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Page 1: Manufacturing Transformation

Manufacturing Transformation and Demystifying Lean

Dan Crouse, Jeff Holland, Lawrence Wood, Daniel Woolson

McKinsey Automotive & Assembly Extranethttps://autoassembly.mckinsey.com

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OVERVIEW

Summary

Capacity rationalization

Greenfield construction

Plant lean transformation

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THERE ARE 3 FUNDAMENTAL METHODS TO IMPROVE A COMPANY’S MANUFACTURING EFFICENCY

Capacity rationalization

Greenfield construction

Lean improvement

• Overall manufacturing improvements can be driven using three levers– Closing or consolidating

existing plants– Constructing new efficient

manufacturing facilities– Improving, via the

introduction of lean manufacturing techniques, existing plants

• These levers can be employed either singly or in conjunction with one another

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Financial lever

Direct/indirect labor

Frequency of occurrence Discussion

• Large proportion of costs are frequently labor• Labor must be removed to realize savings

HighMedium

Low

DECIDE WHETHER MANUFACTURING CHANGES WILL CREATE REAL STRATEGIC ADVANTAGES (LESS LEAD TIME, BETTER QUALITY, ETC.) OR MAINLY FINANCIAL ADVANTAGES

Value when occurring

Client focus

Avoided CAPEX • Not usually available as a savings lever unless capital expansion planned

• Potential savings very large if CAPEX can be avoided

Scrap/rejects/rework • Typically not a large savings lever unless very high scrap/rejects/rework

• Very important lever in many low-quality plants

Increased sales by eliminating production constraints

• Not usually a major “savings” lever• Potentially large financial benefits for client if

this situation applies

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OVERVIEW

Summary

Capacity rationalization

Greenfield construction

Plant lean transformation

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14075

1.207

100

1.075

760

HUGE LABOR EFFICIENCY GAINS ARE POSSIBLE FROM MERGING UNDERUTILIZED PLANTS*

The 10.9% improvement in efficiency from capacity rationalization was worth $9.1 million to this manufacturer at prevailing wage rates

Post-consolidation employment level

Labor content of work outsourced from closed plant

New adjusted labor level

Labor “gained” from working OT

Labor content of work outsourced from remaining plant

Original labor level

EXAMPLE FROM COMPONENT PLANTS

Employment – FTEs

10.9% differential

* Prior to any lean manufacturing improvements being conducted at the consolidated plant

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6* One time savings must also be factored in to NPV if closed plant and/or land are sold but net result remains similar

76

24

Labor efficiency savings

Overhead savings*

Ongoing savings100% = $11.9 million

LABOR EFFICIENCY SAVINGS ARE TYPICALLY OF FAR GREATER MAGNITUDE THAN OVERHEAD SAVINGS

EXAMPLE FROM COMPONENT PLANTS

• The labor efficiency savings are nearly 3 times the magnitude of the overhead savings

• Though more difficult to calculate, efficiency savings alone frequently provide sufficient rationale for plant consolidation

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KEY POINTS OF CONSIDERATION ONCE A DECISION HAS BEEN REACHED TO RATIONALIZE CAPACITY

Issue Discussion

Timing • The plant closure and product transfer process is quite detailed and resource intensive

• Major discontinuities around production rate increases, serious labor issues such as union elections, etc. should be avoided if possible or the closure process incrementally phased to lessen disruption

Leadership • There should be a single point of accountability for the consolidation process• Due to burden of on-going job duties, plant managers are not ideal candidates for

this responsibility

Transfer lists • Thorough review should be done of all products/assets at the closing plant(s) with single, consolidated transfer lists developed for each major category– Production equipment– Products (very significant for parts or component plants)– Ancillary equipment, e.g., forklifts, hand tools– “Soft items”, e.g., CNC programs

Knowledge sharing

• Important to review best practices from both plants and transfer those from closing plant(s) to remaining plant(s)– Especially necessary if standard operating procedures and docs, are weak

Personnel transfer

• Company’s most important asset is usually its human capital base• Personnel should be reviewed and plan developed to retain and transfer key

highly skilled employees to where they are most needed (not necessarily keeping them in same geographic location as closed facilities

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Summary

Capacity rationalization

Greenfield construction

Plant lean transformation

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BACKGROUND AND CONTEXT OF MANUFACTURING STRATEGY STUDY

• Client needs to determine overall manufacturing strategy:– Where to make?– How to make?

