40 Industrial Engineer

When stocks reach high levels

and customer delivery times are too long,
managers start thinking about what changes
are needed to meet demand better. Unique
characteristics must be considered when planning those changes
in the apparel and footwear industries: design, product variety,
increasing raw material and labor costs, complex and demand-
ing customer service requirements, multiple distribution chan-
nels, seasonality, and issues of the style, color, and size mix.
A new market, a new challenge
Tougher competition due to globalization has forced many
companies to increase the flexibility of their manufacturing sys-
tem to stay in business. One company that faced this dilemma
was Alpargatas. Founded in 1885, this company is the largest
in the textile, apparel, and footwear industry in Argentina.
With 10 plants scattered around Argentina and in neighboring
countries, Alpargatas enjoyed a reputation of offering good
quality casual footwear and workwear.
At the beginning of the 1990s, after two decades of a closed
market, Argentina opened its economy. The new scenario allowed
both high quality and cheap imports to be introduced in the
domestic market. Soon after, although Alpargatas was manu-
facturing under a mix of renowned brand names, including
Nike, the company faced an abrupt shrinking of its market share.
The options Alpargatas faced included closing the business,
moving manufacturing offshore, outsourc-
ing to third-parties overseas, or keeping pro-
duction in-house. The last was a challenge,
but it seemed the right choice for a company
with a strong manufacturing culture.
Alpargatas top management was aware that its traditional
production system and management practices created an
advantage to competitors. For too long, problems had been left
unattended. There was no more room for delays in delivery,
poor order fulfillment, lengthy product launches or quality prob-
lems. The production-centered company needed to become
market-oriented.
Structuring for change
By mid-1993, Alpargatas top management saw that existing
manufacturing systems would not pull the company through
the market changes. Long before, the production department
had fostered lean practices in the footwear division. But the new
market context compelled the production director to seek a con-
sensus with other top managers who knew the production sys-
tem. These meetings resulted in a sketch of a preliminary plan.
Once the plan was streamlined and approved by the board,
top management and union representatives teamed up and
created a steering team an important decision since many
changes were about to take place and union support was
vital. Having been the promoter of this management shift,
A shoe company
goes from being
production-centered
to
market-oriented
with lean manufacturing
Argentina
AGOODFIT IN
by marcelo neuman and fernando marquina
January 2004 41
the production director became the leader of the manufactur-
ing project.
Two components were essential for the cultural change process:
commitment from the team and strong leadership from the
production director. The way a company is structured to carry
out its transformation affects its ability to sustain the effort.
The team soon secured a contract with a consulting firm to
deal with the strategic issues and to devise an action plan for
the transformation process. Before developing the plan, it
was crucial to assess the current situation with respect to lean
production principles. The team created functionally organized
teams to lead the effort in each facility. Consultants and teams
worked together with production managers and other associ-
ates throughout the assessment period.
Assessment encompassed the existing cultural environment
and key performance indicators such as production response
to demand, inventory turnover, quality, costs, labor productiv-
ity, production lead-times, on-time delivery, and order fulfill-
ment. Material and information flow was reviewed using indus-
trial engineering tools such as process flowcharting, and
considerations about value-added activities within the current
process were discussed. Mapping the current situation gave
an overall view of the production process and helped identify
opportunities for improvement.
Drawing a map of the company they envisioned by elimi-
nating all waste was the next step. While doing this, an action
plan was developed to meet the new goals. This plan set many
targets along the journey to implementing lean. An effective
flexible pull production system integrated with the demand
management task needed to be designed and implemented
in all the facilities from batch and push to continuous
flow and pull.
The team believed it was vital to introduce an integrated
planning system as well as effective communications through-
out the footwear division to back up this new way of manag-
ing the business, which required new dedicated software.
A slow start
There was a consensus that changes should start slowly.
After devising the action plan, one plant with a 2,000-mem-
ber work force was chosen to start the transformation process.
