E H T SYSTEMS ® VIEWPOINT THINKE R BUILDING SHARED UNDERSTANDING

VOL . 20 NO . 9 NOVEM BER 2009 WHAT IS THE RELATIONSHIP BETWEEN SYSTEMS THINKING AND LEAN?

BY MICHAEL BALLÉ

W hat is the relationship between insights. An understanding of system Suppliers work based on forecasts systems thinking and lean? That’s thinking dramatically improves the because they aren’t able to quickly a fascinating question, one not so easily learning curve of lean techniques. Hav - change their product mix or capac - answered, because we’re talking about ing worked with systems thinking con - ity—and they often get the forecast two very different approaches, one a cepts and system dynamics simulations wrong. From a systems thinking per - philosophy as well as a set of tools, the for years before studying lean practices spective, the main driver of the bull - other, a practice. In its broadest sense, in detail, I immediately saw the pur - whip effect is the delay in the systems thinking is a framework that pose (if not the application) of lean, information loop. Since suppliers can’t takes into account the interconnected which wasn’t the case for my col - see what is going on at the final cus - nature of systems. It is also a thinking leagues without a systems thinking tomer purchase point, they build fore - tool, which helps us look at the impact background. casts based on the information they of feedback loops on how a system Conversely, at the time, I was part receive from their own immediate cus - behaves; analyze specific situations to of a group tasked with figuring out tomers—information that is necessarily explain otherwise puzzling behaviors; ways to practically apply systems think - delayed and distorted. and design interventions with an eye ing concepts in day-to-day operations. The bullwhip effect is by now well for potential unintended consequences. Although we experimented, we gener - known, and most systems Lean, on the other hand, is strictly ally floundered. What we did find was try to moderate it, generally by increas - a practice, not a philosophy. It is based that the lean techniques offered a ingly sophisticated computer systems. on hands-on know how about how to hands-on way to apply systems thinking Unfortunately, half a century after Jay teach people to improve their own concepts. Because lean practices have Forrester first described the problem, processes in terms of both customer been developed over several decades, an the bullwhip effect is still alive and satisfaction and cost management by entire field of experience exists in terms well—as anyone affected by the latest eliminating waste. Taiichi Ohno, a key of how to make them work. financial crisis or working for a third- figure in developing the lean approach, The bottom line: Without an under - tier supplier will testify. would often say things like: “Don’t look standing of systems thinking, it’s hard to get In the 1930s, Kiichiro Toyoda, the with your eyes, look with your feet. lean right, and without the practice of lean founder of Toyota Motor Company, Don’t think with your head, think with techniques, it’s difficult to make systems wrote a lengthy pamphlet in which he your hands.” As a practice-oriented thinking a day-to-day reality to concretely coined the term “just-in-time.” He movement, lean is by and large wary of improve system performance. explained how each station of the abstract thinking and generalizations. assembly process should only manufac - Nonetheless, although systems The Bullwhip Effect ture what is required, when it is thinking and lean operate at these two To make my case, I shall focus on required, and in the exact quantity different levels, I have learned from comparing a singular dimension that required. In other words, he described a personal experience that they are com - has been at the origin of both move - remedy to the bullwhip effect that was plementary and are based on similar ments: supply chain systems dynamics plaguing Toyota’s early operations. Other and just-in-time . One of the seminal automotive manufacturers compensated applications of early systems thinking for the effect by creating massive inven - was Jay Forrester’s modeling of the tories. Toyota, however, was so strapped “bullwhip” effect (also known as the for cash in its early years that it con - Forrester effect) in a supply chain. stantly sought practical ways to deliver TEAM TIP Anyone who has played the famous the cars customers wanted with the least What methodologies or approaches “Beer Game” knows that minor varia - possible—they simply could does your organization use that tions in customer demand can amplify not afford to carry large stocks. would be enhanced by a systems throughout the supply chain to create The company abandoned the initial perspective? huge instabilities in demand for rank attempt at just-in-time and many other three or four suppliers. innovations during WWII, when Toyota

