Posts Tagged ‘Lean culture’

Lean Leadership Summit Focuses on Essentials to Becoming a Lean Company

Tuesday, December 12th, 2017

After being delayed for a few weeks because of Hurricane Irma, Lean Frontiers held its annual Lean Accounting Summit in Savannah, GA on October 24th and 25th.  This was my fourth year to be invited as a speaker at the conference. This year’s summit was different in that the Lean Accounting Summit was combined with Lean Management and Lean People Development into Lean Leadership to include the people development aspect of being a lean enterprise. Co-founder Dwayne Butcher, said, “It’s about time that the whole enterprise be involved in becoming a Lean company. Lean is a business model and must therefore include every part of the business, including those in Executive Leadership, Accounting, HR, Sales, Product Development, Supply Chain. We need to breakdown the silos between these departments.”

Between the keynote speakers, there were three tracks related to Lean Management, Lean Accounting, and Lean People Development.  Besides giving my own presentation, “Rebuild Manufacturing – the key to American Prosperity,” based on my new book of the same name, I attended all of the keynotes and some of the sessions in the Lean Management and Lean Accounting tracks.

Lean Frontiers is not a consulting firm. Its sole focus is to provide learning opportunities to address:  Enterprise?wide adoption of Lean and the foundational skills needed by Lean companies. Dwayne announced a new program, the Lean Learning Pod, that will be taught by Jean Cunningham on Lean accounting. Participating companies will meet in a virtual manner on a regular basis, and Jean will be a mentor to the companies.

Jim Huntzinger, said, “The first Lean Accounting Summit was held in 2005, and out of that summit, Lean Frontiers was born.  Lean is still perceived as a program with short term results by too many, and we need to make the transition to Lean as a business model.  We need to traverse unclear territory — trust the process to go from current condition to the target position. We can use XYZ Thinking:  If we do X, then we will get Y, but if we get Z instead, then we will learn.”

He introduced the first keynote speaker, Art Byrne, former Wiremold CEO, author of Lean Turnaround and now a consultant. He has been practicing Lean since 1982 when he was a General Manager at a General Electric facility. He wrote his book and then wrote the Lean Turnaround Action Plan to show what would happen if a company becomes Lean. The reader is supposed to be management of fictitious company – United Gear & Housing.  He asked, “What is Lean?” His answer was, “It is strategy to run any business to remove waste to deliver more value to customers.”

He described United Gear as a traditional batch company with long set ups of 2-3 hour, a six-week lead time, and a strong management team.  The company is purchased, and the new owner make it clear that everything has to change to with Lean as the strategy.  They will have to:  lead from the top, transform people, increase gross by 5 – 7. Puts, reduce inventory by $70 M increase value, and reduce set up by 90%.  He said, “The present capacity = work + waste., and waste is typically 60%.  I particularly liked his comment. “Think about the stupidity of putting all the same machines in the same department as if the machines liked to be near each other. Instead, we should be putting the machines in the sequence of operations to be performed to go from batch to continuous flow. You could rearrange the machines into cells to go from raw material to finished product. Fewer people would be doing the work, and lead time could drop dramatically from 6 weeks to 2 days.”

He said the Wiremold strategy was to: “Constantly strengthen our base operations, achieve 100% on-time delivery, 50% reduction in defects every year, do 20 inventory turns/year, double in size every 3 to 5 years, use visual control and 5S, do one piece flow and standard work, do Kaizen, use a Pull system, and stretch targets.”

In his concluding comments, he said, “Standard cost accounting and lean don’t go together. The key is for senior management to function as one team.”

