The Impact of Lean on Green Numbers

Economies of scale and lean are two separate concepts that I have always thought sometimes seem to be at odds with each other.

Lean focuses on one-piece flow and on making only the quantities that your customers need. By using lean approaches to improve your processes, you should be able to reduce their cost, making it not only feasible but profitable to produce small quantities.

On the other hand, the basic definition of economies of scale is that the marginal cost of production decreases as your volume increases. The more you produce, the less each unit costs.

In any operation, there probably is some minimum volume you need to produce to be profitable. And your marginal cost may go down as you produce more – provided you can sell what you manufacture.

I am pondering these issues because of a comment I heard at a recent high-level Energy Conference hosted by Forbes magazine. The comment occurred during a panel discussing electricity, and it came from Charles Gay, Ph.D., vice president and general manager of the solar business group of Applied Materials.

Gay’s group manufactures solar panels and related products. He said that the cost of electricity produced by solar devices would be competitive today – without any improvement in existing solar technology – as soon as the volume of production increases. “We’re taking manufacturing economies of scale and applying them in the solar sector,” he said.

You may be tempted to ask, so what? Sure, the price would be competitive if they sold more. And if pigs had wings, they’d be pigeons.

Still, I thought his statement provided an interesting insight into the challenges of going green. The day I spent at the conference brought home the fact that, from a business standpoint, going green is all about crunching numbers. What is the cost per kilowatt of electricity from solar vs. wind vs. nuclear power? How do you calculate the ROI on a green initiative? What is the payback period? What will happen to the cost of oil in the future?

You could say that all of business is about crunching numbers. The difference here is that green issues involve crunching numbers in ways that most people haven’t experienced before, and that also involve a lot of uncertainty as to what many of those numbers are or will be.

And for me, this reinforces even more strongly the relationship between lean and green, which I’ve written about before. A lean approach can remove waste from green approaches (which are themselves about removing waste), and can therefore move up the day (or lower the minimum production point) where those initiatives become profitable.

That is good for both business and the environment.


Not All Customers Define Value the Same Way

You run a U.S. company, and you have worked to make your processes lean. You are doing a good job of creating value for your customers.

Now you set up additional operations in another country with the exact same lean processes. Will they work just as well?

Not necessarily.

Why not? Because value is defined by the customer, and when you start serving a new market or a new set of customers, the definition of value may be different.

That’s a valuable lesson, and one that clearly comes across in a recent article in Forbes. The article – co-authored by three people, the most well-known of whom is writer and Harvard Business School Professor Clayton M. Christensen – is titled “Innovation vs. Poverty.” Its main point is that smart companies can create wealth in emerging markets – if they focus on understanding the needs of customers in those markets and create new solutions for those needs rather than try to apply solutions from elsewhere.

One example the authors describe (of a company making mistakes) is Citibank, which has two branches in Zambia emphasizing corporate banking services.

It has reasoned that corporate customers do not need dozens of branches, and therefore it can save on branch operating expenses. The bank also realizes that several multinational customers value one particular job that Citibank helps to get done: simplify financial systems by keeping funds in one global bank, no matter what countries the customer operates in.

Yet there are many functions offered by Citibank, which, while valued by corporate customers elsewhere, have less relevance to Zambians' job requirements. Zambian companies often do not value long-term investment and lending services, and if they do seek loans, they often go abroad to avoid local interest rates that can exceed 20%.

Many Zambian businesses transact in cash, so they benefit little from Citibank's sophisticated reporting systems. Cash transactions could be handled through local Citibank branches, but Citi's emphasis on the corporate market--and its conclusion from developed countries that branches are of limited value--severely limits this offering.

In contrast, Zambia's Finance Bank has grown rapidly in recent years with an entirely different business model. The firm has 33 branches in Zambia, drawing long lines of customers depositing or withdrawing as little as $5 at a time. The bank recognizes that its customers often rely on unreliable public transportation and that it can win their business by being close to them. It allows wholesalers of consumer goods such as beer or soda to pay their suppliers through its branches, rather than having to transact large sums in cash with a delivery-truck driver in a busy public market. This service gains the bank a foothold at some of Zambia's largest corporate customers.

