Lean Thinking p202 - 302

Lean Thinking

P202 - 302

- Participants in the initial improvement projects must include all of the senior managers as well as the primary workforce.
- Workers may find if difficult of impossible to believe that the problem was inside (Porsche) rather than outside in the marketplace.
- The union only agreed to working with the Japanese consultants if their workers would conduct their own parallel workshop to show that if change was really needed it could perfectly well be achieved by long term employees rather than outsiders (which worked to prove they could not, and later they were to join the consultant led group).
- The first kaikaku was to get rid of the mountains of inventory and the treasure hunting for parts which occupied a substantial fraction of each assembler’s daily effort. Then make the parts flow from receiving to engine assembly to the final assembly plant very rapidly with no stopping, no scrap, and no backflows to fix defects.
- Parts kits for each engine were built up in a kitting area on the floor below and sent to assembly in little carts at exactly the rate engines were being assembled. (The kits were themselves a poka-yoke device because the parts were placed on the cart in their exact assembly sequence. Any part skipped over would be spotted immediately).
- Over a 2 year period, teams gained the experience to join with work teams and conduct activities without outside help. Every work team would conduct a major weeklong improvement project on it s activities every 3 months, in addition to taking immediate action on improvement suggestions from work team members at any time.
- because natural attrition is about 3% per annum, given the age of distribution of Porsche’s workforce, an additional 30% reduction in the workforce can be achieved in the next decade without resort to layoffs if no additional sources of production volume can be found.
- Both workforce and union were initially quite upset at the affront to their competence and their role. The lean msg was the traditional craftsmanship was mostly muda; correction of mistakes which should never have been made, movement to find parts and tools which should be immediately at hand, wasteful motions through a lack of careful analysis of how to do the job, wasted time while watching machines which could be taught to monitor themselves, waiting for missing parts, and inventories everywhere due to batch and queue methods.
- There is a higher form of craft, which is to proactively anticipate problems in a team context and to prevent them while constantly rethinking the organization of work and flow of value to remove muda. The direct worker and the work team subsume many of the traditional activities of ‘management’ while improving activities at a far more rapid rate than management alone ever could.
- They began with those suppliers most receptive to lean thinking. Use the initial success of these firms to encourage the more reluctant suppliers to join in.

Porsche version of the JIT game

- Going to the supplier, they usually insist there’s nothing to improve.
- 5 senior managers take roles in a 4 stage process folding and packing 3 colours of paper boxes.
- 1st person bundles up and delivers quantities of unfolded boxes in 3 colours to the 2 pre-assembly stations. Quantities are in response to a customer order. One pre-assembly station folds the small boxes while the other preassembly station folds the small boxes and both stations secure their boxes with a rubber band. The boxes are then passes ahead to the assembly station where the 4th player opens the large box and places the small box inside. The player writes out a ticket, folds it, places it on top of the small ox and then closes the large box and secures it with a rubber band. The box is then passed to quality control/dispatch where the 5th player opens the large box and checks to see that the ticket is present and properly written. This player signs and stamps the ticket before placing it back on top of the small box. The large box is then closed, secured with a rubber band, and delivered to the customer.
Scan p 209
- Players are told to work at their own pace to produce the 3 colours of box in response to the customer order. Soon every player is trying furiously to complete his tasks, 1st for one colour of box, then for the next. However, a juge mountain of boxes quickly builds up in front of the 4th player, who has a bigger job than the others. In addition, the customer announces that he wants to change his order, to receive first whichever colour of box the team has left till last. This quickly produces even more of a pile up as the wrong colour boxes are pushed to the side so the right colour can get through.
- Team of 5 is then asked what’s wrong and what could be done about it. Answer is always the same: 4th player is the bottleneck so we need to add another worker to the assembly step and build a storage area between steps 2 and 3.
- You then suggest that instead the 5 players should try a pull system by making only 5 boxes at a time and only when asked (pulled) by the next player downstream. To the players amazement, the whole activity proceeds smoothly, with only a tiny buildup of boxes between steps 2 an d3. They then play 2 more rounds, reducing the lot size to 3 and then to 1, eventually achieving perfectly smooth flow and no buildup of boxes at all.
- Next you say the customer is going to vary his order at random between the 3 colours of boxes and asks what will happen. The supplier executives recognize this situation as the key headache in their lives and predict chaos. But, with no boxes piled up in inventory, it’s a simple matter to switch from one colour to the next.
- Move the game to reality suggesting that the exact same techniques should be introduced in the activities required to make (parts). “Lets take a set of activities for one (part) and do it today.”
- Then stay for a week or two to remove all the waste the team could find and to standardize the process and develop follow-up steps so the new level of performance is sustained.
- The understanding with the suppliers management from the beginning from the outset was that the cost saving would be precisely calculated and divided 3 ways: 1/3 to the supplier, 1/3 to Porsche (you), and 1/3 as a pass through to the customer.
- Due to Porsche’s success, many companies not supplying Porsche asked for help. Porsche started Porsche Consulting, an external consulting practice.
- as results begin appearing in physical production, power will shift from the product engineers to the operations managers, the activity central to the firms success.
- Inventory reductions will free up cash (which was used to fund a new product program).
- to keep the core workforce busy and reap the full financial benefits for the lean transition, he needed to double sales very quickly at constant prices.
- instead of retaining the centralized scheduling dept. the reengineering team eliminated the scheduling department and gave the task of scheduling orders to the marketing group in each product team.
- Production teams were told to schedule backwards (working to takt time) to precisely synchronize orders with available production slots at a point exactly (4) days before shipment when the firm order needed to be inserted in the production schedule.
- Orders with incorrect information must never be passed forward by the designers and engineers. Scheduling equivalents of poka-yoke devices have been developed to make sure all mistakes are caught. The customer must be educated to understand the company only needs (4) days of lead time before the product is ready to ship so that there is little point in specifying exactly what is wanted (and then changing the order repeatedly) until it is time to build it. They must also be educated the company now ships exactly on schedule.
- Final element of the ordering and scheduling system is it is completely open for everyone along the value stream to see (customer, distributor, product team, component and materials suppliers). Only the product team can change the information on the electronic schedule board, but everyone with an interest in the outcome can electronically check on the status of orders at any time. Another example of visual control.
- The objective is to take full advantage of the strengths of a lean firm by customizing and manufacturing in the market of sale and developing strong relations with local customers. There is no intention to export.
- 2 of the basic lean concepts in physical production, automatic machine and line stoppage whenever a mistake is made so no bad parts will be passed forward to interrupt the downstream flow (jidoka), and a pull system so that only parts actually needed are made (JIT)
- “Companies making even a modest profit never use the Toyota Production System. They can’t. On the other hand, there are nearly bankrupt companies that implement the TPS to the fullest, knowing they won’t lose much even if it fails – this is the advantage of a defiant attitude.”

