LMJ Volume 2 Issue 2

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Issue 2 Volume 2

| March 2012 | www.leanmj.com

joining the dots This issue concentrates on the development of a lean supply chain, which, in the competitive world we live in, is a necessary step for any company that is trying to achieve operational excellence. IN THIS ISSUE: A critical and relentless pursuit of excellence: Barry Evans and Robert Mason of Cardiff Business School discuss Tesco’s approach to its supply chain and how it helped the company become the number three retailer in the world. Lean’s Western beginnings: Where did it all start? In part one of this two-part article, Richard J. Schonberger looks back at the history of lean. North stars: In this month’s It’s a lean world section, LMJ takes you to Scandinavia, to meet some of the leanest and most interesting companies in the region. Case studies in this special include LEGO, car manufacturer Volvo and a port terminal in Oslo. The Fifth Column: In his new regular column, John Bicheno discusses the topic of supply chains. Lost in automation: This special feature on automation presents two company case studies. Eaton and SCHAD talk about their approach to lean automation. LMJ in conference: In this issue, we review the Process Excellence Week in Orlando, Florida, and a tour of EMS Manufacturing’s plant in southeast England. The Lean Management Journal is supported by the Lean Enterprise Research Centre, Cardiff Business School


welc o me

t o t h e lea n

ma n a g eme n t

j o ur n al

Of all the threats to the implementation of a successful change programme and to the wellbeing of a business, those related to a company’s supply chain are perhaps the most difficult to tackle. While supply chain processes may be beyond the direct control of lean practitioners, accepting defeat and not pushing for influence would be a mistake. And one which can expose companies to risk as well as causing them to miss out on opportunities.

E d it o rial

Commissioning editor Roberto Priolo r.priolo@sayonemedia.com

Editorial director John Bicheno

picsiebook@btinternet.com

Contributors Tim Brown Sub-editor

t.brown@sayonemedia.com

Desi g n

Art Editor Martin Mitchell

m.mitchell@sayonemedia.com

Designers Viicky Carlin, Alex Cole

design@sayonemedia.com

In order to receive your copy of the Lean Management Journal kindly email b.walsh@ sayonemedia.com, telephone 0207 4016033 or write to the address below. Neither the Lean Management Journal or SayOne Media can accept responsibilty for omissions or errors. Terms and Conditions Please note that points of view expressed in articles by contributing writers and in advertisements included in this journal do not necessarily represent those of the publishers. Whilst every effort is made to ensure the accuracy of the information contained in the journal, no legal responsibility will be accepted by the publishers for loss arising from use of information published. All rights reserved. No part of this publication may be reproduced or stored in a retrieval system or transmitted in any form or by any means without prior written consent of the publishers.

PwC recently published a report that found that a fifth of the aerospace supply chain might not be able to keep up with the increased production rates Boeing and Airbus are seeking to achieve as a consequence of record order books (and backlogs). Supply chain related issues are the biggest concern in the industry, and something needs to be done to address visibility and reliability. You may think it’s only the inexperienced that fall into the trap of developing less than perfect supply chains, but you would be wrong: when a devastating tsunami hit Japan last year, Toyota itself was forced to shut down production in some of its plants as key components failed to arrive. Fortunately, tsunamis don’t strike every day. Yet, even without catastrophic events getting in the way, many struggle to gain full alignment of suppliers with business goals and principles, or to foster collaboration with partners who have a massive part to play in the total value stream of production and service delivery. A lean supply chain alone won’t make you a lean company, but you can certainly never hope to truly achieve that status without one. And the challenge is not impossible. Success stories abound - aircraft manufacturer Boeing, for example, achieved its extraordinary production levels in January in part thanks to its work with suppliers (p16). Though considering the PwC report, there is obviously no room for complacency. Tesco is another great example of supply chain virtuosity (p11). The company follows every process within its supply chain, from the logistics operations of its suppliers all the way to the product reaching the shelf. Drawing a brief picture of the rest of the content in this issue of LMJ; our ‘It’s a lean world’ special on implementation projects around the globe takes us to Scandinavia to meet some universally recognisable names operating in the region, including LEGO and Volvo (p31). And within our ‘History and evolution’ section we have the first of a two part article from Richard J. Schonberger, which will certainly be of interest to anybody who wants to get back to their lean roots. Happy reading,

Commissioning Editor, Roberto Priolo

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c o n te n ts marc h 2 0 1 2

c o n te n ts

04 Lean News 05 Introducing the editors 06 Developing a lean supply chain

Keivan Zokaei introduces this issue of LMJ, which concentrates on the importance for companies to lean out their supply chains.

P ri n ciples & purp o se 07 Going for supply chain gold Making supply chain more efficient has never been more important. Alain Vix of Hughenden Consulting looks at what making a supply chain leaner means.

11 A critical and relentless pursuit of excellence

Barry Evans and Robert Mason of Cardiff Business School talk about Tesco’s approach to its supply chain and about how it helped the company become the number three retailer in the world.

16 Landing great results

In January, Boeing achieved the unprecedented production rate of 35 planes a month at its Renton plant in Washington State. The work the aircraft manufacturer does with its suppliers played a vital role in reaching this result, says LMJ’s editor Roberto Priolo.

18 Vending lean

How can point-of-use vending machines support a company’s lean journey. To find out, Roberto Priolo speaks to Apex Supply Chain Technologies.

21 P r o cess f o cus Transactional lean: a story of business turnaround

In this month’s Process Focus, concentrating on transactional services, Jacob Austad tells the story of how a struggling insurance company managed to change the way it works to better meet customer expectations.

2 6 H I S T O R Y A ND E V O L U T I ON

Lean’s Western beginnings So where did it all start? In part one of this two-part article on the history of lean, Richard J. Schonberger looks back at the origins of the methodology, focusing in particular on just in time.

3 1 I t ’ s a lea n w o rl d North stars

This month LMJ takes you to Scandinavia to meet some of the leanest and most interesting companies in the region. While Denmark is often regarded as a country with a very strong lean culture permeating its society and Sweden has produced some important players like Volvo, we find out that Norway too is somehow unexpectedly a lean champion of its own. Case studies in this special include the world’s favourite brick maker, LEGO, car manufacturer Volvo and a port terminal in Oslo.

4 6 L etters a n d c o mme n t

Contributions in this issue come from Jayne Hussey of law firm Pinsent Masons, who explains what the new Late Payments Directive means for businesses; Joseph Paris, who created the Operational Excellence Society; and Roddy Martin of Competitive Capabilities International, who urges companies to change their perspective on supply chains.

5 2 T h e F ift h C o lum n

This regular column, written by John Bicheno, discusses some of the most interesting and controversial topics keeping the debate within the lean community alive.

5 4 L ea n d iary

In this column, LMJ observes the lean journey of Serbian manufacturer SCGM. Director Sandra Cadjenovic gives us the most recent update on the company’s progress in its continuous improvement programme.

5 6 S pecial feature Lost in automation Roberto Priolo introduces this special feature discussing the most important issues related to lean automation. Two company case studies on Eaton and SCHAD follow.

6 2 B o o k review

John Bicheno reviews Bart Huthwaite’s The Lean Design Solution, Institute for Lean Innovation, Michigan.

6 4 L M J i n c o n fere n ce

This section features reviews of the events LMJ attends. Find out what goes on in the lean community by reading about some of the most interesting conferences and seminars.

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E ve n ts

Elizabeth House, Block 2, Part 7th Floor, 39 York Road, London, SE1 7NJ T +44 (0)207 401 6033 F + 44 (0)207 202 7488 www.sayonemedia.com. Lean management journal: ISSN 2040-493X. Copyright © SayOne Media 2012.

www.leanmj.com | March 2012

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LMJ B ar n es Gr o up wi n s S h i n g o S ilver M e d alli o n

F aceb o o k , a n ew C I c h ampi o n ?

Global manufacturer and logistical services company Barnes Group announced that its Barnes Aerospace division (based in Ogden, Utah) has been awarded the prestigious Shingo Silver Medallion award from The Shingo Prize for Operational Excellence. Gregory Milzcik, president and CEO of Barnes Group, said: “Ogden’s success exemplifies Barnes Group’s focus on attaining operational excellence across the entire enterprise - leading to exceptional business results and value creation for our customers.” Robert Miller, The Shingo Prize executive director, commented: “Barnes Group is clearly building a culture of continuous improvement and empowering every single individual to contribute to the success of the business.”

In Facebook’s regulatory filing for an initial public offering of stock, CEO Mark Zuckerberg included a letter discussing the website’s thinking, which is described as a social mission to make the world more open and connected. “We have cultivated a unique culture and management approach,” writes Zuckerberg. “The Hacker Way is an approach to building that involves continuous improvement and iteration. Hackers believe that something can always be better, and that nothing is ever complete. They just have to go fix it.” Everybody at the company goes through a training programme called Bootcamp to understand shared values, and hackatons are held regularly, during which prototypes for new ideas are built. At Facebook, the words `Done is better than perfect’ are painted on walls. But is done really better than perfect? Shouldn’t everything be done perfectly at all times with the goal to reduce waste and better respond to customer requirements? Not quite there yet, Mark!

A ppre n tices h ips a n d lea n ma k e f o r a wi n n i n g c o uple According to the National Skills Academy for Food and Drink, chocolate maker Thorntons was able to save £1m thanks to productivity improvements by deploying a structured staff development programme. This included training 17 apprentices and teaching shopfloor staff and managers lean manufacturing principles. David Proctor, operations director at Thorntons, said: “We are happy to support apprenticeships, and the pay-back from the business perspective has been very tangible in terms of both cost reduction and continuous improvement culture.”

C h rysler d rives F iat ’ s g r o wi n g pr o fits Thanks to Chrysler’s strong performance, Fiat Auto has more than doubled its trading profit (now at €765m) and revenue (from €9.45bn to €19.6bn) in Q4 2011. The Chrysler Group, which is partly owned by Fiat and now uses the Italian carmaker’s lean-based production system,

reported a fourth-quarter income of $255m. In the same period in 2010 it reported a loss of $199m. Without a strong turnaround in its European and Brazilian markets, Fiat is likely to merge with Chrysler to benefit from the latter’s recent success.

If you have any news that you think would interest and benefit the lean community please let us know. Send submissions to the commissioning editor Roberto Priolo: r.priolo@sayonemedia.com

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I n tr o d uci n g

y o ur

editor s Jacob Austad LeanTeam, Denmark

Articles for LMJ are reviewed and audited by our experienced editorial board. They collaborate on comment against articles and guide the coverage of subject matter.

Professor Zoe Radnor

Cardiff Business School

Bill Bellows Pratt & Whitney Rocketdyne

John Bicheno

Lean Enterprise Research Centre, Cardiff Business School

Ebly Sanchez Volvo Group

Peter Watkins GKN

Norman Bodek

Wendy Wilson

Brenton Harder

Dr Keivan Zokaei

PCS Press

Credit Suisse

Warwick Manufacturing Group, University of Warwick

SA Partners

More information on our editorial board, their experience, and views on lean is available on the LMJ website: www.leanmj.com

www.leanmj.com | March 2012

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I N T R OD U C T I ON WRITTEN

A

few years ago I spent time with one of the UK’s leading retailers who had spent huge amounts on implementation of a new supply chain IT system. Our investigation revealed that the users were not briefed about the way the system worked as an integrated whole and did not understand it outside their own immediate function leading to conflicting behaviour and demand distortion between stores, regional distribution centre, central distribution centre and suppliers. A simple simulation showed that if the system was switched off demand amplification would also come under control. In this case, the behaviour of agents was driven by the IT system while their ability to think was severely dampened. One employee told me that the old manual system worked much better! Clearly one cannot blame the IT system for poor performance. Even worse, blaming the operators can only lead to mistrust and more barriers to communication. In order to improve a supply chain, we need to begin by addressing the principles and philosophy which are underpinning the design of the current system and compromising its performance. The paradigm of the system needs to be changed before acting on the process in order to achieve improved performance. The key word in lean thinking is ‘thinking’, not ‘lean’. But the question remains, “How would you go about changing the thinking or paradigm in a supply chain”?

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BY

KEIVAN

Z OK A E I

Developing a lean supply chain Keivan Zokaei introduces this issue of LMJ, which discusses the importance of leaning out supply chains. It is neccessary to understand the paradigms guiding the system before we can even hope to change it.

Chris Argyris, one of the forefathers of ‘learning organisation’, suggested that truly sustainable learning occurs when individuals or organisations reflect on their actions and visit their fundamental governing values (their paradigms). Therefore, one’s paradigm can be fundamentally addressed only through action. The supply chain interventionist needs not only to design an action learning programme upon which supply chain managers can reflect on their performance and processes, but also to make alternative models with significantly different governing paradigms available. The author has been using one such intervention design in several large and small supply chain projects. In these projects a team of senior executives from across the supply chain commit to walk and analyse the entire value chain and to expose themselves to challenging alternative methods of thinking about the day to day performance issues.

Often these interventions lead to great success; but not always. The key to success often lies in the ability and influence of the interventionist in unearthing the governing paradigms as well as the willingness and the ability of the value chain analysis team in discerning the symptoms (performance) from the root cause (the process and the governing paradigms). In a recent example, we found that the supplier was adopting a push paradigm to achieve efficiencies whereas the customer was fundamentally expecting the supplier to react to erratic changes in ordering patterns with little or no warning. This had - inevitably - led to an adversarial relationship. By visiting their governing paradigms, both sides realised the need to modify their behaviour in order to achieve a more stable process and enhanced performance.


pri n ciples

&

purp o se

pri n ciples & purp o se

Going for supply chain gold I

t’s a new year, and many of us have made new fitness resolutions. The Olympics, staged in London in the summer, inspire people not just to lose weight but also to be stronger, fitter and more competitive. Businesses are certainly trying to achieve the same results, but without leaner supply chains they won’t be able to. As with Olympic athletes, getting lean is not just about shedding extra kilos, but about increasing strength and, most importantly, performance. Supply chain scholar Martin Christopher makes a distinction between lean and agile supply chains, with lean being about doing more with less and agile being about flexibility. Perhaps because in the consulting work we are brought in to advise on complex scenarios, we have yet to find one where the need for lean and agile principles are mutually exclusive. For the purposes of this article, therefore, we refer to lean as a hybrid of the two.

With markets becoming more and more competitive, the price of materials increasing and companies forced to find new solutions to save money and time, making supply chains efficient has never been more important. Alain Vix of Hughenden Consulting looks at what developing a lean supply chain means.

T h e perils o f ‘ sp o t re d uci n g ’ i n t h e ec o n o mic d o w n tur n With the global economy rebalancing and GDP shifting to emerging economies like the BRIC nations (Brazil, Russia, India and China), lean is no longer a competitive advantage: it’s a matter of survival. Most business leaders are realising that ‘fat’ supply chains are simply no longer viable in this complex and fast-paced world. Despite this, many are reluctant in practice to make the necessary changes, favouring short term interventions like departmental cost cutting. These interventions amount to the supply chain equivalent of ‘spot reducing’ or the misguided notion that an athlete can slim down a specific part of their body by targeting a specific area. In sport, spot reducing can lead to injury and overall weight gain and the same is true for the supply chain. If lean interventions only target one department, the supply chain will invariably suffer in other areas, and this can result in very damaging consequences for the whole business.

www.leanmj.com | March 2012

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G o i n g f o r supply c h ai n g o l d A lai n V i x

H o w fit are c o mpa n ies t o d ay ? A few players are succeeding by rewriting the rule book. Take Zara, the successful clothing retailer whose lean supply chain and thinking are well documented. These are just a few of the processes that Zara implemented, defying conventional supply chain wisdom: Cross-functional teams, comprised of fashion, retail and commercial specialists, ensure the right mix of products are supplied to the retail outlets, taking into account a diverse range of expert information rather than keeping each role in a functional silo. Quick-response factories, established in Spain near the company headquarters, to meet variable demand. Production is more expensive in these factories, but the costs are more than offset by not having excess inventory being shipped from factories located far from the market. Slight undersupply of fast moving items, to ensure that the stock keeps moving. Zara considers this more desirable than holding slow-moving or obsolete stock. Although there are some notable exceptions, most businesses are still viewing lean at the departmental level, usually in manufacturing or distribution, which eventually proves to be a false economy. We have a long way to go before lean practices are an established way of life.

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CFOs really need to understand the principles behind lean, so they can clearly and convincingly deliver the argument to investors. Short-term investors are not likely to be interested in companies with a lean plan, but those willing to wait are more than likely to be rewarded

W h at st o ps c o mpa n ies fr o m g o i n g lea n ? In a word, lean processes are counterintuitive. They also require people across the business to learn new skills and explore completely uncharted territories. Lean is a long-term process, whose benefits accrue over an extended period of time. Therefore, to implement a lean programme involves a leader taking a very large perceived risk and making decisions that will be executed long after his or her tenure. This explains why so few executives and their employees especially those rewarded on short-term gains - are willing to take the plunge. Publicly traded companies accountable to outside investors will find it harder to go lean because many of the changes they need to make run counter to conventional market wisdom. Returning to the Zara example, it was investors who were most sceptical of the company’s intention to build a vertically integrated and capital-intensive supply chain. Many did not think it was possible or desirable

to attempt this, but Zara stayed the course and managed to steam ahead of its competitors (Mango, H&M and Gap), in terms of net margins and return on average equity. This suggests that CFOs really need to understand the principles behind lean, so they can clearly and convincingly deliver the argument to investors. Short-term investors are not likely to be interested in companies with a lean plan, but those willing to wait are more than likely to be rewarded. Another major obstacle in the ‘hard to do’ category is establishing companywide KPIs and integrating divisions and departments. Many British plcs are run as ‘portfolio’ businesses that operate more like hedge funds than integrated businesses that benefit from economies of scale and sharing services. These are the hardest businesses to change because their cultures and reward systems are completely aligned with this model. However, with the right leadership and skills they too can change as the global electronics distributor Electrocomponents recently did, transforming its global supply chain and merging its regional operating companies.


pri n ciples & purp o se

V isualisi n g t h e ut o pia n lea n supply c h ai n Sports trainers are increasingly introducing creative visualisation into training regimes, the idea being that if you can visualise yourself winning a gold medal you are much more likely to actually win one. One common element I’ve seen during my consulting work is that companies generally don’t know how to visualise the utopian lean supply chain, which has a number of defining characteristics.

Optimal i n ve n t o ry It is the dimension most people are familiar with, which is about having just enough inventory - but not more - with all the right buffers in place. We noticed that many companies embarked on so-called lean initiatives at the start of the economic downturn but all they did was cut way back on stock to save money, without integrating with other departments and suppliers. Inevitably, service and profits went into downward spirals. One executive’s remark to me perfectly illustrates the consequences of this: “I cannot believe how much more work we are having to do in order to sell less.”

L ea n c o mmu n icati o n fl o ws

To implement a lean programme involves a leader taking a very large perceived risk and making decisions that will be executed long after his or her tenure

This refers to the accuracy and speed at which information about demand, capacity and supply is exchanged among departments and organisations. This means that forecasts must not include numbers that are rounded up, guessed at, intentionally padded to ‘protect’ inventory or under-estimated to create a false impression of success. Correcting this makes lean material flow possible and reduces supply chain noise.

T h e pe o ple a n d culture People play the most important role in any lean initiative. Without the right leadership, the effort will only results in failure. Ideally, the CEO and CFO should be sponsoring the initiative and be able to explain and evangelise its benefits to financial stakeholders, customers, partners and employees. A lean effort should never be run from a single department like manufacturing because it is a major cultural and process shift that needs to involve everyone in order to succeed. You also need to have the right people in the right jobs. People who are used to working in a siloed supply chain model and are not used to considering the big picture will find lean principles very difficult to grasp. Culture changes may also need to happen. Continuous improvement requires an open culture where people are not afraid to point out mistakes and problems. Lean also involves a degree of calculated risk and trial and error. If these are not yet part of your company’s culture, you need to be realistic as to how quickly you will see results from your lean implementation.

