Acquiring capital equipment in a lean manufacturing environment requires a nontraditional mindset.

Imagine a board game for manufacturing engineers where all the game pieces are assembly machines, conveyors, parts feeders, robots and other types of equipment. The game takes place in a Tier 2 auto parts plant that has adopted lean production principles. The objective is to acquire the right type of assembly equipment while confronting management, operators and customers constantly chanting the lean manufacturing mantra of "waste elimination."

As lean initiatives become more popular, many engineers are playing that game every day. To thrive in that type of environment, engineers must break the age-old habit of always wanting to buy the fastest machine equipped with the latest bells and whistles. The trick is to challenge complexity and balance the right amount of automation to meet lean objectives and customer needs.

Lean manufacturing has been touted as the panacea for the production world. However, the idea of capital equipment expenditure in a lean system is viewed as an oxymoron by some observers. They question the role of automation in an environment they perceive to be the domain of manual assembly processes.

Others misinterpret lean and forego quantum improvements in productivity by making due with existing machines rather than purchasing additional automation systems. They feel that lean manufacturing means spending less on capital equipment.

"We have come across many companies that wish to short cut the critical addition of equipment," says Richard Ligus, president of Rockford Consulting Group (Rockford, IL). "A typical tactic is to purchase scheduling software based on theory of constraints. But, capital equipment plays an extremely important role in the success of a lean manufacturing implementation. I haven’t seen a project where equipment wasn’t needed."

When his team of consultants arrive at a new assignment, Ligus says one of the first things they check is the age, technology generation and condition of capital equipment. "We almost always find unbalanced capacity and underperforming equipment," notes Ligus, who says manufacturing engineers have a tendency to overautomate.

"People seem to think lean means not spending any money on automated equipment," adds Chet Marchwinski, communications director of the Lean Enterprise Institute (Brookline, MA). "Actually, you have to have some—at the right level of automation—or you can’t implement lean."

However, it is often more difficult to justify capital equipment expenditure in a lean environment. "Traditionally, capital equipment justification is based on projected utilization rates, and this thinking is deeply ingrained, not only in the minds of accountants, but in the minds of engineers and managers as well," says Don Penkala, president of Granite Bay Consulting Inc. (Granite Bay, CA).

"In a lean environment, waste elimination and lead time reduction are the key goals. These two measures are more customer-focused and do not require asset utilization rates that lead to expensive overproduction, backlogs at each stage of manufacture and needless storage and material handling costs."

Lean principles allow manufacturers to significantly boost throughput, reduce time to market and quickly increase capacity. Implementing a lean philosophy also has the potential to lower costs and improve product quality.

Manufacturers that have adapted lean principles have achieved some dramatic results, such as reduced floor space and improved efficiency. For instance, Delphi Automotive Systems (Troy, MI) cut 42 feet out of the assembly line at its air conditioning compressor plant in Jaguariuna, Brazil. That minimized the walk path of operators by more than 40 percent.

The Marvair division of Airxcel Inc. (Cordele, GA) recently reduced the space required to assemble its commercial air conditioners and heat pumps from 12,000 square feet to 6,000 square feet, a 50 percent reduction. At the same time, it reduced hours-per-unit from 9.28 to 5.19 for a 44 percent improvement.

Lean Defined

Lean manufacturing traces its roots to Toyota Motor Co. (Tokyo). The Japanese automaker developed its famous Toyota Production System more than 50 years ago. Today, hundreds of companies have adapted it with varying degrees of success.

Rick Harris, president of Harris Lean Systems Inc. (Stamping Ground, KY), says 30 percent to 40 percent of all manufacturers in the United States claim to be implementing lean principles. "However, only 5 percent are truly implementing lean manufacturing," claims Harris, who formerly served as manager of final vehicle assembly at Toyota Motor Manufacturing Inc. (Georgetown, KY) .

Lean manufacturing is most common in the auto industry, but companies in other industries ranging from electronics to furniture, have successfully modified its basic principles. "There are pockets of companies in every industry that are doing it best," Harris points out.

No matter what type of product is being assembled, continuous improvement, customer focus, one-piece flow and waste reduction play a key role in lean manufacturing. The goal is to eliminate nonvalue-added activities that prevent a one-piece flow of product.

"Lean thinking focuses on value-added flow and the efficiency of the overall system," says Dr. Jeffrey Liker, director of the Lean Program Office and the Japan Technology Management Program at the University of Michigan (Ann Arbor, MI). "Lean manufacturing is a manufacturing philosophy that shortens the time between the customer order and the product build and shipment by eliminating sources of waste."