Ohno’s Insights

1) Self-monitoring looms – that used devices measuring thread tension to shut themselves down immediately if a thread broke and the loom began to make defective cloth. Using this as inspiration, he quickly devised a set of simple limit switches and go/no-go gauges so that machines, once loaded, could do their work to completion without human intervention and stop working immediately if they detected an error in their efforts. These devices make it possible for one worker to superintend many machines and perform quality checking as well, intervening only to load machines and deal with malfunctions.
2) when you have lots of inventory you are always one part short – solved if each processing step went frequently to the previous processing step and picked up exactly the number of parts needed for the next increment of production. Ironclad rule: the previous step would never produce more parts than the next step had just withdrawn.
3) Machines should be moved from process villages into cells. There, in a horseshoe pattern, they would be placed in the exact sequence required by the part begin made. By focusing on the needs of the machines, rather than the traditional skill sets and work methods of the workforce, or conventional thinking about scale economies, he focused the value stream and eventually perfected the concept of single piece flow. By adding/subtracting workers from a cell, he could increase or reduce the rate of production to keep it exactly synchronized with the pull of the market.
- “Common sense is always wrong.”
- Teach through hands on demonstrations to your direct reports, as the ideas are often counter intuitive & difficult to accept unless you try them yourself. Ohno created much of the ‘knowledge,’ and was the relentless ‘change agent;’ ‘force on continuity’ (played by the president), who steadily backs Ohno; these are the 3 roles found essential in every successful firm studied.
- ‘customers for life’ selling system; thinking very hard about how to shorten the order cycle to a point very near the day of manufacture so unwanted cars would not be built.
- the continuing de-integration of Toyota and other suppliers was apparently caused by the desire of Toyota managers to spread risks and to gain the advantages of a lower wage base for subcontracted parts.
- This had the brilliant effect of the group structure - which was to create permanent relationships between firms whose wages and executive compensation depended on their individual performance rather than on the performance of the whole group.
- As the Toyota group supplier costs fell, the 190 firms soon discovered they could make much more money selling to customers other than Toyota who did not understand the logic of lean production.
- Later Ohno directed a new group of direct reports he had trained, the Production Research Office, or Operations Management Consulting Division (OMCD), to set up mutual help groups among Toyota’s 42 largest and most important suppliers. The companies were divided into 6 groups of 7, each with a team leader from one of the companies. Groups were asked to conduct 1 major improvement activity each month between them, with the technical assistance of OMCD. Results of the activities were then to be examined by senior executives of the other 6 firms whose task was to offer suggestions on how the activity might be improved even further. Next, the suppliers were asked to establish their own OMCDs and get on with the task of making every activity lean. The transformation is pulled along by (Toyota) demanding continuing reductions in part costs on every part every year from every supplier. Suppliers will eventually need to reduce costs by teaching their next tier suppliers the TPS, forcing the TPS to trickle down the entire supply chain.
- Toyota later reorganized its products into 3 platform groups, overseen by truly heavy weight managers with a much higher level of dedicated engineering resources. The objective is to focus on product families which share components rather than on stand alone products (each of which still has its own chief engineer), to dedicate engineering resources to the platform groups, and to streamline the flow of designs all the way into production so new vehicles can be carried from concept to launch in twenty seven months.
- High tech automation only works if the plant can run at 100% output and if the cost of indirect technical support and high-tech tools is less than the value of the direct labour saved.
o This lesson was taken to heart with a return to a much lower level of automation in final assembly and a reorganization of the assembly line so that related activities (electrical system) are installed and then tested in one focused area. This gives the workforce immediate feedback on whether everything has been done correctly, a key factor in creating a psychological sense of flow.
- Actual level of human effort involved: Toyota asked work teams to precisely determine the amount of fatigue and stress caused by each motion and then summarize these for each job, allowing the company to jobs comparable (or to adjust the effort level for older workers or those with physical problems) and to answer critics who have frequently claimed that the TPS system demand an impossible pace from workers.
- If unacceptable levels of stress and fatigue are discovered, the work team then kaizens the activities to redesign jobs and develop simple operator assist mechanisms.
- RAV4 – reducing the # of parts and simplifying their fabrication can be much more effective than either automation or a fast work pace in reducing product costs. Ex. RAV4 take a max of 3 strikes to complete in the stamping shop while panels in other models generally require 5 strikes. Going from 5 strikes to automatically reduces tooling bills by 40% and increases the throughput of the stamping shop dramatically. Many other components in the RAV4 have been simplified as well, and Toyota estimates it has reduced the human effort needed to assemble a RAV4 by 20%, compared with the most comparable previous product, even while reducing the amount of assembly automation, the cost of production tools, and slightly reducing the work pace.
- as customers want to get exactly the product they want exactly when they want it (immediately), in almost every case, locating smaller and less automated production systems within the market of sale will yield lower total costs (counting logistics and the cost for scrapped goods no one wants by the time they arrive) and higher customer satisfaction.
- Alternative way to surmount the changes in the world economy is to become technological innovators and pioneer new classes of products which no one can duplicate. (the world will then either buy them at whatever cost and with whatever wait, or do without)

