Institute of Management Services

Journal of the Institute of Management Services

Achieving excellence through people and productivity MManagement anagement Services

TThehe SustainabilitySustainability ofof LLeanean TTransformationransformation MManufacturinganufacturing andand LeanLean MManufacturinganufacturing inin thethe UKUK

Autumn 2008 Volume 52 Number 3 ISSN: 0 307 6768 CONTACTS

Autumn 2008 Volume 52 No 3

ISSN 0 307 6768

Management Services Ewell House, Graveney Road, Faversham, Kent ME13 8UP

Editorial Telephone +44 (0)1795 542436 The Institute of Management Services is the primary body in the UK Facsimile +44 (0)1795 535469 concerned with the promotion, practice and development of the range Email [email protected] Editorial deadline for the Winter issue is 10 November of methodologies and techniques for the improvement of productivity Publication date is 12 December and quality, known collectively as ‘Management Services’. This embraces the disciplines of industrial engineering, work study, organisation and Advertising methods, systems analysis, and a wide range of management information Telephone +44 (0)1795 542413 and control techniques as illustrated in our Body of Knowledge. Facsimile +44 (0)1795 535469 Email [email protected] The Institute acts as the qualifying body for the Management Services Editorial Panel profession in the UK, focusing developments in practice and knowledge David Blanchfl ower, Chairman and acting as a forum for information exchange. This in turn enables our John Lucey members who work under a variety of job titles across the whole of the Melanie Armstrong UK economy, to make a more effective contribution to the well-being of their own organisation and to the nation’s economy as a whole. Editor Melanie Armstrong In addition to creating and upholding professional standards for the Assistant Editor practice of management services through the adoption of a code of ethics Clare Swaffer and the provision of a system of qualifying examinations, the Institute of Management Services collaborates with national and international Designer professional bodies in similar fi elds. Doug MacKay The Institute is a member of, or represented on, a number of other Advertising bodies including the World Confederation of Productivity Science, the Rob Aspin European Federation of Productivity Services, and the European Institute Published by of Industrial Engineers. The Deeson Group Ltd on behalf of The Institute of Management Services Institute of Management Services Brooke House Printed by 24 Dam Street Atlantic Print Ltd Lichfi eld Staffs WS13 6AB

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We also want your news and points of view about what appears in this journal. Something you disagree with? Tell us about it. CONTENTS

In this issue of Management Services… Cover Story In this edition, Dr John J Lucey presents a series of articles based on research which investigates the main enablers and inhibitors to the sustainability of major lean transformations

Institute News 4 The State of Lean 16 Manufacturing in the Problems Are 8 UK – 2001-2006 Uncovered In part two, Dr John J Lucey looks A case study explaining how at the growing importance of Scott-Grant applied lean lean principles to improve productivity at Selective Covers Continuity Is The Key 26 A case study explaining how Kaizen brought continuous The Sustainability 10 26 improvement to Leyland Trucks of Lean Transformation Introducing a series of articles by Dr John J Lucey This Means Me 30 The sixth and fi nal part of Fit for The Changing Face 11 the Future, by John Seddon of Manufacturing in the UK Connecting Lean 33 In part one, Dr John J Lucey and Organisational examines the decline of Learning manufacturing in the UK Jamie Flinchbaugh discusses the and the role of foreign benefi ts of integrating lean and owned companies organisational learning 30 Management Services 4 Autumn 2008 News Chairman’s Column This will be my last Chairman’s column as I will have completed fi ve years as Chair when I stand down following the Institute’s AGM on October 10. Like most Institutes, we have faced the challenge of reducing membership and an erosion in what were core areas for our membership. You will see that this journal focuses on the state of manufacturing in the UK and the current state of lean manufacturing in the UK. The manufacturing sector continues to reduce in size and the proportion of UK companies owned by foreign companies is much higher in the UK than in the rest of Regional News Europe. This is especially true in the utilities sector and is probably contributing to the soaring cost of household energy. The IMS have faced this challenging period by adapting and, in essence, we have applied our own tools and techniques to the South East Region challenges we faced. These same challenges have driven other For some time, the South East Region has been functioning similar sized institutes into liquidation. largely as an appendage to the Eastern Region, with myself as I would like to pay tribute to the hard working members of the representative. I am looking to rebuild activity and would Council who have helped secure the survival of the IMS for the welcome interest from other members from London southwards foreseeable future. This marks the end of a period of consolidation who would like to work with me on this. I am happy to be and rationalisation and the beginning of a new phase in the history contacted on 020 8319 2326 or [email protected] of the IMS. by any members interested. In spite of being regarded as the instigators of change and In the meantime, if you intend to travel by train to the AGM improvement, I have often detected a real resistance within our in Lichfi eld on October 10, I will be leaving Euston at 08.40am membership to enthusiastically embrace change and harness the (Virgin don’t bother with a regular direct service to Lichfi eld, so latest technology. The speed of technological advancement can this is via Birmingham) and would welcome fellow travellers. Let often be daunting, so it is vital to grasp the opportunity that it me know if you are coming along! offers. Mostyn Lewis The IMS website is rapidly becoming our portal or ‘shop window’ to the world. We can reach members all over the world and engage in a meaningful two-way communication process. I hope to see the time when the majority of members access the journals online and we can make a saving on the ever increasing cost of postage. This obviously has environmental advantages, as well as a fi nancial saving. Please note that the AGM will be held on Friday October 10 at The rapidly developing world of China, India and Brazil and other The George Hotel, Bird Street, Lichfi eld, Staffordshire WS13 6PR. low cost economies may offer the IMS some opportunities to use The AGM will start at 11am. its traditional approaches to improving productivity. In marketing Due to a lack of support, the Chairman’s lunch has been terms, the UK life cycle for our tools and techniques grew in the cancelled. 1960s and 1970s, matured in the 1980s and 1990s, and declined thereafter. In comparison, the aforementioned developing countries are at the growth phase. It is diffi cult to assess what this may mean to the IMS and we would clearly benefi t from some analysis / research. The same may be true of South Africa and as I am going to be representing the IMS at the World Productivity Congress which commences on Dr Dennis Whitemore has tendered his resignation from Council, September 21, it will give me a chance to assess the potential for after many year’s service to the IMS, due to ill health. membership growth there. This topic is on the agenda for the next Dennis has served the Institute in an exemplary manner and Council. his book, Work Measurement, was regarded as a reference text The invitation to the Chairman’s lunch, which was to be held prior on the subject and has been translated into several languages. to the next Council, has not been supported by a single member, We would like to wish Dennis and his wife Helen all the very consequently, it has been cancelled. By coincidence I have been best for the future. passed a letter from Mr Mostyn Lewis in which he suggested that If you are interested in being co-opted to Council, would more members might attend the AGM if it was on a Saturday. As we you please apply, stating why you wish to be considered and would very much like to attract more members to the AGM, I have attach an up to date CV. Applications should be sent or emailed added this suggestion to the next Council agenda for discussion. to the Chairman at Brooke House and marked as private and In conclusion, I intend to remain on Council and would like to confi dential. wish my successor every success in his period of offi ce. If you want to know what is involved in being on Council, John Lucey, Chairman please feel free to contact any existing Council member. Management Services News Autumn 2008 5

North West Region Helmshore Visit Some North West region members enjoyed a delightful visit to Helmshore Textile Museum on July 10. On arrival we were manufacturing and operating textile machines. For example, the greeted by a reception group, who introduced us to our guide pair of mules were dated 1908. for the tour and directed us to meet restaurant staff, who took The group viewed the river and pond which provided a power orders for sandwiches. source for driving machines and the action of a wool ﬁ lling Numbers on this visit were increased by meeting up with plant. Then there was a break for lunch, which was, in the main, members of Bolton Probus Club, of which Bob Fletcher is Liaison soup and sandwiches, which provided excellent fare. Ofﬁ cer. A worthwhile party was thus available for guide Terry Having viewed the wool treatment, the second part of the to address and also demonstrate the running of cards and visit was the production of yarn, using as its material supply mules. Lack of space restricts a detailed report of the visit, but the waste made at other mills and from various processes. enough to recognise the expertise of our forbears in designing, Waste is either hard or soft and needed breaking down by

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The Cost of People in Your Business Question: How can I accurately assess the cost of manual activity in my business? Answer: By applying our Predetermined Time Values to the current methods of working or by linking them to the application of Six-Sigma or any other accepted workplace technique that seeks to improve processes, performance and quality. How do I do it?: Through a new series of ‘Open’ courses being run throughout the UK, by the MTM Association, to deliver the beneﬁts of Predetermined Time Data to you, your staff and your organisation. Where?: At a venue in Central England (although this may change if the majority of participants are located in other parts of the UK) When?: The ﬁrst course is scheduled for 13th October 2008 How long?: The course takes two weeks. Training Fee: £950 (excluding VAT ) Result: A fully trained practitioner in the application of a word class Predetermined Time System (MTM2). Management Services 6 Autumn 2008 News

Regional News North West Region continued from page 5 The Museum of Science a fi erce beating machine and Industry they had worked on or fl own the earliest locos ‘the Planet’ to processing through an The Summer issue of the in. The Lightning and the is retained here, but what opening and lap forming Journal contained profi les Shackleton were produced in draws much attention is the machine – a scuttler corded of our board members, and the 1960s, when the region half sectioned Beyer Peacock from the lap resulted in a readers may have noticed was a hive of manufacturing. engine of 1876, built for the sliver being formed. Slivers that most of them joined the Also shown in the hall were Isle of Man railway. were coupled through a Institute (then the IWSP) in examples of motor transport, Another loco from the coupler, which resulted in the 1960s. Many of them still including a Crossley car and a same stable is the articulated several ends on a beam in retain an intense interest in DOT motorcycle. monster of 1926, built for readiness for placing on the the products of industry, and Then we moved into the South Africa’s hilly regions, mule. therefore the choice of venue Power Hall, which houses which have sharp radius Organisation of operators’ for our outing in early June an impressive assembly of bands. The middle section work and their skills were was well supported. working steam engines, boiler supplies steam to discussed, as were the Manchester Museum of electrical machines and separate drives on the front machine technicalities. We Science and Industry is the locomotives. Adjacent to the and rear bogies via fl exible were made aware the end guardian of much of our local hall is Liverpool Road Station, pipes. product was spun cotton industrial heritage, and so from which the world’s fi rst Altogether a most yarn, using waste as its raw provided an ideal venue for a passenger service originated. enlightening and interesting material. visit by NW Region members, A working replica of one of visit. The fi nal part of the many of whom were raised visit was spent viewing when manufacturing was the some machines, models of lifeblood of the nation. operators at work on various Our visit started in the textile machines and a Air and Space Hall, which wonderful display, in picture contains the largest collection and written form. Seemingly, of aircraft in the North much of the updating at the West. Some of our members museum was the result of a had served in the RAF, and recent refurbishment. eulogised over the aeroplanes All visitors were united in expressing their thanks for the kindness and help provided by the Helmshore staff. Footnote: One of the visiting group was an IMS Fellow Member from the Southern region, who was warmly welcomed. Our advertised meetings are open to IMS members from any region, but as some events have number restrictions, intending participants should contact our secretary, Harry Hogg, beforehand.

