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Case....pdf
UV1079 Rev. Mar. 1, 2010
This case was prepared by Sorin Gruia of Resource Dynamics International, and Robert D. Landel, Henry E. McWane Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. All names and data in this case have been disguised. Copyright ¤ 2008 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means— electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Rev. 3/10.
WAUSAU EQUIPMENT COMPANY: A LEAN JOURNEY (A) History and Business Background
Ashford Elevator Company was founded in 1946 in a small midwestern town. Its first products were grain elevators, sold to local co-ops and farms. Started as a small shop with five workers, the company, which quickly grew to include 50 employees, began engineering, manufacturing, and servicing a variety of machinery and equipment for the agribusiness industry. The company changed its name to Wausau Equipment Company (WECO), and continued to expand through the 1960s and 1970s and, in the process, gained a solid reputation for the performance, quality, and reliability of its products, matched with its superior customer service and dependable field technicians.
By the early 1980s, WECO was recognized as a national brand and began extending the scope of its business into foreign markets with its machinery and equipment. In 1981, it opened sales and service centers in Western Canada, followed by operations in South America and later Western Europe. Manufacturing plants were built or acquired in Brazil, Spain, and France, adding significant competitive advantage in delivered costs while maintaining the company’s reputation for excellent service and quality. In the mid-1990s, WECO undertook a major international-expansion campaign by opening two new plants in the Middle East and China to serve the growing agricultural markets in Asia and Africa. In 1993, WECO renamed its main division the machinery and systems division (MSD). At about the same time, it began implementing an active growth strategy whose focus was diversification from the cyclical and often uncertain agribusiness industry. Several acquisitions took place throughout the United States and Europe; the acquired companies had established histories and reputations and served the transportation and telecommunications infrastructure markets.
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Organizational Culture and Climate
From the beginning and throughout its 50-year history, the WECO culture fit what was generally known as the traditional mold; its main characteristic was a command-and-control style of management with little communication across the organization. At the same time, a strong work ethic prevailed, along with rugged individualism and self-reliance. It was a culture generally suspicious of change and viewed any initiatives associated with the latest fads and buzzwords with equal skepticism caused in part by past failures when changes did not stick and improvements quickly disappeared. Because of slow growth, MSD’s main plant had a large number of older workers who were close to retirement, and new hires were rare. There was a clear sense that a lot of experience was about to be lost.
Management tried to figure out a way to retain all of that valuable experience as on-the- job training was weak; also, the equipment base was getting older, and with many machines becoming obsolete, spare-parts shortages were frequent. Most breakdowns received the short- term, band-aid treatment; so consequently, equipment downtime continued to increase, contributing to the run-to-failure mentality. At times, labor management relations were strained, and union organizers met strong resistance. Leadership at the top was also slow in recruiting younger executives; there was little interest in succession planning and other career-development processes. The Lean Journey Beginning
Late in 2000, WECO’s executive board gathered for its annual business-strategy meeting at a nearby lake resort. The last year had seen a 10% decline in operating profits due to the high cost of labor and materials, flat revenues because of resistance to price increases, and increased competition in both domestic and foreign markets. In addition, work-in-process and finished goods totaled almost 30 million, a five-year high. There was considerable concern that, for the first time in memory, company market share could drop from 35% as its principal competitive advantage—although a highly engineered and reliable system, it was no longer the key factor driving sales. Other factors had become important, among them shorter lead times (a steady decrease during five years, from between 16 and 22 weeks to 10 and 12 weeks), superior customer service, and lower prices; the competition was perceived to be better in those areas.
During discussions, it was widely agreed that a process-step change in operational performance improvement was necessary for the company to meet the challenges ahead. All areas—sales and marketing and engineering and operations—were tasked to develop detailed performance-improvement plans focused on achieving specific tactical goals. Operations was clearly the area with the greatest leverage as well as where performance was lagging the most, so it was not surprising when the executive board asked MSD President John Steiger to develop a comprehensive action plan and implementation timetable to meet the $2.925 million in improvement goals (Figure 1). The action plan had to be ready for launch by the end of January 2001, a relatively short amount of time, so everyone at MSD felt a sense of urgency.
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Figure 1. Timetable for meeting improvement goals.
