How do I quantify kaizen's small improvements?
Dear Gemba Coach
Despite the popularity of kaizen, likewise its definition, there have been no clear criteria for measuring its effectiveness. Recognizing that kaizen introduces small changes, hence the impact on business would be small. How we are going to measure the improvements on safety, cost, quality, etc?
(During The Way to Lean, a recent free webinar on the “lean trilogy” approach to deeply understanding and applying kaizen daily, we received more questions than presenter Michael Ballé could answer during the Q&A. He’ll answer them, including the question below, in the Gemba Coach column he writes for LEI. -Ed.)
The key to performance improvement, as explains Nobel Prize winning economist Joseph Stiglitz (https://www.youtube.com/watch?v=-pdZXBshad8) lies not in seeking static efficiencies, but dynamic gains. If we were looking at the enterprise as a static machine, yes, the size of the changes would relate to the impact on the business, but we’re in fact searching for a totally new form of results based on learning dynamics.
Should the size impact of yeast in baking bread relate to how you use it relative to flour? Yeast doesn’t add a component, it drives fermentation, the magical process that turns a dense mass of dough into a well-risen loaf by quickening the breakdown of large starch molecules into sugar and releasing carbon dioxide and ethyl alcohol into the air bubbles of the dough. Similarly, kaizen rarely affects processes directly by changing one part of the process with a better one (the promise of consultants and the wishful thinking of management) without changing the rest of the system.
The power of kaizen lies in sustaining a dynamic approach to maintaining a competitive edge. It doesn’t have to be big, it has to be continuous and directed towards competitive advantage. Where should we look for the impact of kaizen? Try these four areas from real companies:
Putting customers first is the first intention of kaizen; how can we find small ways, every day, to enhance the customer’s experience, whether the next person in the process or the final customer. How can we help, rather than pass the work over the wall and hope for the best as it becomes someone else’s problem. I was recently on the Gemba in a company that makes car sunroofs. They have learned in recent years to invite engineers from the automakers to play with real life sunroofs for a day. It’s a small company, but still, they hire rental cars with different interesting sunroofs, get the customer engineers in the cars and tinker with the latches, mechanisms, bottoms, and discuss customer experiences, production issues, innovation possibilities. They’re not looking for breakthrough, they’re looking for very small, fixable ideas – the sound the sunroof makes when you operate it, for instance, or the feel of the controls. They also ask their potential customers to tell them what should differentiate their brand from their competitors, as in, how should a Mercedes car feel compared to a VW.
This very simple approach, which has translated into concrete engineering work without needing breakthrough innovation has done wonders for their sales. Indeed, in their total sales have grown by half over the past two years, and they’ve started working with very high-end demanding customers they had no previous relationships with. The size of the engineering changes they came up with does not relate to the commercial impact of a more mindful approach to customers, what they like, and the kind of collaborative relationship they find with this supplier that they don’t experience elsewhere. The kaizen attitude has given the company a very visible sales competitive edge.
Unfortunately, although these guys have been progressing very quickly in introducing and sustaining kaizen in engineering, they’ve not been so lucky with production. In this particular case, production used to be ahead of the curve as well, with an end-to-end pull system and systematic problem solving, but then the manufacturing director left and his successor runs the system as a management process, not as a tool to generate kaizen. Astonishingly, customers see that as well, and although they love the products, they worry about the costs because they don’t see kaizen in production as they do in engineering. Are they right to do so? Absolutely.
In another company I was in recently, kaizen in production costs has reduced overall costs by 2% of sales last year, mostly by eliminating non-quality costs through stop-at-defect and fixing immediately small things on machines. Again, nothing major, but hundreds of small adjustments, which, also have led to a different attitude about producing parts from the operators themselves – making bad parts is NOT okay, and is investigated and resolved without investing in new machines.
Each individual kaizen idea in itself doesn’t have much impact as accountants would reckon it, but overall and over a year, 2% of sales is a very visible improvement of the company’s margin (improving it by half!). This approach to kaizen has also led to less measurable cost avoidance where they learned to better use equipment that was considered obsolete and pushed back the expense at some point in the future. Resolving quality problems has also had an impact on perceived quality by customers and on-time delivery, which has helped with sales.
