Drive high machine utilisation at your peril
Posted: November 15, 2012 Filed under: Uncategorized Leave a comment
Why is it that the companies where traditional accounting thinking dominates and high machine utilisation is the order of the day are always the same companies with excessively high inventories and long production lead times?
Think of one of your single piece flow cells. Are all the machines in the cell highly utilised? Of course not. The only machine in a single piece flow cell that is fully utilised is the bottleneck machine. All the other machines in the cell are under utilised. This is exactly what facilitates flow. As soon as you try to fully untilise all the machines in a cell, single piece flow becomes impossible. You are then back to the very situation that existed before you set up single piece flow: no flow, high inventories, long lead times.
So, high machine utilisation impedes flow. And when flow is impeded, material accumulates. And when material accumulates, work in process inventories skyrocket. And when work in process inventories skyrocket, lead times get very long.
Traditional accounting thinking that insists on high machine utilisation drives the wrong behavior. It drives up inventories which depletes the company’s precious cash reserves. It also increases production lead times which robs the company of the chance to delight customers with short lead times and world class delivery.
Driving high machine utilisation is outdated thinking. Pursue it at your peril.
Maid on the couch
Posted: March 26, 2012 Filed under: Create Flow, Waste of Waiting | Tags: cellular manufacturing, Lean, Lean Manufacturing, Lean Thinking, muda, single piece flow, Waste of Waiting Leave a comment
I’m letting Gugu go early on Friday, my wife said. Why, I said. I just can’t stand to see her sitting on our couch (sofa), my wife said. Well, has she finished all her work, I asked. Yes, my wife replied. So, what’s the problem, I asked.
Gugu is our domestic worker (or maid). She is employed to clean and tidy our house and wash and iron our clothes (one of the perks of living in South Africa is that we enjoy a standard of living far above that of our equivalent income earners in most of the Western world). Gugu is an efficient worker and frequently finishes her work early. She will then make herself a cup of tea and sit on the couch and read a magazine. This irks my wife. She is frustrated when she sees Gugu idle.
Don’t laugh. We react similarly when we see workers idle in our factory. We get so uncomfortable that we will do anything to keep them busy. How often do you find production has dumped a glut of excess labor into an assembly cell? So instead of a perfectly balanced cell using three operators, you find seven operators falling over each other trying to get more work out. What is the problem with this you might ask. Three immediate problems come to mind: Firstly, even if the total output is increased, the productivity per person usually drops which actually increases the unit cost of each assembly. This is even before one has costed for the increased risk of defects due to deviation from single piece flow. The third problem with keeping idle operators busy in this fashion is that it actually hides spare labor capacity. When operators are busy, we believe we have no spare capacity. However when operators are idle, the spare labor capacity is visible and therefore more likely to be used productively elsewhere.
So the next time you catch your domestic maid asleep on your recently purchased dark leather sofa, don’t admonish her for not keeping herself busy. Congratulate her for completing her work timeously, and find some other value adding work for her to do like filing, cooking or spring cleaning the garage. Similarly when labor capacity becomes available on the factory floor, don’t squander it. Instead, measure it, make it visible, and use it productively. If all else fails, seat all the idle operators on a “reserves bench” and call Sales to the floor to show them that you need more orders to keep your people busy.
Lean Six Sigma is an oxymoron
Posted: February 9, 2012 Filed under: Lean | Tags: Lean, Lean Six Sigma, Six Sigma 2 Comments
Consultants irk me but Lean Six Sigma consultants irk me even more. I can’t help feeling that all they have done is hijack some of the Lean tools to dress up their skeletal fad with a little meat to make it more appetizing to their statistic-phobic clients.
The more I grow to understand Lean, the more I see that it mixes with Six Sigma no better than oil with water.
Six Sigma is about statistics. Lean is about people.
Six Sigma is about historical data. Lean is about current facts.
Six Sigma is about sitting behind a computer. Lean is about going to the gemba.
Six Sigma is about reducing variation. Lean is about reducing the timeline.
Six Sigma is a tool. Lean is a philosophy.
Six Sigma is an method. Lean is a set of principles.
Six Sigma is about teaching people to do statistics. Lean is about teaching people to think.
As Freddy and Michael Balle have so poignantly put it: “At the end of the day, although a lean plant is easily recognizable, no one has ever seen a Six Sigma plant”.