Source: Lean Dynamics. Used with permission. Champion at MSD
Prior to joining WECO in 1999, Steiger had worked in the aerospace industry in executive positions in engineering and operations. During those years, he learned about the lean philosophy from firsthand experience with the division-wide successful implementations of demand-pull manufacturing cells, Total Process Management (TPM), and other lean initiatives. Most of all, Steiger learned that to sustain any improvements, each and every employee in a company’s work force had to be involved and actively participating in the lean process.
Steiger also knew he would have significant implementation start-up problems when he brought out the lean-thinking philosophy and tools.
I have no doubt that there are top-to-bottom skeptics including members of the executive board, our Vice President of operations Jim Patterson, and on down the line in our three plants. Most of our key players have occasionally voiced concerns about “the lean fad and many of the tools”…but in particular, the emphasis on employee participation and self-directed teamwork seems to raise the energy of the skeptics in the plants…In order to succeed, I need to change some old paradigms and break apart many of the management practices.
CEO Everett Walsh had recruited Steiger as president of MSD mainly because of his
strong leadership and business skills. Walsh saw Steiger as the archetype of the future WECO leader, and he had remained a constant supporter throughout his short tenure as MSD president. Still, Steiger was convinced that mapping a lean strategy and implementing at least the initial steps required outside help, and he needed some quick successes in order to gain acceptance and
MSD Operations Performance Improvement Goals
($ in Millions)
• Productivity 1.900
• OT Premium 0.250
• Scrap 0.300
• Inventory 0.325
• Warranty 0.150
Total : 2.925
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time. Afterward, he envisioned continuing the lean process by relying solely on selected internal resources and training to build a sustainable continuous-improvement culture. Asking for Help
Steiger had worked previously with Lean Dynamics, a management-consulting group specializing in lean-implementation initiatives. Its project leaders were experienced operations managers, who thoroughly understood the Toyota production system and had implemented numerous lean initiatives in both operations managerial positions and as consultants. In addition, the project leaders from Lean Dynamics were highly effective and skilled in team building and coaching processes. Steiger felt confident that, with the assistance of Lean Dynamics, the MSD units could deliver the $2.925 million performance target within 18 months. He invited the CEO of Lean Dynamics, along with two of the company’s senior consultants, for an exploratory visit and discussion. Upon arrival, they were joined by Jim Patterson, vice president of operations, and one of the manufacturing managers for the one-day session. Together these men reviewed MSD challenges and the performance objectives that had to be achieved by the MSD operations group in order to maintain and improve WECO’s market position and financial results. Exploring the Opportunity
The one-day meeting was divided into two sections: the round table discussion and the in-the-plant observation. During the round table discussion, a senior consultant from Lean Dynamics led a general review of its lean process, implementation approach, and various tools and techniques. Both consultants emphasized that MSD senior leadership should assume active roles and continue in them throughout the entire process. The CEO from Lean Dynamics emphasized that life as WECO knew it before lean had ceased. Various operational data were reviewed, including performance reports in the following Key Results Areas (KRAs):
o On-time delivery o Productivity o Quality o Asset utilization o Inventory (WIP and FGs) o Inventory days
The operational data reflected a troubling trend that confirmed Steiger’s worst fears:
Labor productivity was slipping, scrap and rework costs were rising, and equipment breakdowns/unplanned downtimes were more frequent and lasted longer. And the days of inventory on hand, another critical performance indicator, was at 120 days—an all-time high— and rising (Figure 2).
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Figure 2. Days of inventory on hand.
0
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Ja n
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Source: Lean Dynamics. Used with permission.
In fact, the performance of on-time shipments was so bad that equipment dealers complained on a daily basis, threatened to cancel orders, and even stopped doing business altogether with WECO/MSD.
During the floor observations and informal interviews included in the manufacturing personnel phase, the consultants learned about additional issues and challenges that had a significant bearing on the results they had obtained: poor equipment maintenance and raw- material shortages, as well as the poor quality of raw materials, long setup/changeover cycles, and conflicting management policies and work rules.
