Lean Railroading

One of the more intriguing applications of lean I encountered recently – one I had not come across before – is “lean railroading.”

            I heard that term from Jeremiah Dirnberger, who is a graduate research assistant in the Railroad Engineering Program at the University of Illinois at Urbana-Champaign. At the recent conference of the Institute of Industrial Engineers, he described a research project he’d been involved in aimed at making railroads more efficient.

            The study focused on classification terminals, which are large rail yards where the cars from a long incoming freight train are uncoupled and reconnected into other trains that will take them to their ultimate destinations – a kind of distribution center for rail freight.

            For the railroads to run on time, the terminals must operate efficiently. A terminal may handle dozens of trains and hundreds of cars at any given time, so achieving efficiency is, to put it mildly, a challenge. A 2004 study found that cars typically sit idle for 71 percent of the time they spend at a terminal.

            To make matters worse, existing terminal capacity is insufficient to handle today’s volumes of rail freight traffic, and building new terminals is prohibitively expensive.

            A major benefit of lean is increased capacity. And when one looks at a classification terminal as “a factory that makes connections in the form of trains,” as Dirnberger did, it’s easy to see how lean principles can apply.

            However, the approach taken by the Railroad Engineering Program involved not just lean concepts, to reduce waste, but also theory of constraints to address bottlenecks and statistical process control to help reduce variability.

            One key area the study identified was the sorting process. In a nutshell, the cars from an incoming train are uncoupled and sorted on to a variety of tracks, based on ultimate destination. This continues with additional incoming trains until all the cars heading for a particular destination end up together, sorted on to one track. They are then assembled into an outgoing train.

            The problem is that sorting never works perfectly. Sometimes a car gets sorted on to the wrong track, in the middle of a bunch of other cars whose destination it does not share. That problem must be solved – the errant car must be pulled out – before the outgoing train can be made ready to leave. And that takes time.

            I won’t go into all the details here, but the research proposed greater effort during the initial sorting – with some helpful techniques suggested – to prevent sorting errors at the outset, eliminating the need to solve them later. (Solving a problem when and where it occurs – where have we heard this before?)

            Applying lean concepts to supply chains is not new. Lean Supply Chain Management and Kanban for the Supply Chain are examples of books we publish in this area.

            But most such approaches focus on the extended value stream for a particular product, from raw materials to production through distribution.

            The research Dirnberger presented is different, taking a distribution link, treating it as a production operation and analyzing the process by which trains are created. This is a clever and meaningful approach, and one that could have a real impact on those trains coming down the track. It’s the kind of outside-the-box thinking that we all should encourage and pursue.



Lean Strategies in a Low-Volume World

Do you wonder why automakers no longer have models that sell hundreds of thousands of units? It’s because the world has changed, and you need to be lean to survive.

            That message comes from Chris Theodore, vice chairman of American Specialty Cars (ASC).

Actually, Theodore’s main point is the need for innovation in product development. But he bases that point on what he sees as the ongoing transformation of the auto industry into a collection of niche products – making low-cost, low-volume production essential.

To say that lean helps you achieve this goal is an interesting position because many people see lean as having the greatest benefit for high-volume operations.

            ASC does not make cars; it produces components or modules for cars to help them become distinctive. For example, one of the company’s products is InfiniVu, a moon-roof system.

Speaking at the recent Management Briefing Seminars (sponsored by the Center for Automotive Research), Theodore put into sharp focus the low-volume world that now confronts auto companies in North America.

            On this continent, average sales per nameplate used to be high: 108,619 back in 1985. But 20 years later, the average sales per nameplate in 2005 were a mere 48,626. And Theodore believes we are fast approaching the point where that figure will drop to 40,000.

            The plummeting number reflects the fact that more auto companies are producing many more nameplates than was true 20 years ago, splintering the market.

            (I suspect that, in China, the sales per nameplate may eventually grow to a figure higher than that of the United States. But the competition will still be just as fierce.)

            So what’s an auto company to do (other than close plants and lay off workers)? Simple, says Theodore: Produce niche vehicles at the same cost per unit as high-volume vehicles. That means lower investment per model and lower product development costs.

            Well, sure. And how can that be done? Lower investment per model, Theodore says, requires:

  • Greater flexibility, meaning lean manufacturing.
  • New materials and processes.
  • Lower investment, meaning low-cost equipment and tooling.


