Lean Transformations for Small and Medium Enterprises

Lessons Learned from Italian Businesses

Arnaldo Camuffo

• Publisher: Productivity Press
• Year: 2017
• ISBN:
  9781315397801
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Verwaltung

Lean Transformations for Small and Medium Enterprises: Lessons Learned from Italian Businesses summarizes two decades of research, teaching, and practice on lean thinking.

Based on quantitative analysis of 100 cases of Lean transformations and 20 in-depth case studies of successfully transformed SMEs, it explains how to undertake lean transformations that lead to operational and financial performance improvement, and uses the Lean Transformation Framework --conceptualized by John Shook at the Lean Enterprise Institute—as a practical approach to design and de-risk the transformation process.

SMEs' leaders wishing to undertake and sustain a lean transformation must:

• Make a serious and lasting commitment to transform, avoiding the temptation to change course of action;

• 
  
  

• Choose accurately the value streams that require improvement as defined by strategy deployment;

• 
  
  

• Build capabilities to sustain the transformation;

• 
  
  

• Lead by example by going to gemba and creating a culture of respect for people that goes beyond the visible devices and artifacts of Lean tools.

• 
  
  

1

Little Big Lean Champions

1.1 SUPER MARIO LEAN: HOW PIETRO FIORENTINI BECAME THE TOYOTA OF ITALY

Mario Nardi is the prototype of how Italian entrepreneurs should be. Third-generation, young, international, competent, courageous, and above all fiercely dedicated to making his company, Pietro Fiorentini SpA, thrive.

Mario is all this because he made Lean Thinking not only the company’s production model, but also the management system, the corporate culture, and—why not?—a philosophy of life.

Originally from Milan, which is still the heart of the company’s activities, Mario started the transformation of the family business in 2000. At the time, the company was one of many medium-sized engineering companies in the province of Vicenza. Founded by his grandfather in 1938 and thanks to a curious patent relating to a control valve for LPG cars, the enterprise had experienced relative success and various ups and downs, enjoying the “long wave” of development of the legendary northeast but arriving at the end of the ’90s with problems of profitability and growth.

At the generational change, Mario and his brothers, Cristiano and Paolo, took over the reins of the company and changed its course by making Lean Thinking—accurately interpreted and adopted—their guiding principle. Pietro Fiorentini’s lean transformation was, to some extent, implemented by the book—so much so that, today, Pietro Fiorentini is one of the most visited companies in Italy, a destination of “journeys of hope” for entrepreneurs and managers in search of role models, a type of “place of worship” for those affected by the crisis or the inability to change who go to visit those capable of applying Lean Thinking and generating sustainable results over time.

Today, Pietro Fiorentini SpA is a leading global company that develops technology, products, and services for the distribution of natural gas with significantly superior financial performance in terms of growth, profitability, and cash generation compared to its direct competitors.

I have had the good fortune of regularly meeting Mario over the past ten years, visiting Pietro Fiorentini regularly, and speaking to the staff. From direct observation of the production model and the management system, as well as from conversations held on a number of occasions in various capacities in the gemba (where activities are carried out), four key elements emerged that have successfully enabled applying Lean Thinking.

The first is the entrepreneur’s total support; in this case, the entrepreneur was the true creator and “engine” of the application of Lean Thinking. This support was not limited to the fact that the entrepreneur sustained and promoted the project, but was fully immersed and involved in it, becoming its initiator and incessant stimulator. Mario Nardi led the transformation of Pietro Fiorentini firsthand, for example, by taking part in all the stages and activities of the transformation process, the reformulation of the layout, the creation of manufacturing cells, and the kaizen weeks at the 3P sites. This was only possible because Mario himself has a profound understanding of the principles and techniques of Lean Thinking, and this knowledge comes from direct experience, gained in person through years of study (his library on Lean Thinking is impressive), through meetings and relationships with academics and national and international consultants (from Jim Womack to Chihiro Nakao to George Koenigsaecker, just to mention three sensei, or masters, of world stature), and through confrontation and conversations nurtured through gemba walks around the world. Mario has thus been the leader and sensei of the transformation of Pietro Fiorentini. This was possible only because he, with humility and commitment, called himself into question, investing in himself, deciding to learn the theory and practice, and putting himself in the shoes of the deshi (disciple).

