Lean Enterprise
Profitable Growth Article

In their efforts to draw closer to customers, many manufacturers have lost focus on what should be a company’s primary success factor – profitable growth. In today’s competitive manufacturing environment, it takes more than quick fixes, outsourcing and downsizing for companies to consistently achieve their growth and profit objectives. While these options may yield temporary financial relief, they will not lead the way to long-term growth and profitability. For companies to grow and consistently exceed bottom line expectations, they need to get lean. And, to get lean they must master the basics of lean manufacturing.  

Over the past 30 years, we were led to believe that computerized systems would provide the solution to all of our growth and profit challenges. Material Requirements Planning (MRP) and Enterprise Resource Planning (ERP) System gurus assured us that if we implemented their software programs the bottom-line would take care of itself. Well it hasn’t happened! Like most perceived panaceas, each of these programs received a lot of hype, produced a few success stories but in general, contributed little towards helping companies identify and achieve their full growth and profit potential.  

For a measure of their shortcomings, one needs only to spend some time in an MRP scheduled manufacturing facility – especially during the last weeks of the final financial quarter. In a typical company, you’ll find that converting the quarterly financial forecast into reality still requires overtime, internal/external expediting, last minute “on-the-run” product changes and even a little “smoke and mirrors”. Results are scrap, rework and warrantee costs that negatively impact profitability and quality and shipment problems that deliver less than acceptable customer satisfaction. Companies have spent many thousands of dollars in pursuing MRP and ERP only to see their growth and profits decline due to uncontrolled operating costs that produced non-competitive pricing.  

So, after introducing MRP/ERP computer systems and more, why is it that most businesses are still struggling to sustain profitable growth and are no where close to achieving their full growth and profit potential?  The first reason is simple – the results achieved by any computer system are only as good as the people at the controls and the integrity of the data they provide. The second is complex – most manufacturing 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 is first a company-wide, in-depth understanding of the fundamental of lean manufacturing and then a total commitment to the consistent and tenacious execution of lean manufacturing basics.  

Like Vince Lombardi, who achieved success by having his team focus on the mastery of football basics – we need to have our manufacturing teams focus on the mastery of lean manufacturing principles and techniques. These basics require proactive planning and tenacious execution that demands leadership above and beyond just satisfying “day-to-day” accountabilities. Some managers can’t envision the benefits of mastering manufacturing basics, other simply can’t find the time. Like practicing blocking and tackling in football, it’s not exciting, and like most football heroes, managers prefer to run with the ball. But without the tenacious and flawless execution of lean manufacturing basics, companies will seldom achieve their full growth and profit potentials. Delineated below are the key basics of lean manufacturing:  

Information Integrity:  It is not uncommon for front office management to become disenchanted with computerized systems results when time schedules and promised paybacks are not achieved. Truism: acceptable systems results cannot be achieved when systems are driven by inaccurate data and untimely, uncontrolled documentation.  

Performance Management: Measurement systems can be motivational or de-motivational. The individual goal setting of the 80’s is a good example of de-motivational measurement - it tested one individual or group against the other and while satisfying some individual egos, it provided little contribution to overall company growth and profit. Today, the balanced scorecard is the choice of manufacturing winners.  

Sequential Production:  It takes more than systems sophistication for manufacturing companies to gain control of factory operations. To achieve on-time shipments at healthy profit margins, companies need to replace obsolete MRPII/ERP shop scheduling methodology with the simplicity of sequential production. Manufacturing leaders have replaced their MRP shop order "launch and expedite" methodology with continuous production lines that are supported by real-time, visual material supply chains … sequential production. The assertion that sequential production only works in high production, widget-manufacturing environments is a myth.  

Point-Of-Use-Logistics: Material handling and storage are two of manufacturing’s high cost, non-value added supply chain management activities. The elimination of the stock room, as it is known today, should be a strategic objective of all manufacturers. Moving production parts and components from the stockroom to their production point of use is truly a return to basics and a significant cost reducer.  

Cycle Time Management: Long cycle times are symptoms of poor manufacturing performance and high non-value added costs. Manufacturers need to focus on the continuous reduction of all cycle times. Achieving success requires a specific management style that focuses on “root cause” proactive problem solving, rather than “fire-fighting.”  

Production Linearity: Companies will never achieve their full 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. How linear do your production departments produce to the company's master schedule? As companies struggle to remain competitive, one of the strategies by which gains in speed, quality and costs can be achieved is to form teams of employees to pursue and achieve linear production.  

Resource Planning: One of the major challenges in industry today is the timely right sizing of operations. Profit margins can be eroded by not taking timely downsizing actions and market windows can be missed and customers lost by not upsizing the direct labor force in a timely manner. These actions demand timely, tough decisions that require accurate, well-timed and reliable resource information.  

Customer Satisfaction: Customer satisfaction is in the eyes of the beholder – the customer. Perceptions are what we need to address when it comes to improving customer satisfaction. It does us no good to have the best products and services if the customer’s perception of our ”as received" quality and service is unsatisfactory. We need to plan and implement proactive projects that breakdown the communication barriers that create invalid customer perceptions.

While many business gurus have identified one or more of these manufacturing basics as important to the successful pursuit of business excellence, the fundamental importance of these lean manufacturing basics has been lost in the proliferation of buzz words and the mania of systems sophistication. We say it is time for companies to put a hold on sophisticated systems development that cause self-inflicted, day-to-day chaos. In its place, they should immediately initiate an action learning program for gaining a company-wide understanding and acceptance of the importance of the basics of lean manufacturing. Once buy-in and commitment have been achieved, aggressive planning and tenacious implementation must follow. In short, let’s put the “horse before the cart” – such a program will build a solid foundation for redefining and revitalizing a company’s pursuit of profitable growth.

About the Author: Bill Gaw is the founder of Business Basics, LLC and a "been there, done that" lean enterprise advocate. He is the developer of six e-training packages and seven e-training modules published to help individuals and companies reach their full growth and earning potentials.