beyond toyota: how to root out waste and pursue perfection · how to root out waste and pursue...

I D E A S A T W O R K

Lantech achievedunimaginable results byapplying lean thinking toevery aspect of its business.

Beyond Toyota:How to Root Out Wasteand Pursue Perfection

by James P. Womack and Daniel T. [ones

Six years ago, we wrote, withDaniel Roos, The Machine ThatChanged the World. The book sum-marized the Massachusetts Instituteof Technology's study of the globalautomohile industry, which docu-mented the great performance ad-vantages that a hest-in-class leanmanufacturer such as Toyota hadover typical mass producers in West-ern countries. When we presentedour evidence, we feared the indus-trial equivalent of an immune reac-tion, in which managers in other re-gions and industries would reiect

lean techniques as irrelevant to theircircumstances or impossible to im-plement. Instead, we discovered thatwe were battering down an opendoor. We encountered scores of man-agers in industries as diverse as aero-space and construction who told us

that they were adopting lean tech-niques - techniques for relentlesslyand continuously eliminating wastefrom an operation. And in thatheartland of global manufacturing,the automobile industry, it was soonimpossible to find a manager any-where who did not profess to he"getting lean."

Those claims were mostly wishfulthinking. When we looked moreclosely, we found plenty of just-in-time delivery systems that involvednothing more than the relocation ofinventories from the company we

were visiting to the nextcompany upstream. In of-fices and plants, we foundunlinked islands of leanoperating techniques.And we found many al-legedly lean product-development groups that

were nothing more than compart-mentalized organizations with newlabels. One statistic in particular ex-posed the truth: the inventories thatthe North American, European, andJapanese economies need to supporta given level of sales to end cus-

tomers showed no evidence of lean-ness when adjusted for the ups anddowns in the business cycle.

We concluded that the problemswere twofold. Although many man-agers had grasped the power of indi-vidual lean techniques - qualityfunction deployment for product de-velopment, simple pull systems toreplace complex computer systemsfor scheduling, and the creation ofwork cells for operations rangingfrom credit checking and order entryin the office to parts fabrication inthe plant-they had stumbled whenit came to putting them all togetherinto a coherent business system.That is, they could hit individualnotes [and loved how they sounded)but still couldn't play a tune. Andeven those managers who could car-ry a tune found it very hard to intro-duce comprehensive change in thosemature organizations that make upthe great bulk of every nationaleconomy at any point in time.

We therefore set out in 1992 toidentify and articulate a comprehen-sive lean business logic, which wenow call lean thinking. We studied50 companies throughout the worldin a wide variety of industries-fromthe company that had pioneeredthe approach, Toyota, to such re-cent initiates as Japan's Showa Manu-facturing, Germany's Porsche, andU.S. companies ranging from giantPratt & Whitney to relatively smallLantech, a manufacturer of wrap-ping machines. We believe that enu-merating the five steps those leancompanies have taken will be usefulto managers everywhere.

fames P. Womack advises compa-nies on how to apply lean thinkingto their operations and maintains aresearch affiliation with the JapanProgram at the Massachusetts Insti-tute of Technology in Cambridge,Massachusetts. Daniel T. Jones is aprofessor of management at theCardiff Business School of the Uni-versity of Wales and the director ofits Lean Enterprise Research Centre.This article is adapted from theirbook Lean Thinking: Banish Wasteand Create Wealth in Your Corpora-tion, to be pubhshed by Simon &)Schuster in September 1996.

140 HARVARD BUSINESS REVIEW September-October 1996


1. Define value precisely from theperspective of the end customer interms of a specific product with spe-cific capahilities offered at a specificprice and time. As the late Taiichi

Ohno, one of the creators of the leg-endary Toyota Production System,put it, all industrial thinking mustbegin by differentiating value for thecustomer from muda - the Japaneseterm for waste.

While seemingly straightforward,this step is actually hard to carry outand for a very simple reason: for anyproduct more complex than a tooth-pick and for any service more com-plicated than a haircut, value mustflow across many companies andthrough many departments withineach company. Although each entityalong the route may or may not de-fine value for the end customer, itcertainly will define value for itself-to turn a profit, to advance the ca-reers of those in each department, toutilize existing production assetsfully, and so forth. When all thosedefinitions of value are added up,they often conflict with or cancelout one another. Consequently, fail-ure to specify value correctly heforeapplying lean techniques can easilyresult in providing the wrong prod-uct or service in a highly efficientway-pure muda.

2. Identify the entire value streamfor each product or product fam-ily and eliminate waste. The valuestream is all the specific actions re-quired to hring a specific productthrough three critical activities ofany husiness: product definition(from concept through detailed de-sign and engineering to productionlaunch), information management[from order taking through detailedscheduling to delivery), and physicaltransformation (from raw materialsto a finished product in the hands ofthe customer). Identifying the value

stream almost always exposes enor-mous-indeed, staggering-amountsof muda in the form of unnecessarysteps, hacktracking, and scrap as theproduct proceeds from department

to department and fromcompany to company.

The organizationalmechanism for definingvalue and identifying thevalue stream from con-cept to launch, order todelivery, and raw materi-al to finished product isthe lean enterprise - a

continuing conference of all con-cerned parties to create a channel forthe stream, dredging up all themuda. For a full explanation of thisconcept, see our article "From LeanProduction to the Lean Enterprise"IHBR March-April 1994).

