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Getting Lean and smart

The way to compete in the 21st century is to work one's operating system really hard (or implementing one if you haven't already, and then working it even harder) and to become a knowledge-acquiring, knowledge-using company that is integrated into a supply chain. Two industry experts explain why these things are vital, not optional.

A touchstone is a criterion, a metric of the value of something. In its original sense, it refers to an actual rock, which is used to separate real gold from pretenders. The mineral in question would be scratched on the touchstone. Whether it was gold or pyrite was determined by the results.

When it comes to lean production systems, the touchstone is the Toyota Production System (TPS). The system, which was developed by Taiichi Ohno after World War II, didn't make it to the U.S. until the 1980s, when Toyotaand General Motors established New United Motor Manufacturing Inc. (NUMMI) in Fremont, California. Then there was something of a roll-out, as Toyota established its complex in Georgetown, Kentucky, which started producing Camrys in 1988.

If you think back to the status quo in the late `80s, when there were conference speakers who started talking about practices like just-in-time, conference attendees, as well as the people back at the plant, began to say "Oh, no!" and they weren't referring to the father of TPS.

But with a certain inevitability, the TPS became the touchstone. Soon, OEMs and suppliers alike started talking about their versions of the TPS, and how they were or were becoming "lean" manufacturers. "Kaizen" was pronounced not only with Californian and Kentuckian accents, but by people in Dearborn, Highland Park, and even on the 14th floor of a building in downtown Detroit.

How Lean?

When asked about the levels of lean that U.S. automakers have attained, Jeffrey K. Liker—director of the Value Chain Analysis Program within Industrial and Operations Engineering at the University of Michigan, Senior Lean Consultant with Optiprise, and editor ofBecoming Lean: Inside Stories of U.S. Manufacturers (Productivity Press; 1997)—puts it this way:

Roughly speaking, the vehicle manufacturers can be put in three categories:

1. Just getting started. This means there's been some training. People are talking lean (and "Ohno" is pronounced without the comma and exclamation point). There are signs about the campaign tacked onto bulletin boards and hanging from the I-beams.

2. An island of lean practices exists. There has been a major transformation of some part of a plant—a cell or a line. It has gone from mass to lean.

3. Significantly lean.

Liker remarks: "I would say that maybe 10% of the operations are at stage three," an observation that he hastens to point out is based on his sense of things, not quantitative research. Then he quickly amends that figure: "It's probably more like 5%."

Either way, there is a long way to go. Or, the surface of the TPS has barely been scratched.

Same As It Ever Was.

But this should be understandable. Liker says, "Go to a typical Detroit-style plant. There is a culture of mass production, based on decades of operation. Trying to convert that is extremely difficult." After all, that existing facility is undoubtedly making product, and "the priority is getting product out the door—while trying to change the mindset of the people." As if getting product out the door isn't tough enough in and of itself.

Say What?

Jidoka—Automation with a human touch. Fitting the operator to the machine...and the machine to the operation.

Just-in-time—The right part. The right place. The right time.

Heijunka—Production leveling.

Takt time—Amount of time allotted to each process in the production chain to meet the required output.

"The accounting system hasn't changed," he notes, adding, "The plant manager is measured on getting product out the door, and labor and overhead." So in one regard, the plant manager is, in effect, juggling metaphysical engine blocks, which is no easy feat, to put it mildly.

Still, Liker suggests that progress is being made: "Toyota's success," he says, "has been a powerful influence." He adds, "There have been enough success stories in individual plants"—by which he means plants other than those of Toyota—"that this isn't a fad."

Still, he has found that there tends to be greater successes that are being realized by smaller suppliers or by individual plants rather than by larger organizations.

Understandable Confusion.

Liker admits that there can be some confusion among those who are implementing a lean system. For example, there is a question about how much time should be spent on 5S before moving on to flow. "There is one generic model that says you need stability in the process before you start to increase the number of changeovers and improve flow, so you do 5S and problem-solving, then move on to continuous flow," Liker explains, then adds, "But there is another principle that says you shouldn't become preoccupied with 5S because it will become an end in and of itself, and you'll never get to flow. So if you put in flow, it puts pressure on to keep things well organized because there is less inventory." So there can be conflicting principles.

