Smiths Group, based in Durban, South Africa, credits its commitment to Lean for its recent impressive growth as a supplier to original equipment manufacturers (OEMs) in the competitive automotive industry. The company supplies automotive plastic, air conditioning, and engine cooling components to OEMs in South Africa and exports to various OEMs in Europe and the U.S. It operates with a Lean process called total industrial engineering (TIE), based on the Toyota Production System. Smiths credits its Oracle's JD Edwards EnterpriseOne-based system, first introduced in 1998, with providing the flexibility and the features to enable it to succeed. According to Wolfgang Ropertz, operations director for Smiths Manufacturing and IT director for Smiths Group, JD Edwards enabled the company to implement a just-in-time manufacturing system. One key component of the system is streamlined inventory management. For example, the system can receive orders via electronic data interchange (EDIs), a built-in feature of JD Edwards EnterpriseOne automated ordering. Smiths Group used JD Edwards to achieve Lean manufacturing objectives without requiring extensive customization. In May 2006, the company upgraded from JD Edwards EnterpriseOne EX B7.333 update 7 to version 8.10. Future plans call for Smiths to add JD Edwards EnterpriseOne Payroll and JD Edwards EnterpriseOne HR modules to update outdated standalone systems.

As Published In November 2006

On the Road with Lean
By Molly Rose Teuke

Smiths Group improves productivity with Oracle's JD Edwards EnterpriseOne.

In the fiercely competitive automotive industry, where Lean was pioneered, original equipment manufacturers (OEMs) and their suppliers face a do-or-die imperative to eliminate waste, reduce costs, and increase speed and efficiency at every step in the manufacturing process. For Durban, South Africa-based Smiths Group, the Lean imperative fueled a dramatic growth spurt. With six plants in South Africa's largest port city, Smiths Group supplies automotive plastic, air conditioning, and engine cooling components to all OEMs in South Africa and exports to several OEMs in Europe and the U.S. Smiths is the largest supplier for Toyota in South Africa, and counts DaimlerChrysler, Ford, Fiat, Toyota, GM, Nissan, BMW, Visteon, Volkswagen, Bergstrom (Lotus), Land Rover, and AVA Italia and AVA Benelux BV among its customers.

Recent growth has been dramatic: Fixed assets grew from R[rand]170 million in 2003 to slightly more than R400 million in 2005, and employee count doubled from 750 in 2000 to 1,519 today. Although Smiths' shift to Lean didn't gain traction until 2002, the foundation for it was laid in 1998 with a decision to upgrade its legacy systems with JD Edwards EnterpriseOne. Facing a number of business objectives—to align and centralize legacy applications; integrate production facilities for full business-process visibility; enhance manufacturing capability without increasing costs; and integrate manufacturing, distribution and finance systems—Smiths explored several options. Flexibility, notes Wolfgang Ropertz, operations director for Smiths Manufacturing and IT director for Smiths Group, was a key driver in its choice. "Cost, obviously, was also a factor," he adds. "Some choices were a lot more expensive than JD Edwards, almost prohibitive. There were others that were cheaper but didn't have as many features as JD Edwards. It was a middle-of-the-road option for us, cost-wise, but it gave us all the specifications and flexibility we needed."

Smiths began implementing JD Edwards EnterpriseOne early in 1999, and within a year it was up and running on the JD Edwards EnterpriseOne Financials and JD Edwards EnterpriseOne Sales modules. Automated sales order processing was a key benefit, allowing customers to place orders via electronic data interchange. Those orders were processed automatically into sales orders, which in turn generated pick slips for dispatch. "That process really helped us, and because JD Edwards is quite flexible, we could put that in place quite easily," says Ropertz, "Sales are updated every night. We get reports that allow people to see exactly what's happening on a daily basis. We created our own balanced scorecard, so we can readily track things like sales margins every single day."

But a strong sales operation depends on more than tracking. In the notoriously competitive automotive market, product precision is paramount and the ability to respond instantly to customer demand is a baseline expectation. In March 2002, Smiths implemented the JD Edwards EnterpriseOne Manufacturing module. "Once we went live with [JD Edwards EnterpriseOne] Manufacturing, we saw quite a lot of benefits," says Ropertz. "We were able to see the data and understand our supply chain better and could then really start honing in on where there were inefficiencies with regards to stockholding quantities or inventory policies. We also started automating nonstock purchasing requisitions, whereas before, that was all manually done and it took too long and too many resources to get approvals.

