Setting the Stage for Lean Manufacturing Success

Automotive

SETTING THE STAGE FOR LEAN MANUFACTURING SUCCESS

AUTHOR Despite careful study of lean production, many manufacturers miss out on Ron Harbour lean’s benefits—including lower costs, higher product quality, and greater employee productivity. Why? Beguiled by lean’s business systems and technical tools, they neglect the most important—and least understood— key to executing lean: people systems. Lean manufacturing has been active for a long time, traveling a 30-plus-year journey in the West. While the auto industry has led the effort, lean is now being broadly applied across a multitude of industries, ranging from hospitals and pharmaceuticals to electronics and aerospace. In the automotive production industry alone, a wealth of lean production programs has cropped up, as variations on the renowned Toyota Production System and Ford’s much earlier waste-reduction efforts. (See “Henry Ford’s Philosophy.”)

HENRY FORD’S PHILOSOPHY As long as a century ago, Henry Ford embodied lean manufacturing philosophy. He believed that by controlling every link in his industry’s value chain, he could minimize the time it took to transform raw materials into manufactured vehicles. He could thus cut costs and create cars that could be sold at prices accessible to virtually everyone.

Ford owned iron ore mines for the production of steel, beaches where sand could be gathered to make glass, even cattle ranches to serve as sources of leather for his autos’ upholstery. In today’s world of fractured value chains, where different entities own different links, few people remember Ford’s approach to taking time and cost out of the auto manufacturing process. These days, owing to value-chain fragmentation, cost is added to each step in the process—whether it takes the form of time, mark-ups, or materials-transportation expenses. Reflecting these higher costs, all new cars are purchased by only 20% of the population.

COMMITMENT TO LEAN IS THERE …

As lean production has gathered steam, companies from a wide variety of industries have studied it carefully. Managers have been sent to countless courses and conferences on lean. And they’ve made innumerable visits to manufacturing plants that have garnered reputations as lean exemplars.

During these visits, they’ve observed the plants’ engineering functions, physical layout, equipment, automation systems, and lean tools and practices, such as the use of andon cords. They’ve collected vast volumes of data and taken copious notes. Upon returning home, they’ve experimented with the tools and practices they observed through these visits. They’ve even been stepping up cross-industry sharing and studying of lean principles and practices. As just one example, some car companies have studied Boeing’s software simulations for crash testing, while others have studied Microsoft’s product innovation process.

Yet despite these efforts, the majority of companies that try to adopt lean techniques have not achieved the gains they expected—whether it’s in quality, cost, or productivity. Clearly, no amount of study has been able to guarantee that a manufacturing organization can reach the pinnacle promised by lean. And many businesses have found themselves in a frustrating cycle of start-stop-start-again, launching a lean initiative only to see it fail, and then striving yet again to make it work.

These disappointments are costly: They waste time and money, and they leave employees (hourly and salaried alike) jaded, cynical, and resistant to subsequent change initiatives proposed by management. As executives lose their credibility with line workers, it becomes increasingly difficult to reinvigorate workers to take on another improvement effort. The company ends up worse off than when it first introduced lean.

Why are there so many disappointments, despite lean’s long history and companies’ genuine interest in and commitment to it? What separates lean manufacturing stars from their not-so- successful counterparts? And how can manufacturers unleash lean production’s real promise? The secret lies not in which lean principles and practices an organization adopts—but in how it executes them.

IT’S ALL ABOUT PEOPLE SYSTEMS

Too many companies view lean manufacturing as merely a set of business systems (such as automation) and tools that can be applied immediately and that should begin generating results promptly. Lean’s systems and tools are valuable, to be sure. But it’s how a company executes them—supports their use—that makes the difference between success and failure.

Executing these systems and tools properly takes time. Most important, it takes the right people systems—including clearly defined roles and responsibilities as well as sound training programs. A manufacturer can have a brilliant layout and cutting-edge technologies in its plants, but these will have little value if the company doesn’t also have the right people systems in place. Moreover, establishing the appropriate people systems calls for a cultural and organizational transformation that must involve shop-floor workers. And in our client experience, people constitute the most misunderstood aspect of lean.

People systems run through all four phases of what we call the Lean Implementation Curve (see Exhibit 1), though people play an especially critical role in the earlier phases.

M le a p te o r e ia P l PHASE IV Continuous Improvement and Partnering Collaboration

o y r t k li pl a ace Qu PHASE III Supplier development Lean Tools For PD linkage via DFA/DFM and QFD Quality, Delivery, and Cost Improvement Continuous improvement/waste elimination Flexible workforce

Quality circles

JIT (Just in time)

One piece ﬂow Andon Kanban PHASE II Level production Discipline Building QCO (Quick Change Over) Error prooﬁng In station process control TPM (Total Productive Maintenance) Value stream mapping Empowered workforce PHASE I Problem solving Organizational Development Visual management Standardized work/job instruction training Feedback and communication system 5S/workplace organization Go see it management system Core competencies linked to performance Roles and responsibilities Strategic alignment and development Vision, mission, values

PDCA

Copyright © 2012 Oliver Wyman 4 All four of these phases must be implemented in the sequence shown in the figure. It is especially critical for an organization to get Phase 1 right: Doing so builds a solid foundation for the remainder of the process. Moreover, a manufacturing business cannot expect to see cost, quality, or productivity improvements during Phase 1; such outcomes occur during the later phases if the first phase has been managed correctly. However, if the enterprise neglects Phase 1 activities, it won’t likely ever see the results promised by lean.

