Bill Stankeiwicz Copy Scope 2010 Pentair Company

Tom PettitVP Global Manufacturing & Supply Chain

Pentair Inc.

SCOPE East ConferenceApril 12, 2010

Lean Material Flow in Production Operations

Any statements made about the company’s anticipated financial

results are forward-looking statements subject to risks and

uncertainties such as continued economic growth, including the

strength of housing and related markets; the ability to integrate

acquisitions successfully and the risk that expected synergies

may not be fully realized or may take longer to realize than

expected; foreign currency effects; retail and industrial demand;

product introductions; and pricing and other competitive

pressures as well as other risk factors set forth in our SEC

filings. Forward-looking statements included herein are made as

of the date hereof, and Pentair undertakes no obligation to

update publicly such statements to reflect subsequent events or

circumstances. Actual results could differ materially from

anticipated results.

3

This Workshop Will…

Describe Who Pentair Is

Highlight Pentair‟s Lean Management System, and

Show Its‟ Impact

Provide you with information to create a material

movement plan from the receiving door to the

shipping door

This Workshop Will Not Go Into Detail On:

Logistics Network Optimization

Plant to Plant, or Supplier to Plant to Customer

material movement.

4

Portfolio Focused

On Two Attractive

Markets

Technical

Products

~ 30%

Water

~ 70%

Revenue By Segment

$3B Global Manufacturer Serving Water & Technology Markets

Strong Position Across Multiple Global Markets

5 Water Divisions: 2 Flow, 2 Filtration and 1 Pool

– Global Markets: Residential, Industrial, Municipal,

Commercial, and Agricultural

1 Technical Products Division: Serving Electrical &

Electronics with protective enclosures

– Global Markets: Industrial, Commercial, Telecom,

Datacom, Medical, Aerospace, Defense

Who Is Pentair?

* On Continuing Basis

Global Diversified Manufacturer

$3 Billion Revenue, 10% ROS

13,000 Employees

Customers in 195 Countries

40 Factories. $1.2B DM Spend

5

We Participate In Entire Water Cycle

Ind

us

tria

lR

es

ide

nti

al

Co

mm

erc

ial

Ag

ric

ult

ura

l

Treatment / Storage /

Distribution

Well

Surface

Desalination

Desalination Pumps, Well Pumps, Municipal Pumps, Residential

Filtration, Residential Pumps, Agricultural Pumps, Industrial and

Commercial Pumps and Filters, Foodservice Filtration, Pool

Equipment … Many, Many Others

Pentair Solutions:

Flow of Water Flow of Water

Municipal

Waste

Water

Waste

Water

6

What is Lean to Pentair?

…the relentless pursuit to

eradicate waste and improve velocity

in all processes within our organization!

Waste is anything that doesn‟t add value

for our customers.

7

Pentair Integrated Mgmt System (PIMS)

PIMS

Is Pentair’s operating excellence system, built on Lean

Provides Pentair team members with the methodology,

processes and tools to reduce waste & improve velocity

Drives a culture of “Improving Every Day”

Helps us become world class and create sustainable

value for customers, team members, and shareholders

Applies to All Functions…. Enterprise Lean

Cuts Across Functional, Divisional, and

Supplier/Pentair/Customer Boundaries

PIMS Is How We Manage Our Business

8

Pentair Operating Excellence -- PIMS

• Centers Around Customer

• Focuses on Reducing Waste

That Doesn‘t Add Value to

Customer

• Begins with our

People

• Talent aprocesses

a sustainable

results

• ―Winning Right‖

Culture -- respect for

& engagement of all

• Active Leadership

• All Mgrs trained

• Sustainable Improvement

through 7 Lean Transformation

Disciplines

• SQDCC Focus –

Safety, Quality,

Delivery, Cost, Cash

• Creates value

through Growth &

ROIC

• PIMS Goals:

OTD >95%

PPM improved by 50%

5% Productivity

DIOH improved 50%

Sales Per Sq Foot up

50%

• Fact Based

9

Increased Returns and Reduced Variability of Returns* Goodwill and Restructuring Charges Adjusted out of Op Margin Calculation

