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Extending Lean into the Enterprise

It's a normal Wednesday afternoon, and your plant is humming along. Suddenly one of your managers receives a call from a key supplier: Due to an equipment failure, the supplier will be unable to deliver the parts you were counting on to complete next week's orders.


Does your organization quickly and efficiently respond to this event, launching a planned and documented series of actions, each the responsibility of an assigned owner? Or does the call provoke a sudden, chaotic fire drill, with supply managers stepping on one another, wasting effort and critical hours before finally coming up with a fix?


Unfortunately, at far too many manufacturing companies, that scenario produces a chaotic and wasteful response. Though manufacturers have spent the past few years creating lean, repeatable processes within the production environment to respond quickly and efficiently to events such as changes in demand, many companies have not paid nearly as much attention to the processes that surround and feed the plant with materials, orders, new products, and critical information.


Now, however, increasing numbers of progressive manufacturers are beginning to extend lean thinking, methodologies, and tools beyond the plant floor. They're using lean tools and techniques to document and streamline business processes, reducing waste and eliminating costs in the supply chain, back office, new product development, and even sales and marketing. Many believe the payoff from applying lean to such non-production processes will far outdistance the gains achieved through lean on the plant floor. But, they warn, it won't be easy. Applying lean to areas such as supply chain planning and sales and marketing will require a difficult cultural shift that some workers and managers may not be capable of making. And in the supply chain, in particular, lean requires a level of manufacturer-supplier collaboration that most have yet to achieve. On top of that, some tools that have been the bedrock of lean on the plant floor — such as value stream mapping and kanban — are proving more difficult to use or less relevant in non-production processes.


"Lean breeds relatively well in the captivity of the plant floor where you have repeatable processes and it's easier to visualize what's going on all the time," says Bob Parker, research vice president at IDC Manufacturing Insights. "Outside of the production environment, it requires some retooling."


Over the past 18 years, since the publication of James P. Womack's seminal book on Toyota's Lean Production System, The Machine That Changed the World, lean thinking has become widely adopted on the plant floor. In a recent survey of 308 manufacturing companies by Aberdeen Group, 90% said they have implemented lean on the plant floor to document and standardize processes and work, reduce waste, implement pull-oriented production, and level production lines. Only 20%, however, said they have attempted to achieve the same benefits by applying lean thinking outside of the plant floor.


As more manufacturers reap the benefits of lean on the plant floor, however, reluctance to apply the same principles to non-production processes and functions is fading. Information technology manufacturing giants IBM and Intel, for example, have begun applying lean principles to supply chain management and planning processes. By removing waste from processes — for example, how the company places, traces, and resolves problems with purchase orders — IBM expects to trim supply chain costs by $10 million in 2007, says Erle A. Smith, IBM's director of strategy, architecture, and supply chain process. As a result, IBM has decided next year to triple its investment in deploying lean outside the plant floor and to begin to apply lean principles to its processes for provisioning integration and consulting services as well.

Other companies, such as Hayward Industries Inc., are using lean methodologies to eliminate waste and cut time and rework from the new product development process. And medical equipment provider Maquet is applying lean thinking to sales and marketing processes with the goal of making order flows more manageable and predictable while also listening better to customers.



Why Enterprise Lean?


Why are manufacturers applying lean to processes beyond the plant's four walls? At many companies, the push is rooted in a need to cope with increasing complexity. As companies outsource production, turn to globally disbursed suppliers, and attempt to satisfy customers with more product variety and innovation, they often find that their business processes are buckling under the strain.


At Intel, for example, increasingly advanced microprocessor products and soaring product variety are multiplying complexity, so much so that workers in the company's supply planning organization are having trouble keeping up, says David Ploudre, a manager in Intel's supply planning organization. Intel's answer: Attempt to standardize, document, and remove waste from supply planning processes using lean techniques. "Our challenge is: How do we make our processes more efficient so that we don't have to scale our organization's headcount in order to absorb the additional challenges of a more complex product environment?" Ploudre says.


Many manufacturers also are realizing that, unless they remove waste and variation from processes — such as engineering and demand planning — that feed critical services and information to the plant floor, the production efficiencies they hope to derive from lean will remain beyond their reach.


"Organizations that have been at lean for some time are now starting to see a slowing down in the benefits on the plant floor, and they realize they won't be able to complete their efforts there unless they work on things like leaning out the supply chain," says Robert Martichenko, president of LeanCor LLC, which provides logistics and supply chain lean training and consulting.


