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Ask Art: Can Lean and “Make-the-Month” Co-exist?

by Art Byrne
October 31, 2017

Ask Art: Can Lean and “Make-the-Month” Co-exist?

by Art Byrne
October 31, 2017 | Comments (6)

This is a great question because it goes right to the core of the differences between lean and a traditional management approach. Most traditional companies put a heavy emphasis on making the month. They create ambitious financial goals in their budgets, and as a result, everyone feels the pressure to make the month come out at—or better than—the budget for that period. Lots of effort goes into this as no one wants to disappoint or get taken to task for not making the month. 

Ultimately this leads to behavior that is rarely in the company’s best interest. I frequently see what I call “stupid sales tricks” at the end of the month, where the sales force will do their best to move future demand into this period. They will offer volume discounts or other one-time price concessions that not only lower profitability but train the customer not to buy until a special price offer is made. They do this because their make-the-month metrics reward them to do so. The big three US automakers were guilty of this for years while their foreign competitors largely avoided it due to better designed and better quality products.

Or think about what happens internally. The traditional company, with its standard cost accounting system, closely monitors the amount of overhead absorption that is being generated as the month progresses. The plant or functional department managers are keenly aware of this, and as a result, make a point to know which of the products or components they make have the most absorption hours. As they approach the end of the month they will have a strong incentive to make products that carry the most absorption hours, even if there is no customer demand for these products. They won’t get beat up for having a little excess inventory, but they will if they miss the absorption hours and fail to “make-the-month”. In effect the pressure to meet this pointless goal can easily lead to a situation where you are tying up your capacity making things you can’t sell right now when you could be making things that meet current customer demand.

What is this “month” that we will move heaven and earth to make? It is not even a real thing. It is just a mythical target you made up last fall at budget time. Sure you put a lot of hard work and effort into creating it and yes there is value in setting budget targets. This holds true for both traditional and lean companies. But for most traditional companies, it takes about three weeks to close the books from the month before. Then a range of people spend a lot of time and effort analyzing the results and having detailed review sessions with senior management. But the results you are willing to spend so much time on each month already happened. You can’t do anything about them now. In fact, by the time you closed the books and had the review meetings, a lot of new problems have cropped up this month—right now in other words. And so in effect you are always looking backwards, trying to drive the car through the rear view mirror.

In contrast, the lean company focuses on the value adding processes not on the results. The only way you are going improve your future results is by removing waste from all your processes. This represents one of the most important shifts in thinking in lean practice. The lean company still needs to close the books at the end of each month, hopefully in 5 days or less not three weeks. But the review process, which is itself a form of waste, should be minimized so as not to detract from the main effort of removing the waste from all the current processes. That is the daily work and strategic approach of the lean company. Look forward not backwards.

I am not at all opposed to creating a budget and checking your results against it at the end of each month. Every company should do that—in fact, your lenders and shareholders will insist that you do it. The key difference however can be found in what you emphasize and what type of culture you create as a result. For example, if you want to have a macho “real men make the month” or “we keep our commitments” type of culture, that is fine. But you should understand that a strong “make-the-month” culture is a big inhibitor to becoming lean.

Moving from a traditional batch approach to lean is nothing but a series of “leaps of faith”. Every time you move equipment to create a new cell or go from a functional structure to a value stream structure there is risk involved. The question of “but what if this doesn’t work?” will always persist in the back of your mind. If you combine this with a strong “make-the-month” emphasis, who will dare to take any risk at all? Without making it safe for people to take risks, you can’t become lean. So in this respect lean and “make-the-month” are incompatible. If “make-the-month” dominates don’t be surprised that you can’t make the lean turnaround.

The views expressed in this post do not necessarily represent the views or policies of The Lean Enterprise Institute.
Keywords:  culture,  leadership
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6 Comments | Post a Comment
Jessie Reyes November 04, 2017

Thank you Art Byrne for such a great and timely article! I feel it is such an important subject that I shared it on my Linkedin site. 

For companies starting the Lean journey, the two culture worlds of Busienss Planning (forecasting/buget/review process) and Lean Six Sigma really do collide in most cases. If not addressed, the Lean journey can be very limited and even fail to take affect.

As a consultant, that is why I always start a company off on the Lean journey with a Lean Six Sigma Leadership Worshop where we address these issues. I also make it a point to include the business planning manager and its leaders in on any of the Lean Six Sigma projects done at the start of the journey. This this may include actually doing a Six Sigma project to improve and update their business planning process to include some of the lean practices needed for success. 

Again thank you for your article and the others in the past I have totally enjoyed and used in my work.

Jess   



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art byrne November 04, 2017

Jess, I'm glad you enjoyed the post. You are right that lean and the traditional approach will usually clash and helping people understand this up front is very important. I belive in setting a budget and closing the books every month etc. but the main emphasis has to be on removing the waste. Switching to lean accounting early on will help smooth the transition and increase the chances of a successful lean turnaround. Art.



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Anne November 20, 2017

A timeless bit of advice, Art!  I think the question EVERY leader needs to ask is "how can we make the numbers AND our lean objectives".  That means that you don't start scrambling during the month on either... you have good plans in place AND good visual management systems for sales and lean, and use them to skip the make the month at all costs approach in favor of consistent enterprise excellence.  When I speak to leadership groups, they're shocked to see that each 1% that they're discounting has a multiplier effect on their bottom line of between 16-38%.  Do the math on a typical 10% discount, and its clear that the short-term win is a huge longer-term loss... the kind that puts companies out of business, no matter how many gains they make in lean.  Find the AND instead of the either/or, and success follows.  

Cheers! Anne



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art byrne November 20, 2017

Anne, thanks for your comments. Your right that selling at a discount to make-the-month is never a good idea and has a negative multiplier effect on the bottom line. Better to focus on removing the waste so you can sell on speed and quality. Art.



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Ovidiu Contras November 29, 2017

Thank you Art for making it very clear, there are still lots of people (including Lean people) that think that "make the month" and Lean Transformations are compatible. I remember when (long time ago) I was working for a company that played the absorbtion game - when the plant warehouse was full, they rented additionnal warehouses ... until the company was sold and the new owner closed the plant.



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art byrne November 29, 2017
1 Person AGREES with this reply

Ovi, thanks for your comments. Having a bad month in operations and a great month in finance will get you in trouble every time. Make-the-month and lean are not totally incompatible but if your main focus is on make-the-month it is almost impossible to become lean. Art.



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