Tag: Lean Agility

Seasons Greetings

This year has been filled with many new experiences, hard times, great times, and many opportunities for learning.  While some may prefer to see this year pass sooner than later, 2009 is hopefully a year that presented many new opportunities and even greater challenges.

As lean practitioners, we learn to appreciate failure from a different perspective than most people would enjoy.  The focus is not the failure itself, but rather the causes and events that lead up to the failure that are significant.  To those who reflect on this past year and consider the many successes, we also suggest basking in some of the learning from the failures.  Learning what not to do is often the hardest and most costly lesson of all.

Of course, understanding our successes is of equal importance.  The objective is success by design.  Understanding the reasons for our success serves to confirm the effectiveness of current practices.

We are presently working on new discussion topics for the new year.  Overall Equipment Effectiveness has been one of the core topics over the past year and more recently our focus has shifted to problem seeing and solving.  We are evolving into a culture where AGILITY is quickly becoming one of the defining traits of today’s successful companies and new businesses.

Intelligent metrics demand effective and efficient measurement and analysis to be used in real-time.  By our definition, an Agile company is one that already understands and demonstrates lean practices.  A truly agile company is now looking at metrics to dynamically lead and manage the business, responding to events and developing strategy in real-time.  Their agility is demonstrated by the speed of execution and their continued list of successes as a result.

We have been developing some new spreadsheet templates that we plan to release in the new year.  The free downloads page and sidebar widget have proven to be a great success.  To achieve greater functionality, we will be using VBA (Visual Basic for Applications) in some of our future releases.  We have learned that Excel has a few limitations (and the odd bug) that require the use of VBA for our applications to perform as intended.

We are looking forward to 2010 and remain optimistic as the economy begins its slow recovery.  We will likely have a few more posts before the year ends, but knowing that some will soon be traveling or breaking early from work, we would like to wish all of our visitors best wishes for the holiday season.  We look forward to an exciting new year in 2010.

Until Next Time – STAY Lean!

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OEE: Take the Hit

The simplicity of measuring and calculating OEE is compounded by the factors that ultimately influence the end result.  Because the concept of OEE can be readily embraced by most employees, it is easy for many people to get involved in the process of making improvements.

Unfortunately the variables involved with OEE, like those of many other measurement systems, fall under scrutiny.  The goal of achieving yet even higher OEE numbers is met with yet another review of the factors and how they are treated.  Usually the scope of this often heated discussion is focused on Availability.

The greatest task of all occurs when attempting to classify what qualifies as planned versus unplanned downtime.  Availability is the primary factor where significant improvements can be realized and is most certainly the focus of every TPM program in existence.  However, another significant factor that can greatly impact Availability is setup time.

We still receive questions and comments from our readers regarding setup time and whether or not they should “take the hit” for it.  We have met up with different rationale and reasoning to exclude setup time from the availability factor such as:  “We have all kinds of capacity and do the setups in our free time.” Or, “We do the setups on the off shift so the equipment is always ready when the first shift comes in.”

Regardless of the rationale, our short answer to the question of inclusion for setup time remains a simple, “Yes, take the hit.”  Before we get to much further let’s define what it is.  Setup time is typically defined as the time required to change or setup the next process.  The duration of time is measured from the last good part produced to the first good part produced from the new process.

Improving setup times provides for shorter runs, reduced inventories, increased available capacity, increased responsiveness, improved maintenance, and in turn, improved quality.  Shorter runs also provide the opportunity to maintain tools more effectively between runs as they are not as subject to excessive wear caused by longer run times and higher production levels.

Setup and Quick Die Change / Quick Tool Change

An exhaustive amount of work has been completed in many manufacturing disciplines to reduce and improve setup times.  Certainly, by simply ignoring the setup time, there is no real way to determine whether the new methods are having an impact unless another measurement system for setup is introduced.  We already have a measurement system in place, so why invent another one?

Quick Die Change and other Quick Tool Change strategies are common place in industries such as automotive stamping plants.  The objectives for Quick Die Change are attributed to LEAN principles such as single part flow and reduced inventories.  The benefits of these efforts, of course, extend to OEE and availability.

