In recent talks I have spoken on the topic of risk which of course meant we also talked about dragons. Dragons, metaphorically speaking, represent uncertainty in our endeavours that hinder and often thwart our adventures. In the real world uncertainty creates the opportunity for risk which if not addressed hinders or thwarts mission success.
It should not come as any surprise that Implementing LEAN might have its share of dragons to contend with and overcome. In this article we explore the problem of why so many LEAN implementations end in failure. Although we will focus on the supply chain the problem of failed LEAN implementations crosses almost all domains where LEAN is used.
There are many reasons why LEAN fails and there are many who have written about them. However, not many have talked about the root cause of these failures. That is why in this article we will be paying close attention to a specific dragon; one that hinders almost all LEAN implementations and probably yours.
According to Eliyahu Goldratt (the author of Theory of Constraints) if we don’t contend with this dragon, we will never see the benefits of any of our LEAN initiatives.
By finding this dragon I hope that we will find gold in learning what to avoid and what to pursue to successfully implement LEAN in our organizations. We know that hope is a wonderful thing but it is not an effective strategy against risk or dragons. Instead, we will use LEAN A3 problem solving and Theory of Constraints (TOC) as our guide to improve the chances of finding the dragon and the treasure that awaits us.
In a manner of speaking, we are going to use LEAN to fight a dragon; the one responsible for causing so many LEAN initiatives to fail.
At least that’s the plan.
We have a lot of ground to cover (so too speak) so let’s start looking for this dragon.
ROADMAP
We will need a roadmap for our journey and for this we will use the LEAN A3 Process. Some of you might be familiar with A3 Problem Solving. It is simple method that is very effective applicable for problems small and large.
Don’t worry if you haven’t’ seen A3 before. We will work through each part of the LEAN A3 process in detail starting with the definition of the problem.
A3 - PROBLEM STATEMENT
For A3 to work we need to first state our problem.
This is perhaps the hardest part of the process with the greatest impact on failure if not done correctly. As has been said before, "A problem well-stated is a problem half solved."
Not knowing the problem increases the certainty that whatever answers we come up will miss the mark. It is important to be clear what the problem is which in our case is this:
70% of LEAN implementations do not create value (i.e., benefits) which threatens mission success.
Our dragon has been busy.
The number of 70% is debatable but most people agree that many organizations struggle to apply LEAN successfully and receive real benefits. It seems that after the low hanging fruit has all been picked realizing any significant value from LEAN is few and far between.
Perhaps, this resonates with some of you. Maybe you might be struggling with how to apply LEAN to improve your supply chain.
We are going to look at the reasons why this might be. To do that we need to better understand the background to our problem. We need to answer the question of, “How did we get here?”
A3 - BACKGROUND
This leads us to the next step in the A3 process: BACKGROUND. Here we are looking to answer questions such as:
Why is this topic important?
What is the context of the problem?
Why should our organization care about this situation and be motivated to participate in improving?
Good questions that need good answers.
SUPPLY CHAIN DISRUPTION
Whatever has led organizations to consider LEAN in the past these reasons will mostly put aside as organizations all over the world contend with the ongoing effects of COVID-19.
As a result of the current pandemic the supply chain has been disrupted more than it ever has in recent history. The following chart is from a study conducted by EY in 2021 on the top priorities that now face the supply chain:
The top 5 include the need to:
Increase efficiency
Retrain / Re-skill workforce
Increase visibility
Increase responsiveness / resiliency
Manage / reduce costs
To address the top most priorities many organizations are looking to and doubling down on their LEAN initiatives. Applying LEAN around the edges of the supply chain with modest efficiency gains will not be enough to compete in a post pandemic world.
THE STATUS OF LEAN
LEAN has been adopted by many industries and is considered an important enabler to address the current and on-going supply chain issues. Unfortunately, the problem that is facing many is that they are struggling to receive any real benefits from their efforts which is putting their business at risk.
