Implementation of Training Within Industry (TWI) at Autoliv Poland

For this latest blog entry, I'm turning over the reins to Bartosz Misiurek, author of Standardized Work with TWI: Eliminating Human Errors in Production and Service Processes, and Iwona Diug who present a great case study of  Training Within Industry (TWI) implementation at Autoliv Poland. It provides some very interesting insight on just how this automotive supplier drastically improved quality and safety after the success of this program.

Introduction

The article describes a case study of the implementation of the Training Within Industry TWI program in Autoliv Poland LLC Company from Jelcz-Laskowice (later referred to as Autoliv). The article includes findings both the employees of Autoliv and  the consultant, LeanTrix Company, who supported the implementation of the program.

Autoliv Company

Autoliv Company was founded in Vårgårda in Sweden in 1953. Since its beginning Autoliv has been engaged in the production of complete safety systems for cars (Figure 1). Autoliv's vision is to significantly reduce the amount of road accidents, injuries and deaths on roads. In order to fulfill its vision, Autoliv Company designs, manufactures and markets cutting-edge security systems for vehicles. In short Autoliv is:

• A leader in the technology and sales of safety systems - with total revenue from sales equal to 9 trillion dollars.
• A supplier for all leading car manufacturers.
• A holder of 80 production plants in 29 countries, 10 technical centers in 9 countries and 21 tracks for crash tests.
• An employer who employs more than 64,000 employees, including 4,000 employees in the area of R,D, and E.

In Poland, the Autoliv Company has four manufacturing plants: two in Olawa (AEP and APT) and two in Jelcz-Laskowice (APR and APA). The factories in Jelcz-Laskowice have been producing safety belts since 2002 and airbag modules since 2010. A total of over 1500 employees are employed in Jelcz-Laskowice.

Figure1. Autoliv Poland Company in Jelcz–Laskowice

The implementation of TWI program was launched on selected production lines of airbag modules in the APA production plant in Jelcz-Laskowice.

Why the Training Within Industry (TWI) Program?

The Training Within Industry Program (TWI) is a comprehensive program to develop the skills of forepersons, leaders, and managers in the areas of instructing employees (TWI IP), building good relations with employees (TWI RP) and improving working methods (TWI MP). 

The TWI program was originally developed in the US during World War II in order to help leaders to effectively involve people in industry, especially those who had never worked in this field before - mostly women and young people (Graupp, Wrona, 2006). Implementation of the TWI program in American industry brought tremendous benefits and contributed to the victory over Hitler's armies. The success of the program was based on the fact that each of its methods was constructed on the basis of the PDCA cycle (Misiurek, 2016), which was developed shortly before William Edwards Deming formed the TWI program. After World War II, the TWI program was included as a major aid program in Japanese companies, and a short time later gained such respect that it not only became a method of improving productivity, but also became the culture of operations in Japanese companies. To this day it is believed that the TWI program was the foundation of the creation of the Toyota Production System and later, Lean Manufacturing (Liker, Meier, 2007).

Implementation of the TWI program in manufacturing companies corresponds with the improvement of their key performance indicators (KPIs). These include, among others: productivity, failure frequency, timeliness, quality and safety. Losses in these areas are often directly caused by human errors. According to Lean Management method, the effective elimination of problems occurs when their root causes are eliminated. In the case of human errors, the root causes include (Misiurek, 2016):

•      A lack of or poorly executed on-the-job training.
•     Failure to obey job standards by employees due to their bad development. 
•      A lack of the process of auditing employees.

The TWI program is focused on the elimination of the root causes of human errors by providing thorough methods for effective on-the-job training, auditing and the improvement of working methods (jap. Kaizen).

