean is a way of expanding capability.  HR tends to engagement, and engagement goes with Lean. Studies show that companies are 7-11% more profitable when employees are engaged. Convert categories into dollars to make the connection of engagement into money.”

One of my favorite presenters is Jerry Solomon, who gave the presentation, “Bridging the Gap Between Accounting & Operations.” He spent 40 years in the manufacturing industry and is now retired in Naples, FL.  His last 14 years were at Barry-Wehmiller in St. Louis as CFO.

He said, “Lean is two pillars to eliminate waste in pursuit of perfection in safety, quality, delivery, and cost.  The two pillars are:  respect for people and continuous improvement. Inspirational leadership and a profound cultural and organizational change are required to become a Lean company. Elimination of waste is driven by Kaizen events, which need to be narrow and deep. The respect for people means no layoffs and requires strong C-level support.”

He explained, “Lean Accounting is using Lean tools in accounting and “plain English” P & Ls. Accounting is one of biggest roadblocks to successful Lean journey. Lean is about being a cash and capacity generator.  We need to change the metrics we use. In the traditional cost accounting pie, overhead is 10-20%, Direct labor is 60-70%, and materials are 20-30%. Today in Lean accounting, overhead is still 10-20%, direct labor is 10-20%, and materials are 60%.  Standard cost accounting is replaced by actual costs and can be understood by everyone. The benefit of Lean accounting is relevant information when you need it that is understandable to the 99% of people and not just the 1% who are accountants. It provides real-time information to run the business.”

On Wednesday, the keynote presentation was “The Continuous Improvement Engine” by David Veech, The Ohio State University, author of Leadersights and The C4 Process.

He said, “The foundation of the continuous improvement engine is trust. Two key things are required: clear expectations with standardized work and leader vulnerability and mastery. Challenges lead us to acquire knowledge and skills. It’s how we lead that sets our stretch goals. It’s a process that occurs with repetition. No one is in this alone, so we have accountability. Learning and coaching is required for mastery. The goal is to have a team of experts.”

He explained, “You need a system for problem solving to find out if ideas work – you can use PDCA, DMAIC, or my C4 system.”  He said, “C4 is short for Concern, Cause, Countermeasure, and Confirm. C4 offers straightforward, easy-to-remember techniques for identifying and solving workplace problems. These four steps-clearly identify the concern, find the true root cause, correct the cause with an effective countermeasure, and confirm that the solution worked.”

He added, “Problem solving builds mastery. Mastery results in self-efficacy, and people that have self-efficacy are willing to try new things and keep trying until they succeed. They need to have intrinsic motivation, which comes from the heart. This intrinsic motivation turns into ideas and generates initiative. The “exhaust” of this continuous improvement engine is:  satisfaction, meaning, awareness, and responsibility. Building relationships in teams is critical to the process.”

In the first breakout session, I attended “Eliminate Standard Cost Step by Step” by Nick Katco, author of the Lean CFO series. He told us that there is nothing in Generally Accepted Accounting Principles (GAAP) that would prevent using Lean Accounting methods. He said, “In GAAP, you need to calculate inventory valuation and Cost of Goods Sold. Using Standard Cost Accounting, you often have to make assumptions whereas in Lean Accounting, you use “Actual expenses incurred to get goods in condition for sale. A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues.  In the continuous nature of manufacturing, there are difficulties in matching specific costs to revenue because products not sold in same period as produced, prices change over time, and production costs change over time.”

He explained how to do a Lean Inventory Valuation for material and production cost capitalization using three different methods:  days of inventory, units of inventory, and days of conversion cost.  He said, “Lean transformation is designed reduce inventory levels in manufacturing companies — 30-60 days is good target. There is no GAAP requirement to value every single product. Average costs replace standard costs. Capitalize total costs, not individual products by a journal entry.”  In conclusion, he advised:  “Design a lean inventory valuation methodology which works for your company and partner with your auditor to create a methodology they will be able to test.”

I had to leave early on Wednesday to catch my plane, so the last presentation I attended was “Lean Transformation from the CFO’s Seat” by CFO  Pete Gingerich of Aluminum Trailer Company. Last year I attended a presentation by the President and CEO, Steve Brenneman, so I was interested in what Mr. Gingerich had to share about their Lean transformation. He said, “In 2007, we did $27 Million and went down to $10 Million in 2009. We had to lay off half of our employees. Steve Brenneman started in 2009, and our first steps were office procedures for handling work folders and then we did 5S on the shop floor. We had lots of problems with material shortages, so we went to a Kanban system. We split into three value streams in 2012 and now have six.”

He explained, “Our big change was in how we pay our workers; we switched from piece rate to hourly and started at a rate of 10% higher than previous year’s rate. We also instituted a profit sharing plan. We didn’t use standard cost accounting, but we did have assumptions for material, labor, and overheads. Now, we know the actual costs for each value stream. Value stream planning is clearer and easier.”

He added, “We thought that our custom trailer was the most profitable, but it is actually our midline model trailer because too many engineers are involved in our custom trailer.

We have an annual meeting for top management, quarterly meetings for managers, and weekly meetings for team leaders. We have switched to rolling forecasts from budgeting, and we do weekly production planning forecasts and weekly P & Ls. Each value stream has its own weekly P& L with more detail. Lean accounting is based on shop floor metrics. We avoid allocations because if you can’t control them, why do you want to see them. We can close a quarter in one day. We clarified the definition of sales and revenue so employees would understand. We have had to work with suppliers on our Kanban system to cut inventory, such as having tires on a rack that is replenished daily. In 2009, we only did five turns of inventory, but in 2016, we did 19 turns.”

It’s always a pleasure to hear about a successful transformation into a Lean company rather than just a Lean manufacturer. I am a big proponent of Lean accounting because standard cost accounting is the biggest obstacle to more companies returning manufacturing to America using Total Cost Analysis.  When costs are divided into separate accounts, the purchasing agents and buyers do not have access to all of actual and hidden costs to be able to do a true TCO analysis. More CFOs need to take the time to attend the Lean Accounting Summit or get training from one of the qualified consultants and learn how to convert to Lean accounting.

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MEPs are Essential to Rebuilding American Manufacturing Competitiveness

Tuesday, April 18th, 2017

Last month, President Trump submitted a “Skinny Budget” with the goal of removing some of the “fat” within Washington DC. Unfortunately, one of the programs eliminated in his budget is not “fat.” The Manufacturing Extension Partnership (MEP) is the only federally funded national network dedicated to serving small and medium-sized U. S. manufacturers. The MEP program was re-authorized by both Houses of Congress by unanimous consent earlier in January when the MEP program went back to 1:1 cost matching. The reality is that the MEP network is essential to helping manufacturers be competitive in the global marketplace and rebuilding American manufacturing. Eliminating the MEP program seems contradictory to President Trump’s focus on manufacturing.

The MEP website states, “Since 1988, the Hollings Manufacturing Extension Partnership (MEP) has worked to strengthen U.S. manufacturing. MEP is part of the National Institute of Standards and Technology (NIST), a U.S. Department of Commerce agency…MEP is built on a national system of centers located in all 50 states and Puerto Rico. “Each center is a partnership between the federal government and a variety of public or private entities, including state, university, and nonprofit organizations. This diverse network, with nearly 600 service locations, has close to 1,300 field staff serving as trusted business advisors and technical experts to assist manufacturers in communities across the country.”

This public-private partnership provides a high return on investment to taxpayers. “For every one dollar of federal investment, the MEP national network generates $17.9 in new sales growth for manufacturers and $27.0 in new client investment. This translates into $2.3 billion in new sales annually. And, for every $1,501 of federal investment, MEP creates or retains one manufacturing job.”

The top challenges reported to MEP by manufacturers are:

  • Cost Reduction 70%
  • Growth 54%
  • Employee Recruitment 47%
  • Product Development 45%

In FY 2016, the MEP national network interacted with 25,445 manufacturers and achieved these results through their wide range of services:

  • $9.3 Billion New and Retained Sales
  • 86,602 New and Retained Jobs
  • $3.5 Billion New Client Investments
  • $1.4 Billion $1.4 Billion Cost Savings

I have long been aware of the work of the California MEP, California Manufacturing Technology Consulting (CMTC), headed up by Jim Watson, but when I visited Cincinnati, Ohio last fall, I had the pleasure of meeting with Scott Broughton, Director of the Advantage Kentucky Alliance (Kentucky’s  MEP), and David Linger, President & CEO of TechSolve, one of the Ohio MEP affiliates.

I contacted all three for input for this article, and Scott Broughton was the first to respond. He said, “AKA has generated over $88 million in impacts with 50 clients working with over 1,300 employees in the past 12 months alone. We are currently working with small manufacturers in Eastern Kentucky, who used to work in the coal industry to identify, vet, and implement change allowing them to work in non-coal industries and helping them to be sustainable in the future. These companies have worked with other entities with mixed results. AKA’s programs are centered on AKA facilitators mentoring and training employees, allowing them to be the driver of change with continued support. This allows the employees to ‘learn by doing’ with the support and assistance of AKA’s specialists. AKA’s average engagements are over 12 months with monthly interactions allowing for sustainable support, change, and implementation.”

