Embracing Lean - Finding a New Approach for Food Factories in Partnership With

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Embracing Lean - finding a new approach for food factories by Chris Anstey

1.0 Introduction created a new threshold for quality that no producer can hope to offset “All we are doing is looking “Measuring work is not enough. merely through low prices based on at the time line, from the You have to measure value.” cheaper ingredients, packaging or moment the customer gives Bill Waddell wages. This paper will tell you about us an order to the point how those ideas are being taken In the aftermath of World War II, when we collect the cash. from car production and are starting manufacturing processes around the And we are reducing the to be used for food production. world went through a revolution. time line by reducing the non-value adding wastes.” The growing demand from Lean provides competitive consumers for better, cheaper advantage. In the food industry, it’s Taiichi Ohno products put pressure on ranges, a closely guarded secret. Engineer and Assembly prices and delivery times. Starting in Manager, Toyota, 1943-75 the motor industry, the concept of The old thinking: “If it’s not broken, Lean Manufacturing was created by why fix it?” Japanese carmaker Toyota. Inspired The new thinking: “Drive for by visits to car factories in Detroit efficiency. Create more customer and influenced by new thinking value with less waste.” from American retailers about stock control, Taiichi Ohno and Eiji Perhaps you work in a food factory, Toyoda developed “the Toyota Way”. whether in a quality or operational By the early 1960s, they had worked role. Your industry is under pressure out the principles of what became from food legislation, retailers known as Lean Production. and consumers. Perhaps you look around your factory and instead Their managers had to understand of thinking about the way things the ‘what and why’ so they are, you are thinking about the way could take back control of their things could be. organisations. It took time for other car manufacturers to follow You will read in this paper about but now they all operate in this how methods, focus and values way. Without ‘Lean’ they couldn’t can change. If you do what you compete. It has taken more time always did you get what you always for other industries to follow but got. Lean is providing the world of now Lean principles are becoming food manufacturing with a new the norm for manufacturing framework for change. everywhere. Lean production has Embracing Lean

Contents

1.0 Introduction 2

2.0 Market drivers 4

2.1 Standards and food safety 4

2.2 A tighter focus on production efficiency 4

2.3 People 5

2.4 Complimentary approaches for driving 7 operational efficiency

3.0 Problems 9

3.1 Engaging with leaders 9

3.2 Failure 9

3.3 Product changeovers 10

4.0 What change looks like 11

4.1 Moving towards Lean 11

4.2 The elements of Lean production 12

5.0 Solutions and opportunities 14

5.1 The search for understanding 14

5.2 Retailers and brand manufacturers 15

6.0 Recommendations 17

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Section 2 Market drivers

2.1 Standards and food safety 2.2 A tighter focus on production efficiency Where does safe food start? Is it with standards? Not really, though they Food factories need to find both are clearly important, because food flexibility and efficiency. When safety starts with people. The key is producing mature products in through employee training and the low growth market segments, the development of a food safety culture. emphasis on these characteristics Continuous improvement starts become more important. Driven with leadership and finishes with by globalisation, in many food a positive culture where failure is industry sectors competitive price understood and its causes are shared points have been found by creating so that everybody works together. low-cost products based on re- engineered product specifications However, any revaluation of factory with cheaper ingredients, packaging efficiency must respect the relevant or labour. food safety standards, such as FSSC22000, IFS and BRC, which set Outside of the food industry a requirements that represent new revolution of operational efficiency challenges for Production Managers. has happened based on the There’s also a second layer of principles of ‘Lean’ production. It requirements laid on top of these has reduced failure, with its usually certification standards by many unknown costs, by creating a new retailers and brand manufacturers threshold for product quality. No because they consider them to low-cost producer can hope to offset represent the minimum. such a competitive disadvantage merely through efficiencies from low Meanwhile, the market demands wages. They need to find out how to innovation. Driven by demanding improve efficiency. consumers, the complexity of ranges increases, meaning short There is a squeeze on price while production runs and more batches. the costs of raw materials and labour increase. There’s also the ongoing rationalisation of suppliers by buying companies. Inefficient factories are under scrutiny.

