First of all, let me congratulate you on your decision to move your company onto the lean path, which is the best business decision you will ever make. Of course, this won’t be easy. You have a great deal to do, which will consume a great deal of time, and you will constantly fight the tendency of your organization to revert to old familiar behavior. You will have to lead this lean turnaround personally, not delegate this major initiative. You will make mistakes along the way but, at the same time, see incredible gains. Are you still interested?
Ok, great. Your first essential step is to develop a solid understanding of what lean really means. What is your focus? What will you have to change? How do you transition all your people? What kind of results can you expect?
Start by getting any thought out of your head that lean is some form of cost-reduction program.
I suggest that you start by getting any thought out of your head that lean is some form of cost-reduction program. Don’t think this, even if others have shared this misconception with you. Almost everyone (more than 90%) makes this mistake, and you don’t want to repeat it. Instead, understand that lean should always focus on learning how to deliver more value to your customers than your competitors. You can define value in terms of responsiveness (short lead times), quality, cost, and new product innovation.
Delivering this value better will initially require you to remove the waste from all of your processes. This step is crucial because every time you remove any form of waste, you shorten the time it takes to do anything, which will reduce your lead times and make you more competitive. As a result, you should think of lean as a time-based growth strategy rather than a cost-reduction program.
As you get started, I recommend that you learn as much as possible from the many great books on lean: Lean Thinking by Jim Womack and Dan Jones, The Toyota Production System by Taiichi Ohno, Learning To See by Mike Rother and John Shook, and The Lean Turnaround Action Guide by me, for starters. Visit several companies that are on the lean path and learn the dos and don’ts from their CEO and top management. And most importantly, participate in a couple of well-run kaizen events so that you will have a clear idea of what to expect. You can do this by lining up a good lean consultant (that you will need anyway) and participating in these events at their clients.
Next, clearly understand how you will explain lean to every person. Because switching from a traditional batch approach is 180 degrees different from how people have been operating, it will initially make no sense to them and, in fact, scare many. This reality raises the stakes about how you—and you cannot delegate this work—introduce this different way of working.
When you announce the new strategy, make it as practical as you can. Explain WHY this is a superior approach. Contrast the business’s current approach to lean. Tell every person WHAT type of results you expect and what is in it for every employee. Be clear about WHEN the changes will start and explain HOW you plan to implement them so that everyone will understand their role.
When you announce the new strategy, make it as practical as you can.
Be sure to lead the initial training yourself. You may be able to train only the top 150 to 200 people personally, but their introduction to lean will be more meaningful coming directly from the CEO than by reading a memo or an email. People will know you are serious. They won’t see lean as just another “program of the month” and try to wait you out. When I became CEO of Wiremold, I created the first training manual and trained the first 150 people myself. Also, I set stretch goals for all of our operational excellence targets that would completely transform the company when achieved.
Because moving to lean means competing on your operational excellence targets, defining them up front, and then sticking with them is crucial. Ours were:
- 100% On-time customer service
- 50% Reduction in defects annually
- 20% Productivity gain annually
- 20x Inventory turns
- Visual control and 5S everywhere
As you might expect, this caused a “you must be kidding me” type of reaction. For example, we were at 3x Inventory turns. However, these aggressive targets were essential in converting to lean because they established a dramatically new level of excellence.
If you want to provide the best value for your customers, you need to operate at these levels. And these stretch goals are not attainable without adopting the lean principles and approach. For lean to take root, you must change the conversation you are having within your company and help everyone buy into these goals and feel comfortable striving for them.
Always Take A Long-term Approach Transitioning to Lean
This shift can’t happen overnight, but you can help the whole team get there by understanding where you are going, seeing the targets that define it, and clarifying how you will proceed down this path so that every individual can get on board. Oh, and make sure that you tell everyone up front that no one will be laid off due to kaizen activity. Making and communicating this commitment is vital, as the stretch targets will scare the heck out of everyone.
I’ve learned that you can only learn lean by doing lean. So don’t overdo the training in the beginning.
