Leadership is Key to Becoming a Lean Enterprise

Nov. 4, 2015
Understanding how to lead and develop a lean enterprise is one of the keys to rebuilding American manufacturing and making America great again.

I attended the 2015 Lean Accounting Summit on October 8-9th in Jacksonville, Fla., produced by Lean Frontiers, headed up by founder and President Jim Huntzinger. It was two days of information-packed presentations and workshops that included case studies showing lean principles in action. I was honored to be invited back to give a presentation on "How to Return Manufacturing to American Using Total Cost of Analysis."

The first keynote, "Lead with Respect,” was given by Michael Boleꞌ, an author, speaker and research associate at Telecom Aristech. He first challenged the audience with questions, such as “What is the meaning of leadership? How do you get people to follow you? What do they know how to do?” He stated, "Lean has a focus ─ reduce waste and do more with less. The world is moved by ideas and words. To lead people, you need to take into account their experience, skills and opinions to help them develop their autonomy. You need to create experiences for them so you can see at what level they are.” Then, he asked, “How do you teach? You show them by means of problem-based learning: Express the problem, look for the cause and confirm the corrective measure." He then outlined his seven-step model of lean leadership.

"The Lean Management System: An Engine for Continuous Improvement" was presented by Dean Locher, an author and faculty member of the Lean Enterprise Institute. Dean said, "Lean creates a culture of continuous improvement - you can actually see a culture." He asked, "What is it to be a lean enterprise? It is an organization where all members continually strive to do better and to develop a culture of continuous improvement. What is needed? Purpose, direction, CI methodologies and tools, processes, and engagement."

What is it to be a lean enterprise? It is an organization where all members continually strive to do better and to develop a culture of continuous improvement. What is needed? Purpose, direction, CI methodologies and tools, processes, and engagement.
—Dean Locher

He briefly described the methodologies and tools:  hoshin kanri (policy deployment process), value steam mapping, gemba walks, daily management process, 5S, kaizen events, 7-step DMAIC, andon (visual management), kata, leader standard work, and voice of the customer.

The next breakout I attended was "First Steps to Lean Accounting Statement" by Jean Cunningham, president of Cunningham Consulting, co-author of Real Numbers, and one of the original thought leaders for the Lean Accounting summit. She showed how to restructure financial statements to provide a lean accounting statement presentation in addition to the traditional presentation of standard cost when a company hasn't gotten rid of their standards cost system yet. She said the key characteristics are: "(1) separate variable from non-variable costs, (2) separate direct from shared between value streams, (3) separate accounting transactions for labor and overhead, (4) use easy to understand language, and  (5) organize by groupings meaningful to the business." She emphasized that "money is the language of business so it is really important to have an understandable language. Operations and finance have to come together."

After lunch, there were three mini-keynotes. Bill Waddell discussed "People Process and Prosperity." Waddell is the author of Simple Excellence, co-author of Rebirth of American Industry, and most recently The Heart and Soul of Manufacturing. His three main points were: (1) You can't manage people by the numbers, (2) There is an inherent right to life, and (3) Lean can enable you to be far-sighted as managers."

Sam McPherson discussed "Leadership as Special Forces." He is an internationally recognized lean transformation leader and co-founder of the Lean Leadership Academy with Art Smalley. He was recalled to military service after 9/11 and became the Director of Special Operations Plans for the elite U. S. Army Special Forces (the Green Berets) during Operation Enduring Freedom in Afghanistan. He said, "A Green Beret is a symbol of excellence, and badge of courage, and act of distinction in the fight for freedom. Why would lean leadership take a look at a Green Beret? Because every Green Beret is a leader. Special Forces are adaptable, capable, courageous, persistent, responsible, professional, integrated team player, and willing to lead." He encouraged lean leaders to develop the same qualities.

In "Behavior Driving Culture," Dean Locher said that what leaders do is to develop culture. "Leaders need to help people understand that change isn't like driving off a cliff. Teaching is not about you; it is about what your students learned. Leaders need to provide a target destination; there can be many different paths to the target. Leaders can teach PDCA and show how problem solving can be fun. When you use the Socratic method of teaching, you don't provide the answer. Your students find the answer for themselves."

In the afternoon, I attended the breakout session in which Eldad Coppens, CFO, and Anna Berkner, director of Finance/controller of QFix told about their company's conversion to lean accounting. QFix is a world leader in radiotherapy patient positioning and immobilization products. They are vertically integrated as an innovator, manufacturer, distributor and marketer and have 100 employees. They have an extensive product portfolio with over 6,000 SKUs. They aim to be a one-stop solution so they also distribute what they don't make.

Eldad said, "You can't do lean accounting without doing lean operations. We did value stream lapping and a spaghetti diagram, and then reorganized by value streams: composites and devices, thermoplastics, resale of other people's products. The value streams are supported by marketing, sales, and customer service, and technical support. The challenges were: high SKU/BOM, box score analysis, new product development, profitability by profit, target costing, and tracking and reducing inventory. The benefits of lean accounting have been: financial x-ray of company, timely reporting, consistency with GAAP, insight into economics, insight into traditional accounting, internal diffusion of financial results, and a baseline for incentive programs and the QFix performance bonus for employees.”

At the concluding session of the day, the 2015 Lean Enterprise Institute Excellence in Lean Accounting Student and Professor Awards were announced. The student winner was Amy Shaw (Puckett), Western Washington University, and the professor award went to Patti Hart Timm,  Walden University. The students and professors receiving LEAF scholarships to attend the summit were:  Amal Said, professor, University of Toledo, Jessica Jakubowski, student, University of Toledo, Hassan HassabElnaby, professor - editor, University of Toledo, Joel Tuoriniemi, professor, Michigan Technological University, Jeffrey Hines, student, Michigan Technological University, Joanne Pencak, professor, University of Vermont, and John Mangione, student, University of Vermont.