He added, “For every federal dollar spent, it has resulted in $170K in impacts in Kentucky! Specific impacts in the past 12 months are below and that does not include the 762 new jobs created/retained:

  • $9.9 million in new sales
  • $21.6 million in retained sales
  • $10.8 million in cost savings
  • $40.3 million in investments made”

Broughton provided me with case studies for six clients, which are too lengthy to cite in detail in this article. Three of the six received training in Lean manufacturing through AKA, two were helped to find new markets, and two were helped with new product development. Highlights of the results are:

  • Skillcraft Sheetmetal, Inc. – “a reduction in labor equating $27,000 in 2014 alone”
  • Post Glover Resistors – ” 12% reduction unnecessary Labor”
  • Outdoor Venture Corporation – “Increased sales by $500,000 and increased cost savings by $1 million”
  • Cumberland Mine Service, Inc. – “Uncovered 17 potential industries/business opportunities and 21 potential future customers”
  • RT Welding & Fabrication, Inc. – “Uncovered 21 potential industries/business opportunities other than mining and identified 13 potential revenue streams”
  • Taper Roller Bearings – “$10 Million in retained sales, $200,000 in cost savings, and $20,000 in new product development”

David Linger responded, “The Ohio Manufacturing Extension Partnership, located in Columbus, OH, provides technical services for small and medium-sized manufacturers to drive productivity, growth and global competitiveness; and can ultimately help Ohio’s manufacturers become more profitable and competitive. From October 2015 – September 2016, the Ohio Manufacturing Extension Partnership served 439 Manufacturers resulting in new and retained sales of   $277,900,000, created and retained 2,399 jobs, facilitated cost savings of over $41,700,000, and created new investments of $132,600,000.”

He commented, “An often overseen benefit of the relationship of a MEP and their regional clients is the two-way information exchange. That is, the MEP receives constant Voice Of the Customer information from the regional clients throughout the year. This allows the MEP to proactively develop new solution packages that meet those needs,  needs that are often unique to small and midsized manufacturing firms. This feedback loop drives the MEP to be current with the latest technology or methods and be an ongoing subject matter expert to push this new know-how back out to the manufacturing community. A few great examples of this are the work MEP’s are doing in regards to Cyber Security as it relates to manufacturing, Additive Manufacturing or 3D Printing, Data Analytics, and System Integration (Industrial Internet of Things, IIOT).”

Jim Watson responded, “Last year, CMTC was awarded a five-year agreement to be the California MEP. In 2016 CMTC served 1,065 small and medium-sized manufacturers, creating or retaining 8,575 high paying jobs statewide resulting in $169 million in cost savings, $647 million in total sales, and $305 million in total investment. For every manufacturing job, there are 3-4 full-time jobs created elsewhere in the United States to support manufacturers. Manufacturing is critical to the California economy, employing more than 1.2 million workers at more than 39,000 companies.”

He added, “CMTC’s services provide innovation, growth, technology and operational solutions that foster profitable growth for small manufacturers impacting personal income, tax revenues and the California economy. A study by the LAEDC Institute for Applied Economics indicated that the annual economic contribution from California MEP projects with customers surveyed in 2014 was an estimated $1.8 billion to California’s GDP and more than $450 million in federal, state and local tax revenues. The California MEP program is a valuable partner for manufacturers and generates a significant dividend for the State of California.”

There were four client case studies mentioned in their 2016 end of year report, which I have briefly summarized below:

Amflex Plastics – a woman-owned company making polyolefin co-polymer formulated plastic hoses and spiral hose equipment. Amflex needed help getting prepared to get their ISO 9001:2008 certification to retain current business and get new customers. After CMTC coaching, they passed their audit and got their certification, resulting in $675,000 in projected increased sales, $300,000 in retained sales, three new jobs, 10 jobs retained, and $209,000 in cost savings.

Summertree Interiors is a minority owned business that builds finely crafted baby and children’s furniture. The company needed help reducing lead times and improving on-time delivery. CMTC provided them with Lean manufacturing training, which resulted in:

  • $400,000 in increased sales
  • 1,000,000 in retained sales
  • 6 jobs created
  • 12 jobs retained
  • $250,000 in cost savings
  • $115,000 in capital investments

Space Systems Loral is a manufacturer of communications satellites and satellite systems. Because former customers are now making their own satellites, “SSL needed programs to reduce costs and lead times as well as provide an in-house team to lead and implement their continuous improvement philosophy. CMTC provided Yellow Belt Lean training and a “Train the Trainer” program, which resulted in $7,500,000 in retained sales, 17 jobs retained, $1,861,000 of cost savings, and $500,000 in capital investment.

OHIO Design is a builder of custom, made-to-order, modern furniture and interiors. The company needed help with their manufacturing processes, finding qualified workers, and access to capital. CEO coaching helped OHIO to understand and implement business metrics a cost structure to track their manufacturing expenses, and a continuous improvement program to focus on solutions to fix problems. As a result, they experienced $500,000 in increased sales, retained 7 jobs, achieved $150,000 in cost savings, and made $55,999 in capital investment.

One of the companies I represent as a manufacturers’ sales rep has been a repeat client of CMTC. President Steve Cozzetto of Century Rubber Company wrote me, “As the business climate has become more demanding, CMTC has been instrumental in providing the training that we need to remain competitive. In the past 10 years, we have used their resources and expertise to develop our Lean Manufacturing procedures, to upgrade our marketing methods, and most recently to take our quality program from ISO: 9001 and prepare us for our AS9100D certification which should occur this year. As a small company, the variety of programs offered by CMTC makes it possible to accomplish goals that would otherwise be difficult to achieve.”

These success stories illustrate why the nationwide Manufacturing Extension Partnership network is essential to the growth of the United States economy. When the President submits his budget, it is the first step in the long process that results in a federal budget. No President’s budget ever gets approved without substantial amendment by Congress, and Congress has the final say on governmental spending. To support the MEP program, you should contact your Congressional Representative to urge them to keep funding for the MEP program in the federal budget.

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Lean Transformation Saves Aluminum Trailer Company

Monday, October 17th, 2016

On the second day of the Lean Accounting Summit, August 26th, The ATC story was the Keynote, presented by Steve Brenneman, President, and Duane Yoder, Production Manager.

Their story was so impressive that it justified being told in an article instead of a brief summary in my previous article about the summit. Steve titled his presentation, “It’s a lean life!” His definition of lean is “using the scientific method to continuously improve the business and other related parts of the entire value stream. Also, it is a complete change of the way that we work as human beings. We go from individual heroes to strong teams.”

From the ATC website, I learned that ATC is a privately held company with eleven owners, 9 of whom “are involved in and manage every aspect of the company…Each owner contributes to the company in almost every phase of the business by doubling their duties as both Owner and CEO, CFO, Production Manager, Engineering Manager, Sales/Marketing Director.” The company was founded in 1999 and is located in Nappanee, IN, within Elkhart County, which is touted to be the Trailer Capital of the U. S. for RVs and Cargo Trailers.

Their website states, “ATC is one of the only manufacturers who can build all models and custom trailers in, both, steel and aluminum…This can range from a barebones 5’ x 8’ trailer up to a mobile command center fully fit up with dual slide outs, custom finishes and 60 KW power generation. ATC produces a wide array of trailers to meet every customer request.”

ATC is very vertically integrated in their manufacturing processes, as the website states, “Our system of material handling and placement on the production floor ensures that your workers’ time is spent building your trailer and not searching for material, tools and fixing errors. By fabricating and building components on site, we eliminate the overhead costs that come from outsourcing. Every hour spent and piece of material used is transparent and reflected in the pricing you are quoted.”

This is where ATC is now, but they have come a long way since the economic crash in the fall of 2008 that led to a near collapse of the trailer and RV industry in 2009. ATC owned a window manufacturing company, Nappanee Window, that provided windows for their trailers, as well as trailers and RVs made by other companies.

Because of the steep industry downturn, Steve said, “We had to shut down Nappenee Window in 2009 and sell off the assets. We had also built ATC up from scratch in 1999 to $26 million business in 2006. From 2007 to 2009 sales dropped 60%, and we were in survival mode.”

This dire situation led to a serious examination of where they were headed. Steve said, “We had only dabbled with lean previously. After reading Lean Thinking, we saw all of our mistakes at Nappenee Window and saw many of the same issues at ATC, but now we saw them through lean eyes.”

Steve said, “We had relied heavily on tribal knowledge, and as a result our average vendor was paid 25 days late. We had negative equity, and we only did five raw material inventory turns/year. We started practicing lean and changed to building a standard line of trailers.

Duane took over as presenter and explained that they separated into three lines based on work content and complexity of the trailers:

  • Line 1 (Raven)
  • Line 2 (Midline)
  • Line 3 (Custom/Large).

Duane said, “We set up three Value Stream teams, composed of trailer design, Inside Sales, Value Stream Leader, and the Value Stream team members. We created a lean office for each value stream. Steve and I became a leader for two of the value streams. We now have five value streams and are trying to change the mindset of everyone.” Then, he shared the following slide showing their Value Stream reorganization:

atc-value-stream-chart

 

 

When Steve took over again as presenter, he said, “We were profitable the first year after starting to practice lean. Our sales went from $10 million in 2009 to $42 million in 2015, and our net income has grown dramatically as well. Our inventory turns tripled from 2010 to 2014. Our long term debt has dropped by over 50%.”

