I recently read an article in the Operational Excellence Group: Getting to the Corporate Promised Land. It’s a great article listing the business benefits of Lean Manufacturing, or as I prefer to call it: Operational Excellence. The article cites progress and benefits in two companies – Toyota and Danaher. The benefits include: lead time reduction, productivity increase, WIP (work in Process) inventory reduction, quality improvement, and better space utilization. In addition, these companies showed very good EBIT (Earnings Before Interest and Tax) resulting in better cash flow from operations, and stock price appreciation that beat major stock indices over a period of over 30 years. I must confess, that I typically focus on the quality, productivity, and workplace benefits; but the financial benefits are equally amazing.
But how do you get there? The literature abounds in lean manufacturing strategies, sometimes very clear and sometimes confusing. Hence, I would like to revisit this topic to shed some light on the methodologies, and in addition, focus on the issues involved. The key methodologies, based on my years of experience, include:
The basics: getting organized via the 5S System
Frederick Taylor in his text on Scientific Management proposed cleanliness and orderliness in a factory. Henry Ford picked up on this when he wrote: “Good work is difficult excepting with good tools used in clean surrounding.” Japanese factories went further and popularized the 5S system of workplace organization. The 5S system refers to 5 activities beginning with the letter ‘S”, namely Seri (or Sort), Seiton (or Stabilize), Seiso (or Shine), Seiketsu (or Standardize), and Shitsuke (Sustain).
Objectives of the 5S System: Many operations that use the 5S system consider it a housekeeping program. But it’s much more than that: The main objective of 5S is to create an environment where problems can be easily identified and corrected. It also lays the foundation for good manufacturing practices and promotes operator discipline. Furthermore, when 5S is executed efficiently, it sets the stage for more advanced activities such as kanban and just-in-time manufacturing.
High performance via Standard Work
Standard Work documents the current methodology for building a product in the most efficient way with the best quality. If the Standard Work is implemented with operators trained correctly, then the work will be done in the same best way and of consistent quality – no matter where the work is done: another work shift, factory, or geography. Standard Work includes all the steps in the work sequence, the cycle time to complete the work, and the inventory required at the workstation. These standards are essential for the simplest to the most complex job in the factory.
I have read and heard discussions saying, “Imposing standardization can distract from allowing for individual flexibility and creativity”. To me the response is very clear: keep documenting and standardizing processes; the flexibility and creativity you want will come in improving these standards via kaizen or working on new ideas, knowing that the basics are in place. That’s the path to operational excellence.
Managing Cycle Time of production on the factory floor
Every assembly process on the factory floor takes time – whether it is done by manual assembly or by a machine. All the disparate processes in the factory need to be managed via the cycle time at each operation. Cycle time is the second component of standard work. If cycle times are not well managed, we can have one workstation producing too much and another workstation producing too little. This will result in congestion, bottlenecks, and excess inventory along the assembly line. Henry Ford said: “The easiest of all wastes and the hardest to correct is the waste of time, because wasted time does not litter the floor like wasted material.”
Therefore, what we must do is to manage the production floor like an orchestra with every instrument coordinated, with no missing or superfluous notes, and with the music flowing exactly to the beat of the conductor. As with an orchestra we use the concept of takt time to manage the flow. A well-orchestrated takt time system will ensure that the production line flows smoothly.
The benefits include: A planned and predictable output, repetitive efficiency, and consistent quality. It will provide quick visibility of production bottlenecks caused by poor quality or inventory issues; this visibility is obvious from line stops, poor utilization of equipment, bottlenecks, or accumulation of defects and inventory.
JIT (just-in-time) manufacturing via the Kanban system
Every assembly process on the factory floor results in an accumulation of inventory – whether it is raw material, work in process (WIP), or finished goods. High inventory is considered the origin of many kinds of waste and must be reduced. Waste includes the space occupied on the factory floor, quality defects, and inventory cost. Inventory is the third component of standard work, and good standard work requires us to operate with a minimum of inventory at each workstation. With lower inventory defects will quickly surface and inspection is easier because smaller quantities are easier to observe and check. The result will be higher quality products.