3. Make the remaining value-creating steps flow. Making stepsflow means working on each design,order, and product continuouslyfrom beginning to end so that thereis no waiting, downtime, or scrapwithin or between steps. This usu-ally requires introducing new typesof organizations or technologiesand getting rid of "monuments" -machines whose large scale or com-plex technology necessitates operat-ing in a batch mode.

Many Western managers mistak-enly believe that flow is somethingone can achieve only graduallythrough kaizen, or continuous incre-mental improvement. However, byfirst practicing kaikaku, or radicalimprovement, lean thinkers at com-panies we have studied were oftenahle to transform in a single daythe production activities required tomake one product from a batch-and-queue system to a continuous flow.As a result, they douhled productiv-ity and dramatically reduced errorsand scrap. A similar rearrangementof product-development and order-scheduling activities produced gainsof comparable magnitude. When pro-cesses truly flow, products that re-quired years to design take months,orders that required days to processare completed in hours, and thethroughput time for physical pro-duction shrinks from months orweeks to days or minutes.

4. Design and provide what thecustomer wants only when the cus-tomer wants it. Letting the endcustomer pull the product from thevalue stream in this fashion ehmi-nates muda in the form of designsthat are obsolete before the productcan he introduced, finished-goodsinventories, elaborate inventory-tracking systems, and remainderedgoods no one wants.

5. Pursue perfection. As lean tech-niques begin to he applied up anddown the value stream, somethingvery odd starts to happen. It dawnson those involved that there is noend to the process of reducing effort,time, space, cost, and mistakeswhile offering a product that is evermore nearly what the customer ac-tually wants.

Why should that he? Because thefour initial steps interact with oneanother in a virtuous circle. A moreprecise definition of value alwayschallenges the steps in the valuestream to reveal waste, and gettingvalue to flow faster always exposeshidden muda. Then, the harder cus-tomers pull, the more the impedi-ments to flow are revealed, permit-ting them to be removed.

The Lean Revolutionat Lantech

Applying these five concepts re-quires a complete organizationaltransformation, and it's difficult forthe uninitiated to know where tostart. Lantech of Louisville, Ken-tucky, provides an excellent exam-ple of how to make the leap in an ex-isting operation.

Lantech's founder, Pat Lancaster,is a heroic American type. He grewup tinkering in the family work-shop, convinced from an early agethat he could he an inventor. In1972, when Lancaster was 29, he hadhis big idea: a new way for manufac-turers to wrap their products forshipment. He and his brother invest-ed $300 in simple metalworkingtools to build their first wrappingmachine, rented a small warehouse,and went to work under the corpo-rate name of Lantech.

Lancaster's idea was a device thatwould stretch-wrap pallets of goodswith plastic film so that they could

HARVARD BUSINESS REVIEW September-October 1996 141

How Lantech Makes Its Stretch Wrappers

Storage ofincomingcomponents

be sbipped easily from plant to plantwithin a manufacturing system andthen onward, as fmished products,to wholesalers and retailers. In con-trast to traditional shrink-wrapping,in which plastic bags are placedloosely around palletloads of goodsand then shrunk in an oven untilthey fit tightly, stretch-wrappingwould pull plastic wrap tightlyaround the palletload as it rotated ona turntable, eliminating the energy,equipment, effort, and time requiredfor heat-treating.

Lancaster soon discovered that acomplex set of precision rollerscould exert a smooth force on theplastic to stretch it before it was

suit of

wound around the pallet. Eventu-ally, his system could wrap witha given amount of plastic an area7.5 times the size that a shrink sys-tem could wrap.

When Lancaster obtained patentsfor his concepts in the early 1970s,they were so general and broad thathe could fend off competitors for

years. Soaring energy prices createdan overwhelming advantage forstretch-wrapping. By 1979, Lantechhad sales of $13.4 million and em-ployed 158 people.

Lancaster had created his initialdesign and his first machine in acontinuous flow of activities. SoLantech was born lean, like moststart-up businesses. However, whenhe began to make his product in vol-ume, in the late 1970s, it didn't seempractical to run an established busi-ness that way. Lancaster hired an ex-perienced operations manager to runhis new plant, an engineering direc-tor to create a variety of configura-tions of the basic concept, and a

sales director to managea sales force of inde-pendent distributors. Itseemed natural for theoperations, sales, and en-gineering managers to or-ganize Lantech into a se-ries of departments, eachwith a specialized task.

In the plant, the sawingdepartment used metal saws to fash-ion frame members from steelbeams. The machining departmentdrilled and punched holes in thesteel to create points for attachingcomponent systems. The weldingdepartment welded together theparts for the machine's frame. Thepainting department applied both a

corrosion-inhibiting base coat and acosmetic finish coat to the complet-ed frame. The subassembly depart-ment built component systems fromparts purchased from suppliers. Andthe final-assembly department at-tached the component systems tothe frame.

In pursuit of efficiency, Lantechbuilt its four basic types of machinesin batches; it fabricated and assem-bled 10 to 15 machines of a type atone go. However, because customersusually bought only one machine ata time, the company had to storemost of the machines in each batchin a finished-goods area until theywere purchased. A stretch wrapperthus had to take quite a circuitousroute during its creation. (See theexhibit "How Lantech Makes ItsStretch Wrappers.")