Steve said, “After seven years of hard work, we have:

  1. Improved flow – went to one building from two
  2. Cleaned up the mess
  3. Did 5S for maintenance department
  4. Established a supermarket/material supply system
  5. Use a Materials/Kanban to all lines
  6. Changed to Value Stream Management since 2012

We are working with Joe Murli (CEO of The Murli Group). We follow Joe’s definition of a Lean Management System – “everybody, everywhere, every day comes together in small teams and reflects on how we did yesterday, where the waste was, and how we can do better today.”

In the Murli Group’s Lean Management system, True North is the unifying, overarching purpose for the entire organization and keeps the individuals and organization all pulling in the same direction. True North equals:

  • Zero Defects
  • 15% Productivity Improvement year over year
  • 100% value-added activity
  • 100% on time delivery
  • Respect for People

“We use visual controls on the shop floor. Standard work was the most difficult to do. We developed a Leader Standard Work Bus schedule.

From January 2015 to February 2016, we reduced labor time from 181 min down to 84 minutes for our simplest trailer (Line 1). On our Open Utility line, we reduced labor minutes from 360 min. in January 2015 to 248 minutes by mid April 2016. We use “kitting” and improved cell arrangement to eliminate as much walking as possible.

With regard to talent development, we are training leaders to lead in a new way. We do daily reflection team leader meetings at end of day. There are five tier 2 meetings per day, two tier 3 meetings per day, and one tier 4 meeting per day.

The change took nine months ? three months longer than we had planned. It took four years to gradually switch over to Lean accounting. It is simple and just makes sense to lean organizations. Now we get P & L weekly.”

In an interview after the summit, I asked Steve a few clarifying questions:

In answer to why they chose to transform their company into a Lean company instead of using some more traditional turn-around methods, he said, “Lean just seemed like a better way to think about operational excellence. It was more of a method rather than just trying harder or doing what everyone else was already doing. It felt right for some reason.”

When asked what was their biggest stumbling block in their Lean transformation, he said, “We tried to do too much too fast before allowing people to start to understand these new concepts with us. We tried to just be the experts and do the thinking for everyone.”

In answer to my inquiry about how becoming a Lean company changed the culture of the company, he replied, “Lean has really helped us to have a unified concept that everyone could get behind. It provided a common framework that we could point out to people as to where we were headed and why.”

Finally, I asked what have been the biggest benefits of becoming a Lean company, and he replied, “We get to involve everyone in the process of making things better. Then, we all get to share in the proceeds. I like that a lot. It seems to fit within my view of how the world should work.”

Hearing stories like this is one of the reasons I enjoy attending and presenting at the Lean Accounting Summit put on by Lean Frontiers. It is another example of how transforming into a Lean Company can make the difference between success and failure as a company. Have you made this transformation? If not, start learning and practicing now!

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What is the Heart and Soul of Manufacturing?

Tuesday, March 15th, 2016

Once in awhile you read a book that has such kernels of truth that they touch your soul. One such book is The Heart & Soul of Manufacturing by Bill Waddell that I just finished reading. The subtitle reveals the focus of his book: “How Lean Management aligns with the better angels of our nature to create extraordinary business results.”

I met Bill in 2014 when we were both speakers at the Lean Accounting Summit in Savannah, Georgia and reconnected with him at the summit in Jacksonville, Florida last year. I knew that we connected at a higher level because of his presentations and the topics we cover in our blogs, but reading his latest book confirmed it.

Bill has been a lean guru for more than 30 years, and in his Introduction, he writes this about his journey, “During the time I have grown in my own thinking from seeing lean as an exciting new set of tools to use on the factory floor and in the supply chain, to an all-encompassing business and economic model, to what it truly is: All of the above driven by and centered on a powerful and rare organizational culture.”

My own lean journey has been much shorter ? only 10 years since I attended my first workshop about lean in 2006, but it was preceded by getting my certificate in Total Quality Management in 1993. By the end of the 1990s, I had discerned that TQM failed because it started from the bottom up with “Quality circles” and was not adopted as a philosophy or incorporated into the corporate culture by C-level management.

I began my lean journey with the viewpoint that the adoption and implementation of lean tools and principles would help American companies be more competitive in the global marketplace and play a role in “saving” American manufacturing as expressed in my book published in 2009.

When I read Bill’s book, I resonated with his statement, “The cut throat world of business, and especially manufacturing over the last thirty years, has become centered on the negative: laying off good people in pursuit of lower headcounts, closing plants and moving the work to China, decimating entire small towns across America, and bankrupting small suppliers by abruptly terminating long relationships and replacing them with cheaper foreign sources.” These facts are what motivated me to write my book, Can American Manufacturing be Saved? Why we should and how we can.

The understanding of the importance of the total transformation of the culture of a company was revealed to me when I took classes in 2014 from Luis Socconini of the Lean Six Sigma Institute to acquire my Yellow Belt in Lean Six Sigma and thereafter read his book, Lean Company.

After years of applying the Toyota Production System tools and principles in his consulting, Bill dug deeper into the precepts behind them to understand what enables “Toyota with its nearly perfect track record of providing lifetime employment to its workers ? and making a lot of money at the same time.” One of the five precepts that more Americans need to emulate is “Be contributive to the development and welfare of the country by working together, regardless of position, in faithfully fulfilling our duties.”

Bill realized that there are other people like him “who want to do their jobs well, but also want to treat people well…they want to have a positive impact on the world around them and especially on the people around them.” The purpose of his “book is to send the message to those people that it is possible to do both…it provides a path for good people to combine the crafts of their trade with their moral code, to be good manufacturers because they are good people, rather than feeling they must either be good manufacturers or good people.”

Bill’s book features in depth consideration of companies that are every bit Toyota’s equal in their people-centered culture: ATC Trailers, Barry-Wehmiller, and West Paw Design.

Bill states that a lean culture is more than a “feel good culture;” it must be “a driver for a completely different way of running the business.” It must be based on “servant leadership,” wherein “the servant leader is always asking, ‘How can I help?’ Leadership and management exist to enable the folks on the front lines to better serve customers.”

Bill writes, “Eliminating waste and empowering people intersect beautifully.” But, in the goal to eliminate waste, “The resources that are the most important to eliminate wasting are people’s time and talents.” He adds, “Traditional management sees human beings as little more than unique tools, while lean thinkers see people as the very heart and soul of the organization’s reason for existence.” And, “In a lean company letting a thinking, feeling, growing person go ? laying them off ? is a shameful waste of a resource that is both precious and has enormous economic value.”

Those familiar with lean will understand his emphasis in a subsequent chapter on organizing a company by value streams, which engenders the feeling that “we’re all in this together” in the “shared commitment to the common good.” In a company with a lean culture, “success is defined by how the team performs along the entire end-to-end value stream…Rather than pit people against each other for individual recognition, lean incentivizes people to help each other, and to do whatever they can to make the other folks on the team more capable, to enable them to bring more of their talents to bear on the job.”

In chapter 5, “It’s all about Growth,” he writes, “There is a widespread misconception that lean is a strategy for reducing costs by eliminating waste. Quite to the contrary, lean is an engine for growth. The purpose of waste reduction and ideally elimination is to free up capacity.” When you free up capacity, you can grow, produce more, and make more profits. As Bill writes, “no company has ever cut its way to success…Success can only come from more, and you can’t cut your way to more.”

In chapter 6, “Hard Core Culture,” Bill discusses what is meant by a lean culture in contrast to “the traditional culture of blame, and its companion – arrogance…that causes most companies to fail from the inside out.” While a lean culture eliminates blame to utilize the Deming Cycle of Plan, Do, Check, Act (PDCA), Bill states, “The core concept of respect for people is not just theoretical or philosophical respect based on the belief that we are all children of God and equal in His eyes. It is professional respect, as well…based on the knowledge that no one knows everything about a process or an operation, but everyone involved knows something.”

Chapter 7, “Accounting,” contains Bill’s easy to understand explanation of “the important aspects of lean accounting, and how they support the decisions a principled, faith driven manager…” Lean accounting measures costs “based on cross functional value streams, rather than in each functional silo. It is based on “real money…it largely does away with the various types of cost types typically assigned to them…Standard costs are done away with in lean.”

I became a big proponent of lean accounting after a four-hour module in my Yellow Belt class that was reinforced when I attended sessions at the Lean Accounting summits of 2014 and 2015.

In chapter 8, Bill recounts the horrific story of the Triangle Shirtwaist factory fire that I recounted in my own book, wherein 145 women workers died in a fire because the doors were locked so the women couldn’t get out via the stairs, three of the four elevators weren’t working, and the owners had not installed a sprinkler system. It was the worst industrial incident in American history. It shocked the country and “it set off a series of laws and changes in industrial safety that eventually put an end to sweatshops in the United States.”

