Achieving Rapid Business Success With Lean Thinking: A Holistic Systems Approach
Anil Menawat & Adam Garfein
Menawat & Co.
October, 2009
Lean success, as enjoyed by Toyota Motor Co, has eluded most Western companies. Recent studies have documented and identified various causes for this abject failure. In this e-article, we analyze the situation and propose six attributes necessary to achieve success. We further describe Profit Mapping methodology that incorporates the six attributes and provides a holistic and systematic way to rapidly achieve success with lean.
Table of Contents*
Introduction
The Lean Principle
Current State of Lean Implementations
The Sensei
Lost in Translation: Trouble in the West
Gap Between Lean Implementations and Business Success
Focusing Solutions on Business Results
The "Forgotten" Pillar of Lean
The Mystery of Jidoka
Tools for Solving Business Problems
Lean Thinking with a Systems Approach
Systems Approach Principles for Lean Thinking
1. Focus on a Strategic Business Unit and its Goals
2. Measure Value and Define Course of Action through SBU Goals
3. Find and Eliminate Appropriate Waste
4. Make Decisions with Quantitative Analysis at Rapid Speed
5. Use a Systematic Methodology
6. Nurture People to Sustain and Regenerate Knowledge
Designing a Systems Approach to Succeed
Profit Mapping: A Holistic Systems Approach
Focused on Business Goals
Rapid Quantitative Dynamic Analysis
Embedded Analytical Technologies
*References included in the article are available for download.
Introduction
All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect cash. And we are reducing that time line by removing the non-value-added wastes.
- Taiichi Ohno, Founder of Toyota Production System (1988)*
Lean evolved from the manufacturing philosophy called the Toyota Production System (TPS). Today it is widely used in manufacturing as well as service sectors to improve business performance. The cornerstone of lean is the elimination of waste from processes with a mindset of continuous improvement.
Although many companies have benefited greatly from lean implementations, there is growing dissatisfaction among many executives. The problem, as it often occurs with any business philosophy over time, lies in dogmatic adherence to the tools without a deeper understanding of the underlying principles. If your only tool is a hammer, then every problem looks like a nail. On the other hand, when lean principles are your guide, then every challenge is an opportunity to apply the right thinking, solution approach, and corresponding tools.
In this article, we provide a foundation with methods and tools to deploy lean based on holistic systems thinking. We analyze the reasons behind the executive dissatisfaction and present a solution with the following five attributes:
1. Focus on a Strategic Business Unit (SBU) and its goals
2. Measure value and define course of action through SBU goals
3. Find and eliminate appropriate waste
4. Make decisions with quantitative dynamic analysis at rapid speed
5. Use a systematic methodology consistent with lean principles
6. Nurture people to sustain and regenerate knowledge
Using a systems framework ensures that lean solutions contribute directly to the business goals. The systems approach to lean is intended for progressive middle and senior managers who believe they should get better business results with lean. Many such managers have experienced disappointment due to flawed deployments that did not create business value in the past. With a systems approach executives gain insight to improve their success with investments in lean initiatives and programs. Lean practitioners benefit from renewed emphasis on the business context of their efforts. Systems thinking facilitates more balanced and effective collaboration among executives and practitioners in targeting, prioritizing, and executing their efforts for maximum business impact.
The Lean Principle
Lean is the pursuit of greater operational performance by elimination of waste throughout the organization. The benefits include:
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Reduced lead times
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Improved delivery performance
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Shorter order-to-cash cycle
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Increased sales revenue
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Increased profits
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Lower operating costs
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Reduction in inventory (greater inventory turns)
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Improved customer satisfaction
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Enhanced supplier relationships
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Greater employee morale and retention
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Improved product and service quality
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Reduced physical space requirement
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Availability of additional working capital
Lean is a process, a continuous journey, with renewable goals; it is not a destination. Once you achieve your current targets, it begins all over again with new ones. It never ends because you can always make it better. The journey to achieve higher efficiency, greater waste reduction, and ongoing continuous improvement is, however, daunting. Lean is doing more with less. That means achieving more using fewer resources-people, machine, material, capital, etc. And, doing only those activities that are essential to satisfy customer orders, and doing them well.