In her presentation on “Overcoming Barriers to WOW Results,” Cheryl Jekiel, CEO of the Lean Leadership Resource Center, said that the International Labour Organization for the United Nations asked her to develop and teach a class on Lean HR to be taught in 46 countries.  She had to develop the course for others to use to teach. In developing the course, she used the following working definition of Lean:

  • 7 common practices to improve
  • It’s about the customer
  • Measurable improvement
  • Problem Solving
  • Repeatable processes
  • Overall involvement
  • Visual management
  • Engaging leadership

She said, “HR can make the difference in the results. HR owns the things that are the obstacles. HR has a role in the culture of the company and can weave improvement into activities. HR owns talent strategies: hiring, training & Development, performance management, and reword systems. HR can build lean competencies into job design. The greatest is the waste of human development. Most companies don’t tsp into the power of their people. We define people by the tasks they do and not their capability. People are endlessly creative. The power of the ideas to solve problems is in people. Lean is about building a muscle — the more you do it the better you are at doing it. Lean is a way of expanding capability.  HR tends to engagement, and engagement goes with Lean. Studies show that companies are 7-11% more profitable when employees are engaged. Convert categories into dollars to make the connection of engagement into money.”

One of my favorite presenters is Jerry Solomon, who gave the presentation, “Bridging the Gap Between Accounting & Operations.” He spent 40 years in the manufacturing industry and is now retired in Naples, FL.  His last 14 years were at Barry-Wehmiller in St. Louis as CFO.

He said, “Lean is two pillars to eliminate waste in pursuit of perfection in safety, quality, delivery, and cost.  The two pillars are:  respect for people and continuous improvement. Inspirational leadership and a profound cultural and organizational change are required to become a Lean company. Elimination of waste is driven by Kaizen events, which need to be narrow and deep. The respect for people means no layoffs and requires strong C-level support.”

He explained, “Lean Accounting is using Lean tools in accounting and “plain English” P & Ls. Accounting is one of biggest roadblocks to successful Lean journey. Lean is about being a cash and capacity generator.  We need to change the metrics we use. In the traditional cost accounting pie, overhead is 10-20%, Direct labor is 60-70%, and materials are 20-30%. Today in Lean accounting, overhead is still 10-20%, direct labor is 10-20%, and materials are 60%.  Standard cost accounting is replaced by actual costs and can be understood by everyone. The benefit of Lean accounting is relevant information when you need it that is understandable to the 99% of people and not just the 1% who are accountants. It provides real-time information to run the business.”

On Wednesday, the keynote presentation was “The Continuous Improvement Engine” by David Veech, The Ohio State University, author of Leadersights and The C4 Process.

He said, “The foundation of the continuous improvement engine is trust. Two key things are required: clear expectations with standardized work and leader vulnerability and mastery. Challenges lead us to acquire knowledge and skills. It’s how we lead that sets our stretch goals. It’s a process that occurs with repetition. No one is in this alone, so we have accountability. Learning and coaching is required for mastery. The goal is to have a team of experts.”

He explained, “You need a system for problem solving to find out if ideas work – you can use PDCA, DMAIC, or my C4 system.”  He said, “C4 is short for Concern, Cause, Countermeasure, and Confirm. C4 offers straightforward, easy-to-remember techniques for identifying and solving workplace problems. These four steps-clearly identify the concern, find the true root cause, correct the cause with an effective countermeasure, and confirm that the solution worked.”

He added, “Problem solving builds mastery. Mastery results in self-efficacy, and people that have self-efficacy are willing to try new things and keep trying until they succeed. They need to have intrinsic motivation, which comes from the heart. This intrinsic motivation turns into ideas and generates initiative. The “exhaust” of this continuous improvement engine is:  satisfaction, meaning, awareness, and responsibility. Building relationships in teams is critical to the process.”

In the first breakout session, I attended “Eliminate Standard Cost Step by Step” by Nick Katco, author of the Lean CFO series. He told us that there is nothing in Generally Accepted Accounting Principles (GAAP) that would prevent using Lean Accounting methods. He said, “In GAAP, you need to calculate inventory valuation and Cost of Goods Sold. Using Standard Cost Accounting, you often have to make assumptions whereas in Lean Accounting, you use “Actual expenses incurred to get goods in condition for sale. A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues.  In the continuous nature of manufacturing, there are difficulties in matching specific costs to revenue because products not sold in same period as produced, prices change over time, and production costs change over time.”

