Exploring the Lean House, Part 2

In Part 1 we Looked again at the Lean house. Explored the limitations of traditional manufacturing approaches and how they can negatively impact a company's financial performance. We delved into Eliyahu M. Goldratt's insightful work, particularly his concept of Throughput, Inventory, and Operating Expense. These three metrics provide a powerful lens for evaluating a system's efficiency and profitability. And I finished part one with a question.

“What would happen to these metrics if we never stopped building or constantly pushed production at individual stations?”

Let’s start today with the answer.

Throughput: the best outcome for throughput is that it won’t change. While it seems like everyone is busy and work is constantly ongoing, factories have bottlenecks, be it in a work station, sales demand or logistical there is somewhere that at 100% isn’t as good as the rest.

Manufacturing isn’t a race it’s more like a group hike, and the job isn’t completed until every activity in the process is done. Having some of the activities running faster doesn’t finish the hike any sooner and 'get the job done' but it can cause a heap of problems.

Inventory: One of those key problems here is a build-up of inventory, be it finished good or work in progress (WIP) and levels will typically skyrocket if production keeps pushing out products without considering actual customer demand or process limitations and downstream holdups. This ties up valuable cash flow and drives up storage and movement costs. In the worst case, as inventory builds up defects and other problems are hidden.

Operating expense: More inventory leads to more expenses; in the absolute best case this will only be the logistical costs above. But often the build up of inventory disconnects the work in progress from the next steps in the job which will lead to finding defects late and will affect more parts as they build up. Causing rework or scrappage costs and so operational expense increases and delays pile up which actively reduces throughput.

Like a restriction in a busy road pushing more traffic into the jam never gets anyone to their destination sooner so modern smart motorways actively reduce the speed up the road from a traffic jam, reducing the amount of traffic that joins it so that when the restriction is removed the jam will clear sooner. The focus therefore should not be on keeping the rest of the factory running but on resolving the issues and removing the restriction to allow the processes behind to flow.

In his further work Goldratt emphasises controlling production rate to manage inventory levels. Where Goldratt proposed careful control of material release as the drum beat for the factory, in lean manufacturing this is done using pull flows. This ensures that work only progresses when there's demand from the next step in the process. In the ideal single piece flow each workstation only has the single WIP product and the lowest amount of materials available to complete that workpiece, each time a product passes to the customer in a sale it opens a space for the work behind it to progress, which in turn opens a space behind it and so on down the line back to the first workstation which can then begin a new order. Likewise, when materials are consumed at the workstation they are then replenished, Toyota use Kanban cards as a method of signalling stores that there is space for replenishment and this ideal process in called Just in time.

This approach is based on considering the whole system, the key to the definition of throughput is that it’s based on the final handover to the client or sale and not the beginning of production. The steps that make up the whole process from end to end is called the value stream and laying this out in a process flow is the first step in building up the value stream map (VSM). As a whole system map, the processes mapped out aren’t just the individual work centres but also includes movement of product, quality control and anything else that needs to happen to get the product to the customer. The VSM should also show the flow of information needed to complete the product and time each steps takes. Lastly, the value stream map helps identify if a process adds value to the final product from the customer's perspective or is considered non-value added. Non-value-added activities consume resources but don't directly contribute to what the customer sees as valuable.

These activities are classed in lean as waste and fall into 8 categories, Transportation, Inventory, Motion, Waiting, Overproduction, Over-processing, Defects and Skills otherwise known as TIM WOODS.

• Transportation: Unnecessary movement of people, materials, or products.
• Inventory: Having more stock than is immediately needed for production.
• Motion: Any unnecessary physical movement by workers that doesn't add value to the product.
• Waiting: Idle time for workers or machines due to delays, breakdowns, or lack of materials.
• Overproduction: Producing more than is demanded by the customer, leading to excess inventory.
• Over-processing: Performing unnecessary steps or using overly complex methods in production.
• Defects: Any product that does not meet quality standards and needs rework or scrapping.
• Skills: Underutilising the skills and knowledge of employees.