Implementation of the TWI program in the Autoliv production plant in Jelcz-Laskowice aimed to eliminate specific manufacturing problems related to:

•      An increase of employment (more than 300 new    employees planned for 2016).
•      Frequent employment of temporary workers.
•      High exchange of staff between production lines.
•      Slow implementation of new employees to work.
•    A lack of ability to transfer the experience of employees (tricks, facilities), which corresponds with a longer implementation time of a new employee.
•     A lack of telling new employees the reasons that precisely describe why work should be performed according to the agreed standard (a lack of awareness among employees).
•     A lack of willingness to use instructions by experienced employees (instructions often did not reflect the real production practice).

The development of competences in the TWI program

During implementation of the TWI program, the development of competences among employees who are involved in this program is the most important. Competences should be seen as a combination of three main components: knowledge, skills and responsibility. 

In Autoliv the development of employee competences was based on the PDCA cycle. Training of employees (Plan Phase) aimed to build their knowledge about the TWI program. After that and through the practice of this knowledge (Do phase) employees began to acquire skills. When they obtained certification and started to independently use the methods of the TWI program, they then gained responsibility (Check phase). The last phase was to train internal experts who not only had experience in the TWI program, but were also able to teach others (Act phase). This process is shown in Figure 2.

Figure. 2. Levels of the development of employees involved in the TWI program

(Based on Misiurek, 2016)

Between the training phase (1) and certification (3) is the area of practicing methods (2). Often when training companies are asked to conduct training (1), they receive a goal from top management: to build the awareness and commitment of employees. This goal is not feasible! The awareness of people is only built up from the moment of licensing (3). Only after the training phase (1), a desire to use the methods and tools of Lean can arise among people. However, awareness is born when something is practiced. The TWI program usually dies in companies due to the lack of the practice phase (2). This mostly happens because people do not have objectives set before their training and do not have designated time periods to complete these objectives.

The role of top management in planning the implementation of the TWI program is crucial as the most difficult phase of employee involvement is practicing (2). This process is best explained based on the example of teaching new drivers to drive on Polish roads. A person who takes theoretical training in the training room gains level (1). When a person learns to drive a car under the guidance of a Sensei, he moves to level (2). The process of practicing can take dozens of hours, which even translates into a few months of learning! At this point the person is not allowed to drive a car independently - and in terms of a 0/1 rating, has a rating of "0". A license (certificate) is obtained when the trainee passes a practical exam and skips to level (3). In the future, if he decides to become a trainer (in this case, driving instructor) he must then pass another exam and get a diploma, skipping to level (4).

Strategy of implementing the TWI program in the Autoliv production plant in Jelcz-Laskowice

The process of implementing the TWI program in the Autoliv production plant in Jelcz-Laskowice ran exactly on the basis of the PDCA cycle. Table 1 describes the exact scenario of this process with the key points, justification and description of the specific actions taken in Autoliv Company.

