Why are businesses getting confused about lean practices?

One of the frustrating things about the “lean revolution” that has occurred in manufacturing and other sectors over the last 20 years or so has been the misappropriation of the term “lean”. I have heard countless business leaders refer to their operation as being “lean” or “leaned up”, when in many cases all that has been done is a progressive or sometimes catastrophic cutting of overhead to reduce costs.

Isn’t cutting overheads a good step?

It can be. But cutting overheads is often exemplified by the traditional focus on maintaining “direct” workers – those that are directly employed doing “productive activity” and the hacking into “indirects” who support and sometimes supervise these employees.

What effect does this have?

Cutting is often done with no analysis of how processes work within the company. So it’s often the case that the “indirect” is dispensed with but the jobs they do are not. Not surprisingly it falls upon the “directs” to now do these tasks and lo and behold productivity of these employees drops and quality suffers. Additionally, more often than not, delivery deadlines are missed and customer relations suffer.

Of course it’s much easier to optimize processes and improve efficiency in growth times when a business is trying to do more with the same resource. It’s much more difficult, and emotionally draining, to do it when a business is trying to deliver the same with less resource.

What should a business focus on?

One of the key rules drilled in to me during my initial journey into “lean” was “if your customer knew you were doing this – would they be prepared to pay you to do it?” It’s a good example because it focuses on what “lean” is really about. It’s about focusing on the productive and therefore valuable things your customer is prepared to pay for and removing the wasteful things that they would not be.

Can you give us a recap on what lean really is?

A lean process is where you cut waste in a productive manner. Toyota, the world leaders in lean – in fact it’s often called the Toyota model – classify waste or “muda” in seven ways:

  1. Transportation: Each time something is moved it stands the risk of being damaged, lost, delayed, etc. as well as being a cost for no added value. Transportation does not make any transformation to the product that the consumer is willing to pay for. By way of example  I once saw a business shipping items 80 miles away to a sister plant for a couple of tasks and then shipping them all the way back again. Moving the process to the main factory eliminated this. However it’s surprising how far things can move in one factory or office.
  2. Inventory: Raw materials, work-in-progress or finished goods all represent a capital outlay that has not yet produced an income either by the producer or for the consumer. Any of these three items not being actively processed to add value is waste. This can also be equated to any deliverable, a report or a piece of software for example. I often see stores full of items waiting to go out on the shop floor. Think of all of those brochures sitting in the office or storeroom because it was “cheaper” to buy 2000. Multiply that several times and see how much stuff a business has paid for and how much productive space it’s occupying. Modern supermarkets are a great example of how to get this right. Goods inwards and store space is kept to a minimum. Products are delivered on a “just-in-time” basis. When things arrive they go straight out into the shop to be sold.
  3. Motion: In contrast to transportation, which refers to damage to products and transaction costs associated with moving them, motion refers to the damage that the production process inflicts on the entity that creates the product, either over time or during discrete events. This could be wear and tear on equipment, RSI for workers or accidents and specific injuries on site
  4. Waiting: Whenever goods are not in transport or being processed, they are waiting. In traditional processes, a large part of an individual product’s life is spent waiting to be worked on. This doesn’t only include physical components or goods, it could include emails in the inbox – or worse a “folder” or paper piling up in the in tray!
  5. Over-processing: Over-processing occurs any time more work is done on a piece than what is required by the customer. This also includes using tools that are more precise, complex, or expensive than absolutely required. Doing more than the customer expected and sometimes more than they actually wanted and using a sledgehammer to crack a nut!
  6. Over-production: Overproduction occurs when more product is produced than is required at that time by your customers. One common practice that leads to this waste is the production of large batches, as often consumer needs change over the long times large batches require. Overproduction is considered the worst waste because it hides and/or generates all of the others. Overproduction leads to excess inventory, which then requires the expenditure of resources on storage space and preservation, activities that do not benefit the customer. A good example of this is the clothing retailers who work hard to guess what lines will sell well and sometimes get it catastrophically wrong (I’m sure that lime green double breasted cardigan would sell – now we have 10,000 of them!). They are under massive pressure from on-line retailers constantly monitoring demand and placing small orders for small batches to suppliers and delivering what the customer wants quickly and has the advantage of constantly updating their range of clothing on offer. Instead of “just in time”, overproduction is “just in case”!
  7. Defects: Whenever defects occur, extra costs are incurred reworking the part, rescheduling production, etc. Pretty self explanatory – why would a customer pay for you to fix the part they ordered or rework the document, correct the spelling mistakes etc? A hidden aspect is the effect on morale when employees are constantly having to fix things that should have been made correctly. One can think of the old days of British Leyland where cars went into a holding bay after they came off of the line for rework and fixing- totally non-value adding.

All good stuff but a lot to remember!

Well, actually, there’s an eighth waste – the waste of human talent. In fact it’s this waste that often hinders the resolution of the other seven wastes. Management that are prepared to “let go” and allow their employees to put their energies into innovating and creatively solving problems often reap the rewards.

What’s the key to all this?

It’s all about addressing wasteful processes and procedures and changing the way the business does things. Often those employed in the business have recognized this for years but have not been given the chance to change things. It’s been proven that the techniques used to eliminate these wastes not only improve the bottom line performance of businesses, regardless of their sector. It also improves delivery performance and makes the company more marketable.