Three Keys to Lasting Success

What does it take to survive in the world of business? Among other things, it takes unswerving integrity, a commitment to excellence, and thoughtful innovation. Take away any one of these three elements, and the company’s days are numbered.

Integrity

Business is built on relationships, and relationships are built on trust. Destroy trust in the customer relationship and watch your customers go somewhere else. Likewise, trust is the ground for every other business relationship–employees, investors, partners–you name it. Trust is the stuff of loyal relationships and enthusiastic referrals. Your business grows when happy customers send you their friends and colleagues. The reverse is also true.

Trust flows from the core values of the organization. As an illustration, Chick-fil-A is a company grounded in the kind of strong family values that drive its strategic and tactical decisions. Can Chick-fil-A achieve the same level of success without its core values? Not likely. The company with fuzzy values will tend to quickly lose it way.

Consider the current plight of NBC in the wake of revelations that news anchor Brian Williams fabricated stories of personal heroism. The manner in which NBC handles this breach of credibility will speak volumes about the company’s commitment to journalistic integrity.

Excellence

Over the last couple of generations, the quality movement has raised the bar of expectations to the point that excellence is now a feature and not an extra. This applies in both product and service industries. As a result, if you do your job poorly, there is someone waiting to take your place.

Toyota stands out among automakers for its role in developing many of the quality methods that manufacturers take for granted today. “Lean” manufacturing methods make it possible to achieve flexible, high-volume production with high quality and low cost. Even products that are traditionally viewed as commodities can be economically tailored to meet each customer’s requirements. Consequently, we have entered the age of mass customization.

Among fast food chains, Chick-fil-A stands head and shoulders above the competition because of its commitment to good food and great service. The long serving lines are actually a sign that this company is offering something that’s worth waiting for. And companies like Chick-fil-A tend to raise the expectations for everyone else in the industry.

Innovation

If you want to keep doing what you’ve always done, roll down the window and wave at the competition as they pass you by.

Innovation of the sort we’re describing here is not necessarily technology-based. Trying to adopt the latest technology–especially in the early stages–can be debilitating if it doesn’t make sense for your business. Rather, innovation describes your ability to anticipate change and build flexibility into your business model so that you can stay on the “leading edge” where the competition is thinner and the growth potential is high. (Think “blue ocean” strategy.)

Many large companies can string out success by virtue of the inertia from past success (and the commanding market share that often goes with it), but as the technology economy increasingly shows, product life cycles are getting shorter. Even established products have to show something “new and improved” to sustain the interest of the consumer.

Walmart is the 800-pound gorilla of retail, and yet they are responding to the trend away from big box stores. “Neighborhood markets” offer many of the same products, but on a scale much less intimidating than the massive warehouse outlets.

McDonald’s is a company trying to innovate in the wrong way by doing too much of everything. In the process, McDonald’s is confusing its brand image–and the financial results are beginning to show. When was the last time you had a Big Mac with fries and a shake?

Southwest Airlines has been unconventional since it started almost 50 years ago. The major carriers have never been able to adopt Southwest’s strategy, and the small carriers which try to imitate Southwest are always playing catch-up. Innovative strategy (coupled with a customer-focused culture) have been a winning combination that continues to set Southwest apart from the competition.

A couple of additional examples include Radio Shack, which tried repeatedly to reinvent itself before finally declaring bankruptcy, and Target, which is embarking on an effort to reinvigorate its brand image in the highly competitive retail space.

Are There Any Exceptions?

Examples of success and failure abound. Can you think of any company which survived in the long run without paying careful attention to Integrity, Excellence, and Innovation?

J.R. Dickens

© 2015 Woodland Park Research Group, LLC. All Rights Reserved.

Culture Rules the Day

Anyone who has been engaged in the business of Lean Six Sigma (LSS) can tell you how difficult it is to change organizational culture. When LSS meets culture, culture wins almost every time. That is because our default business culture is actually opposed to LSS improvement at almost every point.

Take production for example. On the typical shop floor, productivity is measured in terms of machine output. This is because the driving metric in a conventional manufacturing operation is the unit cost of production. The goal is to minimize unit cost of production by maximizing output. That happens when every machine is running at 100% capacity. More widgets means that we spread the fixed cost of production over more units, thereby minimizing unit cost. Think of it this way: in a conventional manufacturing environment, efficiency is measured from the viewpoint of the machinery. More is always better. Improvement efforts consequently tend to focus on those things that have the most direct impact on machine output.