Although in some regards, the TPS can be considered to be a defined methodology, Liker believes that there is a real art to going lean. He likens this to the situation that might exist between a master chef and the rest of us: "You can lay out all the ingredients for a meal and give the recipe to someone who is not an experienced chef, and they can still make a mess of it. A master chef will make it work." But Liker says that if you ask two master chefs about their approaches, each might contradict the other.

(One of the methods that Liker, who is a consultant, thinks is useful is process flow mapping, a method through which the current state and the ideal state are identified, then the various steps that are needed to get from one to the other are laid out, as regards information flow, material flow, machine capabilities, etc. Each organization has its own goals; it can create its own route to reach them.)

Playing Catch-Up.

What about the issue of the lead that Toyota has with its production system as compared with everyone else: How is it possible to catch up? (Especially given that continuous improvement is a way of the TPS, so they've not only got experience with it, but they've been working to make it better and better.)

Some people within organizations have taken the approach that they'll do something else—like compete through the extensive implementation of information technology—because Toyota has the big lead. But Liker notes that it is important for any company to take care of the fundamentals—like eliminating waste—so that they can be within "striking distance" of the capabilities of Toyota or other lean companies. Once that position is reached, he maintains, "other aspects of the business come into importance."

He cites, for example, Ford's investment in aluminum for body panels. Assume that the Ford Production System gets ramped up such that the automaker gets within "striking distance" of Toyota so far as efficient operations go, then it is possible that it "could find a competitive advantage even if Toyota has the Toyota Production System." Product features, time to market, advertising, product customization, and build-to-order capability are all things that can make a difference in terms of a company's competitive position.

The Challenge of Real Time.

"Real-time transaction processing. It scares the hell out of automotive," remarks John Waraniak, an industry consultant most recently with Benchmarking Partners Automotive Practice. His area of focus has been on the supply chain, something that he thinks is going to undergo profound change in the next several years as there is greater networking and the implementation of best business practices...including real-time transaction processing.

This could be a problem for some people in automotive if it comes to pass...and there is no reason why it isn't likely to.

Consider, Waraniak suggests, the case of Dell Computer, arguably one of the benchmarks for companies that are supplying consumers. In 1990, he says, Dell's business model was 95% build-to-stock. By 1995, it was 40% build-to-order. Right now it is 95% build-to-order. Can auto manufacturers follow such a business model?

Waraniak points out that although it takes on the order of 24 to 40 hours (or less) to build a vehicle, it can take six to eight weeks for that vehicle to make it into someone's driveway. Which means, he suggests, that there needs to be a change in the "value chain," the time that connects the automakers, suppliers, and retailers, a connection that will become a "networked enterprise," with the attendant cooperation implied by that term.

Do Your Thing.

Waraniak warns that managers must recognize that "You can't just use someone else's practices," that, due to the cultural and operational differences that exist between companies, trying to deploy what another company has done is destined to fail. You can do the sorts of things that Michael Dell does, but you can't buy everyone in your company that size and type of shoe that Michael Dell wears and expect them to fit. Things must be tailored. "Learning is more important than the practice itself," Waraniak says.

Learning relates to another aspect of doing business in the 21st century that Waraniak says is important. The relevance of economies of scale continues to hold: it is important for a supplier to have a sufficient number of customers for its products—especially when it comes to supplying entire systems rather than just parts or subassemblies—such that the volumes help contribute to the profitability of the programs. The new concern is with "economies of knowledge," on how much a firm can learn by working for (and with) its customers. Waraniak believes that those firms that are able to gain the most knowledge about their area(s) of expertise will be in an advantageous position compared to their competitors.

Get Smart.

Time and knowledge are two key critical success factors that any company should be adept with. It is worth noting that right across the board, suppliers of all types are becoming more responsible for performing both R&D and Design, Engineering and Testing functions: just being good at making things is no longer sufficient, and these additional capabilities are going to be expected of those who wish to do business with the OEMs.

One thing that people can be assured of, Waraniak says, is that the environment is dynamic. "There's no stability. Business models that worked two years ago won't work two years later. Typically, technology is forcing the models to change; it is causing disruptions."

And this is not something that is likely to stop. But as Waraniak notes, "The platform for action is knowledge." Success will be found by the knowledgeable.