With this in mind, let’s take a quick look at the four phases:

•• Phase I: Organizational Development. In this phase, the manufacturer clarifies its vision, mission, values (“Who are we? What do we stand for?”); establishes key performance indicators (“How will we know we’re succeeding?”); and determines team structure (“Who will work with whom?”) and span of control (“How many direct reports will each manager have?”). (See “Spotlight on Span of Control.”) It also define roles and responsibilities (“Who will do what? When?”). Involving all workers, unionized or not, is essential during this phase. •• Phase II: Discipline Building. During this phase, the organization begins implementing lean’s basic disciplines, such as 5S, visual management, TPM, and basic maintenance. It may start seeing results in the form of lower costs, higher quality, and greater productivity. •• Phase III: Lean Tools of Quality, Delivery, and Cost Improvement. This is the phase where the company implements lean systems and tools, such as andon cords and kanban systems. •• Phase IV: Continuous Improvement and Collaboration. In this final phase, the organization spreads its lean systems to suppliers, requiring them to follow the same direction. It also works with its own engineers to develop new mechanical systems on which to build production. And it creates easier-to-build designs. This is the phase during which the lean system is deployed to all areas of the organization and to all of its partners. Lean thus becomes a way of life. As with learning a new language, when one eventually begins thinking in that language, all stakeholders in a lean organization begin “thinking in lean.”

SPOTLIGHT ON SPAN OF CONTROL Span of control is the ratio of supervisors to hourly people. The right span can depend on a manufacturing facility’s layout and density of the line. For example, an assembly line that uses automation extensively and spreads workers over relatively long distances calls for a smaller span, perhaps a 1:2-3 ratio. A densely packed line with numerous manual operations may require a 1:8-9 ratio. If a manufacturer’s definition of roles and responsibilities doesn’t include arrangements for a team leader to step in for an absent employee, the span might be 1:10. A typical assembly line is 1:5 or 1:6.

Copyright © 2012 Oliver Wyman 5 What happens if an organization fails to establish the required people systems during Phase 1? Employees will not know how to use the systems and tools the company equips them with later. For example, suppose management has given employees permission to pull an andon cord if something goes wrong—but it hasn’t spelled out roles and responsibilities regarding this lean tool. An employee pulls the cord when he spots a problem. But then he is forced to stand there, asking himself questions such as, “Now what? Who’s supposed to show up and help me? When is it okay to start the line again? Should I get the plant manager involved?”

To avoid such uncertainty, managers must establish the appropriate team structure, determine the correct span of control, and provide the right training before “empowering” employees to use lean tools and systems. By setting the stage in this way, manages enable workers to use the tools effectively and thus gain confidence and trust in the tools. Manufacturers that establish these foundational elements also send a clear and vital message to workers: “We’re serious about lean. We believe you can adopt these practices. And we’ll support you.” As a result, workers embrace lean, back up lean’s principles with effective behaviors, and experience true empowerment. (See “Tips for Laying a Strong Lean Foundation.”)

TIPS FOR LAYING A STRONG LEAN FOUNDATION •• An organization can set the stage for lean itself, but the process will be accelerated if the business gets help with this phase from someone who has had experience with both successes and failures. •• Failing at adopting lean is the best way to learn. But failure is safer when a company is relatively young, because the consequences are not as life-threatening as they are for a more mature organization. •• The smartest manufacturers let their workers fail at a less painful organizational or cultural aspect, such as job assignments or visual controls. By learning from these failures and getting it right the next time, workers build confidence and ability. •• Companies should involve all workers in the Lean Implementation Curve, so they can see for themselves how serious the company is about lean. Moreover, they can appreciate how important people systems are in the early phases of lean (particularly Phase 1).

In too many companies, executives see the enterprise’s manufacturing function as a necessary evil. But manufacturing is like a mirror that reflects all of the company’s decisions, actions, and values. Everything the organization does and believes culminates in what goes on in its manufacturing function. A company that is lean and efficient in product and process development will lay the foundation for achieving much greater manufacturing success.

To ensure that manufacturing depicts what executives want it to depict, executives must build the right foundation for implementing lean. Their reward? A manufacturing function that delivers a handsome return on the company’s investment in lean—and that produces the benefits promised by lean, in terms of cost, quality, and productivity.

Take Harley-Davidson. By mastering lean, the US motorcycle company turned around manufacturing plants in Pennsylvania, Wisconsin, and Kansas—some of which might have closed or sent jobs to Mexico or China. The savvy use of lean practices and principles thus burnished this iconic American brand.

Copyright © 2012 Oliver Wyman 7 Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. Oliver Wyman’s automotive experts have broad industry experience and a commanding track record of successful consulting projects for leading automotive OEMs and suppliers in Europe, America and Asia. We offer consulting services along the entire value chain of the auto industry: R&D, purchasing, manufacturing, sales and channel management, after-sales and financial services. Oliver Wyman’s global Automotive Practice supports clients with strategic topics like brand management, customer orientation, corporate and business strategies, market, competitive, and technology analyses, product development, innovation management, sales strategies and after-sales programs. Operational optimization includes purchasing, production optimization, efficiency improvement programs, reengineering, turnaround management and restructuring. In addition, Oliver Wyman offers the whole range of mergers & acquisitions consulting services, from partner search to evaluation, transaction support, and post-merger integration.

For more information, please contact: Ron Harbour Partner 1 248 906 7912 [email protected]

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