Issue 4 Volume 2
| May 2012 | www.leanmj.com
All will be weighed and measured
Understanding lean assessment methods. IN THIS ISSUE: The Shingo model for operational excellence: Bob Miller discusses the Shingo model and explains how firms can use it to assess their performance while aspiring to company-wide improvement.
The central nervous system of lean: Matt van Wyck looks back at its experience with designing an improvement programme for DeBeers. Take company uniqueness into account: Stay away from prescriptive approaches to lean accounting. John Darlington on the risks of adopting methods that are recognised as successful but do not necessarily match the characteristics and needs of a business. Unstoppable: This month LMJ attends the Lean Management Summit in Amsterdam and meets some of the best companies presenting there, for the It’s a lean world special on the Netherlands. Critical Initiative Support: improving operations in Afghanistan: Tim Clancy and Adam Sommers of IBM Global Business Services explain how Critical Initiative Support can help bring change about in difficult situations where results are needed quickly. The Lean Management Journal is supported by the Lean Enterprise Research Centre, Cardiff Business School
w elcome
to t h e lea n
ma n a g eme n t
jo u r n al
Dear reader, We are all familiar with the adage ‘you can’t improve what you can’t measure’. There is no doubt methods to assess lean programmes can be a valuable tool for a company to understand where issues, and therefore opportunities for further improvement, lay.
E d i tor i al
Commissioning editor Roberto Priolo r.priolo@sayonemedia.com
Editorial director John Bicheno
picsiebook@btinternet.com
Contributors Tim Brown Sub-editor
t.brown@sayonemedia.com
Des i g n
Art Editor Martin Mitchell
m.mitchell@sayonemedia.com
Designers Viicky Carlin, Alex Cole
design@sayonemedia.com
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It is also true, however, that hoping that just any assessment method will be easily adaptable to an organisation’s specific characteristics is naive and dangerous. Think about this, as an example: how often do we hear people say, “We have introduced the Toyota Production System into our operations”? Correct me if I am wrong, but there is a reason why it is called the Toyota Production System. At page 12, Kate Mackle stresses the importance of understanding your business before turning to measurement tools for guidance, while John Darlington (page 20) warns against the “blind” adoption of accounting methods that were designed for companies that may be very different to your own. Once again, focusing on the tools without considering the bigger picture can end up inflicting great damage, as does failing to realise the uniqueness of each company. At page 7, Bob Miller of the Shingo Prize for Operational Excellence talks about what is largely viewed as the most comprehensive assessment tool available. Last month, LMJ attended the Lean Management Summit in Amsterdam and spoke to some of the most interesting companies that presented at the event. Their stories are told in this month’s It’s a lean world section (page 30), which looks at lean in the Netherlands and paints the picture of a country where the principles of continuous improvement have been applied to realities that are very different from manufacturing. Ever heard of lean in elementary schools? In this month’s special feature, LMJ analyses a system for improving operations in difficult scenarios – specifically Afghanistan – where there is a need to act and achieve results quickly (page 38). There is a lot going on at the journal these days and I would like to take this opportunity to welcome Gwendolyn Galsworth as the newest member of the LMJ Editorial Board. Gwendolyn – who will speak at this month’s LMJ Conference – is a visual workplace expert and Shingo-award winning author. She is the president of Visual Thinking Inc. and of the Visual-Lean Institute. Her incredible knowledge and experience, as well as her ability to connect and engage with the people she works with and speaks to, make her a great addition to the board. We are receiving extremely positive feedback on the journal from readers around the world and I would like to thank you all for your ongoing support and interest in LMJ. We constantly strive to further develop the journal and bring you more quality content and interesting case studies. We will soon have a brand new website, and the LMJ e-bulletin will also be launched in the coming weeks. Happy reading,
Commissioning Editor, Roberto Priolo
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co n te n ts ma Y 2 0 1 2
co n te n ts
04 Lean News 05 Introducing the editors 06 Knowing where you are
John Bicheno introduces this issue of LMJ, which focuses on measurement and assessment.
P r i n c i ples & p u rpose 07 The Shingo model for operational excellence Bob Miller talks about The Shingo Prize model for operational excellence, explaining how companies can use it to benchmark themselves against best practice in their bid to achieve change.
3 6 T h e F i ft h C ol u m n
This regular column, written by John Bicheno, aims to provoke debate on some of the most interesting and controversial topics in lean.
3 8 S pec i al feat u re Critical Initiative Support: improving operations in Afghanistan Tim Clancy and Adam Sommers of IBM Global Business Services explain how improvement initiatives like the Critical Initiative Support can help bring change about in difficult situations where results are needed quickly.
4 2 L ea n d i ary
12 Think flow: why lean assessments don’t work
Safety matters most In this column, LMJ observes the lean journey of Serbian manufacturer SCGM. Director Sandra Cadjenovic shares the most recent update on the company’s progress in its continuous improvement programme.
16 The central nervous system of lean
4 5 L M J i n co n fere n ce
Without a deep understanding of a business’ core problems and processes, assessment cannot be used to establish the status of lean in the organisation, says Kate Mackle, founder of Thinkflow. Matt van Wyck looks back at what he learnt at DeBeers as he designed and developed a programme for transforming the company’s South African operations.
20 Take company uniqueness into account
Prescriptive approaches to lean accounting can end up damaging a company that might not operate in the same situation those approaches were designed for, as well as the reputation of lean, explains John Darlington.
25 Integration: the way forward for supply chain
Shane Maher MBA shares with LMJ a research on the latest thinking on supply chain integration and provides a case study on a manufacturer of medical devices.
3 0 It ’ s a lea n w orl d Unstoppable
If you think lean is difficult to adapt to nonmanufacturing businesses, think again. This month, LMJ travels to the Netherlands to study the application and status of lean thinking in the country, and finds a wide adoption of continuous improvement in businesses from several different sectors, including healthcare, financial services and... elementary schools!
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.
4 6 B ook rev i e w
Jacob Austad reviews John Bicheno’s The Service Systems Toolbox, PICSIE Books.
4 7 L etters a n d comme n t
Contributions in this issue come from Joseph Paris, chairman of XONITEK, who shares his view on the need to steward CI programmes to make them successful; and from Roddy Martin of Competitive Capabilities International, who draws the conclusions on how a company can fully transform its supply chain and make it a demand-driven system.
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E ve n ts
Find out about the best lean events coming your way.
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 | May 2012
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LMJ A new website for better service Mobile accessories retailer MobileFun upgraded its international websites to improve customer experience and boost sales. A new shopping basket and checkout and a model selector widget are among the improvements made to the company’s five websites in the UK, Germany, France, the Netherlands and Spain. Other new features include navigation by attributes, a new image gallery including video, the ability to pay in different currencies, through alternative payment methods and provide reviews in different languages. “With our continuous improvement programme in place, new website features are rolled out every two weeks, so we are constantly innovating,” said Mark Riley, head of marketing.
BIS publishes figures on apprenticeships The Department for Business, Innovation and Skills has reported that there have been 256,500 recent new apprentices. The figures cover the academic year between August and January. Most of the new recruits were individuals of 25 or older. Some 100,300 fell into this category (which covers by far the largest age range), compared to 79,100 who were 18 or younger. Those between 19 and 24 made up the final group of 77,100. Skills minister John Hayes said: “It is particularly encouraging to see the large number of apprenticeships for younger people.”
University hospital staff visit manufacturer Siemens Healthcare Diagnostics Manufacturing has shared its experience of lean business processes with the Histopathology department of Whipps Cross University Hospital NHS Trust in Greater London. A delegation of approximately 30 Whipps Cross staff visited the Suffolk plant which designs and assembles a number of point-of-care instruments. The visit demonstrated how lean practices have been implemented by the company in a production environment to achieve continuous cost and time savings. Pathology departments have been increasingly implementing lean to improve the quality, efficiency and safety of their services. The Whipps Histopathology Department, supported by NHS Improvement, has experienced substantial improvement in service to patients.
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T oy ma n u fact u rer to make packa g i n g lea n er Hasbro will reduce the materials used in product packaging for many of its highly popular global brands. This project will result in a 15% improvement in the average product-to-package ratio of brands and products included in the initiative. Over the next two years, retailers and consumers will begin to see a range of packaging efficiencies put in place, including redesigned disposable boxes and blister packs that use less material. As an example, a more efficient package design for the 2013 My Little Pony assortment pack is expected to reduce the size of shipping containers by 20 percent, creating transportation efficiencies.
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
B i g A pple might turn to lea n to i mprove w ater serv i ces New York City will partner with Veolia Water, a specialist in outsourcing water services for municipal authorities, to evaluate the performance of its drinking water and wastewater systems, which serve nine million people. The first phase of the partnership will result in recommendations being made to improve performance and reduce operating costs. NYC will then decide whether to appoint Veolia Water to implement the recommendations in order to optimise the performance of the services, improving their productivity and efficiency levels. The contract would enable the Department of Environmental Protection to achieve annual savings of between $100m to $200m on operation and maintenance costs. Through its DPE, the city has launched an operational excellence programme.
I n tro d u c i n g
yo u r
editor s 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.
Brenton Harder Credit Suisse
Professor Zoe Radnor
Cardiff Business School
Jacob Austad LeanTeam, Denmark
Ebly Sanchez Volvo Group
Bill Bellows Pratt & Whitney Rocketdyne
Peter Watkins GKN
John Bicheno
Lean Enterprise Research Centre, Cardiff Business School
Wendy Wilson
Warwick Manufacturing Group, University of Warwick
Norman Bodek PCS Press
Dr Keivan Zokaei SA Partners
Gwendolyn Galsworth Visual Thinking Inc.
More information on our editorial board, their experience, and views on lean is available on the LMJ website: www.leanmj.com
www.leanmj.com | May 2012
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IN T R O DU C T I O N WRITTEN
BY
John
Bicheno
Knowing where you are
This month we focus on measures and assessment. Assessments have become very fashionable in lean, following on from established quality and management frameworks such as the EFQM business excellence model and, for US companies, the Baldridge.
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wo of the articles here reflect assessment frameworks. Kate Mackle’s focus is on flow, particularly on creating flow, organising for flow, and maintaining flow. This balance between the three aspects is most welcome – too often there is an over-emphasis on maintaining activities such as 5S, standard work, and six sigma – but to the detriment of creating flow. Likewise, organising for flow has often received much less emphasis than it deserves. The Shingo Prize, long established in the USA, and now being increasingly taken up in UK and Ireland, is widely recognised as the most comprehensive assessment framework. A strong feature is the three level assessment of tools, systems, and principles. In other words, a mastery of the lean tools is only the beginning – integration of the tools is required, and then ‘living’ the principles. The best way of using assessment frameworks is to gain a balanced appraisal of the status of lean at a site.
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Used well, this can reveal areas of weakness and opportunity. However, there are cautions. The first is where an assessment framework is seen by senior management as ‘the way to do lean’. Easy: just delegate responsibility to each department for driving up performance against the appropriate criteria. The second is appropriateness. A framework is supposed to be a ‘systems’ view for guidance. All too often it becomes a point-chasing exercise where the objective for individual managers is to increase their scores by following the standard criteria. Unfortunately, the whole is more than the sum of the parts. There is no escaping top management responsibility for lean success – going to the gemba, thinking through end-toend performance, PDCA, mentoring, management by asking questions, understanding the needs of tomorrows’ customers, and translating those needs into strategy. No-one ever won a race by standing on the sidelines with a stopwatch.
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pr i n c i ples & p u rpose
The Shingo model for operational excellence Bob Miller is the executive director of The Shingo Prize for Operational Excellence at Utah State University. In this article, he explains how companies can use the Shingo model to benchmark themselves against best practice and aspire to real organisation-wide change.
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The values of a corporation, not grounded in enduring principles, are largely ineffectual in influencing the creation of a consistent organisational culture
he search for improvement is instinctive. To be successful in the long term, businesses and indeed any organisation must be engaged in a relentless quest to make things better. Failure to make this an organisational priority will inevitably result in organisational decline. Excellence must be the pursuit of all great leaders. In fact, the passionate pursuit of perfection, even knowing it is fundamentally impossible to achieve, brings out the very best in every human being. Improvement is hard work. It requires great leaders, smart managers and empowered people. Improvement cannot be delegated down, organised into a programme or trained into the people. Improvement requires more than the application of a new tool set or the power of a charismatic personality. Improvement requires the transformation of a culture to one where every single person is engaged every day in most often small but, from time to time, large change.
www.leanmj.com | May 2012
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T h e S h i n g o mo d el for operat i o n al e x celle n ce B ob M i ller
In reality, every organisation is naturally in some state of transformation. The critical question is, to what end is the organisation being transformed and who are the architects of the transformation? The Shingo model of operational excellence asserts that successful organisational transformation occurs when leaders understand and take personal responsibility for architecting a deep and abiding culture of continuous improvement. This is not something that can be delegated to others. As the CEO of a very successful organisation recently said, “Leaders lead culture.”
A c u lt u re b u i lt o n correct pr i n c i ples Dr. Stephen Covey describes principles as fundamental truths. He defines a principle as a natural law that is universally understood, timeless in its meaning and fundamentally inarguable because it is self-evident. Covey teaches that values govern our actions and principles govern the consequence of our actions. Values are cultural, personal, interpretable and variable. Our personal values influence how we see the world and ultimately our choices for how to behave. Principles govern the outcomes of our choices. In other words, the values of an unprincipled person will very likely lead to behaviors that have negative consequences. Figure 1. Principles of operational excellence (The Shingo House) Results
Create value for the customer
Create constancy of purpose Think systemically
Measure what matters Align behaviours with performance Identify cause and effect relationships
Enterprise alignment
See reality Focus on long-term Align systems Slign strategy Standardised daily managment
Supply
Management
Operations Focus on process Embrace scientific thinking Flow and pull value Assure quality at the source Seek perfection
Customer relations Stabilise processes Product Relay facts and data and service Standardise processes development Insist on direct observation Focus on value stream Keep it simple and visual Identify and eliminate waste continuous No defects passed forward Integrate improvement with process work
improvement
cultural enablers Lead with humility Respect every individual
guiding principles
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Assure a safe environment Develop people Empower and involve everyone
supporting concepts
Principles govern everything that happens in the natural world. Scientists the world over continually search to understand more of the principles that govern the universe. They do not invent them; they only discover their existence and seek to do good by taking purposeful action based on knowledge of the guiding principle. Principles govern the laws of science; they determine the consequences of human relationships and, ultimately, principles influence the successful outcome of every business endeavor. Similarly, the values of a corporation, not grounded in enduring principles, are largely ineffectual in influencing the creation of a consistent organisational culture.
