Will Environmental Sustainability Drive Social Sustainability?

Although environmental sustainability has entered many strategic corporate business plans -- due to either the pressures to comply with stringent legislation or to satisfy the demands of the growing numbers of ecologically minded consumers and investors -- one must wonder if social sustainability will be part of the package. It appears that corporations are finally publicly recognizing their failings in this area. This article commenting on Nike’s recently published fiscal 2007 to 2009 Corporate Responsibility report raised some interesting points.

Many of Nike’s environmental goals seem decidedly lean, such as “to achieve zero waste in the supply chain and have products and materials that can be continuously reused – no pre- or post-consumer waste” and produce products “using the fewest possible materials and designed for easy disassembly, while allowing them to be recycled into new product or safely returned to nature at the end of their life.” But, social sustainability might be the larger issue for companies such as these that have had controversial track records during the past 20 years in regard to the exploitation of unsafe working conditions, employee wages, and child labor most notably in factories in Southeast Asia.

One of the original guiding principles of the Toyota Production System was “respect for humanity,” and Nike appears to be openly addressing the employee problems within the more than 600 contract factories the company uses. Can large corporations that outsource manufacturing to so many different factories – in various developing countries with different laws and reporting standards – ever really manage and influence the systemic mindset and culture throughout these plants? Do you think that corporations whose supply chain is composed of factories working on a strictly defined contract basis (that also produce products for many other organizations as well as competitors) can ever fully partner with them in the Toyota tradition?

Is Lean Green By Any Other Name?

The concept of sustainability has considerably proliferated during the past few years, and many organizations are recognizing its importance. Techniques and practices that consider environmental impact and minimize the use of energy do not only benefit society, but promote a more effective and successful business. A lean initiative, and the culture it fosters, perfectly complements and supports sustainable practices. Lean’s primary function is to reduce waste, and lean’s power to accurately identify and measure environmental wastes will only result long-term improvements and profits.

The popular terms that have emerged to identify this approach that incorporates sustainability and lean are “lean and green” and “green manufacturing.” When I recently received this announcement for an upcoming lean workshop (sponsored by Sherwin-Williams) focusing on environmental concerns, I was introduced to a new term: “Eco-Lean.” What other terms have you seen to describe these new initiatives? Which one do you think is the most accurate? Whatever term emerges as the standard, the goals and results remain the same, and a provocative thought emerges: capitalism and environmentalism can actually enhance each other.

A Safe Path to Lean

As most lean advocates know, successful improvement initiatives cannot be driven by legislation or regulatory requirements. Any “program” that is based on mandates from a federal administration is severely limited because compliance merely drives reactive behavior -- “doing” not “thinking.” If lean tools expose and solve process problems, why can’t these same tools improve safety? Robert Hafey, author of the book Lean Safety: Transforming your Safety Culture with Lean Management, offers these insights:

“While attending the AME international conference, held in Cincinnati last October, I introduced myself to a lean thought leader and briefly described a book I had written that suggests to get lean you should start with safety. His comment back was that for most companies that is exactly where they should begin. I failed to ask a follow up question to fully understand his reasoning for supporting my contention but I know why I recommended it in book form -- because it works.

All lean leaders understand the path to real lean, lean that is lasting, is dependent on employee engagement. Resistance to lean that is predicated on cost savings has killed off many a lean effort. Because we work in adult workplaces the simple equation that cost savings = fewer employees is understood by everyone. To discourage this thinking a senior leader may state that no lay-offs will occur as a result of lean but this is not the norm. He could instead take the safe path to lean by asking his employees to focus on safety improvement and thus bypass the initial resistance to lean caused by mistrust and a lack of understanding.

Simply by facilitating safety improvement activities while using a lean tool like the kaizen blitz you can begin to train your employee base in the lean language and many of the lean tools. A team of employees given the gift of time to focus on safety will not only reduce injury risks but they will most certainly reduce the cycle time of the process they have observed. This safe path to lean can initiate a journey toward real lean for any business for it is build upon respect for people first and then cycle time reduction.”

