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Lean for Small Businesses

If you have followed my blog for awhile you know that my wife started a hand-poured soap and bath and body business a few years ago.  One of her suppliers sends out a monthly newsletter with different kinds of articles: how to make new products, different recipes and in the most recent newsletter an article on lean for the small business.

Though turning to “lean” operation processes may sound like a complicated undertaking best left to large corporations, small businesses are actually ideally equipped to leverage the advantages of a lean business model.

The author is correct.  Being a small business makes it easier to create change more quickly as long as you are dedicated to it.

There are some good points in the article and some that are not even close.  I know lean is a the en vogue thing to discuss but that doesn’t mean everything is always a good point of view.  Better to have it mentioned and start a discussion though.

Some of the good.

You probably spend a lot of time in a day communicating with your clients, vendors, and staff. But have you ever taken a close look at why you have so many of those conversations? If the topics of your business conversations tend to involve a lot of the same questions, standardizing your operations could present a huge opportunity to save time, and eliminate such redundancies. Take detailed notes of the email and phone conversations

…get creative about how you might develop a standardized system for addressing such recurring issues. If customers tend to email or instant chat with similar questions, develop various email templates that you can send to them in a matter of seconds could prove a real time saver. Better yet, incorporate clear language onto your website that answers the questions so they donʼt even have to contact you.

I am more of the thought about trying to get to the root cause and better incorporate the clear language onto your website.  This is a clear way to help eliminate waste and create more time to serving your customers specific needs.

Dave Kerpin suggests that you can improve the efficiency of every [meeting] (and save 900 hours a year) with a simple shift: Donʼt end the discussion until everyone clearly understands their next steps, and you actually begin your own. Kerpin insists this eliminates the odds that miscommunication and confusion linger (which will only lead to further conversation), and reduces the amount of time youʼll spend trying to fi gure out how you need to move forward.

Dave is talking about getting high agreement on what will be done and how it will be done.  This is one of the core lean principles.  He is right.  It helps reduce confusion and communication that comes later from it so the work can be done more quickly.

Some of the not so good.

To adopt the common principles of lean management known as the 5 sʼs (Sort, Straighten, Sweep, Standardize, and Sustain), start by taking a look at your business routine…

This is a smaller issue in that 5S isn’t really a principle but more of a concept or tool to help highlight quickly when something is abnormal.  The author never mentions this.  Just that it can help “clean up” and organize your routine.

This is the one comment that truly gives me heartburn.  It shows the engrained misunderstanding of economies of scale.

If you find yourself ordering inventory frequently, could you forecast more appropriately, to reduce the frequency and possibly, realize cost savings from placing one larger order?

Oh where to start with this one.  First off, you can’t forecast “more appropriately”.  Overcomplicated MRP systems have shown that repeatedly. If you are a small business and growing this is no way to forecast more appropriately.  Understand your lead times and put in a visual reordering system that will trigger with enough time to get your orders in.  You may need to adjust over time as you grow, but it is more efficient and cost effective.

More importantly, don’t just order in bulk to get savings.  This is not a smart move.  You need to understand what your demand is, how much space you have, how much materials cost and how long the inventory would sit around.  If you order a larger quantity to get the savings but it takes 8 months to go through the inventory, you have tied up your cash so you can use it to grow in another area.  As a small business, cash flow is extremely important.  Another factor is the space you have.  If the material is going to take up a lot of space that you don’t have, it is better to not have it spilling over in your work area.  This is something to consider the long term savings in space and cash availability versus the immediate savings of a one time buy.

It was good to see lean talked about in a different arena besides manufacturing.  The message may not always be perfect but it is better to start the conversation than not have it at all.

JIT…A Failure Story

During the past weekend, I end up reflecting on how I have spent some summers of the past.  I don’t know why.  I just did for some reason.  There was one summer 17 years ago that ended sticking in my mind that I thought I would share.

I was working for a consumer electronics company that had manufacturing in the U.S. and in Mexico.  One fall, I was asked to help design a new manufacturing facility to be built in Mexico and they wanted it to be a Just-In-Time facility.  This was my first time hearing about JIT, so I read up on the concept.  Of course, 17 years ago almost all the material was about what it was and not how it worked.

The goal was to only have 2 hours of production materials at the production lines.  I made a super fancy spreadsheet that showed how much square footage was needed in each area based on line speed, shelving, component size, packaging, etc…

In July, I was approached again and asked if I would spend the month in Mexico straightening out what was going on.  The JIT system wasn’t working.  There wasn’t enough room for everything.