By understanding the value stream and using a pull flow, effort can be focused on the issues that prevent the smooth flow of production to the client. Understanding the wastes allows for targeted improvements, achieving a more efficient manufacturing system through continuous improvement.

Rounding off the lean house tour Standardised work forms a part of the foundation in the lean house, if 3 people do a job 3 ways you need 3 different improvements for that task to benefit every time. Standardised work allows for the improvements to help the process every time and with everyone working in the same manor. They all have the opportunity to suggest and help implement changes that will benefit  everyone working with that process. 

This whistle stop look around the lean house over the last few posts has covered at not only the features but on how and why they work. Together these will increase throughput, reduce inventory and operational expense thereby making the company Money, achieving the Goal.

The just in time process of Toyota took decades to develop to where it was in the 80s and they have had a further 40 years of refinement, it’s impossible to deliver the perfect single piece flow line without years of trial and error, next time I’ll take a look at the steps to develop these processes and how you sensibly mange breaking the rules to get started, and have something successful to improve on towards the ideal.

Exploring the Lean house, Part 1

In my previous post I discussed the importance of culture and how it forms the foundation of the Lean house visual, I hinted at the type of culture that needs to be fostered and how training and management leading by example from the very top are critical for a real delivery. This week I’m going to expand on this foundation and explore the lean house further, after all I wouldn’t want culture to just be another amorphous buzzword. 

When we talk about culture we talk about behaviours and responses. With a strong culture these are predictable, be it negative behaviours such as a disrespect for processes and procedures or knowing that owning up to mistakes leads to being yelled at.  Management often fosters these types of environments by only wanting to hear good news and not listening to anything that goes against this, surrounding themselves with people who just agree or make impossible promises.

Positive cultures allow people to take ownership of their mistakes and acknowledge that the majority of the time it’s systems that fail and not individuals. A culture of trust and a willingness to hear bad news or negative feedback, tackling problems head on as a team in a supporting environment.

In Lean, this culture of ownership, trust, and open communication is essential. It fosters a continuous improvement mindset and empowers employees to identify and eliminate waste. This supportive environment is what allows companies to truly embrace the principles of the Lean house, despite seeming counterintuitive to those with a mass production background. 

Not all manufacturing is equal

I’ve made this statement or similar a couple of times in my previous posts and have been an advocate for getting back to the basics almost as long as I’ve been in this industry. During my masters dissertation I took this to heart and delved into the history of manufacturing right back to it’s roots in the industrial revolution. I’ve mentioned Industry 4.0 as a buzzword in my first post and it’s a label for the 4th industrial revolution. The 4 IRs are explained by Vaidyaa et al in their paper ‘Industry 4.0 – A Glimpse’ [1] (figure 1)

The 4 Industrial Revolutions [1]

From ‘Glimpse’ the revolutions are largely described by the applications of specific technologies and that would be the familiar terminology for many, in my dissertation I argued that alongside technology the philosophy and approach also changed with each revolution. Specifically, that during Industry 2 the ideas and methods of Mass production evolved and were delivered most famously by Henry Ford and then with industry 3 Toyota’s Lean manufacturing came to the fore. Arguable we are still in the transition 50 years later, as many companies look to use lean manufacturing but struggle to shake off the shackles of Mass production, something I’ve seen time and time again in the offsite industry.

Every manufacturing manager I’ve worked with has uttered the words ‘we can’t stop building’ or something similar at one point or another and yet time after time delays and issues build up and rework is needed to put things right. Along with this is a reluctance to have people or machines idle, a classic approach from mass production is to judge the efficiency of a factory by the local efficiencies of each individual area pushing to keep everyone and everything busy 100% of the time and measuring them all on how close they can get to that. The problem with these two ideas from mass production, is that they simply don’t work, because if they did the west wouldn’t have struggled so much in 80s and 90s against the newer Lean manufacturers of Japan. If they worked, it would be an American company at the top of the automotive industry and not Toyota who make more money than their top 5 competitors combined [2].

