Week 09 - Daktronics D Keen On Lean Manufacturing at Daktronics, Inc.
Week 09 - Daktronics D Keen On Lean Manufacturing at Daktronics, Inc.
Week 09 - Daktronics D Keen On Lean Manufacturing at Daktronics, Inc.
97
Daktronics (D): Keen on Lean
Manufacturing at Daktronics, Inc.
Nancy M. Levenburg, Grand Valley State University
Copyright 2012 by the Case Research Journal and the authors. Te authors developed this case for class
discussion rather than to illustrate either efective or inefective handling of the situation. Te case was
presented at the North American Case Research Association Annual Meeting on October 29, 2010, in
Gatlinburg, Tennessee. Tis project was made possible with fnancial support via a NACRA case research
grant and South Dakota State University.
P
osted on a message board in the ofce of Matt Kurtenbach (Daktronics Vice
President of Manufacturing) was the quotation, You can act your way into a new
way of thinking faster than you can think your way into a new way of acting.
Indeed, meeting competitive challenges was nothing new to Daktronics, Inc.
(See Appendix A for company history.) Following a period of rapid sales growth (see
Exhibit 1), in February 2006 the forty-year-old frm made a formal decision to pursue
lean manufacturing. Up until 2006, Daktronics had increased its production capacity
by, in essence, replicating its existing operations, adding facilities, equipment, or peo-
pleor some combination of the three. Refecting on Daktronics lean manufacturing
journey in May 2010, Kurtenbach commented:
Four years ago we realized we had to fundamentally change how we were operating.
Given our rapid rate of growth, it was apparent to us that this replication method was
not easily scalable and the growth of the company could/would be limited by the abil-
ity to grow our manufacturing output. We simply couldnt build buildings and hire
people fast enough. Tis realization led to the exploration of lean manufacturing as an
alternative way to increase our output . . . the driving goal was to eliminate manufac-
turing as a constraint on the growth of our organization.
1
Exhibit 1: Key Financial Measures
FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009
Sales $177,764 $209,907 $230,346 $309,370 $433,201 $499,677 $581,931
Gross Proft $59,131 $72,471 $73,209 $94,074 $126,597 $147,590 $155,358
Operating Expenses $39,306 $44,941 $53,773 $62,259 $89,682 $109,347 $112,741
Operating Income $19,825 $27,530 $19,436 $31,815 $36,915 $38,243 $42,617
Earnings per Share $0.32 $0.44 $0.39 $0.52 $0.59 $0.63 $0.64
Source: company records. Note: dollars in thousands, except per share data.
NA0238
98 Case Research Journal Volume 32 Issue 4 Fall 2012
Yet now, amidst a 2010 sagging U.S. economy, the year ahead looked rough. Atten-
tion was increasingly being placed on cost reduction. Tere was also talk about lean
accounting . . . and extending lean into the ofce environment. Was Daktronics ready
for new initiatives such as these? How well had heand the manufacturing opera-
tionaccomplished its mission?
DAKTRONICS PRODUCT FAMILIES
Daktronics, which had its corporate headquarters in Brookings, South Dakota, was a
leader in the digital signage industry and dominated the high end of the market. Te
frm produced products in fve major product categories (or families): (1) Sports
products, including scoreboards, sound systems and related computer-controlled
hardware and software; (2) Automated rigging and hoist products that were used in
sports facilities and theatres; (3) Video display systems; (4) Commercial products,
including message centers and time and temperature displays; and (5) Transportation
products that were used for road management, parking, mass transit, and aviation to
direct motorists and trafc (See Appendix B for the full product line.). According to
Daktronics 2009 Annual Report, approximately 57.7 percent of its net sales came
from the Schools and Teatres and Live Events business units, 26.8 percent came from
the Commercial business unit, 9.6 percent came from the International business unit,
and the remaining 5.9 percent was from the Transportation business unit.
Daktronics display systems ranged in price from small scoreboards priced at under
$1,000 to large, complex display systems installed in sporting arenas and priced in
excess of $40 million. Mitsubishi was a large and formidable competitor in the large
sports venues market (along with smaller frms, such as Lighthouse, ANC, and Barco).
(See Appendix C for major competitors.) In recent years, consultants were sometimes
used to assist big-ticket buyers, contributing to greater price sensitivity and difculty
in diferentiating.
Sales (and proftability) vacillated, largely due to the impact and timing of orders
for large display systems. Tese, in turn, varied depending on seasonality in sports
markets. Sales for football facilities tended to occur in the summer and early fall; those
for basketball and hockey occurred in the fall; and those for baseball occurred in the
early to late spring. Large product orders generally carried lower gross margins than
did smaller orders, particularly if the project required competitive bidding and sub-
contracting work.
