FORGET GRAND STRATEGY FOR THE MOMENT
We’ve encountered many firms that truly are in a crisis but respond mainly with strategic analysis: “Are we in the best businesses for us to be in? Should we sell some of our troubled businesses [presumably to buyers who don’t know their problems] and buy some new businesses [presumably from sellers who don’t know their businesses’ worth]? Should we increase R&D spending and try to create a product no one else can duplicate? Should we form a strategic alliance with other firms to achieve synergies? Should we merge with competitors or wage a takeover campaign to gain scale economies and reduce competition?”
Some of these firms really are in industries with no opportunities, but it’s all too easy to start blaming your industry rather than yourself. If you quickly eliminate muda in product development, sales and scheduling, and operations, you’ll soon discover that as you fundamentally change your cost base, shorten production lead times and time-to-market for new products, and increase your flexibility, the prospects for your business(es) will look very different. Even if it turns out that some businesses have severe structural problems, you won’t be worse off for making them lean because very little capital investment will be needed. (Remember: If a major investment is required, you’re not getting lean.) Your cost base will fall, meaning your operating results will improve even if sales volume and prices don’t. You will also have bought time to think (for a very modest price), even if it turns out that a very lean business (like Showa’s parking carousels) is not sufficiently profitable to continue.
MAP YOUR VALUE STREAMS
Once you’ve got the leadership, the knowledge, and the sense of urgency, it’s time to identify your current value streams and map them—activity by activity and step by step—by product family.
Many firms embracing business process reengineering may think they have already done this, but in fact they’ve only gone a small part of the way. Typically, a reengineering approach concentrates on information flow rather than production operations or product development (because functional resistance is much lower for these office activities formerly organized by department). Reengineering rarely looks beyond the firm to delve into the operations of suppliers and distributors, even when these account for the great majority of costs and lead times. And even within narrow business processes, the focus is usually on streamlining aggregated activities rather than on addressing the needs of individual product families.
Other firms we’ve recently visited have told us at the front door that they are “lean” because they have introduced cellular assembly or dedicated product development teams. In the words of the typical Porsche supplier, “There is really nothing more for us to do.” Yet we almost always discover that their accomplishments to date are tiny islands in a sea of muda. For example, we recently examined a computer firm which conducts final assembly of computer workstations in continuous-flow cells, one for each product family, rather than on the long assembly line used previously for all products combined. Time and effort for assembly itself have been reduced substantially and the new approach is more flexible. However, problems with in-house and upstream supplies necessitate an eight-week supply of the average part, so the plant still builds to forecast rather than to precise customer order, and the forecast is often wrong. The problem, of course, is that lean techniques have been applied only to the tiny course of the value stream which was easy to fix, specifically flow in one part of one plant, and which did not require any change in the behavior of internal or external suppliers.
So, to repeat, look at the entire value stream for individual products. Your customers are only interested in their product and they generally define value in terms of the whole product (often a good plus a service). They are not interested in your organization or your supplier and distributor relations, and they are certainly not interested in the security of your job. Market-based societies permit to exist and thrive those organizations which do a good job of identifying and serving customer needs rather than the organization’s own interests.
BEGIN AS SOON AS POSSIBLE WITH AN IMPORTANT AND VISIBLE ACTIVITY
It would be wonderful if you as the change agent could simply decree a new way: “We will take all of our value-creating activities and make them flow, starting this morning. Then we’ll introduce pull beginning tomorrow.” Unfortunately, that’s not how things work. Instead, you need to start as quickly as you can with a specific activity—perhaps it’s the fabrication and assembly of Product G. You need to involve the direct work group, the managers of all the levels between you and them, other senior executives you hope to convert to lean thinking, your sensei (internal or external), and yourself. Often, although not in every case, it’s best to start with a physical production activity because the change will be much easier for everyone to see.
We advise people to start with an activity that is performing very poorly but which is very important to the firm. That way, you can’t afford to fail, the potential for improvement is very large, and you will find yourself drawing on resources and strengths you didn’t know you had in order to ensure success.
DEMAND IMMEDIATE RESULTS
One of the critical features of lean techniques is immediate feedback. The improvement team and the whole workforce should be able to see things changing before their eyes. This is essential to creating the psychological sense of flow in the workforce and the momentum for change within your organization.
So, don’t conduct a lengthy planning exercise. Your value-stream maps can be completed in only a week or two. And don’t bother with simulations to see about the “what ifs.” We have studied one firm which had even developed a complex computer simulation package to predict what would happen if a single machine was moved anywhere in its production system. Because the predictions were always unsettling, the company never moved anything!