A n i n te g rate d busi n ess a n d K P I s People and departments must be rewarded for the right goals, behaviours and outcomes. Setting these KPIs appropriately can be very difficult and counterintuitive because to make lean work properly, they need to be optimised at a company level, not a departmental level like in most businesses. We worked with one pharmaceutical company whose supply chain was very complex with distributors, affiliates and other partners. Lean was implemented in isolation, in manufacturing, but the distributors hadn’t changed their behaviour, continuing to over-forecast so production had to increase to catch up with the backlog. This resulted in excess inventory and a bloated supply chain.

www.leanmj.com | March 2012

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G o i n g f o r supply c h ai n g o l d A lai n V i x

S tart wit h q uic k wi n s a n d celebrate success

The benefits we have been able to measure include:

In both sport and supply chain, nothing creates belief more than winning. That is why we always recommend building some quick wins into the start of any lean initiative. For our clients this often involves reducing the inventory of the fast moving, predictable demand. Because this is also a counterintuitive process change, it helps people gain confidence and make a leap of faith to implement these types of actions. It also immediately returns money to the business to fund further implementation.

50 percent reduction in fast-moving inventory with predictable demand patterns. Most people overstock their fast selling items because they are terrified of running out of them but when the supply chain is fast and predictable, there is absolutely no reason to hold extra stock;

Another way to reinforce positive change is to celebrate successful outcomes along the way. There are many ways to do this, from recognising people and teams in company meetings to entering awards programmes to communicating financial outcomes on quarterly earnings calls to investors. When outcomes are made visible, they are much more likely to be repeated and sustained.

30 percent overall reduction in inventory costs;

In the same way that weight loss and strength training helps people live longer and perform better in sports and day-to-day activities, lean companies also benefit from gaining a sustainable competitive edge. What does this really mean? Making the investment in restructuring, implementing lean processes and training people will make a company fitter, enabling it to perform better in all economic conditions.

Customer service goes up due to better matching supply to demand; Relationships with suppliers improve through more efficient payment and procurement processes; New products can be introduced 20 percent faster because there is always minimal inventory in the chain; Reduction of slow and obsolete (SLOB) products; Employee morale goes up because people feel this is the right, common-sense way of working that is therefore more empowering and less frustrating;

People who are used to working in a siloed supply chain model and are not used to considering the big picture will find lean principles very difficult to grasp

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A net reduction in CO2 and waste of limited natural resources; Increase in long-term shareholder value.

A lea n future Although the economy will eventually recover, we expect more years of austerity for Europe and the United States. Emerging markets will become more prosperous and grab a larger slice of the global GDP pie. As an approach to supply chain management, lean is nothing new. But with more athletes joining the race, now is the time to step up our training regime and improve our performance or we will not make it to the finishing line.


pri n ciples

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purp o se

pri n ciples & purp o se

Tesco, a critical and relentless pursuit of excellence Since the mid 1990s, researchers at Cardiff Business School have enjoyed a long-term relationship with Tesco supporting its drive to lean out its supply chain and drive new levels of performance. Cardiff Business School’s senior research associate Barry Evans and senior lecturer Robert Mason explain Tesco’s ability to continually unlock value from its supply chain operations.

B

y many yardsticks Tesco, the current number three retailer in the world, represents a beacon of business excellence. Its rise over the last two decades from “also ran” to forecasted to be soon number two retailer globally (a similar rise to the one Toyota achieved in the automotive sector between 1950 and early 2000s) bears testament to this. Over the last twenty years, sales, profits, earnings per share and share dividend have shown inexorable year on year growth. This unerringly consistent and impressive result record is substantially built upon Tesco’s ability to continually unlock value from its “boiler room” – its supply chain – perhaps better termed as its value streams. This article explores some of the underlying features of this approach and presents a range of examples which illustrate, in our view, how Tesco has executed its lean supply chain strategy. Three features arguably stand out in Tesco’s approach in managing its supply chain and help it to differentiate itself from its competitors; they are analysed here.

www.leanmj.com | March 2012

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T esc o B arry E va n s a n d R o bert M as o n

1

Understanding of customers’ needs

Standard Retail Value Chain

At the heart of Tesco’s strategy is a very simple belief. In essence, it surrounds the premise that Tesco will compete on understanding and providing customer value, not with trying to beat its competitors, nor with optimising short term profits. This means the only inhabitant of its core purpose is the customer – it can be asked how many other organisations can actually claim this? Critically, this means that effectiveness is never jeopardised when chasing efficiency gains. This belief is articulated in its statement of core purpose:

Supply

The definition of the supply chain is also scoped further downstream than for many of its competitors - instead of delineating the supply chain at the shop shelf, Tesco conceives it as embracing the full customer consumption experience (again a considerable source of differentiating potential which the company has looked to exploit).

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Distribute

Sell

Operating Plan (short/ medium term strategy) Goals: Statement of Current Long Term Strategy

“To create value for customers to earn their lifetime loyalty” Former Tesco CEO, Sir Terry Leahy, who stepped down in the spring of last year after leading Tesco through much of the period Cardiff Business School worked with it, argued passionately that “Tesco’s secret was its capability to listen carefully to the customers, and give them what they want”. Although arguably Tesco has taken “listening” to a new level, through for instance its loyalty card information, focus group research and so on, it is the second element of this statement - “give them what they want” - that Tesco prides itself in most and arguably sets it apart. Having accurate antennae to understand comprehensively how the customer perceives Tesco is only part of the equation. The supply chain is the key - properly controlled and executed, it ensures its goods are consistently available for a minimum price. This is a core element of the company’s premium mission.

Buy

Principles: “Better, Simpler, Cheaper” Ambitions: Core Purpose and Business Values Figure 1: The Tesco Corporate Framework which surrounds its business model

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T h e C o rp o rate F ramew o r k

Whilst the customer is at the heart of the “Tesco Way”, the foundation of Tesco’s supply chain success lies in its Corporate Framework. This is a set of company statements and beliefs which articulate what Tesco as an enterprise stands for, delimiting its ambition and defining its values (providing a practical illustration of Collis and Ruckstadt’s “Hierarchy of Company Statements”, HBR 2008). Remarkably, all the constituent elements of the Corporate Framework (its statements of ambition, principles and its goals, supported by Tesco’s “Steering Wheel” – its interpretation of Kaplan and Norton’s Balanced Scorecard - HBR, 1996 have stood the test of time. Within this Corporate Framework, the Operating Plan sets out what Tesco aims to achieve over, say, the ensuing two-three year period, changing periodically while the surrounding plan remains constant. Within this Corporate Framework, the three business principles characterised in

the slogan Better, Simpler, Cheaper derive from three seminal books: Better: - “The Loyalty Effect” – Frank Reichheld Simpler: - “Simplicity” – Edward de Bono Cheaper: - “Lean Thinking” – James Womack and Dan Jones If new initiatives do not satisfy these three principles, they do not happen. This means that the pursuit of efficiency alone does not become an obsession. Ensuring customers are satisfied is critical. Tesco thinks effectiveness, not efficiency. So Tesco’s management of their standard retail supply chain should be conceived within this overarching Corporate Framework which guides all decision making (Figure 1). The capability to deliver continual improvements in value is only possible due to the strength and resilience of this Corporate Framework.


pri n ciples & purp o se

Supplier Transformation

Retailer ‘Availability Costs’ – Secondary Markdown, Out of Life Logistics Network Waste, Lost Sales and DCs & Customer Dissatisfaction Secondary

Retailer Inbound Logistics Primary

Raw material and supplier inbound

In-store Logistics ‘Back Door to Shelf’

Goods/Material Flow Information & Cash Flow

Step

Objective

Method

1. Process Control

Stable, Predictable and Repeatable Process

Understand the different store delivery mechanisms needed for fast / medium and slow product

Value Stream Mapping Standard Operations

2. Time Compression

Shorten lead time from order to replenishment

Eliminate non-valueadding time

Continuous replenishment (CR) – (JIT)

3. Integration

Integrated end-to-end supply chain solutions

Examples

Factory Gate Pricing TIE – data sharing

The first three steps provide a capability that no longer requires the “superfluous stock” held to address not having these steps. Without these, companies resort to large stock-holding as a “sticking plaster” to address this incapability. 4. Structure and Systems

Develop “stocking solutions” to meet demand variability only – stock is no longer needed as the sticking plaster described above

Creating end-end value streams aligned to product/ demand/ process characteristics

S ta g e d f o cus o n t h e o ptimisati o n o f supply c h ai n pr o cess systems

The third feature is the core platform of Tesco’s capability to physically differentiate itself against its competitors - how it strives to optimise its supply chain process systems. Figure 2 shows how a holistic view is taken on supply chain costs – critically the costs of “failure” are included because this is ultimately what customers pay. The discussion on Tesco’s supply chain management approach is structured around a four stage roadmap. The improvement stages are shown sequentially, but in practice are implemented through constant iterations.

P r o cess C o n tr o l

Figure 2: The Tesco Value Chain – its supply chain process system.

Extending span of control Collaboration

3

Merchandise Units and other shelf ready packaging Flowthrough (crossdocking) Consolidation centres Store-based home shopping picking and delivery

Table 1: Tesco’s Four Stage Supply Chain Improvement Approach (developed from Simons and Kiff, 1998)

Total control of the processes in the supply chain is a vital pre-requisite for any organisation aiming to compete through its supply chain prowess. For Tesco, this fundamentally began through the 1990s when extensive steps were put in place to understand value streams, standardise operations and ensure each step of the supply chain was achieving what it was designed to do. Part of this activity was the ability to be sensitive to the fact that different products needed different store delivery mechanisms, so standardisation was achieved in a segmented manner rather than a blanket approach across the entire product range. A sign that Tesco was getting there more quickly than some of its competitors was its ability to hit the high product availability levels it had set itself both in stores and in its distribution centres. Conventional thinking would suggest that striving for 100% product availability did not make commercial sense as the law of diminishing returns would imply that the achievement of extra availability over a certain point would be too costly to be worthwhile. Yet Tesco thought and acted differently knowing that 100% availability meant the customer was never dissatisfied and the supply chain was never distorted by switch buying or lost sales on any of its products. The result that emerged was a stability that enabled supply chain managers to move to the next stage of the improvement approach.

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T esc o B arry E va n s a n d R o bert M as o n

T ime C o mpressi o n Once control was gained time could be removed from the supply chain. Tesco embarked on a major programme to shorten lead times in the supply chain around a decade ago in a move it named Continuous Replenishment (CR). The principal feature of the CR system was that it used till data to drive replenishment store deliveries, which increased at the time from once to twice a day with lead time being simultaneously reduced to twelve hours. This development substantially contributed to the drive of getting continuous flow of goods driven by customer demand through the supply chain. The result was that batch size was reduced and more frequent smaller deliveries became the norm having a direct bearing on inventory holding and costs. It also led to even greater levels of availability.

I n te g rati o n The phased introduction of time compression with the aim of moving to true flow replenishment put considerable pressure on the physical operation and had a substantial impact on suppliers and freight transport. What was required was an integration of operations along the supply chain. For suppliers of Tesco the average batch size decreased while orders simultaneously became more frequent. Moreover, the requirements in terms of delivery of orders in full and on time to distribution and stores where stock cover was lower became more demanding. One of the major challenges was how to drive these supply chain improvements through the system with no additional costs, especially on transport. Many suppliers began introducing consolidation centres sometimes working together in ad hoc arrangements. It was at this juncture that Tesco embarked on a major integration initiative which became known as Factory Gate Pricing in 2001. In short FGP changed the way Tesco purchased products. Rather than its suppliers being responsible for delivery to Tesco’s distribution centres, Tesco bought products at “ex factory” prices and assumed responsibility for

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in-bound distribution to its network itself. It was then able to better optimise this in-bound network than had been the case before establishing its own consolidation centre network and synergising inbound and outbound flows producing vast savings.

The supply chain is the key – properly controlled and executed, it ensures Tesco’s goods are consistently available for a minimum price. This is a core element of the company’s premium mission

Integration of the supply chain was not just achieved through the extension of ownership but also involved collaboration. For example, the collaborative management with suppliers of products with more unpredictable demand patterns, such as new, seasonal or promotional lines, was pursued in a highly detailed manner. Data on Tesco sales were made available for suppliers through Tesco’s Information Exchange. Suppliers who had proven their ability to meet the exacting delivery demands helped in developing trials to further remove waste from the supply chain. For example, the “one-touch” initiative involved the development of a movable shelf to transfer goods from factory to sales floor removing separate handling throughout the supply chain; 15% of volume was now shipped through the supply chain on dollies.

S tructure a n d S ystems In essence inventory in the supply chain could now be viewed differently. No longer was it used in a superfluous manner covering up the problems of a chaotic and uncontrolled supply chain process. Instead, inventory was minimised and stock turns increased. From this basis new structures, such as a revised consolidation and distribution centre network and systems were developed such as “One-Touch”, FGP and TIE already alluded to, concepts which would have not worked in previous lessstable supply chain incarnations. A further example of this holistic concept of thinking and capability was the pursuit of the shelf-ready packaging concept. Where the seamless flow of goods was falling down was still at the store in replenishing the shelf. Ranges of goods were developed with suppliers with packages which were ready to be moved straight to the sales shelf.


pri n ciples & purp o se

Leads to

2. Increased margins

Collis, D. J. and Ruckstadt, M. G. (2008) Can You Say What Your Strategy Is? Harvard Business Review, April 2008 de Bono, E.(1999) Simplicity Penguin Books, London Kaplan, R. S. and Norton, D. P. (1996) Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review Jan/Feb 1996, Reichheld, F. (2001) The Loyalty Effect Harvard Business School Press, Boston, USA Simons, D. & Kiff, J.S. (1998), Control, Time, Collaboration & Structure Logistics Research Network Conference Proceedings, CILT Spear, S. J. (2009) Chasing the Rabbit. McGraw-Hill, New York. Womack, J. & Jones, D. (1996) Lean Thinking: Banish Waste and Create Wealth in Your Corporation Simon & Schuster, London

Leads to

2. Lower prices

Counter-intuitive thinking at Tesco

Feed supply chain improvements directly into higher gross margins

Feed supply chain improvements directly into lower prices

Leads to

Leads to

Leads to

Conventional Practice

Improved Profits

Further Reading

1. Gains from supply chain improvements

3. Lower prices which feed into higher sales volumes

Figure 3: Tesco increase profits through increasing volumes – not by increasing margins

Finally, in concluding this brief discussion of the optimisation of Tesco’s supply chain a comment on the iterative nature of this procedure needs to be made. Once control was established destocking solutions could follow and the basic concept could be extended further upstream and downstream and between streams and across the ever-widening catalogue range. Thus the FGP and consolidation network concept was extended to European and more global supply chains, the grocery home shopping and Tesco Direct models were developed, and synergies between store based and internet based distribution channels pursued in an on-going, but seemingly never-ending ambition to squeeze out more efficiencies whilst not jeopardising service levels and quality.

C o n clusi o n The supply chain provides the fundamental day to day core operation for Tesco. It needs to be efficient and flexible, but above all it needs to be consistently effective. As Ackoff advocates, Tesco tries to do the right thing (effective) rather than do the wrong thing righter (efficient). Tesco’s control of its supply chain spans the logistics processes from the factory gates of its suppliers through to the supply of the product to its customers. Processes must be robust and dependable and all are constantly examined and questioned within the framework goal of continuous improvement. What Tesco has been able to do over the last twenty years is to enjoy a virtuous circle where gains from its supply chain have been fed into lower prices and better service (through excellent availability) which in turn have generated higher sales. This has been in many ways a counterintuitive endeavour: the conventional route would have been to simply use supply chain savings to boost margins and profits (Figure 3). The big question now, as the era of Tesco under the leadership of Sir Terry Leahy has come to an end and Philip Clarke has taken the helm, will be whether Tesco continues to be the beacon of excellence we have come to expect.

www.leanmj.com | March 2012

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Landing great results Engaging with suppliers and spreading the lean ethos is critical in achievement a more efficient and reliable supply chain. LMJ investigates the changes Boeing applied to the way it works.

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he year started off in a big way for Boeing. On January 5th, the aircraft manufacturer announced it closed 2011 with a record-breaking backlog of 3,771 unfilled commercial orders. Five days later, it announced that the Renton plant delivered the first Next Generation 737 at a new production rate of 35 airplanes a month. Given the strong growth in demand (with Emirates and Southwest Airlines placing record orders), it is no surprise that Boeing is looking to further increase production rates over the next two years, with the aim to manufacture 737s at a rate of 38 airplanes per month, 777s at 8.3 airplanes per month (from the current 7) and 787s at 10 airplanes per month (from the current 2.5). There is no doubt the jet maker had to change the way it operated in order to aim for increased production rates and reduce delays. In the late 1990s, supply chain and quality issues hit the company hard when production lines had to be stopped as some parts weren’t available. When your product has millions of components and you consistently work with some 1,200 suppliers, supply chain efficiency ranks quite high in the list of your priorities. The 787 Dreamliner, the latest addition to the Boeing fleet (the first was delivered last year to Air Nippon Airways), presented the company with several challenges, specifically because it depends on parts made outside of Boeing more than other models do. In the globalised world we live in, making your supply chain leaner is a necessary step to remain competitive. If a company wants to develop a lean supply chain, changing its way of working and making the sourcing of components more seamless is not enough. Lean thinking and the use of lean tools must be spread throughout the supply chain, and suppliers must be engaged with the aim of promoting their lean transformation too.

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pri n ciples & purp o se

This is what Boeing is doing. Lean+ is an overarching continuous improvement programme started in 2006. It is considered the foundation of Boeing’s growth and productivity initiatives and the key to help the company meet customer requirements. By using and promoting a common language, and common processes, training and tools (over 110,000 Boeing employees have received basic lean online training), Lean+ helps the aircraft manufacturer accelerate its improvement efforts, share and replicate good ideas across the company and the value stream, be more competitive in the market and free up resources to invest in better solutions. Commenting on the new production rate the Renton plant achieved, Beverly Wyse, vice president and general manager of the 737 programme, said: “Working as a team, we have achieved production levels never previously reached. It’s because of the focus and dedication of 737 employees that we’ve reduced waste in our production system and identified opportunities to further increase our productivity. The first airplane at the 35-a-month production pace rolled out of the factory the smoothest ever. Only eight jobs were completed outside of our production sequence out of thousands and we only experienced three part shortages during production.” Lean+ and the work already done with lean at the Renton facility have brought Boeing to the production rates it announced in January. The company will build on this solid foundation when delivering the 737 MAX, which will be also built in Renton. Every product, however, is different and Boeing is likely not to apply the specific 787 process directly to future programmes. The 787 Dreamliner is a unique product and has a similarly unique supply chain. It will be important to strike a balance between in-house and supplier production appropriate to each individual new programme. Lean+, however, can only work if its efforts to continuously improve engage suppliers just as much as they engage Boeing employees working on the production lines. There is no way Boeing

can achieve the production rates it’s aiming at without the whole of the supply chain supporting this target. The work Boeing does with its suppliers sees, for examples, the procurement department holding reviews with suppliers and support on quality aspects including Production Readiness Assessments and Rate Readiness Reviews. These “stress tests” on the suppliers’ ability to perform or rampup to required levels aim to mitigate risks, and are done on top of normal procurement interface activities. People from Boeing visit suppliers on a regular basis, contributing to spreading the lean ethos across the supply chain. The company oversees its suppliers’ conformance and compliance to AS/EN9100, which includes a responsibility to have a programme of continuous improvement.

