Leaning Your Business – Unleash Organizational Potential
The term “Lean” was first used to describe the approach developed by Toyota to build cars (The Toyota Production System). At the core of Lean, the elimination of waste is the goal but how waste is eliminated is not necessarily obvious.
As a high-level summary, a Lean organization has a “smooth flow of work”. This outcome evolves with employee involvement and continuous improvement. Each step in the workflow is well understood and employee movement is highly efficient. What is produced needs to match customer needs and products are produced “at the pull of the customer”.
The implementation of Lean is well known in manufacturing. Yet, the concepts of Lean are also applied to non-manufacturing oriented organizations. These include those in Health Care, Engineering, Construction, and Software Development to name a few.
As part of my background, I led a Lean implementation for an engineering environment. This was for Honeywell in North America.
This resulted in a 20% productivity improvement in the first year. Throughput increased 64% over 4 years. In addition, the work environment for employees was vastly improved.
Let’s explore some key concepts of Lean.
The Concept of Value Added
A very important aspect of Lean is to be customer-driven. The concept of “value-added” drives Lean objectives.
There are (3) aspects of being Value-Added and all three must apply. They are:
- Important to the Customer – Would a customer pay for the completed activity
- There is a Transformation of Information or Material – There is a change in the product in form or function
- The activity is Done Right the First Time – No rework or Redoing
The Importance of Creating a Value Stream
For the primary products of an organization, a “Value Stream” is produced. This shows the processing steps from receiving a customer order to the customer receiving the product.
When completed, a value stream will show:
- The Value-Added steps
- The measured time for each value-added step.
- The measured time between value-added steps is classified as “non-value-added time”.
- The “Lead Time” – The overall time from the customer order to customer delivery
For many companies, the percentage of total value-added time to the total lead time is a low percentage. In many cases, the % Value-Added Time is below 10%. The reason for such a low percentage is the waiting time and waste in the process.
A good example is the building of a pump where the overall lead time is 4 weeks. The value-added time may only be 8 hours. Therefore, the %Value Added would be approximately 5%.
= 8 hours / 4 weeks
= 8 / 4X40
= 8 / 160
In an example like this, the lengthy lead time may be due to sales order entry, a lengthy supply chain, delays due to hand-offs, delays in production, and inefficiencies in production.
A key goal for workflow improvement is to reduce wasted time at various steps with the intention of reducing the overall lead time.
Various forms of waste reduction include:
- Defects in Production – Defects include what is caught in production and also what ends up as warranty returns. The wasted costs due to defects typically amount to 2-6% of overall costs.
- Distance of Transported Parts – When tracking the movement of raw materials all the way to final assembly and shipping, the path can be very inefficient and costly.
- Overproduction of Parts – If products are produced beyond the level of customer demand, they will sit on shelves, warehouses, or in parking lots without any associated payment and cash flow.
- Waiting Times – This is the time between “valued-added” steps. This can be very significant and can have a big impact on the overall lead time of a product.
- Excessive Inventory – Excess inventory impacts overall costs and having inventory that does not move impacts cash flow.
- Excessive Motion – When an employee is assembling a product in a value-added step, the motion of the employee will have an impact on process productivity. A highly efficient employee will have their motion reduced to an optimal level.
- Excessive Processing Time – This area of waste includes unnecessary or repeated steps in a process.
What Does a Leaned Organization Look Like?
When Lean is properly applied you will see the following:
- Visible leadership
- Highly engaged employees
- Clean well-organized work areas
- Very good use of signage and visuals for all aspects of workflow
- Smooth workflows
- Few defects
- Short lead times (lead times reduced by 70-90%)
- Low levels of inventory as raw materials arrive through the supply chain as they are required (many organizations realize up to a 70-90% reduction in inventory)
- On-time delivery improvement (up to 98-99.5% on time)
- Cost reduction of typically 30%
- Higher profitability
- Improved cash flow
Importance of Leadership and Change Management
When an organization embarks on the journey to implement a Lean environment, there are 2 factors that are of critical importance. These are:
- Consistent and visible leadership
- Effective change management
Without these two cornerstones, a Lean work environment will never be attained. This is because of the cultural change at hand. It is important to prevent falling back to previous work habits and culture.
Examples of Lean
One can find examples of Lean in many areas. Here are a few examples:
Canadian Postal System – In the 1990s and prior an envelope placed in a mailbox would take about 1 week for delivery in the same city. After the application of Lean in the early 2000s, an envelope is often delivered within a 24 hour period.
Other examples of where companies have applied Lean include Toyota, Intel, Dell Computers, Honeywell, Nike, and John Deere.
The Lean Journey
Taking the Lean journey takes proper commitment and planning. The journey will take years versus months. However, a carefully planned Lean implementation will produce yearly improvement results as you proceed. The end result will be worth the effort.