In The Lean Turnaround, Art Byrne provides businesses with the essentials necessary to make a Lean transformation. The business model is based on the successful Toyota paradigm for cutting waste and optimizing production. It builds a company culture of continuous improvement and allows customers to realize extra value through responsive service, fast delivery, and improved quality. Led by the CEO and company leadership team, Lean transition can provide significant benefits for all types of organizations.
THE LEAN JOURNEY
Simple changes in the value-adding process produce multiple ways to improve financial results. Taiichi Ohno pioneered this principle at Toyota with the concept of continuous improvement, or kaizen. Kaizen requires managers to be hands-on, working among their employees to lead the way. A single kaizen can be a weeklong project or a continuous process. Rather than working with numbers in their offices, managers are most effective when coaching people from the production floor, or gemba.
The three fundamental principles of Lean are:
- Productivity equals wealth.
- Focus on process, not results.
- Teamwork is essential company wide.
Reorganizing a factory for Lean production is a tremendous undertaking. It involves redesigning all processes, moving equipment, and refitting equipment for faster changeovers. Streamlining setup time for various operations pares labor expense and production down time.
In a production setting, kaizen minimizes excess inventory that otherwise sits around as a stagnant asset. Service levels and employee performance improve. Gross profit rises. Expenditures fall, and the value of the enterprise increases. The focus remains on future improvements rather than past sales figures.
DON’T JUST DO LEAN; BE LEAN
Using Lean principles to turn a company around improves all processes to maximize the way in which the company gains value. For the process to be successful, Lean must be the single force that drives change. Managers who want to turn their firms around need to understand and commit to three management principles:
- Lean is the strategy.
- Lead from the top.
- Transform the people.
Rather than throwing out tried and true strategies, a company will continue to develop new products and new markets. Switching to Lean means that these processes proceed more quickly and more effectively, giving the business a strategic advantage over the competition.
Improving value-adding processes automatically reduces the time it takes to do everything. In a marketplace where agility is key, those firms that do everything faster have a significant advantage.
A Lean transformation reverses a company’s traditional tendency to underutilize its people. In a Lean organization, each employee has a voice and is given many opportunities to solve problems. More individual responsibility leads to more efficient teamwork, encourages increased productivity, and results in more responsive customer service. Clear communication and cooperation between managers and workers elicits a cooperative atmosphere in which everyone accomplishes more.
While Lean does not have to mean reducing the workforce, it does require a reduction in the number of job descriptions. The workforce needs to become more flexible, with each person learning to do several jobs.
LEAN PRINCIPLES TO GUIDE THE TRANSFORMATION
To lead a Lean transformation, the manager must learn and implement four fundamental principles:
- Work to takt time, which is the rate of customer demand and the resulting rate of production. This keeps people’s attention focused on the customer, who determines how fast the company produces. The takt equation is time available/daily customer demand = takt time. Even though customer demand may vary by season, the workforce should be able to adapt the production rate as takt time varies, eliminating overstaffing and waste.
- Create one-piece flow, where each operation should be positioned in sequence, directly between the previous and subsequent steps. This promotes gains in quality and productivity because the manager can observe the entire production process as a whole, identifying bottlenecks or differences in work rates. One-piece flow typically results in at least a 10-times improvement in efficiency at no expense.
- Establish standard work, where everyone doing a particular task does it in exactly the same way. Because it is defined, a standard work process is easier to improve upon.
- Connect the customer to the shop floor. A pull system reacts to customer demand rather than trying to predict it. When a product sells, the firm produces it. The pull system also applies to suppliers: Vendors should make daily deliveries according to demand.
WHERE IS LEAN TAKING YOU?
Before beginning kaizen, the Lean manager must:
*Articulate a clear strategy that describes the defining parameters of Lean operation. The strategy should define the firm’s Lean vision as well as the operational improvements that will bring about the transformation.
*Set stretch goals that exceed the best-known results industry-wide.
*Identify core values and distribute copies of these values to all employees so they understand how to affirm them through concrete actions.