Although often confused as a collection of tools, lean is a way of thinking about all aspects of business. Despite its origin in manufacturing, lean principles apply to the whole enterprise. Often along the way, when lean is implemented properly, most organizations change their thinking about their business practices. It brings the whole business into the focus from customer order to receiving payment.
Current State of Lean Implementations
Major elements of lean derive from the Toyota Product System (TPS), which is Toyota's unique approach to manufacturing. The works of W. Edwards Demming and Henry Ford heavily influenced the thinking behind TPS. Lean methods and other improvement techniques, such as Six Sigma, total quality management, and theory of constraints, have dominated manufacturing trends in the United States since the 1980s. Lean is the most commonly used approach. Many of these practices have now expanded beyond manufacturing into other business functions to create lean enterprises.
The Sensei
True to its Asian roots, Toyota deployed TPS through the grand masters and teachers (the sensei), and benefited from their wisdom. They placed emphasis on using appropriate principles and selecting the corresponding tools to identify and eliminate waste to improve business performance. The presence of sensei repressed the need for a step-by-step instructions or a roadmap to implement the advanced thinking behind the concepts. The sensei's acumen for solving business problems, in essence, served as the de facto methodology for an effective deployment. Such highly personal connections, however, made it difficult to transfer the knowledge to other practitioners without proper organizational "culture" and apprenticeship under the masters. Miscommunication and misunderstanding of the complex ideas therefore reigned unbounded over time.
Lost in Translation: Trouble in the West
The Industry Week/MPI Group Manufacturing 2007 study found that a majority (54%) of plants are following some version of lean for improvement methods; over a quarter (27%) are using other approaches. In the 2009/2010 survey the percent of plants using a variation of lean jumps to 90%.
Despite such wide-spread uses of lean only 27.5% claim to have made significant progress towards or have fully achieved world-class status. The percentage is slightly better (36.9%) in 2009 as seen in Figure 1. Both studies find only 2% achieving world-class lean status. This equates to over half of all plants having problems with lean; a pretty dismal report card indeed.
Figure 1: Progress towards achieving world-class status.
Aberdeen Group also found that 90% of manufacturers polled report their commitment to lean. But they conclude that less than 20% of those companies can be considered best-in-class. Given the strategic value of lean, why are so many companies unable to succeed?
Another telling survey conducted by Industry Directions reflects the popularity of lean, with the majority of respondents (84%) reporting their organizations were currently pursuing or planning lean initiatives. Yet, despite its popularity, the report concludes that
"Lean practices do not appear to be well understood by many companies currently pursuing Lean initiatives. As a result, no single Lean practice is in wide use by a majority of respondents. Even among those who have declared that they have a Lean initiative in place, only two practices are in wide use by half or more of respondents."
As many organizations are painfully aware, a process-oriented tools-based approach to lean has had limited success. The report highlights a common lean "trap" where initiatives are a minor set of disconnected process changes that do not produce real business value. Although the opportunities exist for lean to help guide true strategic change across operations and company culture, the lack of a truly systematic approach dooms most initiatives.
Most organizations often define lean through its tools like 5s, Kaizen, Value Stream Mapping, etc. Over 50 such tools exist with new ones emerging all the time, but only a few are in everyday use. Moreover, commonly deployed tools primarily focus on improving process efficiency. The implementations are often dogmatic without a clear understanding of the business context in play.
Many other studies have found similar results. Are such studies an indictment of lean? Although based on such reports one could easily conclude that lean is a failure, but its successes are undeniable since some of the companies are seeing success. The accomplishments of Toyota Motors are indubitable proof. Hence, a disconnection exists between the ideals ascribed by Toyota and the realities of lean deployment in other companies.
Gap Between Lean Implementations and Business Success
TPS starting point: How will you (a) achieve customer satisfaction, (b) obtain a profit, and (c) develop people?
-Art Smalley, Veteran of Toyota Motor Corporation
Contemporary lean applications have deviated from the original goal of focusing on business performance as set out by Toyota. Writings by Taiichi Ohno and Shigeo Shingo, two pioneers of TPS, and many other Toyota veterans clearly suggest a more holistic view of lean. Their vision is different from what is currently practiced by many in Western countries.
Focusing Solutions on Business Results
Art Smalley, a veteran of Toyota Motors, analyzed the reasons for the gap between lean implementations and business results. He concluded:
There is a decided over-emphasis in the west on simply using the tools of TPS. More attention needs to be applied on solving systemic manufacturing problems that will generate business results.