No matter how it’s defined, lean is a concept that attacks waste within a plant or company. In a lean methodology, waste elimination results in cost reduction. "Waste is anything that does not contribute to transforming a part to your customer’s needs," says Liker. "The No. 1 cause of waste is the failure to recognize that it is there."

There are seven types of manufacturing waste: production over immediate demand; excess work in process and finished goods inventories; scrap, repairs and rejects; unnecessary motion; excessive processing; wait time; and unnecessary transportation.

"Lean production is aimed at the elimination of waste in every area of production, including customer relations, product design, supplier networks and factory management," says Dr. David Cochran, director of the Production System Design Laboratory at Massachusetts Institute of Technology (MIT, Cambridge, MA). "Its goal is to incorporate less human effort, less inventory, less time to develop products and less space to become highly responsive to customer demand while producing top quality products in the most efficient and economical manner possible."

According to Granite Bay Consulting’s Penkala, capital equipment expenditure in a lean environment should be justified based on two factors: the amount of manufacturing waste eliminated and the reduction in production lead Arial. "Waste elimination, which includes product quality improvement, and lead time reduction are the most important factors to consider," says Penkala. "Productivity improvements and labor cost reduction are internal measures and the least important."

Time Factors

Besides eliminating waste, lean production initiatives focus on reducing lead time, which is the total time a customer must wait to receive a product after placing an order. Takt time forms the heartbeat of any lean system. It sets the pace of production to match the rate of customer demand.

Takt time is determined by dividing the available production time by the rate of customer demand. For example, if an automotive OEM demands 320 fuel pumps per day and a Tier 2 parts plant operates two shifts a day for a total of 960 minutes, the takt time is 3 minutes.

"Ideally, in a lean environment, equipment will operate at a rate determined by forecasted customer demand," says Penkala. "This is contrary to justification based on high utilization rates. Customer demand, including takt time, rapid response (delivery) and quality improvement should play a major role in capital equipment justification."

Lean experts claim it is easier to meet customer demand with simpler, dedicated pieces of equipment. "Complex equipment may not be the answer," warns Rick Harris. "It’s better to look for a low capital piece of equipment that will make what your customer wants, with the ability to produce more if the customer demands. The lower the complexity, the better off you will be in the long run. Unfortunately, many machine builders are in business to make complex machines. Too many people want to sell a Cadillac when a Chevy will do."

According to Harris, coauthor of Creating Continuous Flow (published by the Lean Enterprise Institute), machine time should be closely calibrated to takt time. "In a world where machines are not completely capable or available and demand does change, it is best to target effective cycle Arial for every machine in the cell at no more than 80 percent of the fastest—highest volume—takt time," he explains. "This ensures that operators will not have to wait for machines to finish cycling the next time they come around to go through the work elements. It also provides a bit of extra capacity to accommodate some demand increases without the need to add capital equipment or pay large amounts of overtime."

Harris and other lean experts point out that engineers have a tendency to buy more capacity than is needed. John Shook, a Dexter, MI-based senior advisor to the Lean Enterprise Institute, says manufacturing engineers should consider market size and demand projections when buying new equipment.

"Look for smaller increments of capacity," suggests Shook, who formerly served as deputy general manager of Toyota’s Supplier Support Center. "So often, demand forecasts tend to be wrong. We just don’t know what demand is going to be."

The pace of production should be a critical consideration when acquiring capital equipment. It’s important to remember that takt time is customer demand—something that engineers can’t change—divided into available production time—something that engineers can change.

Harris says the longest machine cycle time in a process determines the overall increment in which capacity can be added. He recommends using single-function machines where capacity can be added in increments of 10 seconds.

"By using a series of simple machines that each cycle in 10 seconds, the cell or line has the ability to handle demand increases and additional products without buying more equipment," explains Harris. "If the cycle Arial of two multifunction machines in a process are near takt time when installed, there is not much potential to handle additional demand or additional products without buying another machine."

False Starts

Unfortunately, lean manufacturing suffers from a widespread communication problem. In fact, a random poll asking 10 individuals to "define lean production" would probably result in 10 different answers.

Some people interpret lean as a collection of acronyms, such as JIT, MRP or TQM. Others use generic words and concepts, such as flow, pull and value stream. Some definitions of lean are wrong and some are incomplete. To make matters worse, many operators fear the L-word is just another way of saying "layoffs" or "downsizing."