PIMS Has Demonstrated Results

1990 to 1997

―Pre-Lean Era‖

2%

4%

6%

8%

10%

12%

14%

16%

18%

Op Margins

6.5% to 10.3%

1998 to 2003

―Early Lean-Era‖

But, Dot.com Bust

5.4% to 13.3%

―high‖

―low‖

2004 to 2009e

―Lean-Mature‖ But,

High Commodities

PIMS‘ Proof of Concept – Technical Products Div.Full Year Op. Margins By ―Era‖

~12% to 15.5%

2010 - 2014

Sales CAGR

6% 1% 7% TBD

10

“Turn Around Story” -- Pool Division Sanford, NC

PIMS Results In Water Business

Improvement

Safety 55% Now Best in Class From Already Low 2.5 OSHA Recordable

Quality 28% Significant Reduction in Warranty Costs Thru Redesigns

Delivery 24% Increased On-Time-Delivery to 95%

Cost 9% Lean Manufacturing Drives Direct Labor Productivity

Cash 19% Inventory Days On Hand Reduced Through SIOP, Material Flow

Talent

• Doubled & Strengthened

Lean Talent

• Using Rotational Program

for Hrly & Salary Personnel

• Strengthened Production

Leadership & Maintenance

• Restructured &

Strengthened Mat‘ls Talent

Process

1. Strategy Deployment

2. Value Stream Mapping

3. Transformation Planning

4. Kaizen Activity

5. Managing For Daily

Improvement; Layered Audits

6. Return to #1

Culture

• Engaged Leadership;

President Involved

• Reinforced Through

Layered Audits

• Daily Gemba Walks

• Monthly Scorecard &

Lean Transformation

Reviews

Focused On ―Four Walls‖ To Produce Great Results

11

Pentair‟s Lean Ranking

Superfactory 20 -- Pentair Ranking(Based on Total Shareholder Return of Lean Cos.)

Lean Value Creation -- Super Factory Rankings

16

10

6

2007 2008 2009

1 Goal

PIMS Is Creating Shareholder Value for Pentair

12

TPS The Roots of “Lean”

Strategy Deployment

JUST-IN-TIME

- what‟s needed

- when needed

- where needed

- in quantity needed

AUTONOMATION

(JIDOKA)

- Respect for people

- Autonomous

- Defect-free

- Detects abnormalities

Process Evidence

Visual Management & MDI MDI Control Boards / Daily Gemba Walks

Excellent Part Presentation / Timed DeliveriesMaking Material Flow

Creating Continuous Flow Single Piece Flow / Linked Process Cells

Impeccable 5S. High Quality.5S and Standard Work

Transformation Planning Value Stream Maps / Transformation Plans

How? -- PIMS Lean Disciplines7 PIMS Transformation Disciplines

13

Creating Continuous Flow linksMaterial Flow and People Flow

Making Materials Flow links Information Flow, Material Flow, and People Flow.

Keep people inside the cell working continuously!

Move material into cell from outside operators‘ work area

NO INTERRUPTIONS of the workers

14

14

Why Material Flow Management?

Poor Material Flow

Half of Production Delays

Are Due to Material Shortages

2/3 of Material Delays

Internally Caused

Floor Space Is Consumed

By Material

High Resources Are Devoted

to Finding, Delivering, &

Expediting Material

Many Injuries Are Caused By

Fork Trucks

Material Flow Benefits

Better On-Time Delivery(>95%) & Lead Time…. Customer Satisfaction

Improved Logistics Costs

Greater Labor Productivity(DL & IDL)

Improved Inventory Levels

Reduced E&O

Increased Safety

Material Flow Drives Better Delivery, Cost, Cash & ROIC

15

Pentair Lean Material Flow Focus

―Micro‖

Material Flow

Lean

Material Flow= +

―Macro‖

Material Flow

Logistics Network and Transportation Optimization

Plant Level Material Movement

Pentair’s Material Flow Vision:

Common Material Flow Processes

Replenishment Driven By Consumption (“Pull”)

With Integrated Logistics That Are Optimized At An Enterprise Wide Level.

16

16

“Micro” Material Flow Pentair Material Flow Principles

1. Develop a Plan for Every Part (PFEP)…DNA

2. Create a Single Purchased Parts Supermarket

Design & Execute A 3 Year Plant Flow Plan… Eliminate Fork Trucks Everywhere But Docks

3. Pull Parts from Supermarket and Suppliers/ Intercompany, Based on Usage

4. Optimize Scheduling Using Every Part Every Interval

5. Replenish Cells Using Precise, Timed Delivery Routes… Regular Bus Route vs. Ad Hoc Taxi

6. Position Material Optimally at Operator Fingertips

7. Build Strong Materials Supply Mgmt Talent

17

Part Number Number used to identify the material in the facility

Description Material name (Frame, bolt, nut, yoke)