People from Boeing visit suppliers on a regular basis, contributing to spreading the lean ethos across the supply chain

Additionally, the company works with suppliers both on a Build to Print and a Supplier Controlled Design basis. With SCD, the supplier and Boeing Engineering groups work very closely to design the part and assess suitability and integration with the aircraft. Boeing tends not to work with mechanics from the shopfloor at this stage, unless issues arise and communication is required. Examples of the work Boeing does on its supply chain include a project with office supply provider OfficeMax to reduce packaging waste and fuel consumption (a lean workshop was organised to identify opportunities to improve processes and benefit both companies) and one involving a Commercial Airplanes technical team working with suppliers for years to redesign shipping crates for aircraft parts (focusing on the packaging of interior panels for the 747-400 freighter conversion, the project slashed the number of crates from 99 per aircraft to 14, reduced handling time by four hours and trimmed storage space by 2,300 square feet). Lean+, together with a new approach to organising and managing the supply chain, will help Boeing to manufacture its planes more efficiently, producing less waste in the process, and to deliver them more quickly.

www.leanmj.com | March 2012

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Vending lean Apex Supply Chain Technologies, the supplier of point-of-work vending machines, has entered the European market after its solutions have conquered the US. Roberto Priolo finds out how the company expects to make supply chains in the Old Continent leaner.

H

ave you ever wondered how much time it takes a shopfloor worker to travel the lenght of a site, queue up at the parts store and come back to his station with what he needs? The answer is that, often, it takes a long time. Apex Supply Chain Technologies, a Ohio-based manufacturer of point-of-work vending machines, has found a way to tackle this form of waste, commonly experienced by many companies. Kent Savage founded the company in 2006, and in the last five years Apex has sold thousands of machines in the United States. It has now crossed the Atlantic Ocean, and hopes to appeal to the European market just as much as it did to the American one (of which it now enjoys a 60% to 70% share). There are many benefits a company can reap by positioning a set of vending machines by a production line or in a hospital, just to name two of the environments where these solutions can be found: they dispense commonly used equipment and are connected to a cloudbased supply chain IT system to ensure reliable replenishment and easy access to spare parts and tools for workers.

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pri n ciples & purp o se

The solutions Apex offers are, in many ways, revolutionary: the company’s vision of how the supply of spare parts and tools should be organised is, in itself, very lean. Apex machines don’t only reduce waste in the form of the time spent by the worker travelling to the spare parts store (with the consequent loss in focus), but they also contribute to saving a business a lot of money in the form of unused stock and lost items.

L ea n i n g o ut at t h e point-of-work You can’t manage what you can’t measure. We are all familiar with this adage, and Apex is no exception. Its machines produce reports to help management see where stock is going. Data can also be segregated, to profile and compare usage between groups to realise where best practice is. Line operators won’t have to travel to the parts store and, by simply swiping their cards in the machine, they will have immediate access to what they need, be it a pair of goggles, a drill or gloves. Besides the time savings, these solutions provide management with a valuable means of knowing who is using what at any given time. Take Megastore, for example, a technology Apex will launch in the spring. It’s a point of use vending machine that will be completely pre-configurable depending on customer specifications and, more importantly, will be able to detect even the lightest items, even screws, being taken and then put back into place. Bigger than the very successful Edge 5000, Megastore can change if more space or extra storage for larger items is needed. Founder and CEO Kent Savage says: “Megastore allows a wide range of items to be dispensed in a very compact way. It makes restocking fast and efficient, delivering greater value than ever before. We have made the space smart.” In 2011 alone, Apex has installed over 10,000 machines. With 160 of Europe’s largest companies already using the technology in their facilities in the United States, the company is now confident about having a strong customer base to build on as it enters the European market, both in terms of end users and large distributors. Steve Dobson, director of business development, tells LMJ about the formula that Apex has used to win such a big part of the market it operates in: “Our successful approach provides a win-win outcome and entails distributors providing machines for customers in return for gaining a bigger share of their spend on consumables. The advantage for the customer is that

the usage of items is greatly reduced, often by 35% or more, and for the distributor that they lock in the customer, lock out the competition and gain a wider range of products.” Savage explains why Apex’s vending machines can work well in a lean environment: “Companies that are already embracing lean understand the potential of the products we supply, which give them a way to achieve results in removing all sorts of waste – in motion, materials, time. High use, critical materials are placed right where workers need them. We help businesses to eliminate inventory, and a lot of the back office activities. The data the machines capture support the implementation of lean and six sigma, and the information they provide has a dual role: one for supply chain cost improvement, the other for process improvements.”

I s t h e ri d d le s o lve d ? The use of the cloud gives Apex a distinct competitive advantage over its competitors, who still work with older PC-based technology. Dobson says: “All reordering is automatic, as the cloud sends a message to distributors or buyers anywhere when replenishing becomes necessary. All you need is a device to get onto the internet, wherever you are, and you will be able to track what the usage is for each person, machine or cost centre.” Savage adds: “The cloud allows us to increase visibility throughout the supply chain, linking information at all levels and automating processes and inventory.” Apex machines can reduce inventory levels by 50%, consumption by 15 to 50% and increase stock turns up into the 30s. They are also quick to install and don’t require the purchase of any software. Is it possible that Apex has found the ultimate answer to the eternal question “Can lean and IT work together?” Maybe so, but, as Dobson stresses, to make the most of the use of these vending machines companies need to understand what they want to achieve from the implementation. “They need to identify what they want from the machines. Is it cutting down on the usage of items, driving down costs or having the ability to measure their supply chain operation on consumables and tools?” he explains. Once again, a clear set of goals is crucial to implement a change initiative.

www.leanmj.com | March 2012

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PROCESS FOCUS

Transactional lean: a story of business turnaround All areas of the financial sector feel the pressure following the global credit crunch. Most customers, both in the public and private sector, look through their budgets for savings and as a consequence the insurance companies are pushed to offer lower premiums just to keep the big customers in their portfolio. Jacob Austad tells the story of an insurance company experiencing great difficulties in delivering services according to customer expectations, and how it tried to changed the status quo.

I

n the face of high levels of stress and only little employee trust in management, the company featured in this article had to achieve a substantial transformation in the way it worked. The demand on the insurance broker department comes directly from the insurance broker and should only consist of two types:

1

Request For Quotation (RFQ) related to possible new customers;

2

Changes to existing customers’ current insurance coverage.

Management described the department burning platform like this: The externally conducted insurance broker rating of the department performance has been declining for three consecutive years and is now the lowest score on all parameters for the top six national insurance companies;

Customer satisfaction survey reveals lowest score ever; Employee satisfaction survey show low engagement, high stress, lack of trust in management; The backlog of cases yet to be handled is growing; There is no overview of the amount of on-going cases; Amount of new RFQ has been declining; Hit-rate for winning new customers is lowest ever and still declining; Employee overtime has been growing - affecting costs - but no visible results on the backlog have been seen. In terms of organisation, daily operations were divided into silos with each employee only responsible for selected customers (insurance broker houses) and no overlap or support from colleagues.

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T ra n sacti o n al lea n pr o cess f o cus

To follow the development of the department’s performance three overall measures were put in place: Overall portfolio measured quarterly; Adherence to lead time Service Level Agreements target - two weeks to respond to any question, case or RFQ (not to solve, only to respond); Backlog of not started cases counted bi-weekly. Senior management designed a better daily operational management system and tried to fix the current internal issues before focusing on increasing the overall portfolio. There was a notion that the surfaced problems were merely the result of things happening along the process and that the root causes were still hidden, even though employee performance and behaviour were seen as unacceptable.

Traditionally, management is seen to state both the problem(s) and the solution as well as ask an external consultant to go implement as ordered. Especially in transactional environments, a lot can be learned from the old Deming quote: Cause and Effect are often separated in time and location.

T h e j o ur n ey Facts beat feelings, and in order to clearly define and document the problems and find the true root causes, management and employees were asked to study the demand put on the system. Four main channels were defined (e-mail, phone, mail and management). The demand per channel was studied, and the research revealed that: 83% of all e-mails were Failure Demand: Customers asking for status Asking for more information or providing (unnecessary) additional information; 96% of all phone calls were Failure Demand. Mail primarily was wrong delivery or advertising brochures (3% of total demand).

... and management need to learn to understand the general system complexity as well as the fact that employee behaviour is a result of the system design. Therefore any journey should start with the management and employees studying the current system in 4 dimensions:

Demand • What demand is put on the system? • Type (Value Demand vs. Failure Demand) • How much and when? • Where does it come from? (Channels) • Who place the demand (e.g. Customer segments? ) Purpose • What purpose is the department supposed to deliver? • Vision, mission • Expected outcome of the work done • Is purpose aligned with demand? • Is purpose defined looking from outside-in or from inside-out? Process • Clarify what processes the department uses • Analyse processes and procedures • Collect qualitative data • Designed for flow or bottlenecks? Measures & Targets • What measures and targets are used in the area? • Success criteria’s • Describe how they are used in terms of: • Behaviour, Visibility, Planning, Follow-up, Learning, etc.

Demand

Measures & Targets

Purpose

Process

AUS - Model© (2010)

The study will reveal whether the current system design is capable of solving the customers problems and whether there is alignment between demand placed at the system by the customers, the purpose of the system, what the processes were designed to deliver and how the measures and targets are used for planning, operations and follow-up, etc. All this information will be a valuable input to the forthcoming re-design.

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PROCESS FOCUS

During the study, management and employees started to pay interest in understanding the root causes to the failure demand and they were eager to solve the problems.

It took some serious support from the CEO of the insurance company to help employees to see the glass half full rather than half empty. A plan was established to deal with the findings from the diagnosis. Each employee signed up for the areas they had special interest in and from that three working groups were created. Each working group became responsible for designing the system in a way that solved the problems and to include other colleagues, also from other departments. There was only one rule: that all solutions should prove sustainability before any IT solutions could be developed. Of course this was seen as something of a set-back and was only accepted when the working groups saw that the solutions did not need IT to work (actually they worked better using a whiteboard or pen and paper).

Knowing about the power of intervention as well as the need to ensure that the activities selected for implementation will be likely to solve the issues at hand, it should be obvious that the focus should be on building trust and competence in the employees and for management to actively support this. A brainstorming workshop was conducted with the aim to define what “perfect looks like”. According to the team, perfect performance is achieved when: The is no need for Service Level Agreements; Failure Demand is eliminated; Backlog is eliminated in six months;

W o r k g r o up 1 – C ust o mer f o cus

Daily “planning” is done by employees for employees: Full visibility Share the work Personal planning model (for those who need);

Working directly with activities focused at improving the relationship with customers involved some counterintuitive thinking and a new systems design that was quite different from normal practice.

Targets are eliminated and measures are plotted in a time-series-plot. The idea was that delivering these elements would increase customer satisfaction and contribute to winning more quotes because of good service and fast response (for example, keeping promises and first-time-right) instead of sole price focus. As everyone would contribute and actively change the system, employee satisfaction should increase and the system should be able to adapt to changes in demand. The team invited senior management to see the learning’s and to give their input as to the way forward, but they challenged the findings and would not accept the fact that the current targets were part of the problem. However, as the team explained the connection as well as its belief in the fact that it could turn the business around, it was given the chance to deliver.

In order to clearly define and document the problems and find the true route causes, managment and employees were asked to study the demand put on the system

No need for SLAs to control the business “Perfect” was described as all customer contacts being handled and solved within two days. The working group recognised that the two weeks response target had become an excuse to reply to the customer after two weeks rather than solving the query as quickly as possible - the target stated in the SLA proved to have the opposite effect than it was intended to. The SLAs were part of the contract with the insurance brokers, and as such part of the framework for how business should be conducted. In daily life and running business the standards for response time did not describe reality as brokers would call and mail with rush-orders in need of immediate handling. The study of demand revealed that rushorders (status inquiries) and changes to previously placed orders counted for approximately 30% of the failure demand. Instead of referring to the SLAs and upset

www.leanmj.com | March 2012

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T ra n sacti o n al lea n pr o cess f o cus

the brokers, the idea was to design the system to be able to deal with actual demand and not a theoretical contract.

period. The only change was that the employees now had the authority to make the decisions.

By studying department capacity over time it became apparent that there was enough capacity to handle all demand (the average size of the backlog was almost stable) - so why not do it immediately instead of waiting two weeks?

Using this approach there was no need for hiding behind the SLAs as the lead time was now less than two days, which was never seen before in the financial sector. As a consequence of this, failure demand dramatically decreased, by 75% and still improving.

The workgroup developed a principle stating that demand coming in day 1 would be handled on day 2 and that, in case of extra high demand one day, colleagues handling RFQs would help handling demand related to changes to existing customers current insurance coverage.

Customers (brokers) began recognising this change within two to three weeks and asked “What have you done? Did you hire more people?”

Handling of RFQs was not a problem as these cases always included a deadline for sending the offer and on a daily basis employees would decide if it was a RFQ worth giving an offer and if the capacity was available within the

Failure demand eliminated This focused on actions common to all workgroups and on measures to follow the development and improvement in systems performance. The table below shows part of the demand analysis as well as some of the actions related to eliminate failure demand.

The study also revealed a few “grey zone inquiries” which might be needed or were unavoidable but could be minimised with a focused approach. The team had a firm belief that the elimination of failure demand could be achieved through implementing the actions in the table and as a result time to deliver better customer service would be freed up. To follow the change in type and frequency of demand the team developed a simple Tally-chart method to register the amount of failure demand at first-point-of-contact and show it on a daily /weekly plotted graph. Once a week the daily briefings also included reporting on action status and the team decided that support activities based on the actions impact on process performance. Backlog eliminated in six months The backlog was counted and isolated and a plan was created to eliminate it. The principle used was that customers placed in the backlog were already

Failure Demand – Type, Channel, Frequency and Actions Type

Channel

Frequency*

Actions to remove

Insufficient information

Mail Phone

26% 27%

New info received

Phone Mail

22% 36%

Reguire status on case

Phone Mail

24% 18%

Change of deadline

Phone Mail

19% 15%

Elimination of Service Level Agreement contents as rule of prioritization Elimination of Back-log Work day-to-day

Insurance overview

Mail Phone

5% 8%

Give broker access to existing database (implement self-service model)

Work with broker to create recap sheet holding all needed information to calculate price, coverage, etc. Training in Right-First-Time

Other inquiries that could have been avoided if... Documents missing

Work with brokers (education, briefings and training during visits) to align processes across companies

New broker on existing cust.

Combine info update when new RFQ is received (as they can’t change broker during running period)

Automatic created cases

IT-System

76%

Update customer information in system (right data in right cells) Change system rules to comply with actual need

Pre-sorting of cases

IT-system, Mail, Phone

100%

Change from personal cases to team-responsibility Working rule: Take next case in inbox

* Sample size: 619 mails, 302 phone calls

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PROCESS FOCUS

dissatisfied and that handling the cases after four or eight weeks would not make a big difference.

W o r k g r o up 3 – Or g a n isati o n al f o cus

The team had an overview of the demand to be handled each day and was therefore able to decide how many cases from the backlog that could be solved. Furthermore, special efforts could be decided, all planned by the employees (only when special decisions were needed was management involved).

This group worked on how to design the department structure supporting competence building. A personal development plan was created for all employees and as a result a new internal structure was implemented leading to everyone in the department being capable of handling all types of (value) demand and not only parts.

After four months and a half, the backlog was eliminated and as a consequence capacity was freed up and for a period used for training and competence building. Later, capacity will be used to provide better service for existing customers and thereby win more quotes.

W o r k g r o up 2 – E mpl o yee f o cus This workgroup was focused on establishing the internal routines primarily surrounding daily planning and how to create the visibility which will ensure problems to be surfaced and act as triggers for corrective and preventive actions. The team began with a workshop to design the “rules of engagement” or a common agreement on what to expect from each other. In reality, the aim was to have open and honest discussion. In addition to several attempts to design the boards to include the relevant information, the team also devised a process aimed to help the employees to plan what they should do individually week after week. This process became a part of individual coaching, both employee to employee and manager to employee. The idea behind this was that employees expressing the need to have high visibility would be able to help each other as well as creating the legitimacy to ask for support. As a result relationships were strengthened and general engagement increased.

The workgroup put a big effort in involving management, directly through invitations to participate in the workshops to observe the daily routines and indirectly through a monthly report

Furthermore, targets were eliminated and all measures were designed in a way that made it possible to show the progress and status in a timeseries-plot. This allowed for long-term sustainability as the system became capable of handling changes in demand (type, amount and frequency) through a substantial knowledge and use of Deming’s PDCA, because every variation created the desire to find the root cause and eliminate it by adjusting the system. The workgroup put a big effort in involving management, directly through invitations to participate in the workshops to observe the daily routines and indirectly through a monthly report showing the new measures and how the work actually improved performance beyond the former targets.

C o n clusi o n The trick in transactional lean is to start by understanding the problem to solve, and by always listening to the employees and having them and the managers study demand. This also includes not seeing tools as the solution. Too many lean initiatives are implemented just as a list of tools used in a given sequence. John Seddon calls people using this approach tool-heads: this often gives lean a bad name and these projects are never sustainable because they follow a consultant’s approach. The benefits will only impact the “L” in the business P&L, because they don’t recognise an important teaching from Deming: cause and effect are often separated in time and location.

www.leanmj.com | March 2012

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Lean’s Western beginnings Part 1 – The JIT era and the transition to lean The lean movement has two main phases, its Japanese origins and later its global propagation. The latter phase divides again into two recognisable “eras”: just in time and lean. In Part 1 of this two-part article, Richard J. Schonberger, one of the ‘founding fathers’ of lean, mostly concentrates on the JIT period. Although this was enormously busy and fruitful with plentiful documentation, much of it appears to be scarcely known, forgotten, or muddled.

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etting history right is always important for the sake of learning from it. That seems especially true of management initiatives, where faddism reigns and yesterday’s initiative is quickly set aside, along with useful lessons. Lean’s historical lessons, on things gone right and wrong on the lean journey, deserve a better fate, which is the reason for this article.

Manufacturers that gained global stature in lean pursuits in one decade lost it somewhere a decade or more later

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There are good indicators of things gone wrong. Broad-brush evidence comes from the “leanness studies”, which show, for some 1,600 global companies, up and down cycles in long-term inventory turnover - a dominant lean metric. A down (worsening) trend in recent years shows up clearly, indicating that industry is generally fattening up rather than getting lean. More arresting than the inventory findings are numerous specific cases: manufacturers that gained global stature in lean pursuits in one decade lost it somewhere a decade or more later, and had to restart: learning and implementing the lean agenda all over again. In Part 2, I’ll provide examples of those cases as well as more on lean’s up-and-down performance cycles. Our discussion, largely on JIT developments from 1977 into the early 1990s, intermixes milestone events, organisations, authors, and key educational and training materials. For the lean era, fresher in people’s minds, we visit only a few highlights, mainly to trace the transition from JIT and to note persistent issues and challenges needing further discussion, which commences in Part 2.


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when it was in described in a US trade magazine, and also by Toyota managers as a chapter in an English-language book. 1979-1986. In an early effort to get JIT rolling, a grant in 1979 by the American Production and Inventory Control Society (APICS) founded the Repetitive Manufacturing Group (RMG), which became a key player in JIT’s deployment. With members from large manufacturers, the RMG’s purpose was to learn why US producers were getting clobbered by Japanese makers. In 1980 the RMG cosponsored a conference in Detroit at Ford World Headquarters. Principle speaker Fujio Cho (later, president of Toyota Motor Corp.) left the audience stirred up about JIT at Toyota and its prospects in the West.