*Obtain and train kaizen staff. Managers can gain the necessary knowledge by observing Lean in action at other companies and seeking expert advice. They should stay with the company for several years to ensure the transformation is a success.
*Add Lean knowledge to the board of directors, which sets the tone for the entire organization.
REORGANIZE PEOPLE AROUND VALUE STREAMS
Lean requires a fundamental change from traditional batch organization to a value-stream structure. Production must be a one-piece flow because it delivers the lowest cost, highest quality, and fastest customer response.
In the Lean company structure, value stream managers report directly to the executive team. Each value stream unit has everything it needs to complete production. Equipment, personnel, and supplies are already available; they just need to be redistributed according to Lean production practices. The people in each team respond directly to the customer.
Team leaders should be self-motivated problem solvers who are capable of running a small business. They not only oversee production but provide key measurements for quality control, customer service, and productivity.
The kaizen promotion office (KPO) provides essential support to a value-stream organization. It is composed of Lean experts and those who want to become experts.
Because most organizations are overstaffed, managers should consider reducing the workforce before kaizen begins. Once it starts, a “no-layoff” guarantee keeps employees on board with the transformation.
GO TO THE GEMBA TO RUN THE KAIZEN
The first kaizen projects should pinpoint those areas that have the largest financial impact. They should redesign and improve the biggest product family first. The CEO should select kaizen projects and set each team’s stretch goals.
During a kaizen, the entire team must put its collective focus on a singular objective. Firms should average two kaizen sessions per week per facility during the Lean transformation. Sometimes, teams have to return to the same areas several times to get them flowing smoothly.
Items critical for creating flow during kaizen include:
*Reducing all setup times to under 10 minutes.
*Reducing work-in-process inventory to a minimum.
*Moving production equipment into working cells.
*Reducing raw materials.
*Inspecting and repairing all dyes and molds after each use.
*Beginning total productive maintenance (TPM).
*Using 5S procedures.
TPM ensures that each piece of equipment runs when needed. It involves identifying and performing maintenance tasks on a regular basis. 5S procedures should become second nature for everyone in the organization. These are:
1. Seiri — throwing away what is not needed.
2. Seiton — creating and maintaining order.
3. Seiso — cleaning.
4. Seiketsu — developing standard rules.
5. Shitsuke — maintaining discipline.
Once the flow process is well underway, creating pull is the next step. The best tool for a pull system is a simple order card, also known as kanban. The kanban is the link between the flow team and the customer, and it enables the team to follow a “sell one/make one” philosophy.
Kanban is a low-inventory model, with each card representing a single item or a unit of items. The customer submits a kanban card that initiates all of the action. The production cell immediately begins making the product and sends it to the warehouse upon completion. Then, the cell sends the kanban card to its materials and components vendors so they can replenish supplies.
WHAT LEAN LEADERS DO
Lean transformation will fail without strong, committed leadership in the long term. Leaders must be at the forefront of the transformation and have a hands-on leadership style. They must be aware that Lean has no end point and requires ongoing progress.
In any business, the only element capable of true transformation is the workforce. For Lean to work at the strategic level, everyone must think and act in a new way that involves teamwork and striving for the collective good rather than individual benefits.
In general, people dislike change, and middle management and finance are especially resistant. Strong leadership is the only effective way to navigate this resistance. The CEO should identify any resistance on the executive level and eliminate it before it becomes a roadblock to change.
Policy deployment, also called hoshin kanri planning, is an important tool in getting everyone on board. It puts into motion a long-term strategic plan for the organization, defining the breakthrough projects the teams will focus on in the current year and aligning personnel behind these projects. Policy deployment also creates the accountability to make sure these projects have the proper resources and will get done on time.
In the shorter term, a disciplined daily management approach is critical. It includes identifying the metrics that tie into the company’s strategy and financial goals and focuses on process improvement to eliminate waste.
A Lean leader is similar to a player coach who sets strategy while leading by example on the playing field. He or she must focus on the future while challenging the status quo. Lean requires frequent leaps of faith, which are difficult for some leaders. However, leaping into the unknown offers the chance to make significant progress for the Lean CEO. As the one who sets the tone, the Lean leader should never blame others for poor results.