Footnotes:

1. Food Safety System Certification 22000, International Featured Standards – Food and British Retail Consortium – Global Food Standard. 4 Embracing Lean

Section 2 Market drivers

2.3 People Key deliverable “Workers know what is needed Continuous Working with operational teams they must show to improve their jobs, and Improvement measurable improvement in productivity. companies that do not tap Leader Faster changeovers, reducing motion and stock. into this significant source of Less waiting and a decrease in over production. knowledge will truly be at a competitive disadvantage.” Dr Joseph M. Juran (1991) Production Delivering the required manufacture of finished Manager products while meeting and exceeding production The relationships between performance, people, quality and yield targets. operational and technical teams in food factories are characterised by tensions that tend to be destructive Hygiene Organising and completing all site rather than creative. The operational Manager cleaning requirements. team is driven to reduce waste Ensuring cleaning processes, procedures and good and achieve delivery targets. The manufacturing practices achieve best practice. technical team is driven by their quality management systems and Quality Ensuring that food safety is delivered, quality systems a focus on critical control points. Manager are maintained, legislative requirements are achieved Overriding this is the need and customer expectations are met. for leadership to create a positive culture for continuous improvement. That means these leaders need to understand how to change the way people behave.

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Section 2 Market drivers

Working together, they need If you are answering yes to all of to find compromises that will these questions then you may be improve efficiency while delivering familiar with these two roles: safety and achieving compliance standards. There are new questions • Lean Facilitator. Partly about for these leaders. conducting site diagnostics to develop practical implementation − Does your maintenance team plans, mostly about working with function more like system the people through interviews, maintainers than fire fighters? mapping exercises and helping teams to analyse various − Is there a disciplined and shared performance data to establish the approach to problem-solving? potential for optimisation.

− Do you create the appropriate • Lean Manager, not only using expectations for your staff that Lean tools and philosophies for problems will be resolved? value chain analysis but also training and coaching employees − Do you expect your subordinate across the whole site, aiming to managers to answer these embed continuous improvement questions as you do? throughout all functions. − Do you really understand There is a change going on. 10 years what happens? ago, what jobs in factories were specialised in delivering efficiency? Is this influx of new skills and specialities the sign of a revolution within food manufacturing to follow the transformation of the motor industry?

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Section 2 Market drivers

2.4 Complimentary approaches − Total Quality Management (TQM) for driving operational is often used interchangeably with efficiency TPM but it focuses on the product rather than the equipment. TPM “I have been impressed with the helps deliver TQM which is about urgency of doing. Knowing is not motivation through a shared enough; we must apply. Being vision, joint ownership of every willing is not enough; we must do.” problem affecting the customer Leonardo da Vinci and making sure that decisions are based on data. Standard business practice is that you can’t increase the selling price − Lean Production, based on unless you can clearly demonstrate Toyota’s highly successful to the customer that there is some production system, Lean looks new added value or an unavoidable to maximise customer value and increase in underlying costs. Usually shorten the Cash Conversion that means if you want to increase Cycle by identifying and your margins to be more profitable, eliminating non-value adding you must take it out of your activities (waste). Six Sigma, operating costs. based on Motorola’s approach to quality improvement, provides The various continuous a structured problem-solving improvement models designed methodology that helps the team to improve operational efficiency logically define the problem and share many features. find a solution. − Total Productive Maintenance − Kaizen is an idea developed (TPM) is about improving the in Japan. It supports Lean integrity of production and quality production by introducing the systems through machines, idea of continuous improvement equipment, processes and as the responsibility of everyone. employees that add business value. Improving efficiency becomes a Its key focus is to keep all equipment continuous process, not a one-off in top working condition to avoid activity. Kaizen implies that even the breakdowns and delays in the smallest improvement should be manufacturing process. made because when combined and multiplied they lead to big savings.

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Section 2 Market drivers

Case study: Cargill Meat

Cargill Meat Solutions in Nebraska, USA invested in training on Lean manufacturing for a team of employees who were then able to improve the range of business processes.

They came up with some simple and easy to implement changes:

A. The tray former machines were slowed down to improve box quality by 50%, extend machine life, and reduce “just in case” box inventory by 75%.

