The Enduring Power of Lean Thinking in Supply Chains

Is lean thinking a relic of the past or a blueprint for modern supply chain supremacy? Join me, Tony Hines, as we dissect the time-tested principles of lean thinking and their profound impact on today's business landscape. With a nod to the pioneering work of Jim Womack and Dan T Jones, this episode of the Chain Reaction Podcast explores the heart of lean philosophy – from its origins at Toyota to its evolution into a company-wide cultural revolution. We scrutinize the five core principles that drive wealth creation and customer satisfaction, emphasizing why understanding customer-defined value and kaizen are more than buzzwords—they're the cornerstones of efficiency and responsiveness in any successful organization.

Lean thinking isn't just about cutting costs – it's about shaping an enterprise that thrives on change and continuous improvement. We journey through the annals of lean history, beginning with Frederick Taylor's insights and arriving at the strategic importance of demand-driven production. As your guide, I reveal how aligning every cog in the business machine to customer demand isn't just smart; it's essential for a seamless operational flow. This episode isn't just a lesson in efficiency; it's a call to action for leaders and teams eager to embrace a lean mindset and propel their organizations into a future where customer-centricity is not just an ideal, but the very fabric of their supply chain strategy. Tune in and equip yourself with the wisdom to transform your own supply chain into a lean, mean, customer-satisfying machine.

Transcript

Tony Hines: 0:00

Hi, tony Hines, here you're listening to the Chain Reaction Podcast, all about supply chain advantage. Well, we're going to ask the question today is lean thinking still relevant? It's a simple question and it's a question that may not always be asked, but there's an assumption that the age of lean thinking is over. But is that the case? Well, we're going to talk about lean thinking, we're going to look at the history of lean thinking, we're going to talk about what lean thinking did in supply chains, and then we're going to revisit the question that we started with is lean thinking relevant today? So stick around and find out more. Well, the lean organization and the lean supply chain were described in lean thinking banish waste and create wealth in your corporation and that was a groundbreaking book by Jim Womack and Dan Jones, and the book set out a vision to transform organizations operating in mass production to become the lean enterprise. But it went well beyond the factory. Lean thinking permeated all kinds of industries service industries too as well as production, and what it drew attention to was the large amounts of waste that were occurring inside most organizations, and it tried to analyze the cause of those wastes and set out to eliminate them Lean production methods, of course, and lean thinking was developed by the Toyota Motor Corporation in Japan, and they set out five principles of the lean organization.

Tony Hines: 1:49

Firstly, you need to know what value is. You have to specify the value from the perspective of the customer. So you have to take a customer focused view of what's happening in the supply chain and look at the value. Once you've specified the value that the customer wants to achieve, you can then identify the value streams, and there was a lot of work done on value streams by various writers, which you can read about in my supply chain book. Then you had to, as the third step, make sure that the value creating activities were identified and you had to order them somehow to make them work inside the organization and you had to get teams on board. And of course, it was a demand driven approach. That's the fourth thing. It was the demand from the customer that pulled through the value. And the fifth step was to continuously improve, striving for better, and it's a cycle. It doesn't end there because you continuously improve what goes on. So it builds on the idea of kaizen continuous improvement.

Tony Hines: 2:56

You have to identify all the things that don't create value and simply add cost, and those things include waste and the different types of waste. You have to identify all the steps necessary to design and produce the value streams that you want to create, and they have to flow. You don't want any interruptions, you don't want detours, you don't want backflow, you don't want to be creating scrap, building for scrap, making waste, storing waste. You want to get rid of waste and, of course, only make things that the customer demands don't make for stock. And that's how it links with just in time in a sense, because just in time was trying to do a similar thing. It was trying to make sure that you made goods as demand came through and continuously improve the situation. So that's what it's about.

Tony Hines: 3:47

So we're going to spend the next section looking at what value is, what cost is and what we mean by waste. Well, a simple way to explain value is to simply say if we have revenue coming in and we have costs going out, the difference between revenue and cost is value. And it's a little more complex than that because we have different types of revenue and different types of cost, which we'll talk about a little bit, but you can read about this in my supply chain book and it's only when value is created in the process of doing activities, performing activities that you actually are able to create value, up to the point that the production is in operations and is produced into finished goods, you have cost, and there's all kinds of cost direct costs and indirect costs that go into the makeup of any product or service, and those are all the things. Direct costs are the cost of materials, raw materials, work in progress, etc. And the indirect costs are all the other things the overhead costs, the things that aren't directly related to a product, but the costs that you need to incur to keep the business in business, and so that's value in a sense, and that's, of course, how economists define value and, of course, how accountants see value in business. So it's important not to lose sight of that. And everything that you do in a supply chain up to the point when the customer pay, actually pays for the goods, is a cost, and when the customer pays, the value begins to flow. It covers the cost and it creates profit, and profit is a formal value that's added each financial period to the balance sheet asset value.

