Lean Thinking for a Flat World

Institute of Industrial Engineers Nashville, Tennessee

James P. Womack, Chairman, Lean Enterprise Institute

May 22, 2007

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What Do I Mean By Lean? • Creating perfect processes (value streams), in which:

ü Value is specified correctly from the standpoint of the customer, and

ü Every step in the value­creating process (the value stream) is:

Ø Valuable (no muda)

Ø Capable

Ø Available

Ø Adequate

Ø Flexible

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What Else Do I Mean By Lean?

ü The steps are linked by:

Ø Continuous flow (wherever possible),

Ø Pull rather than push (when flow is not possible),

Ø Leveling (heijunka to reduce mura and muri), and

ü Every participant (manager, primary employee, even the customer) is engaged in sustaining and improving the value streams they touch.

Purpose, process, and people are in harmony!

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What Are the Key Processes? Primary: • Product and process development, from concept to launch.

• Fulfillment, from order through all operational steps to delivery.

• Customer support, over the life cycle of every product. Secondary: • Every activity within an organization providing value to an internal customer operating a primary process.

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The Extent of Key Processes

Exist for every good and service in every organization.

All value is the end result of some process.

Often extending through many countries and regions across a flat world.

Process design/optimization is the heart of the world’s work and the core of industrial engineering!

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What Do I Mean by Flat?

• A world in which goods, services, and people flow freely across national and regional boundaries.

• Predominant tendency of the post­World War II era.

• A powerful engine of world economic growth.

• Highly desirable as a vision of our global future.

• But is it sustainable?

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Some Implications of a Lean, Flat World • The standard of living of each country will depend less on:

Ø Factor costs (which will tend to converge.)

Ø Proprietary technologies (which will tend to diffuse.)

• The standard of living of each country will depend more on:

Ø Ability to create brilliant processes for every value creating activity – product and process development, fulfillment, customer support, and secondary value streams

Ø In every industry and sector across societies.

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The Threat to a Flat World

• To the extent countries (led by the U.S.) fail to achieve lean value­creating processes ­­ to sustain their standard of living in an open economy while dealing with environmental sustainability ­­ the world is much less likely to be flat (and green).

• Losers will try to find a different league from Flat World!

• Industrial engineers can help improve everyone’s processes to create a global win­win!

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How Do We Create Brilliant Processes?

• Remember that creating brilliant processes (value streams) is a… process!

• The best place to start is during product/process development (not with kaizen of defective products/processes after production launch.)

• Each process, once properly designed, must be sustained and steadily improved through a long life.

• We need to make every manager and employee an industrial engineer!

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Many Tools Are Necessary ü 5S and visual control.

ü Jidoka/autonomation: poka­yoke, andon, line stops, root cause analysis, etc., to reduce variation.

ü Flow (through cellular layouts in process sequence to eliminate bottlenecks, with high availability through TPM.)

ü Pull (with various types of signals – kanban, etc.)

ü Leveling of demand (through heijunka.)

ü 5­day (or 4­day or 3­day or…) kaizen.

ü Value stream maps!

But….they are never sufficient.

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Current­State Value Stream

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Future­State Value Stream

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State of Lean Today

A lot of tools.

Rapidly diffusing to every industry and activity, including healthcare, financial services, maintenance, retail & government.

A lot of sawing and hammering on defective processes.

Very limited progress in creating sustainable lean value streams for product & process development, fulfillment, and customer support.

What has been left out?

• Lean management for each value stream.

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A Short History of Management: Craft We’ve been on a long journey:

• Starting eons ago with Craft Production:

ü Product and process development by one person.

ü Production and customer support by the master craftsman (same person.)

ü Labor from apprentices, using flexible machines.

ü Parts supplied by other small craftsmen.

• Worked well for simple products in low volumes, but at high cost.

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Flow Management: Henry Ford (1914) • Small, fast development team, led by Ford himself.

• Standard, low­cost product, no options.