Steps of implementation	Key points	Reasons	Description of actions taken in Autoliv Company
1.Planing the implementation (PLAN)	1. Selection of the pilot area	1. Gaining practice and learning from a dedicated process so that the subsequent implementation throughout the entire plant will be effective.	Several production lines of airbag modules, which are crucial regarding the quality and impact on the final customer, were selected for the project.
	2. Selection of an implementation group.	2. People who posses extensive knowledge about work (experienced operators and leaders) should be chosen for implementation of the TWI program. Only then will standards created by them reflect the real way of working.	An implementation group with the greatest experience in the selected production lines was defined.
	3. Determination of goals.	3. It is important to define measurable goals before the practical workshop. People will then participate more consciously in the workshop.	Selected people from the implementation group received a clear goal before the workshop in the practicing phase (Do). It was the execution of standardized work instructions for specified operations.
	4. Conducting the practical workshop.	4. Theoretical and practical knowledge is passed on to participants during the workshop. In addition, standardized work instructions are created under the supervision of a TWI expert.	The practical workshop lasted for two days. During the workshop 5 standardized work instructions were developed. Each participant had the opportunity to play the role of a TWI instructor. A consultant from LeanTrix company supervised the whole process.
2. Practicing knowledge by people from the implementation group (DO)	1. Planning time periods.	1. People involved in the implementation of the TWI program should have time to practice skills (also when creating standardized work instructions).	A selected group of 4 experienced leaders worked on computer posts and had the necessary time to develop all the instructions regarding the selected production lines.
	2. Consultations with a TWI expert.	2.Questions and inconsistencies often arise during practicing. It is important for the TWI expert to support practitioners during this process.	A LeanTrix consultant was available for the implementation group. There were numerous phone calls to precisely clarify any doubts in the area of creating standardized work instructions.
3. Licensing of people from the implementation group (CHECK)	1. Verification of the developed instructions by a TWI expert.	1. A correct standardized work instruction is the key to successfully carry out on-the-job training in accordance with the TWI IP method.	A LeanTrix consultant during the audit process and before on-the-job training verified, together with people from the implementation group, their developed standardized work instructions.
	2. Verification of the way of conducting on-the-job training by people from the implementation group.	2. Theoretically, the TWI IP method is simple, however in practice it causes many problems. This is because it is contrary to the habits of the majority of trainers. This is why several verifications of whether leaders correctly apply the TWI IP method are important during practicing.	Each of the four people selected from the implementation group passed the practical audit on real production processes conducted by the LeanTrix consultant. In all cases, two audits were enough for practitioners to achieve TWI instructor certification.
	3. Certification for a TWI Instructor	3. It is a formal process that confirms that a person is able to develop standardized work instructions and conduct on-the-job training in accordance with the TWI IP method.	After completion of the audit, a LeanTrix consultant gave TWI instructor certificates to a group of four people selected from the implementation group.
4. Development of experts - the Train the Trainer program (ACT)	1. Selection of a candidate for a TWI trainer.	1. The TWI trainer is a person that is not only a practitioner in the field of the TWI IP method, but can also teach other employees (jap. Sensei).	One person was selected from the group of certified TWI instructors in order to undertake training to become a TWI trainer.
	2.Train-the-Trainer course	2. The aim of the course is to teach selected TWI instructors how to teach other employees who have not yet heard about the TWI program.	During the TtT course the LeanTrix consultant, together with the selected TWI trainer candidate, developed a presentation dedicated to the company about the TWI program, practiced the way of conducting a workshop and also developed an instructional video to show during the workshop.
	3. A practical workshop conducted by the candidate for a TWI trainer and a TWI expert.	3. The role of the TWI expert is to support the TWI trainer candidate during the first practical workshop about the TWI program.	A one-day training was conducted for a group of experienced employees who did not know the TWI program in practice. The training was divided into 2 parts: a theoretical part conducted by the LeanTrix consultant and a practical part conducted by the TWI trainer candidate.
	4. Certification for the TWI trainer.	4. Certification for the TWI trainer with an obtained diploma is the result of the ability to conduct a practical workshop about the TWI program.	After conducting the workshop, the selected person received a TWI trainer diploma. It is confirmation that the TWI trainer can independently, without the support of a LeanTrix consultant, lead practical workshops about the TWI program, certify TWI instructors and support practitioners in the field of TWI.

Table 1. Scheme of the implementation of the TWI program in the Autoliv production plant in Jelcz-Laskowice

The benefits from the implementation of the TWI program in Autoliv Company.

The TWI program has been in the process of being implemented in the APA production plant in Jelcz-Laskowice since July 2015. Currently, the program covers nearly 20% of airbag module production lines. It will ultimately be implemented comprehensively in both factories in Jelcz-Laskowice. The first actions related to the implementation of the TWI program have already been undertaken in Autoliv factories in Olawa.

The first benefits from the implementation of the TWI program can be seen in the behavior and attitude of employees to their work on trial production lines. In the TWI program, the major emphasis is on explaining key points at work and the reasons for these key points so that employees begin to understand the essence of their work. Awareness of work is crucial for employees because it has a huge impact on the elimination of human errors, which mainly occur due to a lack of knowledge. Currently,  it is difficult to find an operator on trial production lines who can sufficiently answer the question: Why do you perform this operation this way? The most common reply is: Because my manager told me to.  
Each employee must understand why he has to do the work in a certain way and how it affects the process and the final customer. If the employee does not remember something he can always refer to the standardized work instructions, which the TWI Instructor trained him by accordingly. We believe that this approach to training employees will in the future result in the improvement of the KPIs in the company.