Bill then recounts the stories of two equally or more horrific tragedies that occurred in 2012 and 2013 offshore: Tazreen Fashions factory fire in Bangladesh where 117 women died in a fire because of locked doors and no fire prevention system and the Rana Plaza factory building collapse killing more than 1,200 people. He comments, “Since NAFTA was enacted some twenty or more years ago there has been a flurry of global trade agreements that typically pay little more than lip service to moral and ethical issues…These same trade agreements have had the effect of causing American environmental regulations to be something of a sham…great swaths of American manufacturing has moved to places such as China and Vietnam where there has been little or no environmental concern.”

We have actually been outsourcing our pollution to primarily China or Mexico. There is no sky-high fence to keep the air from crossing our border with Mexico, so we are breathing the polluted air being generated by companies in Mexico. In addition, the horrifically polluted air from China is actually coming to the U. S. on the trade winds.

The rest of the chapter 8 is a rather lengthy discussion of the differences between a privately owned vs. a publicly owned company with regard to practicing moral principles in the conduct of business.

Chapter 9 focuses on people, as “lean is a completely people centered business theory… lean management assumes the best and is based on empowerment and trust.” A culture of lean eliminates the conflict between management and labor. He presents examples of the “talent development” aspect of lean and now some companies evaluate people on the basis on their skills and knowledge in a four-square quadrant for both compensation and leadership. He concludes, “The companies with the best people working together on the best teams are the winners, and putting the best people into the best teams is done by principled leaders, not on the basis of accounting parameters.”

Chapter 10 considers “A Few Specifics,” and one of them that flies in the face of modern technology is the elimination of ERP systems as lean companies “see big IT systems as creators of significant levels of non-value adding waste. ERP systems create the need for planners, production schedulers, cost accountants and buyers. They require data collection and entry, as well as supervisors to oversee all of this, along with the costs of the software and hardware itself.” He provides examples of how ATC and West Paw Design use much simpler systems based on kanban (“a Japanese term mean something like ‘display card'”) He explains “Lean companies operate on a demand pull basis, rather than sophisticated forecasting models. Under this approach, they set a minimal inventory level in place and their purchasing and producing simply replenish that which has been used to meet actual customer demand…”

He concludes, “Perhaps the biggest reason lean companies avoid systems such as ERP is their cultural aversion to complexity. Complexity is the enemy of short cycle time, and it is the enemy of continuous improvement.”

The final two chapters contain a plea to take action and start leaning. He states, “You can’t change the basic trajectory of the business unless you change how you manage it…The gut wrenching, radical transformation in the business is not on the shop floor ? it is in the management office.” He states that successful lean leaders don’t come to this enlightened approach to management through logic, “they come to it through their principles…a principled leader is not content with the basic shop floor tools…they delve deeper and deeper into lean to find the zone of the management structures and philosophies need to allow them to manage by their principles and they dive even deeper into the core of lean culture until they fully understand and support the cultural rules need to turn the whole company into one driven by the leader’s strongly held beliefs.” He encourages companies to “learn why a strong culture is the linchpin of Lean success.”

The kernels of truth I briefly highlighted herein are why I recommend this book to everyone who wants to live and work by his higher principles while achieving greater success. If more American companies had the type of lean culture that Bill envisions, we truly could rebuild our manufacturing industry to make America great again and create jobs for millions of out of work Americans.

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Leadership is Key to Becoming a Lean Enterprise

Monday, November 9th, 2015

I finished off my week in Florida by attending the 2015 Lean Accounting Summit on October 8-9th Jacksonville, Florida, produced by Lean Frontiers, headed up by founder and President, Jim Huntzinger. It was two days of information-packed presentations and workshops that included case studies showing Lean principles in action. I was honored to be invited back to give a presentation on “How to Return Manufacturing to American Using Total Cost of Analysis.” I attended all five of the keynote presentations during the two-day summit and as many of the different breakout sessions as I could between the keynotes.

The First keynote, “Lead with Respect, was given by Michael Bole?, author, speaker and associate research at Telecom Aristech. He first challenged the audience with questions, such as “What is the meaning of leadership? How do you get people to follow you? What do they know how to do? “He stated, “Lean has a focus ? reduce waste and do more with less. The world is moved by ideas and words. To lead people, you need to take into account their experience, skills, and opinions to help them develop their autonomy. You need to create experiences for them so you can see at what level they are. Then, he asked, “How do you teach? You show them by means of problem based learning: Express the problem, look for the cause, and confirm the corrective measure.” He then outlined his seven-step model of Lean leadership.

The first breakout session I attended was “The Lean Management System: an Engine for Continuous Improvement” by Dean Locher, a four-time author and faculty member of the Lean Enterprise Institute. Dean said, “Lean creates a culture of continuous improvement you can actually see a culture.” He asked, “What is it to be a Lean enterprise? It is an organization where all members continually strive to do better and to develop a culture of continuous improvement. What is needed? Purpose, direction, CI methodologies and tools, processes, and engagement.”

He briefly described the methodologies and tools: Hoshin Kanri (policy deployment process), value steam mapping, Gemba walks, daily management process, 5S, Kaizen events, 7-step DMAIC, Andon (visual management), Kata, Leader Standard Work, and Voice of the Customer.

The next breakout I attended was “First Steps to Lean Accounting Statement” by Jean Cunningham, President of Cunningham Consulting, co-author of Real Numbers, and one of the original through leaders for the Lean Accounting summit. She showed how to restructure financial statements to provide a Lean accounting statement presentation in addition to the traditional presentation of standard cost when a company hasn’t gotten rid of their standards cost system yet. She said the key characteristics are: “(1) separate variable from non variable costs, (2) separate direct from shared between value streams, (3) separate accounting transactions for labor and overhead, (4) use easy to understand language, and (5) organize by groupings meaningful to the business.” She emphasized that “money is language of business so it is really important to have an understandable language. Operations and finance have to come together.”

After lunch, there were three mini-keynotes. Bill Waddell was the first mini keynote speaker of the day discussing “People Process and Prosperity.” Bill is the author of Simple Excellence, co-author of Rebirth of American Industry, and most recently “The Heart and Soul of Manufacturing.” His three main points were: (1) You can’t manage people by the numbers, (2) There is an inherent right to life, and (3) Lean can enable you to be far-sighted as managers.”

Sam McPherson was the second mini-keynote speaker discussing “Leadership as Special Forces.” Sam is an internationally recognized Lean Transformation Leader and co-founder of the Lean Leadership Academy with Art Smalley. He was recalled to military service after 9/11 and became the Director of Special Operations Plans for the Elite U. S. Army Special Forces (the Green Berets) during Operation Enduring Freedom in Afghanistan. He said, “A Green Beret is a symbol of excellence, and badge of courage, and act if distinction in the fight for freedom. Why would Lean leadership take a look at a Green Beret? Because every Green Beret is a leader. Special Forces are adaptable, capable, courageous, persistent, responsible, professional, integrated team player, and willing to lead.” He encouraged Lean leaders to develop the same qualities.

The third mini-keynote was Dean Locher discussing “Behavior Driving Culture.” He said that what leaders do is to develop culture. “Leaders need to help people understand that change isn’t like driving off a cliff. Teaching is not about you; it is about what your students learned. Leaders need to provide a target destination; there can be many different paths to the target. Leaders can teach PDCA and show how problem solving can be fun. When you use the Socratic method of teaching, you don’t provide the answer. Your students find the answer for themselves.”

In the afternoon, I attended the breakout session in which Eldad Coppens, CFO, and Anna Berkner, Director of Finance/Controller of QFix their company’s story about converting to Lean Accounting. QFix is a world leader in radiotherapy patient positioning and immobilization products. They are vertically integrated as an innovator, manufacturer, distributor, and marketer and have 100 employees. They have an extensive product portfolio with over 6,000 SKUs. They aim to be a one-stop solution so they distribute what they don’t make.

Eldad said, “You can’t do Lean accounting without doing Lean operations. We did Value Stream Mapping and a spaghetti diagram, and then reorganized by value streams: composites and devices, thermoplastics, resale of other people’s products. The value streams are supported by marketing, sales, and customer service, and technical support. The challenges were: high SKU/BOM, Box Score Analysis, new product development, profitability by profit, target costing, and tracking and reducing inventory. The benefits of Lean accounting have been: financial x-ray of company, timely reporting, consistency with GAAP, insight into economics, insight into traditional accounting, internal diffusion of financial results, and a baseline for incentive programs and the QFix Performance Bonus for employees.

At the concluding session of the day, the 2015 Lean Enterprise Institute Excellence in Lean Accounting Student and Professor Awards were announced. The student winner was Amy Shaw (Puckett), Western Washington University, and the professor award went to Patti Hart Timm, Walden University. The students and professors receiving LEAF scholarships to attend the summit were: Amal Said, Professor, University of Toledo, Jessica Jakubowski, Student, University of Toledo, Hassan HassabElnaby, Professor – Editor, University of Toledo, Joel Tuoriniemi, Professor, Michigan Technological University, Jeffrey Hines, Student, Michigan Technological University, Joanne Pencak, Professor, University of Vermont, and John Mangione, Student, University of Vermont.