• Interchangeable parts, every time – no fitting.

• Flow production in assembly, laid out by Ford himself.

• Flow production in fabrication, by locating different technologies in process sequence, laid out by….Ford!

• Standard work.

• Primitive pull system.

• Remarkably “horizontal” organization.

• Brilliant initial success and brilliant prospects!

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Ford Left Out Variety & Management

• Ford truly believed that everyone wanted the same thing.

• Loved by Fascists and Communists alike because this belief facilitated “Planning”.

• No model of management other than referring all decisions to the top. (No clear grants of authority.)

• Worked when there was only one value stream for a standard product!

• Declined steadily as markets demanded variety and company became increasingly impossible to control.

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Mass Management: Alfred Sloan at GM • “A product for every purse and purpose.” • A management system with: ü Clear grants of authority, for organizational units. ü Planning and direction from the top down. ü Line managers judged on results, often financial. ü Generalist managers, rotated frequently. ü Decisions made far from point of value creation, by analyzing data.

ü Problem solving and improvements conducted by staffs and through programs.

ü Loss of Ford’s focus on horizontal flow of value.

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Lean Management: Eiji Toyoda at Toyota • Planning and direction from the top but with multiple feedback loops

• Responsibility for getting problems solved through improved processes takes precedence over authority for departments and functions.

• Line managers focused on designing, operating, and improving precisely specified processes

• Brilliant results (from average people) emerge from continuously focusing on processes rather than by focusing on results.

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Lean Management: Eiji Toyoda (> 1950s) • Decisions made as close to the point of value creation as possible using direct observation; “data” into “facts.”

• Process design, problem solving, and improvement conducted mostly by line managers, in problem solving loops with superiors and subordinates.

• By higher level managers asking questions rather than giving answers.

• Creating a remarkable horizontal focus in a vertical, functional organization.

• Chief Engineer as the prototypical lean manager.

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To Progress Toward Lean Management • Make someone responsible for each value stream, to:

ü Engage everyone touching the stream in understanding the current state, focusing on the “purpose gap.”

ü Propose a better future state, addressing the gap and taking responsibility for implementing it. (Using PDCA.)

ü Continuously address emerging problems, as close to the problem as possible. (Genchi gembutsu.)

ü Apply “standard management”, to sustain processes.

Ø Hint: Make every manager an industrial engineer!

Ø A3 is a useful tool if coupled with lean management.

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Sample A3

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Enablers of Lean Management

• Make someone responsible for every value stream, but avoid changes in the org chart unless absolutely necessary. (Responsibility does not need to equal authority.)

• Adjust organizational metrics to make horizontal flow the primary concern of management, not an afterthought.

• Teach senior managers to ask questions about the value streams managed by lower level managers: purpose, process, people. (Avoid giving answers; keep asking questions!)

• Insist on “management by science” through PDCA & A3.

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The Role of IE’s: The Road to the Top

• If we need to make every line manager an industrial engineer, we also need to make a lot more IEs senior managers!

• Problem has been that IEs are much stronger on process than on customer/business purpose and people.

• How can you address this as a profession?

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The Role of IEs: Staff to Management

• How can it be that practically no manager today receives any education in process thinking (yet we spend our working lives participating in processes)?

• IEs need to get out of IE and “improvement” departments and into management!

• A special problem: Process thinking is learned by doing/acting not by sitting in classes! How do we educate IE as managers?

• How can you address this as a profession?

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The Role of IEs: Lean Math • The path to Flat World will be a lot easier if managers avoid locational decisions based on point cost. (E.g., factory gate plus slow freight; moving unnecessary work – help lines – to low wage areas.)

• Lemming effects and wave action (mura!) are the result of point costing, which destabilizes the global system.

• Do “lean math” instead that counts all of the cost drivers in locating the production of a specific product family for a specific customer: (factory gate + slow freight) cost plus cost of quality, inventory, and respon­ siveness plus currency, country, and supplier risk.

• How can you address this as a profession?