Website Forthcoming event We are indebted to Harry Hogg for his work in constructing There will be a visit to the Mormon Temple in Chorley on the website. It contains details about the Region Board and Wednesday 8 October at 2.30pm. We will view the ancestry items of topical interest. Visit the site at http://ims.northwest. investigation system and record department, but not the main googlepages.com/. temple. Numbers will be limited. For further information contact G Yeomans on 01772 330933. Keith Gowing ilt Managem bu e e nt s S o e p r r v u ic p e y s l n C

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Only £33 plus VAT Chinal Management Services Limited Kings Charles House, Castle Hill Dudley, West Midlands DY1 4PS Order online Harry Mitchell College www.harrymitchell.co.uk 215 University Boulevard or Tel 0115 922 5735 Beeston, Nottingham NG9 2GL Management Services 8 Autumn 2008 Scott-Grant Case Study

Problems are uncovered

The growth of ebbie Knowlson created problems in both product to keep moving founded Selective the manufacturing and through the process. a successful DCovers Limited in administrative processes Now each operator takes manufacturing Thirsk, North Yorkshire, in – only 25% of deliveries were responsibility for an individual 1999, having identifi ed a made on time – so Selective customer order, cutting their business was market opportunity. They Covers called in Business Link own material for their job and being severely manufacture and sell in York to identify the issues continuing with all activities hampered and customised, high grade, and diagnose the problems. of manufacturing through to waterproof covers for a The experienced Business completion. the owner and vast range of applications, Link advisor was quick to Managing Director including covers for swimming identify the need to involve Enthusiastic and pools, hot tubs, vehicles and productivity improvement motivated staff needed specialist trailers, garden furniture, specialists Scott-Grant Limited For each operator, there is help to identify banners and, on a larger to address the situation. job ownership, accountability and resolve the scale, farm equipment, sports Using this authorised and enthusiasm. “It’s a million equipment, boats and other consultant enabled the times better because we have problems. leisure industry applications. Manufacturing Advisory far more understanding of The growing popularity Service (MAS) for Yorkshire the job; there’s no stress now, of the product range and The Humber to fund 50% no waiting for materials. of the costs – an important Communications have consideration for smaller improved in every aspect,” companies. – the unanimous opinion from Scott-Grant implemented the shop fl oor. a much leaner way of The admin staff agreed manufacturing, signifi cantly with the team leader on the altering fl ow and layout, shop fl oor: “We’ve seen huge streamlining communications improvements. All the staff and enabling the customised are happier and we all really Management Services Scott-Grant Case Study Autumn 2008 9 enjoy working as a team in a with all labour and materials successful environment.” used being recorded against Different from the that job. fragmented approach in As a result of the project, use before Scott-Grant’s the company is now more involvement, the new method profi table and capacity has has more fl exibility and makes increased by more than 50%. manpower planning easier and more predictable. Finance Manager was Signifi cant improvements to wrong! the layout and systems were The company’s Financial introduced which had further Manager was sceptical and positive effect. The system didn’t believe the layout and now allows the profi tability method could be improved. of each job to be known She was delighted to concede at the despatch point, and however: “Expanding the a KPI has been introduced operators’ jobs to include improve product fl ow has about three days to around one to automatically track the all aspects of the process meant that, even in the early to two hours. Work is properly year-to-date position for each has improved product fl ow, part of the year, our customer scheduled and there’s a much of the product categories reduced manufacturing time deliveries were on time or even better understanding and produced. and enhanced the variety of ahead of time for over 80% of control of the whole process.” A new structured approach work for the operators.” our orders – and we continue to Selective Covers Limited to job costing and generating Managing Director Debbie improve. 01845 522856 quotations was introduced, Knowlson has been particularly “Our last three months www.selectivecovers.co.uk so that a historic record of impressed with Scott-Grant’s show we have delivered 100% each quotation is made on its intervention. “Using lean on time – or even early! The Scott-Grant Limited journey through manufacture techniques to overhaul the manufacturing throughput time 0161 234 2121 www.scott-grant.co.uk to despatch to the customer, manufacturing system and has dramatically reduced from

The very best professional help

We are always keen to help members being undertaken in the workplace how to use Performance Rating and any enquirers of the Institute and the industries include when measuring work. We would in their quest for knowledge or encourage every industry to use assistance when it comes to manufacturing • electronics • this film if they want to improve productivity issues. We’d like to engineering • distribution • productivity in their workplace. draw readers’ attention to the timber • needle trade • retail • Although the subject matter is following solutions for help with manual work • warehousing • very serious, “How do you rate?” Performance Rating, which is still high volume distribution delivers its message in a relaxed an internationally used technique. and entertaining way. Above all All the films are intended to it is designed to be informative, New rating films for professional develop the application skills of practical and memorable. analysts analysts. They are an invaluable We have explored the possibility means of professional development Within 20 minutes viewers will of creating new rating films but for re-calibrating and maintaining have the opportunity to assess found the costs quite prohibitive. the rating accuracy of every performance in carrying out a We were advised by Scott-Grant Ltd, professional analyst, to ensure that simple task, using the criteria one of our accredited training the high standards of the Institute explained in the film. providers, that they had recently are maintained. produced a new and comprehensive Please contact Lynette at the series of 12 rating films on DVD and Performance Rating explained Institute head office we have fortunately managed to Scott-Grant have also produced Tel 00 44 (0)1543 secure access to them. The rating “How do you rate?” – a practical, 266909 for more films show examples of real jobs 35 minute DVD to explain clearly details. Management Services 10 Autumn 2008 Introduction

The sustainability of lean transformation Introducing a series of articles based on the PhD of Dr John J Lucey, entitled ‘The sustainability of lean transformation’. The research was completed between 2002 and 2008, under the auspices of the Lean Engineering Research Centre (LERC) of Cardiff Business School. An abstract of the research is detailed below.

inning the hearts a biannual basis in the main include the following topics: and minds of case fi rm from 2001 to 2005. • The changing face of Wtheir staff is an An index has been developed manufacturing in the UK important objective for and validated to measure • Lean manufacturing in the progressive companies but employee engagement UK (2002 – 2006) the failure rate for lean which can also be used as a • Why major lean transformations continues to diagnostic tool to identify the transformations fail be high. The research suggests issues for low survey scores. • Action research case study that the barriers to the Third, using case studies and in the importance of successful introduction of lean shop fl oor focus groups, it has operational ownership are in the ‘soft’ people issues, been possible to identify a • Action research case study rather than the hard, lean process for improving the level in ‘Building Employee techniques. The behaviour of employee engagement. Engagement’ of shop fl oor staff, middle Fourth, operational • Developing a robust process management and company ownership has been identifi ed for conducting an employee culture is identifi ed as the as a key element in the engagement survey biggest single barrier. This leading, rapid implementation • The measurement of study investigates the main and sustainability of major employee engagement enablers and inhibitors to the change. in the main case fi rm and sustainability of major lean Fifth, the concept of a ‘lean external validation transformations and develops sustainability zone’ has been • The concept of ‘a lean an index for the measurement developed using the data sustainability zone’. of employee engagement. from the main case fi rm and The contribution made the four external companies. by this study is six fold. This concept identifi es the First, Lewin’s defi nition of threshold level of employee behaviour was adapted to engagement required to defi ne employee engagement. commence a major lean So employee engagement (EE) transformation and the level is defi ned as a function (F) of required for it to be sustained. the person (P), therefore EE = Sixth, a long term lean F (P,E). sustainability model has been Second, a survey developed and refi ned to questionnaire was developed include operational ownership and used to measure the level and the lean sustainability zone. of employee engagement on The series of articles will Management Services Manufacturing Autumn 2008 11

The ﬁ rst part in Dr John J Lucey’s series of articles based on his PhD, entitled ‘The sustainability of lean transformation’.

Introduction 2000 have been realised but 2000 to 2005, the decline of In the period 1980 to 2000, the scale of the deterioration the manufacturing sector has the (UK) manufacturing base should give cause for concern. accelerated due to increased has been steadily declining. At During the period 2000 to competition from cheaper the outset, the Government 2005, manufacturing seems imports and the outsourcing argued that the reducing to have been in free fall with to low cost economies. In contribution made by one after another high profi le 2004, manufacturing exports manufacturing to the Gross company closing, downsizing were £24.5 billion which was Domestic Product (GDP) would or relocating to a low cost nearly two thirds of all the UK be made up by the service economy. exports. sector. Table 1.1 indicates In that period, the defi cit that this was not the case, as on goods was more than between 1980 and 2000 the double than in the previous defi cit on goods moved from 20 years and the defi cit in the +£1.3 billion to -£30.4 billion, trade balance has trebled. In which is an enormous swing the same period, investment of £31.7 billion and was not income has moved from +£6.1 made up by services. billion to -£27.3 billion which The fears that the worsening is a staggering reversal of trend would continue beyond £33.4 billion. In the period

Table 1.1 United Kingdom’s changing trade account (£bn) Source: EEF, (2001), Manufacturing at the Crossroads, p6, analysis of National Statistics, with 2005 added by the researcher

Investment Year Goods Services Trade Balance Transfers Current Balance Income

1980 1.3 3.7 5.0 - 1.4 - 0.4 3.2

1985 - 3.4 6.6 3.2 0.0 - 1.0 2.2

1990 - 18.7 4.0 - 14.7 - 0.6 - 4.3 - 19.6

1995 - 11.7 8.9 - 2.8 6.0 - 6.9 - 3.7

2000 - 30.4 14.7 - 15.7 6.1 - 8.8 -18.4

2005 - 65.7 18.7 -47.0 -27.3 -12.8 -31.9 Management Services 12 Autumn 2008 Manufacturing

Total employment Year Number of enterprises Total turnover £m – Average during the year (Thousands) 1995 171,518 425.963 - 1996 164,808 450,177 - 1997 169,663 469,787 - 1998 169,376 460,877 4,416 1999 170,196 461,771 4,269 2000 167,289 469,146 4,143 2001 164,718 461,898 3,964 2002 162,212 450,090 3,762 2003 158,528 447,178 3,535

Table 1.2 The size of the UK’s manufacturing sector Source: ESRC, (2007), Manufacturing and Industrial Production in the UK, p1-2

Table 1.2 details the continual and Italy, but were 25% decline of UK manufacturing behind the USA. over the period 1995 to 2003. While there is a difference The Economic and Social between ERSC (2007) and the Research Council (ESRC), Offi ce of National Statistics (2007), report indicates that (2007), they both agree that over the period 2001 to the UK is behind the USA, 2004, the investment in UK albeit by differing amounts. manufacturing as a proportion Helper and Kleiner (2007) of total business investment of the National Bureau of has fallen from 14.7% to Economic Research (NBER), 12.3%. ESRC (2007) also states conducted a study of fi ve US that the UK’s experience and fi ve UK plants owned is similar to other OECD by the same company (Organisation for Economic Co- who produced automotive operation and Development) components. They concluded countries, with services now that the US plants were more accounting for over 60% productive and profi table than of total GDP in all OECD the UK plants and the value countries. added per employee was 33% How does UK manufacturing higher than the UK plants. fare when it comes to productivity? One of the most commonly cited measures of labour productivity is output per hour worked. According to ESRC (2007), the UK economy is 39% below the USA and 20% below France and Germany. Obviously, manufacturing contributes to Foreign ownership this disadvantage. The revised of UK companies and estimates of productivity from outsourcing the Offi ce of National Statistics Recently, high profi le (2007), using GMP per worker, manufacturers, such as Dyson indicates that for 2005, the UK and Raleigh, have moved was behind the average of the production out of the UK to G7 countries (Japan, Canada, the Far East, which has created Germany, UK, Italy, France the impression that a number and the USA). The fi gures of other manufacturing indicate that the UK has similar companies may be about national levels of productivity to desert Britain. While to those of Canada, Germany competition from low wage Management Services Manufacturing Autumn 2008 13 countries does pose a serious is generally expected to the responses are detailed threat to some companies, it is occupy only a minor share of in Figure 1.1. It is clear that far from the whole story. total production, with only the 2002 EEF report was Girma and Holger (2004) 17% of companies expecting quite accurate, as the 2005 described outsourcing as: more than half of their Annual Manufacturing Report “the contracting out of production to be abroad. considers it very likely that activities that were previously The interviews suggested 4% of companies will move performed within a fi rm, to that simple cost issues are all their manufacturing by subcontractors outside the far from the whole story 2008. Twenty three per cent fi rm.” They conclude that cost behind moves abroad. Not of companies are very likely savings were the main driver surprisingly, cost driven moves to be moving part of their and foreign owned fi rms have are most common in industries manufacturing operations to a higher level of outsourcing where labour costs are a high a low cost economy by 2008 than domestic companies. proportion of total costs and and China remains the most They go on to suggest that where the commoditisation popular country to relocate outsourcing is a positive of their market means that manufacturing operations to. means of increasing labour competition on price is Foreign owned British based productivity. Oulton, (1990), extremely fi erce. In general, companies are the most likely found that foreign owned the shift being considered, to relocate manufacturing fi rms have substantially higher or that has taken place facilities abroad. levels of productivity than already, is to Eastern Europe The EEF (2004), in their domestically owned ones. He rather than China or the fi nal report on EU and UK concludes that US ownership Pacifi c Rim. Countries such manufacturing productivity, was found to raise productivity as Poland, Hungary and the compared the foreign by 26% in manufacturing, Czech Republic have obvious ownership of companies in which supports the fi ndings of location advantages for the UK, Germany and France. Girma and Holger. serving the major market of They concluded that: “Foreign The Engineering Employers’ most UK companies where ownership of UK companies is Federation (EEF) (2002) asked speed to market is important greater than in either Germany companies what proportion and where transport costs or France. Over a third (34%) of their production they can be high. Eastern Europe of UK based fi rms are foreign expected to be located abroad is therefore likely to win over owned, compared with just over the next fi ve years. Asia and other parts of the 20% in Germany and 12% in Overall, the proportion of world for companies whose France. In addition, UK based companies expecting to have main market continues to be fi rms are much more likely to at least some production Western Europe. be owned from outside the taking place out of the UK A similar question was European Union. For example, is projected to rise from the asked in the Manufacturer 21% of UK based fi rms are current 34% to 49% by 2007. Magazine’s (2005) Annual owned by companies from a Overseas production, however, Manufacturing Report and combination of North America,

