Can a pull system with zero stock make the company more fragile?
Dear Gemba Coach,
Can a pull system with zero stock make the company more fragile?
Sure it can, that’s the whole point – fragile, but flexible. The pull system doesn’t make the company fragile: it reveals the weak points. Top performance is about keeping a ball on top of a round hill – it needs every body’s engagement to make sure it stays there.
Bad performance is letting the ball roll down in the valley – once it’s there every one is trying to shift the blame on each other and save their own skins because cost killing is coming fast. The pull system is the architecture that lets people cooperate on reaching top performance. The two aspects that are really, really fragile are top performance and mutual trust (which translates efforts into teamwork into results). It takes years to grow a tree, but minutes to cut it down.
Here’s a story from the Gemba: a company that has focused on two main topics: (1) employee safety and ergonomics and (2) on-time-delivery with the pull system in a B2C situation, so huge variations within customer segments. Over five years they’ve increased their service rate by 20% and halved their inventory, liberating tens of millions of dollars in cash. The key elements of their pull system are:
- A monthly simulation of finished product stocks to check that the target numbers are aligned with a very variable demand, and a weekly production planning meeting to level the weekly demand for high running products.
- A sequencer that translates the leveled demand into kanban cards, picked up from the production cells by a train that runs every 20 minutes.
- Shop stocks at every cell, so there are no WIP parts in inventory, all parts are owned by the cell that produced them.
- A SMED program to continuously improve cell flexibility and reduce the shop stocks (and number of kanban cards in the loop)
- Milk runs to suppliers which are extended step by step to the entire supply chain and keep driving the inventories of Bought Out Parts down.
After several years of this, batches have been reduced to the hour and the number of parts in the system is low, low, low. The pull system forces the company to adapt daily to market variation, whilst learning to have the right finished products stocks so as to keep production as serene as possible. This is a daily fight that engages all people, as they all share in the battle for OTD (and a participation in the overall bottom line results). They work at it very hard, and they work at it together.
Run, Forrest, Run
Now, the company gets purchased by a larger industrial group. After the dust settles, corporate decides it’s paid through the nose for the business unit, and it needs to make its money back. So, finance reevaluates amortizations, hikes up management fees, and now the unit’s profit is not so good – which is a good challenge in itself, because the company will have to lean itself further. So far, so good.
But then, the markets are slow (it’s tough all around) and the quarter’s numbers are not going to be good. So corporate fixes it by imposing a zero temporary workers policy across the board. No replacements, no special cases. As a result, some component cells lose capacity, parts are missing, on-time-delivery crashes back to where they were when they started, losing about 20 points. The business unit tries to react by frantically moving people around and asking managers to take assembly jobs (yes, they do), but, to their dismay, this produces a few more parts but increases the general unraveling of the pull system: the ball is running down the hill. The pull system makes it worse, because as some components don’t get built, they don’t get reordered, which stops preceding processes – who then start making their own decisions about what to build, and usually get it wrong, creating inventories in the process (without solving stock outs), and run Forrest, run.
At month end, there are clear savings from the zero temp policy, but at the cost of ten times sales lost (now in back orders) and an EBIT loss of three times the savings accrued. People are unsettled and disgruntled. They thought management’s core values were safety and service, and now every one is talking about profit saving and cost reduction. Operators feel let-down, and their prejudices are reinforced: this is just another company after all.
Would this have happened without a pull system? Clearly not (but neither would the results). The pull system indeed makes the company more fragile, but not so much to external changes, but to heavy-handed management action. Seeing OTD go down and shop stocks empty is a sure sign that something is going on, and usually the opportunity to kaizen and adjust resources to better fit to market. Results are delivered by the improvement dynamics of Gemba leadership where execs and operators can agree on a visible situation and work together to fix it.
Fragility Is Strength
Let me say it: if you don’t have a leveled pull in place, you’re not doing lean – no arguments. I understand that in many environments some head scratching needs to happen before we understand how pull applies, but, hey, if we can do pull in IT development projects (and we do, with kanban) we can do it everywhere.
Pull is the key to service and quality. For instance, in the factory I was in yesterday, we were looking at the last delivery of the milk run, which had a few bad parts in a case of 50. We now have to explain to the supplier that we don’t have parts in inventory – so two bad parts out of fifty are REALLY going to be a problem because we can’t replace these bad parts from two good ones from the stock. Lean is fundamentally linked to the story of the water and the rocks – but also to the fact that by lowering the water and making rocks appear and solving problems together we build in the magic element of any endeavor: mutual support and morale. The very fragility of the pull system is what keeps people engaged and working together. The fragility of pull is its very strength.
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