What was striking was their profound conviction that performing tasks in batches is best—sending the newsletters from “department” to “department” around the kitchen table—and their failure to consider that a rethink of the task might permit continuous flow and more efficient work. What’s equally striking when looked at this way is that most of the world conducts its affairs in accord with the thought processes of six- and nine-year-olds!
Taiichi Ohno blamed this batch-and-queue mode of thinking on civilization’s first farmers, who he claimed lost the one-thing-at-a-time wisdom of the hunter as they became obsessed with batches (the once-a-year harvest) and inventories (the grain depository). 4 Or perhaps we’re simply born with batching thinking in our heads, along with many other “common sense” illusions—for example, that time is constant rather than relative or that space is straight rather than curved. But we all need to fight departmentalized, batch thinking because tasks can almost always be accomplished much more efficiently and accurately when the product is worked on continuously from raw material to finished good. In short, things work better when you focus on the product and its needs, rather than the organization or the equipment, so that all the activities needed to design, order, and provide a product occur in continuous flow.
Henry Ford and his associates were the first people to fully realize the potential of flow. Ford reduced the amount of effort required to assemble a Model T Ford by 90 percent during the fall of 1913 by switching to continuous flow in final assembly. Subsequently, he lined up all the machines needed to produce the parts for the Model T in the correct sequence and tried to achieve flow all the way from raw materials to shipment of the finished car, achieving a similar productivity leap. But he only discovered the special case. His method only worked when production volumes were high enough to justify high-speed assembly lines, when every product used exactly the same parts, and when the same model was produced for many years (nineteen in the case of the Model T). In the early 1920s, when Ford towered above the rest of the industrial world, his company was assembling more than two million Model Ts at dozens of assembly plants around the world, every one of them exactly alike.
After World War II, Taiichi Ohno and his technical collaborators, including Shigeo Shingo, 5 concluded that the real challenge was to create continuous flow in small-lot production when dozens or hundreds of copies of a product were needed, not millions. This is the general case because these humble streams, not the few mighty rivers, account for the great bulk of human needs. Ohno and his associates achieved continuous flow in low-volume production, in most cases without assembly lines, by learning to quickly change over tools from one product to the next and by “right-sizing” (miniaturizing) machines so that processing steps of different types (say, molding, painting, and assembly) could be conducted immediately adjacent to each other with the object undergoing manufacture being kept in continuous flow.
The benefits of doing things this way are easy to demonstrate. We’ve recently watched with our own eyes, in plants in North America and Europe, as lean thinkers practiced kaikaku (roughly translatable as “radical improvement,” in contrast with kaizen, or “continuous incremental improvement”). Production activities for a specific product were rearranged in a day from departments and batches to continuous flow, with a doubling of productivity and a dramatic reduction in errors and scrap. We’ll report later in this book on the revolutionary rearrangement of product development and order-scheduling activities for these same products to produce the same magnitude of effect in only a slightly longer adjustment period. Yet the great bulk of activities across the world are still conducted in departmentalized, batch-and-queue fashion fifty years after a dramatically superior way was discovered. Why?
The most basic problem is that flow thinking is counterintuitive; it seems obvious to most people that work should be organized by departments in batches. Then, once departments and specialized equipment for making batches at high speeds are put in place, both the career aspirations of employees within departments and the calculations of the corporate accountant (who wants to keep expensive assets fully utilized) work powerfully against switching over to flow.
The reengineering movement has recognized that departmentalized thinking is suboptimal and has tried to shift the focus from organizational categories (departments) to value-creating “processes”—credit checking or claims adjusting or the handling of accounts receivable. 6 The problem is that the reengineers haven’t gone far enough conceptually—they are still dealing with disconnected and aggregated processes (for example, order-taking for a whole range of products) rather than the entire flow of value-creating activities for specific products. In addition, they often stop at the boundaries of the firm paying their fees, whereas major breakthroughs come from looking at the whole value stream. What’s more, they treat departments and employees as the enemy, using outside SWAT teams to blast both aside. The frequent result is a collapse of morale among those who survive being reengineered and a regression of the organization to the mean as soon as the reengineers are gone.
The lean alternative is to redefine the work of functions, departments, and firms so they can make a positive contribution to value creation and to speak to the real needs of employees at every point along the stream so it is actually in their interest to make value flow. This requires not just the creation of a lean enterprise for each product but also the rethinking of conventional firms, functions, and careers, and the development of a lean strategy, as explained in Part III .
Pull
The first visible effect of converting from departments and batches to product teams and flow is that the time required to go from concept to launch, sale to delivery, and raw material to the customer falls dramatically. When flow is introduced, products requiring years to design are done in months, orders taking days to process are completed in hours, and the weeks or months of throughput time for conventional physical production are reduced to minutes or days. Indeed, if you can’t quickly take throughput times down by half in product development, 75 percent in order processing, and 90 percent in physical production, you are doing something wrong. What’s more, lean systems can make any product currently in production in any combination, so that shifting demand can be accommodated immediately.
