Lean Approach in Food and Chemical Manufacturing Industries
Food, beverage, and chemical manufacturers have been accelerating their cost-cutting efforts to improve their profit-and-loss statements (P&Ls). The hunt for savings, spurred by structural changes in the industry such as the rise of private labels and discounters.
Growth is the imperative factor any business owner is looking for. This requires new investments in R&D, product quality, advertising, sales, and pricing. Manufacturers are looking for ways beyond traditional cost-cutting to create space in their P&Ls for investment. Although most manufacturers have continuous improvement and lean advantage programs, lean manufacturing remains an underused approach. With limited capital expenditure, lean manufacturing used to its fullest can liberate large amounts of cash, fueling growth and improving quality with better, fresher, greener, and more delicious food and beverage products. It can also be a source of employee engagement and capability building opportunities.
Many lean programs tend to be limited exercises that produce one-off savings, leave most opportunities untapped, require larger capital investment, and do little to build employees’ engagement and capabilities. Lean manufacturing is regarded as more of an administrative function and lacks a real leadership or strategic role in the organization.
With the right approach, however, over a few intense months, workers at all levels can learn new ways to frame questions, find solutions, and improve continuously. These employees become ambassadors and champions for lean approaches, spreading knowledge and best practices from one plant to another. They also learn to focus their efforts, linking initiatives directly to monetary savings. Workers who have had this training do not see themselves as devices in a machine that “delivers productivity increases.” They are members of a team that creates competitive advantage.
Problem statement
Discounters are gaining market share, and commodity prices are likely to rise. Suppliers, therefore, are feeling pressure to search for and cut non-value-adding costs. These are expenses that don’t make the product more valuable or attractive to customers. In a word, waste.
Pricing for inflation is becoming difficult. There is a growing risk that intense competition and tougher retailer negotiations will not allow suppliers to pass commodity price increases on to consumers.
The need for stronger growth is again becoming critical. Many companies have refocused their incentives on stronger growth targets and are searching for new ways to finance the higher cost of products, advertising, sales, and pricing actions.
Green production strategies are becoming sources of competitive advantage. Governments, customers, and employees are increasingly pushing companies to reduce material, water, and energy waste.
The Maturity Stages of Lean Manufacturing
Manufacturers, of course, have not been asleep while all this has been going on. They have optimized processes, reduced headcount, played with cheaper recipes, and hired the big fours. What few did, however, was attempting to identify all non-value-adding manufacturing costs in a holistic way.
Many lean programs generate efficiencies but miss the largest potential savings levers. Some focus only on the shop floor. Others lack the ability to maintain momentum by tracking improvements precisely and linking them to financial results and corporate strategy. Some require large capital expenditures. Others focus only on big-ticket items that represent only 30 to 40 percent of savings. Many do not strive to make continuous improvement a real mindset among all employees in manufacturing
Stage 1: Force for Modest Change. The majority of chemical manufacturers could be in this stage. Manufacturing delivers the requested products and productivity. There is an established lean function, but its effectiveness is narrowly limited. Companies in this stage do not have a clear picture of their non-value adding manufacturing costs. Although they may have a strong recent track record of productivity gains, they lack straightforward measures for reducing non-value adding manufacturing costs and tend to rely on capital expenditures to hit productivity targets. While many have designated continuous-improvement managers, those managers have to fight to put their ideas into practice. They are seen more as administrators than as forceful continuous-improvement leaders.
The 5S workplace-organization approach is implemented only in isolated areas. Bottleneck analyses are done occasionally. Manpower levels on some lines have been analyzed closely, but many lines have not been scrutinized. Overall equipment effectiveness (OEE) averages are 10 to 20 percentage points below world-class levels.
Stage 2: One-off Business Driver. A few companies could be at this level. These companies might already have a long-established lean practice that has been able to show strong one-off business improvement. They could have a database of best lean practices, but, somehow, results do not really stick. The results lack sustainability. Management continues to request strong productivity improvement in manufacturing, but the role of lean has become more limited over time. Most productivity increases originate outside the lean organization. Many require large capital-expenditure initiatives.
These companies could have a good track record of lean workshops with improvement team members of different backgrounds. They have displayed key performance indicators (KPIs) and best practices on the shop floor. In a few pilot plants, they have achieved great benefits, but the energy behind the lean initiative is gone. There is no ongoing flow of best practices. After a short period, these companies risk falling back to Stage 1: they are not able to sustain energizing momentum. They have methods in place for identifying non-value-adding manufacturing costs but not in each plant or across all lines. They do not set clear targets by plant and byline for non-value-adding costs. They may lack the tools or the culture. In some situations, they simply lack manpower and the necessary engagement of senior management. Some lines still have OEE well below optimal levels.
Stage 3: Sustained-Improvement Contributor. A Few companies could be in Stage 3. These companies work consciously to transform their entire culture into one of continuous, sustained improvement. They could have big specific targets for each plant and line to reduce non-value-adding costs with limited capital expenditures. Manufacturing is a major source of free cash, improving networking capital with flexible production lines that support frequent changeovers and reduce inventory. Products made by these manufacturers are younger on the retail shelf than those of competitors. Enabled local lean champions are key to spreading lean culture throughout the organization.
Decentralized continuous improvement managers can focus on long term continuous improvement. Many plants consistently apply 5S, OEE is at world-class levels, and lines are nearly fully utilized. There is a continuous flow of new best practices and internal competition to eliminate non-value-adding costs. These companies are clearly above average standards, who are definitely multinational corporations.
Stage 4: Source of Competitive Advantage.
Stage 4 requires embracing Stage 3 characteristics and going one step further to set up supply-chain and lean initiatives as true sources of competitive advantage. Companies at this stage build a culture of continuous improvement. They have a complete view of non-value-adding costs, having reduced them by 50 to 80 percent. They have gained organizational agility. They continuously and systematically ask, how can we become better? They focus on delivering the freshest products at the lowest cost and with the highest flexibility. Most plants and OEE lines meet global best-in-class standards. Manufacturing is a key contributor to funding growth. Because changeovers are short (less than ten minutes), lines produce small batches of fresh products and generate limited inventory. With short changeovers, complexity becomes less of an issue. Cross-functional teams work closely together on a daily basis and regularly deliver improvements in performance. They show their results directly to the Top Management. Only a few companies will reach this level, and even those companies need to be careful always to walk the extra mile. The answers to a few focused questions can reveal which level a company has achieved and how much more it could do.
Big Ambitions and Specific Goals
There is no one size that fits all approach to rolling out an effective lean program. Every company has its own culture. There are, however, three things that transformative lean efforts have in common.
They generate significant measurable impact (on, for example, costs, inventory, and customer satisfaction) with limited capital expenditures. They create real momentum for change within the organization, with improvement efforts linked directly to corporate strategy. They enable the organization to improve continuously.
The structure of the chemical industry presents special challenges to achieving those goals. Most manufacturers have a large number of plants, so a culture-changing lean program must be rolled out simultaneously in many places. The high complexity of many plants, multiple lines, multiple SKUs requires thorough preparation and a clear focus on key savings targets.
The goals of lean manufacturing shall be financial as well as cultural.
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