Figure 1.1 Companies who may move all or part of their manufacturing production to a low cost economy by 2008 Source: Annual Manufacturing Report 2005, p45 Management Services 14 Autumn 2008 Manufacturing

Eastern Europe and other parts of successful manufacturing. concern among business of the world. The comparative It may also hamper research people and the public that fi gures for Germany are 10% and development, the bulk Britain’s commercial assets are and for France 6%. of which is carried out in the being snapped up too easily “These fi gures refl ect the country of ownership,” (EEF, and cheaply. UK’s attraction to outside 2004, p11). Table 1.3 details the investors. This brings with it The Confederation of acquisitions announced the advantages of exposure to British Industry (CBI) was so from August 2005 to June technological developments concerned about the increase 2006. While UK companies and different management in foreign ownership that it obviously acquire foreign approaches from abroad. initiated an investigation in companies, the balance is However, there may also 2006 to ascertain if British moving towards greater be downsides. For example, companies are too soft a foreign ownership. The total there are relatively few target for foreign predators. of £60.9 billion in less than a large UK owned fi rms. This The study, which follows year is very high but despite country, therefore, lacks the a spate of acquisitions of the growing opposition, manufacturing champions UK businesses by overseas few expect the sell-off of that protect a positive image fi rms, comes amidst growing British companies to end

Table 1.3 UK companies acquired by foreigners since August 2005 Acquisition target Bidder Value £ billions Source: ESRC, (2007), Mergermarket, in the Sunday Times 25.06.2006, Business O2 telephone company Telefonica, Spain 17.6 section, p12 British Airports Authority Ferrovial, Spain 15.6 British Oxygen Group Linde Germany 8.9 Paciﬁ c & Orient Dubai Ports 4.6 British Plaster Board Saint- Gobain, France 4.4 Exel Deutsche Post, Germany 4.1 Hilton International Hilton Hotels Corp. USA 3.3 Pilkington Group Nippon Sheet Glass, Japan 2.4 Total of Bids 60.9 Management Services Manufacturing Autumn 2008 15

soon. Indeed, investment relocate some of their labour References bankers believe that Chinese intensive operations to low companies using cheap cost economies. The cost of Engineering Employers’ Federation, (2001), Manufacturing at the Crossroads: Neglect or Nurture, Economics Department, fi nancing from state owned compensating employees London.( No ISBN). banks could be the next who are made redundant Engineering Employers’ Federation, (2002), Manufacturing buyers. A side effect of this when a company in the UK in the Marketplace: Europe Survey, Economics Department, situation is that it is becoming closes is one of the lowest in London, ISBN: 1- 903461- 21- 9. increasingly diffi cult to the European Union. So for Engineering Employers’ Federation, (2004), Catching up with attract the top graduates multi-national companies the Continent: Final report on EU and UK manufacturing in to manufacturing as it is with surplus capacity, the productivity, London, ISBN: 1-903461-32 4. seen as a dying sector of the UK factories may be selected Economic and Social Research Council, (2007), Manufacturing UK economy. The Offi ce for for closure. There is also a and Industrial Production in the UK Fact Sheet. National Statistics’ (2007) tendency for companies to Girma, S, and Gorg, H, (2004), Outsourcing, Foreign news release stated that consolidate research and Ownership, and Productivity: Evidence from UK investors from outside the development in their home Establishment-level Data, Review of International Economics, UK now owned 40% of the country with the consequence Vol. 12, Issue 5, pp 817- 832. shares listed on the UK Stock that it is lost from the UK. Helper, S, and Kleiner, M M, (2007), International Differences Exchange which was a 12% Evidence that foreign in Lean Production, Productivity and Employee Attitudes, National Bureau of Economic Research, Working Paper, increase on 2004. owned companies have 13015, Cambridge, Massachusetts. markedly higher levels of Manufacturer Magazine, (2005), Annual Manufacturing Report. Summary of productivity than domestic manufacturing in the UK fi rms may increase the Offi ce of National Statistics, (2007), News Release, Share Ownership 2006, Foreign investors hold two-fi fths of UK shares. The UK manufacturing sector temptation to outsource continues to decline and the production or become the Oulton, N, (1998), Labour Productivity and Foreign Ownership in the UK, National Institute of Economic and Social Research, subsequent loss of exports driver for domestic fi rms Discussion Paper No. 143. has not been replaced by to improve their levels of Sunday Times (25/06/2007), CBI probes foreign takeovers, revenue from the service productivity in order to Business Section, pp12. sector as the government had survive. In summary, the originally thought. At the UK manufacturing sector same time, the ownership of continues to decline but, UK companies by foreigners at the moment, it is still an is increasing and UK important contributor to the companies are continuing to UK trade account. Management Services 16 Autumn 2008 Lean

The second part of Dr John J Lucey’s series of articles.

Dr John J Lucey John started in Work Study with an engineering company and moved to a subsidiary of British Leyland before becoming Work Study Manager with an international armaments manufacturer. He was promoted to the position of Contracts Manager and in 1977 he gave up his job to do an MSc in Industrial Management at Loughborough University, where he won the award for best student He spent two tears working as Manufacturing Manager in a military optics company in Singa- pore, before joining the Boots Company in 1984 as Industrial Engineering Manager. It was at this time that John joined the IMS Council and has served continuously since. He was Chairman from 2003 until 2008. In 1989, he was appointed a Factory Manager with Boots Contracting, until his retirement in 2004. In 2002, John commenced part time research into the sustainability of Lean Manufactur- ing with Cardiff Business School and has published many papers. He was awarded his PhD in April 2008. Management Services Lean Autumn 2008 17

Background to lean have developed the mind business focus for your Shingo (1989) charted the set of ‘lean thinking’ that company during the last 12 history and development they describe as a powerful months and which, if any, are of the Toyota Production antidote to muda. It provides planned priorities within the System (TPS), from its origins immediate feedback on next 12 months? The results of in 1949 when intermediate efforts and approaches to the 2002 survey are detailed in warehouses were eliminated, convert muda into value. They Figure 1.1. Generally, activity up to 1975 when the fi xed- describe lean thinking as: “A levels have been very high position stopping system way to specify value, line up in 2001-2002 and companies on the assembly lines was value-creating actions in the are set to continue change in introduced. Womack and best sequence, conduct these 2002-2003 in order to improve Jones (1996) credit Taiichi activities without interruption their competitiveness. Ohno as the father of TPS and whenever someone requests Patriarch of Lean Operations. them, and perform them Taiichi Ohno worked with more and more with less and Shigeo Shingo in developing less – less human effort, less the TPS. In Shingo (1989), equipment, less time and the publisher describes the less space – while coming synergy between Dr Shingo, closer and closer to providing the teacher, and Mr Ohno, customers with exactly what the manager, as the force that they want.” (Womack and created the manufacturing Jones 1996, p15). revolution which has had such a profound effect on the way Introduction automobiles are produced. It has been diffi cult to assess Shingo (1989) simply the number of fi rms who have describes the TPS as: “80% or are about to embrace lean waste elimination, 15% manufacturing in the UK. The Given this, we probably have Figure 1.1 Key business initiatives 2002 Source: Manufacturer Magazine production system and 5% Organisation for Economic Co- to question the extent to – Annual Manufacturing Report 2002, kanban.” Wickens (1995) operation and Development which, for some companies, p35 describes the motivation (OECD), which has 30 member these represent really serious of Ohno and Shingo as countries, conducts an annual priorities and commitment, their constant urge to Employment Outlook which as opposed to a wish list. eliminate waste of all types reviews work practices There can be no doubting in all activities. In their from time to time. The the ambition of the UK comprehensive study of the OECD Employment Outlook manufacturing industry to world’s car manufacturers, (1999) reported on a survey continue to embrace change Womack et al (1990) undertaken in 1998 which and improvement in key popularised the term lean reviewed the use of selected processes and activities and production to highlight work organisation practices. this is set to continue. It is the elimination of ‘muda’, The practices reviewed interesting to note that 63% Japanese for waste. They included job rotation or of companies planned to apply state that: “Lean production cross training, self-directed lean principles in 2003 and is lean because it uses less work teams, task forces, 54% expected to introduce of everything compared problem solving teams or signifi cant change. with mass production – half quality circles, employee In the Annual the human effort, half the involvement with managers Manufacturing Report (2005) manufacturing space, half the in business discussions and the responses to the same investment in tools, half the total quality management. questions are detailed in engineering hours to develop Lean manufacturing was Figure 1.2. In the 2005 report, a new product in half the not included. As a matter of the emphasis on the supply time. Also, it requires keeping interest, they concluded that, chain is set to reduce in 2006, less than half the inventory not surprisingly, the reported the exploitation of e-business on site, fewer defects and incidence of fl exible working opportunities is set to more produces a greater and ever practices differ from country than double in 2006, new growing variety of products.” to country. product development is also (Womack et al, 1990, p13). The Annual Manufacturing set to increase in 2006, as Taking the total elimination Report (2002) asked which, is the application of lean of muda as a theme, if any, of the following techniques and change Womack and Jones (1996) initiatives have been a key management activity. There Management Services 18 Autumn 2008 Lean

seems to be evidence that The completed interviews companies are putting off key for the 2002 and 2006 business initiatives until 2007. lean surveys are detailed This leads us on to the current in Table 1.1. In the period state of lean manufacturing in 2002 to 2006, the number of the United Kingdom. companies taking part in the

Statistics about the use, survey with up to 499 staff has Table 1.1 Sample size for 2002 and the take up and the drivers almost trebled and companies 2006 lean manufacturing surveys of lean manufacturing are with more than 500 staff have Source: Manufacturing Magazine, Lean Manufacturing Survey report 2002 p12 not readily available. In 2002, increased six fold. and 2006 p18 the Manufacturer magazine commissioned Coleman Parkes No of Sample Size Sample size Employees Research to carry out its fi rst 2002 % 2006 % lean manufacturing survey 1 – 99 26 26 86 26 and the survey has continued 100 – 249 33 33 89 27 every year since. The fi rst 250 – 499 30 30 86 27 lean manufacturing survey was based on 100 interviews 500 + 11 11 69 21 with production directors TOTAL 100 100 330 100 and managers in UK-based manufacturing companies and Perceived benefi ts of lean was undertaken in September manufacturing 2002. All interviewees were Generally, companies seek a screened to ensure that they number of key competitive

Figure 1.2 Key business initiatives 2005 were in a position to comment advantages from a lean Source: Manufacturer Magazine on the core issues in the manufacturing approach and – Annual Manufacturing Report 2005, questionnaire. these are detailed in Figure p30 1.4. In 2002, cost reduction was the clear perceived benefi t and was three times Figure 1.4 Main benefi ts that companies greater than the second perceive from lean manufacturing 2002 highest benefi t of better Source: Manufacturer Magazine – Lean delivery times. Manufacturing Survey Report 2002, p18

The industries included in the 2002 survey are detailed in Figure 1.3. In the 2002 survey, engineering was clearly in the lead in embracing lean manufacturing at 34%, which Figure 1.3 Industries included in the is more than twice that of survey Source: Manufacturer Magazine – Lean electronics which was its Manufacturing Survey Report 2002, p12 nearest industry rival.