B. A ‘kaizen’ event was held in the ground beef packaging area to reduce packaging waste. The 5S tool was used to sort, set-in-order, shine, standardise and sustain the ground beef packaging area.

C. They created a 30-second rule workplace. This means that any employee or visitor will be able to know exactly where they are and what activities occur in that area within 30 seconds. This is being accomplished through the usage of signage along with pictures and symbols.

− The 30-second workplace helps reduce waste caused by people unfamiliar with the facility and processes.

− It also increases awareness to individuals who may not have experience in all areas of the facility, which will help with process understanding, safety, and productivity.

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Section 3 Problems

3.1 Engaging with leaders 3.2 Failure

“There are three kinds of leaders. “A bad system will beat a good Those that tell you what to do. person every time.” Those that will allow you to do W. Edwards Deming what you want. And Lean leaders that come down to the work and For the food industry, failure can help you figure it out.” cost lives as well as money. The John Shook excessive costs associated with CEO, Lean Enterprise Institute product recalls drives a safety first attitude and stifles innovation in Operational efficiency can only be finding a new approach. achieved when championed by the leaders. They provide permission There’s more to failure than food and encourage motivation to those safety and product recalls. There that actually do the job and make are also customer audits, health and the changes. However, leaders tend safety, machine breakdowns, human to be driven by short-term thinking error, inadequate raw materials and set within a KPI culture. the list just carries on.

Consider the first question Finding solutions to failure isn’t easy that is asked when looking at a either. There are plenty of Lean tools manufacturing process through that can be used or a straightforward a Lean lens. How small can you team brainstorm session can throw keep your stock? Lean views stock up insights and opportunities. Things as waste because it represents go wrong all the time. As the day- both time and investment. Leaders to-day priorities arising from failure consider that stock is an asset, after emerge and take over people’s time, all that is where they will find it in the opportunity to decisively solve the balance sheet. If they are to an earlier issue is missed. reduce their inventory, the inevitable In any food factory that is not consequence will be a short-term working well, where mistakes and impact on their bottom line. inherent problems hamper the Many leaders don’t let themselves opportunity for the operational see the vision of future efficiency teams to achieve efficient product because they’re worried about for their customers, the outcome short-term losses. Their fear of of stress for individuals can loss outweighs the reward of gain. become a health issue. The effect Without the support of leaders who of such inefficient operations will are prepared to give permission and always be seen on the bottom take that short term pain, then the line. That undermines their ability motivation of people will drain away. to compete on price with their competitors. Inefficiency and failure is not sustainable. 9 Embracing Lean

Section 3 Problems

3.3 Product changeovers To be reliable, machines need to which means you reduce by half be looked after. Maintenance time, the amount of time that ingredients “Speed is often confused itself a cause of production delay, spend in the factory. That will with insight. When I started is a further investment in avoiding reduce your total lead time and with running earlier than the others, downtime. Dedicated lines may seem faster turnaround on the orders, the I appeared faster.” more efficient but in themselves they customers can get their orders faster. Johan Cruyff, Dutch footballer are quite inflexible. There is a tension Speed is important but it is precision between investment, maintenance that will drive overall change. Customers want new products and flexibility. all the time. Retailers and brand It may result in more changeovers manufacturers respond with constant When 70% of food manufacturers but just like with pit stops in Formula innovation in products and packaging in a recent survey said “throughput One, you can still win the race. because it drives sales. Over the and processing efficiency” is their years in food factories everywhere, primary operational focus, any time this drive for variety means that the saved during product changeovers frequency of changeovers tends to is important. Any search of industry be always upwards. websites will throw up hundreds of stories about how to reduce In food factories the changeover is your downtime. For the most part, the main cause of downtime. This these are about selling equipment. In 2009 machine drives expense, increases waste There’s also the story of how teams downtime cost the and raises questions about product themselves can work out how to European Food recovery. For those that are able to save money without spending any. Manufacturing industry invest there are emerging equipment a total of €32.2 billion improvements that will speed up Whether investing in equipment or in lost productivity. It changeovers in depositors, pipes, improving efficiency of changeover could cost you, as a heat exchangers and mixers. routines, the constant question that manufacturer €125,000 in needs to be answered is whether it The amount of time spent per lost production per year can be demonstrated that customer changeover can be reduced. For the (approximately €1,055/ value is being added. Operational long-term, the efficiency benefits hour whilst the equipment efficiency must be based on of investing in the right equipment is idle). In most plants, the improving the understanding of may have a compelling business main cause of downtime is customer value. If the answer is yes, case. However, there are always product changeover. then change needs to happen. ways to improve changeover Source: Digilib without investment. If only 5 Changeovers don’t have to be bad. minutes can be saved in one day in How about reducing batch sizes by every year there will be an extra 20 half? That means you can process hours of production capacity. Small in half the time. That means you improvements can yield big results. reduce queueing and waiting by half

