Excelco Developments, Inc.

“The effectiveness of lean manufacturing has enabled us to gain a significant competitive advantage, which will enable us to maintain future sales growth and increased profitability.”
Chris Lanski, President

Troy Dorman produces titanium part on turning lathe at Excelco Developments.

Firm Benefits

• 60% increase in shop efficiencies
• 20 percentile improvement in on-time delivery
• 50% hit rate in quoting process vs. 25% historical rate
• 85% increase in sales over last two years
• 50% increase in net operating margin
• 20% increase in employment
  

Excelco Developments, Inc., located in Silver Creek NY, is a Tier II defense manufacturer for naval applications in undersea water and refueling. Established in 1947, the company's products are sold to three major high-profile accounts, i.e. Bechtel, Northrup Grumman and Boeing. These customers consistently account for about 90% of company revenue. Revenues have grown steadily in recent years despite varying yearly degrees of federal defense spending. The company's products are sold nationally with virtually all sales exported outside the WNY area.
 
The government contracts executed by Excelco have rigid specifications and tolerances which require extreme conformance to quality standards. The company has achieved and maintained ISO 9001:2000 certification as a result. This has enabled them to effectively compete against numerous other manufacturers on a national basis.

Manufacturing operations are conducted within two facilities of about 50,000 square feet total on a two shift basis. Primary manufacturing activities include machining, fabrication, welding, assembly/ testing and inspection. The company currently employs 70 people including about 50 non-union production personnel.

Situation

Although Excelco had maintained consistent growth and profitability, a major change in customer buying practices negatively affected the company's competitive position in the early years of this decade. Traditionally, most projects/ orders tended to be large and normally lasted about 24 months. However, there was a sudden and dramatic change to multiple, smaller orders that typically were to be delivered within 16 weeks. Overall Excelco found that they were ill equipped to effectively adapt to these changes. As a result, on-time delivery was severely reduced, product quality declined due to order urgency and employee morale suffered with a related increase in turnover. These issues caused a significant reduction in overall profitability for the company.

Excelco's senior management believed that introduction of lean manufacturing principles could help to address the above situation. However, there was also recognition that the above problems were not confined to the manufacturing areas alone. It was believed that the company needed to take a more holistic approach for the enterprise to systematically and sequentially address all key areas along its value chain. This included order planning, project launch, materials management, production, shipping, etc. In addition, frequent and consistent communication with the customers was essential as part of this improvement initiative.

Solution

Insyte Consulting was engaged to assist Excelco’s staff resolve the above issues. The first step was to provide all management and shop floor personnel with training in the principles and concepts of lean manufacturing. This was accomplished through a series of full-day workshops that provided the staff with a foundation and basic understanding of lean. Next, a cross functional team was exposed to a value stream mapping exercise (both current and future states) for a typical project or order. Based on the results of the maps, work place organization (5S) and setup reduction initiatives were introduced to the production areas in an effort to realize the desired future state. These changes provided immediate improvements in terms of organized tooling, the use of tool cribs/ racks, the introduction of visual controls and a significant reduction in machine setup time. Production flow and throughput were significantly increased as a result.

The second phase emphasized the Engineering area, with the focus on project planning and project launch processes. The former project management process, based on one individual, was replaced with a dual management approach that leveraged the strengths of both individuals. The Project Engineer completed the upfront planning activities and maintained close contact with the customer throughout the process. The Manufacturing Engineer became responsible for shop floor activities including project release, scheduling, project management and coordination of quality control and conformity to specifications and tolerances. These changes reduced the planning process from months to several weeks.

The third and largest phase extended the above engineering activities into the quoting and estimating aspects of the business. Although these could be considered primarily "lean office" activities, the improvements were subsequently coordinated with improvements on the shop floor. Originally, one individual had been responsible for estimating and quoting. This was found to be a cumbersome process that produced marginal results in terms of hit rate and sales volume generated. A cellular approach was set up in the office area, where three individuals functioned as a team within the quotation process. Key activities like bill of materials, procurement, routings etc. were systematically and efficiently completed. In addition, a prioritization scheme was introduced that evaluated quoting opportunities based on perceived value and likelihood of obtaining. This change greatly reduced the number of marginal quotations submitted. Although these changes have reduced the actual number of quotes generated, the overall revenue potential and hit rate have increased tremendously.

Results

The lean enterprise initiative has been implemented over a four year period with dramatic results. Shop efficiencies have increased by 60% which has enabled Excelco to improve its on-time delivery by over 20 percentiles. They are now capable of better handling large orders of longer duration, but more importantly they have increased opportunities to deliver "rush/ emergency" orders that can command a premium price. Because of the refined quoting process the hit rate has increased to nearly 50% from the historical rate of 25%. As a result of these improvements, sales have increased by over 85%, employment has increased by 20% and, most importantly, net operating margin has increased by 50% over the last two years.

Company management has also recognized the importance of continuous improvement. The lean manufacturing implementation continues to be a key strategic initiative, which is now being integrated with improved quality control and information technology upgrades to achieve maximum efficiency.