Complexity increased exponen-tially as Lantech tried to move theorders gathered by the independentsales force through the office andthe plant. Because the $10,000-to-$150,000 machines were usuallycustomized, the sales force had tocontact Lantech for authorizationbefore quoting a price.

Proposals were sent for cost analy-sis to the engineering applicationsdepartment, which then sent the ac-ceptable price back to the sales force.Once the customer accepted theprice, the order traveled from the



One Cell's Production Flow: The Q Model

Fina^cissembly track

sales staff through engineering appli-cations, design, and credit checkingbefore returning to design, whichgenerated a bill of materials-a list ofevery part needed to manufacturethat specific machine. The orderwith the bill of materials then wentto the production operation's sched-uling department, where a comput-erized material-requirements-plan-ning (MRP) system assigned it aplace in the master schedule. Be-cause every department had a queueof orders, there usually were delays.As a result, orders generally took 12to 14 workdays to travel from thesales staff to the scheduling depart-ment, even though the actual pro-cessing time was less than 2.

Because the movement of prod-ucts through the plant was so errat-ic, the company created a separateorder-management departmentwithin the sales group to enable theindependent sales force to commu-nicate with the plant about wherethe machine was in the productionprocess and to expedite the order ifthe customer was getting restless.(See the exhibit "How LantechProcesses Orders.")

The MRP system melded a long-term forecast for orders with ac-tual orders as they were received tocreate a daily production sched-ule, which assigned tasks to eachdepartment in the plant. Each

morning, work-ers in every de-partment - saw-ing, machining,welding, paint-ing, subassem-bly, final assem-bly, touch-up, andcrating - pickedup a printout

^ T with their tasks

^ J for the day. Atthe end of theday, every depart-ment reportedits progress tothe schedulingdepartment.

This systemwas fine in the-ory but always amess in practicebecause of the

conflict between customers' chang-ing desires and the logic driving theproduction system. Lancaster andhis operations manager directedeach department to do its work inbatches. They wanted to minimizethe time Lantech'smachinery was idleduring the changeoverto making a new part,as well as to mini-mize opportunities tomisset machines. Buttheir approach inevi-tably produced a typical batch-and-queue environment, in which eachpart waited its turn at the entranceto each department and then re-turned to a central parts ware-house to await its next processingstep. Incoming steel usually spent16 weeks at Lantech before reachingthe shipping dock as a completedmachine, even though the total timerequired to perform all the fabrica-tion and assembly steps was justthree days.

Confronted with long throughputtimes, the sales force frequentlytried to beat the system in order tosecure machines for customersfaster. A favorite approach was toorder machines on speculation andthen, when a real customer wasfound, to alter the options verylate in the production process. Thefactory then either reworked the

stretch wrapper or delayed the deliv-ery date and built a properly config-ured machine from scratch.

Soon the master schedule devel-oped in the scheduling departmentand the ever changing demands fromthe sales group were pulling theplant in opposite directions. Expe-diters from the order managementdepartment moved through theplant with a "hot list." They visiteddepartments in sequence and or-dered the workforce to make justone item of a batch so that theycould take that part immediately tothe next department and move it tothe head of its queue. In an extremesituation, it was possihie to get astretch wrapper built in less thanfour weeks. However, doing socaused the schedule for other ma-chines to slip and created the neces-sity for more expediting.

The system sounds chaotic, and itwas. But in most of the industrialworld, such an approach was andis the standard method for mak-ing products when there are manypossihie versions, when the produc-

tion process is complex, and whenthroughput times are long.

Lantech's departmentalized engi-neering process for developing newmodels employed a similar hatch-and-queue approach. To create a newdesign, it was necessary to have themarketing staff, engineers from sev-eral specialties, the purchasing staff,and operations planners working to-gether. The marketing group ascer-tained what the customer wanted,and the chief engineer translatedthose desires into engineering speci-fications. One mechanical engineerthen designed the moving mechani-cal parts, and another designed theframe. An electrical engineer de-signed the control system, and amanufacturing engineer designedthe fabrication tools. Once the de-signs of the product and the toolswere finalized, an industrial engi-

HARVARD BUSINESS REVIEW September-October 1996 143


neer from the production depart-ment designed the route the modelwould have to take through theplant to he built, and the list of nec-essary parts was placed in the sched-uling computer. Meanwhile, thepurchasing staff lined up suppliers

for parts not made at Lantech. [Seethe exhihit "How Lantech DevelopsNew Products.")

In its infancy, Lantech had only ahalf dozen engineers, but even thencommunication barriers were suh-stantial as a design moved from themarketing group to the chief engi-neer to the mechanical engineers tothe electrical engineer to the manu-facturing engineer to the industrialengineer. Getting from the initialconcept to a complete production-ready design required rework andhacktracking, and as the companygrew and more engineers wereadded, the communication prob-lems worsened.

What's more, each engineer typi-cally had a stack of projects on his

or her desk. To get rush projectsthrough the system, Lantech againhad to turn to expediters. In practice,it usually took a year to introduce aminor improvement and three orfour years to introduce a new familyof machines, although the time it

would have taken if proj-ects spent no time inqueues or backtrackingwas only a few weeks forminor improvements andsix months for a newfamily of machines.

In summary, Lantechconducted its three majoractivities - creating new

designs, managing information onwhat to make, and physically pro-ducing its machines - in a classichatch-and-queue manner. Manysteps added no value, nothing flowed,customers couldn't pull, and manag-ers focused on minimizing variationsin operations rather than on pursu-ing perfection.