He explained how to do a Lean Inventory Valuation for material and production cost capitalization using three different methods:  days of inventory, units of inventory, and days of conversion cost.  He said, “Lean transformation is designed reduce inventory levels in manufacturing companies — 30-60 days is good target. There is no GAAP requirement to value every single product. Average costs replace standard costs. Capitalize total costs, not individual products by a journal entry.”  In conclusion, he advised:  “Design a lean inventory valuation methodology which works for your company and partner with your auditor to create a methodology they will be able to test.”

I had to leave early on Wednesday to catch my plane, so the last presentation I attended was “Lean Transformation from the CFO’s Seat” by CFO  Pete Gingerich of Aluminum Trailer Company. Last year I attended a presentation by the President and CEO, Steve Brenneman, so I was interested in what Mr. Gingerich had to share about their Lean transformation. He said, “In 2007, we did $27 Million and went down to $10 Million in 2009. We had to lay off half of our employees. Steve Brenneman started in 2009, and our first steps were office procedures for handling work folders and then we did 5S on the shop floor. We had lots of problems with material shortages, so we went to a Kanban system. We split into three value streams in 2012 and now have six.”

He explained, “Our big change was in how we pay our workers; we switched from piece rate to hourly and started at a rate of 10% higher than previous year’s rate. We also instituted a profit sharing plan. We didn’t use standard cost accounting, but we did have assumptions for material, labor, and overheads. Now, we know the actual costs for each value stream. Value stream planning is clearer and easier.”

He added, “We thought that our custom trailer was the most profitable, but it is actually our midline model trailer because too many engineers are involved in our custom trailer.

We have an annual meeting for top management, quarterly meetings for managers, and weekly meetings for team leaders. We have switched to rolling forecasts from budgeting, and we do weekly production planning forecasts and weekly P & Ls. Each value stream has its own weekly P& L with more detail. Lean accounting is based on shop floor metrics. We avoid allocations because if you can’t control them, why do you want to see them. We can close a quarter in one day. We clarified the definition of sales and revenue so employees would understand. We have had to work with suppliers on our Kanban system to cut inventory, such as having tires on a rack that is replenished daily. In 2009, we only did five turns of inventory, but in 2016, we did 19 turns.”

It’s always a pleasure to hear about a successful transformation into a Lean company rather than just a Lean manufacturer. I am a big proponent of Lean accounting because standard cost accounting is the biggest obstacle to more companies returning manufacturing to America using Total Cost Analysis.  When costs are divided into separate accounts, the purchasing agents and buyers do not have access to all of actual and hidden costs to be able to do a true TCO analysis. More CFOs need to take the time to attend the Lean Accounting Summit or get training from one of the qualified consultants and learn how to convert to Lean accounting.

What is the Heart and Soul of Manufacturing?

Tuesday, March 15th, 2016

Once in awhile you read a book that has such kernels of truth that they touch your soul. One such book is The Heart & Soul of Manufacturing by Bill Waddell that I just finished reading. The subtitle reveals the focus of his book: “How Lean Management aligns with the better angels of our nature to create extraordinary business results.”

I met Bill in 2014 when we were both speakers at the Lean Accounting Summit in Savannah, Georgia and reconnected with him at the summit in Jacksonville, Florida last year. I knew that we connected at a higher level because of his presentations and the topics we cover in our blogs, but reading his latest book confirmed it.

Bill has been a lean guru for more than 30 years, and in his Introduction, he writes this about his journey, “During the time I have grown in my own thinking from seeing lean as an exciting new set of tools to use on the factory floor and in the supply chain, to an all-encompassing business and economic model, to what it truly is: All of the above driven by and centered on a powerful and rare organizational culture.”

My own lean journey has been much shorter ? only 10 years since I attended my first workshop about lean in 2006, but it was preceded by getting my certificate in Total Quality Management in 1993. By the end of the 1990s, I had discerned that TQM failed because it started from the bottom up with “Quality circles” and was not adopted as a philosophy or incorporated into the corporate culture by C-level management.

