For this LeanROI interview we spoke with Jerry Wright, Senior Vice President of Lean and Enterprise Excellence at DJO Global, an international medical device manufacturer with annual revenues of $1 billion. DJO has operations in 20 countries and sells products in more than 80 countries.
Jerry works out of the company’s headquarters in Vista, Calif. He joined DJO in 1997 and has held leadership positions in quality, engineering and operations. He has been one of the key change leaders that introduced lean thinking to transform DJO Global from a traditional batch-and-queue manufacturer to a world-class, lean enterprise.
In addition to his observations below, Jerry offers the attached Microsoft Excel lean assessment tool for evaluating progress at the site level.
LEAN ACQUISITIONS
We’ve been doing lean acquisitions for over 10 years and they tend to go the same way. We make rapid improvements, which starts to shift the acquired company’s culture to that of DJO. Everybody likes seeing things get easier and faster. It’s not without effort, but it’s all straightforward, commonsense stuff.
The most recent example that’s worth sharing is a company that we acquired in January 2011. It’s called Elastic Therapy, Inc. (ETI). They make compression hosiery, primarily for the North American market, including private label and branded products, such as 3M™ or Futuro™ brand, that you see in Walgreens, CVS and retail establishments. They make some of their products at a rate of more than 50,000 units per day.
We purchased the company at the beginning of January. At the end of January the DJO global operations leaders, including our COO, met with their leaders and managers and went through the DJO Way training. We covered a lot of the content that we typically review at the beginning of a kaizen event. Then we created detailed value stream maps for the four key value streams that they have in the business: panty hose, thigh highs, below the knee, and socks. We mapped those to the current state, taking detailed work in progress (WIP) inventory counts, calculating lead times and all of the details.
We set some target conditions in January to achieve by July. Those targets were to cut work-in-process inventory (or WIP) by half, and cut the four-week lead time from order receipt to shipment by half as well. We all agreed that we wanted to get down to a two-week lead time. We did that in January to create a lean roadmap of what we would do in 2011.
I went back in March and helped with their first kaizen event on the plant scheduling process. At the end of April I returned and did an event on quick changeover for their knitting machines. My next visit will be to go over detailed DJO training for all associates and start the certification process for four or five people who will become their kaizen blitz facilitators. Overall, the team at ETI has been fantastic, extremely supportive and they are doing a great job and getting leaner each month. As far as the initial targets we set in January, we’re most of the way there now as of July.
It takes some effort to cut the lead time and inventory levels, but you really can’t do it if you keep doing the same things every day that you’ve always done. Once the goal is set the ideas and the alternatives start to flow because you’re no longer comfortable leaving it like it is. Change becomes imperative and people start being creative. The organization moves much more quickly. Fortunately, at ETI they had some huge orders come in and they were running at 180% of normal volume for several months. They were able to handle that increase, and the managers recognized that if they’d tried to do it the old way, it would have been even more of a struggle than it was. It wasn’t as difficult as it would have been because they’d already made a bunch of improvements. So they saw the advantages of reducing WIP and lead times very quickly.
Such progress is typical of an acquisition. Most acquisitions that we’ve done, they’re not very lean. We’ve had one or two companies that had done some level of lean or continuous improvement when we acquired them. ETI had some training in Lean and Six Sigma. They had created one cell and it was yielding good results. But for most companies that we have acquired, it’s mostly traditional batch-and-queue manufacturing. The focus is on efficiency and running as much as possible after the machines are set up. That’s really how most manufacturers still do it.
You’d think lean would be more prevalent, but it’s only now in 2011, when you talk to companies, that most of them are finally doing some level of continuous improvement. Still, there’s a whole lot of opportunity to improve in all industries.
Here’s another example. We were the primary customer of a company called DuraKold. Of their two to three million dollars in sales, they sold nearly all of it to us. They made cold wraps that go around your knees, shoulders and ankles. They’re made with a gel that you put in the freezer.
DuraKold had a 12,000-sq. ft. facility in Oklahoma. They took several days to start and finish something, making the bags and creating batches of kits for the next group and the next group and moving the kits from process to process. We looked at it and thought that it should take hours, not days, and probably only needed maybe 1,000 sq. ft., not counting raw material or finished good storage.