8 Copyright © 2009 Pegasus Communications, Inc. ( www.pegasuscom.com ) All rights reserved. For permission to distribute copies of this article in any form, please contact us at [email protected] . operations were more or less taken over company started by focusing on the cars was calculated so that the kanban by the government. During the 1950s impact of feedback loops on “lead time.” instructions to suppliers of individual and 1960s, Toyota engineers resumed Lead time is the interval from the parts would be leveled. In doing so, their efforts to make the just-in-time moment the customer gives an order to they avoided demand variation on the dream a reality. To do so, they latched the point when the company collects parts supply. Managers tried to sched - onto the idea of the supermarket . the cash; it encompasses production and ule the final assembly line so that each stocking time. Lead time is a good parts supplier would get the most sta - The Supermarket measure of the delays in the chain, ble, regular order message possible— The supermarket concept was (and, which create the instability. Toyota something that remains a daily strangely, still is) a revolutionary idea. developed a unique method called the challenge, considering the complexity Every operation in the supply chain “Material and Information Flow Analy - of building an automobile. Toyota has would “own” its finished stock (as sis” to visualize where information been remarkable both in understanding opposed to sending it to a warehouse, flows impacted the process and how. the dangers of demand variation on where it’s owned by “the system”) and (This technique became known outside the whole supply chain and in devel - would lay it out as on a supermarket of Toyota as “Value Stream Mapping,” oping the technical ability to be able to shelf (in a fixed location). In the next from John Shook and Mike Rother’s schedule at that level of detail. Very few process, the “customer” would then bestselling book, Learning to See ). industrial companies are lean yet, come and take what it needed, when it On the shop floor, information is because most still have trouble under - needed it, in the quantity it needed. represented by cardboard cards (the standing the fundamental link between The production operation would then famous kanban ), which symbolize pro - information and production—let alone replace what had been withdrawn and duction or withdrawal instructions. No know how to deal with it. no more . crate of parts can be moved without In attempting this deceptively sim - being ordered to by a kanban card; no Information Flows ple discipline, Toyota hit upon a num - parts can be made without a kanban The damage caused by the lack of sys - ber of intractable problems that most production instruction. To Toyota engi - tems thinking in attempts to apply lean industrial companies still haven’t neers, the link between leveling shows starkly in two typical cases. resolved to this day. First, there was (smoothing demand variation) and Many companies have latched onto variation at the customer end, both in kanban (production instructions) is Value Stream Mapping as a great tool the total volume of orders and in the intuitive, but to external observers, it to analyze their processes (which it is). mix of specific products and their can be hard to catch. My father recalls But when you look at their maps more component parts (models, options, visiting a Toyota plant in the 1980s and closely, you often find that the produc - etc.). In order to avoid the bullwhip studying their efforts to build several tion process is sketched in painful effect, Toyota had to learn to buffer and different car models on the same line detail, whereas the information flow is smooth this variation through a mix - to improve flexibility. Instead of sched - barely suggested. Most people use the ture of planning and the targeted use uling runs of the same model in maps to clarify and simplify their of finished product stock—a practice batches, they would mix models so no material processes (mostly in terms of that became known as leveling . two cars on the line would be the flow), not to optimize how the pro - Second, being able to resupply same. Puzzled, my father, then head of duction process works as a whole. what had been withdrawn as well as manufacturing engineering for What Toyota engineers have provide for a wide variety of compo - Renault, looked hard at the line and learned from their long experimenta - nents on the same equipment required finally figured out: “You’re scheduling a tion with these ideas is that the lead far greater flexibility than industrial vehicle with a lot of work next to a time of planning, production, distribu - processes can typically provide. Indus - vehicle with less work to stabilize the tion, and sales is a good indicator of the trial processes are designed to optimize overall operator cycle,” he told them. overall performance of the process. The the parts, not the system, and machines “Yes, they answered—and the kanban.” Material and Information Flow Dia - are generally easy to run but hard to My father spent some time clarify - gram is one element of a full lead-time change. Toyota had to learn to change ing his understanding that to maintain analysis, in which the information flow tools or assembly sequences frequently productivity and limit variation on the is largely as important as the material and painlessly to make its supermarket line, they would first program a high- flow. Indeed, experienced lean practi - system work. More than 60 years later, content vehicle, with more work than tioners tell you that their main the company is still working on it. average, and then a low-content vehi - headache, once the obvious flow prob - cle, with less work that average. The lems have been solved, is leveling, level - “And the Kanban” result was that operators would work at ing, leveling: managing the information In the process of developing this capa - a steady rhythm overall. “That’s right,” flows to reduce the lead time in the bility, Toyota has found that the informa - they would insist. “And the kanban.” feedback loops and minimize variation tion the production process receives is at When he finally asked managers in all aspects of production. least as important as its delivery capabil - what the kanban had to do with it, Similarly, countless companies have ity. This is pure systems thinking. The they explained that the sequence of tried kanban scheduling only to finally