I’m an advocate primarily of lean, but from a communications perspective, I give a lot of credit to the developers of Six Sigma for coming up with the phrase Voice of the Customer. You have to hear it clearly, no matter what improvement methodology you pursue.

Has your company ever succeeded (or failed) to properly serve a new set of customers? Share your experience below.


Hospitals Should Pursue Simple Solutions to Prevent Medical Errors

I have no problem with technology, but too often organizations look for a high-tech solution to a problem that can be addressed with something much simpler.

Therefore, it was refreshing to read about a recent study that suggests an easy way to reduce medical errors: color-coding medication bottles and syringes.

The study, described by The Washington Post, was conducted by anesthesiologists at Penn State Hershey, and was to be presented at a meeting this month of the American Society of Anesthesiologists.

Volunteer anesthesiologists, residents and nurses drew medications with different colored labels at an ever-increasing speed to mimic an emergency situation. When the color of the label on the syringe matched the color of the label on the medication bottle, fewer near-mistakes occurred compared to when the colors didn't match, though the number of actual mistakes was too low to make a comparison. When peel-off labels were taken off the bottle and placed on the syringe to be used, errors were reduced and fewer commands were skipped.

What I particularly like about this is not only that mistakes are reduced, but that those involved see the value in going for the simplest solution.

"Many 'high-tech' solutions have been suggested, including use of bar codes, radiofrequency identification for medications, and computerized medication administration processes," researcher Dr. Elizabeth H. Sinz, of the department of anesthesiology at Penn State Hershey, said in a news release issued by the society. "But besides their high costs, all of these methods have flaws that may produce as many errors as they eliminate. Furthermore, these solutions are often impractical for fast-paced situations in operating rooms or during emergencies."

Visual controls are a basic and extremely effective lean tool. I hope that more people will see their value and not be blinded by the glitter of technology.


Data Centers Waste Lots of Electricity

As a lean devotee, I can’t help but think of what lean can do whenever I hear about waste. And I heard some striking facts about waste recently while attending an energy conference held in New York City by Forbes magazine.

One of the panels at this high-level conference focused on information technology, and most of the discussion focused on how the number of huge data centers is growing rapidly. And those data centers use vast amounts of electricity – inefficiently.

Peter Gross, CEO of EYP Mission Critical Facilities (a division of HP), noted that energy consumption by data centers in the U.S. is doubling every five years. He mentioned a report by Gartner Group that said by 2010, the typical corporation will spend more on energy for its data centers than it spends on servers.

But a lot of that energy is wasted. Gross noted that because of leakage from transmission lines and some other factors, only about one-quarter of the energy coming into a data center actually goes to the servers. Astonishingly, 60 percent of the data centers around the world use more than 150 percent of the power needed by the servers, Gross said.

To make matters worse, the servers are underutilized. Rich Lechner, VP of Energy Efficient Technologies and Services for IBM, said with many servers, only about six percent of capacity is utilized. Gross said this was partly because of redundancies that became part of server design in the 80s and 90s, as a means of improving reliability.

Where does lean come in? I believe that most of the solutions to this problem will come from technology, which is not by itself lean. However, I am also certain that lean tools can help identify the solutions. It might be possible to use some load leveling approaches to improve utilization of servers. And perhaps some mapping could identify where the greatest amounts of electricity are being lost.

Have you ever tried to address these problems? Have lean tools been of any help? Please share your experiences below.


The Best Lean Books in a Recession

A lean strategy is valid for both good times and bad, and should not be viewed only as a way to cope with a downturn. But at the same time, I recognize the current recession may give a new sense of urgency to managers wanting to improve processes. You may be looking for materials to help you do that.

Which book is right for you depends, of course, on what you want to accomplish. So I conferred with my colleagues here at Productivity Press to assemble a list of timely books, at least some of which you may find useful.

Maura May, our publisher, offers several suggestions. One is Practical Lean Accounting: A Proven System for Measuring and Managing the Lean Enterprise by Brian Maskell and Bruce Baggaley. This book will help you focus on cash flow, on the financial implications of freeing up capacity, and so on.