2
Two primary components formed the basis for many of Daktronics products: the
display and the controller. Over the years, display technology evolved from the use of
incandescent lamps to (at present) light emitting diodes (LEDs) and liquid crystal dis-
plays (LCDs). LEDs and LCDs permitted a wider range of colors, as well as increased
brightness and energy-related cost savings. LEDs tended to be used in large displays,
while LCDs were used in smaller displays. According to corporate sources, the vast
majority of displays sold utilized LED technology. Daktronics sourced some of its raw
materials, including LEDs, from a limited number of suppliers, primarily for quality
control reasons or the customized nature of the materials.
Using computer hardware and software, the controller collected and compiled
information, graphics, or animation furnished by the operator and other integrated
sources, and transferred this to the local or remote displays using wire or fber optic
Daktronics (D): Keen on Lean Manufacturing at Daktronics, Inc. 99
cables, or infrared or radio links. Te controller, therefore, managed each of the pixels
(literally, picture elementsthe combination of tiny dots in rows and columns) that
formed the message or visual image.
In addition to the display module and the controller, other components in a digital
billboard as shown in Exhibit 2, were: (1) the power supplies (which converted the
AC voltage/current to DC voltage/current to power the electronics and the LEDs);
(2) the cable harness to connect the components; and (3) a cabinet to house the
aforementioned.
Exhibit 2: Example of Digital Billboard
Source: Daktronics.com
MANUFACTURING AT DAKTRONICS
In 2006, Daktronics engaged in component manufacturing (e.g., printed circuit
boards) and system manufacturing (i.e., metal fabrication, electronic assembly, sub-
assembly and fnal assembly), with the use of subcontractors primarily for metal fabri-
cation and loading printed circuit boards. It used a modular approach for manufactur-
ing displays, meaning that standard product modules were designed for use in a variety
of diferent products, thereby reducing parts inventories. While custom projects were
built according to the customers specifcations, they might be designed to include a
signifcant percentage of standard components.
An enterprise resource planning (ERP) system coordinated order entry, produc-
tion, customer service, and other functions, and facilitated communications among
employee teams throughout the sales, design, production, and product delivery pro-
cesses. In April of 2006, Daktronics employed approximately 1,400 full-time employ-
ees and approximately 700 part-time and temporary employees, including students
enrolled at nearby South Dakota State University (SDSU). In fact, it was estimated
that about 18 percent of the labor force in Brookings were SDSU students. Te break-
down of employees by type of role within the organization is shown in Exhibit 3.
None of its employees were represented by a collective bargaining agreement, and the
frm believed that its employee relations were good.
100 Case Research Journal Volume 32 Issue 4 Fall 2012
Exhibit 3: Number of Employees by Function
2006 2007 2008 2009
Manufacturing 900 1,200 1,300 1,200
Sales, Marketing, & Customer Service 700 1,300 1,300 1,500
Engineering 300 400 500 500
Administration 200 300 300 300
Source: company records.
Prior to 2006, Daktronics manufactured nearly all of its products at its main facil-
ity in Brookings (approximately 375,000 square feet on a 45-acre site). In 2007, Dak-
tronics opened a 120,000 square foot production facility to build larger digital bill-
boards in Sioux Falls, South Dakota. According to Daktronics 2006 Annual Report:
We are incorporating lean manufacturing concepts as we reconfgure our manufactur-
ing to take advantage of the new space available to us. We expect to gain efciencies
in labor and space utilization, along with improved inventory turns, improved quality
control, and reduced lead times as a result.
In 2007, the company added an additional 80,000 square feet of manufacturing
space in Brookings and began manufacturing the Galaxy line (smaller displays, used
primarily for on-site advertising) in Redwood Falls, Minnesota. Te two primary rea-
sons for manufacturing the Galaxy product line in Redwood Falls were: (1) it was a
highly standardized product; and (2) the lower ceiling height in the facility precluded
building larger video displays or billboards there. Te Redwood Falls facility measured
approximately 100,000 square feet, which was primarily manufacturing space. At that
time, the company also expected that its investments in the Redwood Falls manufac-
turing facilities would increase, due to recent successes with the Galaxy displays and
gas price digit displays.
Also during 2007, Daktronics total full-time employment grew by nearly 900
employees to 2,290, and its part-time and students to 935, with the employment
breakdown by function shown in Exhibit 3.
In 2008, Daktronics leased approximately 17,000 square feet in Shanghai, China,
for sales, service, and limited manufacturing to serve the Chinese market, and entered
into a lease agreement for a new building of approximately 90,000 square feet, primar-
ily to be used for manufacturing of architectural lighting products and fnal assembly
of video displays. Due to ramping up the facilities in Brookings, Sioux Falls, and Red-
wood Falls in 2006/2007, capacity constraints did not exist in 2008. Te company
expected that the Commercial business unit would represent one of the fastest growth
segments of the business in 2009. Daktronics also anticipated growth in the U.S. and
overseas digital billboard markets, in on-premise advertising displays, and in higher
defnition displays at sporting venues.
