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Chapter Page

1.0 Introduction 3-6

2.0 Summary of Literature 7 - 22

3.0 Case Study - Electronic Hardware Corporation 23 - 44

4.0 Methodology 45 - 46

5.0 Results 47 - 50

6.0 Discussion / Conclusion

6.1 Effect of Implementation 51 - 52

6.2 What’s Next 52
6.3 Conclusion 53 - 54

7.0 Footnotes 55 - 57

8.0 Bibliography 58 - 59
1.0 Introduction

The concept of “Cellular Manufacturing” has become very popular in manufacturing

literature of the 1990’s. Hundreds of companies including such giants as Toyota and Dell

Computer as well as small manufacturing entities have successfully implemented this technique

and have realized dramatic improvements including; reduced inventories, higher quality, shorter

lead-times and greatly improved operating efficiencies. In a study, published by the National

Association of Manufactures, 1042 American Factories were surveyed and 56% of them were

in the process of adopting a Cellular Manufacturing Approach .1

What is Cellular Manufacturing?

Cellular Manufacturing is a manufacturing approach that challenges the traditional Job Shop

approach for organizing a factory. In the Traditional Job Shop, manufacturing is organized by

process or department – each department specializes in one or more manufacturing processes

such as drilling, metal cutting, painting, welding, assembly, etc.…

When a product is manufactured it is usually built in a large batch which is then routed through

each of the departments where it waits in line (queue) to be worked on before being moved to

the next successive department.2

This process is continued at each department on the products routing sheet - until the product is

finally completed and sent to stock.

This paper is intended to explain what Cellular Manufacturing is and to identify the potential

benefits and common pitfalls to avoid. A well documented case study of a Long Island based

manufacturer that has successfully undergone a transition from a traditional Job Shop to a

Cellular Manufacturing environment is presented & discussed.

We will review the implementation at Electronic Hardware Corporation (EHC) in Farmingdale,

NY. and examine the trials, tribulations, and lessons learned by this struggling manufacturer of

injection molded plastic control knobs and components.

Further, we will discuss the operational definitions for this company relative to Quality,

Customer Service, Material Management and Manufacturing Planning and Control. We will

analyze the key metrics used by EHC before, during and after implementation.

Finally, we will analyze the results of the implementation and discuss additional opportunities for

Electronic Hardware as a result of implementing this process.

This topic was selected for a thesis for two reasons: First, because there is actually very little

information available on the process of implementing Cellular Manufacturing.

In fact, to my knowledge there is not one comprehensive book or manual that presents the

implementation process in a practical step-by-step manner which a practitioner can model to

implement this process.

The implementation approach that is detailed in the case study (section 3.0) has been

synthesized from many of the independent constituents of successful manufacturing practices

such as; team building, benchmarking, just in time (JIT) manufacturing, project management,

industrial engineering, total quality management (TQM), kanban, visual techniques, training and

change management.

Second, since I was directly involved in the implementation of these techniques, I have gained

valuable “first hand” knowledge and experience in the implementation process. Additionally, I

have witnessed many impressive results from companies who have undertaken the cellular

approach and feel an obligation to document this process and add to the overall body of

knowledge that exists on cellular manufacturing.

2.0 Summary of Literature

Cellular Manufacturing has become a very popular topic in manufacturing today. But, what is

Cellular Manufacturing and how does it differ from other traditional manufacturing methods?

What are the advantages and limitations of the various methods, and why are so many companies

now pursuing the Cellular Manufacturing approach?

Cellular Manufacturing is actually a collection of Just-In-Time (JIT) manufacturing techniques

which when used together, can provide a high level of synergy that can yield “breakthrough”

results for the organization. These techniques include:

Modification to the physical layout

Set-up time reduction

Once Piece Flow

KanBan (Pull Systems)

In this section and in the case study, which follows, we will look at each of these techniques and

discuss how they contribute to the Cellular Manufacturing Process

and to overall manufacturing process improvements.


Traditional approaches to manufacturing include the Process Flow and the Job Shop layouts. The

PROCESS FLOW approach may be thought of as the classic assembly line that typically

arranges workstations, machines and resources in a linear path. 4 This type of approach lends

itself well to repetitive manufacturing where the same product is made over and over again (such

as chemical processing). The lines are usually highly automated and therefore are very efficient. A

limitation of the Process Flow is that it is inflexible and cannot respond quickly to market shifts or

customer requested changes. It is also very costly to modify.

In a JOB SHOP approach, workstations, machines and resources are arranged according to the

function or process to be performed.5 This means that all holes are drilled in the Drilling

department, all machining is done in the Machining department and all assembly is done in the

Assembly department. This type of layout is extremely flexible and is ideal for manufacturers that
Produce one-of-a-kind, highly specialized, or a small variety of dissimilar products. One pitfall of

the Job Shop is that it is perceived to be efficient only when all equipment and machinery is highly

utilized. This philosophy breeds high Work-In-Process (WIP) Inventories, since large batches of

production materials are issued to workcenters to keep them humming along (high utilization).

Additionally, this large WIP inventory increases manufacturing lead-times, hides quality and

scheduling problems and frequently results in greater occurrences of rework and obsolescence.

Electronic Hardware Corporation, which will be discussed thoroughly

in the case study, functioned as a job shop prior to converting to cellular manufacturing.

Both the Process Flow and Job Shop approach tend to be PROCESS FOCUSSED. That is, the

emphasis is placed on optimizing each individual manufacturing step being conducted and does

not consider the process as a whole. This sub-optimization is efficient for the individual process

but not necessarily for the whole process of the end product.

See Figure “A”.




Figure A.

In the illustrations in Figure “A”, we can see the layouts for both the Process Flow and the Job

Shop. In both cases the product is processed along the path of departments A, B, C, D, & E. In

the Job Shop the product physically moves around the facility or facilities until each manufacturing

step on the routing is competed.

The product must wait in line called “queue” at each workcenter until it can be processed. This

queue time dramatically increases the total processing (lead-time) for the product. Studies have

identified that up to 80% of a manufactured products lead-time is directly attributable to queue

time. 6

In the Process Flow environment queue time is minimized however the process is “tuned” to a
very small variety of products and flexibility is dramatically reduced. In both cases

(Job Shop and Process Flow) the environments are Processed Focused. Because of this,

performance measurements are tied to the efficiency of the process rather then the

quality and quantity of the product being produced. This is one key difference between these

environments and the Cellular Manufacturing environment.

