BUILDING A LEAN, WORLD-CLASS ENTERPRISE - A QUESTION OF LEADERSHIP

By David Dixon (as printed in Fabricating and Metalworking)
Last month we advanced the notion that lean techniques offer the same benefits to a small shop owner that they do to a larger OEM company with more repetitive product lines. (The first article in this series is archived under the February issue at www.fandmmag.com.) We hope you are convinced. Now let's look at the key requirement for mounting a successful lean implementation.

As companies contemplate the lean journey, they usually have to come to grips with the following questions:

* What is a World Class company?
* What is considered World Class performance?
* What are the most important factors in achieving World Class performance?
* Why do World Class Manufacturing programs fail?

This article outlines answers, based on observations and experience over the past two decades.

The World Class Company—a Definition

World Class companies are elite competitors in their respective industries—manufacturers judged to be the best of the best by their customers, employees, suppliers and communities. And they are globally competitive, capable of defending their markets against foreign competitors while successfully penetrating foreign markets.

John Boyer, a colleague and a keen student of lean manufacturing, has reduced this general definition to four fundamental criteria. World-Class Manufacturers are: (1) the preferred suppliers in world markets; (2) capital magnets, able to attract either equity or debt financing with ease; (3) sought-after places of employment; (4) the business of choice by the community.

Closely related to these criteria is a set of measurements that shape the perceptions of customers and stakeholders. It is performance compared against these benchmarks that ultimately defines the world-class competitor.

Performance Metrics

Elite competitors deliver extraordinary value, as perceived by their customers. Value is a function of service and quality received at a given price. That price can be relatively high as long as customer expectations are exceeded more consistently than by competitors offering a lower price. However, the best companies rarely run the risk of being the high-priced competitor. To give the greatest value at equal or even lower prices, the manufacturing function must achieve very high levels of effectiveness and productivity. This means that processes, facilities, systems and the organization are configured to deliver:

* 95+percent on-time delivery to promised date
* Total order throughput time 50 percent or less than industry average
* Superb quality at a cost 50 percent below industry average
* Productivity in dollars per employee per year 30-50 percent above industry average
* Inventory turnover 20-50 times a year
* Operating profits 50-100 percent above industry average
* Employee turnover rates less than 10 percent
* An accident-free workplace
* Engaging every employee in cost-improvement activities every day.

Other metrics drive the improvement necessary to achieve these levels, such as setup time, lot size, shop lead time, distance traveled, number of hand-offs, housekeeping scores, yield rates and production linearity. The lean, world-class company focuses on measuring and improving these indicators through proven techniques. Success is reflected in the top-level results above.

After describing the characteristics and performance capabilities of an elite competitor, the question becomes: "How do we get there?" The answer is straightforward.

Making It Happen

In every successful world-class manufacturing implementation we know of, the person positioned to make decisions and allocate resources is determined to have a world-class operation. This determination is, without exception, backed by a clear understanding of the technical and cultural aspects of world-class manufacturing. These leaders catch a vision of what their companies can become and constantly share that vision with their people—formally and informally. Detailed implementation activities are delegated to staff members. Sequencing of events and timing are negotiable, but whether or not the implementation will go forward is not up for debate! In other words, becoming a world-class competitor is not optional.

In a real sense, the physical environment, the culture, and the company's performance become an expression of the leader's personality. In the same way a painter, a musician or a writer is invested in their work, those who lead a world-class manufacturing implementation seek to create a lasting legacy. We often see this in the unique characteristics of each successful implementation; they are never quite the same. When the program becomes the leader's passion, nothing stands in the way.

Connected with this mindset is an acceptance of the long view. Like timber company executives who spend millions to reforest logged-out areas with trees they will never see grow to maturity, these leaders invest their company's resources in improvement programs that are never really finished. The journey to excellence often extends beyond their tenure. Short-term thinkers and opportunists are not likely to make the commitment to such an effort, which is why some companies (too many, perhaps) will never become world-class performers.

And even the most determined leader and management team will be challenged as they attempt to drive fundamental change in the manufacturing process.

Causes of Failure

It has been said there can be no failure if you never quit. This is certainly true of a lean implementation. The most common cause of failure is lack of persistence, or unwillingness to work through the inevitable stumbling blocks. A period of work and investment precedes the promised benefits, and some can't abide the waiting or associated problem solving. They simply quit too soon.

Another cause of failure, though not as common, is the absence of a reasonably stable, educable work force. If turnover is too high, and the caliber of employees is too low, it's very difficult to develop the knowledge and skill necessary to be a world-class performer. Some remedial steps may be required to upgrade the work force before going forward. This problem can apply to administrative personnel as well as hourly people.

A third threat to successful implementation is the phenomenon we call resistance to change. People often have difficulty adapting to the concepts, principles and practices of lean manufacturing. Although lean is fundamentally different, most people will embrace the new techniques when they know what is expected and have the required new skill sets. Where someone cannot—or will not—accept the change, management has to make tough decisions. You can't afford to sacrifice the program to placate the naysayers. "It is better that one man perish than to have a whole nation dwindle in unbelief."

Finally, we see some lean programs fall victim to an endless array of distractions. Business is up, or business is down … someone quits … new software is being installed … there's a quality problem, or a new product. Years slip away, and virtually no real improvements materialize. Avoiding this trap requires true commitment. It ultimately comes back to the leader's determination to keep moving forward.