Sizing Up The Elephant

Sizing Up The Elephant

Lean comes of age and is seen as a new management system that focuses on profitable growth by exploiting the 5Rs.

Anand Sharma likens the introduction of lean in the United States to the story of the six blind men and the elephant. Each group that studied the work of the Japanese pioneers, he says, came back describing one part of the system and thus manufacturers failed to develop a holistic understanding of what lean is.

But today, says Sharma, president and CEO of TBM Consulting, "lean has come of age and is seen and understood as a new management system that focuses on profitable growth by exploiting the 5Rs."

The 5Rs, he explains, include responsiveness and reliability, which focus on delighting the customer on a regular basis. The next two, rhythm and responsibility, concentrate on improving operational effectiveness by eliminating waste and using your physical resources in the most cost-effective manner.

"The fifth R is relevance -- staying relevant to changing market needs by getting closer to the customers to really exploit and leverage value innovation, rather than technological innovation, and speed to market so you are always growing faster than the industry and your competition," says Sharma.

In that context, Sharma says he defines lean as occurring when your growth of sales is two to three times that of the industry you're in, which means you're gaining market share, and your income is growing at two to three times the rate of your sales.

On an annual basis, he continues, companies that are totally lean throughout the enterprise should improve their margins 1% to 2% per year and their trade working capital (receivables minus payables plus inventory) should decrease 20% to 25% year over year. For measures used on a daily basis such as quality improvements, productivity or raw material inventory, he concludes, companies should experience improvements of 15% or more.

Ananda Sharma, President and CEO, TBM Consulting

"Lean is a major restructuring that involves doing business differently," says Sharma. "Companies that do it right get delayered. They get closer to the customer and they break large enterprises into small, entrepreneurial teams that are focused on customers. They have the agility of a start-up and yet they have the security of a large company with capital and market savvy."

Sharma says one reason it is important to have proper metrics in lean environments is because lean, by insisting on continuous improvement, fights the natural human tendency to resist change. He advocates what he calls dynamic benchmarks, in which a company measures its progress and constantly tries to improve on it.

"If today your defects are 500 ppm, next year they should be 250 ppm and 125 ppm the year after. You are always fighting against yourself. Dynamic benchmarking never stops."

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