Lean Management – Andrew's Notes

LEAN MANAGEMENT PRINCIPLES

KEY CONCEPTS

LEAN THINKING

WASTE

1. Transportation

2. Inventory

3. Waiting

4. Waiting

5. Motion

6. Overproduction

7. Overprocessing

8. Skills

LEAN PRINCIPLES

Principle 1.

DEFINE VALUE

Common mistakes

See the whole product

Jobs to get done

Target Cost

KEY CONCEPTS

LEAN THINKING

WHAT IS LEAN THINKING?

“The single most powerful tool available for creating value while eliminating waste in any organization.”

“It provides a way to specify value, line up value-creating actions in the best sequence, conduct these activities without interruption whenever someone requests them, and perform them more and more effectively. In short, lean thinking is lean because it provides a way to do more and more with less and less—less human effort, less equipment, less time, and less space—while coming closer and closer to providing customers with exactly what they want.”

Daniel T. Jones and James P. Womack

Source: ean.org

WASTE

“Any human activity which absorbs resources but creates no value.”

“Goods and services that don’t meet the needs of the customer.”

Daniel T. Jones and James P. Womack

Every single activity performed by a firm that doesn’t create value to the customer but consumes resources, like time, energy and money.
There are many different kinds of wastes that don’t provide any value to the end product. Taichi Ohno, creator of the Toyota Production System, a pioneer of lean management identified 7 common types of waste.
Some experts identified an 8th waste, it’s called SKILLS. However, it was not part of the Toyota Production System originally it plays a very important role in the performance of the organization.

1. Transportation
2. Inventory
3. Waiting
4. Motion
5. Overproduction
6. Over-processing
7. Defects

+ Skills

Source: Wikipedia

Taiichi Ohno – Japanese engineer, the father of Toyota Production System

Adapting the concept of WASTE

The 7 types of wastes are universal, can be applied to all kinds of businesses. However, the concept was originally applied to manufacturing, especially to car manufacturing. It may differ in case of service providing activities. When applying to any particular industries these types of wastes can vary. It has to be translated to the particular setting of different industries and different kinds of operations. This concept of the typology of waste has been extensively studied by many researchers from all around the world, such as Peter Hines from Lean Enterprise Research Centre (UK) and Daniel T. Jones and James P. Womack (authors of the bestselling book: Lean Thinking). Different researchers modified the concept of 7 wastes to fit into particular business environments.

A few examples of the 7 waste applied to different settings:

Warehouse environment – Daniel T. Jones

1. Faster-than-necessary pace
2. Waiting
3. Conveyance
4. Processing
5. Excess stock
6. Necessary motion
7. Correction of mistakes

Healthcare environment – Cindy Jimmerson

1. Confusion
2. Motion/conveyance
3. Waiting
4. Overprocessing
5. Inventory
6. Defects
7. Overproduction

The 7+1 types of waste

1. TRANSPORTATION

unnecessary transporting, moving inventory, parts, tools, equipment, people, materials, semi-finished products
it happens most of the times when the business is performing its operations on multiple places, have multiple production facilities
When manufacturing, distribution suppliers of materials and parts are located in different countries. We can observe its most extreme form in case of large, international corporations which have an extended supply chain, sending and receiving goods from all around the world.
If a company has very complex operations that require constant transportation between different locations.

CONSEQUENCES OF UNNECESSARY TRANSPORTATION

drains resources, like time, money and energy without providing any value for the customers
the biggest wastes during transportation are perhaps the extra labour cost and unnecessarily occupied equipment, which could be used to perform value-creating activities instead
can be a source of incidents, accidents, it can lead to mistakes, errors, damages, spills. Especially when an inventory should be built in every step of the process.
it destroys moral – when people feel that they are performing meaningless tasks
negative environmental impact, such as gas emission, unnecessary energy consumption, required extra packaging

WAYS TO ELIMINATE THE WASTE OF UNNECESSARY TRANSPORTATION

make independent “islands” of production or service which have every resources required to do their job independently
organize the workplace and workforce around products, not around project, not based on organizational departments and individual work steps
locate every equipment close to the workforce
locate the 2 ends of the production process (from raw materials to the actual customer) as close as possible. With eliminating as many steps as possible you can also largely eliminate the waste of transportation.

2. INVENTORY

storing more than necessary raw materials, equipment and parts
increase labour cost, while creating, processing, managing, updating inventory
requires extra space, extra information processing, destroys transparency and the ability of seeing clearly
Organizations that keep a large inventory may argue that it’s more cost efficient to organize and make a delivery less frequently. However they often missing forget to count with the confusion caused for their own staff while maintaining the inventory
excess inventory can cause unwanted mistakes, accidents, injuries
it can amplify the “supply chain effect” (described below)
inventory could be everywhere
- in the office settings: files, unprocessed orders, claims, etc…
- in manufacturing settings: raw materials, parts, un-utilized machines, etc…
- in IT settings: unprocessed emails, conversations, jobs to get done, etc…

WAYS TO DEAL WITH THE WASTE OF INVENTORY

increase the speed and frequency of transportation, encourage staff to order more frequently, so there is no need to hold a large amount of inventory
Engage co-workers in creating and maintaining an organized and easy-to-monitor environment using the 5S framework
- sort, set in order, shine standardize, sustain

More about 5s framework:

Books on 5s:

3. WAITING

the waste of time spent while doing nothing
waiting for: upstream activity, other people, to complete an order, delivery to arrive
Waiting is everywhere. Most of the people tend to accept it as an unnecessary consequence of everyday life. Just think about the last time you visited a doctor or travelled by airplane. But it can be done differently.
waiting is often the result of misalignment between services, processes, part of complex activities and subcontractors in case of an extended value stream
waiting affects the attitude of employees. When will not see their work as meaningful, because they see their time to be wasted. It can negatively affect employee satisfaction.
waiting directly increase labour cost and underlie efficiency

WAYS TO DEAL WITH THE WASTE OF WAITING:

prepare “ready to use” setups and solutions in advance, than can be put in action immediately without waiting for turnover. This technique is known as SMAD (explained below) to extremely reduce the time of any changeover or handover. Many Japanese manufacturing companies, like Toyota, deceased it’s changeover time from several hours to just 3 minutes using external setups and the technique of SMAD.
improving the flow in any business activity. For example, introducing “single-piece flow” in manufacturing settings (explained below).
In the case of service businesses Service Design offer a good solution for this problem. You can use many Service Design tools to align the different part, departments and activities inside your business or even in case of an extended value stream. It can directly enhance the quality of customer experience, delivering a more predictable but at the same time more personalized service for your customers. A few examples of Service Design tools:
- Service Blueprint
- Customer Journey Map
- Empathy Mapping
- Experience Mapping

Books on Service Design:

4. MOTION

the waste of unnecessary motion refers to any motion, movement and travelling required during production or service providing
it decreases efficiency and reduces employee effectiveness
motion can be any physical activity that doesn’t provide value directly to the customer
- in manufacturing settings most often can be: lifting something up, bringing something somewhere, bringing it back, walking through different storerooms, departments, chasing someone who’s phone is off, gathering people to get an unexpected job done
- in office and service settings it can be: searching data in archives, libraries, unnamed folders and unlabeled shelves; searching for equipment and tools; searching for people, phone numbers, data, etc…
most often the waste of motion comes from the inadequate design of the workplace and work processes, such as:
- incorrectly positioning tools, equipment, materials
- not aligning the very beginning and end of every single process to fit smoothly with the previous and next one
- not having a standard and stable work procedure, so employed need to improvise every time when doing their job, figuring out the most effective way to doing things in that very moment

WAYS TO DEAL WITH THE WASTE OF MOTION

use the 5S framework mentioned above to organize the workplace
make everything visually transparent
Simplify, simplify, simplify. Build easy-to-use systems and routines which provides a structure of your workplace and activities
arrange the workplace in U-shape, so everyone will be close enough to other people, materials and equipment

5. OVERPRODUCTION

Overproduction is in a direct relationship with the principle of flow. It disrupts smooth flow between processes and operations.
From a management perspective, it may look reasonable to keep every employee and equipment fully utilized and busy all the time. However, with this mentality, they strive to optimize for a local maximum, instead of a global maximum. In other words: they manage to make one organizational department or production step extremely efficient while putting extra pressure on another department. So it can actually decrease the overall performance of the business.
It can amplify the “supply chain effect” (explained below) and can put artificial pressure on the different part of the value chain that doesn’t reflect any real customer demand.
While disrupting flow it can cause increased lead time and increased of Work-in-Progress (WIP) inventory.
Most of the times overproduction is caused by the fragmented nature of the business. Lean management is all about seeing business as a whole and making every single business unit working together in synchrony.
in manufacturing settings:
- can be producing more than is necessary for the upstream step. It can create a traffic jam in the flow of processes. We have to deal with generated extra inventory. It needs to be processed, transported and stored.
- when utilizing extremely large machines which can produce large batches of inventory, rather than applying smaller machines that can operate on demand
in case of service industries:
- when an organizational department is not aligned with the other and one is working much faster and the rest can’t keep up. For example when during a sales promotion the sales deliver much more orders than the rest of the company can cope with.