Tony Hines: 5:33

If you want to go lean, you want to build the lean organization, you have to think lean, and to think lean, you have to set a direction, you have to set targets and you have to measure performance to see whether the lean thinking and the lean actions that you've taken are actually leading to change. And usually that change is measured by value. It means creating the value for the customer, and you do this by eliminating or reducing cost in everything that you do. And there are three types of waste that we think about getting rid of in any organization, and the Japanese have words for this, which are muda, mura and muri. Many organizations simply just focus on the muda, but we'll say why this is not sufficient. It's necessary, but certainly not sufficient.

Tony Hines: 6:25

You need to focus on any waste that doesn't create value, and seven types of waste were identified by Shigeo Shingo as part of the Toyota Production System, and the Japanese call this muda. So the seven wastes were overproduction, defects, holding unnecessary inventory, having processes that are too lengthy, too costly, inappropriate, having too many movements of goods, excessive transport, too much waiting time in the system and all unnecessary movement up and down a line, across lines and so on. And those were all identified as the seven wastes in the Toyota system, called the muda, and they were deemed to be non-value adding to any product or service. And if you look at those things, overproduction is producing too much too early, having to hold it in stock causes excessive inventory. Defects are often caused by errors in the record keeping that you have, or there's a quality issue or there's poor delivery. Things don't come in complete and on time and Then you hold unnecessary inventory, the just-in-case inventory, just in case is sometimes appropriate.

Tony Hines: 7:36

This not to say it may not be appropriate, but if you think about purity, just in case is waste because it might never be needed. So think about it more as excessive storage. And there might be delays in information or products, causing cost, and of course it could end up with a failure of customer service in any case, because by the time you need the just-in-case inventory it might be out of time or not suitable, not fit for purpose. And then there's inappropriate workflows and processing using incorrect tools, procedures, complicated systems that don't work and think simple. How can you simplify the processing?

Tony Hines: 8:20

I mean this all began with Frederick speedy Taylor on the Ford line, looking at how to cut cost and looking at the Processes that contributed cost and value. He knew about these things back in 1910 and then, as excessive transport, wasted time, effort, cost moving stuff around back and forth and often people have to wait for things. There's inactivity periods, inactive periods in a system where things are just lying around waiting to be picked up, waiting to be moved to the next operation and so on, and waiting time adds a lot of cost, doesn't create much value If any at all, and usually if there's waiting time that means you have to store goods, risk deterioration, obsolescence, all those sort of things. And then there's unnecessary motion and that's poor organization of the workplace. So nothing flows as it should, poor ergonomics and it costs time Because people are moving stuff around unnecessarily.

Tony Hines: 9:16

The second type of waste is the Mura. Mura is variability, unevenness in the flow, and you've ever looked at six sigma? This is what they're concerned with, this variability in flow, and it was ono that came up with the idea of asking why he called it the five why's. He was asking why is this happening? Why is the variability and that's how people often understand Mura. The variability, and often muda, is caused by variability in the system Variability in demand, the way bonuses that are attributed to the sales team because they sell more, which causes Long lead times and stock outs trying to sort out uneven flows. So, again, mura is to be avoided. And finally, the Muri is what became known as the Overburdening of a system, and Muri, again, is often due to variability, to this unevenness, and the system gets overburdened. So, for example, if the organization gives a promotional push to goods it sells and it hasn't planned properly For the impact of that promotion, it might find itself running to catch up. And the running to catch up means that you have to push Production to the limit. You might have to pay people over time for extra work that's involved to keep the flow of goods in the system because of the spike caused by the promotion.

Tony Hines: 10:46

Now there are some key things to think about when you Consider lean. The first thing is you shouldn't just think about lean as a quick fix or a set of tools or a set of techniques, which it's often viewed as. It's more a way of being in the organization, and Toyota saw it like this. They think of lean as a philosophy. It's a philosophy to achieve what they want to achieve in the business, and you need to apply lean not in just part of the organization. You have to take it on board and apply it to everything that you do in the organization. You need to think about what you can do to improve processes, what you can do to add value. Create those value streams. And you don't want to think about it in silos production operations, sales, marketing, admin. You have to think about the whole Organization. Remember it's a way of being and link everything that you do to create value for the customer, your business, your partners in the supply chain, and then you'll understand what lean thinking is.

Tony Hines: 11:53

And don't just try to copy what others have done. Be creative in the approach, based on what you're trying to achieve. Learn from what they've done, yes, but replicate. Maybe if you're desperate, there are some things you can replicate, but you have to fit it to your organization. It has to fit with the culture in your business and everyone has to be on board.

Tony Hines: 12:15

All the people in the organization need to understand what this is, why you're doing it, how it's being done and the type of results it can achieve. And it's important to tell people about the results of the actions you've taken. So communication is essential. Communicate the wins, communicate the problems, communicate the performance measures and make sure you provide the teams with sufficient resources. Teams have to be carefully planned, trained right across the business and you have to have people in each part of the business who lead the process. And the leaders are important. They don't just talk the talk, they walk the walk, meaning they take action. And the final thing is make sure that your reward systems and recognition encourages people to adopt, continue and sustain this lean philosophy.