Principle speaker Fujio Cho (later, president of Toyota Motor Corp.) left the audience stirred up about JIT at Toyota and its prospects in the West

Limitations: This non-comprehensive treatment of JIT and lean limits its focus to manufacturing - though most of the content applies to services as well. We also exclude JIT/lean’s close partner, quality - except to point out here that JIT was, at first, often matched up with total quality control, as JIT/TQC; and that lean marched alongside total quality management (TQM), evolving later into six sigma, as in lean six sigma. Lastly, Googling to find source materials from way back in the 1980s is mostly futile. So I rely heavily on my own book library and bulging file folders of articles and case-study reports. They are fairly complete, as I’ve been a member of most of the pertinent professional organisations (acronyms: IIE, APICS, AME, SME, ASQ, POM, etc.) and subscriber to most of the relevant periodicals over the three decades.

J ust - i n - time pr o d ucti o n : w h at we f o r g o t t o remember Earliest years. The advent of lean is largely attributed to Toyota and its suppliers, circa 1950 to 1970. Called just-in-time production or Toyota Production System (TPS), it was largely unknown in the West until 1977

In 1981 the RMG met in Lincoln, Nebraska, the U.S. home of Kawasaki motorcycles. It was a “proof-of-concept” meeting to study Kawasaki’s welldeveloped JIT production system, a clone of Toyota’s. After this eye-opening experience, proving “it works over here”, many returned to their companies (General Electric, Ford, Black & Decker, others) to head their own JIT initiatives, several later becoming top-echelon manufacturing consultants. RMG leader Professor Robert Hall (Indiana University) had organised the event based on information from Professor Richard Schonberger (University of Nebraska), who had learned of the plant’s advanced JIT from plant tours hosted by a former student, then a professional at Kawasaki. In 1982 the RMG staged workshops at Omark Industries and Hewlett-PackardGreeley (Colorado). At Omark (Portland, Oregon), CEO Jack Warne - who had inhaled JIT in visits to Japan - led the first company-wide conversion (all its 17 plants in the U.S., Canada, and Puerto Rico) to what it called Zero Inventory Production System. Whereas Kawasaki was strong on JIT as applied to assembly, ZIPS at Omark (products from saw chains to ammunition to log-handling equipment) featured applications in hardmetal machining, including quick machine setups and relayouts into machining cells that reduced thousands of feet of material travel to a few feet.

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AIAG became, and still is, a standard-setting body of the auto industry).

The H-P workshop showed off cellular assembly, kanban squares, highinvolvement cell teams, and so forth. Earlier, six H-P managers had been videotaped building a mock product from Styrofoam and masking tape, first in large batches, then in pull/one-piece flow in a tight cellular configuration, dramatically demonstrating JIT’s superiority over batch manufacturing. The video, Stockless Production, was sold by H-P for JIT training at hundreds of companies and universities. Later, other companies devised their own hands-on batch-vs.-JIT simulations (for example with Legos), becoming dominant JIT/lean training tools from the 1980s to the present. As for people, in 1982 Arthur Andersen consultants David Nellemann, Leighton Smith, and Masakatsu Mori made JIT presentations at numerous public conferences, some of the programmes of which also included Hall or Schonberger, who were criss-crossing the US doing the same. By 1983, a few academics had hitched themselves to the JIT bandwagon: Hall and Schonberger; Professor John Bicheno, University of Witwatersrand (“Wits”), South Africa; and Professor Horst Wildemann, Universität Passau, Germany. That year, for example, Schonberger delivered JIT seminars and short talks at 64 events, half on-site at manufacturers, in the US and Canada, plus Singapore (seminar hosted by Singapore Productivity Board), and Germany (at a Wildemann-organised conclave of a wide swath of German industry). Hall was similarly engaged, including presentations at dozens of APICS chapters. Bicheno, head of Industrial Engineering, established with colleagues the Wits Just in Time Club, which held regular meetings, arranged plant visits, and made a video on JIT in South Africa. Another JIT entity formed by APICS to study the roots of Japanese competitiveness was, in 1983, the Automotive Industry Action Group (AIAG). That year AIAG co-sponsored “Two Major ‘Just-in-Time’ Conferences” in Detroit. A four-hour video of conference presentations, sold to 1,100 buyers, provided enough funds for AIAG to separate from APICS (eventually, backed by corporate memberships, the

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In 1984, JIT was further internationalised, judging by my own ‘road shows’, which took me to Canada (many times), UK, Ireland, Netherlands, France, Germany, Malaysia, and the Philippines. The following year the RMG split from APICS, primarily because APICS revolved around production and inventory control, whereas JIT cut a wider swath. RMG re-launched itself as the Association for Manufacturing Excellence Through Just-in-Time; “Through Just-in-Time” was quickly dropped, making it the AME.

While a good idea, and easily taught to front-line operatives to obtain their involvement, waste reduction has a decidedly low-level ring to it

Meanwhile, many JIT articles and books, in English, were being churned out, at first on concepts, then many case-study reports on applications. Prominent early articles were by Hall, Schonberger, Ken Wantuck, Taiichi Ohno, and Yasuhiro Monden (all in 1981); Nellemann and Smith of Arthur Anderson (1982); Schonberger and co-authors, on JIT purchasing (1983, 1984). Books were by Ohno (1981), Schonberger, and Shigeo Shingo (1982), and Hall (1983). Other resources include: RMG’s Just-in-Time Technical Development Newsletter, 1983-1984, a source for case-studies on JIT implementations. In 1985, when RMG became AME, the Newsletter became AME’s Target magazine, still today churning out JIT/ lean-implementation case studies. Also in 1984 the IIE released Just in Time, an 8-cassette audio tape package taken from a Schonberger seminar. In 1985 Proconseil (a French consultancy) had put its kanban simulation game into use for company training; translated into English, it was used extensively in US seminars beginning in 1986. In the second half of the 1980s, JIT was busy spreading its wings, but then showing signs of fatigue. Evidence of this shows up in long-term multi-company inventoryturnover trends - improving dramatically through most of the 1980s, then tapering off and worsening in the late 1980s and into the 1990s. A similar ‘lean fatigue’ pattern showed itself in later years (more on this in Part 2).

Signs of JIT’s maturati o n i n clu d e : On 8-9 April 1986, IFS Conferences Ltd. hosted, in London, the First International Conference on Just in Time Manufacturing. The AME board ruled in 1986 that no consultants could serve on its board. This unusual decision, requiring some board members to resign, may have been aimed at elevating and preserving AME’s credibility and objectivity - and that of its Target magazine.


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In 1988 the Shingo Prize for Excellence in Manufacturing was established at Utah State University; its annual awards to factories were/are based on JIT/lean criteria and the works of JIT pioneer Shigeo Shingo. New books deepened and widened topical coverage in JIT: David Lu, 1985; Schonberger, Monden, 1986; Hall, Suzaki, Schonberger, Ohno, John Costanza, Chris Voss (U.K.), 1987; Edward Hay, Richard Lubben, 1988; Wantuck, 1989; and Harmon and Peterson, 1990. Other new books were focused on JIT-enhancing changes in primary business functions. The table below includes five examples, with contrasting conventional (batch) treatments and revised practices induced by JIT. It could be argued that each practice in the conventional column was detrimental even in the absence of JIT. The revised treatments under JIT were mutually beneficial. Business Function

Conventional treatment under batch production

Revised treatment under JIT production

Managerial accounting

Inventory as an asset

One-piece flow ideal

Product design

Throw it over the wall

Design for manufacture

HR: Training

Master a single job

Multi-skilling, job rotation

HR: Pay

Piece-work tendencies

Pay-by-skill tendencies

Top management

Operational trade-offs

JIT a universal strategy

Books instrumental in bringing about these kinds of changes were, prominently: G. Boothroyd and P. Dewhurst, 1987, on design for manufacture and assembly (DFMA), which simplifies and quickens JIT implementation; and T. Johnson and R. Kaplan, 1988, on JIT-enforced changes in management accounting.

T ra n siti o n t o lea n The transition away from just in time began in 1990 when the term ‘lean production’ was introduced in The Machine That Changed the World, which reported findings from a $5 million MIT-based comparative study of the world’s automotive assembly plants. The book provided a needed stimulus to the fading JIT movement. Although it introduced no new or different concepts and methodologies, the research basis was extensive, and directed toward the world’s most widely-watched industry. Perhaps because the book was crammed with its research data and findings, it found no room for referencing the JIT books of the

1980s. In view of the hundreds of thousands of sales of The Machine That Changed the World, the absence of mention of the JIT era made it go away all the quicker. Moreover, just in time was shopworn. In the 1980s most JIT references either added the word “production” or it was simply understood to mean just-in-time production. Gradually and publically, though, “inventory” replaced “production”, and today business media nearly always call it just-in-time inventory

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In their early years, JIT and lean may have been treated by some CEOs as strategic components of their business plans. Then, inexorably, executives delegate it down the hierarchy

- commonly meaning not factory inventory but rather that from suppliers. Hearing that all the time, most lean practitioners have come to regard JIT as just the inventory or supply aspect of lean. It’s no wonder that lean’s JIT era has been so forgotten. That forgetting, however, generally does not hold among academics in operations management, whose research keeps them better in touch with terms and meanings. Also, my impression is that JIT production survives in much of East Asia, including Japan, partly because different languages tend to be barriers to the terminological flipping that goes on in English. My own early reaction to “lean” was favorable; it was similar to the word “frugal” in my 1987 Harvard Business Review article, Frugal Manufacturing. Now, lean, too, seems shop-worn. As for replacement terms, whatever may emerge surely should have the word “time” in it, which ironically would bring us full circle. The following four books are in that spirit: George Stalk, Jr., and Thomas M. Hout, Competing Against Time: How Time-Based Competitive is Reshaping Global Markets, 1990 (sequel in book form to Stalk’s widely-cited article Time - The Next Source of Competitive Advantage, Harvard Business Review, 1988). Philip R. Thomas, Getting Competitive: Middle Managers and the Cycle Time Ethic, 1991. Rajan Suri, Quick Response Manufacturing: A Companywide Approach to Reducing Lead Times, 1998. Rajan Suri, It’s About Time: The Competitive Advantage of Quick Response Manufacturing, 2010. Of these, the first and the last are most notable. Dr. Suri “is founding director of the Center for Quick Response Manufacturing, a consortium of 300 companies that have worked with the university [of Wisconsin on] QRM strategies”. So said Industry

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Week in putting Suri into its 2nd annual (2010) Manufacturing Hall of Fame. However the same or different QRM may be from JIT/lean, Suri has created a stir with it. But in one industry “quick response” is old hat. By 1990, in apparel and textiles, QR had become a major movement, with an annual conference and periodical backed up by a large consortium. Still today, the most notable example of end-to-end lean is probably apparel, with Inditex (Zara) of Spain and H&M of Sweden being standout achievers. Stalk’s works offer a pathway to uplift JIT/ lean from the mode of merely operational to grandly strategic - because JIT/lean’s forte, reducing waiting time and providing quicker response along the value chain, is customer-rewarding and competitively advantageous. That was the gist of Stalk’s article, reinforced in his book, with casestudy examples at Honda, Toyota, HarleyDavidson, Milliken, Federal Express, and Wal-Mart. In their early years, JIT and lean may have been treated by some CEOs as strategic components of their business plans. Then, inexorably, executives delegate it down the hierarchy. In lean’s case, erosion of high-level support is probably quicker that it was for JIT, because of an extra burden lean has been carrying: it came to be defined and promoted primarily in terms of waste reduction. While a good idea, and easily taught to front-line operatives to obtain their involvement, waste reduction has a decidedly low-level ring to it. In the JIT era eliminating/ reducing the “7 wastes” was treated as one of the good methodologies, along with the 5 whys, multi-skilling, supplier reduction, quick setup, and so on - and not JIT’s defining characteristic. Regardless of all that, a critical weakness and tragic shortcoming of the JIT/lean movement is the failure to recognise and capitalise on what George Stalk had laid out for us: strategic rationale for doing it. There’s more to this story. To be continued in Part 2.


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North

stars This month, LMJ talks to a number of lean companies in Scandinavia. Taking you to Sweden, Denmark and Norway, we look at how lean is implemented in these countries and at how local culture shapes the way companies understand and deploy it.

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n our tour of northern Europe, we meet champions like Volvo and technical wholesaler Solar, as well as firms that have managed to transform themselves and overcome enormous difficulties by adopting lean thinking, like LEGO. The use of lean is widespread in Scandinavia, which is demonstrated by the array of sectors featured in this special: we have specialists in medical testing devices and port terminals looking to dramatically improve the way they operate, hospitals and toy manufacturers. While Denmark is perhaps the lean champion of the area, with a very good understanding of the methodology commonly found throughout society, Norway and Sweden also offer some great examples of operational change. In the next few pages, you will have a chance to learn about the status of lean in these countries. Joakim Hillberg of the Swedish Lean Forum, Jens Kristian Jørgensen of the Confederation of Danish Industry and Daryl John Powell of the Norwegian University of Science and Technology in Trondheim introduce the specials on Sweden, Denmark and Norway respectively.

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Sweden’s take on lean Joakim Hillberg, co-owner of Revere AB and chairman of the Swedish Lean Forum, has worked with lean in and out of Sweden for over 20 years, supporting companies and organisations in their implementation efforts. He shares his thoughts on the advancement of lean in the Scandinavian country.

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t the last annual Swedish Lean Forum conference, in October 2011, there were over 500 participants from different types of industrial companies but also from schools, hospitals, government agencies, police, software companies, finance, travel companies, media, universities. Probably from most sectors of Swedish society. This is quite unbelievable considering how lean started in Sweden. Some of the earliest efforts with lean thinking in Sweden were in the 1980s. One of Shingo’s books was translated and there were efforts on using kanban, but the main area of focus was “just” reduction of tied-up capital. In the 1990s, two important companies engaged in a much more focused effort to change their production systems; these companies were SAAB and truck company Scania. SAAB might not currently be a role model, but without its work with lean the company would have probably disappeared much earlier: it had many Japanese senseis coaching and training people

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in the business, which became, in retrospective, a centre for developing Swedish lean competences. Scania already identified its need for change in the 1990s and more or less made a carbon copy of the Toyota House. But it wasn’t until after 2000 that lean started to get wider recognition in Sweden. It was then that Lean Forum was started as a non-profit organisation with the aim to spread lean thinking. It was a quite small industrial club at the beginning, but it has grown into a 5,000-strong network of members from very different areas. Just to give you an idea of the dramatic expansion of lean in the country, there are currently more than a hundred annual open lean events or seminars in Sweden. And these are not just for industry: more than 80% of health care organisations and more than 30% of municipalities in the country are now working with lean in some way. Additionally, in the last few years two important national initiatives have been started: The Production Leap, a national support programme for sustainable lean development in small and medium sized industrial companies. So far, the initiative has seen more than 10,000 people attending seminars, 1,000 people going through a 10-day training university course in lean (whilst going to work at the same time) and coaching offered to over 100 companies implementing lean. As an effect of this course, there are now at least ten universities in Sweden offering some sort of executive course in lean. Verksamhetslyftet, a training programme for the public sector founded in 2009. Its purpose is to support the development of lean in municipalities and healthcare. The programme has so far given more than 1,000 people a basic training in lean, which has resulted in a large number of implementation initiatives.

Research is also growing, with the launch just recently of a national lean research network. A simple example of the effectiveness of this initiative is the number of student dissertations on lean, which has increased from a couple per year to over 50 per year over the last decade. The literature base is expanding: at the beginning there merely were some translations from Japanese or English, but today there are around 30 books in Swedish, with about half of them written in the country. This is quite impressive in a country with a population of 9 million, especially considering that most people are fluent in English. The Swedish lean journey is in many ways similar to that experienced in other countries. It was very tool-based at first, with a strong focus on 5S, SMED, etc. and has recently become more focused on strategy and work with lean principles. There are some differences, however: the use of Kaizen Blitz and Kaizen events is not prevalent at all in Sweden. They only appear in global companies where it is mandatory. This can probably be attributed to Sweden being a collective society: for example, most Swedes attend kindergarten early on, when they are 1- or 2-years-old, and there they are already taught to co-operate. Using the Toyota House as a model for describing lean and an organisation’s production system is also very common, due to Scania’s early work. Looking briefly at the future of lean in Sweden, the methodology will continue to evolve becoming increasingly perceived as an enterprise-wide system. The respect for people principle is also expected to gain momentum. There is an increased understanding of the fact that, if you want to reap the full benefits of a leaning organisation, there have to be gains for all parties. Furthermore, there is a need for more research to be published, to expand the evidence and knowledge base on lean.


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In this special on Sweden, Stefan Hollertz and Björn Stenvall present three case studies of companies the Production Leap helped on their improvement journeys.

Tradition and change At AB Furhoffs Rostfria, handicraft and high tech go hand in hand, with a long-term investment in lean sustaining the company’s efforts to achieve excellence.

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n the Skövde plant, the fourth generation is now running the metalworking company whose roots stretch back to the end of the 19th century. The company’s pride in its origin is easy to see: Sweden’s only school for coppersmiths is still run here. Furhoffs mainly operates in two areas: building products (primarily heating, ventilation and sanitation) and customer specific products, such as radar antennae.

A leap of faith The Production Leap offers companies with 30 to 250 employees support in their practical change process. It contributes to their progress towards efficient production and a strong, sustainable capacity for change.

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ts work aims to create permanent lean changes in selected medium to large manufacturing companies. The Production Leap applies a standardised and well-tested process that lasts for eighteen months, called The Wave. A broader understanding of lean and some guiding principles are established in the company. Following the initial phase, new ways of working are developed, introduced and stabilised in a pilot group. Their design is based on the guiding principles and the challenges and problems found in the company. A basic course in lean production for two people, the company’s change managers, is required. The Production Leap’s coaches and experts pay one-day visits every other week during the first ten to twelve months. When the company is strong enough to take over, this interval is lengthened to four weeks.

“Of course, it was difficult to get started, but we knew that it was a long take-off run,” says production manager Jan Adolfsson. “We also knew that we had a lot of areas where improvements would quickly be evident.” Both Jan and Björn Furhoff, CEO and owner, saw the importance of getting everyone on their side to introduce a new way of thinking. They ran into territorial jealously and other problems, but they chose to set the good example and eventually got everybody on board. “We have two strong trade unions here, but no opposition,” Furhoff says. “They were included from the start, from setting the fundamental values. Like us, they are aiming to secure jobs and a long-term approach.” By combining modern handicraft with efficient production, Furhoffs is maintaining its competitiveness (the work with the Production Leap is done, and the company is now driving its lean programme alone). Competition comes from other materials, such as plastics and cast iron, but also from other manufacturers of stainless steel products. The company’s goal is to re-invest 10% of turnover. “Daring to take time from production and talk, for instance about good order and clarity, 5S and planning is so rewarding - we earn the time back many times over,” Adolfsson says. Having ambitious change managers who can keep the enthusiasm and activities alive is pivotal. At the same time, it’s important that management is passionate about lean and sets a good example.

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Out of the box

Emballator Lagan Plast AB in Ljungby develops, produces and markets plastic packaging for foodstuff, pharmaceuticals and chemical products. It kicked off its lean journey in 2005, joined the Production Leap in 2008 and won the Swedish Lean Prize in 2011.

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ustomer contacts are not only more frequent than before, they are also considerably more effective and rewarding for all parties. The company runs an operator exchange, where operators from the company and its customers link up and exchange experience as well as demonstrate how the respective manufacturing processes work. “It once was our sales reps who handled the contacts,” quality, environment and hygiene manager Anette Larsson says. “Commitment and job rotation means that broadly speaking anyone of us can answer questions.” Despite more than doubling volumes and turnover from 2004 to 2011 and having 50% more customers, there are only eight more people in the company. Both customer satisfaction and delivery precision have increased. The real gains, however, are in the customers’ confidence in a functioning and more efficient way of working, which is supported by proud employees. Emballator Lagan Plast AB went from being threatened with closure about eight years ago to transferring production from Denmark to Ljungby, Sweden, in existing premises: all of this thanks to a more efficient utilisation of floor space and more efficient production. The company traditionally had gigantic electricity bills and one way of measuring consumption with respect to the production is to divide the kilowatt-hours by the number of kilos of plastic consumed. Without focusing on electricity consumption, this ratio has dropped from 2.41 to 1.73 between 2004 and 2011. “This naturally affects environmental considerations and willingness to invest since our owners see the effects of getting rid of waste at all levels,” managing director Christian Silvasti says. “Now, when we are investing in the facilities, we are investing in closed cooling systems, we heat the premises with waste heat, etc.” Leaders contribute in every possible way, also releasing capital for ventures and investments.