WAYS TO DEAL WITH THE WASTE OF OVERPRODUCTION

Because overproduction is in a direct relationship with organizational flow, creating and maintaining is the most efficient way to deal eliminate overproduction.
We can use many lean management tools for creating flow, such as:
- Takt-time
- SMED
- Kanban

(explained below)

6. OVER-PROCESSING

over-processing occurs when trying to solve a relatively simple problem with a difficult and complicated solution
in general: doing more work that is required to get a task done
involving many people in a task that could be done end-to-end by one single person
Using overly complicated systems that cannot be understood by one single person. It decreases the effectiveness of the communication between staff
in manufacturing settings
- using oversized machinery and equipment that requires a large number of people to manage it
- when the capacity of the production system exceeds the actual customer demand
- when a system requires different staff from multiple level of hierarchy to approve, start and manage
- running equipment with more precision
in office or service settings
- creating documents, archives, updates and reports twice to be compatible with different data-management systems
- requiring, entering, storing information twice from the same person
- excessive record keeping: having multiple ways of administering one single thing
- overly analyzing data which doesn’t help us make any significant action
- continuously modifying important procedures and workflows without any particular reason
- making more detailed reports than needed

WAYS TO DEAL WITH THE WASTE OF OVER-PROCESSING

View everything from the perspective of the customer. If a procedure, work-step doesn’t provide value directly for the customer try to find ways to eliminate it.
When designing and modifying work procedures ask yourself:
- What is the simplest possible way to solve this problem or get this job done?
IT can be a powerful tool of management. However overly investing in different IT solutions can also cause waste of over-processing. Take a look at Toyota’s attitude: it invests in IT when it’s absolutely necessary and tries to keep it as simple as possible.

7. DEFECTS

Defects are perhaps the most visible type of waste. It’s enough if we just think about any major crises or accidents caused by human errors.
Defects are perhaps the most energy-consuming waste. When a defect occurs usually we have to put much more effort into correcting it than preventing it.
It needs rework, correcting, extra organizing, storing, processing.
It decreases business performance and keeps us the workforce while trying to deal with mistakes that already occurred.
An emerging field of study, the “Human factors research”, (which aims to know how humans interact with complex systems, such as airplanes, nuclear power plants of healthcare systems) proved that in average there are 7 consecutive minor human errors behind every major accident, like plain crushes. We usually tend to see defects as unique mistakes of a particular individual, but often we fail to realize that there is a system failure as well behind every single defect.

WAYS TO DEAL WITH DEFECTS

the Toyota Production System treats mistakes and defects as opportunities to improve any processes. Employees are actively participating in spotting, analyzing and eliminating defects. Giving front-line employees the authority to STOP the production line at any times when an error occurs. This can create a strong sense of ownership and responsibility for the job.
The 5 WHYs technique: developed by Taichi Ohno, the father of Toyota Production Systems. When a defect occurs we try to understand it’s route cause and make sure we’ll eliminate it in the future. We have to ask “WHY?” 5 times and eliminating the route cause of the problem, not just the symptom.
There is a paradox: we have to stop sometimes, so we can make sure the production never has to stop.
Lean Six Sigma: is a complex and overall process improvement method that can significantly decrease the number of defects. The Ford Motor Company after implementing Lean Six Sigma managed to decrease the number of defects to 3 in a million.

8th waste: SKILLS

Some experts identified an 8th waste, it’s called SKILLS. However, it was not part of the Toyota Production System originally it plays a very important role in the performance of the organizazion.
underutilized human potential is very common, we can find it in more companies than we may think.
This problem has to deal with corporate culture. In essence: every Lean Enterprise is primarily a human system. If we can manage to engage employees in improving the business itself we can make unbelievable improvements.
The most common forms of underutilized human potential are:
- not engaging employees to participate actively in developing and perfecting operational processes and business systems
- put skilled and creative people into positions that require to perform repetitive tasks
- not seeking employee feedback while making business decisions
- not engaging front-line workers to actively communicate their struggles and not asking suggestions for improvement
Underutilized employees will not feel a strong sense of ownership about their job and won’t experience a sense of community and belonging at work.
It can destroy employee satisfaction, which directly affects the overall performance of the business.

WAYS TO DEAL WITH THE WASTE OF UNDERUTILIZED HUMAN POTENTIAL

Open-up a bottom-up the channel of communication in the organization. A strong indicator according to lean experts is when bad news are travelling faster than good news.
Think is products, not in projects. When developing something new ignore traditional organizational departments, make different small cross-functional teams which can be responsible for one end-to-end project.
Create a sense of ownership. Assign small number of people for one single task. Or it is better to assign different specific tasks for every single individual.
Align common goals. It’s important to eliminate competition inside the organization. People usually compete for jobs, responsibility, projects, rights. If you align different people and team to achieve a common goal together you can encourage teamwork and boost productivity.
Create a learning organization. The basis of lean management is learning. Give people the opportunity to learn, to get to know the organization and their profession better. A real learning organization can cope much easily with uncertain situation and unexpected changes.
Pushing power to the edge. Give an opportunity for people to make independent decisions, take responsibility, initiate new ideas, assess and correct their own mistakes.

A few more brief words about ORGANIZATIONAL CULTURE

According to Clayton Christensen the capabilities of individuals in an organization don’t necessarily reflect the capabilities of the organization. In other words: it’ not enough to just hire good people. You also have to provide a good environment for them which allows them to express themselves.

As Malcolm Gladwell wrote in his classic text, “The Talent Myth” the majority of organizations is overly concerned about the employee’s skills, capabilities and talent at the moment of hiring. But they pay significantly less attention to the learning potential of people and invest significantly less effort and resources in developing people.

In her book, “Mindset – Changing The Way You think To Fulfil Your Potential” Stanford University professor Dr. Carol Dweck describes the 2 different attitudes that distinguishes effective, high-performing and fast-learning people from those who don’t believe their ability to learn, develop and change themselves. She calls the 2 different mindsets GROWTH and FIXED mindsets. Many high performing companies, such as Google already using Dweck’s latest psychological studies to develop a better approach for hiring people.

Ron Westrum in his classic paper “A typology of organisational cultures” distinguishes 3 different types of organizational cultures:
1. Pathological (power-oriented)
2. Bureaucratic (rule-oriented)
3. Generative (performance-oriented)

Most of the high-performing organizations are generative cultures, the pathological and bureaucratic organizations are lagging behind them.

Geert Hofstede a pioneer in cross-cultural psychology developed an overall framework which gives us a whole new way to understand the basic forces behind any organizational culture. In his “cultural dimensions theory” he names different dimensions of culture that differ in any nation and community. These are:
- Individualism-collectivism scale – (How much the countries expect the individuals to look after themselves?)
- Uncertainty avoidance – (How well the culture tolerate ambiguity?)
- Power-distance index: (To what extend do the less powerful members of a group accept and expect that power is distributed unequally?) Hofstede’s question: “How frequently in your experience, does the following problem occur: employees being afraid to express disagreement with their managers?”
- Masculinity vs. femininity – a preference in society for achievement
- Long-term orientation vs. short-term orientation – the connection of the past with the current and future actions
- Indulgence vs. restraint – the degree of freedom that societal norms give to citizens in fulfilling their human desires

LEAN PRINCIPLES

Principle 1.

DEFINE VALUE

What does value really mean?

“Value is a measure of the benefit provided by a good or service (…)” (Wikipedia)

Lean management starts and ends with the customer. The first thing to do is to define value from the perspective of the customer.

Common mistakes in defining VALUE

Most of the companies tried to define value from their own perspective. Many business owner tend to mistake shareholder value with the value provided to customers. For example many venture capital backed companies is overly concerned about ROA (Return on Asset). While defining value people are trying to look inward, inside their company from an outside-in perspective. They commonly forget that the real power comes from satisfied customers, not from the assets the company has.
In other words: they are trying to provide value strictly with the assets they are already bought, so they can justify the investment and the high cost of the machines and equipment.
However the only thing people with this mindset forget to ask: Does the customer care about our expensive assets we just put our money in? Most of the times the answer is a definite NO.
Ask instead: What does value mean to customers? What do they really care about? Does this particular activity, product or improvement provide any value for them?

SHORT CASE STUDY

“This product is what we know how to produce using assets we’ve already bought, so if customers don’t respond we’ll adjust the price or add bells and whistles.” What they should be doing instead is fundamentally rethinking value from the perspective of the customer.

In their book “Lean Thinking” Daniel T. Jones and James P. Womack illustrates the fundamental error with this kind of value definition that dominated the airline industry in the last few decades. Airlines tried to keep their aircraft fleet fully utilized 100% of the time. They transported large number of customers from smaller cities to large airports. Then they leaded their huge airplanes with large number of passengers and transferred them to another busy airport. Then once again they changed the airplanes and transferred the passengers to many different destinations with small airplanes. This was the standard practice throughout decades until a small number of new airline companies, such as Southwest Airlines started to apply an entirely new approach: they made direct flight from point to point. Companies who applied this approach disrupted the entire airline business. They set a new standard for customer experience while became the most profitable members of the whole industry.

“Shareholder value is the dummest idea in the world. It is a result, not a strategy. Your main constituencies are you employees, your customers and your products.”

“Only satisfied customers can give people job security, not companies.”

Jack Welch – CEO of General Electric from 1981 to 2001

OK, but how to define value from the perspective of the customer?

