IMPLEMENTING THE LEAN TURNAROUND

November 5, 2013

TODAYS SESSION

• Introductions - - - Your Objectives• Art Byrne Background• Lean vs. The Traditional Approach• Obstacles you Will Have To Overcome• Why Lean?• What You Need To Know Before You Start• Lean Implementation• The Leaders Role

ART BYRNE BACKGROUND

• General Manager High Intensity And Quartz Lamp Department, General Electric

• Group Executive Danaher Corporation• CEO The Wiremold Company• Operating Partner, JW Childs Associates

31 YEARS AND COUNTING

PRODUCTIVITY EQUALS WEALTH

LEAN vs. TRADITIONAL APPROACH

Lean Thinking Is The Opposite Of The Traditional Approach

Hard To Accept That Everything You Have Been Taught/Learned Is Wrong

Even Harder For The Rest Of Your Associates To Accept And Change

EVERYTHING HAS TO CHANGE

LEAN vs. TRADITIONAL

• Understand Value Added vs. Non Value Added

• Focus On Processes Not Results• Move From Batch To Flow• Switch from Push To Pull• Eliminate Inventory vs. Rely On Inventory

LEAN vs. TRADITIONAL

• Long Production Runs vs. Short Runs, Quick Changeovers

• Big Capital Spending vs. Use Your Brain And Not Your Wallet

• Buy Large Quantities For Volume Discounts vs. Daily Deliveries

• Encourage Big Orders/Volume Discounts vs. Level Loading, One Price Into Stock

EVERYTHING HAS TO CHANGE

• You Can’t Drop Lean On A Traditional Batch Operating Structure

• Sales Approach Must Change• Accounting Approach Must Change• Different Approach To People• Management Focus Is Different

THIS IS A BIG UNDERTAKING

TRADITIONAL ORGANIZATION CHART IS UPSIDE DOWN

• Traditional: CEO On Top Of Pyramid, Work Force [Value Adders] On The Bottom

• Lean: Value Adders On Top CEO on Bottom

• ROLE OF MANAGEMENT IS TO SUPPORT THE VALUE ADDERS EVEYDAY, IF NOT YOU ARE WASTE

YOU WILL FACE A LOT OF OBSTACLES

OBSTACLES

• People Don’t Like Change• Your People Will Challenge You/Fight You• “We Don’t Make Cars”• “This Will Never Work Here”• “We Are Different Than Other Companies• “This Is The Stupidest Idea Yet”

OBSACLES CONTINUED

• Getting You Staff To Function Like A Team

• Overcoming/Dealing With “Concrete Heads”

• Changing The Way Direct Supervisors Approach/Deal With The Work Force

• Customer Service Issues Will Crop Up

MORE OBSTACLES

• Every Machine Will Likely Have To Be Moved - - - More Than Once

• Not Everything Will Go Right The First Time

• “See, I Told You This Wouldn’t Work”• Job Classifications Will Have To Be

Consolidated• The Approach To Pay May Have To

Change

EVEN MORE OBSTACLES

• How Do You Get Everyone On Board?• How Do You Educate Everyone About

Lean?• Where Do You Get The Lean Knowledge?• How Do You Cross Train Your People?• How Do You Hire The Right People?

LEAN IS EASY TO SAY HARD TO DO

ARE YOU STILL INTERESTED IN MAKING THE SHIFT TO LEAN?

WHY LEAN?

WHY LEAN?

• You Are Running A Business• You Should Want To Maximize Results For All

Stakeholders• Your People• Your Customers• Your Shareholders

LEAN IS THE GREATEST STRATEGIC WEAPON YOU WILL EVER SEE

WHY LEAN?

• Deliver Value To Your Customers• Gain Market Share And Grow• Fantastic Financial Results• Create Wealth For All Stakeholders• Enhance The Skills And Value Of Your

Employees

WIREMOLD RESULTS• Lead Times From 4-6 Weeks To 1-2 Days• Productivity Up 162%• Gross Profit From 38% To 51%• Machine Changeovers From 3x Per Week To 20-30 A

Day• Inventory Turns From 3x To 18x• Customer Service From 50% To 98%• Sales More Than Quadrupled• EBITDA Grew From 6.2% To 20.8%• Operating Income Up 13.4x• Enterprise Value Increased By 2,467%