Tony Hines: 13:16

Lean thinking and lean action by its very nature is a strategic direction setting for the whole organization. It has to be embedded throughout and by doing this you're building not just a lean organization but the learning organization, because a lean organization is continuously learning how to add value, how to eliminate or reduce cost, and that's very important to understand. It's not just a set of tools such as plan, do, check, act, although those can be very important and influential inside the parts of the organization that you analyze and are examining to identify value or cost and waste, quality, cost, value are all enhanced through the ability and capability developed in the organization to fulfill the customer demand, and that's another important benefit of lean thinking and building lean organizations. I've already said that focusing On lean principles is a strategic focus. It focuses on the customer, what the customer is demanding and how the operation is aligned to serve the customer both effectively and efficiently. And being effective means getting the goods and services to the right place at the right time with the right value. And being efficient means you do that at the lowest possible cost without compromising any of the other things quality, value and fulfillment to meet those customer expectations.

Tony Hines: 14:58

Womack and Jones talk about traditional organizations placing too much emphasis on focusing on the vertical, in other words, what's happening inside the organization, and not enough time looking horizontally across what is happening outside of the organization, across the supply chain, across the industry, across the economy. And it's that connectedness that's important in developing lean thinking and it's in developing the lean organization you are likely to achieve benefits by being more externally focused whilst still maintaining internal efficiency. So, in other words, you can become more effective externally and still maintain that internal focus to achieve efficiencies. There are also a couple of things to remember about building lean organizations and achieving these benefits. Number one is you're in for the long term. This is not a short term fix. It's not even a medium term fix. It will bring some immediate benefits. It'll bring some middle term benefits, but the benefits it does bring are for the longer term, in developing the culture of the organization, to maintain this lean and learning organization and you will get resistance, because if something goes wrong along the way, there'll be internal political resistance.

Tony Hines: 16:23

Some people may not like it when you introduce the ideas and they may look for the first opportunity to revert to type, in other words, to ditch it and move back to what you were doing previously the status quo. There might be technical difficulties that you have to overcome, operational difficulties, changing work practices. I mean, the key thing about this change model moving to a lean organization is that it's exactly that it's a change model. So everything you experience with any type of change is likely to be experienced if you introduce the lean organization. You have to remember that behaviour is a function of people and the environment in which they operate. So when you introduce change, the behaviour will change, and that's what you want. You want the behaviour to change, but you want it to change and be focused on the lean approach.

Tony Hines: 17:26

So in the final part of today's episode, I want to turn attention to the question we began with, and that is is lean thinking and the lean organisation still relevant today? Well, many people have been arguing that we've been through a pandemic in 2020-21, or 22, coming out of the pandemic in 23, and things have changed and there's no doubt that that's the case. Things have changed and then we've had lots of disruptions and that's been caused by all kinds of things related to close-downs around the globe due to the pandemic, but also because of the geopolitics that's come into play in the past few years in a more serious way perhaps than in previous times. But the question is is the lean organisation or the lean enterprise still relevant today? And my answer to this is yes, it's as relevant as ever. Why? Because we still have waste in organisations, despite the changes that have occurred over many years, and some organisations do better at managing waste than others.

Tony Hines: 18:39

Lean is important for sustainability, to sustain the planet, so that we're not moving goods around the globe, double handling, double time, creating cost and creating pollution, creating those CO2 footprints larger than they need be. So the answer to the question has to be that lean is still relevant if you take into account the evidence that's available. Should we be holding, just in case, inventory because we have a move towards resilient supply chains? No, not necessarily. Resilient supply chains can still be a n aim, but it doesn't mean you have to hold more inventory to do so. You need to plan better and you need to follow the established lean principles. By establishing a culture of a lean organisation, a way of being, you will be able to manage disruptions better. You won't be stuck with inventory, and it doesn't necessarily mean that you have the lowest possible cost. It means that you have a lower cost than competing organisations. So you can be efficient without sacrificing effectiveness, and that's key to how to manage the supply chain strategically.

Tony Hines: 19:51

Now you can read more about all of the things I've discussed today.

Tony Hines: 19:55

There are many books on the topic.

Tony Hines: 19:57

I'll put a few in the notes to the episode, but you can also begin by taking a look at my book on supply chain strategies demand driven and customer focused and lots of the ideas in that book would suggest that lean is still as relevant today as it was in the past.

Tony Hines: 20:15

But the key, of course, to having a successful strategy to develop a culture for the lean enterprise means that you have to take a longer term view, you have to be committed to the change and you have to get everybody on board so that behaviour changes and it brings benefits that we've discussed in the episode today. So I hope you found this episode useful and maybe you will take on some of the ideas in the episode and follow and research further to see if it's something that you want to do in your organisation. And, of course, you can always get in touch if you need to find out more, you'd like to know more or you'd like advice or pointers. And don't forget to drop by the website and see if there are other episodes that can also support you and stimulate your interest in developing that supply chain advantage. I'm Tony Hines, I'm signing off and I'll see you next time in the Chain Reaction Podcast. Bye for now.