1. DEFINE VALUE IN TERMS OF THE WHOLE PRODUCT

Today many firms offer complex products and services. Many companies try to outsource as many activities as possible to external vendors and providers in the name of cost-efficiency. Most of the times they end up with an extremely fragmented value stream with many participants and external partners involved. Each party in the value stream tries to maximize its own profit, therefore every single party will define value differently. The result is the disintegration of the value stream that makes the whole business optimized around the interests of each party, not the customer.
Most of the times customers want a “hassle-free” experience. They want to get what they want with no interruption, as quickly as possible and on the lowest possible price.
In Lean Thinking, Daniel T. Jones and James P. Womack tells a story about their own experiences when they went to Greece for holiday. During their journey, the entire service was provided by 19 different organizations: travel company, taxi firm, grand staff, airport staff, airport, security, 5 countries, bus company. “TOTAL travel time: 13 hours, time actually going somewhere: 7 hours, 55% of the total, queuing and wait time: 6 hours, number of lines: 10, numbers of time luggage picked up and put down: 7, number of inspections, all asking the same questions: 8, processing steps: 23.”
The main problem: every single organization involved in the delivery of complex service or product (such as medical and social care companies, insurance companies, educational systems, construction companies, travel agencies, etc…) provides just a partial product. —> Therefore most of the complex products and services are full of misalignments and bottlenecks. No one takes a closer look at the whole experience from the perspective of the customer. In other words, they are optimized on the local maximum of every single party involved, that underlies the overall experience of the customer.

2. WHAT IS THE JOB THE CUSTOMER WANTS TO GET DONE?

Steve Blank (entrepreneur and Stanford Business School professor, pioneer of the “customer development methodology”) and Clayton Christensen (Harvard professor and author of the books: The innovator’s dilemma, The Innovator’s Solution) both mention a very effective way to exactly define value from the perspective of the customer. The essence of this approach is that every single person is “HIRING A PRODUCT TO GET A SPECIFIC JOB DONE”. They are not buying anything because of the capabilities of a product and not even for its benefits. But they want to accomplish something specific for themselves, they need solution to get a job done.
What attributes, functions and capabilities will the customers value in a product or service? The traditional answer to this question comes from marketing. Marketers start their job by sorting different kinds of customers in different categories based on different criteria. This is called market segmentation. Traditional market segmentation, which is based on demographics and psychographics tries to find clear similarities and differences between customers, so marketers can draw a clear line between them. They want to tell which market segment is more likely to buy our product or service. However, this “attribute-based” approach has a major shortcoming. The end of the process we cannot find the connection between attributes of a product or service and the desired outcome we want to accomplish (most often to sell the product). Even marketers cannot answer these questions:
- Why particular customers bought the product but others didn’t?
- What triggered exactly the buying decision?
- Which were the most important attributes and capabilities to different customers?
Clayton Christensen provides a “circumstance based” customer segmentation approach. We have to take a closer look at the “job” the customer wants to get done. In other words, the key is to find the reason behind the purchase. This concept was originally called the “Jobs to be Done“. He provides a vivid story about milkshake sales, you can find it below.

Further material:

3. DEFINE VALUE AS TARGET COST

Why lean firms have to rethink value?????

Lean is a continuous transformation, a never-ending process. Therefore you have to re-think the value you’re providing for the customers time to time. As you going through the lean transformation you’re able to present better value propositions to your customers. Why is that?
From the very first moment when you start the lean transformation you’re always freeing up significant resources as you start to eliminate waste from your processes.

Define Target Cost in 3 steps:

Defining Target Cost means to imagine the amount of effort and resources required to make a product IF all the currently visible waste were removed from the process.
First question: What is the “normal” price of the product or service? – The price that conventional firms charge customers who are still operating with all the visible waste you identified before.
Second question: What is the waste-free cost of the product or service? – What could be the new cost of the product if all the visible waste were removed? —> THIS IS THE TARGET COST
With this technique you can more effectively eliminate waste and define the lowest achievable price for the product or service.

Reduce prices —> After eliminating all the visible waste from your processes you will be able to reduce prices.
After reducing prices sales will increase automatically.

Add features and capabilities to the product —> After you can provide the same product or service at lower costs you can add more features and capabilities. So you can provide a better product than your competitors at the same price point.
After doing this sales will increase once again.
Then you can expand your distribution network and target higher tiers of customers as well with a bigger profit margin.

Principle 2.

IDENTIFY VALUE STREAM

WHAT IS A VALUE STREAM?

The scope of every business is to transform it’s resources (money, material possessions, human resources, etc…) to an end product or service which has a greater value to it’s customers. The value stream contains all of these activities from the very beginning of the process right to the hands of the customer.

HOW TO ANALYZE VALUE STREAMS?

Each value stream has 3 parts:

Problem solving task: Concept -> design -> engineering -> production launch
Information management task: Order taking -> scheduling-delivery
Physical transformation task: Raw material -> finished product in the hands of the customer

In every value stream we can identify 3 different types of activities:

value-creating activities
non-value creating, but absolutely necessary activities (type 1 waste)
non-value creating and immediately avoidable activities (type 2 waste)

A3 THINKING – a visual approach

In Toyota Production Systems (TPS) people like to keep things simple. They usually choose to plan and document everything visually on a single A3 size paper. This approach is called A3 thinking.
In a nutshell A3 thinking is based on a 4 pillars framework: PLAN -> DO -> CHECK -> ACT (PDCA framework). A3 thinking aims to present the PDCA planning and decision making process on a single A3 page – Isao Yoshino (Lecturer, Nagoya Gakuin University).
The real power of A3 thinking lies in the culture and mindset required from all people to keep things as simple as possible.

More material on A3 thinking:

VALUE STREAM MAPPING (VSM)

Value Stream Mapping is a powerful TOOL which helps us to see the business as a whole and not just different parts and departments of the business separately.
By defining value (previous step) we specified what value exactly is. With this step (VSM) we will take a look at HOW this value is created and how it flows from the business to the customer.
VSM gives us a picture about
- every single step required to provide value for the customer, from raw material right to the hand of the customer
- every process as a whole: from idea -> to concept -> to design -> to launch

WHY ARE WE USING VSM?

It’s the simplest and easiest way to take a look at all the business processes at once. It is visual and easily understandable.
Helps to see the origin of waste -> so we find out the root cause the waste and we can eliminate it much more easily
Helps us align the different departments of the business while making decisions. For example it helps to find out the disconnect between front-line and C-level executive’s office.
Helps us to standardize processes and provide a much more consistent experience for customers.
Helps us measure. VSM is a quantitative tool, so we can measure accurately every business related activity.
It can be an effective communication tool between executives, managers, front-line workers and even customers.

HOW TO START VALUE STREAM MAPPING?

Source: John Shook and Mike Rother – Learning to See

CHOOSE an activity

Decide what this value stream map is for.
Don’t try to draw value stream mapping for all of your business processes at once. It makes it an overwhelming task and it will be chaotic to present every business related activity at one on just one single paper. The scope of the VSM is actually the opposite: to keep things simple.
Select on preferred activity, service, product or product family that you would like to map.

CURRENT STATE MAP – How the business is doing things right now?

Gather as many informations as possible about how the business is performing the activity right now.
Then write down all the steps and processes as the business currently operates.
Write down every measurable things, like time spent, distance travelled, weight lifted, document completed, minutes spent with waiting, money spent, information exchanged, etc…
Try to be as accurate as possible. Be very honest with yourself. This is not the time to feel ashamed.

FUTURE STATE MAP – Imaging what’s possible.

Now it’s the time for assessing the activities.
Identify the 3 types of activities (discussed above)
- value creating activities
- non-value creating, but absolutely necessary activities (type 1 waste)
- create no value and immediately avoidable (type 2 waste)
The goal of the future state map is to identify what could you improve and plan the best possible way of doing things.
Daniel T. Jones and James P. Womack introduces a framework which can help us to eliminate the all the wasteful steps from the current state map and we can also perfect the remaining value-adding activities. After drawing the current state map we can asses every activity whether it is: CAPABLE, AVAILABLE, FLEXIBLE, ADEQUATE.
ASK questions about every single activity:
- Does the step create value for the customer?
- Is the step capable? —> Does is produce a good result every time?
- Is it available? —> Can it produce the desired output, not just the desired quality every time?
- Is it flexible? —> Can it be changed over quickly from one product to the next so items can be produced in small lots (or even lots of one)
- is the capacity for the step adequate? —> So the product doesn’t need to wait during the process. (too much capacity? based on wrong demand forecast perhaps?)
Steps that do not create value have to be eliminated!
Steps that are incapable, unavailable, inflexible, inadequate, under-or overcapitalized should be perfected!

4. CONSTRUCT THE FUTURE STATE IMPLEMENTATION PLAN – Plan which action will you take based on the insight you just gained.

In most of the organizations, the managers are responsible just for their organizational department. So they can see just one part of the business and optimize for that department or project. (That could be one of the causes of many conflicting and competing interests inside the organization.) BUT there is no person responsible for seeing the entire value stream, the entire business as a whole system.
- THE VALUE STREAM MANAGER: assign a responsible person for seeing and managing the whole value stream.
Don’t waste time on bench-marking. INSTEAD: identify waste around you and get started removing it immediately one by one.
Shift your perspective from project-based thinking to product-based thinking. Create small, cross-functional teams that can be responsible to the whole end-to-end development, production and delivery of a product.
Introduce a policy deployment system:
- Don’t try to fix everything at once. Limit the ongoing improvements to 3-4 processes at the same time.
- Establish priorities. Start to improve the process, activity, system or product family that has a higher chance of success. After you achieved positive results use the momentum of your success to expand lean methods to many other areas of the business. You have to show early results in order to get buy-in from the members of your organization.
Be patient. Don’t give up after a few months. A successful lean transformation will take 3-5 years to complete. In fact a true lean transformation in an on-going process, it will never end. It’s better to compete against perfection rather than compete with your competitors.