Finally, don’t waste time on benchmarking if there is any way to get your firm moving without it. We gave the benchmarking industry a big boost with our previous book, which described the most ambitious benchmarking ever attempted in a single industry, and for companies that are completely asleep, benchmarking may be an essential first step. However, if you already understand lean thinking and lean techniques, you should simply identify the muda around you through value stream mapping and get started immediately on removing it. Benchmarking as a way to avoid the need for immediate action is itself muda.
Once you dive in, if nothing dramatic is accomplished in the first week of working on a problem activity—typically a halving of required effort, a 90 percent reduction of work-in-process, a halving of space requirements, and a 90 percent drop in production lead time—you’ve either got the wrong sensei or you are not really a change agent. Figure out which it is and take appropriate action immediately!
When you get your first results invite a cross-section of your firm to the report-out. The best way to communicate the changes under way is simply to take everyone to the scene of the action and show precisely what is happening.
AS SOON AS YOU’VE GOT MOMENTUM , EXPAND YOUR SCOPE
We’ve found that it’s critical to quickly produce some dramatic results everyone can see by focusing on a particularly troubled activity, usually in physical production. However, as soon as the first round of improvements are in hand, it’s time to start linking the different parts of the value stream for a product family.
To take a simple example, once you’ve learned how to convert fabrication and assembly of Product G from large batches to flow, it’s time to learn to pull, both by converting the next upstream processes to flow and also by establishing a level schedule and a formal pull system. As you do this, “backward steps” are bound to occur because the precise purpose of these techniques is to expose and eliminate all types of waste. It’s only when the flow stops that you know you’ve found the next problem to work on.
Once you have flow and pull started on the shop floor, it is time to go to work on your ordering system. Kaikaku in the office
is not as easy to see as moving machines on the shop floor, but it’s equally vital. Start with office activities that are directly linked to the activities you just changed on the floor. Prepare the way by involving office staff in the early shop-floor kaikaku weeks—where they can play a useful role just by asking dumb questions: Why do you do it this way? After they grasp the fundamentals and see the potential, they are ready to ask the same questions about office work. Then, once a bridgehead is established, go to work on all of your activities related to selling, formal order-taking, and scheduling .
At the same time you start to introduce pull in production and order-taking, you need to start thinking about flow and pull in product development for each product family. This is particularly the case because for most firms the quickest way to grow sales in order to absorb freed-up production resources is to speed up products already in the pipeline. We routinely found cases in our research of firms which were able to eliminate three quarters of their previous development time for routine or follow-on products while reducing manufacturing cost and improving quality and user satisfaction. In every case they boosted their sales substantially (at no cost) and found uses for their excess people.
As you progressively move your lean transformation beyond a physical manufacturing environment, you will find more of a need to transpose the logic of lean thinking to suit different mind-sets and circumstances. Even with the most positive attitude, staff in a warehouse or a retail activity will find it very hard initially to see how flow and pull apply to their activities. After all, they don’t “make” anything in a physical sense and they’ve spent years blaming manufacturing for not getting its job done on time.
For example, Unipart’s Industries Division had been receiving help for several years from Toyota’s supplier development group at their U.K. plant, but Unipart found it difficult to know where to start in applying lean thinking to its warehousing and distribution businesses. It was only after a recent visit to Toyota’s Parts Distribution Centers described in Chapter 4 that “the light went on” and Unipart’s managers could see how to apply lean concepts to their spare parts distribution operations for Rover and Jaguar.
For instance, once they understood that the muda of overproduction translates in the warehouse world as a “faster than necessary pace” and that leveling incoming orders is a necessary precondition for creating flow, they were able to make rapid progress. In their first weeklong kaikaku they freed up enough space and people to take on a large new account distributing service parts for a major manufacturer of laser printers.
Creating an Organization to Channel Your Streams
Many leaders who don’t fully understand lean thinking jump to the wrong conclusion after the exhilarating success of the initial “breakthrough” exercise. “We’ve done it for one activity,” they’ll say. “Now all we need to do is replicate what we’ve done in every other activity and we will be lean within a few months.” The reality is that you are only at the beginning. The next leap is to create an organization which can channel the flow of value and keep the stream from silting up again. You’ll also need to devise a practical strategy to fully utilize all of the resources being freed up .
Doing this requires reorganizing your business by product families with someone clearly in charge of each product and creating a truly strong lean promotion function which becomes the repository of your hard-earned skills. It also requires a consistent approach to employment in your firm and a willingness to remove those few managers who will never accept the new way. Finally, it means creating a mind-set in which temporary failure in pursuit of the right goal is acceptable but no amount of improvement in performance is ever enough.