Until 1989, Lantech was ahle totolerate those deficiencies. "Wewere selling a top-priced productthat had major performance advan-tages over competitors' products be-cause of my patent position," Lan-caster recalls. "We offered so-soquality in terms of manufacturingdefects in machines delivered to cus-tomers. We took more than a year todevelop 'new' machines, which dif-

fered in only very minor ways fromprevious models. And we made tonsof money."

Then, on June 26, 1989, Lantechlost a patent-infringement suitagainst a competitor that was offer-ing lower-priced clones of Lantechmachines. The verdict threw openthe market. By the end of 1989,clones with roughly comparable per-formance started to appear every-where. "The bottom fell out of mypricing, and I knew worse was com-ing as soon as the husiness cycleturned down," Lancaster says. "Inmy heart, I knew that Lantech waswalking dead."

No quitter, Lancaster tried mostof the remedies popular in the U.S.business community at tbe time.His first approach was to reorganizethe company into separate profitcenters for "standard products" and"specials" (those requiring exten-sive customization) in order to in-crease accountability and to movethe highly customized products outof the path of machines sold in bigh-er volumes. After a visit to Milliken,the South Carolina textile giant, healso introduced total quality man-agement in order to put the voice ofthe customer first and foremost.Lantech's "good enough" standardfor the acceptahle level of delivereddefects and customer service wasreplaced with talk ahout perfection.

How Lantech Processes Orders

Engineenngapplkationsby product



How Lantech Develops New Products

Old Batch-and-Oueue System

Manufacturiruengineering

New Continuous-Flow System

Dedicated product teamswork together in one kxation

Industrialengineering

Marketing Industrialengineering

Purchasing

Teamleader

Design in concurrent _development La

Mechonicalengineering

Electricalengineering

Manufacturingengineering

ndi

the next few years,initiated a second approach: an ef-fort to create an empowered orga-nization and to build trust betweenmanagement and the workforce andamong the different departments.Lancaster replaced those senior

wanted to worktogether in teams, but we

-̂ -̂ oil revved up v/ithnowhere to go/'

managers who had A command-and-control style with managerswilling to work in a team-based or-ganization, and the eompany con-ducted extensive training in teamprocesses, team leadersbip, and indi-vidual interaction.

Those programs were an essentialstart, but they lacked a direct con-nection to the company's core activ-ities. As Bob Underwood, a longtimeproduction wt)rker, puts it, "Welearned to respect one another andwanted tt) work together in teams,but we were all revved up with no-wbere to go." The factory was stilla mess. Product developnient wasstill too slow. And tbe sales forcewas still playing games to beat tbelead-time problem.

The third approach to the crisiswas a new production method calledMax-Flex. Tbe idea was to slash leadtimes by building inventories of ma-ior components far in advance, tbenassembling machines to customers'specifications very quickly when an

order was confirmed. Tbeobiective was to over-come Lantecb's pricingdisadvantage by promis-ing more rapid delivery ofmacbines witb customer-speeified features.

Lead times fell from 16weeks to 4. But tbe costswere enormous. Engi-

neering changes were frequent. Asa result, it often was necessary toretrofit the mountain of componentstbat had been built in advance. In ad-dition, the cost of carrying thatmountain was substantial. But,most exasperating, despite Lantech'sbest efforts at planning production,cases quickly arose in which onecritical component needed to eom-plete a machine was lacking. (Tai-ichi Obno noted long ago tbat tbemore inventory you bave, tbe lesslikely you are to have tbe one partyou actually need.) Tbe solution wasa new team of expediters to get tbemissing components built.

Yet a fourtb approacb to the crisiswas better information technology.In 1991, Lantech installed a new

scbcduling system tbat gave everyworker direct access to the status ofevery macbine in production. "Itseemed to be a wonderful marriageof technology and democracy/' Lan-caster recalls. "Everyone could lookintt) tbe computer to see what wasgoing on all over the plant and gettheir work orders immediately. Ourslogan was Data to tbe People."

The new system required a newcomputer, a new management-infor-mation-system department, andworkers on tbe floor to update thecomputer when tbey completed eachtask. As Jose Zabaneh, the manu-facturing director, notes, "Prettysoon, workers were fully 'in control,'yet tbe system was wildly inaccuratebecause many items simply nevergot entered. The old MRP systemwas slow but 99% accurate. Ournew 'democratic' system was a com-plete catastrophe; instead of infor-mation, we bad given muda to thepeople." Making matters worse, tbemagnitude of inputs and cbangesmade the computer run very slowly.A consultant recommended buyinga mueb more powerful computer.

By the end of 1991, Lantech's or-ders were failing despite price reduc-tions, and the factory was unable toaccommodate tbe continual sbifts indemand. "We hegan losing money,and our fundamental ideas on bowto run tbe business were in a melt-

146 HARVARD liU-SINESS REVIEW ScptfinKT-Ottubcr

Which is shorter? A - B, or A - C?

THINKAGAIN

To solve the problem, try insightful thinking.

At the law firm of Dickstein Shapiro Morin & Oshinsky,

our clients benefit from our ability to see complex

issues clearly and implement successful strategies.

Our attorneys value the kind of creative thinking that

converts obstacles into opportunities.