• Client needs to determine a strategy that mitigates risk as much as possible– Ongoing cost risk– Capital risk– Product development risk

Client situation• Client developing “revolutionary”

new bus model (first new design in many years) that has benefits:– More user friendly and “stylish”

design– New process technologies and

integrated body + chassis design• New product entails significant

capital investment to either improve existing facility or require entirely new facility

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CURRENT MAIN ASSEMBLY: KEY CHARACTERISTICS/HURDLES TO OVERCOME IN LEAN TRANSFORMATION

WOOD DRIVE

Receiving parts warehouse

Office

C/DC/DC/D

Seats

C/DC/D Fabrication

Parts warehouse at one end of plant creating wasteful intra-plant part movement

Part of fab roof is low and concrete floor 4 feet higher than rest of plant

Road borders plant constraining footprint and prohibiting large-scale expansion

Railroad borders plant prohibiting large-scale expansion

Workstations very cramped lowering worker efficiency and creating poor layout/parts flow

Work cell

Product flow

Buses must be taken to sub-plant for customization and some finishing/painting

Main assembly area has multiple low roofs of varying heights and configurations

Chassis entry cramped with no storage space nearby so chassis receiving done at sub-plant

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POSSIBILITIES INHERENT IN CLEAN-SHEET GREENFIELD APPROACH

Start

Chassis from external supplier

Body shop

Assembly

Paint shop

• Spacious layout• Well-segregated production areas• Logical flow• All modern building control systems• No space, other constraints on types of equipment that can be used

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COST COMPARISON: GREENFIELD OPTIONS COMPARABLE COSTS TO REDESIGNING EXISTING PLANT AND DOING LEAN IMPROVEMENT

Facility costs

• Fees/permits• Land

• Site clearing/grading• Storm drainage/utilities• Stone base/paving• Fencing/gates• Demolition• Labor training/severance• Equipment

• Fab area renovation• Additional warehouse

construction• Contingency• Facility (re)construction

Brownfield

3.21.3

2.00.59.0

6.51.1

3.017.4

Total 44.0

CommentsGreenfield

• FG bus storage (avoids $75-125,000 leases p.a.), Can also dispose of Prospect parcel (~$500,000)

• Old roofs/floor sections, etc.

• Able to use part of current paint facilities with Brownfield, additional automation in Greenfield

• HVAC, sprinklers, floor lowering, etc.• For space displaced by B2 production equipment

3.01.3

2.20.54.1.2

0.513.7

2.012.2

39.7

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RISK COMPARISON: GREENFIELD HAS SUBSTANTIALLY LOWER RISKS THAN RESTRUCTURING EXISTING PLANT

Risk GreenfieldBrownfield Comments

High

Medium

Low

Disrupt existing model manufacture

• High possibility of roof debris or construction materials falling into production area in Brownfield

Delay new model introduction • Brownfield timeline results in a one year delay in B2 introduction

Delay/inability to capture identified manufacturing savings

• Several manufacturing improvement ideas delayed/stopped due to plant reconstruction

Project delay/modification due to need for environmental remediation

• Brownfield site has had manufacturing occurring on it since 1900. No records from early years of which mfg. processes were being employed or chemicals used

Ability to implement new adhesives production technology to ensure high quality

• Old facility does not provide controlled environment. Even after reconstruction, adhesive technology performance threatened by infiltration of contaminants

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GREENFIELD IS PREFERRED OPTION BASED ON FINANCIALS AND RISK MITIGATION

Financials• Greenfield project gives a higher

NPV overall than brownfield option

• Significant CAPEX investment yields potential for compressing manpower costs, in particular:– Direct labor through new

processes and improved layout– Indirect labor through “clean

sheet layout” plus improved quality of build

– New product entails lower overall material cost

• Overall greenfield layout designed to minimize CAPEX upfront

Risk profile• Greenfield option overall has

lower risks than brownfield option• Brownfield option has numerous

risks due to:– ‘Transformation’ of existing

facility– Possible delay in product

launch• Main actions to mitigate risks for

greenfield options include:– Locate new facility close to

existing facility– Mainly keep existing supply

base– Retain same management

team and direct labor force

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Summary

Capacity rationalization

Greenfield construction

Plant lean transformation

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Mindsets and behaviors

Production system

Management system

Source: Team analysis

MAJOR ELEMENTS OF LEAN TRANSFORMATION OF EXISTING PLANT

• Introducing lean principles into the production environment– Standardized work– Visual management– 5S– Total preventive maintenance– Pull scheduling