EXAMPLE of a Value Stream Map

Source: Tony Manos: Value Stream Mapping — an Introduction

Recommended book on planning:

HOW TO COMMUNICATE CHANGE AND ENCOURAGE PEOPLE TO COOPERATE?

Take everyone to the scene of the action and SHOW what is happening.
You need just a small team, a small number of experts, who are willing to master the process and teach it across their people. The goal is the make everyone familiar with the lean system and the objectives you want to achieve. Let people know what exactly you wish to accomplish with the transformation.
A lean system is primarily a HUMAN SYSTEM. So if you wish to achieve any significant change you have to start with people, more concretely with the culture of the organization.
Ensure all your people to their jobs will be protected. If they sense that their job is threatened because of the new system they will not cooperate. The whole change is based on changing the attitude of the people. Without it, you cannot achieve anything. Don’t ask employees to help eliminate their jobs. If you don’t ensure them that their job is safe they won’t cooperate.
Create a sense of ownership —> it will boost the motivation of your people significantly.
- Initiate a compensation scheme: pay your people in relation to the performance of your firm. The simplest way to calculate a compensation scheme: pay a market wage to employees along with a bonus tight directly to the profitability of the WHOLE company.
When you’re doing lean the right way, the work itself provides positive feedback and an experience of flow. Because of the short turnover time of any process the whole workforce can receive a direct feedback from customers. So they can relate their particular action to it’s consequences. (Direct connection between effort and reward.) Further material on this topic:
- Malcolm Gladwell explains that a work which is meaningful provides a much higher satisfaction and day-to-day motivation. In his book: Ourliers he explains the 3 common characteristics of the meaningful work.
- Mihály Csíkszentmihályi (professor of psychology in the University of Chicago) pioneered the concept of FLOW, which explains the mechanism of a perfect experience. He provides an overall framework that can help us create and optimize activities that provide a high satisfaction and motivation. He also explains the importance of a direct connection between effort and reward.
There always be a small group of managers who simply cannot accept new ideas. Hierarchical personalities who need a clear chain of command and have the need to control. They could be the saboteurs of lean transformation.
Top-down or bottom up? The two extremes of this dilemma are:
- Extreme no. 1: Ask and listen to front-line employees all the time, in any major business question, because they do the actual work and they are resolving the concrete problems of the business.
- Extreme no. 2: Just executives are able to make important business decisions, employees are just cogs in the system that get specific jobs done.
The truth is somewhere in-between: executives definitely have to develop a connection with front-line employees in order to gain understanding what’s going on in every step of the process and understand the practical problems of the business processes. However front-line workers are not able to see the business as a whole system with it’s strategic objectives and multitude of connections between part of the system.
- A possible solution could be to start with a small top-down initiative to demonstrate a better ways of doing things.
- But the process will became bottom-up over time. Ultimately the front-line workers will be those who are responsible for sustaining the ongoing improvements and initiating new improvements as well.
- Over time the job of the employees will be to initiate new and better ways of doing things, to improve processes and the business itself. The job of the leadership will be to decide how many initiatives could be supported at a given time. And also to create and maintain a transparent system which gives people responsibility and allows them to participate in decision making.
Change is not easy. Changing the culture, the attitude of people and the way of doing things involves risk, requires time and effort.

“One of the dilemmas of management is that, by their very nature, processes are established so that employees perform recurrent tasks in a consistent way, time after time. To ensure consistency, they are meant not to change—or if they must change, to change through tightly controlled procedures. This means that the very mechanisms through which organizations create value are intrinsically inimical to change.”

Clayton Christensen

CHANGE is a broad concept. So much more could be written about it. The above ideas are just a few examples on techniques that can be used in designing change. The process of change had it’s own literature, libraries are written on the topic. If you want to dig a little deeper in it I recommend a few useful books below.

Principle 3.

PULL

“(…) by letting actual demand pull operations rather than have average forecast push them forward.”

Taiichi Ohno

A few words about PUSH-mindset

HOW THE PROCESS LOOKS LIKE?

Making a product without any real customer request.
Making sales forecasts.
Manufacturing and building up inventories based on sales forcast.
Pushing the product or service toward the customer on different distribution channels, using push-marketing and salesforce.
Selling the out-of-date inventory on a discount price.
Starting the cycle over again.

THE PROCESS OF PULL

A customer asks for a product. No one should produce a good or service until the customer asks for it. The starting trigger of every business activity comes from the customer.
The last process of business activities fulfils the order immediately.
This operational step sends a signal to the next downstream step that one item should be replated immediately.
The signal circulates through all the operational steps in the exact opposite direction than a “push-operation”: from the customer throughout the processes to the raw materials.
Every step of the operation fulfils the immediate need of it’s nearest upstream operation. Maintaining continuous, single-piece flow throughout the whole system, operating without waste.
Every single step is in a constant synchrony with real customer demand.

Source

Henry Ford’s push system

TOP-DOWN CONTROL

Ford carefully analyzed the entire value stream and optimized all the operations to make it as efficient as possible.
His entire production line moved with a constant pre-defined speed, from raw materials to delivering finished products.
He sold his vehicles to his distribution partners periodically, based on a predetermined price and volume.
He applied top-down control to his entire operations. He controlled every single aspect of the business.
HOWEVER, he produced only one single car and sold it in unprecedented volume to a huge number of customers.
When facing the challenge to produce variety at a low cost and still be able to be profitable top-down control simply don’t work. Because of the fluctuating demand that involves uncertainty the top-down systems prove to be rigid and inflexible. Instead, a better approach would be to create a living organization that is able to constantly accommodate real-time customer demand. When working with a pre-defined level of production there is a huge possibility that sales forecast simply will not match real demand.

STANDARD WORK AND VISUAL CONTROL

To be able to see accurately the real customer demand the entire operations have to be transparent. The signal always coming from the up-stream activity. Therefore maintaining visual control is the best approach for being up-to-date all the time.

KANBAN

Kanban is a visual representation of all processes. It’s most widely used form is a board. We can divide it into different parts and place cards on it.
Every card represents an activity.
We can see every single business process on one single board and immediately make sense about what’s going on across the entire operations.

SIX RULES OF KANBAN

In his book, Toyota Production System: Beyond Large-Scale Production, Taiichi Ohno defines six rules of effectively using kanban method.

Each process issues requests (kanban) to its suppliers when it consumes its supplies.
Each process produces according to the quantity and sequence of incoming requests.
No items are made or transported without a request.
The request associated with an item is always attached to it.
Processes must not send out defective items, to ensure that the finished products will be defect-free.
Limiting the number of pending requests makes the process more sensitive and reveals inefficiencies.

DIGITAL KANBAN

There are many digital solutions that can be used as a Kanban board. A few of them are Trello, Monday.com, Clik Up, . These are general productivity tools that can be used for many other purposes as well.

Trello

Monday.com

Clik Up

CREATE ALIGNMENT BETWEEN EVERY PART OF THE ORGANIZATION

Align every part of the organization to maintain transparency.
It decreases deviations between the perceived demand of any operational process and actual customer demand.
Consider the disrupting force of deviations from real demand (explained above as Bullwhip-effect.) Even a small deviation at any point can significantly increase or decrease the amount of perceived demand, putting unnecessary pressure on the whole value stream.
Introducing pull will eliminate inventories and unnecessary waste. This will immediately increase ROI (Return on Investment).
It will obviously eliminate the need for using any type of forecast. The new procedure will be the produce items or provide services Just in Time – just as many items as needed exactly when the customer needs it.
It will significantly increase customer satisfaction
- no more pushed, unwanted items
- faster, cheaper and more personalized products
- the customer gets what he needs at the time when he needs it
When every single part of the value chain (including the customer) stops stockpiling, (because they can immediately get what they want). At the same time demand became more stable.

Example on push vs pull systems: BOOK PRINTING

About 50% of the books printed in the US are not sold. —> printing large inventories of books and pushing it toward the customer.
On-demand printing: making the process of printing significantly faster and print as many books as the customer needs at the exact time when the customer needs it.

Principle 4.

FLOW

WHAT IS FLOW?

After the value stream is fully mapped and all (or at least the majority) of the wasteful steps are eliminated, the next step will be to create an uninterrupted flow between value-creating activities.
Flow can be applied to every activity in any industry.

“(…) the component of flow we will refer to as operational flow. Operational flow interacts in a complex manner with three parallel elements that together make up the end-to-end flow of value: organizational, information, and innovation—each of which are more difficult to see. Ultimately, it is not disruption to these individually but rather their combined effect that causes loss to skyrocket when firms operate at the

outskirts of their value curve.”