Toyota developed TPS to compete in the automotive market. In the early days, Toyota being a smaller company lacked market share enjoyed by the larger American auto makers. Toyota's challenge was to build quality automobiles that Western, particularly American, buyers would buy, while selling at a lower price to compete. In order to stay profitable, Toyota needed a lower cost of manufacturing. Smaller volume made it difficult to build dedicated high speed factories where the capital and other fixed cost could be absorbed by greater output. They had no choice but to develop smaller and more flexible operations. They needed processes that would make them cost-competitive even at the smaller volumes.
Toyota managers focus on finding solutions that lead to business results. They create temporary responses called "countermeasures" such as Kanbans and Andon Cords for process issues until they can devise a more robust and permanent "solution" . Unfortunately, Western visitors misunderstood the countermeasures as solutions. They brought that knowledge with them, and worked diligently to replicate it not realizing that it may not produce desirable business results.
Similarly, many Westerners believe that TPS demands zero inventories. Yes, that would be ideal but, yet again, Toyota builds inventories as a countermeasure for certain circumstances such as unpredictable downtimes, time-consuming setups, and volatility in mix and volume of customer demand . Because these inventories are countermeasures they keep the same type of products in several cause-specific inventories without pooling them together. This in Western view of lean would be a clear aberration of a system that abhors waste. But, from Toyota's perspective it gives them a better visibility into a cause and its countermeasure. The lack of visibility would make it difficult to develop a permanent solution.
Managers at Toyota understood, as Art Smalley aptly states, that
... in most companies manufacturing cost is affected more by quality, or more precisely poor quality, and low equipment availability than inventory.
The "Forgotten" Pillar of Lean
Figure 2 depicts the Toyota Production System House as presented by Fujio Cho in 1970s, who later became the president and CEO of the company. It comprises of two pillars - Just-In-Time (JIT) and Jidoka. The former pillar is the more commonly known one; it focuses on flow and inventories. Toyota designed the pillar of Jidoka to build quality in processes and to solve the quality and equipment availability issues.
Figure 2: The House of Toyota Production System
Once the quality is established and the machine breakdowns are properly controlled, the focus shifts to leveling the flow of value across the process. Toyota recognized that the success of JIT depended on incoming quality and preventing losses due to downtime and defects. Toyota used the measurements in TPS to drive their operations not only in manufacturing but in all aspects of business.
In 1980s TPS was known as a JIT or Kanban system in the United States and Europe. Kanban is a technique for the pull system for operational management. The Western overemphasis on JIT thinking ignores Jidoka, which is the more complex and mysterious component of TPS. Even the word Jidoka is baffling in its origin and meaning.
Toyota shares TPS generously with others. The Toyota Supplier Support Center teaches TPS to non-Toyota personnel. They work primarily with Toyota suppliers dealing with material and logistical issues, which are the JIT concepts. A supplier's ability to deliver parts as and when needed is of great interest to Toyota. Consequently, most that is written and talked about TPS is about JIT with lesser attention on Jidoka. A simple Internet search amply proves this. According to Art Smalley, the Jidoka methods and tools are tightly controlled by Toyota in Japan and rarely discussed in the public forums.
The Mystery of Jidoka
Jidoka is a much harder and a more technical aspect of TPS. Unlike JIT, it is not based on simplistic visualization tools. It requires a great deal of complex analysis and interpretation to develop the cause and effect relationships of performance. Validation of the correct relationship followed by devising a viable solution is highly critical to the success. Only a well trained, knowledgeable and experienced sensei is appropriately suited for this challenge.
Several potential solutions usually emerge from the analysis, which further require discernment to select the "correct" one to implement. It is a slow and tedious task of deliberation even for a sensei. Once the winning solution emerges then the deployment occurs rapidly-the trait for which Toyota is famous.
As highlighted in the above research, dissatisfied organizations deployed only JIT tools. For the most part they ignored the Jidoka side of the TPS house. Thus, they did not eliminate the root cause of the problems but only addressed the obvious, low hanging fruit. Efforts did not insure proper alignment of the operational and financial results to the business goals, which is the "roof" of the TPS house.
Tools for Solving Business Problems
Instead of understanding the business problem first and then selecting the appropriate tool(s) for the job, as a sensei would have done, these companies only used the JIT tools they knew. Using and tracking these tools became the business goal.