When we look again at the Lean house (figure 2) it highlights a number of items that directly opposes those two ideas. Built in quality highlights the need to stop the line and solve issues not allowing them to be pushed forward, while the principles of Flow and Pull and the focus on delivery to customer require a ‘whole system approach’ which goes against the in station 100% efficiency targets and can actually mean working less efficient in some areas is better for the overall system output.

A diagram of the three pillar Toyota house of Lean management. [3]

To understand why this works we can look outside of the core of lean teachings or that of Toyota, in 1984 Eliyahu M. Goldratt publish their book ‘The goal’ [4] 6 years before Womack et al would publish 'the machine that changed the world'[5] and 20 years before the Toyota way[2]. 

Published as a novel following the manager of a struggling American plant ‘The goal’ proposed that the purpose of any company was simply to make money. While it may be argued that there are other goals by company owners, if the company isn’t making money it’ll struggle for growth or to have the resources for its ultimate purpose.  Using a mentor character in the book to guide the protagonist Goldratt poses a series of questions to encourage the characters (and the reader) to work through the logic of their proposals. Starting with identifying the goal the question is how would a factory be able to measure if it’s making money? Financially investors or company owners can achieve this by 

“Increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.”

Goldratt goes on to translate this to the shop floor using three very specific definitions:

• Throughput: the rate at which the system generates money through sales.
• Inventory: Inventory is all the money that the system has invested in purchasing things which it intends to sell.
• Operating expense: Operational expense is all the money the system spends in order to turn inventory into throughput.

Each one of these definitions practically measures financial performance of the business,

“Throughput is the money coming in. Inventory is the money currently inside the system. And operational expense is the money we have to pay out to make throughput happen. One measurement for the incoming money, one for the money still stuck inside, and one for the money going out.”

From these definitions you can directly link the factory performance to practical measurements and targets to take you towards the goal. If you can increase throughput while reducing you inventory and operating expenses you know that you’ll be able to increase net profit, while simultaneously increasing cash flow and return on investment.

I still have a lot to discuss on this and that includes how this links back to the classic tools of Lean including the value stream map, flow, pull and the 8 wastes, however It’s also getting to be a very long post so I’m going to split this post into two parts and like Goldratt’s mentor character I'll pose a couple of questions to help tie this together.

As we've seen, the 'keep building' mentality and focus on individual station efficiency are hallmarks of Mass Production and I made the bold statement that they ‘simply don’t work’. Keeping people busy at their stations is often described as 'getting ahead', usually in areas that can already run faster than processes later down the line. Let's explore the impact of these approaches on Goldratt's three key financial metrics: Throughput, Inventory, and Operating Expense. What would happen to these metrics if we never stopped building or constantly pushed production at individual stations? Does it make money? Please feel free to leave a comment here or on my LinkedIn with your answers and thoughts on this.

And if you find these articles interesting and would like to discuss more, please feel free to message me on LinkedIn.

[1] Vaidya S., Ambad P., Bhosle S. (2018) Industry 4.0–a glimpse. Procedia manufacturing. 20. pp.233-238.
[2] Liker, J. K. (2020). The Toyota Way, Second Edition: 14 Management Principles from the World's Greatest Manufacturer. McGraw-Hill Education.
[3] Fekete, M. and Hulvej, J. (2014) Lean management as a house from the past to the present. Comenius Management Review. (8) 2. p.5-16.
[4] Goldratt, E. M., Cox, J. (2016). The Goal: A Process of Ongoing Improvement. Taylor & Francis.
[5] Womack, J. P., Jones, D. T., Roos, D. (2008). The Machine That Changed the World. United Kingdom: Simon & Schuster UK.

The Power of People and Culture

Last week, we explored the challenges plaguing the offsite construction industry. While the specific triggers for company failures can vary, my experience reveals a consistent pattern. Many problems stem from a critical disconnect: The inability to translate manufacturing concepts into practical workflows and actions.

