Excellent question. Lean is about 180 degrees opposite to the traditional management approach and calls for a completely different approach to succeed. Unfortunately, most companies see lean as “a cost reduction program” that they can just delegate down in their existing structure, and so the necessary management changes never occur; and so, while some gains are made, most companies get stuck in what we could call the “tools stage” and never become complete lean enterprises.
Let me share what, in my experience, I believe to be the most significant steps that management needs to take to further a lean turnaround. Some of these are physical changes, and some are more mental, or philosophical. All of them are almost the exact opposite of the way traditional management is practiced today.
Lean thinking requires a totally different mindset than traditional management. This is probably the most significant reason that companies fail to make the lean leap. Succeeding at lean requires the leadership team to be fully committed to three key beliefs, which I call the “management musts”:
- LEAN IS THE STRATEGY. This doesn’t mean that a lean company doesn’t pursue the same broad strategies of a traditional company like developing new products, pursuing new markets, conducting acquisitions and the like. Rather, it is an acknowledgement that the lean company’s primary focus is to remove the waste from its own operations so that it can deliver more value to its customers than its competitors. Removing the waste always shortens the time it takes to do anything, along with freeing up lots of extra capacity. Lean is therefore a time-based growth strategy that provides significant advantages. For example, the lean company can reduce its lead time from an industry average of 6-8 weeks down to 1-2 days. Its costs will also be lower and its quality much better. Removing waste from the company’s daily work doesn’t preclude it from implementing the same type of strategies as the traditional company; it just allows them to do this quicker and more efficiently.
- LEAD FROM THE TOP. Lean is easy to say or explain, but hard to do. It requires leaders to lead, and not just issue orders in the “command and control” mode of the traditional company. This is best exemplified by management being very hands on and participating in as many kaizen events as they can. My rule of thumb is that the entire senior management team needs to commit to being on 5-6 full week kaizen teams per year. The company’s lean zealot needs to be the Owner/CEO. All the senior management team needs to commit to becoming lean experts.
- TRANSFORM THE PEOPLE. The only asset that any company has that can appreciate is its people. Management needs to understand this and be committed to making it happen. The best ideas of how to remove the waste will always come from the people doing the work. Listen to these people, support them and get them engaged in as many kaizens as possible. Lean can only be successful if everyone is participating in removing the waste. We always made sure our kaizen teams consisted of half hourly and half salaried associates. Your people will surprise you if you give them a chance. Oh, and because they will create most of the gains, make sure you reward them with some form of profit sharing program.
DRIVE THE LEAN FUNDAMENTALS
Management needs to understand that all you are trying to do is implement the lean fundamentals in every part of the company, not just the shop floor. The list is short so it shouldn’t be that hard and the results will be profound.
ONE PIECE FLOW
If management just asks if everything is running to takt time every day, is produced in a one-piece-flow, follows standard work and has pull systems in place from your suppliers to your customers, you will be going in the right direction. It won’t happen overnight but when you get to the point where the answers to all of these questions every day is yes you will be making great progress.
Now the hard part. Traditional companies are for the most part organized both physically and by management structure into functional departments by equipment type. I think this is the result of traditional thinking about economies of scale and economic order quantities (i.e. lot sizes). This causes several significant problems and bakes in a tremendous amount of waste. For example, parts have to travel long distances through multiple departments to become a finished product. This results in most traditionally organized companies having between 25-40% more people than they need. It also results in long lead times.
Most workers don’t make a finished product, just components. They never see of feel the actual customer on the shop floor. In fact, the MRP systems commonly used in this environment specifically separate the customer from the workers and ask them to just “make the forecast.” Because of the long lead time “the forecast” is almost always wrong causing lots of scrambling and extra cost to satisfy the customer. Lay on top of this standard cost accounting that incentivizes the building of inventory and making absorption hours even when there is no demand, and you have a huge mess.
