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Lean Manufacturing

 

 

Ask the Expert

Q: Are there ways to finance Lean transformation? I can’t do it myself and I don’t have the cash flow to support it.

A: There are a number of options for funding a Lean transformation that won’t strain your limited cash flow. First of all, you can expect to begin seeing a return on your investment immediately, from a properly executed Lean initiative. Becoming Lean is a journey, but you don’t have to wait months to see results. You will see the cash flow increase when the current resources begin producing more value at the same or lower cost. That can happen within weeks, and most certainly within a few months.

I don’t know how other consultants work, but I know most companies don’t have a budget line-item for consulting services so I always offer to spread my fee over a longer period than the time I am actually on site so the cash flow has an even greater change of increasing. Contact me at usti@wmis.net or through my website at www.thecenterforleanlearning.org to discuss your situation.

Almost every State has an Economic Development Corporation, or similar organization, that has funds available to help defray the cost of training and the Lean process. I may be able to help you find resources in your State. Also, a number of Community Colleges offer Workplace Development programs that have funds available to help with training. Contact your local Community College to see what they offer.

Another option is to partner with a company in your area so you can share the cost. Since almost every company can benefit from Lean it should be pretty easy to find a partner. Maybe the Chamber of Commerce can provide assistance.The most important factor for you to keep in mind is not to look at the Lean transformation process as a “cost.” Look at it as an investment that will deliver immediate results and a payback far exceeding the investment that you will be making. If your revenue hasn’t increased at least ten times more than your investment within 12 to 18 months, you engaged the wrong consultant.

Q: How do I know if my company needs to invest in a Lean transformation?

A: The question isn’t challenging to answer, but the answer can be challenging for any CEO who feels that his company isn’t doing as well as can be expected. Even when a company seems to be successful, there will be room for improvement. I have written a number of articles about companies that have experienced 50% to 300% increases in productivity and profit through the implementation of Lean thinking. Each of those companies reached the decision to pursue Lean in a different way, so there is no canned answer, but there are indicators that you can look for that will help you determine if there are opportunities for improvement that are worth pursuing.

First of all, look at what you are currently measuring. Are you just measuring profit or are you measuring the value that is created by every person in your organization or the value of every labor hour that is worked to create the revenue number? If you are tracking performance indicators, do you share them throughout the company? Are the indicators understandable by you alone or can every person in the company translate them into something meaningful at their process? If your staff cannot translate the data into something meaningful they can’t do their own self-measuring to see if their improvements are making a positive impact on the outcome. Profit and other global measurements are meaningless at the saw, or customer service, or accounting, or packing processes. If you can’t quantify your measurements at the user level, you are measuring the wrong things.

Let’s begin with some, hopefully, known factors. You should have a standard unit of measure. What does a “unit” mean to your people? Is a unit equal to a piece, or are different pieces fractions or multiples of a unit? For instance, if you build a lower double with decorative end panels and a solid back panel to serve as an island, does that piece carry the same “unit” value as a standard lower double? Determine your “unit” of measure so there will be consistency in the reporting and tracking of data.

You know the price you charge the customer for the piece they purchased. Once you determine a unit of measure you can assign a revenue amount to that unit of measure so you can total the daily/weekly throughput. I prefer to measure daily and report weekly. Measure daily so you can respond quickly to negative trends and track weekly so you can share that information across the organization. With the total daily throughput value it is easy to calculate the revenue per hour worked. Revenue per Labor Hour (RPLH) gives you a measurement that is meaningful to every person in the company. Everyone needs to know the value they create for the company so they can determine if their improvements are leading to the company objective. With this simple value-creating measurement you can begin to apply Lean thinking to the processes that create value and measure results.

It is time to go to Gemba (where the work gets done). You can learn about the art of going to Gemba from FDMC archive Lean articles and from my eBooks at Smashwords.com. I say going to Gemba is an art because you are learning to see the processes around you in a way that you have never viewed them. You have likely walked through the office and factory many times in the past, and maybe even took time to talk to people and socialize, but unless you have spent quality time in Gemba observing and absorbing you have not seen the processes that take place. To improve productivity and profit you must understand what is preventing people and processes from being all they can be right now. While in Gemba focus on: the process itself, interactions within the internal customer/supplier chain, interferences/interruptions, get ready steps (set-up), the locations of things that the process owner uses in the process, where materials or information come from, and where they go. You are looking for the Seven Deadly Wastes. Eliminating waste improves productivity, which will improve profit. Spending time in Gemba assessing how much waste could be eliminated through Lean thinking will give you an appreciation of whether a Lean transformation will help you achieve your objectives. As waste that interferes with current processes is eliminated more available time is created for the process owner to do value-adding work. The more value-adding work a person does, the more RPLH the person creates, which increases profit without adding cost. I guarantee that once you understand the magnitude of the waste that is buried in the blur of daily activity you will rush to transform your company.

Q: I have a small shop that varies in staff from 10 to 12 depending on the time of the year. Our annual revenue is less than $1million. Can we really benefit from Lean and how can a small shop like mine pay for it?

A: Thank you for your question.  I’m sure there are owners of other small shops with the same question.  Chances are your revenue is already being spread pretty thin, with not a lot left over to develop a reserve for future expansion or emergency needs.  I will get to that part of your question later.