"Due to poor teaching, misunderstanding, poor application and a lack of commitment, there have been many false starts and a high level of dissatisfaction about lean transformation efforts," says Jamie Flinchbaugh, a partner in the Lean Learning Center (Novi, MI). "Understanding the principles and rules of lean systems and applying them are two different things."

Part of the problem is that many factors influence how lean principles are implemented in a plant. Product maturity, production rate and volume are just a few of the factors that can affect how lean methods are applied. In addition, the prioritization of lean fundamentals can vary between plants, companies and industries. And, it’s impossible to implement lean manufacturing without suppliers adhering to the same ideals.

"People tend to categorize and stereotype lean," says MIT’s Cochran. "Lean zealots say one solution fits all. But, the term ‘lean’ has ambiguous interpretations. Lean doesn’t mean you don’t spend money. All production equipment should support the system. It’s OK to spend whatever you need to meet those needs, as long as you don’t automate wasted work."

According to Ed Constantine, chairman of Simpler Consulting Inc. (Ottumwa, IA), "the definition of lean often gets distorted. Too many people think lean is just a shop floor thing. However, it must apply enterprise wide."

Constantine, a manufacturing engineer who formerly served as plant manager at HON Industries Inc. (Muscatine, IA), says a successful lean program should result in steady 1.5 percent or 2 percent productivity gains every month. He claims the best way to measure a lean initiative is to look for annual productivity gains of 15 percent to 20 percent. If companies only see a 1-month bump in productivity, then they’re probably not serious about lean, Constantine points out.

Some observers point a finger at academic circles for the inherent lack of a universal understanding of lean principles. Only a handful of schools, such as Michigan and MIT, currently include lean manufacturing in their engineering curriculums. "Some schools treat it as a fad or the flavor of the month," observes Michigan’s Liker. "At some point, you either have to believe or not believe." As a result, few engineers come out of school exposed to lean manufacturing.

Two other factors influence the success or failure of lean manufacturing initiatives: the ability of engineers to change their tradition-laden mindset and the ability of manufacturers to adopt new accounting principles.

Tempted by Technology

Many engineers are taught to lust after the latest technology. As a result, they often get starry eyed and focus on machines that run the fastest or get rid of direct labor.

"The tendency to believe that automation equals precision is pervasive in many factories," says Charles Colosky, president of Operations Development Associates Inc. (Mooresville, IN). "This tends to be supported by the education of technicians and engineers, which is often very ‘tools focused.’ The issue of overall technology integration is difficult to teach, and most undergraduate academic courses tend to focus on single topics."

As new technologies are developed, engineers are often pressured to use them to gain a competitive advantage. "The pace of the marketplace increases the temptation for suppliers to oversell a new technology or application," explains Colosky, a former engineer at Cummins Inc. (Columbus, IN). "Faced with significant design and development costs, many businesses fall victim to the tendency to ‘work out the details later.’"

"The traditional engineering mindset needs to be changed in a lean environment," warns Liker. "Otherwise, it will lead to frustration.

"Manufacturing engineering changes decisively when companies go lean," adds Liker, who believes that engineers—not general management or accounting—should lead lean transformations. "It’s impossible to develop a lean manufacturing system without giving manufacturing engineers a pivotal role."

As engineers become "more educated about resourceful solutions to real process challenges, they turn less to big machines, and more to appropriate and creative solutions," claims Anand Sharma, president of TBM Consulting Group Inc. (Durham, NC). "Capital projects need very careful review and management to see if the new investment complies with lean principles like compliance to takt time." Sharma says terms like "faster," "capacity enhancement" and "cost improvement" often indicate potentially risky investments.

John Shook also believes it’s often better to use proven equipment, rather than using something equipped with the latest bells and whistles. "Toyota is well known for being a late adopter," he points out. "They’re a little more careful than most manufacturers." Shook says slower, simpler, more reliable equipment is better in the long run than a machine loaded with special features.

Another age-old mindset that hinders lean manufacturing is traditional cost accounting. "Most accounting systems are archaic and we are overly dependent on them," argues Jamie Flinchbaugh. It is hard to justify equipment in a lean enterprise using internal financial measures rather than customer-focused measures.

Traditionally, capital equipment justification examines fixed costs and variable costs. But, this same formula does not apply to lean manufacturing. "It is usually a mistake to run a lean organization using traditional cost accounting and financial data alone," warns Don Penkala. "The problem with justification based on cost accounting principles is that is uses a direct labor base over which indirect costs are allocated.

