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What do you think of when you hear the word "lean"? Muscular, lanky, without excess, without fat — in a word, fit. Physical fitness is dependent on multiple factors — diet, exercise, sleep and attitude. One without the other has limited benefit. The combination of these factors, however, is greater than the sum of the parts and comprises a healthy lifestyle.
The same is true with lean in the business sense. Lean is not a program, event or a stand-alone improvement living in departmental isolation, relegated to the plant floor. The factory floor is but one essential component of a larger system. As with physical fitness, systemwide fitness is vital to the competitive capability and health of our companies. Like ourselves, our businesses have a lifestyle — we call it culture.
So why then, is it that lean is not yet a common aspect of the culture of our industry and businesses? There are several reasons. First, lean is still primarily viewed as an improvement "program" for production. For many manufacturers, the purpose of lean implementation is largely driven from the desire to reduce production costs.
Although one of the results of lean implementation is cost reduction, the intent is to eliminate process waste. It is the reduction and elimination of waste that produces favorable results including increased productivity, shorter throughput times, higher quality and greater profitability. So, the focus is to remove the inefficiencies, not just cost, from the factory floor.
However, not all inefficiencies and waste are caused by processes and activities that occur on the shop floor. In fact, much of the poor productivity and waste in our factories is caused by work done before an order is released to production. This source of waste and inefficiency tends to receive little attention since there is usually no acute awareness of the problem or any way to measure it.
Second, largely in response to foreign competition, North American wood industry business owners and leaders are now more focused on managing costs, such as hourly labor rates, than they are on effectively managing productivity. The need to achieve price competitiveness in the market place has driven manufacturers to place a higher emphasis on holding down wages paid to plant employees than it has on driving down the labor content — increasing productivity — in their products.
To be sure, among the companies with whom I routinely work or visit, very few include productivity (for example: revenue shipped per factory labor hour) in their key measurements. It follows then that if they are not measuring productivity, they are probably not effectively working to improve real productivity.
An increase in productivity not only results in lower labor content per revenue dollar shipped, but it also produces a proportionate increase in available capacity. It is also true, therefore, that if there is pent-up capacity in our inefficiencies, and those inefficiencies exist in activities outside direct production, then there is opportunity in our front-end operations for improvements in productivity and capacity.
Learning to see
The competitive landscape has changed. Competitive fitness is no longer about size. It is about speed, the agility to respond to customer needs and expectations, and precise execution. There is no opportunity in North America to be the low-cost producer of commodity products. The competitive frontier requires new competencies that ensure the efficient and effective creation and delivery of value — to customers and shareholders.
These new competencies will be derived from two new skills: listening to the voice of the customer and flawless operational performance. They will determine our manufacturing and delivery costs, the customer experience and perceived value of our products and services, and how much wealth we can retain for our efforts and risk. In other words, competing on the new frontier is not about building better products (that's a given!), but about building capable, competent, fit companies.
Customers, especially consumers, are king, and in the words of Mel Brooks, "It's good to be the king." Personal choice, innovation, customer experience and value are the market drivers. Companies that excel in these areas will dominate their segments.
More importantly, company owners and leaders that recognize these facts and become process masters will get out in front of their competitors and stay there. The key here is not necessarily to enter new markets, but to out-perform everyone else operationally — from design to cash.
And herein lies both the opportunity and the challenge. Industry leaders need to see their enterprises as an integrated system of value-adding processes that begin with suppliers and end with the ultimate end user. Think of it this way: From the end-users' perspective it's one value stream — not three or more. End-users don't care about your, business process or your challenges; they care about themselves. They care about price, but they care most about value. They demand what they want and they will get it … from you or your competitor.
Failure to see this most glaring feature of the new competitive landscape will make survival tenuous and profitable growth unlikely.
Extending our reach
Precisely meeting customer needs and expectations at a price they are willing to pay is, by lean definition, value. Value is optimized by removing, to the greatest extent possible, any and all waste. We are all familiar with the seven types of waste defined by lean.
In fact, these wastes exist in our front- and back-end operations to the same degree they exist in our manufacturing processes. However, they are often unrecognized and untreated because they have increased gradually over time, and without any measure of productivity, have escaped the light of scrutiny.