3
Daktronics touted several accomplishments during 2009, including furnishing dis-
play systems for Yankee Stadium and Citifeld, home of the New York Mets, and the
majority of displays for the New Meadowlands Stadium, home of the New York Jets
and New York Giants. Overall growth rates, however, were not as stellar as in prior
years (see Exhibit 1), with warranty costs contributing to a decline in gross proft mar-
gins. Daktronics attributed these costs to issues associated with new product designs
and quality in display systems.
4
However, company ofcials believed that because of
Daktronics (D): Keen on Lean Manufacturing at Daktronics, Inc. 101
investments in more sophisticated product reliability testing equipment (and person-
nel), future risks would be minimized.
At the close of fscal year 2009, Daktronics employed approximately 2,500 full-
time employees and approximately 1,000 part-time and temporary employees. Econo-
mists predicted that the U.S. economy was only about halfway through a recession
that would be the longest and most severe since the Great Depression. Daktronics set
its goal to emerge from the downturn stronger than it had entered it. As was stated in
the 2009 Letter to Shareholders (from Aelred L. Kurtenbach, Chairman of the Board,
and James B. Morgan, President and Chief Executive Ofcer):
Going forward we will continue with our eforts in becoming a world class organiza-
tion utilizing lean concepts to systematically and continuously identify and eliminate
costs that do not add value for the customer. We have already achieved dramatic pro-
gress incorporating lean principles into our manufacturing processes since we initiated
our lean program in fscal 2007. . . .
5
DAKTRONICS LEAN JOURNEY
Goals of the Lean Initiative
Prior to 2006, Morgan saw inefciencies in manufacturing processes (so many parts
and tools) and relatively little standardization, which resulted in problems with plan-
ning inventory and tools. As he refected in January of 2010, We had to do something
fundamentally diferent. We want to be a billion dollar company. What we were doing
was not scalable.
Furthermore, Daktronics used fxed-price contracts for nearly all of its product
sales.
6
Tis meant that costs that exceeded their estimated amount reduced profts,
since the frm had a limited ability to recover cost overruns. Cost increases could result
from a number of factors; for example, increases in the cost or shortages of compo-
nents, materials or labor, or unanticipated technical problems that required project
modifcation. On the other hand, Daktronics benefted from cost savings.
So, lean manufacturing represented a way to generate cost savings, by reducing the
time between a customers order placement and receiving cash payment. To do this, a
goal was to eliminate all sources of waste, while delivering products to customers on
time. Seven sources of waste were identifed in transportation, inventory, motion, and
so on, as shown in Exhibit 4.
Exhibit 4: Seven Sources of Waste
Transportation Moving material does not enhance the value of the product.
Inventory Material taking up space, costing money, and potentially being damaged.
Problems are not visible.
Motion Any motion that does not add value to the product is waste.
Waiting Material waiting is not material fowing through value-added operations.
Over Production Producing more material than is needed (inventory).
Over Processing Extra processing not essential to add value from the customer point of view is
waste.
Defects Causes lost production time and the cost of rework or scrap.
Source: company records.
102 Case Research Journal Volume 32 Issue 4 Fall 2012
Gearing Up for Lean
To begin the journey, Daktronics partnered with three consulting frms. Te Prag-
matek Consulting Group, headquartered in Bloomington, Minnesota, and known
primarily for its SAP and Business Process Technology Alignment services, was chosen
frst. According to Matt Kurtenbach, this frm was selected based on its nearby loca-
tion and on the strength of one of the frms consultants who would be working with
Daktronics. In Kurtenbachs words:
We had already decided what the frst lean project would be and that was converting
our production of the LED modules from batch-and-queue to fow [one-piece fow in
manufacturing cell production processes].
7
We had a new production space designated
and we had new equipment on order . . . remember that building, buying, and hiring
was the way we had been growing prior to lean. So, we had the big things covered, but
we wanted/needed help with the details and methodology. We hired Pragmatek to help
us with those details.
Daktronics used the other two consulting frms for training and development pur-
poses, such as Making Materials Flow concepts and A3 Tinking and Coaching.
8
According to Matt Kurtenbach, Tey were chosen based on their credibility and past
Toyota experience . . . We had the opportunity to participate in some short workshops
in Minneapolis and decided to bring them into Daktronics to help further develop our
manufacturing leadership.
Te lean team, which reported to Matt Kurtenbach, consisted of a Lean Man-
ager, two Lean Manufacturing Engineers, and six Lean Coordinators for business
units, including one each for the Sioux Falls and Redwood Falls facilities, as shown
in Exhibit 5. Over the next four years (during the lean implementation), numerous
training opportunities were ofered to employees, as shown in Exhibit 6.