The Shingo Prize has made a diligent search of thought leaders over the last 100 years. Their work has been carefully analysed and dissected and the unique concepts or principles from each have been extracted
W h y operat i o n al e x celle n ce ? For decades we have watched, and all too often experienced, the disappointing efforts of programmatic improvement initiatives, leaving in their wake a trail of unintended negative consequences; rarely resulting in lasting improvement. Quality circles, just-in-time, total quality management, business process re-engineering, six sigma, and most recently lean are a few illustrations of well intentioned initiatives that have far underdelivered on there promised benefits. Our study of these programmes over the last 25 years has led us to believe that the problem has nothing to do with the concepts and everything to do with the programmatic, tool oriented deployment of them. The Shingo model for operational excellence is based on a systematic study of each of these improvement initiatives. Our approach bypasses the tools that each programme has engendered and focuses rather on the underlying/guiding principles and supporting key concepts behind them. We recognise the necessity of good improvement tools but focus on them only within the context of enabling a system to better drive ideal, principle based behaviors. The Shingo “House” (Figure 1) provides a summary and categorisation of this collection of guiding principles and supporting concepts. When taken in their totality, these timeless principles become the basis for building a lasting culture of excellence in the execution of one’s mission statement. We call this relationship between business results
pr i n c i ples & p u rpose
and principle based behavior operational excellence. Operational excellence cannot be a programme, another new set of tools or a new management fad. It is the consequence of an enterprise-wide practice of ideal behaviors, based on correct principles. As long as improvement is seen as something outside the core work of the business, as long as it is viewed as “something else to do”, operational excellence will remain elusive. When leaders anchor the corporate mission, vision and values to principles of operational excellence and help associates to connect and anchor their own values to the same principles, they enable a shift in the way people think and behave. Changing the collective behaviour of the group changes the culture. This is a leadership responsibility that cannot be delegated. In his book Key Strategies for Plant Improvement, Shigeo Shingo said, “Think in terms of categorical principles.” The Shingo House is a categorisation of the guiding principles of operational excellence. Associated with each category are also listed many important supporting concepts. The principles are categorised into four dimensions: cultural enablers, continuous process improvement, enterprise alignment, and results, the ultimate end of all business initiatives. These four dimensions overlay five core business systems – product/service development, customer relations, operations, supply – and a variety of management or administrative support systems.
G u i d i n g pr i n c i ples The Shingo Prize did not create the ten guiding principles of operational excellence, but rather they have always existed. In truth, there is ample evidence that these principles have been well understood, more or less, at different times for thousands of years. As the world has gone through cycles of advancement and decline, it seems these principles are routinely lost and forgotten and must be re-discovered. Emerging from the dark ages into a period of enlightenment and industrialisation, the impact of these principles are only now beginning to be understood again. Certainly and even surprisingly, business schools do not emphasise these principles even though they are the drivers for business execution excellence. The cause for this may be that these fundamental business principles have been disguised in management fads and tool boxes that become programmes or “flavors of the month”. The Shingo Prize has made a diligent search of thought leaders over the last 100 years. Their work has been carefully analysed and dissected and the unique concepts or principles from each have been extracted. Compiling, distilling and prioritising the list led to the 10 guiding principles on the left side and the supporting concepts for each dimension on the right side of the house.
Supporting concepts are critical to pay attention to but may not stand up to the rigor of being universal, timeless and selfevident as are the principles.
For organisations to be successful over the long term, leaders must deeply and personally understand the principles that govern their success. Further, they must ensure the behaviors of every person who contributes to the business are in harmony with these principles. In short, the organisational culture they build must be grounded in correct principles
The dimensions are the result of ‘thinking categorically about the principles.’ It is clear that all four dimensions of the model require focus in order to achieve excellence. In the same way that we need to comprehend objects in three dimensions to truly appreciate all of their characteristics, operational excellence must be viewed in these four dimensions in order to fully appreciate the power of the principles to affect business outcomes.
T ra n sform i n g a c u lt u re – S h i n g o tra n sformat i o n process Many organisations and their leaders are coming to understand that sustainability requires focusing on the culture; that’s the easy part. The difficult part is knowing how to really affect a change. The Shingo transformation process is a methodology for accelerating a personal and enterprise-wide transformation to a culture of operational excellence. The process is based on the teaching of Dr. Shigeo Shingo who recognised that business improvement came through understanding the relationship between principles, systems and tools. Shingo understood that operational excellence is not achieved by superficial imitation or the isolated and random use of tools & techniques (‘know how’). Instead, achieving operational excellence requires people to ‘know why’ — for example, an understanding of underlying principles. In the 1940s, the work of French social scientist Piaget led us to understand that learning occurs when people come to deeply understand the meaning behind the methodology. People naturally search first for meaning, the principle, and then attempt to organise them somehow into a system, or some kind of order. Finally, they create tools to better enable the systems to accomplish the purpose for which they were created.
www.leanmj.com | May 2012
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T h e S h i n g o mo d el for operat i o n al e x celle n ce B ob M i ller
consequence of our leadership and management behaviours. An example may help.
Individual focus CORE VALUES ANCHORED TO
GUIDING PRINCIPLES
Dr ive
Affi rm
ign Al ive Dr
RESULTS
Organisational focus
CULTURE
SYSTEMS
(Behavioral evidence)
En ab le
e fin Re
Se lec t
e ev hi Ac
TOOLS
L ear n i n g a n d teac h i n g t h e pr i n c i ples The first step a leader must take in leading cultural transformation is a personal journey to understand what each of these guiding principles mean conceptually and then what they mean personally. It is impossible for a leader to lead the development of a principlebased culture until he or she has gone through the deep reflection required to begin a personal transformation. This is no trivial task. For many and perhaps most, fully embracing these principles requires a fundamental re-thinking of the rules of engagement used to get to where they are. At a minimum, leaders must be curious enough to experiment with the principle. John Shook at the Lean Enterprise Institute taught us that it is often impossible to “think our way into a new way of acting”. Rather, guided by correct principles, what we should do is to do, observe, learn and then do something else, until we “act our way into a new way of thinking”. By carefully analysing the cause and effect relationship between principles and results, a leader will begin to shift their own beliefs about what drives optimal business performance. After gaining this new insight it becomes the effective leader’s primary responsibility to see that others in his/her organisation have experiences where they can gain the same insight. Leaders who choose to disregard the principles that govern business outcomes do so at great risk. Whether we acknowledge them or not, the principles of operational excellence always govern the
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If we encourage, enable or simply allow a culture to emerge where employees are thought of merely as an unfortunate cost burden, or that the smartest people are those that rise to the top, the consequence will be a workforce that is not fully engaged, ideas for improvement are never articulated and acted on, people feel unfulfilled in their work and turnover is very high. Labor costs become excessively high, business systems stagnate, and innovation is not fast enough to compete in a rapidly changing business climate. When people understand principles for themselves, the “why”, they become empowered to take personal initiative. Leaders who teach associates the principles behind the tactics or the tools can be confident that innovation from each individual will be pointed in the right direction. It is not necessary for a leader to define ideal behaviours for others. If the principle is truly a principle, diverse people with different values even, will readily be able to define ideal behavior for themselves and be very consistent with others. Dr. Shingo understood this and taught that the primary role of a leader is to drive the principles of operational excellence into the culture.
Aligning the systems w i t h pr i n c i ples All work in organisations is the outcome of a system. Systems are either designed to produce a specific end goal or they evolve on their own. Systems drive the behavior of people; or rather they create the conditions that cause people to behave in a certain way. One of the outcomes of poorly designed systems is enormous variation in behaviour or even consistently bad behaviour. Variation in behaviour leads to variation in results. Operational excellence requires ideal behaviour that translates into consistent and ideal results. The Shingo transformation process illustrates the critical need to align
pr i n c i ples & p u rpose
every business, management and work system of the organisation with the principles of operational excellence. When systems are properly aligned with principles, they strategically influence people’s behaviour toward the ideal.
become more oriented towards driving principles and culture while managers’ focus becomes more on designing and aligning systems to drive ideal principlebased behaviour.
Shingo also taught that the primary role of managers must shift from fire fighting to designing, aligning and improving systems.
The ultimate mission of The Shingo Prize is to assist organisations of all kinds in building operational excellence. The Shingo model may be used as a benchmark for what excellence at the highest level should look like. It may be used to align all elements of an organisation around a common set of guiding principles and a proven methodology for transformation. Some use the Shingo model as the basis for organisational assessment and improvement planning. A few use the Shingo model as a way to recognise their associates for excellent work and others use it to demonstrate to current and prospective customers that they can compete with anyone in the world. Some use the Shingo model for all of the above.
T h e e n abl i n g role of i mproveme n t tools A tool is nothing more than a point solution or a specific means to a specific end. Shingo referred to tools as techniques for problem solving; necessary but not sufficient. He taught that tools should be selected to enable a system to perform its intended purpose. In many ways, a system may be thought of as a collection of tools, working together to accomplish an intended outcome. A successful enterprise is usually made up of complex business systems that can be further divided into layers of sub-systems, each having embedded in them the necessary tools to enable a successful outcome. Perhaps the largest mistake made by corporations over the last three or four decades has been the inappropriate focus on a specific tool set as the basis for their improvement efforts. Tools do not answer the question of “why”, only the question of “how”. Knowing the “how” without fully understanding the “why” leaves people waiting for instructions and powerless to act on their own. Organisations can never sufficiently release the full potential of their people by creating a tooloriented culture.
E x per i me n t w i t h t h e pr i n c i ple One of the principles of operational excellence is scientific thinking, which is intended to foster a culture of experimentation and deep learning. People must be able to put to the test each of the principles espoused by the principle-based leader. Only when people see for themselves the cause-and-effect relationship of results relative to the principle, will they come to deeply understand the value of the principle to them personally. Repetition through many cycles of learning in the experiment gives people a personal insight about the principle and empowers them to make personal judgments about its validity.
S u mmary Operational excellence is end game of all organisations focusing on continuous improvement. Programmes, titles, tools, projects, events and personalities are insufficient to create lasting change. Real change is only possible when timeless principles of operational excellence are understood and deeply embedded into culture. The focus of leaders must change to
The Shingo transformation process illustrates the critical need to align every business, management and work system of the organisation with the principles of operational excellence
The real Shingo Prize, however, is represented by the business results that come from the relentless pursuit of a standard of excellence that is without question, the most rigorous in the world. Those who use the Shingo model will embark on a journey that will accelerate the transformation of their organisations into powerful, dynamic, nimble competitors. No obstacle – affordable healthcare, efficient transportation, emerging global environmental concerns – will be beyond the reach of those who embrace principles of operational excellence and make certain that every person in their extended value stream deeply understands the principles behind the tools. Visit us at www.shingoprize.org
www.leanmj.com | May 2012
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pr i n c i ples
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Think flow: why lean assessments don’t work
Kate Mackle, founder of Thinkflow Limited, talks about the importance of understanding the problems of a company before assessment can even hope to represent a useful to tool to measure how well the business is doing.
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magine the scene. You enter the doctor’s consulting room. “What seems to be the trouble?” he says. You answer: “Well, I’ve been feeling very listless. Not as energetic as I usually am. And I’ve had one or two dizzy spells.” He asks: “How long have you been taking one aspirin a day?”; “how many marathons have you run in the last 5 years?”; “When do you aspire to move from Valium to Prozac?” If you were a particularly reflective individual, sometime after running from the surgery in shock, you might ponder to yourself: “Why did he jump straight to assuming certain drugs were the answer, before he even knew what was wrong with me? And why did he presume such extreme exercise was appropriate when he could clearly see that I’m a stranger to the gym?” In short, you’d think: “Why didn’t he diagnose what was wrong with me before jumping to conclusions?”
Google “lean assessment” and you’ll find 33 million hits for this sort of thing: that’s a lot of anecdotal evidence that there’s a receptive audience who believe in the worth of such assessments – or that there’s a healthy industry in promoting this idea
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Thankfully, we’ve got the Medical Council to protect us from such bizarre behaviour from those who are responsible for looking after our health. Unfortunately, no such body exists to sanction those who seek to advise us on how to improve our companies. They are free to pedal endless derivatives of “lean assessment tools”, each purporting to help identify where we are on the lean journey and what we need to do more of to help us on the way.
pr i n c i ples & p u rpose
The i mporta n ce of se q u e n ce
You know the type of assessment I’m talking about. Score yourself from 1 to 5 on your application of the lean toolbox. Score 1 for carrying out a value stream map on one product family; score 5 for mapping all your value streams. Score 1 for having a model 5S area; score 5 for 5sing the whole plant. And so on. Google “lean assessment” and you’ll find 33 million hits for this sort of thing: that’s a lot of anecdotal evidence that there’s a receptive audience who believe in the worth of such assessments – or that there’s a healthy industry in promoting this idea. These are all great tools and very effective when used selectively, but where’s the diagnosis of the need? Where’s the judgement that to make the necessary change at this point in developing a lean system, this is the appropriate intervention to make? Assessments by definition require a standard to assess against. This means that “lean assessments” purport to tell you how “lean” you are against some sort of standard of best practice. This betrays the thinking that somehow the state of “being lean” exists independently from your business type, circumstances and environment. This is equivalent to believing that there is a standard of good health which we can assess people against irrespective of age, gender and socioeconomic conditions. Even worse, the degree of attainment against this “lean standard” is equated with the extent to which various tools and techniques have been applied: typically, these tools are those which have been popularised by their use in repetitive component assembly environments and are largely irrelevant to businesses operating in a complex low volume-high variety environment. The brutal truth is that if you assess yourself against a model that tests for application of tools, you will be sucked into unthinking programmes of tool deployment. It’s a dangerous path to tread because you think you’re doing the right thing and can spend an enormous amount of time and effort getting a better score on the assessment grid, blissfully unaware that it’s made absolutely no difference to the business’ ability to win orders and make money. The Thinkflow implementation framework Create flow
Maintain flow
Organise for flow
Design processes to deliver real value to the customer
Ensure the flow of value to the customer is continuous
Enable the organisation to respond to problems with the flow of value
Measure for flow Measures to promote customer service Flow accounting to support financial goals
Many of the tools in the lean toolbox help us standardise, communicate and solve problems: they help us to be more effective in organising our daily work and continuously improving how we do that work.
One of the major weaknesses of conventional lean assessments is the absence of reference to sequence: where to start and what conditions do you need to have in place for the next stage of development. Instead, all tools are seen as equally useful at all times which leads to premature attempts to use tools which the environment is not yet ready to support or exploit. For example, trying to use 5S to maintain workplace organisation in a plant where the assembly schedules are constantly interrupted by parts shortages: having a nicely-painted square where you put the jobs awaiting parts is not lean. It is no coincidence that people often have difficulty in sustaining 5S: it is a tool for visualising and maintaining the standard flow of work – it cannot create order where none exists. Similarly, you need to know where to focus your loss reduction activities: where do we have the greatest need to improve availability and reduce variation? Doing a SMED activity on a non-constraint may be the right thing to do in a mature lean system if you want to reduce the lead time after the constraint: it’s not going to have any benefit if you’re not even managing the flow through the constraint.