• Reviewing and revising the management system to better understand, command, and control the plant environment– Common metrics– Comprehensive planning– Meetings and decision-making

• Evaluate plant behaviors and seek to understand the mindsets underlying the behaviors

• If mindsets are sub-optimal, commence efforts to gradually change them

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THE CLIENTS’ MINDSETS AND BEHAVIORS PLAY A KEY ROLE IN THE SUCCESS OF ANY LEAN TRANSFORMATION

• Olympians – extremely competent and motivated – Mindset tends toward strong desire for continued

improvement and success and behaviors reinforce this

– Need generally falls into the advanced technical problem-solving category

Eager beavers Olympians

Inmates of the asylum

Cynicaltechnicians

Skill

Low High

Hig

hLo

w

Will

• Eager beavers – willing to do anything but lacking the specific knowledge needed– Mindset tends toward “hard-charging” but behaviors

sometimes counterproductive due to misguided beliefs

– Need generally falls into the broad-based team training category

• Cynical technicians – usually highly skilled and knowledgeable but appear unwilling to use this skill for greater success– Mindset tends toward disbelief and skepticism and

behaviors vary highly from counterproductive to occasionally very useful

– Need is to deeply diagnose the cause of this mindset and correct

• Inmates – appear neither motivated nor knowledgeable – Mindsets and behaviors include apathy and

counterproductive effort– Need is to deeply diagnose the cause of this mindset

and correct as well as conduct broad team training

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SOME KEY BEHAVIORAL INDICATORS OF MINDSET ISSUES

• Decisions agreed but not implemented• Little time spent on the shop floor• Belief that difficult issues cannot be solved

– “It’s always been that way”– “They (corporate HQ or some higher level)

won’t let us do that”

• Deep skepticism (voiced in comments) that any improvement program will be sustainable

• Absolutely zero initiative to solve problems or to even elevate them to appropriate management or support activity area

• Reluctance to get actively involved in pilot or management systems work stream

• Full focus on firefighting not systemic improvementMiddle management

Front line

Top team

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KEY MINDSET DIMENSIONS TO ASSESS

Direction• Mission or purpose• Base objectives• Specific action agenda

Interaction• Decision-making

processes• Degree of inclusiveness• Efficiency of

management• Clarity of conclusions

Renewal• Feedback loop• Focus on team’s skills

and improvement• Focus on individuals

skills and improvement

Rewards• Peer recognition• Compensation• Promotion possibility• Status of job among co-workers

or in corporate hierarchy

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RESULTS OF MINDSET AND BEHAVIOR ANALYSIS REVEALED PROBLEM SOLVING ALONE COULD NOT RESULT IN A SUCCESSFUL LEAN TRANSFORMATION

• Analysis results revealed a client with serious “inmate” issues

• Project success would hinge on dealing with these as much as with problem solving and using lean techniques

Skill

Low High

Hig

hLo

w

Will

0% 50% 100%

50%

100%

Top managementMiddle managementOperator/frontline worker

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CHANGING MINDSETS AND BEHAVIORS REQUIRE SOME ATYPICAL MCKINSEY APPROACHES

• Extreme patience

• Concepts were introduced slowly, one at a time• Breadth and speed were sacrificed for depth• McKinsey forced clients to do it themselves rather than “just getting it done”• Result was a roll-out much slower than typical for general McKinsey comfort,

gain was greater sustainability of implementation

Change approach Discussion/results

Old standard

Old historic average

New target

New record production

1,220 1,3051,659

2,010Cross members producedParts/8-hour shift

•• McKinsey associate does McKinsey associate does “McKinsey work” first shift“McKinsey work” first shift

•• Works as press operator/ Works as press operator/ helper on second shift to helper on second shift to demonstrate pointdemonstrate point