Figure 3 shows how work instructions have changed due to the TWI program for an exemplary operation. They are now more transparent and understandable. In addition, they contain reasons that teach people awareness. These instructions, called standardized work instructions, are used by TWI instructors to train employees with the use of the TWI Instructing Employees method.

Fig. 3a. Instructions Before  the implementation of the TWI Program

Figure 3b. Instructions After the Implementation of the TWI Program

At Autoliv, we believe that it is not the employees, but processes that should be blamed for human errors. Designing and defining processes is the responsibility of managers and leaders. These leaders must take responsibility for potential human errors. The motto of the TWI Instructing Employees method is: if an employee did not learn, it is because the teacher did not teach. This motto is a foundation for the development of competences of employees in Autoliv Company. Respect of employees, expressed through their effective training, is one of the most important values of Autoliv Company.

References:

• Graupp P., Wrona R.J., 2006, The TWI Workbook: Essential Skills for Supervisors, Productivity Press.

• Liker J., Meier D., 2007, Toyota Talent: Developing Your People the Toyota Way, McGraw-Hill Education.

• Misiurek B., 2016, Standardized Work with TWI: Eliminating Human Errors in Production and Service Processes, Productivity Press.

About the Authors

Iwona Diug

Head of Production Area APA at Autoliv Poland Company. Associated with Autoliv Corporation for 10 years.

Bartosz Misiurek

CEO of Leantrix Company, which supplies computer systems that support the implementation of Lean Management. Currently supports the Cooper Standard Company (Automotive) as the TWI Lead Coach for Europe and is responsible for the implementation of the TWI program in dozens of factories in Europe. In the Lean Enterprise Institute Poland since 2007 and until 2015 was responsible for the transfer of the TWI program from the United States and then its development in Poland. Worked as a consultant of Lean Management, TPM and TWI for more than 150 production and service companies in Europe.

How Do You Grow and Sell a Successful Consulting Firm?

This past month, Raj Aseervatham, published an important resource for consultants titled You're the Boss: Growing and Selling a Successful Consulting Firm. The book is segmented into nine distinct lessons charting the journey of a successful consulting firm—from inception to sale.

I just recently spoke to Raj about the book and asked him: “What are the most common mistakes business owners make when they try to grow and sell a consulting firm?” Here is his complete answer:

Most people are familiar with this statistic -- eight out of ten businesses fail. Paradoxically, most entrepreneurs firmly believe they will be in the 20% that succeed. Do they really know why they believe that? Let’s look at the knowledge that consulting entrepreneurs who actually made the 20% reflect on:

1. Failed consultancies often lack a clear strategy. Having a concept is not the same as having a strategy. Being very specific about your business – what it does, how it’s structured, what maturity looks like, what your sale looks like – help fill in strategy. As the head of your company, no detail is too small for you to contemplate.

2. Failed consultancies often have poor planning discipline. Having a plan is the same as preparing to execute a strategy. Abraham Lincoln Abraham Lincoln once commented that if he had six hours to cut down a tree, he would spend the first four hours sharpening the axe. Invest your time in detailed six-monthly or annual plans, test your assumptions, iterate the plan frequently. Don’t treat it as an administrative chore. Your planning is your preparation and dress rehearsal.

3. Failed consultancies often die of cash starvation. Watch your cash. This is not the same as saying "get your accountant to watch your cash." You are intimately familiar with your strategy and your plan, not your accountant. Cash flow is like the blood flow in your business; you need it to carry out your plan and execute your strategy. You need to know how much you need and when, and you need to know that your business operation will deliver it. So be intimately familiar with your cash flow.