This disconnect fosters a reactive environment, leading to firefighting and “sticking plaster" solutions, which tigger rework and delays, increasing costs and throttling cashflow. This series of reactive solutions creates a phenomenon I call "process debt." Just like any debt, process debt accumulates over time as companies prioritise pushing projects through over establishing efficient workflows. The more companies rely on "sticking plaster" solutions, the greater the process debt becomes. This cycle of rework, delays, and ineffective solutions perpetuates, eroding trust and creating a reputation for unreliability. The offsite construction industry, battered by a series of bad news, is suffering from a lack of confidence – both internally and among potential customers.

I went on to speak about the need for a clear and well-defined plan and finished on the fable of the Tortoise and the Hare, slow and steady progress often trumps a hasty approach. We need to shift gears from the "hare" mentality to the "tortoise" approach. By creating actionable plans rooted in Lean principles and efficient workflows, we can demonstrate expertise, build trust, and deliver to our customers. However, there is one step that needs to be considered and understood first.

The importance of culture

A diagram of the three pillar Toyota house of Lean management. [1]

The Lean house visual is often used to demonstrate Lean principles and the hierarchy of importance, like with any building that starts with its foundations. In Lean implementation, culture is the foundation. The most meticulous planning won't succeed if people don't believe in the plan and understand its purpose. Core ideas like pull flows and pausing production to solve problems won't be effective if workers react to difficulties by reverting to bad habits under pressure to keep things moving. Therefore, addressing this foundation is crucial, long-term planning must be prioritise over short-term shortcuts, and the company leadership must be involved, willing to adapt and learn, and lead by example through their actions and decisions.

Once a company chooses to adopt this approach the first step to consider is training, I’ve often joked that I’d value £100,000 training budget more than a £100 million investment in automation and plant. Empowered and skilled people can achieve more than idle machines waiting for materials and information, or worse, overproducing parts that then sit unused until downstream processes are ready. Therefore, even as a company develops its plan, it can begin the coaching and learning process.

At Lighthouse, we trained all our production supervisors and manufacturing engineers as Lean practitioners, alongside members of our design, procurement, and project management teams, with attendees ranging from directors to apprentices. It will always be a source of pride of to see the buy-in and enthusiasm from those on the training after a year advocating for the implementation. The icing on the cake? While our senior team worked on the value steam mapping project and business processes, the Lean teams delivered immediate improvements that exceeded the training’s cost.

However, fostering a culture of continuous improvement requires more than just training. We need to address specific aspects of company culture that might hinder progress. Hierarchies that discourage information flow and employee participation, or a fear of failure that stifles innovation, can all impede Lean implementation. Crucially, Leadership must actively foster a culture of trust. Empowered employees who feel valued are more likely to contribute ideas, take ownership, and strive for continuous improvement.

Planning for Success: Tools for a Culture of Continuous Improvement

Lean also provides powerful planning tools to ensure your team is working towards shared goals. Such as Hoshin Kanri, a strategic planning process that helps companies translate their vision into actionable steps at every level. This approach, combined with a strong foundation of trust and continuous improvement, empowers teams and unites the company towards achieving its strategic goals. I’ll talk through Hoshin Planning in a later blog after discussing a couple more of the key portions of the Lean House next week, including the value stream and waste.

[1] FEKETE, M. and HULVEJ, J. (2014) Lean management as a house from the past to the present. Comenius Management Review. (8) 2. p.5-16.

The Silent Factories: How did the UK Offsite Revolution Stall?

In the mid-2010s, a wave of optimism gripped the residential construction industry. Companies like Ilke Homes and L&G Modular opened enormous factories, exceeding 200,000 square feet in size. This wasn't just about increased production; it signified a bold promise: offsite construction would revolutionise building. Faster project delivery, improved quality control, and a reduced environmental footprint – these were the hallmarks of the offsite vision.

However, a decade on, a different story unfolds. The factories of Ilke, L&G, Swan Housing, and UrbanSplash – all stand silent, their doors closed. This isn't an isolated incident. Established players like Caledonia Modular have also faced significant difficulties. The recent collapse of Lighthouse Construction serves as a stark reminder – the challenges plaguing offsite construction remain unresolved.