The extensive and constant investment in knowledge of the Lean Thinking principles and techniques was the second secret of success of the lean transformation of Pietro Fiorentini. This resulted first in vast investments in training production staff and young people, especially engineers, selected with great rigor from the best Italian universities (engineering at Padua University, Polytechnic of Milan, and Bocconi University), external training courses (alternated with continuous internal training activities and experimentation in the field, in the factory, in the technical department), and more generally in offices. This cocktail of activities has allowed Lean Thinking knowledge to be disseminated systematically in all levels of the company. Fifteen years of these types of training investments have resulted in the establishment of a team of trained and motivated managers, engineers, and workers, perhaps without equal in Italy, whose energy and enthusiasm in applying Lean Thinking is also evident and palpable in simply touring the facilities.

The massive and ongoing investments in knowledge of Lean Thinking principles and techniques were then translated into the search for and acquisition of the best international expertise in the field. Thus, it was not a simple “sprinkling” of Lean Thinking in some production line with the help of some local consultant contriving to be an expert on the subject, perhaps financed by funds from business associations, but the pursuit of “real” applied knowledge. In the first place, Pietro Fiorentini gradually formed an internal unit of specialists, the kaizen promotion office, and in doing so did not scrimp on resources, not only in terms of quantity, but also and especially in terms of quality, even hiring at a certain point as the head of the kaizen promotion office a person from Boeing who was the protagonist of an imposing lean transformation process in the ’90s. It is not difficult to envisage the innovative organizational, cultural, and technical scope of this operation. Transplanting Seattle to Vicenza and hearing English alongside the Vicenza dialect is just one example of the changes and innovation that the real application of Lean Thinking can bring to small businesses in Italy and everywhere else around the world.

The establishment of a strong internal kaizen promotion office was accompanied by a detailed and judicious use of consultants. With regard to this aspect, two elements of the experience of Pietro Fiorentini are striking: The first is the use of a number of consultants, each in their own specialization area and according to specific business needs; the second is the exclusive use of national and international excellence, namely, consultancies, large or small, that had proven content and ability to contribute to the results. Thus, in the factories of Pietro Fiorentini, which is a medium-sized enterprise operating in a mature industry, one runs the risk of encountering the best lean application skills on an international level and also running into Chihiro Nakao, a student of Taiichi Ohno and founder of Shingjiutsu; into John Black, who with Carolyn Corvi implemented the lean transformation at Boeing (which led to the famous B737 moving assembly line); into Mike Rona, former president of the Virginia Mason Medical Centre; into Tom Jackson, one of the leading expert of hoshin kanri; and so forth. With this approach, Pietro Fiorentini has avoided those situations typical of Lean Thinking applications in which the entrepreneur and the enterprise rely entirely on consultancies for the launch and implementation of Lean Thinking with the dual negative results of becoming dependent on external sources for continuous improvement and only achieving episodic and short-term improvements. Pietro Fiorentini has instead become a place of experimentation in which the knowledge, approaches, and methodologies of the best consulting firms are compared and hybridized with internal knowledge and with the enthusiasm and energy of the “young lions” of Pietro Fiorentini generating a unique and specific production and management model.