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T h i n k flo w : w h y lea n assessme n ts d o n ’ t w ork K ate M ackle
Where the tools fit Create flow
Maintain flow
Organise for flow
Tools for understanding demand, capacity and material planning and scheduling
Tools for availability improvement and variability reduction
Tools for standardisation, communication and problem solving
Measure for flow Tools for defining measures linked to the overall company goal Flow accounting for financial information about real money
We need to ensure that everyone knows how the system should work, how it’s performing and how to resolve the problems that arise: we need to give people a context for continuous improvement and the skills to solve problems in a sustainable fashion Many of the tools in the lean toolbox help us standardise, communicate and solve problems: they help us to be more effective in organising our daily work and continuously improving how we do that work. Other tools help us improve availability and reduce variation: they help us make the process more reliable so that the flow of value to the customer is maintained. There’s nothing inherently wrong in using these tools for their own sake – if you can afford the luxury to do so. Most organisations can’t: they need to know the most important improvement activities to do now with the limited resource available. They need to know what changes to make to the business to improve service, to be able to reliably take on new orders, to free up cash from inventory, to reduce operating costs without jeopardising sales, to invest with confidence. They need to know what improvements will have a fast and sustainable financial benefit. They won’t get this from lean assessments. The answers to these pressing questions lie in understanding how the business could be more effective in matching its capacity and procurement to the demand of the customer. Get these decisions wrong and you’ll find yourself in the uncomfortable position of having taken on orders you can’t fulfil on time, tying up cash in inventory that’s not moving, with a headcount and costs that look untenable. Lean assessments are weak in this area because the whole of the lean movement treats demand, capacity and inventory management with a woeful simplicity. Turn to a lean assessment for direction and you’ll find yourself challenged as to how much you’re using kanban and pull systems: you are taking the cure before you’ve even understood your diagnosis.
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It’s a testament to the belief in lean and the power of the results achieved that managers persist in trying to do the “right thing” instead of telling their lean advisors to shove it while they get on with saving the business. In fact, more intolerance of facile solutions would help the whole lean movement to get real: what managers need is a fast way to get better insight into the cause of their problems and an effective way of designing and implementing the solution. Practical solutions emerge from applying thought and effort in conditions of real need: ironically, that’s one lesson from Toyota’s experience that we don’t hear much about – maybe because no-one has given it an exotic-sounding Japanese name. I could call it “GANBATTE” and make a fortune marketing it but instead I’m going to share with you an approach that’s emerged out of years of experience of lean implementation. Joking aside, it’s a serious question: why are we performing so badly and how can we improve? You can answer that question once for businesses but if you don’t develop their thinking to be able to ask and answer the question again and again and again, they won’t be capable of sustainable continuous improvement – particularly when the performance no longer looks “so bad”. Faced with that challenge, a framework emerged over time that has proved useful in helping organisations diagnose the causes of their underperformance and design effective programmes to implement improvements. It’s a simple way of addressing the vital questions: where to start and what to do? It’s called the “Thinkflow framework” because it does exactly what it says on the tin: if you “think flow” you will be led down the correct path towards improvement. However, just saying “think flow” would have been impossibly inscrutable from someone who clearly was not a Japanese sensei so the framework expands on the key elements of “thinking flow”. There are four parts to the framework: Create Flow, Maintain Flow, Organise for Flow and Measure for Flow. In a real application, each part would be formed
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of questions to guide diagnosis and then to direct the design of solutions (that’s the part where the selective use of the lean tools comes in). A degree of customisation is required to make the framework relevant to the characteristics of the business but for the purposes of this article, the generic approach will be described. It starts with “Create Flow”. This requires a thorough understanding of how the business manages the fulfilment of customer demand: how effectively are the planning and scheduling systems working? When we understand why these processes are not working, we’ve diagnosed the underlying cause of failure to give the customer what they want, when they want it: we’ve also understood why we don’t have the right material or resources at the right time. Out of this understanding emerges the definition of what needs to be changed to make the system capable of meeting customer demand: in practice, this means improving the planning and scheduling systems so that we create a flow of value. We can also quantify the financial consequences of the current state: what is the effect of poor service, lost sales, extra inventory and resources? That makes it very clear to the management team what the financial benefits can be from the improvements that are designed. Once we know how we want value to flow, we need to know how to keep the flow going: what could stop the flow and how can we make sure the flow can be maintained? This is what we look at in “Maintain Flow”. It’s where we diagnose the causes of losses of availability and quality – and consequently where we can identify the need for tools which can reduce or eliminate those losses and thereby make the system more efficient. Because “Create Flow” has defined what’s constraining the flow of value, our decision-making regarding the deployment of these tools is automatically prioritised. Designing the perfect flow system and making it work efficiently through focussed loss reduction activities is fine in theory but we know that in everyday operations, variation will occur and problems will happen. We need to ensure
that everyone knows how the system should work, how it’s performing and how to resolve the problems that arise: we need to give people a context for continuous improvement and the skills to solve problems in a sustainable fashion. This is the purpose of many of the tools in the lean toolbox: they help the organisation deal with problems that stop the flow of value. In the framework, this is called Organise for Flow and deciding what’s needed in this area stems naturally from the system design decisions taken in the Create and Maintain Flow areas. Having worked through Create, Maintain and Organise flow, a business will have diagnosed the causes of the underperformance in their current state and identified the major changes needed to design a future state. In doing so, they will have recognised the potential benefits of change and realised where current policies and measures are out of alignment with a focus on the flow of value to the customer. In the last part of the framework, Measure for Flow alerts the business to any measures which Measuring the financial effect Create flow
Maintain flow
Organise for flow
Strong link with:
Some link with:
Some link with:
Throughout inventory and operating expense
Inventory and operating expense
Operating expense
are inadvertently out of alignment with customer value and supports the definition of appropriate measures to monitor the effectiveness of the new system. The corrective actions needed to improve performance are often accepted as necessary despite the fact that they are underpinned by a philosophy very different to that which informs conventional accounting practice. In fact, it is often not until later on, when you want the system to drive further improvement, that the outputs of the standard accounting methods can prove to be an impediment to further application of lean principles: measures which are believed to inform you about how to “take cost out” will obstruct thinking about how to “add value in”. See John Darlington’s article in this issue on page 20 to understand more about why this is. Working through the Thinkflow framework will guide you through assessing your current ability to create flow, leading to the design of an improved system for delivering value to the customer. The selection of the appropriate tools to maintain and improve the system will emerge from this design. The tools themselves are not complex: you know them already or can readily learn what is needed when you need it. The critical point is that the need for the use of the tools will be self-evident when the requirements of the system to create a flow of value are clear. The Thinkflow approach has been tested and refined over many years in a wide range of different businesses, and many organisations have experienced a step-change in the speed and effectiveness in achieving results from their lean activities by designing implementation programmes around the framework. There’s enough in this article to give you direction on getting started on this approach for yourself: GANBATTE!
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The central nervous system of lean T
he world of business is changing fast, and the only certainty is that the pace of change will accelerate. It is in this world that flexible, integrated, simple and waste free organisations will thrive, and the adoption of business improvement initiatives has become the rule rather than the exception. Although many organisations have adopted various forms and shapes of business improvement and transformation methodologies, the success rate of such interventions is less than convincing, and failures are more abundant than success stories. The reasons for these failures are well documented, and we all agree that success requires very focussed and specific thinking and acting from the executive layer through to the people operating the process which generates value. My career started as an engineer in operations, and in trying to continuously improve and understand how the operational engine works I stumbled upon lean. Studying lean has been a sobering experience, depicted by many layers of learning, and like peeling an onion each layer holds new wisdom.
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Matt van Wyck, a graduate at the MSc in Lean Operations at Cardiff University and a former metallurgical engineer, designed and deployed a lean transformation programme across the South African operations of DeBeers. In this article, he gives a personal reflection on what he learned while on the field.
As an engineer working in an environment which celebrates heroic feats, the hunt for value is focussed on significant financial improvements
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T h e layers of my lear n i n g evolve d as follo w s : The realisation that small improvements hold significant value (kaizen). As an engineer working in an environment which celebrates heroic feats, the hunt for value is focussed on significant financial improvements. Understanding that solving problems requires a simple yet scientific methodology (PDCA). This cannot be done around a boardroom table or from an office, and time spent at the shop floor is imperative. Understanding that people at the lowest level of the organisation hold the key to creating value. Every moment of the day, they enable operating systems which generate value, and understand the inputs required to make these work better than anybody else. Both hands and brains must be respected. Satisfying the needs of the customer, whether external or internal, created the focus required for improvement. The more visible and simpler these needs are made at the front line, the easier it is to improve value and enable flow. The awareness that physically doing things differently changes behaviour. John Shook’s saying that “it is easier to act yourself into a new way of thinking than to think yourself into a new way of acting” holds significant value. Doing things differently requires a deep understanding of how the processes work. This is achieved by physically mapping the value stream, standardising the best way of doing it now, and looking for opportunities of doing it better. As Deming said: “It is not enough to do your best; you must know what to do, and then do your best.” Doing the right things requires the understanding and leveraging of inputs rather than outputs. Many western management philosophies teach to use outputs to transform organisations, but
these beliefs create organisational designs which stifle agility and must be guarded against as it is the leveraging of inputs which underpins improvement. Understanding that none of these layers will lead to a successful transformation if not understood and aligned as part of a system that allows every individual, every day, to improve on what they did yesterday, to improve the product for the customer. To buy into lean management needs to see what good looks like. Do create and leverage networks, visit good sites and interact with people who have done this before. This is required to change the system, to enable a new way of work and force compliance towards a better organisation. It is like reprogramming the organisation’s default button to prevent the people from returning to bad habits. The layered nature of lean unfortunately creates complexity. To return to the onion metaphor, managers often buy what the outer layer offers, and many consultancies exploit single layers of the whole. The real transformation is, however, concentrated in the centre of the system, which is hidden from view until the journey is experienced and understood. It is the quest of understanding what lies at the heart of lean that guided me towards studying the role that management and measurement systems play in the sustainability of lean. My hypothesis was that these systems form the central nervous system of a lean transformation. If aligned, these systems will enable transformation by creating the right context, focus, integration and interactivity (adapted from the work of Dr. Dean Spitzer) to create superior organisational management and performance. If wrong, the deployment of lean will almost always fail in the medium to long term. My view is that the core of lean transformation is to be found within the management and measurement systems which connect the brain (strategic aspect of the business) to the hands (front line execution) of the business at which point value is being added. This creates the context for fast, decisive action, breaks down functional silos, and leads to the achievement of higher levels of competitiveness. Although improving the financial performance of an organisation is imperative, this has to be balanced by a respect for the individual (the whole-person philosophy). Within such an environment, measurement functions not only act as a performance yardstick but become a social phenomenon. Measurement systems play a fundamental role in sustaining and embedding a lean deployment as it focuses the efforts on the right things. Martin Preece, a general manager at one of the operations studied, said: “Measurement is the catalyst which replaces the University of Lean by the Factory of Lean”. When the new measurement system was deployed at this operation, it resulted in an almost instantaneous improvement of the critical processes which yielded significant value. However, effective measurement requires a supportive organisation where everything is aligned and synchronised towards achieving a common goal. The right measures must be supported by both
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T h e ce n tral n ervo u s system of lea n M att va n Wyck
integration (between departments to enable flow) and interactivity (socialisation process). These requirements will, however, not be met by either a partial or a tools approach to lean. This interaction of the organisational design with standardised work and the right measures is critical, and must be coordinated through a common management system. This complete synergy ensures that the measurement system translates the strategy into the right focus at the front line and that this work is performed in the best known way. Any break in this integration will lead to instability and unpredictability of the value stream. My research studied the effect of the measurement system on a lean deployment in a leading mining and luxury goods company. The case study emphasised that any disconnects between the fundamental requirements of a measurement system will impact directly on a lean deployment, and indicated that there is a direct correlation between the maturity of a lean deployment and the maturity of the measurement system. Within operations that were struggling to implement lean, the following issues were fundamental to the problem: A lack of management interaction with the measurement system; The position of strategic output measures at the front line which they could not control or impact on; Inflexibility of measures to adapt to changing circumstances; Lack of trust in the measurement system as it is often used against employees; The data gathered in measurement is not turned into knowledge; Measurement frequency and interactivity too low to be pro-active when issues arise. Management is thus blind to shop floor issues and cannot respond to deploy countermeasures;
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My view is that the core of lean transformation is to be found within the management and measurement systems which connect the brain (strategic aspect of the business) to the hands (front line execution) of the business at which point value is being added Measurement is not used to guide improvement efforts; Little cross-functional learning occurs between departments; That causal relationships between measures are not understood (poor understanding of the value stream); Lack of a management effort to tap into the brains of frontline employees; At the front-line level of the organisation, these translated into the following major shortcomings: Low levels of alignment to the company goals; Little awareness of what is expected from them on a daily basis; Inaccurate understanding of customer expectations; Low utilisation of employee capability and skills; Low levels of commitment to come up with improvement ideas. The research concluded that a supportive management style is required both to energise the lean journey and to tap into the immense power of a well-designed measurement system in support of such a journey. Such a management style is clearly described in the literature on lean, and positioned in the work of both David Mann and Steven Spear. A transformational measurement system must be characterised by balanced measures aimed at guiding and focusing lean efforts. In its absence, the efforts will result in a disillusionment which will probably result in the abandonment of a lean deployment. The findings of this research pointed to a number of key capabilities which are required to guide deployment efforts:
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A well designed measurement system is a key supporting element in any lean implementation; The design of such a measurement system should cater for the systemic requirements which underpin successful lean deployments; The measurement system will function optimally only if there is a thorough understanding and integration of the four key requirements (context, focus, interactivity and integration);
A transformational measurement system must be characterised by balanced measures aimed at guiding and focusing lean efforts. In its absence, the efforts will result in a disillusionment which will probably result in the abandonment of a lean deployment
Such a measurement system must be aligned to the strategy (and, hence, customer needs) and aim at managing the entire process (flow) in order to create value; Although standardisation of the system is necessary, space must be created to accommodate the evolutionary nature of measurement, as measures will change as the value stream is improved, and the causal relationships between measures crystallise; Measurement must be supported by all the management levels within the organisation. Care should be taken to avoid the de-linking effect of functional autonomy; Every individual must be aware of their specific roles in supporting and executing measurement. Any gaps in performance should become the main focus of improvement efforts; A significant effort is required to ensure that measurements are balanced between quality, cost, delivery, safety and morale; Although significant gains are made possible by deploying a well-designed measurement system, organisations must be aware of the potentially devastating power of measurement if the measurements are misaligned to the rest of customer requirements. Accordingly, organisations must allocate the required resources and management time to aligning measurement. By aligning effort through the deployment of a scientifically designed performance measurement system, the complexity of a lean implementation is significantly reduced and a platform will be created from which everybody will be able to contribute to improvement. An effective and aligned measurement and management system is an integral part of a successful and sustained lean implementation. This system should cater not only for measurement of the key processes in the organisation, but be enabled by engaged leadership and guided by standardised work. Should all these aspects be present and acted upon on a daily basis, the chance of embedding a successful lean deployment is highly increased.