The CELLULAR MANUFACTURING approach (also know as Group Technology) is actually

a hybrid that combines the efficiency of the Process Flow with the Flexibility of the Job Shop. 7

A Cell approach arranges the factory into PRODUCT FOCUSED Manufacturing units called

cells. Each cell contains the required machines and resources necessary to build an entire product

or sub-assembly from start to finish. Unlike the Job Shop, product is built in cells using the one-

piece-flow concept.

The Job Shop and the Process (or continuous flow) environments are process focused.

What this means is that each individual process is optimized without consideration to what
happens as a whole. The Cell approach is product-focused, meaning that each cell is designed to

run a particular product or family of products. See Figure “B” for an illustration of a

Manufacturing Cell.


Input A B

Empowered Operators C

Output E D

One Piece Flow

Figure B.

One facet of the cell approach is that operators must be cross-trained to operate all the different

types of equipment contained in the cell. This is actually well received by the

Operators as it adds variety to the job and improves their skills which may lead to

higher earning capacity. Most importantly, it provides flexibility. Figure “C” lists the advantages

of Cross Training and Job Rotation as documented under the Toyota Production System. 8

1. An ability to quickly increase or decrease the numbers of workers in a shop to match an
increased or decreased demand.
2. Workers get less tired and are more attentive, leading to a reduction in factory accidents.
3. Working relationships between workers improve as feelings of work discrimination are
4. Senior workers get to teach their skills to the younger workers and valuable expertise is not
5. Since workers participate in all the processes of the shop, they feel a sense of ownership in
safety, quality, cost, and production.
6. The system creates an environment for examining the process and encourages suggestions for
improving the process.

Figure C.

In a Cell, Operators are given total responsibility for the product they produce and are

empowered to make significant contributions towards process, product, and quality

improvements. This means that quality and rework problems are seriously minimized since cell

operators can quickly detect nonconforming parts or materials and take immediate corrective

actions. The Cell Operator are given the authority to Stop Production if they determine that they

are creating defects. 9

Limitations of Cellular Manufacturing - While the benefits of Cells can be dramatic - they are

better suited for some environments than for others. Cells are usually less flexible than Job Shops

because they do not have the same range of equipment. Additionally, the cell approach may

require increased investments due to the duplication of equipment (since several cells may require

the same machinery).

The manufacturing approach to be selected should depend on the type of product being made,

the product mix, the process steps involved, requirements of the customer and the companies

strategic plan. Not every manufacturing environment is well suited for

a cellular manufacturing approach.

Typically the best suited environments for conversion to cellular manufacturing are those that have

limited product variations / product families and an adequate volume to warrant the change. The

conversion to cellular may necessitate the duplication of some manufacturing resources (which will

be committed to cells). For example a continuous flow manufacturer such as an oil refinery would

be impractical to convert to a cell because it runs a very limited number of variations at an

extremely high volume. It is probably most efficient in its current configuration. However, a

manufacturer that produces power tools may support both the volume and variety considerations

and lend itself well to a cellular environment. This topic is graphically depicted in Figure “E”.

Many manufacturers are converting to a Cellular Manufacturing approach because they recognize

opportunities for significant operational and quality improvements. Additionally, because

Manufacturing Cells are products oriented they tend to be more customer focused and responsive

to customer needs.
In a Cellular Manufacturing environment, the operators are cross-trained and learn each product

intimately. The advantage of this is that an operator in one area of the cell can

see how his or her activities can impact downstream activities. This usually generates

improvement ideas from the cell operators which in-turn drives greater efficiency and higher


Now, since the cell is product focused rather that process focused, it is the output of good

products that is the primary metric used to evaluate the success of cell -- not the efficiency or

utilization as in a Job Shop.

Cells are measured on their ability to produce good products - this is a very tangible

measurement and easily grasped by the cell operators. Manufacturers that have implemented

Cellular Manufacturing have identified many benefits that have accrued to their organizations. A

recent survey identified this partial list of benefits shown in Figure “D”. 10

Indicator Companies Reporting

Improvements (Percent)

Distance work travels 90%

On-time delivery 90%
Number of handlings 87%
Flexibility 82%
Productivity 80%
Morale 76%
Quality 76%
Set-Up Time 76%
Accuracy of Information 68%
Timeliness of information 65%
Documentation 52%
Sales 38%

Figure D.

The benefits of Cell manufacturing can be further enhanced when a Kan Ban (pull) scheduling

system is implemented in concert with the cells. KanBan will be discussed

in greater detail later on. 11

The Cellular approach is not recommended as universal solution. The approach will be most

effective when matched to the environment that has the most to gain. One way of analyzing the

manufacturing approach is to determine the appropriate strategy for the firm. A simple tool to do

this is the Volume / Variety Matrix shown in Figure ”E”.12

Volume / Variety Matrix

Job Shop



Figure E.
In Figure “E”, the first position represents the low-volume, high variety-manufacturing situation

call a Job Shop. The positions proceed down the diagonal to batch, line and then to the very

high volume - very low variety position called Continuos Flow.

This volume / variety matrix can be used as a conceptual tool to determine which specific

process should be used for a given firm. Any process choice that is made which is inconsistent

with the position on the diagram will result in increased production costs. 13

Basically this diagram shows that high variety manufacturing is usually at the opposite end of the

scale from high volume manufacturing. Let’s take a closer look at each type of manufacturing

strategy identified in the matrix.

JOB SHOP – Also known as a functional layout because similar machines are grouped

together. Volumes are very low and variety is high. This is the most common type of

manufacturing environment because it provides a high level of flexibility by organizing around

processes such as machining, drilling welding etc. At the low variety end of the spectrum typical

products would include specialized test equipment and other “one of a kind” type items.
As volume increases, the product is produced in “batches” which are sized using the Economic

Order Quantity (EOQ) formula, which suggests the appropriate batch size to use. This is based

on machine set-up time & cost along with the volume of the product to be run. 14 As volume

increases and the transition from Job Shop to Batch and line configuration occurs, so does the

amount of work in process and consequently so does lead-time. In fact, In a typical job shop,

80% of the time an order is in the factory it is not being worked on - it is waiting on line to be

processed. The elimination of batch production presents one of the best arguments for the

conversion to cellular manufacturing.