In most instances they used the wrong tool for the challenge. They didn't truly understand the relationship between the problem and the business value they sought. They expected that using a lean tool would yield business benefits. A lack of systematic methodology to articulate the business problem and its implications throughout the organization, and incorrect selection of the appropriate tools to analyze and resolve the situation led to this failure.
Lean Thinking With a Systems Approach
The key to [the] Toyota Way and what makes Toyota stand out is not any of the individual elements. But what is important is having all the elements together as a system. It must be practiced every day in a very consistent manner - not in spurts.
- Fujio Cho, President of Toyota Motor Corporation
The goal for every company is to deliver quality products and services that their customers want, when they want, and at an affordable price. This is the simple guiding principle central to lean thinking. It is to create a flow of value for the customer from the beginning to the end, not just in the manufacturing or the service delivery process. It begins from the customer order to delivery and support-the whole interconnected system.
In order for the system to function properly every aspect of a business must work together in perfect harmony, not just the main or most visible processes. The whole business must behave in unison as a system in an orderly and connected totality. As discussed above, the failure in achieving success with lean, results from isolated and disconnected implementations of lean tools. When the tools are the focus instead of the business, and are applied to the main processes only, the tools cannot deliver unambiguous business value. In order to achieve success with lean, the importance must shift away from individual tools and main processes to the overall business practices.
Although, the fundamental concepts of lean do not change, a systems view of lean requires an alternative perspective for analysis and implementation. A holistic view demands overall business improvement rather than isolated gains such as an increase in process efficiency. The "rule of thumb" that "process efficiency improvement results in better business performance," is not always true. With a systems approach to lean, the emphasis, the methods, and the metrics of success, therefore, are a little different.
Systems Approach Principles for Lean Thinking
The true "DNA" of Toyota is NOT the tools that we see with our eyes but the underlying principles and paradigms that shape and drive management thinking.
- John Shook, President of TWI Network, Author of Learning to See
The systems perspective of lean ensures that every improvement action enhances overall business performance instead of isolated gains only. Thinking lean with systems is an alternative view of the facts underlying the business. A systems practitioner takes a tangible approach to quantitative analysis, which is similar to a sensei reaching into his/her experience and knowledge to ensure success before deciding upon action. This approach creates a direct link between the business goals and change actions to ensure success before implementation. It transforms the burden from proving the success of an improvement after the change-a passive-aggregation attempt-to a proactive-execution of proving its value to the business beforehand. Put another way, rather than rolling out changes and then waiting for process and financial results to accrue-hopefully for the better-it demands guarantee of success in advance.
Applying lean thinking through a systems approach has the following five attributes critical for success:
1. Focus on a Strategic Business Unit (SBU) and its goals
2. Measure value and define course of action through SBU goals
3. Find and eliminate appropriate waste
4. Make decisions with quantitative analysis at rapid speed
5. Use a systematic methodology consistent with the lean principles
6. Nurture people to sustain and regenerate knowledge
1. Focus on a Strategic Business Unit and its Goals
The critical starting point for lean thinking is value.
-James Womack & Daniel Jones
Businesses succeed by proper planning, goal setting and executing towards those goals. Each level of the organization-process, department, facility, corporate-has its own respective goals. Which goals are the right ones to improve the business performance? The short answer is "all of them", but the reality is much more complex.
Customer Value Defines an SBU
Lean focuses on eliminating waste, which are non-value adding actions. In other words, actions that do not contribute to the business goals should be considered non-value adding and therefore are the correct waste to eliminate. However, both in lean concepts and in practice the term value is ambiguous. Although several authors provide guidelines, such as to define value for the whole product, from the customer's point-of-view, and so on, but systematic ways to evaluate the absolute value do not exist. The practitioners decide the meaning of value in whatever way they choose; it, therefore, depends on whom you ask.
Nevertheless, there is no quarrel about the fact that value is critical and everyone wants to improve business. Translating that into tactical and operational contexts, however, is not so easy and raises thorny questions. Questions like-does improving process efficiency always lead to financial gains? Should the focus be on improving process efficiency, throughput, cost per unit, or some similar goal? What are the correct performance indicators to use? The answers depend on the roles and responsibilities of the individuals and their current challenges.
