AMERICA, THE LEAN

John Shook, chairman and CEO of the Lean Enterprise Institute, introduces LMJ’s special on lean in the USA, identifying the key lessons we can learn from the case studies included in this month’s edition.

The following five case studies intend to inform us as to the current state of lean thinking and practice in the United States. So what do they tell us?

First and foremost, the stories combine to teach us that the roots of lean may lie in automotive manufacturing, but the fruits of lean are to be found in all manner of industry and in all varieties of activities in those industries.

Even at Ford, the story is not about manufacturing in the plants (where unfortunately Ford still lags woefully behind). We learn from James Morgan that the remarkable turnaround of Ford Motor Company resulted from rigorous application of lean practice in engineering, product development, and general management.

Similarly at Acme Alliance, the narrative is not much about Acme’s plant floor; rather the critical success for CEO Matt Lovejoy and the profound lessons for us are to be found in Acme’s alliance with its partners in re-thinking and reconfiguring their shared end-to-end value stream.
Medtronic is a manufacturer that bridges two worlds, with factories producing complex, precisely engineered products, serving the demanding needs of the healthcare sector. Medtronic’s Greg Johnson shares the insights of a highly complex company struggling with the difficult yet common challenge of spreading lean practice throughout its deeply multifaceted, global organisation.

The Healthcare Value Network, in turn, represents an approach to learning lean that is especially appropriate for that healthcare world, where the product (health of humans) and producer (a complex web of healthcare providers with strong, varied, voices) present unique challenges regarding the nature, quality and timing of the delivery of the product. The message delivered by Helen Zak is that the collaborative learning methodology of HVN fits the requirements and opportunities of that community especially well and could serve as a model for the successful introduction of lean thinking and practice into other pioneering sectors.

While the battle of bringing lean thinking and practice to healthcare is far from over, there is enough momentum now that there is no turning back. The same cannot be said for services, where efforts have only begun to scratch the surface. Hence the Starbucks story is extraordinarily timely and instructive. While many seek to overthink and complicate matters, Starbucks shows that tried and true methodologies – appropriately tweaked to match the specific needs of the situation – can be remarkably effective. The obvious place to start in an organisation with 18,000 gemba locations would be supply chain. Instead, the Starbucks lean team chose to use lean thinking to provide their baristas with the skills to do better work design on their own, as they go through the moment-to-moment, direct customer-facing business of providing patrons with exactly what they want at the exact moment they want it. This example illustrates the great folly contained in the uninformed charge that lean practice cannot be applied to dynamic service environments.

Taken as a group, the five case studies provide a good snapshot of the state of lean dissemination in the United States. It is heartening that the examples provide evidence that progress is being made in gaining broader understanding that lean management is a holistic, systemic approach to organisational improvement. Understood thusly (properly), lean thinking and practice represents a powerful means of improving any human endeavor, equally satisfying for the customer, the worker, and the enterprise.

In short, the report card on the state of lean thinking and practice in the US: much progress made – many challenges and opportunities ahead.


A TOTAL TURNAROUND

Matthew Lovejoy, president of Acme Alliance, shares a personal account of the transformation that the company, which provides components for technical manufacturing and assembly, had to go through to survive.

I only have five heroes in the world, and Jim Womack is one of them. Simply put, lean saved my business. From 1964 to 2001, telecommunications corporation AT&T was our biggest customer. After 1996 the phone industry in the States was deregulated and the equipment arm of AT&T, Lucent Technologies, was spun off. In 2001, the price of its shares went from 80 dollars a share to 80 cents a share, and we suddenly lost 95% of business with our main customer, which represented 70% of our sales.

It was our burning platform. We understood that we had to change drastically: Ericsson once came visiting us in Chicago for an audit. Ten minutes into the audit, the company’s engineer asked to be brought back to the airport: like in a Charles Dickens novel, we were the filthiest place you can imagine, with lots of WIP and inventory, building everything in batches.

A customer of ours, , that had been a strong advocate of lean for years, suggested I read Lean Thinking. Once I did, I realised everything I thought I knew was wrong: in lean, until you accept your baby is ugly you can’t make any progress.

