Lean Principles: Lessons Learned

How one firm’s experience has allowed it to eliminate hidden costs through a focus on Lean.

François Beaufrère

The alignment of Lean principles with the variable demand requirements of a diverse customer base can add significant challenges to the process of achieving operational excellence in a high-mix, low-volume outsourced manufacturing environment. Onn Wah Precision Engineering Pte Ltd., which is headquartered in Singapore and operates manufacturing facilities in Singapore and China, began its Lean implementation journey in 2002. This article examines the successes and lessons learned in that process.

Above, programmable coordinates measuring machines are now commonly used for repeat orders. Photo courtesy of Onn Wah Precision Engineering Pte Ltd/SPRING Singapore.

Onn Wah’s products and services include precision CNC-machined parts and production tooling, as well as jigs and fixtures. Industries served include aerospace, optics, medical, semiconductors, and oil and gas. Current certifications include AS 9100 and ISO 9001:2000.

The Lean Rationale

The Asia-based CNC machining services market continues to be characterized by fierce price competition. However, a focus on the lowest unit price does not always translate to a focus on lowest total cost. This can be particularly true in markets focused on low-cost labor as a primary driver of overall cost reduction. The impact of hidden inefficiencies becomes even more apparent in lower-volume, mission-critical machined parts. Onn Wah’s management team recognized that effectively supporting long-term customer needs for both high-quality and lowest total cost required a much stronger focus on operational efficiency, as well as a need to better team with both customers and the supply base.

In 2002, the company initiated two back-to-back projects. The first focused on operations upgrades, primarily related to quality. The second was focused on a Lean implementation effort. The Singapore government provided partial funding for the use of an outside consultant for both projects.

The foundation used for Onn Wah’s Lean philosophy was derived from Dr. Richard Schonberger’s World Class by Principles project (www.wcm-wcp.com). Schonberger helped pioneer the introduction of Lean manufacturing concepts into widespread operations management use in 1986 with his book “World Class Manufacturing.” His firm, Schonberger & Associates, provides seminars and advisory services to industrial and service organizations worldwide. Schonberger’s approach is based on 16 principles, which are:

• Team with customers; organize by customer/product family;

• Capture/use customer, competitive, best-practice information;

• Initiate continual, rapid improvement in what all customers want;

• Involve workforce in change and strategic planning;

• Cut to the few best components, operations, suppliers;

• Cut total cycle time and distance, changeover times;

• Operate close to customers’ rate of use or demand;

• Train everybody continually for their new roles;

• Expand variety of rewards, recognition and pay;

• Reduce variation and mishaps continually;

• Record and own process data at workplace by frontline teams;

• Control root causes to cut internal transactions and reporting;

• Align performance metrics with universal customer wants;

• Improve current capacity before new equipment and automation;

• Seek simple, movable, scalable, low-cost, focused equipment and

• Promote/market/sell every improvement.

A core tenet of the Lean implementation philosophy was a focus on what Schonberger describes as universal customer wants: quality, speedy response, flexibility and value (QSFV). The team’s challenge was to determine where these principles and supporting Lean tools could be best applied in a quick-turn machining environment. To better illustrate how that challenge was met, four distinct areas have been analyzed: customer focus, customer benefits, supply base improvements and internal operational improvements.

Maintaining Customer Focus

The quality of communication between the customer and internal support resources is a key driver in every element of QSFV, so program team composition was carefully considered. Sales engineers are focused by industry: aerospace, optics, medical, semiconductors, and oil and gas.

This ensures that customers have a central point of contact that is familiar not only with their projects, but also with industry-specific issues such as quality standards, regulatory requirements and product acceptance requirements. Each sales engineer leads a program team that includes both process and quality engineers. In most cases, project team members interface directly with team members in similar functions at each customer. Members of senior management also link with the customer’s senior management team. Formal review meetings are held between Onn Wah and customer program teams either quarterly or semi-annually, depending on customer preference. There also is an annual meeting that includes senior management.

Sales engineers formally measure customer satisfaction once a year. However, in many cases customers have monthly or quarterly scorecards or other supplier rating systems that provide more frequent feedback on their satisfaction with performance.

Customer Focus Translated to Customer Benefits

While the company’s commitment to flexibility does include a willingness to do short-term work on a single-piece basis, the customers achieving the best cost reductions are actively teaming with the manufacturer on orders involving complete drawing packages or continuing repeat orders to eliminate cost from every element of the process.

This team effort typically starts at the quoting phase. Special alloys can be a cost driver in complex, high-reliability parts. The company shares raw material pricing data so that if a customer is achieving better pricing on a specific type of material, that price can be factored into the unit cost. While hourly rates are not shared, the assumed times for setup and machining are shared with the customer’s procurement engineering team. If these assumptions vary from the customer’s assumed time, the identified process steps are analyzed to determine the root cause. A similar process is used to evaluate outsourced secondary processes such as heat treatment or surface treatments. Where possible, product families or multiple drawing packages of similar products are evaluated to determine if combining production runs will reduce overall setup time. This can be particularly relevant in more complex machining projects where setup time can take up to a few hours per unique part.

Quotation cycle time and first-article-submission cycle time have been focus areas for improvement as well. Con-currently, repeat order processing time has dropped from a week to two days. Where possible, electronic file transfer and/or other automated programming generation aids are used to reduce cycle time and variation throughout the manufacturing and measurement processes. For example, programmable coordinates measuring machines now are commonly used for repeat orders.