Stephen A. Ruffa – Going Lean: How the Best Companies Apply Lean Manufacturing Principles to Shatter Uncertainty, Drive Innovation, and Maximize Profits

1. Operational flow

This is the most visible element of flow. Activities that transform products from their basic element to the finished state, delivered to the hands of the customer. In case of service businesses: all the visible steps while providing a service for customers.
The key here is to optimize the whole flow of activity, so you can perform is continuously with a constant speed and without any interruption.
Here are a few examples:
- Production line of any an automotive company. As an example take a look at the innovation of Henry Ford. He created the first moving production line in history and optimized every single activity to perform it continuously and uninterruptedly. At the end he was able to decrease the cost of manufacturing a car by 90%, making the first affordable automobile for the mass-market.
- Another great example is Toyota Production System (TPS). They were able to create and maintain uninterrupted flow while making limited number of vehicles under the condition of constant change.
- Production of Coca-Cola bottles from its parts: water, other ingredients, aluminium or plastic (for the bottle).
- Making an iPhone from it’s components.
- Proving a haircut using different tools and materials, like scissors machines, water and painting.

2. Organizational flow

According to Stephen A. Ruffa the notion of a simple and clearly structured corporation, which is the basis of the theories of Adam Smith is not a reality today. Corporations grew to enormous sizes —> they lost the organizational simplicity that Adam Smith explained in his famous Pin Factory example. Organizations become much more complex and sophisticated that would have been foreseen a few hundred years ago. Hence, the majority of the today’s corporations still operating on the basis of this theory.
Narrowing organizational focus: workers and managers responsibility was broken down to specialized areas to minimize the effort required to complete a task. However the result is that no one can see the organization as a whole system. In most of the cases organizational departments wants to maximize their resources and abilities to work as far that sometimes they seem to compete with other organizational departments and operations. In other words: they are optimized to a “local maximum” rather than optimizing for a “global maximum”.
The lean solution to this problem to form CROSS-FUNCTIONAL TEAMS from multiple functional areas of the business (from product design, detailed engineering, marketing, management, communications, finance, etc…). This concept is explained below in detail.

3. Information flow

Today’s fast moving and online environments require to have accurate and detailed informations real-time. The most important information is what coming from the customer.
Any disruption to flow of information means that management cannot react to the outside changes as quickly as needed.
Think about a traffic jam. People often don’t know what caused the problem exactly. They do unexpected moves based on their individual assumptions that can cause further accident or an even bigger traffic jam. Similarly, when information is confusing and not accurate managers tend to overcompensate, causing a much bigger problem that eventually can spread across the whole value chain.

4. Flow of innovation

According to Claiton Cristiansen organizations often fail to sustain a constant flow of innovation. They often start to think about new, innovative businesses too late, when their core business is already in downturn. Then they try to “force” innovation and make it grow as big as possible as fast as possible. This thinking is fundamentally different than the real nature of innovation. The core of his message is to “Be patient for growth, not for profit. (…)”
In his book Three Horizons: The Patterning of Hope Bill Sharpe introduces the concept of Three Horizons innovation framework. The basis of this concept is basically the same idea: companies have to start new, disruptive businesses while the core of the business is still healthy, profitable and growing. Companies have to think in 3 different time-frames to be able to create a continuous flow of innovation.

International Training Centre – Foresight Toolkit – Three Horizons Framework

A SHORT HISTORY OF “BATCH AND QUEUE” THINKING

Adam Smith and Frederick Winslow Taylor

Adam Smith

Frederick Winslow Taylor

Thought the last century the general management wisdom was to organize the similar types of activities together in the name of efficiency. This type of management thinking can be originated in the work of the great thinkers of the 18th and 19th centuries. This management mindset is originated from the work of Adam Smith, economist, author of the book: The Wealth of Nations (originally published in 1776) and Frederick Winslow Taylor, who established the field of Scientific Management.
The workers are performing pre-defined and repeated tasks like cogs in the system, making a repeated task over and over again as efficiently as possible. Managers are made responsible for planning and coordinating the work as well as assessing the performance of the workforce. Every single task was optimized separately to make it as efficient as possible. With this method productivity increased and the cost of the products dropped significantly.

Henry Ford

Entrepreneurs, like Henry Ford who successfully applied the principles “taylorism” was able to make his Ford Model T affordable to a huge number of customers.

What made Ford so special?

He eliminated the problem of instability and uncertainty

What did stability mean to Ford? —> He created a very stable and predictable business environment for his company and for its product, the Model T. The entire business and it’s environment was under his direct control. There was no factor he was not aware of and didn’t control.

He owned the entire value stream, absolutely everything that he needed to create his car. He had literally no suppliers. Therefore he was able to set the prices and was not dependent on other external partners.
He optimized all the operations, introduced the innovation of moving production line and made his products 90% more efficiently.
He directly controlled the entire channel distribution of his cars. He obliged the dealers to pay for the cars in advance, so his factory could produce for secured orders. The dealers were facing with the incidental fluctuations in sales.
He created unprecedented customer demand with the entirely new price-range of automobiles he. He claimed that is the price of his vehicle dropped by 1 dollar he sold 1000 more cars.
He created the economy of scale. He was not subject of variation and personalized customer requests. He produced one product, the Model T for 19 consecutive years and sold up to 2 million pieces yearly.

Source: oplaunch.com

However, in the world of business Ford was a very “special case”. The overwhelming majority of the businesses was not able to create the conditions that Ford was facing, not in his days and especially not today. Nowadays we’re facing very different conditions, technologically, environmentally and most importantly customers have very different expectations. If someone tries to initiate Ford’s approach he will build his business on unsustainable foundations.

In summary: according to the taylorist mindset the most efficient way of doing things is to divide activities into different categories, make people specialized on one single activity, so they will routinely perform that activity without variations. Then you can manage people by telling them exactly what to do. Is this correct? IT WAS. For centuries. But NOT ANYMORE.

What kinds of problems even Ford couldn’t solve?

Fluctuating customer demand
Producing variety, different kind of products and models, need for personalized solutions
Working without the economy of scale — Not producing one single product and selling for tens of millions of people, but producing a large variety of different products and selling just a couple of thousend pieces of it.

Taiichi Ohno and the rise of LEAN MANAGEMENT

Taiichi Ohno – a pioneer of LEAN MANAGEMENT

“The Toyota style is not to create results by working hard. It is a system that says there is no limit to people’s creativity. People don’t go to Toyota to ‘work’ they go there to ‘think’.”

“Having no problems is the biggest problem of all.”

A few brief words about TPS’s environment and problems it was facing

In the 1960s Taichi Ohno, the father of the Toyota Production Systems was facing very different problems than Henry Ford when he produces the Model T.
In the post-WWII Japanese economy There was no capital to build huge factories and invest in huge machines. Not to mention to owning the entire value stream (as Ford did).
Customer demand was very unstable. People demanded variety, they were not satisfied to have a one-size-fits-all solution. The customer demand was fluctuating with huge peaks and valleys.
Toyota had to figure out how can it produce small number of vehicles without the economy of scale, in different models, attributes, prices for an unpredictable and unstable customer demand.

Solution:

They invented an entirely new way of doing things. They took an opposite approach to mass-production. They invented the LEAN way of doing things.

Further reading on management history:

DIFFERENCES BETWEEN TAYLORISM AND LEAN MANAGEMENT

TAYLORISM

LEAN

Plenty of capital needed

No extra capital needed

Stable customer demand

Fluctuating customer demand

A large volume of production —> millions

A small volume of production —> thousands

Producing large batches from the same item

Producing just as much as needed

Building up large inventories in different stages of the supply chain. Then transporting inventories infrequently between stages of producing or across the supply chain.

NO inventory (or as little inventory as possible). Transporting finished items immediately between stages or across of the value chain.

Operating based on sales forecast

Operating based on actual customer demand

Long queues between production steps.

Applying Just in Time (JIT) in production.

Business activity organized around organizational departments.

Business activity organized around cross-functional and multi-disciplinary teams.

An eventual mistake is found out long after it has been made, after it was passed to the next stage of the production.

Using the technique of “mistake-proofing” (Poka-yoke) to find and correct mistakes immediately in every stage of the production.

Rigid, rule-based system. Change is hard and slow.

Flexible system, based on continuous improvement. Change is constant and build into the system.

Top-down controlled: workers are “cogs in the machine”.

Bottom-up controlled: employees are are creative workers, responsible and empowered to make important decisions.

Very slow changeovers in the system.

Extremely fast changeovers thanks for pre-built external setups (SMAD).

INTRODUCING FLOW

Introducing flow is difficult. BUT the benefits are huge. Maintaining flow is a constant fight with the elements. Every type of waste contributes to the interruption of smooth flow. Therefore maintaining flow requires constant monitoring and continuously correcting the system itself.
The whole point of introducing flow is to connect smoothly the different parts of the system. Transporting raw materials, parts or finished goods to far destinations make flow impossible by default. The reason for flow is to bring the part of the system as close as possible to eliminate transportation and speed-up production time.
Every type of waste contributes to the disruption of the smooth flow of the value. I’ll explain below one-by-one.

Transportation

Transporting raw material, parts or finished goods to far destinations make flow impossible by default. The reason of flow is to bring the part of the system as close as possible to eliminate transportation and speed-up production time.

Inventory

Building large inventories makes it impossible to maintain flow. Inventories should be transported, processed, stored, then re-process and finally used. Moreover, items are sitting in inventories for quite a long time before they get processed. Building up huge inventories disrupts both operational flow (because of the transportation) and information flow (because of the extra information processing required). Introducing flow means no need to sell unwanted, out-of-date inventory on a discount price to make place for the new items.

Waiting

In many cases, waiting takes most of the time of the actual production or providing a service. Just a few familiar examples:
- visiting a doctor, hospital or airport
- using a government-related service
- building a house
- travelling abroad by a travel agency
- trying to contact a huge enterprise
The wastes of inventory and waiting are strongly interconnected. Eliminating inventories immediately decreases the waste of waiting.