Many are wondering which LEAN framework is best to use. Here are a few of the frameworks:
Quality Strategies
Lean TPS
Lean Six Sigma
Theory of Constraints
Digitalization
Agile Supply Chain
Each of these have a different approach and a different goal. Knowing which one to use and how to leverage it to deliver real benefits are important questions that companies are attempting to answer.
Having chosen a framework(s) the next question is where should it be applied to create a real impact on the supply chain?
The following is Michael Porter’s value chain which we have extended to include risk & compliance components which also cut across the entire chain:
You can consider this as a system of processes working together to create the desired outcomes for an organization.
Knowing where and want to change is not trivial. It requires knowledge of dependancies and how things work overall. All too often there is no one that understands or has enough scope to sponsor system level changes across the entire chain. This leads to proximal and suboptimal improvements that do not contribute to value creation or value protection for that matter.
Even when when changes are have been identified many organizations do not properly manage the change itself. Many focus only on the technical aspects of LEAN (i.e., tools) and ignore the people and process side of change as surprising as that might be. Steps needed to realize the benefits are seldom taken leaving much of the benefits to chance (another dragon indeed.)
A3 – CURRENT CONDITION
Now that we have a better idea of the context and why this is important we can move on to the next step in the A3 process: CURRENT CONDITION.
Here we identify the situation right now in our organizations:
How are things working today?
What is contributing to our problem?
What are the current LEAN capabilities to address the problem?
Each company of course will have different answers to these questions. However, generally speaking there are two broad categories for how LEAN is working and what might be contributing to the problem we are trying to solve.
OLD FACTORY MODEL
The first category are organizations that are operating under the OLD FACTORY MODEL.
This is a traditional, linear view of manufacturing. Value creation is measured by the difference between the price products or services are sold and the cost of making or delivering them. You can call this margin.
To stay competitive these companies lower their prices while undergoing cost reduction programs by applying LEAN. This is a race to the bottom strategy. To win you need the lowest price and own the majority of the market.
This approach however often leads to less value for the customer and fragility (the opposite of resilience) across the supply chain as most of the margins have been removed or greatly reduced. I am still shocked to find that many have eliminated their safety stock to further drive down costs. This creates vulnerabilities instead of value.
This is the situation facing many LEAN implementations; the drive to the bottom.
NEW FACTORY MODEL
The second category are organizations that are operating under the NEW FACTORY MODEL.
This model is based on seeing the supply chain as a network or hub. The goal of the NEW FACTORY MODEL is to continuously add new value for each customer. Apple and Amazon are good examples of how this is done.
These companies focus on value creation activities as well as cost reduction programs but this time without losing value. Margins (and by this I mean value) get larger over time and organizations become more resilient (the opposite of fragility). This is called a race to the top strategy.
Notice that LEAN is used as before but this time with a different strategy, purpose and a different outcome. LEAN is creating greater resiliency and value rather than fragility and loss.
You might now start to get where I am heading and why LEAN projects fail and why they succeed. We are close to finding our dragon.
A3 – GOAL / TARGET CONDITION
The next step of the A3 process is to identify the goal or next target condition:
What does success look like for LEAN implementation?
What outcome are we expecting and for what reasons?
Our goal is to have the majority of LEAN implementations create real value.
Value realization is the measure of success. This is essential to create greater resiliency, better margins, improved visibility, and other outcomes for the supply chain. Even organizations that have efficient supply chains can still be uncompetitive.
What is preventing us from achieving our goal of more successful implementations?
A3 – ROOT CAUSE ANALYSIS
This brings us to the root cause analysis step of A3 and where we hope to find our dragon at last.
To achieve our goal we need to address the root cause or causes for why LEAN implementations are failing. The tool we will use is based on lessons from Eliyahu Goldratt based on Theory of Constraints (TOC).
This starts with recognizing that LEAN is (among other things) primarily a technology.
LEAN AS A TECHNOLOGY
LEAN is no different from any other body of knowledge or know-how we apply to achieve some result or purpose. What Goldratt recognized and perhaps you have as well is that we are really bad at adopting new technology.