On day two, the morning keynote speaker was Jamie Flinchbaugh, co-founder of the Lean Leaning Center, and co-author of The Hitchhiker’s Guide to Lean, who spoke on “Leading Lean.” He said, “Leading is a verb whereas leadership is a noun…What is the adoption rate of Lean? Good intentions are not a good solution to the problem…An operating system is how everything fits together: (1) process, (2) skills and tools, (3) evaluation, and (4) behaviors. All four need to work together and be consistent. An operating system may be good but doesn’t work because of behaviors. You need to be relentless on the path, but need to be patient with others who just got on the path. Evaluation starts with a hypothesis of if I do ____, I expect to see____. It includes Total Shareholder Return (TSR), strategy, culture, and behaviors.” He gave suggestions of how to hook a CFO into adopting Lean accounting: “Start with why you are doing it. What is your purpose? Define your own personal reason for the Lean journey.” He also recommended that CFOs talk to other CFOs.

I then attended the first of two sessions put on by executives of Nicholson Manufacturing Ltd., which was formed after Nicholson Debarker acquired Madill Forestry Equipment. Nicholson is family-owned, 67-year old British Columbia based manufacturer of machines and parts for the logging and forest products industries. The first was “Value Stream Accounting at Nicholson” presented by Ian Scott Kerr, Director of Finance, and James Bowden and Gaetan Desmairis, Value Stream Managers. The second was the “Lean Management Journey at Nicholson,” presented by Doug Jeffrey, President, and Rhonda Morrison, Continuous Improvement Manager.

They began their Lean journey in 2004 starting with 5S and Green Belt training to change the culture to continuous improvement. After acquiring a new ERP system in 2006 and evaluating suppliers, they had additional Lean training by Bill Waddell in 2009. They implemented more Lean methodologies and tools and trained small teams of employees using the PDCA cycle for teaching.

They brought Bill back in 2013 to begin their transformation to Lean accounting and produced their first value stream statements in January 2014. They learned to break down the silos and organized by value streams. They have three value streams: Nicholson products, McGill products, and aftermarket products, and each value stream has a manager. Their production employees are unionized ? fabricators, welders, and machinists. Every employee received education in value stream leadership and has been cross-trained in the value streams. They use a new Lean Employee Development Tool by Bill Waddell instead of performance reviews.

Rhonda said, “The challenges were: bad data, complex ERP system, down turn during recession for their product lines, staff losses by people who didn’t want to do Lean, building common goals with the unions, and the fact that many people had new responsibilities. The gains will come faster than expected, so need to have a plan to handle the extra capacity. You will get slower before you get faster. You will have to make tough decisions. Accept that some people may not want to change.” She added, “Dividing into value streams was easier than expected, and our on-time deliveries have improved from 65% to over 90%.”

The final keynote session featured Bill Waddell and Jim Huntzinger discussing “The Lean Economy: The Importance of Tying Micro and Macro.” One of the most important truths Bill said was, “Individual people are the source of all productivity.” He described how companies following the Lean business model are the micro part of the economy, and in turn, they are part of the macro economy of a city, state, or country. He said, “Reducing waste equals increased capital (both human and capital.) He commented that “retail stores are going b the wayside to Amazon to direct buying from manufacturers…you need to eliminate the non value added. If you don’t know where you are adding value and your customer doesn’t know where they are adding value, then you are doomed.” In the closing Q & A, I asked why more companies on the Lean journey don’t realize that offshoring is the opposite of Lean, creating waste, and Jim Huntzinger said that presenting that truth is one of the objectives of the Lean Accounting Summit.

This is why it is important to me to be invited to speak at the Lean Accounting Summit. As I wrote in my book, I am certain that becoming a Lean Enterprise is one of the most important actions American manufacturers can take to “save themselves” and one of the keys to rebuilding American manufacturing to make America great again.

 

 

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Traditional Industries Generate High-tech Spinoffs in Southwest Florida

Tuesday, November 3rd, 2015

My last article featured the stories of two companies that I visited, so this article will feature the four other companies I toured during my brief visit to Lee County earlier this month as the guest of the Lee County Economic Development Office.

Shaw Development is a family-owned company with the third generation now involved and specializes in the design, development and manufacturing of custom fluid management solutions, including Diesel Emissions Fluid (DEF) systems (headers, reservoirs, caps, adapters, strainers, etc.) for heavy-duty vehicles and machinery, such as trucks, buses, construction, mining, military vehicles, as well as agriculture and forestry equipment, power generation, and locomotive equipment.

Stephen Schock, Director of Manufacturing, gave us a plant tour first, and then we met with Lane Morlock, Chief Operations Officer. Lane told me that Frank Shaw founded the first Shaw company, Shaw Metal Products, in 1944 Buffalo, New York as a machine shop to support the military and developing aerospace market.

Shaw Aero Devices, Inc. was founded in 1954 to add engineering to their core capability and develop products with proprietary intellectual property. Frank’s son, Jim Shaw, headed up this company, and it became the industry standard for a variety of fuel, oil, water, and waste components and systems. Shaw Aero Devices moved Naples, Florida (Collier County) in the early 1980s and moved to Fort Myers in Lee County 1993. The company relocated back to Naples in 2001 after it outgrew its Lee County location.

Lane, said, “Shaw Development, LLC was formed in 1959 to transfer Shaw Aero Devices technology to ground vehicle markets particularly the lift and turn technology for fuel caps. We moved into our current 50,000 sq. ft. plant in Bonita Springs in 2008. Shaw entered into the DEF system business early on, and business has grown dramatically in the last 6 to 7 years.”

When I asked how much they outsource, he said, “We have a fair amount of capability in-house ? machining, stamping, forming, welding, paint, assembly and test capabilities. In 2009, we vertically integrated plastic injection molding by acquiring Gulf Coast Mold to bring back our molding from China. We bought a robot for welding that saves us a great deal of time. We buy some machining and sensors outside. In 2014, we added 17,000 sq. ft. to our production space in the plant and expanded our injection molding operation by 6,500 sq. ft. We added 75 employees over the past 3 years and our revenue has been increasing +25% YOY in this time period. We are now up to about 200 employees, so we are the second largest manufacturer in the region.”

In response to my question about their challenges, Lane said, “Our biggest challenge is to get the right talent. We work with Florida Gulf Coast University (FGCU) and more recently, we have engaged with the University of Miami to find the right talent. We work with local schools and the Southwest Regional Manufacturers Association to develop curriculum and manufacturing industry awareness to the local area. We are heavily involved with STEM and bring in students as interns and offer them the opportunity to work on private projects. One of our welders took a job with the local technical college to train welders, and this has provided us with an opportunity to work with this program and provide them with industry experience.”

With regard to my inquiry about being a lean company, he said that he had spent two years at NUMMI (Toyota Joint Venture) gaining an in-depth understanding of the Toyota Production System prior to spending seven years in a leadership role at General Motor’s corporate Lean Office. He added, “We have a full time Lean black belt to train our employees. We have gone from 43-day material turnaround to an average of 27 days in the past two years. Our model for business planning is Hoshin Kanri, and we have a five-year business plan and an annual business plan tied into it. Our on-time delivery is 98.8% year to date, and our quality PPM has improved by 60% in the past two years. We use a two-bin Kan Ban system and one-piece flow for our assembly line operations. Our employees are cross trained, and we review our manufacturing cell metrics at weekly meetings.”

With this emphasis on lean and the fact Shaw Development is both ISO 9000 and 14000 Certified, I could see why the company has been recognized as the Manufacturer of the Year for the State of Florida and Southwest Regional Manufacturer of the year.

My next visit was to American Traction Systems (ATS), a privately owned company formed in 2008 by Bonne Posma, as an affiliate of his other company, Saminco, Inc. ATS specializes in the design and manufacturing of electric propulsion systems for on and off road electric vehicles such the Ford Fusion, fuel cell buses, Hybrid trucks and buses, streetcars, trolleys, trams, GenSet Locomotives, Hybrid Diesel-Electric marine vessels, airline ground support vehicles. ATS has manufactured electric traction drives for Fuel Cell Buses designed by Ballard and Georgetown University, Hybrid-Electric systems for Allison Electric Drive division of General Motors as well as over 3,500 AC/DC and DC/DC controllers for underground mining vehicles. All design and manufacturing is performed in the Fort Myers, Florida facility with the capacity to deliver production of several hundred units per month.

General Manager Lem Vongpathoum led the plant tour at ATS and then we met with Mr. Bonne Posma and his niece, Cari Posma Wilcox, Vice President of Saminco, Inc. In a phone interview with Cari after returning home to clarify some details, she told me that Bonne was born in Indonesia of Dutch parents just as WWII erupted in Asia and spent the war years in a prison camp with his parents. His family returned to the Netherlands after the war and then immigrated to Canada. Mr. Posma founded Saftronics in 1968 in Johannesburg, South Africa and then opened a second facility in Ontario, Canada in 1976, which is still in operation as Saft Drives. He opened a Saftronics plant in Buffalo, New York in 1986, which he moved to Ft. Myers, Florida a year later. He left Saftronics and founded Saminco in 1992. Saftronics was sold to Emerson in 2005. After founding American Traction Systems in 2008, he opened a Saminco service office in China in 2009 and a service office in South Africa in 2011. He also opened an ATS facility in South Africa in 2013. Bonne’s energy and excitement about his companies was that of someone half his age when he showed us around Saminco and gave us a demonstration of some of the mining equipment at their testing yard.