So you think you’re doing Lean…
Posted: January 10, 2012 Filed under: Lean, Lean Accounting, Seven Deadly Wastes, Waste of Inventory | Tags: Brian Maskell, Fake Lean, inventory, inventory turnover, Lean, Lean accounting, Lean Manufacturing, Lean Production 3 Comments
Many companies begin their Lean journeys by setting up a few manufacturing cells (some even with a semblance of single piece flow) or changing the plant layout or filling the factory with charts and whiteboards. Cost reductions (often achieved through the reduction of labor) are then offered as evidence of their Lean achievements. Whilst these efforts are well intended (and even commendable in some cases), they are not Lean.
Lean is often misunderstood to be a cost reduction exercise. Lean is actually a growth strategy. It works by freeing up labor, machines, space and cash (through reduced inventories). Freed up labor and machines creates spare capacity. This spare capacity allows for sales growth at increased profitability (the labor and machinery is free). Freed up cash can then be used to buy more machines which can be located in the freed up space and operated by the freed up labor. This creates even more capacity which allows for further sales growth.
Lean is about doing more with less. So, if you are doing Lean, your sales should be going up and your inventory should be coming down. The single metric I therefore like to use to assess a company’s “leanness” is inventory turnover (calculated as sales divided by inventory). If your sales (the top number) are going up and your inventory (the bottom number) is coming down then your inventory turnover will be climbing steadily, indicating Lean success.
Brian Maskell, at a Lean Accounting seminar in Johannesburg last year, said it best: “If you’re doing Lean and inventory is not dropping like a stone, you’re not doing Lean.”
How to move a library
Posted: September 22, 2011 Filed under: Create Flow, Lean | Tags: Lean, Library, single piece flow Leave a comment
If you were required to move a library from one building to another (and retain the precise order of the books on the shelves), how would you go about it? Would you make a human chain of school children between the buildings and pass one book at a time from child to child? Or would you unpack the books from the book shelves into boxes; carry these boxes to a truck; load these boxes onto this truck; drive this truck to the neighboring building; offload the boxes from this truck; carry these boxes into the new library; and unpack the books from these boxes onto the new book shelves?
If any of you are not convinced that “single piece flow” is faster than “batch and queue”, take 9 minutes to watch this demonstration.
Toilet roll kanban
Posted: September 15, 2011 Filed under: Create Pull | Tags: Kanban, Lean, pull, toilet roll Leave a commentDon’t you just hate reaching for the toilet paper after a visit to the loo and discovering the empty cardboard core of the toilet roll? You’ve just run out of toilet paper. A frantic glance behind you reveals that there is no spare toilet roll on the top of the cistern. What follows is a delicate (occasionally naked) crab-walk out of the bathroom, down the passage, to retrieve a fresh toilet roll from the linen cupboard, followed by an equally awkward return leg before you can complete proceedings.
Why are you once again finding yourself in this predicament? Because there is no spare toilet roll on the cistern. Why? Because no-one replaced the spare when it was last promoted from the cistern to the toilet roll dispenser? Why? Because it was not obvious that it needed replacement.
Here’s my counter measure: Make it obvious that it needs replacement. I haven’t had to perform the crab walk since.
You don’t need to know your product cost
Posted: July 14, 2011 Filed under: Lean Accounting, Product cost | Tags: Cost, Generally Accepted Accounting Principles, inventory, Inventory valuation, Lean accounting, product cost 1 Comment
Following a recent Lean Accounting seminar in Johannesburg delegates were left feeling that, in order for Lean to be successful in their companies, a paradigm shift in how they think about accounting was required. One of the most counter intuitive ideas presented was that you do not need to know your product cost.
Product cost is typically considered necessary for one or more of the following reasons:
- To set product price;
- To value inventory;
- To identify which product to target for cost reduction efforts.
Brian Maskell argues that product cost is unnecessary in each of these instances:
Firstly, price is related either to what the customer is prepared to pay for your product (ask any salesperson) or to the perceived value of that product to the customer. It is not related to product cost.
Secondly, Lean companies buy from local suppliers and get them to deliver frequently. They therefore carry little inventory. Accuracy of inventory valuation is therefore less important for these companies. Before the age of personal computers inventory was valued by a number of methods that did not require product cost. These methods are GAAP compliant and available if required.
And finally, there is no need to target a specific product for cost reduction purposes. Costs are taken out of the business not out of the product. A R1m cost reduction is an extra R1m on the bottom line, regardless of which product is targeted.
Learning to see
Posted: May 18, 2011 Filed under: Create Flow, Seven Deadly Wastes, Waste of Inventory, Waste of Movement, Waste of Overprocessing, Waste of Overproduction, Waste of Waiting | Tags: bottleneck, industrial engineer, Lean, Lean Manufacturing, Lean Production, Lean Thinking, learning to see, muda, voting proces, waste 1 Comment
I’ve just cast my vote in our (South African) local municipal election and was particularly impressed with the process flow of the voting process.