A systems approach to holistically define and measure value, therefore, is a good starting point to overcome this confusion. A business is an interdependent collection of things, such as people, machines and policies among others, that interact with one another to form a collective whole. A business is a system of systems defined in the form of SBUs.
The purpose of an SBU is to provide products and services to customers according to its business goals. It defines a business "container" to unambiguously pursue and measure business value. Hence, the SBU plays a critical role in judging progress.
An SBU includes various aspects of business starting from customer demand, acquiring materials and supplies, producing goods and services, delivering them to customers as they desire, and doing the follow-up as needed. This is not the whole corporation, a division or even a facility. Traditional lean practitioners use a value stream as a surrogate for the business unit to describe the process and measure its efficiency. An SBU contains value streams, thus an SBU should not be confused with its value streams and, thereby, the use of a common lean tool of value stream mapping.
In a lean systems framework, the definition of an SBU is from the outside looking in, shaped by customers' perspectives of your products and their attributes. An SBU is a "virtual" concept and does not have to be constrained to any physical entity. It can transcend multiple sites, including several value streams and value chains. A company's organizational structure is irrelevant to this definition, although it may be related. In other words, an SBU incorporates all value streams and other secondary as well as supporting functions related to the products and services of interest.
If value streams share any aspects with each other then all such value streams belong to the same SBU. The interconnectedness causes the value streams to depend on each other and thus influence the business outcomes from each. The lack of value stream independence complicates the job of assigning unambiguous business value to each.
Thinking in terms of SBUs changes the perspective from an internally-focused operational view to one of delivering products and attributes that your customers value. Although the change in thinking seems subtle, it changes the way you implement lean principles. The concept of an SBU shifts management thinking from an "eliminate waste to improve business performance" to a "drive business performance by targeted waste elimination to achieve business goals" mindset. Lean thinking using a systems approach extends its important role in business improvement.
2. Measure Value and Define Course of Action through SBU Goals
Not everything that counts can be counted and not everything that can be counted counts.
- A sign hanging in Albert Einstein's office at Princeton University
Changes in measurements assess progress towards goals. Using flawed metrics can steer a company on the wrong course. Selecting the correct metrics and interpreting them appropriately are as important as measuring them properly. Interpretation of each measurement depends on the assumptions, conditions and intent behind the metric and its measurement technique. Just because something can be measured is not a good enough reason to do so; it may not be applicable in the present situation for the desired business goals. Conversely, because something is difficult to measure is also not a good reason to ignore it as it may contain the most valuable information.
Target Cost (Genka Kikaku)
Cost is always a pivotal business goal. It is important to define cost as a business driver and design a measurement system around it. Toyota and many other Japanese companies use "Target Cost" (Japanese: genka kikaku) as an important component of defining value. Target costing is a customary approach in Japanese companies since the 1960s but has not found a strong following in North America and Europe. Although difficult to measure it is critically important in creating a competitive advantage. Since the 1980s target costing has been recognized as a major factor for the superior competitive position of Japanese companies.
Target costing starts with a price believed acceptable by the customers for the products and their attributes. The managers then subtract the required profit by the company to arrive at the target cost. The manufacturer and suppliers work collaboratively as a team to achieve the target cost thereby focusing the entire value chain toward the greater goal of eliminating costly waste, excesses, and unevenness throughout.
Using activity-based planning and value chain analysis along with working backwards from the target cost in a systematic framework, the team uncovers the places where cost can be reduced and by how much. Such an approach also sets up a Kaizen plan to continually reduce cost over time based on the target cost criterion. When used properly with a systematic approach, these techniques are strong drivers for continuous improvement (Kaizen) that focus Jidoka efforts to directly improve profit.
OEE as a Management Metric
Conversely, Overall Equipment Effectiveness (OEE) is a simple measurement but is difficult to interpret properly for decision making. Tom Harada spent 35 years at Toyota where he helped start Toyota's Kamigo engine plant working with Taiichi Ohno. Taiichi Ohno was the plant manager there. The Kamigo plant was the ground-breaking site for implementing TPS. Mr. Harada responded as follows when asked about measuring OEE
No it is not a good management metric. It is a good spot analysis tool for use some times. OEE has several flaws from a practical point of view. Anytime you measure six things and multiple them together to get a number there is danger. It is better to have the six components understood and tracked individually. Otherwise you can't tell the difference between 75% OEE and 85% OEE. The former could be better if was due to the production mix and number of changeovers. The latter could have fifteen percentage points of scrap for example and be a total disaster. OEE is also based upon machine cycle time and not production line takt time so driving a higher OEE can lead to over production if you are not careful.
