The Beginner’s Guide to Lean

Toyota has just overtaken Ford as number two in the global motor industry. At the Tokyo motor show Toyota confirmed it intends to overtake General Motors to become number one by 2010. This has not been achieved through buying market share – far from it – Toyota is making record profits and could buy many of its competitors for cash.

A senior Toyota executive recently summarised the reason for their progress over the years. “Brilliant process management is our strategy. We get brilliant results from average people managing brilliant processes. We observe that our competitors often get average (or worse) results from brilliant people managing broken processes.” This just about sums up the real lean challenge: how to go beyond eliminating waste in broken processes to creating brilliant processes.

Toyota is now using this process advantage to introduce new hybrid engines that will redefine the core technology of the auto industry for the decades ahead. The rise of Toyota from nowhere fifty years ago to global leadership is a remarkable story that should make every industrialist stop and take notice. Why would you not want to be the Toyota for your industry? Creating solid revenue growth through the business cycle by creating real value for customers.

Learning from Others

How do you start creating brilliant processes in your organization? The first thing to do is to learn from the experiences of the lean movement over the last decade. Many began their lean journey by recognizing that only a small fraction of the steps we carry out actually create the value the customer is paying for. The rest is Muda – the Japanese word for waste. So they went on Muda hunts and initiated 5S programmes to clear everything unnecessary out of the way. What they uncover is lots of low hanging fruit.

At the same time firms discovered that it was possible to make dramatic changes to an area in a short space of time through Kaizen breakthrough exercises. After a roller-coaster ride during the 5 days, teams typically report big leaps in performance. This brakes the “we have always done it this way” log jam and gets things moving. It also shows that you do not need to spend a lot of money to make these changes. Kaizen is hard work and exhilarating and a great way to open minds to change. However on their own that they create islands of excellence – which if they are not linked together make little difference to the bottom line.

A Process Perspective

Learning to see waste and that rapid change is possible are however only preparatory steps for lean. The second thing to do is to learn to see your organization from a process perspective. Lean is a business system focused on managing processes and improving them by compressing time rather than keeping each of the assets busy. 

Every organization is a collection of several primary value cresting processes (design and production) and a host of supporting processes (such as finance and maintenance). A process is a sequence of steps that must be carried out in proper order to create value for the customer and managed as a whole and not separately. 

The best way to learn to see your processes is to take a product and follow its path from beginning to end – from order entry to delivery to the customer. Mapping what we call a value stream reveals how the current process operates today – not how it is supposed to operate. It also reveals all the wasted time and effort in the process. It is both a consciousness raising exercise for all those involved and a powerful diagnostic of how broken the current process is. 

Creating Flow and Pull

Value stream mapping is also a management tool to guide actions to create a future state. From it we can quickly see which steps are incapable of delivering quality products on time, which are not available when needed (because they are broken down), which are inflexible because of long changeovers and where the product has to queue to use a bottleneck process. Knowing this we can use quality tools to analyze the root causes of variance, productive maintenance tools to improve machine availability and set-up reduction to improve flexibility. In the longer term we might also replace bottleneck equipment with smaller right-sized tools.

However the object of improving the performance of each step is so we can begin to link them together so the order and the product can flow from value creating to value creating step without interruption. (Exactly the same logic applies to linking steps in the information flow.) In some cases we can physically co-locate steps into a continuous flow sequence – in a cell or line. In others, which operate at different speeds and maybe serve several product value streams – such as stamping – we may have to link them using a Kanban pull system. This only triggers small batches of products to be made when the upstream step needs them. 

Creating flow is half the story, linking the rate of flow to customer demand is the other half. For this we need to understand the rate and variability of demand for this product family. Then we can decide how much we can flex this flow and how much we need to buffer against demand fluctuations.

Having done this we can set the rate of production that will satisfy the rate of demand and we can level the workload on production. Furthermore as we have linked operations into a flow we can now trigger production at one pacemaker process instead of sending schedules to each operation. 