BATCH – As volumes increase and variety decreases product is typically manufactured in

“batches” to economize the set-up costs that are associated with running the specific part.

While this may be an improvement over the job shop, it does generate a lot of extra inventory in

order to justify the amount of set-up time required to change from one product to another.

LINE – It is similar to batch but, with greater volume and less variety. It should be pointed out

that both batch and line configurations are designed to minimize the need for repeated set-ups

on machines and equipment.

As new techniques for set up time reduction (such as SMED) are becoming more widely used

this old “batch” thinking is now being replaced. 15

CONTINIOUS FLOW – There is very little variety but lots of volume in this environment.

Continuous manufacturing represents a special case because most products never progress from

low volume / high variety to the very high volume / very limited variety configuration that

characterizes continuous flow manufacturing. This type of environment generally operates

continuously, day and night, year in and year out.

Examples of continuous manufacturing include oil refineries, sugar refineries, Manufacturers of

gypsum wallboard and some large scale steel mills.

Of course there are many varying degrees of each of the above environments and it quite

possible for an entity to have more than one category co-existing under the same roof.

The greatest benefits of implementing Cellular Manufacturing are obtained when the product (or

product family) volumes are reasonably high and the variety is relatively

low. By this definition we can usually exclude the pure Job Shop and Continuos Flow

environments which function in the extreme ends of the volume variety matrix.

Typically, the greatest benefits for conversion to Cellular Manufacturing can be realized for

products that are in the range between Job Shop and Batch on the volume variety matrix.
Set-Up Time Reduction - This is a vital step in the implementation process because set-up

time must be reduced before lot sizes can be reduced. Going back in history, it was the concern

for the efficient use of machines that resulted in E.O.Q. and “Batch” manufacturing . It simply

did not make sense to set-up a machine that could have taken hours, only to run the machine for

minutes. Since machine set-ups took a considerable amount of time and because the process

was being measured on output and on machine utilization, the batch concept was born.

More recently methods for reducing set-up such as Single Minute Exchange of Die (SMED)

have been introduced. These methods have dramatically reduced Set-Up times giving way to

the reduction of lot sizes and ultimately to the concept of One Piece Flow manufacturing. Set-

Up time can be broken into two components; first there is External set-up time which is the time

available to begin the set-up that does not interrupt production. Once a set-up is planned, all the

tools and fixtures needed to perform the set-up should be available at the machine before it is

shut down. Set-up time can typically be reduced by 50% or more just by focusing on the

external issues. Next there is Internal set-up time which is the time the machine must actually

be switched off to complete the set-up. Some of the techniques used to reduce Internal set-up

time include using “quick disconnect” type fittings, using hydraulic clamps instead of bolts and

standardizing the size of all the molds, dies and fixtures used. To reduce set-up times both

Internal and External times must be reduced. Both of these concepts will be discussed in

greater detail in the case study.

One Piece Flow

The One-Piece Flow concept is also part of the JIT philosophy. Under the one-piece flow

philosophy the lot size is reduced to one piece. For each piece beginning production, one piece

is completed. This approach can only be applied once set-up times have been reduced. The

benefit here is that inventory is minimized to exactly what the customer wants. In the JIT

philosophy excess inventory is considered waste and it should be avoided. While the goal is to

achieve a lot size of “one”, this rarely happens. The best approach is to reduce lot sizes down

to the smallest number of units that is practical. For example, a lot size that normally was 1000

may be reduced to 100, A lot size that normally was 10 may now be run at 1. A lot size of one

is usually impractical to achieve and is considered manufacturing utopia.

KanBan (Pull Systems)

KanBan is a Japanese word which when translated means “card”. These cards are used as

signaling devices to authorize the production of components or products. This method

developed by Toyota, limits production to exactly what is needed at the present time.

No product is built unless it is needed right away. In the Toyota Just-In-Time system the

greatest form of waste is overproduction -- as it is a total misallocation of resources such as

capacity and materials, which are tied up unnecessarily.16

In America, we also call this method of scheduling a “Pull System”. The implementation of this

technique is discussed further in the case study.

The origination of Kanban is actually an interesting story. Kanban, like many of the glamorized

Japanese concepts, had its beginning in the United States. The father of kanban was Taiichi

Ohno - Vice President of manufacturing for Toyota. As the story goes, Taiichi was visiting the

U.S. and while walking through an American grocery store he received his inspiration when he

noticed how each product in a the store had a dedicated amount of shelf space. What he found

most useful was that a shelf was restocked only after a customer removed product from it. Mr.

Ohno felt this concept could serve a critical role in reducing manufacturing work-in-process

(WIP) and when he returned to Japan with this concept, Kanban was born. 17
3.0 Case Study – Electronic Hardware Corporation
The following is an actual Case Study of a local manufacturer, which implemented Cellular
Manufacturing and associated JIT techniques. The Case Study is presented as twelve-step
process that began in 1993 and is credited for turning this company around.

Electronic Hardware Corporation (EHC) is a small manufacturer of plastic

components consisting primarily of control knobs for the aerospace, industrial and consumer


EHC is a mature, thirty-four year old privately owned company employing approximately ninety

people in a union environment. The company was founded in 1962 as a supplier to the growing

defense industry and continued to grow until the mid. 1980’s. When defense spending

decreased by the early 1990’s the company was struggling for survival.

Cash flow was poor and accounts payables were stretched beyond one hundred days.

Suppliers were beginning to refuse to ship raw materials. The situation was bleak and time was

running out.

One —Assemble the team. The Project Team should consist of those individuals who will be

ultimately responsible for the implementation of Cellular Manufacturing. Functions represented

should include Top Management, Manufacturing, Engineering, Quality, Material Management /

Production Control, and Sales / Customer Service.

Teams consisting of five to eight people are usually appropriate to achieve the proper group

dynamics.18 In this case the primary team consisted of seven people; President, Director of

Manufacturing, Engineering Manager, Quality Manager, Two Manufacturing Managers and the

Production Control Manager.

