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)
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| 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.
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| 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.