Swan's factory closing down

Over the past six years, I've witnessed these struggles firsthand. Not just within the companies I directly worked for, but also through interactions with colleagues at other offsite firms and conversations with former employees across the industry. Their stories paint a similar picture: unfulfilled promises and persistent hurdles.

While the specific reasons for each factory closure may differ, a closer look reveals common themes that paint a broader picture of the challenges faced by the offsite construction industry.

• Fixation on Automation:  Companies invested heavily in highly automated factory setups, often exceeding actual production needs. This resulted in high upfront costs and limited room for flexibility as project requirements and market demands evolved.
• Buzzwords Over Process:  Trendy industry terms like “Lean”, "Design for Manufacturing and Assembly" (DFMA) and "Industry 4.0" are commonplace. However, a clear understanding of how to translate these concepts into practical workflows for offsite construction was often missing.
• A Disconnect from Customer Needs:  The focus on rapid production overshadowed the importance of delivering to the customer. Getting the factory to 4 or 6 a day was the factory priority as opposed to handing keys over to the end customer, as such factories had to have off site storage including an airfield of modules that have now had to be disposed of.
• Communication silos and Inefficient Workflows. Without a strong connection across the whole value stream, communication between the design team, the factory and site fragmented.

It's not uncommon for "work started on the line" to be a driving key performance indicator (KPI) highlighting a disconnect from the overall delivery process. This metric emphasises production speed over optimising the entire offsite construction workflow, from initial design to final handover to the customer. 

These problems and more have led to long project delays and failures, in the worst cases finished buildings having to be demolished.

While companies may have projected a customer-focused image and despite publicity of Lean and modern manufacturing principles. Core lessons on building a collaborative culture, optimising pull-based production flows, and mapping the value stream weren't effectively implemented and a crucial element was often missing – a concrete delivery plan.

The anecdote about a factory starting with a "back-of-the-serviette" sketch exemplifies the lack of comprehensive planning. While publicly questioning a similar approach, early in my offsite career might not have been the smoothest tactic, the underlying concern was valid – a clear and well-defined plan is essential for success.

At lighthouse the early days followed much the same pattern, we had  won work and needed to deliver, focus was on the short term and also very reactive, just like those before us this lead to issues which caused delays and projects overrunning. It’s easy in that environment of firefighting and pushing to deliver to get wrapped up in the short-term needs, I’ve done it myself on a number of occasions. However, the company built a strong team of experienced people and we had begun this process, a large internal project mapping out the value stream and identifying gaps and risks in our processes. By doing so we identified a number of key projects which would help prevent these issues occurring again and given more time was setting the groundwork for a strong company.

Unfortunately for Lighthouse this groundwork was too late, while the trigger like all the factories discussed was unique, in hindsight it’s highly likely that it could have been avoided if that groundwork had been in place early on. It is always much harder to make change and rework than it is to build something right first time.

Technical debt (also known as tech debt or code debt) describes what results when development teams take actions to expedite the delivery of a piece of functionality or a project which later needs to be refactored. In other words, it’s the result of prioritizing speedy delivery over perfect code. [1]

Like technical debt in the IT industry this build-up of process debt is in part, why these factories fail, in nearly all of the new wave factories great things have been achieved, stories of vast improvements come from across the board, things for their teams to be proud off but ultimately it turned out to be too little too late.

Having had such a tough time, the industry is suffering from a lack of confidence and apprehension for potential customers, so now more than ever we need to demonstrate expertise and take a more calculated approach, akin to fable of ‘the Tortoise and the Hare’ often associated with Toyotas manufacturing philosophy.

In the coming posts, we'll delve deeper into these common themes and explore how Lean principles can be applied to address them. We'll move beyond buzzwords and translate them into practical tools for creating a robust delivery plan that prioritises customer value and operational efficiency in offsite construction.

1. https://www.productplan.com/glossary/technical-debt/