AME-UK - Lean Learning - Operating Lean


	Lean learning - Operating Lean

Operating Lean

Operating ‘Lean’

What is possible and how you start

	Introduction
	Lean operating practice
	How you create sustainable market advantage
	So what makes factories world class?
	Why should your company change?
	How you get started
	How we are starting to help UK manufacturing managers

Introduction

Let us explore how manufacturing will evolve over the next five to ten years. Four contributors illustrate key learning points:

	companies will realise that better returns require them to switch emphasis to better managing their production processes.
	and to survive they need to take action not just be aware - bite the bullet: act now.

Traditionally, companies have tended to concentrate on managing the utilisation of their assets, which has dictated the architecture and layout of their production processes. They have traditionally held a large value of stock and work in progress as a buffer to keep their machinery utilised. And their production processes tend to be arranged to suit the needs of their processes and suppliers rather than those of their customers.

This cripples their profitability. First, in order to utilise their assets fully, their production routing is so tortuous that they cannot respond to customer needs quickly because their internal production lead-time is orders of magnitude too long. And second, because their lead-time is so long, they produce mountains of stock to try to satisfy orders more quickly, which ties up a mountain of cash, usually in the form of bank borrowing. Stock and work in progress typically costs half its value a year to hold. It not only ties up cash but creates large unrecognised overhead costs by occupying areas of expensive floor space that need energy and manpower to control and service. You have to increase your prices to cover its cost (or, more usually, reduce your profit).

The main lesson is that the few companies which are tackling this problem are making more profit and are taking business from those that aren’t. They aren’t bothered by the weak Euro or by the need to raise money to invest in their future. They are strong because they have better quality products at lower prices with guaranteed fast delivery. They make only when a customer orders, in a short lead time, and hold little stock. And although these huge improvements have cost time and commitment to make, they have cost very little money.

Most other companies could radically reduce their operating costs. See Vince Harris’s example below: Ł5 million a year saved on a turnover of Ł40 million. Although some company managements are aware of best practice, most lack the management skills or commitment to redesign their production systems. See below for how you learn how to.

Lean operating practice
Professor Daniel T Jones, director of the Lean Enterprise Research Centre and author of leading seminal works on lean operating practice, defines operating practice, current and future. His theme is manufacturing our future - you must untangle your processes. Companies will have to reorganise how they operate their production processes to reduce lead-time, stock and work in progress, to release floor space and working capital, and reduce head count and overhead. The result will be large reductions in operating costs.
Over twenty years, Taiichi Ohno at Toyota overcame the obstacles to producing a variety of products in process sequence. Their business system is based on compressing time, with near perfect capability, and they build only to order. It still represents the most complete example of process thinking. But thirty years later the average UK manufacturer still does not understand its benefits.
The automotive supply sector leads in these practices. Since the mid-70s, inventory turns have more than doubled in this sector. But elsewhere in manufacturing during the same period, typical companies are stagnating at around 7-8 a year. As a direct consequence, these companies’ operating costs are too high.

How you create sustainable market advantage
Brian Jones, ex CEO, NYPRO Corporation, USA tells us how we can create sustained competitive advantage in the UK. (Brian is President of AME in the USA - see below.)
There is one vital requirement: cut costs by reducing wasted effort. Most companies don’t realise that they have huge potential to reduce their operating costs radically by this means, as illustrated above. But most UK manufacturers have not even started to appreciate the magnitude of cost reduction they can achieve. And even fewer realise that it will cost them so little to do so.
Waste is anything other than the minimum amount of equipment, materials, parts, space, and worker’s time, which are essential to add value to the product
Waste is any activity that consumes resource but creates no value for the customer. The 8 classic wastes are overproduction, waiting, transport of materials, inefficient processing, inventory, unnecessary motion, defects and redundant information.
Inventory is the narcotic of business. Inventory is addictive: more is never enough. You have to increase your prices to support the habit. It dulls the senses to the real world. It grossly over-complicates your production operation. And soon the cure becomes a larger problem than the one it was intended to relieve.
20 years ago inventory turns in automotive suppliers were around 10-12 a year; now they are over 20 and still increasing. The rest of manufacturing industry is not yet even making 8 a year.
But why should you bother to get Lean? Because you will lose your sales to those who are, and to imports from lower cost foreign competitors. You need the right product, at the best quality with quick response to what the market wants - all at the minimum possible cost. Most UK manufacturers say they know this; but most do nothing to get there.
To achieve these reductions in waste you need a high velocity system: a system that is triggered by the pull of customer orders, that hits all activities that design, build, and deliver products and services to the customer.
You produce only when the customer orders in a very short lead-time. You do not deliver from stock to a forecast; that causes stop-start high rate production that creates mountains of stock and work in progress.
The goal is to make your production cycle time the same as the rate at which you sell your product to avoid over or under production.

