Not too many years ago it almost always took a life-or-death crisis for management to consider changing from a traditional command-and-control, batch-driven manufacturing company to a lean and agile one. Stacks of material sitting around the factory meant that machines were fully utilized, and warehouses full of finished goods inventory was the best way ensure that you could ship what customers ordered. So the thinking went.
Today I'm encouraged to find that there's near universal awareness that manufacturing companies can operate much more efficiently with fewer assets-equipment, floorspace and inventory-and simultaneously serve customers better. It no longer requires a crisis for companies to embrace lean production methods and techniques. There are far too many success stories for any management team to ignore.
What's far from universal is the dedication, energy and results that manufacturers reap from such initiatives, which are a direct correlation of management commitment. Ideally, such a commitment comes from the managing director or CEO, who may even be pushed by the board of directors or by investors who expect ongoing operational improvements. Some companies have even recruited people with deep knowledge of lean production methods to serve on their board of directors. Walking through a factory or looking at a balance sheet, they can see the opportunities to streamline processes, reduce inventory, improve customer responsiveness, lower costs and enhance customer value, and thereby grow sales and boost investor returns. And they are searching for and hiring top executives who can also see the same opportunities.
Several years ago the management board of one company that we work with recognized that it was operating at a competitive disadvantage. They looked internally but decided that bringing in someone from outside the company was the only way to make a sharp break from the poor performance of the past. The board of directors found and hired a new president and COO, and charged him with radically improving operational performance.
He immediately introduced an enterprise-wide push to implement lean methods and a continuous improvement mindset in all functional areas, not just the factories. They started with intense training and formed cross-functional teams that tackled areas with the highest potential returns. But the results were isolated and progress was too slow. With many divisions and factories, it became clear that breaking from the past would require major leadership changes at all levels.
The company then launched a talent initiative to identify managers with the right abilities and character traits to lead a lean organization. Having a management team that "got it" attracted highly talented people from other organizations, which created its own challenges. New hires, who eventually added up to more than 150 continuous improvement managers, had to bring something more than thorough technical knowledge of process improvement tools.
"There are a lot of people who can say the words," the former president and COO once told me. He is now the CEO and chairman of the board of this company. "But individuals who can really change a factory, or change a business process, are worth their weight in gold. They can move an organization to a level no one ever thought it would get to."
Six years later this company has improved on-time delivery by 10 percentage points and consolidated a large number of facilities while increasing revenues at a pre-recession compound annual rate of 20%. And the now CEO says they're really just getting started.
The challenge of course is to build an organization that adapts and improves every day. Daily incremental improvements add up to radical improvements after a few months. Even if every idea doesn't work out, by discovering what doesn't work people can more quickly move on to the next opportunity. The net result of such gains, when coupled with breakthrough projects, are significant cost advantages that boost profit margins, or that extend product or service level advantages-such as faster lead times-increasing sales and growing market share. Reaping the full financial returns from such advantages before your competition catches up in this non-stop race requires dedication, energy and results. And you have to keep getting there first.
Anand Sharma is the CEO of TBM Consulting Group. He will be hosting Executive Roundtable -"Leveraging Operational Excellence as a Strategic Platform for Growth" on March 30-31 in Atlanta.