© 2009 PEGASUS COMMUNICATIONS 781.398.9700 THE SYSTEMS THINKER ® NOVEMBER 2009 9 give up and go back to their ERP com - and 50 percent fewer defects than drastically increase our capacity to puter systems. Implementing kanban operations that supply other automak - improve systems. without a clear idea of the goal in terms ers (A. Iyer, S. Seshadri, and R. Vasher, The bad news is that integrating of information management is doomed Toyota , these two approaches means more to fail. Kanban is about taking all ambi - McGraw-Hill, 2009). Efforts to get rid work. If I’m correct, system thinkers guity out of the information flow to of the bullwhip effect (among other must acquire the discipline of lean make sure that the final assembly sched - industrial problems) clearly pay off. So practice. This has been my own partic - ule is reproduced “mechanically” why don’t most industrial companies ular path: fun, interesting, but never throughout the supply chain, avoiding get such benefits from their lean pro - easy. And lean practitioners must make the need for the individual judgments grams? My personal belief is that with - the effort to understand systems think - that contribute to the bullwhip effect. out a strong foundation in systems ing, which is a significant intellectual Indeed, when you play the Beer Game, thinking, people find it hard to under - investment. you discover that communicating cus - stand the purpose of the lean tools, Still, I believe this challenge is tomer demand without trying to create which is to improve the behavior of worthwhile. In today’s hypercompeti - forecasts reduces unwanted variation in the system as a whole. tive markets, companies needs the per - your ability to produce and deliver. Furthermore, since Toyota devel - formance improvement promised by Building on this insight, in the kan - oped these practices with a strong lean. Furthermore, the strong systems ban system, if the final assembly has been practical bias (it is said there is no thinking undercurrent of lean makes it scheduled so as to be properly leveled, expertise in lean, only experience), the focus on reducing waste of all kinds, the entire supply chain will behave underlying thinking behind the tools is including externalities such as pollu - smoothly by blindly following the cards; hard to piece together. UsingValue tion and garbage. Since its humble the cards mechanically reproduce the Stream Mapping without looking for beginnings to its recent 2020 global final customer signal. Interestingly, kan - the effects of feedback loops misses the vision, Toyota has continuously aimed ban is also a great tool for revealing the point. Trying out kanban without to offer value to society overall. Con - real leverage points for improvement in understanding how ambiguous infor - sidering the problems we collectively delivery systems—which rarely are those mation can cause oscillation in a face in this new century, a proven one expected at first. Most “bottlenecks” system will produce disappointing method of industrial improvement also turn out to stem from mistakes in infor - results. intent on reducing waste in all its mation and planning policies that wreak On the other hand, trying to affect forms should not be dismissed lightly. havoc on the shop floor. system behaviors without the hands-on One of the enduring puzzles of Experimenting with these various practice of lean can be equally discour - the lean movement is why it hasn’t techniques has led Toyota to address the aging. The experience of lean reveals spread more quickly through industry: other main causes of the bullwhip effect. that key leverage points are often hid - Many try, few succeed. Systems think - For instance, the company offers far den and counterintuitive—a fact well ing, I believe, could contribute signifi - fewer rebates than its competitors and recognized by systems thinkers. Most cantly to solving this conundrum by refuses promotions from suppliers in the bottlenecks turn out not to be so in providing an overall framework to lean aftermarket parts . The com - practice. The lean field has a lot of practice. To paraphrase Karl Marx, the pany’s logisticians understand the impact experience to offer both in terms of point is not merely to understand the of pricing fluctuations on the behavior know how to change systems and in world, but to change it. Systems think - of actors in the supply chain and have terms of leadership practice to con - ing offers the means to understand; convinced their purchasing and pro - vince the people in charge of processes lean, the practice to change. By pursu - curement colleagues to try to minimize to make modifications. Without this ing both jointly, we can learn faster them. In the same manner, Toyota fre - practical perspective, a systems thinking how to change the world in the right quently provides its suppliers with run - approach to a problem can seem way to face our global challenges. • ning forecasts, which help vendors daunting. Realizing how everything is throughout the supply chain to antici - interrelated doesn’t help much when pate demand. The forecasts also limit the one wants to change the global behav - Michael Ballé is associate researcher at Telecom incentives for suppliers to game the sys - ior of a supply chain. ParisTech and managing partner of ESG Consultants. tem; since there is little ambiguity in For the past 15 years, he has focused on how To Understand and to Change companies use lean techniques to develop a lean the information chain, gaming strategies culture as part of his research on knowledge-based are less attractive and have a much The rapid progress of science since the performance and organizational learning. He has higher risk of angering the customer. Industrial Revolution has been driven written several books and articles about the links by the close interplay of theoretical between knowledge and management ( Managing Improving the System as a with Systems Thinking, The Effective Organization, Les and practical advances. I believe that Modèles Mentaux ), and more recently, co-authored Whole the mutual interdependence of systems two novels, The Gold Mine , which has Plants that supply Toyota in the U.S. thinking and lean offers a true oppor - received the Shingo Prize for Excellence in Manufac - turing Research, and The Lean Manager. Michael is have 14 percent higher output per tunity here. By recognizing the syner - co-founder of the Projet Lean Entreprise and the worker, 25 percent lower , gies between these two fields, we can Institut Lean France.

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