The Sparton Production System:

The Sparton Production System: Creating Value for Clients Through Operational Excellence A SPARTON WHITE PAPER

Introduction In late 2008, Sparton Corporation was facing a number of serious issues: potential client defections, high operating cost, lengthening lead times, and inconsistent quality. As a contract manufacturer in highly regulated markets such as medical, aerospace, navigation, and defense, Sparton s outlook was mixed. A new Sparton management team began implementing a vast collection of initiatives to restore Sparton s longstanding position as a market leader but perhaps none of the initiatives were as important or as far-reaching as the Sparton Production System (SPS). With roots in the automotive market, the SPS philosophy powers everything we do as a company, from the smallest procedure to the largest planning effort or capital expenditure. SPS helps us optimize what we do on a daily basis, evaluate our efforts, and make improvements over time. In the past three years, the results of implementing the Sparton Production System (SPS) have been remarkable. In the past three years, the results of implementing the SPS have been remarkable. Clients are now flocking to Sparton instead of fleeing. Operating cost and lead times have been dramatically reduced. Quality measures across the board are at all-time highs. And our entire company is working together more safely and efficiently and with more enthusiasm on behalf of our clients. Sparton has never been stronger. We wanted to share this white paper overview of our Sparton Production System not to brag about our turnaround and recent success, but to provide our clients and prospects with some insights into exactly how we re able to deliver on our promises. After all, our SPS doesn t just benefit us. It pays off for our clients in countless ways and we hope that makes us a more attractive partner. The primary way the SPS pays off is through a reduction in cost for Sparton and for our clients. But our increases in quality, productivity, and efficiency also add up in significant and tangible ways. It s also interesting to note that more of our clients are implementing similar systems themselves a testament to the power and benefits of standardized processes. That s incredibly reassuring for us because we want to work with and for clients who truly appreciate and value our operational excellence. The Sparton Production System pg 3

The origins of the Sparton Production System Between 1948 and 1975, the Toyota Motor Corporation rode its proprietary Toyota Production System (TPS) to global prominence. The TPS is largely credited to Taiichi Ohno, chief of production for Toyota in the post-wwii era. While visiting a Ford plant in the 1950 s, he was disturbed by the amount of excess inventory and waste related to the assembly line as well as the volume of rework often required near the end of the Widespread acceptance of TPS as the ideal production system grew rapidly with the 1990 publication of The Machine That Changed the World by James Womack, Daniel Jones, and Daniel Roos the result of five years of research led by the Massachusetts Institute of Technology. The researchers found TPS to be so much more effective than traditional mass production methods that it represented a new paradigm. They coined the term Lean Production, which is more Our SPS doesn t just benefit us. Achieving operational excellence and being able to provide consistent quality and deliveries pays off for our clients. line. During a visit to a Piggly Wiggly supermarket, however, Ohno was inspired by how the store kept its inventory low by only reordering and restocking goods once they had been sold. commonly known today as Lean Manufacturing. Companies in many other industries, such as construction and health care, have implemented lean manufacturing over the years. Ohno quickly worked to implement this precursor to what is now called the Just-in-Time inventory system into the Toyota Production System. Other features of TPS included a focus on eliminating waste and reducing inconsistencies at every step in the manufacturing process. The TPS was eventually introduced to the United States in 1984 when Toyota and General Motors formed the NUMMI joint venture in California. As the lean manufacturing methodology repeatedly proved its value, its principles were eventually adapted to include all areas of an organization, not just the manufacturing floor. Known as Lean Enterprise, this more inclusive methodology is at the heart of many of today s largest corporations: John Deere, Ford, Dell, and Boeing. It is also central to Sparton s recent turnaround and future aspirations. The Sparton Production System pg 4

