The Boston Consulting Group has teamed up with Assembly Magazine to sponsor the Assembly Plant of the Year award. The award recognizes state-of-the-art facilities that have made exceptional progress in reducing production costs, increasing productivity, shortening time to market, or improving product quality. Every assembly plant in the U.S. is eligible.
The 2011 award went to a Philips Respironics facility in New Kensington, Pennsylvania, just outside Pittsburgh. The 172,000-square-foot plant assembles electromechanical medical devices for the sleep and respiratory market, shipping products to more than 120 countries around the world. Michael Zinser, a partner and managing director in BCG’s Chicago office, spoke with Eric Kulikowski, the senior director of supply chain optimization, about the factors that have made the plant a success.
Congratulations on winning the 2011 Assembly Plant of the Year award. Why did you submit your plant for consideration?
First and foremost, it was about benchmarking. When we began focusing on continuous improvement back in 2006, we used industry award applications to gauge how well we were performing. We wanted to know where we stood relative to world-class standards. It’s not so much about the award itself; it’s what you learn along the way. Second, we wanted to provide recognition to our people based on how well we stack up against these high standards.
When we won this award, we had a big celebration at both factories in Pittsburgh. We operate as one organization—we win together, we celebrate together, and we learn together. We talked about how important the achievement was and what it took to win the award. Shortly after, we had our annual summer picnic, which brought together about 1,700 employees from all 14 of our facilities in western Pennsylvania. We presented the award to everybody. It was quite a big deal. The award was featured in a press release, our intracompany newsletter, and internal webinars. It’s gotten a lot of play.
Has the recognition made a difference?
When you set out on a journey of continuous improvement, it raises questions. Why are we doing this? Are we trying to save money? Reduce our labor force? Make people do more work for the same pay? The award made a difference by validating our programs surrounding continuous improvement and employee engagement. It showed that these programs are meaningful and differentiating: they set us apart. We’re the only Philips factory to win the award and the only medical-device company to win the award. That brings distinction. When we ask our employees to go the extra mile, they know why.
The New Kensington plant opened in 2009. Two years later it was named Assembly Plant of the Year. How helpful was it to start with a clean slate?
The facility was designed with three things in mind: people, lean manufacturing, and the environment. All processes and tools support building high-volume products in the most efficient and effective way possible. From the outset, we had efficient manufacturing systems, such as dock-to-stock material receipts, digital work instructions, automation, world-class IT systems, flexible work teams, and mixed model assembly lines.
To help ensure best practices were baked in, we engaged more than 120 employees as subject matter experts, contributors, and process owners when the plant was being designed. The results have been impressive. Since the plant opened, assembly errors have decreased by more than 80 percent, while labor efficiency has improved by more than 35 percent.
Many companies struggle to achieve the benefits of lean tools and techniques. What has Philips Respironics done to reap the rewards?
We incorporated lean-manufacturing principles into the rhythm of the plant. Each day, for example, pillar meetings occur for every shift of every production line. These meetings are held around a rotating six-sided pillar. Five sides represent the metrics we track in the plant—quality, cost, delivery, safety, and people. The sixth side is news.
The 12-minute meetings provide a daily touch point for work teams to assess the previous day’s performance on each of the five metrics. If there were exceptions, why did they happen, and what are we going to do about it? When it comes to identifying problems, we never point to a person. If there’s a problem, it’s with the environment. Because of our success, the five metrics have become the standard methodology for employee engagement for every Philips Healthcare factory.
The meetings also call attention to “morale busters.” There’s a sheet of paper for people to write down anything that happened that day that caused dissatisfaction. Each day, the list is reviewed by the leadership team, and they then determine a course of corrective action. Solutions range from something as simple as a conversation to something as involved as replacing a piece of equipment. On the same sheet we have “morale boosters,” so people can share things that made them feel good about the work they do.
What are some examples of how the focus on improvement has led to material, lasting benefits?
One example involved material presentation and flow. In a traditional lean-assembly process, kanban bins are used to present materials and signal for replenishment. In a high-volume assembly process with large- to medium-size plastic components, however, the bins would have to be emptied very frequently. You would have a lot of material handlers shuttling bins back and forth between the warehouse and the production lines.
Two principles helped us reshape this process. First, we should move parts, not people. Second, we should present materials in front of the operator. We redesigned the material presentation and flow processes to deliver material by the pallet to the assembly line. Material handlers take components from the pallets and place them onto a conveyor track that continuously delivers the components to the assembly line. We have four 85-foot-long chain-driven conveyors that each support two assembly lines. We got the idea for the system by visiting a local pharmaceutical manufacturer.
How important are such visits to your focus on continuous improvement?
We are always looking for like-minded companies—ones that have similar values or are striving for similar goals. We visit a lot of plants every year. Most recently, I visited the Harley-Davidson plant in York, Pennsylvania. They’re doing some things we like, and we’re doing some things they like. These kinds of interactions help us look at our own operations in a new light. We also have quarterly meetings with four noncompeting manufacturers in western Pennsylvania, to talk about how we’re addressing priorities such as continuous improvement, safety, and leadership development. That’s another great way to do benchmarking.
What role have organizational issues played in the plant’s success?
We’ve created an environment where the opportunity to improve is never-ending. It’s an effective way to ensure that our lean initiatives don’t plateau but rather continue to drive better performance. The culture is defined by three words: enable, empower, and engage. Employee involvement teams drive the vast majority of improvement. At least a dozen improvement ideas are being implemented daily, and employee teams are always working to solve problems and unlock new opportunities.
The plant was built during tough times. Things have improved since then, but our most recent Value Creators study suggests that the medtech sector has entered a new world of slower growth and lower margins. Has a challenging environment helped focus attention on continuous improvement and make the case for lean approaches?
The environment has been a very visible catalyst for keeping people engaged, and it’s why lean principles continue to be so important to us. We don’t want to be one of those companies that say, “We’ve done lean.” You’re either doing it or you’re not. It can never be past tense. Continuous improvement is very much the same way.
For all industries, I’m sure margins are tighter than they’ve been in a long time, and they’re only going to get tighter. It’s been helpful for us to translate the improvements we’ve made—or conversely, the problems we’re having—into dollar terms. It might be hard for people to understand the significance of going from 8,000 parts-per-million defects to 2,000 parts-per-million defects. When you tell them it can save us $600,000 in scrap and here are a couple things we can do with $600,000, the interest level sure goes up.
On a separate note, BCG has been studying the shifting economics of manufacturing. In the next five years or so, we project that China will lose most of its cost advantage over the U.S. What do rising manufacturing costs in China mean for Philips?
It’s a good question because it’s a reality. We hold similar projections—we believe the same thing could happen. We have three manufacturing facilities in China, and the rising cost of labor is something we have to keep our eyes on, both today and into the future. But we’re not asking whether it makes sense to be there—it’s still an important place for us to be, and we are very happy with the quality and volume of products we make in those factories. It’s more a matter of determining how we should be there.
The shifting economics of global manufacturing are forcing us to ask the same questions on a global scale. What countries do we source from and why? The reasons why a manufacturer is in a certain country—the factors that gave rise to some form of advantage—may have held true ten years ago. Do they hold true now? If the economics change, your strategy may need to change as well.