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Section 4 What change looks like

4.1 Moving towards Lean Case study: Arla Foods Change is happening. There is competitive advantage being In 2010 their Annual Report identified efficiency improvements in found by the early adopters. A dairies in both Denmark and the UK of between 15 and 30% without comprehensive survey through increasing investment. Encouraged by these early results, they annual reports to their shareholders accelerated the Lean roll out to their remaining dairies. for food companies that are well known to be using Lean In 2011 Arla Foods saved a further €53 million, getting more techniques revealed few examples production out of existing equipment and resources instead of of transparency. The advantages adding new capacity. of Lean techniques for the food In 2012 they announced plans for savings of €270 million over the industry are not openly discussed. next three years through their investments based on an evolution There was one exception to this of their Lean programmes. The scope of the changes included corporate communication silence. operations, procurement and organisational improvements. Arla Foods is a dairy company “Our UK business succeeded in increasing both its earnings and and cooperative, the world’s sixth volume in 2012, but present levels can only be maintained by largest. It has built the world’s being the market’s most cost-effective dairy. That is why we largest fresh milk facility in are focusing on streamlining its supply chain and investing in Aylesbury, UK which is entirely run LEAN programmes.” on Lean management principles. In 2013, against the backdrop of slowing core markets and fierce competition, they shared their plans for further efficiencies, explaining how their OPEX (Operational Excellence) programme had been implemented.

“OPEX is about the sharing of knowledge across Arla. It’s about creating a knowledge bank which can pave the way for sharing and applying best practices within a number of supply chain processes. Lean is a precondition for OPEX. While Lean focuses on the individual dairy’s structure and use of knowledge and efficiency improvement tools, OPEX looks at all the dairies.”

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Section 4 What change looks like

4.2 The elements of These are the standard steps where Lean production waste can be found and reduced and can be remembered by utilising “Improvement usually means the mnemonic device DOWNTIME doing something that we have to remember all 8. never done before.” Shigeo Shingo, Toyota Defects/Rework - Any product that does not meet customer To properly understand Lean specifications, includes rework, production, we must look at every defects, scrap or inspection step in the process, beginning with product design and ending beyond Overproduction - Producing more the factory with the customer. The product or information than the use of Lean will bring all these steps customer needs or before needed into harmony and result in efficiency. Waiting - Idled due to people, parts, Lean, always considering the needs machines or information of the customer, classifies every activity into just three types: Not utilising resources - Not fully utilising employees or transferring A. Value adding: activities that a knowledge customer would be willing to pay for which help create the final Transportation - Unnecessary form or function of the product. movement of material, product or information B. Non-value adding: activities that need to be done but don’t create Inventory - Raw material, work in benefits for the product. process, spare parts, equipment or finished goods C. Waste: activities that don’t create benefits and are therefore Motion - Non-value added unnecessary movement of people and machines

Waste might be an activity, a Excessive Processing - Unnecessary tangible product or resource that or over performing processes, tasks is not properly used. Anything and operations that does not directly lead to the completion of the process is a wasteful activity.

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Section 4 What change looks like

Case study: Nestlé

Nestlé Continuous Excellence (NCE) was started in 2008 and is based on a combination of Lean and TPM (see section 2.4). In the Nestlé annual report for 2012 NCE delivered €1,23bn savings, 1.6% of total sales. Even though the context is within the world’s largest manufacturer and marketer of foods, the inception, rollout and adoption of NCE to deliver such extraordinary savings provides a lesson for competitors.