We started by reorganising the business away from functional designations, to destroy silo thinking. Because we operate a high mix, low volume job shop, we deal a lot with muri and mura, not just muda. We then tried to achieve flow: we quickly noticed we were covering six miles in the production of one part, in a 8,000 square metre site.

Being a family business, we have an intimate knowledge of our employees. They understood right away we were in trouble, and because we had been living modestly as a business and saving money, I could keep Acme alive without laying anyone off. Enthusiasm was palpable, as we repainted, changed the layout (the architecture in our Chicago site was very condescending, with management offices with glass windows on the second floor and speakers used to communicate with the staff below), designed right sized equipment, and so on. AT&T wouldn’t buy our inventory, and we burned it all in our furnaces. The guys stayed and watched.

By moving to a flow environment, we envolved into concepts of internal supermarkets and pull, building only what customers wanted. We are now at a point where 75% of our business is direct pull, same day shipment, and our sales are back to where they were. Our Brazilian and China businesses are thriving, and thank God we had previously done that investment to serve those growing markets (nothing is exported back to the States). The Chinese and Brazilian foundries were like sponges: we started those operations with a lean orientation from day one.

Today we are a 99% on time supplier, with raw materials down 95%. In ten years, revenue per employee has doubled. Sales are back at old levels, although the amount of finished goods is 60% lower.

We had to be excellent in order to just survive, and we will never falter from the pursuit of this way of thinking.


DESIGNED FOR SUCCESS

James Morgan, director of global body exterior, stamping business unit, and safety engineering at Ford, explains the car-maker’s approach to lean product development.

Every time Ford decides to introduce a new car, hundreds of millions of dollars are spent in product development. Creating new products is a core competence of any successful business, and transforming this capability is what saved Ford from bankruptcy and continues to separate it from its competitors. We approached this lean transformation as a socio-technical system. We made fundamental changes to all three interdependent elements of the product development system; people, processes and tools, as well as how they interacted with one another.

People were the most important element to us. Great people make great products. We focused our workforce on the customer, on creating true value and making products our customers really wanted. We made sure all of our engineers understood exactly how they contributed to this effort, as well as where we were falling short. While this was difficult initially, we built on early victories, continued to stretch the organisation and created a culture of every day excellence.

Chief engineers are central to lean product development. And chief engineers need to be surrounded by technical excellence to be successful. We realised that deep mastery of each technical discipline is fundamental to successful product development. We spent a great deal of time on this. Developing a system to select, develop and reward towering technical competence.

We also organised around the value stream. We took the unprecedented step of combining all the disciplines required to take the body exterior from studio to market into a single organisation. Business areas that used to work separately work together now, with aligned objectives. This has allowed us to reduce cost and lead time, and to improve quality. An example is our improvement of 4 to 8% in our material utilisation: It may sound like a little achievement, but every 1% can be worth $60m. Additionally, we actively engage with suppliers and the UAW, whom we now see as crucial stakeholders.

We also needed a strategy to create a lean, global process for product development. One which would allow us to leverage our global capability and develop multiple upper bodies on the same platform for all vehicle segments (SUV, CUV, Sedan). We also moved people upstream, so that they could work cross functionally when design was less mature and have the greatest impact. We worked relentlessly to eliminate waste, manage capacity and synchronise cross-functional processes.

All the information we gather is posted in the Obeya, which helps identifying current and future state, the kaizens needed to progress and clarify the design rules or templates we ask our engineers to use. Because the standards are now linked, we aren’t only able to design for manufacture but also to manufacture for design intent, with global learning and CI at the core of our work.

Finally, we spent a lot of time on customising our tools to make sure they enable engineers and improve processes. Working digitally from the design to delivery eliminates issues with data conversion and helps us share knowledge globally. To make processes more visible, we use simple tools like a body structure dashboard (specific numerical values for car attributes) and a quality health chart (to review critical quality enablers for processes and parts, rate them and monitor them over time). A3s are also used extensively.

