13 Tips for Transitioning Your Company to a Lean Enterprise
We can learn a great deal from the few companies out there run by experienced and talented lean leaders who have really been successful at effecting change at the cultural level. It is clear there are a variety of ways of doing this. At Wiremold, the CEO, Art Byrne, started by personally leading kaizen events to shake up the organization with radical change in high-opportunity areas. Keith Allman at Merillat took a two-pronged approach. He hired a few young and talented lean change agents to work quietly on creating model lines (discussed below). For the rest of the company, he personally taught courses on lean and on the specific tools he wanted them to implement in the first year. (He started with 5S.) Each year he rolled out an additional level of tools and management changes, teaching the employees along the way while putting in management objectives committed to implementing the tools. Top experts in the field were brought into the company to teach other tools, like value stream mapping and standardized work.
Despite different approaches, both lean leaders started immediately with action in their core value streams. In a manufacturing plant, this means the shop floor. In a product development organization, it means the product development process. In a bank, it means the core business processes that affect the bottom line, like loan transactions.
Here are 13 general tips on what works in transitioning a company into a lean enterprise:
- Start with action in the technical system; follow quickly with cultural change. Most companies attempting a lean transformation focus on the “process layer” of the 4P model and this is, in fact, the right approach, as the technical systems of lean drive the Toyota Way behaviors, such as surfacing problems that employees must learn how to solve. But the social and technical systems of TPS are intertwined; if a company wants to change the culture, it must also develop true lean leaders who can reinforce and lead that cultural change. The best way a company can develop this is through action to improve the company’s core value streams, supported by committed leaders who reinforce culture change. Leaders must be involved in the value stream mapping and shop floor transformation so they can learn to see waste.
- Learn by doing first and training second. I have been involved in many corporate start-ups of lean and someone will inevitably say, “Before we can get started with all these radical changes, we need to inform people of what we are doing through training courses.” This has led to elaborate corporate training programs with PowerPointTM presentations. Unfortunately you cannot PowerPointTM your way to lean. The Toyota Way is about learning by doing. I believe that in the early stages of lean transformation there should be at least 80% doing and 20% training and informing. The best training is training followed by immediately doing … or doing followed by immediate training. The Toyota approach to training is to put people in difficult situations and let them solve their way out of the problems.
- Start with value stream pilots to demonstrate lean as a system and provide a “go see” model. In Find Solid Partners and Grow Together to Mutual Benefit in the Long Term we learned about the model lines that the Toyota Supplier Support Center implements in companies to teach lean. Within a value stream, defined by a product family, a model is created. By model, I mean implementing the whole system of tools and ultimately human resource practices so other employees from your company can go and see lean in action without having to go to some other company. For a plant, this usually means creating one product line, beginning with raw materials received and ending with finished goods. In a service organization, it is one complete business process from start to finish within the company boundaries. The go-and-see model line should become a singularly focused project with a great deal of management attention and resources to make it a success and an object lesson in management commitment.
- Use value stream mapping to develop future state visions and help “learn to see.” In Using the Toyota Way to Transform Technical and Service Organizations, we discussed how value stream mapping is a method for clearly showing in diagram form the material and information flow. When developing the current state map, future state map, and action plan for implementation, I always recommend using a cross-functional group consisting of managers who can authorize resources and doers who are part of the process being mapped. The team learns together as they see the waste in the current state, and in the future state they come together to figure out how to apply the lean tools and philosophy. I have spent endless hours debating with individuals over whether lean can apply to their particular situation since they do not have the high volumes and repetitive processes of Toyota. I have never had that debate in a value stream mapping workshop, because the mapping creates a language and tool for the team to actually pick apart a specific process, see the waste, develop a lean vision, and apply it to that particular process. Value stream mapping should be applied only to specific product families that will be immediately transformed. I know many cases where top management mandated mapping an entire plant and all the products in it and the result was a lot of value stream wallpaper in the conference room.