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Take company uniqueness into account Forcing somebody else’s model onto a company hoping it will work is a dangerous game. John Darlington warns against the risk of adopting prescriptive approaches to lean accounting, which could mislead many practitioners who do not have the advantage of demand stability and volume enjoyed by automotive companies.
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lthough book keeping and accounting record keeping goes back many hundreds of years, management accounting is a relatively new subject and really began to “take off” during the era of the Industrial Revolution. Until then “piece rates” were a popular method of paying people and as labour and material dominated the costs of running an organisation, overhead departments were small, you could argue that a product cost did truly represent the real cost of producing an item. For example, there was real market traceability between the sell price and the money the business had parted with to make the product. As a consequence of the Industrial Revolution, owners, attracted by the gains to be had from economies of scale, were inclined to invest
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significant sums of money in capital and hired workers longer term to develop skills rather than hire them “spot” and pay by the piece produced. Add to these changes the propensity of organisations to integrate vertically and market traceability began to diminish between the costs of running production and the revenue streams from product sales. This was the “fuel” needed to explore management accounts for internal decision making as opposed to financial accounts for external reporting. The result of these forces, to provide useful information for managers to make better decisions against a backdrop of distance from markets, was ultimately the design of the standard costing system. The mechanics of the system had one last twist worthy of note to it. The growth of companies around the 1920s and the pressure on capital markets was the motivation for public accountants to agree standard well-defined procedures that any audit firm could, well, audit fairly. The public accountants could not cope with the diversity of methods they encountered when contemplating the costing practices of the engineers in their attempts to trace costs to products so this was given up to a broader method of allocating cost
to inventory for periodic profit reporting - a financial reporting response. The result was “an invention” hinging around double entry book keeping that inflated inventory value in terms of work in progress and finished goods for periodic profit reporting that is with us to this day. And inadvertently it favours profit during periods where production outstrips sales. And worse it penalises profit if you happen to stop replacing unwanted inventories. Ever heard the phrase, “We have not recovered enough overhead.” Well, now you know what it means: “We haven’t produced enough things”. Never mind that we have satisfied demand and reduced our lead times. The double entry book keeping is unhappy! So, most of the innovation in design of standard costing had been developed by 1925 and increasingly the administration was computerised and integrated from the late 1960s with the rise of MRP culminating in today’s ERP systems. What we have is a case of uncorrected obsolescence, not original error.
Z omb i e Zone
How come 50 years plus went by in cost accounting stagnation until Johnson and Kaplan and Goldratt came up with alternative
if rival systems? It isn’t as though there were no other warnings. Taaichi Ohno: “It was not enough to chase out the cost accountants from the plants. The problem was to chase cost accounting from my people’s minds.”
Most of the innovation in design of standard costing had been developed by 1925 and increasingly the administration was computerised and integrated from the late 1960s with the rise of MRP culminating in today’s ERP systems
And Deming: “…using cost accounting metrics to make decisions is like driving by looking in the rear view mirror... We need good results, but management by results is not the way to get them.” How come the academics did not spot that these systems were increasingly redundant? The only discussion I recall when trying to qualify through the Chartered Institute of Cost and Works Accountants was a facile debate on fully absorbed or marginal costing; really a discussion about which costs were variable and which costs were fixed. Answer: neither or both, it depends on the time frame being considered. But this was not the way exam questions were structured. What we got were exam questions that posed seductive if entirely simplistic and useless models compared with what real companies were actually grappling with in real life. The questions posed always had just a handful of products, a single set of resources; an assumption that there was no starting inventory or ending inventory for fear it distorted the variance analysis so
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T ake compa n y u n i q u e n ess i n to acco u n t J o h n Darl i n g to n
So flow and lean accounting are united in the need to change:
Conventional accounting systems encourage overproduction by their clumsy interpretation of the “value added” principle; They do not recognise the importance of bottlenecks, constraints or pacemaker processes; They encourage local efficiency creating “islands of excellence”; They have little or nothing to say about lead times; They promote the idea that the bigger the batch the lower the unit cost; They encourage “cost reductions” which often prove to be “mirages”.
The list is not meant to be exhaustive. it is frightening to consider the amount of real money being spent by people continuing to design and administer these old out-of-touch systems.
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pools and cost drivers to deal with overhead allocation in a discernibly different form than standard costing. A more accurate product cost was the promise. TA, which evolved from Theory of Constraints, suggested that very few costs were truly variable with one more or one less unit sold but a thorough understanding of constraints i.e. limiting factors was required. Product costs were ignored in favour of contribution often linked to the consumption of constraint resources. Goldratt’s throughput inventory and operating expense (TI&OE) was direct, simple and very demanding and we use it to this day. Both rival schools of thought had their “champions” and claimed their successes. And despite the fact that I personally favoured TA I think it could be said that “ABC won”, at least in the UK. It certainly entered the mainstream vocabulary and more companies claimed to be applying ABC than TA. I should know, I was quite often invited to ABC conferences as the “token heckler”! To summarise, I think you can see these antecedents in the new rivalry emerging as the question of what sort of accounting you need for a lean organisations is asked.
Installing or upgrading a modern ERP system is eye-wateringly expensive and yet in the course of doing it you embed standard costing invented circa 1925!
Flow accountings roots are definitely traceable to the TA approach. Knowing some of the main players in lean accounting I would argue that ABC is still influencing their approach.
Change
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If marginal costing and fully absorbed costing vied to answer the question of which system best served management decisions up to the 1980s, two new rivals appeared with Johnson & Kaplan and Goldratts writing. We got activity based costing (ABC) and throughput accounting (TA).
We have a pretty unique opportunity to establish afresh the accounting data we need to make better decisions in a lean organisation.
And in many respects these were a polarised version of the earlier rivalry.
It is certainly possible to reduce the need for scheduling synchronisation when resources are co-located and I am not naïve enough to say the benefits are limited to this alone. However shared resources do exist. In fact shared resources appear to be more common than dedicated value stream based ones.
ABC put product cost calculations as a central platform but recommended cost
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VAT Analysis. Plants classified by BOM/Route Shape
Materials flow
favoured by the Institute yet invented circa 1925!
I have a number of concerns about the current direction of lean accounting: the movement places a great deal of emphasis on the value stream. And you can appreciate why this is given so much preeminence: it is mentioned in the 5 lean principles established by Dan Jones and Jim Womack in their seminal book Lean Thinking.
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And as if to emphasise their dislike of shared resources lean accounting often labels them “monuments” and not in a flattering sense. Well, this is ignoring some fundamental production organisation structures. I learnt about VAT analysis not in the accounts class but via constraint based management. There are three fundamental structures which tend to reflect the dominant characteristics of the production bill of material and route. “V” plants will typically be process orientated with little or no assembly. Steel or paper mills, pharmaceuticals at least at the primary end etc., would come under this category. They start off with common processes but points of differentiation allows the product offering to explode into many end items. “A” plants will have deep bills of material with many layers. Component and sub-assemblies eventually end with few unique production items. Aerospace bodies, wings, engines and the final aircraft itself provide good examples.
The point is that the lean accounting movement is in danger of taking a concept like value streaming and forcing it into situations where it does not fit as it might in a lightweight assembly environment where dedication makes sense and is relatively cheap to accomplish
“T” plants are the modern day assembly operation. The “bar” represents the common components either bought out or made in house which can be put together in an almost infinitely large range of end items. I worked in AlliedSignal Turbochargers for many years and we were predominantly “T” orientated. And the point is that as you move from left to right on the diagram above you can plot the likelihood of being able to dedicate into value streams. It can often be achieved in a light assembly plant but a steel mill, a large forging or casting business, no, not desirable let alone feasible. Even in “A” plants where the final assembly is almost certainly arranged by stream, for example by type of aircraft, the further you go upstream in the bill of material the more you find manufacturing centres that feed all the different types of jet assembled with sub-assemblies or components, like panels. You are not going to lay down extra autoclaves or chemical milling equipment just because you make five different types of aircraft; one for each? And if we start to discuss service-based organisations like hospitals then the shared resources become even more critical and often dominant. There is a possibility of excluding a whole plethora of organisations that also need accounting assistance with this dogmatic approach. Maybe we should apply value streaming to the M6 motorway using type of vehicle? One M6 for cars, another M6 for trucks and a third for buses! The point is that the lean accounting movement is in danger of taking a concept like value streaming and forcing it into situations where it does not fit as it might in a lightweight assembly environment where dedication makes sense and is relatively cheap to accomplish. We certainly need to understand how to treat shared resources better but the solution is not always to double up to the point of dedication. Flow accounting believes that we need to reflect the current physical flow to the boundary walls of the organisation which is the only place where real money changes hands. This will reveal V, A or T. Record the potential delays and mismatches and this can often be traced back to shared resources. Dedication is but one option on how to improve the flow. The lean accounting concept of a maturity path arises because you undoubtedly find that not all resources can be packaged into dedicated
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value streams. So allocation becomes the countermeasure “in the interim”. You are likely to wait a long time if you accept the flow accounting VAT analysis. Of course allocation does not lessen the total expense, but it is comforting home territory to some accountants. Lean accounting wants to get rid of “wasteful transactions”. Who wouldn’t? Inventory recording, valuation and other associated transactions like work orders are often in their sights. The fundamental idea is that once the inventory is beneath a certain level, for example one month’s worth, there is no need to record it separately as raw material, work in progress or finished goods. You can simply expense it. Now I like the Gregorian calendar as much as the next person, but is this really sensible? Firstly, raw materials, work in progress and finished goods do three totally different jobs for manufacturing organisations and we need to understand how much we have of each in terms of time. Suggesting we can do away with the transactions that allow us to understand the different elements does not make common sense. Flow accounting wants to know all about inventory in its different forms: Because the work in progress and finished goods reveal how well the company is really using its capacity. Only capacity puts WIP and finished goods in place. Because, as Ohno said, overproduction is the worst form of waste and “earlies and lates” in stock reveal it. So in an effort to remove “wasteful transactions” we might lose these fantastic insights. Reducing the waste in an accounts department, whilst commendable, is not valid if the business as a whole suffers. There are some painfully naïve statement being made regarding capacity and the ability of the organisation to take on more business and to be fair this is not exclusive to lean
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accounting. Flow accounting is clear, when utilisation of constraint resources start to reach 80% to 85% you are approaching bottleneck territory. And if you continue to take on additional orders your delivery promise dates will start to deteriorate and lead times will begin to grow in an unpredictable manner. Flow accounting is completely linked to time-based capacity planning with the above levels of utilisation at the forefront. Unfortunately, lean accounting is reticent on the same subject and as part of the value stream organisation advocates dividing the cost of the value stream by the number of items it has produced or sold. The result of this is a different unit cost but still one that encourages you to take on more business with scant regards for time based capacity planning.
Organisations cannot exist in isolation from the market; any organisation regardless of size or orientation needs to meet the requirements of its customers
Unit cost thinking was a major contributory factor in getting us into this mess in the first place, and I can see little or nothing coming out of lean accounting which is flagging the issue of linking time and money closer together. And this is really unforgiveable because clearly the sell price is at least a tactical if not strategic decision and should not be left to unit cost thinking. So why have a unit cost? We do not need one if we are limiting ourselves to management accounting. Only the desire to retain consistency with Generally Accepted Accounting Practices (GAAP) and financial accounting is holding us back. Flow accounting wants good financial accounting to stay in the accounts department. We find GAAP generally unacceptable (GAAPGU). Management accounting practices offer wider opportunities to explore how to assist lean practitioners make more effective interventions.
S u mmary There is a historical precedent for dividing financial accounting from management accounting. In the same way that standard costing was applied long after the “model” had outlived its usefulness there is a danger of lean accounting “straight-jacketing” us into the wrong direction. The reservations expressed here are symptomatic of the lean movement as a whole. Trying to force tools and “models” which worked well in one environment onto others indiscriminately will ultimately fail and damage the reputation of lean as well as the organisation on the receiving end of it. We need a less prescriptive approach whilst retaining our desire to create and maintain and organise so that the flow of goods and services gets better to end customers.
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Integration: the way forward for supply chain
Shane Maher MBA shares with LMJ readers a research investigating the current thinking on supply chain integration by offering a case study of a leading orthopaedic manufacturer.
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Organisations cannot exist in isolation from the market; any organisation regardless of size or orientation needs to meet the requirements of its customers
ike John Darlington suggests, if we can shorten the length of time a product remains within the supply chain and ensure that the correct product is given to the customers at the end, then we shorten the time between delivery and payment. It is also recognised that the proper management of any SC will diminish risk and uncertainty and will also optimise the inventory level and process cycle time so that the organisations are able to satisfy the customer and make a profit. Recently, there has also been a move from a supply driven to a demand driven marketplace. As a result, previous differentiators such as manufacturing quality and local supply no longer apply.
A i m a n d object i ves
The basis for this article is to evaluate the current thinking on supply chain integration (SCI) and the implications and learnings for the medical device
industry by using an actual integration process at a medical device manufacturer and by performing a critical review of their implementation process. Organisations cannot exist in isolation from the market; any organisation regardless of size or orientation needs to meet the requirements of its customers. Supply of goods and services is the only point where the customer is willing to part with payment for the product or service. The
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I n te g rat i o n : t h e w ay for w ar d for s u pply c h a i n S h a n e M a h er
supply chain is the means by which the organisation gets the product or service to the customer.
Developme n t of i n te g rate d relat i o n s h i ps
In 2009, Bicheno and Holweg said: “The key trick to supply chain management is to consider the entire suppliers, manufacturing plants, and distribution tiers, and the aim for synergy: 2+2=5�.
As with any process, SCI is part process and part relationship, for integration to succeed there has to be recognition of the fact that the interaction of the different parties within that relationship is crucial to the outcome of that relationship. As we have seen already, the traditional methodology can be adversarial or dependency based. For supply chain to become integrated there has to be a move away from that adversarial- or dependency-based methodology.
Manufacturing, long seen as the basis of production within the medical device sector, has evolved into a worldwide, commodity management, low-cost base process. Due to the downsizing of the world itself it is now very easy to source product anywhere, and quality, which for a long period was seen as a differentiator, no longer applies.
F i rst steps
Any organisation that wants to commence its journey to SC integration must first understand its own supply chain. Very few organisations have mapped the complete supply chain and as a result have limited understanding of the complications within it. This lack of understanding frequently leads to losses within the system. As with any process review or change, the primary focus needs to be defining the current state. Without this mapping, organisations could be limited in the actual change taken, or focus resources in areas of minimal return. Once the mapping exercise has been completed, there will emerge a focal point around which the SC rotates. For the majority of organisations this focal point is the relationship between the manufacturing organisation and its suppliers. This relationship is usually managed by the purchasing/procurement departments within any organisation. This understanding is essential to ensure that de-coupling points for the chain are established. De-coupling points define the point at which the SC is driven by forecast value streams, the point at which the SC is driven by actual customer demand. These points in the SC are inventory locations that buffer against variation on the demand side on one side and variation in supply on the other. Failure to hold inventory in the correct location or quantity could result in stock outs or excess inventory.