Bonne clarified the difference between the three companies he has founded, saying “Saftronics made variable speed drives. Saminco makes solid-state electric vehicle traction controllers powered by batteries, diesel-hybrid, fuel cells and power systems, mainly for underground mining equipment. American Traction Systems makes electric and hybrid-electric propulsion systems for a variety of vehicles and equipment. I am the sole owner of both Saminco and ATS, and we have about 120 employees at the Ft. Myers Saminco and ATS plants. We also have a repair facility in Huntington, West Virginia that has 35-40 employees.”

Bonne explained, “We are competing with major corporations like Siemens, ABB and GE. We have to be more nimble to compete successfully. We competed against these companies for a Navy contract for a propulsion system for the USNS Waters operated by the Military Sealift Command and won the contract. We are getting into solar and working on a new diesel electric propulsion system for a Load Haul Dump (LHD) vehicle that is like a large Bobcat. We are also working on a new induction motor for ‘Mag lev’ trains.”

When I asked him about his suppliers, he said, “We use all American suppliers for what we can’t do in-house. We buy machining and sheet metal fabrication and use a contract manufacturer for our PCBs. We do full power testing in our lab.”

He added, “American workers are some of the highest paid workers in the world. There are three things that have destroyed American manufacturing: litigation, regulation, and taxes. If we want to level the playing field, we need to get rid of these three things.”

On my last morning in southwest Florida, we visited JRL Ventures, Inc. dba Marine Concepts headquartered in Cape Coral, Florida. The facility contains 42,000 sq. ft. of manufacturing and office space, equipped with state of the art CNC robotic machining centers and other technologies. Marine Concepts opened its doors in 1976 under the leadership of Augusto “Kiko” Villalon to be able to go from design to production of boats. Marine industry veterans, J. Robert and Karen Long, purchased Marine Concepts in 1994. As a leading manufacturer for nearly 40 years, Marine Concepts is now the largest manufacturer of tooling and molds for the marine industry in the United States. They make CNC plugs, composite molds (open and closed silicone/LRTM), CNC molds, CNC parts, limited production composite parts, scale models, and CNC cold mold kits. In 2012 Marine Concepts opened a facility in Sarasota, Florida with over 260,000 sq. ft. of manufacturing and office space. The two plants provide 300,000 sq. ft. of manufacturing space and seven 3 – 5-axis CNC milling machines.

Mac Spencer, CFO, gave us the plant tour where we watched a boat mold being machined by their very large machining robot. We met with Dan Locke, Design Manager and Senior Designer, who has been designing boats since the 1980s, using Unigraphix software that provides more free style for designing surfaces than Solid Works. Mr. Spencer said that normally their business was 80% marine vs. 20% non-marine, but during the recession, it was reverse. They diversified into making composite figures and structures for resort parks, such as Disneyland, Universal Studios, and Six Flags. They also make composite parts for trams and electric buses. Design work for other marine companies is also a growing part of their business. We briefly met with President Matt Chambers before departing.

My last visit was to Nor-Tech Boats where we met with Cindy Trombley, Director of Administration. She said the company was founded in 1980 by Trond Schon, who had moved with his family from Norway to Cape Coral, Florida. Nor-Tech manufactures high performance powerboats using advanced technologies, unique manufacturing processes, and stylish designs. The main manufacturing facility in North Fort Myers encompasses over 45,000 sq. ft. complete with a 20’ x 60’ downdraft paint booth. Within the main building a state of the art rig shop and in house upholstery departments are climate controlled year round to insure a clean and work friendly environment. The in-house engine development and production division is housed in a secondary facility along with the service department and a rigging facility. We could see three boats in various stages of production in the main plant, but we did not have time to go visit the secondary facility.

Cindy said they currently have 107 employees, but survived the recession by dropping down to only 35 and going into debt. She said they can make boats up to 80 ft. long, and most of the larger sized boats go overseas or to Canada. They make every style of powerboats except for “T-tops.” Cindy said, “Our biggest challenge outside of heat and humidity in Florida is finding skilled labor. There are no vocational schools teaching how to build boats. We have low turnover, but an aging workforce. One of the advantages of Florida is that there are no corporate or personal income taxes.”

A common thread for most of these companies is the concern about finding the right workers now and in the future. As I have discussed in past articles, this is a nationwide problem, not just in southwest Florida. During discussions with the management of the Lee County Economic Development office and members of the Southwest Regional Manufacturers Association at breakfast, lunch, and dinner meetings during my visit, I shared what is being done to address this problem in other parts of the country and by organizations such as SME’s PRIME schools, ToolingU, and Project Lead the Way that I have written about in previous articles. The more manufacturers and trade associations that get involved in solving this problem, the more successful we will be in attracting and developing the next generation of manufacturing workers.

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Southwest Florida Attracts Manufacturers, not just Retirees

Tuesday, November 3rd, 2015

During my recent trip to southwest Florida as the guest of the Lee County Economic Development agency, I learned that in recent years, there has been an increasing number of business owners that have been regularly vacationing in the area who have decided to either move their business or set up a business where they like to play.

Lee County is on the Gulf of Mexico side of Florida about 125 miles south of Tampa and about 50 miles north of the Everglades National Park. There are five incorporated cities in the country: Cape Coral, Ft. Myers, Bonita Springs, Ft. Myers Beach, and Sanibel. The county population grew 63% from 1994 to 2014, but 55% live in the unincorporated area.

My tour host, Shane Farnsworth, Manager of Business Development for the Lee County EDO, told me that Cape Coral was a planned “bedroom” community, but many people never built homes on the lots. So, Cape Coral offers the greatest area of growth for industrial development through the purchase and combining of these parcels into industrial sites. Ft. Myers is the oldest of the five cities, so there is very little undeveloped land and new industrial sites will occur through redevelopment. During my visit, I met with executives of several manufacturing companies in three of five and the city of Naples to the south in Collier County (most of Collier County is taken up by the Big Cypress National Park.).

My first interview was with Bill Daubmann, founder and Senior V. P. of KDD, Inc. dba My Shower Door and a member of D3 Glass LLC. Bill originally had  established a closet organization business in Springfield, MA in 1986 and obtained a license agreement with Mr. Shower Door in 1989. After visiting the Lee County region for several years on vacation, he decided to move to Naples in 2001 and opened a showroom in 2003. His son, Doug, moved also and joined the company. He took the Fast track entrepreneur course by the Kaufman Foundation with one son in 2007 to “hone” their management skills, and took it again in 2011 with his other son.

Bill said, “It was a tough struggle from 2008 – 2010 due to the Great Recession, as southwest Florida was “ground zero” for the decline in the new home building market. We survived by mostly doing home remodeling.”

In 2011, they were informed that their Mr. Shower Door license would not be renewed for 2012, so they explored setting up their own manufacturing plant to make the tempered and glazed needed for shower doors. After analyzing how much glass they were buying out of the state and the problems they had with breakage and defective glass, they set up D3 Glass LLC in 2012 when new home building started coming back in a building they had bought during the recession. Bill’s oldest son, Keith, became President of KDD, Inc. dba My Shower Door. Bill said that the ovens for tempering the glass cost one million and everything else cost another million. They had to buy two custom-outfitted trucks to deliver the glass to their showrooms and customers.

Since Florida requires a license for the glass and glazing business, Bill and his sons took the test and got their licenses. Bill said, “We hired a consultant to do a “SWOT” analysis for our shower door business to make sure that our business model worked in all parts of the country. We wrote a business plan and did a beta test site. We are now selling our business model to others and running an academy on how to run a shower door business. We have four affiliate stores: Oklahoma City, OK, Grand Rapids, MI, St. Paul, MN, and York, PA. We also sell the specialized hardware for shower doors to our affiliates and other shower door companies.”

In the last two years, they expanded from just doing shower doors into other markets for tempered glass and recently finished providing all of the tempered glass for the new Hertz headquarters building that will open next month. Bill said, “We went from 22 to 50 employees in 18 months and are now up to 64 employees. We just made the INC magazine list of 5,000 companies at #2,085 and will be going to the big event next month.”

After I told him that I am part of the Reshoring Initiative to promote bringing back manufacturing to America, he said, “We were buying aluminum extrusions from China, but just switched to a vendor in the United States.”

In answer to my question about the advantages of being located in the region, he responded, “It is easy to deal with the people in the local government agencies, there is good transportation available on I-75 and Rt. 41, the new airport has flights going to our markets, and there are good local colleges for preparing the future workers we will need.”

My second interview was with Brian Rist, President and CEO of Smart Companies, of which Storm Smart is the largest subsidiary. Storm Smart is Florida’s largest manufacturer & installer of hurricane protection products and is the ninth largest manufacturer across all industries in Lee County. Brian is the inventor of the innovative Storm Catcher Wind Abatement Screens. He also moved from the northeast to southwest Florida to run his business. Brian said, “I started out with a couple of partners in a general contracting business and wound up as the sole owner. The first three years were a struggle to find a niche. The building codes were changing and I became the expert in the new codes, even teaching architects. After Hurricane Ambrose came in 1994, I tried to find a fabric that would replace plywood for covering windows. We talked with people in energy management and got everyone’s opinion. I founded Storm Smart in 1996 to manufacture fabric window protection. We became known as who to talk to about window protection. If you fail to plan, then you plan to fail. We did a CD on what businesses could do for emergency planning because 83% of businesses that have a disaster never recover.”