Few companies get all the elements of lean right and the previous company struggles with just-in-time and reducing batches quickly to improve the dynamic of flow. But I have another example in mind. I was visiting recently a company that makes large industrial equipment. It generated $40 million in cash improvements over the past two years simply by tightening lead-times throughout the process. Again, spectacular results from not-so-spectacular activities.
The entire logistics flow used to be handled via the MRP until the logistics manager and the production manager courageously worked together to get flow under control. To be honest, they did nothing more than the smart use of 5S to clarify delivery and pick-up areas, post schedules, and get everyone to react to late or ahead deliveries, trying to understand what had triggered them.
They realized that many of the lead-times in the MRP where out of synch with the reality of production and went into it line by line, item by item. Here also, nothing that would impress a financial controller. And still, because of the high value of each part in heavy equipment assembly, the gains in cash were astounding. At no cost. Getting production and logistics to work more closely on all the customer-supplier points in the system, painstakingly, delivered results way beyond anyone’s expectations.
4. Capital Costs
I am very fortunate in knowing a service company in Northern Italy, which is a lovely place to work. Over the past three years, these guys have worked on their spare parts logistics and on every trick in the book to make work easier on site for technicians and, overall, doubled their turns and doubled their margin. I visited them recently, and in two of their maintenance centers, the inventory reduction is so spectacular that they’re planning to move locations in order to cut building size by half.
For various reasons, they also expect to see productivity improvements from this move, as often happens – the lean key to labor productivity is capital productivity as creating smaller, better adapted environments takes a lot of moving, carrying, and waiting muda out of the system. None of these results were achieved with investment or large changes. All of these changes were brought about by better collaboration between the dispatcher and the technician, a more mindful approach to customer’s exact problems, and a commitment from the service center managers (well, the two out of five who really went for it – the other three are struggling to catch up) to make the work easier for the technician every day. Small stuff. kaizen.
3 Tips for Better kaizen
Yes, I know, this seems hard to believe, but these are documented cases and experienced lean guys see this all the time. So what’s the trick?
- kaizen helps you to grasp the situation. To begin, we ask people to think of obvious ideas to improve performance. We’re not seeking absolutes, we’re seeking a slight competitive edge, so the question is, how can we be marginally better than our competitor next door, which often comes down to how can we be marginally better than yesterday. These early efforts will yield two kinds of problems: those we can solve without too much difficulty, and the intractable ones because we don’t know how to do it.
- On the problems we know how to solve, we use kaizen then to make people more mindful of standards. When the operators themselves think of smarter ways to do something, they have no problems in accepting the new ways. Since this situation typically recurs hundreds of time in the week, handling these problems better generates astonishing gains.
- With the more intractable problems, kaizen again to start small and find specific cases where we can experiment with solving the issue. This is a different kind of kaizen because it often requires an initial small investment to get started, but often opens up previously unseen opportunities to progress, which then feed back into daily operations.
Get the Direction Right
The real difficulty in your question is recognizing “good kaizen” from “going-through-the-moves kaizen.” Good kaizen is a small step improvement (can be very small step, as 5S for instance) that gets you closer to work for the final customer. If you see the competitive edge, no matter how small a single kaizen delivers, keep going. On the other hand when so-called “kaizen” brings you back to management decisions, processes and the like, you’ve probably lost your way.
As I’ve tried to illustrate with a few current examples, the impact of kaizen can be huge if – and only if – the challenges given by the leadership are clear and on the right topic. This is where lean experience matters considerably because you learn, as a leader, to know what kind of improvements you seek, and recognize what kind of kaizen to praise when you see it, no matter how small the step, as long as it’s in the right direction.
Don’t try to quantify the impact of each individual kaizen. Look for the business results of a more engaged, more mindful way of working, sustained by the kaizen spirit of every one, every where, all the time.
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