Lean Manufacturing
Lean management is effective. When properly put into place with a top-down approach, the only way it will effectively be implemented, it can result in significant time and cost-savings, revitalizing struggling companies and causing good companies to flourish. In two words, the overall ideas of lean management can be summed up as “waste elimination.” While there are all sorts of buzzwords and concepts associated with the lean process, the key to its success is looking at everything from an external, customer-oriented viewpoint.
In Art Byrne’s book The Lean Turnaround, he details how he effectively implemented lean strategies at different companies, which was known back then as just-in-time (JIT) or the Toyota Production System (TPS). Starting out at GE as a manager at around the time Jack Welch became CEO, he was tasked with implementing a Kanban system. At the time, he was completely unfamiliar with it. Kanban is a pull-system, often used with cards (or lights or some other indicator that can be clearly seen). Instead of stock-piling inventory that is created in batch files, which is extremely expensive and wasteful, the idea behind Kanban is to make the inventory when a Kanban card is provided (i.e., as inventory stock is used) so that inventory is created as needed, not stockpiled and sitting. By doing so, money is saved from not having excessive inventory and the saved space is put to better use.
When Art initially started the Kanban system, he was a little concerned, as he was asked to implement it with quartz tubes, a small but costly part that was often needed. When he set about to start the process, other managers laughed at him. They told him that the inventory would just get transferred to another department. Not enjoying the laughter, he and another manager decided to make it work. By doing so, the inventory dropped a staggering amount – from 40 days to 3. And it remained there. And when that occurred, he noticed that there was much more space available. Less damage occurred (with less inventory). The area was neater (since less of an area to maintain). Productivity and lead-time improved. And people on the floor were happier with their areas. And that got him hooked.
When Art went on to the Danaher Corporation as a group executive, he started to implement lean processes there as well. One of the ideas he initially focused on was the set-up. He engaged in 5S at a UAW plant that made parts for Caterpillar engines initially. 5S essentially means “sort, straighten, shine, standardize, and sustain.” First, he ensured that the filthy areas were cleaned. Re-painting, cleaning, adding lights, and even putting in some potted plants. And then he and others changed the configuration so that the processes were consistently done in an orderly manner, with processes aligned with others on the work-floor. Around that time, he had heard of a seminar being given by Masaaki Imai, who was a protégé of Taiichi Ohno (who founded TPS), at the Kaizen Institute. After doing so, Art brought Imai’s group in as consultants.
When the consultants initially saw the factory, they said that there was about 50 percent waste or more. And, working with Art’s team, they sought to cut out much of that waste. They dropped lead-time from a month-plus to days. Quality improved. An inventory reduction of 70 percent was accompanied by productivity increases of 30 percent.
Now, with the traditional accounting method of P&L focused on the short-term, where inventory is often viewed as an asset, it raised some eyebrows. People came to take a look, concerned that the company was facing financial difficulties and requiring a review. After showing them the company, they changed directions and asked how quickly could such methods be applied to other companies that were run by them. The presidents of the different companies were then provided training and forced to implement such policies if necessary, leading to significant savings across the company.
When Byrne eventually became president of Wiremold, he took his ideas of lean management with him. The company had previously tried to implement lean ideas, but had failed miserably, with the company often running short in inventory. Upon his arrival, he immediately created lean manuals, trained 150 employees, got teams together, and led the teams, focusing on targets he set. This is really a key-item of lean, as such leadership needs to come from the top-down; it is not something to simply be delegated to someone else, as it requires everyone’s involvement.
If the executive leader is not involved, that is often what may cause problems among the different departments. For example, if the manager of production is involved but the manager of maintenance feels he has better things to do with his time and that of his crew, that can easily cause a major problem: The machines may break down at key points needed by the production manager’s crew. From a leadership standpoint, it goes without saying that the executive should be involved; but, from a tactical standpoint, to prevent infighting among the fiefdoms—operations, maintenance, HR, accounting, transportation, et al. —and to ensure that all departments are aligned, the executive must be involved. While some executives think that they can just pass the responsibility off to someone else, that is why many organizations may fail in the implementation of these improvement processes.
When Art began running companies, he initially implemented these three key ideas: 1.) Improved productivity means improved profits. 2.) Focus on improving processes, not results. 3.) Teamwork should be promoted for the entire company, working towards the common goal of improvement. These three ideas led the drive for improvement, and here’s why:
Improved productivity means improved profits. That makes sense when you think about it. It goes without saying that you stand to make more money if you can do something faster and better than your competitor. If you improve your processes so that the processes are fluid and streamlined—so that little waste is made in creating a product from a customer’s perspective—you can lower your prices and still improve profits as long as you stay attuned to your customers’ needs and desires and offer them quality goods.
