Changing Reasons for Going Lean

Two questions from very different perspectives illustrate how the reasons for going lean are changing. First from Denmark, where a few years ago they were very worried about losing manufacturing jobs to low wage countries to the east. Since then Dansk Industri, the national industry association has run one of the most successful campaigns I have seen to encourage their members to go lean. As a result they are not just retaining manufacturing jobs in Denmark, but they are also running out of people to fill manufacturing jobs! At the same time they liberalised their labour market and unemployment is now very low, even amongst young people.

So their question was “how can we use lean to enable our existing employees to produce two or three times as much in the future?” As population ages and declines in many European countries, as well as in Russia and Japan, this question will be asked more frequently. We are going to need to find ways to produce the goods and deliver the services with less people, or to increase immigration. To achieve this means going beyond streamlining today’s processes and fundamentally redesigning tomorrow’s products, production processes and supply chains.

The second question was from a group of very senior managers from China. They are very enthusiastic to embrace lean, and could see how lean can help make locally produced goods more affordable to local consumers. But they realise that to meet the growing economic aspirations of their citizens they will have to do so in ways that require fewer resources and that create less environmental pollution and greenhouse gasses. So they were interested in “how can they use lean to save resources and avoid pollution?” In other words, how can lean help us also become green?

Lean thinkers are used to tracking the time and effort as a product moves through an organisation and to distinguishing the few minutes it takes to create the value customers are paying for from the month or more that it spends in the organisation. Compressing throughput time from several months to a few days clearly requires far less space and energy. It almost certainly also uses less materials and produces less scrap and obsolescent stock. The ability to produce in line with demand also reduces the inventories (and hence storage space and energy costs) in the pipeline all the way to the end consumer.

But the really significant gains come from compressing supply chains by relocating value creating steps closer together, and where possible also closer to customers. Most organisations are unaware that their products take between three months to a year or more to travel through their current supply chains, often going back and forth across the globe before reaching the customer. Although current wage cost differentials and low transport costs encourage this trend, if we look at total supply chain costs much of this does not make economic sense, as we described in Lean Solutions.

If we also start tracking the energy and emissions from all the processing, storage and transportation steps across supply chains and convert them into units of CO2 per product we will also be able to see the environmental footprint of each end-to-end supply chain, We know from earlier work that the most polluting part of the supply chain for consumer goods is the trip to the supermarket and then storing the goods in our refrigerators and freezers at home until we eat them. But it also shows the choices we will increasingly have to make between for instance air freighting more and more products across the world or enabling people to fly across the world.

Beyond this the next step is to fundamentally rethink the product. A few weeks ago, tucked away inside the Financial Times I noticed a very interesting quote from the R&D Director of Toyota. He announced that their third generation hybrid engine to be launched in three years time would be “half, the size, half the weight and half the cost” of the current generation engine in the Prius. With characteristic understatement he said he thought a lot of people “might be quite surprised at this”.

They should not have been – Toyota began their green technology quest back in 1990 when Eiji Toyoda, the post war genius who built the post war Toyota, questioned whether it was a good idea for Toyota to keep making cars with conventional technology. At each stage Toyota has clearly announced their green intentions in their Annual Report – which everyone ignores - and then fulfilled them! Will the next generation diesel engine make such a dramatic leap in resource use and cost? What preparations are your organisations making to meet the green challenges of the future?

Yours sincerely
Professor Daniel T Jones

Learning to Act

“Learning to See” was the right title for the workbook that introduced the world to value stream mapping. For the first time it taught the world a way to see how to turn a set of separately managed activities into a lean process, through which work could flow with the least possible interruptions. It opened people’s eyes to literally hundreds of opportunities for improvement. As a result the world is full of current state maps and lean activities.

But walking round many organisations doing lean it is still rare to see evidence of well structured procedures to focus people on doing the right things. Often you are taken to see a wall with charts tracking progress over recent months. If that is all you see you know that this is not driving activities on the shop floor and is there simply to impress visiting dignitaries from HQ or outsiders. If you can’t see what needs to be done day by day or hour by hour then neither can employees. 

So to be able to do the right things we need to develop ways in which people can learn not just to see what is happening but also to learn to see what needs to be done. The way to do this is to make everything as visual as possible. Here is my list of the things I would like to be able to see walking round a good lean operation.

I would like to be able to see the pattern of demand for key products or services at the point of use or at the point of sale and to compare this with the pattern of incoming orders received and with the production and shipping instructions issued to the shop floor. This will show everyone the gap between real demand and the volatility created by the way orders are passed on to the plant. It will also show whether the planning systems are levelling orders or creating even more variability in the work to be done. This focuses attention on speeding up the information flow, beginning to align production capabilities with the rate and pattern of demand and on creating the stability essential for continuous improvement. 