To achieve lower inventory and factory space, we implement just-in-time, or JIT, production, and manufacture only what is needed, when it is needed, and in the amount needed. This will allow us to minimize inventory in the stockroom and factory floor. This means we must run the manufacturing line with material arriving just before it needs to be processed. We do this via the kanban system. The stockroom must also implement kanban deliveries from suppliers to keep inventory low. The kanban process can be either manually or system managed. Initially, when kanban is implemented, material is pulled in smaller and smaller batches from stockroom and suppliers – this will expose many supply chain issues, which must be resolved via improvement cycles or kaizen – that is the benefit of JIT and kanban. According to Taiichi Ohno: “The aim of kanban is to make troubles come to the surface and link them to kaizen (improvement) activity”.
Machine management and TPM (Total Productive Maintenance)
Machines and equipment are used in every manufacturing process. They help to perform difficult tasks, increase efficiency, and improve quality of products. Machines, however, need to be managed to get results; specifically they must have quick setup times and high reliability. Production lead-time for manufacturing processes can be reduced by reducing machine setup time, via a SMED (Single Minute Exchange of Die) program. Shorter setup times means that machines can minimize the production lot size and reduce production inventories. This will allow for more efficient just-in-time manufacturing; this will also enable an operation to be efficient in high-mix low-volume production. Overall it will be a more responsive and cost-effective operation that responds quickly to small customer orders. This can open an operation to new business and market segments.
We must also ensure that machines work every time. For that we need a TPM plan. The objective of TPM is to ensure that machines provide predictable performance, deliver exactly what we expect of them, with high productivity, zero (or low) errors, no breakdowns or accidents; all this at a reasonable cost.
Aiming for highest quality in manufacturing
Product and service quality is essential for any business. Furthermore, accumulation of defects in the factory, poor yields, and customer complaints must be well managed. To this end we need quality tools and systems to manage the factory floor, support services, and the overall business. The benefits of this effort will help ensure efficient processes, higher productivity, and less fire fighting. This will result in more time for innovation and creativity, improved quality of products and services, lower costs, and increased customer satisfaction and loyalty. Important methodologies are: Continuous improvement or Kaizen via the PDCA cycle, Quality Control & Management, Statistical Process Control, and Six Sigma.
Often, there is a concern on investing too much in continuous improvement – because of complacency or hubris, or one seeks a balance between cost and quality. This approach is dangerous in any organization, because complacency is the enemy of quality and customer satisfaction. Takoshi Hokake expresses this succinctly as the Whispering of Satan: “Balance between cost and quality” is such a phrase that affects us like opium. Tearing off this veil of this beautiful phrase “balance of cost and quality” — the “quality first” policy should be adopted. This is the very energy source. But I have no weapon to shut out this whispering of Satan.”
A case in point: the recent quality issues and recalls at Toyota. After an analysis, it was clearly due to several factors: a drive for cost reduction, outsourcing (to less robust suppliers), and hubris. Toyota has learned a lesson.
Employee development and participation
All the hard work discussed so far requires the potential of every person and supplier in the organization. The power of synergy they create cannot be overemphasized. Their effort must include: Kaizen and kaizen team activity, Employee Suggestion schemes, Employee education; plus partnering and working with suppliers on quality and kanban deliveries to minimize stockroom inventory and space. Such employee and partner engagement, and involvement, is necessary and priceless.
Putting all the tools together to get Continuous Flow Manufacturing
The superior methodology in manufacturing is to manufacture in a continuous flow process producing one-piece at a time or in small batches. Why? One-piece production maximizes throughput in manufacturing, minimizes WIP inventory, runs with the highest quality level, and provides a system that allows for continual improvement of the manufacturing process. Continuous flow can be either on linear or U-shaped lines, depending on volume and complexity. Continuous flow manufacturing is where all the techniques we have discussed above come together to provide Operational Excellence in manufacturing – to achieve World Class manufacturing.