4. Failed consultancies are often inconsistent with their quality. If you promise something, deliver it to the standards expected. Do not compromise the quality your clients pay for. As you hire more consultants into your business, your quality standards might be prone to variation, and to dilution. If this happens, your brand erodes while you grow.

5. Failed consultancies often forget what made them contenders. Don’t let your principles erode with time. The consulting entrepreneur may start with strong ideals – from client service through to cash management, through to the ethical decision making, to how employees are treated. Often, small companies are formed around a core of pride and value, built on principles.  As they grow, that core can become less distinct and the culture can change. Be firm on how you retain and strengthen the principles that allowed you to first break successfully into a market.

6. Failed consultancies forget that their people make up nearly 100% of their tangible assets. Hire slowly and deliberately. Treat every hiring decision like it is your first excruciatingly important one, and you are more likely to build a consulting firm of people who can create lasting value.

7. Failed consultancies do not have a consistent focus on business development. Practice business development even when your business is booming; and especially when your business is booming. The worst time to dust off your business development skills and deploy them into the market is when business is bad. The best time to grow your business is when business is good, so get out there and market in the best of times like it’s the worst of times. In fact, practice business development all the time if you really want to grow.

8. Failed consultancies allow their overheads to get away from them. This is not the same as running your enterprise like Scrooge; you may find that no-one will want to work for you! No, this is about knowing what a manageable overhead structure looks like at every stage of your growth, and ensuring you run your business according to that structure. It’s about considered discipline.

For the consultants reading this post: What do you think of Raj’s points? Does one of these points stand out from the rest? Did he miss any important areas?

Can the "Science" of Lean be Applied to the "Art" of Selling?

A couple of months ago, Productivity Press published a groundbreaking book -- Lean for Sales: Bringing the Science of Lean to the Art of Selling -- that describes the Lean journey as it extends to a business area that has been virtually untouched by the Lean transformation. I decided to ask the authors -- Sean Gillespie, Michael Testani, and Sreekanth Ramakrishnan -- a few questions about why this topic is so important. I ended up having an enlightening conversation with Michael Testani, so I've decided to present my questions and his answers here:

What is value from a client perspective, and how can we be sure we are delivering it to clients?

We have rarely seen a sales function define what value is in the context of a Sales organization or a customer.  That is, until now. Using the principles of Lean selling, you will recognize that there are two types of value -- intrinsic and extrinsic. 

"Intrinsic Value" is the inherent worth of a product or service. The value is based on capability that the product or service delivers “in and of itself.” Typically, these are commodity-based products or services available through multiple suppliers—where the value of the item is closely equivalent to the purchase price of that item. For example, anyone can purchase a power cord for recharging their cell phone at around $10.  

"Extrinsic Value" is the portion of a product’s or service’s net worth to a customer that is agreed and assigned to it by external factors. These factors are typically external to the product and service itself — they typically relate to the customer and their particular business. Selling extrinsic value may involve the customer making radical changes to their own organization to recognize the business value that a product or service can provide. The automotive industry provides an excellent example of extrinsic value in that customers often buy high-end vehicles at prices that are tens of thousands of dollars higher than less prestigious vehicles.  Here the automotive industry sets their price based on the extrinsic value of the vehicle from the customer perspective.

The Lean selling methodology provides proven principles and practices for identifying and delivering extrinsic value to a customer.

Why is Lean so important in the field of sales?
 

Lean has a long and successful history of improving businesses by simplifying processes to gain operating efficiencies, thereby providing a competitive advantage. Almost everyone is aware of Lean’s deep roots in the manufacturing domain, originating with the Toyota Motor Company where the Toyota Production System has become the premier operating model for manufacturing companies across the globe. Everyone in business should also be equally aware of Lean’s successes outside of the manufacturing domain. Lean thinking has proven to be quite successful at dramatically improving processes in the financial and healthcare industries; as well as many other business sectors and organizations across the globe.