Daily usage Average amount of material used in a day

Usage per assembly Number of parts required for 1 finished product

Hourly usage Maximum number of pieces used per hour

Standard container quantity Piece count of material in 1 container

Containers used per hour Maximum number of containers required per hour

Usage location Process/areas where the material is used (cell 14)

Storage location Address (location) where the material is stored

Order frequency Frequency material is ordered from the supplier (Weekly, monthly, as required)

Container type Type of container (expendable, returnable)

Container weight Weight of empty container

1 part weight Weight of 1 unit of material

Total package weight Weight of a full container of material

Container length Length or depth of the container

Container width Width of the container

Container height Height of the container

Shipment size Size of a standard shipment in days (1 week shipment = 5 days)

Carrier Company providing parts transportation services

Transit time Travel time required from the supplier to the facility (in days)

# of cards in loop Number of pull signals that are in the system

Supplier Name of the material supplier

Supplier city City where the supplier is located

Supplier state State where the supplier is located

Supplier country Country where the supplier is located

Supplier performance rating Supplier performance rating that includes on-time delivery, quality, etc.

1. Develop A Plan For Every Part (PFEP)

What: Database created to gather and maintain information about all part numbers in the manufacturing process.

Part #’s

Usage Volume & Locations

Packaging Size & Quantity

Kanban cards

Supplier Information

Why: THE PFEP IS THE DNA OF YOUR PLANT!

Enables Material & Information Flow Essentials: Supermarket Sizing/Layout, Inventory Levels, Reorder Points

18

Receiving

and

Shipping

Dock

Operations

Office Area

Entrance

and

office

area

Empty Area

Due to Floor

space Gained

in Creating

Continuous

Flow

Activities

Empty Area

Due to

Floor space

Gained in

Creating

Continuous

Flow

Activities

Denotes one skid of inventory

Before

Material

Flow….• Inventory stored everywhere should never be

mistaken for point of use (POU)

• Just because it is in or near the ‗AREA‘ of Use

does NOT mean it is POU.

• Inventory must meet the criteria of Right: Place,

Time, Quantity, Position, Quality

• Inventory is EVERYWHERE –

• There may be a warehouse, but

• Material is not easily found and

• The market is not used to

scheduled replenishment

2. Create A Single Purchased PartsSupermarket

19

Receiving

and

Shipping

Dock

Operations

Office Area

Entrance

and

office

area

Cell

6Cell

5

Cell

1Cell

4

Cell

3

Cell

2

Cell

7

Cell

8

Cell

10

Cell

9

Cell

13

Cell

12

Cell

11

Cell

14

After

Material

Flow

• Supermarket is sized, controlled and

staged via PFEP

• Located by receiving for quick delivery

• Parts may be used in multiple locations of

the operations

• Supermarket is a controlled level of

inventory with a specific location

for each item

• Can be phased in, but get to 1 location

20

Supermarket Elements

Re-order boardOrder Cards

Sized Racks Address System

B

C

A

1 2 3 4 5

B

C

A

1 2 3 4 5Row

A

Colum

n T64

B

C

A

1 2 3 4 5Row B

Rack

1

Rack

2

Rack

1

B

C

A

1 2 3 4 5

Rack

2

Supermarket Example

Before – Legacy Storage After -- Supermarket

• 1 Part Per Pallet Location

• Large & Small Material co-mingled

• Wasted Space

• Unclear if over/under stock levels

• Several Parts Per Pallet Location

• Material Arranged by Size & Value Stream

• 30-50% Less Space

• Visual Indicators Tell If Excess/Short

22

2. Design & Execute A 3 Year Plant Flow Plan… Eliminate Fork Trucks Everywhere But Docks

Why:

