Lean Thinking Supports New Business Venture for Mahoney Environmental
Client Profile: Founded in 1953 to collect spent fryer oil from restaurants, Mahoney Environmental grew into a full-service company that collects and disposes of meat, scraps and grease as well as oil. True to its name, Mahoney is a licensed EPA recycler that meets and exceeds federal standards. Based in Joliet, Illinois, Mahoney also has a state-of-the-art processing plant in Mendota, Illinois. The company has approximately 100 employees and serves customers in a three-state area. In August 2002, owner John Mahoney took the company in a new direction, launching the Direct-Connection® Recycler™ System, a series of tanks and parts kits for used oil. Mahoney's patented system pumps the used hot oil directly from the fryer to the Direct-Connection recycler. This system not only improves worker safety by reducing the risk of spills and burns, but also increases the recycling value of the spent oil.
Situation: In bringing Direct-Connection™ to the marketplace, Mahoney became two companies in one: a service company and a manufacturing company. Having developed an innovative solution, Mahoney now had to get a handle on production. The company soon realized that it was not prepared to ramp up production to meet projected sales growth. Management took stock of the situation and set several key goals for the Direct Connection unit:
1. Reduce the number of individual parts, volume of each part and various locations for parts.
2. Clean/organize warehouse for floor space, shelf space and visibility.
3. Organize part and subassembly locations to improve productivity of internal customers and users.
4. Organize the part and subassembly locations to improve productivity of internal customers and users.
5. Clean and organize the warehouse to increase floor and shelf space and improve visibility.
6. Create a cost effective model for make versus buy decisions for parts and supplies.
7. Standardize processes and procedures to improve communication between Direct Connection and the rest of the company.
8. Establish performance expectations for Direct Connection and create metrics to track progress.
Structured Solution: Mahoney brought its production challenges to the Chicago Manufacturing Center, and CMC lean consultant Walter O'Dowd went to work on them. He began the project with a value stream map, then helped Direct Connection's team tackle each goal with a variety of lean tools--kaizens, 5S, visual workplace and kanbans--to great success. For example, adopting Lean thinking helped Pete Iovinelli, Supply Chain Manager for Direct Connection, negotiate with a tank supplier to deliver smaller loads every two to three weeks instead of single trailer loads that built up inventory. O'Dowd also helped Mahoney set new metrics keyed to the successes of the company's lean journey. These include inventory value, inventory turns, tank inventory cycle count activity, tank and kit inventory levels, and on-time delivery. Owner John Mahoney says lean also helped build credibility for the marketing/sales and accounting departments. "That's huge," he says. "Everyone used the same language but it meant different things. Walt helped create a common language and defused emotions and conflicts."
Results: Inventory dropped 62 percent and turns increased from 5 to 13. Iovinelli was particularly struck by the turns for one specific tank. Four months before lean the company sold 3 but had 13 in inventory. After lean they made only what they sold. They were able to return just under 2,000 obsolete parts to the supplier eliminating the need for 160 bins. Labor hours on the complex kits dropped 5%. That amounted to an annualized labor savings of 27 worker hours on 2680 total kits a year. The company also gained 79 hours a year on assembly time for another set of kits. Floor space in the tank assembly area increased 100% while available floor space for tank storage increased 300 square feet. Early financial returns from the lean implementation were pegged at $40,000 in cost savings and $30,000 in cost avoidance. In addition, Mahoney invested about $20,000 in workforce development related to lean.