Another important operational indicator was employee morale. Although interaction time was relatively short, the consultants came away feeling that the organization faced widespread low employee morale. When the consultants addressed the issues of lean waste reduction and eliminating non-value-added tasks with employees, they generally got an unenthusiastic reception on the shop floor. MSD had implemented Quality Circles during the late 1980s; unfortunately, owing to a variety of reasons—among them poor understanding and lack of communications—that initiative ended and several rounds of layoffs followed. Since then, the reaction from employees was cynicism and resistance when approached by management with new team-oriented initiatives, whether they were TQM, JIT, cost-savings campaigns, or, more recently, the lean initiative. Still the lean initiative, in particular, seemed to produce the most defensive and fearful attitude, as WECO employees associated the lean process with layoffs and a reduction in the workforce.
MSD and Lean Dynamics consultants agreed that the employees’ resistance was natural; therefore, it was important to recognize it. Steiger commented: “If lean was going to succeed at
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all, the morale/attitude issue and observable behaviors had to be addressed effectively as the active interest and participation of all employees were essential.”
At the end of the one-day meeting, the participants agreed to follow up with a proposal for an Operations Assessment and Recommendations Plan that focused on the most effective process with which to achieve WECO/MSD operational-excellence goals. Figures 3 and 4 illustrate the general approach Lean Dynamics took with the Gap Analysis and Improvement Process.
Figure 3. Approach with the Gap Analysis Process.
Pre-Assessment and Gap Analysis Process
R eview Q ualifications
D efine R equirem ents
Present Proposal
C onduct Phase 1
Q uantify B enefits
Identify O pportunities
D eterm ine Strategy
Im plem ent Phase 2
D evelo p Actio n P lan
R ecom m end Solutions
Next Steps
Source: Lean Dynamics. Used with permission.
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Figure 4. The Improvement Process approach.
• Benchmark performance • Assess effectiveness of people, process,
equipment • Identify barriers & constraints • Prioritize opportunities • Quantify costs & benefits • Design solutions • Develop implementation plan • Implement
The Improvement Process
Source: Lean Dynamics. Used with permission.
Within two weeks, Lean Dynamics proposed making a comprehensive assessment of the WECO/MSD value chain and its support functions/processes. The overall objective was to identify the following opportunities:
x Reduce unit costs by 5% to 10% and improve labor productivity by at least 7%.
x Increase plant flexibility to meet variability in volume and mix demand.
x Improve quality.
x Develop an implementation approach and methodology for sustainable improvement.
x Quantify benefits and support requirements. Jim Patterson, in his role as vice president of operations, reviewed the proposal, and Steiger, in his role as the division president and CFO, approved it. At that review, the CFO reminded everyone about the bad experience MSD had in the past with another consulting company. Assessment Phase
The assessment phase began shortly thereafter and lasted four weeks. Lean Dynamics consultants worked closely with key production personnel to gather and analyze existing operational data; they attended meetings and floor-observation sessions; and they conducted interviews and surveys. The consultants also met regularly with Steiger and Patterson to discuss their preliminary findings (primarily for calibration and alignment).
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At the end of the assessment period, the findings summary and consultants’ recommendations were presented to Patterson and his manufacturing management team. The following opportunities were identified:
x Operations throughput a. Setup reduction b. Workplace organization c. Operator training and certification d. Overall equipment effectiveness (OEE)
x Maintenance a. Critical spares b. Preventive/predictive techniques c. Work planning, scheduling, and execution
x Manufacturing flow a. Plant layout b. Production leveling and sequencing c. Cells
x Planning and scheduling a. Sales and operations planning b. Push/pull hybrid system
The benefits associated with the successful implementation of lean tools and techniques
in the areas outlined above were directly tied to such key results areas as productivity, quality, on-time shipments, work-in-process, and finished-goods inventories. The quantified benefits were reviewed and agreed upon and subsequently became the project deliverables during the implementation phase. Implementation Phase
Before the implementation phase started, several weeks passed during which Lean Dynamics consultants provided additional details regarding their approach, the work streams, and areas of focus. The role that MSD had to play in order to guarantee that the organization viewed the initiative as transformative and understood that it was not “the flavor of the month” was emphasized. Specifically, MSD senior leaders and operational managers (including foremen and supervisors) had to play active roles in codeveloping the lean vision and sharing it with the whole MSD organization before guiding its implementation, identifying and removing barriers, and coaching and encouraging the teams during the journey. Steiger believed strongly that
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Patterson should head the lean initiative, despite his reluctance and jaded view of lean thinking and consultants in general. Steiger thought it was time to test his vice president’s commitment and, in the process of changing his views, present him as a true champion. The Lean Dynamics consultants did not challenge the flipside of that idea in any depth, at least not openly.