An Action Plan

- the trick is to find the right leaders with the right knowledge and to begin with the value stream itself, quickly creating dramatic changes in the ways routine things are done every day. The sphere of change must be steadily widened to encompass the entire organization and all its business procedures. Once this in hand and the process is irreversible inside your own firm, it’s time to start looking up and downstream bar beyond the boundaries of individual firms to optimize the whole.
- Getting started; overcoming the inertia present in any brownfield org.; You’ll need a change agent plus the core of lean knowledge (not necessarily from the same person), some type of crisis to serve as a lever for change, a map of your value streams, and a determination to kaikaku quickly to your value creating activities in order to produce rapid result which your organization can’t ignore.
- Individuals with a make something happen mind set. Usually the problem executives have finding good candidates is a reluctance to bring in executives who will introduce truly fundamental change.
- Change agent doesn’t need detailed lean knowledge at the outset but instead a willingness to apply it.
- One underused resource for firms all over the world is the generation of Japanese now in their sixties who helped pioneer lean thinking and create order out of chaos in the 50’s, 60’s…
- For the true sensei, the change agent’s level of commitment is the single most important issue
- Finding a sensei who does not speak your language (and needs an interpreter) can even be a help because it highlights the unusual nature of the interaction: it’s someone changing your whole way of thinking about your business. This is not just another consultant peddling another quick fix; Similarly, any teacher who doesn’t vigorously protest when a pupil fails to live up to his promise and potential is probably more interested in a secure fee than in lasting change.
- The change agent and all of the senior managers in your firm must master it themselves to a point where lean thinking becomes second nature. What’s more, they should do this as soon as possible. If the change agent doesn’t fully understand lean thinking, the campaign will bog down at the first setback (and there will be a 1st setback). So he must truly understand the techniques of flow, pull, and perfection, and the only way to gain this understanding is by participating in improvement activities, hands on, to a point where lean techniques can be taught confidently to others. While doing this, then change agent needs to involve the other senior executives of the firm as well, so everyone’s knowledge if brought up to a minimum level to grasp the power of lean thinking.
- Finding a lever by seizing the crisis, or creating one
o Take some subunit of the organization which is in crisis and focus all your energies on applying lean remedies to it Once dramatic change has been introduced in the unit, the leaders of other units can be invited over for a hands on learning and can take ideas back.
o If no sub unit is in crisis, there may be an opportunity for change if you can find a lean competitor. By focusing on one instance of superior practice it was possible to introduce significant change in the corresponding business unit.
o Find a lean customer or lean supplier, as the will make demands on your performance. The customer will not only create a crisis but may also offer hands on assistance in introducing lean methods to resolve it.
o Boldest move is to consciously create conditions in which there will be a firm threatening crisis unless lean actions are taken. Example: traditional manufacturer who begins to sell a critical new range of products, set for initial deliveries in a couple of years, at prices hat can only be profitable if the firm quickly adopts lean methods to bring down costs dramatically across the board.
- If major investment is required, you’re not getting lean.
- Market based societies permit to exist and thrive those firms which do a good job of identifying and serving customer needs rather than the firm’s own interests.
- It’s advised people start with an activity that’s performing very poorly but which is very important to the firm; you can’t afford to fail, potential for improvement is very large, and you will find yourself drawing on resources and strengths you didn’t know you had in order to ensure success.
- Demand immediate results; immediate feedback is critical; the improvement team and whole workforce should be able to see things changing before their eyes. This is essential to creating the psychological sense of flow in the workforce and the momentum for change within your firm.
- Don’t waste time on benchmarking if there is any way to get your firm moving without it. Benchmarking as a way to avoid the need for immediate action is itself waste.
- Once you dive in, if nothing dramatic is accomplished in the 1st week of working on a problem activity – typically a halving of required effort, a 50% reduction of work in process, halving of space requirements, and a 90% drop in production lead time – you’ve either got the wrong sensei or you are not really a change agent. Figure out which it is and take action immediately.