Following the purchase, we went to a one-piece flow cell, moving production from Oklahoma to our plant in Tijuana. In our new layout we had 500 sq. ft. and four employees and drove the margin up from around 60-percent into the 90-percent range. That was because they had so much non-value-added shuffling of material, stacking and unstacking, picking up and setting down. It was all totally unnecessary.
During a due diligence visit, our COO, Luke Faulstick, will walk through the facility. Because he’s been through literally hundreds of businesses, he can see the opportunities for improvement immediately. In addition to the visit, he looks at the balance sheet with our senior v.p. of finance, looking at how many people they have in the factory, how much overhead and supervision, how much inventory is on the books and how fast it’s turning. Looking at all of those basic measures he can see that we can double this, halve that, triple that, and level this out. And you can realistically do all of that inside of a few months or at least less than one year. We’ve never been off by more than 10-15% on the total improvements we could gain.
At first it’s not easy, it’s difficult. But once you hit your stride it becomes easier. We’re going on acquisition number 20 over the past 15 years. It’s just not that difficult any more. That doesn’t mean there aren’t problems and challenges and people you have to deal with. That’s just part of it. But we know exactly what we’re going to do. We don’t know the problems we’ll encounter, but we understand the direction we want to go, and that we’ll deal with the issues as they come up. You can plan to cross a whole lot of bridges in advance, but sometimes you have to wait until you get to bridge with your plan and knowing where you’re going, and then work through any barriers as they become visible or apparent.
The DJO Global board of directors recently visited our facility in Tijuana. They saw the distribution center and the 110 work cells and how things were running. Many of them were surprised at how nice of a facility we have in Mexico. They went in with all of the preconceptions that people normally have and were a bit taken aback. In 2010, the facility was recognized as the greatest place to work in the whole country.
We don’t move everything to our plant in Mexico. It’s not practical. We try to spend more time leaning out the operations where they exist today. Take another one of our recent acquisitions. Our goal is to invest in that facility and lean the processes so that in five years they will still only have 215 employees (or less) but they’re generating twice the revenue that they do now. It’s not practical and there would be no benefit to picking it up and moving it someplace else. There really isn’t much labor content in the product.
LEADERSHIP
If there is not someone at a COO level or a VP of Operations level that’s driving and supporting lean, you’re just not going to get very far. You can do a lot from a “guerrilla” standpoint in your own area, and make some improvements, and maybe capture the attention of the leaders in the organization to get some buy-in and support. But if they’re not really supportive, and there’s another agenda in conflict with what you’re doing, you will have problems driving continuous improvement or lean.
The machines don’t care about lean. The building doesn’t care. You paint it or you don’t paint it. It doesn’t care. Honestly, the investors don’t care a whole lot about lean either. If they’re getting their returns, they really don’t care. The community doesn’t care as long as people are being hired and they’re being treated well and no one is dumping any toxic waste or the like. But the employees sure do care. You’re impacting their daily life and what matters to them Monday through Friday and sometimes even on the weekends. We need to understand their issues and let them know the plan so that they can help drive the improvements.
Someone who is really resistant and only wants to do what they’ve always done for the last 10 years may have a hard time. But in all of the acquisitions that we’ve done, we’ve only lost maybe a dozen people who couldn’t or wouldn’t get with the program. It’s a very small number. Most everyone likes it when you make things better and listen to ideas for improvement.
THE DJO WAY
The DJO Way is how we go about driving our business results around the world every day. It includes line-of-sight management, functional plans, scorecards, one-piece flow, and a lot of the Toyota Production System or lean methodology. That’s what the DJO Way is. I have a 360-slide presentation that covers it all in detail.
We have a sign in all of our lobbies that says, “You’re about to experience the DJO Way.” It’s not just the way we run our operations. It’s how the whole business operates: IT, finance, accounting, legal, everyone. Everybody embraces the company values in the DJO Way. That’s how we drive our culture into newly acquired businesses. If all of our businesses did things in a vastly different way, how would we communicate and prioritize?
There are always opportunities but we feel that we’re doing reasonably well within the four walls of our facilities. Now it’s time to work with our suppliers and customers and our sales teams. Currently, we’re spending a lot of time with our sales force, working on standard work, creating the perfect week and the perfect sales call. It’s been a rewarding experience implementing lean in the sales arena.
