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UNITED GEAR AND HOUSING

CORP.

LEAN BY DOING

September 14, 2017

WHAT IS LEAN?

A Strategy To Run Any Business

Removing Waste To Deliver More Value To

Customers

More Value To Customers = Increased Enterprise

Value

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UNITED GEAR AND

HOUSING CORP. [UGH] Headquarters And Two Main Plants In Cleveland, OH

$550 Million In Sales

Seven Plants - - Two Distribution Centers

75% Standard Products Sold Through Distributors

25% Custom Products Sold To OEMs

One Of Top Three Competitors In Marketplace

GOOD PERFORMANCE

FORECAST TO CONTINUE 2015 2020 AAGR

Sales $550.0 $657.0 3.6%

Gross Profit % 30.1% 31.0% 0.4%

EBIT $50.4 $64.1 4.9%

Inventory $116.5 $129.5 2.1%

Inv. Turns 3.3x 3.5x n.a.

Sales/Employee $90k $105k 3.1%

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UGH = TRADITIONAL

BATCH COMPANY Long Set Up Times - - 2-3 Hours

Equipment In Functional Departments

Lead Times Average 6 Weeks

Manufacture Everything To Forecast [MRP]

Forecast Usually Wrong

Expediting Dept. And Lots Of Finger Pointing

Customer Service And Quality Problems

UGH MANAGEMENT

TEAM Jerry York - CEO - - 16 Years

Dick Conway - CFO - - 18 Years

Scott Smith - VP Sales - - 25 Years

Ellen Minor - VP Marketing - - 3 Years

Judy Rankin - VP-HR - - 10 Years

Steve Mallard - VP Engineering - - 14 Years

Frank Gee - VP Operations - - 20 Years

Gary Cook - President Custom - - 12 Years

Steve Jones - President Automotive - - 15 Years

Sam Watson - President Small Gears - - 8 Years

John Flynn - President Specialty Gears - - 17 Years

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1st MEETING WITH

SENIOR MANAGEMENT

TEAM Expectation Of Lean Made Very Clear

Management Musts

1. Lean Is The Strategy

2. Lead From The Top

3. Transform The People

Everything Must Change

Focus On Delivering Value To The Customer - ALWAYS

1st MANAGEMENT

MEETING [Cont.] Set Financial Expectations

1. Increase Gross And EBIT Margins 5 To 7 Pts.

2. Reduce Inventory By $70 Million

3. Increase Enterprise Value 100 To 150% Over

Current Forecast

Visual Controls And 5s Everywhere

Cut Set Up Time - Lead Time 6 Wks - To 1-2 Days

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INITIAL LEAN

TRAINING • 100 Plus UGH Associates

• Why Lean - - Examples

• Concept Of Waste

• BATCH vs. FLOW

• Strategy

• Implement Through Kaizen

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CONCEPT OF WASTE Taiichi Ohno;

PRESENT CAPACITY = WORK + WASTE

Everything We Do Is Either;

1. Work That Adds Value

2. Non- Value Added But Necessary

3. Work That Adds No Value = Waste

WASTE IS TYPICALLY OVER 60%

CONTRAST BETWEEN

BATCH AND FLOW Batch Flow

Square Feet Of Space 300,000 150,000

Inventory Turns 4x 16x

Gross Margin 30% 40%

Lead Time 6Wks. 2 Days

Customer Service 93.4% 98.7%

Productivity 3.0% 9.0%

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IMPLEMENT VIA

KAIZEN • Core Activity To Remove Waste/Solve Problems

• Key Training Vehicle To Teach Associates New

Way To Think and Act

• Get Everyone On Board To Support Change

• The Way To Create A Learning Environment

• Critical Path To Ugh’s Lean/Kaizen Culture

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THE LEAN

FUNDAMENTALS

Work To Takt Time

One Piece Flow

Standard Work

Pull System

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CREATE A VALUE

STREAM STRUCTURE • Behavior Follow Structure

• Functional = Batch; Value Stream = Flow

• Value Stream Leader Owns UGH’s Operational

Excellence Goals

• Value Stream Leader Owns Kaizen Results

• Organization Change Sends Strong Message To

All Employees

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LEADERSHIP

APPROACH • Focus On Processes Not Results

• Use Hoshin Planning To Align Resources

• Weekly Review Of Value Stream Leaders

Progress On Operational Excellence Goals

• Minimize Month End Financial Reviews

• Manage Foreward Not Backwards

READY FOR KAIZEN

• Leadership Understands Their Role

• Lean Consultant And KPO In Place

• Lean Fundamentals Understood

• Stretch Targets Set

• Biggest Value Stream First

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UGH’s SET UP KAIZEN

RESULTS TEAM 1

85% Reduction- From 180 To 25 Minutes

TEAM 2

93% Reduction- From 90 To 6 Minutes

SET UP RESULTS SHOW CLEAR PATH TO

CREATING CUSTOMER VALUE

UGH’s 1st FLOW

KAIZEN Staffing From 10 To 5

Space -50%

W. I. P. -90%

Quality +10x

Lead Time 6 Wks. To 2 Days

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UGH’s OFFICE KAIZEN

• Order Entry Errors From 5% To 1%

• Order Acknowledgement From 2-3 Days To

Same Day

• Staffing From 16 To 12 -25%

• New Product Allocation Process

• New Excess Order Process

UGH’s FIRST YEAR

RESULTS • Lots Of Problems

• Introduced Profit Sharing And Lean Accounting

• Results Vs. Original Forecast

• 1. Gross Profit From 30.0% To 30.5%

• 2. EBIT From $50.4m To $52.9m Up 5.0%

• 3. Inventory Turns From 3.4x To 5.0x

• 4. $37.7m Cash Freed From Inventory

• 5. Freed Up 30% Of Floor Space

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UGH: YEARS 2-5 • Eliminated “Out Of Service” Tools

• Job Classifications From 60 To 6

• Changed Sales Terms To Level Incoming Orders

• Small Acquisition In Year Three

• Sales Growth 6.7% Lean; 3.6% Batch

• Gross Margin 35.5% Lean; 31.0% Batch

• Inventory Turns 11.0x Lean; 3.5x Batch

VALUATION

TRADITIONAL APPROACH;

EBIT Of $64.1m X 6.5 Multiple = $416.7m

LEAN APPROACH

EBIT Of $114.8m X 8.0 Multiple = $918.4m

Plus: Free Cash, $129.5m-$44.9= 84.6m

Total Lean Approach $1,003.0m

LEAN RESULTS 2.4x ORIGINAL FORECAST

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UGH’s PEOPLE

RESULTS • All Employees On Kaizen Teams

• Senior Staff On 25+ Kaizens

• 55 Hourly Moved To Salaried

• 80 People Cycled Through The KPO

• 90 People Went To A Week In Japan

• 820 People Were Kaizen Leaders

UGH’s MANAGEMENT

RESULTS

• Ran Company On Weekly Team/Hoshin Reviews

• All Key Goals Are Stretch Goals

• Hoshin Planning Sets Direction

• Daily Mgmt./Visual Controls Everywhere

• Senior Management Functions As One Team

• Leadership Approach Is “Go See”

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SUMMARY

“BYRNE-SAN, IF YOU DON’T TRY

SOMETHING, NO KNOWLEDGE CAN VISIT YOU”

Shingijutsu