Lean in the Automotive Sector: On the Path to Success

Toyota is well known for developing the Lean system of thinking that seeks to minimize waste by improving efficiency. What is not so well recognized, however, is that since 2010 Toyota has experienced instances of excessive waste due to recalls caused by faulty car parts such as gas pedals, power windows, fuel tanks, or air bags. Developing and advocating lean methodologies is one thing; it is another to ensure that the principles are carried out in practice. Toyota has shown us the dangers of human error and that it is up to all employees within the company to prevent failures to adhere to the system in place.

On the other hand, committed adherence leads to substantial gains, and, as the competitive automotive sector is faced with an ongoing need for innovation combined with rapidly changing customer preferences, adopting lean becomes a ‘must requirement’ for those companies that wish to remain competitive. Companies throughout the automotive industry, from the largest car manufacturers to the smallest body shops, have shown that proven technologies and strategies can be successfully implemented to improve overall efficiency rates.

What is Lean?

The lean methodology was developed with the ultimate goal of reducing costs and increasing efficiency by identifying and eliminating activities in a given process (service or manufacturing) that fail to add value and yet consume resources. In the lean terminology, value is defined as ‘what the customer is willing to pay’. As a result, lean is heavily oriented not only to efficiency and cost reduction but also to creating value to ensure customer satisfaction.

On the other hand, Six Sigma is a system developed with the goal of controlling variation and making processes more consistent and reliable to ensure the quality of deliverables. The combination of Lean with Six Sigma results in a faster creation of value at the lowest possible cost.

Lean/Continuous Improvement within the Automotive Sector

Efficiency improvements in car production and manufacturing companies have been well documented, but the lean methodology can be applied to all companies tied to the automotive sector, from those focused on the manufacturing of automotive parts to car repair and body shops. All of these companies experience operational challenges and are prone to inefficiencies, such as excessive movement/transportation, delays, bottlenecks or slow billing.

One of the essential mechanisms of lean methodologies is to measure and analyze key performance indicators (KPIs) in order to identify root causes of inefficiencies and waste. Some KPIs that are vital to monitor include manufacturing costs per unit, overall equipment effectiveness, average downtime, and utilization rate (the capacity rate during available production time as a measure of how time and labor is being used).

In automotive manufacturing, Lean provides the tools to look at these KPIs and apply many principles and techniques to reduce waste. These techniques include Kaizen events that are based on the idea that the foundation of continuous improvement is employee suggestions, which is accomplished through repeated team exercises. The Kanban system seeks to “pull” the product through the production process based on customer demand to avoid both excess inventory and running out of stock. The 5S system (sort, set in order, shine, standardize, and sustain) improves quality and efficiency through workplace organization.

The Lean and Six Sigma systems work well when combined because their objectives are aligned while approaching the identification of root causes of waste in different manners, either by focusing on optimizing production processes or eliminating waste that results from variations in processes. Finding the balance between a bottom-up method, which begins with employees involved directly in the production work, with a top-down method, which uses experts and higher-ups to act on collected data, increases not only the range of problems that are identified but also potential solutions. The Six Sigma method utilizes the DMAIC improvement cycle, which involves five steps to improve an existing process or product:

• Define
• Measure
• Analyze
• Improve
• Control

It is difficult to overstate the positives that are gained by applying Lean Six Sigma methodology in auto manufacturing organizations. Rather than reacting to problems, lean companies are able to be proactive in the search for improvements while focusing on the customer. Root causes are identified, and the issues are resolved effectively and efficiently, leading to reductions in cycle times and defect rates. Tangible, measurable benefits include increased profit margins within the first months of implementing lean (greater than 10%) or increased revenue in the first year of operating with lean processes (over 40%). One simple solution involving monitoring employee foot traffic with the use of pedometers can reduce unnecessary motion by up to 75% through rearranging workstations.

As an example, GM was faced with a shortage of 22-inch chrome wheels for their Cadillac Escalade SUV in 2015 when the supplier was unable to meet supply requirements. Re-engineering the wheel combined with eliminating unnecessary steps from the transportation process allowed GM to reduce production costs by $5 million while saving customers up to $1000 on wheels. Therefore, the company saw significant boosts to revenue after reducing waste, production costs, and variation while improving quality.

In addition to these benefits, setting up a statistical process control system (SPC) is of paramount importance to determine process capability, and indicators such as Cp and Cpk or Pp and Ppk. This powerful tool will be extremely instrumental for determining further process improvements, the Sigma Score of your process, the defects to be expected and, as a consequence of this, the financial benefits that you can expect to achieve when improving that process. Undoubtedly, this type of improvement in your process will also deliver higher rates of customer satisfaction. During our consulting practice we have observed a wide range of examples of critical to quality (CTQ) variables within the automotive industry that need to be monitored in a process capability analysis. Some of the most common examples include dimensions that need to comply with specific tolerances and cycle times. However, there are further statistical tools that have successfully delivered significant benefits to operations within the automotive industry, such as correlation analysis, regression, statistical predictions, hypothesis testing, and many more.

Lean Six Sigma Implementation & Training

At AMSaxum we help our clients with the implementation of process improvement projects and provide onsite corporate training on lean six sigma/continuous improvement methodologies. There are Government grants available in Canada and the USA to cover the cost of corporate training.

Government Funding & Assistance Options

In addition to the tangible benefits possible through lean, the research and development efforts (labor, materials and subcontracts) required in the automotive sector could be eligible to be recovered through government funding, such as through the Scientific Research & Experimental Development (SR&ED) program in Canada.

For companies in North America, specifically, there could be applicable grants to aid in upfront costs such as capital investment and employee training. AMSaxum experts in government funding help with the application of these grants and with the preparation of SR&ED claims.

For more information on continuous improvement and Government funding within the automotive sector call AMSaxum at +1416-878-3437 or contact us here.