Friday, 6 November 2009

Lean Discrete Manufacturers not measuring up!

Lean Discrete Manufacturers not measuring up!

Microsoft and the MPI Group recently published an article entitled ‘Lean Operational Improvements That Last.’ Being an eBECS Lean ERP consultant, this immediately peaked my interest and as I read further had some lasting takeaways.

The article began with some interesting statistics, showing that Lean companies relative to non-lean companies have higher figures for sales per employee, on time delivery and inventory turns. This did not surprise me at all as you all know these are the commonplace statistics that drive companies to Lean initiatives. What did surprise me was the next statistic: ‘median gross margins are 10 percentage points lower (median) among Lean discrete manufacturers than non-Lean discrete manufacturers.’ How can this be? If all of the KPIs above are increasing, why would gross margins be lower?

They then proposed that the reason for this explaining that Lean companies often choose the simplest and easiest to use tactics, an example being extrapolating the 5S concept into ‘being Lean’, resulting in low-level results. Taking this a little further, the article reported that while 97% of Lean discrete manufacturers use Lean in production, only 23% use Lean in finance, 26% in customer management and 29% in administration.

These statistics reaffirm what I’ve seen in real world ‘Lean’ companies. Whether it be joining the Kanban, 5S, or production Kaizen ‘bandwagons’, most companies have focused on a particular concept or tool in Lean and have failed to grasp the entire picture. Without fully embracing Lean concepts throughout an entire organization from the back office processes to strategy deployment, companies will continue to ‘silo’ themselves losing the synergies achieved through enterprise wide improvement.

In my experience, this ‘silo’ concept becomes glaringly obvious as you look at how various functional departments of an organization operate utilizing IT ‘systems.’ The sales department needs this piece of software to better meet the customer’s needs, Planning needs this Excel spreadsheet, Finance uses a different but similar Excel spreadsheet than Planning. Each department is working as their own unit, trying to improve their unit albeit, but not with an organization wide view. They create informational and functional ‘silos’ that lead to independent goal and target setting, and ultimately wasted time, effort and money trying to apply ‘Lean’ tools. Without the backbone of Lean as an organization wide measure with corporate visions that drill-down to meaningful and measurable goals for the entire workforce, the most impactful benefits of Lean are lost.

The article continues to examine this concept of a ‘Holistic Lean’ through the methods deployed by Toyota. Toyota have used both A3 reports and value stream mapping to build problem-solving into all areas of their business to promote a problem-seeking and solving culture throughout. As the article began describing these two concepts, my mind naturally moved to how Microsoft has so many great tools to holistically help Lean companies. While A3 reports and Value stream mapping software is not within Dynamics AX, Microsoft SharePoint helps breakdown organizational silos and broadcast to an organization wide audience. Further with Microsoft BI tools, KPIs at every functional level become a reality with drill down functionality to real time data to understand the measures and a user’s impact on organizational KPIs.

What’s more obvious within Dynamics AX Lean Manufacturing is the outcome of the value stream itself where each person in the value stream has the visibility to see their impact on the value stream in real-time. With the customer service representative taking an order and immediately seeing the result hit the manufacturing floor with Lean Order Schedule functionality to production seeing the direct sales link to the order they are manufacturing, even with alerts on the floor to show where the customer ‘s delivery date was pushed out due to an issue. With one enterprise wide system, the dramatic increases in visibility through software drive an understanding of the impact that each user has on the entire value stream. While this can be a scary realization for users at first, it more importantly leads to collaborative efforts across functions to both eliminate waste and improve the entire value stream for the end goal of satisfying the customer.

The article fittingly ends with this take away, “Today, modern and flexible and enterprise resource planning (ERP) and customer relationship management (CRM) systems work together with Lean to bring real-time visibility to planning, scheduling and tracking (checking) capabilities – across plants, companies and countries.”

What have your experiences been with Lean companies that have done just this, departmentalized their Lean initiatives without regard for the holistic Lean Enterprise? Please join the Lean Centre of Excellence to comment.

The eBECS Lean Team

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