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CHAPTER 1
UNDERSTANDING LEAN
Throughout industrial history few words have become as powerful as the word lean. Today almost everyone has heard this word used in some sort of context. Many of us probably have a book or two that explains this very simple word in excruciating detail. But what we may not appreciate is that this word, which at its core deals with the relentless pursuit and removal of waste, is really a powerful business philosophy and mindset that can mean the difference between success and failure in today's hypercompetitive world.
The reality of lean is that while most managers likely have a basic understanding of the concept, few organizations have truly achieved lean, partly because the pursuit of lean is a never-ending journey. Furthermore, lean adopters, as well as the research and writing that support the intellectual domain of lean, often focus narrowly on the internal operations of manufacturers. We conveniently ignore the hundreds of thousands of service and nonprofit organizations that just might benefit from the application of lean principles. And the idea that lean is an end-to-end concept where everyone along a supply chain has a role to play also gets lost too frequently in the shuffle.
This chapter begins our journey into the world of the lean supply chain. We begin by defining the concept of lean and presenting some important lean objectives. The second section elaborates on the important topic of waste, the archenemy of lean. The need to view lean from a supply chain perspective appears next, followed by the ongoing debate between some important philosophies. The chapter concludes with some myths and realities surrounding lean.
WHAT IS LEAN?
A logical place to begin our discussion involves the definition of lean. Much like Total Quality Management, the perspective taken throughout this book is that lean is a business philosophy rather than a set of tools and techniques. At a very high level lean is the relentless pursuit of eliminating waste across an extended supply chain. Over the years many observers have offered their opinion on this topic, which Table 1.1 summarizes. One thing that readers should notice is that most of these viewpoints at least include the subject of waste, something that will be elaborated upon shortly. The reader should also realize that 100 people might give 100 different perspectives of lean.
Most of what we hear about lean is manufacturing oriented, which is not unusual since lean's early pioneers were largely manufacturing firms. Take a look at Table 1.2 to get a feel for how skewed the history of lean is toward manufacturing and production. This table presents the results of Google searches at a specific point in time. The table also presents the number of articles appearing in the ABI/INFORM Global database for the various terms. ABI/INFORM Global is one of the most comprehensive databases for scholarly and business publications. At the push of a button this database can retrieve articles from over 1800 worldwide business periodicals. As both searches reveal, most of what is out there is about lean manufacturing or production.
The time has come to take a broader view of lean. The relentless pursuit of waste applies to any organization in any industry — profit or nonprofit, industrial or nonindustrial, service or manufacturing. Furthermore, the domain of activities that fall under the lean umbrella is broad. Virtually any activity that eliminates waste anywhere across the supply chain is a legitimate part of lean.
While the primary objective of lean is a relentless attack on waste, another way to approach the subject is to think about the principles that underlie this philosophy. James Womack and Daniel Jones, two scholars known for their work in lean, maintain that five principles underlie lean thinking: (1) specify value as defined by the ultimate customer; (2) identify the value stream that creates and delivers that value; (3) work to ensure information, materials, and product flow to the customer; (4) respond to demand only when there are clear signals to do so; and (5) relentlessly pursue perfection.
This chapter looks more closely at three of the more recognized principles of lean: flow, pull, and striving for excellence. Moving away from tradition, three other principles are discussed that go a long way toward eliminating waste: optimization, standardization, and simplification.
Keep It Flowing
Few would argue against the notion that better flow across the supply chain is, on balance, a good thing. Flow essentially means keeping the right material continuously moving toward a downstream entity that requires that material. While material flow receives the bulk of the attention, the truth is there are a variety of flows across a supply chain. In addition to material flow, we can have payment flows, information flows, ownerships flows, vehicle and equipment flows, people flows, and reverse logistics flows. There are two important points here: (1) interruption to the flow of any of these areas can be wasteful, and (2) every organization has flows of some kind.
From the perspective of the entire supply chain, it simply makes sense to organize activities so that work flows from step to step in an uninterrupted flow and at a rate that matches the demand pull from the customer. The constant stopping and starting of flows adds little value that customers appreciate. Disruptions also affect supply chain throughput, supply chain capacity, and cycle time. The following examples show that flow is important at some lofty levels.
