Stop Using Lean to Cut Costs Part 2

As stated in Part 1 of this series, using Lean to cut costs, while popular, actually does not adhere with the original purpose of lean.  As described by  Jim Womack in the 1991 book “The Machine that Changed the World,” lean production described how Toyota produced products with little to no “waste” while simultaneously (and more importantly) bringing value to customers in a way that earned revenue for the company.  Another description from Kevin Meyer, Co-Founder of The Gemba Academy, states that “The goal (of lean) is not to reduce spending – since to do so means sacking valuable people – but to convert people's time and effort from wasteful activities to value adding ones – activities customers will pay for.” 

Previously, an example was given of a manufacturing firm using reduced throughput time to increase revenue.  However, one familiar critique of lean is that it is only valid in manufacturing environments.  This is not actually true, and to demonstrate, consider the following example from a web platform company.

This company was going from onboarding about 50 clients to their web platform in one month to about 350 in the next after they added a new sales channel partner.  The five steps in the onboarding process were largely manual.  When client volume scaled up this much this quickly, the employees got frustrated, felt overworked, unable to keep up, and were not getting their clients onto the platform as quickly as they needed to.
It was unclear, however, where in the Five-Step process were the real pain points.  A current state assessment including data collection and value stream mapping helped define the biggest issues.  This assessment highlighted that there was a big difference in the two training steps, the 2nd step and the 4th step.  In the 2nd step they were training clients on a five-clients to 1-trainer (5:1) ratio.  In the 4th step they were training clients on a 1:1 ratio.  It doesn’t take a rocket scientist to know that if you go from a five-lane highway down to a one-lane highway, things are going to back up.  But it was dramatic what the backlog actual was, since this had never been calculated.

WIP Backlog over 5-Step Onboarding Process

The data showed that there were 630 clients waiting at that fourth step, just waiting to go through that 1:1 training!  It would have taken approximately six years to get through the backlog at the projected pace of incoming clients.  Six years is an awfully long time to wait to be able to earn revenue from your web platform. Amazingly, though once this problem was defined, through discussions and review of the data, everyone became aligned about what to do for execution.

The easiest thing was to just increase the ratio of clients to trainer, 2:1, 3:1, 5:1.  Also to level load all the steps so there were the same number of training slots for each type of training, and cross-train all the Trainers themselves to be able to give both types of training.  They also added online self-scheduling for both initial signup, and when people cancelled at the last minute it was much easier to backfill spots.  After that, things started moving more smoothly and they were able to get through their backlog in just a few months and start earning Revenue.

Both this and the previous example from the manufacturing company followed a straightforward model which can help all companies use Lean to increase revenue.  AJC calls this the “DAER” model.

DAER Model; Copyright Andrea Jones Consulting, LLC 2017

First, Define the problem using data when possible.  Then, Align everyone to that problem and to the plan to execute.  Third, Execute the work – which is often straightforward if you’ve taken time to do the Define and Align steps well.  And finally – remember this is all about earning Revenue for your company. 

If your company is constantly using Lean to cut costs, you might not be all that popular with your employees.  However, if you can message Lean in the way it was originally intended – to increase value to your customers and Revenue for your company, this is a much more compelling purpose around which your employees can rally.

Read this article and more on AJC’s blog, and sign up for our newsletter online at: http://andreajonesconsulting.com/blog.aspx

Stop Using Lean to Cut Costs Part 1

Just last April, CNBC ran the headline that “Coke goes 'lean,' to cut 1,200 jobs as part of $800 million cost-savings plan.”  So many companies use “Lean” to cut costs, that lean has become a “four-letter-word” or “flavor of the month” in many businesses.

Interestingly, when Jim Womack coined the term “lean” in the book “The Machine that Changed the World” in 1991, he was describing how there was little to no “waste” in how Toyota produced products while simultaneously (and more importantly) bringing value to customers in a way that earned revenue for the company. 

This takes careful thought and preparation, and ultimately is inspired by the goal of earning revenue, not cutting costs.  When lean is done well, some costs may be brought down, but that is not the ultimate purpose. 

One great explanation is by Kevin Meyer, Co-Founder of The Gemba Academy who blogged, “The goal is not to reduce spending – since to do so means sacking valuable people – but to convert people's time and effort from wasteful activities to value adding ones – activities customers will pay for.”  Kevin describes how one method to increase the top line is to have additional capacity with the same cost base; to sell more product with what you have.  This can happen by reducing throughput time.

For example, Company X quoted a 6-week lead time to customers, and was not making this happen.  When asked about their actual average lead times, they did not have data to provide an answer.  Thus, data was collected for 30 products over the course of two and a half months.  It turned out that they had an average of a 7-week lead time, but interestingly, most of the time that each product spent in their production system was in waste.  This is not the waste of scheduling, motion, inspection, rework, or other non-value-add tasks that didn’t change the form, fit, or function of the product.  This was actually just the waste of “wait time.”  As in, 75% of that 7-week average duration, the product sat idle. 

Company X Value Add versus Wait Time

Again, in this chart every time the product was “touched” in some way, even just for scheduling, programming, staging, inspection, or rework, the time was considered “Value Add” and is shown in green bar.  Every time the product sat and did nothing, it is shown in a red bar.  With 75% of the time just WAITING, the company was able to implement a Pull System at the largest green bar – the bottleneck of machining the product.  They ensured that only when a small buffer, called a kanban, produced a “hole” for product staged in front of a particular piece of equipment, that was when upstream work would be done, or “pulled” to the equipment.  In this way, they were able to reduce almost 70% of the time spent on production. 

Production Durations Before and After Lean Process Implementation

Collectively, the shorter throughput time spent in production translated to improved cash flow due to sooner invoicing, improved inventory turns, improved equipment utilization, and overall increased equipment capacity which could then be spent producing more customer-requested products.  The other thing that Company X can do is offer better terms to customers as a competitive advantage, further increasing sales!  

