Lean Initiatives Help Sealy Prepare for Market Rebound

Responding quickly to the economic downturn, Sealy Corp. reduced capacity last year by eliminating the second shift at most of its assembly plants. But even in down times, the $1.5-billion company has continued to make major process improvements, which gives employees something to feel positive about and helps keep morale up, according to Mike Hofmann, executive v.p. of operations. Hofmann is in charge of Sealy's supply chain, which includes design engineering, purchasing, logistics, and manufacturing. The company operates 25 factories in North America and sells its mattress brands through more than 7,000 retail outlets.

What impact has the economic recession had on your markets?

Mike Hofmann: The recession's impact on us began in December 2007. That's when we saw things slow down in the United States. In Europe things began to slow down last summer. Unlike the last U.S. recession, we've seen the luxury mattress category take a more significant hit than the low end of the business.

What have you done to make your operations more lean?

Hofmann: We've been engaged in lean manufacturing, following the example of the Toyota Production System, to create a culture of continuous improvement for well over five years. We've seen annual double-digit gains in our factories in terms of labor productivity, both direct and indirect. Because of our lean culture, we continued to improve in 2008 despite the downturn in volume. I just hate to think where we'd be in manufacturing if we were still operating at 2005 performance levels.

Because we operate on a quick-response, 48 to 72-hour delivery model, we cannot afford to shut down facilities without significant delivery or service penalty. To keep our service levels the same we've focused on smaller lot sizes and smaller delivery units to customers so they can minimize their investment in inventory.

How have you achieved such steady productivity gains?

Hofmann: We're conducting Kaizen events, with every plant averaging roughly one per month. However, today our focus has broadened. In the early days we zeroed in on labor; and were heavily focused on unnecessary part movement, elimination of waste, and elimination of excess handling. Now we're really focused on improving scrap and inbound and outbound logistics, which require greater coordination with sales. We're even applying lean to engineering to take waste out of our product designs. We're asking questions such as: Are we over-engineering? Is there another design or manufacturing technique or assembly technique that will allow us to achieve the same performance standards at a lower cost?

We have also worked on administrative functions. We used to have a controller overseeing each plant. Today we have a controller overseeing every other plant because we've automated or made improvements to the month-end close process. We used to have a bill of materials person in every plant. Today we have three materials associates who manage a network of plants because we've made process improvements in how we enter bills of materials.

What are your top priorities now?

Hofmann: Clearly the top priority is materials. Materials are our number one cost driver. Second, we're getting far more aggressive in the supply chain. If you look at our cost structure, inbound and outbound logistics is our second most significant cost.

We've really started managing our inbound freight, and are using back hauls more significantly. Last year we mitigated about $2.8 million of outbound distribution costs by using our fleet to back haul some of our raw materials. Likewise we have focused on improving miles per gallon. We put speed-limiting devices and wind farers on our trucks, which have improved miles per gallon by 10%.

We have miles per gallon as a policy deployment metric that we monitor on a daily basis. The overall cost driver is "miles per piece," which encourages cube utilization and making sure the truck is completely full before you dispatch it as well as optimizing miles driven.

Has anything changed with the decline in raw material and fuel prices?

Hofmann: The percentage of the pie hasn't changed at all. Currently with the reductions in some of the commodities there have been some nice benefits. But what we try to do is put the emphasis on what we can control, set goals based on prioritized dollar opportunities, and align our resources to those goals.

We're doing a lot more projects now. For instance, in 2007 we executed thirteen value engineering projects and saved about $10 million. Now, in order to save the same amount of money, we've had to nearly triple the amount of projects that we're doing. A lot of them take the same amount of time. You just have to work on them faster and make sure you work on the right things first.

How has your lean program evolved in the recession?

Hofmann: We've not cut the CI staff. We've cut some of the consulting dollars, but we've not cut back on the events we run at all. We used to use a lot more support from other facilities. We would fly team members in to participate in events, but we're not doing that with the same regularity.

Our lean initiative has been deployed long enough that every plant manager has grown up in a lean environment. As we changed plant managers in our network, the replacements came from plant leadership or CI / KPO positions heavily involved in the initial lean transformation process who were committed to the principles of continuous improvement.

What are you doing to prepare for the eventual market recovery?

Hofmann: We have eliminated most of our second-shift operations in our assembly plants. As the economy recovers we feel we could grow 15-20% without any change in infrastructure costs whatsoever. It's like conditioning really. Right now we're running a half marathon. When the time comes to run the marathon we'll be in shape to run it.

How are you communicating your operational changes to your employees?

Hofmann: Our message is that we're trying to get into condition so that we can recover quicker than the competition. When the market comes back we want to seize that opportunity. We're trying to keep our plants in condition by pushing kaizen and lean initiatives. When the market does return, if we can produce product in 20% to 30% less time than our competitors, we could seize market share.

Do you have any final observations on Sealy's lean initiatives?

Hofmann: Applying lean to other areas of the business has been easier because of the track record that we've established in manufacturing. It's been an easier sell in finance, in customer service, and in other areas of the organization, whether it's the use of policy deployment or the use of cross functional teams in a kaizen event.

During a down, ugly year, anytime that you can show significant improvement and positive trends it really helps morale. People know that we are making progress even though the sales numbers are not where we would like them to be. Right now I think one of the most critical issues is morale. Job security is number one in everybody's mind.

Jake Stiles is President and COO of Stiles Associates, LLC (www.leanexecs.com), an executive recruiting firm that specializes in placing lean experts.