So where exactly does the nonmanufacturing waste occur? Almost exclusively, the waste can be traced back to one problem area: information. In their White Paper, "Value-stream Mapping for a Lean Front Office"1, software developer Cincom Systems Inc. cites information defects, over-processing and wait time among the primary sources of front office waste.
While the White Paper cites other sources of waste, it views the creation of order and product information as a leading cause of front-end inefficiencies and downstream errors. Waste results from numerous sources: inaccurate definition of customer demand; errors in accurately or completely communicating customer demand; incomplete or inaccurate engineering and production data; redundant information creation; incorrect data inventories; inaccessible data inventory; and just plain bad information. The resulting errors can be subtle, far reaching, and ultimately manifest themselves in multiple areas of the business.
Here's an interesting and very real example of how the front-end information accuracy impacts plant productivity and quality. During the set up of the engineering software database, a nominal dimension of 1.25 in. was used as the conversion of 32mm.
While the conversion is approximately correct, it is precisely wrong relative to the optimization of the CNC machining center. The conversion of the nominal 1.25 in. is actually 31.75mm, not 32mm. The 0.25mm difference between nominal and absolute dimension places construction holes "off-grid." Consequently, any holes with 1.25 in. center distances are drilled singularly rather than simultaneously, thereby dramatically increasing the part cycle time. Over the course of a year, this inefficiency translates to diminished capacity, increased labor content, and either higher prices or reduced profitability.
Front-end inefficiencies are not limited to engineering, order entry, planning or necessarily any other internal process, but can extend well outside the company either upstream and down. Consider the selling activities for one manufacturer's distribution partner. The dealer designs, sells, installs and services small office and home office furniture that is built to order.
The company owner wanted to invest in software in which they could design, modify standard products sizes and shapes, visualize, quote, convert to a sales order and manage the product delivery and installation schedules. The owner, however, wanted to ensure they had the ideal design and selling process, and that there was sufficient business benefit to justify the purchase before they proceeded.
To do this, we decided to map the design and selling process value stream. By definition, value stream mapping is a lean technique used to analyze the flow of materials and information currently required to bring a product or service to a consumer.
By mapping out the design, quoting, selling (order capture), order processing and receiving activities and then identifying the essential tasks and the amount of time for each step in the process, we were able to identify opportunities to eliminate, combine or automate those steps that added value to the customer outcome and experience. (A full copy of the value stream map is available at www.jemoran.com.)
As the chart on page 19 indicates, the value-stream mapping revealed that 325 of the total 515 minutes of the process were dedicated to non-value-added activities (shown in red). Of that, clearly the greatest inefficiencies occurred in the order capture processes. Here 58.3 percent of the time was devoted to non-value-added activities.
The improvement opportunity here is to release the incremental selling capacity pent up in the inefficient, ineffective order capture activities. Based on three full-time designers, elimination of 50 percent of the waste would add back to the business 4.4 days of additional selling capacity. This additional capacity represented a significant opportunity — certainly enough to justify an investment in software.
The elimination of waste would occur by linking the quoting and design process through software that automatically generates a quotation, sales order and purchase order from the original data set that is created from the final design.
There are endless examples of how lean pays dividends as front office productivity improves. The dividends migrate from order entry, through engineering and production planning and control to the plant floor.
Accessing the production and financial dividends is the core target of lean methodology. Value stream mapping your front-end processes will expose the waste and the opportunities for elimination of waste. Improving operational performance is now part of the essential work of any company.
Applying the tools of lean across the enterprise is today an endless journey of exploration. Poet T.S. Elliot best expressed this idea when he wrote:
"We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time."
Learning to see lean in the broader sense, its application across the enterprise rather than simply within it, will allow manufacturers to achieve higher levels of operational excellence. Our business process starts with our relationships with our customers and in our front offices. Our performance in these areas determines how efficient we can be on the factory floor. It is in this context of performance that having new eyes will allow us to know our business for the first time.
Source:
1. Cincom Systems Inc, http://www.cincom.com/us/eng/forms/stream_mapping.jsp
Ed. note: Strategy and business adviser to the wood industry, Don Shultz of J.E. Moran Associates (www.jemoran.com) collaborates with owners and executives to discover new customer and market possibilities, and to foster improved operational and financial outcomes. He can be reached at (608) 279-8089 or by e-mail at dshultz@jemoran.com.
author: By Don Shultz