Focus on improving processes, not results. So many organizations have the reverse-focus—on results only. But, really, results are based on your existing processes. So, what occurs here is if you improve your existing processes in every aspect of your company, the results will take care of themselves. On the other hand, if you focus on results, you’ll always be rushing from one emergency to the next to correct a given deficiency. And then you won’t have time to focus on forward-thinking—improving your existing processes. In a somewhat comical situation after Byrne took over a company, he told them that the standard reports weren’t needed. In order to make sure, one manager asked if a monthly time-wasting, intricate report was still required, which took several days to put together. Byrne responded that the manager could still do it if he really wanted to do it, but that Byrne didn’t require it and wouldn’t read it.
Teamwork should be promoted for the entire company, working towards the common goal of improvement. This is another reason why any lean improvement process needs to be done from the top-down. When people out on the floor see that the head of their company is involved in these processes and wants the improvement—and takes time to listen and resolve issues—it sends off a message to the rank-and-file. And when teamwork is properly promoted, all employees eventually see that they’re working towards a common goal that benefits them.
The key principle of lean is waste elimination. And when you think of waste, it is comprised of those activities that do not add value to a customer. So if something is not adding value, the idea is to eliminate it or improve it so that it works better. While reporting often makes groups feel comfortable and apprised of situations, they often do little good for adding customer-value. And so many reports might be easily eliminated, as could some processes. Yet, obviously, not all processes can be eliminated. For instance, you’ll need accounting, which may not add value to your customer but is needed to keep track of finances. But, even there, traditional accounting practices should be changed.
Byrne refers to traditional accounting practices as “the anti-Lean” in his book. He notes that in standard cost-absorption accounting, excess inventory is rewarded in that some of the manufacturing costs can be deferred to a later time. On the other hand, lean looks at inventory more logically and refers to it as “the root of all evil.” He compares the typical standard P&L statement to that of a lean P&L statement on pp. 117-8 of his book. And while both may show the GAAP gross profit, the lean method provides significant more information with respect to the budget such as scrap, wages, benefits, etc.
A common problem with lean processing may be in handling batch situations. A lean company is focused on meeting real, external customer demands. However, from the ordering side, many companies also focus on ordering in batches. That does neither company good when you think about it: Both companies then sit on inventory. But if a company on the ordering-side knew that the company on the supply-side could manufacture an item for them almost immediately, thus keeping their inventory down, it makes more sense for them to do that, thus keeping their expenses down.
When Byrne faced such a scenario of batch orders from customers, he got with the customers and appealed to their logic and commonsense to opt for the lean ordering method. While he may have lost some customers, he also gained some others, improved relations with existing ones, and ultimately improved profits significantly by doing so. As a result, those profits and added savings were not only used for his company but also passed to those companies that ordered from him. Also, by working closer with customers, he was able to see that he could improve internal profits even greater by offering some pre-assembly work on their end much quicker than what would be required of the customers if their employees did the work in the field. Such work could easily be provided by some of the extra space and labor freed up from other processes.
One other important measure that Byrne mentioned is that of keeping employees. When Byrne took over a company, he would promise the unions that as a result of lean, employees wouldn’t be fired. He would even put that on paper, which was a tough thing to do with a struggling company in the case of Wiremold when he initially took it over. But in order to really get employees on board, time-savings will otherwise be an obvious concern, realizing that fewer employees may be needed if they work in better ways. So, when processes improved, he might have employees perform other and new functions, finding new ways that they could benefit the company. And some people would be lost to self-motivated retirements and finding new employment on their own.
The general concepts of lean management are worth reviewing in today’s work environment. The concepts embody many more ideas than those mentioned here. Nevertheless, these ideas have much to offer if correctly applied, as Art Byrne discovered. If correctly applied by working smarter, the ideas within a lean workforce can save a company. And, ultimately, through increased productivity and a greater diversity in specialization, increased savings and a greater market share should occur, also leading to increased employee wages.
Byrne, A. & Womack, J. (2012). The lean turnaround: How business leaders use lean principles to create value and transform their company. New York, NY: McGraw Hill Publishers.
Imai, M. (2012). Gemba Kaizen: A commonsense approach to a continuous improvement strategy. New York, NY: McGraw Hill Publishers.
Miller, J., Wroblewski, M. & Villafuerte, J. (2014). Creating a kaizen culture: Align the organization, achieve breakthrough results, and sustain the gains. New York, NY: McGraw Hill Publishers.