Some organizations have been inspired to expand their lean efforts beyond the plant floor simply because lean results there have been so impressive. At Intel, Ploudre says, supply planning executives launched their lean effort after the Colorado Springs, CO, chip plant delivered eye-popping lean benefits.


For manufacturers looking to apply lean to non-production processes, it makes sense to start with the supply chain. Lean production processes are easily undermined by slow or inaccurate order processes or out-of-sync supplier collaboration that can inflate inventories. According to the Aberdeen report, manufacturers that have used lean principles to remove waste from the supply chain have reduced both complex order cycle times and manufacturing delivery times from several months to several days.


Applying lean principles to the supply chain can be much more challenging than doing so in the plant, however. For one thing, while many shop floor workers and managers readily take to lean concepts because they can easily visualize and understand the improvements that lean thinking brings, people involved in managing the supply chain often have a harder time. Rather than building physical products in a confined work cell, supply chain workers and managers are processing information. In many cases, the processes involved in creating and handing off that information are ill-defined. And, because the information may be consumed by a remote supplier, supply chain back-office workers may not readily understand where they and the information they touch fits into the overall business process.

Getting supply chain workers to think in terms of identifying and eliminating waste from end-to-end business processes and implementing standard work can be a challenge. "This is a big cultural change for the organization," says Dan Walsh, another manager in the Intel supply planning organization, who works with Ploudre on lean. "The first thing we have to do is make sure that everybody understands and buys into the need for change and what lean is."


Intel isn't alone. According to respondents in the Aberdeen lean study, managing "significant cultural change" is, by far, the number one barrier to implementing lean outside of the plant.


In light of these cultural challenges, Intel and other manufacturers are beginning their efforts to apply lean principles to the supply chain with extensive education and training. Last summer, Intel started with basic lean overview classes for all supply planning managers, followed by weeklong offsite training.


The next step, says Divya Kumar, business operations manager in Intel's Communications Division, will be to document existing supply planning processes, identify areas of waste, create value stream maps of how processes should work, and launch lean projects aimed at implementing the new lean processes.


But Intel has run into challenges simply documenting its supply planning processes. Many managers believed the company already had documented those processes as part of the standard package of materials given to new employees. After closer examination of those documents, however, Intel officials realized that many were either incomplete or did not accurately reflect how individual supply planners actually did their jobs.


"In fact, people use many different processes based on the different products and services we provide, but we lacked any clearly established baseline of the processes," Kumar says. "A lot of it was tied up in tribal knowledge, and you can't measure and improve processes if you haven't documented them."


Many manufacturing organizations run into problems attempting to document and analyze supply chain processes, experts say. While building value stream maps can be a useful and fairly straightforward process on the contained plant floor, it is much more difficult in the supply chain where processes often span multiple functions, partners, logistics providers, and customers that may be spread around the globe.


"As the value chain becomes more complicated, managing value stream maps gets pretty difficult," says Aamer Rehman, vice president of lean manufacturing solutions at i2 Technologies, a supplier of supply chain management software.


One way to deal with that complexity, LeanCor's Martichenko says, is to bite off only a piece of the supply chain at a time, rather than trying to document and lean out the whole thing at once. "When mapping the supply chain, pick one SKU, one finished product or part," Martichenko says. "Start with a fairly stable, high-volume, high-frequency-of-use part that could easily be put on full replenishment. Then map it and get a sense of the key attributes and metrics that are important to improve. After you make gains there, look for more parts and suppliers you can work on."


That's the approach IBM has taken to leaning out its supply chain. The IT equipment and services giant started small two years ago with lean training, a handful of lean black belts, and a few lean pilot projects focused mainly on procurement processes. Since then, IBM has expanded to 18 black belts driving lean procurement, services delivery, and fulfillment processes. The company has applied lean to 153 non-production processes, Smith says.

As those lean supply chain efforts have begun to deliver results, Smith says, more supply chain managers have bought in, asking Smith's group for help with leaning out processes. As a result, IBM will triple its lean supply chain program budget next year and organize its black belts to develop a standard lean supply chain engagement model that can be deployed in business units across the company's supply chain. IBM's overall goal is to use lean to drive a 10% to 15% improvement in supply chain productivity.


"2007 was the tipping point for us," Smith says. "The critical factor is to get buy-in from upper and middle managers — to get them to believe that this is a sustainable way to get savings and operational improvements. Now we have more demand [for lean expertise] than resource."


