Top Management Implications
What Is Lean Manufacturing?
While there are a whole set of techniques and related disciplines, the general concept of “Lean” is that of continuous product flow, without interruption, through the entire value stream. Inventory is seen as an equivalent to cycle time (the more inventory, the longer any one item must wait for “its turn”). An underlying philosophy is that the reduction of cycle times and inventories will force waste to be exposed, and create the urgency for its elimination (see the classical “water & rocks” analogy on the back cover).
Waste is re-defined as “anything that does not add value… from the customer’s perspective”.
The results of a successful transformation to this powerful operating philosophy can be staggering. Huge reductions in inventory and cycle times. Order of magnitude improvements in quality. Dramatic productivity gains.
Now is the time to begin your journey to World Class!
Top Management Implications
The philosophy, mechanics, and tremendous outcomes of “Lean Manufacturing” are well documented.
What isn’t well documented are the subtleties, the “implications”, and their impact on top management.
Since 1988, we’ve worked with over 100 manufacturing and distribution companies, in a myriad of industries. In a significant percentage of these companies, a common set of top management issues continued to pop up. These are the major management inhibitors, the “gotcha’s” that you will likely encounter. Additionally, some management “tricks” and tools were discovered. These will also be included for your consideration.
It is the purpose of this booklet to forewarn you, as well as provide you with some recommended solutions.
Profit Impact: The transition to Lean Manufacturing has a significant positive impact on long term corporate profitability.
However, during the initial stages of conversion to World Class practices, major reductions occur in inventories. These inventory changes are what cause the anomaly in accounting profits. The profit impact is typically negative.
The aberration is caused by labor variance, and the associated absorption of overhead (to reduce inventory you must, for some period of time, produce less than you ship). Note: while the short-term profit measurement may look worse, overall company well-being is substantially enhanced! Cash flow is up, often dramatically, and major inroads are being made in customer service, product quality, and costs. A proforma should be done by the CFO to quantify the impact, and get buy-in at the onset.
Note: Occasionally companies experience an artificial profit increase due to exposed FIFI or LIFO layers.
Performance Measurements: People will perform so as to maximize their measurement. Most traditional measurements encourage the wrong behavior. This is particularly true when attempting to transition to World-Class practices. Volume related measurements encourage the production of “something” whether it is needed or not!
“Performance against standard” can be totally misleading, particularly if the standards are “adjusted” (doing so can destroy the baseline for comparison).
Another issue is the appropriateness of the measurement for the person or group being measured, (e.g. holding manufacturing accountable for shipping to a sales plan, regardless of whether or not the plan was actually sold!).
What measurements SHOULD we be emphasizing? The key drivers for a World Class operation, are Inventory/Lead Time (minimize), and On-Time Delivery performance (maximize).
Optimize the Whole: Another measurement problem is the traditional focus on optimizing each operation, instead of the total plant. To optimize the “whole” we will typically, at least temporarily, sub-optimize some of the “pieces”. Expect it! Note that bottleneck operations must be treated differently than non-bottleneck operations. Since in-process inventory levels correlate directly with cycle time through the factory, WIP must be minimized. Since you’ll want some “just-in-case” inventory in front of the bottlenecks, little or no inventory can be allowed in front of non-bottleneck operations. The net effect is that some of the departmental measurements will look worse, while at the same time, the overall company measurements improve.
Accountability: Operating “Lean” increases the need for clear responsibilities. Action items, with realistic internal promise dates, will be required to achieve the established goal curves. People must be held accountable to achieving these promises. Continually ask “Who?” “By when?” Once a reasonable commitment is made, the focus must switch to “How to achieve the date”, not “If it will be accomplished”!
Idle Time and Overtime: By linking manufacturing steps together through kanbans (the pull system), the production process begins to take on the characteristics of an assembly line. And, as in any assembly line, when any manufacturing step shuts down, all operations shut down. Since the schedule must be met, every shift, each hour of idle time will typically demand an hour of overtime to recover. Avoid the temptation to “just work the one area over” and let the rest of the operations go home. Inventory will quickly refill the plant, and lead times will balloon!
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