- Use kaizen workshops to teach and make rapid changes. As described in Using the Toyota Way to Transform Technical and Service Organizations, the kaizen workshop is a remarkable social invention that frees up a cross-functional team to make changes in a week that otherwise can drag on for months. Selecting the right people for the team is critical, as is setting aside the time for those individuals and giving them a lot of management support. Using a talented and experienced facilitator who has a deep understanding of lean tools and philosophy with a specific problem to tackle makes all the difference in what you can accomplish. However, the kaizen workshop should not become an end in itself. In many companies, “lean efforts” revolve around having numerous workshops: the more the better. This leads to “point kaizen”—fixing individual problems without straightening out the core value stream. Kaizen workshops are best used as one tool to implement specific improvements guided by a future state value stream map.
- Organize around value streams. In most organizations, management is organized by process or function. In a factory, there is a manager of the paint department, a manager of the assembly department, and a manager of the maintenance department. In a bank, there may be a manager of order processing, a manager of order fulfillment, a manager of customer complaints, etc. In other words, managers own steps in the process of creating value for customers and nobody is responsible for the value stream. In Lean Thinking, Womack and Jones recommend creating value stream managers who have complete responsibility for the value stream and can answer to the customer. In the Delphi plant described at the end of this chapter, they organized around five product families. A manager is responsible for each product family (value stream) and has control of all the resources needed to make the truck cockpit—including maintenance, engineering, and quality. In the second edition of Lean Thinking (2003), they have modified this as possibly a matrix organization where there are still heads of departments but also value stream managers, similar to Toyota’s chief engineer system. The message remains the same: someone with real leadership skills and a deep understanding of the product and process must be responsible for the process of creating value for customers and must be accountable to the customer.
- Make it mandatory. If a company looks at lean transformation as a nice thing to do in any spare time or as voluntary, it will simply not happen. We saw that the transformation at Cuautitlan was the result of a shift from management suggesting lean to making it mandatory with consequences for not buying in.
- A crisis may prompt a lean movement, but may not be necessary to turn a company around. A sinking ship certainly mobilizes management and the work force into getting serious about lean, as we saw at Cuautitlan. On the other hand, Wiremold and Merillat were not on the chopping block, yet senior management proactively championed improvement. What is important is that lean leadership is focused on long-term learning.
- Be opportunistic in identifying opportunities for big financial impacts. I have emphasized throughout the article that Toyota focuses on improving processes, confident that this in turn will improve financial results. However, when a company does not yet believe in the lean philosophy heart and soul, it is particularly important to achieve some big wins. By picking the right product family and with experienced lean expertise, a serious effort has about a 100% chance of making huge and visible improvements that will impress any executive.
- Realign metrics with a value stream perspective. “You get what you measure” has become a truism in most companies. But metrics are used very differently by Toyota compared to most companies. They are an overall tool for tracking progress of the company and they are a key tool for continuous improvement. At most companies they are mainly a tool for short-term cost control by managers who do not understand what they are managing. For example, companies track indirect/direct labor ratios and call to the carpet those with unfavorable ratios. The way to make the ratio look good is to have lots of direct labor and keep those people busy making parts, even if they are overproducing or doing wasteful jobs. Creating a team leader role for support like Toyota’s structure means damaging that ratio and a short path to the unemployment line. The first step therefore is to eliminate non-lean metrics that are wreaking havoc with those seriously invested in improving operational excellence. The next step is to measure a variety of value stream metrics from lead time to inventory levels to first-pass quality and treat these metrics as seriously as labor productivity and other short-term cost metrics.
- Build on your company’s roots to develop your own way. Toyota has its way. You need to have your way. When Toyota works with companies to teach TPS, they insist that the companies develop their own system. It is OK to borrow some of the insights from the Toyota Way and I recommend adopting the basic principles in this article. But you need to put them into your language in a way that fits your business and technical context. The Toyota Way evolved through some inspired leaders who provided a very rich cultural heritage. Your company probably has a rich heritage as well. A large majority of business start-ups fail within the first three years. If you are reading this article hoping to improve your company, most likely you are one of the survivors. Someone did something right to get you to this point. Build on that. When we first started working with Ford to help develop the Ford Production System, we held seminars for senior management and handed out copies of Henry Ford’s article, Today and Tomorrow. This article inspired generations of Toyota senior managers, yet astonishingly few Ford managers had ever read the article. Build on your company’s heritage to identify what you stand for.