I have helped several companies of your size transform to the Lean business model.  In fact, Hunter Trim and Cabinet, and Hodges Millwork, two companies that I have covered in recent articles are your size.  Signature Wood Systems, another company I have profiled in my articles, has five people in their shop.  Lean thinking is equally applicable to small shops as well as large shops, and both in the factory and the office.One of the measurements I use to determine the impact Lean is having on improving company operations is revenue per direct labor person or revenue per direct labor hour, whichever is most meaningful for a particular shop.  Based on the information you provided, your revenue per direct labor person ranges from about $90,000 to $100,000.  That isn’t too bad, but it can be considerably more when Lean thinking is being applied by everyone.  For instance, the revenue per direct labor person at Hunter Trim and Cabinet was about $75,000 when they started on their Lean journey and two years later it is over $200,000 and Dustin Hunter believes there are still opportunities to improve from there.How are these shops getting there?  Every process has waste embedded in it that is currently going unnoticed and untapped.  The embedded waste has become part of the process and therefore is assumed to be the norm.  Once you understand how to identify waste and eliminate it, you will wonder how you could have been so blind to it for so long.

Two years may seem like a long time to wait for meaningful results, and I don’t want to imply that it takes that long to achieve them.  HTC was achieving significant results in a matter of months and had doubled revenue per direct labor person in the first year.  By the way, those results were achieved in a down market.  Achieving that level of success requires engaging the entire workforce in identifying and eliminating waste.  That is something for you to consider if you decide to move forward.  Are you ready to empower your staff to make positive change happen?  If you think you can achieve your objectives alone you are underestimating the creative and innovative intellect of your staff, and over estimating your own abilities.  You can’t do it without your staff and I don’t suggest you embark on the Lean journey without expert advice and assistance.

That leads into the second part of your question – how to pay for Lean.  A lot of business owners look to the cost part of the equation before analyzing the return on investment.  Lean is an investment.  It isn’t intended to be something that is experimented with for a few months and set aside.  Lean is a way of doing business and should be the business practice you engage in from launch day forward.  How much would you pay to double your revenue with the same resources?  Whatever that amount is, the assistance of an expert should cost far less.  I can’t tell you how much you should expect to pay because I haven’t seen your operation and don’t know what opportunities are available and what resources will be needed to facilitate the initial phase of your journey.  However, I can tell you from experience that you shouldn’t need to engage an expert for more than two weeks a month for about four to six months.  After that you and your staff should be able to manage the journey with minimal advice or support.  All consultants structure their fees differently.  Knowing that very few businesses have a budget line item for consulting, I try to be as creative as possible in developing a plan for paying for my services by prorating the fee over a period that usually extends beyond the completion of the initial phase.

Good luck in your Lean journey.  If I can be of any assistance you can contact me at usti@wmis.net.

Q: My shop builds mostly custom product. Can Lean be applied in my shop?

A: I have a lot of people tell me that they build custom product and don’t see any way that Lean can be successfully implemented in their shop. After learning more about your business, I conclude that although you don’t make cookie-cutter product, you also don’t make what would truly be defined as “custom” or one-off product. Your website includes a catalogue of product and offers the customer options so they can customize their order. I would term your business as one of mass customization, which is the category that many business would be considered in today as they try to be more things to more customers. The short answer to your question is, yes, Lean can be applied in a mass customized venue.

The reason I can say that with such assurance is because Lean is not product focused, it is process focused. Every product, custom or otherwise, goes through a series of repeatable process steps. It is the process step that you will be applying Lean thinking to, not the output. However, I will add a qualifier to that statement by saying that you can apply Lean thinking to the engineering and design phases of product development, which would have a positive effect on your output.

I have helped a number of mass customizers transform their operation to the Lean business model. Pacific Manufacturing in Phoenix, AZ, and Hallagan Manufacturing in Newark, NY are both mass customizers of upholstered furniture where Lean thinking is being applied very effectively. Some of their results include a reduction of manufacturing space by 50%, reduction in inventory of 80%, improvement in on-time delivery from the low 80 percentile to 100%, reduced cost, increased throughput, and implementation of one-piece flow.

Cabinet manufacturers, Busby Cabinets in Alachua, FL, and Hunter Trim and Cabinet in Ft. Worth, TX, are mass customizers of cabinetry and millwork product. I have featured both of them in my monthly column in FDMC so there are plenty of references to their transformation process in the FDMC archives.

As a final example for you of how applicable Lean thinking is to any business segment, one of my customers was the emergency room operation in a hospital. That is the closest example I have seen to defining a truly custom output. Every person coming in the emergency room had a different reason for being there. Some were simple fevers, cuts, and bruises, while others were true trauma patients. Even in that environment we focused on applying Lean thinking to the processes involved in treating patients and not the individual issues or concerns of the patients. The objective of the hospital Lean journey was to reduce the time for admitting, triage, and treating a patient to improve throughput and capacity of the emergency room. Through the application of Lean tools and techniques their team successfully reduced the time by 50% thus doubling throughput and capacity and increasing revenue for the hospital. The objective was achieved without increasing staff or capital expenditure.

 

 


Jim Lewis

Jim Lewis has worked in the furniture industry for 40 years with a special emphasis on facilitating the transformation process for businesses embracing the Lean Business Model.  Jim’s company, The Center for Lean Learning, is headquartered in Grand Rapids, MI, with an office in St. Thomas, ON, Canada.  He is a consultant, author, and writer.  Jim’s books are in ebook format and are available through all major ebook retailers and through smashwords.com.

 

Jim can help your business increase profit and productivity. Ask him your questions!

 

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