VIRGINIA MASON RESULTS

• Nurses Spend 90% With Patients vs.35%• Time To Report Lab Results Down 85%• Cost Of Supplies Down $1Million A Year• Hospital Liability Costs Down 49%• A/R Days >90 Days Down 74%• Surgery Center; Cases Per Day Up 60%• Pharmacy; Order To Available Time -93%• Margin $’s; $0.7M in 2,00 To $41M In 2,010

ASR RESULTS

• Result %Change• Inventory Turns 2.5x To 6.2x +148%• W/C As % To Sales 34% To 15% -50%• Customer Service 85% To 98% +15%• EBITDA Margin 17% To 23% +35%• Cash Freed Up $65 Million NA

ESSELTE RESULTS

• From $5M EBITDA In 05 To $80M Now +1,500%

• Reduced Working Capital By $200 Million• Lowered Headcount By 47%• Freed Up 2.4M Sq. Feet Of Space• Gained 9 Points Of Gross Margin In

Europe Alone

WHY DOESN’T EVERYONE DO THIS?

• “I Can Tell You”• “I can Show You”• “I Bet You Can’t Do It”• Yoshiki Iwata

CHANGING OLD HABITS IS HARD WORK

WE THINK ABOUT THIS ALL WRONG

• Lean Is A Strategic Approach To How You Run Your Business

• It Is Not Just A Bunch Of Tools• Saying “We Have Black Belts And Green

Belts So We Are Lean” Is Ridiculous• It Is Not Just Some Training Exercise

TO BE A LEAN ENTERPRISE

• All Functions Must Participate• Otherwise You Will Fight Yourself• Customers See You As A Single Entity

DON’T JUST DO LEAN- BE LEAN

WHAT DO YOU NEED TO KNOW?

MANAGEMENT MUSTS

• Lean Is The Strategy

• Lead From The Top

• Transform The People

LEADERSHIP IS THE KEY INGREDIANT

STRATEGIC EXAMPLE

• Company A Has A 1 Hour Set Up Time• Company B Has A 1 Minute Set Up Time

• Who Has The Lowest Cost?• Who Has The Best Customer Service?

MANUFACTURING OR STRATEGIC?

LEAN IS ALL ABOUT PEOPLE

WITHOUT LEADERSHIP COMMITMENT DON’T EVEN START DOWN THE LEAN PATH

LEAN FUNDAMENTALS

Work To TAKT TimeOne Piece FlowStandard WorkPull System

BE RELENTLESS IN ESTABLISHING THESE EVERYWHERE

THE BASIC THRUST

• Improve Your Value Adding Activities

• Deliver More Value To Your Customers

• Compete On Your Operational Excellence

LEAN IS A TIME BASED GROWTH STRATEGY

UNDERSTAND VALUE ADDED

• Value Added

• Non-Value Added But Necessary

• Non-Value Added- - - Waste

ELIMINATE THE WASTE

HOW TO IMPLEMENT A LEAN TURNAROUND

OBTAIN THE LEAN KNOWLEDGE

• Books - - - - Plenty Of Options• Visit Lean Companies• Participate In A Few Kaizens Yourself• Find A Lean Consultant• Get As Much Personal Knowledge As You

Can

UP FRONT WORK

• Articulate The Vision/Strategy

• Establish Core Values

• Set Expectations

• Lean Consultant Plus A KPO Office

WIREMOLD STRATEGYBe The Leading Supplier In The Industries We Serve And One Of The

Top 10 Time Based Companies – Globally1. CONSTANTLY STRENGTHEN OUR BASE OPERATIONS

100% On Time Customer Service50% Reduction In Defects – Each Year20% Productivity Gain – Each Year20x Inventory TurnsVisual Control And The 5S’s

2. DOUBLE IN SIZE EVERY 3 TO 5 YEARSPursue Selective AcquisitionsUse QFD To Speed New Product Introductions

CORE VALUES

PEOPLE

CUSTOMERS

KAIZEN

COMBINE INTO A KAIZEN CULTURE

EMPLOYEE EXPECTATIONS

Respect OthersTell The Truth

Be FairTry New Ideas

Ask WhyKeep Your Promises

Do Your Share

ORGANIZE FOR LEAN

• Create A Value Stream Organization• Team Leaders• KPO Office• All Equipment And Support Staff• Own The Key Measurements• Weekly Report Out To CEO And Staff

VALUE STREAM STRUCTURE

• Team Leader – Sits On The Shop Floor• Buyer/Planner• Shop Floor Engineers• Cell Leaders• Operators• Support Functions e.g Marketing, Finance

