All-Out Lean Half measures get less than half results

Many people have campaigned incessantly about the advantages of lean manufacturing. Now, thanks to a 2013 U.S. Bureau of Census survey, we have some objective data to back up our enthusiasm.

Census surveyed 30,000 manufacturing facilities about a subset of lean-related practices, including performance monitoring, target setting, and management incentives. The leaner the company, the faster it grew and the more profitable, productive, and innovative it became.

The top 10 percent of lean implementers outperformed the bottom 10 percent by 12 percent in value added per employee, 9 percent in productivity, 6 percent in employment, and 2 percent in profitability per sale. This held true even after accounting for factory age, industry, and employee education.

A similar survey of 300 British manufacturers found that leaner companies were 17 percent less energy intensive.

I believe these numbers are wrong.

Based on my career at General Motors, I think they are too conservative. Far too conservative.

Systems for Big Improvements

Census measured only a small subset of lean practices. Companies that fully implement complete lean systems do much better. Lean systems enabled U.S. automakers to raise the time line workers spend doing value-added tasks—mounting a part, tightening a bolt, doing something related to assembly—above 90 percent, up from 15 to 30 percent in the 1970s.

Other companies achieved similar results. GE Appliances, now part of Electrolux, used lean practices to reduce the time needed to assemble refrigerators to roughly 2 hours per unit, from the U.S. average of 9 to 10 hours. Lean practices were a key factor in returning refrigerator manufacturing to the United States, from South Korea.

Toyota created lean manufacturing as we know it. James Bonini, who works for Toyota, showed other companies how to make their facilities lean. In a recent National Academy of Engineering report, Making Value for America: Embracing the Future of Manufacturing, Technology, and Work, he argued that many companies do not believe they can reduce U.S. operating costs even 10 percent. Bonini found companies where he implemented lean systems slashed costs by 40 or 50 percent.

These are powerful competitive advantages. And since lean is an ongoing process, they are sustainable. The Census Bureau found that just 18 percent of factories had adopted 75 percent or more of the lean practices mentioned in the survey, Management in America. Another 27 percent of factories had adopted fewer than half of them.

I don’t think those numbers are accurate, either.

My own experience is that many managers confuse lean practices with lean systems. Practices do not become systems until they work together to produce synergistic results.

So, what is a lean system? It is a constellation of interrelated processes that improves productivity and reduces waste through continuous monitoring, evaluation, and improvement. It gives front-line workers, the people nearest to the work, the tools to spot waste and quality problems and address them. Each practice reinforces the others, and together they make dramatic cost reductions possible.

One example is the Andon cord, which assembly workers pull to stop the line so they can address a defect before it leaves the station.

But what if that factory has a truckload of defective parts in inventory? What if workers have to wait until a supervisor or engineer shows up to take action?

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To function properly, Andon requires small teams of trained workers with the tools to solve problems on the spot. It demands single-part flow, so factories do not make large batches of bad parts. It relies on vendors who use similar systems to prevent defective parts from shipping. Andon works best when it is part of a larger system. Viewing lean as a mix-and-match collection of practices rather than an interlocking system should be a red flag for anyone who cares about U.S. manufacturing. This misunderstanding keeps U.S. factories from making better products at lower costs, and encourages companies to look abroad when they could meet their financial goals at home.

It also leaves U.S. manufacturers vulnerable to overseas competitors. In emerging nations, managers and workers do not carry decades of mass production practices and mindsets. These people are adapting lean practices to build sustainable competitive advantages that go beyond low wages and artificially depressed currency. They are smart and hard-working, and they want to win.

What’s Taking So Long?

It has been 25 years since James Womack, Daniel Jones, and Daniel Roos of the Massachusetts Institute of Technology’s International Motor Vehicle Program published The Machine That Changed the World, which introduced Toyota’s lean manufacturing processes to a broad audience. Why is it taking so long for manufacturers, especially small and medium-size enterprises, to get the message?

One reason may be confusion. Everybody seems to have a different definition of lean. A Google search for “lean manufacturing” generates more than 8 million hits. Ask for a definition and you will get 800,000 pages.

There are so many experts, consultants, courses, books, online training programs, and software packages. It takes a lot of time to unravel all the claims and decide what to implement. This is a real burden for smaller firms that do not have the people, time, and resources to throw at the problem.