So what makes factories world class?
What is world class? How do you know if you are?
In the UK, it is said that fewer than 2% of our factories are world class. 50% believe they are OK but realise they do need to improve; these companies could readily become world class if they started down the road. The rest believe they are OK and see no reason to improve. These companies need to beware of their future fate if they don’t realise their plight; a lifestyle business will rapidly sink to failure.
World-class factories don’t just happen by accident. People produce them. These people understand a number of key factors:
They understand the requirements of the business and its customers. They always want to improve how they meet them. They not only realise that their business is not world class but they have the burning ambition to become so - they have a competitive spirit and don’t like coming second. They therefore take on the challenge to redesign the essential processes of both manufacturing and of their entire supply chain. Everyone in the organisation becomes motivated by success; they all take responsibility for continually eliminating all forms of waste through continually improving every process. Despite even great achievement, they still don’t believe they are world class and continue to strive for further improvement.
If this approach were adopted across UK industry, the ingenuity of our people would flourish. We would regain our position as a dominant manufacturing nation. The weakness of the Euro would no longer matter. We would compete better with lower wage-cost countries.

Why should your company change?
With the advent of the Internet, even many of the least willing managements are starting to consider ways in which they could re-shape their operations. You will be left behind if you don’t; many fail totally through not doing so.
Among the drivers should be competitiveness, profitability and shareholder value, as well as technology. They also need a desire to create a workplace in which everyone continually seeks ways to improve and to add more value for customers.
Company managements consider altering their traditional ways of working for many reasons. The usual reason is being struck by a crisis - usually potentially terminal. For many this is too late: more perish than survive. Don’t wait for this usual reason to strike you. You will reap greater benefit if you do it now rather than wait for the crisis: you will be able to start from a stronger position and achieve success far sooner.

How you get started
What would a 10% reduction in manufacturing costs do for your bottom line?
The benefits of lean manufacturing are huge. Any detail examination of your internal processes and of your supply chain will reveal a host of opportunities to reduce cost.
And early quantifiable success lifts everybody and encourages participation. There is not a single manufacturer that would not benefit from an overhaul of their present operations.
So how do you get started and where do you start?
First there has to be commitment from the very top of your organisation. You will achieve success only if your CEO, directors or owner-managers champion the improvement process. They do not need to be the do-ers. But unless they whole-heartedly support what you plan to change, you are doomed to failure. Regardless of company size, you will need help to get the process underway. A number of small specialist companies can provide the facilitators who can help you analyse your present operation. You then decide with senior management the route for the journey you are about to embark on. Make no mistake: this will be a long journey. You are not likely to achieve world-class performance in less than five years. You need to identify which areas of the business will benefit most from change. This will become evident when you have analysed your present operation with the help of your facilitator. You normally start by mapping your processes. Each is systematically reviewed and the stages written down: a clear picture will emerge that will identify waste. If any part of a process does not add value, why do it? Having discovered the key areas that need improvement, it falls upon management to decide how to proceed. You have two options. Either use your facilitator to do it. Or appoint a change-making team from your staff, who then need to leave their current role to focus on ensuring that change milestones are met. The team, who will be tasked in training others, will need to be trained themselves. Your facilitator will usually help do this. Cost will be incurred either way; but you will soon start to reap a return of many times your outlay. The key to successful change programmes is communication. You must get the messages across clearly and concisely. You need to engage the hearts and minds of everyone; make sure they are fully behind the process. There is no room for cynics; they spread doubt, and eventually undermine your efforts.
Start now; don’t wait until you are driven to the wall by others who have. Manufacturing managers needs to accept the challenge now. Unfortunately, most wait until they hit a crisis and are forced to act. Which kind are you: go for real profit improvements now; or wait until you’ve got your back to the wall and hope you can avoid extermination?

How we are starting to help UK manufacturing managers
We are starting a programme to help UK managers learn how to put these principles into practice. See the Events page.
The primary purpose of all AME members is to get their companies moving towards these goals: learn then act, not just talk about it.
As well as the UK workshop programme, every year, a major annual event helps this learning process. Around 1,500+ delegates gather for a five-day get together that includes learning sessions from world authorities and experienced practitioners; and visits to nearby world-class manufacturers. See the Events page to see when and where the conference is this year. AME-UK members get a special discounted rate.
If ever there was a right time to change it is now. Manufacturing management needs to accept the challenge.

Dr C B Mynott, Secretariat, AME-UK