Part 1 Lean Principles
Lean Thinking versus Muda
- value can only be defined by the ultimate customer
- value is created by the producer
- business school trained executives of western firms usually have a slick presentation about their org, tech, core competencies & strategic intentions. They talk about their short term competitive problems (specifically their need to garner adequate profits in the next quarter and consequent cost cutting initiatives.
- customers across the world like products designed with an eye to local needs; products made to their precise order to be delivered immediately
- outdated thinking about economies of scale; producing using assets they’ve already bought; producing what they know how to produce
- airlines – low cost, point to point services using smaller jets; quick turnaround systems for small jets at airports
- old fashioned “efficiency” thinking suggests the best way to make use of these assets and technologies is to get larger batches
- ignore existing assets and technologies; rethink firms on a product line basis with strong dedicated product teams.
- Lean thinking must start with a conscious attempt to precisely define value in terms of specific products with specific capabilities offered at specific prices through a dialogue with specific customers.
- the initial ingot of material (ex. Nickel) was 10 times the weight of the machined parts eventually fashioned from it. 90% of the very expensive metals were being scrapped because the initial ingot was poured in a massive size – melters were certain this was efficient – without much attention to the shape of the finished parts.
- Firms are accustomed to looking carefully at their own affairs but had simply never taken the time to look at the whole value stream, including the consequences of their internal activities for other firms along the stream.
- Creating lean enterprises does require a new way to think about firm to firm relations, some simple principles for regulating behaviour between forms and transparency regarding all the steps taken along the value stream so each participant can verify that the other firms are behaving in accord with the agreed principles.
- Looking at the problem from the standpoint of the newsletter which wants to get mailed in the quickest way with the least effort
o 2 options to fold, address, seal and stamp & mail a newsletter: Fold all of them, address all of them, seal all of them, mail all of them. Or do them each individually.
o Wouldn’t doing it individually (folding one, then addressing, then sealing then stamping, then mailing) avoid the wasted effort of picking up an putting down every newsletter four times?
o Most of the world has a profound conviction that performing tasks in batches is best, and fails to consider that a rethink of the task might permit continuous flow and more efficient work.
- Things work better when you focus on the product and its needs, rather than the organization or the equipment, so that all the activities needed to design, order, and provide a product occur in continuous flow.
- The challenge with flow thinking is counterintuitive; it seems obvious to most people that work should be organized by departments in batches. Once departments and specialized equipment for making batches at high speeds are put in place, both the career aspirations of employees within departments and the calculations of the corporate accountant (who wants to keep expensive assets fully utilized) work powerfully against switching over to flow.
- the reengineering movement recognized that departmentalized thinking is suboptimal and tried to shift the focus from organizational categories (departments) to value creating ‘processes’, but this doesn’t go far enough conceptually. It still deals with disconnected and aggregated processes (ex. Order taking for a whole range of products) rather than the entire flow of value creating activities for specific products.
- They often stop at the boundaries of the firm paying their fees, whereas major breakthroughs come from looking at the whole value stream.
- The lean alternative is to redefine the work of functions, departments & firms so they can make a positive contribution to value creation and to speak to the real needs of employees at every point along the stream so it is actually in their interest to make value flow.
- The demands of customers become much more stable when they know they can get what they want right away and when producers stop periodic price discounting campaigns to move goods already made which no one wants.
- how can performance be improved: sweat and longer hours are not the answer but will be employed if no one know how to work smarter.
- When employees begin to feel the immediate feedback from making product development, order taking, production flow and are able to see the customer’s satisfaction, much of the carrot and stick apparatus of open book management’s financial reward system becomes unnecessary.
