Harvard Business Review
The full version of this article is available on Harvard Business Online (subscription required).
The Idea in Brief
For all the talk about lean manufacturing, it still seems to be the exception: Factory floors are cluttered, bottlenecks delay production, and the wrong products pile up in inventory while the right ones can’t be found. Fixing a dysfunctional factory isn’t easy, but consider this surprising case from Germany, where resistance to managerial innovations on the factory floor has traditionally been strongest.
Rather than close a poorly performing plant, materials manufacturer Isola Group gave workers a chance to start over, literally and symbolically. Inspired by the Japanese tool known as the five S’s—for “sort,” “store,” “shine,” “standardize,” and “sustain”—plant managers asked the workers to clean out the factory and suggest ways to make it more efficient. First, out came 70 tons of excess “stuff”—60 empty inventory racks, 100 cubic meters of unneeded packaging material, 150 pallets of empty drums—hauled away in 45 truckloads. Next, the workers came up with 800 ideas for improvement, most of which were ultimately implemented. Then employees used more than 150 cans of paint to give the place a face-lift.
Then managers took off their ties. Everyone donned the same uniform: factory coats and protection glasses. The head of site, production planner, and site controller turned their work space on the shop floor into a “project office” and continued to invite informal feedback; soon workers were dropping by to offer suggestions or report problems. The project office team also sponsored more formal sessions with workers on all shifts to discuss problems, analyze root causes, and rapidly identify solutions. Daily meetings on yield losses provided quick feedback on the workers’ initiatives; every day, the project office team watched for glitches in the previous day’s yield and devised countermeasures.
Finally, the team asked: “What is the current true performance level of the plant? And what is an achievable level?” Central controllers had in the past set arbitrary performance benchmarks, none of which made sense to the workforce. So the team selected new targets for productivity and yields—targets based on employees’ own assessment of their capabilities—and developed and posted charts in common areas so everyone could track the plant’s progress. The fact that management was listening to workers’ ideas—and was quickly trying them out—helped boost morale and directly improved processes, reducing cycle times and virtually eliminating work-in-progress inventory. As the initiative gathered momentum, employees began volunteering to work overtime on improvements.
The results? After three months, the plant achieved a yield boost of 4%, from 91% to 95%, with each percentage point of improvement representing about $850,000 in annual material-cost savings. Additionally, EBITDA improved from roughly a 15% deficit to break-even. The plant is on track to deliver a 10% to 15% positive EBITDA by the year’s end.