DICKSTEINS H A P I R OMORIN c -OSHINSKY

W A S H I N G T O N D C

For Solutions: http://www.dsmo.com

down," Lancaster says. Then he dis-covered lean thinking by accident:when he advertised an opening forthe position of vice president for op-erations, one person responded withsome highly unusual ideas. Thatman was Ron Hicks.

Although Ron Hicks does not looklike a revolutionary, he started a rev-olution when he went to work forLantech in March 1992. He hadlearned how to be a revolutionarywhile serving as operations vicepresident of Hennessy Industries, amanufacturer of automotive repairtools in Tennessee that had becomea lean organization.

To transform itself into a lean or-ganization, a company needs threetypes of leaders: someone who iscommitted to the business for thelong term and can be the anchor thatprovides stability and continuity;someone with deep knowledge oflean techniques; and someone whocan smash the organizational barri-ers that inevitably arise when dra-matic change is proposed. Lancasterfilled the first role, Hicks the second,and Zabaneh the third.

In the newly empowered spiritof Lantech, Hicks was invited toLouisville and interviewed by thepeople he would manage. His simpleproposal to them came as a revela-tion: Lantech would immediatelyform teams to rethink the valuestream and the flow of value forevery product in the plant and forevery step in order taking and prod-uct development. Lantech wouldidentify all the activities required atthe time to design, order, and manu-facture a stretch-wrapping machine,would eliminate those tbat were nottruly needed, and then would per-form in a rapid sequence those thatdid create value - processing onemachine, one design, one order ata time. Batches, queues, backflows,and waste-muda of all sorts-wouldbe banished. The value stream wouldflow smoothly, continuously, and rap-idly. Hicks got the job.

Eliminating WastefulActivities and Creating Flow

As it happened, the lean trans-formation at Lantech was easy inone important respect: customers

were satisfied with the company'sstretch-wrapping equipment. Be-cause its value to them was not inquestion and because Lantech un-derstood that value, the companycould safely skip the first step in ap-plying lean thinking.

Upon joining Lantech, Hicks im-mediately went to work with a sim-ple plan to untangle the flow ofvalue by establishing a dedicatedproduction process for each of thefour product families. His plancalled for disbanding the productiondepartments and regrouping the ma-chinery so that all the equipmentneeded to make each of the fourmodels was located together in fourseparate production cells. Lantechalso would have to "right-size"many of its tools-get rid of the huge,overly complex machines |or monu-ments) and install smaller saws andmachining tools-so that they couldfit in the work cells. This step wasthe kaikaku phase-the time to tearthings apart and recombine them ina totally different way. Not onlywould products flow continuouslyfrom start to finish, but the waste-


fulness of moving parts back andforth from central storage to eachdepartment, the long waits, and thedelayed discovery of quality prob-lems would be eliminated.

The first production cell, whichwould make the company's new-est product line, the Q model, wasthe acid test. A kaikaku team ofLantech's best workers quickly re-thought the value stream and flow.In less than a week, all the equip-ment was moved into a new configu-ration. Only the painting booth, aclassic monument, survived as a de-partment. But once parts had gonethrough the painting booth, they re-turned to the individual cells forsubassembly, final assembly, test-ing, and crating. (See, in the exhihit"How Lantech Makes Its StretchWrappers," the chart "One Cell'sProduction Flow: The Q Model.")

Each morning, every hour, the sawoperator would start production of anew machine. A kit of all the frameparts required for the machine wasready hy the end of the hour and wasrolled approximately three feet tothe machining station. From the

machining station, it proceeded anhour later about four feet to weld-ing. Fourteen hours after the start ofparts fabrication, the completed ma-chine was ready to ship.

To make this simple system suc-ceed, Lantech needed to change ageneration of thinking ahout workand how people work together. First,because all the jobs were directlylinked, with no buffers of invento-ried parts, it was essential that allemployees think about standardiz-ing their work so that a given taskwould take the same amount of timeevery time and also would be donecorrectly on the first attempt. By de-sign, either the whole cell was work-ing smoothly at the same pace oreverything came to a halt. For thatreason, every task needed to be care-fully described in a posted diagramso that everyone in the productioncell could understand what every-one else was doing.

Second, because machines were tohe made only when ordered, it wasimportant to introduce the conceptthat Toyota calls takt time. Takttime is determined by dividing the

uming

Powerful

Ideas into

Innovative

Practice

Advanced Negotiation ProgramJanuary 22-25, 1997

Managing in Groups and TeamsMarch 2 3 - 2 8 . 1997

Negotiation and Influence StrategiesOctober 27 - November 1,1996April 20 - 25, November 2 -7 .1997

Strategic Uses of Information TechnologyMay 11 -16.1997

Leading and Managing ChangeJune 22-Ju ly 4. 1997

Product Development andManufacturing StrategyJuly 6 - 1 8 , 1997

Financial Management ProgramJuly 6 - 1 8 . 1997

Executive Program in Strategyand OrganizationAugust 3 - 1 5 . 1997

Marketing Management:A Strategic PerspectiveAugust 10 -22 , 1997

Human Resource Executive ProgramSeptember 1 4 - 1 9 . 1997

Stanford Executive ProgramJune 22-August 5,1997

Executive Program for Growing CompaniesMarch 2 - 14. July 20 - August 1. 1997

Stanford-N.U.S. Executive Programin Hong Kong: April 6 - 25.1997in Singapore: August 10 - 29, 1997

For more information contact:

El Vera Fisher

Office of Executive Education

Stanford Business School

Stanford University

Stanford, CA 94305-5015

Ask for Dept. 97H

Phone:(415)723-3341

Fax:(415)723-3950

E-mail: [email protected]

Weh site: http://gsb-www.stanford.edu/eep

number ui orders placed by cus-tomers in a given period into theamount of available production timein that period. For example, if cus-tomers were asking for 16 Q modelsa day and the plant was running oneeight-hour shift, takt time would beone half hour.

