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Lean helps assure survival of fittest

A philosophy of cutting waste, improving efficiency is gaining traction beyond manufacturing floors

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The first time Robert Devine heard about lean operations was when he took Hartz Mountain private. After the 2000 buyout, 'we had a culture that did not know how to operate in a leveraged environment,' he says.
The first time Robert Devine heard about lean operations was when he took Hartz Mountain private. After the 2000 buyout, 'we had a culture that did not know how to operate in a leveraged environment,' he says. - (AARON HOUSTON)

When Robert Devine wanted to take pet supply company Hartz Mountain private in 2000, the then-CEO did so by putting substantial debt on the company's balance sheet.

That, he said, was when he learned about lean operations — a workplace philosophy aimed at cutting waste and boosting efficiency.

"When you have no debt, how much money you make every year isn't critical," Devine said. But after the buyout, "we had a culture that did not know how to operate in a leveraged environment" — something Devine had to change. "We could no longer carry excess inventories or give our customers extended credit. And we had to attack our processes to make sure everything we were doing was adding value to our products and services."

These days, Devine advises clients of the Sax, Macy, Fromm accounting and consulting firm on how to implement lean, which is rooted in manufacturing but today is used to boost competitiveness in the services economy: law, engineering, distribution, retail and transportation.

Morristown-based Berger Group Holdings, an international engineering company, worked with lean consultants from CohnReznick to streamline its accounting processes. Luke McKinnon, chief financial officer of Berger, said over the past three years, he's reduced his accounting staff by 40 percent. Previously, most invoices were on paper — "We figured out that an invoice in this company was being touched 15 times," he said. Now, about 80 percent of invoices are handled electronically.

"We take a process that in the past was not measured, and we measure it so we know how long the process takes at each stage," said David Rubin, of CohnReznick. "If I have superfluous, wasteful, nonvalue-added steps, I want to take those out, because those are things that are adding to my cost, and the customer is not really willing to pay for them."

Lean also paved the way for Zodiac Emergency Systems when it needed to improve its manufacturing process.

"We radically changed our production line," said John O'Donnell, president of the Wall Township-based manufacturer of slides that evacuate passengers from airplanes in an emergency. He said Zodiac moved to a "single piece flow" system, in which each slide moves continuously through a single production line. Previously, various departments — cutting, assembling, thermal bonding — worked independently on each slide, and "you could not see how the product flowed through," O'Donnell said. "Now, you start at the beginning of the line, and the product ends at the end of that same line."

Consultants from CohnReznick helped Zodiac achieve a 50 percent reduction in "cycle time," the time it takes to make a slide from beginning to end, O'Donnell said. "We've also saved a lot of space and reduced work-in-process; we don't have as much money tied up in stock, and that helps with working capital." At its Mexico factory, "we saved 30 percent on floor space and increased production by 20 percent."

Allen Wilen, a partner in the EisnerAmper accounting and consulting firm, discussed how he advised a New Jersey parts supplier that had to downsize to survive the past recession.

"I walked into the company and realized that all these people and all these processes had not changed over the years, because they were making money," Wilen said. Profits, he added, can be a disguise: "Making money is the easiest way of hiding inefficiencies in a business."

But, he said, there's a flip side to work force downsizing. In a recession, "there are some incredible people out there looking for work. We have taken marginal players and replaced them with A players, and upgraded the talent base — at the same cost, if not less."

In some cases, Wilen has advised clients to outsource overhead functions like human resources and transportation, so these become variable costs that fluctuate with revenue — rather than consuming profit when business is slow.

There's a widespread view in the workplace that the recession's layoffs piled an unreasonable amount of work on the remaining staff. But Wilen said that's not inevitable: "The people who are working twice as hard typically are at companies that didn't change their processes. They just did the same thing they did before," only with fewer people.

Devine, of Sax, Macy, Fromm, said lean is critical, because "the economy is going through a transformation facilitated by technology, which has displaced so many people. Companies have had to look inward, because they have not grown over the years, and many of the things they do don't add value to their product or service."

Devine said he believes in getting the whole company engaged in recommending ways to improve the operations.

"The first complaint I hear from the staff is, 'I need more resources — I don't have enough help.' Then we do our assessment and find that companies are typically only getting 50 or 60 percent out of their people," he said.

The goal is for companies to implement efficient work processes that free up resources to develop new products and services that will grow the business, Devine said. "If companies operate more efficiently, and we're more competitive on a global basis, then we can stimulate the economy to grow."

Devine gave an example of a company that pushed itself to become very lean, redirected its resources into new product development, and became one of the fastest growing companies in its sector. The result: It was purchased by a company that saw its own innovation pipeline stalled, and needed to buy the lean company to tap into a steady stream of new products.

E-mail to: beth@njbiz.com
On Twitter: @bethfitzgerald8

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Beth Fitzgerald

Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.

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