Improving Your Bottom Line

Making Kentucky manufacturers more

competitive

Why Manufacturing?

13% of the nation’s total Gross Domestic Product (GDP)Nearly 14.3 million employeesAverage annual wage of $45,916Conducts two-thirds of all private sector R&DEvery $1 in manufactured goods generates an additional $1.43 worth of economic activity

Competitiveness Challenges

Rapidly advancing technologyCustomer demands – faster, better, cheaperOffshore competition from low wage countries– China’s average wages are:

25% of Mexico’s10% of Hong Kong & Taiwan’s3% of U.S.’

How Will Firms Compete?

It’s all about... Innovation

…Productivity…Speed

2 Key Tools for Competitiveness

Lean Manufacturing / Lean Office

Six Sigma

KMAC

Mission: Increase the competitiveness of Kentucky manufacturersPrivate, not-for-profit corporationStatewide operationsIndustry-driven Board of DirectorsKentucky affiliate of the national Manufacturing Extension Partnership (MEP) program

Productivity Improvement

Lean Manufacturing / Lean for the OfficeFacilities Planning & LayoutProcess ImprovementProblem Solving TrainingEmployee DevelopmentTeam Building & Team Leader Development

Quality Improvement

Quality SystemsISO and QS/TS StandardsSix SigmaStatistical Process ControlPoka-Yoke / Error Proofing

Product Improvement

New Product Development– Accelerate to Market for Small & Medium Enterprises

(ATOM-SME)

Value Engineering / Design for Manufacturability

Business Improvement

Strategic PlanningMeeting FacilitationPerformance MeasurementFinancial Planning

Benefits

Expertise– Staff of seasoned manufacturing professionals

Results– Proven track record will all types of industry– A national leader among MEP Centers for delivering

quantifiable, bottom-line impacts to clients

Value– Clients realize significant returns on their investments in

KMAC services

FY06 Client-Reported Results

Increased Sales: $21 Million

Retained Sales: $12 MillionAnnual Cost Savings: $4.8 Million

New Investment: $27 Million

Lean Manufacturing Lean Office

What is Lean?

A systematic approach to identifying and eliminating

waste (non-value added activities) through

continuous improvement by flowing the product at

the pull of the customer.

Defining Value-Added Activities

VALUE ADDED:Increases the market form or function of the product or service

NON-VALUE ADDED:Does not add market form or function or is not necessary

ESSENTIAL NON-VALUE ADDED:Cannot be eliminated completely

Lean = Eliminating the Wastes

Value Added

Typically 95% of all lead time is non-value added

• Overproduction• Waiting• Transportation• Non-Value Added

Processing• Excess Inventory• Defects• Excess Motion• Underutilized People

Non-Value Added

Lean Tools

Quick Changeover

Standardized Work Batch Reduction Teams

Quality at Source

5S System Visual Plant Layout

POUS

Cellular/FlowPull/Kanban TPM

ValueStreamMapping

Continuous Improvement

Value Stream Mapping

Visually document current material & information flow

– Identify non value-added activities– Quantify non value-added lead time

Create an ideal future state– Eliminate wastes & simplify processes

Results in development of a Lean Implementation Action Plan

– Prioritized improvement projects– Determines Lean Tools to be applied

5S System

Designed to improve workplace organization and standardization

Visual Workplace

Simple signals providing an immediate understanding of a situation or condition

– Kanban cards– Color-coded dies, tools, pallets

Plant LayoutRaw Stock QC Rec Ship

Shear Screw Machine

QCStamp

AssemblyBrake MillLathe

Weld FinishGrind Parts Stock

Drill

Standardized Work

Tasks organized in the best known sequence Most effective combination of:

– People– Materials– Methods– Machines

Batch Reduction

The best batch size is:

ONE PIECE FLOW

Make One . . . Move One!

