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Michael Balle

Michael Ballé: Waste elimination (in dire straights) as a key to competence increase (and saving the day)

By Michael Balle, co-author of The Gold Mine and The Lean Manager - Last updated: Sunday, July 11, 2010 - Save & Share - Leave a comment

How about a 40% production cost reduction and a few million Euros cash flow improvement in less than a year? I’m not sure this is the best lean success story I’ve come across, but it’s the most recent. One plant of a large global group produces components for the tier one plants, and was losing its bid for the next generation product and facing shutdown because of a price difference of 20% with Low Cost Country competition. The group recognized that once you lose production, you lose development, and once that has happened, it’s really hard to bring work back, but the price difference was just too large.

This group has worked with lean for more than a decade with varying success – some of its plants are benchmarks of lean implementation outside of Toyota, others have a thin veneer of lean, according to local management involvement, but the corporate lean experts are highly respected lean senseis and in this case, the divisional management asked them to try and help local management save the plant.

The plant in question already ran with an elaborate pull system and the corporate visual management tools, but when they focused on using the system seriously, they realized that their overall lead-time was more than a month. The plant’s overall results have been acceptable so far because of massive overcapacity hiding problems in the process – the plant was hitting its quality and delivery objectives, but dealing with many issues of downtime and labored time loss which where hidden by large shop stocks and slack pull. In this sense, this is an interesting case because it demonstrates clearly that the tools themselves don’t guarantee a lean outcome. Kanban is a tool for kaizen, not the other way around – and without the kaizen spirit, kanban can be just as fat as any MRP-run system.

The sensei got the plant management to focus on controlling its lead-time (products scheduled in should come out of the process exactly when expected) and then asked them to analyze carefully all the reasons the lead-time could not be controlled. The plant management then realized they had a number of deep problems, beyond the overcapacity they’d already seen:

The plant management team set itself as a target to reduce costs by 40% (non-materials related costs) in 8 months (when the final product allocation decision would be taken). They chose to focus on three main challenges:

  1. Reducing lead-time
  2. Reducing fixed costs by adjusting capacity and surface
  3. Reducing component diversity and generalize Low Cost sourcing for components

In practice this translated into a breakneck SMED drive to reduce change-over time and increase dramatically the number of change-overs, and into various activities to control the pull system far more tightly. They also worked with their shop floor teams to use the production analysis boards rigorously and involve operators in improving working conditions to reduce lost labor hours (they did have the flexibility of a lot of part-time staff). Finally, they took each part apart and spread all the components around the part, working furiously with engineering to commonalize everything they could and push the costs down by using mostly Low Cost Country components.

After 8 months of this regimen, they achieved a stock reduction of 3 million euros (driving lead-time down from a month to five days), a surface reduction of 7,000 square meters and a cost reduction of 40% (with a 30% productivity improvement and increasing component sourcing from Low Cost Countries from 10% to 70%). Their aim for 2011 is to reduce production costs by a further 10 percent.

On the surface, this is a classic lean success story because it shows that “even a dry towel can deliver a drop of water with creativity and courage” – without making workers work harder. Lean is a proven method to remain competitive against Low Cost countries: in keeping production, one keeps development as well, and so future activities. This is also a classic lean story because their sensei started them on lead-time control and pushed them hard to understand their own problems, and let them get on to resolving them. In doing so they learned to run their equipment and people much better than before. Production cost reduction of 40%? What management team would not want to get such results?

But, to me, the most interesting part of the story is that the lean system was already in place in the plant. Production was organized around a pull system, all the shop floor management indicators where in place, and the entire hierarchy had been “trained” at “production control” as per corporate requisites. Still, the plant would have closed if they’d not pulled themselves up by their bootstraps and started using the tools as they were meant to: as a source of challenge and kaizen.

And here is probably the deeper lesson of this case. It seems such a simple story of using lean to solve problems and reduce the waste in the process, lowering cost in the process. But this is not what really happened. The plant management already knew how to do that. In this actual case, I’ve seen the plant manager already reduce waste in his processes in a previous plant. But in this new, more complex plant, he’d reached the limit of what he could do – the complex industrial system he had to run required more competence to be improved. In working with his sensei to further reduce the waste in the plant, he learned how to run the plant at a substantially higher level of effectiveness. In truth, his entire team learned how to use more precisely the industrial tool, and how to work better with the frontline employees.

The deep learning point of this case is that eliminating waste is what teaches people to be better at what they do, which then delivers superior results – not the other way around. In their desperate struggle to squeeze all the waste they could out of their processes – in order to survive in the short term – they learned much that will make them better managers in the future, in terms of technical knowledge, teamwork with their frontline operators and engineering staff, and fortitude in the face of overwhelming odds, and hence guarantee the future prosperity of the plant.

The one caveat is that the sensei argues that some of the group’s plants in China adopt the same lean techniques faster: the race is on.

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