So what? This produces a onetime cash windfall from inventory reduction and speeds return on investment, but is it really a revolutionary achievement? In fact, it is because the ability to design, schedule, and make exactly what the customer wants just when the customer wants it means you can throw away the sales forecast and simply make what customers actually tell you they need. That is, you can let the customer pull the product from you as needed rather than pushing products, often unwanted, onto the customer. What’s more, as explained in Chapter 4 , the demands of customers become much more stable when they know they can get what they want right away and when producers stop periodic price discounting campaigns designed to move goods already made which no one wants .
Let’s take a practical example: the book you hold in your hand. In fact, your copy is lucky. One half of the books printed in the United States each year are shredded without ever finding a reader! How can this be? Because publishers and the printing and distribution firms they work with along the value stream have never learned about flow, so the customer can’t pull. It takes many weeks to reorder books if the bookseller or warehouse runs out of stock, yet the shelf life of most books is very short. Publishers must either sell the book at the peak of reader interest or forgo many sales. Because the publisher can’t accurately predict demand in advance, the only solution is to print thousands of copies to “fill the channel” when the book is launched even though only a few thousand copies of the average book will be sold. The rest are then returned to the publisher and scrapped when the selling season is over.
The solution to this problem will probably emerge in phases. In the next few years, printing firms can learn to quickly print up small lots of books and distribution
warehouses can learn to replenish bookstore shelves frequently (using a method described in Chapter 4 ). Eventually, new “right-sized” book-printing technologies may make it possible to simply print out the books the customer wants at the moment the customer asks for them, either in a bookstore or, even better, in the customer’s office or home. And some customers may not want a physical copy of their “book” at all. Instead, they will request the electronic transfer of the text from the “publisher” to their own computer, printing out an old-fashioned paper version only if they happen to need it. The appropriate solution will be found once the members of the publishing value stream embrace the fourth principle of lean thinking: pull.
Perfection
As organizations begin to accurately specify value, identify the entire value stream, make the value-creating steps for specific products flow continuously, and let customers pull value from the enterprise, something very odd begins to happen. It dawns on those involved that there is no end to the process of reducing effort, time, space, cost, and mistakes while offering a product which is ever more nearly what the customer actually wants. Suddenly perfection, the fifth and final principle of lean thinking, doesn’t seem like a crazy idea.
Why should this be? Because the four initial principles interact with each other in a virtuous circle. Getting value to flow faster always exposes hidden muda in the value stream. And the harder you pull, the more the impediments to flow are revealed so they can be removed. Dedicated product teams in direct dialogue with customers always find ways to specify value more accurately and often learn of ways to enhance flow and pull as well .
In addition, although the elimination of muda sometimes requires new process technologies and new product concepts, the technologies and concepts are usually surprisingly simple and ready for implementation right now. For example, we recently watched while Pratt & Whitney replaced a totally automated grinding system for turbine blades with a U-shaped cell designed and installed by its own engineers in a short time and at a quarter of the capital cost of the automated system being replaced. The new system cuts production costs by half while reducing throughput times by 99 percent and slashing changeover time from hours to seconds so Pratt can make exactly what the customer wants upon receiving the order. The conversion to lean thinking will pay for itself within a year, even if Pratt receives nothing more than scrap value for the automated system being junked.
Perhaps the most important spur to perfection is transparency, the fact that in a lean system everyone—subcontractors, first-tier suppliers, system integrators (often called assemblers), distributors, customers, employees—can see everything, and so it’s easy to discover better ways to create value. What’s more, there is nearly instant and highly positive feedback for employees making improvements, a key feature of lean work and a powerful spur to continuing efforts to improve, as explained in Chapter 3 .
Readers familiar with the “open-book management” movement in the United States 7 will recall that financial transparency and immediate feedback on results, in the form of monetary bonuses for employees, are its central elements. Thus, there is a broad consistency between our approach and theirs. However, a major question emerges for open-book managers as finances are made transparent and employees are rewarded for performance. How can performance be improved? Sweat and longer hours are not the answer but will be employed if no one knows how to work smarter. The techniques for flow and pull that we will be describing in the pages ahead are the answer. What’s more, when employees begin to feel the immediate feedback from making product development, order-taking, and production flow and are able to see the customer’s satisfaction, much of the carrot-and-stick apparatus of open-book management’s financial reward system becomes unnecessary.
The Prize We Can Grasp Now
Dreaming about perfection is fun. It’s also useful, because it shows what is possible and helps us to achieve more than we would otherwise. However, even if lean thinking makes perfection seem plausible in the long term, most of us live and work in the short term. What are the benefits of lean thinking which we can grasp right away ?