- Hire or develop lean leaders and develop a succession system. We discussed what it means to be a Toyota leader in Growing Your Leaders Rather than Purchasing Them. Leaders must thoroughly understand, believe in, and live the company’s “way.” All leaders must understand the work in detail and know how to involve people. If the top is not driving the transformation, it will not happen.
- Use experts for teaching and getting quick results. The word “sensei” is used in Japan with some reverence to refer to a teacher who has mastered the subject. A company needs a sensei to provide technical assistance and change management advice when it is trying something for the first time. This “teacher” will help facilitate the transformation, get quick results, and keep the momentum building. But a good teacher will not do it all for you. If you want a lean organization, you need to get lean knowledge into your company, either by hiring experts with a minimum of five years’ lean experience or by hiring outside experts as consultants. An expert, whether internal or external, can quick-start the process by educating through action, but to develop a lean learning enterprise you need to build internal expertise—senior executives, improvement experts, and group leaders who believe in the philosophy and will spread lean throughout the organization over time.
Having said all this, the question remains, can a company transform and sustain a culture to become a lean learning organization? If a company can maintain continuity of leadership over time, I see no reason why it cannot profit by implementing its version of the Toyota Way principles. It will not be easy. Typical obstacles may be reluctant top managers who do not understand, managers willing to try lean tools but are not committed to following through, a management shakeup from committed lean leaders to anti-lean managers, a market that goes sour, or a buyout.
We also mentioned there may be cultural barriers to following the Toyota Way. There are a litany of cultural traits that differ between Japanese and Americans and French and Germans, etc. For example, we saw that the philosophies underlying hansei that Toyota considers necessary for kaizen are rooted in Japanese upbringing. And there is even some evidence that Asians more naturally do genchi genbutsu and observe things in greater detail. Yet, the Toyota Way is working and prospering within Toyota affiliates around the world albeit with a great investment of time and energy by Toyota in developing its unique culture. And the Toyota Way is evolving as it adapts to other cultures, probably making Toyota an even stronger company.
Even though there are plenty of uncertainties and challenges, my advice is start adopting your version of Toyota Way principles. As you have seen in this article, it is very feasible and there are successes to emulate. If Toyota is any example, the rewards and results will far outweigh the great effort required. You will simply be the best in your business because you will be using operational excellence as a strategic weapon. Good luck on your journey!
Case Example: Transforming Delphi to a Lean Culture
Delphi was a division of General Motors composed of several mass production operations that produced in-house parts for GM. Costs were high and quality was not competitive. General Motors spun it off and named it “Delphi,” a separate company, in May 1999. For a while, it retained the high-cost structure of General Motors, including a UAW contract requiring higher wages than other parts suppliers.
Almost immediately after Delphi went public, J.T. Battenberg, Delphi’s president, strongly endorsed creating the Delphi Manufacturing System, based on the principles of TPS. John Shook and other former Toyota managers and TPS experts assisted Delphi in the transformation. While it took years to penetrate the old-line union culture of these former GM divisions, the pieces slowly began coming together, moving from the application of isolated tools to building systems, to transforming the culture of Delphi toward a lean enterprise. UAW-negotiated wages could not be reduced, but there were opportunities for productivity improvements, quality improvements, space savings, and inventory savings.
One of Delphi’s many success stories was its Adrian, Michigan, plant, which made instrument panels for light trucks. Adrian was in competition with low-cost and high-quality Delphi manufacturing in Mexico. At some point in the 1990s, it became clear the plant was on the “fix, sell, or close list” since it was not profitable. But the plant decided to fight for its survival and saw the Delphi Manufacturing System as the only way to be successful.