Daktronics (D): Keen on Lean Manufacturing at Daktronics, Inc. 103
Exhibit 5: Manufacturing Organizational Structure circa 2009
VP Manufacturing
Matt Kurtenbach
Lean Manager
Lean Coordinator
Commercial
(Sioux Falls)
Lean Coordinator
Commercial
(Redwood Falls)
Lean Coordinator
Transportation
(Brookings)
Lean Coordinator
Schools and
Theatres
(Brookings)
Lean Coordinator
Live Events
(Brookings)
Lean Coordinator
Corporate EA
(Brookings)
Lean Manufacturing
Engineer
Lean Manufacturing
Engineer
Source: company records.
104 Case Research Journal Volume 32 Issue 4 Fall 2012
Exhibit 6: Lean Operations Training
Topic Participants
5S and Lean 101 Simulation All manufacturing employees (direct and support)
Lean Tools Employees on an as-needed basis as plans are kicked-of
(developed/given by Daktronics)
Lean Tools
(5 days at Univ. of St. Tomas)
All Lean personnel (Lean Coordinators and Lean Engineers)
Lean Tools and Lean Leadership
(2 days at Univ. of St. Tomas)
Plant Manager, Materials Manager, Manufacturing Engineer-
ing Supervisor, HR, Finance, Lean Coordinators, Division
Support Staf
Managing Value Stream Projects
(2 days with Lean Enterprise Institute)
Lean Coordinators and Lean Engineers
Making Materials Flow Techniques
(1 day at Daktronics)
Conducted by external consultant (former Toyota employee).
Plant Manager, Materials Manager, Lean Coordinators, Divi-
sion Support Staf
Lean Problem Solving, A3 thinking
(8 days at Daktronics)
6 days conducted by external consultant (former Toyota
employee). Plant Manager, Lean Coordinators, Division
Support Staf
Source: company records.
For example, employees were trained on the 5S housekeeping system: . . . sort,
straighten, shine, standardize, sustain.
9
According to Jef Pekas, Electronics Assembly
(EA) Plant Manager, prior to lean implementation, the batch production foor plan
contained almost ffty shelving units that were positioned between every insertion
machine and along the length of one side of the walkway. Other shelving units, scat-
tered around the production foor, were used primarily to store tools, tooling,
10
or mis-
cellaneous items. Te shelves of these units were used to stage work that was waiting for
parts, waiting for queued processing, or, according to Pekas, were literally waiting to be
rediscovered amidst all of the other work that populated the area. Consequently, batch
production leaders often spent the better part of a workday searching for work orders,
which meant that they constantly needed to reprioritize queued jobs.
It also meant that product quality issues were sometimes not detected until they
were four days post-production, which delayed quality-related investigation and prob-
lem solving. Tis, according to Pekas, was not the fault of employees:
Te assembly staf worked hard . . . very hard. Te deep well of patience that each
employee started their day with was, by the end of the day, emptied by the many produc-
tion frustrations that they plowed through on a daily basis. Dont get me wrong . . . many
good things happened in the batch area, but the good things required so much efort that
it was extraordinarily taxing to the people who carried out any successful efort. More
often than not, the efort always included an overtime shift or two.
Lean Implementation with LED Assembly
According to Pekas:
Tere was a great deal of team discussion about the [lean implementation] plan and
there were even discussions on how to plan for the plan. Te team knew what had to be
donethe batch production area was a haven for inefciencies and waste, but how to
even begin spurred very serious, passionate, and sometimes even loud discussions. Te
Daktronics (D): Keen on Lean Manufacturing at Daktronics, Inc. 105
team meeting schedule was set at three times a week for the duration of the project and
several meetings come to mind, especially early in the project when we would adjourn
in a stalemate or something was literally talked to death. Admittedly, there were times
when nothing from the meetings could be translated into anything actionable; we
struggled sometimes, but only sometimes.
As a frst step, the LED assembly process was broken down into manageable parts,
and examined in detail vis--vis proof of concept exercises.
11
When doing these exer-
cises, manufacturing engineers used stopwatches to document operations, taking notes
and recording employees feedback. At the conclusion, a product was selected for a
prototype experimentone that had twenty-seven hand-inserted parts, including
eleven gravity drop-type parts, nine parts that required hand tools to attach, and eight
parts that required hand tools as well as hand-soldering.
Te former means for transporting the product between assembly stations was to
use simple push carts; one cart, pushed by one person, was used to convey one printed
circuit board on to the next station. So, discussions ensued concerning how materials
could be more efciently transferred and moved between stations along the produc-
tion line. According to Pekas, those discussions directed us to rely on an energy source
that would always be availablegravity. Consequently, gravity conveyors were pur-
chased; not for the entire length of the line, but for at least one key location, which was
equipped with an automated section to provide a timed release into the production
line. Finally, to maintain control of work in process, trays were used (two feet long x
eighteen inches wide) on which the printed circuit boards would be placed. Based on
100 feet of conveyor length, the conveyor held up to ffty trays.