            Achieving lower product development costs requires:

  • More flexible architectures.
  • Faster product development.
  • Fewer new components, meaning increased sharing and reuse of components.


            Theodore didn’t spend a great deal of time talking about lean, although he made it clear he is a believer in a lean strategy. In fact, ASC has trademarked the phrase Lean Product Creation.

            He stressed the need for constant innovation arriving with ever-increasing speed. And he pointed out that speed comes not just from developing products faster, but from developing more products with the same resources, launching new models without losses, being closer to the market, and achieving excellent execution.

            Further, he stressed the importance of speed of decision-making, developing a plan and sticking to it, and avoiding what he called the greatest waste of all: cancelled or deferred products.

            The flow of bad news from GM and Ford makes one wonder whether the two giants can adapt to a low-volume world. They would do well to listen to people like Theodore.


Best Plants, Lean Benchmarks and Role Models

Industry Week magazine has announced the 10 winners of this year’s Best Plants awards. It’s a diverse group of manufacturing sites in the U.S. and Mexico, ranging in size from 68 to 1,751 employees, and making a wide range of products. Their accomplishments include significant improvements in cycle time, order-to-shipment time and on-time delivery.

            Not surprisingly, a lean strategy is a core element of operations at virtually all of the facilities. That’s a fact I hope can influence those companies that may be considering a lean approach but are skeptical about what it can do for them.

            The Best Plants awards, which Industry Week has been giving out for many years, serve as a valuable recognition of what’s right about manufacturing, as well as a testament to the value of lean principles.

            But the awards do have their limitations. They recognize individual factories, not entire companies (something that is also largely true of the Shingo Prize). They don’t single out individuals who may have played key roles in transforming their facilities.

            I’m not suggesting that the awards, or the processes leading up to them, be changed in any way. They were designed to be exactly what they are, and that’s fine.

            I only wish that someone would come up with other types of lean-related awards as well – perhaps prizes that recognize the strategy and efforts of entire companies, and another set of prizes to honor executives who are accomplished champions of being lean. Maybe prizes recognizing effective lean supply chain strategies would make sense.

            It wouldn’t be easy to establish the criteria and the metrics for any of these proposed awards, but I believe doing so could serve a valuable purpose.

            As lean spreads beyond the shop floor, more and more companies are coming to recognize the value and importance of an overall lean strategy. They are seeing that the greatest benefits from lean come when all departments are aligned in that strategy, with metrics that support it. The smartest companies extend that strategy into the supply chain, working with suppliers and/or customers to become lean as well. And they recognize how essential it is to have leaders and champions who are skilled, knowledgeable and dedicated to the never-ending quest for continuous improvement.

            The types of awards I’m describing could help people identify examples and case studies of how to be lean in all aspects of operations, and in individual positions. There’s an endless hunger for case studies and examples – benchmarks and role models, if you will – and awards can help feed that hunger.

            Anyone interested?



Is a Lean Strategy Wrong for Your Company?

One of the strangest questions I’ve heard in a long time came from a conference speaker who asked, “Are we doing lean with the wrong companies?”

            That query came from Dr. Daniel Luria, research director of the Michigan Manufacturing Technology Center, an affiliate of the nationwide Manufacturing Extension Program.

            The question is strange because I’ve always believed that a lean strategy can be implemented, and can help, just about any company. So how can there be such a thing as a company that is “wrong” for lean?

            Let me say at the outset that Luria’s presentation, delivered at the recent Management Briefing Seminars in Michigan, was actually an interesting, well-thought out discussion of some surprising findings stemming from research done by the MMTC. And he seemed like an intelligent man raising good questions about what lean efforts can achieve.

            However, as I’ll explain in a moment, I think there are flaws in the way he and the MMTC are viewing lean.

            Luria presented a variety of figures demonstrating significant cost savings MMTC had achieved for its client companies by working with them on lean implementations. No surprise there.

            He then raised a good question: After pursuing these lean implementations, had the companies become more profitable?

            “Our research doesn’t find, typically, that companies implementing lean make a lot more money than those that haven’t,” he answered. “It’s hard to document the financial payoffs to companies. Are they making more money? We often find that they’re not.”

            The next obvious question is, why not? One answer: MMTC works with a lot of suppliers, many making commodity products subject to brutal pricing pressures. So when these companies reduce their costs by implementing lean, “the customers got the vast majority of the benefits,” Luria said.