"The cost accounting approach is inaccurate, internally focused and assumes that the competition is static. Capital equipment justification for lean manufacturing has benefits that exceed direct labor cost reduction, which typically run only 5 percent to 20 percent of total costs."

According to Penkala, traditional procurement practices demand high asset utilization rates and rapid payback. "This requires material backlogs at each process center to ensure that equipment is kept busy," he points out. "The problem is, as asset utilization rates approach 100 percent, production lead Arial expand geometrically. This is inconsistent with the need for more customer-focused, rapid response manufacturing."

Penkala suggests moving away from using financial and accounting information, which he believes is best suited to regulatory reporting, not business management. "To create and sustain a lean operation, managers and engineers must often look to alternative justification criteria that more closely and accurately measure capital equipment effectiveness," he explains. "Improvements in accounts receivable, inventories and fixed assets are all possible—and desirable—in a lean environment."

Leveling Automation

Because manufacturing engineers tend to overautomate, one of the biggest challenges assemblers face when implementing lean production principles is determining how much automation to use. Rick Harris believes the trick is getting the right level of automation. Not enough automation could result in a loss of efficiency, he points out, while too much automation could have a negative effect on affordability and reliability.

Harris claims there are five basic levels of automation in a lean manufacturing environment:

  • Level 1 automation is the most basic. Operators load, cycle and unload machines, in addition to transferring parts between stations. Cost and quality problems usually make this level unrealistic.
  • Level 2 automation works well when parts can be loaded and unloaded with one hand. The operator loads the machine, the machine automatically cycles, and the operator unloads the machine and transfers the part to the next machine. However, if the parts being processed require both hands to unload and load, waste occurs because the operator must double-handle both the finished workpiece and the new piece.
  • Level 3 automation achieves an efficient flow by using automation to eject finished parts at the end of a machine cycle. The machine is always empty when the operator arrives with a part from the previous machine. Machines can be smaller, more efficient and less complex, so less maintenance and engineering support is needed.
  • Level 4 automation crosses from the simple, reliable, inexpensive automation of Level 3 to complexity, downtime and expense. The machine is automatically loaded and unloaded, but the operator transfers the part from one machine to the other.
  • Level 5 automation is a totally automated process.
Harris claims that Level 3 automation is the best. "It achieves many of the benefits of full automation but without the expense, procurement lead time, maintenance requirements, downtime and volume inflexibility," he points out.

According to Harris, engineers who decide to pursue Level 4 or Level 5 automation are "crossing the great divide. In some cases, you may need to do it. But, you should look very hard at the alternatives first. When you go beyond Level 3 automation, capital costs and technical complexity increase dramatically.

"Another problem with automation beyond Level 3 involves the longer machine changeover Arial necessary for greater machine complexity," adds Harris. "The complexity often reduces process reliability to below 70 percent.

"What can you do with an expensive, highly automated line when customer demand changes?" argues Harris. "When demand falls off, you are stuck with an underutilized piece of high-depreciation equipment. When demand rises above capacity, you need to buy another expensive automated line."

Harris says equipment needs to be right sized to limit complexity. He suggests using smaller, dedicated machines rather than large, multipurpose, batch-processing machines.

According to Ed Constantine, right sizing is critical to lean manufacturing success. "We don’t always give enough thought to how the equipment fits into an overall vision for how work will flow through our factory," he says. "When faced with the decision to buy a big, expensive piece of equipment, you may want to ask, ‘Can we buy 10 little ones instead?’"

Constantine suggests following these tips when acquiring right-sized equipment:

  • Select equipment that can only process one item at a time.
  • Equipment should have a footprint that is narrow and deep like a city store. It should also be short, having a maximum height of 5 feet. Operators should be able to load and unload the machine from the front with little or no walking.
  • Equipment should be completely self-contained, easy to move immediately and easy to hook up.
  • Equipment should be ergonomic. Aim for equipment that is well protected and can be cleaned in less than 60 seconds per shift.
  • Select machines that are easy to learn and to operate. Add very visual operator instructions to the machine and its controls.
  • Equipment should be easy to maintain by the operator and by maintenance support staff. Aim to restrict scheduled downtime to 20 minutes per shift. Operators should be able to perform all preventive maintenance checks in only 5 to 10 minutes.
  • Look for very flexible equipment. Remember that product life cycles are shrinking and change is accelerating. Consider equipment that is made from simple, standardized modules that can be easily reused in other machines or processes.
"Simple equipment improves productivity, while also reducing capital intensity," claims Constantine. "Challenge excess speed. Learn to see it as wasted capital cost."

