non value added costs

Kaizen Based Lean Manufacturing
by Bill Gaw

Kaizen Based Lean Manufacturing involves arranging and defining manufacturing resources so that products flow most efficiently through the manufacturing process. Today, most manufacturing companies are still organized for functional manufacturing—mechanical assemblies, electronic boards, cables, machined components and purchased parts are produced or purchased in lot sizes and received, inspected and moved to stockrooms.

This process includes the picking-of-parts to fill shop orders and the movement of shop orders to the production area to build assemblies, modules that are usually returned to the stockroom.

Finally the end product is assembled, tested and accepted. Ollie Wight would be turning over in his grave if he knew that in spite of his 1970s MRP crusade—the shop order launch and expedite syndrome is still alive and kicking. Why? Because the realities of information integrity and statistical probability reduce the effectiveness of MRPII/ERP shop floor control systems.

No matter how much sophistication is added to our computerized shop floor control systems, if we fail to master the basics of visual controls, we will never eliminate the chaos that grips our shop floor day-to-day activities!

The MRP to KBLM Transformation

Changing factory floor realities is a focus of Kaizen Based Lean Manufacturing. We need to shift from the order launch and expedite system to a system flow technology, I call it sequential production. We need to convert stockrooms into production space and move the materials to point of use, I cal it Point-of-use-logistics.  It’s time to eliminate the end-of-the-month crunch and focus on linear production. We need to design our manufacturing system to be flexible and agile so that we can contend with inside-of-lead-time orders.

Let’s get rid of the old management structures and get to self-directed teams. The worst sin in supply chain management is that many manufacturers still treat their suppliers as adversaries instead of focusing on supplier partnerships.  If its not a core strength lets considering it for outsourcing. And, finally let’s get rid of the annual goal setting and establish a performance measurement system based on balanced scorecards.

The realities of today find most manufacturers still bogged down applying old computer systems for controlling shop floor operations. To survive in the 21st century these companies will need to make the transition from MRPII/ERP to the hands-on application of the 8-Basics of Kaizen Based Lean Manufacturing.

During my 30-year business career as a supervisor, manager, director and chief executive, I participated in four successful financial turnarounds. At Solar Turbines we grew the business from $50 to $500 million while turning losses into profits in the first year of a four-year period. At Pagaso, a Spanish truck company, we turned a $100 million annual loss into an annual profit—achieving our three-year turnaround target. Leading Eaton Leonard out of bankruptcy, we turned a profit in the first-year of reorganization. At Palomar Systems, over a period of four years, we increased our gross profit margin from 34% to 55% while growing the company from $17 to $225 million.

Throughout these experiences, I continuously researched and tested business ideas, practices, processes and systems relative to their growth and profit margin contribution. As the years passed, it became clear to me that there were a number of tools, techniques and processes that were crucial to establishing a solid foundation for growth and profits. Because of their importance, I now write, teach and counsel on the development and implementation of what I have come to call the 8-Basics of Kaizen Based Lean Manufacturing.

Exceeding Performance Expectations

What can a company expect from a pursuit of the 8-Basics of Kaizen Based Lean Manufacturing?

There will be a decrease in direct supervision and an increase in people creativity and problem solving participation. Team empowerment will result in more timely decision and resulting problem solving. Quality will no longer requite an inspection process as a switch to process ownership occurs. Self-direction will lead to people motivation and enhanced performance. Direct communications will result in better decision-making. A mindset of “no status quo” will create a successful continuous improvement. Creative performance recognition and reward will create a win-win work environment where work will become fun again

Companies need to raise their performance expectations and realize that benefits come only from the successful implementation of change.

Price Prichett says, “Kaizen keeps you reaching, stretching to undo yesterday. The continuous improvements may come bit by bit. But enough of these small, incremental gains will eventually add up to a valuable competitive advantage. Also, if every employee constantly keeps an eye out for improvements, major innovation are more likely to occur. The spirit of kaizen can trigger dramatic breakthroughs.”