Setup and Production Sequencing

To exemplify the effect of sequencing and setup, consider a single tool that makes 8 variations of a product.  For the sake of discussion, let’s assume the only difference is the number of holes punched into the part.  The time for each punch removed from, or added to, the tool is the same.

The objective for scheduling this tool is quite obvious.  We need to minimize the number of punch changes to minimize the downtime.  If the parts required range from 1 hole to 8 holes, and we need 100 parts of each variant, we would arrange the schedule in such a manner as to make sure we are only adding one punch to the tool as we move on to the next variant.

In this case, setup time and sequencing are clearly a cause for concern and consideration.  Secondly, it is much easier to calculate the time required to run all the parts and how much capacity is required.  Including setup in the OEE factor also simplifies the calculation of overall capacity utilization for the piece of equipment in general.

In Conclusion

As we have stated in previous posts, the objective of measuring OEE is to identify opportunities for improvement.  Achieving higher numbers through the process of debate and elimating elements for consideration is not making improvements.  Don’t masquerade the problem or the opportunities. 

Setup is certainly one area where improvements can be measured and quantified.  Availability and OEE results provide an opportunity to demonstrate the effectiveness of these improvements accordingly.

If the leadership of the company is setting policy then the explanations for performance in this regard should be understood.  The only numbers that really matter are on the bottom line and hopefully they are black.

We would also encourage you to visit two of our recent posts, Improving OEE – A hands on approach (posted 03-Jan-09) and OEE and Availability, (posted 31-Dec-2008).

Until next time, stay LEAN.

Lean Culture

Background

Being in business for many years is, and can be, both a blessing and a curse.  On one hand, the company has established itself and is well rooted in its chosen industry.  On the other hand, it has established and well rooted “behaviors” built on a culture that have stood the test of time.  This could be for better or worse.

Today’s economic conditions are forcing many company executives to make extremely difficult decisions, including severe cutbacks (layoffs), bankruptcy, insolvency, sale, and even closure.  If your business is still viable at this point in time, congratulations may be in order, or, the impact of the current economy is simply lagging.

The automotive executives, particularly those seeking government assistance, are quickly learning that something must change and quickly.  In fact, the federal governments of both the Canada and the United States have mandated “change” as a prerequisite to receiving funding.

Entitlements and Accountability

We are not looking to assign blame or assert accountabilities for the current economic crisis.  We would strongly suggest however, that there is probably no better time to achieve a company wide “buy-in” to the concepts of lean manufacturing.

Sometime before and even during the “fall”, many seemed to be reluctant to recognize that changes were imminent.  No one person can be held accountable for the current economic climate. 

Unfortunately, rationalizing poor performance was simply attributed to the natural course of events and are consistent with historical economic cycles.  Several problems with this rationalization persist.  If the best predictor of future performance is past performance, then why didn’t “we” take the necessary steps to prepare for such a recurrence of events.  If this was predictable, then why did this seem to take everyone by surprise?  Who should be held accountable?

“Labour” was very reluctant to make any concessions until the government mandated a review and indepth analysis of competitor labour agreements.  The announcement of plant closures and significant “down” days has seemingly created a new perspective.

Engage for Success

To some, everything was fine … until you came along and suggested that “we need to change” in order to survive.  Could it be that the path of least resistance is also the path to peril?  Improvements are always easier to implement than “change”.

As Lean practitioners, we need to be cognizant of the individuals who may be impacted by the improvements that must be made.  We should also stress that the goal of Lean is not to displace people from your organization.  The ultimate goal of lean is to increase your value added activity that in turn will improve your competitive position and stimulate future growth.  Your competitors should be concerned about displacing employees.

A well designed situational assessment and the manner in which it is conducted may open the doors to improved performance as opposed to a wall of resistance to change.  The key to overcoming this resistance and preventing backlash is through effective communication and participation of all employees from the top down or bottom up.

Another important point to make is this.  Everyone likes to be involved in a successful venture.  This extends beyond your employees and the walls of your business.  Customers like to be associated with success too.

The Olympics present a good example of this.  Think of the extreme efforts companies take to be associated with Gold Medal athletes as part of their branding strategy.  Everyone wants to be associated with a winner.  Taking this one step further, consider the extreme efforts and personal sacrifices that the athletes themselves have taken to achieve this level of success.