The picture in 2006 is somewhat different, as Figure 1.5 indicates. The reduction in costs has dropped from ﬁ rst place to third place while the removal of waste has climbed to second, which perhaps signals that there is a much better appreciation of lean tools and techniques. Management Services Lean Autumn 2008 19

The benefi ts that companies Measurement of comparison 2002 2006 associate with the term Very close to becoming lean 32% 29% lean manufacturing have Quite close to becoming lean 22% 7% certainly changed in the A long way off becoming lean 66% 64% period 2002-2006. In 2002, TOTAL 100% 100% the overwhelming benefi t was perceived as a reduction The take up of lean TTableable 1.21.2 ComparisonComparison ofof 22002002 aandnd 22006006 ssurveyurvey in costs, followed by better manufacturing SSource:ource: ManufacturingManufacturing MMagazine,agazine, lead times and increased The EEF survey (2001), LLeanean MManufacturinganufacturing SSurveyurvey rreporteport 22002,002, p19p19 andand 2006,2006, pp3535 effi ciency. In 2006, the Catching up with Uncle Sam, top three benefi ts were provides evidence on the improved effi ciency, removal extent of lean manufacturing of waste and reduced costs. in the UK and the barriers It seems that as a company’s to its uptake. It shows that knowledge and understanding many fi rms are applying lean of lean improves, they begin manufacturing across the to more fully appreciate that whole of their business and lean offers much more than reaping rewards in terms an approach for just reducing of improved performance. costs. Yet there is a signifi cant proportion of fi rms that have not undertaken any lean manufacturing and are therefore missing out on the benefi ts. The key results are detailed in Figure 1.6.

Figure 1.5 Main benefi ts that companies perceive from lean manufacturing 2006 Is your company a lean Source: Manufacturer Magazine – Lean manufacturing company? Manufacturing Survey report 2006, p24 It is interesting to see what progress has been made to The six key conclusions were: FFigureigure 1.61.6 PolarisedPolarised uptakeuptake ooff lleanean mmanufacturinganufacturing becoming a lean company 1. The take up of lean SSource:ource: EEFEEF (2001),(2001), CatchingCatching uupp over the period 2002-2006. manufacturing in the UK wwithith UncleUncle Sam,Sam, p29p29 Table 1.2 compares three is very much polarised, responses from the 2002 and with a third of fi rms 2006 surveys. The results here pursuing it across the are a little contradictory, as whole organisation, while the number who claim to be just over 40% are not very close to becoming lean undertaking any lean was marginally down from manufacturing at all. 32% to 29% and the number 2. Firms undertaking lean who claim to be quite close manufacturing do so for to becoming lean was only a number of reasons. The 7%, which is a third of what key goal is improving it was in 2002. Maybe this is overall company because companies do not performance in terms of fully appreciate that lean is a productivity, effi ciency, continuous philosophy, rather profi tability and reducing than a two or three year fi x. costs. After all, Toyota are still at it 3. Over 90% of fi rms after 58 years! Companies who undertaking lean are a long way off becoming manufacturing say it lean have remained at mid has been successful at 60% level. achieving its goals. Management Services 20 Autumn 2008 Lean

4. The key barriers to a to successfully implement Attitudes to lean better take up of lean lean manufacturing. Figure manufacturing manufacturing in the UK 1.7 clearly indicates that Figure 1.9 is based on an are attitudes to change the lack of engagement earlier productivity survey within the fi rm, lack of of the workforce is still a by EEF/NOP in 2001 and understanding of lean, fundamental barrier to a details the main barriers shortage of the right lean successful lean manufacturing to the successful take up skills at management, transformation. of lean manufacturing. supervisor, workforce Attitudes to change within levels and cultural issues. Figure 1.8 details the results the company from both 5. American owned fi rms of the 2006 survey and cites staff and management was are having greater success the top three barriers as clearly the biggest barrier with lean manufacturing investment costs, attitude of and, once again, emphasises than UK owned fi rms shop fl oor staff and attitude the importance of the because more of them of middle management. engagement of staff in the are using the lean tools Employee engagement is change process. Just over a across the whole of their a combination of company quarter of employers said it organisation and with culture, the working was due to a lack of lean skills greater intensity. environment and the attitude within the management team. 6. There is a clear link of staff to their company. between the use of lean While the results are broadly Continued on page 22 manufacturing and higher comparable with the 2002 productivity. survey, it is interesting to note that the engagement of staff Barriers to implementing has increased in importance lean manufacturing and the engagement/attitude Figure 1.7 details the main of middle management is barriers in the 2002 Lean the third highest barrier. This Manufacturing Survey. The underlines the importance of main barriers to the adoption the soft people side of lean to Figure 1.8 Barriers to implementing lean manufacturing 2006 of lean principles were the the implementation of major Source: Manufacturing Magazine – Lean culture of the company. lean transformations. Manufacturing Survey report 2006, p29 Couple this with the attitude of the staff, which is taken to be negative towards the approach, and it is clear that people-based issues FFigureigure 11.7.7 BBarriersarriers ttoo iimplementingmplementing lleanean mmanufacturinganufacturing 22002002 are a very signifi cant and SSource:ource: MManufacturinganufacturing MMagazineagazine important aspect and cannot – LLeanean MManufacturinganufacturing SSurveyurvey rreporteport 22002,002, pp2020 be ignored when looking

Figure 1.9 Barriers to the uptake of lean manufacturing by % Source: EEF (2001), Catching up with Uncle Sam, p33 Charity number: 288877 Company number: 832132

The Institute of Management Services (A company limited by guarantee) Trustees’ report and ﬁ nancial statements for the year ended 31 December 2007

Contents

Legal and administrative information II Chairman’s statement 2007 II Trustees’ report III Auditors’ report to the members IV Statement of ﬁ nancial activities V Balance sheet VI Notes to the ﬁ nancial statements VI–VIII Legal and administrative information

Status The Charity is a company limited by guarantee governed by the Companies Act 1985 and the Statement of Recommended Practice (SORP) “Accounting and Reporting by Charities” 2005. The Institute’s objectives are regulated by the Company’s Memorandum and Articles dated 2 December 1964, and under these Memoranda, the Institute is constituted as an incorporated body. The members of the company are the directors and the trustees. In the event of the charity being wound up, the liability in respect of the guarantee is limited to £1 per member of the charity. Trustees J J Lucey FMS (Chairman) D Blanchfl ower Hon FMS J Cutler (Appointer 05/10/07) H Downes Hon FMS J P Heap Hon FMS D A Whitmore Hon FMS R Bridges FMS L V Rose FMS (Resigned 05/10/07) G P Mansfi eld FMS Secretary H Downes Hon FMS Company number 832132 Charity number 288877 Registered offi ce Brooke House, 24 Dam Street, Lichfi eld, Staffordshire WS13 6AA Auditors Leftley Rowe and Company, The Heights, 59-65 Lowlands Road, Harrow, Middlesex HA1 3AW Bankers The Royal Bank of Scotland Plc, 30-32 London Road, Enfi eld, Middlesex EN2 6DT

Chairman’s Statement 2007

It is pleasing to report that 2007 has once again been a very satisfying one for the Institute. We have continued to reap the beneﬁ ts of outsourcing both our administration function and the production of our journal. The journal continues to be the leading UK publication dispensing knowledge relating to all aspects of productivity improvement. In 2007 we undertook a redesign of the journal, introducing a livelier format with greater use of colour to highlight the articles. The production and distribution format of four quarterly journals has met with universal approval from the membership. The journal continues to be made available to all members with hard copies being mailed to UK based members and overseas members having access to the journal via the Internet. Postal costs are predicted to increase sharply in the coming years but we intend to continue mailing UK based members with the journal. Past editions of the journal are also available on the website.

During 2007 we updated our website and increased the amount of information available to both Institute members and non-members. It is planned to carry out a further full review of the website in 2008 and, if necessary, further upgrade the site.

In 2006 we transferred the Institute training videos to DVD format and are pleased that 2007 has seen a continued demand from companies to purchase these DVDs. These training videos have been a steady source of income to the Institute since they were ﬁ rst commissioned in the 1990s.

We commissioned a number of new training DVDs for use with the Institute’s practical examinations and these have proved to be of great beneﬁ t to students studying for the IMS Certiﬁ cate.

Our three national education providers, accredited to provide training courses leading to the award of the Institute’s Certiﬁ cate qualiﬁ cation, continue to provide a valuable service. These education providers, who all have a very long association with the Institute, provide a valuable service and also bring new members into the Institute.

Since the introduction of life membership in 2005, we have seen our membership numbers stabilise and continue to grow. It is our intention to do all we can to increase membership numbers in the coming years.

You will note from our accounts that the year-end fi nancial statement for 2007, once again, illustrates the extremely healthy fi nancial position of the Institute. Our total reserves are still in excess of £600,000, which bodes very well for the future viability of the Institute. We continue to be one of the most fi nancially sound Professional Institutes in the UK.

Finally, may I thank my fellow members of Council and the region ofﬁ cers who all do so much to ensure that the Institute of Management Serv- ices remains a progressive professional body that fully meets its declared objective of spreading the concept of productivity improvement across the world.

John Lucey, Chairman

II Trustees’ report for the year ended 31 December 2007

Charitable objects The Institute has as its main objective the promotion of the science, technology, practice and profession of Management Services, which results in the advancement of the effi ciency, productivity and satisfaction of human work. Organisational structure The Institute has eight Trustees who are elected by the membership in two groups of four. Elections are held prior to the Annual General Meeting, where the results of the ballot are counted. Elections are held in alternative years with the next elections taking place in 2009. The Board of Trustees meet three times a year in addition to the Annual General Meeting. Review of activities and achievements The Institute’s main activity is the dissemination of knowledge and information on productivity improvement, both to its members and the public in general, in order to improve the fi nancial viability of both companies and countries across the world. The increasing realisation of the role that productivity improvement can play in ensuring the economic well being of all, is an indicator of the success of the Institute over the past 60 years. The Institute continues to reap the fi nancial benefi ts of moving its administration base from Enfi eld to Lichfi eld in September 2001. During 2005, due to the lease expiring at Stowe House, the Institute relocated its head offi ce to Brooke House, 24 Dam Street, Lichfi eld. In 2005, the vast majority of existing Institute members availed themselves of the opportunity to take out life membership of the Institute. The additional income generated by the introduction of life membership has been invested and will serve to meet the Institute’s fi nancial needs into the future. In 2007 we saw the continuation of the steady increase in membership that had been evident in 2006. The move towards life membership has greatly reduced the administrative burden on the Institute and this has been refl ected in a large reduction in operating costs and this is refl ected in the 2007 accounts. January 2005 saw the outsourcing of the Institute’s Journal ‘Management Services’ and the Institute continues to benefi t from reduced journal production costs. The membership continues to support the publication of a quarterly journal. The journal continues to be provided to overseas members via the Internet. Past issues of the journal are now available on the Institute’s website, with the current issue only being available to Institute members via the use of a password. In 2007, the Institute commissioned a new set of examination DVDs for use as part of the IMS Certifi cate Practical Examinations. The IMS training videos that were converted to DVDs in 2006 continue to sell and have been a steady source of income to the Institute since they were fi rst produced in the 1990s. The three national education providers accredited to provide courses leading to the award of the Institute’s Certifi cate continue to provide a valuable service and also bring new members into the Institute. Future aims and objectives It is the intention of the Institute during 2007 and subsequent years to seek to increase membership numbers. Recruitment initiatives will include advertising in the professional journals of other Institutes. Reserves The Institute has a policy to maintain its reserves at a level that ensures the future fi nancial viability of the Institute. That level is deemed to be one that equates to a minimum of one year’s expenditure; currently the Institute holds reserves that exceed this target level tenfold and, as such, is fi nancially very sound. The funds of the charity are all unrestricted. Investment powers, policy and performance The Trust Deed authorises the trustees to make and hold investments using the general funds of the charity. The general improvement in the value of stocks and shares over the past year has resulted in growth in value of the Institute’s reserves held in this form of investment. Risk review, governance and internal control The major risks to which the charity is exposed, as identifi ed by the trustees, have been reviewed and processes established to manage them. Trustees are responsible for providing assurance that: • the charity is operating effi ciently and effectively; • its assets are safeguarded against unauthorised use or disposition; • proper records are maintained and fi nancial information used within the charity or for publication is reliable; • the charity complies with relevant laws and regulations. The systems of internal control are designed to provide reasonable, but not absolute, assurance against material misstatement or loss. They include: • a strategic plan and annual budget approved by the trustees; • consideration by the trustees of the fi nancial results, variance from budgets, non-fi nancial performance indicators and benchmarking reviews; • delegation of authority and segregation of duties; • identifi cation and management of risks. Statement of trustees’ responsibilities Company and charity law requires the trustees to prepare fi nancial statements for each fi nancial year which give a true and fair view of the state of affairs of the charity and of the surplus or defi cit of the charity for that period. In preparing those fi nancial statements, the trustees are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards and statements of recommended practice have been followed subject to any departures disclosed and explained in the fi nancial statements; and • prepare the fi nancial statements on the going concern basis unless it is inappropriate to presume that the charity will continue in business. The trustees have overall responsibility for ensuring that the charity has appropriate systems of control, fi nancial and otherwise. They are also responsible for keeping proper accounting records which disclose with reasonable accuracy at any time, the fi nancial position of the charity and enable them to ensure that the fi nancial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the charity and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Auditors A resolution proposing that Leftley Rowe and Company be reappointed as auditors of the charity will be put to the Annual General Meeting. This report was approved by the trustees on 1 August 2008 and signed on its behalf by J J Lucey FMS (Chairman). III Independent auditor’s report to the members of The Institute of Management Services