Improving flow can be a costly objective when a process features structural bottlenecks. Think about the perennial Rodney Dangerfield (i.e., I get no respect) of the transportation world — Amtrak. In its efforts to capitalize on the decline in on-time air travel and rising fuel costs, Amtrak has invested heavily in its Acela high-speed trains to serve the crowded Northeast corridor. Unfortunately, the routes that the trains serve face so many constraints, such as curvy tracks and tracks that are shared with freight and commuter trains, that the trains rarely get to turn on the juice. Compounding these problems are multiple tracks that must squeeze into two tracks before entering a tunnel below the Hudson River. Upgrades costing $625 million for equipment, tracks, signals, and electrical power systems would only reduce the expected travel time between New York and Washington by 15 minutes. Shortening the trip by another 10 minutes would require new tunnels, bridges, and track around New York and Baltimore at an estimated cost of $7 billion. Going with the flow can be an expensive proposition.
Continuous flow can also save lives. Emergency hospital room personnel understand the importance of flow supported by efficient communication linkages and planning and staging. (Planning and staging is discussed in Chapter 5.) Paramedics working in ambulances must communicate with emergency room personnel about the status of patients being transported to an emergency room. Emergency room personnel must ensure that a room, medical personnel, and proper equipment and supplies are ready and waiting for incoming patients. Then, emergency room personnel must communicate early and often with operating room personnel if a patient requires emergency surgery. Any delay in the human flow can have tragic consequences.
The need for flow is not only on the ground. Most of us have probably taxied around a tarmac or circled the sky aimlessly as our flight waited its turn to move onto crowded runways or into congested airspace. Too many scheduled flights, especially around holidays, an antiquated and inefficient system for managing U.S. airspace, an increase in private jet travel that further clogs air routes, air traffic control technology that needs updating, labor tensions among air traffic controllers, restrictions about how many planes can take off and land in a particular time, and an occasional dose of bad weather have all combined to create a system that just doesn't flow like it should. In fact, the summer of 2007 was one of the worst on record with less than 70 percent of commercial flights arriving on time. In previous years the summer average hovered closer to 80 percent of flights arriving on time.
The federal route map that planes follow is largely unchanged from the 1950s. Consider the airspace around Washington, D.C., which is one of the worst air bottlenecks in the United States. It is not uncommon there for east-west flights to merge into flight lanes with northsouth flights. Furthermore, much of the airspace around this area, as well as north-south routes over the Atlantic Ocean, is assigned to the military, making it off limits to commercial aviation. With so many planes in the sky, and inaccuracies in radar that forces generous spacing between routes and planes, air traffic controllers often lack the flexibility to move planes around to facilitate flow. Any hiccup in the system soon reverberates across the entire network. A flight that has clear weather across its entire route can still get caught up in the clogged arteries in the sky, particularly if air traffic is being diverted into this airspace from areas that are experiencing bad weather. While planes obviously can't stop moving while in the air, their flow pattern often resembles a lazy circle that gently lulls passengers to sleep instead of a fairly straight line between two points.
Why did these three examples feature service providers? This was done purposely to show that lean principles apply to any organization in any industry. A myopic view that lean applies primarily to manufacturers is outdated and extremely boring. Later chapters will present ways to attack the constraints (i.e., the bottlenecks) that limit flow across all kinds of settings.
Pull, Don't Push
A fundamental feature of a lean supply chain is a focus on pull rather than push systems. It is amazing how two simple words, pull versus push, can have such a tremendous impact on how supply chains operate. What, then, is the difference between the two? Pull systems relay information or a signal from a downstream entity, such as a work center or customer, to an upstream operation about what material, part, or service is required, the desired quantity, and where and when something is needed. The concept of pull is integral to lean because no upstream activity or production occurs unless requested by a downstream entity. In a pull system action is taken in direct response to a request rather than in anticipation of a need or request that may never occur. In a push environment action is taken in anticipation of a request.
The reality is that few firms operate in a purely pull environment. Across the supply chain there are usually boundaries that separate push processes from pull processes. A company may have pull systems within their internal operations, for example, but suppliers still build to their own internally-derived forecasts and schedules. Internal production is based on a pull system, but material replenishment with suppliers still occurs on a push basis.