Moreover, lean brings out the skepticism in many engineers and owners of small and medium-size businesses. They got where they are by knowing what works. It takes a lot to convince them to invest the time and money needed to transform even a modest factory into a lean operation.

Many question the rewards they will reap for their effort. Often, their suspicion is justified. Not every company has had a great experience going lean. Projects may fall short of goals. I won’t say lean overpromises because 40 and 50 percent cost reductions are possible, but partial implementations will not get us there.

It takes a real commitment to make lean happen. I know this from first-hand experience. It took GM, and me personally, a long time to get it. But once we did, the results were striking.

I started hanging doors on a GM line as a co-op student at General Motors Institute (now Kettering University) in 1965. There was little automation, no assist devices, and little regard for noise or ergonomics. The factory produced an industry standard 220,000 cars annually and employed more than 5,000 people. There were 120 classifications for workers, and, as I already mentioned, the average worker spent only 15 to 30 percent of his time doing value-added work. We spent the rest of our time reading manifests, searching for parts, walking between stations, adjusting for variations in parts, and the like.

Today, my old plant still produces 220,000 cars. It has expanded to include a large, labor-intensive stamping facility, yet it employs only 3,200 men and women working in flexible teams. They spend more than 90 percent of their time doing value-added work, and take less than half the hours to build each car.

CAFE and the Defect Challenge

The changes began in 1975, when the federal government enacted Corporate Average Fuel Economy mileage standards for domestic cars to cope with rising gasoline prices. To meet those targets, U.S. automakers had to slash vehicle weight.

That meant changing how we built cars. At the time, we used a technique called body-on-frame: We constructed a chassis frame and set a welded body of underpan, rear compartment pan, and front end sheet metal onto it. Body-on-frame is very forgiving. If a part was off a few millimeters, a skilled assembler could push and shove to fit.

To shave weight to meet CAFE standards, we switched to a front body integral design, which integrates the body and frame into one unit. It had none of body-on-frame’s give and take. We needed tighter tolerances. GM invested in new machinery and robots to achieve them.

We soon realized that our investment in technology was not paying off as well as it should. We had moved to robots, but we were still making and assembling parts as if we were building cars manually.

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Our workers, for example, used welding guns up to 8 feet long. This limited their range of motion. Instead of changing our assembly process to take advantage of robots’ speed, reach, strength, and precision, we simply replaced people with robots.

The parts we fed those robots had the same type of variations our workers had learned to work around. So we added skilled tradesmen—lots of them—to adjust the robots to those variations. As a result, productivity took a double hit: too much downtime and too many people.

This was in the 1980s, and we could not help looking at our Japanese competitors. They were impressive. Our factories were surrounded by yards of cars that needed defects fixed before we could ship them. Japanese factories had hardly any cars in final repair.

Clearly, they were building cars without defects, but how?

This was our introduction to lean. W. Edwards Deming, the father of statistical quality control, once said that you can walk through all the factories in the world, but unless you have a profound knowledge of the philosophy behind them, you won’t make sense of what you see.

That was us. We saw lean practices, but not how they fit together as a system.

Starting With Design

Still, one lean lesson we learned was that productivity and efficiency start with design. In our system, engineers designed parts and threw them over the wall. Fabricators made those parts, and if they didn’t hit specifications perfectly, the workers could make the necessary adjustments. We assumed this was the natural order of things.

Still, even though design accounts for just 5 percent of a part’s lifecycle cost, it determines 75 to 85 percent of total costs. We had to stop building cost into our designs and begin integrating them with factory workflow, processes, and our new robots.

We changed how we designed parts. We invested in CAD/CAM and design for manufacturing and assembly software. We optimized designs for our machines and made parts simpler and easier to assemble. We redesigned body assemblies to take advantage of our robots’ capabilities.

At Cadillac in 1988, we put design engineers on the factory floor, so they could assemble the parts they designed. We called them “Blue Jeans Days.” It was simply amazing how many design changes we saw in the weeks that followed.