Balancing the Line

"Ideally, the transition to smaller, modular equipment should be a key part of a lean strategy because to be truly lean means to have equipment that can closely produce to daily or even hourly customer demand," says Penkala. "Economic realities, however, often prohibit the disposal of large, general purpose equipment and the immediate investment in smaller, more flexible equipment."

Manufacturing engineers can overcome that challenge by balancing the line, a process that involves changing factory layouts to support continuous flow. Balancing the line essentially means evenly distributing both the quantity and variety of work across available work time, without overburdening or underusing resources. This eliminates bottlenecks and downtime, which translates into shorter flow time.

Dennis Dureno, vice president of Buker Inc. (Gurnee, IL), suggests minimizing capital equipment expenditure by utilizing what you already have. "Make sure you get operators involved in the process," he says. "Often, they can come up with ways of utilizing what you already have rather than going out and buying something new. For instance, simply rearranging a piece of equipment may help reduce floor space. Changing feeds and speeds can also help you utilize all the capability of existing machines."

When you definitely need to acquire new equipment, Buker suggests asking yourself a series of questions, such as: Am I making life simpler for operators or complicating it more? Will this replace one or two pieces of equipment? Can I get a machine with built-in test and inspection capability? Have we overdesigned the machine? Are we looking at what we’re trying to do objectively?

"Instead of worrying about the fastest, biggest or best tool, you should focus on the spacing between machines on your plant floor and how they’re linked together," says Jamie Flinchbaugh. "Focus on the relationship between the machines. Make sure the equipment fits the flow and fits the relationship between other machines in the manufacturing system."

"Keeping material moving requires that you organize machines around product lines," adds Michigan’s Liker. "Ideally, you locate them next to each other, in sequence, so material can flow through the processes one piece at a time."

Aaron Kotyluk, supplier development specialist at Boeing Commercial Aircraft (Seattle), believes 3D simulation is the key to balancing the line. "If you don’t simulate, you’ll either under- or overestimate what you need," warns Kotyluk. He suggests using cardboard, wood and plastic foam to create full-sized equipment mock ups that can be easily moved around. "This type of simulation allows you to run through exactly what you’ll be doing and use actual people," says Kotyluk.

Above all, he urges manufacturing engineers to remember that lean does not mean not automating. It just means buying more flexible equipment, instead of a lights out machine.

"There are a lot of lean extremists who say capital expenditure is bad," explains Kotyluk. "It’s important to make sure whatever type of equipment you acquire is flexible enough to handle demand. The key to lean manufacturing is to only buy what you need right now and then build up to demand as you need to."

Often, there are quality, throughput, cost and safety issues that justify automation. "Many people think lean production means manual assembly operations, but that’s not true," says Harris. "There is a place for automation in a lean environment." In fact, he points out that achieving an efficient flow is usually impossible without some level of automation.

Sidebar: Value Added vs. Waste

There are many individual steps to manually assembling a product. "Generally, only a small number add value to the product," says Dr. Jeffrey Liker, director of the Lean Program Office and the Japan Technology Management Program at the University of Michigan (Ann Arbor, MI).

"The point is to minimize the time spent on nonvalue-added operations, for example, by positioning the material as close as possible to the point of assembly," explains Liker, who also serves as a senior consultant to Optiprise Inc. (Holland, MI). "Distinguishing value-added from nonvalue-added and then identifying ways to reduce the nonvalue-added time is an excellent exercise."

For instance, consider a generic manual assembly operation involving an automobile chassis. Although there are 16 individual steps, only three (highlighted in bold) add value:

  • Delivering components to the assembly line.
  • Walking 25 feet to pick up the component.
  • Removing cardboard around the components.
  • Reaching for the component.
  • Orientating the component so it can be assembled.
  • Picking up the component.
  • Picking up bolts for the component.
  • Walking 25 feet back to the chassis on the assembly line.
  • Positioning the component on the chassis.
  • Walking to the power tool.
  • Reaching for the power tool.
  • Walking and pulling the power tool to the component on the chassis.
  • Pulling the power tool down to the component.
  • Placing the bolts in the component.
  • Tightening the bolts to the chassis with the power tool.
  • Return by walking 25 feet for the next component.
Sidebar Source: Optiprise Inc.