While there was also a desire to test the product as it was being assembled, the
product test time exceeded each of the work station assembly times. Consequently, it
was decided to forego live testing initially in favor of collecting First Pass Yield data,
12
though all agreed that in-line testing was imperative eventually.
Two nearly identical proof of concept exercises were conducted in order to demon-
strate the benefts of product assembly using a fow line to the two production shifts.
At post-build meetings, information was presented (e.g., assembly times) and employ-
ees were invited to share their thoughts. According to Pekas:
Te feedback received from the employees was both positive and negative and both
extremes were expected; it was something newa dramatic change for everyone. All
of the feedback was recorded, regardless of the positive or the negative tone and many
of the concerns the employees voiced became a part of the planning conversations as
the line developed. Tere were also some people in the audience who recognized and
understood the value that this fow approach to production would bring right away.
Tese same people would become fow line advocates and became a supportive voice
on the line for the people who had trouble coping with the velocity of change once
things started to roll.
Rolling Out Lean
Within the Electronics Assembly area, there were approximately 350 diferent parts
numbers, excluding those produced for Customer Service.
13
Te initial testing sought to
identify which products would work best on the high mix fow line. According to Pekas:
Once this sort began, it seemed like it would never end. Tankfully, a team member
who was sufering from boredomjust like the rest of usexperienced a revelation.
106 Case Research Journal Volume 32 Issue 4 Fall 2012
To paraphrase this persons statement, he said we should simply accept the idea (for
now) that everything will fow, everything. Tis statement would capture at least 75
percent of the product mix and 85 percent of the volume. He went on to say that the
product mix is not the problem; the insurance policy to managing a high mix-driven
production schedule is machine redundancy, and at this time we are fortunate enough
to have duplication of every automated process needed to produce any product in our
mix! With these comments, the product sort discussions stopped because it made sense:
adopt an everything will fow philosophy and flter out the exceptions that have unac-
ceptable production parameters (such as an extended test cycle).
Te everything will fow philosophy led to consideration of whether the equip-
ment should be laid out as a single line with side-by-side, duplicate resources, or as two
independent production lines. Pekas continued:
Te beneft of a single production line with duplicate resources is that idle equipment
could be undergoing a setup for the next product while another product is running.
Tis confguration mitigates fow line downtime that would result from a high prod-
uct mix because it can drive the need for many diferent machine setup iterations. A
single line confguration would simplify production line leaderships responsibilities
(only one line to manage), stafng level needs would be better understood, preventative
maintenance could be done while products are running (duplicate resources), and this
confguration would promote a balanced or equal use approach to equipment utiliza-
tion. Ultimately, product velocity and production, in general, could be maintained
consistently down the fow line.
So, duplicated fow line resources (equipment) is simply a production insurance policy
comprising two things: changeovers have no production impact and as an equipment
backup strategy for unplanned outages. Being duplicated can certainly translate to
mean underutilized, but the additional expense of carrying underutilized equipment
was the preferred option because of the assurance that the line would always be in a
condition to provide predictable and steady production.
We discussed two independently operated lines (since we had two of each piece of
equipment) as a possible confguration, but we really didnt have the staf to position at
two lines and we were not in a position to hire additional people. Another concern was
with machine failures; if any one of the machines failed on a producing line, the result
would require relocating assembly parts, people, and tooling. In addition, this would
require equipment setup eforts for all machines on the line versus having to set up
only the single, back-up machine on the producing line. Certainly there would be idle
assembly staf during the setup time of the second machine on the down line, but this
production-vacant time could be planned for and flled with a teambuilding exercise,
training, safety reviews, or other policy reviews.
To prepare for high mix fow line production, work instructions were prepared,
identifying both preproduction (preparatory) tasks that were not value-added and
assembly work . . . and not simply paper-based (as in the past), but electronically. A
kit prep area was also established to ensure that all of the parts to be used for assem-
bly (primarily by hand) were properly organized, accounted for, and in good condi-
tion, prior to commencing production. If a kit was incomplete, it was quarantined
until the problem was resolved. Both cleared work orders that were ready to build and
uncleared work orders were posted on a scheduling board. Te scheduling board was
used to determine the order of production, taking into account product similarities
and necessary changeovers. Te goal was to always maintain a few orders (approxi-
mately four hours worth of production) in the kit prep area. According to Pekas:
Daktronics (D): Keen on Lean Manufacturing at Daktronics, Inc. 107
If a work order doesnt clear kit prep because its missing parts or contains inappropri-
ately formed parts, the result is downtime on the line. Tis means idled employees,
product rescheduling, equipment tear-downs and setups, and a whole host of other
issues that are detrimental to a fow line. Te success of the entire value stream depends
greatly on detailed attention provided by very sharp people who understand the conse-
quences that a kitting error creates.