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In early 2010, the integration process began with a big picture mapping exercise. This involved a number of different functions internally including planning, procurement, warehousing, logistics, incoming inspection, finance and quality
Trust is an integral part of building that new relationship, the importance of trust cannot be underestimated in any relationship. During the integration process a number of different points or stages must be clearly outlined.
M app i n g of s u pply c h a i n In early 2010, the integration process began with a big picture mapping exercise. This involved a number of different functions internally including planning, procurement, warehousing, logistics, incoming inspection, finance and quality. The initial mapping exercise was also targeted at the internal and external structures. They mapped the entire SC from tier 1 to the products leaving the manufacturing facility and arriving in the primary distribution centre. The results showed that the facility had 562 active suppliers across all categories. The team conducted a number of exercises as part of the mapping event and as support for the mapping event. The inputs to the mapping event and method of data gathering are outlined below. We can reduce the complexity by segregating the supplier base of 562 into three distinct categories:
Raw materials, including all packaging items as per the BOM; Consumable items, all controlled items used in the manufacturing process but not on the BOM; Services, this category included any outsourced influences on the SC from freight and logistics providers to custom brokerage services and internal warehousing activities.
The mapping exercise was led by the purchasing group and to aid the exercise a set of controlled questions was identified to ensure that the information gathered was consistent across the SC. Part of the
pr i n c i ples & p u rpose
answers required were provided by the procurement individual and the remainder was provided by the supplier. The information was then collated into a supplier matrix detailing answers to the questions by supplier. These questions included:
meeting with suppliers on new product introduction (NPI). These activities represent only 17% of the total time in procurement activities.
C o n cl u s i o n s from t h e mapp i n g process Prior to the mapping event there was a lack of understanding within both the SC group and the management team of the interaction between the different elements within the supply chain. There were a number of tangible benefits to conducting the exercise and the team working together with the other value streams on gathering the information:
Savings both generated and projected. This was to include price changes but separately “Continuous Improvement Projects� (CIPs); Risk Assessment rating based on current financial standing of the supplier from low, medium or high; Product supplied including the number of different SKUs and the batch size used; Lead time including the lead time at supplier, their tier one supplier, all external processing times if applicable and freight services; Current communication tools used including frequency of supplier audits and business reviews conducted by our organisation.
The results of the review when totaled show that the lead time of the total supply chain is 74 days, the manufacturing facility only accounting for 6% of it. The final part of the mapping activity was the assessment of the purchasing activity and the extent, if any, of relationship management. Each of the procurement professionals were required to keep a log of activities over a two-week period. This task was completed by utilising the outlook calendar system and categorising the different tasks completed on a daily basis. The only positive forward looking activity performed by the procurement group in conjunction with the suppliers is time
The results showed that the facility had 562 active suppliers across all categories. The team conducted a number of exercises as part of the mapping event and as support for the mapping event
It created a visible SC that previous to the exercise remained hidden. The team had a greater understanding of their actions on the total SC; It made the task of articulating the need for change easier for both the current SC group and the management teams at a higher level; It showed the lack of interaction between the supplier group and the procurement group, very little of the communication could be described as positively contributing to the SC; The transactional nature of the procurement groups activities and the lack of interaction with the suppliers; There is a high value on the total amount of inventory within the entire SC but the team have no visibility to the total inventory in the system.
C reat i n g t h e f u t u re state The process required one area of focus due to the fact that a single focus would reduce the risk of disjointing the process and prevent a lack of understanding of what was to be achieved.
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I n te g rat i o n : t h e w ay for w ar d for s u pply c h a i n S h a n e M a h er
The focus area identified was reducing the lead time of the entire SC from the current 74 days in 2010 to 20 days total in 2014. The reasoning behind the focus on lead time was to increase the responsiveness of the total SC to respond to the customer and as an enabler of moving the entire system from one of a push system to a pull system. The main focus of delivering the future state were identified as:
Creating a visible supply chain that could react to changes in demand; Create trust within the supplier base; Educate the SC group including the supplier base on how to improve; Reducing the amount of manual input required to change the flow of material; Eliminating the requirement for storage of material on site thus releasing the current floor space of 17,000 sq ft back to production; Standardising the work required to ensure consistency; Creation of systems to support the drive to 20 days by 2014.
Supply Chain integration framework Information view Tier 1 supplier
Tier 2 supplier
Manufacturer
Customers
Quality Product flow Logistics
Integrated process (VMI) Common metrics & measures (Lead time) Relationship based on trust Agreed strategy deployment Training & knowledge transfer Mapping & understanding
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End user
pr i n c i ples & p u rpose
M i ss i n g l i n ks
Once this levelling has been achieved the organisations need to ensure directional continuity by agreeing the strategy deployment process.
During the implementation process a number of factors appeared to be crucial to the success of the project, these components are covered in the current literature available as reasons for failure. The argument raised in this article is that the separate components must be addressed with a single end in mind or the process will descend into one of maximising individual links to the determent of the chain. The importance of understanding the flow of material through the chain and the interactions of the various components impacting flow cannot be assessed in isolation. Based on the learnings gained from the process, I have created a model to incorporate the buildings blocks of integration. The model differs from others currently available as its foundation is based firstly on gaining understanding through mapping, building the relationship through learning and knowledge transfer and agreeing a strategy deployment policy to deliver a relationship based on trust, with common metrics and measures of integrated process. The concentration is required to be on the flow of product through the entire SC with quality and logistics pivotal. Ensuring the quality of the product as it progresses through the chain is one of the central properties. Failure to have quality improvement at the core will result in an increase in the amplification within the SC caused by failure demand. The second core activity is a logistics service that is fully integrated into the SC. The provider must be part of the strategy and training programme. The information exchange needs to be a two way process up and down the chain. The process needs to be repeated to ensure continuous improvement of the integration process. The enablers or steps necessary for integration start with mapping and understanding leading to greater knowledge within the SC. At this point, a level of training is required to ensure common language and understanding.
These are the building blocks of a relationship based on trust and understanding. This process is further enforced by having a common set of metrics and measures; this process reduces the risk of slippage in understanding. The final building block is the usage of integrated process such as vendor management inventory (VMI). The VMI programme enables risk equalisation latterly along the supply line.
From a transactional lean perspective, the introduction of the VMI programme has made a considerable difference to the amount of time spent by procurement individuals on tactical procurement activities
From a transactional lean perspective, the introduction of the VMI programme has made a considerable difference to the amount of time spent by procurement individuals on tactical procurement activities. In the initial mapping exercise it was identified that 55% of the time available to professionals was spent monitoring inventory and placing or altering PO’s. On any supplier using the VMI programme this has reduced to 5%. This created a capacity within the procurement group. I suggest that there is a number of contributing factors to the low utilisation of integration as a business model. SCI is an all encompassing process that requires a lot of effort and management over a long period of time. The integration process that was undertaken as part of this case study is nearly two years in progress and during that time there have been a number of successes. The biggest success to date has been the relationships and understandings created with the supply base that was previously based on a more adversarial relationship. There is a lot more work required to get the organisation and SC to full integration but in the opinion of the researcher the building blocks are in place. Prior to commencing a similar journey any organisation willing to commence the process will need to have an understanding of the commitment involved. The results can be delivered but there are no shortcuts to achieving any level of integration.
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IT’S A LEAN WORLD Net h erla n d s In partnership with:
René Aernoudts is the founder and director of the Lean Management Instituut and executive committee member of the Lean Global Network with Dan Jones, John Shook and José Ferro. In this article he introduces LMJ’s special on lean in the Netherlands.
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ean in the Netherlands has rapidly been popularised in the last decade. It started off in traditional industries, but has now spread in very different areas, from banking and insurance companies to hospitals and government agencies. Not only mass manufacturers, large service providers and administration agencies, but also the engineered to order (like turbo generators) and luxury goods industries (like luxury yachts) have been introduced to lean. More and more companies have started a lean journey, not only door-to-door but also in full supply chains, with multiple organisations working on full value streams (like in construction). Good initiatives are running in hospitals like the Erasmus Medical Centre and government agencies like the Land Registration Office (Kadaster) and Rijkswaterstaat (Infrastructure). Now lean has shown it’s applicable to
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Unstoppable primary education as well, with great benefits to be reaped by children, teachers and school managers. At the Lean Management Instituut we support lean practitioners but also CEOs and leaders in designing and running their own lean journeys, learning from peers in other organisations. Many consultancy agencies offer lean services, and more and more universities and business schools now offer their students educational programmes on lean. Considering all this, the future of lean in the Netherlands looks promising.
there are positive, strong examples.
At the recently organised yearly Lean Management Summit (this year at its 8th edition) we received lots of positive feedback, and we’ve heard many inspiring stories and case studies. With guest keynotes Dan Jones, Michael Ballé and Sammy Obara, and many practical examples of applications, the event showed that lean has been embraced by many organisations.
More and more share their knowledge, networks have been evolving and even ministers are aware of the power of lean and are not only supporting it, but demanding that their agencies use it to provide their customers with a better service and experience. An interesting example was a visit of 140 hospital employees and managers to one of the factories of AkzoNobel, a paint manufacturer, where they saw that you can learn a lot from another industry, even though they didn’t think this was possible when the day visit started.
When we look at the level of lean there is still a long way to go though. Like many other countries have learned, many start off choosing a tool approach, which often does not translate into sustainable results. At the same time,
Lean is here to stay, although our mission at the Instituut is not over yet. In fact it just started: there are lots of opportunities out there.
it’s a lea n w orl d
Genchi gembutsu, with children achieved with children in elementary schools: they are very enthusiastic, and they love to celebrate results and sort issues. Under the programme, which involves about 100 schools at the moment, students are taught kaizen and PDCA, and they are encouraged to set targets for the classroom and actively work to achieve results (in reading, maths and languages, but also in the way they work together). Individual results are linked to class results, which in turn can be linked to school districts results - which offers school managers an opportunity to benchmark themselves against best practice and learn. Children are empowered: among other things, they lead parents-teachers meetings. It’s a bottom up approach that uses children’s enthusiasm and drive to help leadership establish a mission and a vision from the top down, and translate them into day-to-day actions. No-one escapes CI: the systematic alignment of all levels is key.
Klasse.pro promotes the adoption of continuous improvement in elementary schools, with the goal to enhance the quality of education. Dewi Lou and Marijke Broer-Bos explain why lean is not just for higher education.
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chools constantly have to deal with the quality of the education they provide, but this isn’t the only reason why promoting a culture of continuous improvement in elementary schools is so valuable. The world is changing rapidly, and today’s children will be likely to have 10 to 15 jobs in their lives: a new set of skills and principles must be developed, one that includes critical thinking, cooperation, social responsibility, problem solving and creativity. It’s life-long learning, of which education is the main enabler. We see an opportunity to help Holland remain an important and competitive country, while making a long term investment into Dutch society. It is somehow surreal to see the great results that can be
Visual boards are used to set targets, and weekly assessments look at progress. There are individual and collective goals, but also social standards and ground rules on behaviour that must be respected: children want to know the scores, and some of them don’t perform well, but because targets are also linked to behavioural rules nobody is picked on and individual errors are corrected by the group as a whole. Students know who does well and who doesn’t, and they talk about it. Everything is clear, and this makes for a nice learning environment. Now, if they don’t see the boards in the next class they go to, they ask for them. We recently spoke with a little girl whose results weren’t as good as those of the rest of the class. She told us: “If my results improve a bit, the results of the class will improve too.” The real challenge is developing the skills of teachers and school leaders, to have them teach less and learn more. To many of them, it is a shock, as all they have been doing througout their careers is teaching - letting them visiting businesses and creating a professional learning community among different classes and schools, for example, could help making the case for a more heartfelt adoption of continuous improvement principles, whose ultimate goal is a better society.
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IT’S
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The one to watch Philip Uythoven, manager of process development, supply chain, at Philip Morris Holland BV, talks about how the company managed to move from the mere use of lean tools to creating a culture of continuous improvement.
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ith an output of 80 billion cigarettes produced in a year, Philip Morris Holland is faced with unique challenges. Customers often demand new packaging and filters, for example, and the company soon realised it needed to be faster at changing its product portfolio. The affiliate needed to change from big to better and from large to lean. This is supported by the strategy to become the fastest improving factory within Philip Morris International. Philip Morris Holland’s lean journey started in 2009, when the global company launched the OPEN programme, Operations Performance and Engagement model, based upon two pillars: Processes and People & Organisation. In the Processes pillar basic lean tools were introduced, including 5S, 7 wastes recognition and standardised work. Each affiliate adopted the OPEN programme with its own approach to change - to account for differences in local culture. In Bergen op Zoom a group of managers and engineers was trained using the train the trainer concept, and soon all 1,400 employees across the business, from
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manufacturing to HR, had received the same basic lean education. In 2010, the central PMI operations centre in cooperation with the affiliates selected “13 common main challenges” (split into Processes and People) to help identify improvement opportunities in every area of the business. Diagnostic Week was used to look for these “symptoms” and analyse processes, through value stream mapping and A3s. PMH volunteered to have the pilot of the Diagnostic Week approach and this became the tipping point. PMH identified four focus areas and started looking at the whole value stream. It soon became clear a new leadership model was needed before a continuous improvement model could be created: managers and supervisors went through a one week training programme, before entering the employee engagement programme where every team spends a day to discover the new continuous improvement mindset. This year, building on the ability of workforce and leadership to work together, PMH will embark on their first experiments with flow and kanbans/supermarkets. While the main focus is now on manufacturing, anybody from any business area can still “pull” expertise to implement lean projects. The mindset changed dramatically, with focused improvement and set priorities now on Philip Morris Holland’s agenda. Employees were used to big projects, now they are after small improvements instead. With people more empowered and engaged in kaizen, managers can concentrate on facilitating, going to the gemba, checking on standards and coaching the people. Where people and culture come together with lean manufacturing processes, results will follow in becoming the fastest improving factory, delivering top-quality products according to customer demand.
it’s a lea n w orl d
Insuring change Sybrand Hoekstra, master black belt lean and six sigma, is responsible for lean development and training at insurance company REAAL. Here he talks about how six sigma couldn’t change the firm’s way of working, and how lean made the difference.
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ix sigma didn’t work for us. We did it for two years, starting in 2007, but it didn’t deliver. Management thought of it as a nice “solution” to our problems, but did not believe in it. I already was a Master Black Belt when I read The Toyota Way. I immediately thought that this was what we were looking for, although there wasn’t much information on lean in our sector, as opposed to so much on six sigma. Our group became a lean team. We successfully led small projects concentrating on what it meant for people and management to change the system, which at that time was heavily based on a command and control approach. This time, management really bought into the initiative and adopted the lean philosophy (the new head of the company had seen lean in action in Japan). Now we have 21 internal consultants within the lean team. The approach we took looks at the entire value stream, from data entry to acceptance. We coach managers and employees, and we have KPIs to assess the effectiveness of meetings, all to ensure that we are achieving our goals and those of our clients. Our plans start from the client and go backwards through the value chain, using PDCA.
