The Lean Paradigm Shift

Change your thinking, change the results.

The Toyota brand has long been synonymous with quality, so as news of the Toyota accelerator problems spread, eventually rolling into the worst product recall in company history, many observers were left scratching their heads. What could possibly have gone wrong with the company that introduced the Toyota Production System, one of the first mass-adopted Lean Manufacturing programs?

Several bloggers and even a story in “The Wall Street Journal” suggested that Toyota had gotten so Lean, that somehow the company’s manufacturing process had become so procedurally flat that problems at one plant were destined to be replicated elsewhere, thus widening the recall. Such suggestions are total nonsense, says Bill Waddell.

“That’s what you get from people who don’t really understand what Lean is about,” adds Waddell, a Sterling, Ill.-based consultant who focuses on Lean Manufacturing. “That kind of comment comes from people who think that Lean is all about just-in-time and single sourcing and things like that.” Those things can be part of Lean, but there’s a lot more to it than that.

“Henry Ford said that ‘Profit is the inevitable result of work well done,’ and Toyota used to epitomize that philosophy. Then, a few years ago, Toyota changed its focus and started trying to become the biggest car company rather than the best,” Waddell opines. And when they did that, their reputation for quality was automatically imperilled. Besides, adds Waddell, a poorly designed acceleration system is a poorly designed product. It doesn’t matter if you are single-sourced or not.

Proof positive

Waddell maintains that adopting Lean principles is the best thing that a company can do to improve performance, and ultimately, its ability to compete, and points to numerous success stories to prove it. In the case of Siemens Industry Inc., the Alpharetta, Ga.-based automation supplier, adopting Lean led to one manufacturing facility adding three additional product lines, and dramatically increasing output and profitability. In another case, a privately-held American consumer goods company (that declined to be identified) improved customer value so much that it was able to push Chinese-made competing products right off the shelves at Wal-Mart, despite its product being more expensive. Then there’s the Toyota story. Tarnished as it may be following its recent accelerator issues, it is impossible to deny the company’s well-earned reputation for quality and value.

On its face, this is attractive to everyone, and Lean has seen a lot of attention over the last 10 years as companies and automation vendors adopt the language and start trying to address efficiency and waste issues—attention that Waddell maintains is mostly lip service. “Very few companies are truly Lean. Many are deploying Lean tools, but that is a different thing to being a truly Lean enterprise. The tools will help you arrange things differently on the shop floor, but most of the companies that have pursued Lean have nothing to show for it. Their understanding of Lean is very shallow.”

So what exactly is Lean? Why is Lean so effective? How do you become Lean? Essentially, Lean Manufacturing is a non-traditional approach to production that looks to eliminate the expenditure of resources for any goal other than the creation of value for the end customer. In other words, if a customer isn’t willing to pay for a particular action or service, then it is considered wasteful. Essentially, Lean preserves or increases value while reducing work.

Theoretically, this is a no brainer. Who wouldn’t want to reduce work while increasing profit? But once you start really looking at it, people start to get nervous, and therein lies the first hurdle. According to Waddell, Lean represents a radical paradigm shift, and requires everyone in the operation—from the plant floor all the way up to the pinnacle of the executive suite—to change the way they think about, and approach, things.

“The Lean enterprise is looking for completely different results,” he says. “You can’t keep managing the business the same way and expect radically different results. Life just doesn’t work that way. If you want different results, you have the manage things differently.

“The problem with changing management is that it hits closer to home. It’s easy for all of us to say, ‘You guys need to learn this and straighten out your shop floor.’ But now it starts with management. These are guys with authority and a track record of success, and you’re telling them all the stuff they learned in their MBA programs is actually damaging.”

This disconnect is emphasized in large, publicly traded companies, he says. These companies “are more often [than not] dominated by financial managers. They are more concerned about trying to run the company from a financial position rather than the technical or product side, and they don’t really understand what adds value to the product.”

Manufacturers have known for 20 years that traditional accounting encourages bad manufacturing practices. Today, we’re seeing the emergence of Lean accounting practices that are more in tune with Lean principles. It’s a completely different way of understanding cost and profitability with different performance metrics and a different way of structuring and running the front office.