Manufacturing engineers observed that machine operators spent a good deal of
time searching for parts, resolving parts and programming problems, and that various
other issues took them away from their machines and their primary responsibility of
setting up and operating machines. However, by having resource [machine] duplica-
tionrather than two independent linesfow line downtime would be minimized.
Exhibit 7 shows before and after 5S photos. Check sheets were used to create
accountability of daily, weekly, monthly, and quarterly tasks. For example, at the end
of each shift (twice daily), employees logged accomplishments of such items as: sweep
foor, empty garbage, return tools and other items to proper places/retract cords, and
clean and organize tables with WIP.
Exhibit 7: Before and After 5S
Before After
Source: company records.
Refecting on the implementation of lean, Matt Kurtenbach commented:
Our eforts started in manufacturing where we were producing the highest volume
(and most expensive) assembly within our display, our LED modules. Historically,
these were done in a batch-and-queue fashion, so our frst project was converting these
to fow. We also drove 5S in the early stages to help start a visual workplace and disci-
plined approach.
108 Case Research Journal Volume 32 Issue 4 Fall 2012
According to Morgan, the decision to move from batch processing to module
assembly was a big change. When you walked into assembly, youd see a bunch of
racks. Te process was like trying to put your pants on, on the runits tricky! We put
a pedometer on an employee, and in one day he had walked eight miles looking for
tools. So, according to both Morgan and Matt Kurtenbach, employeesin general
welcomed the change because it was so much more efcient.
According to Matt Kurtenbach:
One way to measure the success of our eforts has been to see the diference in manu-
facturing. We no longer have stockpiles of fnished goods and WIP [work in process],
which translates into increased cash fow. Products and projects move through manu-
facturing at a much faster pace, which has enabled us to lower our lead times without
adding capacity (buildings, equipment, or people). Lowering our lead times has ena-
bled us to grow by increasing revenues (manufacturing is no longer the constraint) and
serving our customers in a more predictable fashion (on-time delivery, for example). All
of this, of course, has lowered our production costs.
Te buy-in by leadership and allocating the appropriate amount of resources have
played a major role with our transformation to date . . . resources being stafng dedi-
cated roles, signifcant amount of training for manufacturing leadership, and expecting
that we both run and improve the businessholding people accountable for driving
improvements. We took the approach that we would teach people these techniques
and hold the factory leadership accountable for successful implementation. Te lean
group does not own our lean implementationour factory leadership does. Te lean
resources are there to provide expertise on how to apply the principles. I believe this
played a major role in our success to date.
After the success of this project, we put signifcant efort into converting other batch
processes. Tis was done across the manufacturing division, touching almost every
assembly that we produce. Once we began to explore lean, the wastes associated with
our batch-and-queue production methods became painfully obvious. Te lure of lean
and the advantages that come with fow production techniques became irresistible. I
am amazed at how fast we have been able to implement most of our improvements.
Some things seem to take longer than it should, but we have made huge strides in a
relatively short (four years) period of time. Tis is a testament to our commitment and
dedication to this efort.
Pekas described the continuing evolution of lean manufacturing as follows:
With much of the lean foundational principles in place and close to stabilization, the
next step for electronic assembly was to begin departmental continuous improvement
activities. To kick this of, all eyes were on the batch production area of the factory,
which was a particularly difcult area to work in as either an employee or a leader.
In electronic assembly, batch production was the primary production method for sev-
eral hundred, if not thousands of diferent part numbers for over thirty-fve years.
I cannot speak to the original business reasonor reasonsbehind the decision to
produce products using batch production methods. But it obviously was quite suc-
cessful for many years, as is apparent by reviewing the companys growth rate over the
past several years. It was not up until recently that the idea of exploring a diferent
production method outside that of a typical batch method really set in. Tis change
in thinking was partly spurred by optimism generated from the success experienced by
other manufacturing areas as they introduced fow lines.
Daktronics (D): Keen on Lean Manufacturing at Daktronics, Inc. 109
Daktronics also sought to change its approach to quality management. As a tool to
help identify quality improvement activities, a knowledge brief was usedDaktron-
ics version of the Toyota A3 problem solving form. According to Pekas, if executed
properly, the document forces the owner to ask and answer why? the problem exists
many times until why? cannot be answered anymore, which fnally reveals the root
cause of the problem. After identifying the root cause, data is collected, the problem
is investigated, and decision making proceeds.
Quality problems, according to Pekas, during the batch production days:
. . . were not the result of uncaring people or people not trying hard enough; everybody
routinely went above and beyond expectations to do things right and to do the right
thing. Even with a dedicated assembly workforce there were still quality problems, but
it was not necessarily the fx to these quality problems that was the [real] problem. Te
bigger issue behind the quality problems was the timing of when these problems were
discovered.