Then I want to be able to see the work to be done at every point in the process. Clearing the decks with a good 5S programme is a good start, provided it is audited frequently. But more important is to see the documentation of standard work at every operation, standard maintenance schedules on each piece of equipment and standard material replenishment rules for all supplies, as well as clear evidence that they are being followed by everyone.

Next is good visual management of planned and actual progress at frequent intervals during the shift using some form of progress control charts (or Andon boards). These should where possible be filled in by the team leader and not hidden on a computer. And there should be clear evidence that team leaders and supervisors respond quickly to any slippage, to get back on track as soon as possible. At the side of these charts I would expect to see a record of every problem that occurred during the shift, together with evidence that these were being tracked and resolved using a common problem solving process. 

Absolutely essential is a current and future state map of the value stream. This needs to be tied to an action plan which shows the steps being taken to get to the future state, together with an implementation plan that is regularly audited by management. This might be accompanied by a map of the whole end-to-end value stream showing current performance and progress towards improvement targets in every organisation across this value stream. Modern communications should make it possible to update this information very frequently. 

Finally I look for a clear statement of the high level objectives of the organisation and a deployment mechanism to make sure every improvement action is aligned and supports the desired direction. 

Making everything visual is not always easy. Some senior managers are used to hiding much of this information because knowledge is power. Others see it as undermining the authority of the senior manager or expert who is expected to know all the answers. Good lean management recognises that making progress and problems visible is the most powerful way of engaging every employee in improving the performance of the organisation. 

Yours sincerely
Professor Daniel T Jones

Value Stream Management

Returning from the summer break is the right time to take a fresh look at your lean initiatives. Are they being led by the right people and are they realising the true potential of lean in your organisation, and up and down your value streams? There is still a lot of confusion about what value stream management really involves.

Most organisations have recognised that implementing lean on the shop floor or in a department like finance is the responsibility of the line management in that department. They need support from a lean promotion office, but must do the hard work themselves for it to stick, because it involves changing the thinking about how employees work together as much as moving things around. 

But end-to-end value streams almost always cross several departments and several organisations on their way to the end customer. Yet it is still rare to find a value stream manager responsible for creating a value stream that flows out of a set of separately managed activities, or someone responsible for sustaining and improving the flow thereafter. Yet we know that if no one is responsible nothing actually happens. 

The one place you may actually find such a person is leading a project to design a next generation product. In Toyota this is the job of the Chief Engineer. They are responsible for the success of their product family through several product generations and report through the Office of Chief Engineers to the top of the company. Interestingly they have few staff reporting directly to them. Most of the staff report to their function or department heads. So the Chief Engineer must articulate a case for the resources necessary to get the next product designed from all these department heads, including marketing, purchasing and production etc. 

But, however radical the design leap being attempted, the task is essentially one of managing a new variant through an existing development system. Where you see a more radical leap is when Toyota is designing a completely new product line – like the original Lexus, the first hybrid Prius or the low cost vehicle for developing countries. Here you see a much bigger activity designing the new vehicle and the entire production system to build it (for several product generations over a couple of decades). This redesign activity reaches back up each supply chain to raw materials, through as many as 26 different operations. It amazes me that many organisations still do not accept the need to take responsibility for designing their supply base in this way. 

When it comes to trying to create a value stream that flows through several different departments for the first time then we need a value stream project leader to lead the charge. Like the Chief Engineer they do not need a big staff reporting to them. They have to make the case for the involvement and resources from all the departments involved and they have to report to and get the backing of top management to make the necessary radical changes. 

The next question is who leads and improves this value stream once it has been created? What knits together a sequence of activities across a value stream? Not the physical flow – this is an outcome of a previous process – but the information flow coming back from the customer to the pacemaker process. So the answer is that the management of existing value streams is actually the responsibility of a lean planning and scheduling function, like the Production Control and Logistics Department at Toyota. Not surprisingly PC&L is at the heart of making the Toyota Production System work, yet less attention has been paid to how it actually operates than to physical operations. 

Value stream management of an existing value stream starts with levelling the flow of orders coming from the customer – acting as a harbour wall to dampen rather than amplify order signals being passed upstream. Then it involves deciding where the pacemaker should be for both the products made to replenishment pull and for the build-to-order products made to sequential pull. Then it is about releasing small quantities of orders frequently to establish a common rhythm across the value stream so products flow quickly and activities come to match the rate and pattern of demand as closely as possible.

