Service center customers have been zealously adopting lean manufacturing practices for years. The same concepts can benefit distributors, as well.

By Corinna C. Petry,
Contributing Editor

Sidebars and Tables:

• What is Lean, Six Sigma?

Many, if not the majority, of the companies that service centers supply utilize lean manufacturing principles to one degree or another. To be truly effective as a source of steel, aluminum or copper, distributors need to understand and advocate—and preferably practice—the same cost-saving philosophy.

“Entering that environment without going lean yourself can get very expensive,” says Richard Kallage, partner of KDC & Associates Ltd., Barrington, Ill.
Lean manufacturing helps producers reduce inventories, lower labor costs and increase overall efficiencies. For distributors who follow the same concepts, one of the most obvious potential benefits is leaner inventory.

What distributors can do to match the needs of lean customers while still holding inventories low—beyond such services as just-in-time deliveries and kitting orders—is make their operations more efficient, says Kallage, whose firm consults on the applications of lean principles.

Lean principles already apply directly to the processing operations of most metal centers. For example, most shops that cut plate now have a plasma machine that nests shapes in order to reduce scrap. The goal is to apply similar concepts everywhere in the organization, from order taking to shipping.

Many manufacturers use the Six Sigma quality improvement methodology (see “What Is Lean, Six Sigma?” ), but service centers can get started with a simpler approach. Kallage says that “practical lean” can be boiled down to five basic practices designed to organize the workplace and eliminate waste. Think of them in terms of the letter “S”:

• The first S is for sorting: “Sort things that you need vs. those you don’t need, which get in the way of the job at hand.” Most people’s desks could benefit from this task.
  
• The second S is for setting in place those things you don’t need now, but still need easily accessible for when the need arises.
  
• The third S is for shine. “Clean the place up,” says Kallage. A clean workspace is an efficient workspace.
  
• The fourth S is for sustain and the fifth S is for standardize. These two are meant to develop the principles into a “rock-solid program,” Kallage says, that prevents shop floor employees from having to ask, “Where’s my wrench?” and salespeople having to ask, “Where’s my order?”
  

What all companies want—both manufacturers and distributors—is to take waste out of the system. One of the biggest sources of waste is inventory. “More inventory is not the answer to meeting customers’ lean requirements,” says Kallage. “Carrying the lowest possible amount to meet customer demand” defines lean distribution.

The core element of any lean program “is continuous improvement. A team-based approach is critical,” Kallage notes. Top management has to support and promote the program for it to proliferate throughout the organization. A cookie-cutter approach to lean won’t work because each organization is unique, the consultant adds.

He cites one simple example of a way distributors might simplify inventory visibility. To identify coils with the correct length, width and weight for a particular type of processing job, he suggests color coding the banding. “You could color code items so all the warehouse people know that a light-green band means it’s a quarter-inch-thick by 24-inch-wide 5,000-pound coil.”

Service center practitioners
Ferguson Metals and ESCO Engineered Metals Group are two successful distribution companies that have applied lean principles and benefited in measurable ways.

Lean distribution is another form of best practices, says Wayne Ferguson, president and CEO of Ferguson Metals in Hamilton, Ohio. “It’s a better utilization of assets, a way to drive efficiencies. You don’t have the fat.”

Now in its fourth year of practicing lean distribution, Ferguson Metals has been reviewing each part of its business and making changes to its operations from sales to shipments—by order, by processing service, by invoice, and “we have measured significant savings over that time,” Ferguson says.

He estimates the company eliminated $900,000 in processing costs last year as a result of lean distribution. This year, the focus is on inventories. “The task is to review every item to see if it fits certain criteria,” Ferguson explains. The question is: Does the item turn frequently enough and generate enough margin to keep it in stock? The review may prompt Ferguson’s purchasing and sales departments to buy fewer tons of an item, or price it differently.

Ferguson Metals’ mechanical engineer leads most of the lean initiatives in the plant. He and a team of employees studied how an order goes through the shop. “How many hands are on that order? Can we eliminate some steps? The goal is to add efficiency and decrease cost, and deliver a product that is superior,” Ferguson says.

One recent change occurred when the company expanded the main warehouse. Crews reconfigured most of the processing equipment to improve production flows.

The company, with grants from the State of Ohio, sent employees to training courses at Miami (Ohio) University. The whole organization has bought into the program, Ferguson says, which helps build teamwork and develop leadership. Shop floor employees can initiate reviews on their own. “It’s empowering to be able to suggest a change and know that management will listen.”