Establishing takt time was criticalto avoid the natural tendency to pro-duce too fast, building up wastefulinventories, and was the best way tofocus the work team on getting allthe work done in the available time.When demand slackened and takttime was increased, it would be pos-sible to move some workers to othertasks, such as maintenance. Simi-larly, an inerease in demand and ashortening of takt time would pro-vide an excellent opportunity forapplying kaizen to the activity - forfiguring out how the same numberof people could produce a completemachine in less time by further re-fining each task and eliminatingmore muda.

Finally, beeause customers or-dered each of the four basie modelsof stretch wrappers with a wide vari-ety of options, Lantech also neededto figure out how to perform equip-ment changeovers quickly. That way,all variants of a basic model couldbe made in a continuous flow withno stoppage.

When the kaikaku team organizedby Hicks proposed the new cell con-cept and the elimination of produc-tion departments, many production

workers and managers were baffledor dismayed. As Bob Underwood,one of the most highly skilled work-ers on the floor, notes, "We wereused to a system in which each of ushad a set of hard-earned skills-in mycase, it was the ability to adjust non-conforming parts so they would fit.We were used to doing our own workas we saw fit at our own pace in our


own department. As long as we metour daily production quota, we wereleft alone. What's more, the real kickin the work was 'fire fighting,' inwhich the 'Lantech Volunteer FireDepartment' went into erisis modeto get an emergeney order throughthe system or to elimi-nate a sudden produc-tion bottleneck. I wasone of the best fire-fighters at Lantechand I loved it,"

Hicks was propos-ing a new system jof standardized workand takt time, whichsounded like the kind of regimenthat has traditionally caused produc-tion workers to chafe. Moreover, hewas proposing to make completestreteh wrappers, one at a time, inprecise response to customers' de-mands, and that idea seemed bothillogical and impossible to a groupof employees with 20 years' experi-ence as batch thinkers. Finally, heclaimed that if the work was stan-dardized by the work team, the ma-chines were realigned to permit con-tinuous flow, and takt time wasadhered to with no working ahead,there would be no more fires tofight. "It didn't sound like much fun,and I thought it would never work,"Underwood says.

When the new cell concept wasready to go, it didn't work. All kindsof problems suddenly emerged, andthe widespread feeling was that

Hicks was pushing animpractical concept. Atthat point, Zabaneh, themanufacturing director,played the primary role."I was so fed up withour failures and so takenwith the logic of the newsystem that I threw myheart into it," he recalls.

"I called a meeting of the work-toree and announced that I wouldstay all night and all weekend towork on the problems we were en-countering but that I would notspend even one second discussingthe possibility of going back to theold batch-and-queue system."

As the transformation got underway, Lancaster took the long view

and gave unfaltering support to thenew approach despite the setbacks.Hicks and his technical consultant,Anand Sharma, had the skills towork the bugs out, and Zabaneh pro-vided the emotional energy - whatOhno once called "the defiant atti-

constont, thed

tude" - t o keep the kaikaku teammoving ahead even when no oneknew how to solve the next prob-lem. Gradually, and then more andmore rapidly, value began to flow.

By the fall of 1992, Lantech hadconverted its entire production sys-tem from departmentalized batchmethods to continuous flow in cells.Even the production of the largestmachine, the $150,000 H model,flowed continuously with a takttime of one week.

The impact of the new approachon performance was remarkable.Although the plant's workforce re-mained virtually constant at around300, the number of shipped ma-chines doubled between 1991 and1995. Moreover, Lantech could pro-duce a machine in about half thespace previously required, the num-ber of defects reported by customersfell from 8 per machine in 1991 to .8in 1995, and start-to-finish produc-tion time for the Q model |whichhad the highest volume and theshortest takt time) fell from 16weeks to 14 hours.

A promise that Lancaster hadmade to his workforee in 1992 clear-ly helped Lantech make the transi-tion so quiekly: he had announcedthat no one would be let go as aresult of the conversion. Instead,Lantech assigned the freed-up work-ers to a companywide kaikaku teamto plan the improvement of other ac-tivities. (These eventually includedoffice activities and helping suppli-ers deliver parts just in time.) Under-wood, the original skeptie and chieffireman, headed the team. After

152 HARVARD BUSINESS REVIEW Septcmbtr-Octoher 1996

ChangeJohnP.KoRer

208 pages-324.95

ing I Leadin

John P Kotter

Power ofThe BalanceScorecardImslattng Smegyinto ActionRobert S. Kaplanand David P.Norton

336 pages • S29.95

The Truth aboutthe National

DebtFive Myths and

One RealityFrancis X.

Cavanaugh192 pages • $22.95

or call (800) 545-7685 or (617} 495 6192.Mention priority code 1110.

Harvard Business School PressBoston, MA 02163

http://www.hbsp.harvarcl. edu

every improvement, Lantech trans-ferred the best workers in the re-vamped process to the kaikakuteam, making it clear that the as-signment was a promotion, not apunishment.