The third secret of success of the lean transformation led by Mario Nardi was in not considering Lean Thinking as simply a tool aimed at reducing costs, but as a management model for the sustainable generation of value. The first example of this conception of Lean Thinking is the extensive use of the scientific method in strategic planning. Pietro Fiorentini applies hoshin kanri (strategy deployment) structured as a portfolio of improvement projects (A3) involving the entire organizational structure. This corporate planning and control model, matured over the years, de facto replaces the traditional planning and budgeting process, reducing the risk of mistakes in strategic and managerial decisions, and releasing appropriate amounts of financial and organizational resources for improvement and growth. A second example is the strong and ever-present link between the product design, production, and supply chain aspects of the Lean Thinking application and those concerning the market, economic, and financial aspects. Also, in this case, the interpretation that Mario Nardi bestowed on Lean Thinking is profoundly different from the norm. In general, the question is posed in terms of “efficiency” or cost reduction (warehouses, personnel, space). Lean Thinking is typically conceived as a quick remedy (sometimes a “bitter medicine”) to solve business problems. However, Lean Thinking used for the purpose of efficiency results in temporary and limited cost reductions and only achieves shifting problems in time. Pietro Fiorentini’s approach was instead to link continuous product and process improvements to the market, to the business, asking itself through the hoshin kanri process if the business lines were the right ones and if the business model was appropriate, systematically evaluating the effects of decisions on the financial business dynamics to improve the net financial position and free up resources needed for investment and growth.

Finally, the fourth secret of success of “Super Mario Lean” lies in the way in which he exerts his leadership, which can be briefly summed up as a fine blend of humility, rigor, and determination. Mario’s leadership is characterized by the transparency of aims and objectives, intransigence over rules and commitments, and direct operational involvement in corporate life, openness, and listening. But above all, it relies on the power of facts, on empirical evidence as the basis of decisions, and on human intelligence as a weapon to resolve them.

1.2 EZIO’S THREE DONKEYS: LEAN THINKING FOR A BETTER WORLD IN FRANDENT

Ezio Bruno is another Italian small business owner who successfully applied Lean Thinking. Determined, serious, intelligent, humble, he is dedicated to making his company a place of experimentation and a backdrop to becoming better people and improving his life and the lives of others.

His company is Frandent, a small company of 16 employees, specializing in the production of agricultural machinery, in particular, harrows, milling machines, haymaking spreaders, and rakes. When I first visited, two things struck me before entering the factory: the presence of three cute little donkeys at the entrance and the very visible power plant entirely based on renewable energy sources. Frandent was founded in 1977 at the behest of Maurilio Bruno, father of Ezio Bruno, who established the headquarters in Osasco in the province of Turin. In the best Italian tradition, Frandent initially specialized in the production of power harrows, for which Maurilio Bruno had registered an improvement patent in 1976. This propensity for product innovation continued by introducing the manufacture of hay tedders (in 1982) and other related product families. Following growth in the ’80s and ’90s (and the Piedmont flood of 1994), Frandent joined the Territorial Pact (local development with industrial districts), acquired land, and obtained a loan to build a new factory that was opened in 2006 through which significant innovations in the production processes were introduced. Attention to the environment through energy saving drove the choice of the lighting system in the technical offices: These so-called “light chimneys” allow taking advantage of sunlight without using electricity. Energy is supplied by means of renewable energy sources, such as solar panels on the roof and through a biomass boiler located outside the plant. Furthermore, a system of radiant floor heating provides comfortable climatic conditions for the workers in the production department. A strong sense of social responsibility has always distinguished the company. Although small in size, Frandent’s production is fully integrated with product innovation: A department is dedicated to research and design specialists, and there is a host of advanced computer systems for the development of new machinery and the improvement and innovation of parts. Testing what has been developed and implemented is undertaken in a 15,000 m² testing field adjacent to the plant, which allows functional tests on prototypes. Highly qualified operators are responsible for technological innovation and the use of robotic machines.

In 2006, Frandent decided to undertake a process of change to optimize production and increase productivity. The encounter with Lean Thinking was almost accidental. Ezio Bruno explains, “We had noticed that one of our suppliers who usually had long delivery times was decidedly improving in this regard. Investigating the reason for this change, we discovered the supplier was applying lean and seeing how its processes worked better… it was love at first sight! We started with some experiments and then relied on a consulting firm to start introducing lean production in our plant too.” Thus, love at first sight, an intuition derived from the ability to observe the improvement of a supplier’s performance, a supplier who, in turn, had learned the principles and techniques of Lean Thinking from SKF (one of the first multinationals to introduce Lean Thinking in Italy, in the ’90s). Subsequently, he read some books and started to experiment with “flow” production.