We have audited the fi nancial statements of The Institute of Management Services for the year ended 31 December 2007 which comprise the statement of fi nancial activities, the balance sheet and the related notes. These fi nancial statements have been prepared under the accounting policies set out therein. This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members, those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of the trustees and auditors The trustees’ responsibilities for preparing the trustee’s report and the fi nancial statements in accordance with applicable law and United King- dom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of trustees’ responsibilities. Our responsibility is to audit the fi nancial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the fi nancial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985, and whether the information given in the trustees’ report is consistent with the fi nancial statements. We also report to you if, in our opinion, the charitable company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specifi ed by law regarding trustee’s remuneration and other transactions is not disclosed. We read other information contained in the report, and consider whether it is consistent with the audited fi nancial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the fi nancial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the fi nancial statements. It also includes an assessment of the signifi cant estimates and judgements made by the trustees in the preparation of the fi nancial statements, and of whether the accounting policies are appropriate to the charitable company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with suffi cient evidence to give reasonable assurance that the fi nancial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the fi nancial statements. Opinion In our opinion: • the fi nancial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the charitable company’s affairs as at 31 December 2007 and of its incoming resources and application of resources, including its income and expenditure, for the year then ended and have been properly prepared in accordance with the Companies Act 1985 and • the information given in the trustees’ report is consistent with the fi nancial statements.

Leftley Rowe and Company The Heights Chartered Accountants and 59-65 Lowlands Road Registered Auditors Harrow Middlesex HA1 3AW

IV Statement of ﬁ nancial activities For the year ended 31 December 2007

Unrestricted 2007 2006 funds Total Total Notes £ £ £ Incoming resources Subscription income 2 42,202 42,202 35,913 Activities in furtherance of the charity’s objectives 3 24,650 24,650 24,325 Income from investments 4 29,063 29,063 29,827 Total incoming resources 95,915 95,915 90,065 Charitable expenditure Cost of activities in furtherance of the charity’s objects: Advertising & journal costs 5 (35,070) (35,070) (31,715) Examination costs 5 (223) (223) (9,475) Support costs 6 (272) (272) (3,733) Management and administration 7 (42,164) (42,164) (52,231) Total charitable expenditure (77,185) (77,185) (97,154) Net (outgoing) resources before gains and losses on revaluations and disposals 8 (18,730) (18,730) (7,089) Gains and losses on revaluations and disposals of investment assets 3,219 3,219 16,738 Net movement in funds 21,949 21,949 9,649 Total funds brought forward 397,025 397,025 387,376 Total funds carried forward 418,974 418,974 397,025

Balance sheet as at 31 December 2007

2007 2006 Notes £ £ £ £ Fixed assets Investments 10 152,575 149,356 Current assets Debtors 11 3,260 5,614 Cash at bank and in hand 486,312 502,260 489,572 507,874 Creditors: amounts falling due within one year 12 (48,700) (56,894) Net current assets 440,872 450,980 Total assets less current liabilities 593,447 600,336 Accruals and deferred income 13 (174,473) (203,311) Net assets 418,974 397,025 Funds Unrestricted funds 15 418,974 397,025 418,974 397,025

The ﬁ nancial statements are prepared in accordance with the special provisions of Part VII of the Companies Act 1985 relating to small companies .

The ﬁ nancial statements were approved by the Board on I August 2008 and signed on its behalf by J J Lucey FMS (Chairman)

The notes on pages VI to VIII form an integral part of these ﬁ nancial statements. V Notes to the ﬁ nancial statements for the year ended 31 December 2007

1. Accounting policies 1.1. Accounting convention The fi nancial statements are prepared under the historical cost convention, with the exception of investments which are included at market value. The fi nancial statements have been prepared in accordance with the Statement of Recommeneded Practice – ‘Accounting and Reporting by Charities: Statement of Recommended Practice’ (SORP 2005) issued in March 2005. The principal accounting policies adopted in the prepartation of the fi nancial statement are set out below. The charity has taken advantage of the exemption in FRS1 from the requirement to produce a cashfl ow statement because it is a small charity.

1.2. Incoming resources Income from subscriptions, activities to further the charity’s objects and investments are included in the year in which it is receivable.

1.3. Resources expended Resources expended are recognised in the year in which they are incurred. Support costs are those costs incurred directly in support of expenditure on the objects of the charity and include project management. Management and administration costs are those incurred in connection with administration of the charity and compliance with constitutional and statutory requirements.

1.4. Tangible ﬁ xed assets and depreciation Depreciation is provided at rates calculated to write off the cost less residual value of each asset over its expected useful life, as follows: Fixtures, ﬁ ttings and equipment -33% straight line p.a.

1.5. Investments Fixed asset investments are stated at cost less provision for diminution in value.

1.6. Irrecoverable VAT All resources expended are classiﬁ ed under activity headings that aggregate all costs related to the category. Irrecoverable VAT is charged against the category of resources expended for which it was incurred.

2. Subscription income 2007 2006 £ £ Membership subscriptions 42,202 35,913

3. Activities in furtherance of the charity’s objects 2007 2006 £ £ Advertising revenue and journal subscription 11,646 12,358 Examination entry fees 2,969 2,772 General 8,897 8,190 Amounts from groups and branches 1,138 1,005 24,650 24,325

4. Investment income 2007 2006 £ £ Listed investment income 28,890 19,682 Deposit interest 173 10,145 29,063 29,827

5. Costs of activities in furtherance of the objects of the charity Advertising and journal subscription Examinations 2007 2006 £ £ £ £ Examination charges - 223 223 9,475 Printing, postage and stationery 35,070 - 35,070 31,715 35,070 223 35,293 41,190

6. Support costs 2007 2006 £ £ Membership expenses 278 2,483 Sponsorships and awards 550 1,250 272 3,733

VI 7. Management and administration 2007 2006 £ £ Committee meeting expenses 6,920 5,592 VAT irrecoverable 2,472 4,127 Insurance 1,113 1,035 Outsourced administration 22,264 21,723 Cleaning (9) 62 Printing, postage and stationery 1,187 3,731 Computer costs 2,438 4,567 Legal and professional 65 65 Audit fees 2,637 2,735 Bad debts (564) - General expenses 3,427 7,049 Depreciation and amortisation - 1,206 Interest and charges 214 339 42,164 52,231

8. Operating deﬁ cit 2007 2006 £ £ Operating gain/(deﬁ cit) is stated after charging: Depreciation and other amounts written off tangible assets - 1,206 Auditors’ remuneration 2,637 2,735

9. Tangible ﬁ xed assets Fixtures, ﬁ ttings and equipment Total £ £ Cost At 1 January 2007 171,764 171,764 At 31 December 2007 171,764 171,764

Depreciation At 1 January 2007 171,764 171,764 At 31 December 2006 171,764 171,764 Net book values At 31 December 2007 - - At 31 December 2006 - -

10. Fixed asset investments UK listed investments Total £ £ Cost/revaluation At 1 January 2007 149,356 149,356 Additions 3,219 3,219 At 31 December 2007 152,575 152,575 Market values At 31 December 2007 152,575 152,575 At 31 December 2006 149,356 149,356 Listed investments have a historical cost at the year end of £100,000 (2006:£100,000). The listed investments consist of the following: 2007 2006 £ £ Chariguard UK Equity Fund 152,575 149,356 All investments are listed on a recognised Stock Exchange.

11. Debtors 2007 2006 £ £ Trade debtors 2,804 1,647 Other debtors 47 895 Prepayments and accrued income 409 3,072 3,260 5,614

12. Creditors: amounts falling due within one year 2007 2006 £ £ Trade creditors 4,360 10,041 Accruals and deferred income 44,340 46,853 48,700 56,894

VII 13. Accruals and deferred income 2007 2006 £ £ Advance subscriptions At 1 January 2007 203,311 219,195 Increase in year - 12,954 203,311 232,149 Released in year (28,838) (28,838) At 31 December 2007 174,473 203,311

Deferred income is comprised of lifetime-membership subscription receipts. Income will be released to the statement of ﬁ nancial activity over the estimated lifetime of members.

14. Analysis of net assets between funds Unrestricted Total funds funds £ £ Fund balances at 31 December 2007 as represented by: Tangible ﬁ xed assets 152,575 152,575 Current assets 489,572 489,572 Current liabilities (48,700) (48,700) Long-term liabilities (174,473) (174,473) 418,974 418,974

15. Unrestricted funds 1 January Incoming Outgoing 31 Dec 2007 2007 £ £ £ £ General fund 397,025 95,915 (73,966) 418,974 397,025 95,915 (73,966) 418,974

Purposes of unrestricted funds The Institute has as its main objective the promotion of the science, technology, practice and profession of Management Services which results in the advancement of the efﬁ ciency, productivity and satisfaction of human work. The purpose of the unrestricted funds is the dissemination of knowledge and information on productivity improvement, both to its members and the public in general, in order to improve the ﬁ nancial viability of both companies and countries across the world. The increasing realisation of the role that productivity improvement can play in ensuring the economic well-being of all is an indicator of the success of the Institute over the past 60 years. 16. Taxation The charity’s activities fall within the exemptions afforded by the provisions of the Income and Corporation Taxes Act 1988. Accordingly, there is no taxation charge in these accounts.

VIII Do you know what’s slowing your business down?

We can help you identify and address the obstacles

Experienced productivity Training courses analysts, for team leaders, specialists Appreciation courses, Lean supervisors or managers. Use some of our people to Routemap, Productivity Toolkit, Ask us for more details about this undertake a productivity Rating Clinics, MOST®, Work professional qualification, all our improvement project for you measurement other courses, our open course on a project or contract basis - on IMS Certificate course in 4 dates or in-company training. an hourly or daily rate - for as long separate one-week modules as required - as individuals or 1 Productivity Foundation project teams 2 Productivity Analyst (choose Time Study, MOST® or PADS) The MOST® technique 3 Improving methods and processes Creating structured time standards 4 Developing a Lean environment with a highly effective work measurement technique. A tremendous foundation for new Productivity Solutions Scott-Grant Limited Technical Resourcing Portland Tower, Portland Street, Manchester M1 3LD Tel 0044 (0)161 234 2121 Fax 0044 (0)161 234 2125 [email protected] Offices also in Motherwell and Hertfordshire Management Services 22 Autumn 2008 Lean

Large companies lead the manufacturing is also greater management roles where Continued from page 20 way for large fi rms relative to small their lean knowledge can Size also seems to matter, fi rms. Just over half of large be utilised to the full. This as large fi rms seem to be fi rms that have undertaken approach, if continued for a having more success with lean manufacturing state number of years, will ensure lean compared to small that they have found it very that all line managers become fi rms. Figure 1.10 shows the successful, compared with only lean practitioners and students percentage of respondents a quarter of small fi rms. It of the change process. undertaking or planning may be that large companies Boots Manufacturing in any form of lean activity by already have an infrastructure Nottingham decided to employment size and it is clear and a culture of continuous internally select and train their that a much higher proportion improvement which can own lean implementation of large companies are be used as the platform to team and called them ‘lean applying lean to the whole or introduce lean manufacturing. coaches’. After a period of parts of their business. two to three years, the lean Implementation coaches would return to a line and benefi ts of lean management position and manufacturing spearhead the implementation The method of implementing of lean. lean can have a major The Manufacturing infl uence on its ultimate Magazine’s (2006) Lean success. The high failure rate Manufacturing Survey asked of major lean transformations companies what kind of would indicate that a number resources are devoted to lean of companies have not given implementation and they this aspect of lean suffi cient are detailed in Figure 1.11. thought. It is not unusual for The most popular approach Figure 1.10 Size of company involved in The EEF (2001) report goes the fi rst attempt to stall and (36%) involved the existing lean manufacturing by percentage on to state that when the use often external consultants management team who Source: EEF, Catching up with Uncle Sam, (2001), p35 of all the different lean tools who have experience of took a shared responsibility is considered by company implementing lean are in the implementation. This size, it is also apparent commissioned to assist. is closely followed (34%) that a substantially higher Some of the most successful by a joint management proportion of large fi rms companies have trained and staff approach which are using the lean tools than lean practitioners who act helps to engage staff in the is the case for small fi rms. as internal consultants and transformation. The third most The intensity of use of lean subsequently move into line popular approach (22%) was Management Services Lean Autumn 2008 23

the use of a small dedicated and in some cases they have team and the least popular gone on to establish a joint approach (8%) was the use benchmarking forum. Sixteen of a dedicated individual. per cent of companies did Generally, the pace of not seek any help at all and implementation will increase 15% of companies used the with the number of people Business Link. that are involved.