Logistics elements also are reviewed. In some cases, a finished-goods kanban is set up to support customer requirements for just-in-time supply. While product is billed when shipped, these types of programs include provisions guaranteeing customer liability for material in the kanban to minimize the risk of obsolescence. Delivery responsiveness is aided by Singapore’s business-friendly government infrastructure and strength as a transportation hub. Outbound customs formalities are efficient and predictable in terms of cycle time, and there are a variety of carriers to accommodate customer preferences in shipping methods. Whenever required, the company can deliver overnight to anywhere in Europe, and within 48 hours to the United States.

The end result of shared information and shared liability is a win-win environment where both sides are willing to analyze and eliminate hidden costs and inefficiencies in the program. The more efficiently a manufacturer can become an extension of its customer’s manufacturing operations, the more hidden costs are driven from the program.

Supply Base Improvements

Another area of improvement focus has been the supply base. Originally, purchasing was dispersed widely among the supply base. In some cases, opportunities for reduction of the total supply base were limited by either special alloy requirements or industry-specific certification requirements. However, some efficiencies were achieved. In the subcontracting segment, heat treaters and surface treatment suppliers were cut by 50 percent. At the raw-material level, aluminum and stainless steel suppliers were analyzed by available shapes, sizes, kilogram volumes, willingness to partner, facility audits and cost. The end result was a strong matrix that supported better pricing analysis. A similar process among tooling suppliers reduced tooling costs.

The current cost improvement focus includes teaming efforts with surface treatment and casting subcontractors to further improve efficiencies through adoption of Lean principles within their processes.

Internal Operational Improvements

Operational improvement has focused strongly on improving quality by minimizing variations and on reducing lead time by eliminating unnecessary transactions throughout the shop floor. Basic tools that have been used to support this activity include 5S, visual management, zero work-in-process (WIP), total productive maintenance, statistical process control and process capability index measurements. The company continues to reinforce an organizational culture focused on safety, quality and on-time delivery. There is a zero tolerance focus on safety violations.

A senior manager has been assigned to a direct continuous observation process on the shop floor. Within the first two months, this process of focused observation and analysis identified improvements that reduced setup time by 20 percent.

There are a number of customer benefits attributable to this focus on operational excellence. First, elimination of factory clutter and a visual management system enhance real-time traceability and focused data collection. A focus on setup time reduction through minimizing variation enhances overall quality, flexibility and speedy response. Zero WIP focus, from information flow to production flow, is driving significant cycle-time reductions from order acceptance to order delivery.

Mission-critical parts often have tight tolerances and are made of higher cost special alloys, so reduction in scrap eliminates both the actual cost of material replacement to the supplier and the opportunity cost of missed deliveries to the customer.

Automation strategy continues to be evaluated. Equipment selection now focuses on machines which minimize potential variation in setups and increase use of standardized processes. There is enough operator-driven variation in setups using current equipment that a first piece inspection process is required after every setup, even on repeat production runs. A longer-term goal is the elimination of the first-piece inspection process on repeat production runs.

Synchronization of demand is one area where constraints of the existing business model have come into play. Given that the bulk of business is short run and build to order, line-balancing opportunities are limited. Kanban systems have proven effective in synchronizing cutter and packaging supplies. Work force deployment also has presented an opportunity for improvement in better synchronizing resources in areas where work is quick turn, build to order. From a market perspective, the global demand for turning is down. Yet, turning remains a required process for some products. Rather than lay off excess turning production operators, Onn Wah elected to cross train the group in milling processes. Given that turning is a linear operation and milling involves setups for four- and five-axis processes, there is a process learning curve. However, cross training existing employees preserves the company’s longer term training investment in its existing work force and adds the flexibility of operators who can shift between turning and milling operations as demand dictates.

Cross training also is being used to drive improvements in programming and project launch by breaking down the fences between programmers and operators. Outstanding production operators on CNC machines are being trained to write programs, while programmers are encouraged to assist during the first-article production process. While current training is internal, longer-term plans may send production operators to the Singapore-based precision engineering training centers. This workforce skills qualifications program is sponsored by Singapore’s Workforce Development Agency in partnership with the Singapore Precision Engin-eering and Tooling Association. The Singapore government funds both the salaries and training cost of the operators selected for the program. This is another example of a public-private partnership that enhances business capabilities while actually lowering overhead cost.

Traceability is another area of focus. Mission-critical parts such as those found in medical and aerospace products require very specific record-keeping.

Yet, excess or inefficient record-keeping is discouraged in Lean philosophy. Bar coding is being added to track the movements of parts from raw material through shipment. A management goal is to identify the basic data collection transactions required and use automated processing to minimize operator time spent on data collection activities. The data captured also will be used in a direct-costing module that is in development. A portion of the consulting time and equipment associated with development of this system also will be funded by the Singapore government.

Onn Wah’s Lean improvement efforts have been developed initially in its Singapore facility, which allows the company to leverage both a highly skilled workforce and the Singapore government’s funding programs to enhance manufacturing capabilities. This has been particularly beneficial to the higher-mix, high-reliability business base served in this facility. However, these process improvements also are transferred to the company’s China facility, ensuring consistency in the firm’s manufacturing approach.

Lean Results

Sales growth has been the primary indicator of the success of the company’s Lean implementation to date. From 2002 to the present, the company has had a 25 percent compound annual growth rate in revenue. Customer satisfaction has been the primary driver of that growth, providing significant revenue increases when the economy was growing.

This formula of quality, short lead time and value for price has continued to generate resilience in core business levels during the economic downturn. The ultimate customer benefit is that the focus on operational excellence has eliminated many of the hidden costs driven by inefficiencies normally found in low labor cost environments. The end result is a high-performance, low-cost structure environment that typically has a 20-30 percent competitive advantage in price compared with similar operations in Europe.

François Beaufrère is Onn Wah Precision Engineering Pte Ltd’s general manager. He can be reached at[email protected].