Patterson was a 35-year WECO veteran who had risen through the ranks. He personified WECO’s typical top-down management style. He chose not to play an initial active leading role but instead insisted on getting things done through his middle managers, supervisors, and foremen. In so doing, Patterson felt strongly that the lean improvements would be viewed more favorably by plant operators as internally driven rather than mandated from above.
The project started with the bulk of internal communications regarding its purpose and scope focused on the employees working in the areas identified in the project plan: fabrication, machining, assembly, and maintenance. The Lean Dynamics team consisted of the two senior consultants who had performed the assessment phase and who were very familiar with the issues, the people, and the general cultural climate. During the assessment phase, these consultants had built relationships and established credibility with key client personnel in the production areas, so, together with the shop managers, they also provided lean communication.
The project was planned to last 39 weeks, which translated into three complete equipment-improvement-process cycles, each lasting approximately 13 weeks. The Lean Dynamics group had developed a successful, six-step, lean-implementation approach that focused on getting tangible improvement results within the successive 13-week cycles (Figure 5). Repeating that cycle two or three times allowed for continued improvement and building sustainability and self-direction (Figure 6). Combined with effective teamwork, just-in-time learning and application of the appropriate lean tools, the 13-week cycle created the framework for steady and sustainable performance improvement. It also promoted the concept of the process rather than the event.
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Figure 5. The 13-week improvement cycle.
Source: Lean Dynamics. Used with permission.
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Figure 6. Repeated cycles of learning.
Source: Lean Dynamics. Used with permission.
Collaborative Relationships
Within two weeks, five areas were designated as lean pilot areas (press/weld, machining, electrical assembly, maintenance, and shipping). Eight teams were formed; each was headed by the area’s supervisor or foreman. Meeting schedules were established, and the teams began the equipment-improvement process with the collection of loss data. Each team spent an average of two man-hours a week. A typical team consisted of two to four operators, one engineer, one maintenance technician, and the department foreman/supervisor. The consultant assumed the role of facilitator/trainer/coach and also helped out with data collection and Pareto charting and analyses.
During the 13-week (90-day) improvement cycle, each consultant worked closely with all the teams and their leaders. The initial meetings (during week one) focused on training in lean concepts and tools, followed by operations-performance data collection, identification of losses, waste, and safety metrics. The data were analyzed and prioritized, and an improvement theme selected. The improvement themes that emerged were related to quality, equipment downtime, and long setup times. The data collected measured the losses in terms of Overall Equipment Effectiveness (OEE).1
1 Overall Equipment Effectiveness is a widely used indicator of production-system efficiency. It was calculated using the following formula: Availability × Performance Throughput × Quality Rate. World-class OEE is generally in the 85% to 90% range.
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Each of the improvement opportunities was then explored using various problem-solving techniques (e.g., the fishbone diagram, 5 Whys, cause and effect/possible, likely, and root cause, decision matrix). Each team performed root-cause analysis and developed solutions and implementation plans. In some cases, the improvements came as a result of applying specific methodologies like Single Minute Exchange of Die to reduce setup cycle time.
In other pilot areas, the teams decided to focus their initial efforts on workplace organization and flow improvements. The maintenance and fabrication departments implemented 5S and visual factory concepts. The benefits were reflected in faster response time on maintenance service calls and reduced material handling and idle time in the press and weld areas.
Figures 7 and 8 illustrate two examples of improvements in throughput by reducing rework and setup cycle time. Appendix 1 shows samples of loss-data collection and fishbone- diagram applications for Total Process Management: the 13-week Equipment Improvement Cycle.
Figure 7. Quality improvement/rework reduction.
Source: Lean Dynamics. Used with permission.
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Figure 8. Setup reduction/throughput increase.
Source: Lean Dynamics. Used with permission.