- As soon as the 1st round of improvements are in hand, it’s time to start linking the different parts of the value stream for a product family. Convert the next upstream processes to flow and also establish a level schedule and a formal pull system. As you do this, “backward steps” are bound to occur b/c the precise purpose of these techniques is to expose and eliminate all types of waste. It’s only when the flow stops that you know you’ve found the next problem to work on.
- Once you have flow an pull started on the shop floor, it’s time to go to work on your ordering system. Kaikaku in the office is not as easy to see as moving machines on the shop floor, but it’s equally vital. Start with office activities directly linked to the activities you just changed on the floor. Prepare the way by involving office staff in the early shop floor kaikaku weeks – where they can play a useful role just by asking questions: why do you do it this way? After tey grasp the fundamentals and see the potential, they are ready to ask the same questions about office work. Once a bridgehead is established, go to work on all of your activities related to selling, formal order taking and scheduling.
- At the same time you start to introduce pull in production and order taking, you need to start thinking about flow and pull in product development for each product family. This is particularly the case b/c for most firms the quickest way to grow sales in order to absorb freed up production resources is to speed up products already in the pipeline.
- Once they understood that waste of overproduction translates in the warehouse world as a “faster than necessary pace” and that levelling incoming orders is a necessary precondition for creating flow, they make rapid progress.
- The next leap is to create an organization which can channel the flow of value and keep the stream from silting up again. Devise a practical strategy to fully utilize all of the resources being freed up.
- Doing this requires reorganizing your business by product families with someone clearly in charge of each product and creating a truly strong lean promotion function which becomes the repository of your hard earned skills. It also requires a consistent approach to employment in your firm and a willingness to remove those few managers who will never accept the new way. Finally, it means creating a mind set in which temporary failure in pursuit of the right goal is acceptable but no amount of improvement in performance is ever enough.
- Your sensei will need a place to sit down (although a good sensei doesn’t sit very often). Your process mappers will need somewhere in the organization to call home. The extra people you will soon be freeing up will need a place to go (lean function). Your improvement teams will need logistics support. Your operating manager will need continual education in lean methods and periodic evaluation of their efforts to make sure there is no backsliding. You need a permanent lean promotion group and it should report directly to the change agent.
- A good idea is combine your quality assurance function with your lean promotion function so that quality enhancement, productivity improvement, lead time reduction, space savings, and every other performance dimension of your business are considered equally and simultaneously. Initial attention to ‘standard language’ so everyone is using the same terminology, and a consolidation of the quality and lean functions is an excellent investment, so operating managers don’t think quality assurance experts and lean experts are telling them to do different things.
- Our rule of thumb is when you convert a pure batch and queue activity to lean techniques you can eventually reduce human effort by ¾ with little or no capital investment. When you convert a ‘flow’ production setup to lean techniques, you can cut human effort in half (mostly by eliminating indirect activities and rework plus line imbalances). And this is before your lean development system rethinks every product so it is easier to make with less effort. Meanwhile, in product development and order taking, converting from batch and queue to flow will permit your organization to do twice the work in half the time with the same # of people

Devising growth strategy to absorb resources at the rate they are being freed up
- pass cost savings directly through to gain volume
- speed up development of projects in the pipeline to spur sales and increase market share
- focus on shortening production lead times, delivering exactly on schedule, and making exactly the configuration of product the customer wants, again to boost sales of conventional products.
- Try to convert their product from a good to a service and add downstream distribution and service activities to their traditional production tasks.
- Integrate backwards upstream to consolidate previously scattered production activities into single piece flow

