“How To Manage Through Worse-Before-Better”

Robin Cooper and Brian Maskell

MIT Sloan Management Review

Summer 2008, pp. 58-65

Robin Cooper and Brian Maskell are both well-published experts on the relationship between lean manufacturing and management accounting. This article deals with the transition phase to lean manufacturing: “But the transition takes time, and it is full of obstacles. One of the biggest and most predictable hurdles is the crisis in confidence that occurs when management isn’t able to improve financial performance quickly enough.” A major contributor to this hurdle is that traditional accounting systems do not pick up real improvements that are occurring, and instead often show a decline in financial performance during the transition. The authors propose a set of new tools that will help understand the real performance improvements that are taking place, as well as the predictable reasons for the apparent “substandard” financial performance. Ironically, these changes in financial measures are connected to the improvement in operating efficiency:

• Shortened lead times and on-time delivery give customers the confidence to reduce their inventories. In the short term, this means that customers are buying less than they used to have to do in order to have sufficient stock on hand. Sales for the lean manufacturer temporarily go down.
• Reduced internal WIP inventory means that “when inventory levels are falling, the total fixed costs that are incorporated into the profit and loss statements include some from prior periods. Therefore they exceed the annual fixed costs of manufacturing, further reducing profits.”
• Improvements in productivity can reduce the number of labor hours needed for manufacturing. It is impractical to lay off these workers, and most companies are not well-equipped to utilize them in new ways initially. Therefore, productivity often does not increase until new business can be created to utilize those workers, or until the workforce decreases through attrition.

The authors propose a new approach called Value-Stream Accounting to make more transparent the reasons for temporary decreases in profits and how much the company is likely to benefit from going lean. The article includes concrete examples of how value stream accounting measures can adjust for external inventory level decreases, internal inventory level decreases, and productivity increases. These accounting measures will help managers see the potential benefits that will come soon, and inspire confidence to “hold the course” with lean.

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“Lean's Last Hand”

Chris Pope

Industrial Engineer

July 2008, pp. 35-39

Information Technology solutions such as MRP are often portrayed as a detriment, rather than a help, for Lean manufacturing. The author of this article argues that this should not be an “either-or” situation, and that the manufacturing world has gone beyond the stage where either MRP or “low-tech” kanban squares and visual controls provide the most effective approach to lean manufacturing.

The author’s argument is supported by results of a recent study by AberdeenGroup: “The objectives of the survey were to measure real-world, achievable benefits from lean manufacturing and also to find the top 20 percent of best-in-class implementers of lean.” Among a variety of findings in this study was that best-in-class manufacturers are twice as likely to be addressing cost reduction through adoption of lean scheduling software applications and integrating them with ERP (Enterprise Resource Planning) and MES (Manufacturing Execution Systems).

Some key recommendations made by AberdeenGroup were:

• Standardize lean scheduling and execution best practices across the organization based on the findings of a continuous improvement team
• The autonomy of decision makers needs to be maintained by giving them the visibility to make effective decisions
• Lean software applications are to be adopted and tightly integrated with ERP
• Measure on-time delivery, WIP and scrap on a regular basis

The article includes two case studies of organizations that have effectively implemented lean with a modern integrated IT approach. The two companies are Vesta (a manufacturer of silicone medical tubing, components, and devices) and Oberto Sausage Company (manufacturer of meat snacks).

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“Get With The Change Program”

Dragan Vasiljevic and Biljana Jovanovic

Industrial Engineer

July 2008, pp. 45-48

The authors of this article have synthesized a set of fifteen guidelines for Maintenance best practices, which they feel will establish a “change-ready framework’:

• Maintenance has significant and multidimensional influence on the market positioning of a company, and it is necessary to pay attention to it.
• Don’t save money for maintenance. It should be viewed as a process to bring more profit.
• Track parameters of reliability and other logistics parameters of your equipment and use them in monitoring maintenance
• Maintenance is not a process to activate only when something unexpected happens
• You must continually improve technical knowledge and skills
• Use modern information systems and technologies for maintenance
• Don’t let reactive maintenance become routine in your business culture
• Predictive elements must be included in your maintenance strategy
• Foster and improve communication in maintenance business
• Set up models of cooperation with equipment suppliers
• Include employees in maintenance decision making
• Don’t ignore any small degradations or minor system damage
• Establish a system of responsibility for maintenance costs
• Measure and compare the maintenance system performance with chosen benchmarks
• Exploit the full potential and benefits of applying the maintenance scorecard

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“Maturity Models Inject New Life”

Robert Saco

Industrial Management

July/Aug 2008, pp. 11-15

This article claims that there are between 100 to 200 process maturity models in existence today: “The models serve to evaluate the current status or health of the process and as a diagnostic to promote and propose further improvement initiatives.” The author describes a model called the Process Maturity Management Model (or PM3). The model provides an assessment of 15 different features (grouped into five ”clusters”).