Brian explained that the building codes changed in Florida for developing sites in 1997 requiring window protection to be part of building a home. In 2001 new codes came out and insurance regulations changed also. Everyone has to have separate hurricane insurance. Insurance companies offered special rates for homes that had protection, and the State of Florida offered a rebate program.

“We started making polypropylene window protection by hand cutting the material, but we needed to ramp up to higher production. Getting a sales tax credit helped us to be able to buy a laser cutting machine in 2013, and it eliminated the bottleneck in our business helping us develop new products.”

They work with the biggest companies in the world that use fabric for hurricane protection. While their products protect homes from hurricanes, they also reduce energy costs. Brian said, “You can build a business based on a known market of saving energy and not just protection from hurricanes. Impact-rated windows are a fast growing part of our business. Most new homes come with impact rated windows.”

He added, “The building codes changed again and they are much more about retaining heat rather than saving heat. International codes are also changing. We watch what percentage of our business is with builders. We went to Cancun and set up small operation during recession in Mexico. We are currently doing work in Los Cabos, Mexico also. We sell to Caribbean countries like Bermuda, Jamaica, and wherever else there are resorts.

We have experienced fast growth and have been picked by Inc. magazine four times as one of the 5,000 fastest growing companies. We went from 26 employees to 100 employees after Hurricane Charlie. We went from five to six jobs per month to about 100 jobs per month.

We looked at all of their jobs and decided to really go back into the customer service business to be a sustainable business. We started to invest in our people and getting to know who they were. We had to make sure they were doing things right. We have to ‘walk the talk.'”

After we discussed some of the articles I have written on developing and recruiting the next generation of manufacturing workers and my involvement with the Coalition for a Prosperous America, he added, “‘ Walking the talk” also involves working with students and getting involved with the Southwest Regional Manufacturers Association [for which he is in the current Vice-President.] He said, “We won the manufacturer of the year for the local region last year. We work with five different academies related to construction. Only about 20% of kids go to college and only about 20% of them graduate from college. We had a tour of our plant during Manufacturing Day and had about 13-14 students come on the tour. Florida is too reliant on tourism and construction. Manufacturing creates more different opportunities for good-paying jobs. Our Governor was at our plant three weeks ago, and he understands manufacturing. By partnering with government and education, we can be more effective in growing manufacturing in Florida. In order to grow, we have to develop the next generation of manufacturing workers. Team building, time management, and ethics are the same regardless of the industry.”

In answer to my inquiry about Lean training, he said, “We have been very involved with lean manufacturing and are working with the Florida Manufacturing Program. We are going through a program for an ERP system in order to continue to grow. We have a plan to develop the company over the next three years. Part of it will involve having licensed dealers.”

The outlook for business in Lee County is very good according to the Lee County Business Climate Survey Report, Third Quarter, 2015 prepared by The Regional Economic Research Institute, Lutgert College of Business, Florida Gulf Coast University, released on August 27th, 2015. The key findings were:

  • 74 percent of executives stated that the current economic conditions have improved over last year
  • 66 percent of the executives stated that the current economic conditions for their industry have improved over last year
  • 67 percent of executives expect economic conditions for their industry to improve over the next year
  • 68 percent of companies expect to increase investment next year and none expect to reduce investment levels
  • 61 percent of executives reported increasing employment over the last year, while four percent reported reducing employment
  • 57 percent of executives expect to increase employment at their companies during the next year

While manufacturing represents only 2% of the economy of Lee County today, the staff of the Lee County Development agency is working with the economic development offices of the five cities and members of the Southwest Regional Manufacturers Association to grow the manufacturing industry and expand that percentage. Their work will be aided by the fact that Florida ranks 5th in the 2015 State Business Tax Climate Index with a score of 6.91. The corporate income tax rate is only 5.5% for C corporations only. There is no inventory tax for businesses, and there is no personal income tax. There are nine universities and colleges, and the two largest, Florida South Western State College and Florida Gulf Coast University have a combined enrollment of over 30,000 students. There is good technical training at the two-year community college level as well as at the Fort Myers Institute of Technology, Cape Coral Institute of Technology, and at the ITT Technical Institute. The Ft. Myers airport (RSW) is served by 15 air carriers offering nonstop flights to 46 destinations, most of which are east of the Mississippi.

The stories of these two companies are good examples of innovation to develop new products, becoming a lean company, creating a new business model, and expanding into new markets. These are some of the recommendations I made in the chapter “What manufacturers can do to save themselves” in my book, Can American Manufacturing be Saved? Why we should and how we can.

Having no corporate and personal income taxes and providing a friendly business climate are ideas I discuss in the chapter on what government can do to save manufacturing in my book. My next article will tell the stories of other companies I visited in Florida.

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Miller Ingenuity Combines Innovation and Lean to Create a Unique Culture

Tuesday, December 9th, 2014

Last month, I had the pleasure of interviewing Steve Blue, President of Miller Ingenuity, located in Winona, Minnesota. Winona is a medium-sized Midwestern town of under 30,000 people located on bluffs overlooking the Mississippi River in the southeastern corner of Minnesota across the river from Wisconsin.

“Rudy” Miller founded the company more than 60 years ago after inventing the wick lubricator, a maintenance free lubricating system for locomotives. Miller’s inventiveness enabled the company to develop into a successful company by means of the ability to design, produce and deliver innovative railroad parts that meet the needs of the industry.

Miller Ingenuity currently has 50 employees at their 70, 000 sq. ft plant, but has 18 sales people around the world selling to 100 countries, including Asia. The company remained a privately held enterprise of the Miller family after Mr. Miller’s death 18 years ago, and Mr. Blue became president 15 years ago.

As described on their website, Mr. Blue is carrying on the innovation legacy of Mr. Miller: “Our continued innovations are driven by three core motivations: to take on customer challenges, to think more creatively about solutions, and, humbly, to be everyday heroes to our customers. We put these beliefs into action based on deep and “factory floor” relationships with our customers and on our ability to invent, engineer, and deliver ingenious solutions.”

Mr. Blue stated that the company started on their Lean journey ten years ago, and every employee went through the training. Two of their employees are Black Belts from training they had received when they worked for General Electric. The company has expanded Lean out of the shop floor into “lean office,” but not into “lean accounting” as yet.
In answer to my question as to whether the company is having problems finding employees with the right skills, Mr. Blue said, “Yes, but it is because we are picky by design. We have created a culture, and not everyone fits into our culture. We are slow to hire, but fast to fire if someone doesn’t fit. It’s easy to teach skills, but attitude is more important.”

Mr. Blue added, “We do continuous training as part of our Lean program. We have self-directed work teams and utilize peer interviewing and reviews. We have a “bounty” program with a $5,000 cash award for the most innovative ideas. For example, six production workers reduced a stamping die set up from four hours to 16 minutes.”

Since I saw a wide variety of products on their website utilizing many different fabrication processes, I asked if they were vertically integrated to do sheet metal fab, machining, rubber and plastic molding, wire forming, electronics assembly in-house or if they subcontracted out some of these fabrication services. Mr. Blue said, “We do metal stamping, compression rubber molding, and injection molding of plastics in-house, and subcontract out the other fabrication processes.”

Naturally, I asked if he outsourced any manufacturing offshore to China or other Asian countries, and he responded, “We have some electronic subassemblies and surface mount printed circuit boards sourced overseas, along with some overmolded rubber parts because our competition was selling products at our U. S. cost.”

On their website, I had noticed a heading for the Larry McGee Company and asked Mr. Blue about the company. He said, “We acquired the Larry McGee Company in March of this year. They were our third acquisition in the past 10 years. They had a great product line of radio-controlled interface devices, but no sales force. It was a low risk opportunity to enter into a different technology. We moved their operations into our plant from their Chicago facility.”

I had received a press release about the company’s Creation Station, so I asked Mr. Blue why they started it. He said, “We started the Creation Station because our ability to innovate was slowing down and needed to be accelerated. We hired the ex-Chief Creativity Officer from QVC to teach us innovation principles. We started by having an innovation session every Tuesday, but wanted innovation to be more spontaneous and not wait until Tuesdays. This led to creating a space away from their working space in the middle of the manufacturing area. Glass panels provide natural light. Smart boards are scattered about the room, and there is a pool table in the middle of the room. But, the magic is in the people, not the room.”

An article in the Winona Daily News provides further information, “Creation Station is a big investment in creativity and entrepreneurialism in manufacturing at a level where it needs a shot in the arm,” said Steve Blue, Miller Ingenuity President and CEO. “It’s truly a breakthrough moment for our company, the town of Winona, the region, and small and mid-sized manufacturers in this country.”

