Why lean manufacturing is no get-rich-quick program: Part I

Television commercials that advertise get-rich-quick schemes claim you can double your money in days, quadruple it in weeks, or multiply it a hundred times over in months just by purchasing a "proven system." But when you dig into the success stories on those infomercials, you discover hidden fees that never seem to end. In reality, these get-rich-quick-system producers make their money on all of those fees.

Some companies sell lean manufacturing principles with the same get-rich-quick scheme, by hiding the costs associated with achieving the financial returns that lean manufacturing can provide. Because of this often-used tactic, manufacturers tend to listen to or read information about lean manufacturing with skepticism. The biggest refuter of lean manufacturing is that many world-class companies are saving costs hand over fist, even though critics refuse to believe in it.

The key here is that world-class companies are making the most of lean manufacturing, not companies trying to get rich quickly without counting the cost. Lean manufacturing isn't a get-rich-quick scheme because the system can't and won't work that way. Lean principles must be combined with strategic planning, dedication, and team involvement to achieve success.

Large companies have experienced significant improvements by using lean principles: U S West Communications saved $20 million in postage expenses in one year; John Deere reduced production lead-time by more than 50 percent in one to two years; and Harley-Davidson recovered enough market share to regain its status as a leading player in its industry after suffering through the 1980s.

But small job shops can realize savings too, according to the National Institute of Standards and Technology (NIST). Its survey found that both small and large companies gained these benefits by using lean manufacturing:

• A 78 percent improvement in use of space
• A 90 percent improvement in quality
• An 85 percent improvement in work-in-process inventory
• A productivity increase of 50 percent
• A 93 percent reduction in lead-time

Defining Lean

Lean manufacturing can boil down to a simple analogy. Assessing an individual from a health standpoint means you have two options: that person either is overnourished or malnourished. The overnourished person consumes more than he needs for his body to function on a daily basis, resulting in bad health. On the flipside, the malnourished person isn't consuming what he needs to be healthy on a daily basis. The end result is the same: bad health.

While both situations lead to the same general problem, this problem is caused by different conditions. Manufacturing operations can be equated to personal health, because lean means consuming only what is needed, when it's needed, and in the amounts needed. This is an important explanation to learn because how you understand lean manufacturing dictates all of the actions that follow within an organization.

NIST's Manufacturing Extension Partnership defines lean as "a systematic approach to identifying and eliminating waste (non-value-added activities) through continuous improvement by flowing the product at the pull of the customer in pursuit of perfection."

Let's break this definition down:

• A systematic approach can be repeated for any application within your business. If it isn't repeatable, confusion will result, and confusion will cause instability within your company. Although there is no one right way to implement lean, once you find a systematic approach that works well for what your company does, stick with it from that point on.
• Identifying and eliminating waste (non-value-added activities) means learning how to see value from start to finish within your organization, in every department. Seeing value in your company's day-to-day operations will help you recognize what is value- and non-value-added. Whether you offer a product or a service, can you look at every step within every department and identify the value flowing through your company? Once you know how to identify value offered from each department as it flows through the entire process from start to finish, only then will you be able to see everything that is robbing you of that value—the non-value-added activities.
  
  If you want to learn how to see the value your company offers, ask your customers—they're paying for that value. Evaluate every step within your processes in each department on the following criteria: "If customers observed this activity, would they be willing to pay for it?"

• Through continuous improvement is another phrase to tackle. If you're embarking on a lean program, understand that this isn't a one-time project. It will be ongoing and last as long as your company is in business.
• Flowing the product at the pull of the customer essentially means productivity. If you overproduce or underproduce, both can lead to negative results. When you overproduce, you have more money invested in products that are sitting around, generating no positive cash flow for the health of your business. On the other hand, when you're underproducing, you're making your customers wait.
  
  Here enters the idea of flowing the product at the pull of the customer. Lean means not producing anything unless a customer asks for it, pulling it through your operational processes. When a customer pulls an order through, organize your processes so the product flows through as if it's a river, uninterrupted through your operations to the customer.
  
  Many obstructions can interrupt flow. Think of interrupted flow in your operational processes as a river with multiple downstream pools. Then think of uninterrupted flow as eliminating those pools, creating a river with continuous movement at one common speed all the way downstream. This uninterrupted flow is known in lean manufacturing as takt time: a steady rhythm that everyone works to as dictated by the customer demand and nothing else.
• Finally, in pursuit of perfection refers to quality. Lean can be viewed as a coin with two sides: productivity and quality. If you increase productivity only to manufacture an ever-increasing amount of defects that must be reworked, what good are you as a business to your customers? Lean and quality aren't two separate things—you aren't lean if you have to rework products that you produce. If you're implementing lean, first aim to put quality as the No. 1 priority. Everything else will follow.

Top Three Lean Misconceptions

Many companies misunderstand lean manufacturing by believing the following:

1. You can force products through takt time. Takt time is the time it should take a product to flow through each process in production. If your takt time is 10 hours, for example, you should be delivering an order to a customer every 10 hours. Customer demand is the key. Lean isn't lean unless your customers pull orders through your processes. This pull system should be in place for each process in your production line. If the next process downstream isn't ready for the previous process to deliver the product, then that process should stop to prevent a bottleneck, and this should bring problems with the following process to the forefront immediately. A problem is good because it forces everyone to see and understand it and then implement countermeasures to resolve it to allow that process to function at takt time. If that process is forced to adhere to takt time under the current burden and no one addresses the problem, then you're not only pushing rather than pulling, but also putting a strain on the operators and machines in that process without giving yourself the opportunity to improve your processes.
2. You can increase productivity without considering quality. Many times companies tend to think that productivity is easier to see than quality. Productivity is easier to quantify because you can attach labor and machine hours to calculate an associated cost to produce your product, but quality is more difficult to quantify until the customer responds with warranty claims that you then must pay out.
   
   Quality within your processes is more difficult to quantify simply because you don't know how much time operators spend reworking mistakes that aren't reported, sitting around waiting for parts, and looking for assembly clarification because of inadequate engineering design, for example. Cost is associated with these situations, and companies sometimes don't understand that identifying and resolving them will affect productivity directly. This is why measuring your defect rate at each step in the process is so important. Lean isn't about increasing productivity at the expense of quality, but addressing quality and productivity and putting controls in place to secure improvement in both areas.
3. Lean manufacturing means reducing inventory at all costs. Reducing inventory is a huge part of lean, but not when it comes at your suppliers' expense. Many companies force their suppliers to carry inventory that they are unwilling to carry, just to try to be lean and reduce operating costs. But when you pass this inventory on to your suppliers, then they have to pay to carry that inventory, and this limits their ability to use their space and overall manufacturing costs efficiently. To recoup that cost, the suppliers will charge you more for the parts you purchase, and your purchasing team will lose ground in negotiating an affordable cost to buy those parts.

Lean thinking should be a win-win scenario with your customers as well as your suppliers. If it isn't, then it isn't lean thinking.

Chris Hoff is principal/practitioner for Value Added, 1083 A St., Springfield, OR 97477, 541-501-2894, value1added@yahoo.com.