My boss and I went over the spreadsheet three times before we went on our visit and verified all the calculations and formulas.  It was all fine.

When we arrived the first day, we toured the plant.  We where horrified.  Televisions that were designed to stack 3 high were stacked 6 or 7 high.  Boxes were being crushed and leaning.  They looked like they could fall at any minute.  Areas that were not designed for storage were stuffed and there were approximately 100 trailers in the parking lot with materials in them.

This was a brand new facility.  It had only been open about 1 or 2 months.  It was a disaster.

The first thing I learned was there was no ramp up period.  On a Friday, one facility was closed.  The following Monday this facility was opened and expected to run at full capacity.  I had never seen any company do that before or since.  There is always a ramp up period.

The second thing we learned and more importantly was there had been no training on JIT, what it was or how it worked.  The facility was operating under old batch-n-queue mentality causing space to quickly fill up.

My manager and I were able to get the inventory under control through some strict inventory management processes and even get a more consistent delivery of materials to the assembly lines.

In the end, the company was not ready to run any differently.  It was a shame.  They ended up expanding the building and continued to run in a batch-n-queue manner.  I believe the facility has been closed in the last 3 or 4 years.

It was my first exposure to JIT and all that it takes to run a JIT system successfully.  I call it a system because it isn’t just about space and delivering parts.  It is the management mentality to reduce changeovers, run in much smaller batches and solve problems.  It really showed me how everything must work together.

Does anyone else have any horror stories from trying to implement a just-in-time system?

Guest Post: Eliminating TIMWOOD

blogphotoToday’s post is from Tony Ferraro, on behalf of Creative Safety Supply based in Portland, OR (www.creativesafetysupply.com). Tony strives to provide helpful information to create safer and more efficient industrial work environments. His knowledge base focuses primarily on practices such as 5S, Six Sigma, Kaizen, and the Lean mindset. Tony believes in being proactive and that for positive change to happen, we must be willing to be transparent and actively seek out areas in need of improvement. An organized, safe, and well-planned work space leads to increased productivity, quality products and happier employees.

Unfortunately, waste is something that is all around us. However, even though waste is common it does not make it any more acceptable. When businesses implement lean tactics in order to enhance productivity and efficiency, the elimination of waste is usually one of the biggest challenges, yet offers the highest rewards when done effectively. The elimination of TIMWOOD can help save your business time and money, while also helping to add value and increase customer satisfaction. When we mention eliminating TIMWOOD, we are not talking about eliminating a particular employee or person. Instead, the mnemonic TIMWOOD refers to the elimination of seven different wastes. When it comes to productivity, the sad truth is that only about 5% of employee work time each day is spent on value added tasks that actually benefit the customer. However, knowing that statistic, it leaves many of us wondering “What are employees doing with the other 95% of daily work time?” Some may insist the rest of the time is spent on waste or tasks that essentially add no value to customer satisfaction. In order to combat unwanted losses in productivity and waste, we must first identify and understand TIMWOOD and how the elimination of the seven wastes can make a difference.

What Does TIMWOOD Stand For?

Many people choose to use mnemonics in order to help them quickly and easily identify multiple items. The mnemonic TIMWOOD is also used for that purpose. Let’s take a look at each letter and how it contributes towards the elimination of waste.

  • T- Transport: Even though product transportation is virtually unavoidable, the time and distance are both controlled variables. Many times products are moved multiple times before reaching their final destinations. However, each time a product is moved it runs the risk of being lost or damaged which in turn eliminates value.
  • I – Inventory: When working towards lean, it is important to avoid an abundance unused and unsold inventory that just sits around on shelves or in storage. Whether the inventory is of parts, partially finished products, or finished items, the more inventory there is, the higher the loss in value since funds are tied up in unsold goods.
  • M – Movement: This waste is similar to transportation waste, but instead of focusing on the loss of value with products in transport, this waste focuses on transportation or movement equipment. When trucks, hauling vehicles, and other movement devices are used for unnecessary long amounts of time and for unneeded tasks the value goes down while the opportunity for damage increases.
  • W – Waiting and Delays: When products are sitting in limbo, somewhere between the start and finish of production they are not adding value to the business and are thus creating waste.
  • O – Overproduction: The waste of overproduction has been considered one of the worst wastes. Money is wasted because businesses must pay employees to manufacture the parts, find places to store them, inventory them, etc. All of these are redundant costs that could be avoided.
  • O – Over Processing: Over Processing basically means to do more to a product than technically needed, and if a product is not 100% perfect it is rejected and therefore wasted. Even though businesses aim to provide customers with high quality products that operate as intended, small imperfections that would not impede function, use, or aesthetics should not be automatically disposed of and reworked.
  • D – Defects: Defects do not add value. When products are created with a defect that hampers the function they must be reworked and remanufactured. This causes a waste in production, materials, and other resources such as electricity and machine wear and tear.

