Lean Thinking

Banish Waste and Create Wealth in Your Corporation

James P. Womack, Daniel T. Jones

• Publisher: Free Press
• Year: 2010
• eBook ISBN: 9781439135952
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

Expanded, updated, and more relevant than ever, this bestselling business classic by two internationally renowned management analysts describes a business system for the twenty-first century that supersedes the mass production system of Ford, the financial control system of Sloan, and the strategic system of Welch and GE. It is based on the Toyota (lean) model, which combines operational excellence with value-based strategies to produce steady growth through a wide range of economic conditions.In contrast with the crash-and-burn performance of companies trumpeted by business gurus in the 1990s, the firms profiled in Lean Thinking -- from tiny Lantech to midsized Wiremold to niche producer Porsche to gigantic Pratt & Whitney -- have kept on keeping on, largely unnoticed, along a steady upward path through the market turbulence and crushed dreams of the early twenty-first century. Meanwhile, the leader in lean thinking -- Toyota -- has set its sights on leadership of the global motor vehicle industry in this decade.Instead of constantly reinventing business models, lean thinkers go back to basics by asking what the customer really perceives as value. (It's often not at all what existing organizations and assets would suggest.) The next step is to line up value-creating activities for a specific product along a value stream while eliminating activities (usually the majority) that don't add value. Then the lean thinker creates a flow condition in which the design and the product advance smoothly and rapidly at the pull of the customer (rather than the push of the producer). Finally, as flow and pull are implemented, the lean thinker speeds up the cycle of improvement in pursuit of perfection. The first part of this book describes each of these concepts and makes them come alive with striking examples. Lean Thinking clearly demonstrates that these simple ideas can breathe new life into any company in any industry in any country. But most managers need guidance on how to make the lean leap in their firm. Part II provides a step-by-step action plan, based on in-depth studies of more than fifty lean companies in a wide range of industries across the world.Even those readers who believe they have embraced lean thinking will discover in Part III that another dramatic leap is possible by creating an extended lean enterprise for each of their product families that tightly links value-creating activities from raw materials to customer.In Part IV, an epilogue to the original edition, the story of lean thinking is brought up-to-date with an enhanced action plan based on the experiences of a range of lean firms since the original publication of Lean Thinking. Lean Thinking does not provide a new management "program" for the one-minute manager. Instead, it offers a new method of thinking, of being, and, above all, of doing for the serious long-term manager -- a method that is changing the world.

PART I
LEAN PRINCIPLES

INTRODUCTION
Lean Thinking versus Muda

Muda. It’s the one word of Japanese you really must know. It sounds awful as it rolls off your tongue and it should, because muda means “waste,” specifically any human activity which absorbs resources but creates no value: mistakes which require rectification, production of items no one wants so that inventories and remaindered goods pile up, processing steps which aren’t actually needed, movement of employees and transport of goods from one place to another without any purpose, groups of people in a downstream activity standing around waiting because an upstream activity has not delivered on time, and goods and services which don’t meet the needs of the customer.

Taiichi Ohno (1912–1990), the Toyota executive who was the most ferocious foe of waste human history has produced, identified the first seven types of muda described above and we’ve added the final one.¹ Perhaps there are even more. But however many varieties of muda there may be, it’s hard to dispute—from even the most casual observation of what gets done in an average day in the average organization—that muda is everywhere. What’s more, as you learn to see muda in the pages ahead, you will discover that there is even more around than you ever dreamed.

Fortunately, there is a powerful antidote to muda: lean thinking. It provides a way to specify value, line up value-creating actions in the best sequence, conduct these activities without interruption whenever someone requests them, and perform them more and more effectively. In short, lean thinking is lean because it provides a way to do more and more with less and less—less human effort, less equipment, less time, and less space—while coming closer and closer to providing customers with exactly what they want.

Lean thinking also provides a way to make work more satisfying by providing immediate feedback on efforts to convert muda into value. And, in striking contrast with the recent craze for process reengineering, it provides a way to create new work rather than simply destroying jobs in the name of efficiency.

Specify Value

The critical starting point for lean thinking is value. Value can only be defined by the ultimate customer. And it’s only meaningful when expressed in terms of a specific product (a good or a service, and often both at once) which meets the customer’s needs at a specific price at a specific time.

Value is created by the producer. From the customer’s standpoint, this is why producers exist. Yet for a host of reasons value is very hard for producers to accurately define. Business school–trained senior executives of American firms routinely greet us when we visit with a slick presentation about their organization, their technology, their core competencies, and their strategic intentions. Then, over lunch, they tell us about their short-term competitive problems (specifically their need to garner adequate profits in the next quarter) and the consequent cost-cutting initiatives. These often involve clever ways to eliminate jobs, divert revenues from their downstream customers, and extract profits from their upstream suppliers. (Because we are associated with the concept of lean production, they are usually eager to label these programs “lean,” although often they are only “mean.”) By dessert, we may be hearing about their personal career issues in the current age of “downsizing.”