The State of Georgia’s Employees

Most articles reporting improvement-effort results focus on quantifiable measurements, such as on-time delivery, rate of defects, and capacity. The importance of these types of metrics should not be minimized, of course, but it was refreshing to read Craig Newmark’s (the founder of Craigslist.org) overview of Georgia state employees improved work environment. It appears the initiative hopes to change behavior and morale by transforming the culture. Most importantly, the goals are to instill a sense of pride in employee accomplishments and build team work through trust.

Note the most revealing description of the longstanding outmoded culture: employees opinions were “never solicited or if asked, not acted on. Therefore, many government employees have given up trying to go the extra mile, since no one (in management) cared. “ How many times how you read or heard about a successful lean initiative in which the leaders state that, at the beginning of the journey, the main complaint of the front-line employees was alienation and disfranchisement? Why do so many organizations continue to foster the mentality that those paid to do the job should not participate in improving the job?

A crucial aspect of Toyota culture is the belief that employees do indeed want to improve their work environments and participate in the process. What do you think ultimately drives long-term satisfaction in ones’ work? Is it merely the amount of the paycheck or the amount of ownership of the process?

Special Applications of SMED in Process Plants

Initial adoption of lean initiatives in the process industry was quite slow. Many of the early lean techniques used in traditional manufacturing, such one-piece flow and u-shaped work cells, had little application in a chemical plant, so most leaders in that industry concluded that lean could only benefit discrete-parts manufacturing.

On tool, however, that can have a major impact on waste reduction in the process industry is SMED (Single Minute Exchange of Dies). Peter King, author of the book Lean for the Process Industries: Dealing with Complexity has some comments about SMED:

"The benefit of SMED in simplifying product changeovers has been widely documented: SMED allows for shorter campaigns, lower inventory, and faster response to customer needs.

SMED has enabled significant improvement in process plants, operations which produce chemicals, paints, plastic films, food products and personal care items. But its benefit goes far beyond product changeovers. Many process lines never undergo a changeover, but have seen dramatic improvement through the application of SMED. A chemical plant may produce a single product 24 hours per day, 365 days per year, and thus never experience a product change. But these plants generally are taken off line periodically, say once a year, for a complete overhaul. These overhauls can take days or weeks, and involve the same wastes that changeovers do: inventory build-up in preparation for the outage, wasted time due to lack of coordination, tasks being done internally which could really be done outside of the overhaul window, and yield losses getting back to on-aim conditions after re-start. SMED has provided great benefit to these plants even though there is never a true product change!

SMED has also been used to improve process operations that can go down due to a process upset. Again, there is no product change, but getting the process restarted after the upset includes all of the wastes that SMED is so capable of reducing or eliminating."

What is Tecumseh Thinking?

About three years ago, the Tecumseh Products Company (best known for producing refrigeration compressors) closed a manufacturing plant in Wisconsin, and I read interesting commentary about it on Mark Graban’s blog at that time. It appeared to be yet another case of a U.S. manufacturer outsourcing its production to foreign countries with extremely low labor costs.

This month, however, I was happy to read this press release detailing Tecumseh’s recent hiring of Michael A. Noelke (as executive vice president, sales, marketing, and engineering) and James J. Connor (as vice president, treasurer, and chief financial officer). Both gentlemen have strong backgrounds in lean applications and impressive track records of performance improvement results. Noelke’s tenure at Sporlan reveals many noteworthy accomplishments – Sporlan is a division of Parker Hannifin, which embraced a quite successful lean transformation many years ago. Connor’s implementation of lean thinking at Newcor helped that organization rebound from bankruptcy.

Time will reveal the depth of Tecumseh’s commitment to cultivating a lean culture, but a general question to all U.S. manufacturers remains: Is any lean overhaul powerful enough to challenge the lure of outsourcing production and competing primarily on the basis of low labor costs?

Toyota's New Line of Products... Hospitals?