In the batch production system we lived in, it could take up to three days before a func-
tional test was performed on a fully-assembled order. Tis delay afected nearly every
order because, simply put, the batch test stations were usually congested with carts of
other product. Tis congestion contributed to racks of product waiting in a queue to
be tested and within these racks, there were quality faws that, once discovered during
a functional test, would then need to be repaired . . . so the problems were fxed. Of
course, there were reasons for the quality problems, but the biggest problem was the
time delay from build completion to the time when the product receives the frst test;
this particular situation required attention during the high mix project.
So, to be honest, the integration of real-time product testing that took place during
the real-time product build was absolutely the best thing that happened during this
project. Today, if a problem is found at a test station, the production line is signaled to
stop until the failure reason is understood and corrective action is taken . . . period. Te
risk and cost to continue the build is too great not to stop production, and the bot-
tom line is that there is no person or process that will realize any improvement unless
deliberate and decisive action is taken to understand the root cause of the problem and
correct it on the spot.
Te strategy behind Daktronics live product testing contained several features.
First, the number of test fxtures and additional test operators on the line was increased
to keep pace with the line fow. While this was moderately successful, both test fxtures
and additional staf were expensive, so products with test cycles longer than three min-
utes were redirected to a diferent station.
14
Because Daktronics goal was to test 100
percent of the products on the line, those that were intentionally skipped were tested
at a test bench (detached from the fow line) before the order was released.
Finally, detailed instructions/checklists were developed for production leaders and
operators.
15
(See Exhibit 8 for an example of a Work Instructions Sheet.) Tose devel-
oped for leaders were used to assist them in monitoring the pulse of the line, provide
oversight to validate the current state of the production system, and assure that assem-
bly guidelines were being followed. Tose developed for operators were posted at each
station along the high fow line, defning the activities to be performed, the order in
which they were to be performed, and the time required to complete the tasks.
16
110 Case Research Journal Volume 32 Issue 4 Fall 2012
Exhibit 8: Work Instructions
Source: company records.
Te value stream mapsfor both the batch-and-queue production and the high mix fow lineappear in
Exhibits 9 and 10. Te purpose of the value stream maps was to depict the steps to improvementusing leans
symbolsin the efort to add customer value while reducing waste. By developing these maps, production lead-
ers and operators could visualize how the desired, high mix fow line should look . . . and develop action plans
to transition from the batch-and-queue system to the fow line.
Daktronics (D): Keen on Lean Manufacturing at Daktronics, Inc. 111
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Daktronics (D): Keen on Lean Manufacturing at Daktronics, Inc. 113
REFLECTIONS ON RESULTS
In refecting on Daktronics results, Pekas observed:
Tere have been many exemplary people who have worked in this factory for many
years and throughout all these years, each and every one of them endured at least some
degree of change; it is inevitable. However, what is diferent about the changes that
have transpired over these past few years is that these changes were much more accel-
erated (in my opinion) and carried out with a greater purposesurvival; and many
companies are in a similar situation. Certainly, the weakened economic times inspired
additional urgency in the grand scheme of things, but even in a robust economic envi-
ronment, the dynamic of change should consist of a well-developed plan that is tightly
coupled with a shared sense of urgency. Tis is the recipe for improvement.
Te high mix, fow line is not in a perfect state. Admittedly, there are elements of the line
that do not refect the desired stability that we believe we need, but to those issues we
will continue to strive for excellence. On the other hand there are elements of this line
which we recognize as substantial gains, and developing a trained staf is one of them.
As described by Matt Kurtenbach, other accomplishments are shown in Exhibit 11.
Exhibit 11: Lean Manufacturing Accomplishments
Measure Outcome
Production Space Recovery of 928 square feet of production space (50 shelving units and 25
carts removed from foor).
Work-in-Process WIP volume was reduced; WIP value was reduced by > 50 percent.
Work Instructions An electronic work instruction template was developed; work instructions for
several hundred Electronics Assembly products were developed. Tis elimi-
nated most of the paper-type work orders as well as work order processing for
this value stream.
Product Handling Product racking and un-racking iterations between machine operations were
reduced by over 70 percent.
As a result of the conveyor installation, product handling was reduced,
thereby reducing opportunities for handling-related quality defects.
Order Completion
Time
Average days to complete an in-house work order decreased from 20+ days to
three days (maximum), with some only a few hours.
Quality In-line testing strategy reduced defects and increased First Pass Yield (FPY),
which, in turn, reduced the need for full-time, degreed electronic technicians
from 17 to 10.
In-line testing repurposed electronic technicians to serve in primarily repair
roles; the more repetitive pass/fail-type testing is done by assembly staf.
FPY results for all of FY 10 (May 09 to May 10) was 95.9 percent (goal of
96.5 percent). From Sept 09 (the month that in-line testing began) to April
10, FPY was 96.7 percent. In fve of these eight months, FPY was greater
than 97.5 percent.