REORGANIZE YOUR FIRM BY PRODUCT FAMILY AND VALUE STREAM
As we noted in the Introduction, the proper purpose of a business organization is to identify and channel the value stream for a family of products so that value flows smoothly to the customer. As you get the kinks out of your physical production, order-taking, and product development, it will become obvious that reorganizing by product family and value stream is the best way to sustain your achievement. And as you right-size your tools, it will become apparent that a large fraction of your people and tools can be dedicated to specific product families.
This means identifying your product families and rethinking your functions to realign marketing/sales, product development, scheduling, production, and purchasing activities in coherent units. The exact way to do this will vary with the nature of the business, the sales volume for products, and the type and number of customers. But the basic idea can be applied in most businesses. The organization chart for your lean business will begin to look like the one in Figure 11.1 .
The boxes are drawn in proportion to the number of employees in each, making clear that the product family teams account for the great bulk of human effort in the business. The functions with their allocated overheads have shrunk dramatically by contrast.
CREATE A LEAN PROMOTION FUNCTION
Your sensei will need a place to sit down (although a good sensei doesn’t sit very often). Your process mappers will need somewhere in the organization to call home. The extra people you will soon be freeing up will need a place to go (which explains the size of the “lean” function in Figure 11.1 ). Your improvement teams will need logistics support. And your operating managers will need continual education in lean methods and periodic evaluation of their efforts to make sure there is no backsliding. In short, you need a permanent lean promotion group and it should report directly to the change agent .
F IGURE 11.1: P ROTOTYPE L EAN O RGANIZATION
An even better idea is to combine your quality assurance function with your lean promotion function so that quality enhancement, productivity improvement, lead-time reduction, space savings, and every other performance dimension of your business are considered equally and simultaneously.
One of the standard problems in getting started on lean implementation is that your operating managers may think that your quality assurance experts and your lean experts are telling them to do different things. In fact, they are telling them to do the same thing—eliminate the muda of errors and of waiting at the source so value can flow smoothly—but they use different terminology. (For example, Ed Northern at Pratt remembers that “Mr. Ito was yelling one thing in my right ear while Mr. Iwata seemed to be yelling something different in my left ear. I found this frustrating and confusing until I realized their messages were consistent once you got the terms straightened out.”) Some initial attention to “standard language,” so everyone is using the same terminology, and a consolidation of the quality and lean functions is an excellent investment.
DEAL WITH EXCESS PEOPLE AT THE OUTSET
Our rule of thumb is that when you convert a pure batch-and-queue activity to lean techniques you can eventually reduce human effort by three quarters with little or no capital investment. When you convert a “flow” production setup—like the Henry Ford–style production line at Porsche—to lean techniques, you can cut human effort in half (mostly by eliminating indirect activities and rework plus line imbalances). And this is before your lean development system rethinks every product so it is easier to make with less effort. Meanwhile, in product development and order-taking, converting from batch-and-queue to flow will permit your organization to do twice the work in half the time with the same number of people.
So you’ve got too many people if sales remain constant. What are you going to do? The one thing you must do is remove excess people from activities where they are no longer needed. It will be impossible to make and sustain superior performance if you don’t take this step. But what do you do with these people?
As we’ve noted, many organizations refuse to consider lean thinking until the crisis is very deep. If your ship is truly foundering (like Pratt in Chapter 8 ), some of the crew will have to man the lifeboats or everything will be lost, and you must face this simple fact. The correct thing to do is to face it up fron
t, by estimating the number of people needed to do the job the right way, and moving immediately to this level. Then you must guarantee that no one will lose their job in the future due to the introduction of lean techniques. And you must keep your promise.
What you can’t do is conduct drip torture in which you move through your organization activity by activity, asking your employees to help you eliminate their jobs with no end in sight. As we’ve tried to explain, in a lean world there is no end to improvement: Jobs are always being eliminated in specific activities. Your employees will react as they should to the introduction of what they will call “mean” production with subtle but effective sabotage. Improvements will be impossible to sustain.
If you are not foundering, you have a luxury and you have a problem. You can protect jobs, but it’s harder to get people to change. The correct approach is to concentrate on particularly troubled activities and build momentum for change while sending people no longer needed for these activities to the lean promotion function or elsewhere in the organization. As you demonstrate over time that no one loses because lean techniques are introduced, and that in fact everyone’s job security is increased, employees gradually become more cooperative and proactive. On the other hand, just one slip—one failure to honor your commitment to protect jobs—will take years to overcome.
DEVISE A GROWTH STRATEGY
We are sometimes contacted by managements who are making adequate profits but see lean techniques as a clever way to quickly raise margins by eliminating as many people as possible under the guise of “embracing the new paradigm” and “world-class competitiveness.” We always tell executives with this mentality the same thing: Don’t bother. You can save some money at the outset but you will never sustain leanness.
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