The LSS approach to production has a drastically different focus—time. Efficiency is measured not in terms of how many widgets are produced, but how much time it takes to produce a widget from start-to-finish. In other words, efficiency is measured from the viewpoint of the widget as it moves through the manufacturing process. The conventional approach to manufacturing includes the high hidden costs of excess inventory and long cycle time. LSS eliminates these hidden costs by producing only what is needed. In conventional manufacturing, machine downtime is to be avoided at all costs. In the LSS manufacturing system, excess production is to be avoided at all costs. This contrast helps explain why LSS is not easily accepted in a conventional manufacturing culture. In fact, from the point-of-view of conventional manufacturing, LSS makes no sense at all. Why would you intentionally make less than what you can make—knowing full well that it will drive up the unit cost?

Notice that even conventional manufacturing is keenly interested in improvement. More machine capacity means lower unit cost. Bigger warehouses mean more space to store more stuff. By contrast, the LSS approach eliminates the hidden cost of production and focuses on flexible capacity—making only what is needed, in small batches, every day. With this kind of flexibility, Just-in-Time production and Zero Inventory are within reach. Notice that LSS is just as concerned about cost of production, but approaches it from a different standpoint by recognizing that cost is reduced by eliminating process waste.

The road to improvement starts with culture. We will continue to explore the relationship between culture and improvement by considering maintenance practices in the next article.

J.R. Dickens

© 2014 Woodland Park Research Group, LLC. All Rights Reserved.

Lean Transformation

A few weeks ago, I received an excited call from a manufacturing client I’ve been regularly conversing with about the benefits of Lean manufacturing–specifically, one-piece flow.

To provide some background, the client’s organization has enjoyed considerable growth in previous years due to the expanding popularity of its products. Along the way, they are experiencing the challenge of meeting demand while dealing with an assortment of issues including personnel changes, material sourcing problems, and logistics. The nature of their business is inherently cyclical and highly dependent upon accurately forecasting the demand during peak season. Due to a relatively small internal manufacturing capacity, most product assembly is outsourced to one of several contract manufacturing sites in other states–further complicating logistics and production planning. The growing challenge has been to coordinate production in an environment where lead times are typically measured in weeks, and every product must pass through a central warehouse for inventory, inspection, packing, and shipping–regardless of where it is manufactured. With this in mind, my advice to the client has revolved around reducing lead time and reducing batch sizes in order to shorten cycle time and lessen the reliance on stockpiling finished inventory.

On the occasion of my client’s phone call, the source of his excitement was the recent success of an on-site training/deployment of one-piece flow for one of the company’s popular product lines. By creating a simple cellular layout on the shop floor with the corresponding work flow, the time to manufacture one item was reduced from a theoretical value of twenty minutes to less than four minutes–with no accumulation of inventory in between steps. This was nothing less than a breakthrough.

The real surprise came after the holidays when I went to visit the client and see firsthand how much had changed in just a few short weeks. The way that I described the difference to him was “revolutionary.” By the time of my visit–just a few weeks after the first attempt at one-piece flow–the client had transformed the entire manufacturing process to one-piece flow. Now the work flow was balanced, and any accumulation of work-in-process at any point in the process was a signal that the work flow needed to be adjusted. Even the warehouse was noticeably different, with an improved layout, additional packing stations, and a new attitude to complete “one order at a time” rather than having dozens of partially-packed orders in process at once–with open boxes taking up a considerable portion of the available floor space.

There was no shortage of surprises on this visit. Most impressive of all was the experience of talking to people on the shop floor. The language had changed to reflect their new understanding of lean concepts and how those concepts translate to the daily work. The people responsible for doing the work were beginning to understand how to improve the process, to take ownership for the improvement, and to take pride in their results.

Without a doubt, the progress of the last few weeks is only the tip of the iceberg for this company. By improving the manufacturing flow–as well as increasing production capacity–the client will reap rewards far beyond the shop floor. This client is learning firsthand that Lean is a transformational business strategy, and not just a clever manufacturing strategy.

J.R. Dickens

© 2014 Woodland Park Research Group, LLC. All Rights Reserved.

You’re Busy—But Are You Working?

In the last article of this series on waste, we looked at the difference between value-added (VA) and non-value-added (NVA) work, and showed that most work that takes place does not add value from the customer’s point-of-view. This is due in part to the tendency for organizations to equate activity to work.