Where does your company fit into the economy – leaders or losers?  Is everyone on board?  Today’s climate has likely created the opportunity to bring everyone on board without even having to ask.  The real breaking point occurs when company and self preservation become synonymous.

LEAN Strategy and Metrics

Once a sense of purpose has been established, your lean strategy can be developed and executed with the full support of your team.  As part of your implementation strategy, training should be at its core.  People will be more prepared to embrace the “new” way of doing business when they understand why they are doing what they do.

Naturally, people will want to know that the new way of doing business is making a difference and that they are contributing to this success.  Your training program should provide a clear definition of the metrics being used and how they correlate to the “success” of the company.  Posting charts on the wall is not going to sustain a lean culture for long unless the people understand what the charts mean.  Reading a foreign newspaper is of no use unless you understand the language.

Lean Strategy

Almost every article, book, or blog will tell you that the focus of Lean is the “ELIMINATION of WASTE”.  We recommend taking slightly different approach.  Our reasons for this come from our own successes at implementing lean.  Too many people don’t know what waste is or even looks like.  Yes, you can train people on the “7 or 8” categories of waste, and yet they still don’t recognize waste outside of the context that was used to explain it.

Our approach focuses on True Customer Value.  Does the activity add value from the customer’s perspective.  If NOT, it is waste.  This approach makes it much easier to discern waste in your company.

Again an example may serve us best.  When buying a pizza for home delivery, what do you, as a customer, perceive as value?  We would argue that since we are paying for the pizza, the quality of the pizza is where the value should be focused (taste, temperature, and so on).

Do we care what kind of car the delivery person was driving?  Do we care where the pizza box was purchased or how many were in inventory?  Do we care how many hours of overtime were worked or how many products had to be expedited in to meet customer orders?  Do we care that the “company” covers speeding tickets per driver?  Do you care if they cut their own wood to heat the stove or if they use gas or electricity?  Do we care how many speeding tickets the driver incurred?  The answer to all, if not most, of the above questions is likely a resounding NO.  I’m willing to pay a reasonable price for a great tasting pizza.

To put it plainly, if the customer doesn’t see value in it, then why should you?  Simple enough right?  From this perspective, waste is readily recognized and identified as any policy, practice, or activity that does not add or create value for our customer.

One definition of Lean that many could easily embrace as there own is “A systematic approach for delivering the highest quality, lowest cost products with the shortest lead-times through the relentless elimination of waste.”  Could the same objectives be achieved through the relentless pursuit of value?

The most difficult challenge will be convincing someone that what they are doing is “waste”.  Most people would be insulted or offended by any statement that suggests they have been wasting their time all these years.  We would recommend acknowledging the current level of success and thanking them for their efforts accordingly.  You could almost be in a position to apologize for the current way in which a task is being completed.  Keep in mind that, in many cases, we are only looking to change the method or the HOW.  In other words, the WHY remains the same.  What was being done was not a waste, it’s simply a matter of achieving the same end more efficiently and using our time more effectively.

Lean is a very effective means of sustaining a viable business enterprise even during these difficult times.  It is difficult for some to see how the current economic crisis can be opportunity knocking.  Those who are succeeding today have already responded during their times of crisis and envisioned what we now call Lean.

Until Next Time – Stay LEAN.

Lean Innovation

If Lean Innovation is to become part of the new business norm, then why is that so many companies attempt to emulate what others have done?  Innovation itself implies a sense of newness or differentiation from what was or is.  It seems that “copy cats” are simply looking for the easy way out and call themselves lean in the process.

Duplicating successes from others will at least make you as strong as your competitor, but it takes true innovation to define the next leading edge “method” or technology.  Perhaps integrating the established, well defined, and most importantly – PROVEN – is a good starting point, but the greater challenge is understanding the reasons driving these current systems and embracing the culture and lean mindset that drove these changes so we can take them further.

Why did Inventory Control seem to stop with KanBan?  Why do improvement and quality initiatives start and stop at Six-Sigma?  There is always a better way and it doesn’t have to be more complicated than its predecessor.  Sometimes the simplest of innovations prove to be the most valuable and easiest to implement.