Ezio Bruno realized early on that the key issue in the transformation was not the introduction of new techniques, but for collaborators, family members, technicians, and workers to metabolize a different approach, a new way of thinking, even before production.

As Ezio Bruno states, “The hardest thing was to convince the workers to change their way of working. If people are used to doing one thing at a given time, it is difficult to make them understand that in changing you can improve it.” If we add to this that Lean Thinking requires organization by cross-functional teams as opposed to the individualism typical of the way most Italian businesses work, then the difficulty in changing becomes clear. In this regard, Frandent’s owner continues, “Teams have been difficult to implement because people are used to working in their own shells and ask, ‘Why do I have to work for another area that up to now has not been part of my responsibilities?’ In addition, it can be difficult at times to identify a leader: If there is no natural leader, then constant work is needed to train someone.” The concept of teamwork is now the basis of Frandent’s organizational model and a pillar of improving productivity and competitiveness in recent years.

Here, as in Pietro Fiorentini, while changing the work in the technical department and shop floor, the first step in the transformation was to train people. And also here, the key point was the direct involvement of the entrepreneur, as a student and participant in improvement projects to make it clear to everyone that the whole company should aim at improving and that it must be done seriously. Thus, Ezio Bruno participated directly in all the kaizen projects, not only contributing in person to improving productivity but also setting an example and emitting a clear signal of his determination.

From the technical point of view, the transformation began with the value stream mapping of power harrows, a strategic product that at the time accounted for more than 70% of turnover. Through this, the main waste was identified that contributed to holding back business productivity, including very long lead times, long machine setup times, equipment and materials that were distant from work stations, and overflowing warehouses. The adoption of the principles of Lean Thinking led to drafting a future value stream map and an improvement plan based on kaizen weeks aimed at eliminating waste—and this without intensifying work, working longer hours or making anyone redundant.

The main changes introduced concerned the layout, moving toward flow production, the robotization of carpentry work, the adoption of the 5S technique and visual warehouse management to give an order to useful materials and discard the useless, the introduction of kanban and the milk run method (mizusumashi), creating spaces and equipment (e.g., containers) in such a way so as to have the materials when needed, and the introduction of continuous flow work cells in the welding and assembly stages.

However, Ezio Bruno, in the most authentic adoption of the Lean Thinking principles, did not stop there, and Frandent also started to change the upstream supply chain, pursuing flow integration (a pull system based on supermarkets and FIFO lanes) with major suppliers.

Ezio Bruno also promoted a quality culture across several dimensions. First, quality in the processes: Some phases of the reorganization enabled the implementation of reliable processes to ensure the safety and ergonomics of operators. This was achieved through the use of trystorming, that is, immediately testing the ideas of change (an example is welding, moving from manual to automated and testing and simulating the change); the introduction of standardized work by eliminating, combining, rearranging, and simplifying tasks; and through the introduction of poka yoke (mistake proofing) so that as a defect emerges during production, immediate action is taken to avoid repeating the mistake.

Second, quality is reflected in the relentless development of problem-solving skills with team leaders and supervisors actively engaged in teaching CEDAC (or Ishikawa) as a tool to investigate and solve problems.

Perhaps the most original aspect of Frandent’s adoption of Lean Thinking—when considering the small size of the company—is applying the logic of value and improvement in commercial and marketing activities. Increasing productivity in production but remaining inefficient or unable to improve in other areas of the business is a typical problem in many firms, especially smaller ones and particularly those with a strong technical and product culture.

Frandent’s reorganization in this area began with the sales office, where Ezio introduced a visual management system of workloads to level activities based on two variables: resources and activities (establishing standard times for each macro activity). In this way, many typical commercial processes, ranging from order management to customer support to technical assistance, were streamlined. This resulted in eliminating non–value adding activities, a clearer organizational structure, and a reduction in customer order lead times as well as the reduction of stress and overtime coming from the standardization of processes, information sharing, and the simplification of procedures. What is more, Frandent proved that Lean Thinking can also be traded! ...