When not to be Lean?

Have you ever wondered why Lean tools don’t always generate the benefits you expect? That Managers can study books extolling the virtues of the Toyota Production System, and diligently study how Lean tools developed by Shingo et al work, yet are unable to replicate the same benefits within their own organisations? As an example, I was recently invited to visit a manufacturing supplier in the aerospace sector, in which a new management team from a large automotive supplier had recently been appointed. This team had immediately set to work zealously driving the implementation of Lean, including techniques such as Pull Systems, Supermarkets, Takt Time, Heijunka etc. etc. – but with clearly ‘mixed’ results.

It was quickly apparent that the environment in which this supplier operated should be described as “High Variety, Low Volume”. The number of live products that could be ordered was in the hundreds, with batch sizes often in the tens, and infrequent ordering which meant some products may only get made once every couple of years.

Was it a surprise that tools developed by Toyota over decades, to suit their mass production (“High Volume, Low Variety”) environment were not suitable for this situation?

Using stock to buffer the variation in customer demand and process instability (e.g. by introducing ‘Supermarket’ stocks controlled by Pull Systems) was driving inventory up to unacceptably high levels. But with long lead-times it was impossible for this supplier to ‘make to order’ and to meet the customer requested delivery dates … so what was the alternative?

The new alternative is Quick Response Manufacturing (QRM). QRM is essentially a company-wide strategy to reduce lead times, particularly for low-volume and custom-engineered products. And by ‘lead-time’ this means how long it takes from receiving the customer order, procuring the material and manufacturing and delivering the end product – something call Manufacturing Critical-path Time – or MCT for short. If you hold a warehouse of Finished Goods to service customers from, MCT counts the time an individual part would wait its turn to be sold – truly reflecting your cash-to-cash cycle time. While everyone knows that "time is money", for manufacturing enterprises, time is a lot more money than most managers realize.

A key aspect of QRM is to invest in strategic spare capacity, and to use this as the buffer for demand and supply variation rather than using inventory. This flies in the face of conventional cost-based thinking, which fixates on Resource Efficiency (keep the machines working!), rather than Flow Efficiency – ensuring the product moves as quickly through the process to the end customer.

Before you pass the smelling salts to your accountant, here’s an interesting fact;

·       A recent US based study identified that only 7% of the selling price of a domestically made product is labour.

How much time do we invest micro-managing the work force? Ensuring everyone is kept busy? Yet 93% of costs are driven by other organizational issues – planning, order processing administration, sales, warehousing, supply chain etc. Cost-based management leverages economies of scale, driving down the piece part price – but at the expense of long lead-times (anyone heard of the purchasing guy negotiating a bulk discount with his supplier to get a better piece-part price?). But long lead times can add costs in planning, forecast error, expediting, lost sales, salesforce having to win back clients, obsolescence etc. as well as high inventory carrying costs. These have been measured at 4 to 5 times the labour costs.

Through QRM, companies have demonstrated lead-time reductions of 50-90%, resulting in enterprise wide cost reductions of 20-30%, outweighing the cost of labour. Imagine that – faster and cheaper!

And here’s another thing – how much more demanding are your customers becoming? Changing customer and market demands are driving the need for more and more individual products, exactly when they want it. The future of manufacturing in the first world lies in "mass customization" -- providing individually tailored products with short lead times. Whether we like it or not, our customers will drive us toward a “High Variety, Low Volume” manufacturing environment anyway. This, of course, introduces variability – no more long production runs and “selling what we have”. 

QRM segments variability into two types;

·       Dysfunctional Variability – this is ‘traditional waste’, driven by system variability e.g. sudden changes in customer demand, crash setting machines as a result, re-work, machine breakdowns, stoppages due to stock outs etc.

·       Strategic Variability – gaining a competitive advantage by catering for market-driven variability e.g. offering multiple product options and customized products at short lead-times.

Through QRM you would of course still look to eliminate Dysfunctional Variability, through implementing Lean tools such as 5S, SMED, Problem Solving, Mistake Proofing, Six Sigma etc. But with QRM would look to exploit Strategic Variability through its relentless focus on MCT lead-time reduction. If you can meet this type of expectation and your competition can’t – you win.

QRM strategy is based on 4 core concepts;

1.     The Power of Time: – the relentless drive to reduce MCT lead-time through the entire Value Chain is central to QRM philosophy; “Time is Money”

2.     Rethinking Organization Structure: – re-organize into QRM Cells, breakdown departmental barriers and eliminate hand offs. High performing cross trained teams take the responsibility to fast track orders.

3.     Exploiting System Dynamics: – change the mind set to promote flow efficiency, by understanding the benefits that strategic spare capacity can bring.

4.     Implementing a Unified Strategy Enterprise-wide: – this is not just for the shop floor; planning, accounts, engineering, supply chain, logistics, quality, NPI – in fact every function, must play their part. With QRM everyone can be aligned to one single goal – reducing MCT lead-time.

Like any company-wide Change programme, application of QRM will require perseverance. There will be setbacks, resistance to overcome and other unexpected issues along the way. This is normal. On the other hand, with the pace of modern business ever increasing, with the advent of new technologies, Industry 4.0, the Internet of Things etc. etc. – standing still is not going to be an option. Interested?

If you want to find out more drop please contact me at www.garudax.id/in/mikescull or mike.scull@the-mtc.org