Scrap Te average monthly scrap cost for FY 2009 (May 08 to May 09) was
$9,615; FY 10 (May 09 to May 10) average monthly scrap cost was
$2,762a reduction of just over 70 percent.
Source: Matt Kurtenbach
In view of the successes of the lean implementation in manufacturing areas, some
at Daktronics were beginning to wonder if lean techniques could be extended to non-
manufacturing areas, such as ofcesif so, could manufacturing serve as a model?
114 Case Research Journal Volume 32 Issue 4 Fall 2012
APPENDIX A: DAKTRONICS COMPANY HISTORY
Daktronics, Inc. had come a long way from its start in Brookings, South Dakota in
1968 by two electrical engineering professors from South Dakota State University
(SDSU), Dr. Aelred (Al) Kurtenbach and Dr. Duane Sander.
Al Kurtenbach received his frst training in electronics from the military. He
explained, I served time in the Air Force before I went to college and worked as a
radar technician . . . I came to like electronics; learned a little bit about the engineer-
ing profession; and decided that that would be a good avenue for life. Kurtenbach
went on to complete his undergraduate, masters, and doctoral programs in electrical
engineering. He joined the electrical engineering faculty at SDSU in 1971 where he
became close friends with Dr. Duane Sander who was already on the faculty. Te
two dreamed of a company;however, there were obstacles. As Kurtenbach put it,
the two would-be entrepreneurs . . . were rich in children but poor in dollars, and,
consequently, started . . . with very minimal startup capital and . . . bootstrapped
our way up. Te two friends set up their new company in a converted garage, funded
operations for the companys frst four years through a private placement of stock, and
took their salaries in stock for those frst four years. Te company name combined the
words Dakota and electronics.
Kurtenbach and Sander wanted a company that would employ SDSU students
and graduates and provide opportunities to retain the universitys talent in the area.
Te two looked for a niche product. Kurtenbach said the original philosophy was, If
GE (General Electric) is interested, were not. Initial ideas focused on bio-medical
instrumentation, a refection of Sanders research interests in the feld of electrical engi-
neering. However, the frms frst product line was electronic voting systems, a line that
enjoyed some success.
Daktronics frst electronic scoreboard came about because of Al Kurtenbachs
friendship with SDSUs wrestling coach who identifed the need for scoreboards. Dr.
Kurtenbach called the portable scoreboard introduced in 1971 the Matside. Dem-
onstration of the new product at regional and national wrestling meets developed
name recognition for the company and Daktronics leaders quickly realized the impor-
tance of working directly with sports customer groups to identify needs and design
products to meet those needs. Te Matside was the frst of the companys growing
standard or catalog scoreboards. Te company subsequently developed a scoreboard
for swimming competitions and continued to develop its product line for a broader
array of sports applications.
Al Kurtenbach left SDSU in 1973 to devote full-time to Daktronics. Sander
remained on the faculty at SDSU, while continuing to serve on the board of direc-
tors for Daktronics. By the following year the company reached one million dollars in
sales and an employment body of 100. Te company had a growing line of products
that included time and temperature displays, electronic message centers, custom and
standard athletic scoreboards, and electronic voting systems.
In 1983 the company constructed a new manufacturing plant in Brookings, bring-
ing its total manufacturing space to 64,000 square feet. Within three years, sales
exceeded $10 million dollars. Te company continued to focus on small markets, but
planned to enter larger commercial markets. Te following year Daktronics made its
frst acquisition by purchasing circuit board manufacturer Star Circuits, and opened
the frst company- owned scoreboard sales and service ofce in Seattle, Washington. In
addition, Daktronics began to build a nationwide dealer network.
Daktronics (D): Keen on Lean Manufacturing at Daktronics, Inc. 115
As President, Al Kurtenbach led the company to striking achievements. CEO
James (Jim) Morgan pointed out, We did the 1980 Winter Olympics and that
was our frst opportunity to work on an international stage. According to Morgan,
the 1980 Lake Placid event made him realize how big the company that Kurtenbach
and Sander had founded was really becoming. Daktronics went on to provide systems
for multiple Olympic games including Calgary (Winter 1988), Barcelona (1992),
Lillehammer (1994), Atlanta (1996), Salt Lake City (2002), Athens (2004), Beijing
(2008), and Vancouver (2010). In the 1980s, the company began installing displays
in major-league stadiums, leading to its being chosen for high profle sporting events
including the 2005 Super Bowl.
In 1994, Daktronics stock was frst publicly traded on the NASDAQ with the
market symbol DAKT. By then, the company had over 500 employees. Daktronics
most signifcant commercial applications included the 1997 conversion of the famous
Times Square Zipper sign to LED display technology. In the 1990s, Daktronics
acquired Keyframe