A downturn can be a good time to get back to fundamentals, so Maura also suggests the classic Toyota Production System: Beyond Large-Scale Production by Taiichi Ohno. And since a recession may also be a good time to update training of your staff, she recommends The TWI Workbook: Essential Skills for Supervisors by Patrick Graupp and Robert Wrona, as well as our entire series of Shopfloor books.

When times are tight and you can’t invest in new equipment, maintaining the old equipment is a top priority. Therefore Maura also recommends either Uptime, 2nd Edition: Strategies for Excellence in Maintenance Management by John Dixon Campbell and James Reyes-Picknell or TPM in Process Industries by Tokutaro Suzuki.

Mike Sinocchi, our senior acquisitions editor, believes that a downturn is a good time to focus on building or strengthening a lean culture, to keep all employees feeling that they are contributing to the greater whole. A strong culture can keep employees focused and involved and looking down the road more so than just week by week. Therefore, Mike recommends four books that can help do that:

To their suggestions, I add some of my own. During a recession, companies often hunker down and focus just on surviving rather than coming up with new ways to serve customers. If that’s what your competitors are doing, now may be the perfect time to innovate and be creative. Therefore, I recommend a couple of books on product development: The Toyota Product Development System: Integrating People, Process, and Technology by James Morgan and Jeffrey Liker, and Value Stream Mapping for Lean Development: A How-To Guide for Streamlining Time to Market by Drew Locher.

These are just suggestions. I welcome your comments as to other books that you have found valuable or believe may be especially relevant to current times.


How to Bail Out the Auto Industry

I don’t want to bail out the auto industry. I don’t like the concept of government bailing out private industry. And I particularly don’t like the idea of helping companies that are on the verge of failure not only because of economic conditions, but because for too many years they made bad decisions about how to operate and what to manufacture.

I believe most people agree, but then take the view that some companies are too big to fail. Automotive News recently suggested that “the view in many Detroit offices” is that “Like falling dominoes, the collapse of GM or Chrysler would force many suppliers out of business. In turn, those bankrupt suppliers would knock out Ford Motor Co.”

On the one hand, if that is true, the desire to prevent such a collapse is understandable. On the other hand, the only way GM or Chrysler will survive at this point, even with government money, is to close plants and lay off thousands of people. So how much worse would a collapse be? In fact, some people are arguing that bankruptcy would be a good option, as it would force a restructuring in the face of real market conditions without the crutch of government help.

Whether a bailout will be passed in Washington is uncertain. The most recent news reports indicate opposition is growing.

But the idea is not dead yet. So if we’re going to do it, let’s think about how to do it right.

I’ve read a variety of columns arguing that any bailout – excuse me, rescue package – should come with conditions. I’ve seen calls for everything from the government getting equity to kicking out current management and appointing a government trustee.

I inclined to agree with all of that, and I propose a new condition. Any company getting funds must make a deep commitment to lean production, possibly hiring a lean expert to oversee operations. It’s something the automakers should have done on their own years ago.

Don’t get me wrong: At this point, I don’t believe even a rapid lean transformation will ease much of the pain the U.S. automakers are suffering. But it couldn’t hurt.

Your thoughts?


How to Make Your Intranet Lean

Do you have a lean intranet?

You may not know, because you’ve probably never heard that phrase before. I hadn’t, until I read a posting on a
blog written by Patrick Walsh, an information architect with a background in manufacturing.

Walsh argues convincingly that intranets can be improved by applying lean principles. He came up with the idea, he says, after reading an article that said intranets have too much useless content.

In the article the author states ‘The vast majority of intranets would be far more productive and collaborative if they deleted at least 90 percent of the content they currently have’. Not long ago I was responsible for redesigning the intranet for a large local government department. Having giving it a lot of thought I ended up cutting out around 40% of the content, much of which I had been responsible for inserting in the first place. It was painful but I was quite staggered with the minimalist, clean lines of the redesigned intranet. No one seemed to miss the content that had been removed and I started to get compliments on how easy navigation had become.

Walsh discusses ways in which specific lean principles can be applied to intranets. One of my favorite parts of his posting is where he suggests that intranets may have their own seven types of waste.