I began my lean journey with the viewpoint that the adoption and implementation of lean tools and principles would help American companies be more competitive in the global marketplace and play a role in “saving” American manufacturing as expressed in my book published in 2009.

When I read Bill’s book, I resonated with his statement, “The cut throat world of business, and especially manufacturing over the last thirty years, has become centered on the negative: laying off good people in pursuit of lower headcounts, closing plants and moving the work to China, decimating entire small towns across America, and bankrupting small suppliers by abruptly terminating long relationships and replacing them with cheaper foreign sources.” These facts are what motivated me to write my book, Can American Manufacturing be Saved? Why we should and how we can.

The understanding of the importance of the total transformation of the culture of a company was revealed to me when I took classes in 2014 from Luis Socconini of the Lean Six Sigma Institute to acquire my Yellow Belt in Lean Six Sigma and thereafter read his book, Lean Company.

After years of applying the Toyota Production System tools and principles in his consulting, Bill dug deeper into the precepts behind them to understand what enables “Toyota with its nearly perfect track record of providing lifetime employment to its workers ? and making a lot of money at the same time.” One of the five precepts that more Americans need to emulate is “Be contributive to the development and welfare of the country by working together, regardless of position, in faithfully fulfilling our duties.”

Bill realized that there are other people like him “who want to do their jobs well, but also want to treat people well…they want to have a positive impact on the world around them and especially on the people around them.” The purpose of his “book is to send the message to those people that it is possible to do both…it provides a path for good people to combine the crafts of their trade with their moral code, to be good manufacturers because they are good people, rather than feeling they must either be good manufacturers or good people.”

Bill’s book features in depth consideration of companies that are every bit Toyota’s equal in their people-centered culture: ATC Trailers, Barry-Wehmiller, and West Paw Design.

Bill states that a lean culture is more than a “feel good culture;” it must be “a driver for a completely different way of running the business.” It must be based on “servant leadership,” wherein “the servant leader is always asking, ‘How can I help?’ Leadership and management exist to enable the folks on the front lines to better serve customers.”

Bill writes, “Eliminating waste and empowering people intersect beautifully.” But, in the goal to eliminate waste, “The resources that are the most important to eliminate wasting are people’s time and talents.” He adds, “Traditional management sees human beings as little more than unique tools, while lean thinkers see people as the very heart and soul of the organization’s reason for existence.” And, “In a lean company letting a thinking, feeling, growing person go ? laying them off ? is a shameful waste of a resource that is both precious and has enormous economic value.”

Those familiar with lean will understand his emphasis in a subsequent chapter on organizing a company by value streams, which engenders the feeling that “we’re all in this together” in the “shared commitment to the common good.” In a company with a lean culture, “success is defined by how the team performs along the entire end-to-end value stream…Rather than pit people against each other for individual recognition, lean incentivizes people to help each other, and to do whatever they can to make the other folks on the team more capable, to enable them to bring more of their talents to bear on the job.”

In chapter 5, “It’s all about Growth,” he writes, “There is a widespread misconception that lean is a strategy for reducing costs by eliminating waste. Quite to the contrary, lean is an engine for growth. The purpose of waste reduction and ideally elimination is to free up capacity.” When you free up capacity, you can grow, produce more, and make more profits. As Bill writes, “no company has ever cut its way to success…Success can only come from more, and you can’t cut your way to more.”

In chapter 6, “Hard Core Culture,” Bill discusses what is meant by a lean culture in contrast to “the traditional culture of blame, and its companion – arrogance…that causes most companies to fail from the inside out.” While a lean culture eliminates blame to utilize the Deming Cycle of Plan, Do, Check, Act (PDCA), Bill states, “The core concept of respect for people is not just theoretical or philosophical respect based on the belief that we are all children of God and equal in His eyes. It is professional respect, as well…based on the knowledge that no one knows everything about a process or an operation, but everyone involved knows something.”

Chapter 7, “Accounting,” contains Bill’s easy to understand explanation of “the important aspects of lean accounting, and how they support the decisions a principled, faith driven manager…” Lean accounting measures costs “based on cross functional value streams, rather than in each functional silo. It is based on “real money…it largely does away with the various types of cost types typically assigned to them…Standard costs are done away with in lean.”