Developing a Cellular Manufacturing environment will require a firm commitment

from upper management and everyone on the project team. It is a radical re-thinking of

how the company conducts business and the teams will encounter many obstacles including;

resistance to change, the re-allocation of resources, language / communication barriers, re-

training and cross training of employees, supervisors and (most importantly) managers. Existing

paradigms must be dispelled as individuals (and teams) learn to “think outside the box”.

In this case the transition to Cellular Manufacturing was the top priority—it had to be. The team

believed that this approach would dramatically improve efficiency and lower manufacturing

costs - this was crucial for survival.

The primary team met weekly after-hours for three-hour brainstorming sessions. Additionally,

the team held monthly status meetings on Saturdays. None of the team members had any prior

experience in this area so self-education became the first order of business. The team allocated

the first thirty minutes of each meeting to self-training. This included a group study of videotapes,

books and articles that were available on the subject and received periodic mentoring from a

local consultant.

Secondary teams were commissioned as needed to examine and reengineer processes such as

order entry, factory layout, flowcard design, and to implement new initiatives such as Kanban

and Set-Up time reduction.

The organization had little or no budget to finance this undertaking, so the cell team had to be

very creative. Improvising became a way of life in order to provide the resources necessary to

proceed. Existing machines and tooling were cleverly reconfigured to operate in the new


Two—Benchmarking and self-Assessment. The process known today as

benchmarking is relatively new as a competitive tool for business. In the early 80’s Xerox and a

few other large organizations began to study performance gaps between themselves and their

competitors and coined the term “competitive benchmarking”. 19

Today, benchmarking has become a common technique for all types of businesses. In the

manufacturing industry we typically compare our organization with those of our competitors.

But, it is becoming more common to benchmark by function or activity (such as customer

service) rather then strictly by competition. Using this approach companies who are “best in

class” are sought out as benchmarking models for their specialties.

Typically key process measurables such as delivery performance, quality, lead-time, and

inventory turns are compared to the same measurables of other successful organizations.

Naturally, it is necessary to know your organization’s key metrics or measurables before you

can benchmark against other organizations looking for the “best in class”.

At EHC it was necessary to put systems in place to record many of the key metrics such as

delivery performance and manufacturing cycle time.

Since these metrics did not even exist at Electronic Hardware at the start of this process, it was

quite obvious that if there were a “worst in class” category EHC would have qualified for it.

One very useful approach to use during the Benchmarking phase is to actually visit successful

companies and see what makes them different from your own company. Although this is not

always easy (in fact it can be quite difficult to visit a competitor) it can generally be arranged if

the right contacts are established and the reason for the visit is understood.

At EHC it was we found useful to participate in professional societies such as The American

Production and Inventory Control Society (APICS), The Society of Manufacturing Engineers

(SME) and the American Society for Quality (ASQ). These societies often conduct plant tours

at successful companies.

EHC managers attended as many of these facility tours as possible. Some of the companies

visited included; Davis Optical in Hauppauge - which had received the New York State

Governors Excelsior Award, AIL Systems in Commack - also an Excelsior Award winner,

Arrow Electronics in Yaphank, Coherent Communications in Hauppauge, Steinway Piano in

Astoria, Ademco in Syosset, Entenmanns in Bayshore and Harley Davidson in York PA - just

to mention a few.
An additional source of information are manufacturing symposiums which offer excellent

opportunities to hear success stories from other companies -- there is nothing wrong with

copying a successful idea!


Three—Analysis. The next step in getting to know your business is a sales / production

analysis. Since many companies produce diverse product lines it is necessary to determine

which products will produce the greatest economic benefit if incorporated into a focused

factory. Typically, these are products that are produced in a repetitive or continuous flow


The analysis is used to determine which manufacturing processes the products have in common.

Products are sorted into “family groups” by common characteristics such as the Manufacturing

Routings and Bills of Materials.20 This step is fairly easy if the company uses intelligent part

numbers or assigns manufacturing categories to part numbers.

Once Product Family Groups have been identified, the Pareto technique can be used to target

the product families that will provide the “biggest bang for the buck”. That is, the products that
run at the highest volume, have the most processes and components in common, and generally

seem to be good candidates for cellular manufacturing.21

The analysis of a companies products (see Figure “F”) can reveal significant links between

many products which were considered otherwise discrete. In this case, the sales analysis

revealed that sixty percent (sales value) of the products produced had very similar attributes. A

common denominator between these products (knobs) was they used a similar component

(bushings) and basically followed many of the same manufacturing steps.

Therefore, all knobs with bushings were now considered to be part of the same family—the

bushing family. Because of high volume in both sales and units produced, the team agreed to

pursue the bushing product family for the first project since it offered the greatest economical


Buy &Finish
Buy & Sell
AP / 0 6 9%
14% Bushings
CELLS 1-7 56%
Test Jacks CELLS 1-7

Mech. Assy.
11% Backlighted

Figure F.


Four—The bushing family group shared many of the same processes and therefore

used similar types of equipment. Even though products in the family group were comparable,

they were not identical, so additional processes and equipment needed to be considered for the

manufacturing cells. The most desirable approach to cellular manufacturing is to build the entire

product—start to finish—in the same cell.

This is called a Product Cell. If the entire product cannot be built in one cell, the

approach should be to assemble a series of cells each building a logical sub-assembly and

feeding a next-higher-assembly cell. This is called a Process Cell. 22

Because the entire product (plastic knob assemblies) could be built in the same cell, Electronic

Hardware would develop Product Cells. The approach was as follows:

I. Determine what equipment (common and unique) will be necessary to accommodate the

product family. To accomplish this a simple process matrix is developed. The matrix is used to

match each process to the equipment required to perform the process. By using the matrix,

common and unique equipment can be identified for each product to be run in the cell.

Next we determine how many cells will be required (or can be built with the existing

equipment) to manufacture the entire family group. To do this two things are needed;

a) The projected capacity of a cell, and b) An inventory of the existing equipment.

