Chapter 1 -
What Is Lean?
Learning Objectives
After completing this chapter, participants should be able to
• Explain the basic principles of Lean.
• Describe how Lean works in a manufacturing company.
• Describe how Lean can work in a non-manufacturing company, including for-profits,
governmental, and non-profits.
• Describe common misconceptions about Lean, and then explain what Lean really is.
Introduction
This chapter will create a basic understanding of Lean – what it is, and how it works. While it
uses manufacturing as its primary industry, it will show how Lean principles apply to all
organizations, including governmental and not-for-profit.
What Is Lean?
Lean is a radically different way of looking at an enterprise; it does not fit traditional models or
theories of operations or management or accounting. On the surface, Lean is very simple,
elegant, and even compelling. It basically asks the question, “what does the customer want?”
and then organizes the enterprise to give the customers what they want, when they want it, at the
lowest possible cost, with the highest possible quality. How can a business person disagree with
that?
Toyota’s “True North”
Toyota created the Lean movement with their Toyota Production System. They have continued
to evolve and improve this system through the present day, where they are possibly the most
successful manufacturer in the world. They have zero debt, billions of dollars of cash in the
bank, a legendarily loyal customer base, and passionately committed employees. Toyota’s True
North has four metrics:
1
1. Human Development
2. Quality
3. Cycle Time
4. Productivity/Cost
When making a decision, a manager will sacrifice them in reverse order – that is, the manager
will sacrifice cost/productivity first, in order to protect cycle time. Since human development is
at the top of the list, it is never in danger. This emphasizes the Toyota motto, “We build people
before we build cars.”
Human Development
Toyota deliberately develops its people throughout the company, at all levels and in all functions.
Managers function more like coaches. When an employee is facing a challenge, the manager
does not tell the employee the answer. Instead, the manager asks questions so that the employee
can learn the answer for himself or herself. This approach emphasizes that the employee is
valued for being creative and learning, not just for doing what the manager says. It also teaches
the employee, by example, how to help other employees grow.
Quality
Toyota has become synonymous with “quality.” Not only in terms of cars with no defects (they
frequently lead the charts on the JD Power surveys), but also in terms of what customers truly
want. In the mid-1990’s, the chairman (the founder’s son) and president saw the fundamentals
of supply and demand that cause continued increases in the price of oil. They also noticed the
burgeoning “green” movement. So they ordered the development of the 21st century car called
the Prius, requiring that it be compact, roomy, and substantially more fuel-efficient (and
therefore more environmentally conscious) than any other vehicle on the market. For the Prius
project, they disregarded their typical financial return hurdles, since they expected it to lose
money for several years.
Cycle Time
Toyota is continually working to reduce the time from a customer order to customer delivery.
That is the entire enterprise-wide cycle time, not just the time from one operation to the next.
They fully understand that if they reduce 2 hours of cycle time on the factory floor (no small
achievement by itself) but the transportation system adds a day, the customer experiences a 1 day
delay.
Productivity/Cost
Toyota focuses on productivity, rather than cost. Productivity can be defined as value added
divided by resources required. The Toyota culture strongly encourages each employee to
continuously think of new ways to improve productivity. And while Toyota focuses most of its
efforts internally, it also helps its suppliers use its methodologies to improve their productivity
and reduce their costs, creating a win/win.
Principles of Lean Thinking
Womack and Jones identify the following 5 basic principles of Lean Thinking.
2 We have added
the sixth.
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 don’t see the value that it adds. Exercise 1-2 will try to
bring this point home.
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 customer-focused. 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.
Value Stream
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 able to re-use, or at least safely and easily dispose
of, the components.
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
The concept of “flow” is relatively simple. It is 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 10 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 individual piece to be processed, quickly, error-free, and efficiently
through the entire plant. 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 plant is changed from job-shop 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 plant, there is
1-2 days inside the plant. Rather than having a computer keep track of all batches, the shop floor
is redesigned so parts flow directly down a line without any detours or places to get lost. So the
controls are no longer necessary.
Pull
Instead of ERP-based push systems, which create 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 production in a Lean plant. 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.
1 Koenigsaecker, George, “Strategy Deployment: Linking Lean to Business Strategy,” Manufacturing Engineering,
March, 2006.
2 Womack, James, and Daniel T. Jones, Lean Thinking, New York, Simon & Schuster, 1996.
733042
0
Customer Service
Customer Service
Customer Service
Back to Browsing Products