Dear Gemba Coach,
Our company produces custom products that cannot be easily forecast in terms of when they will be ordered, and in what format. How can a company facing high-mix, low-volume, and unstable demand establish a production system that uses takt time?
Recently I discussed this type of problem with CEO John Bouthillon, who has turned around his construction company (building or renovating apartment blocks) by thoughtfully adopting core principles of lean thinking when facing low prices and high instability. In the past four years, he’s achieved double-digit growth, more than doubled his cash and steadily improved his profitability. I asked him what, of all the lean concepts he has worked with, has made the biggest impact on his business. His immediate answer was leveling.
A construction business is the epitome of high-mix (every project is a one off), low- volume (the company makes between 15 to 20 projects per year) and very unstable demand as no one know where or when the next project will come from. So how can takt time apply in such a context? Why would leveling be so important?
Profits by Problem Solving
The basic idea of takt time thinking isn’t that hard to apply. There are 52 weeks in the year, and if the company makes 17 projects, it needs to deliver one project every three weeks. From the gemba however, this is not quite that simple. No two projects are alike. Some are large, some are small. Some are simple, some complex. Furthermore, projects that appear on the firm’s horizon can change dramatically from the time that competitive bids are put out to the actual demands of the project once launched. Everything changes all the time.
When John took over the company, the general wisdom was to bid for every project opportunity, add a standard margin to the estimated cost. Fluctuations in cost were partly mitigated by churning through employees as needed: Just poach site managers from competitors, hire on more temporary labor and off you go to build the condominium.
John started his lean transformation by asking his managers to focus on safety and orderliness on the construction site. Previously, when people hit a snag they were likely to put it aside and keep on working in order to keep on schedule. But this approach would eventually prove costly, as problems would add up, multiply, and require such systemic workarounds that there numerous and costly dramas. And so John worked with his managers on a policy of solving problems as they appeared – a rough form of jidoka. This new tack delivered unexpectedly large bottom line benefits. But the practice created a new problem.
Instilling a problems first policy revealed both the value—and the cost—of having well-trained workers. It became apparent that there was a big correlation between the ability of the site manager and his team at solving problems, and the profitability of their project. But this profit came at a cost—an investment in the training of people in problem solving. Competent workers become a critical resource; which meant that simply hiring individuals from competing firms would not do. The company needed employees who could adopt the problems solving approach – if at all. This took time and investment.
And so the company found that the success of projects was directly related to competent resource availability. Mura creates muri, which creates muda. Too many new projects at the same time and the management team is overburdened and can’t properly solve problems. Too few and they grow restless and look for opportunities elsewhere (remember larger competitors know this firm trains its people well, so they have a tendency to poach). Maintaining a steady flow or activity became essential – hence the leveling. Developing people by developing their autonomy in problem solving has become a very practical issue for John, and the acknowledged key to sustainable profitability.
Controlling Lead Time
The problem of leveling something as unpredictable as a low-volume high-mix sales landscape remained. John started working with his sales director to bid for work according to the leveled plan first over one year, then over two. This meant shifting from grabbing every possible option to stretching their time horizon in order to bring in work when you need it.
The second large issue beyond order intake is lead-time control for every construction project. Increasingly, a building must be finished at a set date because the management resources are scheduled to start the next one at a certain date. Given the large nature of these projects, and the huge amount of resources and logistics involved, hitting these dates are critical. One to two months late, which tend to be the norm in this business, can no longer be shrugged off. Consequently, after safety and then quality, John is now focusing his firm on lead-time control – which has uncovered many other new problems.
And yet, the results are clear. In John’s mind, the effort of leveling a business that, by nature, seems intractable to takt time is exactly what shines a new light on how business is done and highlights opportunities for progress. This is the wider point beyond construction. As long as Henry Ford produced black Ford Model T’s, he had no real need for takt time: all parts built would be assembled and sold, eventually. His only concern was flow, not pull. Toyota opened a different path long ago when it rejected dedicated lines for new models or complex options, bringing a higher mix to its own lines instead (as well as fairly small volume in the early days).
In one of his early visits to Toyota plants, back in the 1980s, my father (and co-author of The Gold Mine and The Lean Manager) was struck by the variety of vehicles assembled on the line. After careful observation, he concluded, “Ah, I see what you do. You schedule a short and a long vehicle in order to stick to the overall takt time.” “Yes, they answered, and the kanban.” He could see that if an operator had a short work content, and then a longer work content, overall he’d be keeping to takt. But why the kanban? Because, he was told, the line is also programmed in terms of options so that kanbans return the more regularly possible to withdraw on parts suppliers. Wow.
Companies that argue that their business has too little volume, with too much volatility, and too high a mix to apply takt time thinking have gotten hold of the wrong end of the stick. The point of takt time thinking is to shine a new light on your operations, regardless of how variable it is, and to see how rationally you can use your resources. Whatever your product mix and volume variation, how hard can it be to average daily demand over one month, and to divide open time by this number in order to compute a takt? Anyone can do this. Now, the real question is: how can I deliver the exact product customers want 1×1 in sequence, precisely at that takt?
Be Level Headed
Make to order is probably not worse than having mass products with components made in huge batches requiring long changeovers. In the former case, the issue is dealing with work content variation, in the latter with inflexible equipment. The point is that takt time thinking is NEVER easy but ALWAYS shines a light on your worst waste, particularly in terms of capital expenditure.
There is no set answer to your question other than a commitment to learn about how to keep takt. On the one hand, we definitely want to make products in the sequence in which customers ask for them – no debate. On the other, we also want to stick to takt time, or at least aim for it. These two aims are not always convergent, but we know that the least wasteful way to produce is somewhere in the overlap between these two regions. The answer is: stick to your guns and explore until you figure out how to level better and better.
And, by the way, it never gets any easier. Toyota has been leveling for longer than any one else in industry. It has sophisticated systems to trade-off car allocations by dealership and markets and level the factory workload. It lives and breathes all of this. And still, the great recession revealed it had let its inventory of finished cars creep up over the year and got caught with its corporate pants down just like anyone else when the bottom fell out of the market. Leveling is no easier for Toyota. Plants are not built fully flexible: first they master a vehicle (quality wise), then they tackle a second, and progressively they’re brought to greater flexibility. It’s hard work.
But that’s EXACTLY what lean work is: don’t adapt lean to your company, find sensible ways to adapt your company to lean instead. Regardless of what you make, calculate takt for your products, calculate takt for your main components, and scratch your head until you see how your own policies create stop-and-go, overburden and, hence, waste. There is no lean thinking without takt time thinking.