Waste is Avoidable!

With the right amount of dedication and drive, anyone can succeed with the elimination of waste. However, the first step is to identify the areas of waste so tactics can be implemented to revamp processes and practices to help reduce waste and start improving productivity. The best part is that any business can benefit from waste removal; TIMWOOD is not geared only towards industrial or manufacturing businesses as it can also be effectively implemented in nearly any work environment.

Doing Laundry Teaches Us About Flow

Flow is a concept that lean teaches about how a product/service moves from beginning to end.  When the product/service stops there is a disruption in the flow.  This is when inventory starts to build between two steps in the process.

With the functional mentality, people only worry about optimizing each machine, without regard to the flow.  The thought is, “I have to run this machine as fast as I can and get as much product out as possible.”

The hard part for people with this mentality to understand is the product/service will only move as fast as the slowest operation.  No exceptions.  Period.

Image courtesy of Salvatore Vuono / FreeDigitalPhotos.net

Image courtesy of Salvatore Vuono / FreeDigitalPhotos.net

Take a simple process like doing laundry at home.  My dryer is always slower than my washer, so when I have multiple loads of laundry to do nothing moves faster than the time it takes to complete a dryer cycle.

I move a load of laundry from the washer to the dryer and start the dryer.  Then I add another load to the washer and start the washer.  The washer always finishes at least 15 minutes before the dryer.  Instead of taking the laundry out of the washer and piling the wet clothes in a laundry basket, I let them sit in the washer.  Knowing the dryer is the slow part of the process, it would do me know good to start another load of laundry in the washer because it still won’t end before all the other loads have finished in the dryer.

This is how we should look at the flow of our processes at work.  It does no good to buy equipment or change the process to speed up a part of the process that is not the slowest step.  In the end, the product/service is still being completed at the same rate.

What is the dryer in your process?

Counting Down the Top 10 Viewed Posts of 2012 – 10 Thru 6

2013 is now in full swing.  Before 2012 is too far in the rear view mirror, I thought I would recap the Top 10 most viewed posts on Beyond Lean for 2012.

New followers of the blog can use this as an opportunity to read posts they might have not seen in the past.  While, long time followers can use this as an opportunity to re-read some of the top viewed posts.

This post will count down the 10th thru 6th most viewed posts of 2012.  Enjoy!

10. Guest Post: Selling Lean to People That Don’t Want It (July 2011) – This is a post from Joe Wilson before he became a full-time author at Beyond Lean.  Joe talks about ways to sell lean to people who are not bought into the benefits of lean.

9.   Making Leader Standard Work Visual (June 2011) – Previous Year Ranked #8 – An example of a visual board from a group I worked with.  The board makes the tasks and if they were completed by the managers visual.

8.  Dilbert Leading Transformation (July 2010) – Previous Year Ranked #10 – The Pointy-Haired Boss wants clear responsibilities and employee engagement.

7.  True Mentoring (May 2012) – This is my take on true mentoring versus fake mentoring that goes on in business today.

6.  Comparing Lean Principles to the 14 Toyota Principles (July 2010) – Previous Year Ranked #5 – The first part of a three part series where I compared the lean principles I learned from the Lean Learning Center to the Toyota Principles.  This post covers the first five Toyota Principles.

My next post will count down the Top 5 viewed posts of 2012.

Apple Will Fail if Manufacturing is Moved to U.S.?

Last week, I caught a blog Why Apple Has to Manufacture in China.  I read hoping to find some practical reasoning as to why it was critical that Apple manufacture in China.  I read the post twice and I couldn’t find any reason it was critical for Apple to manufacture in China.

The post does say labor cost is not a reason to manufacture in China.

It is not an issue of labor costs. In fact, labor costs play a very small role in the equation — both for Apple and for Timbuk2.

The post compares Apple to Timbuk2, a company that makes custom bags.  Two different business models, Timbuk2’s custom production versus Apple’s mass production.  Here is what the post has to say about this.

Timbuk2 manufactures in the US because it produces custom-made bags, orderable through its handy web site, and customers ordering custom bags cannot wait for weeks for a bag to come from China by boat, while shipping by air is expensive and there would still be some uncertainty due to customs clearance. A very similar logic lies behind fashion retailer Zara’s choice to manufacture in Europe, also an expensive location in terms of labor costs. Of course, Timbuk2 does also produce many bags in China but these are mass-produced, non-customized bags, sold wholesale at a fraction of a price of a custom bag, and they are not time-sensitive.