Figure 1.11 Resources devoted to lean Figure 1.12 identifi es Financial benefi ts of lean Figure 1.12 Sources of help with the lean implementation implementation Source: Manufacturing Magazine – Lean the sources of help that manufacturing Source: Manufacturing Magazine – Lean Manufacturing Survey 2006, p27 companies used in their lean Lean manufacturing is a Manufacturing Survey 2006, p28 implementation. The most philosophy that requires the popular method (41%) was up front briefi ng and training the use of private specialist of management and staff, consultancies, while 32% therefore, there is often a of companies used the delay between the start of Department of Trade and lean and the evidence of the Industry Manufacturing fi rst savings. It is advisable Advisory Service which is free to instigate some form of and obviously cheaper than monitoring system that is the specialist consultancies. capable of monitoring and Twenty three percent of measuring savings. companies sought the help of The 2006 Lean other manufacturers who have Manufacturing Survey successfully implemented lean reported that nine out of Management Services 24 Autumn 2008 Lean

ten respondents reported such as increased customer that they had reduced costs satisfaction, improved product since implementing lean, quality and improved staff 49% of companies had seen morale. a major reduction in costs but almost a third of respondents were unable to quantify the benefi ts. Translated into hard cash, 45% of respondents made savings of at least £0.25 million since implementing lean manufacturing, while a quarter have saved more than £0.5million. Exactly half have seen an improvement in effi ciency and 40% have seen a reduction in delivery lead times. Figure 1.13 provides details of the magnitude of the savings. Figure 1.14 Potential benefi ts and an indication of the improvement Source: Manufacturing Magazine – Lean Manufacturing Survey 2006, p30

The sources of increased productivity are identifi ed in Figure 1.15. The adoption of a lean continuous improvement process and the improvement of work fl ow and processes accounted for 54% of the productivity improvement. Over 31% of companies identifi ed lean as the basis of Figure 1.13 Quantifi cation of savings their continuous improvement following the implementation of lean process. Source: Manufacturing Magazine – Lean Manufacturing Survey 2006, p31

The savings from the introduction of lean cover a wide area of company activities and Figure 1.14 gives an indication of areas of the company where the savings have been made and how much improvement has Figure 1.15 Source of improved been made. For example, productivity 44% of companies achieved a Source: Manufacturing Magazine – Lean Manufacturing Survey 2006, p30 major improvement in costs, 52% of companies made a minor improvement in costs and 4% did not make any improvement at all. Overall, companies experienced a reduction of costs, increased effi ciency, reduced lead times, reduced waste, increased profi tability and lower stocks. There were softer benefi ts Management Services Lean Autumn 2008 25

Conclusions on the the importance of the ‘soft current state of lean side’ of lean is beginning to References manufacturing in the UK be more fully understood. Engineering Employers’ Federation, (2001), Productivity This research study commenced Investment costs were also Report: Catching up with Uncle Sam, Economics in late 2001 and concluded identifi ed as a major barrier Department, London, ISBN: 1-903461-20-0. in late 2006, so it was almost to lean implementation but Manufacturer Magazine, (2002), Annual Manufacturing perfectly synchronised with it is not clear if this relates Report. the annual lean manufacturing to capital investment, such Manufacturer Magazine, (2005), Annual Manufacturing survey which the Manufacturer as equipment, or revenue Report. Magazine started in February spend, such as training and Manufacturer Magazine, (2002), The Road to World Class 2002. Following Womack, consultancy. Manufacturing: Lean Manufacturing. Lean Manufacturing Jones and Roos’ publication of There is evidence that Survey Report. ‘The Machine that Changed companies are giving Manufacturer Magazine, (2006), Lean Manufacturing the World’ in 1990 and the much more thought to the Survey Report. Womack and Jones’ book implementation of lean Shingo, S, (1989), A Study of the Toyota Production System ‘Lean Thinking’ in 1996, lean with the use of specialist from an Industrial Engineering Viewpoint, Productivity manufacturing has steadily consultants, internally trained Press, Portland, Oregon. ISBN: 0-915299-17-8. become more popular as lean coaches and help from Wickens, P D, (1995), The Ascendant Organisation: a stand alone supply chain government agencies. The Combining commitment and control for long term philosophy. benefi ts that the discipline sustainable business success, Macmillan, Basingstoke, ISBN: The publication of the of a lean manufacturing 0312125518. annual Lean Manufacturing approach brings to improving Womack, J P, Jones, D T and Roos, D, (1990), The Machine Survey by the Manufacturer competitiveness are beginning that Changed the World, Rawson Associates, New York, Magazine, which commenced to be understood more fully ISBN: 0684819929. in 2002 and has continued on by companies. Ninety per Womack, J P and Jones, D T, (1996), Lean Thinking, Simon & an annual basis, has enabled cent of companies reported Schuster, UK, ISBN: 0-684-81976-7. the researcher to compare the that they had made tangible state of lean manufacturing cost reductions, although one between 2002 and 2006, which third reported that they were covers the life of this research. unable to quantify the benefi ts The perceived benefi ts that had been achieved. In of lean have evolved from the 2006 Lean Manufacturing a basic desire to reduce Survey the benefi ts identifi ed costs, to a more systematic were reduction in costs, approach to becoming more increased effi ciency, shorter competitive. In 2006, the top lead times, reduced waste and two perceived benefi ts were increased profi tability. to improve effi ciency and Perhaps the most processes, and the removal of encouraging indication in waste. Large companies are the 2006 lean manufacturing still the main adopters of lean survey is that lean is seen manufacturing and this may, as the best approach to to some extent, be because improving productivity. they have the infrastructure, This progression in the such as training programmes, process and application in place to support it. of lean is testament to The barriers to the the rapid rise in its use as acceptance of lean have one of the best vehicles remained much the same over for a robust continuous the period. Both the 2002 improvement process. The and the 2006 lean surveys majority of manufacturers fl ag up company culture now appreciate that lean is and the attitude of staff as important, if not essential, the main barriers. Together, to the future prosperity and these indicate that the level competitiveness of their of staff engagement is not companies. In conclusion, it at a suffi ciently high level is evident that much more is for lean to be accepted or known about the impact that sustained. There are, however, lean can make when properly some encouraging signs that applied. Management Services 26 Autumn 2008 Case Study

Some business improvements involve a giant leap forward. An example of this would be the development of a revolutionary new product such as the bicycle or, more recently, the iPod or modern wind turbines to create green energy. However, of more importance to most businesses is ongoing small step improvement.

his case study shows it needs to have a plan to how Leyland Trucks get there – this is termed the Tcontinually makes strategy. improvements to everything DAF’s strategy for Leyland to it does based on the Japanese achieve this objective has two principle of Kaizen. main elements: Leyland Trucks manufactures • continuous improvement trucks under the DAF brand • increasing production in Leyland near Preston, capacity from 18,000 to Lancashire. 25,000 units. As well as production in the UK, DAF manufactures in Continuous improvement Eindhoven in the Netherlands or Kaizen and Westerlo in Belgium. The Japanese term Leyland and DAF are both ‘Kaizen’ means continuous part of the North American improvement. It comes from company, PACCAR Inc. the words ‘kai’ – continuous In 2006 DAF’s three – and ‘zen’ – good or for the manufacturing plants in better. We use the term ‘Kaizen Europe, including that at event’ for any action that is an Leyland, produced a record improvement to an existing 56,700 trucks of between 7.5 process. and 44 tonnes (the heaviest Kaizen events usually involve vehicles on the road). One bringing together operators, in every four trucks sold in managers and the owners of the UK is by DAF. New truck a particular event to discuss registrations in Europe were possible improvements. A Figure 1 almost 268,000 in 2006 and DAF currently has a 15% share of this European market. The current business objective is to increase the market share to 20%. When a company wants to achieve its objective, Management Services Case Study Autumn 2008 27

fl owchart illustrates the process and people discuss how they can improve the fl ow of work. The great thing about the Kaizen process is that people who really understand manufacturing at a nuts-and- bolts level can get involved in introducing improvements. Someone who assembles part of the truck suspension will have a reasonably good idea There are a number of about how the processes they major reasons why Leyland work on could be improved. Trucks practises continuous Leyland therefore encourages improvement: everyone to be involved in • To meet the production decision making. Lots of small and sales growth plans to steps can rapidly become a meet customer demands giant leap forward in the for more reliable trucks; creation of new ideas. • To stay ahead of the A good example of how competition. For example, Kaizen is implemented there is always a risk that at Leyland relates to the rival manufacturers, eg, in introduction of a robotic paint China and other European spray booth for the truck countries, might merge chassis. This was a huge leap (this happens when two forward – Leyland was the fi rst companies join together). assembly plant in the world This could lead to a to use robots on a moving threat from these bigger conveyor to paint its chassis. competitors; It planned to implement this • To offset rising labour over the summer shutdown of costs. Wage costs rise every the plant – this is where Kaizen year. Leyland is not able came in. One of the fi rst steps to raise prices because was to look at the successful of competition, so any introduction of a production increase in wages has to be line the previous year. The compensated for by more purpose of this was to identify effi cient production; all the lessons that could be • To protect jobs in the UK. learned from the earlier project If operations at Leyland and to apply them to the new Trucks were considered chassis spray booth. Everyone ineffi cient, there would was able to put forward their be a danger that senior views and all appropriate managers at global ideas for improvement were headquarters might want

considered. to move production to Figure 2 Management Services 28 Autumn 2008 Case Study

a location with lower • Productivity (how much fi ctional example, the goal wages. is produced from given for truck hours for 2006 is 52. resources in a certain time For the year to date, results Setting and monitoring period); are above the annual target. continuous improvement • Quality (for example, In the second, you can see goals the numbers of defects that in 2005, each employee Businesses seek to ‘measure – ideally zero); produced an average of 14.9 what is measurable’. These • Financial (for example, trucks per week. The goal measures are usually set out costs); for 2006 was to raise this to in what are referred to as • Inventory (the quantity of 15.6. For the year to date, Key Performance Indicators stock held); the average truck production (KPIs). In order to check on • Health and safety numbers are on target. the success of continuous (reportable accidents, An important KPI for improvement, it is important minor accidents); continuous improvement is to have a number of measures • Continuous improvement Six Sigma. This is a measure in place. In this way, the (Six Sigma – see below). of quality that strives for company can see where near-perfection. To achieve Six improvements have been One or more KPIs are used Sigma, a process must produce made. to measure each of these no more than 3.4 defects The measures that Leyland themes. For example, the per million opportunities. Trucks uses are clustered into a measure of productivity Six Sigma uses statistical number of themes – these are calculates the number of tools and data as a base for areas of business results that labour hours required to analysis. It can be used to are similar. For example, one manufacture each truck improve existing processes or theme is Health and Safety. (known as ‘truck hours’). develop new ones. It involves Useful measures under this All of this information is the systematic identifi cation theme are the number of set out in fi gure 3, which of defects and defi ciencies accidents at work, and illness- is monitored each week. In within any product, system related issues. the chart below, you can see or process, with a view to The main themes used are: examples of productivity- eliminating them. A defect related KPIs for a week at the is anything that is outside • On-time performance end of 2006. customers’ expectations. (meeting deadlines); In the fi rst measure of this With its disciplined and

