Posted by Troy Blackmon on 16 June 2009 | 0 Comments

How Lean Is Your Enterprise?

Maybe You Need a Breakthrough
June 2009

Achieving lean focus can certainly be a lifeline when business conditions are tough. But, in fact, thousands of companies over the past generation have learned that lean focus brings advantages in all economic conditions. In fact, truly lean companies become unquestioned market leaders precisely because the economy is always cycling through growth, contraction, and technological change, thereby rewarding competitors who remain lean and nimble.
 
In his informative book, The Breakthrough Company (Crown Business, 2008), Keith McFarland shares findings from an extensive five-year study of 7000 small-to-midsized companies in which he analyzed the attributes and events which set apart nine firms. These 'breakthrough' companies grew to $250+ million in sales while maintaining healthy company performance and strength. One of their distinguishing characteristics is the ability to successfully navigate what McFarland terms 'the Business Bermuda Triangle' where so many firms sink: (1) giving customers what they want, (2) keeping costs low and (3) reacting quickly. This is a nice summary statement of what lean enterprise thinking is all about!
 
In the early 1990s, American consultants renamed this new paradigm, begun in Japan as the 'Toyota Production System,' as the infinitely more promotable 'Lean Thinking' in the best-selling book of the same name. In the two decades since, the principles associated with this superior approach have been applied to everything from hospitals, to builders, schools, service providers, distributors, retailers, and yes, manufacturers. 'Lean' is not for the 'get-rich-quick' crowd or for those who merely want to lead from the corner office. Rather, it requires engaged servant leaders who listen attentively to their customers while equipping and encouraging employees and suppliers in a never-ending process of deeply understanding the fundamentals of their business, becoming the best, and continually resetting the benchmarks in their field! The highly pragmatic Japanese discovered and adapted timeless servant leadership and stewardship principles. Consider these common servant leadership attributes which typify lean enterprises:

• Humble, yet firm, leadership
• Applying timeless principles
• Stewardship of resources
• Excellence and responsiveness
• Interdependence and team unity
• Transparent, real-time, communication
• Authority flows from wisdom and objective truth, not position The Japanese have applied these principles with great patience, diligence and determination over the past 60 years - adopting them with a 'religious' zeal - to build high-performing teams of aligned and trained workers, executing at a level which would make the U.S. Marine Drill Team proud!

Start by Dropping your Preconceived Notions

So, just what is 'lean' and why is it relevant for us? If we're already the most expert roofer, plumber, physician, or architect in our area, isn't 'lean' just more consulting mumbo jumbo? No! In fact, 'lean enterprise' is a winning banner under which several supporting methods have been developed to drive superior performance and healthy long-term organizational development. This encompasses product development, supply chain management, project management, operations management, physical layout and housekeeping, equipment maintenance, capacity planning, processing of daily orders, employee training and motivation, and many other areas relevant to most companies.

Lean is extremely hands-on, straight-forward, visual and participative in its elements; attributes which commend it in nearly all types of businesses. Better yet, it doesn't involve highly mysterious and expensive 'black-box' systems. Visit the web's finest 'lean' bookshelf (www.ProductPress.com) and you'll see resources specifically aimed at healthcare, distribution, project firms, office environments, and manufacturing. Lean principles apply to all businesses that have regular activities, process and workflows. How can one system be so universal in its application? Let's look at a few key aspects of lean enterprise before briefly discussing the first one further. In many ways, lean thinking can be summed up as follows:

1) Time-Based Management: eliminating friction and waste to achieve fast, efficient, uninterrupted 'flow' of products and services to customers. This contrasts with traditional 'departmentalized' structures, which feature lots of 'hand-offs,' poor coordination and communication (and, therefore, waste) and considerable waiting time between steps.
2) Team Discipline: using a 'pull system' which responds, real-time, to customer demand by cascading back through preceding company operations with frequent/small replenishment orders (also applies to new product development). This contrasts with the traditional 'push system' of scheduled 'batch' activity according to imperfect forecasts.
3) Lifelong Learning: constantly seeking excellence and continuous improvement in all aspects required to pursue 'perfection' in executing steps (1) and (2). This requires an overall vision and operating model to provide the framework for continual improvement and learning by all team members.
 
