Fortunately, there is a powerful antidote to muda: lean thinking. It provides a way to specify value, line up value-creating actions in the best sequence, conduct these activities without interruption whenever someone requests them, and perform them more and more effectively. In short, lean thinking is lean because it provides a way to do more and more with less and less—less human effort, less equipment, less time, and less space—while coming closer and closer to providing customers with exactly what they want.
Lean thinking also provides a way to make work more satisfying by providing immediate feedback on efforts to convert muda into value. And, in striking contrast with the recent craze for process reengineering, it provides a way to create new work rather than simply destroying jobs in the name of efficiency .
Specify Value
The critical starting point for lean thinking is value. Value can only be defined by the ultimate customer. And it’s only meaningful when expressed in terms of a specific product (a good or a service, and often both at once) which meets the customer’s needs at a specific price at a specific time.
Value is created by the producer. From the customer’s standpoint, this is why producers exist. Yet for a host of reasons value is very hard for producers to accurately define. Business school–trained senior executives of American firms routinely greet us when we visit with a slick presentation about their organization, their technology, their core competencies, and their strategic intentions. Then, over lunch, they tell us about their short-term competitive problems (specifically their need to garner adequate profits in the next quarter) and the consequent cost-cutting initiatives. These often involve clever ways to eliminate jobs, divert revenues from their downstream customers, and extract profits from their upstream suppliers. (Because we are associated with the concept of lean production, they are usually eager to label these programs “lean,” although often they are only “mean.”) By dessert, we may be hearing about their personal career issues in the current age of “downsizing.”
What only comes up when we push it to the foreground is the specific products the firm expects specific customers to purchase at a specific price to keep the company in business and how the performance and delivered quality of these products can be improved while their fundamental costs are pushed steadily down. In raising this issue it’s often revealing to ask these executives a simple question: Can you put yourself in the position of a design as it progresses from concept to launch, an order as information flows from initial request to delivered product, and the physical product as it progresses from raw material to the customer, and describe what will happen to you at each step along the way? Usually there is an awkward silence, and then, if we aren’t persistent, these issues quickly slip out of sight to be replaced once more by aggregated financial considerations. In short, the immediate needs of the shareholder and the financial mind-set of the senior managers have taken precedence over the day-to-day realities of specifying and creating value for the customer.
When we’ve gone to Germany, until very recently, we’ve found a reverse distortion of value specification. For much of the post–World War II era, executives of private or bank-controlled companies could ignore the need for short-term financial performance and were eager to tell us all about their products and process technologies. Even the most senior executives could go into great detail about product features and new processing methods which had taken years to perfect .
But who specified their value? The engineers running the companies! Designs with more complexity produced with ever more complex machinery were asserted to be just what the customer wanted and just what the production process needed. But where was the evidence?
In pressing this point, it often became apparent that the strong technical functions and highly trained technical experts leading German firms obtained their sense of worth—their conviction that they were doing a first-rate job—by pushing ahead with refinements and complexities that were of little interest to anyone but the experts themselves. Our doubts about proposed products were often countered with claims that “the customer will want it once we explain it,” while recent product failures were often explained away as instances where “the customers weren’t sophisticated enough to grasp the merits of the product.”
A central feature of the crisis of German industry in the period since the end of the cold war has been the dawning perception that the complex, customized designs and sophisticated processing technologies favored by German engineers are too expensive for customers to afford and often irrelevant to their real desires.
When we have traveled to Japan, also until very recently, we have encountered yet a third distortion. What’s been really important for Japanese firms as they have defined value is where value is created. Most executives, even at firms like Toyota which pioneered lean thinking, have begun their value definition process by asking how they can design and make their product at home—to satisfy societal expectations about long-term employment and stable supplier relations. Yet most customers across the world like products designed with an eye to local needs, which is hard to do from a distant home office. And they like products made to their precise order to be delivered immediately, which ocean shipping from a Japanese production base makes impossible. They certainly do not define the value of a product primarily in terms of where it was designed or made.
What’s more, the stay-at-home-at-all-costs thinking of Japanese senior managers, even as the yen steadily strengthened, depleted the financial resources these firms needed to do new things in the future. The immediate needs of employees and suppliers took precedence over the needs of the customer, which must sustain any firm in the long term.
Moving beyond these national distortions in the world’s three most important industrial systems (and every country probably has its own unique set), 2 we are repeatedly struck how the definition of value is skewed everywhere by the power of preexisting organizations, technologies, and undepreciated assets, along with outdated thinking about economies of scale. Managers around the world tend to say, “This product is what we know how to produce using assets we’ve already bought, so if customers don’t respond we’ll adjust the price or add bells and whistles.” What they should be doing instead is fundamentally rethinking value from the perspective of the customer.