Candidates for the seven wastes in intranets might be –

No vision of exactly what the intranet is for (if you don’t know where you’re going you can never get there and everyone’s time is potentially wasted)
Poor or no metadata scheme (again wastes everybodys time and the potential for improvement)
Search not optimised (wastes your users’ time)
Poor categorisation and navigation (wastes your users’ time)
Poor, irrelevant or incomplete content (wastes your users’ time)
Obsolete content still accessible (wastes your users’ time)
Typographical and grammatical errors (wastes your team’s time going back to fix errors)

That’s not a perfect parallel with the traditional seven categories of waste identified by lean principles, but so what? Walsh is thinking of how lean principles can be applied in new ways, which is the kind of thinking I like to see.

So how lean is your intranet? And how can you apply lean where it’s never been applied before.


Lean and the Economic Crisis

Current economic problems are shifting the lean landscape, increasing interest among certain industries, adding a new sense of urgency to reducing costs and sparking a heightened focus on innovation.

That is the impression I get after speaking with Michael Kuta, managing partner of consulting and training firm Productivity Inc. Mike, whose company deals with a wide range of clients, shared his thoughts with me in a recent conversation.

(Note: Productivity Inc. and Productivity Press used to be one company. Productivity Inc. was spun off separately a few years ago, and Productivity Press – my employer – is now part of Taylor and Francis.)

In the current economic climate, “There’s a much greater desire to talk about cost down, cost out,” Mike says. “In that discussion, where it will lead is to put a greater emphasis on getting the cost out of the operation, but trying to do so in the context of not sacrificing longer-term visions.”

In the past, “we might have spent 60 percent of the time talking about vision, and 40 percent talking about cost out. That has flipped. Companies are really tightening up the old cost belt. ‘Hold on to the cash’ has become a beat through system. There is a greater sense of urgency to use lean techniques to get waste out of the organization.”

That has led to some shifts in how Productivity Inc. might provide consulting services, Mike notes. “We put a much greater emphasis on the three-month or six-month project orientation with the company. The concern is, what can we do now to involve employees to get cost out? We would expedite the whole value stream mapping process, try to focus on improvement opportunities, do what we can do in the short term to show improvement is possible. In the past, we might have spent more time on strategic deployment. Now we’re getting out to the gemba much faster. That’s not all bad.”

In U.S. manufacturing, “80 percent of our business is in process manufacturing. There was much more of a balance in the past. There is a direct relationship there between the industries that have moved offshore and those that have stayed behind. It is difficult to move a process industry offshore. A lot of discrete manufacturers have really left the universe.”

On the opposite side of the coin, Mike notes that consulting work Productivity Inc. is doing in Asia is primarily with discrete manufacturers. And in Europe, the firm works primarily with service industries, especially financial services and healthcare.

Mike sees strong interest in lean from the financial and healthcare sectors, not just in Europe. What do they want? “In the financial sector, it’s no different from healthcare, no different from the manufacturing sector. They’re trying to find ways to collapse the amount of time it takes to provide quality services. How can we do that in an expedited way with less resources. In one particular case, we have a client into automobile leasing, looking at how to collapse the time it takes to open and close a lease – if someone leases a car, how to put them in the seat quickly. It’s all time and money to them. “

One of the most interesting insights came from Productivity Inc.’s recent annual conference. “The greatest interest at the conference was the series we put together on innovation,” Mike says. We did a four-day program on innovation. Each day built off the previous day. It was all centered around creativity and knowledge. It was very well received. I believe it’s the early innovators of maybe the next generation of lean, of process improvement – how to take something that has proven to be workable and take it to a whole other level.”

He adds, “It was attended by people at a level who can really do something about it. There was a VP for strategy and innovation. There were people from healthcare and finance institutions at a strategy level. They’re really into the whole innovation movement – How to gain a better understanding of the technologies available to us today, how to marry those technologies more closely with the cultural side of the company. There is still a deep feeling out there that we have yet to really learn how to use the interventions available to us and create new interventions that will harness the creativity of the critical mass.”

Overall attendance at the conference was down, which is not surprising in a recession. “The training budget is one of the first to shut down. That hasn’t changed,” Mike comments.