One company that effectively uses pull signals across its supply chain is Eastman Chemical. To maintain a total view of inventory, the company has developed a process called stream inventory management to balance material inflows and finished goods outflows. An information technology system receives all customer orders and then applies algorithms to translate finished-goods requirements into material replenishment requirements. As finished goods move out of the system to satisfy customer orders, the system triggers replenishment requests for raw materials. Customer orders pull raw material replenishment from suppliers. The push/pull boundary here is clearly upstream.
Most pull systems are at the operational level rather than the tactical or strategic level. This means they support here and now requirements rather than being overly concerned about what will happen in six months to two years. Pull systems are usually about execution rather than planning. Most supply chains, even those that are considered lean, feature a mix of push and pull planning and execution systems. Chapter 4 addresses pull systems in greater detail.
Make It as Perfect as Possible
The notion that poor quality creates waste should not even be in question. Quality gurus have long argued that any deviation from a desired target or state carries with it an associated loss. Table 1.3 highlights some of the wastes that result from Type I and Type II quality control errors. Type I errors occur when a decision is made to reject something as nonconforming when in fact it should have been accepted, while Type II errors occur when a decision is made to accept something that should have been rejected. In a lean supply chain there simply is little to fall back upon when quality errors occur, making the pursuit of zero defects critical to lean. Striving for excellence is an essential part of a lean supply chain.
Any defects that work their way through a supply chain should be considered a Type II error. The challenge with any quality problem is to identify the root cause of an error, which at times could simply be due to poor measurement, eliminate the root cause, and then prevent future problems from occurring. As Table 1.3 reveals, quality errors have earned their seat at the waste table. Not a single item on this list creates any value that customers appreciate.
Those who expect to make lean a major part of their firm's strategic plans are urged to become well versed in the philosophy and techniques of Total Quality Management, a subject that is outside the scope of this book. This means becoming familiar with the work of W. Edwards Deming, Joseph Juran, and Philip Crosby, the three most prominent names in quality management, who are now deceased. The late Philip Crosby, a recognized authority on quality management, included waste in his famous price of nonconformance calculation. Joseph Juran was also well aware of the costs of poor quality in his total cost of quality calculation, something that Chapter 6 will present in more detail. After reaching a comfort level with these three individuals, feel free to progress to Six Sigma, today's version of Total Quality Management. Never underestimate the interrelationship between lean and Total Quality Management. Lean organizations have committed themselves to the pursuit of perfection.
Optimize across the Supply Chain
Optimization is a topic that is not often presented within lean discussions, which is a mistake. The desire for optimization can be pursued in many areas, and the result of something that is optimized is usually a reduction in waste. To optimize is to make something as perfect, effective, or functional as possible. While many observers will equate optimization with reduction, less of something does not have to be the case. The following are some areas that should benefit from optimization:
• Size of the supply base
• Number of transportation carriers
• Design of products and physical processes
• Number, size, and location of distribution, retail, and dealer outlets
• Number of customers within the customer base
• Number of component parts and stock-keeping units
• Number, size, and location of production facilities
• Type of information systems used and their features
• Order delivery network
• Any major process, such as new product development, supplier selection, demand estimation, and customer order fulfillment
Each of these areas should be made as perfect, effective, and functional as possible.
Establish the Standard
Standardization means to conform to something that is established as a model or ideal example (i.e., the standard). Too many firms fail to standardize their common parts, processes, practices, documents, contracts, measurements, policies, and procedures across their business units when opportunities for standardization exist. A failure to standardize usually leads to wasteful duplication of effort that fails to promote best practices. During product design, for example, the extensive use of custom designed components when standard or previously designed components are available can be wasteful.
Let's illustrate the standardization concept with an example that many readers have experienced firsthand. An area where a standardized approach should be in place involves matching lost items with their rightful owners at airports. Each day passengers leave behind thousand of often valuable items at security checkpoints. At the Newark Liberty Airport, for example, more than 1000 items are left behind each month. If not coordinated at a centrally led level, each airport will naturally develop its own internal process for handling these items, a clearly redundant effort. But does it have to be that way?
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Excerpted from "End-to-End Lean Management"
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Copyright © 2008 Robert J. Trent.
Excerpted by permission of J. Ross Publishing, Inc..
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