Lean Manufacturing Topic of the Day: The High Cost of Complexity

We were dealing with a large, integrated, steel mill when we put together the following presentation for their management team.  It discusses, via example, the tremendous cost, quality, and delivery burden caused by complexity, as well as how “Lean Manufacturing” principles and techniques greatly simplify such an environment.

While the illustration below specifically targets the complexities found in the metal producing industries, I believe you’ll find most aspects are applicable in every industry that is not already operating at a World Class level.

First, let’s define what it is that we call “Operating Complexity.”

So what’s the big deal?  What kinds of issues does this “operating complexity” cause?

To help demonstrate these issues, we decided to use a simple bicycle manufacturing example.  We will ask you, as we did the steel company’s management team, to put together a production schedule for this simple bicycle operation.  The following slides describe their current situation.

How often does your forecast disagree with actual demand?  How often does this “disagreement” occur within your quoted lead time?

While it might be helpful to attempt to improve your forecasts, the real gains come from shortening your response times and attaining near perfect delivery performance.

First, we’ll want to see if the items in finished goods are of the varieties requested by our customer.   These will be netted from gross requirements, at the appropriate levels of the bill of material, via standard MRP logic.

Note how “held” material, with no disposition, causes uncertainty.   If you assume that it WILL be available, you risk a missed delivery.   If you assume it WILL NOT be available, you risk excess inventory.

One of our standard objectives is to get all “held” material dispositioned within hours of an occurance.   Your scheduling people MUST know whether to count on this product, or plan to start more.

And what about those two past due tires?   Can you count on them?   And if so, when?   Schedules lose their value if you can’t count on their religious execution.

Note that ALL of these lead times appear to be excessive.  A fundamental objective of a Lean Manufacturing transition is to cut all lead times so as to approach the sum of “value adding” activities.

In this example, it would be difficult to justify more than one day per function, and it would seem reasonable to push for a one day TOTAL cumulative lead time!

Significant complexity, as well as extended lead times, are caused by unmatched operating schedules, i.e. different “available hours.”   Needless to say, such unmatched operating hours cause inventory build-ups throughout the manufacturing process.

Large “planned maintenance” periods further complicate scheduling as well as force a build-up of inventory prior to the planned shut-down.   Modularizing and cascading planned maintenance are techniques we’ve developed to overcome this issue.

Similarly, large, uneven, batch size requirements further complicate scheduling while adding to the inventory burden at all levels.  Aggressive efforts to cut all lot sizes, and their associated set-up / change-over costs are required.

We have found that most lot sizes are currently too large, even with their existing high change-over costs, when one considers the true costs of complexity that they impose on the organization.

We see this quite often.  Different operating “efficiency” rules for each machine / department (they’re called “campaign rules” in some industries).  It is caused by an objective to “optimize” each operating unit.  But unit optimization does NOT optimize the “whole.”   In fact, attempting to optimize the individual operations almost always SUB-OPTIMIZES the “whole” total process.

So, how did you do?   Do you have an operating schedule?

Does it REALLY need to be this complex?

Operating complexity adversely effects production and overhead costs.   And it dramatically effects customer service by extending lead times and degrading on-time delivery performance.

No one will disagree that complexity costs us money.  Yet most companies treat complexity like it is a non-issue.  This is particularly true when evaluating alternatives.

Lean Manufacturing FORCES simplicity.

Lean Manufacturing philosophy and techniques challenge all lot sizes, and seeks to minimize lead times, allowing for more accurate requirements from your customer.

But what is the fundamental driver of complexity?

In the vast majority of cases, excess complexity is driven by management’s use of incorrect measurements and reward systems.   Remember, “What gets rewarded, gets done.”

Most companies continue to reward “Unit Optimization.”

But, does “unit optimization” optimize the whole manufacturing process?

The answer is an almost universal “NO”.   Unit optimization quite often dramatically sub-optimizes the total process.

To truly achieve World Class operating performance, the company’s incentive systems must be re-evaluated.   Too many Lean initiatives have come to a screeching halt due to conflicting reward systems.

In addition to aligned measurement and reward systems, people must be held accountable.

We often utilize the following simple format to keep track of the “rocks” and the commitments that have been made to resolve such problems.   On the shop floor, this type chart is simply drawn on a flip chart page for all to see (e.g. Management by Walking Around).

As my teenage daughter said, years ago:   “It’s all common sense.”

Reward the behavior that you desire.   And hold people accountable for their commitments.   It’s management 101.   How tough can this be?

In the real world, however, getting top management to revise their long held beliefs in regard to measurements and reward systems can be extremely difficult.

This is truly where a good consultant can earn his or her fee.

We’ve been helping companies make this lean transition since 1988.   And we have the grey hair to prove it!

If and when you should hit this “wall”, give us a call.   There is no charge for a phone conversation, and we’ll do what ever we can to be helpful.

Good luck on your lean manufacturing journey.

PS: For additional explanation and illustration on these topics, we would suggest that you peruse our articles “How to Optimize Your Entire Plant”, and “How to Attain Near-Perfect On-Time Delivery Performance”.
You will also need the flexibility to adjust capacity as required.
I think you’ll find them helpful.

NOTE:   If you are less than thrilled with your Lean Manufacturing results to date, you might want to check out our “Lean Bench Marking” article.   This is what you SHOULD EXPECT in the first 9-12 months!