Value-added work is defined very narrowly which is partly why it represents such a small portion of the work. In order to be “value-added,” three criteria must be met:

(1) the work is something the customer is willing to pay for

(2) the work transforms the item being worked on

(3) the work is done right the first time

Any “value-added” step that has to be done over again (due to errors, defects, etc.) is automatically classified as rework. All forms of checking, inspecting, and testing are non-value-added work because they do not transform the product and would not be necessary if the work was done right the first time. From here we can discern a vicious cycle: our process creates errors (which negates part of the VA work); errors require inspection to detect (NVA work); errors that are found create a rework loop (NVA work); missed errors create unhappy customers (lost opportunity, complaints, and claims—more NVA work). This helps us understand why the emphasis in Six Sigma is on eliminating defects. Even a small percentage of defects will lead to large amounts of NVA work and consequent high costs to the company.

If we look at the definition of VA work through Lean glasses, we’ll see that the first criteria implies making the right product in the right amount at the right time. In other words, the customer isn’t paying us to make and store a product in hopes that it will someday be purchased. VA work becomes NVA work at the point where we make more than what is necessary to meet the current demand (i.e., overproduction). This adds to the cost of doing business for a number of reasons, e.g., material consumption, energy, inventory carrying cost, product damage, spoilage, and obsolescence. Building excess inventory is a common problem when we focus on maximizing machine utilization (or man hours of productivity).

Another way to look for waste is to consider cycle time—the total time required to produce and ship the finished product. For example, a manufacturer of seasonal products will start producing their winter items in the spring. Each item only requires 30 minutes to assemble, but the total time from order of raw material to shipment of finished product may easily exceed six months. In addition to bearing the carrying cost of that inventory for most of the year, the manufacturer also absorbs an additional cost of inventory that doesn’t sell by the end of the season. Which of the following options will do more to address the underlying problem—improving the sales forecast, or reducing cycle time in order to match production with demand?

J.R. Dickens

© 2013 Woodland Park Research Group, LLC. All Rights Reserved.

Seeing the Obvious for the First Time

Improvement often follows a change in one’s paradigm about the way things are done. A recent example illustrates the idea—and shows that a paradigm shift can be right under our nose.

The shipping department of an apparel manufacturing company is responsible for applying printed paper tags to the finished product before it is placed into the shipping queue. The company VP singled out this process for improvement due to the excessive amount of time required for tagging a particular line of outerwear.

A day and time was selected to take a closer look at the process on the shop floor. In attendance were the company owner, the VP, manufacturing manager, production scheduler, warehouse supervisor, product designer, and a warehouse employee to demonstrate the tagging process.

The existing process involved: (1) removing a folded garment from a box; (2) unfolding the garment and spreading it on a table; (3) visually inspecting the garment; (4) applying tags with a tagging gun; and, (4) refolding the garment for storage or shipment.

As we observed the process, several improvement ideas emerged and began to coalesce. Why were the garments folded and boxed by the production department (which was literally 20 feet away)? Why were the garments being inspected? Why were the garments tagged with a gun instead of using string to attach the tags to a button?

Then an interesting thing happened. Someone grabbed a nearby rolling rack and started taking garments out of the box and hanging them on the rack. Now it was possible to stretch out the garment and inspect it more quickly. And as an added bonus, the garment was much easier to tag on a hanger than on the table. The production department no longer needed to fold the garments, the shipping department no longer needed to unfold the garments, and the necessary work of inspecting and tagging could be done more efficiently.

With that success in view, the next steps are as follows. First, track down the source of the oil spots that necessitate inspection and rework of the garments. Next, try attaching the tags with strings in order to eliminate the need to pierce each garment with a tagging gun.

This improvement event took less than an hour, was a tremendous learning experience, and ended with smiles all around. Simpler process, less labor, less time. And some good ideas for making the process even better.

J.R. Dickens

© 2013 Woodland Park Research Group, LLC. All Rights Reserved.

Lean and Mean, Part 2: The Seven Forms of Waste

As we discussed in an earlier article, Lean is a methodology which focuses on the speed of processes. Greater speed translates to reduced cost, improved quality, less rework, and shorter lead times. In this article, we will introduce the “seven forms of waste” that Lean seeks to eliminate. In future articles, we will examine the seven forms of waste more closely.