But he urges companies not to undervalue the importance of training:

“If I was in a leadership role today, I would have to look around and ask the people working for me to reach out and challenge their organizations on how to harness the energy of the critical mass – increasing their level of understanding of cause and effect, short-term building of a problem-solving culture. How to get people quickly aligned working on projects that have a direct link back to our strategic intent.

“I believe we have 60 percent of the people working on the wrong darn things. I often see poor project management and find projects that are not directly aligned to strategy. I would reach out into the employee community and increase the level of understanding of cause and effect, and provide employees with simple, easy-to-use tools that will enable them to drive to root cause. I would take that energy and learning and get it focused with good project management. People still wanted to be involved. Leverage them and get them working on the right things.”


A New Way to Look at the Value Stream

(This is the third of several guest postings by Carlos Venegas, author of Flow in the Office: Implementing and Sustaining Lean Improvements. He is a principal in Straus Forest and can be reached at Carlos@StrausForest.com.)

In the previous two blog posts, I raised the question "why are people processes not reflected in some way on the Value Stream Map?" Then I presented a case in which my colleague, Ann Dorgan, and I introduced a countermeasure to that question. Now I'll share how we got at the people waste, and once we found them, what we did with them.

But first, why are people wastes important? Jeffery Liker writes about what he calls the 8th waste: "unused employee creativity" which he defines as "losing time, ideas, skills, improvements, and learning opportunities by not engaging or listening to your employees." (This quote came from The Toyota Way, page 29.) The people wastes I'm talking about get in the way of employee creativity, engagement, and all those other things that Liker refers to. Here's a partial list of people wastes:

Lack of:
· Employee influence over the processes they use
· Job-related training
· Follow-through or feedback
· Vision, mission, goals, and strategy
· Responsibilities and authority
· Rewards and consequences
· Competition (within the organization)
· Uninformed or misinformed employees
· Mishandled conflict
· Ineffective communication
· Ineffective meetings
· Turnover
· Schedule slips

So, how did find these people wastes in the value stream? We asked the team to identify places in the process where people wastes showed up. These became opportunities for improvement, just like process improvement opportunities. The team then illustrated the future state with the people wastes removed. Finally, the identified countermeasures to resolve the people waste, and put them into the implementation plan.

The tricky part in all this is to not let the conversation devolve into emotional complaining and bickering or, worse, become personal (which can happen even when discussing process breakdowns). First, we told the team we were not interested in names, only the types of people waste that they identify. Second, we reminded the team that people wastes point to process and perhaps training issues. And that's exactly how we use the human dimension--as pointers to process and training issues that require process and training solutions.

We actually videotaped the value-stream mapping workshop where we introduced the concept of people wastes. We'll probably put some of it up on YouTube next year. If you want to get an alert when that happens, go to
http://www.strausforest.com/ and get on the list.

In the mean time, Ann and I are interested in your feedback and thoughts.


How to Eliminate People Waste

(This is the second of several guest postings by Carlos Venegas, author of Flow in the Office: Implementing and Sustaining Lean Improvements. He is a principal in Straus Forest and can be reached at Carlos@StrausForest.com.)

Recently my colleague and I facilitated a Value-stream Mapping (VSM) workshop with a new client. This one was like most I've done before, with the same kinds of challenges: clarity over goals and scope; mid-workshop angst over progress; and end-of-workshop elation over the results--or at least the potential results as illustrated by the future-state map.

Here's the deal with VSM—it’s a powerful tool because it shows the whole system--the process from supplier to customer. It helps us see visually what's working and what's not and where to go.

But something is missing. Granted, the VSM is high-level, so you don’t expect to see everything. (If you want to see everything, go to the gemba!) Anyway, when we document and analyze a process, we're leaving out an important and obvious dimension—the human dimension. People.

Some of us have a sense that this human dimension is important in process analysis. But the trick is--what do you do with the human dimension once you've identified it, or even how do you identify it in the first place?

My colleague, Ann Dorgan, and I put developed a way to put that dimension—people—on the map.

Here's an overview of how we did it in the context of a real case study. The facts were these:

Our client is a retail organization with 17 stores, 1300 employees, and annual sales of over US$40 million. They had conducted kaizens in most of the 17 facilities successfully. By successfully, I mean that they met their targets (mostly), they sustained their changes (mostly), and the participants were enthusiastic and sincere.