However, the transition can be difficult. John Haydon, manufacturing engineering manager at Siemens Industry’s Chicago factory, says that his first experience with Lean was a traumatic one. However, the business value has been such that he never questions the decision to go Lean.

“Eight or nine years ago, we had some Lean consultants come in and attempt a Lean implementation. This was right when the dot-com bubble was bursting, and it ended up being a head-cutting exercise, so there was originally a negative connotation.

“That was really pretty dramatic for our plant,” says Haydon, adding that at the time, the 175,000 square-foot facility was entirely dedicated to making motor controls. By adopting Lean—through 5S (see sidebar at left), eliminating overstock and reorganizing the shop floor—the plant has found the space to add three additional product lines.

“We were not making money as a motor-control plant. We had to do something,” says Deron Jackson, Haydon’s plant manager and boss. “We had to be more productive, and Lean was the only thing at the time that was really holistic enough to have the impact we needed. Really, it was the entire way we manufactured that had to be looked at.

“The impact of Lean over the past 10 years has been a four-fold performance improvement. We do three times the sales volume with three-fourths the number of employees. By moving our make-to-stock items into a more make-to-order, we’ve also reduced lead times by a factor of three and done a very large asset reduction in both our internal warehouses and our distribution center, which has really helped our cash flow.”

Additionally, says Jackson, the plant is looking at adding a fifth product line and has been hiring back laid-off staffers. These are all good, helpful things to do with real results, but they only represent the first steps on the road to what Waddell calls a “truly Lean enterprise.”

Value streams

“Truly Lean companies are organized by value streams, with cross-functional teams that satisfy a particular market or channel,” he says. This is exactly the way the anonymous consumer products company Waddell referred to earlier functions today.

“We used to be a pretty traditionally organized factory,” says one of the company’s value-stream managers, and former plant manager. “We had one leader for production, one for engineering, one for materials, one for the factory and so on. Instead of having all these vertical silos, we took a horizontal swipe at the company and pulled all those functions into product-based value streams. Now, I have the engineers, the purchasing, the quality control…the whole team focused on the process from order entry up to putting the products into stock. Once the order is entered, we pick up the baton and we carry it all the way through the plant and hand it off to shipping. With that narrower focus with the team working on this big product family, we’ve been able to make bigger improvements faster.”

According to the manager, employee communication and buy-in is critical to success, especially with such a radical organizational change. Kaizen sessions, in which cross-functional teams are brought together to work on specific improvement areas, have become part of the regular culture. There are multiple such teams working at any given time. When people are actively engaged in this way, when they can see the impact they are having on making the company more competitive and successful, then they get very excited.

“Everybody is aware of what our metrics are, how we are doing against our metrics and how we can impact against their product management. I am really happy with where we’ve gotten to with this structure.

“It’s also important to point out that [the company owner and president] promised we would not use Lean to lay people off. Instead, we would grow the business and create opportunities for people, and that’s what we’ve done,” he adds.

At Siemens, Jackson and Haydon run the same kind of monthly improvement events, using them to populate an improvement project pipeline. Each month, the three-day Kaizen event focuses on a specific area and generates 25 to 30 suggestions.

“We take the existing value stream, map it and then brainstorm how we can reduce the non-value-added steps,” explains Haydon. “It’s been really fantastic for us. It’s good for morale.”

“Eventually, what you are trying to get to is a complete holistic approach,” says Rich Breuning, product general manager, software and services business, for automation supplier GE Intelligent Platforms, in Charlottesville, Va. “Start out with the 5S’s. Just cleaning up and organizing stuff is a good first step. I’ve been in factories where you are literally tripping over stuff. That’s some really low-hanging fruit. Once you master that, look at the next thing and then the next, and so on.”

Says Waddell, “That idea of value is really at the heart of what Lean is all about. The essence of Lean is about having a greater percentage of the money you spend going to things your customers are willing to pay for. Less waste, continually improving the process and product: that is what Lean is all about.”

And that is what executives at Toyota apparently forgot when they decided to become the biggest instead of the best.

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