Lean leaders face some of their biggest challenges when things go wrong. Naysayers take a problem as validation that Lean will not work. Problems that slow progress can include the breakdown of badly maintained equipment, employees who will not adhere to standard work, union regulations that do not mesh with Lean production, or glitches with kanban, such as lost cards. The Lean CEO must remind naysayers that any glitch is simply a problem to be worked through, and allow no backsliding or excuses.
Leaders must also adhere to their own standard work during a successful Lean transition. This includes setting the direction for progress, building organizational capability, supporting important progress through walkthroughs, conducting frequent reviews, and showing respect and support for associates. Leaders should also establish a simple higher-level data-tracking system with periodic reporting, allowing for quick assessments that identify areas for improvement.
HOW LEAN CHANGES EVERYTHING
Standard-cost accounting is the most intractable piece of excess baggage in a traditional organization and should be eliminated as quickly as possible. Some Lean leaders make the mistake of trying to maintain existing systems and measurements and simply layering Lean on top of them.
A Lean accounting system is simple, clear, and reality based. It facilitates informed management decisions and requires less financial staff, so it is less costly than standard-cost accounting.
Many traditional measurement methods do not work with Lean. For example, month-end reviews are time consuming and backward looking, while Lean reviews look to the future and improving key process drivers like productivity and inventory turns.
LEVERAGING LEAN IN THE MARKETPLACE
The clear objective of the Lean journey is to deliver value across the board, from customers to suppliers, at a level competitors cannot match. However, the best value is not always the lowest cost. Lean organizations often charge a premium for accuracy, speed, and direct customer service.
One way to deliver better value is to provide faster, more customer-centric new product development. Quality Function Deployment (QFD) takes customer desires into account in designing new products and drastically reduces time to market. With prior customer input, Lean product development can proceed with confidence, and the company can price the products according to the value they provide.
A firm can offer customers better and faster service that lowers their cost of doing business by improving direct interfaces, providing quotes within one day, answering phones promptly and consistently, and eliminating order-processing errors.
At the same time, a company has to protect its own Lean order fulfillment protocol. Two ways to do this are to (1) never tell the customer how many items are currently in stock, and (2) never sell more than 80 percent of stock on hand to a single customer.
Additionally, a company should practice policies that level out customer demand to make production go more smoothly, such as timing promotional programs to assist order leveling and eliminating volume discounts and big batch orders.
Companies that sell directly to end users can leverage Lean by cutting down time frames for everything from quotes to delivery. In addition, a Lean company that shows its vendors how to reduce their setup and processing times will benefit from reduced vendor pricing and more efficient delivery.
CAPITALIZING ON GAINS
Firms that allow associates to share in Lean gains improve faster and establish Lean cultures more quickly. A profit-sharing program is an effective way to share the wealth equally. When employees see that an increase in profits benefits them personally, they work harder for the company. Another type of reward program is a management incentive system.
A Lean company also must actualize improvements. For example, if a flow team no longer needs so many members to deliver on orders, the extra people should be transferred to where they can best benefit the firm in measurable terms.
The CEO can invest Lean capital into new acquisitions. These could be companies that produce parts or materials the Lean firm needs, further reducing the cost of production, or firms that manufacture new products the Lean firm wishes to add to its existing line.
Lean works well in companies of all types regardless of what they manufacture or the services they provide, as they are all composed of multiple processes. For example, the hospital industry is embracing Lean in growing numbers. Transitioning from a batch-style approach to a value stream system cuts out waste, makes the patient experience more efficient, and makes it possible for the facility to serve greater numbers in less time, increasing profits.
Given the considerable benefits of a Lean operation, it seems as if every company should be making a Lean transition. However, two barriers stand in the way:
- A lack of understanding of Lean and Lean strategy.
- A lack of leadership.
By working to overcome these obstacles, any company can empower employees, grow market share, and create wealth for its stakeholders.