Growing With Lean

Dec. 21, 2004
Lean manufacturing carries a long learning curve, but a Pittsburgh-based firm intends to spawn a cadre of companies dedicated to the philosophy.

Over the last decade many companies have tinkered with lean-manufacturing concepts, but few have enthusiastically embraced all of the elements required to unleash the potential of truly lean production-management systems. However, a new investment company intends to stake its future on the potential of lean. That potential includes productivity gains approaching 400%, says George Koenigsaecker, who has spent more than two decades studying and emulating the fabled Toyota Production System -- the prototype for 21st-century lean manufacturing. Benchmarking studies of Japanese firms have shown that conversions from batch production to true lean continuous-flow systems can produce fourfold productivity gains, notes Koenigsaecker, president of Pittsburgh-based Lean Investments LLC. The partnership, formed in late 1999, is banking on the prospect that it can create similar results at manufacturing operations it acquires across the U.S. Lean Tools When Koenigsaecker talks about "true" conversions, he means a commitment beyond conducting a few plant-floor experiments. Both hourly and salaried employees have to adopt flow techniques and adapt to new organizational structures. And they have to become skilled in applying a comprehensive set of lean tools, including standard work analysis, 5S methods, cellular layouts, and one-piece flow. "Often, people who attempt a lean conversion start with one of the tools, or a couple of the tools, and they push them throughout the organization. Then they wonder why things aren't flowing in the total value stream," Koenigsaecker says. "The problem is that there are about a dozen key tools in lean manufacturing and you have to move them all ahead somewhat simultaneously." Many firms falter, he points out, because it can take as long as five years of involvement with lean concepts, including participation in kaizen events, to fully grasp and believe in the tools. "It is a long learning curve," he says. "And that is one of the reasons why there haven't been more lean conversions in this country." As a rule of thumb, he says, it requires participation in about a dozen week-long kaizen events over the course of a year just to reach the point where "you don't cause more harm than good" in leading improvement teams. Moreover, it takes about 36 such events, or three years, to become competent in applying such tools as setup reduction, standard work, or cell building, and about five years to instill a firm belief in all the tools. "One of the complications is that, the higher up you get in management, particularly above the plant-manager level, it is very hard to get [executives] committed to week-long experiences," Koenigsaecker notes. "There aren't any boards of directors where the board members have had five years of experience with kaizen events." And that's the Catch 22, he says. "Because it involves such a long learning curve, lean conversion has to be led from the top. But how do you get anybody at the top who has gone up the learning curve far enough to be able to lead it?" The answer for Lean Investments is to install such people at the top of each acquired organization. Without the full support of the corporate leadership, the lean conversion process tends to unravel at the point where existing organizational structures are challenged. "To get the full productivity benefit of a lean conversion," Koenigsaecker asserts, "you have to change your whole salaried operation, almost all of which is set up in a batch mode, to a flow mode. The implications of that are that all of your managers are going to have different jobs. And that's a huge change. In the course of a true lean conversion, many jobs will either disappear or be totally restructured into something else. "You end up with a value-stream-based organization -- a collection of self-contained minibusinesses -- that replaces hierarchical functional organizations. You have to change every process, both salaried and hourly, perhaps a couple of times before you really create a lean organization. All the perquisites of power are changed." Koenigsaecker speaks from experience. As a manufacturing executive at Jacobs Vehicle Equipment Co. in the 1980s, he was one of the pioneers in adopting just-in-time/continuous-flow methods in the U.S. In the 1990s he directed lean conversion initiatives in 18 manufacturing plants operated by HON Co., an office furniture firm. For the last five years he has served as chairman of the Shingo Prize Committee, which oversees the annual recognition of outstanding manufacturing facilities under a program administered by the College of Business at Utah State University, Logan, Utah. In recent years, numerous books, conferences, and seminars have extolled the benefits of lean manufacturing, he notes. "I think it's now reaching the takeoff point where it is becoming broadly accepted. But, essentially, it is still at the starting gate in most companies." Koenigsaecker estimates that fewer than 2% of all U.S. manufacturing jobs are in companies that are truly lean, meaning that they have completed at least 80% of the conversion process. "Perhaps 3% to 4% of U.S. manufacturing people are in companies that are working at it, but haven't gotten very far," he says. "That leaves all the rest just talking about it, or talking about other things, but really not there at all." The bottom line is that there is a wealth of untapped opportunity to improve the performance of American manufacturing organizations. Prototype For Success As president of Lean Investments, Koenigsaecker hopes to parlay his lean manufacturing know-how, along with that of other experienced executives, into a profitable revitalization of small to midsized manufacturing companies. The game plan calls for acquiring manufacturing firms where lean conversion can make a dramatic impact, and then installing executive teams with experience in managing the conversion process. To create Lean Investments, Koenigsaecker partnered with Edward J. Constantine, an entrepreneur and managing director of Simpler Consulting Inc., a Pittsburgh-based firm that will play an integral role in supplying the required executive talent. Constantine also heads an investment firm that provided a portion of