Experiencing the Real Lean Upside
By Kevin McManus, Chief Excellence Officer, Great Systems
One way to shoot me off on a lengthy rant is to bring up the lean six sigma subject in conversation. Why does this topic touch such a nerve with me? It’s not because I disagree with the concepts. In fact, I strongly support the implementation of systems that mirror the Toyota Production System. It is a key goal of mine to strive for low variation and error free work. In doing so, are we often failing to experience the real lean upside?
Unfortunately, we have compromised the design of our lean improvement approaches to focus too much on headcount reduction. Similarly, we have undercut the systemic differences that allowed six sigma methodologies to work so well for companies like Allied Signal, GE, and Motorola. You can find my rants on the 21st century six sigma debacle via this link. This post focuses on the potential power of the real lean upside.
What is Your Perspective of the Real Lean Upside?
How is lean viewed in your organization? Is it seen merely as a tool to reduce headcount? Do people recognize the real lean upside – increasing customer value and growing revenue? Would your customers agree with your touted levels of lean success, or would they fail to even notice any positive benefit to them from an internal lean project?
My take, based on daily observations across many organizational types, is that most people view, and often use, lean only as a headcount reduction tool. After all, you can cut costs to the bone, pass defects on to the customer, and not lose any significant business, right? How often have you seen the goal of increasing both internal and external customer value at the forefront of a lean implementation effort?
What is the Real Lean Upside?
We should view lean six sigma practices as tools for growing our businesses. Lean thinking and acting should be promoted as strategies for generating much more revenue for the organization. That’s right – the main reason any company should implement lean is to grow their business. This is the real upside of lean as I have witnessed, and experienced, it. This often forgotten benefit should not be taken for granted or assumed. Instead, we should more actively promote it and seek it out.
James Womack tried to present both sides of lean – reduce waste and increase customer value – in his books. Unfortunately, most folks seem to have preferred to only hear the waste reduction portion of his message. Worse yet, most organizations have limited their waste reduction focus to one that is direct labor-based. Indirect labor waste, material waste, and especially overhead cost waste, have been largely, if not totally, ignored in most cases. What is the case in your company? Are you taking advantage of the real lean upside? Are you creating agile work systems that can respond rapidly to key customer needs?
Do You Have to Live the Lean Experience to Appreciate It?
I was lucky. When I took on my last ‘one company’ job, I was not expecting to experience first hand the power of the real lean upside. Because I had primarily worked in cost centers with little sales force contact, I had only been exposed to the bottom line impact of expense-focused improvements. Profit margin shifts, however, are driven both by reducing costs AND growing revenue.
The key to the real lean upside is recognizing the power of using lean to make processes more agile and customer focused. When revenues grow as costs are reduced, tremendous things happen. The need to reduce overall headcount disappears. Jobs change, but they are not lost. We doubled sales revenue in three years. We also maintained a significant profit margin, provided more customer value, and avoided headcount reductions.
Exploring My Real Lean Upside Example
At my flavored syrup company, we only produced 33% to inventory – 67% of our daily work was of a made-to-order variety. I had not worked in this type of environment before. I was amazed at how closely lean technique use and success in meeting shifting customer needs were related. In fact, had we not employed a variety of lean techniques, we would not have doubled our annual revenue over three years without doubling our workforce.
We grew because we consistently achieved our main daily goals – no late orders, no incorrect orders, and optimize finished goods inventory levels. Notice what is missing from this goal list. Reducing headcount and labor costs was not a primary focus. We wanted to optimize our costs while ensuring customer needs were consistently met, if not exceeded.
When I first arrived at the plant, we only performed one or two changeovers a week. Less than three years later, just prior to our acquisition, we were often performing two or three changeovers a shift. Fortunately, lean methodologies had allowed us to not only reduce our average changeover times, but also reduce the variation associated with changeover and process recovery cycle times. In turn, we made our work systems more predictable from a future performance perspective. The cost of reduced changeover time was obvious. The salesperson’s delight, and the added revenue, that came from our ability to accommodate a key customer change request at the last second was an added bonus.
Leadership Makes the Real Lean Upside a Reality
I give my boss, the Chief Operating Officer, a lot of the credit for these successes. He recognized the value of focusing on the customer and growing the business versus merely driving down labor costs. He also recognized that as we got better and better at meeting shifting customer expectations, customers were going to expect even more. In other words, it was going to be hard to just control direct labor costs, let alone drive them down. It did not matter to him however, because he knew that growing the business would absorb more fixed costs, such as overhead. In turn, we could increase profit margins even if we needed to add a person or two to meet additional customer needs.
My last experience was not the norm for me, and I suspect that it is not for you as well. The lessons I learned from the experience however were profound. These experiences drastically shifted my perspective about the real upside of lean tool use. It also gave me greater insights into the ways that industrial engineering practices could similarly contribute to business and profit margin growth. In fact, I now believe that growth in these areas should be the main types of gains expected from applying industrial engineering strategies. We are selling ourselves very short if we view industrial engineering as being only a means for reducing costs.
Do You Want to Experience the Real Lean Upside?
I wish more people could have similar experiences. It bothers when I see major retailers reducing headcount, only to increase customer wait times or ordering errors at checkout counters. These leaders may think that they are saving money, and they are. They are also losing business little by little. The net result is that profit margins become smaller and revenues decline as time passes. Worse, such practices reflect an illogical line of thinking and can demoralize the workforce.
The belief seems to be that defects can be passed on the customer without suffering any meaningful loss of business. The reality is that we aren’t measuring the true costs of our erroneous lean decisions. We are failing to connect the dots between headcount cuts and lost customer rates.
What is the case in your organization? To what degree have you investigated, and taken advantage of, the real upside of lean and industrial engineering tool use? Do your measures reflect the true impact of your leadership choices? Could you be missing out on real opportunities to grow your business? Keep improving!