Lean for Sales describes how the proven “Science of Lean” can be successfully merged with the “art and know-how” of the sales professional to provide a client with unparalleled sales service and support. Lean Selling is the term coined here to describe a unique methodology that combines Lean methods with the more traditional approaches to sales. When these powerful selling techniques are applied collaboratively with a client, the sales cycle becomes much more efficient and the client experience is dramatically improved. Lean for Sales describes these Lean Selling techniques and provides a framework for the reader to apply these techniques within their own business and across their client base.

How can Lean for Sales help a sales organization to deliver unparalleled value to their clients?

In our book, Lean for Sales: Bringing the Science of Lean to the Art of Selling, we are stating that in today’s highly competitive business environment the traditional selling techniques do not focus enough, if at all, on how to develop a sales engagement based on gaining a deep understanding of the customer’s real business problems and how these problems impact their business.  The goal of this book is to enable the sales professional to use a scientific and repeatable approach for leveraging actual client data that relates to an actual business problem and an agreed upon outcome.  We call this approach the “science of selling,” and the Lean for Sales methodology offers a proven, repeatable approach for combining the art and science of selling to deliver unparalleled client value. 

For the reader: Do you think think Lean principles can be applied to the sales function of your organization? If you have applied these principles, were there measurable improvements? Where were the problem areas?

Using Measurement and Metrics in the Hoshin Planning Process

Much has been written on the effectiveness of Hoshin Kanri (also known as Hoshin Planning or policy deployment), which is a method for ensuring that the strategic goals of a company drive progress and action at every level within that company, and the power of a shared strategic vision. This past March, Lisa Boisvert published an interesting new book -- Reflections on Hoshin Planning: Guidance for Leaders and Practitioners -- that examines Hoshin Planning through the ever-shifting and imperfect lens of daily life in organizations. I recently asked her: "How do C-suite and executive leaders currently use measurement and metrics in the Hoshin Planning process?" Here is her complete answer:

In Hoshin Planning, the purposes of measurement and metrics in executive discussions on the strategic plan are at least threefold. We measure to agree on an objective definition of a desired end state; build understanding around an area that is new to the organization—a breakthrough; and ensure that our strategic choices and related activities are meeting the organization’s business objectives. Including metrics as part of the dialogue in these three areas is essential to getting high quality consensus among the organization’s leaders, a consensus that gets results when the plan is implemented across the rest of the organization.

• Building a shared, objective definition of a desired end state. The evidence of a consensus decision is that once it is made, everyone who participated in making the decision begins to behave consistent with the spirit of that decision. The results of a Hoshin plan are influenced by whether consensus is achieved along the course of its selection and implementation. One means for arriving at consensus is the dialogue that takes place to create an objective (measurable) definition of success.

• Leaning out, learning how to measure what the organization hasn’t done before. If the Hoshin is a bona fide breakthrough, it’s likely to involve the application of designs and processes that are unprecedented for the organization. As a result, the organization’s ability to measure performance may be limited at first. Leadership focus, and openness to learning what monitoring metrics give the best indicator of business success as the Hoshin work advances, helps keep plans real and improves results.

• Integrating Hoshin metrics with business fundamentals. Hoshin Planning aficionados sometimes take some teasing for being overly fond of fancy matrices, but some way of showing how all the measurable goals and activities of the organization are related is essential. Senior leaders need to create a visual that shows how their business, Hoshin, and operational goals impact and support each other.

Has Hoshin planning been successful in your organization? Has flexibility been a problem?

What is Operational Excellence in the Office?

Kevin Duggan, with Tim Healey, recently published an important new book that expands on, and transcends, the topic of value stream mapping titled Operational Excellence in Your Office: A Guide to Achieving Autonomous Value Stream Flow with Lean Techniques. I asked Kevin to specifically tell me: “What separates this book from all the others on value stream mapping?” Here is his complete answer:

Operational Excellence in Your Office is much different than previous value stream mapping books. The subject matter of this book is achieving true Operational Excellence in the office, and not ways to merely eliminate waste in the office. True Operational Excellence is defined as “when each and every employee can see the flow of value to the customer, and fix that flow when it breaks down.” This means we establish “self-healing value streams” that run autonomously day in and day out without management intervention.

