Updated: Jun 13
by Art Byrne
Ah, so before you get started your first question is “when will we be done?” Seriously, that’s how you think? If it is then my advice is don’t even start. You obviously don’t understand what the term “lean” means so all you will do is cause a lot of confusion and wasted effort and eventually you will fail. Now if I said “lean” is another way to say “continuous improvement” would your first question still be, “when will we be done?” After all “continuous improvement” does mean continuous so by definition once you start down the lean path you will never be done. Just look at Toyota who got all this started in the first place right after World War II and they are still driving the Toyota Production System [i.e. lean] just as hard as ever.
On the other hand, once you accept the reality that you will never “be done” we can start to talk about what needs to be done and I can give you some ideas of what you can expect from a timing point of view. Understand of course that because companies are very different in their physical and organizational structures that this will effect the rate at which you can make progress. Manufacturing companies have different issues and obstacles than service companies. Size also comes into play as converting a $50 million business will take less time than a $10 billion business. Some people might even argue that private companies can go faster than public companies although I don’t really buy that argument.
I think the biggest factor of how long it takes to convert to lean really depends on the will and push of the owner or CEO. The enormity of what it takes to change from a traditional batch approach to a lean flow and pull approach tends to scare the heck out of CEOs. “What if this doesn’t work?” “What do you mean EVERYTHING has to change?” “Move every machine in the shop, are you nuts?” “Sell one make one, we can’t possibly do that.” So as a result most CEOs choose a cautious go slow approach. Lets try it out and see if it works. They also focus primarily on operations and think of lean mostly as a cost reduction effort. This doesn’t mean they can’t make gains or that they eventually couldn’t become a reasonable lean enterprise. Its just that it will take a long time and because of this most companies will fail along the way and revert to their batch and que ways.
So lets not waste time on the “go slow” boys. Lets assume we have a CEO or owner who is very keen on converting to lean and wants to do it as fast as possible because she/he is convinced that this will allow the company to deliver the most value to its customers. With that as a given the first thing to understand is that what we are trying to do is to go from batch and push scheduling to flow and pull scheduling. That may sound simple until you consider all the obstacles in the way of doing it. So the best way to think about the timing of a lean conversion is look at it obstacle by obstacle and give a time frame for each one.
I think the biggest factor of how long it takes to convert to lean really depends on the will and push of the owner or CEO.
INVENTORY IS THE ROOT OF ALL EVIL
Moving to lean puts a premium on removing the waste from all of your existing operations in order to deliver more value to your customers. As inventory is the number one waste as defined by Taiichi Ohno, the father of the Toyota Production System we should start there. I always tell people that if you had to run your company using only two measurements they should be 1] on time customer service and 2] inventory turns. If both of these measurements are going up at the same time you are on the right track. Improving inventory turns frees up cash and floor space, shortens lead time, improves safety, increases productivity and improves quality. I believe that a manufacturing company that starts with 3x inventory turns should set an initial goal of 20x. I know this sounds nuts to most of you but I have done it many times so I know a] it is possible and b] how great the side benefits are from doing this. What is relevant here however is the question of time. How long will this take? Well that depends on how aggressive you are but of course you can’t do this by next Thursday. In fact if you go too fast you will blow the company up. My experience would suggest a progression like this; Year one from 3x to 6x. Year two from 6x to 8x. Year three from 8x to 10x. Year four from 10x to 12x. After that a gain of one to 1.5 turns per year would be a good doable pace. That will get you close to 20x in about 10 years.
SET UP REDUCTION
One of the main reasons traditional companies produce in big batches is due to the long set up times of all their equipment. For example if it takes three hours to change over a machine changing it three times per week means you loose a whole day of production if you are only working one shift. As long as set up times remain long you can not get to a flow operation so this is one of the first things you will have to attack. The good news is that there is plenty of opportunity here without much if any capital spending. I have given plenty of set up reduction examples in my prior posts [a rolling mill from 14 hours to 6 minutes] the real issue is one of commitment and of course time. Your machines are busy every day producing product so how do you free up the time to reduce their set up times. If you can cut the set up time of two machines a month by over 70% how long will it take you to reduce all your set up times the first time around? Once you calculate that then figure you have to go back several more times as you only reduced the set up by 70% the first time and you need to get all set up times under 10 minutes. It will depend on how many machines you have but you can do the math.
ONE PIECE FLOW
To become lean you need to stop producing in batches and produce in a one piece flow. Up front this means changing from a functional organizational structure to a value stream structure. Coming up with the new organization and its related staffing won’t take that much time, say a couple of months, but once you have it you now need to move all your machines such that each value stream manager has all the equipment needed to build their product complete from raw material to in the box. You may leave a few “monument” machines in place but everything else will have to move, and probably more than once as you discover more waste. Depending on the size and complexity of your operations you can expect to see lots of moves over the first five years and probably longer.
Once you have reduced all your set up times and rearranged everything into a one piece flow now you need to create a kanban system in order to have the pull signals in place to initiate production. You can do some of this as you go along and create each new production cell, at least for internal parts and even with a few external suppliers. So some work can be done in parallel. But setting up an overall kanban system that responds to the hour by hour orders from customers and extends all the way to raw material suppliers is a bit tricky. You can assume that this will take a couple of years of concentrated effort AFTER flow has been established.
While all of the above is taking place you need to be addressing a number of other critical changes. You have to get off of standard cost accounting and switch to lean accounting. Your sales terms might have to change to help level out incoming demand and sales and marketing have to stop pushing big batch sales or doing big end of month promotions to “make-the-month.” Product development needs to change to a QFD [quality function deployment] approach. IT systems must change as you can no longer schedule production using MRP. The good news here is that these steps can be taken in parallel to the more physical changes above. They will add some time depending on how you go about it but it shouldn’t delay you by more than a year or two.
The time to convert to lean will obviously vary by company even if every company takes an aggressive approach. As a rule of thumb based on my experience you should plan on at least 10-12 years to reach a reasonable level of competency. You won’t be a great lean company by then and you certainly will not be Toyota but you should have achieved a level where 1] you will never go back and 2] the opportunities going forward will be even clearer than when you started out. Getting to or close to 20x inventory turns will be a key indicator that you are making progress. Oh and by the way, you should have more than doubled in size, increased margins by 10x to 12x, gained a lot of market share, drastically improved quality and maybe increased your enterprise value by the nearly 2,500% that we did at Wiremold in just under 10 years. More importantly you will understand that the next 10 years should be even better.
Art Byrne is the retired CEO of The Wiremold Company where his lean strategy increased enterprise value 2,467%. He is also the best selling author of The Lean Turnaround and The Lean Turnaround Action Guide.