Besides starting with small bites, manufacturers are discovering that automation is a critical enabler, particularly in removing waste from large, global supply chains. According to Aberdeen's lean study, for example, 55% of manufacturers said they are moving to kanban and electronic kanban to improve supplier on-time deliveries and cut inventory.


One manufacturer that is taking an automation-centric approach to implementing a lean supply chain is semiconductor maker LSI Corp. Like many high-tech manufacturers, the company has been moving from a vertically integrated manufacturing model to one that relies on a wide range of supply partners and contract manufacturers. As LSI's supply chain has grown more complex, waste has risen, particularly in order management and demand visibility.


Until recently, says LSI Procurement Vice President Don Alvine, by the time demand signals passed from the end customer, through a distributor, to LSI, and on to a contract manufacturer in Asia, so much time had elapsed that the customer's needs had changed.


"Latency in the demand chain was the first and largest reason we needed to lean out and automate the supply chain," Alvine says.


LSI created value stream maps of the existing and desired demand management processes and set out to eliminate waste from information handoffs, many of which were handled manually via spreadsheets and e-mail. As part of the fix, LSI automated many of its supply chain collaboration processes — order acknowledgment, demand forecasting, and WIP tracking — to an on-demand supply chain management network operated by service provider E2open Inc. Enabling supply chain partners to see up-to-date information online allowed LSI to streamline or eliminate many manual, wasteful information handoffs and, ultimately, improve customer service.


Prior to its lean and automation efforts, Alvine says, LSI shipped products by customer-requested delivery dates 35% of the time, on average. Now the company can get product to customers on time 93% of the time. And LSI has reduced the size of its supply chain management group from 150 to 35.


"Our goal is to run the supply chain as lean as possible," Alvine says. "The only way we can do that is through total automation."



Culture Clash


The supply chain isn't the only non-shop-floor domain where manufacturers are applying lean principles. A few are focusing on reducing waste in the new product development (NPD) process. While many manufacturers worry that applying lean principles, such as standard work, to creative processes may stifle innovation, a few see big potential returns.


"Not nearly as many are applying lean to the new product development area as are to supply chain, and the reason is culture," says Dave Levine, executive vice president at LeanCor. "But the potential payoff is tremendous."


That's how executives at Hayward Industries see it. Today, lean is baked into Hayward's DNA, at least when it comes to processes on the plant floor. The company started its lean journey eight years ago and today conducts between 50 and 60 Kaizen events per year, mostly related to production processes.

Eighteen months ago, however, Hayward officials decided to try to use lean techniques to remove waste from what managers were increasingly recognizing as a dysfunctional NPD process. Although Hayward had tried earlier to implement a phase gate approach to make product development processes more standard and predictable, "the phase gate manuals sat on shelves and were widely ignored," says Paul Adelberg, vice president of lean technology at Hayward.


As a result, Adelberg says, engineers often missed major steps in the product development process. That frequently led to costly delays, new products that were too costly to make or failed to meet market requirements, and high levels of new product returns.


"The entire organization knew we needed to improve the new product development process," Adelberg says. "People thought that by skipping steps in the process, they were speeding things up, but we were paying for it downstream big time."


So Hayward launched Kaizen and value stream mapping efforts to pinpoint waste in the NPD process. Lean teams decided that the company needed to require that all NPD projects adhere to the phase gate process, meaning that a project could not proceed unless engineers could demonstrate that key tasks, such as market research and customer input, had been performed at the required stages.


The company also beefed up the requirements at each stage. Under the old process, teams might be expected to get input from one or two customers before proceeding, but the new process required a full voice-of-the-customer exercise, with input from as many as 60 customers. The new process also required a complete cost analysis at every phase.


The net result, Adelberg says, is a much more standard, rigorous, and demanding process, and one that will weed out bad projects earlier and ensure that new products that reach the market meet customer requirements for function and cost. Within the next year, Adelberg says, Hayward expects to reduce new product cycle times — which average 10 months to 12 months — by 30% to 40%. And a year after that, the company expects to cut cycle times by more than 50%.


Despite Hayward's high hopes, some experts question whether most manufacturers will be able to apply continuous process improvement methodologies such as lean to NPD processes without endangering innovation and creativity. Manufacturing Insights' Parker notes that some people at NPD stalwart 3M have reportedly blamed Six Sigma for dragging down innovation.


"There's a fundamental difference between process improvement programs, like lean, which are continuous, and invention, which is discontinuous," Parker says. "It's hard to legislate and regulate the process of invention."