The first most important result of creating flow and leveled pull is to be able to respond more quickly, accurately and with significantly less effort and inventories to customer demand. Through a succession of future states we can approach the ideal, which is to be able to be able to make and ship tomorrow what was sold today for products made in volume. The second result is that by improving the capability of each step and linking them tightly together any slippage in the system will immediately become obvious, as the whole system grinds to a halt. Time compression is a powerful way of ensuring that the grass does not grow back when you back is turned. 

Managing the Value Stream

Creating flow and leveled pull for each product family value stream that flows through your organization will entail a lot of cooperation from different departments. Almost invariably no one person will be responsible for managing the entire product flow, only parts of it. Therefore it will be necessary to appoint a Value Stream Manager to lead the change for each product family. Initially this might be someone from within production. However as soon as we extend flow and pull to our upstream suppliers and downstream distributors and begin to use our lean experience to design the next generation product and process this will have to be someone with broader experience who can report directly to stop management. 

Together the value stream managers for each product family can assess the common problems with each process and can articulate the need for support from each function to solve it. They are actually the (internal) customers for each of the support processes, typically the responsibility of a different department. Instead of managing these departments solely by budgets and asset utilization we can now begin to manage them by how well they support the improvement of each value stream. 

The Lean Journey

It is clear that lean is a journey which requires stamina and perseverance. Toyota made the fundamental switch from managing assets to creating flow and pull internally by 1960 and a decade later began to help their first tier suppliers do the same. This cascaded to their second and third tier suppliers during the 1980s and into their parts distribution system in the 1990s. Having made this switch they have been refining their processes ever since. They still set very demanding improvement goals for each new product generation.

We are still on the threshold between managing assets and managing process flows. The changes that are required are in part a physical reconfiguration of our operations, but much more a change in consciousness and behavior by our employees and managers. This can only coma about by learning by doing and by working out your own answers for your own situation. It may be comforting to note that if you keep going down this path it will be very difficult for others to catch up. On the other hand if you are slow off the mark it might be difficult for you to survive! 

Yours sincerely

Professor Daniel T Jones

Meeting the Challenge from Turkey

I have just returned from three big gatherings of lean folks – the Manufacturing Live event in Telford, the AME conference in Toronto, Canada and the Lean Summit in Bursa, Turkey. All three had record numbers of people attending and it is clear that interest in lean is alive and growing everywhere. 

The biggest surprise was to see over 1,000 plant and company managers hungry to learn at the Turkish event. Jim Womack and I spoke at the first Lean Summit there five years ago. Turkey was then a closed economy dominated by a few big family groups who controlled everything, including the political system. Delegates came, but it was clear they did so because they had been told to do so by their bosses – and it was frankly an uphill struggle to interest them in lean!

Five years later the transformation is amazing. A new, popular government is busy reforming the political system and opening up the economy to foreign investment and competition. The rewards are coming quickly – Toyota and others are ramping up production very fast and exports are hitting new records each month. But most impressive of all was the interest and enthusiasm of the delegates – a new breed of well educated younger managers eager to do the right thing. Moreover the Lean Institute Turkey had wisely involved students from local universities in running the conference – and their interest was infectious – crowding round at each break asking really good questions. 

Turkey shows what can happen when a country opens up its economy and modernises its political system. Growing exports and domestic consumption lead to rising living standards and more stable politics. Even as they grow they know that they have maybe twenty good years before the next low wage economy in eastern Europe or the Middle East undercuts their current competitive advantage. 

Although China captures the headlines, competition from the likes of Turkey is equally significant for us in the next decade. China may be the right place to source price sensitive, commodity products with stable and predictable demand. However it makes more sense to source price sensitive products where rapid response is still important within Europe, in a place like Turkey. Their constraints are not their, in the main, modern plants or management, but the capability of their local supply base and the time it takes to get their goods to customers across Europe.

To compete with manufacturers in Turkey it is probably not enough to just squeeze waste out of your existing processes making existing products. It will also require a rethink of each product value stream to be able to make every product every day so you can ship them the day after. This involves real time feedback from end customer demand to trigger frequent, levelled production instructions to your pacemaker process and a much tighter synchronisation of material flows into and out of your plant. It also involves a significant compression of your supply base so they can make and ship to you every product every day, as outlined in Seeing the Whole. 