The book provides a detailed overview of exactly what Operational Excellence is and how it applies in the office. The book does not teach how to create value stream maps, but it uses value stream maps to show how to design self-healing flow in the office. 

The word design here is key. In many value stream mapping techniques, we have been taught to make a current state map, look for waste, and think of an ideal state, or use brainstorming tools to try and develop a future state. However, in Operational Excellence, it’s different. In Operational Excellence, we create a current state; however, we then put it on the wall and just leave it there. The next step is to learn the nine guidelines of office flow. These guideline teach us how to handle high variation in customer demand (as the concept of traditional takt time just won’t work in the office), how to sequence work, where we can possibly do a one-piece processing cell, how to move work through the office using workflow cycles, how to move large amounts of information from one area of the company to another, where we can initialize work and at what points can we re-sequence work, how to tell if the office flows are on time, and what to do when the customer changes their demand or new demand comes in that exceeds what the value stream was designed to do. 

The key to these guidelines is that they provide a method to design what we will then consider to be normal flow. And by establishing normal flow, we have then established what abnormal flow is. 

Understanding and reacting to abnormal flow is a state that very few companies achieve. However, this is exactly the goal of Operational Excellence: seeing, understanding, and correcting abnormal flow without the need for any management intervention. Without the need for management to direct and control information flow in the office with status meetings, update meetings, or meetings to fix abnormal conditions, management can now spend their time on activities that grow the business, or offense activities. 

What separates this book from other value stream mapping books is that we are not teaching value stream mapping in this book; we are teaching how to design value streams that achieve Operational Excellence in your office. Value streams designed using the guidelines in the book can then become self-healing, and deliver the service day in and day out autonomously, without the need for management intervention, freeing up time for management to spend on growing the business. 

Are there any readers familiar with "self-healing value streams"? If so, what have been your experiences?

The Toyota Production System and Job Shops

For this blog post, I’m turning the reigns over to Dr. Shahrukh Irani to explore how Lean initiatives can be successful in high-mix/low-volume environments and job shops. As an associate professor in the department of Integrated Systems Engineering at Ohio State University, his research at OSU produced JobshopLean.

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Lean is Necessary for Every Manufacturer
The goal of any manufacturer is to reduce the total time that customers must wait from the time that they place their order to the time that they receive their order free of defects. The Seven Types of Waste are activities that add:
1. Delays to the time that customers must wait to receive their order.
2. Costs to the price that customers must pay to receive their order.

A High-Mix Low-Volume Manufacturer is not like Toyota 
Without question, the revolutionary Toyota Production System is the gold standard for how any business can pursue cost reduction through waste elimination without headcount reduction. But does a high-mix low-volume manufacturer implement Lean the same way as a low-mix high-volume manufacturer such as Toyota? No -- no Toyota facility makes refrigerators and bicycles on any of their automobile assembly lines. An assembly line that uses a conveyor to move a product (or product family) through a fixed sequence of work stations is inflexible. It could not make other products whose manufacturing routings, bills of materials, and processes used to make the final product are different from those used to make automobiles. Finally, every Toyota assembly line must be just flexible enough only to build a limited variety of automobiles whose annual demand provides sufficient return on investment to justify continued operation of that line.

