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How Freudenberg-NOK Became An Automotive Industry Powerhouse

BY TOM FAUST

Freudenberg-NOK began its lean journey in 1992. At the time, [we were] a batch manufacturing company and organized by process so all of our molding equipment, for example, was in one department or room. We would mold product in a large batch, maybe 50,000 or 100,000 pieces in a batch, then we'd transport that batch to a work-in-process inventory crib, where later a scheduler would take it out and send it to the finishing department. There, those parts would be trimmed and sprung and finally 100 percent inspected to separate the good ones from the bad ones.

The defects in this process were typically generated during molding, so they were not caught until much later. This drives up the risk of high scrap in a batch process. Finally, the good parts were audited by quality control, sent to a packaging area and shipped.

In this kind of arrangement, we produced 5,880 parts per shift, with 46 labor hours per day, with 36,000 pieces of work-in-process inventory. The parts would travel 2,214 feet. The scrap rate was nearly 7 percent. And the lead-time -- the time it took for the material to be transformed into a part and get through the system -- was typically 30 days. Our productivity was measured as 383 pieces per labor hour.

This arrangement identified in Stage I became the baseline for this product family. This baseline becomes the stake in the ground and the springboard for improvement activity.

In Stage II, we conducted our initial kaizen project and moved to more of a cellular environment. But at this stage we were really using lean tools to polish up a batch operation. This is generally where the auto industry is today. Here, the finishing operations were put in closer proximity to the molding press. Our pieces-per-shift jumped up to 6,060. Our labor-hours-per-day were reduced from 46 to 34. Our work-in-process inventory was reduced by 50 percent. And the distance traveled went from 2,200 feet to 670.

We also had a significant impact on scrap, reducing it from 6.8 percent to 4.1 percent. Our lead-time was slashed from 30 days to 20, and our productivity measure went from 383 pieces per labor hour to 534.

Overall, Stage II resulted in a modest improvement in capacity output, a pretty significant reduction in labor costs, a modest reduction in overhead and a substantial reduction on working capital required.

In Stage II, we were using a "low-hanging fruit approach." We were just trying to find the greatest area of opportunity: do a kaizen on that area and then move on to the next greatest area of opportunity. We were generating savings through those kaizen events, but there was no focus on systems.

In Stage III, or the model cell phase, we started thinking about the production system. We conducted another kaizen and put all of the value-added steps for this product into a one-piece flow U-shaped cell. The impact on performance from this step was profound. Our pieces per shift jumped to 6,840. Our labor hours per day dropped from 34 to 24. Our work-in-process inventory fell dramatically from 18,000 to 240 pieces. The distance traveled dropped from 670 to 20 feet. Our scrap rate was slashed from 4.1 percent to 1.3 percent. Our lead-time was slashed from 20 days to just five. And our productivity increased from 534 to 855 pieces per labor hour. All these improvements came just from moving the finishing operations in closer proximity to the molding operation, in terms of both distance and time.

Stage IV represents taking a whole series of model cells created in Stage III and organizing them on a plant-wide basis into a product focused factory and then developing the appropriate plant-wide support systems for those model cells, such as a plant-wide pull system.

In Stage IV, you have the opportunity to address your overhead costs. For example, when you link model cells in a product-focused factory and create a plant-wide pull system, you eliminate the need for scheduling, expediting and managing work-in-process inventory. It simply evaporates and with it goes at least one and maybe two layers of supervisors or management.

By converting to a focused factory, we made a huge gain in lead-time. While our other measures remained about the same, lead-time dropped from five days to just 24 hours and our overhead fell significantly.

In Stage V, 3P [the production preparation process] led to dramatic improvements over and above everything we had accomplished so far. Instead of one large press, we [implemented] four smaller presses and we organized all that into essentially the same footprint with the cell still running with the same one operator. 3P was used to obsolete and replace an existing press with a new one to achieve a breakthrough improvement in cost. In our cell's performance, our pieces per shift jumped from 7,000 to 9,570. Work-in-process inventory further dropped from 240 to 70 and scrap declined from 1.3 percent to 0.8 percent, reflecting the improved capability of the smaller presses. Lead-time was cut by a third, to 16 hours. Productivity jumped from 875 to 1,196 pieces per labor hour.

Overall, 3P had substantial impact on our ability to generate additional revenue, reduce labor cost, cut overhead and decrease working capital for this product. The capital investment cost for the same output dropped about 38 percent. The total manufacturing cost declined about 28 percent. This is another example of real purging of costs, not just shifting cost savings to the next tier.

We have dozens and dozens of 3P projects throughout Freudenberg-NOK, [an example of which is the] use of 3P when [we] added capacity for existing products. The original or baseline plan called for a capital investment of $3 million. After 3P, capital was reduced to $1.7 million. The original plan estimated manufacturing costs of $1.08; with 3P, this cost was reduced to 78 cents. Labor was reduced from 30 people to 13.

Keep in mind, 3P was done on an existing product and this existing process was already a highly refined, well-managed process. Yet 3P reduced manufacturing cost by almost 30 percent and cut labor 56 percent. This has now been in production for over two years.

In every case where we've practiced 3P, even in Freudenberg-NOK's already lean environment, capital was cut more than 40 percent, manufacturing cost was reduced more than 20 percent and labor content fell more than 50 percent. Now you can see why Toyota doesn't want to talk about it! It's the ultimate weapon in their system.

We found 3P, we used it, we tailored it and through the Lean Center, it's been transformed into a teachable tool that others in the industry can use. Our teaching tool for 3P has been Americanized and it conforms to QS9000 standards. Toyota's tool does not.

In Stage VI, the latest chapter in our evolution, we introduced Six Sigma, which has been a home run in terms of complementing our lean practices. Stage VI shows the impact of Six Sigma as we introduced that tool into our new 3P cell. The most significant impact of Six Sigma was in the reduction of defects.

Six Sigma practices helped us cut scrap from eight-tenths of a percent, already a respectable level by traditional standards, down to one-tenth of one percent.

--Tom Faust is president of The Lean Center and served as vice president for Freudenberg-NOK's GROWTTH program -- Get Rid of Waste Through Team Harmony.