I'm Glad You Asked

    

Lots of good question sent into the Manufacturing Leadership Center recently ... let me catch up on a few of the answers :

Cecilia asks:

“How can lean be used to drive sustainability (triple bottom line)?”

Thanks for the question Cecilia, although I am not a big fan of attempting to measure the Triple Bottom Line, if for no other reason than the fact that it is immeasurable and leads folks down the path – once again – of attempting to manage by the numbers.

The thing about lean – in fact, the best aspect of lean – is that it inherently drives improvements in all three components of the Triple Bottom Line: Profits, Social benefit and Environmental impact. At the core of the basic lean model- the Toyota Production System – is respect for humanity. The social impact cannot help but be positive when a company truly commits to and respects its people, as well as the rest of the core stakeholders: The community, suppliers, stockholders and, most important, the customers. The vital culture required for a company to be truly excellent through the lean model hinges on having a higher social purpose than to merely be profitable. There has to be a unifying purpose and that purpose has to have social benefit. You should look at the Barry-Wehmiller web site to see a great example of this in action.

The elimination of waste automatically results in improvements in the environment and sustainability. I would suggest that, while not all actions taken to improve the environment can be called lean, all actions taken in the interest of lean improve the environment. Wasted space, the waste of over-production, having people consume resources in unnecessary efforts consumes resources … work and spending consume resources of one kind or another and anything you do to eliminate unnecessary work results in the consumption of fewer resources. Henry Ford once said, “Profit is the inevitable conclusion of work well done.” I would suggest that a lessening of environmental impact is also the “inevitable conclusion of work well done”.

Greg asks:

Bill, I recently started working for a company that on the outside you would think is well along on their lean journey. Most of the job descriptions have the words "Value Stream" in them (Value Stream Supervisor, Manager, etc.). The reality is that the value streams are actually departments and the functions are managed to budget and sub-optimized. In an effort to drive more customer centric value stream thinking I lead a value stream mapping event. This was a good effort and it generated a lot of discussion and identification of waste for the team to focus on and lays the groundwork for future discussion with senior leaders around customer centric flowing value streams.

The one area I need to better understand in order to get senior leaders seeing the same opportunities has to do with the value added ratio shown in the current state. What is the typical value added ratio that the typical manufacturing company just starting the lean journey would expect to see when value-stream-mapping the current state? How would that compare to the ratio of a typical company well along on the lean journey, and also compared to a world class lean company? Can you give an example of a few companies both further along and those that are world class and the general value added ratio?

I know that "typical" is rather vague but I am hoping to be able to talk more intelligently with examples when discussing with individuals that think that a 1%-4% value added ratio is typical across the board.”

That’s a tough one Greg, mostly because you are asking the wrong question – but I understand that is because your management is asking you the wrong question.

The simple, straight answer is that the low single digit numbers some think is “typical across the board” is pretty reasonable as a starting point. Most companies I have worked with are in that range prior to embarking on the lean journey. Improvements of 2X, 3X, 4X and higher can be expected in very short order.

The problem with the question is twofold. For one, comparing your company with anyone else if comparing apples and pomegranates. No two companies are the same. It depends on the complexity of the product, the amount of vertical integration, the distribution channels, your geographic location and a host of other things. One very lean company I know expects their value adding ratio to stay the same every year, however, they are adding 1-3 foreign distribution operations every year, so they are looking for their improvements to offset the negative drag of having to add additional warehousing and long export chains.

The bigger problem with the question is that it gets at benchmarking. One hallmark of successful lean companies is that they do not measure themselves against the competition, industry standards or the past. Being 10% better than the other guy, better than average or better than last year leads to complacency. The good ones measure themselves against perfection. All that matters is what your value adding ratio is today compared to 100%. This is the basis for Toyota’s operational true north of 1 piece flow, 0 defects, $0 non-value adding expense and 100% employee engagement. Until they reach those goals (and they never will) they will not be satisfied.

Shane asks:

Bill, we currently have all employees in our warehouse break at the same time. It is around 50-60 employees usually. I think this is an area where we could make improvements by splitting breaks up. What are your thoughts? Any ideas on keeping track of who's on what break to make sure they aren't trying to break multiple times?”

Shane – you have some serious cultural work to do. Sure, go ahead and stagger the breaks – sounds like a good idea. But Shane, if you are worried about whether people will scam you for multiple breaks you either need new people or new management. You cannot succeed with that level of distrust for the adults working in your warehouse. Whether the problem is that you have employed people undeserving of trust, or you have a management team with a very negative view of people, the problem has to be fixed and culture has to change.

Kevin asks:

Bill - I have recently been engaged in discussions with people who mention Activity Based Accounting. I'm not an accountant. Can you please provide a brief explanation, and your opinion of this approach?

Kevin – that one always opens a serious can of worms. I worked with CAM-I back in the 1980’s in the development of Activity Based Cost Management and am intimately familiar with its principles and origins. CAM-I (Computer Aided Manufacturing – International) was a consortium of a virtual “Who’s Who’ of manufacturing … the auto companies, the big defense contractors, the techies – all the big ones – along with leading academics and the big accounting firms largely in reaction to the growing feelings reflected Tom Johnson’s seminal book “Relevance Lost: The Rise and Fall of Management Accounting”, which came out at about the same time as ABC. I was Emerson Electric’s representative to the project.

ABC is, in a nutshell, the use of dozens, sometimes hundreds, of factors to allocate costs, rather than the simple allocations typically used – labor, machine hours and materials. The idea was to identify the ‘true’ cost drivers and then basically do all of the traditional GAAP based accounting, only with a better understanding of what drove costs.

While it still has a few die hard proponents, ABC has generally been written off as an idea that didn’t work. Traditional accounting folks criticize its complexity and the amount of work required to identify and maintain all of those complicated numerical relationships for what offers little improvement. Lean accounting folks (myself included) dismiss it as nothing more than another way of performing cost allocations, and lean accounting is built around the ideas of eliminating allocations and dealing with ‘real numbers’, and making management decisions with using product costs – standard costs – built largely on allocations. Whether the allocation was a simple labor based on, or a complicated ABC based allocation, it is still driving bad decisions as a result of connecting costs with products when there is no honest direct relationship between the two.

Sean asks:

Hey Bill. Long time reader, first time writer. You often speak about the pitfalls of big data, but I'm wondering if you feel that it actually does have its place in better understanding the customer. While traditional methods of surveys, interviews, and focus groups will be able to dive into some of the more explicit customer needs, we're still incurring variance in the way it's collected and processed. Could big data not be used to supplement some of these small samples? Big data may allow you to see changing patterns in behaviour or desires before the customers have made a call about whether or not you're still meeting their needs. Curious about your take on that. Thanks!”

Sean, there are very few absolutes in business (or in life, for that matter) and Big Data is no exception. It is not inherently bad, in spite of my frequent railing against it. Used as you describe – “to supplement some of these small samples” – I would agree that it might be a very useful tool. My criticism and concern is that companies use it as a surrogate for actually talking to customers. It strikes me as awfully easy to become bogged down with and overly consumed with Big Data to the point at which customers no longer exist as real human beings – they become intangible numbers. So, sure, go ahead and use the big data, but just be sure you don’t wake up one day a few years down the road and find that the surveys, interviews, and focus groups have all been abandoned and all you know of your customers comes from your Big Data.

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