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Company of the Year Construction specialist JM AB has worked with lean for several years, winning understanding and support from its workforce. In 2011, the company won the Swedish construction sector’s lean prize.

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M’s lean transformation started in 2009, when parts of the production management team attended a course arranged by Chalmers Professional Education. A project was started, with the overriding goal of achieving flow in the production and minimising waste by working more intelligently. Many lean initiatives are implemented at managerial level, with courses for managers who are then expected to spread the philosophy in the organisation. JM chose a different strategy. “We invested in courses for everybody who is involved in production; both office workers and craftsmen,” John Eklund, manager of production development, says. “In this way, we have succeeded in building up a broad lean competence and a shared vision of the business.” To maintain the commitment and drive in the development work, JM is continuing to invest in training. Further education courses in lean are being combined with specialist training for various professional categories. John Eklund sees several positive effects of the investment, including increased delivery precision and reduced number of accidents. He also thinks that job satisfaction has increased and that personnel feel more involved in the company’s development than before. “The strong collaboration between our employees is quite clearly the greatest gain for us,” he concludes.


it ’ s a lea n w o rl d

Torbjørn Netland, a Fulbright visiting research fellow at Georgetown University in Washington DC, and a researcher at Norway’s NTNU/ SINTEF, and Ebly Sanchez, Volvo Group’s VPS competence programs director, present this case study on the Volvo Production System and explain the vital role people play in the company’s lean transformation.

People at the wheel – Volvo’s lean journey

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fundamental lean transformation, leading to sustained continuous improvement and improved business results, is always produced by the most valuable resource all organisations already possess: people. Far too often, companies radically underestimate the role of people while overemphasising tools and methods. This lack of connection between the appropriate focus on people and a holistic learning process with the implementation creates a false start, leading to overspending, lower-than-expected effects, union conflicts, and lower credibility of the lean transformation process. Based on our industrial and theoretical insight, we uphold that the more hightech, high-value and customised the production gets, the more important the role of people will be in the lean transformation. We see this in the Volvo Group and elsewhere in industry. Thus, we argue that focus on people involvement and people development is the single most important factor for the successful implementation of lean in the high-customisation industry. Production of customer-specific and high-tech products requires much higher levels of flexibility in the technological and organisational set-up and more advanced human capabilities than repetitive massproduction. Here we find Volvo’s lead. The Volvo Group is the largest Scandinavian manufacturing company with more than 90,000 employees globally. Since its founding in Gothenburg, Sweden, in 1927 it has been a Scandinavian train engine for

industrialisation and growth. Volvo develops and produces trucks, buses, components for aircraft engines, construction equipment, and drive systems for marine and industrial applications. While consumers in particular think of traits like safety, quality and environment when seeing the Volvo logo, researchers in production management typically think of Volvo’s stronghold in the humanisation of work: the experiments of work organisation in the Kalmar and Uddevalla plants in the 1970s-80s made Volvo become a synonym with a much more humane, democratic, autonomous, and teambased production system than the contemporary focus on extreme standardised assembly line production. Some believe that this thinking was abandoned with the closure of the mentioned plants in the early 1990s – they could not be more wrong. Humanisation of work is still a stronghold of the Volvo Group, and an essential contributor to Volvo’s sustained success.

T h e V o lv o P r o d ucti o n S ystem Volvo looks different today than it did 20 years ago. Since the sale of Volvo Cars in 1999, the remaining Volvo Group has grown considerably and globally. Naturally, its corporate culture and operations have become much more diverse, dispersed and dynamic over the last decade. Moreover, several Volvo companies experience extensive price competition from new economies such as China, and needed to embark on lean manufacturing initiatives in order to

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it ’ s a lea n w o rl d S C A ND I N A V I A – d e n mar k

reduce production costs while improving quality and reducing delivery times. These are reasons why in 2005 Volvo Group decided it needed a common corporate-wide improvement programme to allow for better use of resources, sharing of best practices, reduced duplication of lean efforts, and a shared improvement language. In 2007, the Volvo group launched the Volvo Production System (VPS).

As seen, different solutions share a common core in the belief in people. This is not to say that these plants are excellent in all ways and cannot improve, which is why Volvo is working on the VPS with a firm idea that it is a good strategy.

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LITY QUA T-IN BUIL

TEAMWORK

E -TIM

In a relatively small factory in Gothenburg, Volvo Penta builds customised ship engines. Here the heavy and technologically complex product rarely moves, while a team of operators have close to full responsibility and autonomy for how and when the engine is built. This offers a high degree of flexibility to trained employees that are able to make customised products without sacrificing lean improvements. Making the workplace more stimulating and interesting for modern and future employees is more important in the long run than maximal efficiency gained through repetitive and dull work.

CONTINUOUS IMPROVEMENT

T-IN

One of the company’s most successful plants is the trucks plant in Curitiba, Brazil. Here, autonomous shopfloor teams are working alongside a traditional massproduction production line. The inspiration for this human-centred organisation in a traditional technological set-up came from Volvo’s Swedish plants. These teams are the driving force to implement and maintain improvement, and have over time proven very successful in an area of the world more known for hierarchical and directive production management.

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The VPS has an implicit focus on people. It emphasises the Volvo Way, people and teamwork as cornerstones of how to operate. More than other companies, Volvo allows decentralised solutions and a high degree of autonomy as long as people have been heard and included in the process. A joint optimisation of people and technology is always strived for, which might be different for different situations, cultures and environments. Two practical examples of what we mean by the people focus in Volvo are:

CUSTOMER

PROCESS STABILITY

THE VOLVO WAY

Figure 1: The Volvo Production System for the order-to-delivery processes

I n t o t h e future wit h pe o ple at t h e w h eel Volvo believes that building attractive work places is much about building people capabilities. If people are involved and allowed to learn, they will be pleased to help improve their workplaces and increase the competitiveness of their employer. The idea is to spread the thinking before the tools. Therefore, Volvo launched a new capability growth strategy in 2011 that will accelerate the implementation of the VPS by focusing solely on increasing the knowledge level around the world through extensive training and education. In conclusion, Volvo builds on the Scandinavian tradition of people involvement, people development and team building to succeed with the Volvo Production System globally while retaining the need for local solutions. We do not pretend that we have the solution for all types of lean improvement issues in industry; however, we do believe that having an autonomous team with the correct implementation capabilities will be the single most important factor for successful lean transformation in masscustomised industries. Knowing that high-tech, high-value, and high-customisation will be the main attributes of future high-growth industries.


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Denmark: fairytale lean

In partnership with

Jens Kristian Jørgensen is the director of leadership development and productivity at the Confederation of Danish Industry (DI), which has played an important role in spreading the knowledge about lean in the Scandinavian country. In this article, he introduces LMJ’s special on Denmark, explaining the current status of lean there and how local culture affects its development.

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ean got momentum in Denmark after 2000, when it became a very popular method to increase productivity. Through trial and error lean revealed its potential and it became obvious that it is not just a box full of tools: it is now widely recognised as a philosophy and a way of life in many companies. But what is the status of lean in Denmark today? Let’s start with some data. Our annual survey for 2011 shows that about 56% of Danish manufacturers are working with lean. Furthermore, lean in these companies is quickly moving from the shopfloor into other business areas, like administration and R&D. Within the next 12 months we expect the number of manufacturing companies working with lean outside the shopfloor to increase by 50%. The survey also shows that more and more nonmanufacturing companies are starting lean journeys. Lean has now become a part of strategic planning for an increasing number of businesses, the responsibility of its implementation moving to the lines. I have been asked how culture in Denmark shapes the way lean is implemented. While I don’t think Danish culture has a specific advantage when it comes to deploying lean, I do believe that the way that many Danish companies are managed does have an impact on lean implementation and the ability to sustain results.

Most Danish companies are characterised by a very flat organisational hierarchy and a very small power distance. As a result of this, decisions are often delegated to the employees. Generally, you will find that employees in Danish companies place great confidence in their leaders. Working in teams is very common, and people are trained to respond to delegated work responsibly. This is a perfect recipe for motivation and success and makes it easier to get started with lean. The flipside is that a great number of teams/ employees has created their own standards and has a “delegated right” to make a lot of decisions. In lean, management must set the direction and a lot of leaders find themselves in a position where some of the delegated power must be withdrawn without demotivating people. Not always an easy job. There is a strong lean community in Denmark. Networks keep it together and true knowledge sharing acts as an important incentive to foster lean change in companies throughout the country. It now seems that we have entered a positive self-perpetuating spiral creating more and more people and businesses with a lean ethos. There is an increasing number of small and large companies providing great examples of lean implementation, and you are introduced to some of these firms in the articles contained in this focus on Denmark.

www.leanmj.com | March 2012

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LMJ speaks to LEGO, and discovers how lean has helped the company to get back in the saddle after a challenging few years.

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admit it, I might be slightly biased when it comes to LEGO. Like millions of other people around the world, I have always been a great fan of the bricks made by the popular toy manufacturer. The name of the company means “play well”, leg godt in Danish, and while this may refer to the actual games children (well, most of the times it’s children) play with the bricks, it could refer just as easily to the performance of the company as a whole. Six years ago, LEGO was in a deep crisis, losing ground to its competitors and reducing headcount from over 9,000 to just over 4,000. Kent Kjaerhus, director, LEGO Continuous Improvement at LEGO Systems A/S, says: “We were not really listening to the voice of our customers. We did not deliver what we promised and we were not flexible as much as the customer needed us to be when they made changes in their orders, in terms of mix and quantity. The lead time for our average product was in general nearly a year, and we worked with plans typically set at the beginning of each year that were difficult to modify and adapt to changing customer requirements.” That is when LEGO realised that things had to change, and started its systematic lean journey. It first introduced the new production system and set it up in the Danish site, located in Billund: it then expanded the programme to the company’s three other plants in Hungary (where Duplo products are manufactured), the Czech Republic and Mexico (which serves the American market). “Our analysis showed us that we could use the same bricks for about 60% of the elements for the boxes we manufacture. The rest is the special elements which go in specific products, like Indiana Jones sets for example, and you can’t predict which one of them will sell well. However, you can use forecast for 60% of the elements. We went from a push to a pull system, which allows us to respond more quickly to changing demand. We were able to reduce our

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average lead time with factor 14 for the finished good, which has given a very good customer satisfaction. We have achieved excellent results and growth by manufacturing products the end user is satisfied with and putting a more flexible production system in place,” Kjaerhus adds. Across its sites, LEGO today employs over 8,500.

L ea n a n d t h e pr o cess The manufacture of LEGO bricks requires expensive machinery. The company has hundreds of moulding machines and 100 different moulds, each of them producing a single shape of brick (or “element”) and costing £50,000 on average. Additionally, LEGO deploys counting machines to make sure the right number of bricks goes into each and every other box in the packing area. Manufacturing an estimated 36 billion bricks a year, there is no doubt LEGO’s operations require a lot of planning. Coloured pipes running through each of the production facilities transport the ABS plastic used to manufacture the bricks, pushing it into the moulding machines, where the substance is heated to 230 degrees Celsius and then injected in the molds. A few seconds later, a bunch of bricks are made. A conveyor belt delivers them to a box, that is then stored into a warehouse before moving to the packing area where the bricks go into the right boxes that are then shipped to the retailers or to one of the distribution centres located in Europe or the United States. To make this whole process more seamless, LEGO started a continuous improvement programme, which saw the use of 5S and flow in the shopfloor in Billund to begin with, before moving to other departments and sites. “Culture is not something that happens by itself. It comes from strong leadership and shared practice,” says Kjaerhus. “We started with shopfloor management, and contacted five ex Toyota leaders to primarily coach shopfloor managers and internal lean consultants, bringing a new rhythm in our manufacturing environment, called manafacturing diary. The line managers hold board meetings in the morning, so that within two hours we know the status of production for the last 12 hours.”


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Kjaerhus was initially concerned about having external consultants trying to instil Toyota principles at LEGO. People on the shopfloor also struggled to accept the way tools were going to be implemented. The consultants came from a different culture, after all, and they had their own way to implement lean tools. “It was no honeymoon, but it was necessary if we were to change our way to practice wold class shopfloor management,” Kjaerhus explains.

Streamlining the diagnosis Radiometer is a Danish manufacturer specialised in the production of devices for blood gas testing, immunoassay testing and transcutaneous monitoring. It is also highly experienced in the development of IT solutions that connect these machines to hospital and laboratory information systems. Mads Friis, Danaher Business System leader of operations, tells LMJ how lean is supporting the company’s efforts to provide customers with reliable products.

S tru g g les acr o ss sites Like many other companies with global operations, LEGO had to overcome another obstacle: spreading the same culture of excellence and the same set of goals throughout sites that are in different countries, with different mindsets and traditions. The Billund site has been there for 75 years, and has a very strong Danish mindset behind it. Kjaerhus says: “Throughout our education, we Danes are taught to be critical and question everything. People are not afraid to speak their minds, even if they are talking to their boss. The Danish way of doing things is looking at problems in a practical way, and all employees take part in it.” The Monterey plant in Mexico has different issues: workers there tend to see their leaders almost as family members. “They don’t like to say no, so they will accept taking part in activities even when they don’t fully buy into them. We are taking people out of the factory, on picnics for example, to find out what continuous improvement means to them. The tools are going to be the same in Denmark and Mexico, but the ways they are implement differ dramatically. We can’t change national cultures or lean tools, but we can change the way we implement those tools to fit different cultures,” Kjaehus concludes. LEGO’s lean journey started in manufacturing, and now the company is looking at the whole value chain, from product development over production and sales and marketing. Value chain oriented KPIs will drive a more crossfunctional approach to processes, and this is how LEGO pursues change, one brick at a time.

hen Danaher acquired Radiometer, nobody had any experience in implementing lean. We had to start from scratch. At first we used tools mostly in production areas, namely 5S and visual management. It was very difficult to convince people this was the way to go as we could only tell them about the results that Danaher and Toyota had achieved. There were no examples from within the company and we were also lacking experienced leadership.

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Change came in 2007, when Danaher showed us how to transform the way we were implementing tools. By moving away from an approach where tools were managed by leaders, we were able to give employees ownership, supporting them and rewarding good practice. We measure improvement mostly in the form of productivity gains, which is now increasing at a pace of 8-9% every year. Our performance with quality and delivery also improved, but we are still struggling with inventory. We experienced many problems with missing parts and on-time delivery after we first reduced it. As a consequence we had to increase it again and we are now gradually reducing it, ensuring all processes are in order before we do it. Radiometer has manufacturing operations and R&D in several countries, from Denmark to Poland, Switzerland and the USA. We are very aware of the cultural issue. We are looking at specific behaviour having realised the importance of training employees. Ownership should be built from the top down, but also from the bottom up: we ran lean education programmes that have proven very successful. We now have a Kaizen leader for every 60 workers. We develop our workforce, always promoting good communication across sites in different countries and different areas of the business. One system doesn’t necessarily fit all, so we encourage each site to find its own way to work. It is critical that the products we deliver are used correctly, and it’s with this in mind that we develop systems that are user-friendly, while providing our customer with training that helps them to become more efficient themselves. We have a strong tradition of producing innovative products – in 1954 we invented the first blood gas analyser. We are working to support a closer collaboration between production and product development. Breaking down silos is necessary if we are to succeed in our lean journey.

www.leanmj.com | March 2012

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Working with suppliers for a leaner future

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olar adopted lean to break down the many strategic goals that we have in bits that people in different areas of the business could understand, and to eliminate silo-thinking to start to see the actual processes. Some of our processes are very long, and we created teams around them so that people had a clear goal in mind regardless of the function they performed. This helped us to achieve tremendous results in our customer service performance. This is what lean is about for us; it is about developing our business.

At Solar, an international technical wholesaler specialising in electrical, heating, plumbing and ventilation components, supply chain efficiency and communication are the two most important enablers of a leaner way of doing business. Group process manager Klaus Petersen looks back at the journey.

We took our time to explain to suppliers what was in it for them as lean was implemented. They realised it was a completely new way of working that we were promoting: we have suppliers on a waiting list now. By developing a common value stream you can achieve common improvement. We are the facilitators and suppliers love to work with us, perhaps because we don’t hold a simple workshop in a meeting room. We focus heavily on flow, and we have common KPIs (we use joint value stream mapping and we often link ERP systems together). We look at the entire value stream. The magic happens when people start talking, which ultimately translates into better service to our customers. We have great stories about our suppliers: one of the latest things we did was taking one supplier and looking at the work it does with Solar in three countries. Three Solar companies in different nations now have a common way of doing business with that supplier. There is a good communication structure around people. Weekly board meetings give managers a chance to address problems. We find it very important to measure commitment, and to check that we have people with the right capabilities. Solar uses evaluation tool Navigator, an employee survey that is used to examine our ability to create value for the customer and that at the same time allows workers to evaluate management performance. Sickness leave has dropped dramatically because people feel they can make a difference and love coming to work now. We figured out a way to measure the development of management too. From the very beginning we had a great relationship with our HR director, who came up with the idea of identifying what we wanted our managers to be and five management principles they would follow. They are used to assess management performance through the analysis of data. We couldn’t believe the improvement in numbers when we first checked the development of management. We had to check them three times. Competences are universal for us and we share best practice across all areas of the business and even across borders. The Solar lean programme is standardised, but we always listen to different approaches which might have been identified in the different countries where we have operations.

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Norway, a lean champion orway is perhaps more famous for its natural wonders such as fjords, mountains, Northern lights and midnight sun than for its thriving manufacturing industry. Yet, the country boasts a variety of companies drawing on its abundance of natural resources to shape modern products from traditional materials like aluminum and wood. Giants Hydro, Aker Solutions and Norske Skog are major international players, whilst many innovative smaller companies, such as Teeness and Noca, focus on niche markets to further strengthen a robust sector which has seen consistent rises in both productivity and income.

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Daryl John Powell works for the Department of Production and Quality Engineering at Trondheim’s Norwegian University of Science and Technology and for SINTEF Logistikk. He talks about the status of lean in Norway.

S F I N o rma n This eight-year research programme aims to develop new and multi-disciplinary research on next-generation manufacturing, and create theories, methods, models and management tools that enable Norwegian manufacturers to thrive in the global market. Norman was established by the Research Council of Norway as a Centre for Research-based Innovation in 2007: it’s the result of the collaboration between 16 leading Norwegian manufacturing companies from a wide range of industries, the Norwegian University of Science and Technology and research institution SINTEF. In 2009, the Norman companies were surveyed to find out the extent to which lean practices had been adopted and applied. A questionnaire was developed that allowed each company to evaluate itself on a Likert scale for the following 10 lean practices: 1. Workplace Organisation 2. Total Productive Maintenance (TPM) 3. Kaizen 4. Total Quality Management 5. Standardised Work 6. Quick Changeovers 7. Heijunka 8. Pull Systems 9. Supplier Relationship Management 10. Customer Relationship Management

www.leanmj.com | March 2012

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it ’ s a lea n w o rl d sca n d i n avia – N o rway

The results showed that whilst many companies had begun to apply the basic foundations of lean (such as 5S, continuous improvement, supplier development, etc), the deployment of the fundamental elements of just-in-time production (from Heijunka to Kanban and SMED) were not so evident.