Apple does not produce custom products and so it does not need to deliver quickly — all of its products are standard and mass-produced; just like the standardized bags for Timbuk2, so there is no reason to stay close to end-customers. Moreover, Apple does not change its assortment often — the new iPhone will probably be for sale for another year or two.

There is no need for mass producers to be close to the end-customer?!  Really?  So it is OK to spend a couple of months to get new phones to the U.S. or pay for air freight (which is quite expensive), if there is a defect in a batch of phones?  Not in any business model I know of.  That delay risks the loss of customers and costs the company more money than is needed because of the big batches that may have to be reworked or thrown out.  Also, when the life-cycle of a product is coming to an end it may cause more phones to be thrown our or discounted because of the large batches.

The post is contradicting itself because it says cheap labor is only a small part of the total cost, but then does not take total cost into consideration when looking at all the freight and inventory and possible obsolescence costs.

So why else is it important for Apple to manufacture in China?

Apple is a huge company and as a New York Times article published in January this year details, its production volumes and often unpredictable engineering changes require manufacturing flexibilities and engineering capabilities on a scale that is simply unavailable in the USA.

Exactly my point about inventory above.  The post goes on…

In China, by contrast, manufacturers can deploy thousands of collocated engineers to introduce needed changes overnight, and large supply of labor allows to ramp up and ramp down capacity quickly. There is simply no factory capable of employing 250,000 workers day and night in the USA, surrounded by flexible and capable suppliers. So the location decision isn’t really about labor costs — it’s about manufacturing risk and where that risk is best managed.

Because Apple has bad processes upstream, it is OK to disrupt the lives of thousands with no regards downstream to fix the problem.  Reminds me of the saying, “A mistake by you, does not necessitate an emergency by me.”  Again, raising the cost to produce.

To summarize:

  • Mass producers don’t need to be near the end-customer
  • Disrespect for people is OK when fixing a problem you created

Apple may be on top of the hill today, but 2-5 years from now they won’t be.  As competitors, like Samsung, close the gap managing cost is going to grow more important. Fixing your processes so engineering changes are not needed overnight and locating close to your end-customer so when you do have an engineering change you don’t have tons of inventory to dispose of is a great way to manage your cost.

 

Inverse Inventory Effect

Conventional thinking says, “The more inventory there is on-hand the better the serviceability rating and on-time delivery rate.”

Have you heard that one before?

Lean thinking says the inverse is true.  “The lower the inventory on-hand the better the serviceability rating and on-time delivery rate.”

How can this be?

I have read studies and heard others talk about the lean perspective.  Even more compelling, I have implemented and witnessed the lean thinking perspective be proven right time and time again.

Traditional thinking of more inventory is better seems to make sense, but what happens is the inventory is never of the right product needed at that time.  The economic scales of mass production says to produce a lot of the product when running it to minimize setup and overhead costs.  Following this thinking means the company does not switch over and start to produce Product B early enough and is out of stock on Product B when ordered but there is an abundance of Product A in the warehouse.

Lean thinking produces just the amount of each product needed so when it is ordered there is enough and overall there is less inventory.

I watched as assembly line employees got upset because we took 80% of their component inventory away from the assembly line storage.  The assemblers thought they would never have enough product to keep the line running.  We explained they would have only 2 hours of component stock at the line and the line would never shut down.  By the end of the third day, the assemblers were happy with the new inventory system because they had more space, but more importantly they had the right components at the right time.  They reduced the time the line was down waiting on components by 90% compared to when they had a ton of inventory at their finger tips.  This occurred one-by-one across all five assembly lines in almost exactly they same manner.

Less inventory does deliver better serviceability and on-time delivery rating.

This does not mean just go out and reduced the inventory without a plan just to reduce it.  It is being mindful of what is needed, when and how to get it there on-time.  It is easier to see what is there when there is less.

What is your experience with reducing inventory?

Granddaddy of Them All

If you are a Big Ten or PAC-10 college football fan, I am not referring to the Rose Bowl.  I am referring to Over Production.  The granddaddy of all types of waste in the lean world.

Transportation, Inventory, Motion, Waiting, Over Production, Over Processing and Defects.  These are the 7 types of waste.

Free image courtesy of FreeDigitalPhotos.net

Why is Over Production the granddaddy of them all, because Over Production can lead to more of each of the other 6 types of waste.

Transportation: If you are over producing then you are transporting more product then you need to transport.  This could lead to paying for more trailers then you need affecting the bottom line directly.