            He added, “Pricing is extremely important, and lean does not speak to ‘are you getting a good enough price for your product to make money on it?’”

            Luria then got to the heart of the matter: “Being busy matters a lot. Lean creates found capacity. If you don’t find a way to fill up that capacity, all you’re really doing is getting some labor savings. You’ve got to find new work. You’ve got to find a way to do lean, but be busy. Run close to capacity at all times. And find a way to innovate so you’re not as dependent on these commodity products.”

            So far, I’m in complete agreement with Luria. But then, in a variation of the “wrong companies” question, he asked, “Who should do this? It’s the ones in strong product and pricing position who can keep most of the benefits.” He commented that these are the companies that may have the least need for lean.

            There are several problems with this kind of thinking. The first is the implication that lean doesn’t do much good for commodity suppliers. But if you’re getting beat up on price, don’t you want to reduce costs as much as possible simply to stay alive?

            Second, and more important, is the narrow view that lean is only a cost-cutting tool. Lean is far more than that. It’s a business strategy focused on adding value for your customers. And if you apply lean to all aspects of your enterprise – i.e., product development, customer service, sales and marketing – it can help you grow your business and fill that new-found capacity.

            Further, applying a lean approach to the supply chain involves getting beyond one company beating another up on price, and developing partnerships so that both parties benefit from lean improvements. (That’s something that American companies have never done particularly well, but that’s another discussion.)

            I think it’s good that Luria and the MMTC chose to look at whether the companies they helped are making more money, rather than just assuming that they do. But I think perhaps they need to take a broader view of lean and expand the services they offer their clients. They should work with them not just to cut costs, but to streamline and improve product development and other non-shop floor operations so that their clients achieve more than just reducing expenses.



The Myth of the Unskilled Worker

I suspect many people outside manufacturing still believe that a factory job involves unskilled labor and doesn’t require much education.

            That may have been true many years ago. But a recent presentation by Bruce Coventry, president of the Global Engine Manufacturing Alliance (GEMA) for Chrysler Group, brought into sharp focus how much the situation has changed.

            GEMA is an alliance of Daimler Chrysler, Hyundai and Mitsubishi. Together, they manufacture engines to be used by all three companies.

            Coventry spoke at the recent Management Briefing Seminars sponsored by the Center for Automotive Research. In the course of his talk on “Manufacturing a World Class Work Force,” he noted that the minimum requirement for a job at a GEMA plant is a two-year technical/college degree, journeyperson status or five years machining/CNC experience.

            The result is not surprising. Coventry offered a breakdown of the background of the hourly employees actually working for GEMA. Thirty-two percent have associate degrees, 11 percent have bachelor’s degrees, 24 percent have vocational training, 20 percent have achieved journeyman status and one percent actually have master’s degrees. Only 12 percent are high school graduates with no further education.

            And that’s the hourly workers. All of the salaried employees have bachelor’s degrees, and 29 percent of them have master’s degrees.

            “GEMA is not your father’s factory,” Coventry said. “The days of competing in manufacturing with a high school diploma are getting fewer.”

            He noted that GEMA located a facility in Dundee, Michigan, rather than a low-cost southern state or foreign country, at least partly because more than 16,000 technical and associate degrees were awarded in Michigan in 2004 – two to four times as many degrees as were awarded that same year in Indiana, Mississippi or Alabama.

            But he also voiced concern that Michigan is losing many of its skilled residents as the state’s population has declined. He turned that into a plea for businesses to work with local schools and communities, offering opportunities and incentives for people to stay in Michigan.

            For its own part, Coventry said GEMA is:

  • Serving on curriculum boards at local community colleges to work on changes to the manufacturing curriculum.
  • Providing plant tours to schools and government officials to raise awareness.
  • Offering co-op and internship positions with local schools
  • Conducting educational outreach programs at elementary schools.

            I find that last point particularly fascinating, that a business is reaching down to the elementary school level to begin attracting workers.

            Despite the loss of millions of manufacturing jobs in the U.S. in recent years, we repeatedly hear how difficult it is for manufacturers today to find good, skilled people. Let’s hope that more government and education officials will come to understand this reality.

            And maybe GEMA and other companies that are hiring will find what they need among the ranks of Ford's employees. I hear a lot of them are going to be available soon.



Lean Manufacturing – in Vietnam

A small number of venture capital funds with a lean focus have been around for a while. Now there’s another one – in Vietnam, of all places.

