Improving Your Bottom Line Making Kentucky manufacturers more competitive

Why Manufacturing? 13% of the nation’s total Gross Domestic Product (GDP) Nearly 14.3 million employees Average annual wage of $45,916 Conducts two-thirds of all private sector R&D Every $1 in manufactured goods generates an additional $1.43 worth of economic activity

Competitiveness Challenges Rapidly advancing technology Customer demands – faster, better, cheaper Offshore competition from low wage countries – China’s average wages are: 25% of Mexico’s 10% of Hong Kong & Taiwan’s 3% of U.S.’

How Will Firms Compete? It’s all about... Innovation …Productivity …Speed

2 Key Tools for Competitiveness Lean Manufacturing / Lean Office Six Sigma

KMAC Mission: Increase the competitiveness of Kentucky manufacturers Private, not-for-profit corporation Statewide operations Industry-driven Board of Directors Kentucky affiliate of the national Manufacturing Extension Partnership (MEP) program

Productivity Improvement Lean Manufacturing / Lean for the Office Facilities Planning & Layout Process Improvement Problem Solving Training Employee Development Team Building & Team Leader Development

Quality Improvement Quality Systems ISO and QS/TS Standards Six Sigma Statistical Process Control Poka-Yoke / Error Proofing

Product Improvement New Product Development – Accelerate to Market for Small & Medium Enterprises (ATOM-SME) Value Engineering / Design for Manufacturability

Business Improvement Strategic Planning Meeting Facilitation Performance Measurement Financial Planning

Benefits Expertise – Staff of seasoned manufacturing professionals Results – Proven track record will all types of industry – A national leader among MEP Centers for delivering quantifiable, bottom-line impacts to clients Value – Clients realize significant returns on their investments in KMAC services

FY06 Client-Reported Results Increased Sales: $21 Million Retained Sales: $12 Million Annual Cost Savings: $4.8 Million New Investment: $27 Million

Lean Manufacturing Lean Office

What is Lean? A systematic approach to identifying and eliminating waste (non-value added activities) through continuous improvement by flowing the product at the pull of the customer.

Defining Value-Added Activities VALUE ADDED: Increases the market form or function of the product or service NON-VALUE ADDED: Does not add market form or function or is not necessary ESSENTIAL NON-VALUE ADDED: Cannot be eliminated completely

Lean = Eliminating the Wastes Value Added Typically 95% of all lead time is non-value added Overproduction Waiting Transportation Non-Value Added Processing Excess Inventory Defects Excess Motion Underutilized People Non-Value Added

Lean Tools Quick Changeover Standardized WorkBatch ReductionTeams Quality at Source 5S SystemVisualPlant Layout POUS Cellular/FlowPull/KanbanTPM Value Stream Mapping Continuous Improvement

Value Stream Mapping Visually document current material & information flow – Identify non value-added activities – Quantify non value-added lead time Create an ideal future state – Eliminate wastes & simplify processes Results in development of a Lean Implementation Action Plan – Prioritized improvement projects – Determines Lean Tools to be applied

5S System Designed to improve workplace organization and standardization

Visual Workplace Simple signals providing an immediate understanding of a situation or condition – Kanban cards – Color-coded dies, tools, pallets

Plant Layout Raw Stock QC Rec Ship Shear Screw Machine QC Stamp Assembly Brake Mill Lathe Weld Finish Grind Parts Stock Drill

Standardized Work Tasks organized in the best known sequence Most effective combination of: – People – Materials – Methods – Machines

Batch Reduction The best batch size is: ONE PIECE FLOW Make One... Move One!

Teams More flexible Greater productivity & use of resources Collaborative & cross- functional More creative & innovative

Quality at the Source Quality built Operators inspect – Necessary equipment – Established standards – Process documentation

Point of Use Storage Materials are stored where used – Simplifies physical inventory tracking, storage, and handling

Quick Changeover Changing over a process to produce a different product in the most efficient manner

Pull/Kanban Push System – Production based on forecasts or schedules Pull/Kanban System – Production based on actual demand using Kanbans to signal replenishment

Cellular Flow Linking of manual and machine operations into the most efficient combination of resources – Flexible layout – Simplify flows – Minimize materials handling – Make use of people

Total Productive Maintenance Systematic approach to the elimination of equipment downtime as a waste factor Designed to maximize the productivity of equipment for Its entire life

Going Lean Training in Lean tools Using Lean tools in improvement events – Kaizen Events Organizational / Cultural changes – Move toward team environment – Defined problem-solving approach – Performance metrics that support Lean

Improvements Achieved with Lean Lead Time Reduction 0%25%50%75%100% Productivity Increase WIP Reduction Quality Improvement Space Utilization

Six Sigma

Definition of Six Sigma Methodology for disciplined quality improvement

History of Six Sigma Originated at Motorola in the early 1980s Process modified by others Implemented by IBM & Allied Signal Adopted by General Electric in 1995 – Broadly deployed – By 1998, GE claimed $750 million in net benefits

Goal of Six Sigma Optimize process capability by identifying and minimizing variation Virtual elimination of all defects – No more than 3.4 defects per million opportunities (DPMO) – % acceptable

Cost of Poor Quality Scrap/Rework – Materials, labor costs, disposition costs Warranty Costs – Customer credits, return/restocking costs, penalties Lost Sales – Lost revenues, cost of gaining new customers

Competitive Performance Sigma LevelCost of Poor QualityPerformance 2>40% of salesNon-competitive 326% - 40% of sales 416% - 25% of salesAverage 51% - 15% of sales 6< 1% of salesWorld Class

Benefits of Improved Quality Bottom-line cost savings Greater customer satisfaction Increase in throughput Reduction in waste and rework Improvement in process capability

Six Sigma Core Philosophies Values defect-prevention over defect-detection Emphasizes reducing variation in processes – Tackles root causes of poor performance Is customer-focused by driving improvement in areas most important to your customers

Six Sigma Characteristics Defined, problem-solving approach Data-driven Project-based Commitment and support from the top level

Problem-Solving Approach Uses a defined approach (DMAIC) – Define the project – Measure the baseline process capability – Analyze when, where and how often defects occur – Improve process capability to reach a Six Sigma level – Control the process to maintain the gain

Data-Driven Based on data rather than perception Uses statistical tools during the DMAIC process Calls for training in “statistical thinking” for many; advanced statistics and project management for some

Project-Based Project selection is critical – Should advance organization’s strategic initiatives – Have impact on a Critical to Quality (CTQ) characteristic – Should have bottom-line financial impact – Begin and end with performance measure

Top Level Leadership Requires leadership, commitment and active support from top level management Leaders should use Six Sigma to drive strategic improvement – Six Sigma projects should support strategic goals

Six Sigma – The Players The Champion Black Belt Green Belt Quality Process Analyst

KMAC’s Approach to Six Sigma Developed specifically for small- and mid-sized manufacturers – Affordable – Flexible – Focuses on implementation of Six Sigma not just training – Emphasizes bottom-line results

Two Part Approach On-Site Deployment Planning & Mentoring – Helps the company gain the most benefit from implementing Six Sigma Online Six Sigma Training – Provides an affordable way to train Black Belts, Green Belts, and Quality Process Analysts

Lean and Six Sigma Two powerful tools to help a company improve: – Quality – Productivity – Bottom-line results

Lean & Six Sigma Together Use Lean to: – Reduce or eliminate non-value- added activities Use Six Sigma to: – Improve value-added activities – Solve complex problems uncovered by Lean or those requiring advanced analysis