dj Orthopedics LLC: IW Best Plants Profile 2005

Sept. 12, 2005
Lean Medicine Cures Chaos: Plant replaced messes with lessons in lean.

dj Orthopedics LLC, Vista, Calif.

Employees: 165, non-union

Total square footage: 276,000

Primary products: custom knee and elbow braces, and cold therapy treatments

Start-up: 1977

Achievements: Cost reduction projects, kaizen blitzes and vertical integration of many functions have resulted in more than $16 million in savings since 2000. More than 95% of new products at the Vista plant are launched to market on time and on budget.

Lean manufacturing has helped dj Orthopedics LLC to shrink the manufacturing footprint at its Vista, Calif., plant by 61% in the past year, and the company is relying on streamlining production processes to fuel growth.

Although manufacturing operations at the company's headquarters campus in Vista almost look lost in the spacious building in which they are housed, this was not always the case.

IW's 2005 Best Plants

See the other winners of IW's 2005 Best Plants award and find out how they made the top ten.

In the mid- to late-1990s, dj Orthopedics' Vista operations expanded steeply to keep up with rapidly arriving orders, and the increased production led to operations characterized at best by chaotic processes and blue tubs that carried production materials -- and plenty of inventory -- from work station to work station. When the chaos got out of hand, there was a lot of inventory in blue tubs either waiting to be worked on or, just as likely, forgotten.

dj Orthopedics is a $275 million supplier of non-operative orthopedic rehabilitation, regeneration and repair products and other products, such as a device that stimulates bone growth. It is a leader in a highly fragmented, $1.6 billion market. The company's headquarters production facilities focus on specialty and niche market items, items that require a high degree of technical sophistication, and custom-made products.

dj Orthopedics has about 125 manufacturing employees at seven production cells at Vista. They are housed in 276,000 square feet of space in three buildings, but the company is consolidating that manufacturing space in a 110,000-square-foot building that is under construction.

The company's U.S. manufacturing operations produce 500 units a day. High volume SKUs are produced in a plant about 40 miles away and across the border in Mexico. Luke T. Faulstick, senior vice president for operations at dj Orthopedics, says the company relocated many operations to its plant in Mexico (which was cited in 2004 as one of IndustryWeek's Best Plants) primarily because of the availability of a skilled workforce for such operations as sewing and assembly. Faulstick's responsibilities include the company's plants in Vista and Tijuana, Mexico.

The company started looking at streamlining its operations in 1999, and saw the bulk of improvements implemented by 2003, Faulstick says. Its improvements have included streamlining its supply chain by cutting suppliers from more than 450 to 230. The company's goal is to further reduce its suppliers to about 200.

dj Orthopedics' Vista headquarters is home to a three-building plant with 125 manufacturing employees working in seven production cells. As a benefit of process improvements, the company is relocating the plant into one building, shrinking production square footage from 276,000 to 110,000.

dj Orthopedics conducted 161 kaizen events since launching its lean manufacturing program at its Vista facility in 2000 and, although the number of weekly kaizen events has tapered off, the company still conducts one about every other week. The events are completed in two to three days and increasingly focus on areas that were the subject of previous kaizen events, with aims to derive greater benefits by improving processes several more notches. Jerry Wright, director of operations for the Vista facility, points out that kaizen events have improved manufacturing efficiencies an average of 51%, while kaizen events in materials operation areas improved efficiencies an average of 62%, and kaizen events in office areas improved efficiencies an average of 77%.

The plant's kaizen events have included members of its supply chain, and Faulstick said dj Orthopedics generally agrees with suppliers that they split gains from such events on a 50/50 basis.

One of the Vista plant's best lean manufacturing tools, a five-sided kanban device nestled between manufacturing and what's left of the company's warehouse, has two sides nearly made obsolete by efficiency. Known as "The Pentagon," the device holds kanban cards for many products held in inventory. When manufacturing queues need to be replenished, a card cues suppliers and the shipping/receiving dock crew that keeps the storeroom. Three sides of the Pentagon deal with supplies that are queued for production during the previous, current and next two weeks. The remaining two sides deal with production queues that are more than two weeks into the future. However, now those rarely are used because production queues and inventories have been tightened so sharply. The plant's available warehouse space decreased proportionally as its inventory levels fell, and its warehouse today comprises 18,000 square feet with 1,000 pallet positions. Of those pallet positions, about 600 positions are for manufacturing stock, and 300 are used for vendor-managed consignments. The remaining 100 pallet positions are used for brochures and other corporate documents. Previously, the warehouse area for manufacturing inventories alone took up nearly 25,000 square feet.

dj Orthopedics took eight basic steps toward streamlining its production, Faulstick says: value-stream mapping, kaizen blitzes, eliminating departments, making the factory visual, streamlining the internal and external supply chain, creating a demand-based scheduling system, implementing a line-of-sight management system and launching a benchmarking program.

The results of the plant's efforts are obvious: its on-time delivery performance has improved by over 50%; its measurement of quality has moved from a percentage of production to parts per million; its first-pass yield has improved from 60% to over 93% in all cells; productivity per person has increased by more than 90%; gross profit has improved from 48% to 64%; inventory turns have more than doubled; OSHA recordable injury rates have been reduced by over 70%, and production lead times have been cut from weeks to hours.

Faulstick clearly sees lean manufacturing techniques as his company's competitive edge and an asset that makes dj Orthopedics' operations a contender against anyone, anywhere.

Faulstick also notes that dj Orthopedics is considering expansion through vertical integration -- the company constantly looks at sourcing vendor items in its own facilities. "We will in-source a product if we can apply our lean manufacturing operations to anything we now outsource," he says. And, he adds, that could take a dramatic twist: dj Orthopedics is considering producing a commodity item it now buys in China.

Lean efforts have increased productivity per person more than 90%.

"Inventories and lead times become bigger and bigger enemies [with greater implementation of lean manufacturing techniques], and that is a problem with [producing goods in] China," Faulstick says, explaining that shipping times and production schedules with China can be vague and extended, and that those uncertainties could drive up costs. The company is investigating in-sourcing the production of a small, commodity-type cooler chest, similar to the type of tote that would be used to keep beer and soft drinks cool at tailgate parties. Faulstick believes that his company can produce that cooler at costs that are competitive with manufacturers in China. The cooler is used to house a chilled-water pumping unit for the company's IceMan product and, while its production might be located in the Tijuana plant, pre-production work, including engineering and development, are being done at Vista.

The cooler is one of several new products that dj Orthopedics reviews each year. To complement its streamlined manufacturing operations, dj Orthopedics adopted a five-gate product development process, based on similar systems used at Procter & Gamble and at Toyota. The process begins with due diligence, Wright says, and proceeds under the direction of a core team through increasingly complex and stratified states through the development channel. Ultimately, new products can face as many as 50 steps from concept to market as each gate is approached and opened and, with each step, more and more persons become involved to ensure product viability at every step and that the products fit into the company's streamlined manufacturing systems.

The company has seen a steady increase in the release of new products annually since it incorporated its five-gate product release program, Faulstick says. dj Orthopedics released 72 new product families in 2002, 30 in 2003 and 32 in 2004, he notes, adding that the consistent theme with new products is that they are designed for lean manufacturing. About 20% to 25% of the company's new products are destined for the Vista facility. Really new products -- those that are not extensions of existing product lines -- typically are kept in the Vista plant, as are products that require special attention for compliance with specific regulatory agencies, and products for which production processes are complex. When products begin to reach maturity, they usually are moved from the Vista plant to the sister facility in Mexico.

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