The voting process involved the following operations: printing something; sticking that something in my identify book; looking up my name on the voting register; marking my thumbnail with black ink; folding my two ballot papers for me; making my marks on these ballot papers; and depositing the ballot papers in a box.
Waste was minimal. The individual operations were located close to one another so that there was minimal movement required between the successive operations. Single piece flow was adhered to which prevented a build up of voters (inventory) between the operations. Once processing began, there was little waiting between each operation. Each operation was working at the same speed (no overproduction) and there appeared to be no redundant operations (overprocessing).
A good process can always be improved however. The bottleneck operation was the looking up of the voter’s name on the election register. With some minor reshuffling of labour, the rate at which voters were being processed could be increased by about 30%.
How many of our employees (managers, supervisors and operators) who went to vote today saw a Lean process? And how many looked for improvements? It is not sufficient that only our industrial engineers are able to “see”. It is not sufficient that we only “see” at work.
Lean is learning to see. Lean is everyone learning to see. Lean is everyone learning to see all of the time.
Your customers are not interested in your product cost
Posted: April 7, 2011 Filed under: Lean, Lean Accounting, Value, Value based pricing | Tags: Lean, Lean Manufacturing, Lean Production, Lean Thinking, product cost, standard costing 1 Comment
Many companies price their products by marking up the (standard) cost of those products by a certain percentage. One of the key principles of Lean is the creation of value for the customer. As a result Lean favors value based costing over mark up costing.
The truth is that your customers are not interested in your product cost. They are only interested in the value your product can create for them. And how does your product create value for your customers? By making or saving them money.
Assuming Blitz firelighters really do “burn up to 15 minutes longer” than competing brands, how would you price this product? Would you simply mark up its standard cost by some standard percentage? Or would you price the product by quantifying the value this product creates for the customer? A box of Blitz firelighters will light more fires than a competing brand and therefore reduce the unit cost of fire lighting (i.e the cost of lighting one fire). This is creating value for the customer and should be, at least partly, built into the price.
Do any of your existing product features reduce the risk of that product malfunctioning or failing prematurely. If so, how do you price this product? Do you mark up its standard cost? Or do you quantify the value your product creates through this mitigation of risk and build this into the price of that product?
Are any of your existing products difficult or costly for your customer to install or maintain? If, without increasing the standard cost of this product you were able to redesign it such that it was easier (cheaper) to install or maintain, how would you price it? Would you, because the standard cost is unchanged, price it similarly to what it was priced before? Or would you price it according to the added value your new design has created for your customer?
Lean is not about reducing your product cost. Lean is about creating value for your customer and then pricing your product based on this value (and not on product cost).
Lean doesn’t work
Posted: March 7, 2011 Filed under: Lean | Tags: Continuous improvement, Lean, Lean Manufacturing, lean produ, Lean Thinking, Toyota Leave a comment
“You know my feelings about Lean, don’t you, Conroy? Some of it works and some of it doesn’t.”
This statement was recently directed to me. It made me realise that Lean is often understood as a set of tools or techniques (e.g. single piece flow, kanban and visual management). When these tools are implemented and “do not work”, Lean is dismissed as a failure or as not suitable for the company or industry in question. How often have your heard the following statements? “Lean may work for Toyota but it will never work for us.” “Lean is for the motor industry – not for healthcare or the public sector.” “Lean is a manufacturing thing – it has no place in finance, sales or R&D.”
Well let me share a secret – Lean doesn’t work. It doesn’t even work in Toyota. But that is the whole point. Lean is not designed to work. It is designed to expose problems.
Imagine a computer program with millions and millions of bugs. The computer program runs but, without you knowing, it is performing all the wrong transactions and gradually destroying the validity and accuracy of your valuable financial and operational data. Now imagine that you are introduced to a computer programmer that uncovers these bugs for you, one at a time, so that you can fix them and continuously improve the programming logic so that, over time, the validity and accuracy of your data improves.
Your company is that computer program. Its processes run but they are inefficient. Over time they will destroy value in your company by increasing costs, decreasing quality and losing customers. Lean is your computer programmer. It uncovers the problems with your processes one at a time, so that you can fix them, and continuously improve your processes so that, over time, value in your company is increased.
So next time Lean “doesn’t work”, don’t shoot the messenger. Respond by fixing that bug and improving your data. Respond by fixing that process and improving your company.
“Measuring work is not enough. You have to measure value." Bill Waddell
The Lean Library 