Figure 3 Management Services Case Study Autumn 2008 29

logical approach, Six Sigma contribute to continuous enables decision-takers in improvement, such as by Leyland Trucks to improve eliminating errors and their understanding of waste; business and operational • Team-building for Kaizen; processes. This results in • Involving everyone from major cost savings and the top to bottom in decision- a High Impact Kaizen Event These people run and monitor development of best practices. making; (HIKE) where six pairs of progress through Six Sigma. Leyland Trucks sets targets • Empowerment – giving project leaders were chosen to create a vision for staff to responsibility and to work with employees in Conclusion work towards. In other words, power to everyone this area. Each member of the Continuous improvement it gives a clear picture of what in the organisation, HIKE team wore a brightly helps a business to keep can be achieved through high encouraging them to coloured ‘high visibility ahead. It is a process that performance. In 2001, the make decisions and to jacket’ and they examined involves all employees within Managing Director (MD) of take on responsibility for every area of work, talking to an organisation and is based Leyland set a visionary target continuous improvement; everyone on the section in an on a culture of trust and for quality in the company • Innovation – encouraging informal but systematic way. empowerment. based on a Quality Index. everyone to be prepared They encouraged everyone to The results for Leyland Quality relates to such areas to think of, communicate identify workbased problems Trucks in its full range of KPIs as the number of breakdowns and try out new ideas. and possible solutions. Staff have been staggering. For within 90 days and mechanical got together at working example, in 2006, there have defects. These values are translated lunches to discuss work been: In 2001, the value of this into practical action – this issues. Overall, the idea was index was running at 13.2. In is referred to as ‘living the to involve everyone so there • Muliti-million pound order to drive a reduction in values’. They are put into would be no surprises. A savings resulting from Six these breakdowns and defects, practice through: senior manager was also on Sigma; the MD set the visionary hand to work as a coach, • A rise in on-time delivery target of 5.0. Leyland has • Day-to-day sharing of helping and supporting the to over 95%; achieved this target. ideas between team HIKE team. • 10% reduction in Progress is benchmarked members; The HIKE was an mechanical defects per across PACCAR’s nine • Weekly briefi ngs where outstanding success because unit; manufacturing plants. Leyland is team leaders inform of the improvement culture • 45% reduction in well ahead of its ‘sister’ plants. members of new at Leyland. At the end of the reportable injuries and developments, issues, project the team leader stated 10% in minor injuries in A culture for continuous problems and successes; that: “the culture at Leyland the same period. improvement • Quarterly newsletters for in terms of the pride that the The culture of an organisation all employees; employees take in being the The important thing to is the typical pattern of • Teamwork sessions; best is unique. You only have remember about continuous behaviour and way of doing • Celebrating achievement to spend a week at Leyland to improvement is that, as the things. of individuals and teams see why they are number one: process improves, the targets It is usually quite easy to every three months; the employees.” in the KPIs will also advance. get a feel for the culture of a • Whole-team sessions led More than 200 ideas for This delivers an ongoing cycle company. For example, does the by the managing director improvement were suggested of improvement. business look after customers? every six months. by ground-level employees. The culture at Leyland The changes they suggested Trucks is based on trust. It Continuous improvement led to: involves everyone in the in action continuous improvement Leyland Trucks has clear • A reduction in truck hours process. The company’s culture targets for continuous of over 17%; relies on a set of values. A improvement and clear • 20% reduction in line-side value is something that an processes for building materials (inventories); organisation and its people teams and encouraging • 23% reduction in walking believe in. Values determine involvement. Kaizen describes (the distance that the way we behave. all those processes that involve employees had to cover to Leyland’s values support Leyland’s people in day-to-day carry out their work – 57 continuous improvement and small step improvement. miles per day in total). include: A good example of this At Leyland, over 10% of • Training for everyone process occurred in May 2006 the 1000 workforce consists – for example, identifying at the vehicle fi nishing part of qualifi ed continuous ways in which people can of the plant. This involved improvement practitioners. Management Services 30 Autumn 2008 Fit for the future This means me

Fit for the future o did you change the If so, this article will achieve a quantum leap in – the ﬁ nal part way you think? If you simply echo things you have performance, we have to be Scarried out all of the discovered for yourself. For prepared to change the way of a six part exercises in steps two to ﬁ ve, the uninitiated, this article we think. The major disease series introducing you should at least have will represent an affront to of 20th century organisations had a few doubts about traditional management is in their design and systems thinking, things which managers practice, so please don’t management, and through by John Seddon have traditionally taken spread it around, we don’t this series I have encouraged for granted. You may have want to upset people. you to take a different and gone further, you may be a The central argument in better view of the design and committed systems thinker. this series has been that to management of work. Management Services Fit for the Future Autumn 2008 31

In summary, this is a systems minister hails the value of performance of any process view. I didn’t invent it, I standards. If only they knew or system than whether and learned it from the work of the damage that results. how often it performs to a W Edwards Deming, Shigeo Standards appeal, they standard. The capability or Shingo, Taichi Ohno and are grist to the political predictability of performance others. These are the people mill – ‘publish a standard, is governed by the nature and who led a transformation then publish performance extent of variation. Capability in Japanese manufacturing against it’ is the simple, and data leads managers to look in the 1950s – their ideas are still not understood by Traditional thinking Systems thinking most British managers, yet when employed, they can Perspective Top-down Outside-in have an enormous impact on Design Functional specialisation Demand, value and fl ow performance. “Where’s the proof?” I hear Decision-making Separated from work Integrated with work you ask. Let me give you just Measures Related to budget, showing Related to purpose, one example: The number activity, productivity, standards demonstrating capability of man hours Toyota takes Attitude to customers Contractual What matters to build a Lexus is LESS than the number of man hours Motivation of people Extrinsic (incentives) Intrinsic (pride) a German luxury car maker takes in re-work at the end simplistic, political cry. Yet this for and understand the causes Figure 1: Traditional thinking versus of the line – after the car very behaviour undermines of variation; by acting on systems thinking is made! How does Toyota performance and worse, it them, performance improves achieve this? Do their people engages people’s ingenuity – always. work harder? Is it because against, rather than with, their they are Japanese? systems. Managing with No, neither of these; their If a standard is beyond a productivity measures secret is in the methods they system’s capability, people gets you less productivity use to design and manage distort the system or cheat The cost accountants have work. Work is designed and – it is the only way to survive. had too much sway over the managed according to systems If a standard is within the way our managers manage. principles. I often say to my system’s capability, sometimes The logic, as with standards, is clients: “It’s a good job you you ‘win’, sometimes you plausible – if everyone makes don’t make cars! For it would ‘lose!’ If a standard is below budget, the organisation take 40 years to catch up with the system’s capability, succeeds. But again, the focus Toyota.” However, if you make people relax. Moreover, they becomes ‘make budget’ by nothing, if yours is a service encourage others not to over- fair means or foul. The focus organisation, these ideas achieve lest the standard is ought to be on understanding can be implemented and the increased. the relationship between benefi ts achieved in a very We have seen all of these means and ends, something short time. responses in our health only capability measures In this, the fi nal article in services, police services and facilitate. the series, I shall summarise schools. They are not new People do what you count, the distinction between phenomena – we have seen not necessarily what counts. If traditional management the same in our private sector you ‘count’ budget, standards, thinking and systems thinking organisations for years. targets, activity and other and discuss some truths The minority of private ‘productivity’ measures, that’s that systems thinkers know, sector organisations that have what you’ll get, regardless of which go against the grain learned the error of these the impact on your system. If, of what most managers ways employ different and on the other hand, you ‘count’ take for granted. As space is better measures – capability achievement of purpose, you’ll limited, I shall not give further measures. Capability measures get better at what you exist to examples; examples can be (see step three) make it easier do. Measures of purpose are found in the previous articles to connect ends with means always ‘outside-in’ measures, in this series. and hence make it easier not ‘top-down’ measures. to get the discussion on to If you have measures that Standards are anathema method. relate to purpose in the to improvement It is better to know what hands of the people who Just about every Government is predictable about the do the work, they will feel Management Services 32 Autumn 2008

able to experiment with they have improved revenue. method. At a stroke you will have a free brain with Systems thinking is a every worker – something better way to make the traditionally designed and work work managed systems obviate. We are witnessing a Motivation becomes intrinsic, fundamental challenge to people learn, people enthuse our beliefs about how to about what they change design and manage work. and improve, simply because In my experience, this is not measurement has been something that can be stirred integrated with work, not by lectures and presentations, separated from it. it is something you have to feel. As the American Incentives get you less expression goes, “You have to (not more) be there”. Managers believe incentives If you have followed the have value in driving exercises in this series, you will behaviour. They are wrong. have made a good start; you This is not a matter of opinion. will have found for yourself All the research evidence the sub-optimisation caused shows that incentives get by traditional methods of you less work and, more designing and managing importantly, they result in work. I have found it is people attaching less value only this type of ‘hands-on’ to their work. In America, for experience that gets managers example, children have been interested in the better way. given hamburger tokens as an If you really want to get incentive for reading books. ﬁ t, if you really care about When the tokens stop, so productivity and proﬁ t, I does the reading. What are recommend you learn to take the children learning? To not a systems view. It starts with value reading. you. What accounts for poor quality selling in so many This series ‘Six steps to sectors? Incentives. In the improving productivity’ is few organisations that have based on The Vanguard removed sales incentives, they Guide to Understanding Your have improved co-operation Organisation as a System, between salespeople, published by Vanguard decreased sales force turnover, Education. improved the quality of selling Downloaded from www. – hence improved customer lean-service.com – improve satisfaction – and, above all, service and cut costs.

is an occupational psychologist and management thinker credited with translating the Toyota Production System (TPS) for service organisations. John is a visiting professor at the Lean Enterprise Research Centre, University of Cardiff. He is an entertaining, controversial and informed speaker. John’s latest book Systems Thinking in the Public Sector and other publications are available from the Vanguard website: www.lean-service. com or direct from Vanguard, Villiers House, 1 Nelson Street, Buckingham MK18 1BU. Management Services Lean and Organisational Learning Autumn 2008 33 Connecting lean and organisational learning

