Five years of lean and still winning

Key benefits Productivity up 20% Inventory down 35% and targeted for 50% very soon Lead times slashed from six weeks to just one Manufacturing cycle times cut by 72% Overtime reduced from 7% to 2% Performance and cost advantage by consolidating suppliers 50% materials now purchase orderless Productivity up 20%, inventory down 35% and targeted for 50% by 2005, lead times slashed from four to six weeks down to just one, manufacturing cycle times cut by 72%, and overtime reduced from 7% to 2%: those are among headline achievements at electronics manufacturer Deltron Emcon in Scunthorpe. They’re excellent results by any measure, and they’re wholly down to lean thinking, vision, determination, focus and hard work on every aspect of the business. Bob Davis, managing director, says he came to lean five years ago having “done ERP” and decided there just had to be a better way. That’s increasingly how the starting point is expressed, and hence the initial impression that ERP is all wrong: it’s not – but read on. “We’d implemented JBA [now Geac] System 21 in 1994, and changed across the sites to do MRP. And that was fine while business was good and there was no reason to think about anything else. Then in 1997/98, when things were getting a bit tougher, we began looking around at ways to do better, and we began to find out about ‘lean’. I read the book, The Machine that Changed the World, and thought, why not look at different ways.” In fact, he discovered the Association of Manufacturing Excellence (AME) in the US, took it seriously and went, with his operations director, to one of its conferences. “We went to some outstanding plants. We were blown away. We saw that what we’d been doing was completely wrong. If we were to take on the challenge of companies taking their manufacturing offshore, we just had to do something different – something like these companies were doing.” From then on, they mapped out a vision: “a way forward to grow – what we were going to do; what we were going to be involved in.” That was presented to the management team and, by painting a picture of what they had seen, Davis got management buy-in of not only the need to change, but the direction: make-to-order and lean ‘pull’ systems. His first decision was to introduce lean on the factory floor, with cell manufacturing, kanbans and efficient demand pull-driven processes. And here’s the first interesting observation. “At our Scunthorpe site, where we do assembly of EMC filers, it went very well. But at our London site [now closed], where we had metal stamping operations, injection moulding, sheet metal work, machinery and so on – and people with 20 years-plus experience as well as outworkers – the experience was very, very different.” After four years, Davis decided it just wasn’t happening for the firm in London and subsequently closed the site. It wasn’t so much the different operations: the commitment wasn’t there, and the impetus to motivate the people and encourage a change and improvement culture wasn’t working. And there’s a powerful message in that. Deltron Electronics group itself changed during the period, to become more a European distributor, with sites in nine countries, but manufacturing in only two. To handle that, he says: “We needed a uniform IT platform around Europe.” Five of the nine are now on System 21 (two UK businesses, Denmark, France, Holland and Ireland – all distribution apart from Scunthorpe). Which might have been odd if System 21 ERP didn’t run the way Davis wanted to transform the businesses. But most of it was fine: and that’s another important point to note. “What we wanted to get away from was the MRP – change production to sales-driven kanbans and pull systems, and use MRP only for long term forecasts and historical information.” Alan Rebbeck, Deltron Emcon IT manager, says it’s taken time and effort, but now, while System 21 MRP is still used to hold the bill of materials (BoM) and operations, that’s it from a production point of view. “We don’t use MRP reports to plan production. There are no works orders, only instructions: we configured Geac so that sales orders coming in produce a back-to-back works order for the factory. We haven’t got lots of customers: mostly they’re distributors, so we can actually build almost entirely direct to sales order.” And it works well because manufacturing has been moved to self sufficient, multi functioning cells with kanbans for the material replenishment internally, and multi-skilled operators covering a range of product assembly for flexible operations. Says Davis: “What was conventional manufacturing lines, with assembly, potting, inspection and the rest, is now all in the cells, including test and packaging. Everything they need sits in their plot of land, and suppliers deliver direct to the cells. It cuts out all the wasteful movement and the materials inventory and WIP [work in progress WIP].” Supply chain systems But there’s more to this than just production. Deltron is transforming its purchasing and its supply chain. First, the firm has made its manufacturing cell leaders responsible for their suppliers in terms of materials replenishment