But that is not the worst of it – we are worse at is exploiting new technology.
And there-in lies the rub. Here lies our dragon.
Eliyahu Goldratt proposes that:
“Technology can bring benefit if, and only if, it diminishes a limitation.“
In our case,
LEAN can deliver benefit if, and only if, it diminishes a limitation.
Think about this for a moment. This is critical to what follows.
We can imagine that our supply chain is operating at certain level of performance. We can change any part of the chain which may improve something. However, if this does not eliminate or vastly reduce a limitation, this change will have little effect on the supply chain as a whole.
LEAN may eliminate waste, or variation, or achieve some other improvement but if it does not eliminate a limitation we will never see any real impact.
This is why LEAN fails. This is our dragon.
Are you getting this?
THE POWER OF LEAN
To better understand this important insight Goldratt developed four questions that if we answer carefully will uncover the gold that our dragon has been hoarding:
What is the power of the new technology?
What current limitation or barrier does the new technology eliminate or vastly reduce?
What rules, patterns and behaviours are used today to bypass the limitation? (work arounds)
What rules, patterns or behaviours should be adopted to benefit from the new technology?
Let’s see how this is applied as we consider three scenarios:
The Power of MRP (Materials Requirements Planning)
The Power of LEAN TPS
The Power of DESIGN
THE POWER OF MRP
In the 1980's many companies were adopting MRP (Material requirements planning) capabilities, the precursor to ERP.
At that time it would take, let's say, 5 days to create a master production schedule (MPS) manually with a large department. As a result companies would only perform these calculations once a month.
This meant that the orders needed to be frozen for the month; you couldn't make any changes until the next month. It also meant that manufacturing and shipping were organized around monthly cycles. This was the norm.
With the introduction of MRP companies could calculate an MPS within a day.
This was the power of MRP – it could perform calculations faster.
Large departments to perform calculations were no longer needed so staff could be reduced. This was an improvement in efficiency and savings for many companies. This was the return of investment that most realized.
However, some companies got more from their MRP implementation.
What was the limitation before MRP? The limitation was that production schedules could only be updated once a month. What was the work around for this? What were the rules that were introduced by the limitation? The answer is that production and shipments were also done monthly.
Some companies decided to change these rules.
They started to calculate the MPS every week and some every day. What they also did was change their manufacturing and shipping rules to align with the increased frequency.
This is one of the reasons why Amazon became a huge success. You can place an order today and have it delivered the next or even the same day. They exploited the power of MRP better than most companies. Same technology, better results.
THE POWER OF LEAN TPS
How about Taichii Ohno the father of Toyota Production System? Did he know about this dragon? You bet.
In one of the books about Taichii Ohno there is a story about when he was assigned to address a problem in manufacturing where a line was not able to meet the demand.
The line was producing, let's say, 50 cars per day and the demand was for 200. Good problem to have but also a very big problem for Toyota.
So, what did Ohno do? He began to work with one of the workers to improve a work centre which they were able to eliminate entirely from the line. This improved cycle time and he now had a person to work on more improvements forming the first Kaizen Team.
He continued this approach which further improved efficiency and increased the production to 75 cars per month. He also increased his Kaizen team to make even more improvements. Sounds like the beginnings of a virtuous cycle of continuous improvement.
Now, you may be tempted to stop here. Many do but Ohno didn’t.
The work around to the original limitations was building inventory in the line which he now exploited.
While he continued to make improvements on LINE 1 he also reassigned workers that were no longer needed to start a second line. Others would have let these workers go and they would never realize the benefits from applying LEAN.
By creating another line, production was increased to 200 cars per month meeting the market demand. All with the same number of workers Ohno started with.
No wonder LEAN has transformed the automotive industry along with almost every other industry where companies have understood how to exploit the power of LEAN to realize real value.
