Q&A: A Crash Course in Excellence for Small Factories

North Carolina States Dan Lilley describes an innovative national plan

In the depths of the economic slump, most manufacturers have scrutinized their operations, looking for any possible way to hike productivity while tightening their belts. Using jazzy information technology has been the favorite route. But many manufacturers are discovering that there are even bigger gains to be made from good old-fashioned process improvement.

With that goal in mind, giant multinationals can hire teams of high-priced management consultants to come in and debug their operations. But smaller players need help, too--and their plight matters. Manufacturers with fewer than 500 employees account for some 40% of industrial output and employ a similar share of the manufacturing workforce.

There's good news for these companies: A growing number of schools--including the University of Maryland, Texas A&M, and many California community colleges--have developed programs to assist small and mid-size manufacturers in improving their productivity. Among the pioneers is North Carolina State University, whose North Carolina Manufacturing Extension Partnership (MEP) has become one of the most successful nonprofit manufacturing consultancies in the nation.

Over the past six years, N.C. State has consulted with more than 3,000 small, local companies on lean manufacturing and supply-chain integration. The center also has conducted kaizen blitzes, in which an N.C. State team of researchers and engineering students scrutinizes a manufacturer's operations, then makes suggestions on how to improve them. The university consults with more than 300 companies a year, at a cost of $3,000 to $20,000 per client--a bargain, considering that productivity gains run as high as 50%.

Over the years, the concept has spread, with engineering schools and state agencies now hosting more than 400 similar centers across the country. All of these programs are linked together through the Commerce Dept.'s National Institute of Standards & Technology (www.mep.nist.gov). Dan Lilley, director of North Carolina's MEP, recently talked with BusinessWeek contributor Brian Grow about the program. An edited transcript follows.

Q: Who are the clients of your Manufacturing Extension Partnership?

A: MEP's clients are primarily businesses with 500 or fewer employees. In North Carolina, that makes up 95% of all manufacturing in the state. It doesn't mean that we won't work with larger companies, it just means that we focus [on small ones]. We've probably contacted something like 20% to 25% of our total market. That works out to about 3,000 to 3,500 companies.

Q: What, specifically, do you do to help these manufacturers?

A: We have a broad range of services, but the most common fall into the general category of "continuous improvement". Two examples would be helping companies to implement ISO standards--ISO 900, which is a quality standard, and ISO 14000, which is an environmental-management standard. In order to compete globally, companies need to have quality standards in place. Another service would be lean manufacturing or lean enterprise training, which works to reduce the waste that is part of any process, not just manufacturing. We focus on removing anything that is not adding value to the product being delivered to the customer.

Q: Your consultants go into a factory and run a kaizen blitz. What is that?

A: Kaizen is a Japanese word for continuous improvement--sort of a philosophy of living. The traditional expression has been, `If it ain't broke, don't fix it.' But kaizen says, `If it's not broken, then we have a great opportunity to make it better.' So it's a continuous process by which everybody in the organization is always looking for ways to remove waste and improve profitability and competitiveness.

Q: Walk us through an example.

A: One example is a company called Cutler-Hammer Inc., a division of Eaton Corp., located in Arden, N.C. They are a power-distribution company making electric transformers, generators, and control systems with about 700 employees and annual sales of over $100 million. The equipment they make is customized--each assembly that comes through has different variations on the base product. What we've done is to redistribute the way material flows through the system, so that when customized units need to be built, workers know exactly where the components are and can get to them without having to move inventory around. This dramatically speeds up the process.

Q: What gains did Cutler-Hammer see from this reorganization?

A: The event cost $15,000 and Cutler-Hammer reported a favorable cost impact of $200,000, or a 14-to-1 return.

Q: I've heard that kaizen events can be almost festive. What exactly happens?

A: We have a one-day workshop where anyone from any company can come in, and we set up a mock manufacturing facility. We analyze the assembly operation to determine where it could be improved. And by the end of the day, everyone has a keen understanding of all those extra steps that they are doing that don't add value.

When we go on-site to do a kaizen event we will, first of all, talk with the senior management and work our way through the entire employee base with everyone who is going to be involved, to train them how to see things that don't add value. Once they learn to see, and they've identified all the things that need to be changed, we set up small groups [to solve the problems]. That's usually about a one- to two-day process. At the end of the third day, everybody gets together and says, `Here are the recommendations.' On the fourth day, we implement those. By the fifth day, we physically move equipment around the facility, and they are back in production.

Q: Why do small enterprises choose you instead of, say, McKinsey & Co.?

A: The McKinseys do a great job and are great organizations for companies with the cash flow to hire them. Most small and medium-size enterprises just don't have the cash to afford those types of services.

Q: What are some of the most common, easy-to-fix problems?

A: Companies believe that they need to have a lot of inventory in case there is a sudden increase in sales or their supplier does not provide the materials they need when they need them. One of the things we do is to not just look at inventory flows but at the supplier relationships outside to ensure that when a company needs something just in time, it's there. Therefore, they don't need a lot of dollars sitting on the shelf somewhere. The example is extending the lean thinking outside the organization into the entire supply chain.

Q: So how does lean manufacturing boost productivity so much?

A: Typically, it does not involve capital investment. All the equipment necessary to build and deliver the unit is already in the plant. Just by changing the way the process operates, and by moving equipment, we can see a remarkable return within days.

Q: It sounds like one part feng shui consultant, one part manufacturing consultant.

A: The feng shui analogy is a good one. You think about feng shui in terms of the way energy moves through a space. We think about it in terms of how materials flow through the factory most efficiently. If materials are not flowing--sitting on a shelf waiting to be picked up--then the process comes to a halt. So we want materials to flow through as quickly, as smoothly as possible.

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