- Carl Sewell, Customers for Life
- Home Builder: Teach your workforce the principles, collect and analyze data on every aspect of the business, remove individual sales commissions (which destroy quality consciousness), eliminate the superintendent bonus (builder bonus, who were qualifying for the on time completion bonus by making side deals with customers on a “to be done later” list, reduced contractor corps by 2/3, and required remaining contractors to attend (and pay for) his monthly quality seminars, monitored customer surveys
- Wiremold: formed a team for each product to stick with that product during its entire production life (a marketer, product engineer & tooling/process engineer), who proceeded to enter into a dialogue with leading customers (major contractors) in which all of the old products and solutions were ignored. Instead, the customer and the producer focused on the value the customer really needed.
- Firms need to be searching for fundamentally new capabilities that will permit them to create value in unimagined dimensions, most firms can substantially boost sales immediately if they find a mechanism for rethinking the value of their core products to their customers.
- Travel: the problem is each firm is providing a partial product, often only looking inward toward its won operational “efficiency” while no one was looking at the whole product through the eyes of the customer. The minute the focus is shifted to the whole as seen by the customer, obvious questions emerge.
- Producers must accept the challenge of redefinition, because this is often the key to finding more customers, and the ability to find more customers and sales very quickly is critical to the success of lean thinking; this is because lean organizations are always freeing up substantial amounts of resources. If they are to defend their employees and find the best economic use for their assets as they strike out on a new path, they need to find more sales right now. Beginning with a better specification of value can often provide the means.
The Target Cost
** the most important task in specifying value, once the product is defined, is to determine a TARGET Cost based on the amount of resources and effort required to make a product of given specification and capabilities if all the currently visible muda were removed from the process. Doing this is the key to squeezing out the waste
- Conventional firms set target selling prices based on what they believe the market will bear. They then work backwards to determine acceptable costs to ensure an adequate profit margin, and they must do this any time they begin to develop a new product
- Difference: Lean enterprises look at the current bundles of pricing and features being offered customers by conventional firms and then ask how much cost they can take out by full application of lean methods. They ask, what is the waste free cost of this product, once unnecessary steps are removed and value is made to flow? This becomes the target cost for the development, order taking and production activities necessary for this product.
- Because the target is certain to be far below the costs borne by competitors, the lean enterprise has choices: reduce prices (another way to increase sales volume and utilize freed up resources); add features or capabilities to the product (which should also increase sales); add services to the physical product to create additional value (and jobs); expand the distribution and service network (again increasing sales, although with a time lag); or take profits to underwrite new products (which will increase sales in the longer term).
- Once the target cost is set for a specific product, it becomes the lens for examining every step in the value stream for product development, order taking, and production (this latter being called operations in the case of a service like insurance or transportation). The relentless scrutiny of every activity along the value steam – asking whether a specific activity really creates any value for the customer – becomes the key to meeting the aggressive cost target.
The Value Stream
** Creating a Value Stream map identifying every action required to design, order, and make a specific product is to sort these actions into 3 categories
1) those which actually create value as perceived by the customer
2) those which create no value but are currently required by the product development, order filling, or production systems [Type 1 muda] so can’t be eliminated just yet;
3) those actions which don’t create value as perceived by the customer [Type 2 muda] and so can be eliminated immediately. Once this third set has been removed, the way is clear to go to work on the remaining non-value-creating steps through use of the flow, pull, and perfection techniques.
- Cola: during most of the development period the concept is sitting still, awaiting feedback from the group which conducts the clinics on all the firm’s products or awaiting its place on the schedule of the department which conducts small scale market trials for all products.
- [Benchmarkers] who discover their performance is superior to their competitors’ have a natural tendency to relax, while mass producers discovering their performance is inferior often have a hard time understanding exactly why. They tend to get distracted by easy to measure or impossible to emulate differences in factor costs, scale, or culture, when the really important differences lie in the harder to see ways value creating activities are organized.
- Advice: tell hell with your competitors; complete against perfection by identifying all activities that are waste and eliminating them. This is an absolute rather than a relative standard which can provide the direction for any organization.