Figure 1: Aggregation of lean practices within the SFI-Norman companies In 2011, Lean Consulting AS also conducted a survey called “Lean in Norway”. The survey was sent to 300 people in private and public businesses, and had a response rate of 36%. Interestingly, the results of this study also showed that many of the fundamental lean practices (visual management, 5S, value stream analysis, A3 reporting) had been applied, but there was again no evidence of the application of flow production concepts or pull production. We suggest the reason for the limited application of pull production in Norway is due to the type of production environment inherent to the Norwegian manufacturing industry. Few producers in Norway have high volume, low variety discrete production environments suitable for Kanban-based pull production. Much of the production in Norway is in low volume, high variety engineer-toorder type environments; or process-type industries that require control mechanisms alternative to Kanban. Current research at NTNU and SINTEF is exploring other control mechanisms for the application of hybrid pushpull production in these types of industries, for example POLCA for low volume, high variety, make- or engineerto-order companies; and every-product-every (EPE), cyclic scheduling for the process-type industry. The following three case studies provide examples of lean implementation in Norway. All of these companies were supported in their change implementation by SINTEF, the largest independent research institution in Scandinavia.

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Departme n t o f C li n ical L ab o rat o ry M e d ici n e , S t Olav ’ s H o spital St. Olav’s Hospital, the University Hospital of Trondheim is integrated with the Norwegian University of Science and Technology (NTNU), and is owned by the Central Norway Regional Health Authority. The main duties of the Hospital are patient treatment, the teaching of patients and their relatives, research, and education for health professionals.

In 2009 the Department of Clinical Laboratory Medicine at St. Olav’s Hospital ran a project called SMART to create improvements in their own processes using lean methodologies and tools. The pilot project had been designed to support the initial phase of SMART through the introduction and use of the value stream mapping. Training was conducted in lean and value stream mapping for the employees in the clinical laboratory through three workshops that were combined with lectures and practical exercises with the mapping of the processes for bacteriological urine samples received from remote outpatient clinics. Based on the current state value stream maps, a number of internal and external improvement opportunities were identified, and a future state map was created. By applying various lean practices in the lab environment, a significant reduction in response times has been realised. For example, by redesigning the layout of equipment, it was possible to achieve better flow of samples, and by creating standard operating procedures, variation in processing time was eliminated.

N o ca Established in 1986, Noca is a manufacturer and service supplier within the electronics and electronics development industries. It offers development, prototypes, batch production and assembly for customers in the high-tech sector. Staff at every level of the organisation is highly qualified: through a combination of experience, formal education and skills, Noca has become a strong and sustainable company. In a survey conducted in the spring of 2010, customers found the company innovative, future-oriented, environmentally responsible and reliable. Noca is located in Trondheim, Norway’s “capital of technology”, and has therefore access to a constant supply of new and qualified workers. The company feels very strongly about employee welfare and works continuously to maintain enthusiasm and a winning culture within its workforce. To further strengthen its skills base, it entered several strategic partnerships with organisations with specific retail expertise that are a NOCA - Before 5S natural fit with its service portfolio. For example, all of Noca’s employees receive regular training in practical teamwork in close collaboration with Rosenborg Football Club. In 1995, the company had 20 employees and a turnover of €3m; fifteen years later it employs around 50 and NOCA - After 5S turns over €8m. Noca mainly produces printed circuit boards and electronic products. A make-to-order producer, it deals with high levels of customization and unpredictable demand. With the help of lean, the business achieved better resource utilisation and improved the quality of its products. Lean practices were first introduced in 2009, starting with value stream mapping in order to identify the shopfloor layout that would allow for a better flow of materials and information through the plant. In January 2010, the implementation of 5S began, with excellent results. Areas of the shopfloor were marked up for specific storage locations, and shadowboards are now used for tooling in various processes. Inspired by Formula One, Noca uses a single-minute exchange of dyes (SMED) method, resulting in a setup reduction on surface mount technology (SMT) machines from a number of hours to around 30 minutes and in a reduction in inventory. Tangible results were achieved quickly through the application of 5S: improvements in KPIs were identified, such as a 65% reduction in lead time and a 5% improvement in quality. Inventory accuracy has also improved 15%, which is a direct reflection of inventory reduction and 5S activity (less inventory meant less errors).

www.leanmj.com | March 2012

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A l n abru T ermi n al This interesting case study may seem out of context at first, but it demonstrates that lean methodology and practices can be applied to environments other than manufacturing facilities and hospitals. Alnabru is an intermodal freight-terminal located at Alnabru in Oslo. It was opened in 1907, and in 2008 was rebuilt to increase its capacity. The terminal is run by a single terminal operator, CargoNet, and is used by several train operators and freight distributors. Lean was considered as a prime candidate to improve the operational efficiency of the Alnabru terminal, as the central tenet of lean is the elimination of waste. The project began with the establishment of a lean team on the terminal. It consisted of representatives of CargoNet, as well as representatives of each of the freight distributors – Schenker, Bring and Posten. Having coached the team on the basic fundamentals of lean

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production, SINTEF chose to apply a lean change methodology similar to that of the Industry Forum MasterClass Process Improvement Activity. Such a methodology uses Deming’s plan-docheck-act (PDCA) cycle as a platform for diagnostic activity in order to identify improvement areas and to suggest countermeasures which will improve operational performance. A total of three lean diagnostic workshops were held at Alnabru to investigate the potential application of lean and identify opportunities for the improvement of terminal operations. Some of the practices that were selected for application are: Heijunka and level scheduling to create improved flow of goods across the terminal; a standardised communication platform such as electronic-Kanban to authorise goods entry into the terminal and to smooth the arrival and check-in process; and standard work to remove variation in processing time for tasks such as rebooking to earlier or later trains, and customs clearance.


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C o mme n t

Scandinavia, and Sweden in particular, were in the forefront of developing human centred ways of working in response to rigid Tayloristic automation in the 1980s. Our initial benchmarking results suggested the pioneering examples of autonomous group working at Volvo and Saab could never be competitive with Toyota. What both sides in this argument missed was that tightly focused collaborative working actually depends on respecting the people involved. This meant equipping them with the problem solving skills to improve their work. Indeed lean thinkers often talk about developing people before making products.

Professor Daniel Jones of the Lean Enterprise Academy comments on this special on lean in Scandinavia

After this course correction Volvo, Saab, Skania and a many other large Swedish firms began very successful lean programmes. These were, however, not enough to save Saab, to maintain the independence of Volvo or to keep Ericsson in the mobile phone business. These big firms were tossed by greater forces in global markets and exposed the relative weakness of small and medium sized firms in Sweden. In recent years, spurred on by the Swedish Lean Forum, lean has spread across the Swedish economy. In Denmark, without these global multinationals, Bjarne Palstrom of the employers federation Dansk Industri played a pivotal role in raising awareness of lean. Indeed Denmark probably has the highest awareness of lean per capita of any country in the world. DI brought the leading Danish firms together in an Advanced Lean Forum and is currently carrying out a research programme to cascade lean to small firms. This is inspired and led by Fritz Nygaard, the former director of Radiometer, which was taken over by the Danaher Group from the US. The tough and rapid implementation of strategy deployment throughout Radiometer demonstrated what was possible even in a very tight labour market. Companies like Danish Post, Danfoss, Grundfoss, Velux and Lego have quietly been using lean to improve productivity and time to market. They have at the same time been investing in lean production facilities in Poland and Eastern Europe, which are now poised to replace jobs in Denmark. In response Danish companies are redoubling their efforts to use lean as a strategic approach to continually rethink their business models. The Solar Group, who recently won the Lean Prize in Denmark, is a case in point. Here lean is being led from the top and is also leading the process redesign and a big SAP implementation across the group. As it does so the company is discovering many new business opportunities to create additional value for their customers. Lean has also played a significant role in transforming organisations in Norway. With very high wages firms have to not only specialise in technical niches but have to stay ahead of the competition in terms of both time to market and productivity. Lean is also key to being able to provide affordable services to customers. One of the best examples of this is Jaeger, the Toyota car dealer in Bergen, who recently won the Lean Prize in Norway and was recognised as one of the most impressive lean dealers outside Japan by Toyota.

www.leanmj.com | March 2012

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L E T T E R S

LMJ

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Satisfaction guaranteed: payment terms get tighter The Government plans to introduce the EU’s Late Payment Directive this year. Jayne Hussey, partner at international law firm Pincent Masons, explains what the new regulation means for businesses.

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he new Late Payments Directive was approved by the European Commission on 15 March 2011. The Directive establishes specific deadlines for the payment of invoices and a right to compensation in the event of late payment of debts. All member states of the EU must amend their current legislation or introduce new legislation to implement the Directive into domestic law by 16 March 2013. In the United Kingdom, Business Minister Ed Davey has announced that the UK Government wishes to fast-track, ahead of its March 2013 deadline, the implementation to “address some of the concerns expressed by small businesses over payment terms and late payment”. Although the Government is yet to announce its final timetable for implementation, it is expected to be transposed into UK law during the first half of 2012.

M ai n pr o visi o n s o f t h e Directive The maximum time periods for payment of an invoice differ slightly depending on whether the creditor is a business or a public authority.

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For business-to-business transactions, the purchaser must make payment within 30 days of the date of receipt of a request for payment or, if later, receipt of the goods or services. This may be extended up to 60 days if expressly agreed between the parties and it is not “grossly unfair” to the creditor. Caution should be exercised when considering payment terms that extend beyond 60 days as such terms could be labelled “grossly unfair” by the courts and effectively banned or give rise to a claim for damages. There is currently little guidance on what will be considered to be “grossly unfair” although this is likely to include any terms inconsistent with good commercial practice or that are contrary to good faith and fair dealing. For public authority-to-business transactions, the public authority must make payment within 30 days of the date of receipt of a request for payment or, if later, receipt of the goods or services. The payment period may be extended up to 60 days only if the extension can be objectively justified in the light of the transaction. These requirements differ slightly where a public authority is carrying out economic activities of

an industrial or commercial nature by offering goods or services on the market or providing healthcare. Creditors will also be able to charge interest, compensation and claim ‘other reasonable costs’ where customers fail to pay invoices on time.

B e n efits o f t h e Directive It is hoped that the Directive will improve timely payments and so ease the cash flow burden on small and medium sized businesses. As well as promoting the timely settlement of invoices, it is anticipated that it may also bring about cost savings for both suppliers and customers. Indeed, the European Commission believes that, once introduced by all EU member states, the new rules could mean an extra £150 billion being made available to businesses across Europe.

I mpact o n o r d eri n g pr o cesses It has been calculated that, in 2010, the average payment period for businesses in the European Union was 54 days. In


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amongst other things, from a creditor’s point of view the cost of collecting the interest is disproportionately high. To remedy this, under the Directive creditors will also be entitled to compensation of €40 for late payment and they may also be able to claim ‘other reasonable costs’ (for example, recovery costs). It is hoped that the availability of such remedies will encourage suppliers to pursue the full amounts that they are entitled to and encourage customers to settle invoices on time so as to avoid any additional charges. Both suppliers and customers will need to ensure that they have effective systems in place to monitor the payment and non-payment of invoices. Customers should strive to be efficient payers and avoid the unwanted charges that suppliers are entitled to receive under the Directive. Similarly, timely receipt of payment will be crucial to suppliers who, in turn, will be subject to shorter payment deadlines.

fact, across the EU customers are able to order large quantities of goods and “sit on them” for in excess of 90 days without having to pay for them. The Directive itself implements much more stringent deadlines for the payment of invoices which can only exceed 60 days in very limited circumstances. As a result, customers may start making smaller, more frequent orders so that they do not have to pay for goods that they will not use in the near future. Adopting a leaner ordering process may help customers, in the face of shorter payment periods, to manage their cash flow more effectively. On the other hand, suppliers should be aware that smaller orders may be submitted by customers on a more frequent basis in order to seek to counteract the effect of the Directive. Both suppliers and customers will need to ensure they have sophisticated systems in place that are able to cope with what may become a more fragmented ordering landscape.

I mpr o ve d cas h fl o w A more efficient approach to ordering goods will ensure, from a customer perspective, that cash is not tied up in stock which is not being used. From the supplier’s perspective, more timely payments may also assist on the cash flow front. Customers will need to ensure that their invoice processing and payment systems are able to accommodate shorter payment periods.

S o p h isticate d payme n t systems The Directive entitles creditors to charge interest at 8% over the base reference rate on overdue payments. The current UK legislation aimed at curbing late payments and the right to statutory interest is rarely relied upon in normal trading situations. This is because,

Adopting a leaner ordering process may help customers, in the face of shorter payment periods, to manage their cash flow more effectively

W ill it w o r k ? In 2009 a report by the European Commission found that there was just under €2 trillion of late payments in the European economy, of which half was owed to small or medium sized businesses. There is still uncertainty as to whether small and medium sized suppliers will enforce the provisions of the new directive for the same reasons they accept such long payment terms in the first place – fear of damaging their commercial relationship with the customer. Until greater emphasis is attributed to initiatives such as the Prompt Payment Code and the need for the payment terms of larger organisations to be more transparent, any new payment regulations will do little to increase the bargaining power of small and medium sized businesses in this area.

www.leanmj.com | March 2012

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L E T T E R S

LMJ

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Employee consideration is key Joseph Paris, chairman of consultancy XONITEK and the man behind the Operational Excellence Society, warns readers against the pitfalls of not connecting with their staff.

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e all look at the world from one perspective - our own. The perspectives we hold are born out of the circumstances of our upbringing and further developed by the experiences we gain during our lives. As such, one would expect that the perspective of some who have experienced much in their lives will be wider than one whose experiences have been more limited. This is true for professionals dedicated to continuous improvement as well. Those who are exposed to CI through lean tend to see opportunities for improvement from the perspective of a lean practitioner. The same happens to those trained in six sigma, or TQM, or whatever. I find it especially intriguing that each will argue that their approach is the best approach to improvement. But there are inherent limitations to restricting the approach in realising improvements – like Abraham Maslow said, “If the only tool in your toolbox is a hammer, every problem looks like a nail.” My experience has been that the fatal flaw of most continuous improvement programmes, and the reason they fail to deliver their potential, is that they marginalise

the people in the process - regardless of what might be written in the CI “mission statement”. Instead of gaining the trust and engagement of those who will be directly affected by the improvement initiatives, CI teams usually arrive with a mission for improvement, affect the improvement without connecting with the people actually working the process, and then they immediately move on to the next assignment without even so much as a thorough debrief. The end result is that they are never fully supported by those they are trying to help because they never bother to connect with them on a personal level. They are not fully respected by senior management either, because they fail to deliver the benefits at the expected rates. But what can be done, what must be done, to optimise the CI programme, maximise the net results achieved and to bring them more in line with expectations? The answer lies in operational excellence, which I define as “improving the performance of companies and the circumstances of those who work for them”. First, we have to honestly and thoroughly answer two questions, both of which have to be answered from the perspective of the subject being asked and not of what someone thinks the answers might or should be; the first question is, what is important to the company? The second is, what is important to the people who work for the company? Next, we have to discover the intersection between what is important to the company and what is important to the people who work for the company. And that’s where you start your CI programme. The key to success for any initiative is to be able to clearly and concisely know what the STRATEGY is, to effectively communicate the objectives to the team, and to align the team so that they understand


LETTERS & COMMENT

what it is that they are supposed to accomplish. Simplicity in defining your strategy is paramount to success - as Albert Einstein said, “If you can’t explain it simply, you don’t understand it well enough”. Next, you have to be able to develop the TACTICS to achieve the goals defined in your strategy. Close cross-departmental collaboration is critical as you will need the commitment of those who will ultimately make the dreams a reality. However, it is important to realise that you will never satisfy everyone and that there is no such thing as the perfect plan. Here, gaining trust is a prime objective. People are more likely to support a plan with which they disagree, but in which they were given a fair say, than following a plan that is thrust upon them. Dwight Eisenhower said, “Plans are nothing. Planning is everything.” But ideas will not be realised and plans will not be put into motion without the LOGISTICS. And herein lays the root-cause of why most CI programmes fail, the lack of commitment on the part of the company to support them. It is folly to expect a company to realise any improvement without allocating the resources necessary to affect the plan in pursuit of the objectives. “Strategy and tactics provide the scheme for the conduct of operations, logistics the means therefore.” - Lt. Col. George C. Thorpe, USMC. Understanding logistics is the most difficult concept to understand for a CI practitioner. I am not talking about machines or inventory, but the “tools” of their trade. CI practitioners talk about the “lean tool kit”, or Pareto charts, or DMAIC. These are all merely tools and not solutions. They are the means to an end - in other words, logistics. It is important to forget the tools and to concentrate on the goals,

People are more likely to support a plan with which they disagree, but in which they were given a fair say, than following a plan that is thrust upon them

in the context of their environment and circumstance. And then EXECUTE, and execute as a team maintaining a high-level of communication. For after you have designed, developed, and prepared after you have thought all the thoughts you can possibly think - it’s time to do. Without the vigorous prosecution of the plan, only mediocrity and failure will be found. “Quality is never an accident; it is always the result of high intention, sincere effort, intelligent direction and skillful execution,” said William A. Foster.

Remember to perform all the above in partnership and with consideration of the circumstances of those who work at the company. Are the circumstances for those working for the company being improved as a result of the efforts of the CI programme? Do they feel like they have an ownership stake? Are they being given the proper support? Or, are they being set-up for failure by “having responsibility and accountability but no authority”? Whether you realise the full potential of your continuous improvement programme or not depends on how you answer.

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L E T T E R S

LMJ

& c o mme n t

Understanding your company’s stages of maturity Roddy Martin, senior vice president, global supply chain at Competitive Capabilities International, shares his thoughts on how maturity influences the ability of a business to successfully transform itself and its supply chain. ompanies have engaged globally in continuous improvement initiatives for many years without reporting record-breaking business results across the end-to-end business system. None of these initiatives were “wrong”, but improvements happened in pockets and did not apply to the entire system or supply chain. Silo-thinking and functionally focused project efforts made results not sustainable and holistic enough to achieve overall improvements in business performance by involving people, process, and technology (all the key points of the Jay Galbraith model).

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For example: IT delivered transaction processing efficiency and integrated data management but wasn’t necessarily connected to the end-to-end supply chain process. Lean initiatives delivered cycle time improvements and operational efficiencies but didn’t necessarily deliver organisational design and profitable processes from the customer back to supply. Six sigma delivered operational reliability but wasn’t necessarily used in improving perfect order performance at the customer hand off. Organisational design structured the business around operating strategic priorities but didn’t continually adapt this structure and skills to different stages of performance improvement maturity. These improvement efforts were not holistically applied and strategically managed from the top down and didn’t translate into the end-to-end business process network. They were not well aligned with IT and change management either. However, companies like Procter and Gamble manage to succeed by basing their business operating strategy on the principle of a demand-driven value network (or consumer-driven supply network – CDSN in P&G language).

P&G achieved phenomenal business results because its process is holistic, endto-end and based on building maturitybased processes. P&G’s CDSN starts at the point at which a customer chooses or buys a product or service and ends in the network at the point that supplies the product or service. Because of its leadership and performance maturity, P&G’s improvements start at the shopper and go back down the demand management system into the supply network. They involve an aligned combination of people, process, and technology. Even the business vision in P&G is focused on shelf availability. Systems and networks are designed and improved on the basis of shelf back efforts and priorities. Sadly, many businesses have in contrast applied techniques, methodologies and initiatives in silos, which has led to increased complexity (with results also segregated in silos) rather than driving the end-to-end business capability that delivers profitable perfect orders with less working capital. In addition, being able to sustain performance improvement even when demand suddenly changes requires the supply system to adapt quickly and reliably. The demand-driven value network is the set of holistic end-to-end business process management capabilities that start at the customer and buying point and end in the supply system. These process capabilities focus on achieving the following: 1. Accurately sense and characterise demand at the point of purchase; 2. Reliably make and supply to demand; 3. Make balanced process-based tradeoffs to profitably meet commitments in processes such as sales and operations planning and integrated business planning. 4. Understand buying and demand patterns so well that innovation and demand shaping are focused on creating demand and growth.