Lean Objectives will likely remain constant, at least for a time, and should be an integral part of your overall business planning process and strategy.  We suggest that the opportunity to separate yourself from the competition is the approach or method chosen to overcome the same challenges they are facing.

Identifying the true root cause of any current situation is vital to ensuring the real solution is or will be implemented.  It seems that most companies identify two types of core tasks:  routine and problem solving.  We would strongly suggest that another worthwhile effort is to review those current processes that are working and attempting to understand why.  A lot can be learned from past or current successes as well.

Before paying a visit to “GE” or “Toyota”, understand the basic premise of their success.  They were faced with a problem that other companies didn’t have and they invented a solution to overcome those challenges.  The new “methods” not only worked, but proved to be even better than the existing systems that were in place.

Their success also relied on having a firm grasp of the real problem.  They understood what needed to be accomplished, they just didn’t have the “HOW to do it”.  This is the moment of truth for Lean Innovation.  Having the processes in place that allow solutions to be developed that not only solve the problem but are robust enough as well to provide even a competitive edge.

Innovation doesn’t always mean new products or technologies, it can simply be a different method or system for accomplishing the basic day to day tasks at hand.  Lean applies to the entire organization (system wide), so don’t forget about the method or approach and the who, what, where, when, and why of what we do.

We would strongly suggest, that eliminating complexity from any system will yield greater returns than you would imagine possible.  People love simplicity, keeping in mind that perception is a matter of perspective.

Until next time – Stay Lean.

OEE and Morale

Is employee morale impacting your OEE?  If so, how much of a concern is it?  As we wrote in one of our recent posts,  “Perhaps the greatest “external” influence on current manufacturing operations is the rapid collapse of the automotive industry in the midst of our current economic “melt down”.  The changes in operating strategy to respond to this new crisis are bound to have an effect on OEE among other business metrics.”  We would argue that these times of economic crisis demand, now more than ever, that Lean Practices must become even more prevalent in our manufacturing operations.

People are concerned about the state and stability of the company’s finances and the industries they serve.  The automotive industry has been devastated by the recent decline, or more accurately, collapse of the market.  Significant changes in operating strategy including lay offs and reduced production days have impacted all of the OEM’s including Ford, GM, Chrysler, Toyota, and Honda.  No one company is immune from the effects of the current economic conditions.

It is clear that the auto industry fell behind the “power curve” and crashed.  Did conditions change too quickly to avoid the inevitable?  Was it so big that, like the Titanic, the ultimate demise could be predicted but not avoided?  Toyota was the number one producer of automobiles in 2008 but failed to yield significant profits.  Conditions such as these were ripe for continued growth in years past.  It is clear that even the best of the Lean practitioners are not immune from the effects of the current economy.

A company’s agility will certainly be tested during times such as these.  Sustainability and viability are among the few significant objectives of Lean dynamics.  As such, Lean dynamics should be at the forefront of every business leader.  How adaptable is your business?  Are you reinventing your business in response to the changes of your industry?  The true Lean practitioner is certainly challenged to eliminate waste and variation beyond current means and traditional approaches.  As change is constant, we must continually seek out ways to redefine or “better” define our businesses.

At the most fundamental level, everyone is concerned about the state of the economy, however, individuals, at the personal level, are concerned about their jobs and careers.  We all want to preserve our current life style to some degree and, at a minimum, continue to pay our bills.  It would be a difficult task to estimate the lost productivity that occurs when someone’s state of mind is focused on their own personal situation versus that of the company.  We have observed first hand how employee morale has diminished as a result of the recent economic doom and gloom.  Nothing can come between an indivual and their prosperity – this is an instinctive, almost primitive, response mechanism – a self defense position.

Recommendations:

While you may not be able to change the economy, we would suggest that you can influence the “morale” of your employees.  People will understand that you didn’t cause the current economic crisis, however, they do expect that you will let them know what the impact is to your business and ultimately to themselves.

Be honest with your employees, let them know where you stand – where they stand.  They need to prepare for their futures too, whether it is working for you or someone else.  During times of crisis such as this, it is time for the executive leadership to stand behind their Vision and Mission statements and treat their employees – THE PEOPLE -the most important assets a company can have – with the dignity and respect they not only deserve but worked so hard to earn.  Be present and available to your team.