- in every organization there was a small group of managers, generally less than 10% who simply could not accept the new ideas. Hierarchical personalities needing a clear chain of command and something to control were particular problems.
- To repeat: as you begin the process, most managers and employees will not understand what you are doing but will be neutral to positive if you make employment guarantees. Take action quickly to remove those managers who won’t give new ideas a fair trial.
- At the end of the 1st improvement initiative on an activity, tell the line management and the work team that in 3 months it will be time to fix it again. It’s critical to get your employees to understand at the outset that no level of performance is ever good enough, and there is always room for improvement. This will usually mean moving every machine and changing every job.
- In the early years of the lean transition, the lean promotion function will have to take the lead in planning successive improvement campaigns. Increasingly over time, improvement becomes the most critical job of the product team leader and the primary workforce. You must instil the idea that management is no longer about running activities in a steady state and avoiding variance. Instead, it’s about eliminating the root causes of variances (so they permanently disappear and managers can stop fighting fires) while improving performance in periodic leaps that never end. How much did you improve performance? Must become the critical question in evaluating managers.
- An energetic general manager at Pratt took on a task which was correct in principle but too ambitious in practice. When this manager and his direct reports to other jobs were reassigned instead of fired (the usual step taken in the past), a critically important message that mistakes in pursuit of the right goal are not a failure.
- When at the same time a general manager of another component center was terminated for anchor dragging on the lean conversion (in an operation that was performing no worse than it had historically), he sent the complementary message it’s not acceptable to do nothing to improve your operation on the grounds that the risk of failure is too high.
- Getting these 2 messages across is a critical task of the change agent

- once you’ve got momentum (in the 1st 6 months of the transition) and have rethought your organization (over perhaps the next year), you’re a long ways toward your goal of a lean transformation. Additional steps are important to make the new approach self sustaining. After initial inertia, the # of proposals for improvement will snowball and you’ll need a mechanism for deciding what’s most important to do now and what can wait until resources are available. You will need to create a new way to keep score and to reward your people so they will continue to do the right things, and to make everything in your firm transparent so everyone can see what to do and how to improve. You will need a systematic method for teaching lean thinking to every employee (including customers’ and suppliers’ employees along your value streams). Finally, you’ll need to systematically rethink your tools, ranging from monster machines in the factory to computer systems for scheduling, with the objective of devising right sized technologies which can be inserted directly into the value stream for individual product families.
- The experience of taking on too many lean initiatives once the ball is rolling is the norm, so it’s vital to use the tools of policy deployment to reach agreement across your whole organization on the 3 or 4 lean tasks your firm can hope to complete each year. Example: reorganize by product families, introduce a lean accounting system, kaizen every major production activity 4 times, and kaikaku order taking and scheduling.
- Even more important task for your annual policy deployment exercise will be to identify the tasks you can’t hope to succeed at just yet but which some parts of the organization will badly want to tackle right now. You’ll need to publicly acknowledge these are important but they will need to be ‘deselected’ until the next year or the year after, when resources are available.

Lean Accounting
- many firms today still run standard cost accounting systems, although many more have made some move toward activity based costing. The latter is a great advance, but you can go even further. What is needed is value stream/product based costing including product development and selling as well as production and supplier costs so that all participants in a value stream can see clearly whether their collective efforts are adding more cost than value or the reverse.
- Once you reorganize by product family and shrink your traditional functions with their allocated overheads, it becomes a lot easier to assign rather than allocate costs to products so that product team leaders and their team members can see where they stand. Your own accounting group should be able to figure out how to do this – you don’t need a consultant – but we strongly recommend you start with the chief financial officer and involve him in several weeks of hands on improvement activities to get started. Then ask the simple question: What kind of management accounting system would cause our product team leaders to always do the right (lean) thing?
- You may still need a financial accounting system for your profit and loss statement, which does strange things like value potentially obsolete inventory as assets, but you won’t need or want ot show it to your product team leaders. Make a gradual transition from your current system to the new lean approach over a year or so to avoid chaos.