Need deliberate, disciplined, prioritized plan for transformation

What

Plant Layout planning to enhance flow and free up space

Consolidate Purchased Material

Create WIP Markets for upstream processes

Relocate Material and Cells to support Receiving, Production, and Shipping

Move cells and machines to support continuous flow

Aisles & Material Handling: One Way, Two Way, People Only

AutoCad of current state and future state plant layout

How

Up front value stream mapping

Plant layout kaizens, updated at least twice/year

23

Plant Layout And Flow – Plant X in 2008

• Material Scattered

Throughout

• Limited flow from

Receiving to

Production cells to

Shipping

• Value Stream cells

not co-located

24

Plant Layout And Flow – Plant X Today

• Material aggregated

into fewer locations

• Beginning flow

improvement from

Receiving to Cells to

Shipping

• Value Stream co-

location underway

25

Plant Layout And Flow – Plant X in 2011

• Material aggregated into

one Supermarket & few

WIP Markets

• Clear flow from Receiving

to Production cells to

Shipping

• Value Stream co-located

• Significant space freed up

26

Before

After

SupermarketFinished

GoodsProduction

Plant Layout – Plant Y Before & After

Material flows smoothly into, through, and out of facility

MaterialMaterial MaterialMaterialProduction Production

No clear definition between Mfg & Warehouse Areas

Little Flow

Material Movement – Defined Flows

•No forklifts

•One Way Pick Aisles

•Fixed locations

•Clear visual signals

• Fork lift managed

• Ad Hoc Movement

• Random Storage

• No visual signals

Before After

28

Too often suppliers are expected to „pay‟ for our unwillingness to

improve ourselves

Assemble a cross functional team to go see what is truly happening

Typically we‟re the ones creating disruption in our suppliers‟ operations

Material Flow Beyond Your Fall Walls

Process Level

Single site

Multiple sites

Across Company

Start by creating

material flow here

Start By Improving Flow Within Your Site First

29Pull From Customer To Production To Supplier

Door To Door Material Movement

Incoming

Receiving

G. Supplier

E. Process 1 D. Process 2 C. Final

AssemblyF.

SupermarketB. Finished

Goods

Information

System

Delivery Loops

A. Customer

Takt Image

High Mix

Takt Time

3. Pull Mat‟l Based on Consumption

Make To Stock

Pull Systems:

• Link cells together…. ONLY WHEN A

SINGLE CELL IS NOT POSSIBLE

• Trigger production activity

• Trigger movement between cells…

Created between cells

• Require discipline

30

Supplier

Need to Order

AlreadyOrdered

Scan/Fax

Cards picked uponce per day

A B COn Order

Receiving / Staging Area

Pull Replenishment –Kanban Card & Info Flow In Plant

Parts Supermarket

31

4. Schedule Upstream Components Using Every Part Every Interval

What Is EPEI?

• Scheduling methodology

Optimizes changeovers and

sequencing

Very helpful for high mix

processes (like machining,

molding, and fabrication)

Why Use EPEI?

• Balance productivity and

delivery

• Reduce lead time and inventory

• Produce based on customer

demand / pull

How to Do It?

• Begin With PFEP Data

• Add Production Data (Run

Times, Changover Times, etc.)

• Run Calculations

• Create Scheduling Board/Wheel

EPEI Scheduler Using Kanban Board

• Mixed Product Scheduling

• Pull Based rather than MRP

Example – Lean SchedulingBefore After

Hunt & Peck Schedule Vs Orderly Schedule

1. Heijunka Board Sets Operator Work

2. Efficiently Incorporates High Mix, MTO:

Set-Up, Sequencing, & Takt Image

3. Improves velocity, reduces inventory

1. Operators perform jobs FIFO, or

based on preference

2. Inefficient change-over sequencing

3. Long lead time, high inventory

34

Tugger

Movement

Fork Truck

Movements

5. Replenish Cells Using Precise, Timed Delivery Routes

35

Delivery Route Principles

Timed, hourly deliveries to the cell

Inventory delivered in schedule order – to the

operators „fingertips‟

5 routes 1. Purchased parts / RM

2. WIP

3. Expendable parts

4. MRO

5. Trash

Standard Work For Delivery Team (Picker, Driver)

2 hours of inventory at cell, line side

Minimize forklift in plant – eliminate from shop floor

36

Benefits of Timed Delivery Routes:

Productivity of Direct Labor and Indirect Labor

Standardize the amount and timing of material delivery to

the production process

Inventory

Floor space

Delivery Route Example

37

Receiving

and

Shipping

Dock

Operations

Office Area

Entrance

and

office

area

Cell

6Cell

5

Cell

1Cell

4

Cell

3

Cell

2

Cell

7

Cell

8

Cell

10

Cell

9

Cell

13

Cell

12

Cell

11

Cell

14

Timed

Delivery

Routes

Route 1

Route 2

Route 3

38

Various Conveyance Devices Manual and Mechanical

Hand Carts

Tugger With Standard Custom Carts Hand Jack Tugger

Tugger With Standard Shelf CartsHand Carts – Simple, Low Cost

39

6. Position Material Optimally At Operator Finger Tips

Why?

Operator Productivity

Keep people inside the cell

working continuously!

Support the Operators --

NO INTERRUPTIONS

What?

