9th May 2010
Roy Coldwell, Operations Director at business improvement specialists, Picme, examines the pitfalls of taking lean implementation to extremes.
Lean processes, originally pioneered by the car manufacturer, Toyota, have now become an accepted part of good business practice in all sectors, including the chemical industry. There can be little doubt that the main principles behind lean - those of improving efficiency and eliminating all forms of unnecessary waste - have proved instrumental in saving considerable amounts of money for those who have adopted them.
Reduction in changeover times, minimal tank storage, operational efficiency output improvement, de-duplication of tasks, reduction of distance travelled, removal of defects, reduced waiting time...employed correctly, lean processes can have an extremely positive impact on the bottom line. The onus is on streamlining processes and working towards a scenario based on customer pull. In practice this might entail processing smaller batch sizes to increase flow throughout the entire operation. But lean in the chemical industry is not confined to the physical processing activity, it also extends to procurement and administration – purchasing the right materials, at the right price, at the optimum time for reputable suppliers.
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, it has been about managing individuals’ time more efficiently and making the most of talent. Instead of cutting staff, employers 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 is familiar with 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. A business that has stripped back resources too far might find themselves in difficulties when an unexpected 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 order which is not delivered on time or to the correct specification could spell disaster at a critical time.
Suppliers and their selection are also critical to improved efficiency and ‘flow. Just as you are looking to future-proof your own business, you should be ensuring that you are working alongside 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.
Using a single supplier can, of course, bring its own rewards in terms of favourable rates, but in doing this you are making your own company susceptible if, for any reason, that supplier ceases trading. It goes without saying that if this happens it will have an adverse effect on you. If you cannot deliver your product 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.
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, you might argue, 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 critical 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 very 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.
Business improvement companies, like Picme, can assist companies in developing and implementing lean processes which are appropriate to a business’ particular operational needs . Successful implementation of lean involves taking a holistic approach and engaging all employees and companies involved in the supply chain. Working together with key personnel, the consultancy 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.
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