Improve Baosteel’s perance through implementing lean manufacturing.doc

Memorandum to Ai BaojunGM Baosteel Zhao ZhouliDeputy GM Baosteel Zhou Jianfeng Assistant to GM Baosteel Li QingyuDirector ESI Pang YuanlinGM HRC Plant Improve Baosteel s performance through implementing lean manufacturing Through the close collaboration with HRC lean diagnosis client team and under the directional guidance of steering committee and support of relevant departments we have successfully finished lean diagnosis of HRC plant from March 26 to April 23 We hope through this memorandum to provide you the summary of diagnosis results and suggestions on next phase lean manufacturing pilots in HRC plant 1 SUMMARY OF LEAN MANUFACTURING DIAGNOSIS CONCLUSIONS Baosteel currently faces significant challenges in satisfying growing demanding and differentiated customer needs in a bid to become world class steel company As the key bottleneck part of the production chain current HRC performance on asset productivity product quality and delivery performance needs to be significantly improved for Baosteel to secure and strengthen its competitive position to grow market share in an increasingly competitive environment Benchmarking with external and historical internal best practices reveals that the capacity utilization and OEE of both 1580 and 2050 lines have improvement potentials of more than 10 Bottom up root cause analysis reveals significant reduction potential in maintenance time roll change time breakdown speed loss rework including downgrade and delivery lead time Potential near term within next 12 months financial impact across all three areas could reach RMB 200 million in total and mid term 1 3 years financial impact could be RMB 600 million in total Baosteel should realize significant improvement potential and resulting financial benefits within and across asset productivity product quality and delivery through a comprehensive 3 5 years change program It should engage and empower employees at operational level to rigorously apply lean tools and structured problem solving approach to set up systems and participative processes to pursue Kaizen continuous improvement To support lean transformation Baosteel should also strengthen its organizational capability by setting up Continuous Improvement Organization as well as policy deployment performance management system to institutionalize the change program thus ensuring that Baosteel s strategic and operational targets are deployed top down to each level of the company strengthening and or setting up appropriate performance evaluation and incentive system and aligning employee s individual KPIs with overall company target Baosteel should start implementing lean manufacturing in HRC plant HRC should kick start the change program by implementing a 6 9 months pilot program immediately It should pursue breakthrough initiatives to improve roll change time maintenance time using lean tools as well as setting up appropriate organization systems and processes for continuous improvement by solving a selected number of high priority product quality and breakdown problems It should start setting up performance management system and process and track evaluate and control implementation process in parallel to institutionalize the change program within HRC Lean transformation is a systematic project for corporate reform 6 sigma is one part of lean manufacturing During the transformation process new ethics and conducts will collide and conflict with current management system Therefore the senior management should profoundly realize that lean manufacturing could bring significant benefits to Baosteel in terms of shareholder value customer satisfaction and employee satisfaction Based on this belief senior management should with unshakable confidence and commitment lead and promote and rollout and deepening of lean manufacturing pilot 2 HRC PLANT LEAN MANUFACTURING PILOT PLAN Trough the communication and discussion with HRC plant management the joint diagnosis team proposes to conduct pilots of 3 6 months in product quality breakdown time work roll change backup roll change and annual planned maintenance areas In order to speed up realization of short term targets and financial impacts and considering HRC implementation capability and risk team recommend both 1580 and 2050 lines conduct pilots at the same time In the meantime team will help set up performance management system and process in HRC to provide fundamental infrastructure support for next step lean roll out and continuous improvement The pilot plan include the following 4 parts 1 Pilot target 2 Pilot approach 3 Key pilot activities and end products 4 Joint pilot team members 1 Pilot target Joint diagnosis team suggests that Baosteel use near term improvement potential as final target of 6 9 months pilot and depending on the characteristics of each improvement areas set required time to reach targets and evaluation standard of pilot results Detailed pilot targets will be defined after you make go decision and will be validated in the form of signed performance contract between Baosteel senior management and HRC pilot teams Near term improvement target is list in lean manufacturing diagnosis report 2 Pilot approach