Motion

Extra motion requires extra time and effort, it occupies labour and equipment and it directly increases the cost of production or providing a service. Time spent on non-value creating motion could be spent on creating value instead. It immediately disrupts smooth flow.

Overproduction

One example: the workers finished all the job too early and have two more hours until the end of the shift. Then what are they doing? Making unwanted items to keep them busy and “productive”. Then the extra items produced have to be processed, transported and stored by the same workforce. Then they have to figure out how can redesign the whole process to integrate the unwanted inventory in the system and use it most effectively.

Over-processing

Overcomplicated solutions to simple problems are instantly slowing the system down. It decreases waiting time, drains resources, wastes precious labour time using extra equipment. With eliminating over-processing we can instantly speed-up the flow of value.

Defects

Defects have to be corrected or repaired at a down-stream production step (if it’s still possible). When an unwanted and unplanned defect occurs flow immediately slows down. It needs extra transportation, movement, waiting, labour and equipment that could also be used to produce value instead. Working continuously on a product until it’s finished means fewer defects and unobserved errors made.

Skills

Underutilized human potential makes it extremely hard to improve the the system. So flow of the value cannot be speed-up and continuously improved without considerable effort. Without actively involving the workforce into the process of improvement itself change will remain a constant struggle.

DISRUPTING FORCES

Bullwhip Effect

“Does anyone know what’s the actual customer demand???”

Source: Wikipedia

It can happen when a complex system is facing any kind of external disruption or change. When the actual customer demand is different than the pre-determined sales forecast.
A system which has an extended value stream, but the activities are not synchronized and optimized to allow smooth connection with other parts of the value stream can easily break down. Even when facing a small deviation in the flow of customer demand it can cause significant deviations in the up-stream steps. This dynamic effect can amplify the initial deviations that will spread across the entire value stream, causing major disruptions in every part of the system. It can have major consequences, like food shortages, shortages of any supply or essential goods or services. Unfortunately the victim of these disruptions is always the customer in one way or in another.
The key to avoid this is short reaction time, flexibility and smooth alignment between parts of the system.

How it happens?

The members of supply chain create inventories that buffer against peaks and valleys in customer demand.
Each time the inventory falls to a pre-defined level they order huge batches of supply. The whole process is dependent on inventory buffers, creating lag at every point of the chain, deviating customer demand.
Every step of the supply chain increases the deviation between actual customer demand and the amount of ordered inventory. In other words: suppliers do not respond to customer demands, instead, they fill the need of the lowest tier of the supply chain.
Supply chains can quickly brake down when the “stable” conditions shift, when actual customer demand is not the same as forecasted demand. When demand spikes inventories quickly dry up causing shortages. Suppliers begin to place larger and larger orders to respond to actual demand and also to refill their inventory. At this point the manufacturer cannot respond to this amount of demand, causing a bigger shortage which can interrupt the entire supply chain.

Example:

MIT Sloan School of Management in the 1960s created “The Beer Game” experiment which illustrates the same phenomenon in a beer distribution network.
The same phenomenon happened worldwide in 2020 during the COVID pandemic with many items, like toilet paper, sanitizing and personal protective equipment.

The problem of stability

“Remember, planning is a tool that only works in the presence of a long and stable operating history. And yet, do any of us feel that the world around us is getting more and more stable every day? Changing such a mind-set is hard but critical to startup success.”

Eric Ries

Take a look again at Henry Ford’s example. What stability meant to Ford?

stable supply chain -> he owned the entire supply chain
stable and high-volume production, benefiting from the economy of scale
stable distribution chain -> Ford produced for stable and predictable demand
stable customer demand -> there were millions who wanted to buy a car. Ford knew that he can sell every single care he makes.

Note: when this degree of stability was not given even Ford’s business was facing a significant downturn.

after 19 years of production when Ford re-designed his car and started the manufacturing of the Model E he the transition was so slow that he had to close his biggest factory for one entire year. During this period he gave a great opportunity to his competitors. After this point Chrysler took over Ford’s market dominance and it’s downturn had began.

Today’s business environment:

There is basically saturation in almost every market. Today are more products in larger variety than any other time in history. The physical cost of making a product or starting a service providing businesses is lower than ever. So the biggest question is what is the product that we have to build. However, the majority of today’s large companies are built on the assumption of a stable business environment and predictable customer demand. Ford had those conditions, but today’s companies don’t really have. The departmentalized organizations and highly fragmented operations have a huge disadvantage when conditions around the business are changing. The extreme complexity of their business operations (in the name of efficiency) makes change extremely slow. When making quick changes is so painful organizations simply lose their abilities to quickly react to real-world changes and uncertainties. Therefore with every single major change, they face setbacks and huge losses.
As Eric Ries said: “We have the capacity to build almost anything we can imagine. The big question of our time is not Can it be built? but Should it be built? This places us in an unusual historical moment: our future prosperity depends on the quality of our collective imaginations.”
In his book: Going Lean Stephen A. Ruffa mentions a few characteristic or today’s businesses which are exactly the opposite than Adam Smith’s simple and almost transparent Pin Factory example. Such characteristics are:
- complexity —> disconnect between actions and the results they produce
- instability
- rapid change
- shifts in business cycles
- changes in customer taste
- unseen world events
- external changes.
Daniel T. Jones and James P. Womack describe such instable conditions as follows:
- unpredictable customer demand
- increasing competition
- shifting customer expectations
- disruptive world events
In many cases the entire environment of an organization changed so rapidly that they couldn’t react to it in time. Many businesses who kept operating based on the same rules that made them successful in the past went bankrupt in a relatively short period of time. Two examples of this phenomenon:
- Kodak (read more here)
- Nokia: Nokia CEO Stephen Elop: “we didn’t do anything wrong, but somehow, we lost.” (read more here)
Such trends of a more and more instable and accelerating world are clearly visible if we take a look at the average life expectancy of an S&P 500 company. This value has declined continuously and significantly during the last 50 years and this trend seems to continue in the future as well.

Source: mckinsey.com

Source: cnbc.com

Techniques of FLOW

IN A NUTSCHELL

“So, how do you make value flow? The first step, once value is defined and the entire value stream is identified, is to focus on the actual object—the specific design, the specific order, and the product itself (a “cure,” a trip, a house, a bicycle)—and never let it out of sight from beginning to completion. The second step, which makes the first step possible, is to ignore the traditional boundaries of jobs, careers, functions (often organized into departments), and firms to form a lean enterprise removing all impediments to the continuous flow of the specific product or product family. The third step is to rethink specific work practices and tools to eliminate backflows, scrap, and stoppages of all sorts so that the design, order, and production of the specific product can proceed continuously.

In fact, these three steps must be taken together.”

Daniel T. Jones and James P. Womack

Make value FLOW: look at the whole value stream all the time. Never allow a product to be put on hold and to start another product or project until the first one is not finished completely. Ensure that someone is always working on the product or project, so the value created for the customer will be in constant flow.
Ignore the traditional boundaries of jobs, carriers, functions, departments. The complexity of an organization (explained above) makes it hard to smoothly connect the different kinds of activities of different departments. Therefore it takes quite a long time to finish a product end-to-end, from product design to delivering to the customer.
Rethink specific work practices and workflows.
Create truly dedicated product teams. Answering to the problem of complexity it is much faster and easier to make a fully dedicated product team which takes responsibility and ownership to a product from the beginning to the end. The areas that a dedicated team has to work on are: value specification, general design, detailed engineering, purchasing, tooling, production planning, among many others. Amazon has a 2 pizza rules: such a team should be small enough that 2 pizzas have to be enough to feed the whole team.

Use a team decision-making methodology and base every decision on the customer’s preferences. A widely used method is Quality Function Deployment (explained below).

QUALITY FUNCTION DEPLOYMENT (QFD)

standardize work, do the same job the same way all the time
measure the parameters of the job, such as throughput time
act on the measured data and continuously improve the product

QFD is originated from Japan, developed by an engineer, Yoji Akao. QFD is a customer-focused approach (like the whole lean methodology itself). The only existing “requirement” while building a product is the requirement of the customer. QFD translates customer requirements (CR) into products and concrete solutions. There is a gap between the the “what” and the “how”. The “what” is the requirement of the customer, the need that has to be filled. The “how” is the job of the engineers: they have to figure out how can they build something that meets the requirements of the customer. In order to do this they need much more technical-oriented requirements, so they will know “how” to build the product. In other words the needs of the customer have to be translated into concrete, actionable, measurable and technical steps and requirements. QFD is like a translator of two foreign languages: the language of the customer and the language of the technical-minded engineers and designers.

Further reading on Quality Function Deployment:

TAKT TIME

Takt time represents the speed of production or providing service. It synchronizes the rate of production to the actual customers demand.
It determines how much time is available to complete one single order.
To calculate TAKT time we have to divide the customer demand (how much product was ordered?) with the available time (how much time we have to complete all of the orders?). So we will know how much time we have to complete one single order.
We have to monitor customer demand in real-time and continuously re-calculate TAKT time.
With this approach we can make sure that all the items will be finished on time and we will not do any overproduction.

EXAMPLE

Customer demand: we got 48 orders for today.
Available time: we have an 8-hour shift to complete all of the orders.
Divide the number of orders with the available hours of production.
48 orders/480 minutes (8 hours)=10 minutes —> We have 10 minutes to complete an order, so we will be ready at the end of the day.

