Pete Austin, Director at Suiko, shares his opinion on the reasons why most organisations struggle to improve all the elements of an operation – efficiency, customer service and inventory.

There are three legs to any operation’s stool.

In my experience most management teams only ever achieve improving two of these at one time, normally at the expense of the third.

Why is this?  Here are my reasons:

1)      Measures drive behaviour

Different functions and therefore different people own these measures causing misalignment at best and a silo mentality at worse – I have often heard factory managers saying they do not care about the inventory/waiting as their “more important” measure is factory recovery.  I also see sales teams put in “squirrel” orders to protect their accounts and ensure that they have capacity for a just in case order.  These are from managers who supposedly understand lean!

2)      Lean/operational excellence/CI is only for operations and it is all about efficiency improvement

Generally the operational excellence programme starts in operations, where waste is tangible and visible.  Reducing the variation is critical at this stage – a reliable plant will allow you to improve the supply chain quicker as the just in case stock can be eliminated (see point 4).

Operations generally have the most people working within it – engagement is a further benefit of this programme so it would make sense to tackle the biggest area first.

However, if you do tackle operations, first make sure there is a plan for the whole supply chain.

3)      Poor understanding of what lean actually is

True lean is reducing the time taken between receiving the order and getting the cash in the bank.  The detail of this is removing/reducing non-valued added processes. The true measure is throughput time.

The trap that people fall into is applying the tools rather than the principles – nearly every production manager I have met will reduce changeover time to drive efficiency rather than reduce batch size and therefore increase throughput time.

The true financial benefits associated with this reduction in throughput time are often not fully quantified. Lean is not just about cost reductions on the P& L; its greater benefits are seen on the balance sheet through working capital reductions and the release of cash.

Sometimes the move to lean can have a short term apparent detrimental impact on the financial statements as it adjusts to the new norms. A longer term view is needed to recognise that the future benefits will far outweigh the short term hits.

4)      Reliable processes is a must – 100 year fixes

To maximise savings by reducing inventory in the supply chain each element of the chain must have reliable/predictable process.  Inventory is always a comfort blanket and will mask the inherent weakness of ineffective problem solving. Intelligent inventory is a great tool to improve the performance of the supply chain, but how much of it has really been considered and for what reason?

If you resolve these issues you will not only see enormous savings in costs but also in terms of releasing cash.  Service levels will improve as you become leaner, and extra profits will follow. And these are only the tangible benefits.

How can you not do it?