THE POWER OF DESIGN
One more story. This one is a cautionary tale and why Eliyahu Goldratt added a 5th question. Let’s see if you can see why.
In the book, Thinking in Systems by Donella H. Meadows, the author writes:
Once upon a time, people raced sailboats not for millions of dollars or for national glory, but just for the fun of it.
They raced the boats they already had for normal purposes, boats that were designed for fishing, or transporting goods, or sailing around on weekends.
It quickly was observed that races are more interesting if the competitors are roughly equal in speed and maneuverability. So rules evolved, that defined various classes of boat by length, and sail area and other parameters, and that restricted races to competitors of the same class.
Soon boats were designed not for normal sailing, but for winning races within the categories defined by the rules. They squeezed the last possible burst of speed out of a square inch of sail, or the lightest possible load out of a standard-sized rudder. These boats were strange-looking and strange-handling, not at all the sort of boat you would want to take out fishing or for a Sunday sail. As the races became more serious, the rules became stricter and the boat designs more bizarre.
Now racing sailboats were extremely fast, highly responsive, and nearly unseaworthy. They need athletic and expert crews to manage them. No one would think of using an America's Cup yacht for any purpose other than racing within the rules. The boats are so optimized around the present rules that they have lost all resilience. Any change in the rules would render them useless.
This may remind you of LEAN organizations that have an entire army of LEAN coaches, black belts, brown belts, yellow belts engaging in numerous Kaizen Events, Lean Six Sigma Projects, Rapid Improvement Events, and so on.
These companies find that they too need LEAN athletes to effect change as the rules have become more complicated, and stricter. In many ways, these companies have become less agile, less resilient – more vulnerable to breaking when the business climate changes. In the words of Meadows, these companies have become nearly unseaworthy.
Too much LEAN is also a thing and something to pay attention to. That is why we have another question:
What new limitation, rules, or behaviours are introduced by the new technology?
THE TREASURE IS FOUND
We now have our dragon:
LEAN can deliver benefit if, and only if, it diminishes a limitation.
What treasure has the dragon been hoarding?
LEAN implementations must eliminate or vastly reduce a limitation including the work arounds followed to bypass the limitation. New rules must be adopted to exploit the removal of this limitation. This is what creates real value and the benefits for the organization.
From this we can identify the root causes along with countermeasures to formulate a plan for successful LEAN implementations:
The counter measures include:
Focus on the whole system and dependencies
Eliminate or reduce a limitation
Change the old rules after a change is made (eliminate the work arounds)
Adopt new rules to exploit the diminished limitation
Manage the change effectively (people, process, and technology)
LEAN implementations that fail are those that fail to include these counter measures.
A3 – IMPLEMENTATION
Implementing countermeasures successfully requires a risk-adjusted plan. The following are the 5 Immutable Principles of Project Success created by Glen A Alleman:
From these principles we have 5 questions that will help to develop a plan for success:
What does DONE look like?
How do we get there?
Do we have enough time, resources, and money to get there?
What impediments will we encounter along the way? (Yes there are always more dragons!)
How do we know we are making progress?
Answering these questions will help to ensure (make certain) that LEAN projects deliver the needed benefits.
A3 – VERIFICATION / VALIDATION
After the plan is completed it’s time to assess the results. There are two categories of assessments that are needed:
Verification: Did we do what we said we would do?
Validation: Did we get the outcomes (i.e., benefits) we intended: efficiency, breakthrough, or even unintended results?
The A3 process is not complete until the targeted benefits have been obtained and followup actions have been identified.
A3 - FOLLOW UP
The last step of the A3 process is to identify next steps and capture lessons learned.
Here is the completed A3 process that we have followed:
While many, perhaps most, organizations experience marginal and incremental results from their LEAN implementations others have experienced breakthrough benefits.
These organizations have taken the lessons of Eliyahu Goldratt and A3 Problem Solving to achieve much more than their peers with the same technology, but with better outcomes.
If you want to learn more on the topic of LEAN and its use in the supply chain I recommend the following resources:
