Lean Principles

Lean principles focus on adding value by eliminating the three types of waste:

• Work that doesn’t add value.
• Inconsistency.
• Overburden.

It accomplishes this task by transforming the culture of an organization into one of continuous improvement using a number of well-defined tools and principles.

Toyota is widely recognized as the godfather of Lean, although many of its key components, like Just In Time (JIT) have existed in manufacturing since the 1900's. For this reason, many of the Lean terms are widely accepted and used in their original Japanese Form. Three terms that you will hear over and over again are the terms that describe the three categories of waste.

Muda – Work that doesn’t add value. This is the most popular target for businesses that want to eliminate waste. It's the easiest to discover, and the most accessible.

There are seven main types of useless waste described by the acronym TIM WOOD;

• Transport (moving products that are not actually required to perform the processing).
• Inventory (all components, work in process and finished product not being processed).
• Motion (people or equipment moving or walking more than is required to perform the processing).
• Waiting (waiting for the next production step).
• Overproduction (production ahead of demand).
• Over Processing (resulting from poor tool or product design creating activity).
• Defects (the effort involved in inspecting for and fixing defects).

Mura – Inconsistency. Some believe that by smoothing out production at the scheduling and operations level, all Muda and Muri will become apparent. Just In Time (JIT) systems allow for little to no extra inventory, and focus on having the right amount of the right components at the right time in order to avoid Mura. We will discuss the JIT system of inventory management in the Operations book.

Muri – Overburden. This can be seen as all of the unreasonable work that is imposed on workers, machines, or systems by management due to poor organization. Examples of this are carrying heavy weights, making unnecessary movements, or working significantly faster than usual. It's pushing a person or a machine beyond its natural limits. Most costs are assigned (consciously or not) when a product is designed, and so much of the elimination of waste can happen at this early stage. A very simple example of this is to think of a delivery truck that is delivering extremely heavy concrete blocks. If, in the planning stages, the truck chosen for this delivery comes equipped with a forklift for moving the heavy blocks, much time and energy will be saved in the execution of moving the blocks.

How the Three Types of Waste Elimination work together.

Waste of overburden (Muri) should be eliminated in early stages during the preparation and planning through the design process. The previous example of planning to have a fork lift on a truck that needs to move heavy items illustrates this.

Inconsistency (Mura) should be eliminated during the implementation stages, smoothing out production at the scheduling and operations level. Imagine, for example, if that same company had a shipments of pillows, and shipments of concrete to deliver. To smooth out the delivery, it would be best if concrete were delivered by the truck with the forklift, while the pillows were delivered by the trucks without.

Work that doesn’t add value (Muda) is then discovered and eliminated reactively through careful observation. Following on the same example, managers would focus on tasks being performed by the delivery drivers, and eliminate any tasks that did not produce value. In this case, it may be that the driver delivering cement blocks had to sift through invoices for both cement blocks and pillows at each stop. Time spent sorting and resorting invoices that had nothing to do with his deliveries adds no value to the business, and a good manager would eliminate that task from the drivers. Management’s job is to examine the types of waste (TIM WOOD) in the processes and eliminate their root causes by considering their connections to the waste caused by overburden and the waste caused by inconsistency, and giving information back to the preparation, planning, and design stages.

Lean methodologies affect your entire business

Lean concepts (explained in detail under Operations), which originated in the manufacturing sector, have spread to all departments of a business and to all industries. Lean has developed into a total management system touching all aspects of a business from marketing through to distribution and has even spilled over from the businesses that implement the concept to their suppliers and distributors.

When a business decides it will implement Lean ideologies, it usually starts with the production department. Your production department does not work in isolation, however, it works in tandem with your other departments and responds to the influence of the market. A glut of sales, for instance, will put pressure on your production department to perform. This is not just a one-way relationship however, with your production department being pushed and pulled by your sales and marketing departments. Information is constantly being passed back and forth between departments. By paying close attention to the sales figures, your sales manager may discover that the widgets with two nozzles are not selling half as well as your widgets with three. This information will cause changes in the daily operations of both your marketing and production departments. Production may note that it has a backlog of a particular product, and your Marketing department will use that information to tailor its actions to sell more of the product that it has on hand.

The areas of a business that often closely follow the production department in implementing lean operations include marketing, R&D, finance and business development (such as forecasting and strategy development). Each department has to set its own strategy to implement lean operations, but each strategy has to be consistent within itself, with other business strategies and with the business overall strategic objectives. Just like the production or distribution department that begins to implement Lean theories, the department must begin by considering customer needs as well as the activities of competitors.

The concept of waste, and the objective of eliminating it, applies equally well to administration and service departments. Each department needs to define the core tasks of what it does, who it supplies, who it gets its supplies from, and to conduct an activity value analysis of the way in which the activities are executed. For example, an accounting department can identify cost reporting as one of its core tasks. The “suppliers” of the product can be identified as the different business functions that generate costs and report information to the accounting department. The “customers” of the product are upper management and the finance department that uses the cost information to make decisions. Value-added activities can include the accounting department’s interpretation of the cost information and subsequent analysis while “waste” activities include the sorting through irrelevant data and creating reports that management does not actually use.

Why are we talking about Lean in the Management book? Shouldn’t that be Operations?

We will go into detail on the moving parts of Lean in the Operations book, but it comes up here because Lean is not just a production system, it's an overarching corporate culture. Traditional management roles organize resources in a very “top down” way. Goals and systems are set or put in place by the top managers and the people on the front lines of departments (sales, marketing, production, etc.) do their best to follow orders. Lean culture insists on continuous improvement that can (and must) be instigated by all individuals in a company. This changes management’s job from one of delivering and enforcing orders to one of enabling and facilitating a culture of continuous improvement.

In a Lean enterprise, the span of worker control falls somewhere in between the mass production plant and the craft-style production facility. Management doesn’t look at workers as simply a production input; instead, workers are trained for a variety of jobs and skills. Besides production skills, workers are trained in record keeping, quality management, maintenance, etc. Additionally, management organizes workers into teams that are autonomous, don't require large administrative staffs, and are more capable of reacting to shifts in production content than traditional mass production facilities. Therefore, while employees have a standardized set of tasks, they're standardized on the team level and not then individual level. The increased scope of training and decisions making gives workers more control, so they eventually become masters in their set of activities and are in a position to continuously improve them.

Value Stream Thinking

We are used to thinking of our business in terms of its functions or departments. These may be sales, marketing, production, accounting, research and development, etc. Resources, including people, are then organized around those functions. But, in a Lean environment, everything is organized around the Value Stream.

For example, a traditional business that sells commercial restaurant equipment to restaurants is likely to consider the types of jobs that it has to do, and separate those jobs into departments. This company would likely have a Production department, a Sales department, and an Admin department among others. Lean companies are more focused on the path that value takes through a business, and organizes people along that path. In that same restaurant equipment supply company, rather than having a production manager, they may have an individual that is responsible for organizing systems that begin with purchasing equipment from suppliers, move through warehousing and inventory of that equipment, and carry on through sales and ultimately invoicing and receiving payment for that equipment. The idea is that with traditional businesses organized into departments, the different pieces of the puzzle must clearly communicate with each other to produce value. In a lean organization, the different tasks are organically linked through their common touchpoints along the value stream.

A value stream will cross over numerous functions. For example, when a customer places a widget order, sales, accounting, production, shipping and a few other functions could be involved. Because of this, Value Stream Mapping is best done by groups of individuals and their peers who are actually involved in the processes, with a leader who has the authority to put plans into action.

Value Stream Mapping

Value Stream Mapping is the process of creating a one-page picture of everything that happens, including all the information and resources used from the time an order is placed, until the time products or services are delivered. It looks at all of the related value adding activities, and confides their structure, duration and sequence. This can be an external customer, or this can be a map of the processes internal to your company with orders being placed by one department and the finished products being handed off to another.

The goal of a value stream map is to show all of the value-adding processes, and to expose the processes where waste occurs. A current state value stream map becomes the baseline for improvement and the creation of a future state value stream map.

With few exceptions, the same concepts were applied to different activities but the method in which they were implemented was altered for the specific activity in question. If these individual breakthroughs can be linked up and down the value chain to form a continuous value stream that creates, sells and supports products and services, the performance of the whole organization can be dramatically improved. Value-creating activities can be joined to create such a scenario, but a new organizational model is needed; the lean enterprise. The lean enterprise requires that managers, and the business as a whole, focus on the performance of the enterprise rather than on the performance of individual people, functions and departments.

In the section on JIT in the Operations book, there are many examples of how your business can improve a specific activity in a single department.

This does not take away from the need for clear accountabilities, however. Organizational structure is the backbone of a business, regardless of it's operational design

Lean Management

For Lean principles to take hold in a company, all stakeholders, from the top down, must be fully convinced and committed. Over 80% of companies that attempt to operate according to Lean principles are unsuccessful at becoming and staying Lean. What this means for managers is that their biggest job in the process is fostering the culture of continuous improvement. Individuals must be totally dedicated to a specific process for the value stream to flow smoothly. Without the proper behavioural principles and values, Lean can be misapplied and fail to deliver results. It can be very difficult to build the level of belief necessary to succeed. One criticism often heard of Lean is that managers may easily focus too much on the tools and methodologies of Lean, and fail to focus on the philosophy and culture. The implication of this for Lean Managers is that adequate command of the subject is needed in order to avoid failed implementations.

Lean and Your KPIs

Key Performance Indicators help you to understand how your business is performing. If your business designs, builds and sells widgets, you will no doubt have KPIs that tell you how many you are building and selling on a regular basis, as well as how many resources it takes to build and sell them. With a traditional “Push” approach to manufacturing and sales, you may focus on increasing your production with the thought that if you build more widgets, you will hire a more robust sales force to sell more. The Lean approach to manufacturing is a “Pull” system that orders only enough resources, just in time (JIT) to produce exactly enough product to fill demand. This eliminates all kinds of wasted resources, but it does force a company to rethink their KPIs. Lean businesses focus on having their manufacturing operate on a Fixed Repeating Schedule (FRS). Some Lean companies will actually run what appear to be two separate factories, one producing the exact same things in the same way day after day, and the other handling anything and everything outside of the norm. By having their operations run on a Fixed Repeating Schedule, they (and their suppliers) can focus on eliminating waste in the repeated processes. Here, you can see that the truly Lean business will be experiencing standardized results from their manufacturing processes. These KPIs will now be more useful so far as they show the relationship between widgets sold and widgets produced.

“Any manager aspiring to a lean enterprise must understand the conflicting needs of individuals, functions, and companies.”

- James P Womack, Lean Enterprise Institute Founder

Managing Conflicting Needs

Getting managers to think in terms of the “value stream” is the critical first step to achieving a lean enterprise. While the step is critical, it's often the most difficult to implement because management meets tough resistance from the rest of the organization. Resistance stems from the fact that each aspect of the organization has its own needs and people seek to protect those needs, namely:

Needs of the Individual – for most people, having a job is an essential factor in defining who they are, maintaining self-respect and of course providing financial support for themselves and their families. Therefore, it's often counter-intuitive to assume that people will identify and implement changes that will reduce the scope of their jobs. Because making progress in Lean operations immediately creates large amounts of excess labour capacity and excess workers, the job's problem is a major obstacle facing any organization that wants to implement Lean operations.

Needs of Functions – in order to strategically organize and expand the knowledge of their workforces, companies must organize knowledge skills into functions such as R&D, marketing, production, etc. But functions do more than simply organize a workforce; they teach employees, who, in many cases, identify themselves with that specific function. Functions allow the business to collect, systemize and deploy knowledge among its human capital. Therefore, functions play a central and necessary role in an organizational structure.

When individuals and functions feel threatened by streamlined processes, these processes won’t be streamlined for long.

In this chapter you should have designed, shared and made a plan to review your:

• First system.
• Mechanisms to ensure that your system is followed completely.
• Systems list.