Effective top-down and bottom-up communication was
implemented to support the lean vision. The team began with
a specific evaluation of the facilitys current process regarding
lean production principles. Detailed mapping of the current
production process material and information flow for all
product families facilitated visualization of the entire
production process flow and the identification of the obstacles
and non-value-added activities in it.
After mapping the current production process, the next step
was to streamline the future production process, embedding it
in lean concepts in other words, defining value in customer
terms, eliminating wasteful activities, achieving continuous
flow, implementing pull techniques, and setting up continu-
ous improvement teams.
5-S programs were carried out in many areas of the plant:
5-S programs are easy to implement, they help develop disci-
pline, and they give support for the culture change process. This
encouraged a fertile atmosphere for adopting lean concepts.
In addition, kaizen groups were set up to meet specific
ALPARGATAS ACTION PLAN
1.
Structure the company
for change
Create steering team
Create functionality teams
Devise action plan
Communicate
2.
Develop a flexible
manufacturing system
Mapping
Training
Launch 5-S
Establish kaizen events
Move to cell production
Create continuous flow
3.
Change the demand
management task
Mapping
Training
Implement software solution
Forecasting
Establish allocation orders
Create cross-functional teams
4.
Change the production
planning system
Mapping
Training
Marketing takes
responsibility for planning
production at the SKU level
Marketing communicates
orders to production
Pull from the pacemaker
process
42 Industrial Engineer
a good fit in argentina
manufacturing process goals. The kaizen groups grew in num-
ber, each focusing on specific improvements; for example,
ergonomic improvements in some manufacturing sectors led
to an increase in quality by 5 percent. Like 5-S programs, they
also helped support the cultural change.
From production lines to production cells
The more complex demand required an increase in product
variety while encouraging shorter delivery times and higher
quality products. In production terms, this meant manufac-
turing many different products on the same day, reducing pro-
duction lead-times by cutting cycle times and work-in-process
handling times, all while building quality into the process.
Turning batch work centers into manufacturing cells was the
first company response to these new demands. Although not
all work centers offered this option, the production process
nearest the finished goods supermarket was transformed into
many work cells. This conversion helped achieve continuous
flow in these new cells, and the process gained flexibility.
Scheduling this process based on demand helped meet new
varied-product customer demand while scheduling produc-
tion; therefore, it become the pacemaker process.
The batch production lines located next to the finished
goods supermarket were converted into work cells, and another
important batch production process supplying materials to
the pacemaker process was transformed into work cells. The
change of both processes the last cement room and the stitch-
ing room marked an important milestone in the action plan
toward lean practices. Traditional industrial engineering tools,
such as method engineering and work measurement, were
frequently used to improve work standards and to achieve
continuous flow in these cells.
Adopting cell production in a portion of the production sys-
tem led to improvements in work methods, simultaneously
reducing space requirements, work-in-process, cycle times, and
set-up time in product changes. It also improved quality and
helped balance the workload. In addition, it built a teamwork
culture that supported these results, and it empowered peo-
ple to improve quality continuously. Proactive communication
and joint efforts to solve problems and make improvements
became part of the cultural change process.
Supervisors were trained in soft skills for building teamwork.
Meanwhile, workers received hands-on training while task
rotation programs were implemented to develop highly skilled
multi-functional workers. Production workers were also trained
to develop autonomous control in their operations. Quality
was built into the process, reducing final inspection in the man-
ufacturing sectors and decreasing the number of quality prob-
lems. Pay was also taken into account. A compensation strat-
egy aligned with the desired outcome was implemented to
reward team productivity, quality, and attendance.
Visual management tools were developed and deployed next
to the work centers, letting production workers, supervisors,
chiefs of manufacturing sectors, and managers know the
current status of each work center at a glance, and permitting
immediate corrective actions.
When transforming work centers into cells, not only is a new
physical configuration obtained, but a social configuration is
also gained. Education and training for production workers,
supervisors, and chiefs of manufacturing sectors is crucial. The
training issues should include teamwork, trust, leadership,
building interpersonal relationships, and other related disci-
plines. Training supervisors and chiefs of manufacturing sec-
tors to become facilitators is paramount for success.
