Are you operating lean?

In today’s competitive environment, if you are thinking about getting lean — tightening your belt and becoming more efficient — you may consider reducing your workforce. This is usually the first place your accountant will look. After all, payroll is one of your highest expenses and reducing it is the easiest solution to cutting costs. But doing so is not necessarily operating lean.

hands working on circuitboardOperating lean means employing lean practices, which are a group of methodologies that help companies improve their profitability by reducing waste, eliminating non-value added activities and improving productivity. Lean practices have been popularized by Toyota and its Toyota Production System but, ironically, the foundations of lean practices actually have their roots with Henry Ford and the early days of Ford Motor Company.

Lean practices were first employed in manufacturing environments, hence the term lean manufacturing which you may be familiar with. However, lean practices have been successfully employed in environments other than traditional manufacturing, such as service and retail businesses. There are a host of methodologies and tools that fall under the lean practices umbrella such as 5S, Six Sigma, “just-in-time” inventory and manufacturing, statistical process control and failure mode and effects analysis (FEMA) to name a few.

Many companies can attest to the effectiveness of lean practices. Fortune 500 companies such as Motorola and General Electric have used lean practices to eliminate billions of dollars from the cost of their operations and generate increased bottom line profits. Forward thinking small companies are also successfully implementing lean practices to improve their profitability. When properly implemented, lean practices reduce waste, improve labor productivity, lower the overall cost of operations, reduce cycle times, increase capacity and improve a company’s competitiveness.

In manufacturing environments, lean practices differ from traditional manufacturing in several ways:

  • In traditional manufacturing, production schedules are based on a forecast resulting in product being “pushed” through the system. Lean schedules are based on customer orders causing product to be “pulled” through the system.
  • Traditional manufacturers make product to replenish the finished goods inventory, while lean manufacturers make products to fill customer orders.
  • When one adopts lean processes, production cycle times are dramatically reduced.
  • Traditional processes will typically have large batch sizes moving between operations with product staged ahead of each operation. Lean processes involve smaller batches and are based on one-piece flow between operations.
  • In a traditional setting, the plant layout is set up by department function, but a lean plant is set up by product flow, using cells or lines for similar products.
  • Quality control is maintained in a traditional plant by sampling various lots of each product. Lean emphasizes the elimination of root causes of poor quality.
  • In a traditional plant, the workers have very little input regarding how operations are performed. When using lean processes, each worker has the responsibility for identifying and helping to implement improvements.

Traditional plants usually have a central storeroom for in-process staging and a large warehouse full of finished goods. Lean plants will have low levels of inventory between operations and will ship goods often.

Inventory turns in a traditional plant may run six to nine turns per year or less. A lean plant may turn inventory as much as 20 times or more per year.

In a traditional plant, there is a low level of flexibility making it difficult to adjust and accommodate changes in manufacturing schedules. Lean processes are highly flexible making it easier to adjust and implement changes.

Implementing lean practices requires patience, dedication and the proper attitude. The change will take time but when it does occur it will totally revolutionize the culture in your operation. Lean is a process of continuous improvement. If you decide to adopt lean practices, it will take the full commitment of everyone. Every employee — from those in upper management to those on the shop floor — will need to take a role in the design and implementation of the processes for your lean initiative to be successful.