and managing specials. It’s variations on a theme of kanbans into the supply chain, matched against agreed schedules and call-offs. Then at the top end, a strategic supply chain purchasing team identifies suppliers, does the metrics, but buys nothing at all. It’s already been responsible for driving the number of suppliers down from 450 to 200 over three years, with a target of 50. It’s not just about wielding the scythe; their responsibility is to talk with suppliers about what they’re doing and what Deltron is trying to do. Implicit in their role is to seek out ways of stripping cost from production through team working with suppliers. It’s the opposite of simply providing a specification for quotation in the conventional adversarial framework. “This is absolutely part of lean thinking,” insists Davis. “Lean is a business process: the supply chain team also talk to our suppliers about how our systems could talk to theirs. We want to get away from the old processes around purchase orders and the rest and strip out all the waste and errors there too.” In fact the company uses EDI – through the Reims AS/400 extranet server package with some in-house development for its key suppliers. Deltron is also now rolling out a simpler extranet in consultation with its key 50 suppliers, which will enable them to see forecast, inventory usage, schedules and call-off, all published in real time from its ERP. It’s already running with two, and Davis describes it as another lean ‘win-win’, with benefits for the suppliers in terms of early opportunities for production planning and smoothing, admin reductions etc, and cost reductions for Deltron again from eliminated admin and reduced inventory holding. Says Rebbeck: “We send an email purchase order and they can log on to the site and see the call off against schedule. They acknowledge that and it updates the ERP system, so we know when the goods will arrive.” And there’s protection built in, with unacknowledged emails being escalated up. “The next stage will be for suppliers to post invoices on our system direct into our ERP ledgers.” Again, it’s getting out waste – admin processes that, with today’s technology are redundant. What’s just as interesting as the extranet technique is the fact that Rebbeck wrote the application for Deltron because the firm couldn’t find a packaged system at the time. Geac now has its Vendor Connect module – a generalised, higher functionality system delivering essentially on the same concept. And many of the ERP camp have developed, or say they are developing, similar systems. Deltron also has EDI and a customer extranet for order taking and tracking via the web, implemented about two years ago. Davis: “About 50% of our products are now purchased electronically because it’s easy and it’s up 24/7 – remember our time zone issues.” If that’s what the customer wants, then it’s adding customer value and it’s lean – working for the customers and for the business in terms of easing the most critical business information flow. Returning to ERP, Rebbeck agrees that Deltron still uses most of its original system – sales, purchasing and so on, and some of the MRP reports, albeit reconfigured for lean, cell-based pull production. But Davis makes it clear: “If we were buying a new ERP system today, we would want certain modules on the core system specifically to support what we’re doing.” He complains that very few in the IT vendors seem to understand what’s required, particularly from the production, supply and materials and capacity management standpoints. “They need to identify that there is something new – a way that businesses are having to go to compete. They’ve got to adapt their systems to do this: make the tools appropriate.” And there’s more here. Davis identifies ERP systems – or specifically the sales, customer and supplier history data they gather – as being powerful at the other end of stripping out waste. “We’ve got a lot of products, and some that don’t contribute as much to sales revenue or gross margin as others. We’re using our system to identify those and their real costs to the business, so we can make decisions about whether we should be making them, buying them in or whatever.” And the same goes for customers – those that buy low levels and maybe should be pushed out to the distribution network to improve margin. “You need to get reports out of the system to show you that kind of information. If you’ve go t the data, you need to use it to streamline your business.” And hence the importance of add-on business intelligence tools that make such analysis self-service and ensure that data extraction and analysis don’t impact system performance, or become a barrier to better business. If that’s sounding no different to straightforward cost-cutting, in a sense it is. “Lean and cost cutting go hand in hand,” says Davis. “The difference is that lean is all about eliminating waste in the eyes of your customers: that’s the starting point. If it doesn’t add value you shouldn’t be doing it. Some of the things you do you wouldn’t cut out because they do matter to your customers, so it’s not just driven by your accountants. Value to your customer is the key.”