…and its impact on the transformation of Ross Controls By Jamie Flinchbaugh Lean Learning Center

deas and movements aimed or lean manufacturing, and Lean has, in general, been at changing the business organisational learning. Lean, misunderstood, narrowly Iworld come and go faster although it has continued to focused and unsustainable. than magazines can report shift and morph, began as a Organisational learning them and companies can concept that migrated from has often been limited to adopt them. There have only company to company in the changed behaviour only been a few that have lasted 1950s, with historical roots during facilitation, meeting more than a few years. What well before that. resistance to becoming part is it about movements and Organisational learning of the everyday corporation. initiatives that determine was born in the ‘50s, began to The excitement about both whether they last or they just get organised in the ‘80s, and movements comes from their fade away? became the language of every tremendous potential. The There are probably many business person after the 1990 reasons worth exploring, but release of ‘The Fifth Discipline’ I will only say that while some by Peter Senge. movements are depleted as What is most interesting soon as they are implemented, about these two movements others create a reinforcing is their point of intersection. pattern that builds on itself, There are many companies becoming stronger and more that adhere to both lean ingrained... a pattern that and organisational learning, frustration comes from is unaffected by changing but view them as distinct, that potential remaining desires in the marketplace; disconnected initiatives. unrealised. instead helping people deal Some companies link them In order to explore with this change. together, but only in terms their intersection, we of their respective resource must return to one of the Where lean and pools and budgets. Looking fundamental frameworks organisational learning at the intersection of both of organisational learning. meet movements, I believe there are Vision drives mental models, Two movements that have ways to unlock the potential affects systemic structures, lasted over time are lean, in both. and determines patterns Management Services 34 Autumn 2008 Lean and Organisational Learning

continuous fl ow, just-in-time and continuous improvement. Lean improvement efforts across companies and industries begin and end at this level of the framework. This is so common across companies because events such as the application of a lean tool are so visible, it is of behaviour which result hard not to focus your in the events that we see. attention there. This framework presents For years, a hypothesis that there is companies greater leverage for change like Chrysler to closer to vision, and the and General further from reacting to Motors events. Despite the lessons would visit of this framework, there is the birthplace still a dominant behaviour of of lean – Toyota – and walk reacting to events and living through their plants looking primarily at that level. for the answer to why Toyota Many organisational was beating them in every learning change efforts reveal category. They may see this framework in the spirit something like the andon cord, of creating ‘systems thinkers’. a simple cable strung overhead Upon examination, however, of the workers. When a worker this is done without specifi c had a problem, they would methods, tools or rules of pull the cord, triggering music HOW. The result is that people and an indicator light. A team simply claim their own ‘good leader would immediately idea’ in the name of systems show up to support the worker thinking, lending it false in resolving the problem. credibility. Therefore, while Seeing this tool and peoples’ eyes are opened to knowing it was vastly different the possibility demonstrated from how their plants within this framework, the operated, drew the attention change in performance or of automotive executives, behaviour is often in word leading to a strong push to only. install the same andon cord Turning quickly to the realm in their plants. The effort of lean, lean transformation, failed, not because they lean manufacturing or misunderstood the tool, not whatever other derivative because their workers were phrase you may use, almost union members, not because every effort and almost all their factories were older, but articles and teaching limit because the tool was out of lean to a set of patterns and place. There was something events. Events come mostly missing, and it wasn’t just in the form of solutions such other lean tools. The effort at as andon systems, work cells, transformation was missing an error-proofi ng or kanban. intangible element – if we’re These solutions fi t certain to fi x the problem we must problems or needs, but only make the intangible tangible. affect the events level of the company. By moving one step The next level up in leverage, we can see If we make the leap suggested patterns of behaviour that are by the organisational learning expected through lean, such as framework, in Figure 1, Management Services Lean and Organisational Learning Autumn 2008 35

Figure 1

we start examining lean These rules have many through the lens of systemic purposes, but most simply, structures, mental models they provide the organisation and vision. If we climb guidance when designing or one rung in leverage into improving systems. For some, systemic structures, we should this helps explain the ‘why’ ask: “what do lean systemic behind the tools. For others, structures look like?” This the rules help create new answer comes from research tools or solutions. And still for by Harvard Professors H Kent others, it is the litmus test to Bowen and Steven Spears. evaluate and judge certain Through ‘in the trenches’ improvement ideas. These research at Toyota and other rules are a major contribution companies, the professors to the understanding of lean were able to codify the ‘rules’ and help us move up one that true Toyota Production more step in the leverage System-thinkers use when hierarchy into systemic designing, operating or structures. improving their systems. These four rules are shown here, although they have been modiﬁ ed for ease of understanding and memorisation: 1. Structure every ACTIVITY; 2. Clearly CONNECT every customer – supplier; 3. Specify and simplify every FLOW path; 4. IMPROVE through experimentation at the lowest level possible towards the ideal state. Management Services 36 Autumn 2008 Lean and Organisational Learning

Mental models of lean Every company seeks high The next rung on the hierarchy agreement of the ‘whats’ of leverage is mental models. (goals, objectives, measures, Put most simply, mental strategies), but only the best models are the principles or focus most of their energies beliefs upon which we think, at every level on defi ning make decisions and view the a clear and common ‘how’ world. While the rules help to execute these objectives. us design better business Having this mental model systems, we also need mental means that people value models to help us with the having a common process people systems. In regards to more than they value doing lean, this is defi ned by fi ve things whichever way they principles: like. Without a common process, there is no platform 1. Directly observe work on which to build continuous as activities, connections improvement and leverage to and fl ows the collective creativity of the This principle affects how we organisation. see the world. Do we seek to understand our current 4. Systematic problem reality by looking at results solving and measures or do we seek Every individual needs to a peek at the actual systems be engaged in structured that drove that performance? problem solving by viewing We see the car in front of us problems as opportunities but do not recognise the fl ow for improvement and by of traffi c. We pay our bill examining the root cause without attention to the fl ow through systemic solutions, of information of which we leveraging the four rules. are just one piece. The ability Problems exist – it is our to see the systems behind the view of their importance events is not a natural ability, and how we react to them but lean leaders must think in that will make a difference. these terms and see the world By redefi ning problems as through a different lens. gaps from our ideal state and high agreement, we seek to 2. Systematic waste solve problems sooner and elimination more frequently, rather than We must view value through battle with them when they the customers’ eyes and become large, looming and recognise everything else institutionalised. as waste. The ability and relentless drive to eliminate 5. Create a learning waste on a daily basis is what organisation sets lean systems thinkers This is an obvious link to apart. Combined with the fi rst organisational learning, but it principles, this means digging does not represent everything below the surface to fi nd the that organisational learning causes of waste and working is known to be. It is focused to eliminate them. Recognising on building refl ection into that waste will continue to everything that is done. re-enter our processes and Refl ection does not have to organisations is important, as be complex, but requires, at waste elimination must be a least, pausing long enough to constant effort. ask: “are our current thinking and systems getting to where 3. Establish high we want to go?” This requires agreement of both what daily effort and frequent use and how of the question “why?” Management Services Lean and Organisational Learning Autumn 2008 37

may use different words for your particular organisation or industry, but a generic ideal state is ‘delivering what the customer wants, when they want it, at the price they want, with zero waste and where everyone is safe.’ The pursuit of the ideal state is a common trait among the most consistently successful companies. This means that even when you Figure 2 have met your goal or even become best-in-class, you do not stop because you are Making the leap to lean tools that support the pattern driven by the never-ending mental models requires a very of ‘pull’ which simply means quest for perfection. World- different kind of leadership that activities, production class is a common goal or and different approach to or otherwise, are completed vision for many companies, implementation than if you based on clear signals from but often comes with the were just implementing the immediate customer mistaken idea that the second tools. The importance of and their needs, instead of you become number one, you changing principles is under triggered by a schedule, a can stop, or even let off the appreciated. The reason forecast or someone driving throttle. is that we can all live the local efﬁ ciencies. As a simple At companies driven by principles we are told to live example, if an area manager the search for an ideal state, or want to live when times doesn’t internalise the you don’t measure yourself are good and challenges are principles of high agreement against your competition, but few. It is only when a crisis and systematic waste against your ideal state which or challenge hits that our elimination, she is not likely to is a target that never moves true internal principles are adhere to those tools and will and which everyone can align surfaced. overproduce when faced with themselves around. Regardless of how strong meeting a monthly target. a lean tool box is or how Second, the manager, effective systems are, anyone without internalising the with a set of mismatching new principles, will not build principles can overcome on the tools already in place them. Consider the scenario to take them to the next where you are in your car. You level, and she will continually have all of the tools at your need guidance and incentive disposal – a working, easy-to- to move the organisation read speedometer, a clear forward. windshield with an accurate A lean transformation that view of the speed limit sign, does not seek to develop Putting the pieces a smooth accelerator pedal a new set of principles in together and even cruise control. Yet, the organisation will suffer Combining the framework despite all of these tools and only temporary gains, and from organisational learning a system which includes heavy sometimes none at all. By with the understanding of penalties for not using the internalising the principles, an what lean is really about, tools to your full advantage, if organisation can cut its own allows both initiatives to the principles of the driver are swathe and not be dependent live in the organisation inconsistent with the correct upon following others. in a sustainable and use of those tools, there is effective manner and, very little chance we will ﬁ nd The ideal state more importantly, provides that individual on the low side The last connection to the leaders in the organisation of the speed limit. framework is the vision. Vision with a road map of how to In a lean transformation, in a truly lean company is transform their companies. this surfaces in two ways. driven, on a daily basis, by the This includes connecting tools First, there are some lean pursuit of the ideal state. You that previously would not Management Services 38 Autumn 2008 Lean and Organisational Learning

have been considered lean by linking them to vision, principles and systems. Consider the example of Ross Controls, a company founded in 1921 as an international supplier of premium pneumatic valves and hydraulic controls. It started its lean efforts in its two plants (Michigan and Georgia) in a traditional manner – teaching and applying tools, implementing solutions as events and looking for patterns of how all the efforts fi t together. Some things stuck and others did not. Progress was both painful and unfulfi lling. Their start was learning tools such as the 5S’s, which stand for Sift, Sweep, Sort, company-wide could be Sanitise and Sustain. 5S was quite complicated.” As used for cleaning up the place, Smith realised, one person’s which was not the primary common sense is another purpose of 5S. Ross Controls person’s impracticality, was struggling, regardless and the challenge of of the tool or practice, with transformation became very, applying those tools on a real. consistent basis. Progress Without learning a would come in a spurt, then single new tool, Ross fi zzle out, or revert back to Controls embarked on a before the improvement formal learning process to ever happened. What would incorporate the principles, work in one area, wouldn’t in or mental models, and the another. system rules into its lean transformation efforts. “This is where we learned how to and get things done without pass along to others what incorporating red tape. This we had learned and how we is a major change for us. thought,” comments Plant Before, required supervisory Manager Sue Reicher. permission or change was With the right thinking in dictated from upstream. place, predetermined tools Now we use the 60% rule were not the only method – if you’re 60% confi dent of improvement. Employees something will work, try it.” could use that thinking to On top of adopting John Smith, Ross Controls’ fi nd new creative ways to principles and system rules, Chief Operations Offi cer improve their operations and COO Smith established a (COO), refl ects on that stage: work environment. Reicher vision of progress towards “It’s funny, at fi rst, much of continues: “The majority of the ideal state, regardless of what we learned seemed like employees have bought into what was happening with the simple common sense. But we it. We’ve been able to instill customer, the competition or realised that implementing the feeling that everyone is the economy. As a result of a common sense approach empowered to make changes this vision, efforts were not Management Services Lean and Organisational Learning Autumn 2008 39

determined by how good That’s signiﬁ cant.” Figure 3 or bad things were in the This is just the beginning economy, and the company for Ross Controls, and COO continued to make progress Smith knows this: “Lean is a in light of very tough times. journey, not an end. We’ve Today, Ross Controls’ accomplished a lot through enthusiasm and drive is lean, but we’ve discovered infectious, and one walk that because everything and through the factory will tell everyone is connected, one you that this place truly is action precipitates another. different. It took some work, We’ve increased morale but soon, the tools that were tremendously and opened the already in place started to lines of communication. But work, grow and there’s always room for produce results. improvement.”

Instead of searching for Inventory came the next big idea, the next down by millions big fad, let’s make work what of dollars, including we already know is effective. fi nished goods down Then, when the next big idea by 80%, fl oor space Ross Controls, like many does come along, we’ll know was freed up by over other companies, struggled how to adopt it and integrate 20%, lead times cut in half signifi cantly when only it within our existing and customer service rates working at one or two levels environment, using it to move rose. of the organisational learning us and our organisations This affected more than the hierarchy (vision, mental forward, not backward. organisation’s performance, models, systemic structures, Not many movements or however, it also affected the patterns and events). They ideas last more than a few people. Steve Littleton, Ross learned that integrating all years. Those ideas that do last Controls’ UAW Chief Steward levels when dealing with any longer likely have something at the time of this lean transformation, particularly more to them than fi rst transformation, comments lean, is mandatory in order to meets the eye. Organisational on the value to the people: succeed. learning and lean both fall “It made a big difference into this category. Instead of to realise that management Conclusion people inside organisations wants to know what we Lean is more than just tools. fi ghting about which idea is know on the fl oor. It’s great Organisational learning is bigger and better, perhaps to see all these continuous more than just frameworks we should refocus that improvements. We’ve and concept. Putting either energy on integrating these moved areas for accessibility, of these efforts into practice concepts. Then, instead of eliminated waste, and lean takes a long-term and diverting energy away from has saved some jobs here. And integrated view. Regardless of the organisation, we can since lean, we’ve added two the depth or breadth of our put energy into building new product lines. So, we’ve understanding, it is how we the organisation, and that For more information on the saved 20% of space and added apply these ideas that really energy can build great and Lean Learning Centre, visit 20% work to the product line. counts. sustainable companies. www.leanlearningcenter.com Why Don’t YOU Join the IMS

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