• Repetition, repetition, repetition

• Client was forced to perform tasks over and over• Resulted in deep-set learning of techniques• Demonstrated to line workers (and supervisors/management) that “this

wasn’t going away”

• Lead by example

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PRODUCTION SYSTEM – STANDARDIZED WORK IS A SIMPLE CONCEPT

= Process step= walking

Piece parts

Piece parts

Piece parts

Piece parts

Fixture

Fix

ture

Piece parts

Finished products

1-5

2425

23

266-13 14-22

27-30

31-40

41-42

Sample cell

Each process step has a standard time attached

What you do . . .• Videotape the existing process• Time the existing processes• Observe the video for inefficiencies• Resequence the steps and establish times

for them• Initiate any needed structural changes, e.g.,

fixture altered, new tools needed• Set new targets• Write all the standards down• Train the operators

. . . and what you need . . .• Video camera• Operators to serve as client team members• Extreme patience

. . . for this result• 62% productivity improvement (60-96 units

per shift)

Major pitfalls• External issues such as supply of

subcomponent parts• Supervisory and management will to

enforce targets

Pie

ce

par

ts

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VISUAL MANAGEMENT SYSTEMS CAN BE EXTRAORDINARILY SIMPLE

What you do . . .• Decide what metrics to depict

and how to lay them out– Manning– Status (and recovery)– Schedule

. . . and what you need . . .• $400 of supplies from Staples• 3 hours of time (for

construction)

. . . for this result• Ability to know at one glance

ops. and schedule status 9and ask appropriate questions)

Major pitfalls• Discipline of upkeep

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5S (SORT, STRAIGHTEN, STANDARDIZE, SUSTAIN) IS SIMILAR TO KEEPING YOUR HOME CLEAN AND IN GOOD ORDER

What it consists of• General housekeeping and order

– Floors and equipment free of dust, grease, etc.– Tools in proper marked places– Equipment and passageways free of clutter

General purpose• Cleanliness – hygiene and safety• Work efficiency

– knowing exactly where something is when you need it– Fewer equipment breakdowns

Key implementation issues• Build “5S time” or a 5S program into the daily shift

schedule• Start small, do not try to clean the whole plant at once

because it will not be maintainable

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EFFECT OF SIMPLE PREVENTIVE MAINTENANCE PROGRAM - HEAVY PRESS OEE LOST TO PRESS PROBLEMS DECLINED DRAMATICALLY10-day running average

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

24-May

30-May

03-Jun05-Jun07-Jun11-Jun13-Jun17-Jun19-Jun21-Jun25-Jun27-Jun1-Jul3-Jul9-Jul11-Jul15-Jul17-Jul19-Jul23-Jul25-Jul29-Jul1-Aug6-Aug8-Aug12-Aug14-Aug16-Aug20-Aug22-Aug

Target = 4%

Date

Lo

st O

EE

Preventive maintenance program commenced

Situation• Maintenance was entirely

in a reactive mode fixing presses only after they broke down

Solution• Just require operations

to turn the press over to maintenance for 16 hours of maintenance time each month

Result• Maintenance downtime

went from 20-25% per month to 3%

• Almost no loss of production time for PMs as presses were not always manned operationally anyway

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MANAGEMENT SYSTEM – INTRODUCE MAJOR OPERATIONAL METRICS SUCH AS OVERALL EQUIPMENT EFFECTIVENESS

Totalavailable time

Non-scheduled time

Available scheduled time

- Changeover

Break-downs

Runtime

-Reduced speed

Small stops

Opera-ting time

=Start over slow-downs

Re-work/ scrap

GoodProduc-tion

Availability ratio Performance ratio Quality ratio OEEX X =

- -= - = - = -

Number of units (or time) lost

100

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15

10

97

44

3 3 2

25

18

100

Scheduled time

Percent units lost

Slowspeed and small stops

OEE

Change-over

Pressproblem

Set-up

Dieproblem No

material Material convey-anceproblem

No people Quality

chk/prob

TAILOR AND ADJUST THE METRICS TO THE SPECIFIC SITUATION

Feeder

Availability ratio (taken from direct operator measurements)

Performance ratio (calculated from theoretical target)