II. Capacity Analysis. At EHC a detailed time study of each process used by the bushing

family group was performed. In this case between 6 and 10 operations were required to

manufacture a knob. Since a cell is intended to function as a continuous flow process, the

slowest operation (constraint) will determine the throughput of the cell (a troop cannot

march faster than the slowest member).23

Once the slowest manufacturing process is determined, it is easy to estimate the capacity

(rough-cut) of a cell. With the approximate capacity established, the number of cells required

and their configurations can be determined.

To improve the capacity of a cell,

increase the throughput at the
constraining (bottleneck) process.

III. Equipment Inventory. Once the equipment has been identified an inventory must be taken

to determine which assets are available for the cell(s). EHC had no formal asset inventory, so

the company took this opportunity to photograph each piece of equipment and affix a numbered

inventory tag to it. A specification sheet was completed for each item inventoried to identify

attributes such as physical size, power, water, and air requirements, as well as the general

condition of the equipment. The photograph was attached to the specification sheet and filed in

a three-ring binder. This information proved to be indispensable during the cell design and
layout stages. If equipment needs to be purchased, (and some may) this is a good time to

prepare the budget.

In this case, we calculated that seven cells would be required to meet the demand for the

bushing product. Each cell would be staffed with two operators. All seven cells were designed

to carry out all the manufacturing steps necessary to build a complete product. In this case, from

a molded plastic shell to a completed knob which is packed and ready for immediate shipment

to the customer.


Five—Project Management . A project of this magnitude needs to be clearly

understood and carefully managed. The first step is to actually “map” the existing process flow.

This is accomplished by identifying all of the activities involved and sequences in the

manufacturing process. This information is graphically displayed on a flow chart. It is crucial that

all activities be completely understood prior to changing them. This will insure that no process

steps are overlooked and will prevent problems later on.

Once the existing process has been mapped, the new process can be clearly identified. Each

step of the process must be carefully defined. There are a number of project management tools

available that can be utilized.

The most common program management techniques are the Program Evaluation and Review

Technique (PERT), the Critical Path Method (CPM) and Gantt Charting.

There are a number of companies that sell PC based software to support project management.

The decision to use these packages will depend on how closely a project needs to be tracked

and the level of detail required for management. At Electronic Hardware, the requirement was

to simply identify what needed to be done, who would do it and when it was required.

At EHC it was determined that the PERT and CPM methods were “overkill” for our purposes.

We simply defined the critical action steps (called milestones) planned completion dates, and the

individuals who would be responsible. All this information was entered on a Gantt chart that was

reviewed at the weekly cell meetings.24 Once the members of the team understood how this

technique worked, schedule compliance became a team effort and variance were kept to a

Six—The Prototype. At EHC a Prototype cell was designed and assembled for use as

a “test bed” to prove out the cell concept and to expose any potential problems which could

not be anticipated. The cell was arranged in a “C” configuration that would support two

operators, one working from the inside and another working on the outside.

The throughput and the quality of the knobs produced on the prototype cell exceeded

the expectations of the cell team and met with high marks by the cell operators and the


The “C” configuration is used to minimize the distance traveled between operations and

eliminate the “waste” of unnecessary movement.25 Once the prototype cell was in operation the

team was able to obtain valuable feedback from the operators. Cell operators offered numerous

suggestions for improving the process and the ergonomic factors affecting cell performance.

Many of these suggestions were incorporated into the design of the remaining six cells.

Figure G.

Seven—Plant Layout. To accommodate the Cells and KanBan staging areas, much of

the facility had to be rearranged. At EHC we constructed a mock layout and entered it into

Auto Cad. Using the software we were able to move entire departments around to come up

with the best layout. The actual physical moves were conducted after hours and on weekends

so production would not be disrupted.

Eight—Set-Up Time Reductions. Reduction of set-up time is a crucial element of any

manufacturing process improvement program. As each of the cells came on line the team
realized that changes to the existing tooling fixtures and molds were necessary to achieve rapid

tool changes.

Fast tool changes were important because our intention was to make the cells flexible and

replace large batch production with small lot production driven by Kanban. The initial Set-Up

time was nearly one hour it has been continuously reduced to approximately twelve minutes.

See Figure “H” for set-up reduction activities.




Figure H.
Nine —Total Quality Management. TQM is the common thread and driving force of

the continuing improvement process used to develop the Cellular Manufacturing environment.

At EHC numerous cross-functional process improvement teams were formed and each took on

a specific mission. The materials team identified newer and less expensive plastics, the order

entry team found ways of reducing the “front end” cycle time and our KanBan team identified

which components were best suited for KanBan and trained the operators how the system


Each team made significant contributions to the goals of cellular manufacturing and the progress

of these teams was tracked and shared at regularly scheduled team presentations - as well as

posted on the team bulletin board for all the company to see.

The defect prevention team established modified Statistical Process Control (SPC) techniques

that were designed into the manufacturing process.

Each cell was supplied a kit containing all necessary quality tools such as Calipers, Go / No-Go

gauges, Thread gauges and Depth gauges. Operators were trained how to use these tools and
most importantly, they were empowered to STOP PRODUCTION if a process went out of


This was difficult at first, because the previous philosophy was NEVER STOP

PRODUCTION! The transition from “command and control” to employee empowerment was

very interesting and could easily become a case study onto itself.

The transition required both the direct labor employee and the manufacturing

management team to change behaviors. Initially, we believed the direct labor operators were

afraid to assert themselves but in several cases we determined that it was actually the supervisor

that was at fault. For example, if a defect was identified the operator was expected to switch

on the warning light and stop production. When this did not happen on several cases, it was

learned that it was the direct supervisor who was at fault - not the operator.

The supervisors did not like the negative publicity of having a line (under their control) stop -

they felt it would hurt their numbers and make them look bad. This issue was

corrected by providing additional training for factory supervisors and operators. In a few cases

staffing changes were necessary.


Ten—Kanban. Kanban is a Japanese word that literally means card. In the Toyota

production system this “Card” is used to initiate the “PULL SYSTEM” for manufacturing

scheduling. Kanban / Pull Systems are used as a scheduling technique and to eliminate the

“waste” of over-production. At EHC a Kanban system was implemented using color-coded

bins instead of a cards.