Cluster One is Process Ownership and Governance. The features in this cluster are:

• Process governance
• Performance metrics
• POD/POA

Cluster Two is Process Understanding. The features in this cluster are:

• Process Capability and Control
• Process Improvement
• Process Audit

Cluster Three is Efficiency Drivers. The features in this cluster are:

• Time Management
• Demand Management
• Cost Management

Cluster Four is Stakeholder Drivers. The features in this cluster are

• Customer Impact Monitoring
• Risk Assessment
• Supplier Management

Cluster Five is Results. The feature in this cluster is also titled Results.

The actual assessment is done in the format of scoring board. Each process feature is discussed, one by one. Strengths and weaknesses on that feature are identified. Team members submit individual scores on the feature. The Maturity Score is expressed in a percentage, ranging from 0% (described as “Primeval”) to 100% (Designated as “World Class”). Discussion then ensues and consensus is reached on the final score for the feature. Each figure is weighted. The percentage for each feature is multiplied by its weight. The results identify primary opportunities for improvement, as well as providing a total score computed by summing the weighted feature scores.

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“The Top Ten Supply Chains”

Anonymous

Industry Week

August 2008, p. 58

Analyst firm AMR Research recently conducted a survey to identify 10 companies that were deemed to have the best supply chains. Companies were graded on the following criteria:

• Inventory turns
• Return on assets
• Revenue growth
• Input from industry peers
• Input from AMR analysts

AMR noted that the old supply chain model based exclusively on products or services is “increasingly being replaced by a content economy that builds and delivers value with ideas.” Apple is a prime example, as it delivers digital content downloads to consumers.

The top 10 companies that excelled in supply chains were:

• Apple
• Nokia
• Dell
• Procter & Gamble
• IBM
• Wal-Mart Stores
• Toyota Motor
• Cisco Systems
• Samsung Electronics
• Anheuser-Busch

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Managing Change All Over

John McNeil

GP Operational Excellence Group

Vasiljevic and Jovanovic provide us with imperatives for change in the maintenance organization. But of course those same imperatives apply to many corporate functions or departments. And also of course, there are proven ways of attacking many of these issues. Some of the imperatives involve adopting a specific mindset and are best attacked by experienced managers…

• Maintenance has significant and multidimensional influence on the market positioning of a company, and it is necessary to pay attention to it.
• Don’t save money for maintenance. It should be viewed as a process to bring more profit.
• Maintenance is not a process to activate only when something unexpected happens.
• Don’t let reactive maintenance become routine in your business culture.
• Predictive elements must be included in your maintenance strategy.
• Measure and compare the maintenance system performance with chosen benchmarks.

Some of the imperatives are technically based and are best attacked by an analytical cross-functional team…

• Use modern information systems and technologies for maintenance
• Exploit the full potential and benefits of applying the maintenance scorecard
• Track parameters of reliability and other logistics parameters of your equipment and use them in monitoring maintenance
• You must continually improve technical knowledge and skills

Still others involve some kind of cultural change both internally to maintenance or across organizational boundaries…

• Set up models of cooperation with equipment suppliers
• Include employees in maintenance decision making
• Foster and improve communication in maintenance business
• Don’t ignore any small degradations or minor system damage
• Establish a system of responsibility for maintenance costs

In our work, we find that this last form of change is the hardest to implement but also the most powerful if carried out successfully. A key tool in our kit is the Gleicher change model. It is a simple tool that gives you a quick read on the conditions needed to change an organization.

The Change Model Formula (Change Equation) is:

D x V x F > R
      OR
Dissatisfaction x Vision x First Steps > Resistance to Change

Dissatisfaction with the present situation
Vision of what is possible in the future
achievable First steps towards reaching this vision.

Because the factors are multiplicative, the three components must all be present to overcome the resistance to change in an organization. If any falls near to zero then even low resistance to change won’t be overcome. To ensure that your change initiative gets off the ground, attains critical mass and has staying power, you should analyze each of the factors and drive consciously to increase the product of D, V and F while driving resistance down. Otherwise, our experience tells us, you won’t be able to maintain that change.

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