In 2012, the Times newspaper in the UK published a case study about the work done by Nestlé in planning for their new water bottling factory at Waterswallows in Buxton, UK. Starting with a Lean production technique “Value Stream Mapping,” then moving onto a Kaizen exercise in waste analysis. The factory was built using Lean principles based on the outcomes of that new understanding of waste. This resulted in improvements included a more compact working area, more efficient warehouse on-site, improved health and safety by separating the area for forklifts and the relocation of pallet storage and recycling.

In the Nestlé Annual Report for 2013, there was no further mention of NCE.

Source: Nestlé Annual Reports 2012, 2013. www.businesscasestudies.co.uk

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Section 5 Solutions and opportunities

5.1 The search for Lean • The weakest point of the system will Understanding will help deliver understanding be stressed and broken. consistent change and transformation in the thinking and development “Experience is the name everyone • Operations will be pushed close of new practices. Put simply, the gives to their mistakes.” to the edge and to become as tight objective of a Lean system is to drive Oscar Wilde as possible. the need for waste elimination and continuous improvement. It is to Whatever your role is within the Bearing this in mind, there are some push beyond the comfort zone and factory, whether in production, quality fundamental cultural challenges to drive improvement to develop and or hygiene, understanding is the be faced: strengthen the reliability of the system. foundation on which improvement A. The disciplines required for must be built. There is so much The benefits of Lean can be great implementation may conflict information available, whether but they come at a price of shared with the culture in your factory. from analysis of process data or just determination and hard work. by asking people what they think. For example, a management The real challenge is working out culture that is not about the appropriate question to ask empowering individuals to come “I’ve been working on Lean for and knowing what to do with the up with ideas to change and see over 30 years. I understand information. them considered seriously will how to identify ways to make immediately be in conflict with improvements but on my own Even then, once you have the what is needed. it’s not enough. What I need information, there are two ways to go. B. Those embarking on change is thousands of people that It is no good spending a lot of money are prepared to change. If you on statistical process control software programmes in traditional mass production will face inherent think Lean is just about using or machine upgrades if you are not some new tools you’re missing going to be able to use them properly cultural beliefs from the employees. Concerns about job displacement, the point. You must take a look and manage the results of your at the whole concept of change investment appropriately. outsourcing, downsizing and layoff will drive defensive and obstructive management. Sustainable The key to success is not in the behaviour. Human nature is to change just cannot happen organisation chart, it is in the seek comfort because it represents without the people. Lean is behaviour of the people and in safety and security. Urgency, stress quite personal and I don’t take particular of the leaders. In the search and discomfort, just some of the it lightly that I’m asking people for understanding, it’s characteristics of change, to change. From the start you worth bearing in mind some of represent danger and invoke need to help people decide to the outcomes of a successful a “fight or flight” response. make this a part of their day- Lean implementation: to-day work culture. If they do, C. Lean practitioners are prone to Lean is always successful.” • Problems will surface quickly and focus too much on their tools and obviously (at times painfully). methodologies and fail to focus Joseph LaCount, Continuous on the philosophy and culture. Improvement Lead, Lean • A sense of urgency will automatically Adequate command of the wider Six Sigma Master Black Belt. be created regarding system subject is needed to avoid failed Cargill AgHorizons, USA. reliability. implementations. (Interviewed for this paper)

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Section 5 Solutions and opportunities