The goals of SPS are essentially the same as our business goals. Our goals are very similar to what you often hear from almost every company: to provide our clients with the highest quality products on time every time. Unfortunately, many companies struggle to define how they will accomplish those goals and therefore repeatedly fail to meet them. Imagine a situation where 8 people are stranded in a round lifeboat in the middle of an ocean. They all share the same goal: paddle until they find land. But if each person paddles independently in the direction each person is facing, that lifeboat isn t going to get very far as they cancel out the efforts of each other. That s often the situation inside many companies. Groups fight over which parts to order, in what amounts, and by when. Facilities lack a flow or process for tracking how much is on the manufacturing floor. Metrics are tracked inconsistently across different business units or facilities. In the end, without coordinated actions and standardized processes, chaos ensues. In a lifeboat or in a company, only by rowing in the same direction will anyone make any progress. That is why the Sparton Production System is so important to us and why it s so valuable for our clients. It is far more than business-speak or a set of vague objectives. It is a standard set of best practices for running our business. SPS is our overall management philosophy, the blueprint for our daily activities, and the map for operating every aspect of our business. It is the how that helps us accomplish our objectives and create value for our clients. The modules of the SPS are policies and best practice procedures that allow all of us to work together to reduce inefficiencies, drive down cost, minimize errors, maximize quality, reduce waste, and shrink production times day after day after day. We do this by very clearly linking every action that we take, every program we develop, and every system that we implement up to a higher-level goal or objective. We don t do anything in isolation. Everything we do as a company and as individuals is measured against a higher need and this maximizes our efficiency and the quality of what we design and manufacture. SPS is our overall management philosophy, the blueprint for our daily activities, and the map for operating every aspect of our business. It is the how that helps us accomplish our objectives and create value for our clients. The Sparton Production System pg 5

How our SPS integrates with other planning efforts Our Sparton Production System is at the end of a string of very clearly stated values, imperatives, and initiatives that are themselves the result of careful planning and annual revalidation. That sequence is represented in Figure A below. FIGURE A: The Sparton Production System Each year, our executive team meets to review our values, mission, and vision to ensure the statements still are relevant to the current and anticipated business climate. Then we focus on creating a set of 4-6 Key Imperatives that are viewed as essential higher-level objectives for a given year. An example would be the following: Implement a contemporary enterprise-wide business system. The next step we take is to review every process, procedure, or initiative that we have in place to support that Key Imperative. We also brainstorm new initiatives and review suggestions from throughout the year. At the same time, that comprehensive list is evaluated in relation to the six core Elements of the Sparton Production System (Figure B): Cost Quality Delivery People Safety Growth These Elements are the six areas where we focus our company energy because they have the greatest opportunity for increasing our efficiency and performance. Once that list of potential Key Initiatives is filtered and formalized, new systems are implemented to complement the existing ones. As new Key Initiatives are developed, deployed, and validated, they become new Modules supporting the Elements. Some Key Initiatives are only intended to last for a short period of time and may not become full-blown Modules. The Sparton Production System pg 6

FIGURE B: The Elements of the Sparton Production System Essentially, everything we do as a company and every action we take is measured against these elements. Each Element is brought to life through a variety of Modules that can be anything from standardized forms and reports to equipment operating procedures to employee performance reviews. There is no limit to the number of modules that can support an element of the Sparton Production System, and we regularly review the existing ones and add new ones as necessary. Through these various planning and refinement stages, we gain alignment all the way from our Corporate Values down to the Modules that guide employee and company actions on a daily basis. We re completely integrated and in sync from our annual objectives down to the methodologies we use to track programs on our manufacturing floors around the world. The Elements and Modules of the Sparton Production System* The following provides a little bit more detail on each of the Elements and some of the Modules we employ as part of our Sparton Production System. We hope you come to understand how thoroughly we have integrated this planning and optimizing mindset into every facet of our company. *Please note that for competitive reasons we cannot share or distribute our complete Sparton Production System documentation. The Sparton Production System pg 7

ELEMENT 1: SAFETY Our system is not sustainable without a commitment to SAFETY. Safety is the foundation on which we ve built our production system because we cannot function consistently and efficiently over time without it. We might thrive for a while, but our success wouldn t last. To make safety a priority and to live out our commitment, we have built, strengthened, and continually reinforce a set of policies and practices that represent Modules of our SPS. Our philosophy is that everyone, from our design teams to our assemblers, must accept responsibility for their own safety and the safety of everyone around them. We design and operate our facilities, products, and processes to prevent injury, illness, and accidents. Our safety efforts are not conducted in isolation or without purpose. Together, they link directly to two of our Corporate Values: We will maintain a safe and environmentally sound workplace. We will be good corporate citizens in the communities in which we reside. It would be hard to find a company that doesn t believe safety is important but not every company takes the time to truly put in place policies, procedures, and programs for ensuring that a commitment to safety is thoroughly integrated and practiced. At Sparton, the Modules of our SPS are how we do just that. They set the expectations for every member of our team and provide clear action steps for supporting our Safety element. Examples of our Safety Modules At Sparton, we have more than 50 modules in place as part of our Sparton Production System. While this white paper won t list our entire playbook of Modules and how they support our Elements, we did want to provide a couple specific examples. The following are two of the Modules that we have implemented to support our safety efforts. 1. Risk Analysis and Mitigation (RAM) Matrix Sparton employees are constantly on the lookout for unsafe situations. Our RAM is a risk assessment matrix that uses a Likert Scale to produce a numerical gauge of frequency, likelihood, and severity of risks so that we can be proactive in reducing injuries on the manufacturing floor. Users can prioritize risk reduction efforts, understand the effects of an intervention, measure risk reduction efforts, and track interventions. 2. Potential Accidents I ve Noticed (PAIN) Tracking When a commitment to safety is verbally reinforced throughout a company, often the number of accidents declines. However, unsafe conditions can still be present and near misses still occur they just don t result in as many accidents. A program like PAIN works to also reduce the number of close calls. Employees are encouraged to discuss issues immediately with supervisors if possible, but they re also asked to submit a PAIN form even if the short-term issue has been addressed. The reason? Unique tracking numbers are assigned to each event and larger patterns and trends can reveal recurring safety issues. The Sparton Production System pg 8