One of the best (and most exasperating) illustrations of this backwards thought-process is the current-day airline industry. As frequent users of this service we have long been keeping detailed notes on our experiences and contrasting our own definition of value with that proposed by most companies in this industry. Our value equation is very simple: to get from where we are to where we want to be safely with the least hassle at a reasonable price. By contrast, the airline’s definition seems to involve using their existing assets in the most “efficient” manner, even if we have to visit Timbuktu to get anywhere. They then throw in added features—like executive lounges in their hubs and elaborate entertainment systems in every seat—in hopes the inconvenience will be tolerable.
Just today, as this is written, one of us has traveled the 350 miles from his summer home in Jamestown in western New York State, across Lake Erie, to Holland, Michigan, in order to make a presentation on lean thinking to an industrial audience. What was needed was a way to fly from Jamestown directly to Holland (both of which have small airports) at an affordable cost. What was available was either an absurdly priced charter service from Jamestown to Holland (total door-to-door travel time of about two hours) or an eighty-mile drive to the Buffalo, New York, airport, a flight on a large jet to the Detroit sortation center of Northwest Airlines (where the self-sorting human cargo finds its way through a massive terminal from one plane to the next), another flight on a large jet to Grand Rapids, Michigan, and a forty-mile drive to the ultimate destination. (The lower-cost option required a total travel time of seven hours.)
Why aren’t airlines like Northwest (and its global partner KLM) and airframe builders like Boeing and Airbus working
on low-cost, point-to-point services using smaller jets instead of developing ever-larger aircraft? And why aren’t they developing quick turnaround systems for small jets at small airports instead of constructing Taj Mahal terminals at the absurd “hubs” created in America after airline deregulation—and long present in Europe and East Asia due to the politically motivated practice of routing most flights of state-controlled airlines through national capitals? (One hour of the seven hours spent on the trip just cited was taxiing time in the Detroit hub and a second was occupied with self-sortation inside the terminal.)
Few firms are aggressively promoting this definition of value because the airlines and airframe builders start their thinking with extraordinarily costly assets in the form of large aircraft; the engineering knowledge, tooling, and production facilities to make more large aircraft; and massive airport complexes. Old-fashioned “efficiency” thinking suggests that the best way to make use of these assets and technologies is to get larger batches of people on larger planes and to do this by sending ever more passengers through the expensive sorting centers. This type of efficiency calculation, focused on the airplane and the hub—only two of the many elements in the total trip—loses sight of the whole. Much worse from the standpoint of value for the passenger, it simply misses the point.
The end result of fifteen years of this type of thinking in the United States is that passengers are miserable (this is not what they meant by value!), the aircraft producers make little money (because the airlines can’t afford new planes), and the airlines (excepting Southwest and a few other start-ups pursuing the more sensible strategy of flying point-to-point, although still using large aircraft) have flown a decade-long holding pattern in the vicinity of bankruptcy. Europe and parts of East Asia are not far behind.
Lean thinking therefore must start with a conscious attempt to precisely define value in terms of specific products with specific capabilities offered at specific prices through a dialogue with specific customers. The way to do this is to ignore existing assets and technologies and to rethink firms on a product-line basis with strong, dedicated product teams. This also requires redefining the role for a firm’s technical experts (like the inward-looking German engineers we just cited) and rethinking just where in the world to create value. Realistically, no manager can actually implement all of these changes instantly, but it’s essential to form a clear view of what’s really needed. Otherwise the definition of value is almost certain to be skewed.
In summary, specifying value accurately is the critical first step in lean thinking. Providing the wrong good or service the right way is muda.
Identify the Value Stream
The value stream is the set of all the specific actions required to bring a specific product (whether a good, a service, or, increasingly, a combination of the two) through the three critical management tasks of any business: the problem-solving task running from concept through detailed design and engineering to production launch, the information management task running from order-taking through detailed scheduling to delivery, and the physical transformation task proceeding from raw materials to a finished product in the hands of the customer. 3 Identifying the entire value stream for each product (or in some cases for each product family) is the next step in lean thinking, a step which firms have rarely attempted but which almost always exposes enormous, indeed staggering, amounts of muda.
Specifically, value stream analysis will almost always show that three types of actions are occurring along the value stream: (1) Many steps will be found to unambiguously create value: welding the tubes of a bicycle frame together or flying a passenger from Dayton to Des Moines. (2) Many other steps will be found to create no value but to be unavoidable with current technologies and production assets: inspecting welds to ensure quality and the extra step of flying large planes through the Detroit hub en route from Dayton to Des Moines (we’ll term these Type One muda ). And (3) many additional steps will be found to create no value and to be immediately avoidable (Type Two muda ).