Adelberg answers that Hayward isn't trying to apply lean principles to the creative parts of the product innovation process. Instead, he notes, Hayward is focusing lean on the parts of the process that follow new idea generation and involve translation of the idea into a product that can be manufactured and that customers will pay for. "There's just a lot of waste there, and the potential for improvement is great," he says.



Sold on Lean


If lean seems a dubious fit with NPD processes, the idea of applying lean to sales and marketing might appear at first glance to be a complete non sequitur. Not only are sales processes discontinuous and difficult to visualize, but also, at many companies, they are largely undocumented. In fact, experts say, many sales professionals believe they are not accountable for the process, only the results.

Still, some experts suggest lean can help to remove waste from selling and marketing processes and to gain better visibility into the sales pipeline. And that can give lean plants a much better understanding of demand.


To be sure, the cultural challenges involved in introducing concepts such as standard work and process metrics into a sales organization can be great. But, says Michael Webb, president of Sales Performance Consultants Inc., the potential benefits are significant. "The potential in applying lean to sales and marketing is greater than in manufacturing," says Webb, who has written about the application of continuous improvement methods to sales and marketing processes. "If you use lean to improve plant floor efficiency by 30%, you've reduced a portion of your operating costs. But if you can use it to increase sales by 30%, that benefit goes right to the bottom line."


First, however, manufacturers attempting to apply lean to sales and marketing need to think differently about it, Webb says. On the plant floor, lean is about removing waste from processes involved in transforming materials into finished products. In sales, he says, it's about getting more efficient at moving customers or potential customers through a process that ideally ends up in a sale. Though most sales organizations focus on the end results — generating the sale — lean practitioners should focus on understanding and improving the process.


In other words, lean organizations should map the sales process to understand the stages that customers pass through on their way to signing a purchase order. Sales leads then can be viewed as the sales organization's inventory. With a clear understanding of all the steps in the customer's buying journey and where each lead is on that journey, Webb says, organizations can measure and continuously improve their performance.


"Most companies have no ability to measure or track the conversion of inventory — leads — into sales," Webb says. "They have no operating definition for what a lead is and no clear way to qualify or assess leads. For them, a lead is anybody who might buy something. You should be able to measure and improve the close ratio of properly qualified lead opportunities."


Two years ago, David DeSantis, president of Maquet Inc., decided to give Webb's ideas about applying lean to sales and marketing a try. Although Maquet, the sales, service, and marketing unit of medical equipment manufacturer Maquet GmbH & Co., was growing at a healthy clip of more than 20% per year, DeSantis wanted to improve sales efficiency. "We didn't want to go down the road of adding people in a linear fashion to enable growth," he says. "So we decided to change the business."


With Webb's help, Maquet mapped the typical customer's buying journey, identifying key steps along the way. Maquet also identified the key triggers or conditions that moved leads from stage to stage. With those characteristics of the selling process nailed down, Maquet could assess the quality of each lead in terms of how far along the buying journey it was and how likely it was to go further. Maquet created a standard questionnaire for salespeople to use to assess, qualify, and score all leads.


"We were then able to see how the scores added up, and do things like regression analysis based on the number of deals won and lost," DeSantis says. "We were able to further identify those questions that were most likely to give us insight into whether a deal would be likely to close."


Not surprisingly, not all Maquet salespeople bought into the new methodology. DeSantis tried to head off resistance by not calling the improvement program a lean initiative. "That had connotations of cost-cutting," he says. Instead, he called the program "evidence-based selling." Ultimately, however, some sales managers and reps continued to feel threatened by the program; they believed the information they were asked to document was theirs and that sharing it made them more expendable. While most have accepted the program, some who didn't were replaced, DeSantis says.

Through its transition to lean selling, Maquet has continued to enjoy 20%-plus growth. It's difficult to say whether that can be attributed to the lean approach to selling or to continued strength in the company's markets, DeSantis says. But he is sure that Maquet and its parent company now have clearer visibility into the quality of the sales pipeline. "Right now we are reducing variation," he says. "We still haven't determined if the mean has moved because of the new things we are doing."


If the experiences of Hayward, IBM, Intel, LSI, and Maquet are any indication, there are many potential applications for lean thinking outside of the plant floor, and the potential for significant gains is great.


Still, the cultural barriers to lean adoption — particularly in processes such as new product development and sales and marketing — are significant. So it remains to be seen whether the lean movement will have the same impact and longevity outside of the factory that it has had inside.

Source:  Editorial from the February 2008 issue of Managing Automation, Extending Lean into the Enterprise, 

by Jeff Moad, MA Editorial Staff
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