LETTERS

The slide shows a five-stage journey of performance maturity : 1. In Stage 1 companies react to problems without a systemic capability or processes for performance improvement. 2. In Stage 2 companies build projects with experts to solve problems (e.g. quality, demand forecast accuracy, lean). The issue is that a collection of projects on its own is difficult to manage and build end to end process value network capabilities. 3. In Stage 3 integrated functional processes are created around core business processes but they are not holistically end-to-end and demanddriven as described (for example quality or demand planning). This is however the first transition to process-based operations and a cultural shift (necessary but not sufficient). 4. In Stage 4 the company unconsciously operates as an end-to-end demanddriven network. All aspects or people, process and technology combine holistically to create a culture of performance improvement. This

“The Promise Of IT” Average

Reactive Fixes No Systematic Continuous Improvement Plans or structure Fire Fighting

Expert Led / Based Projects Implementation of Improvement Projects led by Experts (Ad Hoc Projects)

Integrated Functional Excellence Structured Integration Within Core Functions (Systemic – Limited Integrated of Functions )

Leaders End-to-end Integrative Improvement System Codified Integrative Improvement (Situational and Systemic)

Learning Network Culture of Innovation and Sharing (Situational, Systemic and Strategic)

Stage 5

Stage 4

Stage 3

Stage 2

Stage 1

Slide: The 5 Stages Performance-Improvement Maturity

Leading companies benefiting from these activities have taken many years to develop the maturity in their end-toend process capabilities and operate as a DDVN. Those successful on the journey have seen that a few core capabilities are fundamental to the successful transformation of the business: Measuring the right metrics; Customer back process orientation; A culture of continuous improvement and change management; Goal, talent, and structural alignment. Leaders of these successful companies accept that sustaining performance and building capabilities is a change leadership transformation journey; and that companies must move through stages of maturity to build the foundations of sustainable performance improvement and demand-driven processes.

Impact

& COMMENT

Stages Of Performance Improvement Maturity

stage is the big cultural jump (for example P&G operates at a 4.4 as scored in CCI Integrative Improvement benchmarking efforts). 5. In Stage 5 the business operates as an end-to-end demand-driven value network focused on translating value from demand into the business. Without knowing a company’s stage of maturity and approach to performance improvement, it is easy to design Stage 4 and Stage 5 solutions and drop them onto a Stage 2 organisation, which is not ready. As a result, many of the benefits and gaps to advancing capabilities are masked within disconnected projects and processes in Stage 2 and progress is difficult. The net result is that the advanced Stage 5 scope is adapted to fit the comfortable Stage 2 of maturity and then gets “stuck” and gets complex. This is particularly true for large scale

ERP projects that are designed as Stage 5 configurations and deployed in a Stage 2 organisation with high degrees of customisation to “make it work”, which ends up being a barrier to improvement. In order to realise sustainable business benefits from integrative performance improvement initiatives, a company must ensure that the current stage of maturity is understood and the end goal in terms of capability is understood. This determines the scope of the performance improvement journey. If the scope of current maturity is clear and there is an end state capability in mind, the transformation journey can be mapped, prioritised, and led by leaders. Importantly, this stage-based journey can be tracked and adapted to encompass even deeper change as the performance improvement capabilities improve and the business is at a better level of readiness to leverage them.

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Written by John Bicheno

The Fifth Column

Supply Chain What is a lean supply chain? According to Hopp and Spearman ‘a manufacturing supply chain is lean if it accomplishes its fundamental objectives with minimal buffering cost’. Martin Christopher says the goal is ‘To manage upstream and downstream relationships with suppliers and customers in order to create enhanced value in the final market place at less cost to the supply chain as a whole.’ Great. Let’s consider:

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To join IOM today, contact us: 01536 740105 members@iomnet.org.uk We have learned that it is cost not price that should play a strong role in supplier selection. Costs include inadequate management skills, training costs, translation costs, quality issues, improvement potential, legal costs, bureaucracy, communication, differing priorities, safety concerns. Delays result. More buffering required? But where do you draw the system boundary? Then outsourcing became fashionable. Call centres moved to India for cost reasons. Often, failure demand arose, negating any cost savings and sending some scurrying back home. How much of your demand is failure demand? Intellectual property issues and patent infringement issues followed – including look-alikes. An erosion not only of profit but of value. Short term savings set against long term wipeout. We learned that improving end-to-end supply has both winners and losers. Bullwhip, buffer, and capacity issues – to say nothing of ‘gaming’ to meet targets. Not so easy to persuade the

losers to sacrifice for the good of the ‘chain as a whole’. Then along came different wage inflation, changes in the exchange rate, tax and incentive changes. The discovery that some companies have very little loyalty to the workforce or to the local community. What is ‘value in the final marketplace’ then? With all the above, it becomes apparent that supply chain decisions should include a look at manager’s bonuses… Then along came natural and manmade disaster. Tsunami and nuclear power plant failure. Even Toyota gets caught. Much re-thinking here: should you put all your eggs in one regional basket? What about strategic supplies? Risk rather than cost became the concern. Again, where is the appropriate system boundary? And power has shifted to those that hold the information. So what is the cost of power lost or gained?

Reverse supply chains are growing. With this comes design-for-recovery and design-for-disassembly. Does one do the minimum required by law, or try to develop green credentials? Who is the final customer? Should you employ an international supply chain to deliver something that will end up in a garbage dump within days? Is this lean or is this ethics? Ultimately, a green supply chain would make at the point of use. This is starting. ‘Fab-Labs’ are becoming reality. The ultimate ‘disruptive technology’? Could it be that the real lean supply chain evolution is yet to come – as managers, engineers, designers, schedulers, HR people, lawyers, marketeers, and yes, even consultants, professors and journalists increasingly work remotely in networks? It is all Malcolm McLean’s fault! Shame on you if you don’t know who the greatest cost-cutter in history was. A hint: at the time of his funeral, every container ship in the world sounded its fog horn.

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Making changes

Another month has passed, and it’s time for another chapter of the story on the SCGM Way. Director Sandra Cadjenovic gives us the latest update on the status of the implementation of lean in the company.

10

C o mma n d me n ts

SCGM

1. T H I NK – Think and Suggest 2. C U S TOMER – Real Customer is the Satisfied Customer 3. QU A LITY – Quality Without Compromise 4. T E A M – Be a Part of the Team 5. C O M MU N ICATI ON – Talk About Problems 6. DE V OTE DN ESS – Experience the Company as if it was Yours 7. MO T IVATI ON – It Depends on You, too 8. I N I T I ATIVE – Take the Initiative 9. s A F E TY – Tidy Your Workplace and Make it Safe 10. S M I LE – Think Positively

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stick he first stop of the tour of SCGM is the tool shop. Just to remind you, a 5S system is now setting its roots here. Workers have de-cluttered their working places, sorted out unneeded supplies, material, leaving only what is most frequently used. The shopfloor and offices were straightened, reorganised and set in order. Now, everybody can actually see where the sporadic losses are. What they saw, they documented, taking pictures of these ‘before’ situations. They took many, only then realising what environment they had been working in for so long, considering it normal. They realised where the losses were and took pictures, but now what? How do you get to an ‘after’ situation? The task was set - to ‘deal’ and solve three ‘situations’ every week. Clean and make it shine, take pictures, post them - for every situation, continuously.

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Furthermore, in order to make the process standardised, they have agreed to leave their working spaces and the machines they operate on clean and tidy every day; to return the tools they use and put them back in their designated and now clearly marked place; and to spend an hour each Friday to maintain the place in good shape. Moving on, we can see other improvements, with equipment for example. Due to increased production demand, workers have squeezed additional potential out of their machines rather than buying new ones. In other words, a machine for injection molding tools, which had a single purpose, has been adjusted for other tools as well, thus increasing its production capacity. As a result of all this, people are proud of what they have been doing and of how much easier work is now. They have an increased sense of ownership of their working place. But this is the easy part. Developing awareness and discipline in order to sustain the results achieved is more difficult. If we proceed further on our tour, we arrive in the conference room to meet the Steering Committee. On our way, we saw the 10 Commandments all around. SCGM’s 10 Commandments have been


LEAN D I A RY

BEFORE – AFTER PLACE

DESCRIPTION

BEFORE

AFTER

Auxiliary tools shelf

Bottom part of the changing tools desk

TOOLSHOP

Ventilation fan on the back of a machine

Shelf for storage probation samples by customer

Before office material/ after shelf for storage probation samples by customer

OFFICE

Desk

defined by the Steering Committee, and brought to life by its creators. Each commandment has a person responsible for it and everybody in the company is starting to behave according to these principles. They are beginning to guide every-day activities and are now what can be recognised as the SCGM philosophy.

Moreover, in order to make people realise that everybody matters in the company, each employee has written an ENTREPRENEUR list, presenting themselves and the services they can provide as separate companies altogether. Making the lists made them understand that their duties, as well as their energy and commitment, are of great importance to the company. It also helped to identify the responsibilities of each person clearly.

Many steps are being taken towards improvement. The mindset of workers has started to change, seeing lean as a system and not as additional work. A lot of the initial resistance among employees has been gradually fading away by means of better communication, training and support coming from the managers. The mistakes that were constantly made on the shopfloor, for example filling OEE charts, are still an issue, but to a lesser extent.

A lot has been done. Yet, leaders seem stressed, overburdened and unsatisfied. They only see problems and talk about the fact that there is not enough time to do things. When asked to list and describe the positive things, at first there was nothing but silence, and one could see everybody deep in their thoughts recalling their accomplishments. Then the presentations started and went on and on. The conclusion? “Well, we did achieve a lot, we just had not thought about it,” one of them said. The word of advice for them is to stay and think positive.

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Lost in automation f the many debates heating up the lean community my favourite is the one on the relationship between lean and technology. While some will be sceptical about using automation in a lean environment, others will be interested in hearing how technology can support a lean transformation (perhaps recognising the role of innovation in today’s world).

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There are two approaches to the analysis of lean automation: the first looks at how automation - in terms of the intelligent drives and controls now residing in many manufacuting lines, or the transaction management solutions on which so many service organisations now rely for efficiency - can be made leaner in itself through the use of lean principles in product design. The second approach identifies ways in which automation technologies can support the implementation of lean. The same double thinking can be applied to another “odd couple”, lean and IT. From a lean perspective, automating can help an organisation tackle issues related to quality for example (also supporting

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principles such as standardised work, reliability and elimination of variation). Think about the machines LEGO uses to count the bricks going into each box (see page 38 to read our case study on LEGO). Automating without a strong business case or accurante forecasts, however, can be counter productive, involving significant capital expenditure, excess capacity, the potential loss of jobs and a disengaged workforce. There needs to be a clear understanding of what the need for automation is and of the flow of value around the proposed point of automation.

LMJ’s editor Roberto Priolo looks at the most common issues related to lean automation, introducing this special feature, which includes two case studies.

replacing the tyres when they are worn out. A dangerous game. Investing in automation without having taken the necessary steps to reduce as much waste as possible first is a common mistake. Toyota, for example, identifies automation as the last step a company should take, after waste reduction and kaizen initiatives. First is low cost automation, and only later on, large scale automation. In other words, first comes lean, then comes automation.

Similarly, automating a single process without considering the effect this will have on the movement of bottlenecks across your combined processes is likely to cause problems to leap up where there were none before. What may seem like an easy, quick fix to increase output will end up damaging the entire system.

For instance, applying cellular manufacturing to improve flow will dramatically reduce the need for complex automation, as will reducing batch size. Implementing lean and then using automation to strengthen the results achieved is the way to go, bearing in mind, however, that there is no secret recipe for success and that every company should find their own road to the best outcome for them.

It is also important to have an adequate maintenance regime. TPM procedures must be in place, otherwise automating would be like buying a car and not

In the following two case studies, Eaton and SCHAD share their opinions on lean automation and tell us about their solutions.


SPECIAL FEATURE

On the road to lean automation A key challenge facing industry today is the development of automation systems that offer data transparency and scalability while satisfying the constant demands for increased performance, additional functionality and cost reduction. The fast developing concept of lean automation is, however, providing innovative and effective ways of meeting this challenge, says Stuart Greenwood of Eaton’s Electrical Sector.

he concept of lean manufacturing is widely known, as are the benefits it offers in terms of enhanced efficiency, continuous improvements in product quality and the elimination of waste. But what is lean automation? In essence, it is the development of automation systems that mirror many of the benefits of lean manufacturing.

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For example, lean automation makes the design and implementation of automation systems more efficient, it facilitates continuous improvements in the performance and capabilities of those systems, and it provides scalability that eliminates wasted design effort by allowing the same basic design of automation system to be used for a whole range of machines. In fact, lean automation slims down control panels, simplifies wiring, increases data transparency, reduces engineering and commissioning requirements, increases performance and reduces costs, and it does all of these things to a degree that is not even approached by any other automation concept.

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S P E C I A L F E A T U R E lea n aut o mati o n

Operation

So much for the theory, but what are the practicalities of lean automation? To answer this question, it’s necessary first to look at the two core technologies that underpin it. The first is bus-based control wiring systems (or lean panel wiring systems) for use in control panels, of which Eaton’s SmartWire-DT system is an example. The second core technology is the integrated HMI/PLC. Lean panel wiring systems revolutionise the design and construction of control panels. All of the conventional control wiring is eliminated, replaced by a single bus cable that loops round the devices within the panel, including, for example, motor starters, inverters, pushbuttons and indicator lights. This single cable links all of the devices direct to the PLC or smart relay that forms the basis of the control system, thereby virtually eliminating the need for this unit to have conventional inputs and outputs. The inherent simplicity of lean panel wiring systems means that modifications and updates can be incorporated easily and inexpensively. This same simplicity also facilitates the design of scalable and modular systems that are applicable to a whole range of machines.

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Switch Cabinet

Lean panel wiring systems revolutionise the design and construction of control panels. All of the conventional control wiring is eliminated, replaced by a single bus cable that loops round the devices within the panel

Machine

Product

Figure 1: Automation system with an integrated HMI/PLC and lean wiring within the control panel, complemented by remote I/O modules and a fieldbus system for field wiring

Customer

In addition, these systems not only carry control signals to and from automation devices, but also data. This means, in principle, that any control device, whether it’s something as simple as a sensor or as complex as a motion controller, can send data to the PLC for onward transmission to a high-level SCADA or ERP system, thereby providing complete data transparency. Put simply, adopting lean panel wiring greatly improves the transparency of the automation system. Since fieldbus and network based field wiring already supports information exchange, the addition of lean panel wiring means, in essence, that any information about any aspect of the automation system’s operation and status can be made available wherever it is needed. This transparency is one of the key elements for lean automation, which is one of the reasons that the description lean panel wiring for the new busbased systems is preferred. Let’s turn now to the second core technology for lean automation – the integrated HMI/PLC. These devices have essentially been made practical by lean wiring systems, which mean that they have to make only minimal provision for conventional I/O. This has allowed


SPECIAL FEATURE

the HMI and PLC functions, which are in any case closely related, to be brought together in a single compact unit. Compared with the use of a separate HMI and PLC, cost and space savings are the immediate benefits, but another key factor is that programming is simplified.

control panel and the field. This type of architecture is, however, very labour intensive in view of the large amount of wiring needed. It is also inflexible and difficult to modify, and it provides a relatively poor level of data transparency, as the control wiring is, in most cases, unable to transport data to the PLC.

The best of the HMI/PLC products also have comprehensive communication options enabling them to readily exchange data with external systems. This means that the automation system is no longer an isolated island of intelligence, but a fully integrated part of the production plant capable of communicating directly with the IT systems that handle, for example, customer order scheduling and quality control.

The first step forward was to replace the conventional field wiring with a fieldbus system and to start using remote I/O modules. This greatly reduces the amount of wiring needed in the field, and also makes the system more flexible. However, it brings only marginal benefits within the control panel and, in particular, does nothing to make the control panel easier to modify. It does, to some extent, enhance data transparency, as most fieldbus systems can transport

Figure 2: In the future we’ll be able to use a single bus-based wiring system inside and outside the control panel

Customer

Operation

Now let’s look briefly at how the move toward lean technology has already affected the design of automation systems, and how it is likely to affect them in future. Many of the automation systems in use today are based on what might be described as “traditional” architecture, with a central PLC, a separate HMI and conventional wiring both in the

Switch Cabinet

data. Data from devices mounted within the panel, such as starters and drives, usually remains inaccessible, however. Today, we can take another step forward and produce automation systems with an integrated HMI/PLC and lean wiring within the control panel, complemented by remote I/O modules and a fieldbus system for field wiring (see figure 1). This architecture – which can be implemented

with currently available products – gets close to delivering all of the central benefits of lean automation. Less space is needed in the control panel than with the older architectures, and the amount of wiring is greatly reduced both inside and outside the panel, with a consequent reduction in costs. Flexibility is much enhanced and the PLC can readily access data from all of the key automation components. The greater flexibility and reduced costs of this approach also make other improvements – such as automating product changeovers on the machine that’s being controlled instead of relying on time-consuming manual resetting – practical and cost effective. In the near future, it will be possible to

Machine

Product

go even further down the road to lean automation, by using a single busbased wiring system inside and outside the control panel, thereby eliminating the need for a separate fieldbus. (See figure 2). This will provide further cost reductions, exceptional flexibility and complete data transparency. In short, it will meet all of the requirements that have been identified as being essential for future automation systems.

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Data on the go evels of automation within manufacturing are increasing to help drive down costs and improve efficiency. This is central to the thinking behind lean, with its emphasis on achieving more with less through the continuous elimination of waste. Whilst it originated in manufacturing, the concept of lean is not restricted to this sector. When it comes to automation, it is possible to learn valuable lessons on how to maximise existing investments by looking at other industries, like e-commerce, large scale distribution and airport operations.

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James Hannay, senior VP of international operations at engineering mobility specialist SCHAD and an expert in mobile SCADA systems, shares his opinion on how automation can support a lean programme.

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How can companies investing in automation think about lowering their total cost of ownership? And how could this contribute to achieving typical lean objectives such as increasing Overall Equipment Effectiveness (just to name one)? Mobile SCADA is one technology that has made inroads across a broad range of industries to prove its value. Consider a fictional day in the life of an automation engineer responsible for monitoring traditional SCADA visualisations in a fixed control room to appreciate why. A Programmable Logic Controller (PLC) on the shopfloor generates a timeout notification for a specific photo sensor. The control room engineer notes the photo sensor needs replacing and starts to call other engineers on the floor to allocate the task and fix the problem.

