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THE LEAN TURNAROUND
How Business Leaders Use Lean Principles to Create Value and Transform Their Company
By ART BYRNE, JAMES P. WOMACK
The McGraw-Hill Companies, Inc.Copyright © 2013The McGraw-Hill Companies, Inc.
All rights reserved.
My Lean Journey
I started out just like you: a traditional management guy. My first exposure to Lean at GE was very small and narrow, but the strategic implications were huge. I wanted to do more, but I needed to learn more first, and at Danaher, I was fortunate to be able to work with the experts from Shingijutsu, who helped me understand how to start kaizen. I learned this approach in depth by forcing myself to be on lots of kaizen teams. I was the group executive, and I could have avoided this by delegating the kaizen work to someone else. That would have been a colossal mistake—and one that I hope you don't make. As a result, by the time I got to Wiremold and J. W. Childs, I knew not only what to do but how to go about it, how to lead it, and what the strategic implications were for big gains in value creation—that is, enterprise value.
Make the Month Meets Lean at General Electric
When I joined General Electric in early 1980, it was known as one of the best companies in the world, and it was the recognized leader in strategic planning. Even so, it was hiring people with strategic planning backgrounds to bring new perspectives and enhance its internal approach. I was hired as a strategic planner in the Lighting Business Group. Three days after I got there, my boss was put on a special assignment, and I became the de facto head of planning for the group.
At the time, GE was a very traditional manufacturer. Its management approach was top-down, manage the numbers, aided by a strong central financial group. We pretty much had a single measurement focus on earnings: make the month or die. Jack Welch had become CEO not long after I arrived, and he added a lot of energy, along with being a great leader and a strategic thinker. The company was full of bright, aggressive individuals, an environment that challenged you to learn things quickly.
Even so, despite all the positive management approaches, I found an equal number of practices to be wasteful. For example, the capital appropriation process was big and bureaucratic. It even had a full-time staff at the corporate level to review the big projects. This meant that getting something approved took three to six months, even though few changes to the original request were ever made. In addition, our focus on detailed reviews of the numbers each month meant that management spent 8 to 10 days each month reviewing (or preparing to review) what had happened last month. More important, the balance sheet was taken totally for granted. However, since I had a traditional batch background, I didn't really have a basis on which to question this until I was introduced to Lean.
At the beginning of 1982, I got my first general manager's job at GE as head of the High Intensity and Quartz Lamp Department. My operations manager, John Moffa, had just returned from a trip to Japan to study just-in-time manufacturing. The trip was sponsored by corporate manufacturing, and John had to give a report in six months about something he had implemented as a result of the visit. Jim Grimes, who was head of operations for one of the Lighting Business Group's component manufacturing departments and a big supplier to my business, was also on the trip. As a result, John and Jim decided to set up a simple kanban delivery system between two of our plants that were about 45 minutes apart. The product focus was the expensive quartz arc tubes that we used to make our high-pressure sodium lamps. John and Jim bought a van that delivered to my factory every day. Each order was based on the quantity and type of tubes we had used the day before. We used a simple visual system, kanban cards, to indicate what was needed. Each box of arc tubes had a kanban card. As a box of tubes was used, the attached kanban card, equal to one box of tubes, was collected and given to the van driver to indicate what was needed the next day.
At the time, I hadn't had much exposure to Lean. I was a traditional management guy, but this approach made sense. So I said go ahead, as did my counterpart, Gary Carlson, who ran the supply business that made my arc tubes. Gary and I outlined this idea to the other general managers of the Lighting Business Group during a staff meeting. They laughed. They said that all that would happen was that I would end up transferring my inventory back to Gary, and the overall impact on the group would be negligible. We couldn't argue with them because we had no real Lean experience. But we didn't like being laughed at, so we just went ahead and made it work.
Quartz tubes are costly little parts. Within about three months, my inventory of those parts dropped from 40 days to 3 days and stayed there. Customer service improved too, because while we did not have many tubes, we always had or could quickly get the right ones. Six months later, Gary Carlson asked me to visit his plant where the quartz arc tubes were made. He said it was important, so I drove out there. He greeted me warmly and took me to a large empty room in his factory. "What's this?" I asked. "This?" Gary said. "It is not just an empty room. It used to be full of quartz tubes that we made for your business. We no longer keep any inventory. We make them each day based on the kanban cards that you send each morning."
Not only had my inventory dropped by 93 percent, but Gary had eliminated his inventory completely. Then we took a walk around and compared notes. Both factories were cleaner and much neater; there was more space. It was easier to find the right arc tube. With fewer tubes available, people became more careful with them, and breakage went down, as did defects. Productivity improved, lead time improved, and customer service improved. Workers on the shop floor told me that they were happier—they were proud of their work area. All we had set out to do was create a simple pull system using kanban cards, but the side benefits were so good that I was hooked.
The more Lean work I did, the more apparent it became to me that simple changes in the way in which value was added could create big results. The year 1982 was a recession year in the United States, and my sales dropped about 20 percent. There was no way I could make my budget. Even so, the reduction in inventory was so great that I was able to deliver better cash flow than the year before despite the drop in sales. The problem was that in a "make the month or die" world, no one cared. Somehow that didn't seem right to me.
GE at that time represented a "best-in-class" example of the modern management approach. Lean was 180 degrees different in terms of where you focused your energy, but it was fundamentally simpler and better. In my future roles, I made sure that I did not take the wasteful aspects of the GE approach with me. My exposure to Lean had really opened my eyes. GE, by the way, eventually added some balance sheet aspects to its incentive system. It also adopted Six Sigma (an unfortunate diversion, in my opinion), and several years ago, it got more serious about Lean. What I don't know is whether "make the month" is still at the core of its culture.
I wouldn't trade my experience at GE for anything. Through this work, I learned how simple changes to the way value is added provide multiple ways to improve financial results. I saw the ways in which dramatic amounts of inventory can come out of the value stream, and I learned that the steps you take to reduce inventory are the things that will improve your earnings and your market share. And I learned how focusing on improving your processes will give you better future results than wasting time reviewing last month's results. I was able to build on these lessons in the next stop in my Lean journey.&
Excerpted from THE LEAN TURNAROUND by ART BYRNE, JAMES P. WOMACK. Copyright © 2013 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
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