Our employees recognize that we only attract, retain, and hire the best employees.  Regardless of the economy, the standard remains and we take great pride in the strength of our people.  They know this intrinsically.

People come to companies to work for PEOPLE.  Their immediate supervisor or manager is, in their eyes, the company.  Arm your staff with the information they need so people can make informed decisions.  Believe it or not, people are motivated when they feel that they are part of the process and not regarded as part of the problem.  Reality check:  “People come to companies to work for themselves.”  How does this statement change your perspective?  Who do you work for?

How many times have you heard, “Our labour is just too high,  we need to cut back.”  Well, who made the decision to hire the people in the first place?  Look in the mirror.  Treat people like they are part of the team, part of the solution.  Get them engaged and focused on moving forward.  Will they be motivated?  They will be if they feel that they are valued players on the team, performing meaningful work that is contributing to the success of the company.  Times of crisis tend to bring teams closer together and, in the end, they become stronger for the cause.

A great business parable written by Patrick Lencioni, “The Three Signs of a Miserable Job”, may provide some useful insights to motivate your team and even grow your business into a more profitable venture despite the current economic crisis.

While people think they work for a company or other people, we ultimately believe that people work for themselves and we, as a company, are the beneficiaries of their efforts.

Conclusion

So how does all of this tie to OEE?  Weill, performance typically lags when people are not focused on the task at hand.  There is a sense that, no matter what they do, they can’t change the current circumstances so, “Why bother?”  Distractions of this magnitude are hard to ignore.  As the leadership of the company, it is your responsibility to be in tune with the morale of your team and workforce in general.  It is possible to mitigate the effects of low morale by addressing them early on and encouraging employees to be part of the turn around process.

This might be one of the few times in history where the term “CHANGE” will be viewed in a positive light and actually be embraced by your team.

We may just discover the 5S process for managing our economy with a real process in place to manage the fifth “S” Sustainability.  Another one of the “anomalies” that just don’t make sense is, “This is just part of the nautral cycle of the economy.  We were long overdue.”  Somehow, that doesn’t say much about our governments or industry leaders. Why?  Because it suggests we should have been more than prepared to deal with this a long time ago.  The current scramble suggests the contrary to be true.  Secondly, what is “natural” about the economy – it’s manmade – driven by the decisions of business leaders and governments around the globe.  Natural? Never.  A logical excuse that every one seems to accept as part of “nature”?  Maybe.

Until next time – STAY Lean!

How to Reduce Costs with OEE: Cost Control

OEE is a great metric to help identify where you may be incurring losses in your processes or operation.  As one of the goals of implementing a Lean strategy is to reduce costs, it only seems natural that we should be able to determine what processes to focus on that are driving the greatest losses.

From the example developed in our previous posts we determined that the OEE and related factors for our three processes were as follows:

Machine Availability Performance Quality OEE
A 92.97% 88.26% 97.77%  80.22%
B 96.04% 77.23% 94.44% 70.05%
C 95.16% 61.70% 95.20% 55.90%

Based on the OEE results, one would be inclined to take a look at Machine C as it has the lowest OEE.  Is this really the greatest opportunity?  The only way to answer the question is to understand what factors are driving costs and ultimately affecting profitability.

The performance factor for machine C is definitely pulling down the OEE for this process.  What would you think if the machine is 100% automated (no labour) and the cycle time, although it may be less than standard, is still meeting the takt time to meet customer demand?  Is there really a cost?  Of course there is, but the impact to your business may be minimal in terms of cost when compared to the other machines.

It is clear that we need to develop a model to understand what losses and ultimately costs are associated with each of the factors.  In turn, we will be able to better understand the overall OEE.

What costs do we consider?  We recommend keeping the model simple.  There are typically three cost components associated with any given process or product:  Material, Labour, and Overhead.  Burden is another term used for Overhead and we will use these terms interchangeably.

Our goal over the next few posts will be to develop a simple cost model for each process and, in turn, determine which one may be the process of choice for improvement.  For now, we will provide a general discussion of some of the potential cost considerations.

Improving quality typically yields the greatest return on investment because all of the cost elements stated above are impacted by the Quality factor.  Raw material, Labour, and Burden are all expended to produce a part scrap part.