As the lean revolution gainedmomentum in the plant, the com-panywide kaikaku team turned itsattention to Lantech's office. AsLancaster puts it, "If we could makea machine in 14 hours, how couldwe live with an order-taking andcredit-checking process that re-quired three weeks? And why did weneed an elaborate product-trackingsystem to keep customers informedabout the status of their product ifwe could schedule it and make it inonly a few days?"

Lantech employed the same tech-niques it had used in the plant totransform the office. The kaikakuteam, including all the workers in-volved in the process and one out-side technical consultant (Sharma),

collectively mapped the entire valueflow and looked for wasted time andeffort. As the team rethought thesteps and as orders began to flowcontinuously from one adiacentworker to the next, with no depart-mental barriers, the best of the freed-up workers once again were assignedto the kaikaku team to lay thegroundwork for tackling the nextactivity. They remained on the teamuntil growth in output or new busi-ness initiatives created a need forthem elsewhere.

After Lantech had applied thosetechniques to its entire order-takingand plant-scheduling system, it un-derstood its costs much better,which enabled it to set prices foreach machine more scientifically. Inaddition, the company now couldexplain its prices to distributors andcustomers more clearly, which elim-inated time-consuming haggling [amajor source of muda). Finally, thechanges in the systems slashed the

time required to get an order intoproduction from three weeks to onlytwo days.

Letting the Customer Pullthe Product

Lantech also found that it nolonger needed most of its computer-ized scheduling system and retiredits mainframe. It retained its MRPsystem to provide long-term produc-tion forecasts to suppliers, whichstill needed to know the capacitythey would require to serve Lantechfor one or two years. However, theMRP system was no longer used toorder parts from suppliers. Most sup-pliers delivered parts right beforethe production cells needed them, orjust in time. Under Lantech's kanbansystem, when a cell used a small boxof parts, a card was sent immediate-ly to the supplier of the box, telling itthat it had to deliver another.

At Lantech, day-to-day produc-tion scheduling could now be done

on a large white boardin the sales office, whereorders were written assoon as they were con-firmed. During our visitsto Lantech, the slots onthe hoard were filledfrom three days to two

weeks ahead of the current date,and the plant was only manufactur-ing machines with firm orders.

The highly visible white boardwas a remarkable spur to the salesforce, particularly during any timewhen the blank space was increas-ing. It is an excellent example of yetanother lean technique: visual con-lrol. One of the principles of leanthinking is that if every employeecan see the status of an activity, heor she will be able to take appropri-ate action.

The sales office sent the rosterof machines to be made each day tothe four production cells. The newstreamlined order flow was a strik-ing contrast to the old labyrinth.

Rethinking the product develop-ment process was the final step inLantech's transformation. From theearly days of the plant conversion,Lancaster knew that he would needto grow his business dramatically inorder to keep everyone busy as pro-

HARVARD BUSINESS REVIEW September-October 1996


ductivity zoomed. That meant turn-ing strategic thinking on its head."I didn't have time to find a newbusiness to go into, and I didn't havethe money to buy out a major com-petitor. Instead, I needed to revital-ize and expand my product range sothat I could sell more in an estab-lished market I knew well," he says.

Realizing that his batch-and-queue product-development systemwould take years to come up withmarket-expanding products, he de-cided to make new-product designsflow continuously, like orders andmachines, "We needed a design tomove continuously from the initialconcept to the launch of production.That meant no stopping because ofthe bureaucratic needs of our organi-zation, no backflows to correct mis-takes, and no hitches during produc-tion ramp-up," he says.

Lantech had experimented withvarious types of development teamsin the late 1980s and early 1990s

without much success. A few bet-the-company projects were pushedthrough by a designated "dictator"or a "heavyweight" project leader.But in general, Lantech relied on so-called lightweight team leaders tocoordinate the activities of the nu-merous technical specialists, who,in reality, continued to pursue theirindividual priorities. In no case wasthe team leader - dictator or light-weight coordinator-responsible forensuring that the product pleasedthe customer and made money forLantech during its production life.

In 1993, Lantech went to a newsystem of dedicated teams led by a"directly responsible individual"clearly charged with the success ofthe product during its lifetime. Theannual corporate-planning processidentified the major products to bedeveloped and ranked them. Thecompany assigned a dedicated teamof specialists to each of the top-rank-ing products and told those teams to

work nonstop until they had com-pleted their projects. The companysimply dropped the lower-rankingprojects-the kind that had formerlyclogged the engineering department.Under the new product-develop-ment system, a design progressed ina streamlined fashion.

The S Series, the first product tocome through the new system, dem-onstrated the potential of the ap-proach. Launched in mid-1995, theS Series was developed in a year -a quarter of the time it had taken todevelop its predecessor. It took onlyabout half the hours of engineeringthat it would have required in theold days. And its defect rate was sub-stantially lower than that of previ-ous new products.

Any business must be measuredby its ability to make enough profitto renew itself. If the transitionat Lantech had cost a fortune innew investment or had disruptedthe company's ability to satisfy

Lantech's Performance Leap

Development time for a new product family

Enu>loyee hours requirM to malw one machine

100 square f MtMonutocfuntiQ space por nvochine

Average number of dafecls per delivered mochbte 8

Value ef fafprocess and finished-gotKfs inventonr* $ 3 ^ mflBon

14 hours to S daysProduction throuoiput lime

Product-fwlivery lead timet

'Sales more than doubled between 1991 and 1995. If Lantech's traditional sales-toinventory ratio had held constant aikast $5.2 million in inventorywould have been needed to support the 1995 solos vc^ume.