Ann and I think they’ve been successful thus far in part because the executive team is a model of support. The CEO understands what process improvement is about, and he, along with his executive team, attend the kaizen workshop report-outs. Plus, the director of process improvement is talented and enthusiastic (as many Lean professionals are).

When we met the process improvement director, he was ready to take the next step: learn how to use the value-stream mapping process to coordinate their Lean implementation.

We contracted with the client to VSM their purchasing and accounts payable processes. Since this was their first Lean office event, they didn't have much process data. That made setting specific, measurable goals difficult. We ended up setting real simple goals: create a current- and future-state map, and an implementation plan. Lack of specific, measurable goals in this case was OK. It's not unusual for a client not to have data—or at least the right kind of data—the first time they do a process.

We took the P.I. director and a cross-functional team through the VSM workshop. We used a process inspired by the classic VSM process (see Learning to See by Rother and Shook), with modifications to accommodate the realities of office vs. factory.

The big difference was that we added that “new” dimension: people waste. We asked the team to (1) document people waste on the current state map; (2) replace people waste with productive behaviors on the future state map; and (3) create plans to achieve the future-state behaviors for the implementation plan.

Here's an example of people waste that surfaced at the workshop: unproductive conflict. In their current state, they identified angry emails that had been exchanged between store managers and accounts payable.

When the team created its future-state map and implementation plan, they replaced angry emails—a waste of people’s energy and time—with a process solution that included communications and email etiquette training. Obviously part of the solution in this case was to fix a broken process. Another important part of the solution—and this is where the human element comes in—was to provide the communications training.

My colleague, Ann Dorgan, and I were pleasantly surprised by both the response and the results of “putting people on the map.” The team expressed appreciation for addressing the human factors--people waste. Plus, the training that they will be receiving will be targeted and based on a process need. More training should be like that.

So, specifically, how do you get at the people waste? And once you find it, what do you do with it? I’ll answers those questions on the next blog post.


Putting People on the Value Stream Map

(This is the first of several guest postings by Carlos Venegas, author of Flow in the Office: Implementing and Sustaining Lean Improvements. He is a principal in Straus Forest and can be reached at Carlos@StrausForest.com.)

I remember hearing an old interview of Julia Child--the famous chef and author. The interviewer asked her if she ever modified a recipe that she was cooking for the first time. Her answer surprised me. She said that she never modified the recipe the first time she cooked it; if she did, she would not be able to tell if it was a good recipe.

That interview came back to me when I first began learning about implementing lean. I carefully followed my sensei's instructions. I did things "by the book." That experience taught me this: Lean is an excellent recipe for not just process improvement, but for employee involvement and morale, too.

Some time ago, I began bringing Lean into the office environment. At that time the question was, "will Lean work in the office environment?" Time and experience has taught us that the short answer to that question is a resounding "Yes, but…."

First the "yes" part. Yes, the principles and tools of lean can be applied in the office. Lean is, among other things, well suited for process improvement. Offices have processes, therefore lean can work in offices.

Now the "but…" part. The language of the factory does not always translate into the language of the office. I ran into that complication when I wrote Flow in the Office: Implementing and Sustaining Lean Improvements. Here's an example:

When I was a lean neophyte, I went on a learning pilgrimage to Japan. On a tour through a factory in Japan, a sensei told me there are seven flows: people, information, raw materials, work-in-progress, completed products, engineering, and tooling. Those flows make obvious sense in a factory environment, but not so much in an office environment. Sure, it makes sense when you look at the flow of paperwork and people, but what about the flow of ideas, decisions, influence, or electrons--things that are not so visible--or even invisible? That's the office environment where the language of the factory does not make sense. Yet, we know that flow still exists in office processes.

My challenge was to articulate my experience in a new language. Hence, the book Flow in the Office.

Since completing the book, I've taken on a new challenge: if people are such an important part of a business process, why are people processes not reflected in some way on the value stream map?

My colleague, Ann Dorgan, and I have come up with one answer to that question. We led a client in value stream mapping their purchasing and accounts payable process. In my next two posts, I'll show you how we "put people on their map."