One-piece continuous flow manufacturing will provide faster response to changing customer demand thus reducing lead time to customer orders; the manufacturing operation will also be able to respond quickly to customer demand including accepting smaller orders, which can open new market segments. All these benefits will result in an operation that is more efficient, cost effective, and customer oriented.
Doing the right things to achieve success in Operational Excellence via good planning
We have been discussing how to do things right: that is how to be productive, efficient, and less wasteful, with the best quality. However, it is equally important that we do the right things. This requires creativity, insight, and good planning. Planning also provides other benefits, including sharper objectives, improved performance standards, and management involvement. All of these result in a planned approach to tackling the market place that will result in higher productivity, quality, sales, and profits.
A good planning process needs to exist throughout an organization. The plan will include an analysis of the current situation, the objectives that must be pursued, actual implementation, and progress reviews. This plan must focus on breakthrough product and service strategies that will lead to market success – both short-term and long-term strategies must be covered. We recommend the use of the Hoshin Kanri planning process. And yes, there are other good planning processes.
An alternative planning process, or a subset of planning, is The Theory of Constraints. Dr. Goldratt expounded and popularized this theory in a business book, actually a fast paced novel: The Goal. In his book he discusses the concept of system constraints or bottlenecks that hinder progress and profit in a business. Goldratt uses the concept of removing bottlenecks or the weakest link in the business organization. According to Goldratt, the goal of a business is to increase profit. To get there, management must find the weakest link in an organization that is constraining profit, fix it, and then find the next weakest link and fix it, and so on. Goldratt says that the weakest links are constraints that are usually caused by management policies. Such constraints sit somewhere in the system but their effect appears somewhere else. Only management can find and fix such constraints. For example: If the company’s backlog management policy hinders rapid delivery of product and revenue goals, only senior management can fix it. This weak link has to be fixed, after which the next weak link must be fixed. This approach will continue to strengthen the business organization and lead to higher profitability.
Getting started or improving your current effort in lean manufacturing, plus provide an assessment checklist to highlight your strengths, weaknesses, and opportunities. We will cover four topics important for implementation:
- Getting started: Some precursors and self-assessment.
- The Project Management approach.
- The Business Plan approach.
- Challenges and solutions for success.
- Getting Started, Some Precursors, and self-assessment:
The purpose of a business is to make a profit and to satisfy customers. Therefore, any action plan to implement lean manufacturing for the purpose of achieving operational excellence must, in the end, achieve or enhance this purpose. All the tools we discussed in Part 1 are the means to achieve this purpose. Remember, Toyota came up with TPS because it had inferior products, which could not compete with Western companies.
Getting Started: First and foremost you need to communicate why you wish to start this journey; but if you have already started, you need to communicate where you are today and the next steps on the road ahead. There are many reasons why an organization wishes to move towards operational excellence. We list a few: an enlightened chief executive; a company in a crisis situation; to increase profit.
So how do you start? If you already have TPS or Lean program – look for opportunities to fine tune and excel. Hence, review current initiatives, strengths and weaknesses, and decide how to fill the gaps. If you are just about to start a Lean Program, you need to understand your current situation. In either case you must conduct an overall assessment to understand your current status. The best method is to start by taking an overall look at the entire operation and understand strengths and weaknesses. Initially, focus on the whole and not any specific areas to improve. Start with a gemba walk of each operation. Look, observe, and ask questions:
- Is the workplace organized or cluttered? Is it clean or untidy?
- What type of waste can you see? Clogged aisles? Too much inventory in the warehouse or WIP on the production floor? Too much travel or motion by operators?
- What is the production yield? Is the production defect rate high? Are there boxes of product awaiting rework?
- Are there bottlenecks on the production line? Are the lines balanced or is there operator waiting-time?
- How was the factory layout determined? Is the layout equipment based or product based?
- Is equipment running smoothly? Does equipment breakdown and result in defective assemblies?