Position Material To Minimize

Wasted Motion

Create Convenient Racks

Replenish Material From

Outside of the Cell

BEFORE AFTER

Support Operator Work. Reduce Wasted Motion.

40

BEFORE AFTER

Material Presentation Example

Wasted Packing & Unpacking•Fast Access

•Ergonomic

41

BEFORE AFTER

Material Presentation Example

• Walking, Reaching.

• Consuming Floor Space

• At Operator Fingertips

• Tight Footprint

42

BEFORE AFTER

Material Presentation Example

• Operator Must Reach & Bend

• Takes Up Large Floor Space

• No Operator Bending

• Denser Footprint

Material Presentation Example –5 Days POU Vs. 2 Hrs Line Side Inventory

POU (Point of Use) all Inventory PFEP driven 2 hour line side

BEFORE AFTER

44

Material Presentation Racks

Return Slot

For Bins

Kanban

Card Slot

• Two Bin Kanban

• Great Access For Operators

Material Presentation Example –Old Batch Quantity Vs. 2 Hour Lineside

Before After

Result – Productive,

Happy Team Members

46

7. Build Top Talent & Culture

From

Materials Supply Mgmt Talent as „after thought‟

Limited expertise and depth

Limited lean skills

Limited career pathing

Projects in spare time

Handoffs in the Process (Buyers, Planners, Rcvg)

Inconsistent methods, limited training

Culture of

“Or”

Production-dictated

To

Materials Supply Mgmt Talent as key focus

Hiring & promoting top talent

Deep lean material skill

#2 in plant. Path to bigger roles

Dedicated transformation teams

Materials Supply Manager as the “One Neck to Grab”

Common methodologies driven by significant training

Culture of

“And”

Production Control

Materials Supply Mgmt Talent Is Critical To Transformation

47

How To Sustain Good Material Flow?

Material Flow Audit Process

Teach people the purpose of audits

Audit the PROCESS, not the people

Learn by doing

Discuss results

Create action plan (Root Cause, Counter Measures)

3 kinds of audits

Purchased parts market

Delivery route audit

Pull signal (Kanban card audit)

48

Before “Micro” Material Flow

Too much inventory

Raw material stored in

multiple locations

MRP generated push

replenishment

No standard material

delivery routes

No standard address

systems

Fork trucks delivering

material one pallet at a

time and returning

empty

49

50% Less Inventory

Level loaded schedule driven

by customer demand

Raw material stored in a single

purchased parts supermarket

near Receiving—developed by

PFEP

Mini-WIP markets at point of

manufacture

Timed material delivery routes

Pull system replenishment

Standard address systems

Parts delivered directly from

Supermarket to operator

fingertips

Fork trucks restricted to

Shipping & Receiving areas

After “Micro” Material Flow

50

Material Movement Summary

Docks

Fin

al A

ss

em

bly

Ce

lls

Ma

ch

ine

s

WIP

Pa

rts B

uff

er

• Multiple Deliveries a Day

• Measured On Time Delivery

• Usable Standard Pack (Qty Control)

• Future: Sequenced to Schedule

• Material moved from Dock to

Supermarket

• Placed in unique, fixed location in

Supermarket

• Future: Ready to be delivered

• Future: Frequent Deliveries Skip Supermarket. Direct

to Cell as Sequenced-to-Schedule

Tugger Delivery

• Timed, hourly deliveries to the cell

• Inventory delivered in schedule order – to the operators „fingertips‟

• 5 routes (Purch parts / RM, WIP, Expendable parts, MRO, Trash)

• Eliminate Variation from Std Work in Assy & mat‟l movement

• 2 hours of inventory at cell line side

• Minimize forklift in plant – eliminate from shop floor

Upstream Processes

(e.g., Machining,

Molding, Fabrication)

• Kanban / Demand

replenishment

• Scheduling owned and

controlled by Materials

Foundation:

Customer demand drives production

scheduling and material flow

External and internal pull replenishment,

based upon EPEI

“4 wall material flow” essentials: PFEP,

supermarket, scheduling, timed

delivery/pick-up

Supermarket

Suppliers

51

SUMMARY

Lean Material Flow Provides Benefits in Safety, Delivery,

Cost and Cash

Pull Systems And A disciplined Plan For Every Part Are

The Underpinnings

Consolidated Supermarkets, Timed Delivery Routes, and

Parts Presentation Are How We Improve Flow

Make a Disciplined, Prioritized 3 Year Plant Flow Plan

Focus on Processes, Talent, and Culture