The challenge for any measure, as illustrated above with OEE and target cost, is that it must have a clear and useful connection with the endgame to achieve the business goals. Using a systematic approach with appropriate measurements is critical to create and sustain competitive advantage.
3. Find and Eliminate Appropriate Waste
The most dangerous kind of waste is the waste we do not recognize.
- Shigeo Shingo
Lean is all about eliminating muda, the Japanese word for waste. The selection of waste for eradication is often confusing and contentious. Taiichi Ohno defined seven types of waste in physical production. Later on others added more about product design, human creativity and other parts of business resulting in eight commonly accepted types of waste.
Despite having a defined list, one of the most difficult questions to answer is, "What is waste?" The question often brings out naïve answers. Because of the strong emphasis placed on creating value for the customer in lean thinking, two of the most common answers given are - "whatever the customer is not willing to pay for," or "anything that does not add value to the product or service." Such rote answers are ineffective because instead of clarifying the situation they create more confusion. Everyone agrees with the list, but it lacks guidance and specificity in criteria to select the most critical ones to be eliminated right now for your organization.
Finding something on the list does not necessarily mean that it is truly a "waste." For example, having some WIP in the process can enhance the flow but what is the right amount? The "correct" answer depends upon the context and business goals. Attempts to eliminate WIP without considering its impact elsewhere is a warning sign of insufficient systems thinking.
Although Ohno presented the list for physical production, these ideas are equally valid for non-production processes as well. No matter how efficient a process becomes, it will always have some waste from Ohno's list. Most practitioners classify activities into three segments - value adding, non-value adding, and non-value adding but required. The ones called non-value adding are automatically deemed waste, but is this always the case? Separating activities into the three categories requires a definition of value, which depends on the business objectives.
Eliminating waste requires either getting rid of the wasteful action altogether or devising a work around that is better than before. Hence, the business goals should dictate the waste for elimination. Waste that can have the most positive impact on the business goals should be placed at the top of the list for elimination. Therein lays the dilemma. How to find the right one(s)? The following illustrative story told by Dr. Shigeo Shingo clarifies this well.
...the slogan "eliminate waste" is posted on many plants I have visited. Once, when I saw this sign, I asked the firm's president whether all his employees were idiots. "Why do you say that?" he asked. I pointed to the slogan posted on the wall. "But isn't it good to eliminate waste?" he asked. I asked him whether the sign was on the wall because some workers would not get rid of waste even if they saw it. It seems to me that as long as someone knows something constitutes waste, he or she will get rid of it. The big problem is not noticing that something really is wasteful. The slogan posted, I told him, should be, "FIND Waste.
Eliminating all or any possible action deemed wasteful because it appears on the list, without fully understanding its implications for the business goals, can jeopardize the business. The intent of a lean through systems approach is to find the correct waste at this time, to devise a solution to eliminate it with full understanding of its implications on the business, and then to eliminate it. Eliminating the correct waste requires discipline and the proper use of tools to identify and ensure that it is indeed the most appropriate waste to be eliminated.
4. Make Decisions with Quantitative Analysis at Rapid Speed
If I had one hour to save the world I would spend fifty-five minutes defining the problem and only five minutes finding the solution.
- Albert Einstein
Before plunging into a solution, it's important to step back and invest time and effort in improving our understanding of the situation. Clearly understanding the problem is vital to achieving success. When a Toyota executive asked employees to brainstorm "ways to increase productivity" all he got was blank stares. The suggested goal was not clear to the people who were asked to develop solutions. When he rephrased the goal as finding "ways to make their lives easier," he was inundated with suggestions.
Even waste elimination must have a purpose aligned to the business goals as we discussed above. The quality of results achieved is directly proportional to the quality of the problem statement. When a problem is either partially- or ill-defined the result will be different from the expectation. Challenging the assumptions behind the solutions is vital to achieving success. A sensei assesses the situation patiently taking his/her time and evaluates all possibilities and consequences before implementation. In today's environment of global competition, systematic evaluation proves to be critical, but time is no longer a luxury we can afford.