During the summer of 2002, when I spent time in the plant, it was making 6,000 automotive instrument panels a day for seven GM plants, which was less than half its capacity. The plant had made many of the lean changes, one of the most dramatic being the removal of the overhead conveyor system. There had been a half mile of power and free chain conveyor overhead that these instrument panels circulated around on, which carried a ton of inventory. Moreover, because it was up in the sky, it could easily be ignored. Problems were hidden up there. As part of the future state value value stream map, they decided to tear it down. Removing the overhead conveyor system freed up four maintenance people who were just keeping it running. They were then reassigned to preventive maintenance for the plant. Assembly of the instrument panels was reorganized into cells by product family. Kanban was implemented to control the flow of parts from molding to assembly and purchased parts to the line. Various clever mistake-proofing devices were put in to reduce defects. Andon systems were installed so operators could call for help. The place was cleaned up and organized through a 5S program. Material began to flow and costs began to come down.
A milestone in the lean transformation came when the plant introduced heijunka (leveled production scheduling). In the past, it built in big batches of each model of instrument panel. This contributed to the large buildup in inventory and general chaos in the plant. When the plant implemented one-piece flow, it still built in batches and had no way to control the erratic schedule from the customer, which varied dramatically in volume and mix from day to day. With the help of a lean consultant, who had worked with Toyota, it implemented heijunka to control production and smooth out these peaks and valleys. The plant kept a small store of finished goods instrument panels and replenished this based on a simple visual system: a big box with slots (heijunka box) was used to visually schedule the production for the day, based on changing over to different products throughout the day. An order for parts was pulled from the heijunka box every 26 minutes and, based on what the card said, instrument panels were loaded on a train of carts, which triggered the scheduling of new panels to be made. To support this, setup times were dramatically reduced and eventually supported four color changes a day.
Perhaps more important than implementing these TPS tools, the entire plant was reorganized from functional units to five value streams, each focused on a particular part family of instrument panels—mostly by customer and type of truck. All the operators responsible for building an instrument panel, from raw material to finished goods, reported to a value stream production manager. The production managers moved out of the front offices and relocated to the floor within their value stream. Maintenance, which had been located around the periphery of the plant, was reassigned to and physically located within the value streams. The main support functions for each value stream were matrixed. For example, quality specialists were assigned certain value streams but also reported to a quality manager. The result was a shift from focusing on maximizing production of individual departments and pointing fingers of blame to maximizing throughput and quality of value streams.
Back in 1986, the plant had embraced a team problem-solving program. It was a mess. There were multiple leaders and different departments had different concerns, often at cross-purposes. It became a session for venting complaints and ultimately there was little action. When the plant took the lean approach, the improvement process relied heavily on value stream mapping as a visioning tool. Each of the five value stream organizations created 90-day visions, using value stream mapping to draw the vision. Based on the 90-day new value stream map, a detailed action plan was created with assignments and due dates. A cross-functional team in each value stream would meet every week to assess progress in implementing the action plan. Problem solving became unified and focused on a shared vision. Every quarter, they updated the future state map to bring it to the next level of lean.
Up-to-date metrics kiosks were posted in each manufacturing area. The metrics defined by the Delphi Manufacturing System focused on lean characteristics such as productivity (parts/labor hour), product cost, first-time quality, total process cycle time, overall equipment effectiveness (a measure of equipment uptime), andon response time, and scrap. There were specific targets for improvement for these metrics for each value stream each quarter. Since the measures were by value stream and the plant was organized that way, all of the resources were under one value stream manager to improve the process. Just improving the “first-time quality” paint process alone saved $2 million annually.
A separate metric for the overall plant measured productivity improvements of direct, indirect, and salaried labor. Double-digit productivity improvements each year have became commonplace. Prior to the lean transformation, the plant was losing money every month; in less than two years of lean, the plant was profitable at about $2 million per month. If you tour the facility today, you may be surprised to find that your tour guide is an hourly worker, or a union representative, or perhaps even the plant comptroller. These people all seem to be interchangeable and it is often hard to tell who is who. They are all talking the same language of DMS and value stream improvement. They apparently impressed their largest customer, General Motors. According to Mike Schornack, who ran manufacturing and was instrumental in leading the lean transformation (April 2003):
We were given some great news last week. The Adrian plant was awarded the GMT-900 instrument panel business. This is replacement work for the current IP and the largest IP business platform in the world. There is no doubt in my mind that we won this business because of our lean transformation. There were many GM tours through our facility before the business was awarded. Every group was impressed with the plant, the metrics, and the positive attitude of our people. The system really works!