- Ideal compensation scheme pays each employee in exact proportion to the value they add, as value is determined by the customer. Actually doing this may present insurmountable technical problems & may only be achievable with enormous, non value adding effort.
- In a lean firm, usually the simplest and cheapest method of calculating compensation is generally the best. This mean paying a market wage to employees based on their general qualifications (whatever assembly workers or entry level product engineers receive on average in the area of a facility) along with a bonus tied directly to the profitability of the firm. Because a lean firm should be substantially more profitable than average, the bonus should be a significant fraction of total compensation (Wiremold set a target for its bonus to be about 20% of base pay, on the presumption it should be at least this much more profitable than the ‘average’ manufacturing firm in its area and industry).
- Considering bonus schemes, it will become apparent the total amounts on offer, while substantial, will not be enormous. This underlines the reality the primary incentive for working in a lean system is that the work itself provides positive feedback and a psychological sense of flow.
- Incentive pay is really a carry over from the old days of piecework and is sometimes used today to deal with the perception that work pace is harder in lean systems. In fact, the pace of minute to minute exertion is the same. The difference is that lean systems identify and eliminate practically all of the non-productive slack time for employees at every level. Therefore, it initially feels as if the work is harder, but after a period of acclimation, when a lack of waste begins to seem normal, people often report that the pace is actually much easier than before. Trying to buy the allegiance of your workforce to a lean system with cash is approaching the problem from the wrong direction. Stress the positive aspects of the new work environment.
- Regarding separate bonus’ for members of each product family, lean accounting makes them technically feasible, but we thin they’re also a bad idea. In lean systems work tasks are evaluated very carefully by the work team itself to achieve an even pace with no wasted time. Looking across a firm, the pace of work inside each product family should be very similar. What’s more, it will frequently be necessary to reassign employees from one product to another, sometimes after an interlude in the lean promotion function, as the needs of the business change. Reassignments will generate continuous conflict if bonuses vary from product family to product family because of varying competitive conditions in the marketplace.
- Benchmarking others usually wastes time you could better spend doing the right thing. However, benchmarking your internal performance, especially your rate of improvement, is critical. It’s also vital to create a ‘scoreboard’ which shows everyone involved in a value stream exactly what’s happening in real time. These don’t need to be complicated or require significant investment. Simple diagrams and process status boards can be used, with little in the way of language or math skills.
- It has become conventional wisdom higher levels of management should learn to listen to the primary work team since they know the most about how to get the job done. Unfortunately, this bit of common sense is only half right. Your primary workforce probably does know the most about the hard technical aspects of getting isolated jobs done (including all the deviations from poorly maintained official procedures which are necessary in order to get products made at all). What primary workers and front line managers typically don’t understand is how to think horizontally about the total flow of value and how to pull it. Nor do they typically understand the methods of root cause analysis to eliminate the need for fire fighting. Therefore, if you ask your primary workforce to implement lean techniques or permanently solve problems today, you are likely to get a rush of suggestions followed by general disillusionment when they fail to work properly.
- To gain lean skills, your workforce needs training of a special type. The faculty is entirely line managers (which means they must learn operational skills themselves, skills rarely mastered by senior managers in western firms) and the skills being taught are precisely those needed immediately for the next phase in the lean transition.
- Lean learning and policy deployment can be carefully synchronized so knowledge is supplied just in time and in a way that reinforces the commitment of managers and all employees to doing the right thing. Everyone learns the same approach to problem solving and everyone experiences the direct benefits of continuous learning. Over time, the investment in training can also be directly connected to the resulting improvements in the business.

- includes production equipment, information management systems, test equipment, prototyping systems, organizational groupings, accounts receivable
o large, fast, elaborate, dedicated, centralized tools are more efficient is the cornerstone of batch and queue thinking
- for every activity ask them to work backwards by asking: What kind of tools would permit products in a given family to flow smoothly through the system with no delays and no back loops? And what types of tools would permit us to switch over instantly between products so there would be no need to make batches?
- 2 small machines with only the features you needed generally cost much less in total than one big one with all the bells and whistles.
- Much of your new tooling can be built inside your firm using excess materials at very low cost by excess people freed up by lean techniques (consider throwing away your industrial equipment catalogues and getting directions to your local junkyard)
- You will realize more and more you can provide most value streams with their own dedicated equipment to completely cut out bottlenecks at monuments and stoppages due to changeovers. When the value stream shifts its course, you can quickly redeploy your right sized tools to serve new needs. Tackling your major monuments and completely replacing them with right sized apparatus will probably only get into full swing after several years of making the best of what you have already.
- make sure your suppliers and distributors are following your lead, that you are creating value as close to your customer as possible, and you are making lean thinking automatic and bottom up, rather than merely top down.
- The only alternative is to actually fix their production, product development, and order taking systems by sending them your lean promotion team. (this is also an excellent way to be alert to broader trends in industry and to keep your lean thinkers sharp by continually exposing them to new situations) Don’t do this until you’ve fixed your own activities which the supplier or downstream firm links into, but then go as fast as possible and accept no excuses. “We’ve done it quickly. We know you can, too. Here’s how. Let’s get going.”
- To make this approach feasible, it’s obvious you will need to winnow down your upstream and downstream partner list and prepare to work with them for the long term. When you go to help them, don’t charge for your help. Instead, agree up front on how you are going to share the savings. (Porsche and its suppliers decided on a 3 way split: suppliers 1/3, Porsche 1/3, customers 1/3) It should be easy to get paid back as well in better quality and shorter lead times for your products.
- Point out there is an extra ‘win’ for your suppliers in this ‘win win win’ situation because they will learn how to cut costs and lead times on all of their activities but will probably not need to pass these savings along to their other customers who are still bogged down in short term, market based thinking. They can steadily gain business by under pricing batch and queue competitors in the supplier community.
- As soon as your suppliers and downstream customers start to improve their in house performance, insist they send their newly created process improvement teams to fix their own suppliers or downstream customers. (Remember your suppliers and downstream partners are typically no more integrated than you are) Set continually declining target prices and continually increasing quality and reliability goals, which make if impossible for them to relax.
- It will help this process to bring your 1st tier suppliers together in a supplier association for mutual learning of the type long utilized by Toyota. Your 1st tier suppliers may then with to draw up a short list of 2nd tier suppliers they wish to work with. Then the resources of the 1st tier suppliers can be concentrated on a much smaller number of 2nd tier firms. Similarly, the assembler firm near the customer at the end of the physical production stream may need to join forces with other lean minded assemblers to take on the most intractable ‘batch head’ raw materials suppliers and show them a better way.

