The 8th Waste – Lean and You

Let your organization be a follower of lean manufacturing or not, what is the most important resource you have in your organization. Is it the market value, machinery, brand name? Yes all these can be very important for your organization. But how important the human element behind all these. Will you be able to build a valuable brand name without him, or can you operate and get the expected out come with a machine without him.

Human resource is the most important of all resources. It is the only resource which can lead all the other resources like money, machinery and market to the expected outcome. In every successful organization there will be a large team of people making it happen.

But even in those well known organizations, are they exploring the full capability of the resources they have? It is a question always bothered me. Most of the people do routine jobs day after day. They will not exactly know the neither value addition they do nor new ways to create value to the system. Traditional organizations will think about maximizing use of their machinery while a lean organization would look at optimizing the use of its machinery, yet most of the organizations do not even realize they are wasting their most valuable asset of all, the human resource. This is the eighth (8th) waste of lean, for me the most important of all.

If you think thinking is the job of management and workers need to follow them you are wrong. If you are thinking of following lean manufacturing, then you are violating one of its basics, the respect for people. People should be respected for the jobs they are doing and they should be respected for the ability and knowledge they have to change to your organization.

People actually carrying out the job would know how to do that job better. So they can come up with simple yet effective solutions if given the correct guidance. Leaders of the organization must communicate the way of lean thinking to the entire organization. This will be a long term and never ending activity. Managers must provide the opportunity to the workers to come up with their ideas freely. They have to build the performance driven culture. Ideas should be valued with positive rewards. This is a good starting point for Kaizen or the continuous improvement.

A “lean human resource management team” can contribute towards the tangible benefits of the organization apart from the obvious functions they carryout day to day. They will not be doing a passive job in a lean context, but will be actually taking part in the value creation process for their customers. So the benefits will be directly linked to the outcome of the organization. Employee performance enhancement, value saved through innovations, employee retention rates can be some of the indicators you can measure. But for me the most important indicator would be the smiling faces of the work force :)

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Lean Vs MRP

Any organization would like to save costs and earn more profits. Organizations chose methodologies like Lean manufacturing and Material Requirement Planning to achieve their goals. Lean and Material Requirement Planning or MRP are both looking at optimizing the resources we have in order to produce certain results so that the cost involved in will be less and value addition will be higher. This will mean more profit for the organization.

We have discussed about the origins of lean in our earlier posts. Lean revolves around certain simple set of concepts. Similarly, MRP is very simple in concept. As its name suggests MRP is meant for Material Requirement Planning so that organizations can plan both in-house and external requirements according to the demand an organizations have to fulfill. If you need to produce 100 bicycles within next week MRP will tell you that you need to have 200 rims, 200 tyres in-house before the start of next week and 80 handles apart from the 20 which are already in stock by the 2nd day of next week for an example.

Although seems simple enough in theory, it is not easy to calculate all these requirements for an organization which will produce 100s of items with 1000 or tens of thousands sub assembly parts. And specially there are number of variables to take into considerations. Among them are Minimum Stock Levels, MOQ or the Minimum Order Quantities of the suppliers, lead times and through put time of the internal assemblies and forecasted demands are few. This means you will not be able to use a simple spread sheet or a calculator to do all these complex calculations. So you would need computing power especially for the organizations operates in multiple locations.

MRP concept is pioneered by “Joseph Orlicky” in early 1960s in US. It spread around the world in breeze and helped many entrepreneurs and managers to make their decisions with much more accuracy. Stock levels went down and resources were managed much more efficiently making organizations much more profitable and successful. It is widely used even today and for many of the organizations MRP is a must have and they cannot live without it.

As mentioned earlier MRP is a predictive system. Its demand is mainly from a forecast which can change day to day. Its lead times are fixed. There will be some safety stocks to cover up any deviations of the predictions with the actual. In other words MRP is about building a system where we work in the existing scenario efficiently. For an Example MRP driven companies will purchase their raw materials even long before they are actually required for manufacturing if the lead times are longer for those raw material. They will not question the longer lead times nor will they look for the ways of reducing those lead times.

On the other hand lean manufacturing techniques are more reactive to the actual demand. This takes the requirement for long term forecasts and planning based on that forecast out of the equation since you will mainly deal with the actual demand. Generally people will not have to wait till good are produced after placing their order even in lean context. So there will be certain levels of stocks with retailers to satisfy the demand instantly. But this stock will not be a buffer to hide behind for the manufacturer.

With the reactive nature of lean, it needs to act quickly in order to satisfy the demand. This requires greater deal of flexibility both in-house and with the external vendors. This cannot be achieved with traditional means. You will have to build a system where you can respond to your customer demand on time. Unlike MRP it is not enough to organize what you have in an efficient manner, it is required to question existing systems and continuously improve. Below video explains this.

Although MRP is mainly about forecasts and demands as explained above, MRP can be used even in lean context to manage its resources effectively. MRP in a MTO or Make To Order system will be much closer to lean. Unlike MTS or a Make To Stock system where demand is not real but a prediction, MTO work with actual demand. This will help manufacturers to plan their real demands accurately and efficiently. So lean while removing wastes from the system can be greatly benefited by MRP in achieving the final goal of satisfying your customer and making healthy profits.

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Supply Chain and Value Chain – in the eyes of lean manufacturing

Lean manufacturing and supply chain management are terms go hand in hand. Although lean is built on a wider base I feel the backbone of lean, JIT (Just In Time) is about building a better supply chain within the organization. Tools like Kanban are parts of this exercise. Value will flow from one work station to the other within the supply chain. This is sometimes called the value chain (at least that is how I call it). If this flow of value is hindered, it is called a waste.

Nowadays lean is not just about manufacturing. Even within a manufacturing organization lean concepts are applied in offices, service departments and so on. With the emergence of concepts like lean enterprise these concepts have extended beyond the boundaries of the organization and reached the suppliers and customers, in short the entire supply chain. This makes much sense since most of the waste is generated within the supply chain than within your premises. Sony in 2006/2007 lost 2% of its share value due to delays in releasing play station III (PS 3) due to a problem in getting the blue laser used in manufacturing PS3 and recall of problematic batteries which can catch fire on some notebook computers. Both the problems did not take place entirely within Sony, but due to the problems they faced in their supply chain. In another example CISCO is said to had a $2.2 billion write-off mainly due to the problems in their order fulfill system. In simple this suggests even you do your job 100% within your organization, your supply chain can kill your organization.

To be truly lean you need to have a tightly integrated supply chain or a lean supply chain. This would mean having less number of suppliers with long term relationship. This also means having a tight integration with the customers. So you would know what your customer needs quickly. And you would also have means of conveying your requirements to your suppliers quicker and accurately. Although it seems simple enough to read practice is a completely a different game altogether. Tight integration can mean you depend on each other so much even a failure outside your control can bring your organization down. For an example failure of your supplier to deliver goods on time will mean you cannot meet your customer’s requirements.

In the ideal world, your supply chain should not have any wastes involved so your supply chain and value chain would fall in the same line. So value will be identified in every point of supply chain. In this ideal situation you will enjoy the fullest benefits of lean. Your customer will pay only for the true value of the product or the service not for the waste involved in the process.