'^Jhis is the period between the placonwni of the a.'skmer's order and the delivery of the rriachine. In 1991, most of tbis time was spent in the prodiKtionsystem. In 1995, when sales soared and demand outstripped Lantech's production cafXicity, most of it was wailing time fof a proaoction siot.


customers, it would have been aninteresting technical exercise buthardly a revolution in business prac-tice. In fact, the amount of invest-ment required was virtually zero.For the most part, workers freed upby the elimination of inefficient

• • f »

rocesses.

tasks reconfigured the tools and re-thought the office and developmentprocesses. And the transformationreduced the amount of computers,space, and expensive tooling that thecompany required. (See the table"Lantech's Performance Leap.")

The effect on customers wasequally dramatic. Lantech's shareof the stretch-wrapping marketzoomed from 38% in 1991 to 50%in 1995, when the company sold2,585 units and had revenues of$60 million. As a result, the com-pany, which had suffered a large oper-ating loss in 1991, was generatingsolid profits by 1993 and had be-come the industry's leading finan-cial performer by 1994.

Pursuing PerfectionIn an ironic twist, Lantech has re-

vitalized itself by banishing batchesand their associated muda from thedesign and production of a productwbose sole use is to wrap batches ofproducts for shipment witbin com-plex production and distributionebains. Lancaster, tberefore, bas em-barked on a new strategic exercise:to tbink tbrougb how tbe emergingworld of small-lot production andcontinuous flow will affect his cus-tomers' packaging needs.

Meanwhile, Lantech as an organi-zation is steadily striving for perfec-tion-a state in wbich every action inthe organization creates value fortbe customer. The pace of Lantech'simprovement activities bas notslowed. Every major activity in tbecompany undergoes a three-daykaizen several times a year.


What's more, Lancaster sees noend in sigbt. He notes tbat as layersof muda are stripped away, moremuda is always exposed. Despite tbeperformance leap tbat Lantech hasmade, it can identify as many oppor-tunities for improvement today as it

could four years ago.Based on four years of

studying organizationslike Lantecb, we bave de-veloped tbe followingrules of tbumb: Convert-ing a classic batcb-and-queue production systemto clearly specified valuestreams tbat flow contin-

uously as tbey are pulled by tbe cus-tomer will double labor productivitytbrougbout tbe system [for direct,managerial, and tecbnical workers,from raw materials to deliveredproduct) wbile cutting productiontbroughput times and inventories by90%. Errors reaching tbe customer,scrap witbin tbe production process,job-related injuries, time to market,and tbe effort required to developnew products will usually be cut inbalf. And a wider variety of productswill be able to be offered at modestadditional cost.

Moreover, tbose gains are iust tbebeginning. Tbey aretbe kaikaku bonusfrom tbe initial radicalrealignment of tbe val-ue stream. By makingcontinuous incremen-tal improvements in '*'tbeir pursuit of perfec-tion, companies can usually doubleproductivity again witbin two totbree years and balve inventories, er-rors, and lead times. Because a com-pany can put operations tbrougbkaikaku and kaizen scrutiny overand over again, indefinitely, it willnever reacb an end to tbe improve-ments it can make.

Results of tbis magnitude could betbe antidote to stagnation in tbe ad-vanced economies. Conventionalthinking about economic growtb fo-cuses on new technologies and addi-tional training - a focus that helpsexplain tbe fascination witb tbefalling costs of computing power andwitb tbe growing ease of movingdata around tbe planet. Many busi-

ness gurus would have people be-lieve tbat tbe coupling of low-cost,easily accessible data witb interac-tive educational software for knowl-edge workers will produce a greatleap in productivity and well-being.We are skeptical.

In tbe past 20 years, we bave seentbe robotics revolution, the materi-als revolution (remember the predic-tion tbat cars would bave ceramicengines and airplanes would be builtentirely of plastic?), tbe micro-processor and personal-computerrevolution, and the biotechnologyrevolution. Yet domestic product percapita - tbe average amount of valuecreated per person - in all tbe devel-oped countries has remained stuck.

For tbe most part, tbe problem isnot tbe new tecbnologies tbem-selves. Tbe problem is tbat tbeyoften are misapplied and initiallyaffect only a small part of tbeeconomy. A few companies, sucb asMicrosoft, grow from infants to gi-ants overnigbt, but tbe great majori-ty of economic activities-construc-tion and housing, transportation,the food supply system, manufactur-ing, and personal services - are af-fected only over a long period, if atall. New tecbnologies and invest-

ments in buman capital may gener-ate growth over tbe long term, butlean thinking bas demonstrated thepower to produce green shoots ofgrowtb all across tbis landscapewithin a few years.

Lean tbinking always works wbenapplied in a comprebensive way.Tbe problem is a sbortage of man-agers with tbe knowledge and ener-gy to make tbe leap. Wbat compa-nies and tbe wbole world need nowis more Pat Lancasters taking heroicmeasures to define value correctly,to identify the value stream, and tomake value flow more and more per-fectly at the pull of the customer. ^Reprint 96511To order reprints, see the last page of this issue.

158 HARVARD BUSINESS REVIEW Septemhcr-October 1996

beyond toyota: how to root out waste and pursue perfection · how to root out waste and pursue...

Documents