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Profitable Growth and the Fundamentals of Lean Manufacturing

In their efforts to get closer to customers, many manufacturers have lost focus on what should be a company’s number one success factor: profitable growth. In today’s competitive manufacturing environment, it takes more than quick fixes, outsourcing and downsizing for companies to consistently achieve their growth and profit goals. While these options may provide temporary financial relief, they will not pave the way for long-term growth and profitability. For companies to grow and consistently exceed earnings expectations, they need to be lean. And, to be lean, they must master the basics of lean manufacturing.

For the last 30 years, we were led to believe that computerized systems would provide the solution to all of our growth and profit challenges. The gurus of material requirements planning (MRP) and enterprise resource planning (ERP) systems assured us that if we implemented their software programs, the end result would take care of itself. Well, it hasn’t happened! Like most perceived nostrums, each of these programs received a lot of publicity, produced a few success stories, but overall did little to help companies identify and realize their full growth and profit potential.

To measure its shortcomings, it is enough to spend some time in a manufacturing plant scheduled with MRP, especially during the last weeks of the last financial quarter. In a typical business, you’ll find that turning the quarterly financial forecast into reality still requires extra time, internal/external streamlining, last-minute “on-the-fly” product changes, and even a bit of “smoke and mirrors.” The results are scrap, rework, and warranty costs that negatively impact profitability and quality, and shipping issues that lead to less than acceptable customer satisfaction. Companies have spent many thousands of dollars pursuing MRP and ERP only to see their growth and profits decline due to runaway operating costs that produced uncompetitive pricing.

So after introducing MRP/ERP computer systems and more, why are most companies still struggling to sustain profitable growth and nowhere near achieving their full growth and profit potential? The first reason is simple: the results achieved by any computer system are only as good as the people at the checks and integrity of the data they provide. The second is complex: Most manufacturing managers facing major day-to-day problems and constraints adopt a totally reactive management style. Consequently, their time is consumed with “band-aids” and/or looking for ways to fix system and process problems, leaving them little or no time to analyze and eliminate the root causes of ineffective systems and processes. How do you reverse such a classic “cart before the horse” syndrome? What is required is first a deep company-wide understanding of the fundamentals of lean manufacturing, and then a total commitment to consistent and tenacious execution of the basics of lean manufacturing.

Like Vince Lombardi who achieved success by having his team focus on mastering the basics of football, we need our manufacturing teams to focus on mastering the basics of lean manufacturing. These basics require proactive planning and tenacious execution that demands leadership that goes beyond meeting “day-to-day” responsibilities. Some managers can’t imagine the benefits of mastering the basics of manufacturing, others just can’t find the time. Like practicing blocks and tackles in soccer, it is not exciting and like most soccer heroes, coaches prefer to run with the ball. But without tenacious and flawless execution of the basic principles of lean manufacturing, companies will rarely reach their full growth and profit potential. The key basic concepts of lean manufacturing are outlined below:

Information integrity: It is not uncommon for front office management to become disillusioned with the results of computerized systems when promised schedules and reimbursements are not achieved. Platitude: Acceptable results from systems cannot be achieved when systems are driven by inaccurate data and unexpectedly uncontrolled documentation.

Performance management: Measurement systems can be motivational or demotivational. The individual goal setting of the 1980s is a good example of demotivating measurement: it pitted one individual or group against another, and while it satisfied some individual egos, it made little contribution to overall company growth and profits. Today, the balanced scorecard is the choice of manufacturing winners.

Sequential Production: It takes more than systems sophistication for manufacturing companies to gain control of factory operations. To achieve on-time shipments with healthy profit margins, companies must replace the outdated MRPII/ERP shop scheduling methodology with the simplicity of sequential production. Manufacturing leaders have replaced their MRP shop floor order “shoot and stream” methodology with continuous production lines supported by real-time visual material supply chains…sequential production. The claim that sequential production only works in high production widget manufacturing environments is a myth.

Point of use logistics: Material handling and storage are two of the high-cost, non-value-added supply chain management activities of manufacturing. The elimination of the stock room, as it is known today, should be a strategic objective for all manufacturers. Moving production parts and components from the warehouse to their production point of use is truly a return to basics and a significant cost reduction.

Cycle time management: Long cycle times are symptoms of poor manufacturing performance and high costs without added value. Manufacturers must focus on continuously reducing all cycle times. Achieving success requires a specific management style that focuses on proactive ‘root cause’ problem solving, rather than ‘fighting fires’.

Output Linearity: Companies will never reach their full profit potential if they produce more than 25% of their monthly shipping plan in the last week of the month or more than 33% of their quarterly shipping plan in the last month of the quarter. How linear are your production departments producing with respect to the company’s master schedule? As companies struggle to remain competitive, one of the strategies by which gains in speed, quality, and cost can be achieved is to team up employees to pursue and achieve linear production.

Resource planning: One of the main challenges of the current industry is the correct and timely dimensioning of operations. Profit margins can be eroded if timely downsizing measures are not taken, and market opportunities and customers can be lost if direct labor size is not increased in a timely manner. These actions demand timely and difficult decisions that require accurate, timely and reliable resource information.

Customer satisfaction: Customer satisfaction is in the eyes of the beholder: the customer. Perceptions are what we need to address when it comes to improving customer satisfaction. It is useless to have the best products and services if the customer’s perception of our quality and service “as received” is not satisfactory. We need to plan and implement proactive projects that break down communication barriers that create invalid customer perceptions.

While many business gurus have identified one or more of these lean manufacturing basics as important to the successful pursuit of business excellence, the fundamental importance of these lean manufacturing basics has been lost in the proliferation of buzzwords and the mania for system sophistication. We say it’s time for companies to stop developing sophisticated systems that cause self-inflicted daily chaos. Instead, they should immediately initiate an action learning program to gain a company-wide understanding and acceptance of the importance of the basics of lean manufacturing. Once buy-in and commitment has been achieved, aggressive planning and tenacious implementation must follow. In short, let’s put the “horse before the cart”: such a program will build a solid foundation to redefine and reinvigorate a company’s quest for profitable growth.

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