For example, when Pratt & Whitney, the world’s largest manufacturer of aircraft jet engines, recently started to map its value streams for its three families of jet engines, it discovered that activities undertaken by its raw materials suppliers to produce ultrapure metals were duplicated at great cost by the next firms downstream, the forgers who converted metal ingots into near-net shapes suitable for machining. At the same time, the initial ingot of material—for example, titanium or nickel—was ten times the weight of the machined parts eventually fashioned from it. Ninety percent of the very expensive metals were being scrapped because the initial ingot was poured in a massive size—the melters were certain that this was efficient—without much attention to the shape of the finished parts. And finally, the melters were preparing several different ingots—at great cost—in order to meet Pratt’s precise technical requirements for each engine, which varied only marginally from those of other engine families and from the needs of competitors. Many of these activities could be eliminated almost immediately with dramatic cost savings.
How could so much waste go unnoticed for decades in the supposedly sophisticated aerospace industry? Very simply: None of the four firms involved in this tributary value stream for a jet engine—the melter, the forger, the machiner, and the final assembler—had ever fully explained its activities to the other three. Partly, this was a matter of confidentiality—each firm feared that those upstream and downstream would use any information revealed to drive a harder bargain. And partly, it was a matter of obliviousness. The four firms were accustomed to looking carefully at their own affairs but had simply never taken the time to look at the whole value stream, including the consequences of their internal activities for other firms along the stream. When they did, within the past year, they discovered massive waste.
So lean thinking must go beyond the firm, the standard unit of score-keeping in businesses across the world, to look at the whole: the entire set of activities entailed in creating and producing a specific product, from concept through detailed design to actual availability, from the initial sale through order entry and production scheduling to delivery, and from raw materials produced far away and out of sight right into the hands of the customer. The organizational mechanism for doing this is what we call the lean enterprise, a continuing conference of all the concerned parties to create a channel for the entire value stream, dredging away all the muda.
Whenever we present this idea for the first time, audiences tend to assume that a new legal entity is needed, some formalized successor to the “virtual corporation” which in reality becomes a new form of vertical integration. In fact, what is needed is the exact opposite. In an age when individual firms are outsourcing more and themselves doing less, the actual need is for a voluntary alliance of all the interested parties to oversee the disintegrated value stream, an alliance which examines every value-creating step and lasts as long as the product lasts. For products like automobiles in a specific size class, which go through successive generations of development, this might be decades; for short-lived products like software for a specific application, it might be less than a year.
Creating lean enterprises does require a new way to think about firm-to-firm relations, some simple principles for regulating behavior between firms, and transparency regarding all the steps taken along the value stream so each participant can verify that the other firms are behaving in accord with the agreed principles. These issues are the subject of Part III of this book.
Flow
Once value has been precisely specified, the value stream for a specific product fully mapped by the lean enterprise, and obviously wasteful steps eliminated, it’s time for the next step in lean thinking—a truly breathtaking one: Make the remaining, value-creating steps flow. However, please be warned that this step requires a complete rearrangement of your mental furniture.
We are all born into a mental world of “functions” and “departments,” a commonsense conviction
that activities ought to be grouped by type so they can be performed more efficiently and managed more easily. In addition, to get tasks done efficiently within departments, it seems like further common sense to perform like activities in batches: “In the Claims Department, process all of the Claim As, then the Claim Bs, and then the Claim Cs. In the Paint Department, paint all of the green parts, then shift over and paint all the red parts, then do the purple ones.” Batches, as it turns out, always mean long waits as the product sits patiently awaiting the department’s changeover to the type of activity the product needs next. But this approach keeps the members of the department busy, all the equipment running hard, and justifies dedicated, high-speed equipment. So, it must be “efficient,” right? Actually, it’s dead wrong, but hard or impossible for most of us to see.
Recently, one of us performed a simple experiment with his daughters, ages six and nine: They were asked the best way to fold, address, seal, stamp, and mail the monthly issue of their mother’s newsletter. After a bit of thought their answer was emphatic: “Daddy, first, you should fold all of the newsletters. Then you should put on all the address labels. Then you should attach the seal to stick the upper and lower parts together [to secure the newsletter for mailing]. Then you should put on the stamps.” “But why not fold one newsletter, then seal it, then attach the address label, and then put on the stamp? Wouldn’t that avoid the wasted effort of picking up and putting down every newsletter four times? Why don’t we look at the problem from the standpoint of the newsletter which wants to get mailed in the quickest way with the least effort?” Their emphatic answer: “Because that wouldn’t be efficient!”
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