There was a great deal of interest in learning and making improvements on the part of the
vast majority of team members. The relatively short span of time for improvement—from problem identification to development of a solution—was a key factor in convincing some skeptics of the power and wisdom of their teams. When the teams were aligned, focused, and armed with the proper tools, their experience often led to quick and practical improvements.
Despite all the good work and steady improvements over the 20-plus weeks from the start of the Lean Dynamics project, there was a widespread feeling among the teams that something was missing: the MSD organization, by and large, did not have firsthand knowledge of the progress made, which in some cases was very significant. Most of the MSD organization remained unaware of what was going on in the production shops.
In the meantime, the consultants continued to press Patterson to recognize the teams’ achievements publicly and suggested that the upcoming quarterly meeting of the employees was an ideal platform. The consultants were worried that without some genuine recognition of the teams’ efforts and the results, there was a real danger of people pulling back, disengaging, and eventually providing only token participation.
Patterson agreed reluctantly, but cautioned that he did not want to make too much of the teams’ successes. “Praise,” he said, “was just not in my vocabulary.” In a few isolated remarks, he was also heard to say that it was likely that these efforts and results would not continue and be sustainable.
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Appendix 1
WAUSAU EQUIPMENT COMPANY: A LEAN JOURNEY (A) Total Process Management: 13-Week Equipment Improvement Cycle
1
Total Process Management 13 week Equipment Improvement Cycle
The Equipment
Improvement Cycle
STEP 4 Apply TPM Improvement
Tools & Work on Loss
STEP 3 Determine
Improvement Theme
STEP 2 Map and Rank
Losses
STEP 5 Implement Plans
STEP 6 Standardize and
Proliferate Improvement
STEP 1 Collect Sample Data
and Define OEE
Week 1-3
Week 3-6Week 6- 10
Week 10-13
Source: Lean Dynamics. Used with permission.
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Appendix 1 (continued)
2
4 MINOR 6 ENGRG 8 SCRAP ACTUAL 1 UPDT 2 PDT 3 SET-UP STOPS 5 IDLE TRIALS 7 QUALITY REWORK COMMENTS
rows (minutes) (minutes) (minutes) (minutes) (minutes) (minutes) (minutes) pcs Reasons, possible causes
1 HR
2 HR
3 HR
4 HR
5 HR
6 HR
7 HR
8 HR
TOTAL
OEE LOSS MAP
Step 1 Collect Data for OEE Overall Equipment Effectiveness Loss data collection (see next page for Column definitions)
Source: Lean Dynamics. Used with permission.
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Appendix 1 (continued)
3
Minutes Total Hours of data collection 12 hrs 1 UPDT (Unplanned down time) 25 0.4 hrs 2 PDT (Planned down time) 30 0.5 hrs Production requirement 115 units 3 Set-up 145 2.4 hrs Actual production 78 units 4 Minor Stops 25 0.4 hrs Ave units/hour 6.5 units/hr 5 Idle time 55 0.9 hrs Pieces reworked or scrapped 10 units 6 Quality time loss/Trials 15 0.3 hrs Quality yield 87% 7 Engineering or Qualification Lo 55 0.9 hrs
Subtotal 7 losses 350 5.8 hrs Theoretical Units Per Hour (TUPH 13 units/hr Total Run Hours (Uptime) 6.2 hrs Theoretical Production 80 units
8 Rework/Scrap (Pieces) 0.8 hrs 9 Speed Loss 0.2 hrs Actual Units Per Hour (AUPH) 13 units/hr
Total Losses 6.8 hrs Total Uptime after all losses 5.2 hrs
OEE (Observed excluding speed loss) 44.8%
OEE (Observed including speed loss) 43.4%
1 Rework/Scrap Loss = Total Run Hours x (1 - Yield)
Nine losses (Observed and Calculated) Basic data collected:
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Loss Mapping - Pareto Chart
Source: Lean Dynamics. Used with permission.
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Appendix 1 (continued)
4
Consolidated Loss Map - All Presses
196
168
113
6.2 3.3 2.5 1 0.75 0
50
100
150
200
250
Idle PDT Setup MS UPDT Rwk/scrap ENG QT
loss type
hr s
All PressesTotal Hours = 780 Total Losses = 325hrs OEE = 60.6 %
Source: Lean Dynamics. Used with permission.