For the lean company, management must get rid of this traditional structure and reorganize by value streams to have any chance of creating flow or pull. This is a major step. First of all, in creating the value stream organization who will be the value stream leaders? The traditional foremen in functional departments are not always up to this task as you are in effect creating small businesses where the value stream leader has to interact all the way from the suppliers to the customer. Even after you pick the value stream leaders, the next step will require moving almost every piece of equipment so that each value stream leader has control of all the equipment needed to make his/her product family from raw material to the customer—no excuses. Just the thought of this is enough to stop most traditional managers in their tracks. They will want to do lean but stick with the traditional functional departments. Impossible!
Creating the value stream structure is a major step towards becoming a lean enterprise. Now the bulk of your employees are aligned by product family and make the product from raw material to in the box and out the door. This allows you to bring the customer right to the shop floor so that everyone can feel their presence and know they are responding to their demand and not just making to a forecast where much of what is built might not actually get sold for six months, or even longer if the forecast was wrong. At Wiremold every SKU had a set kanban quantity. As orders came in throughout the day, once a product had enough orders for a new kanban it would print on the shop floor right next to the cell that made that product and would be made shortly afterward. The customer was present on the shop floor and everyone knew it and felt the pressure.
MANAGE TO YOUR OPERATIONAL EXCELLENCE GOALS
Creating a value stream organization is a significant step, but you can’t really take advantage of it if you don’t take the next step and manage the company to your operational excellence goals. These are the goals that you set as you start your lean turnaround that when achieved should drastically alter your ability to compete and deliver value to your customers. They shouldn’t be the type of “results oriented” goals set by most traditional companies like “increase gross margin by 0.5%”, or “grow sales by 3% per year.” Rather they should be aspirational targets focused on controllable things that, as and when achieved, will result in (and in fact surpass) the type of financial goals that most traditional companies set.
As an example, at Wiremold our targets were;
100% on time customer service
50% reduction in defects (each year)
20% productivity gain (each year)
20x inventory turns
Visual control and 5S everywhere
These were generic type goals as they fit and will work for every manufacturing company, and with slight alterations, most other type of companies. We did 21 acquisitions in roughly 9 years and were able to drop the goals on almost every new company on day one. They were aspirational in that, for example, when we set them we were turning inventory 3x and no one believed the rest of them were possible either. In fact if you announce your operational excellence goals and everyone doesn’t say, “are you nuts, these are crazy” then you haven’t set them high enough. But having them is not enough; you have to actually manage the company on a day-to-day basis to achieve them. This is what will change your future results. It means you are managing forward towards where you want to be, and not backwards to where you have been.
Most traditional companies do just the opposite. They run the company to “make the month.” Three weeks later they close the books and then spend 3-4 days analyzing last months results. This is looking backwards at something that already happened. You are trying to do the same thing over and over and somehow expect better results. This will never happen as your future results will only be as good as your current processes allow. Better future results will only occur if you change your processes which of course is the whole focus of the operational excellence goals.
The real leverage here comes from combining the value stream organization with managing to the operational excellence goals. What we did was to assign these goals to the value stream managers. We then reviewed them once a week (once every two weeks after several years) with all the value stream managers and the entire senior staff present. Each VS manager had 10 minutes to present how they were doing against these goals as well as the steps they were going to take next week to get closer to them. This is dramatic change. We now had everyone in the company totally focused on these operational excellence goals which in effect was our path forward to becoming a lean enterprise. Sure, we closed the books every month just like anyone else (we got it down under five days) but we no longer held big month end financial reviews we just drove the operational excellence goals. This created tremendous alignment and leverage for us.
Becoming a lean enterprise is a lot of work and takes time. Unless you change the way management behaves, however, you have almost no chance of getting there. The three “management musts”, lean is the strategy, lead from the top and transform the people must be understood up front and put in place. Driving the lean fundamentals—work to takt time, one piece flow, standard work and pull—must be the daily work of management. Making all this happen depends on on changing to a value stream organization right up front, setting stretch operational excellence goals and then managing to these goals on a weekly basis. The leverage from these last two steps is hard to overstate.