Would you want to compete head-on with a firm like Toyota in your field; already 'high-performing' and keenly focused on continuous improvement? Most of us have an opportunity, through diligent long-term application of lean principles, to become that leader in our markets! 'Lean' isn't a quick-fix prescription for those wanting to quickly become 'rich and famous'. It takes a long-term journey and ongoing discipline to build a healthy lean culture. Lean flourishes best under servant leadership with a vision to finish strong by operating with excellence and respect with those engaged in the process. Lean companies develop an uncommon 'team' focus, across all levels and functions, as they provide the best value, quality and responsiveness by systematically shedding activities and approaches that don't support these goals across the entire value stream.

Looking at Ourselves

So far, we've spoken in generalities. Let's stop to evaluate how we might each benefit from adopting lean principles as we lead our companies forward. To better 'see' our opportunities today, we'll just focus on the issue of speed.
 
Where does your company currently stand in its 'response speed' in fulfilling new orders, answering requests for quotations, developing new commercial offerings, and adjusting supply based on real (not just forecast) demand? Many firms engage in all of these activities. How are you doing in each one compared to your fastest competitor? More importantly, how are you doing compared to the theoretically quickest possible response time given the limits of currently available methods and technology? The gap between current and 'ideal' performance is stunning for nearly all of us. In fact, few companies exceed 5% of attainable response speed (meaning 95% of the clock is wasted on waiting and other non-value-added activity). Many companies offer products or services that involve just a few hours of 'value-added' work effort, yet customer order lead-times may be 10 days or more. The clock efficiency of such a response would be, say, 3 hours divided by 240 hours (i.e., 10 days x 24 hours available each day) for a rousing 1.25% of perfect response speed! In departmentalized companies, where the work flows in and out of multiple inboxes, storage and staging areas, and specialists are loosely scheduled, the waste of time and effort is horrendous. The fact is that companies making the conversion to 'lean' thinking typically cut their overall effort and response times by 50-80%!
 
As we've often said in C12, "what you measure tends to get better." Are you currently measuring your customer response cycle times? How well are you using the clock? Compared to the theoretical ideal, how efficient is your use of time? The best way to determine this is to simply add up all of the value-added work steps required to produce your product or service.
 
By now, you've probably already thought of a few reasons why comparing your performance against a 24/7 clock or a continuous flowing 'value stream' is impractical or infeasible. While you're making excuses, what if your leading competitor figured out how to address this by using 'breakthrough' thinking?
 
Not surprisingly, lean firms have found that achieving the quickest 'throughput' rates necessarily involves valuable learning and problem-solving along the way that also serves to drive improved quality along with reduced waste and inventory. The pay-off for pursuing the shortest 'cycle time' is to generally achieve the best quality, customer loyalty and return on investment in the industry.

Let's ask ourselves a few questions:

1.  How does your current order response time compare to the theoretical minimum response time? Estimate by adding up the value-added work steps that can't be done simultaneously and compute your attainment % (i.e., theoretical minimum hours divided by your typical delivery time).
2.  What competitive advantage or new marketing possibilities would open up to you if you cut your customer delivery times in half? Would this generate more business and enable you to become an indispensable partner or supplier in your niche? How can you begin to remove limitations or 'engineer out' interruptions to the continuous flow of work through your company?
3.  Have you set objective goals and metrics to drive long-term continuous improvement in this area? What are the key product lines or service offerings which need to become flowing 'value streams' in your business? Consider 'mapping' the process flow of each one to determine what you are actually doing and then begin to compare the 'current state' to what's actually possible given fresh thinking. This will begin to tell you how much of your current activities are waste instead of true value-added!
 
Addressing the 'speed' issue to improve overall business performance requires that we engage our employees and suppliers in a continuous learning process aimed at reaching theoretically 'ideal' performance. This requires that we provide vision, framework, tools and motivation for our team. We'll look at these issues in more detail next month by looking at specific lean methods to help us become more responsive, eliminate operating waste, and increase the productivity of our assets.

Each month CEOs and business owners from all across Middle TN, meet together and discuss topics like this, sharpening each other and their business in the process. Additionally, CEOs bring issues "to the table" where the advice and counsel of like-minded peers can bring new perspectives to painful problems or opportunities.

Contact me to learn more about how C12 Group can strengthen you and your business.

Troy Blackmon
troy.blackmon@c12group.com
615-866-0827