The changes have improved workplace safety and customer service. “The things we’ve done up to now have been immensely helpful,” he says. “It’s now an integral part of how Ferguson operates.”

The Engineered Metals Group at ESCO Corp., Portland, Ore., launched its lean effort about 18 months ago. The company’s training and development staff went to each of the metals group’s four locations to conduct “what they call Lean 101” for every employee, because “training is a huge part of this,” says Debbie Mode, general manager of operations.

Once training is completed, every employee should understand his or her role. “The guy packaging the order should know what steps to take to do it right the first time,” Mode says. Lean manufacturing and distribution should result in less scrap and fewer returns, provide better service and value to customers, and in turn help the company to get paid on time.

“It’s an amazing process when people get to understand it,” she remarks. “It is empowering for individuals.” The company has seen many programs over the years that promise quality and continuous improvement, “but we have never seen anything as powerful as lean.”

An example of ongoing applications was a project completed in June, when operators from each metal center gathered at Hayward, Calif., to learn how to perform Total Productive Maintenance on a plasma machine, “so every location will know how to do TPM.”

TPM is different from preventive maintenance, says Kallage. With productive maintenance, machine operators are running the equipment and looking for ways to improve throughput and quality and decrease downtime, not just greasing gears and tightening bolts.

ESCO lean leaders coined an acronym, QVS, for Quality, Value, Speed, which describes what the company seeks to deliver to its customers. The company measures the results of its lean effort through customer satisfaction surveys.

“We have done two in the past six months,” Mode says. The survey questions customers about returns and deliveries, and their responses “speak to how much business goes to ESCO vs. our competitors. We hope we’ll see that we’re getting a bigger piece of the pie.”

Meanwhile, the company has reduced the incidence of returned material, is meeting goals for on-time deliveries, and has reduced inventories and increased inventory turns. Further improvements are expected. “Having the right amount of inventory is very important,” adds Mode.

Among the resources ESCO relies on toward achieving Six Sigma and lean
distribution is the Association of Manufacturing Excellence (www.ame.org). “This is the top organization in the U.S. involved with lean. I recommend companies get involved with their regional and national meetings and programs.

The gurus of lean—who have gone to Japan and studied with the senseis of Toyota—are there,” Mode says. The company also belongs to the High Performance Enterprise Consortium, a group of Pacific Northwest manufacturing professionals, all of whom are involved with lean.

Lean distribution “doesn’t happen overnight,” Mode says. “It really is never-ending.” She notes that Toyota began its lean manufacturing program 50 years ago. “It isn’t over for Toyota and it isn’t over for us.”

What Is Lean, Six Sigma?
Lean manufacturing is a management philosophy rooted in the Toyota Production System and is meant to reduce the seven wastes—overproduction, waiting time, transportation, processing, inventory, motion and scrap—in manufactured goods.

Tools used in lean manufacturing include constant process analysis (kaizen), “pull” production (by means of kanban) and mistake-proofing. Lean, as a management philosophy, is also focused on creating a better workplace.

The key lean manufacturing principles are as follows:

• Perfect first-time quality: Producing zero defects, revealing and solving problems at the source;
  
• Waste minimization: Eliminating all activities that do not add value, while maximizing the use of scarce resources (capital, people and land);
  
• Continuous improvement: Reducing costs, improving quality, increasing productivity and sharing information;
  
• Pull processing: Products are pulled from the consumer end, not pushed from the production end;
  
• Flexibility: Producing different mixes or greater diversity of products quickly, without sacrificing efficiency at lower volumes of production; and
  
• Building and maintaining a long-term relationship with suppliers through collaborative risk sharing, cost sharing and information sharing arrangements.
  

Lean is all about getting the right items to the right place at the right time in the right quantity while minimizing waste and remaining flexible and open to change, experts say.

Deviation = Defects
Six Sigma was pioneered by Motorola engineer Bill Smith in 1986. It was first defined as a metric for measuring defects and improving quality, but has evolved into a way to manage process variations that cause defects and to systematically work toward managing variation to eliminate those defects.

The primary methodology called DMAIC (define, measure, analyze, improve and control) is used to improve existing business processes, and DMADV (define, measure, analyze, design and verify) is used to develop new product designs or process designs in order to guarantee a more predictable, mature and defect-free performance.

In applied mathematics, Six Sigma describes quantitatively how a process is performing. To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. A Six Sigma defect is defined as anything outside of customer specifications. A Six Sigma opportunity is then the total quantity of chances for a defect.