Manufacturing Transformation and Demystifying Lean
Dan Crouse, Jeff Holland, Lawrence Wood, Daniel Woolson
McKinsey Automotive & Assembly Extranethttps://autoassembly.mckinsey.com
1
OVERVIEW
Summary
Capacity rationalization
Greenfield construction
Plant lean transformation
2
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
3
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
4
OVERVIEW
Summary
Capacity rationalization
Greenfield construction
Plant lean transformation
5
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
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
7
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
8
Summary
Capacity rationalization
Greenfield construction
Plant lean transformation
9
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
10
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
11
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
12
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
13
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
14
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
15
Summary
Capacity rationalization
Greenfield construction
Plant lean transformation
16
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
17
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
18
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
19
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
20
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
21
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
22
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
23
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
24
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
25
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
26
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
27
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)
28
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
29
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
30
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
31
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
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
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