- once value is defined and the entire value stream is identified,
1) focus on the actual object: the specific design, the specific order, and the product itself (a ‘cure,’ a trip, a house, a car), and never let it out of sight from beginning to completion.
2) Ignore the traditional boundaries of jobs, careers, functions (often organized into departments), and firms to form a lean enterprise removing all impediments to the continuous flow of the specific product.
3) Rethink specific work practices and tools to eliminate backflows, scrap and stoppages of all sorts so that the design, order, and production of the specific product can proceed continuously.
These 3 steps must be taken together.
- Most managers imagine that the requirements of efficiency dictate designs, orders, and products go “through the system” and good management consists of avoiding variances in the performance of the complex system handling a wide variety of products. The real need is to get rid of the system and start over, on a new basis.
- the lean approach is to create truly dedicated product teams with all the skills needed to conduct value specification, general design, detailed engineering, purchasing, tooling and production planning in one room in a short period of time using a proved team decision making methodology commonly called Quality Function Deployment (FD). This method permits development teams to standardize work so that a team follows the same approach every time. Because very team in a firm also follows this approach, it’s possible to accurately measure throughput time and to continually improve the design methodology itself.
- Dedicated teams do not need to be as large as traditionally thought, the smaller the better. A host of narrowly skilled specialists are not needed because most marketing, engineering, purchasing and production professionals actually have much broader skills than they have 1) ever realized, 2) ever admitted, or 3) ever been allowed to use. When a small team is given the mandate to ‘just do it,’ it is always found the professionals suddenly discover each can successfully cover a much broader scope of tasks than they have ever been allowed to previously.
- Production slots created by takt time calculation are clearly posted.
- Complete display, so everyone can see where production stands at every moment, is an excellent example of another critical lean technique, transparency or visual control.
- Transparency facilitates consistently producing to takt time and alerts the whole team immediately to the need either for additional orders or to think of ways to remove waste if takt time needs to be reduced to accommodate an increase in orders.
- Raising awareness of the tight connection between sales and production also helps guard against one of the great evils of traditional selling and order taking systems: resorting to bonus systems to motivate a sales force working with no real knowledge of or concern about the capabilities of the production system. These methods produce periodic surges in orders at the end of each bonus period (even though underlying demand hasn’t changed) and an occasional “order of the century” drummed up by a bonus hungry sales staff, which the production system can’t possibly accommodate. Both lead to late deliveries and bad will from the customer.
- To get continuous flow systems to flow for more than a minute or two at a time, every machine and every worker must be completely ‘capable.’ That is, they must always be in proper condition to run precisely when needed and every part made must be exactly right. By design, flow systems have an ‘everything works or nothing works’ quality which must be respected and anticipated.
- This means the production team must be cross skilled in every task (in case someone is absent or needed for another task) and the machinery must be made 100% available and accurate through a series of techniques called Total Productive Maintenance (TPM).
- It also means work must be rigorously standardized - by the work team, not by some remote industrial engineering group – and that employees and machines must be taught to monitor their own work through a series of mistake proofing (poka-yoke) which make it impossible for even one defective part to be sent ahead to the next step
- 5S (where all debris and unnecessary times are removed an every tool has a clearly marked storage place visible from the work area)
- status indicators and clearly posted up to date standard work charts, displays of key measurables and financial information on the costs of the process
- the precise techniques will vary with the application, but the key principle does not: Everyone involved must be able to see and must understand every aspect of the operation and its status at all times
- this typically can be done very quickly and almost never requires major capital investments; if you think you need to spend large sums to convert equipment from large batches to small batches or single pieces, you don’t yet understand lean thinking
- when production is broken into product families, it is often the case no family accounts for the kind of volume needed for track assembly. Manual advancing of the product through assembly is often cheaper.
- Mihaly Csikszentmihalyi, University of Chicago, studied what makes people feel good
- the types of activities which people all over the world consistently report as most rewarding (make them feel the best) involve a clear objective, a need for concentration so intense that no attention is left over, a lack of interruptions and distractions, clear and immediate feedback on progress toward the objective, and a sense of challenge – the perception that one’s skills area adequate, but just adequate, to cope with the task at hand.
