Automakers Can Save Millions By Helping Sub-Tier Suppliers Become Lean

              
    TRAVERSE CITY, Mich., Aug. 7 While automakers and large
tier-one suppliers are making solid progress in implementing lean
manufacturing principles within their own companies, they're missing millions
-- perhaps billions -- of dollars in waste that's caused by their suppliers,
according to Joseph C. Day, chairman and CEO of Freudenberg-NOK.
    Day, who is one of industry's leading proponents of lean systems and
serves as the second-term chairman of the Original Equipment Suppliers
Association, made his comments here today at the Grand Traverse Resort, as
part of the 2001 Management Briefing Seminars sponsored by the University of
Michigan and the ERIM Center for Automotive Research.
    He urged industry leaders to support a new model of cost-effective, hands-
on lean training not currently available and to encourage -- if not require --
smaller, sub-tier automotive suppliers to adopt lean manufacturing techniques.
    "Today, there are no major initiatives to sponsor smaller suppliers in
lean training or to mandate the use of the SAE J4000 lean standard to spark
the supply community into action," Day said.  "In the absence of the
sponsorship of a lean training program, an outright mandate to practice lean
principles or new models to teach lean to the supply chain, it appears the
North American auto industry will make little progress over the next five
years."
    According to Day, the supply chain is ripe with waste-reduction
opportunities that can help suppliers meet cost-down requirements while
remaining profitable.
    "Even as lean as our $1 billion company is, we still have about $40
million in vendor-influenced waste in our system that we can only attack by
helping our suppliers learn lean," he said.
    Freudenberg-NOK has already trained 35 of its own vendors in lean
practices, Day said, and is benefiting from its suppliers' remarkable results,
including a reduction in defects from 5,000 parts per million (ppm) to less
than 500, an improvement in on-time delivery from 72 percent to 96 percent and
an increase in rolled throughput yield (RTY) of 12 percentage points.
    Day also chronicled his company's extensive experience with lean systems,
which he called a never-ending journey.  Since 1992, Freudenberg-NOK's ever-
growing lean systems program -- called Growtth(R) (Get Rid of Waste Through
Team Harmony) -- has helped the company to:

    *  Reduce its defect rate from more than 2,000 ppm to less than 50,
    *  Cut its cost of quality by 60 percent,
    *  Slash work-in-process inventory by 80 percent,
    *  Increase labor productivity by 25 percent a year, and
    *  Expand its revenue per 1,000 square feet of factory space by 350
percent.

    Lessons Learned
    Day also shared some of the lessons learned from his company's lean
journey:

    *  True success in attacking traditional waste comes only with the
"passionate and relentless execution of all facets" of the Toyota Production
System.
   Persistence pays off.  Day cited an example of a single manufacturing cell
upon which six kaizens were conducted over a three-year period.  During this
time, labor hours dropped 213 percent, productivity increased 246 percent,
work-in-process inventory was slashed 99 percent and distance traveled was
reduced by almost one-half mile.  He said some of the largest gains came in
the later kaizen projects.

    *  Advanced tools and techniques -- such as gap analysis, 3P (Production
Preparation Process) and quest events -- and the transformation of plants into
highly specialized focused factories can help companies accelerate lean
improvements after they have mastered the kaizen process.
    "With the shop-floor kaizen, we're attacking waste on the production
floor, where only about 30 percent of the product's total cost resides," Day
said.  "If we can use the lean approach called 3P when we are first developing
the product -- and the process that will be used to produce it -- we can
attack the waste opportunity in the other 70 percent of that product's total
cost."

    *  The lean culture provides the ideal foundation for the rapid and
successful implementation of Six Sigma quality disciplines.
    "Six Sigma and lean systems are closely related ... and when you use them
in tandem, as we have, they can create some terrific synergy," Day said.  "We
found that launching Six Sigma was much easier -- and much more successful --
with the lean continuous improvement culture already firmly in place."

    Day concluded his remarks with a call to action: "We must bring our own
suppliers -- and our customers, if need be -- into the lean culture, because
until the whole system is involved in a common approach to the elimination of
waste, we'll still be leaving a lot of money on the table.
    "For the (North American auto) industry to prosper, we have to share lean
practices throughout the supply chain ... we have to create real-world,
practical lean training programs that small companies can afford ... and we
have to create some bold new economic models that will provide the proper
incentives," he said.
    Plymouth, Mich.-based Freudenberg-NOK is part of the Freudenberg and NOK
Group Companies, which have total annual sales of nearly $7 billion.  With
global automotive sales of approximately $4 billion, the Freudenberg and NOK
Group ranks among the 16 largest OEM automotive suppliers (per Crain's Detroit
Business) and is one of only eight in the top 100 that has global balance in
each of the three major automotive markets -- Asia, Europe and North America
(according to Automotive News).
    Through a global network of facilities spanning 27 countries with some
25,000 automotive employees worldwide, the supplier group offers its
automotive customers globally integrated products, including sealing packages
for transmissions, engines, brakes, axles and steering, NVH (noise, vibration
and harshness) components and packages, and all rubber, plastic and PTFE
components for suspension, electrical and fuel systems.