Problems:
This large division of a vertically integrated steel mill had been losing money for several years. The parent company was seriously considering closing it down. In addition to poor financial performance, the division had too much cash tied-up in inventory and had lead time and delivery performance problems.
Lean Solutions:
The number one issue faced when attempting to convert any large, staid, business is its legacy of historical doctrine. In the case of steel mills (we’ve worked with eight of them, worldwide) the direct quote is “That’s not how you run a steel mill.” While there is a litany of standard objections, the number one is always “local optimization.” This company’s measurement and reward systems were typical, i.e. all geared to maximizing the efficiency of the individual operating units (tons per hour), … but not necessarily the entire process.
This inevitably results in a different set of operating rules at each unit. One unit wants to run by “grade,” another “thick to thin,” “wide to narrow,” “light to dark,” etc. The easiest way to accomplish these conflicting objectives is to keep a huge pile of inventory in front of every unit so that they can put together an optimal run schedule. Note that this “optimal” schedule can, and often does, lose sight of the customer promise date. Also note that these queues extend lead times, hide defects, increase handling damage, add difficulty to the scheduling process, tie up cash and space, cause excessive expediting, etc.
We began the Lean Transition with an education session for top management. Luckily, one gutsy division VP agreed to be the guinea pig. Inventory reduction and on-time delivery goals were set, and commitment attained. Brief overview education/introduction classes were provided for all employees. Then scheduling rules were attacked, blitzes were held to resolve obstacles, internal teams were formed to propagate the process, kanban controls were initiated, etc.
Inventory reduction goals were pushed down through the organization. These were readily understood at the unit level: Kanban limits, i.e. the number of coils allowed in front of an operating unit, were to be reduced an agreed amount over a specific period of time. Another key factor in achieving World Class operating performance is to control the order book. Strict capacity loading rules were put in place to assure that we did not overload the mill.
Impact/Results:
In Ten Months:
- Sixteen million dollars (U.S.) cash was generated via inventory reduction
- Lead times were cut by 60%
- Average lot size was cut by 65%
- Average coil mass increased by 9% (yield improvement)
- On-time delivery soared, from 55% to 95%, the best in their industry
- Customer complaints dropped by more than half
- Cost of quality plummeted
- Profitability improved by $5 million (U.S.) per MONTH