The Hidden Truth About Lean

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LeanBP Blog: The Hidden Truth About Lean

It’s hard to imagine where manufacturing would be today if not for lean tools. The impact of lean on production processes over the last 30 years—and the resulting boost in profitability—has been nothing short of revolutionary.

But. (There’s always a but.)

Many organizations that try to implement lean don’t see the dramatic results they’re looking for. A big reason is that many of the constraints on the production shop floor are not actually on the shop floor at all. You can optimize those processes all day long and you’ll only get halfway to the goal line.

Why?

Because there’s still a bottleneck in the back offices. Even when production employees have completed the 5S’s and other lean tools to improve their processes, we often find them waiting—waiting for assignments, information, paperwork, parts, and tooling, or waiting for management decisions to be made.

Many organizations that try to implement lean don’t see the dramatic results they’re looking for. That’s because the constraint isn’t actually on the shop floor.

More than 15 years ago, I decided to dedicate my professional life to solving this problem. Finding the waste and bottlenecks in business processes and applying lean countermeasures can dramatically reduce turnaround time on the shop floor. That’s the secret to getting the results that lean tools promise.

What’s more, organizations don’t have to manufacture products to benefit from applying lean to their business processes. Companies that are service-based—financial, legal, and insurance firms, for example—can also use lean to dramatically cut the time for processing knowledge, information, and paperwork.

The Killers of Process Efficiency

Although administrative departments were created to facilitate the primary mission of an organization, in many organizations these administrative processes—namely departments of accounting, finance, engineering, safety, environment, human resources, supply chain, and inspection/review—have become bottlenecks. Often, in an effort to increase their own effectiveness, these departments have evolved into specialized functional silos that oversee or monitor functions rather than actually support them.

As these silos have multiplied and grown taller, the management approval process has become longer and longer. Sound familiar? If so, you may also recognize these examples of administrative processes that have turned into constraints:

  • Up-to-the-last-minute contract negotiations and approvals reduce lead time for the production workers. In addition, by executing proposals and contracts without standard work/product definitions, sales departments create scenarios that are difficult for purchasing, quality, customer service, and the front line to execute.
  • Supply chain departments use up much of a process’s lead time in ordering or sourcing key parts; purchasing departments optimize their own operations by ordering too many of a particular part not needed right away on the shop floor because they’re getting a price break on quantity.
  • Internal representatives of regulatory agencies such as OSHA, EPA, FCC, or the IRS provide unnecessarily broad policy interpretations that constrain production beyond the intent or letter of the law.
  • Engineering departments use up lead time by delaying the provision of necessary documentation and by requiring a long queue for the revision requests submitted by the front line.
  • Facilities, HR, and IT departments provide one-size-fits-all solutions that optimize their own processes at the expense of the production processes they serve.
  • Management situated remotely on the second floor require too much shop floor reporting and meetings to provide for their situational awareness. Delays in strategic and tactical management decisions chew up lead time, leaving less time for execution.

These examples touch on just a few of many administrative inputs that may be required in a production process. Each acts like a kink in the hose of production.  It’s no wonder, then, that many businesses have chosen to outsource their production to chase the lower labor rate, only to find that their overhead remains constant. Leadership must recognize that there are limits to the efficacy of applying lean to operational processes if lean is not also applied to business processes.

Administrative departments often act as constraints instead of supports.

Fortunately, as when applied on the shop floor, lean applied to administrative processes can identify waste and constraints, increase throughput, and decrease costs, cycle time, and work-in-process.

The problem is that so few companies have taken this critical step. But those who have made the effort have documented impressive results. For example, after two years of applying lean to administrative processes such as cost capture and material management, an aviation component repair operation realized the following improvements: gross profit margins up 5%, late delivery penalties down by 93%, warranty repairs down 50%, WIP down 72%, and inventory reduced by 39%. Plus, the company created capacity in facilities and staff, which enabled future growth and expansion without additional capital outlay.

Needless to say, if you lead in operations or at a service-based firm, you have a tremendous opportunity—if not an obligation—to apply lean analytical tools to your administrative processes. Focus on these areas, and you’re sure to take your continuous improvement efforts to a whole new level and find the next breakthrough you’ve been seeking.

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