In general, we did a lot to align the company from top to bottom, with great results: lead time for manufacturing and engineering has decreased by almost 50%, costs dropped dramatically, and engineering efficiency has improved by 40%. The combination of new, exciting products and world class quality and craftsmanship has improved customer satisfaction and market share. And perhaps most importantly, our people are now more engaged. It’s an entirely different working environment.


HOW TO MAKE THE IMPOSSIBLE POSSIBLE

With over 18,000 gembas to look after every day, Starbucks can be seen as a collection of small businesses. Roberto Priolo reports on how the company improved its operations by focusing on a robust teaching method and problem solving and by involving store employees.

There are three things you expect from a Starbucks store: good coffee, quick service and a friendly staff. The company seems to be constantly delivering on these expectations, and it can be surprising at first to discover it is in part thanks to lean thinking.

It is even more surprising when you consider Starbucks serves about 50 million customers every week in over 18,000 stores around the world, which hardly makes standardisation easy to accomplish.

So how does Starbucks ensure consistency in quality of products and service? What happened before the adoption of lean was that the Seattle Support Center was trying to direct activities at the stores without providing common methods to produce beverages. There were recipes to follow, but each “partner” (the term Starbucks uses for its employees) had its own way of working.

Each store is rightly considered a unique environment, with different layout, volumes and rates of work. Imagine walking into your local store at 9am, and then again at 3pm: it is like being in two different places altogether. With such a complex scenario it seems impossible to believe a group of people in Seattle can create a standardised work system, or “routines”, applicable to every store in the world. Starbucks realised there was only one way to do it: making sure leadership (store and district managers) understands the work, teaching problem solving skills as well as the routines and enabling store teams to tailor the routines for the unique environment they work in.

Problem solving activities based on specific problems, like brewed coffee waste, were introduced. Managers were asked to cut the waste in half, and they did, in four months. Later, Starbucks started concentrating on improving customer experience and making work easier for partners. The routines offer employees a framework to base their work on, which results in better quality and more satisfied customers.

Additionally, a Starbucks Teaching Model was introduced to ensure new and existing partners learned the store’s standard work method correctly, from the beginning. This teaching model was based on Job Instruction from Training Within Industry.

In groups of three, Starbucks baristas are taught new routines for making espresso beverages. While one prepares six drinks, the other two observe quality and time. Then they are taught the routine, and asked to prepare the same drinks again. According to the company, they leave these training sessions enthused and excited to learn more by practising.

In a busy store in downtown Chicago – and this is a good example of team problem solving – there was a lot of waste in motion, mostly caused by the store layout. In 18 minutes a bar partner made 55 trips between the espresso machine and the back counter, most of the times to rinse pitchers or get ice. After a cold water dispenser was repurposed and some ice chests were bought, a considerable improvement was registered: only three trips in a 10-minute period.

By applying lean Starbucks was able to increase overall customer satisfaction by 18% and productity by 13%, while coffee waste went down by over 50%.


LEAN IN US HOSPITALS: WHAT’S THE PROGNOSIS?

Roberto Priolo discusses with Helen Zak, president and COO of ThedaCare Center for Healthcare Value, the current status of lean in US hospitals and the work of the Health Value Network (createvalue.org).

Roberto Priolo: How has the adoption of lean in US hospitals evolved since the pioneering work of Virginia Mason?

Helen Zak: The adoption of lean in the US health system has steadily risen year over year. However, it is still not the mainstream operating system. Of the 5,500 hospitals in the United States, we estimate only 1% are truly on the road to real lean transformation.

RP: What are the most common difficulties that, according to your experience, hospitals encounter when trying to implement lean and make it part of their every-day operations?

HZ: Healthcare organisations in the US are very complex and highly functional, which makes cross functional improvement difficult, coupled with the low risk tolerance of healthcare management to make dramatic change. Finally, top barriers and difficulties are represented by the lack of real change management skills and experience with clinicians and administration.

RP: What does the Health Value Network do?

HZ: Healthcare Value Network, founded by the Lean Enterprise Institute and the ThedaCare Center for Healthcare Value, is a peer to peer learning network for healthcare leaders. Founded in 2009 and now with 53 members, it brings healthcare leaders from North America together to learn, share and connect. Our mission it to accelerate the pace of change within network members.

RP: What are the next steps for lean in healthcare in the United States?

HZ: Engaging boards, executive teams and leaders in leading the change within their organisations. These leaders must create the management systems and culture that uses the lean tools as part of everyday life and continuous problem solving.

RP: Has the recent healthcare reform boosted the interest for lean in healthcare in the States?

HZ: The recent healthcare reform legistlation in the US has created the burning platform for change. It is clear the future will be very different from the past. However, no one knows exactly how to get there. For example, the payment for healthcare is a “piecework” system, to use an old manufacturing term. The system rewards for volume only, not for high value care. Centers for Medicare & Medicaid Services is trying experiments in this area, but the jury is still out.

RP: Is it possible to identify who are, in general, the most perceptive players in hospitals with regards to the adoption of lean principles?

HZ: Good question. It’s hard to generalise who are the most receptive or perceptive players. The chief change agents in healthcare have many different titles, but we can say that in the organisations with the best results and momentum the change agent is part of the executive team.

RP: What are the best examples of lean implementation in healthcare in the United States?

HZ: The top three in the US are considered to be Virginia Mason, ThedaCare and Denver Health.


ASSESSING, ASSESSING, ASSESSING

Greg Johnson, senior director of process solutions at Medtronic, talks about how the company has adapted the Shingo framework to develop a common language and mindset across the business and leverage the resulting increase in knowledge and improvement.

Every four seconds someone in the world receives therapy through a Medtronic product. Our mission to restore health, alleviate pain and extend life guides us every day. In the past 20 years, we grew from a $1bn business to a $16bn business, with 45,000 employees and 45 manufacturing sites worldwide.

Most of the devices we produce are implantable, and people rely on them constantly. We realised we wanted to improve back in 2003. Many of our sites were already doing lean or six sigma, but each had its own philosophy and approach. We decided we wanted to make a common language for continuous improvement available to those who wanted it, and we started deploying Lean Sigma, a process-focused architecture powered by a problem solving methodology, and working to reduce lead times and variation.

It all started with practitioners who showed interest. We achieved great results, but it wasn’t systemic improvement. What we needed was pulling people together to build a community.

Some business areas got distracted, but other stuck to the new way of thinking, poised with challenge. We began to see more sustained improvement until, at the beginning of 2009, the operations council (made of the VPs of each business unit) started thinking about a long-term strategy for Medtronic’s manufacturing sites. It was decided that creating competencies around problem solving was the way to go, and that’s when lean – that had previously been on the shop floor – got into the minds of leaders.

Some areas of the business thrived, others struggled, despite the problems and tools being the same. What was different was management, and we understood that if we could combine best practice we would become unstoppable.

The next phase was building on this project and creating an operating standard around it. We determined the Shingo Prize framework would help us to collaboratively share best practices, processes and culture.

To create standard work for cooperation we took five steps:

  • Making sure we know what we aspire to be: we learned a lot from visits to Textron and Toyota and from assessing our performance;
  • Bringing all plant managers in a single room to discuss how to accelerate the rate of improvement and discuss the principles Medtronic has to live by. They agreed that the best way to learn and move quickly is to share their secrets and look at others’ best practice;
  • Taking the Shingo framework and adapting it to our operating system. This entailed empowering people to act like owners, institutionalising CI in all functions and aligning and executing with discipline. We created assessment, structures and acceleration workshops, analysing work across facilities using the framework;
  • Organising acceleration workshops which connect an organisation’s needs with known good practice, ensuring the regular cadence of plant managers forums and creating libraries of good practice, to continuously keep people engaged;
  • Checking and adjusting, by assessing the results of each site.

We reduced costs by $1bn in five years, with over a third of the savings coming from our lean work. We are proud of it, and we now want to reduce them another $1.2bn over the next five years.