All of these things increased revenue WITHOUT cutting jobs, reducing materials on hand, or even cutting out other traditionally “non-lean” steps like inspection.  Not a lot of “cuts” per se, but definitely a great result!

Many other companies have a similar story, but one critique is that lean can only work well in this way for manufacturing companies.  This, however, is not true.  Next time, I’ll give an example of how considering use of Lean (or Process Improvement) for a web platform company worked in much the same way.

Until then, read this article and more on AJC’s blog, and sign up for our newsletter online at: http://andreajonesconsulting.com/blog.aspx

How to Align Strategy and Execution

Strategy Deployment "X" Matrix Template

In January, AJC published an article on Strategic Planning and provided a helpful tool to be used in the process of determining what needs to be executed your business this year.  Since then, we realize that this tool is most useful when aligned with Long- and Short-Term Strategic Goals, fitting into the process of Strategy Deployment, or “hoshin kanri,” to use the lean vernacular.  Most of these steps can be documented in a simple one-page template called the Strategy Deployment Matrix, or X-Matrix, and the others use AJC’s Prioritization Matrix tool discussed in January, as well as AJC’s Implementation Plan template.

Here is the basic idea, to be done by a Leadership Team:

1.       Set the Goals and Objectives

Companies set long term SMART* goals – typically 3 years out, and align those to 1-year Objectives.  Specifically, articulate what needs to be done in the next 12 months to further the 3-year goals. 

*Specific, Measurable, Achievable, Relevant, Timely – google it!

2.       Prioritize Corresponding Initiatives

After goal setting, prioritize specific projects or “Initiatives” which will accomplish the 1-year Objectives.  These Initiatives are outside the realm of “sustaining” work, and are truly projects or initiating programs that will further the goals.  If the initiative is to institute a program which will become sustaining, there will be a point where the “creation” work is completed, and the program itself will become sustaining. 

The trouble with the X-Matrix, however, is that there are often too many potential Initiatives which could accomplish the 1-year Objectives aligned with 3-year Goals, and that it stops short of HOW these Initiatives will actually be accomplished.

2.1   Use the Prioritization Matrix

AJC's Prioritization Matrix Tool

This is where AJC’s Prioritization Matrix comes in.  After all, there are many ways to accomplish a goal, but not all can realistically be done given limited resources.  Remember, this is work that is above and beyond “sustaining” activities!  The point here is to ACCOMPLISH these things, not to burn out trying to do too much.  I once saw a company’s list of projects for the year – there were about 50 items in 8-point font printed on an 11x17 piece of paper.  They were 7 months into the year, and when I asked how most of the projects were coming along, they said they were late on every single one of them.  No big surprise there!

*Please read the Strategic Planning article for more details on the methodology using the Prioritization Matrix tool.

Some might think that the Strategic Planning work is now done – now we know what we need to do in order to achieve our short-term objectives which align to our long-term goals.  However, Strategy Deployment takes it two steps further, and AJC takes it another step even after that.

3.       Define Success Metrics

First, we define objective metrics which will indicate success or achievement of each initiative.  In some cases, these may be to meet schedule and budget goals.  Some metrics may be binary, such as to sign a new client over a certain dollar amount.  Some are process indicators, such as throughput time for new product initiation, which theoretically could increase capacity for handling a larger volume of new business and enable increased sales and therefore revenue.  Whatever success looks like for each Initiative, this must be measured such that we can determine if we’ve accomplished our Objectives.

4.       Assign Accountable People

Finally, each Initiative will be assigned a Primary and Secondary accountability lead.  The Primary is the Single-Point-Of-Contact, or SPOC who is ultimately responsible for accomplishing the Initiative successfully.  The Secondary is designated for two reasons: First, they take over Primary responsibilities as backup when the SPOC is traveling, on vacation, or sick.  Second, they act as a sounding board and advisor to the SPOC when determining the best course of action or for decisions which must be made during the course of executing the Initiative.

All too often, things are left undone, or timelines are prolonged simply because no one else is watching.  When Primary and Secondary leads meet regularly, and with the entire team as needed, Initiatives have a funny way of getting done in timely fashion.

5.       Create High Level Implementation Plans

AJC's Implementation Plan Template

The Strategy Deployment Matrix, and the helpful Prioritization Matrix, may now be complete, but AJC finds that this is not always enough to get the Primary and Secondary leads for each Initiative going.  In a Strategic Planning session that I facilitated a few weeks ago, the Leads were very concerned about HOW they should go about accomplishing their Initiatives.  AJC has developed a simple High-Level Implementation Plan template that allows the team to quickly list tasks, owners, notes, durations, and deadlines for each of the major steps involved in accomplishing a task.  While the Implementation Plan may be high level, meaning there will often be several subtasks associated with most line items listed, it is a great place to start. 

For example, if the 3-Year Goal is to get 3 new clients in the Top 10 revenue grossing client list, a 1-year Objective may be to have one client in that list, and 2 in the pipeline.  An Initiative to support that may be to Complete Sales Training for the Outside Sales team.  One task in that Initiative would be to Select Specific Sales Training Program.  That task will require the subtasks of research, comparison, discussion, decisions, logistical considerations, and signing a contract.  However, the high-level task is to decide who to use, and that is what goes into the Implementation Plan.

Get It Done

This process of Strategic Planning is not rocket science, and can be done by individual teams.  However, just like each Initiative needs designated Accountable Person, undertaking this process with your Leadership Team needs its own Primary Lead, and often involves including outside facilitation.

Read this article and more on AJC’s blog, and sign up for our newsletter online at: http://andreajonesconsulting.com/blog.aspx.