Eliminating anything that appears on a list without ensuring that it would yield business results is, simply, wasteful. A rigorous business analysis can insure desired gains, without creating unintended consequences elsewhere in the SBU. Only after evaluating various options can we confidently implement the one solution that best suits the business needs.
Every waste has a reason behind it. It is important to investigate the cause and circumstances to eliminate the source of waste and not just the effect of it. In simple situations it may be easy to identify, but with lean implementations occurring over so many years now, most companies have already eliminated the "low hanging fruit".
A quantitative and holistic business analysis that can quickly analyze the various options and their consequences is critical for success. The global competitive market place has taken away the luxury of achieving slow and steady progress enjoyed by Toyota over 30 years to become the most profitable automobile company in the world. Risks are far greater today. Without a guarantee of success, implementing change into any part of business can be detrimental. Time is limited with a very small margin for error. Only a structured and systematic approach can make this possible.
5. Use a Systematic Methodology
Inadequate leadership, resources, experience, and competing priorities are all factors cited by practitioners I speak with regarding their primary obstacles. Interestingly one topic that does not get mentioned however is that of the actual implementation methodology itself. .could we be missing something due to the way most of us are attempting to implement lean?
- Art Smalley, Veteran of Toyota Motor Corporation
The failure in implementing lean to achieve business success, results from the lack of a structured approach that can insure success before implementation. Companies rely on other means in the absence of such an approach. Toyota uses senseis who have gained knowledge over decades of practice. Senseis use tools and techniques such as value stream maps, genchi genbutsu, and consultation with all stakeholders from shop floor to executives among others to gather the appropriate background information. They draw upon their experiences and consider lean principles of flow, pull, heijunka, jidoka, SMED, standard work, and so on. They deliberate on the options for a long time before devising a solution to implement after considering all consequences of their actions and to insure business success. Developing senseis, however, takes years of nurturing and patience; currently there is a severe shortage of senseis at most companies including Toyota.
Assimilating the diversity of lean concepts in every implementation is unmanageable without a structured way to do so. The task is even more difficult for those whose primary business responsibilities lay elsewhere. The breadth of lean concepts and tools is too large for them to master. Deciding on the right lean concept for the present situation is an enormous challenge.
The reality is even more complex. Usually more than one solution is possible with each having different potential for success. Which is the right one to implement? Consequently, as discussed above, companies end up using the "wrong" tools and implementing inappropriate concepts.
During an interview Tom Harada, a 35 year veteran of Toyota Motor Corporation, commented
The U.S. focuses too much on logistical issues in lean like value stream mapping and JIT. More emphasis needs to be put on building in quality at the process and utilizing equipment more effectively...
Similarly, in describing the lean practice of leveling out the workload (heijunka), Jeffrey Liker wrote that,
Eliminating waste is just one-third of the equation for making lean successful. Eliminating overburden to people and equipment and eliminating unevenness in the production schedule are just as important-yet generally not understood at companies attempting to implement lean principles.
The significance of a structured business improvement methodology is to integrate diverse concepts, to facilitate collaboration and exchange of knowledge, and to enable more people to effectively participate in solving the problems analytically. A methodology cannot replace or embody the wisdom of a sensei but it can provide a framework to include all aspects in asking the right questions and systematically answering them without bias. It can enforce discipline in the synthesis of business goals and gathering of pertinent data and information. It can demand rigorous thought in developing options and meticulous analysis of each option in constructing the solution. It can help deliberate over various solution options as a sensei would to understand various consequences.
Selecting the solution approach for the right reasons is as important as developing the solution itself. Alleviating an effect while leaving the cause intact, although seemingly successful on the surface when the symptom no longer persists, is actually a business failure. Seeking out the underlying causes for the problems requires a thorough investigation of all related issues. Only a systems based approach, which integrates various business functions for detailed analysis, can reduce the risks and increase confidence of success before taking action.
Additionally a systematic approach eliminates the need for trial and error implementations, which dramatically shortens the time to achieve business success. It quickly identifies the appropriate solution approach and action plan for the SBU and its comprising parts. Using an integrated and comprehensive business analysis tool, in place of employing correlative reasoning, creates a direct and unambiguous relationship between actions and goals.