As we begin to look at the seven forms of waste, let me first point out what is likely to be a significant change in mindset. In the typical factory, it is customary to measure efficiency and productivity in terms of each step in the process. We attempt to “maximize” productivity by running each machine as fast as it will go, without regard to the actual demand and flow of product through the plant. As a result, large quantities of work-in-process inventory (WIP) are commonplace. We may consider it a “normal” and healthy condition of the factory to have pallets of partially-completed material stacked in every corner. This reflects a tendency to “sub-optimize” a plant by attempting to maximize productivity at each step in the process, rather than balancing productivity and accepting lower machine efficiency as a necessary byproduct. In any factory, it is inevitable to have excess capacity in nearly every step of the process. Total productivity will be constrained by the process bottleneck (usually the machine with the biggest pile of material in front of it).

That leads us to the first (and worst) source of waste: Overproduction. Any time we make more than what is needed by the customer—whether WIP or finished goods—we have created waste. Lean means producing just what is needed, just in time—and not a bit more.

Inventory is the natural byproduct of overproduction. When excess inventory is produced, we have consumed unnecessary resources of time, energy, and material. Inventory is money by another name, which means we have excess capital tied up in inventory. And excess inventory requires excess space for storage and excess labor for handling. Inventory is the blanket that hides the inefficiencies in your process—scheduling, quality, equipment reliability.

Motion is another significant source of waste. This includes any motion of workers that does not directly add value to the product. Examples include: carrying material from place-to-place, picking up parts, and positioning parts.

Transport is a related form of waste. This includes any movement of material and the means to move it—lift trucks, conveyors, carts, etc. In addition to wasting the time and energy (and capital) required for movement, transport has the potential to damage the material being moved.

Waste due to motion and transport is why shop floor layout is a priority for Lean—placing the processing steps as close together as possible in sequential order so that motion of material (and workers) is minimized.

Processing waste includes inefficiencies that can be eliminated by combining steps, and sources of redundant or superfluous processing.

Defects lead to the next source of waste: Rejects and Rework. Anything not done right the first time will have to be done over—unless the defective product is completely scrapped. In either case, cost of production (and processing time) tends to multiply. Defects also create more WIP that must be moved and stored (and kept separate from good material).

Waste due to Waiting includes things like waiting for parts from another process, machine downtime, and waiting while parts are processing.

The seven forms of waste are illustrative of the many types of waste that occur in a value-adding process, and in some cases we see overlap (e.g., waste due to transport of materials and waste due to motion of the workers who are moving the material). With the seven forms of waste in mind, we can begin to look at our processes differently and recognize waste that was there all along.

J.R. Dickens

For further reading: Gemba Kaizen

© 2013 Woodland Park Research Group, LLC. All Rights Reserved.

Lean and Mean

While the Lean philosophy incorporates a number of elements, the one that captures its essence is “zero inventory.” Like other productivity goals that aim for perfection (e.g., zero defects, zero downtime), zero inventory is never fully attainable, but the goal serves to create a paradigm shift in our thinking which leads to breakthroughs on the shop floor.

The key deliverable for a Lean system is speed—products move quickly because there is no inventory in the pipeline to cause delays. For a typical manufacturer, value-added time is a tiny fraction of total product cycle time. Most time is wasted while materials are waiting to be processed.

There are three basic types of inventory to consider: raw materials, in-process, and finished goods. In all three cases, the presence of inventory is masking an assortment of problems: long lead times, long changeover times, inadequate production coordination, process bottlenecks, poor quality, poor equipment reliability, etc. As soon as we begin taking steps to drain inventory from the pipeline, the underlying problems come to the surface. At that point, we must be prepared to permanently fix those problems so the process of inventory reduction may continue.

One of the common sources of in-process inventory is rework. Even a relatively small defect rate (less than 5%) has the potential to create large quantities of in-process inventory due to long rework times. Thus, one of the most important goals of Lean implementation is quality improvement. In the Six Sigma system, we refer to the rework loop as a “hidden factory” that consumes company resources without adding value.

The importance of eliminating defects is brought into sharper focus when there are large amounts of in-process inventory: the more inventory between steps, the longer it takes to detect a problem, and the bigger the problem is once it’s finally detected.

There are a number of advantages that accrue from reducing inventory. The most obvious is reduced capital required to run the business (with a consequent reduction in storage space). Additionally, less inventory reduces the cycle time and makes it possible to produce exactly what’s needed at the right time—producing to order, rather than producing to inventory (so that obsolescence is now a thing of the past). But foremost in our minds at the moment is that reducing inventory will expose underlying problems and provide the urgency needed to make improvements.

In the next article, we’ll begin to look at the “seven forms of waste.”

J.R. Dickens

© 2013 Woodland Park Research Group, LLC. All Rights Reserved.