I’ve learned that you can only learn lean by doing lean. So don’t overdo the training in the beginning. Instead, stick to the basics about lean, coupled with the why, what, when, and, how you are making this change. While doing so, focus on a couple of next steps. One is to obtain the services of a good lean consultant to help you acquire the knowledge you will need to make the change. The good ones have experience in the Toyota approach to lean and kaizen. They are more like hands-on trainers than traditional consultants. Don’t expect many—if any—PowerPoint presentations. Each year, we contracted for a set number of consulting weeks (we started with 20 weeks) where the outside consultants would be present and run three to four kaizen teams each week. We leveraged this with kaizens run by our internal kaizen promotion office when the consultants were not on site. Once on board, the outside consultants can start organizing the initial kaizens and training your newly created kaizen promotion office.
The next vital step is to reorganize by value stream. You will be moving from a functional organization producing in batches to a flow organization based on value streams. You can’t do lean and keep your functional organization, so better address this at the start. At Wiremold, we defined a value stream as a product family. We selected product family team leaders and gave them the equipment needed to make their complete product family, from raw material to the customer.
When there was a piece of equipment that serviced several product families, we gave ownership to the team leader who used that equipment the most. We placed the team leaders on the shop floor next to their equipment and gave each a buyer/planner and some shop floor engineers. They also owned our five operational excellence goals and reported their progress on these goals once per week to my senior management team and me. We focused the whole company on these five targets.
When you start aggressive kaizen activity, attack the biggest problems/opportunities first.
The next step is to start aggressive kaizen activity, which will enable you to improve your processes while getting every employee on a kaizen team as soon as possible for the necessary hands-on training. When doing so, attack the biggest problems/opportunities first. Don’t start in some out-of-the-way place. For example, go after your biggest, most important product first; doing so will show your team you are serious and get you the most gains. If you are machine-based, then a significant focus of your early kaizen efforts should be setup reduction. You can’t have flow and short lead times if you have two- to three-hour setups. In fact, my rule of thumb early on is that for every four kaizens, two should be for setup reduction, one to create a flow line, and one for the office.
The aggressive kaizens will shake things up on the shop floor. Machines will be moving everywhere as you eliminate functional departments and create flow lines in the product family teams. Kaizen will be the major tool to change your culture to lean as all of your associates get to participate and contribute their ideas on how to remove the waste. During this activity, remember to drive several vital principles:
Early on, tell your suppliers that they will need to deliver daily (or as close to that as possible) for you to continue buying from them. You will probably hear from your suppliers that they can’t do that. All of our suppliers indeed said that. Even so, to cut the lead times to your customers and reduce the amount of inventory that you carry, you will need to get there eventually. At Wiremold, for example, we went from having four months of steel stock on hand to two days’ worth, even though our supplier was 300 miles away and we were getting six to eight truckloads of steel daily.
Change Your Accounting System From the Start
You will also need to change your accounting system from the traditional standard cost approach to lean accounting. Standard cost accounting incentivizes everything you are trying to get rid of with lean, is expensive, and gives you poor information on which to make decisions. The same is true for your sales approach, which you will need to align with the flow and level loading on the shop floor. No more big batch orders. When I got to Wiremold, one of my first questions was, “What percent of our shipments ship in the last week of the month?” The answer was 50%. Yikes! Obviously, we couldn’t level load the plant and build to customer demand (the lean ideal of “sell one, make one”) if 50% had to ship in the last week. It turned out that our own sales terms were incentivizing that behavior. So we changed the terms of the sale and solved the problem.
You must commit to becoming a lean expert yourself.
I realize that this may sound like a lot of work. That is because it is. Changing a company’s operating approach, philosophy, and culture is no small undertaking. As CEO, you will be very busy as you have to be the hands-on leader and leading lean zealot to have any chance of success. That means being on week-long kaizen teams yourself. I would suggest that you participate in 12 week-long kaizens during the first year. I know you are busy, so where will you find the time? In this case, you can’t afford not to participate personally, as the gains you will get are so substantial they will dwarf what you might get from any other use of your time.
You have no choice but to commit to becoming a lean expert yourself. Otherwise, how can you lead a lean turnaround? To give you a feel for the opportunity, at Wiremold, we more than quadrupled sales, reduced our lead times from four to six weeks to one to two days, gained 13 points of gross margin, grew inventory turns from 3x to 18x, boosted EBITDA from 6% to 21%, and grew enterprise value just under 2,500% in just under 10 years. I’m sure you can do even better. Have fun along the way!
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