US Industry Today - September 2000Class A Manufacturing - The Middleby Corporation as a Case Study

This article was originally printed in the September,
2000 issue of US Industry Today® magazine. Article copyright © US Industry Today, September 2000

In the past years, several U.S. manufacturers have set standards of excellence through process improvement and customer focus – these companies are referred to as world-class or Class A. In this article, we profile The Middleby Corporation’s journey into achieving Class A status. Middleby had a strong share of commercial cooking equipment market and a dominant position in pizza ovens. Nevertheless, despite its market share and sales growth, Middleby was generating lower returns than its competitors and most of the revenues were not dropping to the bottom line. As a consequence, management examined its internal structure and completed a thorough benchmarking study of 20 leading manufacturing companies, including General Electric, Hewlett-Packard, Motorola and Toyota. A two-year plan was put in place to become a Class A company by year 2000. It required Middleby to reduce costs by 40 percent, improve machine functionality by 40 percent, and pare the usual 2-year product development time to 270 days and reduce warranty to under 3 percent as a percent of sales. To achieve these goals, the plan consisted of 4 key elements; AGILE Manufacturing, KANBAN, JIKODA and Employee Involvement.
Over 5 million pizzas are baked daily on Middleby Marshall ovens
AGILE Manufacturing

Class A manufacturers run lean organizations which produce profits by manufacturing goods based on customer demand, not economies of scale. It took Middleby eight months to transition to an agile system. It changed its equipment and machinery layout to become flexible enough to quickly respond to the rise of customer demand and the rapid replacement of old products with new ones. Rather than focus its new target on excess automation, Middleby instead implemented mistake-proofing technology in its fabrication department. Control of production now comes down to one item: the customer order. ”The entire plant is run on JIT (just in time),” says Najib Maalouf, V.P. of Operations.

Middleby reorganized its production into five independent units staffed with a team of employees who produce their particular products from start to finish. Each unit is comprised of 5 areas: fabrication, welding, polishing, assembly, and testing. Fabricated parts used to occupy 25 percent of the plant square footage. Now they are produced in demand-based quantities and occupy a single shelf or two. They are stored in each work cell within a few feet of where they used to be.

With this new layout, Middleby’s inventory improved from three turns in 1998 to six turns in 2000. ”We went from six layers of supervisors in our manufacturing to two. Instead of maximizing machine utilization, we focus on maximum employee effectiveness,” comments Najib Maalouf. In addition, scrap as a percent of sales is down from 1.8 percent in 1998 to .9 percent in 2000. The biggest impact of the layout has been getting products to the customer faster and cutting lead time by a third. ”We set up a plant floor agile enough to support quick delivery as a marketing strategy,” says Tom Hotard, V.P. of Engineering.

Cellular Manufacturing and JIT at the Toastmaster plant
Kanban

Class A companies have adopted demand-based manufacturing or just-in-time to eliminate excess inventory. Middleby junked its material and resource planning (MRP) for a new demand flow system, bucking a 30-year-old prescription for manufacturing. Kanban-triggered inventory system is how Middleby replenishes its assembly lines. When a team member in the units needs a new supply of toaster covers from fabrication, for instance, he or she alerts their forklift driver who pulls a Kanban card from the slot and promptly delivers a rack of covers. A bar-coding system has been put in place throughout the shop floor to track all receiving, work-in-progress, and shipping.

Radio frequency scanners are installed on all forklifts. There is no paper flow throughout the factory. Everything operates across an electronic networked system using MAPICS, an enterprise resource planning system. As a consequence, there is no clerk to be found in the manufacturing area.
Toastmaster - #1 in toasting and warming equipment.  Pictured here with Selim Bassoul, COO of Middleby Cooking Systems Group
JIKODA

Class A manufacturers realized that product quality is highly dependent on process quality. As a result, Middleby adopted JIKODA – the principle of quality at the source: defective parts are not moved from one step in the process to the next. Employees shut the line down when they sense abnormal conditions. ”If there is a problem, the one part is reworked. We do not have to repair every other part in the buffer stock because we do not have the buffer stock,” says Elie Maalouf, Manager of Industrial Engineering.

A computerized system tracks all warranty claims and spits out daily reports to manufacturing supervisors and engineers for their respective product lines. ”My organization meets weekly with Engineering and Manufacturing to review and resolve customer problems. We do not focus on the problems but on the root cause,” says Don Purser, Director of Global Service. These reports include parts failure and comments from field technicians. The purchasing department shares warranty data with its supplier on a monthly basis for component improvement. ”We have partnered with suppliers who can live up to our stringent quality requirements and who are Class A manufacturers within their own industries,” adds Sam Sidani, V.P. of Materials Management.

As quality improved, Middleby used its warranty as a marketing weapon. It introduced a ”No Quibble” warranty with unconditional policy. It remains the first and only company in its industry with such a powerful stand. ”Since introducing our ”No Quibble” warranty, our market share sky-rocketed and pricing became a smaller factor in the buying decision,” says Mark Sieron, V.P. of Sales. Warranty as a percent of sales was reduced 35 percent in two years.
The SEZ3 and SEZ5 Southbend steamers, which have a unique patented technology. They have a boilerless design and no element deliming.
Employee Involvement

Class A companies reward and recognize the achievements of their employees. A profit sharing plan was put into place for all Middleby employees, including union workers. The bonus goals are kept simple and are based on attaining operating income levels. ”By surveying our employees, we found out that over 80 percent, especially our factory workers, are motivated by quicker pay incentives,” says Dave Baker, C.F.O.

The goals are posted throughout the company each month with daily updates. Therefore, the employees know where they stand each day and what they need to accomplish to earn the bonus. ”We credit our bonus structure for improving employee morale and our bottom line, for reducing employee turnover from as high as 40 percent to less than 10 percent, and our employee to supervisor ratio has risen from 25:1 to 90:1,” says Selim Bassoul, Chief Operating Officer.

Middleby asks employees to submit ideas for improving workplace performance – each idea is tracked for implementation and effectiveness measured in dollar savings. Any idea that contributes to improving quality or productivity is eligible for a $75 monetary award. To date, 1,728 suggestions have been submitted with 68 percent adopted, resulting in cost savings of $850,000.

While improving market share in the 1998-2000 period, Middleby boosted sales per employee by 35 percent, reduced scrap and rework by 50 percent, and reduced system cycle time by 35 percent. Middleby’s top management team emphasizes an ”operational excellence” strategy that seeks continuous improvement in 4 areas: customer focus, unbending commitment to quality, highly flexible factories, and speeding time to market. ”It is a very powerful strategy”, Selim Bassoul insists, ”and we put customer satisfaction at the top of the list.” Our work force is our ”greatest competitive weapon. They are the power that drives our company. World-class competitiveness requires the development of world-class human resources,” says Bassoul.

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Middleby, Inc., manufactures and markets premium cooking equipment for commercial kitchens, including the Middleby Marshall®, Southbend®, and Toastmaster® brands. Middleby was featured by MSNBC as Champion of Industry in 1999.