However, he does not know who is available and what they are currently working on. He has to assess the situation and decide whether to take someone off an existing task or wait until someone becomes available without all the available information to hand. His options are to re-prioritise based on the information he has, to wait until someone becomes available, or to leave the control room unmanned. If the control room is left unmanned, a new notification is likely to arrive while the room is empty. With no engineers available, he decides to leave the control room, but after installing the new photo sensor, he receives no positive feedback that the fault has been effectively resolved until he returns to the control room to check the displays. Once back in the control room, he finally spots the next notification, which requires his attention in a completely different location and the decision making process re-starts. Off he goes again, leaving the control room empty and the SCADA alerts continue to arrive, unnoticed. Engineers face the challenges of working with constantly changing priorities, which contributes to more downtime, less efficiency, slower reaction times and less productivity. Using mobile SCADA, alerts are still sent to the control room but are also directly issued to an appropriately qualified engineer. The faulty photo sensor notification is immediately sent to the smartphone or hand held terminal of a


SPECIAL FEATURE

predefined group, including the engineer in the control room. All the recipients are qualified to fix that category of fault based on availability, location and skillset. This enables any engineer within the group to immediately take control of the notification, review the situation on the mobile device, make the necessary decisions quickly and fix the problem in a much shorter time. The control room engineer accepts the notification and the control room immediately becomes mobile. Whilst carrying out the repair, he receives the second notification. Critically, though, after a few seconds he also sees an alert on his mobile device confirming another engineer nearby has accepted the notification and is fixing the problem, which means that resources are utilised for responding to incidents faster and more efficiently. After completing the repair, the engineer immediately checks his mobile to see whether it was successful, using the device to check the settings of the photo sensor, PLC and SCADA system while he is on the move. The experience of Vanderlande, who is contracted to manage baggage-handling operations at Munich Airport, provides a real world example illustrating how mobile SCADA could contribute to lean management by ensuring high automation uptime. Being a hub airport, timing within Munich’s logistics operation is tight and inflexible. Vanderlande operates three classes of automated conveyor lines capable of handling up to 800, 1,200 or 2,400 pieces of luggage per hour, which equates to a maximum rate of 40 pieces of luggage being sorted every minute. These baggage handling systems are controlled by a large number of PLCs connected via Ethernet, which control around 140,000 notifications monitored by the SCADA system. Prior to using mobile SCADA, control room personnel would manually forward notifications to service staff working in the field. Now, service engineers responsible for running and supporting the high-speed baggage handling systems receive

notifications of malfunctions, on their mobile device within seconds of it happening. Engineers can respond much faster, review documents, review settings of the PLCs and the SCADA system and review routine maintenance information - all on the mobile device, which contributes to ensuring luggage reaches customers or connecting flights on time, thereby reducing the “left behind index”. As a result of the mobile SCADA system, which uses the airport’s existing Wi-Fi and GPRS connectivity, Vanderlande has exceeded its entire service level agreements with Munich Airport. The mobile SCADA system is directly connected to the existing PLCs, handling

By optimising the use of resources through reduced repair time, quicker notification and escalation, access to information and connectivity to the maintenance system means higher availability of service personnel to carry out both planned and unplanned repair and maintenance tasks

notifications and instantly dispatching them to the mobile devices used by maintenance staff. The system has also been connected to the existing maintenance software system, allowing service engineers to complete work orders, access information about spare parts stock availability, and review documents such as wiring diagrams on the same mobile devices through a single user interface. As an outsourced service provider, Vanderlande’s adherence to certain KPIs is monitored continuously. Each day around 200 short term failures occur within in the baggage handling area of Munich Airport’s Terminal 1. After implementing mobile SCADA, the response time to each failure and corresponding system downtime was reduced significantly. By optimising the use of resources through reduced repair time, quicker notification and escalation, access to information and connectivity to the maintenance system means higher availability of service personnel to carry out both planned and unplanned repair and maintenance tasks. As the outsourced service provider, Vanderlande is able to optimise resourcing levels and significantly reduce total cost of ownership. The contribution made by mobile SCADA to achieving typical lean objectives is significant, through reducing unplanned downtime and greater resource utilisation effectiveness. When mobile SCADA is combined with the incumbent maintenance system, where the central maintenance system can also be accessed using the same mobile device in response to a SCADA alert, the benefits are significant. By giving engineers the ability to review historical information relating to equipment downtime and routine maintenance whilst responding to a SCADA event, the return on investment of a mobile SCADA system is significant in any organisation looking to improve operational efficiency, whilst at the same time helping to drive down costs. For more information visit www.schad-automation.com.

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BOOK REVIEW John Bicheno reviews Bart Huthwaite’s The Lean Design Solution, Institute for Lean Innovation, Michigan. ean design is increasingly prominent, opening a long-neglected area, at least in some organisations, conferences, and publications. Whilst books on lean design are far less prominent than shopfloor lean, the few tend to be of high quality. This book is no exception. ‘Design’ here means discrete product design, especially at the front end of concept and innovation rather than at the downstream 3P (production preparation process) end. It is certainly refreshing to find a book on lean design that does not use Toyota as the exemplar. Not everyone is in complex automotive design!

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This 2007 book was recommended to me only recently by someone in our lean design interest group. What an opportunity has been missed since 2007! Bart’s book is fun to read and has a number of unique insights and presentation twists. For example, he talks about the ‘Universal Lean Design Equation’ which is ‘Strategic Illities – Evil Ings = Lean Product Success. Wow! What does that mean? Well, the ‘illities’ are the eight primary customer values of performability, affordability, featureability, deliverability, useability, maintainability, durability and imageability. The wasteful ‘ings’ are a long list including scheduling, moving, training, tooling, certifying, inspecting, reworking, testing, monitoring, and supervising. A central feature of the book is the five interacting ‘Laws’ of lean design. These fit very nicely into an input-output diagram. The Law of strategic value guides one to deliver the most important illities. The Law of waste prevention

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helps prevent wasteful ‘ings’ in design practice. The Law of marketplace pull gives a good discussion ‘wants and needs’ of the use of takt in design. The Law of innovation flow talks about ‘systematic innovation’ (this is a phrase that is used in the TRIZ community, but here there is no mention of TRIZ). There are five opportunities: functions, parts, materials, processes and people. And the Law of fast feedback is about metrics – both hard and soft. This is a useful section irrespective of whether you are in design or not, and is elaborated on in a later section on design scorecards. Later, the seven essential design skills are discussed which elaborate on the Laws. Here there are numerous tips, sketches and checklists. Then there are rules for kaizen design workshops. Finally, in an appendix, 23 Rules of Lean design are stated. Along the way, Bart gives some fascinating cases, such as the Spitfire whose complex wing shape was a real pain to manufacture (complexity) emanating from its origins as a competition racing plane (sensitivity), and hand-fitted parts hampered fast repair (variability). These design flaws were gradually overcome resulting in 20,351 units eventually being made. So, yes, the book is different. I required several passes to get around the Laws, the Skills, the Rules, and the many sub-sections and tips. Clearly, there are decades of experience in this book, that would benefit any design and marketing function. If you are concerned with design and innovation, and not in automotive, this book will give you many new insights and the occasional laugh.


We want to hear from you! As the Lean Management Journal progresses on its own continuous improvement journey, we understand how important it is for us to listen to the voice of our readers. So we have set up our own suggestions box and would like you to tell us what topics we should cover in the journal and at our events this year. What are the questions you want answered? What are the issues you are facing that you would like to read about? We will always welcome your suggestions and feedback, and we will try our best to address every request by providing helpful, thoughtprovoking case studies, interviews and features. Don’t forget that our Letters and comment section is open to anybody in the lean community who wants to share an opinion or an experience with their peers. Your feedback is important to us as we strive to improve our publication, services, and overall reader experience. If you have any suggestions for topics you would like LMJ to feature in 2012, please send an email to the commissioning editor, Roberto Priolo, who can be reached at r.priolo@sayonemedia.com or +44 (0)20 7401 6033.


P r o cess E x celle n ce W ee k Orlando, Florida; January 16-18

in conference This section features reviews of the events LMJ attends. Find out what goes on in the lean community by reading about some of the most interesting conferences and seminars.

Process Excellence Week is, simply put, a big deal in the process excellence community. The biggest conference IQPC’s PEX Network organises each year, it sees hundreds of attendees flock to balmy Florida to hear what’s new in process management. It was the first time I attended a PEX event and, although spending a few days away from England’s gloomy weather was a real treat, I must say that I wouldn’t have minded even if it had been organised in northern Alaska (well, maybe I would have). The agenda alone was enough to cause a slight heart attack to any process excellence enthusiast, with more sessions that you can imagine. But with an enviable line-up of speakers from many different professions, including healthcare, manufacturing and banking, it was not difficult to find a relevant presentation in the conference halls of the Buena Vista Palace Hotel. On day one, I particularly enjoyed the presentations by Yr Gunnarsdottir of Nimbus Partners and Roddy Martin of Competitive Capabilities International. Yr warned against the pitfalls of keeping BPM out of lean initiatives, stressing the importance of developing a common Kaizen platform with different areas of the business attached to it. According to her, a project should be determined by a long-term strategy, executed by end to end processes and supported by a committed top management. The message she delivered was that CI initiatives haven’t been successful in the past, and that the way these are run needs to change, for example by ensuring a combination of top-down and bottom-up to support strategies as well as processes. “Think top down, bottom up and everything in between,” she said, adding that improving processes should be an integral part of the culture of a company. Roddy Martin gave the latest update on supply chain issues, taking Procter&Gamble’s outstanding performance as an example against which to benchmark. Roddy contributes to this issue of LMJ (page 50). A Forrester Research address on the state of the process centric industry, which looked at the future, identified customer empowerment as one of the most relevant changes businesses will see. This was followed by a very personal and touching session run by Flip Flippen. With his drawling Texan accent, he greeted us with a “Howdy” and then told us about his theory on the relation between the growth of people and the growth of companies. His five laws of personal constraints are: we all have personal constraints; you can’t rise above constraints you won’t address; constraints play themselves out in every area of our lives; they are role specific; and those with the fewest constraints win. Similarly, this theory applies to leadership: no organisation can rise above the constraints of its leaders, and those who don’t address their constraints are unfit to lead. What to do once you have identified your constraints? Commit to tackle them. The second and third day of the conference were structured differently. In the morning there were sessions in the main conference room, while the afternoon gave attendees the option to

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LMJ I N C ON F E R E N C E

E M S M a n ufacturi n g F act o ry V isit build their own agenda by choosing from four track sessions themed Process Improvement, Process Management, Process for Innovation and Strategy & Performance. I also attended the 2012 Process Improvement Visionary Council. The members of the council were Anu George, chief quality officer at Morningstar Inc., Doug Drolett, Americas continuous improvement leader at Shell International Petroleum Company, and Marjorie Hook of the Lean Six Sigma Academy. It was highlighted that 2012 will see changing regulations (increasingly heavy), changing technology (companies cannot cater to customers without the right technology) and a more demanding customer. As interesting and useful as this was, however, I enjoyed Craig Squire’s presentation on value engineering more. Craig is the president of SAVE International, the Society of American Value Engineering. What is value engineering, you might ask. According to Craig, it’s an organised effort to improve value by identifying and evaluating functions and the essential characteristics of a system. It is about cost reduction as much as it is a methodology for innovation, first born within GE as it was experiencing large demand and low resources. “It’s about getting the right job done well, and it helps making better strategic decisions,” says Craig, using the examples of mobile phones makers (or cell phones makers) in the early 1990s, who stayed on the same function and today aren’t leading anymore. Using functions to innovate is what made Samsung the number 1 electronic consumer manufacturer, for example. An integrated approach combining different methodologies (including VE, lean and six sigma) is necessary to be able to optimise products and processes. But it’s important to apply value engineering at the beginning, when the cost is low and influencing a project is easy. These are just a few of the sessions that filled the agenda of these busy three days (there was even a BPM bloggers panel session). PEX Week was also an occasion to crown the winners of the Process Excellence Awards 2012, which included the Naval Special Warfare Group 4 (for Best BPM Project), PolyOne Corporation (for Best Process Excellence Program over two years) and TELUS (for Best Process Improvement Project under 90 days). Excellent examples of transformation were awarded in a simple ceremony with no frills. After all, there were other pressing things to concentrate on, and I am not talking about the great pool-side party organised at the end of day two. What I am referring to are the several track sessions scheduled for day three. In an incredibly warm evening that made us struggle to believe it was actually January, my colleague Sarah and I mingled and met more interesting people with great stories to tell. After all, this is one of best features of the PEX Week: sharing knowledge and experience with peers, and learning from them.

Herne Bay, Kent; January 25

I always find it inspiring to witness a journey to excellence, especially in a small company. I recently visited EMS Manufacturing, a manufacturer and supplier of wireless fire and security detection systems. Following the creation of a quality-focused foundation and the stabilisation of its right-first-time performance, EMS was able to establish a consistent and strong lean ethos. The company started in the security detection market before expanding into the fire alarms market where it identified opportunities to utilise its expertise in wireless technology. Benchmarking against lean companies operating in other sectors helped EMS to address problems that arose. Director Chris Mulvihill said: “Our productivity grew, capacity utilisation went through the roof and delivery speed improved astronomically. It previously took us up to 22 days to fulfil an order, now we can do it in four hours.” EMS expanded its CI approach to the product development department, understanding that it is better to spend the money at the design stage rather than applying costly modifications later. In the production facility, materials are at the point-of-use, which makes employees self-sufficient and able to respond quickly to demand. The company follows a pull system, and products are manufactured on demand. Each circuit board has a bar code bearing all the relevant data that is necessary at each stage of assembly and testing, as well as helping with traceability, which is fundamental in the market in which EMS operates. A thorough maintenance regime ensures machines enjoy high levels of uptime. From a lean perspective, changeovers on equipment like the soldering machine can be performed in as little as two minutes. A scanning machine is used to inspect each circuit board for mistakes in manufacture: potential errors are spotted, and the machine operator checks them one by one. If the discrepancy is simply a feature of a new component, the machine library, which stores every inspection ever made, will recognise it as such the next time. Screens are everywhere at EMS, where ERP meets visual management. An internally developed IT system, separate from the ERP system, helps workers at different stations schedule production according to demand. Mulvihill said: “Both the visual management and computerised route are appropriate, but you need to decide which one is for you and commit to it. We have the capability to go down the IT route, but use a mix of the two that is working extraordinarily well. We got faster and leaner, with smaller batches.” Mulvihill explained the importance of traceability, and how circuit board inspection points allow any faults in a component to be discovered and rectified before assembly continues. Completely self-sufficient product cells can assemble and dispatch a product within four hours of order reception. A new contract manufacturing project that EMS will soon undertake will achieve a pure one-piece flow. Lean is the main enabler that allows EMS to remain successful in the highly competitive, rather niche wireless market, as the firm continues to innovate and develop its products and operations

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eve n ts

There are currently an expanding pool of events available for the development of the lean community which offers both general and sector specific opportunities to renew your enthusiasm and gain new perspectives through communicating with lean contemporaries.

B usi n ess P r o cess E x celle n ce f o r F i n a n cial S ervices April 17-18, New York City The financial services industry is currently facing unprecedented operational, regulatory and economic pressures. Rigorous legal controls and recent aggressive efforts by regulators demand that operational and process excellence teams act swiftly in order to minimise operational risk and improve process governance. Organised by IQPC, this conference will provide two days of hands-on advice to ensure financial services firms are properly positioned - and protected - for what lies ahead. Bringing together thinkers from retail and investments banks and insurance company, this event will feature 15 case studies. Speakers will include Alan Demers of American Express Company and Brenton Harder of Credit Suisse. For more information, visit processexcellencenetwork.com

2 0 1 2 S h i n g o P rize I n ter n ati o n al C o n fere n ce April 30 – May 4, Hyatt Regency Riverfront, Jacksonville, Florida Want to be on the leading edge of Operational Excellence? Don’t miss The 2012 Shingo Prize International Conference: Build, Teach, Accelerate. This year’s conference, focusing on the Shingo transformation process, features keynote addresses from leading experts who will share how sustainable cultural transformation is achieved through principlebased leadership. The mission of The Shingo Prize is to create excellence in organisations through the application of universally accepted principles of operational excellence, alignment of management systems, and the wise application of improvement techniques across the entire enterprise. Don’t wait for this opportunity to pass you by. Register today! For more information visit www.shingoprize.org/2012conference

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P E X W ee k E ur o pe April 23-27, London Film Museum, London Attend this conference to discover the future of process centric management strategies and how you can leverage them to help sustain and accelerate your organisation in uncertain times. Make sure you invest to stay ahead - a new future in process thinking is on your doorstep. Across four days, Process Excellence Week supports your PEX learning and development, helping you to grow your industry support network and benchmark against some of the world’s leading process centric businesses. Speakers will include John De Poot of HJ Heinz, Estelle Clark of Lloyds Register and Soeren Ruskjaer of Vestas Wind Systems. For more information, visit processexcellencenetwork.com

Operati o n al E x celle n ce S o ciety Meet leaders and professionals from your local business community and discuss the most common problems companies experience in trying to achieve excellence. You will go home with many ideas and a lot to think about, and with new interesting contacts. The next OpEx Society chapter meetings will be: Warsaw, March 12, 6pm Venue: TERERE Tea Restaurant For information, please contact Malgorzata Krukowska on krukowskamj@xonitek.com Munich, March 13, 7pm Venue: Restaurant Ludwigs, “Marktsalon” For information, please contact Martin Haack on haackmf@xonitek.com New York City, March 20 Venue: Restaurant Le Bateau Ibre For information, please contact Richmond Hulse on hulserj@xonitek.com or Trinity De Mars on demarstk@xonitek.com Dubai, March 12, 5pm Venue: Dusit Thani Hotel (tentative) For information, please contact Andy Gibbins on andy@glasconsulting.org or Srijayan Iyer on srijayan@afoes.ae Abu Dhabi, March 5, 5pm Venue: TBC For information, please contact Junaid Ward on junaidward@gmail.com or Srijayan Iyer on srijayan@afoes.ae


f o rt h C O M I NG EVENTS

March 29-30, hosted by Rexam, Wakefield The Lean Management Journal invites you to a unique and vital seminar and benchmarking visit that focuses on safety from compliance to continuous improvement, taught by lean safety expert and international author Bob Hafey. On day one of the seminar, attendees will participate in group exercises that will help improve the safety programme in their facilities. Day two will be delivered onsite at Rexam, in Wakefield. With an annual turnover of £5bn, Rexam is one of the world’s leading consumer packaging groups and beverage can makers. The visit will include presentations on its production methods that utilise lean tools, systems and principles. To register, please contact Benn Walsh on +44 (0)207 202 7485 or b.walsh@ sayonemedia.com

T h e M a n ufacturer o f t h e Y ear 2 0 1 2 March 14, call for entries The Manufacturer of the Year Awards 2012 is a rare chance for you, your team and your company to receive industrywide recognition for your achievements. The World Class Manufacturing Award is one of the most heavily competed categories of the awards and recognises the manufacturing plant that is achieving the highest levels of operational excellence. The Awards programme entry deadline is July 31, site visits will take place in October and the Awards Ceremony and Gala Dinner in November. For award enquiries and further details, contact Laura Williams on +44 (0) 1603 327006 or l.williams@sayonemedia.com

W o rl d C lass M a n ufacturi n g F act o ry T o ur May 22, New Holland Agriculture, Basildon Winner of the 2011 World Class Manufacturing award, New Holland Agriculture (part of the CNH Group) will be providing a unique one-day event combining a best practice site tour together with a deep dive development session to illustrate the World Class Manufacturing Pillars that have helped the company to achieve world class status and to be crowned winners of this coveted award. Delegates will have the opportunity to see how New Holland Agriculture continues to implement WCM - and to be on the never ending road to developing a continuous improvement culture within its plant. By seeing the tools in action and talking to the pillar champions, delegates will have a clear understanding of the building blocks the plant is using to construct a truly world class manufacturing operation. To register a place, please contact Benn Walsh on +44 (0)207 202 7485 or b.walsh@sayonemedia.com

L M J A n n ual C o n fere n ce 2012 May 29-30, The Hilton Metropole, Birmingham NEC Tuesday 29th May – Full Conference, 09:00 to 16:45 Tuesday 29th May – LMJ Lean Leaders Dinner 19:30 to 22:00 Wednesday 30th May – Post Conference Plant Visits & Workshops The LMJ’s annual flagship event will capture the thoughts, ideas and best practice from a year of thought leadership provided by the journal. Now in its third year, the conference is extending its programme with factory visits making the 2012 conference a real lean festival, attracting leaders across different sectors and industries with the shared belief in progressing their lean education and awareness. For delegate enquires, please contact Benn Walsh on +44 (0)207 202 7485 or b.walsh@sayonemedia.com

www.leanmj.com | March 2012

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