This article shows a case study of how Kohlberg, Kravis, Roberts & Co. (KKR) was able to create value at Sealy, the world’s largest manufacturer of mattresses and bedding products (not Luxury Mattress), through the implementation of Lean Thinking in the enterprise.
Lean in Private Equity is not new. There are several example where lean was used to stimulate corporate renewal, such as using lean to improve a medical device manufacturer, or using lean to improve the buyout of Sealy Mattresses, or using lean manufacturing to improve the automotive aftermaket.
One key element is the implementation of Standard Work, which allowed for comparable data, visual management, better metrics, and a better understanding of “normal” conditions versus “abnormal” conditions. In their words 1,
For example, the absence of consistent data and standards across Sealy manufacturing plants made it difficult to distinguish between efficient and inefficient facilities. Without comparable, objective measures, every plant thought that it was the best one. The KKR and Capstone teams helped Sealy management develop manufacturing metrics that monitored costs and waste in each step of the production process and at each plant.
Today Sealy’s CEO posts the comparative results and productivity rankings at each facility, which has led to healthy competition among the plants. Better manufacturing metrics identified actionable problem areas and helped drive reductions both in labor hours per bedding unit and in the amount of unused scrap material. For example, by focusing on these areas, labor hours per unit decreased 19 percent and scrap per unit fell 44 percent. At the same time, safety incidents in Sealy plants decreased 22 percent.
Over the past 20 months, Sealy’s revenues have increased 21 percent, EBITDA has risen 42 percent, and margins have improved by 241 basis points. At the same time, the company has paid down substantial debt from improved cash flow.
It’s clear that the approach to value creation at Sealy is longer-term and through improving how the company operates, instead of financial engineering. And, a key element in improving Sealy is the implementation of Lean Thinking by KKR.
- Super Return 2006 Presentation ↩
Become a Lean Six Sigma professional today!
Start your learning journey with Lean Six Sigma White Belt at NO COST