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Michael Balle

Michael Ballé: Cap Ex is the key to understanding the life journey of a site – learning to think differently about investment is a make-or-break aim of lean

By Michael Balle, co-author of The Gold Mine and The Lean Manager - Last updated: Saturday, March 19, 2011 - Save & Share - Leave a comment

In the end, it’s all about Cap Ex. I’ve found that the best way to understand the past and future of a site is to find out what is the investment cycle on its main piece(s) of equipment. Auto industry, for instance, works around programs which last from two to four years, according to whether the car sells or not. In other industries, you can work the same machines until they collapse and the market wouldn’t notice. Flow industries are so dependent on one huge central investment, nothing much else matters.

Not surprisingly, lean thinking affects investment decisions in many dimensions. The first is takt time. I recently visited a post office distribution center which, essentially, looked like a covered football field with a huge sorting machine in the middle. I got blank stares when I asked about the takt time: dividing 24 hours by the number of letters sorted daily. The way the post office engineers thought is that they needed a machine that could sort letters the faster possible. In fact, because they’re not distributing around the clock but accumulating letters here and there in the process, the machine is much faster than takt time, much larger than needed and operates at a 2% error rate. Furthermore, the entire organization is now focused on feeding the monster, which meeds regrouping mail to route it through the machine, and a huge, unstructured workforce slaving around it. When I asked about it, a veteran recalled the dreadful 1974 strikes which led to breaking up the large distribution centers into smaller ones, a lesson that was subsequently lost as they re-concentrated in this later set-up.

Beyond the sheer size of the investment, lean thinking leads you to question its flexibility in terms of both volume and mix. For instance, in one car program we tracked the production volume of the vehicle. The car was supposed to sell about 1,000 per week over three years – and on average it did. But with only two weeks at this number. Sales started really low, then shot up rapidly. The car sold around 6,000 a month for three to four months, and then collapsed to a variation between 2,000 and 4,000 a month for two years. This meant that the plant lost money on the high sales months because of exceptional costs and lost money on the low months because of the oversized weigh of depreciation on top of vehicle building costs. A takt time calculation would have highlighted the need for flexibility in volume early on.

Similarly, this plant was dedicated to just one model. Since gearing up or down capital expenditure is very hard, the key is flexibility: making different models on the same piece of equipment. In this case, overall TT, which needs to be stable, can be broken down into TTA, TTB and so on. Doing this requires a completely different form of equipment that aims for the “one touch one breath” change-over: being able to move from building A to building B with one touch and the time it takes to hold one’s breath.

Thinking of investment in terms of volume and mix flexibility soon leads one to aim for technical minimum solutions? Rather than invent a Rube Goldberg machine that does everything, we look at how an artisan would build the product and then automate what is difficult or heavy to do. The person remains leading, and supported by equipment. The alternative are welding robots, which are used if necessary, but only when necessary. In countless plants we’ve taken the robots away to simplify the process and focus on human loading and automatic unloading of parts.

The resulting process is much, much lighter and far more flexible. So it’s all about investment still, but a different nature of investment. One company I know has saved 3.4 million euros over the past two years by radically rethinking its investment in lean terms. This is real money, both in the accounts and in the cost weigh it imposes on the product. But also , it reflects taking the plants in a completely different direction in terms of how they think about capital equipment, with much lighter, much more flexible solutions that work for people (and are indeed largely designed by people) rather than the other way around.

As with anything in lean, the key to lean thinking in investment is kaizen. By getting manufacturing engineers to work with operators to improve the flexibility and reliability of existing cells, they start thinking differently about how they design the equipment. Rather than purchase machines and assemble them on a CAD drawing, they now think about parts flow and human movements. They build cardboard real-sized models and do kaizen on them with operators. They innovate and adapt so that the resulting capex is both smaller in financial terms, and more human friendly in production terms. More importantly, operators now have a say in the design of equipment, which creates a different form of ownership and use in the day to day of production.

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