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Lean principles originated on the factory floor at Toyota. But then they were successfully applied in offices of manufacturing companies, and then in companies and organizations in virtually all other industries, including retailers, banks, airlines, hospitals, charities and universities, and all levels of government, even county jails and the Navy! So what are these lean principles, and how can they be applied to nonmanufacturing environments in small as well as large companies? And what are the benefits for doing so?
Prerequisite: Responsibility for planning and budgeting
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Principles of Lean Thinking
Womack and Jones identify the following basic principles of Lean Thinking,3 which dominates Lean writings, discussions, and implementations in America. Unfortunately, these principles focus on tools and techniques, the "how," which implement one pillar of the Toyota Way, continuous improvement, while basically neglecting the other pillar, the "why," respect for people. We have added "people" as the last principle.
Value
Everything that a company does must add value to the customer. The company must continually view all its activities as if they were on a Chinese menu, in which a customer can add or delete each activity and its associate cost if they do not see the value that it adds. Exercise 1-2 tries to clearly illustrate this point.
Many companies still think of value as their selling price, which they compute by taking their cost and adding a profit margin. However, that is not a customer-focused view. To start their Lean journey, a company can stop thinking of value as the company's cost plus a profit percentage, and instead use the marketplace price, or value, for a product or service as its true value. This concept is covered more fully in Chapter 8.
A product's complete "value stream" is all things that add value to the customer. It includes the entire stream of materials, from the origin of the raw materials, through the various suppliers, through the company, through various distribution points, into the hands of the final consumer, than then to final disposition. This value stream also includes the packaging materials and shipping materials required to get the product through the transportation and retail chains. This value stream additionally includes information (such as answers to customer questions), and everything else supplied to the customer (such as invoices and field service).
Interestingly enough, in Europe, manufacturers of several consumer products, including cars and most consumer electronics, are now required to accept those products at end-of-life. So their engineers are redesigning the products to be reusable, or at least safely and easily disposed of.
The value stream is basically determined during product and service design. Product design dictates materials and substances that will be used (and, thereby, acceptable supply sources), machinery and equipment that will be required for both manufacture and handling, and packaging requirements. If a product will require service in the field, value stream design includes designing the field service component, such that customer downtime is minimized, and total field service cost is also minimized.
When a company starts to implement Lean, it initially focuses on its internal "physical" value stream (for materials), from its receiving dock to its shipping dock. It also starts looking at its information value stream, from order taking through scheduling the final delivery. For both value streams, the company details each activity, and asks how much time and cost it adds to the process, and whether that activity adds value to the customer.
Flow/Pull
The concept of "flow" is relatively simple. It states that products and information should flow from inception to completion, with no stops. Think of a leaf floating down a mountain stream, with rocks and logs snagging it, and eddies taking it out of the current for a while. This is how material usually moves through a manufacturing plant. A company can compute velocity by dividing the total elapsed time for a unit to move from start to finish, by the actual value-added time. Velocities of ten or higher are not uncommon for companies that are starting their Lean journeys. And obviously, that extra time does not add value to the customer, while it does add cost (inventory cost, space cost, etc.) to the company.
The ultimate flow is for each item to be processed, quickly, error-free, and efficiently through the entire company. This is called, not surprisingly, "one-piece flow," and it is the ultimate objective of a Lean company. Getting there can ultimately require redesign of products and facilities, but companies can make huge initial strides with very little capital investment or product change.
As a company transforms itself from batch to flow, the control systems should be completely revised, because the old controls, which assume batches of parts in various stages of completion throughout the plant, add considerable cost in terms of time and effort, and are neither necessary nor appropriate. Rather than weeks' worth of inventory scattered throughout the company, or mounds of paperwork waiting at each desk, the inventory only stays one to two days inside the company. Rather than having a computer keep track of all batches, the process is redesigned so items flow directly through their work stations without any detours or places to get lost. So the old controls are no longer necessary.
Traditional companies use "push" systems which order products to be on the shelf to support forecasts of future orders. In contrast, because Lean companies have very quick response times (usually measured in hours, instead of days), they keep just a small amount of finished goods on the shelf, then replace them as soon as a customer orders them. It is the pull from a customer, and only a pull from a customer, that causes replacement in a Lean company. If there is no pull, employees clean or maintain machines, train, paint the plant, or do whatever else they can to help the company move forward. They do not make parts! Because of this radical shift in philosophy, the traditional accounting performance benchmarks of "efficiency" and "utilization" must be scrapped and replaced by other metrics. Otherwise, the accounting system's measurements will inadvertently, but very effectively, kill the Lean implementation. This is discussed in more detail in Chapter 4.
In a pull system in a manufacturing company, the end customer takes one unit from the (very small) inventory of finished goods. The final assembler quickly replaces that unit by taking subassemblies from his/her (very small) input queue. The workers who produce those subassemblies then replace them, again very quickly, and so on, until a signal is sent to the raw materials suppliers to replace the raw materials that have just been consumed. Then the entire system waits for another pull from a customer. Each internal customer signals its supplier that it just used an item. The signal can be visual (an empty space which is designated for part "x"), a card (such as a kanban card), an empty container, a light, or even a computer message. The signaling system needs to be simple, efficient, and error-free. Pull systems in any other industry follow the same model, adapted for their unique situation.
Perfection
Perfection has two basic elements:
a) perfect quality, and
b) continuous improvement.
Perfect quality is required by Lean companies, because they do not carry sufficient inventory to replace bad-quality items, and therefore bad-quality items will shut the line down. So as a company starts its Lean journey, it must also start a Quality journey. Quality is not only a part that works perfectly; it also means that part has to be in the right place at the right time. Highvolume assemblers, such as automotive assembly lines or major appliance (e.g., refrigerator) assembly lines, require that suppliers have their trucks at a specific dock at a specific time of day, with a very tight before/after time window, such as 15 minutes. If they are too early, they have to drive around until their allotted time. If they are late, they run the risk of shutting the plant down, and facing serious fines and potential loss of contract. Continuous Improvement means improvement in all aspects of the company, not just the production processes. It is a relentless drive toward perfection, with the knowledge that true perfection is impossible to reach. It means identifying and eliminating all waste in all forms throughout the company, then the entire value chain.
People
People are more important to Lean than much of the literature states, for several reasons:
• They are extremely flexible - they can move to different areas. Machines and workspaces just sit there.
• They contribute ideas for improvement. The author was talking with a CEO who was enamored with machines and systems, and who was waxing rhapsodic about how the workplace kept improving each time he installed new automated equipment and laid off the workers in that area. His goal was to be completely free of direct labor. Then the author asked, "And how many ideas for improvement per year do those machines suggest?"
3 Womack, James, and Daniel T. Jones, Lean Thinking, New York, Free Press, 2003.
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