Targeted, Non-Value-Added, Costs Reductions

A review of MRP, ERP and lean manufacturing case studies produced the data for this bar graph. The yellow horizontal bars represent the typical percent reductions of waste that have been made through the design and implementation of MRP and ERP systems. They are good reductions but nowhere close to the total waste reduction potential. When companies implement the application methodologies of Kaizen Based Lean Manufacturing, a whole new range of reductions are identified and achieved. These new reductions are displayed by the blue horizontal bars. 

The Japanese word muda represents the seven targets of waste that when attacked and reduced they yield significant gains in productivity and profitability. The seven  types of muda are: overproduction, inventory excess, repairs/rejects, motion, processing inefficiency, waiting (idle time) and transport (moving parts and materials). MRP and ERP system are not designed to attack muda… that’s what lean manufacturing is all about.

The 8-Basics of Kaizen Based Lean Manufacturing

Let’s review the 8-Basics of Kaizen Based Lean Manufacturing.

Information Integrity: MRPII/ERP and lean manufacturing expectations will be achieved only when day-to-day production and manufacturing/material control systems are driven by accurate and timely data and documentation.

Motivational Measurement: While financial numbers may tell us we’re winning the war, it takes a motivational measurement to focus our energy and efforts to win each of the battles along the way. Balanced scorecards is the choice of winners.

Sequential Production: Effective shop floor control has proven elusive as  we have upgraded our manufacturing  control  system from  MRP  to MRPII and then to ERP. To capture control of shop floor activities, we need to stop beating a “dead horse” and implement flow technology or as I call it Sequential Production. All the winners are!

Point-of-use-Logistics: Companies will never achieve their MRPII/ERP lean manufacturing expectations as long as business leaders continue to talk about value-added supplier partnerships, while continuing to deal with their suppliers as adversaries. And its time for operations leadership to realize the stockrooms are a non-value added expense and it’s time to move most inventory to point of use.

Cycle Time Management: If your manufacturing team can handle only one kaizen project at a time, then let it be the reduction of total cycle time. There just isn’t any other more important control factor in our pursuit of lean manufacturing success .

Production Linearity: Companies will never achieve their full growth and profit potential if they produce more than 25% of their monthly shipment plan in the last week of the month or more than 33% of their quarterly shipment plan in the last month of the quarter. As companies struggle to remain competitive, one of the strategies by which gains in speed, quality and costs can be achieved is to pursue and achieve linear production.

Resource Planning: The inadequate and untimely availability of resources is a major cause of manufacturers’ failure to meet their delivery schedules and profit margin forecasts – material shortages, low productivity and poor planning are not always the only causes.

Customer Connectivity: The reality of Customer responsiveness is in the eyes of the beholder – the Customer. The sooner we realize and accept our customers’ perceptions of our products and services as reality, and accept it as our challenge, the sooner we will earn their confidence and become their permanent supplier of choice. And isn’t that what business is all about?

With all the computer power and software sophistication available today, why is it that most businesses are still struggling to sustain profitable growth, still fighting the end-of-the-month crunch and are no where close to achieving their full growth and profit potential? 

Most business managers facing major day-to-day problems and constraints adopt a totally reactive management style. Consequently, their time is consumed with band-aiding and/or finding ways to work around system and process problems—leaving them little or no time to analyze and eliminate the root causes of ineffective systems and processes. How does one turn around such a classic “cart before the horse” syndrome? What’s required? First, a company-wide, in-depth understanding of the fundamental importance of business basics and then a total commitment to the consistent and tenacious execution of the 8-basics of Kaizen Based Lean Manufacturing.

Like Vince Lombardi, who achieved success by having his teams master the basics of football—we need to have our business teams focus on mastering the basics of Kaizen Based Lean Manufacturing. Each of the 8-basics requires pro-active planning and tenacious execution that demands leadership above and beyond satisfying day-to-day accountabilities.

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