I became a big proponent of lean accounting after a four-hour module in my Yellow Belt class that was reinforced when I attended sessions at the Lean Accounting summits of 2014 and 2015.

In chapter 8, Bill recounts the horrific story of the Triangle Shirtwaist factory fire that I recounted in my own book, wherein 145 women workers died in a fire because the doors were locked so the women couldn’t get out via the stairs, three of the four elevators weren’t working, and the owners had not installed a sprinkler system. It was the worst industrial incident in American history. It shocked the country and “it set off a series of laws and changes in industrial safety that eventually put an end to sweatshops in the United States.”

Bill then recounts the stories of two equally or more horrific tragedies that occurred in 2012 and 2013 offshore: Tazreen Fashions factory fire in Bangladesh where 117 women died in a fire because of locked doors and no fire prevention system and the Rana Plaza factory building collapse killing more than 1,200 people. He comments, “Since NAFTA was enacted some twenty or more years ago there has been a flurry of global trade agreements that typically pay little more than lip service to moral and ethical issues…These same trade agreements have had the effect of causing American environmental regulations to be something of a sham…great swaths of American manufacturing has moved to places such as China and Vietnam where there has been little or no environmental concern.”

We have actually been outsourcing our pollution to primarily China or Mexico. There is no sky-high fence to keep the air from crossing our border with Mexico, so we are breathing the polluted air being generated by companies in Mexico. In addition, the horrifically polluted air from China is actually coming to the U. S. on the trade winds.

The rest of the chapter 8 is a rather lengthy discussion of the differences between a privately owned vs. a publicly owned company with regard to practicing moral principles in the conduct of business.

Chapter 9 focuses on people, as “lean is a completely people centered business theory… lean management assumes the best and is based on empowerment and trust.” A culture of lean eliminates the conflict between management and labor. He presents examples of the “talent development” aspect of lean and now some companies evaluate people on the basis on their skills and knowledge in a four-square quadrant for both compensation and leadership. He concludes, “The companies with the best people working together on the best teams are the winners, and putting the best people into the best teams is done by principled leaders, not on the basis of accounting parameters.”

Chapter 10 considers “A Few Specifics,” and one of them that flies in the face of modern technology is the elimination of ERP systems as lean companies “see big IT systems as creators of significant levels of non-value adding waste. ERP systems create the need for planners, production schedulers, cost accountants and buyers. They require data collection and entry, as well as supervisors to oversee all of this, along with the costs of the software and hardware itself.” He provides examples of how ATC and West Paw Design use much simpler systems based on kanban (“a Japanese term mean something like ‘display card'”) He explains “Lean companies operate on a demand pull basis, rather than sophisticated forecasting models. Under this approach, they set a minimal inventory level in place and their purchasing and producing simply replenish that which has been used to meet actual customer demand…”

He concludes, “Perhaps the biggest reason lean companies avoid systems such as ERP is their cultural aversion to complexity. Complexity is the enemy of short cycle time, and it is the enemy of continuous improvement.”

The final two chapters contain a plea to take action and start leaning. He states, “You can’t change the basic trajectory of the business unless you change how you manage it…The gut wrenching, radical transformation in the business is not on the shop floor ? it is in the management office.” He states that successful lean leaders don’t come to this enlightened approach to management through logic, “they come to it through their principles…a principled leader is not content with the basic shop floor tools…they delve deeper and deeper into lean to find the zone of the management structures and philosophies need to allow them to manage by their principles and they dive even deeper into the core of lean culture until they fully understand and support the cultural rules need to turn the whole company into one driven by the leader’s strongly held beliefs.” He encourages companies to “learn why a strong culture is the linchpin of Lean success.”

The kernels of truth I briefly highlighted herein are why I recommend this book to everyone who wants to live and work by his higher principles while achieving greater success. If more American companies had the type of lean culture that Bill envisions, we truly could rebuild our manufacturing industry to make America great again and create jobs for millions of out of work Americans.