Based on years of benchmarking and observation in organizations around the world, we have developed the following simple rules of thumb: Converting a classic batch-and-queue production system to continuous flow with effective pull by the customer will double labor productivity all the way through the system (for direct, managerial, and technical workers, from raw materials to delivered product) while cutting production throughput times by 90 percent and reducing inventories in the system by 90 percent as well. Errors reaching the customer and scrap within the production process are typically cut in half, as are job-related injuries. Time-to-market for new products will be halved and a wider variety of products, within product families, can be offered at very modest additional cost. What’s more, the capital investments required will be very modest, even negative, if facilities and equipment can be freed up and sold.
And this is just to get started. This is the kaikaku bonus released by the initial, radical realignment of the value stream. What follows is continuous improvements by means of kaizen en route to perfection. Firms having completed the radical realignment can typically double productivity again through incremental improvements within two to three years and halve again inventories, errors, and lead times during this period. And then the combination of kaikaku and kaizen can produce endless improvements.
Performance leaps of this magnitude are surely a bit hard to accept, particularly when accompanied by the claim that no dramatically new technologies are required. We’ve therefore worked for several years to carefully document specific instances of lean transformations in a wide range of firms in the leading industrial economies. In the chapters ahead, we provide a series of “box scores” on precisely what can be achieved and describe the specific methods to use.
The Antidote to Stagnation
Lean thinking is not just the antidote to muda in some abstract sense; the performance leap just described is also the answer to the prolonged economic stagnation in Europe, Japan, and North America. Conventional thinking about economic growth focuses on new technologies and additional training and education as the keys. Thus the overwhelming emphasis of current-day popular writing on the economy is on falling computing costs and the growing ease of moving data around the planet, as exemplified by the World Wide Web. Coupling low-cost, easily accessible data with interactive educational software for knowledge workers will surely produce a great leap in productivity and well-being, right ?
The record is not promising. During the past twenty years we’ve seen the robotics revolution, the materials revolution (remember when cars would have ceramic engines and airplanes would be built entirely of plastic?), the microprocessor and personal computer revolution, and the biotechnology revolution, yet domestic product per capita (that is, the average amount of value created per person) in all the developed countries has been firmly stuck.
The problem is not with the new technologies themselves but instead with the fact that they initially affect only a small part of the economy. A few companies like Microsoft grow from infants to giants overnight, but the great bulk of economic activity—construction and housing, transport, the food supply system, manufacturing, and personal services—is only affected over a long period. What’s more, these activities may not be affected at all unless new ways are found for people to work together to create value using the new technologies. Yet these traditional tasks comprise 95 percent or more of day-to-day production and consumption.
Stated another way, most of the economic world, at any given time, is a brownfield of traditional activities performed in traditional ways. New technologies and augmented human capital may generate growth over the long term, but only lean thinking has the demonstrated power to produce green shoots of growth all across this landscape within a few years. (And, as we will see, lean thinking may make some new technologies unnecessary.)
The continuing stagnation in develo
ped countries has recently led to ugly scapegoating in the political world, as segments of the population in each country push and shove to redivide a fixed economic pie. Stagnation has also led to a frenzy of cost cutting in the business world (led by the reengineers), which removes the incentive for employees to make any positive contribution to their firms and swells the unemployment ranks. Lean thinking and the lean enterprise is the solution immediately available that can produce results on the scale required. This book explains how to do it.
Getting Started
Because lean thinking is counterintuitive and a bit difficult to grasp on first encounter (but then blindingly obvious once “the light comes on”), it’s very useful to examine the actual application of the five lean principles in real organizations. The material in the remainder of Part I , therefore, provides real instances of lean principles banishing muda. The place to start, as always, is with value as defined by the customer.
CHAPTER 1
Value
A House or a Hassle-Free Experience?
Doyle Wilson of Austin, Texas, had been building homes for fifteen years before he got serious about quality. “In October of 1991 I just got disgusted. Such a large part of my business was waiting and rework, with expensive warranty claims and friction with customers, that I knew there must be a better way. Then I stumbled across the quality movement.”
He read Carl Sewell’s book on car dealing, Customers for Life, 1 and decided to test his claims by buying a car at Sewell’s Dallas dealership. (“I thought that if even a car dealer could make a customer feel good, it should be easy for a homebuilder!”) His purchase was such a positive experience that he asked Sewell for advice on quality in home building and was told to read the works of W. Edwards Deming.
Doyle Wilson is the archetypical Texan and never does things halfway. By February of 1992 he had launched a wall-to-wall Total Quality Management campaign at Doyle Wilson Homebuilder. Over the next three years he personally taught his workforce the principles of TQM, began to collect and analyze enormous amounts of data on every aspect of his business, got rid of individual sales commissions (“which destroy quality consciousness”), eliminated the traditional “builder bonus” for his construction superintendents (who were qualifying for the “on-time completion” bonus by making side deals with customers on a “to-be-done-later” list), reduced his contractor corps by two thirds, and required the remaining contractors to attend (and pay for) his monthly quality seminars.
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