            Mekong Capital (based in Ho Chi Minh City) recently announced that it is forming its second private equity fund, the $50 million Mekong Enterprise Fund II, to invest in Vietnamese companies.

            Like most venture capital firms, its goal is to find private companies, buy part of them and make money by taking them public. Mekong says its investments will average around $3 million each and will usually represent 20 to 30 percent of equity (though larger positions are possible).

            The companies sought will generally be two to four years away from going public on Vietnam’s exchanges. In the time between investment and IPO, Mekong Capital “will work closely with investee companies to help them make improvements and prepare for a successful listing on a stock exchange,” according to a news release.”

            What kind of improvements? That’s the interesting part. The fund says it will focus on companies involved in manufacturing, branding and distribution. According to the news release, this focus “leverages Mekong Capital’s strengths relating to manufacturing – such as lean manufacturing, six sigma, activity based costing, as well as Mekong Capital’s experience working with manufacturing companies to improve operational procedures and strengthen management teams.”

            Equally interesting is that this fund, unlike Mekong’s first fund, will “focus more on companies selling into the domestic market as opposed to export markets.”

            This kind of Far East focus on capitalism can seem a bit strange to those of us who grew up through the Vietnam War, when VC meant Viet Cong rather than Venture Capital.

            But my culture shock aside, it’s important for lean devotees to keep in mind that lean is just as global as today’s markets. As more and more companies worldwide adopt lean philosophies, a lean strategy becomes less of a competitive advantage and more of a basic requirement to stay competitive.

            So as you keep an eye out for new competition, be aware that it may be coming not just from across the street, but from across the ocean.

            Incidentally, the first Mekong equity fund was established in 2002 and has made 10 investments in private Vietnamese companies. The businesses of those companies include PP woven bags, furniture (design, retail and export), software development and hardware distribution, magnet wire, wooden toys, package printing, wooden household products, athletic wear, LPG distribution, and kitchenware.



Lean Healthcare – Your Next Profession?

If you’re an industrial engineer with lean skills who is retired, unemployed or just looking for something different, maybe you should consider entering the field of healthcare.

            Junell Scheeres would like you to. She’s a consultant with VHA, Inc., a company that works with a large alliance of not-for-profit healthcare organizations across the country. Recently, I heard her speak at the conference of the Institute of Industrial Engineers, where she made a plea for more engineers to move into healthcare.

            Scheeres quotes the Institute of Medicine from last year that healthcare has been directed to “…harness the power of systems-engineering tools, information technologies and complementary knowledge-systems tools from the fields of social  sciences, cognitive sciences and business applications.”

            Those of us in the lean community have been aware from some time of the powerful movement for greater quality and efficiency in healthcare. Interest in lean concepts is growing as part of that movement.

            (As an aside, Productivity Press has hired a new acquisitions editor, Kris Mednansky, whose mission is to develop books for the healthcare market. You will be seeing some of these within the next year.)

            Scheeres outlined several case studies in her presentation in which industrial engineering approaches were used to address problems. Lean methodologies were part of what she described.

            For instance, she told of how an internal audit at a 403-bed hospital found over 60 percent lost charges in supplies, which led to lost revenue, excess inventory and staff frustration. Implementation of 5S and visual controls led to significant improvements.

            (I was amused that in this example, the most common description of 5S as “sort, set in order, shine, standardize and sustain” was transformed into “sort, straighten, sanitize, standardize and sustain.” In healthcare, you don’t just shine, you sanitize.)

            Scheeres urges engineers to get involved with healthcare organizations. One way, she notes, is through IIE's Society for Health Systems

“Healthcare is actively seeking viable solutions to the dynamic pressures of the industry,” Scheeres contends. “Industrial engineers bring a comprehensive toolkit ideal to the healthcare setting.”

            I would argue that there are plenty of other people besides engineers who can bring value to healthcare. Non-engineers in operations or logistics, for example, who have experience and who understand process improvement can also make a significant contribution.

            I suspect the number of healthcare organizations that understand that is still relatively small. But it is growing. And the more it grows, the more opportunities that will be available to good people from other industries.

            P.S. – If you’re looking for a good speaker, Scheeres is folksy, personable, energetic, and extremely bright. If the topic fits, consider her.



Lean and Six Sigma: Nobody’s Perfect

The most annoying part of the debate about lean versus six sigma is that those arguing often put it in terms of good versus bad, or right versus wrong. They won’t admit that their side (whichever it is) may not be perfect, and may have flaws or shortcomings.