- Is there a need to increase capacity? Can reducing variability in the factory increase capacity? For example variability due to batch production, lack of TPM, long machine setup times, high WIP, incoming vendor defects, unbalanced lines, excessive overtime? Look at variability before you consider new equipment.
- Are there robust metrics to measure factory performance? How are you performing to those metrics? Metrics should include: cost, delivery, inventory, productivity, quality, and customer satisfaction.
- Do you have a strong team of engineers, professionals, supervisors, technicians, and operators to manage the business?
- How is delivery to customers? Are you meeting commitments? Is there potential for improvement?
- Are there customer issues that need to be addressed? How serious are the customer complaints?
- Assessment Checklist: A detailed assessment checklist is attached below and will help you with a better understanding of your strengths and weaknesses; it will also help you focus your energy and next steps.
Educate and Train: The next step is to educate and train the manufacturing team in the tools. At this point, it’s best to provide training for senior managers to discuss the key methodologies from this text. Once you move into specific projects, more detailed skills training will be required.
Appoint a Facilitator or Sensei: Appoint a facilitator to help steer the transformation. The facilitator will help monitor and discuss issues and problems and help keep the team on track and schedule, plus arrange to get outside help when required. The facilitator or sensei should be a manager with experience in Lean Manufacturing. The sensei’s role includes:
- Help in the overall assessment of your operation or factory to identify opportunities.
- Provide a deep understanding of the tools: PDCA, and the lean toolbox
- Challenge the team to select aggressive improvement targets.
- The Project Management Approach
We have seen progressive operation managers start working independently on transforming their operations. Hence, this is one way to get started: Select an operation in crisis or one needing improvement. For example: an operation with high customer complaints, high defects, or high costs.
Appoint a Project Team and Lead: Once the area for improvement is selected, it’s time to appoint a project team. Project team members should come primarily from within the team and must include both engineering and production staff. A project leader is also desired, typically an experienced manager in the operation who commands respect.
Conduct an assessment as outlined above.
Work on the Most Critical Issue: Review the areas of customer or management concern. After you have selected a critical issue, analyze the problem, and prepare an action plan. Ensure you define a project size that can be completed in a short time frame of about three to six months. Results in a short timeframe will encourage and motivate the teams and provide more management support. Here are some potential crisis situations:
- Defect rate too high. The defect rate experienced by customers or internally is too high leading to high rework and cost. Review the issues, get to root cause, and execute solutions, bring defects down – aim for 50% reduction.
- Late deliveries or missed shipments. You are not meeting the production plan. Potential problems impeding throughput could be: Defective products requiring rework; Defective material or delays in incoming material; Production line not meeting target production: The production line has bottlenecks; lack of JIT manufacturing, and continuous flow (because of batch production); Machines giving insufficient output.
- Work on the next issue. Select the next project and continue with gains and success – look at other waste and costs. This approach sets priorities and breaks the implementation into manageable and focused chunks of activity. Often you can work on several projects simultaneously − this is dependent to the project size and resource availability. Value stream mapping (VSM) can be used in the project management approach. VSM can help you analyze the areas you wish to improve; after analysis you can use the appropriate methodology to improve.
The biggest challenge with the project management approach is that it is disconnected from the business plans, budget, or resources. Sometimes the project may be going in one direction, while the business is going in another direction. Managers who are already stretched may consider the project management approach as extra work. This is one of the reasons why lean/TPS programs fail. Therefore, it is critical that the efforts are linked to real business and customer needs. Still, if the management team is committed, enthusiastic, and looking at customer and operational needs, the project management approach will work.
- The Business Plan Approach
An alternative approach to getting started is to integrate the transformation into the annual plan. If your entity has an annual business plan, then it is appropriate to consolidate the improvements into the plan. It could be your operation’s specific planning process or the Hoshin planning process, which we have used for years.
Integrating your lean manufacturing initiative into your business planning process will ensure you do the right things (as opposed to doing things right), such as: review customer needs, evaluate company needs, set priorities, define plans for improvements, and increasing revenue. Table 1, is a summary from a General Manger’s plan. The objective is to increase revenue and profits. The required strategies are summarized in the Table. Some comments:
- The focus is on resolving a critical business issue. There are two objectives: Increase revenue and profits.