The adoption of lean initiatives within the healthcare industry has gained some notoriety in the mainstream press, and I'm sure most lean advocates can't rejoice enough. Many would agree that the ultimate victims of the built-in process variation and waste within the systems of the healthcare industry, from hospitals to suppliers, are the consumers. And, unlike nice-to-have products such as cars and computers, most customers don't have such luxuries as time and choice when "shopping" for healthcare services and products.

A article recently appeared here about the improvements the University of Michigan Health System have achieved after adopting a Toyota-styled approach to administrative and operating process. I think the most important statement about the future of this lean initiative can be summed up in this one quote from Jack Weiner, CEO of St. Joseph Mercy: “We do not view lean as a program. They are cultural transformations because you change how you do the work.” I think it's refreshing that, other than talking about the improvements gained early in the adoption, one of the pivotal leaders is already acknowledging that lean is as much about thinking as it is doing.

What do you think will be the biggest challenges to the adoption of lean in the healthcare industry? Do you think the initial resistance could come from physicians and practitioners who could argue that a lean transformation will ultimately stall because patients will never be "products" and believe that the drive for ultimate efficiency will overlook the nuances and hinder the customized needs of the patients?

When Lean Stalls... Why?

One of the most common problems arising on any lean transformation journey is “plateauing” – the initiative loses momentum after a flurry of important waste-reducing activities. Unfortunately, this stagnation eventually results in the erosion of most gains and the collapse of the entire implementation process. I recently posed the question, “Why do so many lean initiatives fail?” to Bob Sproull, author of the book The Ultimate Improvement Cycle: Maximizing Profits through the Integration of Lean, Six Sigma, and the Theory of Constraints. He sent me a valuable response, so I decided to post it here:

“During the years, I have analyzed failed and successful initiatives and have come to this conclusion. Continuous Improvement (CI) initiatives fail because of three primary reasons:

1. They lack focus and fail to take advantage of key leverage points that exists within all businesses.
2. The typical improvement project takes too long and fails to generate meaningful return on investment (ROI).
3. Not enough thought goes into the selection of projects.

About 10 years ago, I changed my entire approach to CI, in that I stopped trying to "Lean out" the entire enterprise and began focusing on a company's leverage points. I integrated Lean, Six Sigma and the Theory of Constraints (TOC) and I now use Throughput Accounting (TA) instead of tradition Cost Accounting (CA) to measure success.

In case you aren't familiar with TA, it uses three simple financial metrics as follows:

1. Throughput (T) - New revenue minus totally variable costs (i.e. raw materials, sales commissions, etc. or those costs that are incurred as a function of sales).
2. Inventory (I) - Money invested in things a company intends to sell.
3. Operating Expense (OE) - Money spent on turning I into T.

Both Inventory and Operating Expense have functional lower limits and when exceeded can actually debilitate an organization. Throughput, on the other hand, theoretically has no upper limit, so by constantly improving T, profits improve dramatically.

So how does this work? If you recall Goldratt’s five focusing steps:

1. Identify the system constraint.
2. Decide how to exploit the constraint.
3. Subordinate everything else to the constraint.
4. If necessary, elevate the constraint.
5. Return to step 1, but beware of inertia.

I use TOC to identify the operation that is limiting T (the constraint or leverage point) and then apply Lean and Six Sigma to only the constraint to reduce waste, improve flow and reduce variation. At the same time, I subordinate all other parts of the process to the constraint. As soon as the constraint is “broken” a new one appears immediately, so I move the improvement resources to it. The cyclic nature of this methodology assures that I am always working on the right things or those things that result in maximum ROI.

Since I began doing this, the ROI on my CI initiatives has sky rocketed and the rate of return or the time to see improvements has improved dramatically. Significant ROI improvements, when properly applied, occur in weeks versus months when compared to Lean or Six Sigma or Lean Sigma initiatives. I no longer select projects in advance -- Instead, I let the constraint tell me where to focus my improvement efforts."