We have flipped the pyramid, putting people on top, and support is now building up quickly. Once you get 20% of the people on board, it becomes unstoppable
This is transforming our management model, from top down to bottom up. Our leaders are beginning to believe in people and spreadsheets at the same time. We have flipped the pyramid, putting people on top, and support is now building up quickly. Once you get 20% of the people on board, it becomes unstoppable. With six new people joining the team this year, it is now clear than we don’t need to push anymore. People are coming to us now and we train and advise them. They are coming from all over REAAL, we are becoming one company. We are teaching people to become lean believers, and to work on our projects with commitment. Within three projects, they become fully independent: we from the team are in the lead for the first one, we supervise them as they do the second one, and they are able to deliver the third one on their own. Lean has to be of the people, it doesn’t have to stay with us. When more people are needed in the projects next year, the organisation will be able to deliver without hiring extra workers. Transforming people who have worked and thought in a certain way for a long time is incredibly difficult, but we are doing it throughout the company. We started with a pilot project, and then extended the principles to the entire business. Our motto is: LEAN=DO!
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IT’S
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Net h erla n d s
Costs down, quality up from our customers. A survey among employees showed also points of improvement concerning the management. One of the main problems was lack of information and communication. Customer requirements weren’t always met. They were not communicated. The whole process was very complex, and we simply had to change the way we did things at Naturelle. A newly formed management team determined lean would be the way to do it. We started to monitor our processes: we analysed customer demand, and established the lead times and quality specifications we needed to respect. This way we were provided with the necessary information at any given time, and therefore we could start to plan more accurately. At the same time, I concentrated on people on the shop floor, who didn’t participate at first. They were never invited to do so. I asked them what was preventing them from performing their job in the most efficient way. I managed to convince some employees that the new system was better for everybody, and it spread. To sustain the kaizens we introduced daily performance board meetings. Lean encourages you to think, not just to cut costs.
The Greenery is an international fruit and vegetable supplier. All year round, it provides a full, day-fresh range of fruit, vegetables, mushrooms and potatoes to its clients: supermarket chains, wholesalers, caterers and the processing industry. Donny van Dam, plant manager at organic division Naturelle, shares with LMJ the company’s lean journey.
In two years we have dramatically changed the way we work, by reducing overtime and lead times; due to the creation of flow we process ginger 35% more quickly than before, for example. Besides, we introduced a pull system and kanbans are used between internal processes. The layout of our facility also changed. We used to have one storage room, with cold air coming in from one side and warm air from the other, which isn’t ideal to store soft goods. We divided it into four refrigerators with different temperatures, to best keep fruit and vegetables and ensure quality while adding more than 25% extra pallet storage spaces. Because of this additional capacity and the reduction of packed inventory by 70% we didn’t need to rent additional warehouse space anymore. These changes led to substantial cost savings and improved quality.
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Our producers are the first link in the chain, thus communication with them is critical. Our head of quality actively engages with them, helping them when they need support and making sure customer requirements are as clear to them as they are to us. We acknowledge the importance of seeing the whole value stream: for example, we ask our producers to use the boxes the customer requires, so we won’t have to repack.
aturelle works with a cooperative of 30 Dutch organic producers. We supply around 80 customers, mainly based in the Netherlands, but also in Germany, Belgium, France, England and Eastern Europe. Supermarkets want a complete range of products all year round, therefore we have to import from other areas. Our primary goal, however, is to sustain producers in the Netherlands. Transportation within our supply chain is conducted mostly by our own road transportation company. On a busy day there are over 200 lorries of The Greenery on the streets. Until recently, our performance at Naturelle was challenged to improve: we had logistics and quality issues, and we were receiving complaints
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Introducing lean already paid off substantially: we reduced our operational costs over 2011 by € 1m, an overall improvement of more than 19%.
it’s a lea n w orl d
Incremental improvements Freek Dekker, manager of the radiotherapy department at Erasmus MC, the largest university medical centre in the Netherlands, talks about how lean is used to enhance patient care, and how it was a visit to a paint manufacturer to finally get management on board.
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hree years ago, in the radiation oncology department, only eight linear accelerators out of ten were working, while the entry waiting list increased. We needed to find a way to staff them with less people. We had heard about lean, but simply forcing a golden standard upon our employees wasn’t going to work. We needed a different method. After I took the lean practitioner course at the Lean Management Instituut, we realised, through training and kaizen activities, that only 50% of our time was used to actually add value. There were people sitting around and waiting to perform their job, and a sense of urgency to change quickly started to spread in the department. The real challenge for us was to keep focus on our interaction with patients. We simulated our radiation process with less operators by removing the waste of waiting time. But we soon found out that if we just did so, we were then pushing patients through the process and giving them and ourselves a negative experience. So we had to find other ways to cut the waste but not get that in the way of compassionate care. We are introducing a lot of small incremental improvements. We finally managed to reduce the number of operators needed for each machine, and all ten accelerators are now working. We are constantly building on small improvements, teaching people how to creatively approach a problem. A recent example is a small poka-yoke devised after an incident involving a gantry crashing into a fixture and causing a treatment couch to break. A meeting of the lean team resulted in an inexpensive,
quick solution – a small catch – that has since been applied to all the accelerators. We started from the bottom up, but we eventually ensured full support from management when 150 people from the department visited the manufacturing site of paints and coatings specialist AkzoNobel. We saw 5S, kanban and how the company managed to increase output without extra people or big investment - which is what we were striving for. The visit really opened the eyes of our managers, and helped them to make the leap of faith and believe that we could actually improve patient experience through reducing lead time. We developed a management A3 during a full day with the management team, and we held our first Improvement Week in October: we measured our lead time for patients with prostate cancer (from the diagnosis to the first day of treatment). It was 35 days and we decided to work to take it down to 10 days. The kaizen week is the means through which we deliver our project with our team, which now includes five doctors (it used to be only technicians). Our result for prostate cancer stopped at 15 days, because in the meantime a new technology was introduced: gold markers placed around the prostate, which can help track and treat the tumor more precisely but that requires another week to make the CT scan. So we have come to the point we are doing both: small incremental kaizen and cutting lead time through weeklong events.
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Written by John Bicheno
The Fifth Column
Measures and assessment This is surely one of the most seductive concepts not only for lean but for management in general. Here follow a few questions:
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THE FIFTH COLUMN
The ‘Balance Scorecard’ is a widely used framework, reflecting future activities (like R&D), marketing and customer, operations, and money. Does your measurement system cover these? Lean is supposed to be ‘end-toend’. Do you have measures that cover end-to-end performance? Recall Ohno’s words: ‘All we are trying to do is to reduce the time from order to cash.’ Is a distinction made between measures and targets? A measure should seek to understand the system, but a target – particularly a stretch target linked to rewards – may encourage (let us call it) ‘measurement creativity’. Deming wrote about the 94/6 rule, being that the ‘system’ is the cause of most problems, whereas people are directly responsible in far less instances. So is the system being measured or the person? From this, is measurement used to blame or punish? (One of Deming’s 14 points is ‘Drive out fear.’)
Does the measure fundamentally set out to reflect well on the management or to get to the truth? (In a recent experience, OTIF was reported in the high 90 percentages based on revised delivery dates, but when based on original delivery promises was in the mid 30s.) Measures are waste if not properly used. Have you done a 5S on your measures? From this, when was the last time your measures were reviewed?
Do you have any ‘lead’ measures, or are they all ‘lag’? (Two recent experiences showed 100% of measures were lag.) Richard Schonberger has written about the time horizon for lean measures: short, medium and long. Responsibility should reflect this. An inappropriate time horizon can lead to dysfunctional behaviour, such as cutting training costs or ‘letting go’ of experienced staff.
Since every measure is subject to variation, how much variation is ‘common cause’. Where a reward is linked to a target, are you sure that the reward is triggered by truly superior performance rather than by common cause variation or external luck?
How are measures interpreted? As a learning opportunity or as a witch hunt of excuses to explain variances? Only the former is in line with PDCA.
Following from the last point, how are targets set? For example, if you operate across a few regions, do you project an x% growth target for each based on current performance? But consider: is current performance at the high or low end of natural variation?
Finally, for lean, do you have a good strategy deployment methodology, including participation (‘catchball’) at all levels and feedback that reviews operations, customer changes, and the measurement system itself.
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S P E C I A L F E A T U R E C r i t i cal I n i t i at i ve S u pport
Grey spaces are a manifestation of uncertainty which results in the incorrect action or no action at all. Critical Initiative Support (CIS) is an effective approach to eliminate grey spaces quickly and solve wicked problems in large-scale, complex operations. In fact, the true power of CIS is that it takes direct aim at eliminating or minimising these grey spaces. CIS is an approach to implement improvements to high priority aspects of an operation in a relatively short period of time – so a focus on change and execution. There is often a tendency to “admire” a problem via analysis as opposed to actually fixing it. CIS employs analysis, but is heavily biased towards action and tangible improvements. The approach described below was used in Afghanistan with a family of vehicles (FoVs) in use by several military service branches.
Critical Initiative Support: improving operations in Afghanistan Wicked problems and grey spaces Tim Clancy and Adam Sommers of IBM Global Business Services explain how an approach called Critical Initiative Support (CIS) can help bring change about in difficult situations where results are needed quickly.
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eographic dispersion, functional silos, leadership turnover, limited time and disparate perspectives all contribute to the creation of “wicked problems” – obstacles in the dynamic environments that mission focused organisations operate in. These types of problems are difficult to diagnose and lead to operational “grey spaces.” These are simply aspects of a task where the process, ownership, or generally accepted business rules seem to break down.
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The forward deployed supply network for the FoVs was challenged with reducing the cycle time of its Mission Essential Tasks (METs). In this operation, METs included items such as battle damage repair, capability insertions, and general sustainment. CIS was put to the test in Afghanistan, where on top of organisational and vehicle complexity, the dynamics of a war zone created significant operational grey spaces.
C r i t i cal I n i t i at i ve S u pport overv i e w
CIS is an approach to address high priority operational requirements. Whether dealing with production, maintenance, or a back-office service, needs can typically be distilled down to a need for compressed cycle time, higher output volume, right-sized inventory, or an increase in quality/effectiveness. The requirement is “critical” in that it can be clearly linked back to the organisation’s overall strategic goals and that it is something that requires immediate implementation. The bias for CIS is towards achieving tangible results with a relatively low-tech approach. The approach to CIS is to create a structure consisting of three elements – a core team, a sustainment team, and a senior leadership group. The core team engages the operation in a hands-on,
SPECIAL FEATURE
efficient manner to quickly identify and implement the fix; the sustainment team supports implementation during the core team’s absence, and the steering group reinforces performance goals and conducts reviews. This structure is highly effective at coverage since the core team can rotate through key nodes of an operation’s network while the sustainment team can follow-up from behind to facilitate ongoing implementation. Improving the operation is a handson endeavor which draws upon the best suited methodology, rather than subscribing to just one. For example, basic lean techniques may be required to eliminate waste/improve flow, but foundational industrial-engineering techniques may be used to standardise procedures. This is a key feature of CIS because the implication here is that, in some instances, effective fixes can be executed simply by using common sense. This maximises the arsenal of tools available and avoids the trap of force-fitting a methodology into an incongruous situation. The nature of CIS is to solve high priority operational problems in a relatively short time period. Therefore, solution sets are governed by a few parameters: On-site work – No solutions from afar. The core and sustainment teams take a boots-on-the-ground approach. Working in conjunction with site leadership and the resources actually doing the work, solutions are quickly developed. Rapid – Improvements at least partially realised before the core team leaves and fully realised according to a defined schedule. The sustainment team provides guidance after the initial work, as well as a window back to the senior leadership group. Labor – Solutions cannot add headcount in an attempt to overwhelm a problem. The essence of CIS is to work with the resources in place to develop highly implementable solutions and not to throw resources at the problem.
Capital – Avoid capital expenditures – work within existing facility footprint, no new capital equipment. As with labor, working with the resources in place tends to lead to more rapid and actionable solutions. Training – By co-developing solutions with people actually doing the work, training needs are minimised. A collateral benefit is the problem solving mentality that is instilled at the site. Good solutions help drive a continuous improvement culture which can yield even bigger improvements over time. In short, solutions are results-driven innovations that work within existing assets and resources to improve the operation on a rapid timeline. Gathering data that might point to longer-term engineered solutions (additional infrastructure) is a secondary goal, and then only if there is a defined path that would benefit from the effort.
E l i m i n at i n g t h e g rey spaces
Described earlier, grey spaces are simply opportunities for work not to be accomplished or not get done the right way. For example, the involvement of numerous OEMs and service providers resulted in no singular ownership of inventory or tool management. The supply shop managed inventory prior to it being dispatched to the sustainment bays; each contractor then managed the inventory in the bays, and much inventory fell into a grey space, where full accountability was unclear as to who owned managing and maintaining the inventory. This operational grey space, in turn, resulted in wasted capacity, delays in locating parts, and a lack of overall flow – all stemming from clutter and all contributing to longer cycle times. Another example was in the allocation of bay spaces where vehicles could be worked on. Because different contractors and OEMs were often contracted to perform a specific functional task, bay assignments were initially made on a contractor/OEM basis – vacancies could be a problem. This is similar to the classic Hospital Bed simulation problem of lean. With a varying rate of incoming patients with unknown needs, how best to manage available hospital beds
within which they can have healthcare delivered? Except in this case it was a combat vehicle and the hospital bed was a maintenance bay and a team of workers. Key to addressing operational seams and grey spaces is change management to ensure buy-in of the proposed solution. To achieve buy-in, Critical Initiative Support efforts take a number of measures: Pre-core team effort – skeletal data collection/analysis is conducted and shared with the operation in question. Review of goals, approach, and resources required is conducted with the operation to “prepare the battlefield” and eliminate non-starters.
Improving the operation is a hands-on endeavor which draws upon the best suited methodology, rather than subscribing to just one Sustainment team – the purpose of this team is to reinforce solutions, aid in implementation, solve issues and serve as continuity during the core team’s absence. Enterprise collaboration – besides extensive collaboration with on-site stakeholders, the core team includes a resource that remains in the continental United States. This role provides a hardwired connection into the enterprise support functions for follow-up, communications, and awareness around changing landscapes. Commander selects courses of actions and provides guidance – Involving the site commander in selecting the final courses of actions (COAs) and issuing it as commander’s guidance or intent is critical for change management; like an executive wall walk at the end of a kaizen.
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S P E C I A L F E A T U R E C r i t i cal I n i t i at i ve S u pport
Figure 1: How time on task and time to task notionally affect output based on TDA authorisation
TDA authorisation 50
Staff 45
FTE 22.5
x /
Vacant slots 5
Time on task 50%
Time to task 2 FTEs per unit
= = =
Staff 45
Full time equivalent (FTE) 22.5
Units produced 11.25
Actionable measurement – most operations over-generate reports or data. The team seeks to eliminate nonvalue added reporting and develop a minimal set of actionable measures that directly supports the operation. Senior stakeholders are engaged on site and via the steering group to further ensure commitment. The team develops a lean six sigma styled charter that clearly identifies the problem, scope/ boundaries, anticipated benefits, and the schedule to reinforce what needs to be done.