Joint diagnosis team recommends that HRC plant should adopt different problem solving approaches according to the characteristics of different pilot projects 2 1 Breakthrough projects For those projects that have fewer improvement opportunites however each with high financial impact and have less requirement on large scale people involvement which include work roll and backup roll changes and annual planned maintenance we recommend breakthrough pilots with project team leading the problem solving This will involve standardization of work process training of front line operators and then implementation of pilot 2 2 Continuous improvement projects involving all employees For those projects that have many improvement opportunities however each with low financial impact and require large scale people involvement which include improving product quality and reducing breakdown time we recommend continuous improvement pilots involving all employees Using systematic problem solving method and tools project teams continuously bottom up capture and implement each improvement opportunity that will bring impact This pilot approach has generated significant impact in thousands of operational improvement projects we involved It will generate significant impact in a short term and continue the improvement step by step in a 3 month stage Due to the complexity of product quality problem team suggests that before the step by step continuous improvement implementation Baosteel should design a quality organization and management process as the fundamental infrastructure of continuous improvement We suggest that during the first 3 months of pilot pilot team will drive selectively solving first wave common and frequent quality problems in the meantime set up quality continuous improvement organization and management process and train relevant people to use appropriate quality tools From the fourth month team begins piloting quality organization and process and solve second wave quality problems through the involvement of all employees 2 3 Set up performance management system to lock in improvement results and behavior In parallel with the pilot a performance management system team will build HRC KPI tree cascade breakdown of KPI at each operational level design KPI for each position and combined with the pilot track analyze and monitor the KPI 3 Key pilot activities and end products 3 1 Work roll and backup roll changes pilot team 6 1 8 31 Key activities Train front line operators on SMED PERT and PDCA systematic problem solving method Conduct multiple observations on roll changes and collect sufficient data on roll change process Conduct in depth root cause analysis and brain storm on potential solutions Design improvement plan implementation plan and standard work process Implement improvement plan adjust and fine tune the plan in the pilot and document the standard work process for future rollout Design performance tracking and evaluation system for roll changes End products 3 1 1 Realized pilot targets 3 1 2 Standard work process on changing work roll and backup roll 3 1 3 Performance tracking and evaluation system for work roll and backup roll changes 3 1 4 Trained systematic problem solving method SMED PERT and standard work process front line operators 3 2 Annual planned maintenance pilot team 6 1 8 31 Key activities Train front line operators on SMED PERT and PDCA systematic problem solving method Conduct multiple observations on annual planned maintenance process and collect sufficient data on annual planned maintenance process Conduct in depth root cause analysis and brain storm on potential solutions Design improvement plan implementation plan and standard work process Implement improvement plan adjust and fine tune the plan in the pilot and document the standard work process for future rollout Design performance tracking and evaluation system for annual planned maintenance End products 3 1 1 Realized pilot targets 3 1 2 Standard work process on annual planned maintenance 3 1 3 Performance tracking and evaluation system for annual planned maintenance 3 1 4 Trained systematic problem solving method SMED PERT and standard work process front line operators 3 3 Product quality pilot team 6 1 11 30 Key activities Conduct training for pilot team members and other relevant people on PDCA systematic problem solving method root cause anaysis tools including fishbone and 5 why SPC and PFMEA etc Define the responsibilities on quality management for each HRC departments and positions Design key quality management process problem detection eradication and prevention Based on the pilot targets solve selected quality problems Solve quality problems using PDCA systematic problem solving method process and appropriate quality tools Track and monitor the implementation and improvement plan and standardize the work process Design performance tracking and evaluation system End Products 3 3 1 Defined quality management responsibilities for each HRC departments and positions 3 3 2 Key quality management process quality problem detection eradication and prevention 3 3 3 Realized pilot targets on quality problem improvement 3 3 4 Documented standard work process against solved quality problems in the pilot 3 3 5 