The Hindu Business Line : Making businesses lean

Whether India dethrones China as the world's fastest growing economy will not be dependent on the young workforce but the managers. In order to change, any organisation needs a sense of crisis (or of opportunity), the knowledge of what to do, and the management willing to rethink what managers do as well as the production and design methods to use. This is especially true for Indian businesses engaged in mass production such as automobiles, consumer goods, and electronics.

"I saw many examples (in India) of classic mass production with large amounts of inventories, long lead times, large amounts of rework to produce products that still had many defects, inappropriate and excessive capital investments on inflexible high-speed equipment unable to switch over easily from one product to another, dangerous work practices, and long product development times. I suppose you could call those firms fat," says Dr Jim Womack, Chairman and Founder, Lean Enterprise Institute (http://www.leaninstitute.in).

So, what is lean? Lean is a business system in which quality is built into the process by alerting the operator or automatically stopping production or service and recommencing only when the root cause of the defect or stoppage has been eliminated.

Dr Womack singled out the TVS group for special praise. "I saw some of the leanest operations I have ever encountered outside of Toyota in Toyota city at the TVS group in Chennai," feels the Dr `Lean'.

The current era of high raw materials and energy prices is a blessing in disguise, according to him, if the potential of lean methods to create more value with less effort, time, capital, energy, and space is fully grasped.

On his second major visit to the country, the expert will be addressing Indian business leaders at the first ever Lean Management Summit 2008 to be held in Mumbai on August 4 and in Chennai on August 6. Catch more of him in this exclusive email interaction with Business Line.

Excerpts from the interaction:

Tell us the basis of the lean enterprise theory.

One hundred years go Henry Ford pioneered what he called "Flow Production." For his new Model T car (the Nano of it's day!), he developed a design and production system that changed the orientation of large organisations from vertical - with each department facing the boss at the top - to horizontal, as value flowed across the enterprise through many departments, from raw materials to customer.

Ford achieved a remarkable increase in velocity from start to finish - 2.5 days from raw materials to customer - and in productivity - a 1000 per cent increase from the moving assembly line versus the former bench assembly.

Ford's system was staggeringly successful and he soon led the world's most successful firm as the world's richest man.

The problem was that Ford never developed a management system that went beyond the old-fashioned boss of the small workshop. Because Ford's company had single product with zero options, a product that had been designed personally by the owner and that was produced in a production system designed personally by the owner, it needed very little management.

Ford had the fundamental insight on focusing management on the horizontal flow of value but he created no management system able to do this except in one unique circumstance.

GM invented what we now call Modern Management but gradually lost the horizontal focus Ford had pioneered. Toyota introduced a new management system that could fully exploit Ford's original breakthrough. And Toyota won!

How did Toyota win?

This (Ford's system) was fine as long as customers were happy with a single product with no options and with demand always exceeding supply, as it did for a number of years. But when it suddenly became apparent that customers actually wanted a wide range of products, each with a wide range of options, and that demand in a maturing market would be erratic rather than steady, Ford's lack of a management system became a critical weakness.

Toyota perfected this system over several decades and it opened an enormous performance gap with American and European competitors, as our MIT study revealed in 1990 in `The Machines that Changed the World'.

At that time Toyota needed only a third of the labour hours to manufacture a vehicle with less (not more) capital investment. The vehicle had many fewer delivered defects, as judged by the customer, and was produced in lower life-of-the-product volume.

Equally remarkable, Toyota could design a vehicle of given specification in half the time of its foreign competitors with about half the hours of engineering. In addition, and in partial explanation of Toyota's superior production and design performance, Toyota had only a tiny, stable supply base of about 300 firms, while its competitors had many thousands of suppliers to manage, this despite the fact that GM and Ford produced many of their own parts.

Do you find `fat' businesses around in India?

My knowledge of India is quite limited, consisting of about 10 days of touring manufacturing companies during a visit in 2002. On the one hand, I saw some of the leanest operations I have ever encountered outside of Toyota in Toyota city at the TVS group in Chennai. One the other hand, I saw many examples of classic mass production with large amounts of inventories, long lead times, large amounts of rework to produce products that still had many defects, inappropriate and excessive capital investments on inflexible high-speed equipment unable to switch over easily from one product to another, dangerous work practices, and long product development times. I suppose you could call those firms `fat'. The reasons seemed to be weak management - in many cases with the founder of the firm still in charge and acting very much like Henry Ford! - as well as a simple lack of knowledge of how to do better.

What are the top reasons for organisations not changing?

In order to change, any organisation needs a sense of crisis (or of opportunity), the knowledge of what to do, and a management willing to rethink what managers do as well as the production and design methods to use. When the three occur together, rapid change is possible. When any of the three is missing, change is much harder.

Today the world is looking at low-cost advantage. Are top Chinese companies, by your definition, `lean'?

With the exception of a few plants managed by foreign multinationals in the automotive sector, I have yet to see a Chinese company that is remotely `lean'. Producing mediocre products at low costs by means of subsidised bank loans for equipment and low wages has nothing whatever to do with `lean' and these practices will not be sustainable as the Chinese economy develops and the world responds. (But beware: There is also a Lean Enterprise Institute in China, in Shanghai, and leading Chinese firms are now paying attention.) Chinese managers aren't stupid or lazy, just poorly informed so far about the most promising path to follow.

The world has changed many times over from 1996. Globally, the current scenario looks very bleak. Will becoming lean be enough?

Bleakness is good for change! Toyota made its great breakthroughs as a result of the crisis in the Japanese economy of 1950. The current era of high raw materials and energy prices is a blessing in disguise if the potential of lean methods to create more value with less effort, time, capital, energy, and space is fully grasped.

Share with us some successes and failures of implementing `the lean enterprise' in practice.

The original breakthrough in applying lean principles outside of Japan was the Toyota-General Motors joint venture to assemble cars in California beginning in 1984. The same workforce doing the same thing (making cars) went from one of the worst and least productive in the world to a Toyota-in-Japan standard of performance in only six months.

Since that time there have been many examples in many industries: Porsche transformed its car business using lean/Toyota principles to a point that this tiny firm (by car industry standards) is now taking over mighty Volkswagen (which learned very little from Toyota.)

Boeing has reduced the time needed to build a 737 - in the same room with the same workers - by more than 80 per cent while dramatically reducing the amount of labour required, after a decade of carefully studying Toyota.

Fujitsu Services in Europe has been transforming the call centre industry by asking what the work to be done actually consists of (a core lean practice) and rethinking the industry backwards from the customer to eliminate the reason for customers to call rather than simply reducing the cost of answering each call by means of low-cost labour. Note that these examples are from service industries going far beyond manufacturing and, in fact, the most active exploration of lean thinking is now far from its origins in manufacturing.

You have transformed books into a renowned school of thought. Have you been able to achieve what you set off for?

We are only at the beginning. What all of us are trying to do is to create organisations (from manufacturers to service businesses to governments to educational institutions) that address customer purpose (which is always to truly solve customer problems cost-effectively) by introducing, sustaining, and steadily improving value-creating processes for product and process development, fulfilment (from raw materials to customer) and support (through the life cycle of the good or service provided.)

Focusing on perfect value-creating processes is how all of the improvement methodologies - TQM, business-process reengineering, total productive maintenance, six-sigma, and lean - can come together. We are all going to be at this task for a long time, but the rate of improvement is accelerating.

KUMAR SHANKAR ROY

(Illustration by R. Rajesh)

More Stories on : Interview | Management

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Doha ambushed

Development on autopilot

Nuclear deal in choppy waters?

Making businesses lean

Delay and dispute in M&A deals

Provident Fund

Rate hike