The system is used to supply the cells with component parts as needed to manufacture

end items. These component parts include; molded plastic shells produced in house, as well as

parts purchased from suppliers.

How the system works—EHC uses a three bin Kanban system; Two bins are located at the

point of use, and one bin is located at the supplier (internal or external). The Kanban system

uses yellow colored bins which have sample parts attached to them for positive recognition by

the operators. See Figure “I” for the Six Rules of Kanban. 26


1. Don’t send defective parts to the subsequent
2. The subsequent process comes to pull.
3. Produce only the quantity required.
4. Equalize production.
5. Kanban is a means to fine tuning.
6. Stabilize and rationalize the process.

KANBAN, Just-In-Time at Toyota, Productivity Press, 1989

Figure I.

Internally supplied parts—As soon as a bin is emptied (each bin contains enough parts for

one shift) it is returned to the internal supplier and a reserve bin is taken and returned to the

point of use. The empty bin signals the supplier to make new parts and once the bin has been

filled the supplier stops production of this item (no waste). The supplier has twenty-four hours to

complete the transaction. The second bin at the point of use is extra—it is kept as emergency

buffer stock—in case of machine breakdown.

Externally supplied parts—All primary suppliers were brought on board before the program

was started and agreed to support the JIT / Kanban system. When a bin containing a purchased

part is emptied, it is brought to the Receiving Department. Next, the operator faxes a Kanban

request form to the supplier. The supplier immediately ships replacement parts to EHC using a

next day delivery service. Once the replacement parts arrive, they are placed into the empty bin

and returned to the point of use. The operator who ordered the parts will now inspect them and

put them into the Kanban system. Note: The operator performs the scheduling,

purchasing - release and incoming inspection functions for these transactions.


Eleven—The Visual Factory. At EHC the seven new cells manufactured products

accounting for approximately sixty percent (60%) of the total dollars shipped. Because of the

financial impact, downtime and missed schedules could create very serious problem. At the start

of the program measuring cell downtime and throughput was difficult because of the lack of

systems and timely information. Because the existing computer system was “State of The

Ark” (not “State of the Art”) technology, it took a minimum of twenty-four hours to get

feedback on cell performance. If problems occurred (and they often did)

information was received too late to take corrective action.

Since a new computer system was out of the question (because of the shortage of funds) it was

necessary to develop a system which would provide real time feedback so that immediate

corrective action could be taken. This problem was solved by implementing a visual system

that utilized inexpensive devices such as warning lights, color coded bins

and dry erase boards. These “visual aids” were used to track schedules and highlight

production problems -- they took the “guess work” out of planning and scheduling.


Warning Lights—A red warning light was mounted above each cell to be used to indicate if

the cell was experiencing a quality problem, production problem or delay (including repairs or

machine set-ups). The cell operators were empowered to stop production if the process

generated defects. The warning light provides instant feedback to the manufacturing and quality

manager and supervisors who take immediate action to resolve any problems.

Schedule Boards —To provide “real time” information on the throughput performance of each

cell, inexpensive Dry-Erase boards were mounted on the cells. These boards are used to
display the hourly performance of each cell. Schedules are set based on the Reasonable

Expectancy (R.E.) established for the particular product running.

The schedule is cumulative over the entire eight-hour shift and the operators enter their actual

production for each two-hour time segment. If a cell is on or ahead of schedule, the operators

enter the production number using a GREEN marker. If the schedule is not achieved the

operator uses a RED marker.

All cells and schedule boards face the same direction so factory managers and floor supervisors

can obtain a “status at a glance” and offer help if needed. The schedule boards worked so well

in the cells that this concept was extended to many of the other non-cell operations such as;

sales bookings, shipments etc. The results have been excellent - the employees know what is

expected of them and management knows what is happening.

Colored Bins - Prior to the cell project, various size and color bins were used to contain the

WIP. This was very confusing and unproductive. Work in Process (especially rework) was lost

for weeks at a time! The team instituted a new system which; a) standardized the size of the bins

used and b) established a color code for the bins. A three-color system was adopted: Yellow /

Blue / Red. YELLOW bins are designated for Kanban use only BLUE bins are used only for

standard parts not on the Kanban.

RED bins are designated for REWORK or CUSTOMER RETURNS only. At a glance the

mix of work on the EHC factory floor can now be assessed and rework can no longer hide!

In addition to KanBan bins, we found it helpful to color code all sorts of things including factory

paperwork -- to identify special types of jobs such as; engineering tests or customer samples. It

is amazing how much you can improve the focus on something by color coding it!


Twelve - Training. Training must begin at the start of the project and never stop!

Within six months all seven cells at EHC had been placed into operation. Training became a

major focus for the cell team. Operators who previously had only one simple task (such as

working a Drill Press) were now responsible for several operations (such as Drilling + Taping +

Reaming + SPC). To complicate matters, most of the operators spoke little or no English.

An English as a Second Language (ESL) training program was instituted—and continues today.

The employees were educated on JIT, Kanban and Statistical Process Control, Telephone

Skills, Personal Computers and a host of other skills.

4.0 Methodology

Developing cellular manufacturing capability is a powerful strategy for today’s manufacturing

enterprise. This paper introduces Cellular Manufacturing, Kanban scheduling and Visual

Factory techniques in a case study format.

As discussed, a cellular manufacturing can provide many benefits including; reduced inventories

and cycle times, improved quality and operational efficiencies, better cash flow, greater

customer satisfaction / loyalty and a happier more productive work force.

This paper examines how one struggling small manufacturer with limited resources, revitalized its

business by implementing the techniques discussed.

The paper is organized to provide the reader with a fundamental understanding of the techniques

utilized in Cellular Manufacturing. The case study is written to provide clear examples how

these techniques can be implemented, their expected benefits and any potential pitfalls, which

can be avoided.

Since this is an area of study that is relatively new, some of the materials utilized and referenced

are obtained from periodicals such as Journals, Conference Proceedings, and the Internet. In
addition, many of the ideas presented come from direct observations and “hands on”

experimentation in real manufacturing environments.

The company used in the case study, Electronic Hardware Corporation is the author’s former

employer where he held the positions of Director of Manufacturing (1993- 1997) and Vice

President and General Manager (1998 - 1999).