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Appendix 1 (continued)
5
1
IDLE Time Possible Causes - April 18- 27, 2005
MGMT/ Systems/ policies
Methods Material
Machines/ Tooling
OTHER
Manpower
Idle Time loss 1.2 hrs/shift
Reduce losses by 75% [ .9hrs] or 54 minutes/shift
Project Goal: Throughput gain
TG = 15 cones/shift
5 waiting on support -for decisions
6 overall schedule imbalance
13 oversize holes -
19 accountability
20 interruptions
21 monitor conflicts
17 looking for oversize
18 rogue compacts
7 grinding compacts by lead persons and cutting
hi
8 " batch versus flow" - HT-
1 no operator / staffing
2 Training others
3 no clear defined tasks -R/R
4 schedule imbalance
12 insufficient
11 mandrels do not fit
10 work procedures for press pins (spares)
16 looking for compacts for orders
15 return compacts
Source: Lean Dynamics. Used with permission.
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Appendix 1 (continued)
6
Consolidated Loss Map - MORI - baseline -
162
108
55
11.5 11.3 7.5 6.7
1.25 0
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140
160
180
se tu
p
pd t
id le
en g
up dt M S
Q T
S /R
w k
loss type
H R
S
MORI 1,2,3
MORI [ All] Total Hrs 448 Total Losses 220 OEE= 51.80%
Pareto Chart MORI Losses
Improvement Theme : setup reduction
Source: Lean Dynamics. Used with permission.
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Appendix 1 (continued)
7
M/C avg TG Total New OEE Old OEE Mori 1 20.73 3.2 23.93 63.8 54.1 Mori 2 25.63 4.3 29.93 60 50.9 Mori 3 24.66 2.1 26.76 58.5 54.1
71.02 9.6 80.62 60.76667 53.03333
MORI DRILL 2 Actual Throughput AT= 924 pcs Actual hrs sched= 288 Total losses = 141 hrs OEE= [288 -141 ]/ 288 = 50.9 % Net productive hrs = 288-141 = 147 Actual Avg. cycle time/pc = 147/924 = .16 hrs/pc or 9.5 min/pc AT/hr = 6.3 pcs
Setup loss = 3995min or 66.6 hrs Idle time loss = 1243 hrs or 20.7hrs SU loss/ shift = 66.6 / 37 = 1.8 hrs/shift Idle time loss/shift = .56hrs/shift
SU Loss reduction goal = 30 min / shift or .50 hrs/shift Idle time loss reduction /shift = 12 min/shift or .20 hrs/shift Total loss reduction = .70 hrs/shift - this is Capacity recovered Throughput Gain = Capacity recovered / Cycle time TG = .70 / .16 = 4.3 pcs/shift or 13 pcs/day NEW OEE
Capacity gained = .7 x 37 shifts = 26 hrs Projected new losses =141-26 = 115 hrs OEE = [288 -115 ]/ 288 = 60% OEE= 60%
MORI Drills OEE and Throughput Analysis
Source: Lean Dynamics. Used with permission.
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Appendix 1 (continued)
88
IDLE Time Possible Causes - April 19,2005 Brainstorming meeting
MGMT/ Systems/ policies
Methods Material
Machines/ Tooling OTHER
Manpower
Setup and Idle Time loss= 6.56 hrs/shift
Reduce losses by 1.7 hrs / shift - [M1,2,3]
Project Goal: Throughput gain TG = 10 pcs/shift
cmm calibration tool changes
insuff. floor space
wait -queue - at CMM
find forklift
CMM/ Polar part validation
sharing air gauges
experience on all shifts
lack of training on alternate CMM
shrink machine availability Mori Drills OEE - Loss Map Pareto chart
3/28 - 4/13 , 2005
0 10 20 30 40 50 60 70 80
S U
P D
T
Id le
M S
Q T
U P
D T
E ng
rg
sc ra
p/ rw
k
loss type
hr s
Mori 1 Mori 2 Mori 3 idle
SU
lack of sufficient drill adapters
Mori Drills Lean/TPM
Source: Lean Dynamics. Used with permission.
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