- Some firms can exist happily by doing everything in only one place. The mystique in their products protects firms of this type from knockoffs. In addition, volatility in some export markets, due to currency shifts or changes in tastes, can be tolerated if no one market accounts for a large fraction of total sales. The world as a whole will provide a stable enough market.
- Some firms are happy to take advantage of export opportunities as they arise but to treat them as a windfall rather than a core aspect of the business.
- For most products with global market potential, the correct global strategy is to develop a complete design, order taking, and production system within each major market of sale. This makes it much easier to communicate with the customer and also makes it possible to design, produce and deliver the product very quickly with just the right specifications. ‘High tech’ mass production at a centralized global location and a far flung design and production system seeking to find the lowest wage cost for every activity along a complex value stream can never achieve these combined objectives. These alternative strategies optimize one course of the value steam at the expense of the whole.

Convert from Top-Down Leadership to Bottom-Up Initiatives
- initially the process improvement group will work top-down because the pressing need is to change the way your employees think by directly demonstrating a better way. Over time the process improvement group will focus more making every line manager a sensei and every employee a proactive process engineer. The function can then tackle only the very toughest problems where line managers still need outside help. This is the present day assignment of the Operations Management Consulting Division within the Toyota group.
- There is a critical transition as you move your organization through the lean transformation, a point when managers must become coaches rather than tyrants and employees become proactive. This transition is the key to a self sustaining organization. Note: if you are the change agent, you may become the biggest problem. Change agents sometimes want to continue commanding change from the top when those on the bottom were quite capable of sustaining it on their own.
- One solution is to change your behaviour, another is simple to move on. Many of the best change agents we’ve encountered seem to work best by converting an organization over a period of several years, then turning senior management over to a more collegial personality, and moving on to another firm still full of ‘concrete heads’.

- whenever encountering a would be change agent who wants to transform his firm, ask: are you willing to work very hard, accept the one step backward which comes with 2 steps forward, and stick to your task for 5 full years?

- Often an extended period may be required for the transformation because a large number of people including senior leadership must be taught to see the difference between value and waste. And a significant period of experimentation by ordinary managers – complete with backward steps – is necessary before everyone begins automatically to apply lean thinking and move the organization ahead from the bottom and middle ranks. It’s only at this point the change agent can step in front of the bus without being missed and it’s at this point also that the full financial benefits of lean thinking are apparent. From this point we believe there will be no turning back and the change agent may even want to move on to a new challenge.

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- Of course, even a brilliantly performing firm can fail for reasons beyond anyone’s control – an unsuspected shift in consumer tastes, the sudden appearance of a new technology which totally eliminates the need for the old product (clothes pin after the home dryer, vacuum tube after the transistor), but with a lean tool kit, the chances of succeeding will soar.

PART III - Lean Enterprise

- When asked: What’s new here? What are you saying that we haven’t heard before? – We are putting the entire value stream for specific products relentlessly in the foreground and rethinking every aspect of jobs, careers, functions, and firms in order to correctly specify value and make it flow continuously along the whole length of the stream as pulled by the customer in pursuit of perfection.
- Objectives for the lean enterprise: Correctly specify value for the customer, avoiding the normal tendency for each firm along the stream to define value differently to favour its own role in providing it (example, manufacturer who thinks the physical product itself is the customer’s primary interest, the independent sales and service company that believes responsive customer relations account for most of the value to bring a product from concept to launch, from order to delivery, and from raw material into the hands of the customer…). Then identify all the actions required to bring a product from concept to launch, from order to delivery, and from raw material into the hands of the customer and on through the its useful life. Next, remove any actions which do not create value and make those actions which do create value proceed in continuous flow as pulled by the customer. Finally, analyze the results and start the evaluation process over again. Continue this cycle for the life of the product or product family as a normal part, indeed the core activity, of ‘management.’
- Mechanism of the lean enterprise is also very simple: a conference of all firms along the stream, assisted by technical staff from ‘lean functions’ in the participating firms, to periodically conduct rapid analyses and then to take fast strike improvement actions. Clearly someone must be the leader, and this is logically the firm bringing all of the designs and components together into a complete product. However, the participants must treat each other as equals, with waste as the joint enemy.
- This is not the norm because jointly analyzing every action needed to develop, order and produce a good or service makes every firm’s costs transparent. There is no privacy. The question of how much money (profit) each firm along the value stream is going to make on a specific product is unavoidable.
- All the parties willingly negotiate a set of principles to guide their joint behaviour in the future and then devise a mechanism for mutual verification that everyone is abiding by the principles. These principles may be something as follows:
o Value must be defined jointly for each product family along with a target cost based on the customer’s perception of value.
o All firms along the value stream must make an adequate return on their investments related to the value stream.
o The firms must work together to identify and eliminate waste to the point where the overall target cost and return on investment targets of each firm are met.
o When cost targets are met the firms along the stream will immediately conduct new analysis to identify remaining waste and set new targets.
o Every participating firm has the right to examine every activity in every firm relevant to the value stream as part of the joint search for waste.

