article was originally
in the September,
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.
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
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.
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
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
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.
Back to Awards List
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.