5.2 Looking forward: Eight questions about Lean

1 What is it? A philosophy for continuous improvement. 2 Why is it different? It challenges conventional thinking. Work smarter, not harder. Lean thinking changes the focus of management from optimising separate technologies, assets and vertical departments to optimising the flow of products and services through entire value streams that flow horizontally towards customers. 3 Why would my A Lean approach can help improve quality, safety, lead times and efficiency. You factory want to go will collectively identify the issues that lead to errors and downtime. You will Lean? empower your teams to investigate root causes. 4 What are the signs Your margins are under pressure. Your cash flow is poor. Your downtime is not that we need to go being reduced. Your stock levels are too big. Your productivity is poor. Your Lean? competitors are doing it. 5 Why is it relevant Food companies are being squeezed between the rising cost of raw materials and for food? the never ending retailer price war. Lean is an approach that has been applied to all manufacturing. Whether you are making cars or food, there will be advantages and the first response is through looking for and finding operational efficiency. 6 How much does it Nestlé found savings through Lean of €1.23 billion, 1.6% of total sales in 2012. cost and what can it save? At the start of their Lean journey in 2010, Arla Foods found efficiency improvements of between 15 and 30% without increasing investment. There are costs as well. Cost benefit analysis from Lean, including return on investment, are difficult to plan in advance but there are known elements:

Costs: • Training and consultancy: €80,000 / 100 employees • Increased initial maintenance costs: +20% in Year 1 • Lean leader: 1 full time / 100 employees

Benefits: • Overall Equipment Efficiency (OEE = the ratio of the factories actual output compared with the theoretical full speed output): depends on project team’s work. • Increased sales: depends on your market, market share and prospects. Improvement is common due to improved delivery accuracy and shorter lead times. Also, direct labour costs will decrease as the OEE ratio increases.

Footnotes:

2. http://world-class-manufacturing.com Oskar Olofsson, Founder WCM Consulting. 15 Embracing Lean

Section 5 Solutions and opportunities

5.2 Looking forward: Eight questions about Lean (cont’d)

7 How do we start? The aim is to be hard on the process, not the person. A good place to start delivering that aim is with a flow-based approach, this is more likely to ensure a successful and sustainable programme.

Flow-based approach a) Understand the product flow. Resolve as many visible quality problems as you can, such as downtime. b) Get the internal waste recognised and its management begun. c) Make the flow of ingredients through the system or process as continuous as possible, using work cells and avoiding variations in operator work cycle. d) Introduce standardised work to stabilise the workplace. e) Start pulling work through the system, look at the production scheduling and move towards daily orders. f) Even out the production flow by reducing batch sizes, increasing delivery frequency internally and (if possible) externally. g) Improve exposed quality issues using Lean tools. h) Remove some people or increase quotas and repeat.

8 What about ‘root Root Cause Analysis is a process that helps guide people to discover and cause analysis’? understand the causes of a problem, with the goal of determining missing or inadequately applied controls that will prevent recurrence.

The aim is to find the cause, not deal with the symptoms. Initially it is a reactive method that detects and solves problems. As expertise is developed it becomes proactive and the technique can forecast failure. There is no single methodology but some general principles can be listed:

a) The primary aim is to identify the root cause and create an effective correction action that prevents it ever recurring. b) It must be systematic with a conclusion and backed up with evidence. c) there is typically one true root cause. Finding it requires persistence. d) An effective analysis establishes the sequence of events that demonstrate the relationships between the problem, the contributory factors and the root cause itself. e) It transforms an old and reactive culture into one based on solving problems before they escalate leading to an overall reduction of failure.

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Section 6 Recommendations

√ There could be a better way to do whatever you’re doing. “Lean is about working safer, increasing quality, creating flow in your process and reducing time. √ Be hard on the process, not the people. It’s about using proven techniques to engage with whoever does the job to drive improvement. √ Embrace the problem and make it visible. I love when I change from being a consultant and become a coach because the people I’ve been working with have started to own the Keep it simple and focus on one √ improvement for themselves. They stop waiting to be told what area at a time. needs to be done and start telling me what they’ve done”. √ Set achievable targets. Josh Northcutt √ Remember that lots of small Global Continuous Improvement Lead changes will add up to one Kimberly-Clark big change.

√ Build your understanding; you may be surprised.

Then take it from there.

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Acknowledgements

Many thanks to everyone who shared their knowledge to help with this work.

The following people were interviewed between August and September 2013:

Josh Northcutt Global Continuous Improvement Lead Kimberly-Clark

Joseph LaCount Continuous Improvement Lead Cargill AgHorizons, USA

Writer Chris Anstey

Researcher Cameron Telford