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Achieve Efficiency, Speed and


Cost-Savings with LEAN
Learn how a contract manufacturer gained USD 1 million
in savings from their inventory holding cost and also
halved their production lead-time from 30 days to 15 days.

Pera Neville Clarke Pte Ltd


545 Orchard Road
#10-11
Singapore 238882

www.nevilleclarke.com

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1. Introduction
The company is a typical contract manufacturer in the electronics industry located in
South East Asia. Some of the products that it manufactures include hard disk drives,
DVD drives, and motherboards for the computer industry, as well as car entertainment
systems and reverse cameras for the automotive industries.

The company has for many years, organized its fabrication and assembly processes by
process types, with each product routed to each process areas as necessary for its
production. This has resulted in a maze of crisscrossed movements on the production
floor, with piles of work-in-progress (WIP) all over. This organic and haphazard
development over the years has made the production operations increasingly difficult to
manage and improve.

Several years ago, the company responded to pressure from its customers for lower
prices, higher quality, and faster delivery by engaging PERA Neville Clarke to train their
people and assist them in their adoption of Lean. This case study describes some of
the improvements made and the results obtained.

2. The Current State Value Stream Map


To kick-start implementation, a Lean Manager was appointed and a Lean team was
formed. One of the first initiatives of the team was to develop a product family matrix to
sort the various products by similar process sequence and machines, and to then,
select a product family as the pilot project for their Lean implementation.

Next, the team conducted a door-to-door, walk-through on the production floor and
collected the necessary data to produce the Current State Value Stream Map.

Diagram A: Current State Value Stream Map

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3. The Improvement Work Plan


The team examined the Value Stream Map and using the Lean principles that they had
learnt, identified the various opportunities for improvements. These improvement
opportunities were then compiled into a list and from there, the following were short-
listed for action:
a) Streamline the production flow to minimize transportation and motion wastes.
b) Establish pull systems to reduce work-in-progress.
c) Create continuous flow cells.
d) Implement the 5S Workplace Organization.

The Kaizen Blitz Method was used for improvement ideas that were more
straightforward and could be implemented quickly, such as, 5S workplace organization,
visual management and pull system implementation.
Diagram B: Example of the Kaizen Blitz Method

The PDCA Project Method was used for problems such as defect reduction, set-up
reduction and flow cell design that were more complicated and required a longer
duration of between 1 to 3 months to complete.
Diagram C: Example of a PDCA Project

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4. Key Improvement Actions


4.1 Streamline the Production Layout
One of the major issues faced was that the current state plant layout was not designed
in accordance with the production process flow. Hence, the product flow was multi-
directional, inefficient and crisscrossed the entire production floor. See Diagram D.
This layout not only resulted in significant transportation waste, it also made it hard to
track the production status for planning and scheduling.

Diagram D: Current State Plant Layout with Multidirectional Material Movement

The improvement introduced was to streamline the plant layout in accordance with the
production process sequence so as to achieve a one-directional movement pattern.
See Diagram E. With this improvement, not only was a significant proportion of
transportation distance and time waste removed, the required floor space was also
reduced. Moreover, this enhanced layout also made it conducive to implement 5S
workplace organization and pull systems.

As a result, the company was able to achieve greater efficiency, a shortened


manufacturing lead-time and the capability to monitor its production status easily.

Diagram E: Improved Plant Layout with One Directional Material Movement

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4.2 Eliminate Motion Waste of Assembly Operators


One of the key ideas in Lean is that operators should perform production work and not
waste time in handling materials.
In the present case study, there was significant motion waste in the form of operators
getting their own raw materials and delivering the completed assemblies to a
designated location. See Diagram F.

Diagram F: Before intervention, there was significant motion waste in the form of
operators running back and forth with the materials.

This was changed to having the operators remain at their assembly process with
material handlers performing deliveries of the raw materials and completed assemblies.
See Diagram G. This change, plus the implementation of 5S Workplace Organization
at the assembly stations (described in the next section) resulted in a significant
increase in production output, from 25 thousand units per week to 30 thousand units
per week.

Diagram G: After intervention, with the addition of material handlers, the operators’
motion waste was eliminated.

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4.3 Implement 5S Workplace Organization


5S workplace organization was implemented throughout the processing stages where
deemed needed. The diagrams below showed the ‘before’ and ‘after’ results of the
assembly stations which implemented 5S.

