W&WP April 2002

Investing Your Savings From Lean

By Tom Dossenbach

I had an interesting question from a reader a few months ago. Greg from Lee Cabinet (all names are fictitious) indicated that his kitchen cabinet company was engaged in continuous improvement (Kaizen) and was implementing many strategies aimed at eliminating waste. The really good news was that their efforts were bearing fruit as they pursued "lean."

Greg's question was, "What are the strategies used for redistributing the resources that are freed up in the process of continuous improvement?"

At first, I thought that surely the answer to the question was obvious. After thinking about it for a few days, I realized that this is really a very good question to ask. Furthermore, it demonstrates the desire to carry continuous improvement as far as possible. A desire to leverage the savings from lean is a worthy goal and demonstrates the true spirit of continuous improvement. Savings have been realized in the past by the efforts of the many only to be squandered over time by others.

Case Study

The finishing supervisor, Charles, and his team at Lee recognized that their department represented a significant constraint to the efficient flow of products through the plant. The kitchen cabinets were processed on two separate conveyors - one for stain and sealer and the other for sanding and topcoats. The cycle time to complete the finishing process was 3-1/2 to 4 hours and involved many stoppages with a total daily output of 300 pieces.

To meet production requirements of 300 pieces per day, about 45 employees were assigned to the department, which included an additional afternoon shift. The company was experiencing incomplete orders, back orders, mis-shipments, the wrong finish on the wrong cabinets, dust contamination problems, as well as other problems that were not adding value to the products. Indeed, all of the above was adding to the cost of the product, and there were clearly unnecessary activities in the process.

Like most companies, Lee Cabinet had previously been attempting to address the problems by attacking the symptoms instead of the root causes. The company was constantly making repairs, refinishing, sorting, expediting freight to rush late deliveries and whatever else was necessary to appease their customers.

In addition to the obvious increase in costs at Lee, the employees and supervisors were experiencing extreme pressure as a result of poor performance, which in turn lead to anxiety and frustration. No one wants to feel like they are holding back the company. Fortunately the supervisor, Charles, and his workers recognized that something had to be done.

Charles led the initiative to improve the department's operations and eliminate the above mentioned problems as well as any others. His team analyzed the finishing process and moved a spray booth and reconfigured the conveyor. They actually removed 240 feet of this conveyor!

The finishing team moved the presanding operations away from the spray booths and began operating the conveyor with a continuous flow concept instead of by batch.

Other changes were made that resulted in vastly improved quality and production flow and the resulting increase in throughput. In addition, the problems associated with the inefficient finishing department disappeared.

Some of the results were very dramatic indeed. The previous cycle time of approximately four hours was reduced to 1-1/2 hours. The labor force of 45 was reduced to 27 with the elimination of the second shift and all of its overhead costs. An additional bonus of the continuous improvement efforts was the creation of almost 1,000 square feet of empty factory floor space.

It is easy to recognize that the savings were substantial and the finishing department team is to be congratulated. Greg wanted to know what strategies should be used for redeploying the resources that were freed up? Stated another way - what should we do with these savings?

Spend, Bank, or Invest?

There are three basic choices when deciding what to do with the savings, which result from any "lean exercise" or continuous improvement efforts as well as any freed assets. You can spend, bank, or invest the cost savings or freed resources.

In order to decide which of these choices is best for Lee Cabinet, Greg or any of the company's other employees need to analyze the goals and objectives of the company. The most important goal of any company is, of course, to make money. It is important to note that in most cases the goal is to make money over the long-term. Any decision-making process needs to incorporate this strategy.

The finishing team achieved many cost savings and during the process freed up at least three resources.

First, 240 feet of conveyor was removed from the finishing department. What should be done with this conveyor? Unfortunately, the most common answer to this in the past was to spend it. Woodworking companies all over the country have overgrown back lots or "graveyards" strewn with spent conveyors, machinery, old spray booths, etc. Someone makes the decision to store the conveyor "in case we need it later." The trouble is, that later doesn't come for years - if ever. In the meantime, the conveyor is stored in the maintenance department until it is in the way and finally finds its way to the graveyard out back to rust away and loose all value except possibly as scrap metal for the salvage yard.

Greg needs to decide if the company can indeed bank this conveyor for a known future need or invest it back into the company. (Remember, it is no longer needed and therefore not contributing to the success of the company.) If there is no use anticipated, the conveyor should be sold and the cash invested back in the company.

I anticipate some readers saying why not store the conveyor in the extra room mentioned below. Unless there is a known requirement for the conveyor, this is the last thing Lee needs to do. This would just signal: DUMP ZONE!

The second asset freed up in this continuous improvement process was approximately 1000 square feet of floor space that was not needed. Deciding what to do with this space is a great challenge. If you just leave it there and do nothing, you will spend it. It will become a dumping place for everything that does not have a home. In addition, any department that feels it does not have enough room will find a way to use it - usually by moving junk from their department into this newly found space. Spending is not an option.

If there is no legitimate requirement for this floor space in the finishing department, bank it for future needs. Rope it off and put up a big KEEP OUT sign. If you can find a use for the space that will provide some real return, then convert the use of the space to a purpose that will pay dividends to the company and/or its employees.

The third asset - and the most valuable - freed up during this project was the group of 18 finishing department workers that were no longer needed on the first and second shifts. What choices does Lee have here?

They could spend these savings by keeping all or some of these employees on the payroll, even if they do not need them. Unfortunately, I have seen this happen time and time again. If a woodworking company retains unnecessary labor it is adding costs to its products and running contrary to the goal of making money. While no one likes to see good workers lose their jobs, by delaying the lay-off of unnecessary employees a company runs the risk of encouraging someone to make a job for them. This job likely will not add value to the product and thus will rob the company of profits.

On the other hand, if Lee Cabinet is hiring temps to keep other departments running, they may want to redistribute some of the second shift employees to these jobs. This would be a good way to bank experienced Lee workers for known current needs. Likewise, placing a few of the best into a training program in another department would be a good way to invest some of these employees for future utilization.

The best advice I can give to anyone looking at how to redistribute resources is to make the decisions with great care, but with a sense of urgency. If you put off making these decisions, the savings will surely be spent instead of banked or invested for the future.

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