Beyond that we need to think hard about the Ideal State design of the next generation product, that simplifies the manufacturing task for the whole, much compressed, supply chain and is able to deliver the exact product into the hands of the end customer within a matter of hours. The speed and responsiveness of the value stream, not the amount of finished goods inventory waiting for customers, will be the critical dimensions of competition in the next decade. 

Yours sincerely

Professor Daniel T Jones

The Tale of Two Companies

While everyone was at the beach I was invited to visit two contrasting companies. Both are enthusiastic about lean. Both are progressive, multi-national companies committed to modern business practices. One really understands what lean is about while the other is still struggling to grasp what lean has to offer. It struck me that we can learn a lot from their contrasting experiences.  

The first company assembles several different types of machinery on separate lines in modest volumes. The plant is modern, well laid out and clean and suppliers deliver sub-assemblies in the planned sequence direct to the assembly track. But the work pace is relaxed as they are running well below planned capacity. However they are building to replenish several weeks of dealer stock and production is fixed three weeks in advance. The total stock turn for the whole system, including suppliers and dealers, is low and has not budged in recent years. Moreover they are worried that they may not be cost competitive in the market place, which was the reason for my visit.

For several years they have run a big Six-Sigma programme, with many staff trained as Black Belts and an impressive project management system. Recently they bought a copy of Learning to See and began to map their overall process for the first time. It was a revelation to them; no one had ever looked at their high-level process in this way. They then drew Current State maps for each assembly line and after a few days brainstorming identified over ninety possible new improvement projects! In true Six-Sigma fashion they plugged these into the project management system to prioritise them by the estimated cost savings and set their Black Belts to work. 

However the Plant Manager, correctly, had a sneaking feeling that there is more to lean than this. A quick look at the list of projects that are underway revealed the truth – very few of them would make much difference to the total lead-time from placing an order, transmitting this back upstream to the suppliers and building the product and delivering it to the customer. Most of them were focused on improving the capability of individual operations, rather than linking them to improve the velocity of their production system. No doubt these projects will help improve their defect rate (although they already extensively test their products at several points in the assembly process) and their on-time delivery to their dealers stock yards. The only project to compress overall lead time was a top management edict that they would move to building every product to end customer order, within a three week timeframe. However there was no clear plan as to how this was to be achieved.

The second company assembles several different types of consumer electronic devices for the retail and professional markets. A few years ago in response to competition from other plants within the group in lower wage locations, they decided to radically overhaul their operations using lean principles. Their goal was to be able to make every product every day so they could ship them to dealers the next day, and to have their main local suppliers totally synchronised with their production lines. This was a big leap from the several weeks of WIP and finished goods they ran with in the past. 

They designed a series of quite different assembly lines and cells, each tailored to the mix and volume requirements of each product family. They also reconfigured their electronic board stuffing machines so each machine makes all the boards for one product family. These now only make boards when one of four karts arrives back empty from their assembly track. Likewise their local suppliers can access their equally innovative real time production monitoring system so they know exactly what to make and ship in the next delivery. Staff from the supplier actually check and load the parts on to the first station of the assembly track, closing the loop on quality.

Beyond this they have now pulled all their finished goods stock back to the plant, closing several regional warehouses, and brought engineering and customer service activities on site. Value Stream Managers are now responsible for leading the engineering, production, procurement, distribution and customer service for each product family, supported by the functions. They are now very close to achieving their goal of making today what they need to ship tomorrow – at the moment still to the retailer, but very shortly in many cases directly to the customer’s home! No other plant in the group can now match their ability to serve the UK market.

There are three lessons we can learn from these two examples: First the real point of time compression is not just escaping from double-guessing forecasts several weeks out and being able to respond to customers more quickly and exactly. Time compression is also the most powerful way of squeezing out waste and variance from the ordering and production system – for once and for all. Integration has to be built on higher levels of capability – and if it starts to degrade, as it will when you are not watching, it is immediately visible because it stops the whole system! And you know exactly where to go to work next. 

Second it is true that implementing lean starts with mapping the Current State and asking the right questions to drive the actions to achieve a Future State. However developing a strategic vision of where lean could take you starts with developing an Ideal State, in which time is compressed to the bare minimum and actions are only triggered by demand from customers. Our second example was only following Toyota’s lead in working backwards from that ideal. This may be far off in your industry – and may require some challenging thinking to get there – but it points our actions in the right direction. 

Third, armed with such a vision of what it will take to compress time, we should make this a criterion in the selection of projects to work on. No question that we should develop a business case for our lean actions. But we cannot do everything at once. The real bottom line gains come from a sequence of actions that involve reconfiguring and compressing the value stream. And doing it again and again and again.

But….I hear you say…this is all very well…but my customers are unpredictable and sales are volatile….and my suppliers need time to respond…and our new production control system makes this impossible. OK, so there are many difficult issues to work through to make lean a reality. We will return to these in future letters.

However lean is also not rocket science and there is a growing body of practical experience to draw on from people who have done it themselves, both at the operational and the strategic level. Our objective is to help make this available to a wider audience, through our workbooks and workshops, in order to help others follow the example of our second company. In my view their example points the way to a viable future for lean manufacturing in the UK. 

Yours sincerely

Daniel T Jones Chairman

We have been (Lean) Thinking

It’s been six years since we launched Lean Thinking and we’ve had a lot of satisfying experience in these years watching members of the Lean Community resolutely applying the five lean principles of value, value stream, flow, pull and perfection.  During this same time, we’ve also watched with an emotion combining amusement and despair as managers around the world madly pursued new business models and financial engineering.  Events since the launch of Lean Thinking amply confirm our long-held view that managers will try anything easy that doesn’t work before they will try anything hard that does work.  The good news is that the disasters of recent years in pursuing worthless easy things have prepared all of us to tackle the one hard thing (lean thinking) that always works.

In this spirit, we have just reissued Lean Thinking in a Second Edition with a new Part IV sharing the continuing success of our exemplar companies, led by Toyota.  We also summarise our recent discoveries on how best to make the lean leap and we would like to share some of our findings.

As you may remember, the first edition of Lean Thinking provided an Action Plan of twenty-one steps for achieving a lean transformation in your organisation and all the way up and down your shared value streams.  We’ve stuck with this Plan – including the five-year time frame - because it works, but we’ve gained important insights on a number of points:

Find a Change Agent: We hope this person is you or that you are lucky enough to work for one.  However, we’ve discovered that there are really two roles involved in creating permanent change: blowing the old ways aside and firmly installing the new way as a business system.  In the most successful implementations we’ve observed, the visible Change Agent was assisted by a system builder – sometimes behind the scenes – who methodically put all the elements of organisation and method in place so the new system continued to improve even after the Change Agent moved on.  In the absence of the System Builder, results often last only as long as the Change Agent is in charge.

Get the Knowledge: In a parallel finding, we’ve discovered that we are moving beyond the need for isolated process knowledge – how to create truly continuous flow cells, how to install simple pull systems – to the need for comprehensive lean system knowledge.  That is, we are moving from process kaizen to flow kaizen, and this is a job for line managers rather than lean experts operating in consultant mode or located in a lean promotion office.  (These experts are still needed, but to solve higher-level process problems rather than to repetitively address lower-level process problems caused by a lack of effective line management.)  

Seize the Crisis: Moving all your manufacturing operations to the lowest piece-part cost location on the globe and operating there with traditional mass production methods does not constitute seizing the crisis!  You’re probably creating the next crisis instead.

Map Your Value Streams: The power of this simple rule is the most surprising thing we have learned in the past six years.  We simply hadn’t grasped how much help the average manager needs in learning to see the value stream or how eagerly managers would embrace Toyota’s simple method for mapping information and material flows.  Now if only every manager and every mapping team can achieve and sustain its beautifully drawn Future State!  (LEA will be running another Value Stream Mapping workshop on June 17th).

Reorganise Your Firm by Product Family and Value Stream: This is a great idea if…you can do it without creating enormous disruption.  In the past six years we’ve discovered that some firms really need to send a message to their functions (e.g., engineering, purchasing, sales) to get behind value stream thinking, and a dramatic reorganisation of this sort is certainly one way.  However, we’ve also discovered the power of a different way:  Appoint a value stream manager for every product’s value stream and have this person take responsibility for defending the product’s interests as it goes through a functional organisation.  Then create a chief value stream manager to aggregate the problems being discovered by the individual value stream managers (which will probably be a very similar) and take up these problems with the Chief Executive in conference with the function heads.  A  Chief Executive wanting to confront a firm’s functional sclerosis without the chaos of a total reorganisation may be able to get very much the same effect through this method.  And, by the way, this is how Toyota runs its predominantly functional business through the mechanism of the chief engineer for each car line who determines what engineering, purchasing, operations and the other functions need to do to make the product a success for the customer and for the company. 

Create a Lean Promotion Function: We are now even more certain that every firm needs such a function, where its senior experts on every aspect of a perfect value stream – from quality to equipment availability to continuous flow and pull -- can be located.  However, we also know that the lean promotion group can never substitute for widely instilling lean skills in value stream managers and function leaders.  We’ve watched all too often as the “lean team” came to the scene in firefighting mode to push muda out of the way as line managers, function heads, and production associates passively watched.  We’ve also observed as competing experts within the lean group gave conflicting advice and thoroughly confused even those line managers who wanted to be actively involved.  Our hard won advice is to keep the lean team small and its message completely consistent.  Then focus it, as time goes on, on higher-level problems as line managers become lean managers for routine tasks.

When You’ve Fixed Something, Fix It Again: This is an obvious point.  Every Future State for your value streams, as it is achieved, must become the new Current State as you start the improvement cycle over again.  But it seems to be very easy for firms to forget the importance of this simple maxim.  Recently we were delighted to look at a process at Freudenberg-NOK where five successive Future States had been achieved over a full decade, with each Future State moving the operation decisively ahead in terms of cost, quality, flexibility, and competitiveness.  This firm provides striking evidence that if you think you can, you really can manage toward perfection.

Utilise Policy Deployment: We have found this step the hardest to master even in our own non-profit organisations.  And we’ve also found that a failure to rigorously define and deploy policy at the outset has been the root cause of every failed initiative.  Our conclusion is that this truly the key heavy-lifting job for the CEO and that it never gets easier as long as an organisation is travelling through a changing market (which surely defines the path we all must follow.)  At the same time, we’ve found that the plans so laboriously developed in the deployment exercise are soon in need of modification.  As a senior Toyota executive once pointed out, “Planning [in the form of policy deployment] is invaluable but the actual plans are soon worthless.”  His point was that the real gain from the rigorous process is that every part of the organisation is forced to become aware of the effect of its own actions on every other part so that unworkable projects are deselected at the outset and all approved projects are developed with a viewpoint for the whole organisation.

Convince Your Supplier and Customers to Take the Steps Just Described: In the past six years we’ve gone through one more management fad in dreams of an infinite supply base managed with reverse auctions.  (Remember that the web can magically create a nearly infinite supply base for everyone if bids are accepted from practically anyone practically anywhere.)  And we’ve learned again what we all should have known: Margin squeezing is easy; real cost reduction is hard.  To help entire value streams down the low-cost, high-quality, high-flexibility path, we have worked hard these past six years to create ways for firms sharing a value stream to hold a civilised conversation with each other.  This conversation must focus on accurately determining the Current State and thinking creatively about successive Future States, leading eventually to an Ideal State.  We think we’ve got the tool with extended value stream mapping and we are hopeful it will gain a wide audience.  

As we look back on the past six years, it’s amazing how much has changed.  We’ve abruptly transitioned from a world where every new business model seemed promising and practically anyone could make money, even in manufacturing.  Now we find ourselves bogged down in a world where most new business models seem foolish.  And everyone in every business, particularly in manufacturing, is struggling just to get by.

The one constant in this sea change is the simple set of lean ideas.  These ideas worked then and they work now for any firm in any industry.  We hope the re-issue of Lean Thinking will spur everyone in the Lean Community to try even harder to make the lean leap.  

Yours sincerely

Professor Daniel T Jones