The lean management concept goes back to W. Edwards Deming’s theories and applications for constant improvement in manufacturing productivity and efficiency. He framed it in four words: Plan-Do-Check-Act – establish a plan and define expected results, implement the plan throughout the organization, check if the actual results achieve the planned results, and then review and adjust the workflow elements that deviate from the plan (act).
Motorola turned lean management (LM) into a fully developed system in 1986. It was adopted by General Electric in 1995, and subsequently by other large companies. LM was originally considered to be more useful for companies with at least 500 employees. However, the fundamentals of lean management can be adapted to small businesses in part or in whole.
Essentially it is a total quality control system that focuses on providing products and services with close to zero defects and waste. Lean management principles were enhanced by the Six Sigma program, which set a specific quantity of defects per million at 3.4, or 99.99966% defect-free. Also, it created an attractive certification program, which awards participants with stylish martial arts belts. This adds an extra degree of motivation to achieve black belt status. Many universities are now offering Six Sigma certification for those who wish to coach others. This enables graduates to set up a continuous improvement program, focusing on providing excellent value to the customer or end-user.
Lean and Six Sigma effectively complement each other. Lean focuses on eliminating all waste and maximizing efficiency; Six Sigma concentrates on defects and reducing variability. The resultant combination of controls is more suitable to companies that deal with repeated processes such as manufacturing and project management. They are less adaptive for research and creative environments because they tend to stymie the free-flowing exchange of information and unrestricted brainstorming. General Electric has recognized its limitations and has dropped it in some of their research and development divisions.
Once you get past all the exotic Japanese terminology, such as Kaizen (continuous improvement) many of the key elements can be adapted by small businesses. Those that can afford SS certified coaches on a full or part-time basis will certainly gain from the experience. Creating more value with reduced resources and eliminating defects leads to improved bottom-line results. The payback for the resultant productivity gains can be easily measured and provides a clear definition of the return on investment. Some of the Lean tools that can be readily applied in most operational environments are as follows:
Plan-Do-Check-Act
To get the desired results a plan must be put in place that specifies the results you wish to attain; the plan needs to be implemented using a written, well-defined procedure; the desired results have to be measurable and checked by a comparison of the actual results to the planned; to act is to make the appropriate changes needed to achieve the results. This loop is repeated and produces a continuous improvement cycle.
Process Flow Mapping
Flow charts define the steps needed to reach a desired result. It can be a paper flow or a work flow, and a combination of the two. It provides a visual diagram of every task and procedure required to complete a process. Every process can be broken down into its separate elements. For example, the path from ordering materials to reception involve a paper and physical path. To improve process flow every step has to be analyzed for redundancy and waste. The question to ask is whether it can be eliminated or reduced and still provide the desired value to the customer.
Find the Bottlenecks
Use the flow chart to pin point the bottlenecks that cause delays in the flow of information, tasks, and procedures. Pick out the weakest links and find solutions, then progressively work on other weaknesses in the chain. This is the systematic approach to eliminating all defects and waste.
Drill Down to the Root Cause
This process requires going beyond the symptoms and getting down to the real cause of a recurring problem. It entails a review of all the components and steps that need to be taken to deliver a product or service. The flow chart is a useful tool to follow the steps and review each one for possible deficiencies. When this is located, rewrite the procedure to ensure that it does not happen again.
Systematically Cut Waste
This is like zero-based budgeting, it requires a justification of each step to determine whether it can be eliminated or improved. The question to pose when making this type of analysis is whether it adds value from the customer’s point of view. If unsure, perform a focused survey of customer value expectations.
Monitor the Key Performance Drivers
Gross profit margins, operating costs, overhead expenses, cash flow balances, EBITDA, output volume are some of the key performance indicators that need to be monitored on a regular basis. Variances between the planned outcomes and the actual have to be caught early and adjustments made to ensure that negative trends are not perpetuated. These key drivers are related to various micro-goals that have to be aligned with the strategic plan. Allow feedback from employees at all levels to expose waste and poor practices.
Just-In-Time (JIT)
JIT is a dominant part of any lean management system. It is usually software-driven and automatically ties projected demand to inventory requirements, supplier delivery scheduling, and transportation logistics. It is a critical element in reducing the quantity of inventory on hand, and waste from obsolescence. This, in turn, improves cash flow and profits. Creating a fine balance between getting just enough supplies delivered on time while cutting back on inventory requires dependable, software-driven demand forecasts.
Align the Goals
Everyone needs to know what the objectives and goals are at every level of the organization. This is critical to creating the coordination needed to achieve them. If middle management or the operations department are not aware of what is required of them to achieve the planned improvement goals then they cannot be blamed for the inevitable failure.
Get Off Your Chair
To get a true understanding of any business managers have to get out of their office environment and go to where the action is. This is known in Lean parlance as “Gemba” or a real place. This may be on the production floor or customer service department. Schedule these visits on a regular basis, but not at the same time. If the visits are expected then the employees will know that they need to be on their best behavior, and you will not get a true picture of what is happening. Observe, take notes, talk to everyone, and not just the supervisors. Have specific objectives for every floor visit.
Use Information Boards
These are visual displays that provide useful information and statistical charts that let everyone know whether the goals are being reached, point out the bottlenecks, flow gaps, and act as visual accolades for work well done. It creates transparency, stimulus for improvement, and cooperation. Combining a floor visit with a short discussion of posted information raises the benefits of management/employee interaction.
The Five S’s
This is a method to organize the work area to optimize workflow. It focuses on cleanliness, work area organization, and sustainability:
Sort – eliminate what is not absolutely needed because it will be an impediment to flow.
Set in Order –carefully sort, identify, code, arrange what is needed. Reduce time and motion.
Shine – Maintain a clean area. Set up a regular time for daily clean up of the work area.
Standardize – All the above procedures must be in writing and become the accepted standards.
Sustain – Verify that the standards are consistently maintained. Review them periodically to incorporate new methodologies, and then adjust the standards.
Minimize variability – Create and use empirical and statistical methods, standardize them, work on continuously improving them. Make it unacceptable to deviate from the standards, but accept feedback at every level of the organization for improvements. Create an infrastructure of people within the organization who become experts in these methods. Recognize them in some way so that they can become the accepted standard-bearers.