- The manager has selected the appropriate tools, which will yield the best results. Some of the strategies will be from our toolbox. In this case, JIT/Kanban and continuous flow can be rolled out or improved throughout the operations. This will also require a full review of cycle time and standard work at all production lines.
- Within this strategy the team can use several tools and methodologies: Get a team to do an assessment and identify opportunities; then use the appropriate methodology, and rollout improvements. Alternatively, use VSM mapping, do the analysis, use the appropriate methodology, target the future state, and rollout improvements
This approach allows you to integrate the relevant Lean methodologies into the organization’s business plan and you are completely synchronized with the organization’s objective and direction. Furthermore, with a detailed business plan, you will be reviewing progress and results during regular reviews. During the reviews, you will be able to adjust and tune your strategies for best results.
Our preference is clearly for the Business Plan Approach, with its focus and deep integration into the company’s business, direction, processes, and customers. The project management approach and the business plan approach are based on our own personal experience; both models have worked for us. Which is the better way forward? The alternatives depend on the structure of your organization, its maturity, and the strength of the management team.
- Challenges and Solutions for Success
We have gone through the tools and methodologies that help achieve operational excellence and we have discussed how to get started. Nevertheless, there are many challenges in transforming an operation towards the new direction. In fact many operations that start a lean and TPS program do not get the expected results. A survey conducted by Industry Week found that only two percent of companies that have a lean program achieved their expected results. Recently the Shingo Prize Committee, which gives awards for operational excellence, checked with past winners and found that many had not sustained their progress after winning the award. Why? We discuss the most critical challenges and provide some solutions from our personal experience. This will also serve as a guide to the CEO or senior manager who wants to implement change and take the journey towards operational excellence.
- Long-term management commitment: This is by far the greatest challenge. Results cannot be achieved over the short term. Hence, the management team, per Dr. Deming, must have “constancy of purpose “over the long term in driving towards the company vision and direction.
- Be patient; if you are starting from a low base, then major improvements and impact may take many months or a year – focused projects with results in 6 months will motivate the management team.
- Be aware of insufficient preparation and learning. After one year of struggle, you may decide that “we tried it but it doesn’t work here” and give up; this would be false learning curve.
- If you decide to introduce the Hoshin planning process to drive your efforts, expect at least two years to have an be acceptable Hoshin process; and at least three years to be proficient in the methodology. The same for TOC methodology.
- Be prepared to ensure and implement cultural change: As the tools and projects are implemented, the team must accept and implement cultural change.
- Focus your efforts. We do not propose that you “Implement TPS or Lean Manufacturing throughout the operation”; such an approach is too grand and difficult to implement given you are also running a business and will have many competing priorities. New methodologies must be selected based on customer and internal needs.
- Strike a balance between costs and value. TPS and lean manufacturing started on the shop floor with the goal of reducing waste and cost. But these tools have evolved into providing value to the customer; value such as: Quicker delivery, via faster response time and excellent quality. Hence, don’t just look at cost reduction.
We have discussed the tools and best practices of TPS and Lean Manufacturing, which managers and employees must learn and practice. The road ahead is tough and challenging, but focus and persistence will give excellent results. A vital point to remember is:
Operational excellence is a long journey but it is not the destination or goal. The goal is: Increasing wealth in your corporation and providing the highest quality and value to your customers.
Extracted from this author’s book: Winning With Operational Excellence. Due to space constraints, our discussion has been short. More details and theory of the PDCA cycle, gemba walks, Jidoka, VSM, JIT, Hoshin, TOC, and can be found in this reference.
By Soin Singh
Soin Singh is Director of Quality at Venture Corporation. Prior to that he was General Manger (Distribution and Supply Chain) at Hewlett Packard. He has a Doctorate in Supply Chain management and has authored several books including: Total Quality Control and Winning With Operational Excellence