From push to pull
Work cells had continuous flow within them; however,
continuous flow between work cells and between other work
centers was still an important target to meet. High work-in-
process between work centers produced by large batch sizes,
long lead-times, and other factors such as unplanned mainte-
nance and unleveled scheduling prevented the production
systems from achieving continuous flow on the shop floor.
Work-in-process together with raw material and finished goods
Alpargatas complex demand structure requires
more product variety while encouraging shorter
delivery times and higher quality products.
January 2004 43
inventories added extra pressure to the companys finances,
thus decreasing profitability.
The information system being used was unable to support
the synchronized production and continuous flow targets. It
led to poor coordination among manufacturing sectors and
between the suppliers and the production plant. It also gave
rise to unleveled scheduling, unbalanced workload, and unco-
ordinated suppliers shipments, which in turn encouraged an
underutilized labor force, overproduction, transportation prob-
lems, and other issues.
The functional team worked with production planning and
the scheduling area to develop a kanban system that could keep
up with the special requirements of this manufacturing envi-
ronment, where the issue of style, color, and size mix adds an
extra challenge to manufacturing. Managing 400 SKUs meant
a lot of different materials, shoe blocks, and molds.
Designing and implementing the kanban system required
a lot of work to elaborate and define effective production con-
cepts. Scrutinizing the current manufacturing process in detail
and improving it shorter process set-up times, planned main-
tenance, batch-sized calculations, new software to back up the
information systems, and new transportation methods
required tremendous creative effort.
After months of hard work, a kanban system was imple-
mented for material transfers between workstations and from
the pacemaker process to the finished goods supermarket. Along
with this, bar code readers were introduced. Therefore, a more
effective control of the production system was reached, and
every single small lot in the production process was brought
under control. Before implementing kanban, Alpargatas
worked with a lot size of 100 pairs. After its implementation,
lot size was reduced to 20 pairs.
Smaller lots and kanban production required some other
improvements in order to work effectively planned mainte-
nance and short set-up times were among them. Continuous
improvement teams were set up to plan and put these new tasks
into practice. Implementing smaller lots and kanban cards
led to a substantial drop in inventories; for example, the buffer
between the last cement room and the stitching room dropped
from one month work-in-process to one week.
Changing demand management
By this time, Alpargatas had already met important targets
in the production system. However, customer service still
showed some flaws and many unresolved problems, while
fluctuations in consumer demand never ended. Inaccurate
forecasting led to an 18 percent loss in customer orders and
stockouts in wanted products, while it also resulted in high
stocks of unwanted goods.
Tasks involving demand management were poorly coordi-
nated and integrated by obsolete systems. The marketing and
production departments both carried out critical activities in
this function, but the overlap resulted in frequent disagreements.
The apparel and footwear industry is characterized by a volatile
and seasonal demand. Launching approximately 60 models a
year required some changes in demand management to ensure
efficient customer service. Forecasting, order entries, order allo-
cations to inventories, invoicing, and distribution activities
called for a new formulation.
Top management aggressively pursued excellence in cus-
tomer service. New consulting firms and software suppliers
were contracted to deal with this new project. The consul-
tants saw their role as that of observer due to the overlapping
of activities between departments.
A cross-functional team was set up, including members from
the consulting firm. It was essential first to clarify the concept of
demand management and describe each task involved. After hard
work, the cross-functional team came up with a common view.
The company was already familiar with mapping and iden-
tifying value and non-value activities. The review started by ana-
lyzing the most downstream process and worked its way back
to the most upstream one within the demand management
task. The analysis revealed that the main causes of waste were
closely related to poor integration of the information system,
Prior to implementing kanbans, Alpargatas
worked with a lot size of 100 pairs. After
kanbans, lot size was reduced to 20 pairs.
44 Industrial Engineer
a good fit in argentina
which was responsible for lack of communication, redundant
approvals, daily information checking activities, time-con-
suming manual activities, retrieval of aged data, and inaccurate
statistical data for forecasting.