TEAM LEADER PROFILE

• Self Starter – Problem Solver• Relates Well To People Up Or Down• Able To Run A Reasonable Size Business• Potential To Grow At Least Two More

Levels• Compatible With Customers And Sales

Force

GETTING STARTED

CEO Should Present The StrategyWHATWHYHOW

EXPECTED RESULTSCEO Should Do Initial TrainingCEO Should Select Initial Kaizens – Set

Stretch Goals

KAIZEN OBJECTIVES

Focus On Value Adding – Eliminate Waste

From Batch To Flow, From Push To Pull

Set Up Reduction And The 5S’s Are Foundational

INVENTORY IS THE ROOT OF ALL EVIL

SETUP REDUCTION EXAMPLES

• Rolling Mill 720m To 34m -95%• 150 Ton Press 90 To 5 -94%• PM Punch Press 52 To 5 -90%• Hole Cut Mill 64 To 5 -92%• 2.5” Extruder 180 To 19 -89%• Injection Molder 120 To 15 -88%

AVG. SETUP REDUCTION = 91%

THE 5S’s

• Seiri; Or Sort, Throw Away What Is Not Needed

• Seiton; Or Straighten, To Create And Maintain Order

• Seiso; Or Shine, To Clean• Seiketsu; Or Standardize, To Develop

Rules To Maintain The First Three S’s• Shitske; Or Sustain The Disipline

KAIZEN IS A DOING ACTIVITY

• Full Time Job For The Week• Trying To Achieve Stretch Goals• Mixture Of Hourly And Salaried People• Hands On In The Gemba• Everyone Is Learning To See

TYPICAL RESULTS OF A ONE WEEK KAIZEN

• Cut Lead Times 90%• Reduce Staffing From 10 To 5• Reduce Inventory By 70%• Reduce Floor Space By 50%• Reduce Defects By 60%• Reduce Travel Distance By 90%• Cut Setup Time By 90%• Connect The Customer To The Shop Floor

KAIZEN FOCUS

• Go After The Biggest Value Stream First

• Create Model Lines Or Model Factories

• Don’t Spread Out Your Efforts

• Don’t Dabble – 2 Kaizens Per Week, Per Facility

KAIZEN REQUIREMENTS

• Up Front Homework – Stretch Goals• Team Leaders – Co-Leaders• Owner Participation• Kick Off Meeting And Daily Leaders Mtgs• Wrap Up Meeting – Celebration• Publicize The Results To Everyone

LEADERS ROLE

• Hands On – Out Front• Lead By Example• Learn By Doing• Drive Lean Fundamentals – No Other

Option• Commit To Becoming A Lean Expert

LEADERS ROLE

• Make The Case – Keep Making It• Set Stretch Goals• Push Through Problems• Overcome The “Lore”• Get Rid Of “Concrete Heads”• Don’t Allow Backsliding

MAKE THE CASE

THE WALK OF SHAME

LEADERS ROLE

• Establish Daily Management • Support Your People – Listen To Them• Everyone Is On Board – No Excuses• Align Your Resources – Hoshin Planning• Obtain The Lean Knowledge• Take All The “Leaps Of Faith”

LEADERS ROLE

• Make It Ok To Fail• Hard To Get Hired – Hard To Get Fired• Go See – Understand Why• Start All Plant Visits On The Shop Floor• Always Leave Homework – Physical

Actions• Ask Why – Not Who

LEADERS ROLE

• Stop Managing Last Months Results• Be On 5-6 Full Week Kaizens Per Year• Your Managers Need To Be Enablers• Role Is More Player/Coach –Coach To

Win• Consistency Is Key – Show Me The Data• Create The Future Leaders – Ohno Circle

MANAGE TO THE OPERATIONAL EXCELLENCE TARGETS

100% On Time Customer Service20% Productivity Gain – Each Year50% Reduction In Defects – Each Year20x Inventory TurnsVisual Control And The 5S’s

WHAT DOES WINNING LOOK LIKE?

DUMP YOUR BAD HABITS

• Standard Cost Accounting• Traditional Measurements• Big End Of Month Reviews• Lengthy Capex Reviews

LOOK FORWARD NOT BACKWARD

SUMMARY

“Byrne-san, If You Don’t Try Something No Knowledge Will Visit You”

Chihiro Nakao