Professional Credentials - The author is recognized by the American Production and Inventory

Control Society (APICS) and is certified at the Fellow Level (CFPIM). The distinction of

being a Certified Fellow in Production and Inventory Management is achieved by less than 2%

of the societies 70,000 members worldwide. In addition, the author is past president and

member of the board of directors of the Long Island Chapter of APICS and has served as an

advisor for the Industrial Technology Program at S.U.N.Y. Farmingdale, NY.

5.0 Results

The implementation the Cellular Manufacturing techniques had an astonishing impact on

the Electronic Hardware Corporation. Here are some of the measurable benefits accrued to

EHC since 1994, the first year of implementation:

Work In Process inventory (WIP) - is the actual work on the manufacturing floor. This

inventory was reduced by 55% as a result of the elimination of “batch “ production and the

implementation of the “one piece flow” philosophy.

Manufacturing lead-time - Because there is a direct relationship between the amount of WIP

in the manufacturing process and the manufacturing lead-time, the reduction of WIP caused a

corresponding reduction in manufacturing lead-time. This is mostly because of “queue time”

(the time a job must wait in line at a work center before it can be worked on). Once the queue

time was eliminated, jobs could be run in the factory in 1/5 of the time they formerly took - and

80% improvement.

On-Time Delivery - The measure of delivery performance is a key measurable which

(along with quality) helps a company to gauge customer satisfaction. Poor delivery performance

= unhappy customers. At Electronic Hardware delivery performance was approximately 59%

at the beginning of the project - when it was first measured and recorded.

Following implementation this number began to rapidly improve and has continued to the

current 98.8% on-time delivery performance level. The goal is 99.9%.

Customer returns - One definition of quality that I like is “shipping a product that does not

come back to a customer who does”. Clearly the use of customer returns is a key measurable.

In 1993, roughly 4% of the orders shipped by EHC were returned for various quality problems,

This number has been reduced to less than 1% in 1999. The goal is


Efficiency - Is a key measurable for a manufacturing entity. The higher the efficiency, the

lower the cost of manufacturing. In terms of measuring efficiency at EHC, the factory

throughput was calculated and determined to be at a rate of 39 units of production

per direct labor employee per hour. One month following implementation this same

rate exploded to 60 units per hour. That is one unit per minute! This was a whopping 55%

improvement. This rate has fluctuated between 58 and 70 pieces per hour depending on the

product mix. The goal is 70 pieces per hour.

Increased Sales - In the year following the implementation sales increased by nearly 36%
as customers realized that they were now receiving higher quality products when they wanted


This increase has been difficult to maintain, as control knobs are part of a shrinking market i.e.

the world is now using digital products and knobs are used with analog devices.

The company has been diversifying its product mix and applying cellular manufacturing

techniques for all new products developed. Additionally, EHC has recently won a major

Government contract to provide all control knobs required by the military.

Cash Flow - As the purchasing philosophy was changed to buy only what was needed and only

when it was needed cash outflow was reduced. And since lead-times were 80% lower, raw

materials were rapidly converted into salable product. This resulted in a positive cash flow and

EHC was able to turn a profit starting with the first year of implementation and has continued to

remain profitable to the present day.

These profits have been used to pay off creditors, reinvest in the business and are shared with

the employees in the form of a bonus. Additionally, the profits have been used to invest in other

ventures to insure the long-term viability of EHC.

Intangible benefits - Many unexpected intangible benefits were realized across the company

ranging from the direct labor employee who was cross - trained and learned

new skills to the top level managers who received a renewed since of pride, achievement

and most importantly job security.

At the beginning of this process morale was at an all time low. For three years prior to

implementation, layoffs and “right sizing” had been management’s answer to offsetting the ever

increasing manufacturing costs. For three years no one received an increase in

in pay. Finally, rather than another layoff, EHC and the collective bargaining unit (union) agreed

to a 37.5 hour work week.

Once company management began to realize the benefits (PROFIT!) of the cellular

manufacturing process, EHC was able to stabilize the workforce. Next, the normal

40-hour week was reinstated. At contract negotiations, the company was finally able to provide

increased wages to it loyal hardworking workforce. In fact, the company

needed to begin hiring more employees to keep up with the work that came poring in from

happy customers.

While there were no statistical tools used to measure employee morale, it was clear from the

smiles on the operators and managers faces that they were happier than they had been in years.

It was not just the job stability and the wage increase, it was the pride of being part of a

company that had reinvented itself and empowered its people to use all their talents.
The improvements were so dramatic that other companies began to notice – by 1995 EHC had

become the company that others would benchmark against. In 1996 Electronic Hardware was

recognized by APICS and received the Company of the Year Award.

For more benefits see also Figure “J” in section 6.1.

6.0 Discussion

6.1 Effect of Implementation

The implementation of JIT concepts including; Cellular Manufacturing, Kanban and

Visual Factory techniques has had an astonishing impact on the Electronic Hardware

Corporation. Listed in Figure “J” below are some of the measurable benefits accrued to EHC

since 1994, the first year of implementation:

Key Metrics


POSITIVE CASH FLOW - 1994 to Present
PROFITS : - 1995 to Present

Figure J.

The most important benefit was the positive cash flow that was reinvested and used to pay

down creditors. In 1994 EHC showed a profit for the first time since 1987, and in

1995 EHC had one of its best years ever - since being founded in 1962! In 1996 EHC was

awarded the APICS Small Business of The Year by the local APICS chapter.
6.2 What’ Next

In 1999 Electronic Hardware Corporation carefully positioned itself for the new millennium. To
do this the company had identified three major goals – each of paramount importance.

1. The company would attempt to go public through an Initial Public Offering (IPO)

2. The company would compete on a major government contract that would either place it as
the sole source for knobs and mechanical components stocked in the government supply
system or loose this bid and 50 % of its business to a competitor

3. The implementation of a new Macola integrated computer system that would automate
many of the manual Accounting, Purchasing and Inventory Control activities. Additionally
this system would be necessary to make EHC Y2K compatible.

By December of 1999, EHC had achieved each of the major undertakings described

Electronic Hardware Corporation was able to achieve these difficult goals because it had made
a commitment to continuously improve its processes, procedures and people since the beginning
of the Cellular manufacturing initiative in 1993.