            I make this comment after seeing a presentation prepared for the recent Institute of Industrial Engineers conference, “Which Methodology is Best for Your Project?”

Put together by Rob Bryant and Sharon Valencia of Computer Sciences Corporation, the presentation reflects what I believe is a continuing trend in process improvement: expanding support for the idea that there is no “best” approach, but only what is most appropriate for the problem you are trying to solve at a particular time. As Bryant and Valencia point out, this depends on the needs and current state of your organization.

It was refreshing to see statements in this presentation that bluntly suggested there are limits to each approach.

Specifically, Bryant and Valencia stated:

·        Lean cannot bring a process under statistical control.

·        Six Sigma does not dramatically improve process speed or reduce invested resources.

Their comments were, in fact, an argument for combining lean and six sigma. That’s another trend, or at least an expanding idea, that combination of the two approaches is what every company should strive for.

Not everyone agrees. Productivity Press recently released Using Lean for Faster Six Sigma Results by Mark Nash and Sheila Poling. In the book, the authors argue that the two improvement approaches can complement each other, but stop short of suggesting they should be combined into one approach. Synchronization, rather than combination, is the way to go, they contend.

Whatever you believe, I have never found anyone who argues with certain core principles: that any improvement strategy must have top management buy-in and support from the outset, and that mapping your existing processes is almost always a good idea.

Does your company use a variety of approaches? Has that worked well for you? Add your comments; I’d like to read them.


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Lean Logistics

            The U.S. Department of Transportation has made reducing traffic congestion a new priority – and there’s a chance their efforts may involve applying lean principles to do so.

            I say “a chance” because the announcement of the new initiative earlier this year did not include the word “lean.” And most of the aspects of the plan have nothing to do with lean. But a few offer some slight hope that intelligent use of lean principles could be involved.

            The Department issued a 16-page plan called the “National Strategy to Reduce Congestion on America’s Transportation Network.”

            The document notes that congestion is not just an inconvenience, but that America loses $200 billion a year due to freight bottlenecks and delayed deliveries. Add to that the impact on individuals from lost time and the cost of wasted fuel.

            The heart of the strategy is a six-point plan – or more precisely, six areas of emphasis. They are:

            Relieve urban congestion. In this area, concepts include congestion pricing (you pay tolls to get in the fast lane) and expediting completion of significant highway capacity projects. Market pricing is not a bad idea, though not a lean one. Adding capacity may help but it doesn’t address the factors that contribute to congestion. This area also includes creating or expanding express bus services, which could be helpful.

            From a lean standpoint, the most interesting suggestion in this area is securing agreements from major area employers to establish or expand telecommuting and flex scheduling programs. Flex scheduling, at least, could be considered lean, as it helps to level demand.

            Unleash private sector investment resources. The ideas in this area are aimed at encouraging – and pushing states to allow – private companies to build, own and operate transportation infrastructure. Would market-driven organizations operate more efficiently than the government? Maybe, if the companies are well-run – and understand how lean principles can improve transportation flow.

            Promote operational and technological improvements. The suggestions here talk about use of technology and “best practices,” although the best-practice examples cited have nothing to do with lean. (They include roving response teams, enacting quick clearance and “move it” laws, and so-called “adaptive intersections,” whatever that means.) However, the technological emphasis does talk about providing better real-time traffic information to all system users. We can certainly support the idea of better monitoring.

            Establish a “Corridors of the Future” competition. This has to do with selecting 3-5 major growth corridors in need of long-term investment, then fast-tracking project development. OK, but what will the projects be?

            Target major freight bottlenecks and expand freight policy outreach. These are mostly planning suggestions. Let’s hope the planning process includes obtaining input from lean experts.

            Accelerate major aviation capacity projects and provide a future funding framework. That’s self-explanatory. One suggestion is for “a redesign of the region’s airspace,” which sound intriguing.

            I think it’s good that the government recognizes congestion as a real problem and intends to address it. My fear is that those who lead the initiative may not have any real understanding of lean principles or the fact that this is precisely the kind of problem where applying those principles could be of tremendous value.

            Let’s hope I’m wrong.

            And for more information about lean and transportation, read a book we publish, Lean Logistics by Michel Baudin. Maybe someone will send a copy to the secretary of transportation.



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