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Michael Balle

Michael Ballé: Quality = Sales is the hardest lean lesson for management

By Michael Balle, co-author of The Gold Mine and The Lean Manager - Last updated: mercredi, avril 14, 2010 - Save & Share - Leave a comment

Thanks for asking the question – the difficulty in getting senior executives to focus on quality has to be my number one frustration with teaching lean (number two being people engagement). I have been puzzled for years how come all our Toyota teachers always started with quality, but somehow we never took that onboard as we did lead-time reduction or spot waste elimination. To my mind, the question is: why can’t we capture senior management’s interest on quality?

The first issue appears to be the mindset of price = volume. In Ohno’s terms, I’m increasingly convinced that this is a misconception. The specific industrial reasoning in the lean approach is not about maximizing volume on low mix, but on the contrary, aiming for a set level of volume with high mix. In a traditional business model, operations are not very flexible, and have a high fixed cost. The obsession is, understandably, to load plants as much as can be in order to make money from covering the fixed costs. This, we’ve learned, is very wasteful because of the variation in demand and the difficulty to forecast (particularly with long lead-times: how can we anticipate what the demand will be in 40 to 60 days?). Either volume is under target capacity, and you’re not covering fixed costs, or you’re over, and the exceptional costs that go with too much volume eat at your margin.

Lean thinking looks at it completely the other way. In order to achieve just-in-time, volume has to be as fixed as possible, and operations have to be as flexible as possible in order to keep the facility running profitably and not have to forecast because and be able to take whatever mix the market throws at you. This is clearly not easy to do successfully, and hence the lean focus on heijunka skills for scheduling and SMED skills for tool changes. In this model, margin is achieved by keeping close to capacity (takt) at a clear volume/price level and then reducing cost everywhere we can to maximize profit.

In this mindset, the equation becomes quality = volume. If you’re no longer trying to bring the greatest possible volume, but instead maintain a steady volume, you’re looking at a very different problem. As long as you’re within market price, the issue is more to convince customers to continue to buy rather than catch the one-off customer on one-time price deal. Indeed, Toyota historically is not much cheaper than its competitors and actually does not do discounts. They’ve started to do so in recent times to compensate for their image troubles (and to protect volume), and even so the incentives are lower than what their competitors are offering.

This is a very different kind of business thinking where the ultimate goal is leveling rather than grab all you can. In this perspective, quality had to be the number one issue, before lead-time and cost. Few managers grasp this instinctively, and you can see that when you argue for more quality firewalls to first contain problems before you can solve them, and management is reluctant to pay (increase spot cost), preferring to live with customer complaints rather than put the money on the table necessary to protect the customer until the problem gets fixed (ironically, they often argue that final inspection is not “lean thinking”… aaaargh).

The second issue that makes quality unattractive is that solving quality problems is hard. Lean got traction historically because of the spectacular spot gains it demonstrated – much larger than any other method. 20% productivity in one shot, 70% stock reduction, etc. Workshops routinely deliver such results and, although they’re hard to maintain unless you do the full PDCA, no other industrial approach shows such promise.

On the other hand, quality issues are more complex, more complicated, and harder to solve in a one-shot workshop. You’ve got to work at it slowly and patiently, which is not the kind of thing that keeps a busy executive interested unless she is already massively committed to quality.  It’s not immediately convincing.

Furthermore, the lean approach to quality is just as counterintuitive as the Just-in-time approach to scheduling: we’ll start by improving containment before capability. All managers have read the books, been to the conferences, and believe that we should not inspect quality out of the process, but build it in. In other words, let’s work hard at improving process capability (with six sigma and such) and we’ll produce fewer bad parts, so fewer defects will reach customers.

This is true as far as it goes, but how to get there? The sensei have always taught us to first protect customers through hundred percent inspection, in order to understand exactly what the problems are. The point of a quality firewall is to stop bad parts reaching the next step of the process AND to understand exactly what kind of bad parts the process generates so that it can be improved. Within one process, the same thinking leads to building poka-yokes and andon, to in practice, inspect 100% of parts at each step of the process. If we can mechanize or automate, so much the better, but if not, it will still have to be done by old-fashioned inspection.

Spending the money now to stop all bad parts reaching the customer or the next step in the process is exactly the right incentive we needs to solve the root cause of the process and take the exceptional cost out – back to having a fixed volume strategy and making profit by reducing costs, hence the need for quality circles.

Quality is very much within the lean scope. Indeed, if I had to summarize lean, I’d say:

  1. Fix quality and delivery problems
  2. Stabilize and reduce lead-time
  3. Reduce costs by eliminating waste

The issue is that step one can be both hard and costly right at the outset. As a supplier, Toyota often starts working with you by asking for more inspection and for more stocks to protect quality and delivery – how is that supposed to make us leaner, It’s hard to grasp that inspection is the key to understanding our quality problems, just as having stocks at the right place is the key to understanding our delivery problems.

Not only is quality not seen as a core volume issue by most managers, but solving quality problems is hard and, let’s face it, not very sexy as opposed to the spectacular quick wins one can show with headcount reduction or inventory reduction. As a movement, we have been guilty of not being very good at selling the idea to top management – and in doing so, often missing lean’s more fundamental industrial message about how to make money by building and delivering products.

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