S electe d C I S met h o d s :
CIS has to be adaptable to a host of environments and practitioners must pull from a wide body of knowledge, using methods ranging from lean and six sigma to complex systems theory, theory of constraints simulation and modeling - all may be appropriate to a specific problem at hand. What’s important is not trying to use the entire toolbox - but picking the right tool for the job. A selection of methods from the lean body of work and their application follows. In a resource-constrained environment, additional labor is not readily available. Time on task and time to task analysis are two lean-based methods of CIS to inform leaders how their staff uses
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The approach to CIS is to create a structure consisting of three elements – a core team, a sustainment team, and a senior leadership group
the time available to conduct mission support and mission delivery. Time on task – The percentage of all available time that is focused on true value-added work, as opposed to nonvalue added work. Time to task – The amount of full-time equivalent (FTE) time it takes to produce each unit of value-added work. Improving output is a function of maximising time on task while minimising the time to task of valueadded work. The effect of increasing time on task is similar to adding headcount, and reducing time to task increases the output of every FTE. This is illustrated in Figure 1. Without understanding the two factors, simply adding more headcount will not result in an improved process. Improving time on task begins with identifying 8 wastes and conducting accelerator drills. The 8 wastes of lean are traditional sources of non-value added work and activity. Reducing their impact serves to increase time on task. Accelerator drills are exercises that aim to reduce the time to task on a specified unit of value-added work. For example, if it’s value-add to strip battle damaged armor in 10 hours, being able to accomplish the same task in four hours, without sacrificing quality, will result in increased throughput. We found that by combining time on task and time to task assessments, as well as on-site improvements aiming to either increase time on task or reduce time to task were very simple and effective to implement in an austere environment. Our approaches are summarised in Table 1. Demand leveling through standard work an additional approach once assessments and improvements of time on task and time to task were ongoing is to look at the pacing and rhythm of work assignments, and how components of standard work could be developed to smooth the flow of the process. For example, every combat vehicle that arrives at the maintenance facility will have a unique collection of tasks. Each sub-task however can be standardised to a collection of material requirements,
SPECIAL FEATURE
labor, and tools for that sub-task. Even if 100% of the overall task cannot be comprised of standard work sub-tasks, the Pareto rule applies. Leveraging the 80/20 rule to identify which sub-tasks to create into standard work first can result in a significant impact to reducing time to task and increasing time on task. Demand leveling further identifies the different kinds of MET based on difficulty, categorise them by the time to task of the workload, and balancing the demand level so that a consistent steady flow of outputs is provided as it is needed when it is needed. Demand leveled systems are more flexible to changing needs and more productive by mixing “easy” and “hard” work in a Table 1: Time on task and time to task 8 wastes physical and virtual that reduce time on task
Steps to accelerator drill to reduce time to task
Overproduction - Output of products or service beyond what is needed for immediate use.
Observe – What steps are needed to complete a VA task.
Transportation - Unnecessary movement of materials, products or information.
Split – Divide the process into moving/stopping steps and internal/ external steps. “Moving Steps”: What can be done without stopping the process. Example: Getting fast food and eating it while driving – trip continues “Stopping Steps”: What can be done only when the process is stopped Example: Eating at a sit down restaurant – trip stops “Internal Steps”: Work done during the process Example: Sharpen the knives just prior to turkey carving while everyone waits “External Steps”: Work done outside the process Example: Sharpen the knives the night before so no one needs to wait prior to carving
Motion – Excessive movement of a worker to perform the work or obtain information to proceed on the work. Inventory – The accumulation of inventory – either physical assets, work in process or knowledge centers that is idle, underutilised or obsolete. Waiting – Any delay between when one process step ends and the next one begins where no work is being done.
Defects – Any aspect of a service that does not conform to customer needs.
Convert, simplify and overlap Convert stopping activities to moving ones and internal to external. Internal activities that cannot be converted should be simplified. Make activities concurrent or overlapping rather than sequential whenever possible.
Improper utilisation – The expense of having the wrong person perform a specified task (over skilled or under skilled) and/or not having the right tools for the job.
Test and document – Use time trials to test new process, note where it works and where it doesn’t, tweak as necessary. Aim for a 30-50% reduction in cycle time for each accelerator drill.
Mind – The expense incurred by not having all heads involved in solving a problem.
Repeat – Repeat accelerator drills to continue reducing time to task at each iteration.
practical way that doesn’t leave all the “hard” work to be done at the same time. Flexibility is important in an expeditionary environment where customer demand cannot always be forecasted accurately and the enemy gets a vote. Kaizen workouts or rapid improvement events – Bringing CIS methods together in a short period of time, with no time or mandate to train, and with a goal of actually improving a pain point is difficult. However by leveraging kaizen or rapid improvement event (RIE) approaches, this can be accomplished. This is why having expeditionary resources is key – the work cannot be done remotely by a solution team in the rear. Like at any gemba, the team needs to travel to where the work is, joining workers to create the solutions. This further aids in change management, as the workers helped to create the solution and presented them as courses of actions to the site commander, when the commander selects a course of action and confirms it through command guidance, thus validating the effort.
Because different contractors and OEMs were often contracted to perform a specific functional task, bay assignments were initially made on a contractor/OEM basis – vacancies could be a problem B ottom l i n e CIS is a practical approach to improving operations, especially when there are high priorities facing a tight timeline. The approach is proven in theatre operations. It uses a mixture of coordinated small teams, best-of-breed methodologies as needed, and a hands-on philosophy to create tangible improvements. The low-tech, high-touch nature of Critical Initiative Support is ideally suited to the austere conditions found in Afghanistan. However, it is a powerful approach for any operation looking for visible, measurable results.
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L E A N DI A R Y S afety matters most
Safety matters most SCGM’s CEO, Sandra Cadjenovic, gives us an account of what the company has accomplished on the field in the last month.
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e have previously said:”We have identified some initial resistance. People fill in the charts when they realise they are essential, but do it irregularly; they mark the stoppages, but don’t write why the stoppages occurred.” We did realise that this was our biggest problem concerning OEE data collecting – workers have been trained on WHAT to do, WHEN to do it, HOW to do it, but the idea of WHY they are doing it was a mystery in their minds. It was upon us to guide them. Therefore, people got detailed explanation on why to identify the losses is so important. WHY? To identify losses means to know where the recurring problem is. WHY? If we know where the problem is, we can thoroughly analyse it. WHY? If we analyse it, we will be able to define countermeasures.
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WHY? Countermeasures will attack the problem and decrease/eliminate it. WHY? Decrease the losses = increase the profit = everybody in the company benefits. Among the results, we received excellent feedback from people and no more unidentified losses in the charts. The main losses have been identified: long stops due to internal tool change time. Therefore, we made a video and we will analyse it together with the operators. Four more people will join the SCGM family: they will be trained to give the support to, for the moment, only three colleagues taking care of SMED. Now, a clear picture with real numbers stands on each machine (as shown in the picture) and, apart from our lean expert who is giving us great support, we expect help from the operators in accomplishing
LEAN DI A R Y
STEPS 1
INITIAL SITUATION ANALYSIS
ACTIVITIES
TOOLS
WHEN
WHO
status
Introduction to 5 Steps of the Safety
Presentation Ppt
15-Apr
Jelena P.
P
Creation of the Safety Team
Safety Board, meetings, minutes
28-Mar
Dragana
P
Description of current situation
Safety Board
15-Apr
Sandra
P
Gap analysis in documentation
Check list
30-Apr
Dragana
P
Gap analysis in the workplaces
Check list
30-Apr
Dragana
P
Accident mapping
Heinrich pyramid layout, body parts, green cross
30-Apr
Jelena S.
P
Risk mapping
Heinrich pyramid layout, body parts, green cross
30-Apr
Jelena S.
P
Summary of collected data
Chart on the Safety Board
30-Apr
Sandra
P
Identification of Key Safety Indicators (KSIs)
Accident notices, graphics, Board
15-May
Dragana
P
Establish operational objectives
Safety Board
15-May
Dragana
P
Establish profit objectives
Safety Board
30-May
Dragana
P
our next tasks. After all, they are our best consultants when it comes to the shop floor.
Dragana TEAM LEADER
5S Recently we put a lot of effort into deploying 5S on the shop floor, which was rewarded during a visit by an important and highly regarded customer of ours. We received positive, motivating and highly encouraging comments. It was proof that we are heading in the right direction; a tailwind for us to speed up, improve and sustain what we are doing.
Sandra OFFICES
Danijela ASSEMBLY
Jelena MOLDING
Dusan TOOLSHOP
SAFETY During our last visit to SCGM, we had an opportunity to see the scheme of the house we are embarking to build. Foundation made of continuous improvement and people – check. Next step is to start making bricks and add them to pillars. The first pillar in a row of eight is safety, health and environment. Keeping their employees safe and healthy in a non-hazardous environment is what the steering committee recognises as the most important and must-take-careof part. Yes, one would think that it is a common thing in every company to ensure workers’ safety, and that we were merely “re-inventing the wheel”. What makes the huge difference is that this is safety according to lean. What does it mean? It implies having the step-by-step organised structure, which consists of
three phases and five steps:
realising what the current situation is. Thus, our starting point is Actual Situation Analysis.
1 REACTIVE Actual situation analysis; Elimination losses in operational flow; Evaluation and standardisation of identified solutions; 2 PREVENTIVE 3 PROACTIVE
People rolled up their sleeves and got to work, creating the masterplan for the first safety brick, with the assistance from the consultant. You can see the outcome in the figure.
As you can see, the Reactive Phase is the first one, divided into three steps. One cannot make improvements without
It is upon the team to analyse what the risk- and accident-prone places are and mark them in the layout of the company; to make a gap analysis, which would show via graphs where we are now and the gap we need to overcome in order to reach the goal,
Apart from the masterplan, a safety-building team was created. There is one pillar leader, and four other people, each chosen from different areas: offices, assembly, molding, tool shop, with the aim to have the whole company covered.
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L E A N DI A R Y S afety matters most
according to the safety standards needed; to identify KSIs and direct us towards accomplishing them; to hold meetings in order to follow up the activities and develop the action plan based on the results.
There are things to do, people responsible for doing them, and a deadline by which assignments have to be executed. In the next article you will have a full report on our next activities. Till then, stay (lean) with us! BK 2500/800
Losses Percent of equipment effectiveness
Long stops Material problems Stoppage due to tools Engel
Losses Percent of equipment effectiveness
Long stops Stoppage due to tools Superior force TM 1000/350
Losses Percent of equipment effectiveness
Machine breakdown Long stops Stoppage due to tools
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LMJ IN C O N F E R E N C E
in conference LEAN MANAGEMENT SUMMIT Amsterdam; March 19-21
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ith so many “lean events” becoming a hunting ground for vendors, it was refreshing to attend a summit offering information-rich and case study-based sessions that did not come with a sales pitch at the end. The Lean Management Instituut (the affiliate of the Lean Global Network in the Netherlands) has done a wonderful job in organising these three days of workshops, presentations and networking, which brought together the Dutch lean community and proved that there are lessons to be learned from companies in any sector. I could not attend all the sessions of course - my Dutch is a bit rusty - but I had a chance to speak to some of the companies that presented their stories to a 130-strong audience gathered in the conference rooms of the Dorint Hotel, near the busy Schiphol airport. Their stories were inspiring, and told with incredible passion. Check out our It’s a lean world special on the Netherlands (page 30) to read about the lean journey of companies like Erasmus MC, the country’s largest university hospital; insurance company Reaal; and Klasse.pro, whose project to bring continuous improvement into elementary schools is of great interest, especially when you think that most attempts to adopt lean in education are limited to universities. After hosting an intimate and thought-provoking session of Sensei Coaching with René Aernoudts, president of the Instituut (about 20 attendees sat in a semi-circle around the stage and discussed their
companies’ problems with the coaches), Professor Daniel T Jones held an insightful presentation on seeing the whole value stream. This offered examples like Tesco’s (and its aim to guarantee 100% product availability at any time), Toyota’s (whose model of supply Tesco successfully followed and applied to its own characteristics) and Hugo Boss’ in Turkey. Mr Jones said that the future will see regional supply chains, while warning: “You get the supply chain you deserve, through the information you send it.” Michael Ballé, author of The Lean Manager, promised to deliver a presentation on lean in seven and a half slides (which is, in itself, pretty lean): he reminded the audience that we shouldn’t want to do lean, we should want to become lean. He then concentrated on five efforts any company should make: following customers; accelerating flows with levelled pull; developing people; involving operators in improving ergonomics; and going and seeing at the gemba. After all, he concluded, lean equals kaizen plus respect. Samuel Obara, one of the best speakers at the summit, held two interesting and engaging sessions on Toyota, and shared the four capabilities any lean leader needs: designing work so that problems are immediately obvious; attacking problems when they occur; sharing learning laterally; and developing people. There was even the time to teach the audience how to write (or draw) the Japanese word “kaizen” – I didn’t do very well, but it was good to learn more on the concept from a visual perspective.
www.leanmj.com | May 2012
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BOOK REVIEW Jacob Austad reviews John Bicheno’s The Service Systems Toolbox, Integrating Lean Thinking, Systems Thinking and Design Thinking, PICSIE Books.
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r. Deming once said: “We know what we said, we don’t know what they heard.” In the evolution from believing lean is merely a set of tools to learning that it all starts at the point where we understand the bigger picture, John helps us to better understand the message. A Service System is exactly a system and should therefore be seen from different perspectives; hence the book covers the same aspect from different angles. Some readers might (at first glance) find the repetitions unnecessary, but after reading again they will understand what the author is trying to convey. John provides different perspectives and lets the reader find the solution matching the specific problems. This approach is extremely rare and makes the book more of a lexicon and compendium while at the same time engaging and encouraging readers to find their own solutions – not just copying tools. The book helps to better think and this also goes for explaining the fundamental lean principle of value. We have all learned that the elimination of waste will increase value and therefore it is
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easily assumed that we need to manage waste. With help from Russell Ackoff, John Seddon and Deming, John makes us think differently:
Don’t manage cost: manage value. When value increases, the costs will decrease. […] Go for flow and costs decrease, but ironically, go for cost reduction and costs are very likely to increase! Why? Because a cost focus often brings worse service that backfires through increased failure demand.
This book is not just another input to the lean or systems debate; instead, it gathers evidence that many people try to do better and that by sharing different thoughts we all learn and have the ability to build more knowledge. At the end of every section the author always references the sources and thereby encourages readers to learn more (or go see for themselves). Having this book on your bookshelf will ensure you have access to a wealth
of knowledge and information. Actually, leaving the book at the shelf is a shame; it should be within reach of any leader, lean practitioner, systems thinker and anyone else wanting to make things better. A book review should also point out the things that need improving, but - to be quite honest - the only thing that should be changed is the last sentence of the author’s acknowledgements. Dear John, don’t be so hard on yourself with all the work you do to help us all to think better, errors are hard to find. Personally I cannot wait for you to learn more, and inspire us more. There is no need for a book summarising the top 100 lean and better thinking books – it is already here, but covering so much more.