ELEMENT 2: COST Our never-ending effort to drive down COST. As a contract manufacturer with hundreds of clients, we don t just want to produce the highest quality electronic and electromechanical devices for them. We also want to help their bottom line by continuing to eliminate inefficiencies and waste throughout our operations, research and development, engineering, and manufacturing activities. All of our Cost efforts link directly to our following two Corporate Values: We demand performance excellence in all that we do. We demand integrity of our products, our services, and ourselves. Because of the critical need to reduce cost in every area of our business, the general Element of Cost is further segmented into three areas to provide more clear boundaries for developing supporting Modules. 1. Manufacturing Engineering and Strategy includes modules for manufacturing support processes such as lean enterprise planning, capital expenditure authorization processes, and capacity planning tasks. 2. R&D and Product Engineering includes modules focused on process and product innovation and automation and materials monitoring. 3. Operational Stability includes modules focused on ensuring that financial resources are available when needed and optimized. ELEMENT 3: QUALITY Reinforcing a culture committed to the highest levels of QUALITY. We produce devices for some of the most demanding customers in the most highly regulated markets, including medical, aerospace, navigation, and defense markets. Their standards and ours are incredibly high because of what s at stake with the products we manufacture. We work tirelessly to do more than pay lip service to quality; we build it into every aspect of our company through design, planning, control, and improvement. We strive to be best in class in external PPM, scrap, and rework cost while also ensuring that defects aren t passed along to our clients or their customers. The Sparton Production System pg 9

ELEMENT 4: DELIVERY Keeping our process lean by paying attention to DELIVERY. The goal of our Delivery element and the related Modules is to provide our clients with their products on time, every time, while eliminating excess inventory that can consume company cash that could be put to better uses. We aim to manufacture only what is needed, when it is needed, and in the amount that is needed which provides enormous benefits and savings for our clients over time. ELEMENT 5: PEOPLE Paying attention to our PEOPLE pays off in many ways. The center of our Sparton Production System is our flexible, capable, and highly motivated team. The success of our manufacturing processes would not be possible without our dedicated People. And we couldn t meet the needs of our clients in the face of high employee turnover, high absenteeism, low morale, and poor performance. ELEMENT 6: GROWTH Creating a stronger company through GROWTH. It is important for Sparton to not just serve its current clients, but to also look to grow over time in a profitable and sustainable manner. We are constantly seeking out additional long-term mutually profitable relationships with other prospects. Ready to benefit from the SPS? Thank you for learning more about the Sparton Production System and how we use it to create value for our clients every day. To find out how Sparton can apply the SPS to your next design, prototyping, or manufacturing challenge, call us at 800.772.7866 or visit www.sparton.com. The Sparton Production System pg 10

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By Troy Haynes Director of Manufacturing Engineering Sparton Corporation thaynes@sparton.com About Sparton For more than a century, Sparton has been an industry leader in designing, prototyping, and manufacturing some of the world s most sophisticated electronic and electromechanical devices. Through six strategically located facilities, Sparton offers customers an efficient global network and the flexibility to respond quickly to changing demand. From initial prototypes to final shipment, we bring life to your product vision while addressing complex manufacturing challenges and regulatory requirements. Over the years, our work with companies ranging from startups to Fortune 1000 s has led to our specialization in meeting the high standards of the most demanding markets, including medical, aerospace, navigation, and defense. 425 N. Martingale Road, Suite 2050, Schaumburg, Illinois 60173 800.772.7866 www.sparton.com 2012 Sparton Corporation