STEPS OF DEFINING TAKT TIME

Define demand at a given time.
Define TAKT time precisely at a given time and run the whole production sequence precisely to TAKT time
TAKT time always has to be monitored in real-time
The whole production has to be monitored in real-time —> so everyone can see where the production stands at every moment.

TRANSPARENCY

In production transparency means complete visual control: everyone can see where production stands at every moment. Every single step of the production is visible for everyone in the organization. With this knowledge, every member of the organization can adjust to each other if they observe any deviation from Takt time.
In the context of service businesses transparency is a much more accurate word. Every activity is visible for every part and member of the organization.
If we think this further we can extend transparency to the entire value stream.
Making the value stream transparent: – subcontractors, suppliers, system integrators (assemblers), distributors, customers, employees CAN SEE EVERYTHING —> it’s easy to see ways to discover value more accurately and avoid unnecessary complexity in the system.

JUST IN TIME (JIT)

It’s a powerful method to ensure smooth FLOW.
Taiichi Ohno invented this new management system in the 1950s and it was widely used by TPS throughout the 1960s and 1970s. Western firms adapted JIT for the first time in the early 1980s.
Ohno was strongly inspired by the mechanism of a modern supermarket. The system works as follows: after a customer buys a product the missing product creates a “whole” in the system. An employee monitors the shelves and refills immediately after the product was purchased. This action creates another trigger in the warehouse system and gives a signal for an up-stream process that a product should be ordered. This is an oversimplified explanation, just for the sake of simplicity.
The whole point of JIT is to produce a tiny amount and then produce another tiny amount as soon as the amount already produced is processed by the next downstream process.
Using JIT we can eliminate all the inventories (waste of unnecessary inventory) between steps of production. The product moves one-by-one with no inventory stock between the stages. This is called SINGLE PIECE FLOW.
To introduce JIT smaller machines are needed that completely fits the production flow. They are usually less automated, slower, but perhaps more accurate and flexible. This thinking is completely opposite of batch-thinking (which removes direct labour and automate tasks, keeps every machine fully utilized. They want to keep all labour and machines busy at all times to justify the high cost of the investment.) Therefore for managers who have a long experience in batch production this method seems very contraintuitive and hard to believe that less automated, slower equipment could be more efficient that a faster and more automated one.
To apply JIT all the people in every step of the production have to be cross-skilled. The flow must continue. So when an unexpected error occurs it has to be corrected immediately, at the same location, it couldn’t be passed through to the next production step.

Further reading on Just in Time

TOTAL PRODUCTIVE MAINTENANCE (TPM)

TPM is an approach which positively effects the overall health of the business, every single business activity.
The key in TPM is to get absolutely everybody involved regardless of position and role. Everybody is working on assessing and perfecting the processes and the business system itself.
The goal of TPM is to achieve maximum equipment effectiveness, decrease downtime and boost productivity.
Making everybody involved means overwriting the roles of operators and maintenance staff. Everybody feels responsible to make sure that the equipment is in perfect condition and running smoothly.
In the case of service businesses: everybody is involved in perfecting the process itself. This is the point where the role of a traditional “manager” and “employee” became obsolete. Employees start to feel responsible about the effectiveness of the system they’re running and the processes they’re performing.
Using TPM means shifting from a problem-solving mindset to a problem preventing one. —> Not waiting until equipment brakes down. Instead: scheduling regular checks and maintaining an uninterrupted flow.

TOTAL PRODUCTIVE MAINTENANCE (TPM)

Defective parts cannot be sent to a downstream process, a broken process cannot be performed next time without correcting it.
Ignore traditional roles and boundaries, such as employee (cog in the system) and manager or supervisor (responsible for managing the process).
Employee engagement is the key.
“Machines/equipment are the heart of our factories and offices.” (Yuzuro Ito). However, similarly, as the heart of the lean philosophy to apply TPM is less about machines and more about people. Without empowering people and giving them responsibility you’ll not be able to do TPM.

THE 8 PILLARS OF TPM

Autonomous maintenance
Focused improvement
Planned maintenance
Quality maintenance
Early equipment management
Training and education
Safety, health and environment
TPM in administration

Further reading:

Total Productive Maintenance (TPM): An Overview – engineersforum.com.ng

MANAGING BY PRODUCT FAMILIES

In his book Going Lean, Stephen A. Ruffa explains the extreme power of managing by product family.
Managing by product families means re-structuring all the activities based on different criteria and managing groups of items together based on one common attribute. A few examples:
- By size: managing together all the big parts, all the medium part all the small parts.
- By material: managing together all the plastic, all the metal and all the wood parts.
- By type of activity: managing together all the phone calls, all the emails, all other operation related activity.
Making suppliers, stakeholders, managers, workers responsible for one group of tasks and not managing every single activity one-by-one.

EXAMPLE:

Southwest Airlines
- Uses a single family of aircraft: Boeing 737
- Create as many commonalities and standardized work practices as possible.
- It simplifies many activities, like maintenance, pilot training, operational activities, etc.

HOW TO MANAGE INCREASINGLY COMPLEX TASKS MORE EASILY AND EASILY?

Managing by product family means zooming out from something and considering the condition as a given fact. It is much easier to manage one single product family rather than considering, organizing and worrying about every single little task and detail it involves. In means pushing power to the edges and enabling key stakeholders to be totally responsible for a group of tasks.
By grouping together key activities we are able to build increasingly complex “layers” of activities on top of each other. Stakeholders are managing by groups and not considering the many different small details inside a layer or group.

I’ll demonstrate this with an example: Think about a transportation company. What activities have to be carried on for the company to being able to operate profitably?

1st layer: All the trucks have to work properly. Thousands of parts have to be in working order. Even a complex part itself, (like engines) contains thousands of more parts. Everything has to be in working order at any times. If we couple the many different tiny parts together and give the responsibility of maintaining a car to another stakeholder, we can focus on the next layer, making the whole process more and more complex.
2nd layer: Moving goods from point A to point B. The driver has to be in good medical condition to be able to drive. During a journey, a driver has to make tens of thousands of tiny decisions. Giving the responsibility of transporting goods to the driver we can focus on the next layer.
3rd layer: Organizing the routs and transports, building another layer of complexity
4th layer: If we assume that all the operations will be designed, planned and performed uninterruptedly we can think about managing the business as a whole.
5th layer: If we assume that all the business activities will be managed properly we can think about franchising it or making a similar one.

The bottom line: None of the parties are able to see the business with it’s complexity. It is impossible to consider every single minor tasks, decisions and activities that have to be performed day after day. It is much easier to group similar activities together and manage them as a group.

SPEEDING CHANGEOVERS

Changeover means the time spent shifting between different activities. Configuring equipment, changing parts, re-organizing activities, procedures or labour, preparing to produce a different kind of product or provide a different kind of activity.
One of the world’s longes changeovers took 1 whole year. When Henry Ford designed his new vehicle, the Ford Model E he shut down his biggest factory for 1 whole year to prepare to the production of the product.
Throughout the last century changeovers became increasingly faster.

SMED

In his book A Study of the Toyota Production System, Shigeo Shingo describes a technique, which is called Single-minute exchange of die (SMED).

A simple explanation:

Do not waste time on changing every different element of a machine or process while preparing to the next task (internal setup). Instead, make the process simple by building external setups in advance. By working with external setups you can eliminate the majority of the steps required in switching the tasks. So you don’t have to change every single part one-by-one, just one single external setup at once.

Benefits of SMED:

Drastically decreases the changeover time, even by 95% in many cases.
Boots productivity: time spent on changeovers can be spent on a value-creating activity instead.
Freeing up resources: precious labour hours, equipment and ultimately time and money.
Decreases the possibility of errors and accidents.
Preparing the external setup can be done while the machine is still working (or while the service is still provided)

Shigeo Shingo identifies 8 techniques that can be used in implementing SMED:

Separate internal from external setup operations
Convert internal to external setup
Standardize function, not shape
Use functional clamps or eliminate fasteners altogether
Use intermediate jigs and fixtures
Adopt parallel operations
Eliminate adjustments
Mechanization

Source: https://www.researchgate.net/

A few examples:

Toyota was a pioneer in decreasing changeover time. They managed to reduce the major machine setup time from several hours to 3 minutes.
Southwest Airlines: preparing ground support, baggage and every single activity that can be prepared before the plain arrived. Using external setups Southwest has the fastest changeover time in the entire airline industry.
We can observe an extreme example in motorsports. In the last 70 years Formula 1 pit stop time decreased from more than 1 minute to 2 seconds.

Further reading:

How To Do SMED
The History of Quick Changeover (SMED) – Christoph Roser

Principle 5.

PERFECTION

PERFECTION? WHAT? CAN HUMANS ACHIEVE ULTIMATE PERFECTION?

Definitely not. But definitely worth trying!

WHAT DOES PERFECTION MEAN IN LEAN TERMS?

After we accurately specified value (principle 1.) , identified value stream (principle 2.), let customer pull value defined by them from the business (principle 3.), made value creating activities flow smoothly, we can focus on PERFECTING every single process of the business.
Achieving perfection is a neve-ending process. Lean is all about continuously and constantly reflecting to the customer and business environment in a rapidly changing world. Changes can happen everywhere: new disruptive technology being developed, new competitors emerge, unforeseen world events, sudden changes in customer taste.