The costs associated with Quality losses are further challenged when considering the number of parts that would have to be produced in order to recover these lost costs.  If you are lucky enough to enjoy a 10% profit margin (clear), then, at a minimum, 10 parts would have to be produced for every part scrapped.  Of course, more parts would have to be produced to recover other infrastructure costs incurred including documentation, record keeping, and scrapping of the actual parts.

Performance losses typically affect labour and overhead.  Labour losses are easy enough to understand.  If a machine is operator dependent, then we will have to pay a person to stand at the machine to run it.  If it is running slowly, more costs are incurred to cover the additional labour time.

In many cases, direct losses related to overhead are sometimes difficult to assess unless a truly activity based costing system is in place.  The reason for the complexity arises because some of the costs are “fixed”.  Because the equipment exists, expenses such as depreciation or property taxes are incurred whether or not the equipment or, for that matter, the plant is running.  The performance of the machine or any of the other factors for that matter won’t change this fact.

Availability then becomes somewhat more obscure when it comes to calculating hard costs.  If the labour can be redeployed to another process when a machine goes down, perhaps some of the labour losses can be avoided.  If not, then waiting for a machine to be repaired or material to be delivered is a real loss that should be addressed.

Intangible costs are also difficult to quantify but we should be aware of their existence.  The costs associated or related to poor OEE may include overtime, expedited freight, and infrastructure costs related to extra handling of material or management of non-conforming material (containment, extra inspection, rework, and scrap).  Although this is a relatively short list, it addresses the most obvious potential losses.  With a little more thought, the list could easily grow longer.

Other key metrics in your facility such as customer delivery or quality performance indicators may also point to problems that can be traced directly to poor OEE performance.  Although difficult to measure, a company’s competitive position is compromised when efficiencies are low and eventually the costs of poor performance make their way into the “burden” costs required to manage the operation.

While OEE is an effective metric for operations, on its own, it does not provide a direct indicator of real financial losses.  As Lean Practitioners we are challenged to provide an analysis that not only improves the metrics of the business but also translate into real financial improvements on the balance sheet and ultimately – the bottom line.  We would suggest that OEE is a time driven metric (asset time management strategy) versus our proposed COEE which is Finance or “Value” driven (cost management strategy).   We are presently developing a model that will allow your OEE data to be sensitized with cost data as demonstrated by the table below.

We have coined the term COEE or Cost of Overall Equipment Effectiveness.  Consider the following OEE results converted to Cost based drivers using standard costs as our baseline.  The sample data and spreadsheet used to calculate this data will be available as a download soon.  The overall spreadsheet is quite large and based on a fully detailed three shift operation.

Cost driven OEE model - Summary
Cost driven OEE model - Summary

Our OEE cost model clearly presents the real costs or “losses” incurred per part.  Our Weighted OEE Cost Model will change the way you view OEE data, enabling you to set priorities and identify real, quantifiable, opportunities for improvement.  The above snapshot represents the goal of our COEE project – a clean, clear, summary of the losses incurred correlated directly to your OEE index.  Another advantage is that the Availability, Performance, and Quality factors are recalculated based on cost and presents a realistic breakdown of losses for each of these factors from a financial perspective.  Our spreadsheet presents an advanced OEE example that will bring real value to your OEE implementation strategy.

NOTE:  The fully developed spreadsheet is available from our FREE Downloads page or from the FREE Downloads box on the sidebar.

A well implemented OEE strategy should become evident on the balance sheet through improved material utilization, reduced labour variance (straight and overtime reductions), reduced scrap costs, reduced rework costs, and other burden account reductions.

Take quick, effective, and efficient action to solve the problems having the greatest financial impact to your business.  Last but not least, don’t confuse activity with action.  Decisions are not actions and talking about a problem or even writing about it could be construed as activity.  Real actions produce real, measurable, results.

Change requires Change.  Profit is to business as oxygen is to humans – you need it to survive. 

We have created a number of Excel spreadsheets that are immediately available for download from our FREE Downloads page or from the Free Downloads widget on the side bar.  These spreadsheets can be modified as required for your application.  There are no hidden files, formulas, or macros and no obligations for the services provided here.

If you have any questions or comments, feel free to send an email to LeanExecution@gmail.com

Until Next Time – STAY Lean!

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