“Creation Station offers a flexible workspace designed for both large and more intimate presentations, trainings and meetings. Creation Station will also be made available during off-business-hours for regional organizations and companies looking for a high-tech “think tank” space.”

In addition to the Creation Station, Miller Ingenuity created the 2014 Ingenuity Challenge, open to employees and the general public. The public invitation stated: “The Ingenuity Challenge invites ALL college and graduate students to submit plans and creative ideas in response to the challenge – How Might American Manufacturers Attract the Best and Brightest Innovative Minds to Pursue Careers in the Manufacturing Industry. The best solutions will win: 1st place $7,000; 2nd place $2,000; and 3rd place $1,000.” The deadline was November 19th, and they had eight entries at the time of our interview on November 17th. The winners have not been announced yet, but the results will be made publicly available, and the ideas will not be proprietary to Miller Ingenuity.

In answer to my final question as to what does he attribute the company’s ability to prosper after 60 years in business, he answered, “Our culture by design, not default has enabled us to prosper. We have a cohesive, collaborative, and creative culture.”

We will be hearing more from Steve Blue as he told me that he had just signed a deal with Praeger Publishing to publish a book titled “American Manufacturing 2.0: What Went Wrong and How to Make it Right.” We obviously share a common love of manufacturing and realize its importance to our economy and the creation of good-paying jobs. His book is expected to be published in the fall of 2016 and will utilize “up-to-the-minute data and trends to discuss the future of manufacturing in America and offers an inspiring vision—featuring his own company’s case studies—for revitalizing an entire industry.”

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Lean Sustainability Requires a Change in Culture

Tuesday, November 11th, 2014

On the second day of the Lean Accounting summit put on by Lean Fronteirs, Cheryl Jekiel, author of Lean HR, gave the keynote presentation on “The Future of the Horizontal Lean Enterprise, Rev Up Your Engines.”

Ms. Jekiel led off by comparing the support functions of a company (Accounting/Finance, Information Technology, Human Resources, Quality, etc.) as “potentially the engine of the organization” in “driving strong performance.”

She outlined six ways to power up support functions to create a different attitude in the whole team:

  1. “Gain clarity on how your work impacts your external customers.
  2. Shift attitudes beyond current expectations.
  3. Focus on highest priorities ? what is the #1 problem in your business?
  4. Develop a service attitude – how do you measure service? Does it meet the needs of your customers? Survey internal customers (other departments).
  5. Synthesize skills of Finance, IT, etc. and combine various items into a cohesive whole.
  6. Leverage diversity of skills ? you are better together”

In summary, she recommended that companies “identify ways that support staff impact external customers, expect more of team members in support functions, and prioritize work based on ability to achieve objectives.”

Retiring American Manufacturing Excellence President, Paul Kucharis, made a comment that has kept running through my mind, “What got you here, won’t get you there.” We have come a long way in the last 25 years since lean concepts, principles and tools diffused out of the Toyota Production System, but it is a never-ending road of continuous improvement to reach an ever-changing target. The underlying discussion among speakers and attendees of the summit seemed to be questioning whether enough progress had been made. The consensus from discussion was that we now have many companies that are lean manufacturers, but how many are lean enterprises? And, of particular importance to the theme of the summit, how many are using lean accounting rather than standard cost accounting?

This is why I selected the breakout session on Accellent Corporation’s “Solving the Standard Costing Problem,” presented by Jeremy Friedman, President and COO of the Cardio & Vascular Division. Accellent is a medical device manufacturer with 17 factories, 5,000 employees, and 20,000 SKUs.

He said, “Standard cost accounting is incomprehensible; we didn’t know where the numbers came from…Our prices were as high as three times competition. Standard costing didn’t work for our 20,000 SKUs…There were too many assumptions, too many variances.”

When he was the Executive V. P. and CFO, he researched the subject, read several books, and spoke to some of the experts, such as Jerry Solomon, Brian Maskell and Nick Katco, whom I met at the conference.

The decision was made to eliminate standard cost accounting, and they made the switch to “plain English P & Ls on October 1, 2012.” He said, “We began with value stream management and focused on cutting costs…We eliminated variance analysis and changed from using standard costs and adding a markup…We had to teach that pricing isn’t a function of cost. Besides the benefits at the operations level, we are no longer pricing products at two to three times higher than competition. We changed to a new paradigm ? lean cash flow.” The old model was “What is the lowest price we can charge based on standard costs and markup. The new is “What is the highest price we can charge and still win the business.”

The companies I represent sometime lose orders for being two to four times higher than the competition, so I have a very good reason for encouraging a transition from standard cost accounting to lean accounting. I firmly believe that if more companies would make this transition, we would be losing less business to China and other offshore suppliers.

Next, I attended the session on “Lean Product and Process Development ? Creating the Future” by Dr. James Morgan, President of Emc Network and a Sr. Advisor for the Lean Enterprise Institute. Dr. Morgan shared his experiences as the Director of Global Body Exterior, Safety and SBU Engineering at Ford Motor Company from 2006 to early 2013 when he left the company.

He said, “Every time you develop a new product, you have the opportunity to create/change the future…Apple and Google changed the future.”

“In many companies,” he commented, “new product development is a nightmare: design and quality problems, late launches, [etc.]…Great products drive enterprise growth and require interdepartmental collaboration…Lean product development requires that you develop the people and product simultaneously.”

Morgan said that at the time of the economic crash in 2008 “Ford had $17 billion in losses over the previous three years and a 20-year market share decline…Ford’s recovery was a product driven recovery based on a new product portfolio and new global development process.

The Body department was organized around the value stream and developing engineers was made a priority following the Technical Maturity Model (TMM), Technical Independent Development Process (TIPD), using mentoring and targeted assignments, and design reviews to demonstrate efficient design. They included the extended enterprise of the UAW and suppliers and used the Matched Pair Process for engineering and purchasing to shape processes, tools, and objectives. They spoke as one voice.”

In summary, he said, “They tightly synchronized activities to create effective concurrency and increase probability of success. The process they followed was:

  • “Study – to create the right product
  • Execution – to deliver the right product
  • Reflection/learning”

He recommended that “you use A3 forms for business planning and align your organization with the right tools and stretch your team.”

In between, the keynotes and one-hour workshops, I attended two of the 20-minute “scrambles.” The first was “Kata, Coaching and TWI” by Jim Huntzinger and Dwayne Butcher, the principals of Lean Frontiers. I was familiar with TWI (Training within Industry) from my Lean Six Sigma Yellow Belt class. It was briefly described as the program implemented during WWII to train women and non-military qualified men to replace men in industry that had been drafted. It contained three “J” programs: Job Relations, Job Instruction, and Job Methods.

They explained that the objective of Coaching Kata is: “Create an organization that solves every problem every time…Coaching Kata shows how to develop problem solving skills one-on-one using PDCA in coaching/mentoring on actual projects.” Huntzinger said, “You will not become lean by doing TWI, but you will not become lean without doing TWI.”

To me, the last “scramble” of the day came full circle from the first keynote by Robert Miller on the future of Lean leadership and put everything into perspective ? Orry Fiume’s discussion of “Executive Leadership.” He stated that whether or not your company has built a sustainable culture of excellence based on Lean principles can be easily determined by using the following simple comparison Mr. Fiume presented:

Traditional Lean
Functional form Business form
Managers direct Managers teach
Management delegates Management supports
Blame people Root cause analysis
Us vs. Them Real teams
Results focused Process focused
Internal focus Customer focus
Managers control Workers control
Hierarchy Flattened organization
Employee is a cost Employee is an asset
Rewards individual Rewards group sharing
   

I would add one more comparison to this matrix to fit the theme of the conference: traditional standard cost accounting vs. Lean Accounting.

Less than half the attendees and speakers were present for the final panel discussion on “Your Organization in 10 years.” The consensus of comments by panelists and members of the audience seemed to be that while the “Lean movement” has come a long way, many companies, still have a long way to go.

Within the San Diego region, I see many companies that participate in the CONNECT Operations Roundtable workshops apply lean principles and tools on the shop floor. They seem to have transformed from traditional companies to lean companies in about half to two thirds of the above matrix. However, I don’t know of any company that utilizes lean accounting.

The problem is that most of these companies are medium to large companies. Very few companies under 50 employees have begun to adopt lean principles and tools. Only two of the small companies I have represented in the past 15 years have gone through lean training. The first was a metal stamping company with less than 40 employees. They obtained the training through one of the California Centers for Applied Competitive Technologies offsetting the cost with some funding from the Employment Training Panel. As a result, average throughput was reduced from five weeks to five days, on-time delivery improved by 70% and work-in-process was reduced by 40%. The other company was a rubber molder with only 15 employees, and they received their training through the southern California Manufacturing Extension Program, California Manufacturing Technology Consulting. Their biggest benefit was eliminating wasted movement and time by implementing 5S and rearranging equipment. The cost of their training was also reduced by Employment Training Panel funding. Small companies have the advantage of not having much of a hierarchy to flatten, and the president has to be fully committed to becoming lean to even initiate the training. This makes it easier for lean to become integral to the culture of the company.

Utilizing lean tools is not enough to become a lean company. Lean concepts and principles must become part of the culture. Lean will not be sustainable in the long run unless it does.

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