What only comes up when we push it to the foreground is the specific products the firm expects specific customers to purchase at a specific price to keep the company in business and how the performance and delivered quality of these products can be improved while their fundamental costs are pushed steadily down. In raising this issue it’s often revealing to ask these executives a simple question: Can you put yourself in the position of a design as it progresses from concept to launch, an order as information flows from initial request to delivered product, and the physical product as it progresses from raw material to the customer, and describe what will happen to you at each step along the way? Usually there is an awkward silence, and then, if we aren’t persistent, these issues quickly slip out of sight to be replaced once more by aggregated financial considerations. In short, the immediate needs of the shareholder and the financial mind-set of the senior managers have taken precedence over the day-to-day realities of specifying and creating value for the customer.

When we’ve gone to Germany, until very recently, we’ve found a reverse distortion of value specification. For much of the post–World War II era, executives of private or bank-controlled companies could ignore the need for short-term financial performance and were eager to tell us all about their products and process technologies. Even the most senior executives could go into great detail about product features and new processing methods which had taken years to perfect.

But who specified their value? The engineers running the companies! Designs with more complexity produced with ever more complex machinery were asserted to be just what the customer wanted and just what the production process needed. But where was the evidence?

In pressing this point, it often became apparent that the strong technical functions and highly trained technical experts leading German firms obtained their sense of worth—their conviction that they were doing a first-rate job—by pushing ahead with refinements and complexities that were of little interest to anyone but the experts themselves. Our doubts about proposed products were often countered with claims that “the customer will want it once we explain it,” while recent product failures were often explained away as instances where “the customers weren’t sophisticated enough to grasp the merits of the product.”

A central feature of the crisis of German industry in the period since the end of the cold war has been the dawning perception that the complex, customized designs and sophisticated processing technologies favored by German engineers are too expensive for customers to afford and often irrelevant to their real desires.

When we have traveled to Japan, also until very recently, we have encountered yet a third distortion. What’s been really important for Japanese firms as they have defined value is where value is created. Most executives, even at firms like Toyota which pioneered lean thinking, have begun their value definition process by asking how they can design and make their product at home—to satisfy societal expectations about long-term employment and stable supplier relations. Yet most customers across the world like products designed with an eye to local needs, which is hard to do from a distant home office. And they like products made to their precise order to be delivered immediately, which ocean shipping from a Japanese production base makes impossible. They certainly do not define the value of a product primarily in terms of where it was designed or made.

What’s more, the stay-at-home-at-all-costs thinking of Japanese senior managers, even as the yen steadily strengthened, depleted the financial resources these firms needed to do new things in the future. The immediate needs of employees and suppliers took precedence over the needs of the customer, which must sustain any firm in the long term.

Moving beyond these national distortions in the world’s three most important industrial systems (and every country probably has its own unique set),² we are repeatedly struck how the definition of value is skewed everywhere by the power of preexisting organizations, technologies, and undepreciated assets, along with outdated thinking about economies of scale. Managers around the world tend to say, “This product is what we know how to produce using assets we’ve already bought, so if customers don’t respond we’ll adjust the price or add bells and whistles.” What they should be doing instead is fundamentally rethinking value from the perspective of the customer.

One of the best (and most exasperating) illustrations of this backwards thought-process is the current-day airline industry. As frequent users of this service we have long been keeping detailed notes on our experiences and contrasting our own definition of value with that proposed by most companies in this industry. Our value equation is very simple: to get from where we are to where we want to be safely with the least hassle at a reasonable price. By contrast, the airline’s definition seems to involve using their existing assets in the most “efficient” manner, even if we have to visit Timbuktu to get anywhere. They then throw in added features—like executive lounges in their hubs and elaborate entertainment systems in every seat—in hopes the inconvenience will be tolerable.

Just today, as this is written, one of us has traveled the 350 miles from his summer home in Jamestown in western New York State, across Lake Erie, to Holland, Michigan, in order to make a presentation on lean thinking to an industrial audience. What was needed was a way to fly from Jamestown directly to Holland (both of which have small airports) at an affordable cost. What was available was either an absurdly priced charter service from Jamestown to Holland (total door-to-door travel time of about two hours) or an eighty-mile drive to the Buffalo, New York, airport, a flight on a large jet to the Detroit sortation center of Northwest Airlines (where the self-sorting human cargo finds its way through a massive terminal from one plane to the next), another flight on a large jet to Grand Rapids, Michigan, and a forty-mile drive to the ultimate destination. (The lower-cost option required a total travel time of seven hours.)

Why aren’t airlines like Northwest (and its global partner KLM) and airframe builders like Boeing and Airbus working on low-cost, point-to-point services using smaller jets instead of developing ever-larger aircraft? And why aren’t they developing quick turnaround systems for small jets at small airports instead of constructing Taj Mahal terminals at the absurd “hubs” created in America after airline deregulation—and long present in Europe and East Asia due to the politically motivated practice of routing most flights of state-controlled airlines through national capitals? (One hour of the seven hours spent on the trip just cited was taxiing time in the Detroit hub and a second was occupied with self-sortation inside the terminal.)