Operating System Needed for Lean Success

On day two, the morning keynote speaker was Jamie Flinchbaugh, co-founder of the Lean Leaning Center, and co-author of The Hitchhiker's Guide to Lean, who spoke on "Leading Lean." He said, "Leading is a verb whereas leadership is a noun…What is the adoption rate of lean? Good intentions are not a good solution to the problem…An operating system is how everything fits together:  (1) process, (2) skills and tools, (3) evaluation, and (4) behaviors. All four need to work together and be consistent. An operating system may be good but doesn't work because of behaviors. You need to be relentless on the path, but need to be patient with others who just got on the path. Evaluation starts with a hypothesis of if I do ____, I expect to see____. It includes Total Shareholder Return (TSR), strategy, culture, and behaviors." He gave suggestions of how to hook a CFO into adopting lean accounting:  "Start with why you are doing it. What is your purpose? Define your own personal reason for the lean journey." He also recommended that CFOs talk to other CFOs. 

I then attended the first of two sessions put on by executives of Nicholson Manufacturing Ltd., which was formed after Nicholson Debarker acquired McGill Forestry Equipment. Nicholson is a family-owned, 67-year old British Columbia-based manufacturer of machines and parts for the logging and forest products industries. The first was "Value Stream Accounting at Nicholson" presented by Ian Scott Kerr, director of Finance, and James Bowden and Gaetan Desmairis, value stream managers. The second was the "Lean Management Journey at Nicholson," presented by Doug Jeffrey, president, and Rhonda Morrison, continuous improvement manager.

They began their lean journey in 2004 starting with 5S and green belt training to change the culture to continuous improvement. After acquiring a new ERP system in 2006 and evaluating suppliers, they had additional lean training by Bill Waddell in 2009. They implemented more lean methodologies and tools and trained small teams of employees using the PDCA cycle for teaching.

They brought Waddell back in 2013 to begin their transformation to lean accounting and produced their first value stream statements in January 2014. They learned to break down the silos and organized by value streams. They have three value streams: Nicholson products, McGill products, and aftermarket products, and each value stream has a manager. Their production employees are unionized ─ fabricators, welders and machinists. Every employee received education in value stream leadership and has been cross-trained in the value streams. They use a new lean employee development tool by Bill Waddell instead of performance reviews.

Morrison said, “The challenges were: bad data, complex ERP system, downturn during recession for their product lines, staff losses by people who didn't want to do lean, building common goals with the unions, and the fact that many people had new responsibilities. The gains will come faster than expected, so you need to have a plan to handle the extra capacity. You will get slower before you get faster. You will have to make tough decisions. Accept that some people may not want to change.” She added, “Dividing into value streams was easier than expected, and our on-time deliveries have improved from 65% to over 90%.”

The final keynote session featured Bill Waddell and Jim Huntzinger discussing "The Lean Economy: The Importance of Tying Micro and Macro." One of the most important truths Waddell said was, "Individual people are the source of all productivity." He described how companies following the lean business model are the micro part of the economy, and in turn, they are part of the macro economy of a city, state, or country. He said, "Reducing waste equals increased capital (both human and capital).” He commented that “retail stores are going by the wayside to Amazon to direct buying from manufacturers…you need to eliminate the non value added. If you don't know where you are adding value and your customer doesn't know where they are adding value, then you are doomed.”

In the closing Q & A, I asked why more companies on the lean journey don't realize that offshoring is the opposite of lean, creating waste, and Huntzinger said that presenting that truth is one of the objectives of the Lean Accounting Summit.

This is why it is important to me to be invited to speak at the Lean Accounting Summit. As I wrote in my book, I am certain that becoming a lean enterprise is one of the most important actions American manufacturers can take to "save themselves" and one of the keys to rebuilding American manufacturing to make America great again.

About the Author

Michele Nash-Hoff | President

Michele Nash-Hoff has been in and out of San Diego’s high-tech manufacturing industry since starting as an engineering secretary at age 18. Her career includes being part of the founding team of two startup companies. She took a hiatus from working full-time to attend college and graduated from San Diego State University in 1982 with a bachelor’s degree in French and Spanish.

After graduating, she became vice president of a sales agency covering 11 of the western states. In 1985, Michele left the company to form her own sales agency, ElectroFab Sales, to work with companies to help them select the right manufacturing processes for their new and existing products.

Michele is the author of four books, For Profit Business Incubators, published in 1998 by the National Business Incubation Association, two editions of Can American Manufacturing be Saved? Why we should and how we can (2009 and 2012), and Rebuild Manufacturing – the key to American Prosperity (2017).

Michele has been president of the San Diego Electronics Network, the San Diego Chapter of the Electronics Representatives Association, and The High Technology Foundation, as well as several professional and non-profit organizations. She is an active member of the Soroptimist International of San Diego club.

Michele is currently a director on the board of the San Diego Inventors Forum. She is also Chair of the California chapter of the Coalition for a Prosperous America and a mentor for CONNECT’s Springboard program for startup companies.

She has a certificate in Total Quality Management and is a 1994 graduate of San Diego’s leadership program (LEAD San Diego.) She earned a Certificate in Lean Six Sigma in 2014.

Michele is married to Michael Hoff and has raised two sons and two daughters. She enjoys spending time with her two grandsons and eight granddaughters. Her favorite leisure activities are hiking in the mountains, swimming, gardening, reading and taking tap dance lessons.

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