"From a manufacturing point of view and from a financial point of view, we could see what was happening," Ropertz adds. "It gives us quicker response time to situations that are odd, and you can then take the appropriate action. Previously, you had to wait for weekly reports or roll-ups in the system, which take forever. The reaction time after that is just too long and decisions couldn't be made properly."

Jump-Start from Toyota

With business and manufacturing processes humming along under JD Edwards EnterpriseOne, the momentum toward becoming a Lean enterprise got an external boost. "Just after we introduced the [JD Edwards EnterpriseOne] Manufacturing module," says Ropertz, "we had some visitors from Toyota in Japan, who looked at our facilities and basically said we needed to do something special. That really kick-started us into a big drive for Lean manufacturing. Our growth had already started at that point. JD Edwards had allowed us to go ahead and increase the number of products and parts numbers and increase the number of sales orders without any issues, and now we needed to do something more than just our current manufacturing processes."

Today, Smiths operates with a Lean process called total industrial engineering, or TIE, based on the Toyota Production System. Smiths' TIE process relies on one of the basic tools of Lean manufacturing—a kanban system (kanban being a Japanese word for signal), which facilitates just-in-time manufacturing. "A kanban is a visual cue that authorizes the replenishment of inventory at a specified consuming location or process in a 'pull' environment," explains Ropertz. "As kanban inventory is consumed, a replenishment action is triggered when the holding bin is emptied. The preceding process then produces and replenishes the inventory. There's a pull at one process, which pulls on the next process, which pulls on the next process. You're filling up stock along that particular manufacturing sequence as you go along, so you only produce what the customer wants. All you are doing with the introduction of a kanban system is sending signals from one process to another, requesting inventory. It's designed to minimize work-in-process inventories."

Snapshot Smiths Group www.smiths.co.za Location: Durban, South Africa Does business in: South Africa, Europe, and the U.S. Number of employees: 1,519 Oracle products and services: Oracle's JD Edwards EnterpriseOne, including Sales Order Management, Advanced Pricing, Advanced Inventory Management, Agreement Management, Quality Management, Requirements Planning, Manufacturing Management, Financial Management, Capital Asset Management, Procurement and Subcontracting Management, Human Resource Management, Payroll Management Database: Oracle9i Operating system: Sun Solaris 9 Other products and services: Sun Fire V880 (disaster recovery); Sun Fire V890 (main production); Sun StorageTek 3510

Smiths' kanban system receives many customer orders via EDIs (electronic data interchanges) built into the JD Edwards EnterpriseOne automated ordering. But not all of Smiths' customers are EDI-savvy, and Ropertz says the flexibility of JD Edwards is just as valuable in those cases. "We deal with suppliers from all around the world in addition to local South African suppliers," he says. "They're not all as sophisticated as we are—and yet there are others who are exactly the same as us. JD Edwards allows us to be sophisticated where we need to be, and it also allows us to produce hard copies, which we can fax off to other suppliers, so we can deal with all different levels."

One of the hallmarks of Lean is driving decision-making deeper into the organization, and that has happened at Smiths. "Actual analysis work is done at a different level," notes Ropertz, "because reports come out that give employees a heads-up on stock scenarios or stock problems. Employees can take action rather than having to wait for management to analyze it and then pass the information down. The flow of information and the reaction time to any situation is a lot quicker, and that has made a big difference."

In addition, a rigorous skills development program and continuous improvement teams support Smiths' Lean initiative. They're a critical element of Lean manufacturing, according to Sherrie Ford, chairman of the board and executive vice president of culture at Athens, Georgia-based Power Partners. "To make Lean work, you don't dictate it," she says. "You involve people in problem-solving teams. It's what led the Toyota Production System to succeed—the culture of coaching people to constantly ask, 'Why do we do it this way?' and 'Is there a better way?' That's what teams do—they continually monitor the value-add process, meaning from the time raw material hits your door, how good are you at transforming it quickly into a perfect product for your customer, with the least waste and greatest value for your customer?"