The "Selling" of Lean

It appears the most common cause of lean-initiative failures is the lack of senior-leadership support and commitment. Are senior management leaders truly disbelieving the benefits of lean or are the reasons proposed by the advocates not persuasive enough? Some of the common roadblocks I’ve heard discussed are:

• Return on investment (ROI) – senior leaders do not fully see the short-term and long-term benefits of a lean initiative. Do they understand that lean is not merely a tool for quarterly or yearly gains?
• Lean is a specific “project” -- Lean improvement tasks can be delegated to particular persons within the company to fix certain areas. Do leaders fully grasp that lean is a cultural transformation not a process technique?
• Compliance not commitment – senior managers do not impede the initiative, but they do not outwardly lead it or actively participate in its implementation. If senior leadership appears reticent, does this attitude also dissuade engagement by operators and frontline staff?

What are some other reasons for senior leadership’s lack of support? Are advocates making ineffective and incorrect “sales pitches”? Please share your experiences and suggestions.

Hyundai Culture?

I was quite intrigued by a recent article detailing the growth and success of Hyundai Motor Company that appeared in Fortune magazine.

The crucial moment on Hyundai’s path to significant success occurred in 1999 when Mong-Koo Chung assumed the reins as chairman, replacing his father in that position. Chung’s primary focus became “quality, not volume” and he initiated rigorous benchmarking of Toyota. Speed ahead 10 years, and Hyundai is currently the fastest growing automotive company and just recently surpassed Ford in terms of volume.

Hyundai’s rapid success and transformation obviously could not have occurred without the plan set forth by Chung, and most of us believe that lean initiatives cannot evolve into major transformations without steadfast and inspirational leadership. Buy-in, and eventual adoption, throughout the employee ranks crucially depends more on what leaders do than say – name one lean initiative that has succeeded when the leaders have merely “talked the talk.”

Most of us, however, believe that benchmarking Toyota encompasses much more than just adopting specific tools and techniques – Toyota adds value to customers, the community, and society through people.

One aspect that is not touched upon in this article is the people who work for the corporation and the culture that exists there. What type of culture do you think exists or is growing at Hyundai? Do you think Hyundai’s success is sustainable?

Note the eyebrow-raising side story in the article -- In the midst of all this growth and success, however, in 2006, Chung was “was indicted on charges of embezzling some $100 million from Hyundai and its subsidiaries for a political slush fund.” It appears he was indeed guilty but “an appeals court decided that he was too valuable to the Korean economy” to be removed from his position and serve jail time (!). Do you think this event could not have had major repercussions if the company is indeed trying to foster a learning-and-teaching culture?

A New Year Brings "Old" News but New Questions

Shortly before the Christmas holiday, Reuters published an article explaining how U.S. manufacturing companies are discovering and adopting lean methods to compete with plants based in China:

http://www.reuters.com/article/idUSN1817274520091218?type=marketsNews

To many of the long-time proponents and advocates of lean initiatives, this article’s headline most likely elicits a sigh and a “So, what else is new? We’ve known that for years!” response. In addition, most would agree that truly incorporating lean methodology transcends a mere “fix” because it should ultimately result in a cultural transformation.

One aspect of outsourced manufacturing that is hardly addressed is the future sustainability and profitably of these specific plants located in China. U.S. manufacturing companies might be outsourcing work and jobs to China, but are any lean principles being outsourced as well? The benefits of outsourcing currently rest solely on very low labor costs – but how long can this situation last? If low labor costs drive the profitably, are these companies not on the road to evolving into the wasteful mass-production facilities like many U.S. plants of the 20th century?

I always enjoy reading about an organization’s adoption of lean principles and the results gained, but, unfortunately, most of these initiatives in the U.S. are reactive responses to a downturn or crisis. Methods and techniques are implemented and initial results can be compelling, but often these initiatives plateau with measurable decreases in waste and never reach the level of a companywide transformation. In China, it appears these plants are perfect greenfields for lean culture, but will the leaders of these companies take heed? Should they? Please share your perspective.

Finally, I would like to thank my colleague Ralph Bernstein for the outstanding work he’s done writing and steering this blog for more than three years. His entries were not only insightful, but quite thought-provoking and entertaining. I wish him the best in his pursuits.