Diagram H: Assembly Station Before the 5S Implementation

Diagram I: Assembly Station After the 5S Implementation

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4.4 Establish ‘Pull Systems’


The material flow in the current state value stream adhered to the ‘push system’ and as
a result, there was excessive work-in-progress in between the processing stages. This
was changed to a ‘pull system’ where ‘supermarkets’ with controlled inventory levels
were set up.
The inventory levels were calculated based on the demand (or usage) rate, the
replenishment lead-time and a safety factor. With the implementation of supermarkets,
the amount of inventories on the production floor was significantly reduced. It was also
noteworthy that the storage space needed to hold the inventory was reduced by 20%
and more significantly; the manufacturing lead-time for this processing stage was
reduced from 4.5 to 2.0 days.

Diagram J: Controlled Inventory Levels

Diagram K: ‘Supermarket’ Pull System (After)

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4.5 Convert to Continuous Flow Cell


An opportunity to implement the continuous flow cell was spotted in one of the
upstream processing stages ie auto-assembly, tapping, degreasing and auto-
inspection. In the current arrangement, each of the process steps was like an
individual island with work-in-process (WIP) in-between the islands waiting to be
processed. See Diagram L.

Diagram L: Each of the 4 process steps was an individual island with WIPs in between
the islands (Before).

This arrangement was changed to a flow cell whereby the 4 process steps were linked
to become a continuous flow cell. See Diagram M. With this change, the amount of
work-in-process and the process lead-time were significantly reduced.

Diagram M: The 4 process steps were integrated into a continuous flow cell (After)

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4.6 Streamline the Machining Operation


In the current state value stream, the machining operation was arranged such that all
the machines were located in one area, whereas all the inspections stations were
located in another area along one side of the production floor. See Diagram N. With
this layout, planning and assignment of parts to the inspection stations proved
complicated and there was an excessive amount of transportation waste in sending the
machined parts to the inspection stations. As a result, the inspection lead-time was
long and there was delayed feedback to the machining process, causing a higher
percentage of defective parts to be produced.

Diagram N: Layout of Machining Operation (Before)

With the new arrangement, the inspection stations were assigned to a selected group
of machines according to the model types and inspection capacity. Dedicated
inspection stations were located near the group machines. See Diagram O. This
arrangement made the planning and assignment of inspection much easier, and at the
same time it also reduced the waiting time and transportation distance. As a result, the
WIP and the inspection lead-time were significantly reduced. This reduction in the
inspection lead-time and faster feedback to the machining process also helped to
reduce the number of defects produced.

Diagram O: Layout of Machining Operation (After)

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In addition to changing the overall layout of the machining operation as described, the
inspection stations were also linked to form a continuous flow inspection cell. With this
cell arrangement, once a machined part was input into the cell, the inspection process
would continue without any stoppage till its completion.

Further fine-tuning was also done within the inspection flow cell itself. The original flow
cell was arranged in a L-shape with the input and output at different ends of the
inspection flow cell. See Diagram P.

Diagram P: L-shape Continuous Flow Inspection Cell

This was later changed to a U-shape where the input and output of the cell were placed
close to each other. See Diagram Q. The U-shape cell made it easier for material
handlers to supply and collect the machined parts from the cell. It also made it easier
for the inspection team to plan and manage the inspection cell workload. With these
changes, the overall inspection process time was further reduced.

Diagram Q: U-shape Continuous Flow Inspection Cell

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5. Summary
The company has achieved significant improvements in efficiency, speed and cost after
a year of implementing Lean. For instance, its inventory holding cost has reduced from
US$ 2.5 million to US$ 1.5 million and its production lead-time has been markedly
reduced from 30 days to 15 days.

The power and rewards of Lean are not just financial and appreciated at a macro level.
Those that are directly involved have also embraced Lean wholeheartedly. These are
but some of the telling comments received from the production floor:
• I can produce more output than previously can with the same manpower but
less 2 machines. The works has now become more efficient.
• The controlling of shop floor has become easier.
• It’s a great system, now I can work in a better pace and environment. No more
fire fighting with Store and Planning.
• From the implementation, I have reduced my workload through Pull from
Preparation Ordering.

With a successful first outing, the Lean team subsequently moved on to improving
another product family. Because of their Lean initiatives, the company that we have
just profiled is now in a much better position than its competitors to ride out the global
recession.

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