Inventory: This is the direct result of over production.  If more is produced than needed, the extra product goes into storage and sits and waits until it is needed if ever.

Motion: Storing all the extra product in inventory takes up more room.  This means a bigger space is needed to do the same amount of work which leads to all the extra motion around the inventory.  If you put 10 skids between two machines instead of two skids then when the operator moves between the two machines there is an extra 8 skids of distance to walk.

Waiting: If the product is not needed, it goes into inventory where it sits and waits.  Waits to be sold.  Waits to be finished.  Waits to be thrown out.

Over Processing: The excess product can be reworked into a similar product with a few modifications.  This over processing what is needed to get the product right would not have happened if there was not excess product to modify.

Defects: Storing inventory can lead to crushed boxes destroying product or product that becomes outdated and must be thrown out.

Over production is the worst of the worst.  As hard as it might be to shift the mentality, it is better to see people standing around than it is to watch them produce more than is needed in order to look busy.

Counting Down the Top 10 Viewed Posts of 2011 – 10 Thru 6

2012 is now in full swing.  Before 2011 is too far in the rear view mirror, I thought I would recap the Top 10 most viewed posts on Beyond Lean for 2011.

New followers of the blog can use this as an opportunity to read posts they might have not seen in the past.  While, long time followers can use this as an opportunity to re-read some of the top viewed posts.

This post will count down the 10th thru 6th most viewed posts of 2011.  Enjoy!

10. Dilbert Leading Transformation (July 2010) – Previous Year Ranked #3 – The Pointy-Haired Boss wants clear responsibilities and employee engagement.

9.   Adding Inventory…A Good Thing? (March 2011) –  Sometimes adding inventory might be the right thing to do based on your business. Take time to understand your business and its needs before deciding.

8.  Making Leader Standard Work Visual (June 2011) – An example of a visual board from a group I worked with.  The board makes the tasks and if they were completed by the managers visual.

7.  Beyond Lean Joins Twitter (February 2011) – Beyond Lean announces the venture out onto Twitter.

6.  Redbox Produced in the U.S. Using Lean (October 2010) – Previous Year Ranked #5 – News article about Redbox manufacturing using Lean to produce the Redbox dispensers close to it’s customers in the U.S.

My next post will count down the Top 5 viewed posts of 2011.

Don’t Over Complicate the Formula

People are enamored with kanban systems.  This can be a good thing, but all too often they don’t understand kanban systems are there to help highlight make problems visual.

The first thing almost everyone jumps to is the calculation for the minimum and maximum levels for the kanban.  I have seen some formulas that would make a mathematician with 3 PhDs blush.  I don’t understand the need to have a complex formula.  For years now, I have used what I see as a basic quick and easy formula to calculate the min and the max.

Min = Lead Time + Safety Stock

Max = Min + (Min/2)

Lead time is the time it takes from the moment the component is ordered until it is received and ready to be used.

Safety Stock is the amount of stock to hold because of something that could occur to delay the lead time.  Base this on where you are getting the parts from, how often does something go wrong, etc…  For example you might hold a little more safety stock for something you purchase from a company 300 miles away versus a component that is made in-house.

If the process is working smoothly, you will receive the component you ordered right as you get into the safety stock.  When the minimum level is set properly, you will feel freaked out because you believe you will run out and right about that time the components will arrive.  It is a weird feeling that you will adjust to, but makes you heartbeat fast the first few times until you get used to it and trust the process.

The maximum is something a friend and I completely made up several years ago.  There is no reason it has to be this.  I continue to use it because so far it has worked well for me over the last decade.  I always round up to the nearest full day.

Example:

Min = 2 day lead time + 1 day of safety stock = 3 days

Max = 3 + (3/2) = 4.5 round up to 5 days

The only other number that is needed is the quantity of the product used per day.  This is used to translate the number of days to a quantity of the component.

1 day usage equal 500 parts

Min = 3 days x 500 parts = 1500 part

Max = 5 days x 500 parts = 2500 parts

The point of the kanban min/max levels are to get you in the ballpark.  It shouldn’t be an exact science because you will probably round to nearest full carton or order quantity anyway.  Plus, min/max levels should NEVER stay static.  They are dynamic and change.

I wold recommend on having what you might think is a little too much inventory to start.  You can always adjust your kanban min/max levels down as you understand your process.  If you start with too little of inventory, you will run out of parts and people will not have faith in the new process and give up early on before it has a chance to work.

Get rid of the waste in your kanban calculation and go and see your process to understand if your kanban min/max are appropriate.

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