- A simple example of a problem to be overcome is the need for a firm far up the stream to invest in new technology to produce in small lots rather than large batches. Because most of the benefit is gained by downstream firms but all of the costs are borne by the upstream firm, some means must be developed for the former to compensate the latter.
- As the introduction of lean thinking forces problems and waste to the surface in all operational areas, new organizational problems will inevitably arise as you apply these ideas. As you shrink traditional functions, which were formerly the key to career paths in your organization, many employees will start to express anxieties about where they are going and whether they have a ‘home.’ Employees assigned to a particular product team to apply their skills to the value stream may begin to wonder is they are ‘going anywhere’ and get confused about ‘who I am’ (I trained as an electrical engineer but I seem to spend most of my time on integrative tasks which don’t utilize all of my training). While the actual work is likely to be much more rewarding than in the previously disconnected world of departmentalized batches and queues, the lack of perceived progression and the loss of a commanding skill may be dispiriting.
- It is bad for the enterprise if employees gradually lose their edge and simply spend all their time applying what they already know to standard problems (the generalist engineer problem) – a potential weakness in competing over the long term with a (German) firm which has extremely strong technical functions.
- A new form of career must be devised, and ‘alternating career’ where employees go back and forth between applying what they know in a team context and taking time out to learn new skills in a functional setting. The idea would be to assign employees to product teams for the life of a development exercise or during a product’s production life, but to send them back to their home functions when a project is completed or they are no longer needed. In the home function, they could receive training on new skills, or work on advanced projects which apply existing skills to the limit, or analyze the flow of engineering, order taking, and production activities as a technical adviser to a lean enterprise seeking to identify and eliminate waste.
- A new concept of career in which more and more skills are gained and applied to more and more difficult problems is both good for the employee and good for value flow. Gaining the agreement of employees that this is the path to the future is the key to self perpetuating lean enterprises.

- Rethink departments: traditional functions should not perform traditional tasks
- Engineering should not engineer, in the sense of performing routine engineering on a product. Purchasing should not purchase, in the sense of making individual purchase decisions and holding the hand of the supplier in getting products to launch. Operations should not direct employees in day to day production activities. Quality should not conduct detailed audits of products or conduct fire fighting exercises to eliminate problems with a specific product. These are all tasks for the dedicated product teams, dealing with the issues of the present.

- What functions should do is think about the future.
- Product engineering should work on new technologies that will permit products to do new things for the user and develop new materials and methods which make it possible to eliminate fabrications steps and reduce costs. Tool engineering should work on right sized devices – from computers to production hardware – which make is possible for product teams to create value in continuous flow and rapidly shift over between product variants. Purchasing should identify the set of suppliers a firm will work with in the long term and develop a plan for each supplier to ensure they will have the technologies plus the design and production capabilities to assure the highest quality performance. Quality should develop a standard set of methods which the product teams can apply to ensure ever product is right every time with no backflows and no ‘escapes’ of bad products to the customer.

- Every function would provide a home to employees with given technical specializations (including production workers who must become operations specialists able to detect and eliminate waste). A primary job would be to systematize current knowledge and procedures and teach these to function members as needed (JIT knowledge b/c most knowledge is quickly lost if not immediately applied). The functions other job would be to search for new knowledge and summarize it in a form which can be taught when needed.

- Firms provide the link between streams; they are the means of crossing from one valley to the next in order to make max use of the technologies and capabilities accumulated by each firm’s technical functions. They also provide the means of shifting resources – people, space, tools – from value streams which no longer need them to other steams which do. From this if follows most firms will want to participate in multiple value steams, often with different upstream and downstream partners.

- In American management, the industrial finance system asks each firm to optimize its short-term performance but ignores the performance of the whole because no shares of a whole value stream are traded in any market.
- German firms face a adjustment challenge in addressing the jobs problem at the outset and in creating a system of alternating careers for all workers.
- Ask an NEC employee who he is and the answer will always be “an NEC employee,” as opposed to an engineer or some other functional skill
- While the German firm needs to accustom employees to working in horizontal teams, the typical japanese firm needs to accustom employee to the idea skills must be continually upgraded and carried to the cutting edge through periodic in function assignments which overcome the generalist employee problem.
- The horizontal kieretsu, rather than individual firms or the vertical [supply group[ keiretsu, are the essential mechanism for redeploying people from one valley to another in this situation because most individual firms have stuck to a very narrow range of products and cannot easily shift people within their own operations, all of which face the same problems.
- Most of the reductions in cost are due to cutting the wages of personnel and using older equipment. This is another instance of simply shifting cost burdens rather than reducing the amount of effort needed to get the job done.
- The manufacturer can size its production capacity for a steady stream of vehicles because the mobility provider can counteract the business cycle by replacing vehicles at a steady rate.
- Revitalize a highly mature “product” by converting it from a hassle laden good to a hassle free service
o What goods can be turned into services?