WHAT CAN WE DO ABOUT CHANGES?

1. Continuously redefine value

In the case of every type of business activity, the basis of competition changes quite frequently. Clayton Christensen offers an extremely useful framework to define what the basis of customer’s choice could be.
He distinguishes 2 different categories:
- When the product or service is not good enough for the customer. In this case, the customer has higher expectations than the provider of the solution can fulfil. An example of this situation is the early days of the computers. The capabilities of IT equipment were not good enough to fulfil the basic needs of the customers.
- The other scenario, when the solution is more than good enough for the customer. It happens when the performance and capabilities of the products improve so rapidly that it overshoots customer expectations. In this case, the product is able to do more than the customers wants or can use. Firms will not be able to increase the price of the product by improving the product, adding new features and capabilities to it.
Functionality —> reliability —> convenience —> price: As technologies progress, products and services became more than good enough for the customer. The basis of competition gradually shifts from functionality to reliability to convenience to price. When improving the functionality, reliability and increasing the convenience leads no additional customer traction we can know for sure that price is the true basis of competition. At this point the product or service had become a commodity.

2. Achieve incremental improvements

The Japanese term for continuous, incremental improvement is KAIZEN. It literally means “change for the better” or “continuous improvement”.
After we succeeded to realize the future state map (discussed above) we can focus on extending the range of improvements. We can double our productivity and efficiency once again within 3-5 years by using continuous improvements.
In the heart of Kaizen are people. Employee engagement is key.

WHAT DOES EMPOYEE ENGAGEMENT MEANS?

Employees are allowed and even required to make small changes in the system and on all business processes continuously.
Employees are not cogs in the machine, but creative workers who are working not harder, but smarter, using their imagination to make changes happen.
Employees are empowered to make business decisions. (In case of TPS frontline workers have the power and responsibility to stop the entire production line if they observe a mistake or error that can’t be corrected before it goes to the next up-stream process.)
All changes are coming from bottom-up. If a particular improvement or practice works leadership may require to implement it across the entire business. But none of the initiatives has a top-down pushing character as we can observe in so many organizations.
Leaders are emerging within and not brought from outside. The result of this practice is that every person who has greater responsibility (from middle-management to C-level executives) have a thorough understanding of every operation the business performs and the relations between them. Firms which have such continuous leader development program can build a powerful and stable organizational culture more easily.

POLICY DEPLOYMENT

Prioritization and decision-making framework for implementing a corporate strategy

INTRODUCING A POLICY DEPLOYMENT SYSTEM

“A specific plan—typically annual—is developed with precise goals, actions, timelines, responsibilities, and measures. In contrast to management by objectives, once the major goals are set, it should become a top-down and bottom-up process involving a dialogue between senior managers and project teams about the resources and time both available and needed to achieve the targets.” David Brunt
Don’t try to fix everything at once. Limit the ongoing improvements to 3-4 processes at a time.
Establish priorities. Start to improve the process, activity, system or product family that has a higher chance of success. After you achieved positive results use the momentum of your success to expand lean methods to other areas of the business. You have to show early success in order to get buy-in from other members of your organization.
Be patient. Don’t give up after a few months. A successful lean transformation will take 3-5 years to complete. In fact a true lean transformation in an on-going and never-ending process. It’s better to compete against perfection rather than compete with your competitors.

QUALITY CONTROL (QC)

The practice of Quality Control aims to create an environment in which quality has a top priority. By ensuring top quality the business can differentiate itself more easily from competitors.
The heart of Quality Control is the PDCA cycle, which stands for PLAN —> DO —> CHECK —> ACT
The PDCA cycle was first developed by Walter A. Shewhart physicist in the 1920s. The idea was popularized by quality pioneer Dr. W Edwards Deming in the 1950s.

Source

1. PLAN

The staring point the vision and mission of the organization. We have to have a clear picture about the future we want to live in. We also have to know which particular results do we want to achieve.

2. DO

During this step the plan takes shape. We establish the particular actions that have to be taken, identify milestones, prepare workforce for change, initiate training programs if necessary, gathering all the information available.

3. CHECK

In the first stage of the Check phase we usually make sure that the project objective have been met.
As a second action we record successes and eventual failures that could be the basis of any future action.

3. CHECK

Is this phase we make all the necessary corrections that have to be made to correct the mistakes we identified in the last step.
First: We standardize those steps and actions that lead to success, so future actions could be taken based on a standardized manner.
Second: Draw a conclusion: we make a final assessment of the group performance and identify any remaining problems that should be corrected.

5 WHYs technique

Root cause analysis

5WHYs is a powerful lean technique which helps us find the underlying root cause behind a problem. It gives us enormous power to see the dept of a problem. If we try to fix a symptom of the problem it will definitely occur again in the future and we will end up spending more resources fixing it than if we would spend correcting it in the first place.
This technique was developed by Taiichi Ohno and first used at Toyota. He describes this technique in detail in his 1988 book: Toyota Production System: Beyond Large-Scale Production.
In his book: Lean Startup, Eric Ries notes that behind every single system failure there is a human error that could be identified, corrected and prevented from occurring next time. “Note that even in Ohno’s relatively simple example the root cause moves away from a technical fault (a blown fuse) and toward a human error (someone forgot to attach a strainer). This is completely typical of most problems that startups face no matter what industry they are in. Going back to our service business example, most problems that at first appear to be individual mistakes can be traced back to problems in training or the original playbook for how the service is to be delivered.”
However please note: this technique is NOT designed to help scapegoating any situation. It is primarily designed to prevent repeated system failures and to improve the overall efficiency of business processes. If you use this process for identifying the person that could be blamed for a failure it will have an opposite effect on your business. There will be very strong resistance from employees against using the technique. You will end us identifying false causes and optimizing your operations in the wrong direction.
Ohno’s example on 5 WHYs technique:
1. Why did the machine stop? (There was an overload and the fuse blew.)
2. Why was there an overload? (The bearing was not sufficiently lubricated.)
3. Why was it not lubricated sufficiently? (The lubrication pump was not pumping sufficiently.)
4. Why was it not pumping sufficiently? (The shaft of the pump was worn and rattling.)
5. Why was the shaft worn out? (There was no strainer attached and metal scrap got in.)

EXAMPLES:

Ohno’s example on 5 WHYs technique:
1. Why did the machine stop? (There was an overload and the fuse blew.)
2. Why was there an overload? (The bearing was not sufficiently lubricated.)
3. Why was it not lubricated sufficiently? (The lubrication pump was not pumping sufficiently.)
4. Why was it not pumping sufficiently? (The shaft of the pump was worn and rattling.)
5. Why was the shaft worn out? (There was no strainer attached and metal scrap got in.)

Source

Further reading:

DIFFICULTIES OF USING 5WHYs

Considering the root cause of every problem is not easy, it is a very hard job and requires us to totally shift our mindset. Especially if we work in an organization that is built around firefighting.
A few questions to consider:
- Are we continuously managing occurring problems on a permanent basis?
- Do we rely primarily on the capabilities of individuals or on a well-established dynamic system (build by individuals)?
- Are we focusing on preventing mistakes before they can happen? Do we have a system in place that assures that the same mistake will not happen twice?
- What is a mistake? A sign of individual incapability or a great opportunity of perfecting the system.
- Are we punishing mistakes or encouraging experimentation?

Why are we so determined to solve problems rather than prevent them? A possible explanation could be found in psychology if we take a closer look at the world of cognitive biases.

Cognitive bias: “Bad Is Stronger Than Good”

Peter Drucker, the great management guru calls this way of thinking feeding problems and starving opportunities. As he wrote in his book, Managing in a Time of Great Change: “The last of the deadly sins is feeding problems and starving opportunities. For many years I have been asking new clients to tell me who their best-performing people are. And then I ask: “What are they assigned to?” Almost without exception, the performers are assigned to problems—to the old business that is sinking faster than had been forecast; to the old product that is being outflanked by a competitor’s new offering; to the old technology—for example, analog switches, when the market has already switched to digital. Then I ask: “And who takes care of the opportunities?” Almost invariably, the opportunities are left to fend for themselves. All one can get by “problem solving” is damage containment. Only opportunities produce results and growth. And opportunities are actually every bit as difficult and demanding as problems are. First draw up a list of the opportunities facing the business and make sure that each is adequately staffed (and adequately supported). Only then should you draw up a list of the problems and worry about staffing them.”
Daniel Kahneman, the Nobel Prize-winning psychologist identified a cognitive decision making bias, it’s called “Bad Is Stronger Than Good”.
Social psychologist Roy Baumeister and his 3 colleagues, Ellen Bratslavsky, Catrin Finkenauer and K. de Vohs published a paper in the journal Review of General Psychology with the same title (“Bad Is Stronger Than Good“). They conclude this bias as a general one that seems to be present in many different situations of our lives. We can observe it in minor everyday life situations to major life and world events.
A very short explanation could be that we are more sensitive to a potential loss than to a potential gain with a same economic value. We’re also willing to take more risks and invest more effort to recover something we’ve lost and significantly less effort in gaining something instead. (This is just a very brief explanation.)

Further reading:

Bad Is Stronger Than Good: Evidence-Based Advice For Bosses – Harvard Business Review
Bad Is Stronger than Good (research paper) – Roy Baumeister, Ellen Bratslavsky, Catrin Finkenauer, K. de Vohs

WARNING!

Unfinished article!

Currently working on it…