6. Nurture People to Sustain and Regenerate Knowledge
Society has reached the point where one can push a button and be immediately deluged with technical and managerial information. This is all very convenient, of course, but if one is not careful there is a danger of losing the ability to think. We must remember that in the end it is the individual human being who must solve the problems.
-Eiji Toyoda
Many people describe lean as having respect for people. But, the social networking discussions are littered with messages of how many companies in the West have used lean as a way to lay off people. Many experienced people, who possessed corporate knowledge, are gone as they were no longer needed with the newly automated single-part flow cells. The new cells yielded excellent flow and significantly reduced lead-times. However, same companies are now struggling in the recession as the automated lines do not scale down easily and are not flexible enough to produce a variety of products. Robots and/or fixtures often get in the way. Is this the fault of lean thinking?
Applying lean with systems approach requires people to think holistically about the broader environment and to use methods and tools to find solutions focused on the business goals. Focusing narrowly on a single issue or a specific tool leads to missed opportunities resulting in "seesaw" behavior. Not having the suitable environment to ask the right questions leads to using the tools without truly understanding the problem first. Consequently, companies are constantly trying to correct past errors. A sensei considers all aspects and discusses with many people before arriving at the proposed solution. People don't start to think holistically unless there is a culture that promotes and rewards it.
Toyota nurtures people to do their jobs with dignity and proper skills. It is about creating a culture. Jeffery Liker in his book The Toyota Way narrates the story of Gary Convis, the first American President of Toyota Motor Manufacturing. According to Gary Convis it is not about the nuts and bolts of lean tools, but how Toyota sustains its culture by the way managers conduct their business. It is about engaging people towards the common goal.
Lean thinking with systems approach is about asking the right questions and answering them from the different perspectives of all roles and stakeholders. It is not about satisfying the needs of a few individuals only. Having respect for people is much more than being cordial to them or to give them well defined instructions and expectations. It is about understanding how everyone contributes to the larger picture. It is an environment, a culture, to think beyond individuals to do the right things for the company-the whole system.
With the systems approach, people learn about the important role they play in sustaining the corporate knowledge and are able to regenerate it as the need arises. Providing the right framework and encouraging them to think holistically, such that every individual contributes towards the larger goals, is true respect for people.
Designing a Systems Approach to Succeed
Use of target costing, activity-based planning, value chain analysis, and internal business processes combined in one system or integrated management framework is highly beneficial. These techniques provide weapons to be successful but also provide the guidance systems to maneuver in the complex world of business.
-M. Tinkler & D. Dubé
The key attributes to thinking lean with a systems approach is to holistically focus on the SBU and its interconnected elements. Measuring value and executing in accordance with the SBU's goals to find and eliminate appropriate waste are at the heart of such an approach. Global competition has shrunk the time for decision making and the tolerance for risk. Hence, making decisions rapidly with quantitative analysis, and using a systematic methodology to guide decision-making is imperative. A structured systems-based approach must be comprehensive with a singular aim of improving the business while minimizing any unwanted effects elsewhere in the SBU.
Creating a direct relationship to business goals allows for asking business questions such as - how can I attain the best globally landed cost for my products and services? Metrics of importance no longer are solely in a process context, and the metrics that matter depend on the specific business challenge. An important benefit of a systems approach, which focuses on the SBU and its goals, is that it bridges the gap between the interests of executives and practitioners.
Only a structured methodology can enforce inclusion of all lean principles and avoid concentrating on just a few. This prevents the use of tools and concepts that are inappropriate for the specific situation.
Using a structured approach all stakeholders must come together to clearly articulate the description of the SBU, its products and the business goals. They should systematically and quickly deliberate to consider the various options for change. Each option must include a list of parameters to change either individually or collectively for achieving the business goals. The team must consider the possible impacts on each individual area as well as the whole SBU to avoid unwanted effects anywhere.
Analysis to facilitate such an approach would have to be multi-disciplinary. The analysis must focus not only on operational processes but also upon all supporting functions; it must include the entire value chain. An underlying activities based framework is a must for it to have the ability to isolate the wasteful activities for elimination using business goals for the objective criterion, and to evaluate the impact of the solution throughout the business unit. Process, resource and supply chain requirements, and financial analysis of the entire value chain in one systematic management solution is the only way to build such analytical tools. Only Profit Mapping fits all the requirements.