Few firms are aggressively promoting this definition of value because the airlines and airframe builders start their thinking with extraordinarily costly assets in the form of large aircraft; the engineering knowledge, tooling, and production facilities to make more large aircraft; and massive airport complexes. Old-fashioned “efficiency” thinking suggests that the best way to make use of these assets and technologies is to get larger batches of people on larger planes and to do this by sending ever more passengers through the expensive sorting centers. This type of efficiency calculation, focused on the airplane and the hub—only two of the many elements in the total trip—loses sight of the whole. Much worse from the standpoint of value for the passenger, it simply misses the point.

The end result of fifteen years of this type of thinking in the United States is that passengers are miserable (this is not what they meant by value!), the aircraft producers make little money (because the airlines can’t afford new planes), and the airlines (excepting Southwest and a few other start-ups pursuing the more sensible strategy of flying point-to-point, although still using large aircraft) have flown a decade-long holding pattern in the vicinity of bankruptcy. Europe and parts of East Asia are not far behind.

Lean thinking therefore must start with a conscious attempt to precisely define value in terms of specific products with specific capabilities offered at specific prices through a dialogue with specific customers. The way to do this is to ignore existing assets and technologies and to rethink firms on a product-line basis with strong, dedicated product teams. This also requires redefining the role for a firm’s technical experts (like the inward-looking German engineers we just cited) and rethinking just where in the world to create value. Realistically, no manager can actually implement all of these changes instantly, but it’s essential to form a clear view of what’s really needed. Otherwise the definition of value is almost certain to be skewed.

In summary, specifying value accurately is the critical first step in lean thinking. Providing the wrong good or service the right way is muda.

Identify the Value Stream

The value stream is the set of all the specific actions required to bring a specific product (whether a good, a service, or, increasingly, a combination of the two) through the three critical management tasks of any business: the problem-solving task running from concept through detailed design and engineering to production launch, the information management task running from order-taking through detailed scheduling to delivery, and the physical transformation task proceeding from raw materials to a finished product in the hands of the customer.³ Identifying the entire value stream for each product (or in some cases for each product family) is the next step in lean thinking, a step which firms have rarely attempted but which almost always exposes enormous, indeed staggering, amounts of muda.

Specifically, value stream analysis will almost always show that three types of actions are occurring along the value stream: (1) Many steps will be found to unambiguously create value: welding the tubes of a bicycle frame together or flying a passenger from Dayton to Des Moines. (2) Many other steps will be found to create no value but to be unavoidable with current technologies and production assets: inspecting welds to ensure quality and the extra step of flying large planes through the Detroit hub en route from Dayton to Des Moines (we’ll term these Type One muda). And (3) many additional steps will be found to create no value and to be immediately avoidable (Type Two muda).

For example, when Pratt & Whitney, the world’s largest manufacturer of aircraft jet engines, recently started to map its value streams for its three families of jet engines, it discovered that activities undertaken by its raw materials suppliers to produce ultrapure metals were duplicated at great cost by the next firms downstream, the forgers who converted metal ingots into near-net shapes suitable for machining. At the same time, the initial ingot of material—for example, titanium or nickel—was ten times the weight of the machined parts eventually fashioned from it. Ninety percent of the very expensive metals were being scrapped because the initial ingot was poured in a massive size—the melters were certain that this was efficient—without much attention to the shape of the finished parts. And finally, the melters were preparing several different ingots—at great cost—in order to meet Pratt’s precise technical requirements for each engine, which varied only marginally from those of other engine families and from the needs of competitors. Many of these activities could be eliminated almost immediately with dramatic cost savings.

How could so much waste go unnoticed for decades in the supposedly sophisticated aerospace industry? Very simply: None of the four firms involved in this tributary value stream for a jet engine—the melter, the forger, the machiner, and the final assembler—had ever fully explained its activities to the other three. Partly, this was a matter of confidentiality—each firm feared that those upstream and downstream would use any information revealed to drive a harder bargain. And partly, it was a matter of obliviousness. The four firms were accustomed to looking carefully at their own affairs but had simply never taken the time to look at the whole value stream, including the consequences of their internal activities for other firms along the stream. When they did, within the past year, they discovered massive waste.

So lean thinking must go beyond the firm, the standard unit of score-keeping in businesses across the world, to look at the whole: the entire set of activities entailed in creating and producing a specific product, from concept through detailed design to actual availability, from the initial sale through order entry and production scheduling to delivery, and from raw materials produced far away and out of sight right into the hands of the customer. The organizati...

Table of contents

• Cover
• Title Page
• Copyright Page
• Dedication
• Contents
• Preface to the 2003 Edition
• Preface to the First Edition: From Lean Production to Lean Enterprise
• Part I: Lean Principles
• Part II: From Thinking to Action: The Lean Leap
• Part III: Lean Enterprise
• Part IV: Epilogue
• Afterword: The Lean Network
• Appendix: Individuals and Organizations Who Helped
• Glossary
• Notes
• Bibliography
• Index
• About the Authors
• Footnotes