the capital for the acquisition of a Florida company that is serving as a prototype for the Lean Investments strategy. Now known as PRO Group Inc., that $10 million-a-year Miami firm manufactures the Adapto line of industrial products, including storage cabinets, storage racks, workbenches, and material-handling gear. Acquired last August, the PRO Group plant improved its overall productivity, as measured in terms of sales per employee, by 40% in a six-month period. Even more impressive was a 72% boost in plant-floor productivity based on pounds of steel products produced per associate hour. (The latter calculation reflects the efforts of manufacturing employees only, not total employment.) Those gains are merely the early returns in a continuing push toward lean production. "We are pretty much through the introduction phase and are now getting into the intense-change stage," says Richard J. Elliott, president of PRO Group, which has staged several formal kaizen events to create manufacturing cells, revamp plant-floor operations, reduce inventory levels, and move toward a build-to-order process. One thrust of the plant's inventory-reduction strategy has been to slash the number of items that it keeps in stock from 1,500 SKUs to just 200, those that represent the fast-moving products that account for 90% of PRO Group's current sales. "We did an 80/20 analysis on our SKUs and determined that 90% of our finished-goods SKUs represented only 10% of our sales," explains vice president David M. Newman. "So we decided that that 90% would now be built to order." To ensure good response times on the build-to-order items, the company hopes its lean initiatives eventually will squeeze the order-to-shipment cycle time to 24 hours. PRO Group's vision is to grow to about $150 million in annual sales, with a "broad product offering" in its market niche, says Elliott, who already is contemplating several acquisitions of firms with complementary products. The acquired companies also would undergo a transformation to lean manufacturing. "We believe we can take our products to the market with the lowest total cost to the customer, because of the [expected] efficiencies of manufacturing and low overhead resulting from consolidated operations." The lean conversion approach employed at PRO Group is based on a model developed by Simpler Consulting. The model differs from the traditional Japanese approach. "The Japanese technique," Koenigsaecker says, "was that you learn this by doing. It is the way we were taught: 'Go do it and eventually the light will come on as to why you're doing it.' You can get there that way, but it seems less efficient to us." Simpler Consulting believes there is a better way, he notes. "For one thing, there are early reviews to make sure that the goals for the lean conversion tie into the business-unit strategy, which is not something that is normally done. Also, the first major activity is to conduct an analysis of a value stream within the business, usually the flow of a product-line family. Then you target your improvement activities around that specific value stream in order to get something moving. You may have a product family that you can drive to daily delivery if you stack up your kaizen activity around that value stream." Simpler Consulting developed a model that is easier for people to understand, Koenigsaecker says. "What usually happens in lean is that you are kind of doing it on faith and you don't have a good sense of where you are going." The ability to envision a final destination is one reason why Lean Investments wants execs with lean manufacturing experience in charge of future acquisitions. "Our view is that the scarce resource are guys like Dick Elliott and Dave Newman," Koenigsaecker says. "There aren't many people who have that background. So first we look for the lean guys. Second, we look for a company that fits them. Then we'll arrange for the [acquisition] financing. But the beginning of our process is selecting the lean executives." The connection with Simpler Consulting is expected to facilitate the recruitment process. The idea is to attract executives in career transitions who have proven track records in lean manufacturing and then assign them to the consulting business, where they can continue to hone their skills, until they're needed to take charge of an acquired company. "We plan to inventory good lean executives for future assignments," Koenigsaecker says. "We're now transitioning a handful of additional executives into the consulting company. We're creating what I call a home for the lean." Lean Investments envisions establishing two entities a year similar to PRO Group, each of which might pursue growth through further acquisitions. Currently engaged in negotiations on two acquisitions that would expand PRO Group, it is also actively looking for a target company that would give it a foothold in another market sector. Possibilities include such niche markets as measuring instruments and controls, electrical components, and brand-name fabricated metal products. "Typically, we're looking for enterprises that do $30 million to $100 million per location. We might consider a company with, say, three $70 million sites,"Koenigsaecker says, explaining that the size of a plant can affect the efficiency of a lean conversion. "You can get so big that the size really slows you down," he says. "And you can get so small that it is hard to pay for the kind of executive talent that you need to oversee the conversion." If it achieves its vision, in 10 years Lean Investments will have spawned a loosely bundled network of perhaps 20 lean manufacturing enterprises representing as much as $3 billion in annual business. On a more philosophical level, the objective is to enhance the effectiveness of the change process "by literally creating an environment where there is top-down support for lean conversions-an environment where experienced leaders can focus on rapidly doing lean conversion and not have to worry about keeping the support of the board, because the board will be encouraging them to make the lean moves," Koenigsaecker says. "We believe we'll show some incredible successes that illustrate how effective and powerful lean can be when it is fully supported. A lot of our motivation is to demonstrate just how good this stuff really is."

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