6.3 Conclusion

Over the past six years Electronic Hardware Corporation has undergone many changes

to remain competitive in the world economy. Competition, especially on “low tech.”

manufacturing such as plastics, has continued to grow - especially from the Pacific Rim

countries. In a candid discussion with the owners of EHC, it was acknowledged that the
company would not have survived the new millennium if it had not pursued its 1994 strategic

objective “to develop and implement cellular manufacturing capability”.

Like many companies that have attempted to implement new manufacturing philosophies, EHC

soon discovered that there would be many obstacles to overcome.

And while many of these obstacles were predictable, such as physically

rearranging a facility without loosing any production time, we were blind sighted

by others.

One of the most challenging obstacles was resistance to change. Oddly enough this resistance

was more common amongst the supervisory level than the rank and file employees. When you

really consider what you are doing -- rearranging an entire facility

from a job shop (consisting of departments containing similar equipment) to cellular

manufacturing (cells consisting of dissimilar equipment) its becomes easier to understand the

supervisors concerns.

For example, EHC encountered a highly resistant supervisor in the drilling department. This

individual was slow to respond to requests from the cell team and had become very cynical

about the project -- he basically looked to derail it whenever he had the opportunity. Once it

was learned that this individual (who was very competent and had run the drilling department for

many years) was concerned about loosing his job, the approach became obvious -- training and

education. As the resistant employee learned more about the process and how he could use his
skills to improve the cells, he actually became a strong advocate for the cause and helped

convince other employees.

In conclusion, the journey from a job shop to cellular manufacturing environment is not an easy

road but the rewards are well worth the efforts. While EHC never developed a formal list of

do’s and don’ts for implementing manufacturing cells, the following list of critical success factors

from Black & Decker Corporation is an excellent guide for any company considering a radical

change in manufacturing philosophy such as this .25

Involvement of supervisory management from the very outset.

High level of self-confidence among hourly associates.

Full support of the top management.

High level of mutual trust between management & employees.

The entire process driven by a champion.

Patience, a lot of it.

Training, training, & training.

7.0 Footnotes

“The Celling out of America.” The Economist, 17 Dec. 1994, p. 63.

Queue is defined as “A waiting line. In manufacturing, the job at a given work center
waiting to be processed. See American Production and Inventory Control Society, APICS
Dictionary 9th ed. (Falls Church: APICS – The Educational Society of Resource Management,
1998), p. 79.
Lee R .Nyman, ed. Making Manufacturing Cells Work. (Dearborn: Society of
Manufacturing Engineers, 1992) , p. 73.

4 Kenneth A. Wantuck, Just In Tine for America. (Milwaukee:The Forum,

Ltd.1989) , p. 141.

Job Shop is defined as “An organization in which similar equipment is organized by
function”. See APICS Dictionary 9th ed. P. 47.

Blair R. Williams, Manufacturing for Survival. (Reading: Addision-Wesley, 199+6),
p. 217.

Wantuck, p. 147.

Williams, p. 341

Empowerment is defined as “A condition whereby employees have the authority to
make decisions and take action in their work areas without prior approval. See APICS
Dictionary 9th ed. P. 30.

.Nyman, P. 32.

Kanban is defined as “ A method of Just-in-Time production that uses standard
containers or lot sizes with a single card attached to each. It is a pull system in which work
centers signal with a card that they wish to withdraw parts from feeding operations or suppliers”
See APICS Dictionary 9th ed. P. 48.

Waren M.H Graeme, and Colin L. Moodie, Cellular Manufacturing. (Purdue
University: Technical Assistance Program, 1993), p 3-4

7.0 Footnotes – Continued

APICS. CPIM Certification Review Course: Systems and Technologies. (Falls
Church: APICS – The Educational Society of Resource Management, 1995), p. 1-14.

Economic Order Quantity (EOQ) is defined as a type of fixed order-quantity model
that determines the amount of an item to be purchased or manufactured at one time. APICS
Dictionary 9th ed. (Falls Church: APICS – The Educational Society of Resource Management,
1998), p. 29.

SMED is an abbreviation for Single Minute Exchange of Die. This is a JIT technique
used to minimize Set-Up times.

Wantuck, p. 24-25.

“Simulating Kanban Systems in the Appliance Industry” Mabrouk, Khaled M.
Appliance Engineer, Feb. 1996,p. 88-92.

Michael Jaycox, , “Team Work: How to Get Nonbelievers to
Participate in Teams”. Quality Progress, (March 1996) p. 45-49.

Gregory H. Watson, The Benchmarking Workbook. (Cambridge: Productivity
Press, 1992), p. 8 - 9.

Nyman, P. 76.

Pareto’s law is defined as “ A concept developed by Vilfredo Pareto, an Italian
economist, that states that a small percentage of a group accounts for the largest fraction of the
impact, value, etc. See APICS Dictionary 9th ed. P. 66.

Nyman, P. 74.

Goldratt, Eliyahu M., The Goal. (Great Barrington: North River Press, 1992),
p. 115

Gantt chart is “The earliest and best-known type of planning and control chart,
especially designed to show graphically the relationship between planned performance and
actual performance over time”. See APICS Dictionary 9th ed. P. 39.

7.0 Footnotes - Continued

Wantuck, p. 145.
Japan Management Association, Kanban: Just-In-Time at Toyota. (Cambridge:
Productivity Press, 1989), p 88.

Subrata Das, “How to make cells stick from a cultural point of view”.
Institute for International Research, The 9th Annual Work Cells Symposium;.
Scottsdale, AZ. February 22, 1999.

8.0 Bibliography
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8.0 Bibliography – Continued

Jaycox, Michael, “Team Work: How to Get Nonbelievers to
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Kerzer, Harold, Project Management: A Systems Approach to Planning, Scheduling, and

Controlling. New York: Nostrand Reinhold, 198.

Lunn, Terry and Susan Neff. MRP: Integrating Material Requirements Planning and Modern
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Mabrouk, Khaled M. “Simulating Kanban Systems in the Appliance Industry” Appliance

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Oech, Roger von. A Whack on the Side of the Head. Menlo Park: Creative Think, 1992.

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