Teams on a Mission

At Smiths, some 74 mission-directed work teams led by line operators are encouraged to continually monitor manufacturing processes and identify where improvements in time, quality, or cost are possible. When suggested improvements are implemented, teams are recognized throughout the Smiths Group—another essential step, notes Ford. "Be sure you don't renege on the reward and recognition part of it," she says. "You want to make sure people get something as a result of having helped you implement these phenomenal solutions. Lean manufacturing is not only going to lower the cost of doing business, it's going to treat people with more respect because more people at the hourly salary level will be controlling their own destiny."

For Ropertz, one of the benefits of JD Edwards was the ease with which he could achieve Smiths' objectives while keeping customization to a minimum. That ease turned out to be the impetus, in May 2006, for upgrading from JD Edwards EnterpriseOne pre-Xe to version 8.10. "We were one of the first that went live with the [JD Edwards EnterpriseOne] Manufacturing module," notes Ropertz, "so there was quite a lot of work that we did with the developers in Denver to sort out a few issues. We had fixes written by JD Edwards and implemented in our software that are now included in the standard software. We wanted to get rid of those fixes and stick to the standard software."

The results underscore the benefit of having the right tools to implement Lean. Smiths has reduced its raw materials turnover from an average of 38 days in 1999 to 31 days in 2006. The warehouse inventory of finished goods for export was reduced from 11 days down to 4; inventory of finished goods for domestic distribution has shrunk to a day and a half. Payroll costs decreased from 22 percent of revenues to 16 percent over the same period, 1999 to 2006, and administrative costs decreased from 3.1 percent of revenues to 2 percent.

For More Information Oracle Solutions for Lean Oracle's JD Edwards EnterpriseOne

The next step for Smiths is adding JD Edwards EnterpriseOne HR and JD Edwards EnterpriseOne Payroll modules to replace standalone systems that use outdated technology and currently require duplicate input. Ropertz aims to integrate those modules with a new time and access system, creating a single point of data input, eliminating the need for two disparate databases and furthering Smiths' transition to Lean manufacturing. He hopes to complete this step in 2007.

"The automotive industry is very competitive and ever changing," he notes. "To keep up, we need to be very flexible and need to be able to adapt rapidly. JD Edwards came to the party and worked with us, and now we can see exactly what is going on in our plants, all the time. The reports we draw enable us to measurably improve our processes and, hence, our productivity. We have no regrets."

Trendwatch: Q & A Sherrie Ford, of Power Partners, talks about the muscle it takes to go Lean. Profit spoke with Sherrie Ford, PhD, president emeritus of the Southeast Region of the Association for Manufacturing Excellence and chairman of the board and executive vice president at Athens, Georgia-based Power Partners. PROFIT: What exactly is Lean? Ford: It's looking at your processes to figure out where you lose time and money in making a product. I think that almost everyone who raises his or her hand and says, "Yes, we are doing Lean," would say that they are following a Toyota Production System approach to streamlining their operations, and they can name the seven or eight classic forms of waste, the most egregious of which is over- production. The word Lean itself is meant to be the opposite of mass—as in mass production. Lean production means you only make what you sell. PROFIT: How would you define a Lean manufacturer? Ford: The ideal Lean manufacturer can speed up or slow down its production processes, based on the rate of orders by customers. For most companies, the transition to Lean is happening very slowly, painfully, and poorly, with many restarts. Sometimes they just quit and give up. PROFIT: Why is Lean so hard? Ford: There are a lot of reasons. One of them is because it rarely starts with finding out from people, from the whole culture, how they see things. They never get a chance to tell their story or share their understanding of what they think they've been through in the past and what they think they're about to go through in, say, the next three years, which is a typical Lean implementation horizon. You ask them, "Do you have the culture in place today to survive the changes you expect?" The answer is always no. Then you ask, "What would you change?" I'm talking about third shift, and maintenance, and everybody. Everybody in the plant has to answer these questions. You cannot imitate another culture's—Toyota's—solutions. You can only ask the questions and then develop your own definition of and process for Lean.