How a Job Shop Differs from an Assembly Line 
An assembly line and a job shop are radically different manufacturing systems. An assembly line is a low-mix high-volume manufacturing system. A job shop is a high-mix low-volume manufacturing system. Some of the characteristics of a typical job shop that make its production system radically different from the Toyota Production System are:

• It fulfills orders for a diverse mix of hundreds (sometimes thousands) of different products.
• Manufacturing routings differ significantly in their equipment requirements, setup times, cycle times, and lot sizes.
• The facility has a functional layout (i.e. the facility is organized into departments --“process villages”) such that each department carries equipment with identical/similar process capabilities.
• Demand variability is high.
• Production schedules are driven by due dates.
• Due dates are subject to change.
• Production bottlenecks can shift over time.
• Finite capacity constraints limit how many orders can be completed on any given machine on any day. 
• Order quantities can range from low to high.
• Lead times quoted to customers must be adjusted based on knowledge of the production schedule.
• The diverse mix of equipment from different manufacturers makes operator training and maintenance more challenging than for an assembly line.
• It is a challenge to identify the part families in the product mix.
• Customer loyalty is not guaranteed.
• It is necessary to be able to serve different markets. In fact, a job shop must deal with the tendency for their product mix to alter as their customer base changes or they hire new sales and marketing staff who bring with them their past business contacts from new sectors of industry.
• It could be a challenge to recruit and retain talented employees with a strong work ethic, a desire to learn on the job and get cross-trained to operate different machines.
• There are limited resources for workforce training.
• It is hard to control the delivery schedule and quality of suppliers.
• It is hard to negotiate the due dates set by customers.
• Production control and scheduling is more complex.

What Do You Think?
If you are a high-mix low-volume manufacturer and have customized the implementation of Lean in your facility or you would like to know how, please send us your questions and comments.  Let’s get a conversation going! 

Thank you,  
Dr. Shahrukh Irani
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Traditional Accounting Systems -- They Don't Properly Value Time

Lean advocates have long been critical of the fact that traditional accounting systems motivate over-production and promote building inventory. In her book, The Monetary Value of Time: Why Traditional Accounting Systems Make Customers Wait, the author, Joyce Warnacut, discusses the fact that traditional accounting systems don’t properly value time. I asked her directly: "How is this different from the Lean perspective?" and here is her complete response:

Lean objections are based on the fact that absorption costing requires overhead allocation. The cost per unit is driven down by making more and spreading the cost over a larger number of units. H. Thomas Johnson (Professor of Business Administration, Portland State University) wrote the following in his article Work Lean to Control Costs: “Producing more and more output to reduce average unit costs is a time-honored pathway to excess, delay, and abnormal variation – prime drivers of higher total cost.”

These concerns are valid, and yet the total impact of traditional accounting goes far beyond overhead allocation. The matching principle, one of the foundations of traditional accounting, requires matching of production cost to revenue. This means that if you spend $1,000 making a product this month, but don’t sell it until next month (or next year), the matching principle requires you to stash $1,000 away in inventory. This puts the $1,000 on your balance sheet as an asset and keeps $1,000 in production costs off your profit and loss. The $1,000 will be recorded as a cost of sales at the time the product sells (i.e., the cost will be “matched” to the revenue).

Note that the $1,000 cost – and the resulting profit from the transaction – is exactly the same whether the product sells today or several months from today. Is this true? Inventory costs (storage, handling, carrying costs, planning, expediting, moving, counting, potential obsolescence, etc.) are allocated in some fashion over production. The allocation may be as simple as units or hours (volume-based allocations are by far the most common) or a more complex allocation formula.

But no matter what formula is used, the cost recorded for that particular product is the same whether the product is sold immediately or held in inventory for months. Intuitively, most people would think that product sold directly off the production line contributes more to the bottom line than product that is carried on the books for a month or more. From an accounting perspective, however, this is generally not the case.

Resources that are invested in inventory are valued no differently than resources invested in product that can be converted to cash immediately. What if our accounting methods put a value on time? What if product cost increased for every day the product was held in inventory? What if our shop floor operations were evaluated based on how quickly they turn orders into cash? What different motivations might this create? What changes would be made in how we allocate resources?

Although accountants recognize the time value of money when comparing investment alternatives, the same principles are not applied in how we value inventory, how we allocate resources, nor in how we evaluate the profitability of our products. 

What do you think of Joyce Warnacut's perspective here? Does your organization function under a traditional accounting system? Have this system undercut the true value of your Lean initiative?