Value-Chain Report -- Focused Approach For Implementing Lean

Finding focused applications for lean principles, rather than enterprise-wide initiatives, can help get your lean program off to a successful start.

We have all read about the significant improvements and competitive advantages large and small companies have achieved by becoming "lean." In most cases, the companies receiving this notoriety have undergone a radical transformation over a period of years to achieve dramatic results. However, these firms are the notable exceptions. The sad fact is that the majority of U.S. manufacturers have not adopted lean principles. A recent survey by IndustryWeek and the Manufacturing Performance Institute indicates that only about one-third of these companies consider lean manufacturing as their primary improvement program. In fact, industry experts estimate that fewer than 5% of U.S. manufacturing firms are truly lean. In working with many manufacturing companies, it seems that there is often a misconception that lean must be implemented "from top to bottom" in order to generate meaningful results. Although complete enterprise-wide implementation of lean principles is likely to produce the greatest long-term benefit, there are many significant gains to be made by identifying focused areas that will benefit from the application of lean concepts. Identifying Focused Opportunities In most companies, opportunities to apply lean concepts are abundant. Most firms learn to identify these opportunities by mapping the value stream for each major product type. The value stream consists of all those activities, from forecasting/planning through invoicing/collection, required to deliver products and services to your customers. The value-stream-mapping process will likely reveal that, from the customer's perspective, a significant amount of non-value adding activities are embedded in your current processes. These are activities that consume financial and human resources and extend throughput time without adding to the economic value of your product or service. Although some of these activities may truly be necessary, the idea is to eliminate or minimize their impact. Value Stream Mapping Example: Procurement Processes For example, value-stream mapping might reveal that your procurement processes currently require a user to prepare a purchase requisition, even for routinely purchased materials and services. That requisition is then forwarded to the Purchasing Department for processing. Your buyers or their assistants may then need to create a purchase order that is sent (electronically or otherwise) to the supplier. Similar manual, sequential activities will likely take place as the supplier processes your purchase order, delivers your products or services and bills your firm. Back on your end, there are likely to be activities associated with acknowledging receipt of goods or services, closing out the purchase order, a three-way match of purchase order and receiving documentation with the supplier's invoice and, finally, issuing payment to the supplier. As inefficient and time-consuming as all of this may appear, there are still many firms who are acting in just this way, or in a very similar manner. Lean-thinking managers should always ask how many of the activities in the value stream really add value and contribute to meeting the needs of customers. Defining cost and performance metrics associated with activities in the value stream will enable your firm to identify the greatest areas of cost and inefficiency, so that priorities can be set to attack the processes most likely to significantly benefit from lean implementation. Focused Application Of Lean Principles By mapping your value streams, identifying non-value adding activities and focusing on those processes likely to benefit most from the application of lean principles, your firm can begin applying lean concepts to eliminate waste . . . those activities that do not directly contribute to meeting your customers' needs. Teams that have been successful in significantly reducing cost and time challenge every activity in the value stream. One very useful technique for doing this is known as the "5 Whys" (from Six Sigma methodology). By asking why an activity is performed, and subsequently asking why following each response, it is frequently possible to get to the root of the problem. Understanding root cause sets the stage for successful redesign. There are many tools available to redesign value streams to minimize waste. Concepts such as Six Sigma, pull, flow, error proofing, visual management and similar approaches can be applicable, depending on the particular situation. Experience will help you determine which of these tools are most appropriate for each particular redesign. Although you will want to focus on well-defined opportunities, do not avoid upstream and/or downstream processes in your value stream. These areas frequently offer opportunities to further eliminate waste in the process you are focusing on. Lean Redesign: Procurement Processes Example In our procurement example described previously, we might redesign the process to include some of the following characteristics:

  • Implement P-cards to manage routinely purchased indirect materials and services, completely eliminating requisitioning and purchase order activities for this group of purchases. These are typically well-defined, repetitively occurring transactions for common, relatively inexpensive goods and services. Implementation of P-cards attributable to specific users significantly streamlines the entire procurement process, as well as receiving and payment authorization.
  • Implement kanban or similar pull signals for direct materials between your firm and your supplier. The kanban itself becomes the requisition and purchase order.
  • Implement vendor-managed inventories (VMI) for both direct and indirect materials, eliminating the need for both requisitions and purchase orders, as well as many receiving activities. VMI tightly links consumption with replenishment and eliminates most of the associated administrative effort that would otherwise occur using traditional processes.
  • Utilize supplier portals to manage indirect spend. By working with a supplier to define an "electronic catalog" of approved products that are appropriate for your firm, with pre-negotiated pricing, the entire procure-to-pay process can be significantly streamlined.
These types of improvements can be implemented in many firms without sacrificing any of the controls and oversight that may already be in place. They do not need to be implemented all at once. Rather, implementation of lean initiatives such as these can be accomplished at a pace suitable to your particular business and operating environment. Getting Started The most important part of implementing lean principles is having an organizational commitment to improve. Senior management must emphasize the importance of the changes required to achieve a lean enterprise and be willing to commit resources to implementation. A structured approach to identifying opportunities for application of lean concepts and implementing them is critical. If your firm doesn't already have experience in identifying opportunities for implementing lean principles, partner with an experienced consultant who can assist at the beginning until your own teams are competent. Start with smaller, focused improvement initiatives that will generate early successes and build momentum. Measure your results and communicate the value of lean throughout your organization. In a short time, the cumulative effect of change can be significant and create real competitive advantage. Kevin O'Brien is managing principal of MidWest Group, a management consulting firm specializing in supply-chain/operations and customer-relationship-management process improvement and related solutions. He can be reached at [email protected].
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