We’re working to get a full-time continuous improvement person in every site with around 200 or more people. You need to have someone focused on continuous improvement when you get to be about that size. There are just too many processes to do it all on a part-time basis. That doesn’t mean that they do all of the work, but you have a full-time person driving improvement, keeping the schedule and making sure that training is done.
We continue to use benchmarking, including IndustryWeek’s Best Plants, the Shingo Prize, the Association for Manufacturing Excellence (AME) and the Great Places to Work Institute. That way we can make sure that we’re doing everything that we need to do to stay on the forefront of continuous improvement and move the DJO Way forward.
For our recent global operations meeting I plotted a curve of revenue generated by each site over the total payroll for the site. The plot or trend reflects value-added per labor dollars spent. It’s the total payroll though, not just hourly employees. It’s everyone at the site. We use payroll because it’s more controllable. If the cost of oil goes up, or if materials prices change, that’s mostly outside of management control. But we can control our headcount in the facility. If we don’t see a significant upward trend in that revenue over payroll graph, then we’re not doing the right things from a lean and continuous improvement perspective.
Almost all of our sites have a very nice trend line going up at a 10- to 30-degree angle over the past two to three years. That’s the macro measure of lean to me. For example, say a site was $200 million in revenue and they had 185 employees back in 2008. Now it’s 2011 and they’re at $230 million and they still have 185 employees. That’s really good. That’s the measure we’ve been using at a macro level to determine if we’re driving the lean benefits to the bottom line. You can’t fake it. It is what it is. If it’s not going upward, you’ve got a problem.
Our sites that have been doing lean for 10 years or more still have the same upward curve. It doesn’t make any difference, we treat all sites the same whether it has been a DJO site for three months or 20 years.
One of the things that people find liberating about a lean or continuous improvement culture is you have the opportunity to try to fix problems that bug you in your job. It really leads to a sense of ownership and commitment to the company, and trying to do your best, when you have some control over your own destiny.
I try to get back to the sites at a minimum of every three months in the first year, and then at least every six months after that. I will typically spend some time doing a kaizen blitz or training event, and also the world-class audits that I do at all of our sites. I have been conducting at least semi-annual audits at all major sites since 2008.
The DJO Blitz Update newsletter goes out to all employees globally each month. It summarizes all of the improvements that we’ve made at each site with a team picture and the highlights of what they did. Sometimes it’s just three pages, sometimes it’s eight pages. It shows everything that we’re working on and how we’re making improvements.
THE FINANCIAL STATEMENTS
The biggest challenge that I see related to continuous improvement programs is people looking for a cost payback and returns to show up in margins or the bottom line. But if you don’t reduce overtime, or reduce overhead or direct labor, you’re really not saving anything. With lean, you’re really creating capacity for the organization to grow without hiring people. That’s what lean and continuous improvement does. It creates capacity by removing the unneeded elements that we’re doing today so that we can do more value-added elements tomorrow. I feel that’s a better measure of continuous improvement than the dollars saved.
A lot of managers are driving everything off the financial measures only. That’s not a very holistic or effective approach. You have to look at all aspects of the organization. You have to consider safety, quality, delivery, service and cost, and how you’re treating your employees.
You have to have a vision and mission for the company that’s recognizable and executable by the employees. A lot of companies say they’re mission-driven but if you go look for their mission they have to blow the dust off. They created it but they don’t actually live it or use it on a frequent basis. When you take that approach you sub-optimize and create all of the nightmares that you see in dysfunctional organizations that aren’t well-aligned or customer-focused.
If you go back to 2002, we had a gross profit margin of around 40%. If I look at 2010, we had a gross profit margin of about 60%. That’s a 50% increase in gross profit over the past 8 years. If I look at total revenue over total payroll as a company, everything is going in the right direction, similar to the site trends.
The biggest challenge that we face, which we saw in 2009 and 2010, is that the downturn in the economy has put a lot of people off of buying more than necessities. That includes elective surgery. They’re not getting the knee or hip implant or buying a brace or pain management device, which has had an impact on our overall sales. We’ve still grown, but not as fast as we had planned.
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