14th May 2010
Can a company be too lean?
Business improvement specialist, Roy Coldwell of Picme Limited, examines the pitfalls of taking lean implementation to extremes.
There can be little doubt that, employed correctly, lean processes can help companies to improve efficiency and eliminate unnecessary waste. Processes are streamlined and the onus is on working towards a scenario based on customer pull. An example of lean in production might be smaller batch sizes to increase flow throughout the entire operation. In procurement it can translate as the ability to buy the right materials at the right price at the correct time from reputable suppliers, thereby reducing inventories, preventing shortages and maintaining flow throughout the supply chain.
Generally speaking, in any type of business, lean necessitates the reduction or removal of processes or the elimination of overheads which do not add value to the customer. Invoicing is necessary but does not add value, so the steps involved in this activity should be minimised where possible. It is a widely held belief that leaner, fitter, more agile organisations are better placed to recover from an economic recession. So why have some companies which have followed lean to the letter not fared as well as could reasonably have been expected?
The answer is that they have quite possibly taken lean too far. It is important that, even in a downturn, processes have not been stripped back so brutally that a company finds itself unable to respond to a change in the status quo. If all the fat has been sucked out of a business it is leaving itself open to potential failure should the unexpected happen. This could manifest itself in a variety of forms such as a sudden increase in customer demand or the effects on staff or suppliers of the recent Swine Flu pandemic.
Getting the balance right between cost-cutting and responsiveness is key to successful lean implementation. Staff redundancies, often high on the agenda when companies are looking to reduce overheads, should always be a last resort. Lean has never been about fewer people. Instead businesses should look at ways of improving cash flow so that salaries can be paid. Having fewer staff might save costs initially, but problems arise when key personnel are let go without a sufficient handover period to the employee who will be taking on his/her role. You might find that the redundant employee is the only person in the building who knows how to use a particular type of software or knows the idiosyncrasies of a piece of equipment which , out of necessity, is being pushed beyond its natural life. This can lead to business disruption and potential loss of orders, thus cancelling out any savings.
Fewer staff also means that processes are less resilient. An organisation might find themselves in difficulties when a major order with a tight deadline is placed. In a situation like this there is of course the option to recruit temporary staff, but temporary staff often require training and just one bodged order could spell disaster at a critical time.
Suppliers and their selection are critical to lean procurement. Just as you are looking to future-proof your own business, you should be ensuring that you are purchasing from suppliers who are flexible in terms of delivering goods to meet demand. Some of the larger companies have their own Business Continuity Management Systems in place to help guard against the unexpected. However, as a rule, suppliers with long lead times should be avoided where possible as they will not be quick to respond to a sudden surge in demand. Supplier performance should be measured on a regular basis. In addition you should make regular checks to ensure that the suppliers you use are creditworthy. This also applies to companies that you may have been dealing with for a substantial amount of time. Poor credit ratings can affect their ability to deliver the products/services you have ordered and this in turn could jeopardise your own operation.
On the subject of suppliers, putting all your eggs in one basket might at first seem the sensible thing to do, since using a single supplier can bring its own rewards in terms of favourable rates. However, in doing this you are making your own company susceptible if that supplier goes to the wall. It goes without saying that if this happens it will have an adverse effect on you. If you cannot deliver a product or service to a customer on time as a result, it will colour the customer’s confidence in your own business. Remember that this is a buyer’s market and there are plenty of other companies just ready and waiting to step into your shoes at the slightest whiff of customer dissatisfaction.
Similarly, if you have trimmed back your stock levels to a point where you are unable to respond quickly to fluctuations in demand, you could also land yourself in hot water. Output needs to be sustainable and that means building in contingencies to your lean implementations.
So, how can an organisation ensure that the lean processes it has adopted are fit for the job and safeguard itself against potential pitfalls? After all Toyota, the pioneer of lean as we know it, is currently in a position of trying to rebuild its reputation following product recalls. The reality is that Toyota’s failure cannot be attributed directly to lean. True, lean processes were instrumental in standardising parts across different models of car, but this in itself was not to blame – rather the design of the component itself was at fault.
Nevertheless, those companies considering lean should always have business resilience at the forefront of their minds. I.e. what does your company depend on? The risks of your dependencies need to be evaluated. Ask yourself what would be the potential outcome of your being let down by a supplier or business partner. How resilient are they? Imagining potential worst case scenarios allows you to prioritise your concerns and develop action plans to minimise business interruption. For the critcal supply chains, carry out a risk assessment and ensure that all foreseeable breaks in the supply chain, that could lead to supply interruption at either end of the chain have realistic contingencies built in.
Value Stream Mapping exercises to identify areas of waste resources will put companies in better shape to deal with an economic upturn or downturn or the effects of a force majeure, such as a fire. Putting contingency plans in place as a result of this type of exercise also inspires confidence in customers and suppliers alike, since unless they are highly robust, supply chains are highly susceptible to the domino effect. Integrating Value Stream Mapping with risk assessment gives a powerful tool to companies to foresee potential pitfalls in their lean journey.
Identifying procurement processes which do not add value or ‘flow’ could advocate the automation of purchasing - where inventory and procurement software is integrated and pre-defined spending limits are set - to avoid bottlenecks in operational efficiency. Business improvement companies, like Picme, can assist companies in developing and implementing lean processes which are appropriate to a business’ particular operational needs . Working together with key procurement personnel, they can demonstrate how to make business improvements which improve the bottom line, yet which are resilient to the fluctuations experienced in today’s uncertain climate. Remember, there is a difference between being lean and agile and being just plain skinny.