Wherever we turn the weak link in our lean activities is the way variability in the information flow is amplified and passed upstream. As long as this is not addressed it will be difficult to create the stability necessary to enable products or patients to flow. Maybe it is time to take a fresh look at the leadership of your value stream redesign activities and at how your planning and scheduling department will manage your value streams on an ongoing basis. 

Yours sincerely
Professor Daniel T Jones

Right-sized Technologies

I have always thought that lean is much more than improving the efficiency of existing equipment, factories, supply chains, hospitals and service facilities. Lean teaches us to learn to see and improve the processes we are responsible for. It also challenges us to look up and out and cooperate with others to streamline the whole process from end to end, often across several organisations. 

But ultimately lean is about re-examining the end product or service being delivered to customers. Does it really meet their needs at an acceptable cost without wasting their time? And is it sustainable and can it continue to generate an adequate return on investment? If we are honest we would have to conclude that in many cases it does not – we are actually delivering the wrong product through the wrong facilities in the wrong place using the wrong equipment. Our business model is actually a relic of the era of mass production and mass consumption.  

Recognising this dilemma does not solve it! One of the key constraints may be the technology – which is still being designed by engineers resolutely focused on developing the next bigger, all-singing all-dancing piece of equipment. Other constraints may be the drag of existing assets and careers tied to the existing business model. 

However lean engineers are always thinking about developing right-sized tools and lean entrepreneurs are always thinking about how these might be used in new business models that ultimately replace existing providers. We can see similar opportunities in the three great growth industries of our time - transportation, communications and healthcare. 

One of the examples readers remember from Lean Thinking is the holiday flight to Crete, which took 13 hours door to door for 7 hours of actual travel time. Very little has changed about the process of flying on holiday in the last decade – except you can do it more often, from more places, to more destinations and for a lot less money. You just squeeze your knees between the seats, switch off with a good book and look forward to getting there.

Things have not got much better when we travel on business. In some cases they have got worse – it is a nightmare trying to schedule convenient connections between medium sized cities in Europe - and a growing hassle connecting through massive hub airports. I just spent five days getting up before the crack of dawn and taking two flights via hubs, in order to do a day’s work. Smaller jets carrying business travellers are now relegated to distant parking stands and often, after two bus trips and fighting my way through the terminal, I end up boarding the plane next to one I just left! In an exceptionally crazy 70 hour week I did 23 hours of valuable work – and then spent the weekend recovering my sanity!

But help is on the way. Video conferencing is getting better all the time – making some trips unnecessary. But equally the advent of the new very light jets promises to usher in a new era for the business traveller. In Lean Solutions we showed how point-to-point on-demand air taxi operations from local airports could save us all a lot of time and hassle. The Eclipse, the Hondajet and others from Cessna and Embrair are just the beginning of the story. Building and financing a viable business model and the necessary air traffic infrastructure come next. However the impact on the existing airlines and airport operators is likely to be profound. 

This is a similar story to what has happened in communications – the PC replaced the mainframe and mobile operators are now challenging old telecom monopolies. I think we are on the threshold of a similar revolution in healthcare delivery. 

There is a growing recognition that bringing diagnosis and treatment closer to patients rather than centralising them in big general hospitals will improve outcomes for many while saving time and cost. Health entrepreneurs and even retailers are thinking about new healthcare business models. This in turn depends on equipment providers developing smart, right-sized diagnostic and treatment equipment that can be used for self-diagnosis in the home or in local treatment centres. Existing equipment suppliers still seem wedded to bigger machines. Who is going to provide the right-sized technologies to make this happen? 

Yours sincerely
Professor Daniel T Jones

Too Much Transparency

We are all naturally in favour of greater transparency. We think that if everyone could see the progress of production and levels of stock in the warehouse, as well as shipments and stocks in every warehouse along the supply chain, we should all be better off. We should be able to adjust our actions to changes elsewhere in real time. Add to this the Finance Director’s dream of being able to control everything from a central point and you have the promise of RFID – radio tags on every product telling you where they are at any time. 

But this dream could so easily turn into a nightmare. Just think what happens now. You have plenty of stock in your finished goods warehouse and yet you are always short of the one product the customer desperately needs. So you get on the phone to get production to change their plan and make some of this product in a hurry. Production time and efficiency is lost because you change the plan. People have to scurry round to chase materials and the production of other products is delayed. As a result you are short of those products and the cycle begins all over again. 

In this situation it is easy to blame fickle customers for changing their minds. However there is a more insidious form of variation in orders that is encouraged by greater transparency. If your planners have visibility of all the stock in your finished goods warehouse what is their natural reaction to a run of demand for one product? They change their plan to try to restore stock levels, even if it does not breach the lower limit for stock of this product. 

There is a natural human desire to try to adjust things to the average, even though the point of the warehouse is to absorb variations in demand so these waves do not flow upstream. Why do they do this? Because experience tells them that they never know exactly when production will make another batch of this product – it may not happen for another month or more if the plan gets changed and the next production run gets rescheduled, as it almost certainly will. So better change the plan now rather than wait until you are out of stock. 

Transparency will not actually solve this situation, and could make it a lot worse. Part of the answer is to set the upper and lower stock levels to absorb the variation in demand and stick to them, so these fluctuations are not passed upstream. The other answer is to move away from batch thinking in planning and production and begin to relate the rhythm of production more closely to demand, moving from producing every product once a month to twice a month, and then to every week and maybe twice a week and eventually every day. 

Levelled orders creates the stability that is necessary to start the traditional lean journey in production – improving the capability and availability of each step so you can link them to create flow and then accelerate the rate of flow by improving the frequency. The end result is that production can actually make every product frequently and reliably.

But this is not the end of the story. Sorting out production alone is not enough – you must also sort out your planning logic and behaviour. Just as you eliminate big batches in production you must no longer batch information – it needs to be passed on without manipulation and released to production in small batches frequently. This probably means no longer using your MRP system for production and shipping instructions.

But it probably also means not letting your planners see the stock levels in the inished goods warehouse! We recently witnessed just such a situation – where lanners were only alerted when stock levels breached the upper or lower limit. Even then they learnt not to react too quickly, as they knew that spikes and troughs in demand have a habit of going into reverse very quickly and production is anyhow going to replenish that product in the next period. Doing nothing proved to be the best course of action and eliminated most of the plan changes. 

Imagine this story repeated at many points up the supply chain. Rapid replenishment turns out to be much more important in improving supply chain efficiency than transparency. 

Yours sincerely

Professor Daniel T Jones

Leaning Healthcare

Healthcare is the next great industry to begin the lean journey. The existing model in which the hospital doctor acting as a skilled craftsperson effectively manages their own waiting list of patients, clinics and operations inside someone else’s mass production general hospital is reaching the end of the road. We need to create a vision of what it means to be a lean doctor, what is involved in running a lean health delivery organisation and how the context needs to change to help bring this about.

Recent experience in the UK has shown the problem can not be resolved by spending more money or by increasing capacity and staff. Better outcomes for patients, more satisfying working conditions for staff and lower costs to the tax payer (or members of private healthcare schemes) can only come from fundamentally redesigning the underlying processes for delivering healthcare.

The most important difference between healthcare (and many services) and manufacturing is that the patient is present throughout most of the process, indeed the patient is the product and their problem is the purpose of the activity. If you are a manufacturer just think how different your life would be if your product could experience your process and tell you what it was like!

So healthcare is actually two parallel processes that have to be synchronised: the patient process (which begins and ends at home), the diagnostic and treatment process which mirrors it (in GPs surgeries and hospitals) and several enabling support processes like radiology, pathology, pharmacy, supplies, bed management and theatres.

Healthcare has traditionally focused on the patient doctor interaction and ignored the rest of the patient journey - on waiting lists, searching for a place to park, sitting in queues etc. The introduction of patient choice in the UK is beginning to focus attention on reducing these non value creating steps. Our lean experience tells us that these are also symptoms of lots of wasted time and effort in the diagnostic and treatment processes and in the support processes.

The second characteristic is the huge variety of patients with different conditions coming into the surgery or the hospital. To make sense of this we need to see the different product flows through the healthcare system and begin to manage them separately. What turns out to be critical in defining these flows through a hospital is the length of stay (or the rhythm or takt time in lean language) – whether patients go home that day, stay for a day or two, stay for more than a few days, or whether they need long term care – and then whether they need surgery or other specialist treatments or not (what process routes they follow).

Like manufacturing there is a common assumption that demand is volatile and unpredictable. Experiments with open access to GP surgeries and analysis of people coming into Accident and Emergency Departments shows that demand is actually quite stable and predictable. The greatest variation is in elective work that has been sitting in waiting lists and scheduled and rescheduled many times. Queues (just like inventories) and the scheduling and planning that goes with them actually create significant and unnecessary extra costs throughout the system. The underlying pattern of demand for elective work is also relatively stable.

Having defined the flows (value streams) there is still a strong belief that every patient is different – and cannot be treated like cars going down a production line. However if we sieve the types of problems being treated we quickly see that in each value stream a few problems account for the majority of the work.

Once we create a regular flow of patients with these common problems we can actually free up more time for treating the patients with more unusual problems. Indeed because we have a more predictable process we are better able to tell patients what to expect, and even involve them in managing it.

To create steady flow means starting at the end of the value stream – with discharge! If you are not discharging patients as fast as patients are arriving then the process inevitably gums up. So discharge has to pull patients into beds and through theatres and through admission. This means much greater cooperation between departments, more standard procedures, synchronised test cycles and ward rounds and much clearer and unambiguous handoffs. This is where the lean foundations such as standard work, 5S and problem solving can initially help to improve quality and later as activities are linked to increase the number of patients that can flow through the system. 

We are still at the beginning of the lean journey in healthcare, as courageous pioneers figure out how to do all this in practice. Once we have a better understanding of how lean can transform existing healthcare delivery organisations it will be time to look beyond at innovative new ways of delivering care and at the design of right-sized tools to facilitate them.

In the end healthcare and manufacturing are not so very different. The language and the sequence of changes may differ, but the lean principles work everywhere. Some senior clinicians and chief executives have recently said that “lean can save healthcare”. Manufacturing and service firms and lean experts can help this cause by sharing their knowledge and their experience of lean with local healthcare organisations.

Yours sincerely

Professor Daniel T Jones

Four Curses

I breathed a huge sigh of relief the other day. We found a bookkeeper to manage the accounts for our rapidly growing business! Lizzie, my Operations Director, and I concluded that we were temperamentally unsuited to the task. Now she can spend all her time managing our busy schedules, workshops and conferences. I can do more useful things between assignments. 

It is amazing how we let our lives get sidetracked from the things we know we ought to be doing, by numbers that tell us to do the opposite. Yet we often feel powerless to change the root cause of this conflict so we can get on doing the right things. Here is my initial list of common curses – I am sure you can think of more.

First come forecasts – which are always wrong, including my own! In this day of electronic point of sale and the ability to transmit real sales data upstream almost instantly, why are we still using forecasts? I so often find that delays in the information flows back upstream are longer than the physical flows. If only we could see how information gets hopelessly distorted the more hands it passes through and the older it gets. Would we act this way if information began to rot like a dead fish?

The answer is not as simple as saying we are only going to react to sales data as they happen. We need to take account of changes in trends and to cover a degree of anticipated fluctuation in real demand. In most cases real end-customer demand is actually very stable and the degree of variation for our high volume products and services is actually quite small. So we ought to at least be able to modify our production plans based on rapid feedback from real sales data as they happen. Our model ought to be picking exact quantities of fresh vegetables in the field today for sale in the store tomorrow, based on the weekly pattern of sales and today’s sales data. 

Second is the curse of Economic Order Quantities. This algorithm is the second source of noise in our information flows. Yet the more we learn about managing lean supply chains the more we see that big batches create extra costs elsewhere in the value stream and lead to chronic instability – which in turn causes fire-fighting, expediting and chasing. The world of perfect information and everything always going according to plan simply does not exist. Batching activities separately across a value stream simply makes things worse as their impact is amplified.

Aligning batch sizes for volume products to daily or at least weekly demand makes flow possible and creates the stability for ongoing continuous improvement. Make low volume products to order separately. The same is true in distribution – picking up and delivering small batches of more products from more suppliers on milk rounds turn out to be cheaper than waiting for each supplier to fill a truck with their own products. How much noise do your systems create for your suppliers?

This leads us to the third curse, chimney costing within a department or function. This assumes that by keeping every activity busy by ensuring there is always work waiting to be done, we optimise the utilisation of every asset, department, piece of equipment or truck.

Simply calculating the OEE (Original Equipment Effectiveness) reveals that it actually results in much poorer utilisation. By concentrating on all the causes of interruption in order to synchronise one step with another and create a flow, we end up with much higher utilisation. We are also beginning to optimise the end-to-end flow of value creation and not optimising each activity in isolation. 

This leads to the fourth curse, standard costing. Just looking at the costs of direct labour and slow freight has led to many mistaken location decisions and much longer supply chains than we needed. If we look at all the costs associated with the end-to-end value stream, including all the costs of managing variation, we would take very different decisions and have much more effective supply chains. And we would not be wasting so much of the world’s energy resources and causing so much pollution! 

Challenging these familiar but mistaken rules of thumb will help us do the right things for our customers, our supply chains and our organisations. 

Yours sincerely

Professor Daniel T Jones