Aided by the consultants, the cross-functional team identi-
fied and agreed on the tasks to improve. They then developed
the map of the desired process, taking into account the main
sub-processes. Order allocation was a critical sub-process requir-
ing major changes because it was compromising customer ser-
vice. Selecting orders and setting priorities for allocation was
still performed manually.
The company then started to work on the implementation
of software tailored to demand management. The new software
offered a completely new set of tools that could be used to
improve customer service. Large data volumes with statistical
information were available for more accurate forecasting. It
allowed for different possibilities of customer order entries and
sophisticated order allocations with easy-to-use screens, as well
as new functions for invoicing, credit checking, simulation
tools, and much more flexibility to retrieve and group data
for better analysis.
The implementation of dedicated software meant important
improvements in customer service: Order allocation was auto-
mated and the delivery time was shortened. Selecting customer
orders, prioritizing customers, and checking customers avail-
able credit all saw improvement.
With this system, deliveries contained enough core sizes and
not all fringe sizes. In short-stock situations, it was possible to
decide how to allocate stock to orders. As a result, lead-time
between order entries and customer delivery dropped from five
days to two, improving customer service up to 97 percent in
both on-time delivery and order fulfillment.
Changing the planning system
To improve the coordination between the mar-
keting and production departments, consul-
tants suggested that production planning at the
SKU level should be under the marketing depart-
ments supervision, leaving the production
department to fine tune the plan according to
technical constraints. This delimited responsi-
bilities and encouraged better coordination.
The new demand management with improved
forecasting techniques gave rise to better infor-
mation for the production process, allowing the
company to meet new product variety demands
quicker and more accurately. This target required
a new formulation of the production planning
process.
The production department adopted pull
characteristics. Due to the style, color, and size
mix, production was leveled at the style level,
taking into account the demand mix and rate.
Thus, the pacemaker process was scheduled first
at the style level, followed by the color level. Then
statistical data was used to schedule this process
at the size level. Restrictions stemming from
shoe blocks and molds were considered. Once
this scheduling was over, all other upstream
processes were controlled by the pacemaker
process schedule (Figure 1).
Figure 1. The new planning system
January 2004 45
Conclusion
Implementing lean practices helped Alpargatas overcome
a tough situation that jeopardized the companys survival.
Lean concepts offered a framework to develop strategies to
increase customer satisfaction and to focus resources on this
endeavor. Lean methodology aided in the assessment of
the current process and created a common view of waste elim-
ination, which helped construct the envisioned future state of
the company.
After four years of work, the company completely adopted
lean practices and regained its market share in a very compet-
itive context. A new culture based on continuous improvement
was developed, providing confidence for facing new challenges.
Alpargatas met the new demand for product variety with
a 25 percent reduction in manufacturing costs and doubled
new style launches, going from 30 to 60 styles a year. It also
reduced development lead-times by 20 percent. Inventory turns
increased by 200 percent and customer service improved from
85 percent to 97 percent both in on-time delivery and order
fulfillment. d
The authors are grateful to Alpargatas S. A. for providing information
and allowing frequent visits to their plants.
Marcelo Neuman has an M.S. in industrial engineering from Buenos
Aires Institute of Technology. He is a professor in the industrial engi-
neering department at the National University of General Sarmiento-
UNGS in Buenos Aires, Argentina, where he was head of the depart-
ment for seven years. His research interests include new manufacturing
systems and their implementation. He also works as a consultant for
service and manufacturing industries. He has held many positions with
companies in the public and private sectors.
Fernando Marquina has an M.S. in industrial engineering from Buenos
Aires Institute of Technology. He is a professor in the industrial
engineering department at the National University of General Sarmiento-
UNGS in Buenos Aires, Argentina. His research interests include
new manufacturing systems and investment analysis. He works as a
consultant for manufacturing industries and worked several years on
projects addressing supply chain management at Alpargatas and
other companies.