- When people find themselves in these conditions they lose their self consciousness and sense of time. They report the task itself becomes the end rather than a means to something more satisfying, like money or prestige. People experiencing these conditions are in a highly satisfying psychological state of flow.
- Work is rated as the most important overall life activity. In classic batch and queue work conditions, the worker can see only a small part of the task, there is often no feedback (much less immediate feedback), the task requires only a small portion of one’s concentration and skills, and there are constant interruptions to deal with other tasks in one’s area of responsibility.
- Work in an organization where value is made to flow continuously also creates the conditions for psychological flow. Every employee has immediate knowledge of whether the job has been done right and can see the status of the entire system. Keeping the system flowing smoothly with no interruptions is a constant challenge, and a very difficult one, but the product team has the skills and a way of thinking which is equal to the challenge. And because of the focus on perfection, the whole system is maintained in a permanent creative tension which demands concentration.
- Toyota applied their standard formula machines should be available for production about 90% of the time and down for changeovers about 10 % of the time
- Don’t make anything until it is needed; then make is very quickly
- Toyota had to convince its employees the new way of thinking would not cause anyone to lose his job
o Reduce bin sizes and relocated parts by size and frequency of demand.
o Trying to pick large & small parts on the same run caused lost parts and use of grossly oversized equipment, so parts were segregated to small, medium & large categories with their own sections of the warehouse
o Parts most frequently demanded were moved closest to the start of the sorting and picking runs
Scan in b4 & after picks
- batch size of replenishment orders must be changed
- concepts of standard work & visual control used by dividing the workday into 12 minute cycles. An interval of this length was found to be the best compromise between walking distance and cart size in making a round of the bins to load or unload a cart.
- During each cycle an ‘associate’ (as hourly workers were now called), was expected to pick or bin a different number of lines, depending on the size of the part.; in a 12 minute picking cycle, 30 lines of small parts or 20 lines of medium parts or 12 lines of large parts.
- A progress control board was constructed between the receiving dock and the shipping dock to show everyone the number of cycles to be completed and the time available. Each associate was given a stack of magnetic markers of a given color and asked to place a marker in the appropriate square on the progress control board each time a cycle was completed. Everyone could now see exactly how the work was proceeding, a good example of visual control where everyone works out of contact with everyone else.
- The control board eliminated the need for ‘team leaders’ (as supervisors were now called), to supervise teams. Instead everyone could look at the board, observe that one worker was falling behind, and provide that worker with help once other tasks were finished.
- Visual control & exact work cycles also made it possible to address the causes of disruptions in work flow. The right side of the progress control board provided a blank area beside each cycle for associates to write in the reason a cycle could not be completed on time. These reasons became the raw materials for directing work team kaizen activities.
- new work carts were built to the right sized for each type of picking or binning task, and designed to hold just the right # of parts (another type of visual control)
- main computer reprogrammed to group orders from dealers by bin location so a set of picking labels in precise bin order was printed out at the beginning of each shift. Picking labels were divided into 12 minute cycles and placed in pigeonholes in a dispatch box Pickers obtained their jobs of exactly 12 minutes duration from the dispatch box, always taking labels from the next available slot so there could be no possibility of favouritism in work assignments. Each associate was given 5 assignments/hour and work could proceed in a smooth flow from shelves to shipping dock. Posting start times above the slots & visually controlling completion times also eliminated another traditional warehousing problem or working ahead to ‘beat the system,’ which invariably led to quality problems as associates in their hasted picked the wrong part or put parts in the wrong bins
- switched from weekly to daily orders, smaller dock area due to smoother flows with no surges
- level scheduling needs level selling.