Trained quality tools and standard work process operators 3 3 6 Performance tracking and evaluation system for product quality pilot 3 4 Breakdown time pilot team 9 1 11 30 Key activities Conduct training for pilot team members and other relevant people on PDCA systematic problem solving method root cause anaysis tools including fishbone and 5 why SPC and PFMEA etc Define breakdown reduction frequency and time indicator for each HRC departments and positions Design quick response process for machine breakdown Based on the pilot targets solve selected breakdown problems Solve breakdown problems using PDCA systematic problem solving method process and appropriate quality tools Track and monitor the implementation and improvement plan and standardize the work process Design performance tracking and evaluation system End Products 3 3 1 Defined responsibilities on machine breakdown for each HRC departments and positions 3 3 2 Realized pilot targets on breakdown problem improvement 3 3 4 Documented standard work process against solved breakdown problems in the pilot 3 3 5 Trained systematic problem solving method and standard work process operators 3 3 6 Performance tracking and evaluation system for breakdown pilot 3 5 Performance management system team 9 1 11 30 Key activities Build KPI trees for HRC plant define KPI Design KPI and define the source of KPI data Design KPI model spreadsheet system Input historic data and pilot target into KPI model spreadsheet and test the extent of financial impact of each KPI Design performance feedback process and format set up performance management and monitor system End products 3 5 1 KPI model spreadsheet system for HRC plant 3 5 2 source of KPI data 3 5 3 Performance management and feedback process 4 Members of joint pilot teams The project team will consist of Baosteel personnel and McKinsey consultants who will work jointly as a team This team will be jointly responsible for the success of the project and the project end products The McKinsey team members will bring experience and training in operational improvement and lean manufacturing in steel and the Baosteel team will provide relevant information The joint project team will work together to analyze problem desing improvement plan document standard work process train operators track analyze and monitor the implementation process Steering committee A steering committee consisting of Mr Ai Baojun Mr Zhao Zhouli Mr Zhou Jianfeng Mr Li Qingyu and Mr Pang Yuanlin from Baosteel should lead the overall project and guide and supervise the project team by providing strategic direction refining the project approach approving recommendations and ultimately assuming responsibility for project implementation The steering committee will meet periodically throughout the project every 4 6 weeks The steering committee will review the project progress approve critical pilot implementation plan guide the pilot direction and remove hurdles in pilots Project leadership team Project leadership team consists of Mr Li Qingyu and Mr Yang Chunping from Baosteel and Jonathan Woetzel and Antti Pitkanen from McKinsey Project leadership team meets frequently e g weekly to provide direction and guidance to the project team Joint Baosteel McKinsey project team full time A full time cross functional project team consisting of Baosteel team members and McKinsey consultants will drive the overall project execution A full time Baosteel project leader and Mr Zhang Wejie the McKinsey engagement manager will lead the team According to pilot areas project team will consists of 5 sub teams roll change project team annual planned maintenance project team product quality continuous improvement project team breakdown reduction continuous improvement project team and performance management system project team Every sub team except for performance management system project team will consist of two team leaders with each from 1580 and 2050 lines and 3 4 client team members full time or part time Performance management system project team consists of 1 McKinsey consultant and 3 4 client team members Members of the client team must be both high potential and high performing consisting of Baosteel managers and personnel who have been identified as likely future leaders The full time team will also need the assistance of part time resources from the hot rolled coil plant and key functional departments in providing data documents and reacting to the project team s thinking For both full time and part time team members the Baosteel project leader will ensure that Baosteel team members deliver their end products on time Over the course of the pilot the project team would work closely with Baosteel management and meet together in workshops and reporting sessions McKinsey will work closely with the pilot client team emphasizing the coaching and training of client team members Client team members will provide critical operational information on Baosteel product quality and delivery performance as well as asset productivity issues and participate fully in the project team s activities and analysis Their day to day roles will be to work together with the McKinsey team on data collection efforts key interviews analysis and synthesis and key docume