Teams

More flexibleGreater productivity & use of resourcesCollaborative & cross-functionalMore creative & innovative

Quality at the Source

Quality builtOperators inspect

– Necessary equipment– Established standards– Process documentation

Point of Use Storage

Materials are stored where used

– Simplifies physical inventory tracking, storage, and handling

Quick Changeover

Changing over a process to produce a different product in the most efficient manner

Pull/Kanban

Push System– Production based on

forecasts or schedules

Pull/Kanban System– Production based on

actual demand using Kanbans to signal replenishment

Cellular Flow

Linking of manual and machine operations into the most efficient combination of resources

– Flexible layout– Simplify flows– Minimize materials handling– Make use of people

Total Productive Maintenance

Systematic approach to the elimination of equipment downtime as a waste factor

Designed to maximize the productivity of equipment for Its entire life

Going Lean

Training in Lean toolsUsing Lean tools in improvement events– Kaizen Events

Organizational / Cultural changes– Move toward team environment– Defined problem-solving approach– Performance metrics that support Lean

Improvements Achieved with Lean

Lead Time Reduction

0% 25% 50% 75% 100%

Productivity Increase

WIP Reduction

Quality Improvement

Space Utilization

Six Sigma

Definition of Six Sigma

Methodology for disciplined

quality improvement

History of Six Sigma

Originated at Motorola in the early 1980sProcess modified by othersImplemented by IBM & Allied SignalAdopted by General Electric in 1995

– Broadly deployed– By 1998, GE claimed $750 million in net benefits

Goal of Six Sigma

Optimize process capability by identifying and minimizing variationVirtual elimination of all defects

– No more than 3.4 defects per million opportunities (DPMO)– 99.9996% acceptable

Cost of Poor Quality

Scrap/Rework– Materials, labor costs, disposition

costs

Warranty Costs– Customer credits, return/restocking

costs, penalties

Lost Sales– Lost revenues, cost of gaining new

customers

Competitive Performance

World Class< 1% of sales6

1% - 15% of sales5

Average16% - 25% of sales4

26% - 40% of sales3

Non-competitive>40% of sales2

PerformanceCost of Poor QualitySigma Level

Benefits of Improved Quality

Bottom-line cost savingsGreater customer satisfactionIncrease in throughputReduction in waste and reworkImprovement in process capability

Six Sigma Core Philosophies

Values defect-prevention over defect-detectionEmphasizes reducing variation in processes

– Tackles root causes of poor performance

Is customer-focused by driving improvement in areas most important to your customers

Six Sigma Characteristics

Defined, problem-solving approachData-drivenProject-basedCommitment and support from the top level

Problem-Solving Approach

Uses a defined approach (DMAIC)– Define the project

– Measure the baseline process capability

– Analyze when, where and how often defects occur

– Improve process capability to reach a Six Sigma level

– Control the process to maintain the gain

Data-Driven

Based on data rather than perceptionUses statistical tools during the DMAIC processCalls for training in “statistical thinking” for many; advanced statistics and project management for some

Project-Based

Project selection is critical– Should advance organization’s strategic initiatives

– Have impact on a Critical to Quality (CTQ) characteristic

– Should have bottom-line financial impact

– Begin and end with performance measure

Top Level Leadership

Requires leadership, commitment and active support from top level managementLeaders should use Six Sigma to drive strategic improvement

– Six Sigma projects should support strategic goals

Six Sigma – The Players

The ChampionBlack BeltGreen BeltQuality Process Analyst

KMAC’s Approach to Six Sigma

Developed specifically for small- and mid-sized manufacturers

– Affordable

– Flexible

– Focuses on implementation of Six Sigma not just training

– Emphasizes bottom-line results

Two Part Approach

On-Site Deployment Planning & Mentoring– Helps the company gain the most benefit from

implementing Six Sigma

Online Six Sigma Training– Provides an affordable way to train Black Belts, Green

Belts, and Quality Process Analysts

Lean and Six Sigma

Two powerful tools to help a company improve:

– Quality

– Productivity

– Bottom-line results

Lean & Six Sigma Together

Use Lean to:– Reduce or eliminate non-value-

added activities

Use Six Sigma to:– Improve value-added activities– Solve complex problems

uncovered by Lean or those requiring advanced analysis