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USE METRICS TO DEVELOP PLANS/INITIATIVES RATHER THAN LETTING THEIR COLLECTION CONSUME DISPROPORTIONATE RESOURCES

May Jun Aug Sep Oct Nov Dec JanJul

P14

P18

2 presses

4 presses

4 presses

4 presses• Original plan was to

collect and monitor metric data on all individual presses and spread throughout entire press line

• Original plan ran into brick wall of resource constraints, low benefit of additional data collection

• Plan modified to collect data on three individual presses (of different types) to serve as sample for entire line

• Develop initiatives from sample data to cover allpresses

• Original plan ran into brick wall of resource constraints, low benefit of additional data collection

• Plan modified to collect data on three individual presses (of different types) to serve as sample for entire line

• Develop initiatives from sample data to cover allpressespresses

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MANAGEMENT SYSTEM – KEY INITIATIVES TO IMPROVE STAMPING OPERATIONS DEVELOPED

Jun Jul Sep Oct Nov Dec JanAug

Water spider

Preventive maintenance (all plant)

Target setting (stamping)

Visual management (all plant)

Feb Mar Apr May Jun

SMED procedural

SMED technical

No mat

Manpower allocation

Die protection

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COMPREHENSIVE PLANS DEVELOPED BEHIND OVERVIEW PLANS–SMED PROCEDURES

4 Determine target set-up time and write-up standardized procedures from workshop

Mckinsey, Mfg. engineering

Mfg. engineering

5 Cross-train other operators on each shift with SMED workshop personnel

Supervisors Supervisors, manufacturing engineering, 6 set-up people

6 Measure set-up results and monitor, discipline, enforce standards

Supervisors, Mfg. engineering

Supervisors

7 Identify all shifts' set-up resources to attend SMED workshop 2 and schedule onto 2nd shift

Supervisors Supervisors

Initiatives – SMED procedures

Item no. Key activities

Responsi-bility

Client required resources

Weeks

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Sta

tus

Comments

1 Identify all shifts’ set-up resources to attend SMED workshop 1 and schedule onto 1st shift

Supervisors Supervisors

2 Determine type of set-up for workshop 1, coil-fed heavy presses

Supervisors, Manufacturing engineering

Supervisors, Manufacturing engineering

3 Conduct SMED workshop on coil-fed heavy presses

McKinsey, Supervisors, manufacturing engineering

Supervisors, manufacturing engineering, 6 set-up people

Start date August 5, 2002

8 Determine type of set-up for workshop 2, coil-fed medium presses

McKinsey, Supervisors, manufacturing engineering

Supervisors, Mfg. engineering

Completion date December 21, 2002

Ongoing

Scheduled

Completed

Overdue

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MANAGEMENT SYSTEM – REGULAR INFORMATION EXCHANGE, PROBLEM SOLVING, AND DECISION MAKING MEETINGS INTRODUCED

First and second shift press supervisors, mfg. engineering., 3-4 press operators, water spider, setup, tool & die,

Second shift press supervisor, 3 operators (rep. from each shift), water spider, tool & die, mfg. eng. (as needed), group leader

Audience similar to Tuesday (with addition of third shift press supervisor and without second shift press supervisor)

Skeet McKeen, Jeff Lindsay, Dennis White (GPMP Mfg. Eng.), mark Moore, group leaders, water spider

Manufacturing VPPlant Manager

Weekly review

Tuesday stampingproblem solving

Wednesday stampingtarget setting

Thursday stampingproblem solving

Thursday assemblymeeting

Wednesday stampingfloor meeting

Friday stampingfloor meeting

Friday assemblyfloor meeting

Wednesday weekly plant review

Plant MangerProduction ManagerFacilities and EngineeringComptroller

Materials/SchedulingHuman ResourcesStampingAssembly

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SUMMARY RESULTS FROM LEAN TRANSFORMATION Assembly resultsParts per shift

Before

60

Structural members

Doors Fuel tanks

After

84

Before After

120

175

Before After

100

130

Stamping Line – Heavy PressesThousand parts

263288

266 256

396

Apr. May Jun July Aug.

17

44

Jun 4 Sep 6

OEEPercent (10-day avg.)

Savings$ Millions 2.5

.75

3.3

?

Achieved by Sep 6