GM went back to school. In 1984, GM and Toyota opened a joint venture, the New United Motor Manufacturing Inc. plant in Fremont, Calif., to make cars. Through this venture, GM truly learned the principles underlying lean. In fact, the very word “lean” was coined by John Krafcik, a NUMMI quality engineer, in a 1988 article in MIT’s Sloan Management Review.

At NUMMI, we saw how lean systems made operations more productive by exposing defects so we could correct them.

This is what makes Andon so powerful. Stopping the line when there is an issue makes problems visible. But it works only within a system where employees are trained to identify and respond to defects and managers support stopping a line to eliminate defects, even if it upsets production schedules initially. We also needed a better way to make and manage parts, so we caught problems early, before we built up inventories of defective goods.

We also learned why small teams are important. I admit that I was a skeptic initially. Small teams at NUMMI had extra workers, and I thought we were wasting money on labor. When I looked closer, I noticed that when each worker understood the others’ jobs, they could adjust to everyday workflow variations and jump in and deal with Andon problems on the spot.

I also saw an unanticipated benefit. Small teams bonded, and no one wanted to let their teammates down by not showing up. We had fewer absences. When someone was out, a trained teammate stepped in. We rarely had to shift untrained workers to new tasks and teach them the job on the fly.

It took years to get it, and even longer to implement. At first, we sent NUMMI managers to other GM plants. But one or two people, by themselves, were not enough to create changes.

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Our new truck plant in Silao, Mexico, proved a turning point. The workers knew little about old-style mass production. If we said lean was the best system, they bought into it very quickly and the plant performed outstandingly. Then we replicated our success at our new Grand River plant in Michigan.

By the late 1990s, GM plant managers saw what we were doing at Silao and Grand River, and wanted to learn more. Instead of sending one or two NUMMI grads to their plants, we sent entire teams. Together, they had the critical mass to turn things around.

We began looking harder at first-time quality, the number of cars that did not need final repair. When plants did not meet their targets, we would send in lean teams to help. In many cases, the problem was not in the plant but in a vendor, so we worked with our vendors.

Our managers had spent years developing ways to work around manufacturing problems. Lean made those issues visible and challenged managers to solve them. It took time, but as managers saw our successes, they began to buy in.

No Standing Still

By 2003, GM had cut the hours needed to make a car or truck in many plants by nearly half. Because GM and its peers continuously monitor performance, evaluate processes, and improve operations, our factories are even more flexible and productive today. Lean has the potential to continue to reduce costs every year, year after year.

Many small and medium-size enterprises now face a landscape similar to the one I surveyed three decades ago. Offshore competitors that once needed low wages, depressed currencies, and government support to succeed now compete with the best. They learn and implement new ideas as fast as you. Some are just as innovative.

Small and medium-size companies cannot afford to stand still. Lean systems could provide sustainable advantages, but only for companies willing to commit.

Having managed a giant manufacturer, I know I can offer only a limited amount of advice to smaller companies. Still, let me make some suggestions.

First, lean is not just for big companies. Even small

job shops with 10 workstations can ask fundamental questions about waste and productivity: Does everyone have the right tools? Do they follow the best processes? Are some layouts better than others? How much time is spent on productive labor? Where are the quality issues? Lean addresses waste and productivity, even in the smallest factories.

Second, lean is a journey. It took Toyota decades to develop its system. We looked over Toyota’s shoulders at NUMMI, and it took us more than a decade. No one goes lean in a few months. It will take years.

Third, you are going to have your pick of many first-rate consultants and software firms. Ask them about philosophy and strategy. Verify their results. Pick partners you will want to live with.

Fourth, pick partners that take a systems approach. Look for practices that reinforce one another. After all, why disrupt your plant for incremental advances?

Fifth, expect roles to change. Workers are going to have to take more responsibility for outcomes, and managers are going to have to treat workers like partners. This might unsettle established practices.

And, finally, remember that lean is not a flavor of the month or an end-point. It is a philosophy of continuous improvement. Learning how to expose and fix problems creates sustainable advantages that will continue for years to come.

GARY COWGER is professor of engineering practice at the University of Michigan and chairman of GLC Ventures, a management consultancy. He is a former president of General Motors North America.

Viewing lean as a mix-and-match collection of practices rather than an interlocking system should be a red flag for anyone who cares about U.S. manufacturing.