LETTERS & COMMENT
L E T T E R S
LMJ
& comme n t
Be integrative to be sustainable In the third article of his series, Roddy Martin, senior vice president, global supply chain at Competitive Capabilities International, draws the conclusions on how to fully transform a supply chain into a demand-driven system that can ensure sustained competitiveness.
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uilding global capabilities agile enough to scalably and profitably meet rapidly changing global and local demand and risk has pushed leading manufacturers to critically examine and transform their approach to end-to-end supply chains. These initiatives are being led top down by the most senior leaders in the business. Even at a functional leader level, recent studies among business and supply chain executive peers are pointing to the fact that there is broad recognition that the end-to-end supply chain is the business operating strategy, is a critical capability in the competitiveness equation, and that current supply chains must be transformed as a top business priority. The challenge is that change is transformational because it fundamentally impacts the way the business currently operates and prioritises work. We all know that
change management is not necessarily the strongest component of leadership in the supply chain and manufacturing business. The transition from push-driven efficient supply systems constrained by cross-functional visibility, a cost reduction focus, and a focus on functional outputs challenges the status quo in traditional companies (especially those that operate in a long connection of business to business partners) that don’t necessarily “see” a buyer of the end product or service for example, industrial manufacturers and suppliers - and changes many aspects of the business we regarded as a given: Metrics; Processes; Functional goals and collaboration processes; Information technology and information management; Organisation design and supply chain skills. Underpinning the challenge and amplifying the priority is the fact that requirements for agility and responsiveness to market change and risks on both the supply and demand side of the business are critical to its survival and success. Leaders like P&G, Cisco, Unilever and Dell, to name a few, are already on this transformational journey and are leading the strategy from the top of the global business. The capability to sense and translate demand changes as they occur into desired end-to-end business outcomes is lining up to define today’s leaders. Think Apple and how they build supply
chains around products (and not vice versa) and shape buying behaviors through technology innovation. Today’s leadership challenge is to successfully transform the linear business supply system to the customer into an end-to-end set of processes starting with the buying customer. Linear supply systems focused on forecasting and reliable supply must build the agility to profitably sense and shape demand in a value network. The implications are not trivial and require a change in leadership and performance management. While cost efficient manufacturing is important, customer service levels and account profitability are what really counts in the business results. From previous articles I wrote, a few fundamentals are cornerstones: 1. This is a transformation journey; 2. Understanding maturity in performance improvement initiatives is critical; 3. Understanding the fact that the business has four interdependent management systems that must be synchronised and aligned – three being technology focused and the highest being the business operating system and the way the business actually operates. Business change cannot continually be accommodated in the technology and must be supported by a flexible business model based information and decision support layer. All these elements are such important measures of business competitiveness that leaders are developing the business operating strategy to be the guiding execution framework that prioritises work and governance to build the end-to-end synchronised supply chain process capabilities.
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LMJ
L E T T E R S & comme n t
This has generally always been the case, but today’s challenge lies specifically in “integratively” executing all people, process and technology elements of the business operating strategy in aligned and synchronous execution programmes and initiatives. Integration is sufficient but not enough! In particular, it’s not an easy task to connect people, process, and technology dots across the business and build new sustainable process capabilities through projects and a project management office (as stated in a previous article). Leaders like P&G, DuPont, Toyota, and Kellogg’s have built integrative improvement management systems to guide the transformation journey. The integrative improvement system codifies the transformation of traditional supply chain, IT, human resources, demand planning and continuous performance strategies and functions into end-to-end process capabilities. Integration of a set of projects and systems focused on cutting costs and improving functional cycle times is no longer enough! “Integrative” is a new term, but one familiar to the life sciences industry. It refers to the following recommendations I made in the last two LMJ articles: 1. The transformation journey is multi-year and top down across the end-to-end business; 2. The journey must simultaneously accommodate and address globally different markets, cultures, and states of change readiness across the business; 3. Integrative improvement means systematically progressing along performance improvement capability stages while maintaining goal alignment and business process integration at every stage of the journey. This all while the business keeps operating (not unlike changing the design of an airplane while it is in flight); 4. Systems, enablers and platforms such as IT, organisation structures, change management, and CI must evolve with the stages of performance improvement maturity. Leaders already on this journey have been working the “integrative angle” for years. The net result is that these businesses are already seeing outcome results. For example, one leading consumer goods company returned 300% of the business impact of a stock out problem back to the business by looking end-to-end. This return was used to fund the business transformation. The key takeaway is to deploy an integrative improvement system that codifies the capability building journey and guides the transformation work across the business.
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Lean six sigma must be a waste of energy Joseph Paris, chairman of XONITEK says continuous improvement initiatives need stewardship to be successful.
I
t seems that everywhere I look – every article I read, every subject matter expert to whom I speak, and every talk to which I listen – the message appears to be the same: lean six sigma fails. Depending upon the source, lean six sigma initiatives might fail 25% of the time or even 70% of the time. Some even claim that it never fulfills its promise or realises its potential. In fact, there are so many articles and lectures on how often and how much lean six sigma fails that it is amazing anyone would even bother to try to implement it, or otherwise select it as a path for improvement. As a long-time member of the Institute of Industrial Engineers (IIE) and being on the Advisory Board of its Process Industries Division, as well as being on the Advisory Board of Binghamton Universities System Science and Industrial Engineering (SSIE) Department, I have been intimately exposed to the material on the subject being taught and decided to investigate the “root cause” of such poor results being reported and the increasingly poor
LETTERS & COMMENT
expectations associated with continuous improvement initiatives. During this exercise, and for both academia and industry from sources around the world, I examined the curriculum offered and reviewed the books and other materials used in the teaching of the disciplines associated with CI in general, and lean six sigma in specific. I also examined the websites and articles written by practitioners and consultancies (including my own). Almost all of the material I read referred to the forensics of the disciplines – a focus on the “how”, including the “tools” of the trade and the “methods” of their leveraging and deployment. One book had an emphasis on 5S, another on VSM, kanban, kaizen, and so on. Another book went at great lengths to talk about the importance of flow and roadmaps. And every book I read made some reference to the miracles performed at Toyota and advocated how they can be replicated in any business anywhere. Which brings me to the other underlying theme that was shared in everything I read: the “why”. All of the books and materials I have read and the lectures I have attended have discussed in great detail the benefits of embarking on such programmes. All of them create a vision of a better place – a better set of conditions under which a business might operate and the great benefits which will be realised as a result. They all create a very compelling and pretty picture of what the world can be like if only we embrace the disciplines of lean six sigma as the approach for a CI programme. All of this knowledge and instruction is necessary, well and good. I would support any argument that it is important to know how to properly use the tools in your toolbox; which one to grab under any given circumstance
and how to wield it for maximum effectiveness. And I would also support the vision painted by the proponents of what could be achieved. But the one thing I noticed in almost all of the material I reviewed - very subtle in nature, but with a profound impact on the results - was that the consistent references to the singular. There were many mentions of “you” and of “me” and of “I”, but very few to “we”, or to “us”. It is almost as if any results that might be achieved in a continuous improvement programme are solely the consequences of an individual’s efforts and not that of a team – not to mention an entire company. If leadership, programme management, and communication skills are mentioned at all, they are usually given short shrift and tucked towards the back of the book. Maybe all of this is natural. There is an obvious distinction between being a “leader” and being a “practitioner”. The leader mainly operates above the details and has a propensity to think strategically with sights set beyond the horizon. Whereas the practitioner lives more in the here-and-now with an emphasis on training and experience that is more logistical and tactical in nature – the person who implements the strategy. And perhaps this is why the material written about leadership does not delve deep into the requirement details of continuous improvement and lean six sigma – and the material written about continuous improvement and lean six sigma does not address the importance of effective leadership and the required skillsets. In my opinion, herein lies the “root cause” of why CI and lean six sigma initiatives fail to realise their full potential. In a word, stewardship. Or in this case, the lack thereof.
Merriam-Webster defines “stewardship” as “the conducting, supervising, or managing of something; especially: the careful and responsible management of something entrusted to one’s care.” Unlike leadership, which is removed from the details, and unlike being a practitioner, which is all about the details, stewardship is a cross-over function that bridges the strategic, through the tactical to the logistical. To be a steward, you must have something entrusted to your care – and you must be careful with, and responsible to, that which has been entrusted to you. As a steward, you are not only “conducting”, as a practitioner would; you are also supervising and managing, as a leader would. And as a steward, you are not alone – but a member of the community over which you preside; a community that depends upon you as much as you depend upon it in order for both to be successful. Which comes to my recommendation: I believe that addressing the need for stewardship and teaching stewardship skills are critical to the success of any CI programme. Stewardship establishes the necessary precursor environment only through which the full achievement of the benefits of any CI programme is possible and will result in the realisation of the maximum potential reward associated with leveraging the tools and methods of lean six sigma. I also believe that the teaching of these stewardship skills should be moved to the front of the curriculum and materials – and not as an elective or after-thought. As an individual member of the community – whether your role in a project or a business is that of a practitioner or that of a leader – the steward will ensure everyone is working as a team. And working as a team makes all the difference.
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eve n ts There is currently an expanding pool of events available for the development of the lean community. They offer both general and sector specific opportunities to renew your enthusiasm and gain new perspectives through communicating with lean contemporaries.
L M J eve n ts i n cl u d e :
L M J A n n u al C o n fere n ce 2 0 1 2 May 29-31, The Hilton Metropole, Birmingham NEC www.leanmj.com/annualconference
T h e M a n u fact u rer of t h e Y ear 2 0 1 2
The Lean Management Journal invites you to the flagship event for lean and continuous improvement professionals. Speakers from North America, UK, Europe and South Africa will give an international dimension to this year’s conference as they share the latest insights, best practice and thinking in three days of unrivalled personal development.
Call for entries
New features of the 2012 Annual Conference include: Ideas Exchange Sessions, informal group sessions to exchange best practice tools and techniques; Post-conference workshops followed by site assessment visits; Lean Leaders Networking Dinner on Tuesday 29th May. Now in its third year, the LMJ Conference helps you understand the fundamental concepts you need in order to improve your way of doing business and achieve excellence, drawing on best practice from organisations and lean leaders and focusing on the integration of both lean and systems thinking.
Day One 29th May: Main Conference
Speakers include: Steve Welch, group continuous improvement manager, Yeo Valley; Peter Watkins, global lean enterprise and excellence director, GKN; John Bicheno, director of MSc Lean Operations, Lean Enterprise Research Centre; Gwendolyn Galsworth, p resident, Visual Thinking Institute; Richard Holland, managing director, TBM, UK, India & South Africa; Bob Hafey, president, RBH Consulting; Bill Bellows, president, In2In Thinking; and Dr Nick Rich, honorary fellow, Cardiff Business School.
Day Two and Three 30th & 31st
Thinking for Lean Workshop – 30th May Lean Accountancy Workshop – 30th May Lean Safety Workshop and Site Assessment Visit – 30th& 31st May Visual Thinking Workshop and Site Assessment Visit - 30th & 31st May
For delegate enquiries, please contact Benn Walsh on 0207 202 7485 or email b.walsh@sayonemedia.com
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The Manufacturer of the Year Awards 2012 is a rare chance for you, your team and your company to receive industry-wide 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 01603 327006 or l.williams@sayonemedia.com
Worl d C lass M a n u fact u r i n g F actory T o u r 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 has and 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 0207 202 7485 or b.walsh@sayonemedia.com
fort h C O M ING EVENTS
O t h er eve n ts i n cl u d E :
2 ND INDU S T R I A L L E A N P R O DU C T A ND PROCESS DEVELOPMENT (LEANPPD) WORKSHOP June 14, Cranfield University The objective of the workshop is to showcase the state-of-the-art methods and tools, as developed by Cranfield University (sponsored by EU-FP7) based on action research with the industry. This can enable the organisations to introduce and implement lean thinking in product design and development. The main topics are: Set-Based Concurrent Engineering, Lean Knowledge Life Cycle, Lean Design, A3 Thinking for Problem Solving and Change Management toward LeanPPD Environment. Several industrial perspectives and case studies will also be presented by speakers from BAE Systems, Elekta, Rolls-Royce and Visteon Engineering Services. For more information, please send an email to leanppdcu@cranfield. ac.uk or contact Dr Ahmed Al-Ashaab on a.al-ashaab@cranfield.ac.uk
L E A N S IX S IG M A M IDD L E E A S T June 10-13, Millennium Hotel, Doha, Qatar Organisations in the Middle East are continually exploring methods to drive productivity and accelerate the operational performance of their organisation. Lean and six sigma are strategies being utilised across multiple industries to achieve business agility and a culture of continuous improvement to optimise customer processes and service quality throughout your organisation. The Summit will highlight the use of these strategies in different sectors and departments to significantly maximise your revenue and increase the effectiveness of your improvements. Speakers will include Osama Jbarah of Qatar Petroleum, Mohammed Nasser of Eli Lily Saudi and Anand Venkateswaran of Gulf Bank.
LEAN HEALTHCARE TRANSFORMATION SUMMIT June 6-7, Minneapolis, Minnesota At the 3rd Annual Lean Healthcare Transformation Summit, you will learn how innovative experiments are changing the way we deliver and pay for healthcare and how consumers and employers are driving a healthcare value focus by demanding transparency of cost and quality data across the system. You’ll learn from thought leaders and pioneers forging new paradigms for the healthcare system. There will be special keynotes by John Toussaint, Harold Miller, and John Shook, coupled with down to earth, real experiments from pioneers forging new ground every day. Come spend two intense days, learning from thought provoking keynotes, a topical panel discussion, interactive learning sessions and the industry’s very best networking.
OPERATIONAL EXCELLENCE SOCIETY 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.
May’s highlights: Warsaw, May 14, 6pm Venue: Terere Restaurant Kazimierz Grabski, LQS Service Delivery Manager at Lionbridge, will give a presentation entitled “Operational excellence and dialogue”. For information please contact Malgorzata Krukowska on krukowskamj@xonitek.com New York City, May 21, 5.30pm Venue: I tre merli Leigh Brand of Brand Consulting Group will give a presentation entitled “Operational Excellence in Government”. For information please contact Richmond Hulse on hulserj@xonitek.com Other Operational Excellence Society chapter meetings include: Munich, May 8, 7pm Venue: Restaurant Ludwigs For information, please contact Martin Haack on haackmf@xonitek.com Dubai, May 14, 5.30pm Venue: to be determined For information, please contact Andy Gibbins on andy@glasconsulting.org
for u p - to - d ate eve n t i n format i o n v i s i t w w w . lea n mj . com www.leanmj.com | May 2012
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