- Temporary increases in orders (due to sales & promotions)increase the level above long term average demand, followed by a drop in orders, requiring costs such as overtime, excess capacity, shipping, stocking, picking. The solution is to concentrate on level selling by keeping prices constant and making replacement parts at the exact rate parts were being sold.
- The difficulty persuading people to go along with the improved method comes from generations of batch & queue thinking.
- it is hypothesized half of the downswing of economic activity in business cycles is due to consumers and producers working off the inventories built up toward the top of the cycle, and ½ the upswing is due to building up new inventories in expectation of higher upstream prices.
- no matter how many times employees improve a given activity to make it leaner, they could always find more ways to remove waste by eliminating effort, time, space and errors.; and the activity became progressively more flexible and responsive to customer pull
- traditional management often fails to grasp the concept of perfection through endless steps, which is a fundamental principle of lean thinking.
- Quality problems causing high levels of scrap are difficult to address when there are long time lags between different steps in the process (pressing, encapsulation, & installation). These problems are likely to be discovered in a lean process where processes are close together and no time lag exists
- In order to form a view of what perfection is, value steam mangers need to apply the 4 lean principles of value specification, value stream identification, flow and pull. You are competing against perfection, not competitors, so it is necessary to gauge the gap between current reality to perfection. Then decide which forms of waste to attack first, by means of policy deployment.
- Trying to envision perfection and getting there is impossible, but the effort to do so provides inspiration and direction essential to making progress along the path.
- Besides forming a picture with the appropriate technologies, managers need to set a stringent timetable for steps along the path.
- The greatest difference between those organizations that have done a lot and those that have accomplished little or nothing is that the high achievers set specific timetables to accomplish the seemingly impossible tasks and then routinely met or exceeded them.
- The low achievers, by contrast, asked what would be reasonable for their current organization and disconnected value streams to accomplish, and generally defeated themselves before they ever set out
- Policy deployment: top management agrees on a few simple goals for transitioning from mass to lean, to select a few projects to achieve these goals, to designate the people and resources for getting the projects done, and to establish numerical improvement targets to be achieved by a given point in time.
- Often organizations construct an annual policy deployment matrix which summarizes goals, project for that year, and targets for these projects so every one in the entire organization can see them. In doing this, it’s essential to openly discuss the amount of resources available in relation to the targets so everyone agrees as the process begins it is actually doable.
Scan p96 matrix
- once specific projects are agreed on, it’s essential to consult with the project teams about the amount of resources and time available to ensure the projects are realistic. The teams are collectively responsible for getting the job done and must have both the authority and resources from the outset
- as the concept of making a dramatic transition begins to take hold, we often observe that everyone in an organization wants to get involved and the number of projects tends to multiply. This is exhilarating but is actually the danger signal too much is being taken on. The most successful firms we’ve found have learned how to ‘deselect’ projects, despite the enthusiasm of parts of the organization, in order to bring the number of projects into line with the available resources. This is the critical final step before launching the lean crusade.
- The techniques themselves and the philosophy are inherently egalitarian and open. Transparency in everything is a key principle. Policy deployment operates as an open process to align people and resources with deployment tasks. And massive an continuing amounts of problem solving are conducted by teams of employees who historically have not even talked to each other, much less treated each other as equals.
- The catalytic force moving firms and value steams out of the world of inward looking batch and queue is generally applied by an outsider who breaks all the traditional rules, often in a moment of profound crisis. We call this individual the change agent.
- The change agent is typically something of a tyrant, hellbent on imposing a profoundly egalitarian system in profoundly inegalitarian organizations
- Those who succeed in creating lean systems over the long term are clearly understood by the participants in the firm and along the value steam to be promoting a set of ideas which have enormous potential for benefiting everyone.
- Those who fail are either identified as narrow technocrats with no concern for the very real human issues inherent in the transition, or they are dismissed by the organization as self promoters who are simply seeking to advance their own position by riding the wave of ‘the next program’. Both quickly fall victim to organizational lassitude, if not to active sabotage.