Tag: inventory

“Lean” is not a good way to compete against China

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The “lean vs. China” argument presupposes a false dilemma.

In it’s most recent post, Evolving Excellence cites and agrees with a Manufacturer’s Monthly (Australia) article comparing the total costs of outsourcing to China with the total costs of purchasing from a lean local factory. The conclusion from the Manufacturer’s Monthly article is succinctly stated:

Agility is the key to beat Chinese imports and lean manufacturing the most effective tool to achieve that agility.

Lean enables suppliers to offer faster service, better quality, smaller batch sizes and a greater degree of customisation than traditional manufacturing approaches without increasing unit costs. Lean can drive down total costs for customers by reducing inventory holding and handling costs, obsolescence and the cost of poor quality.

Fair enough– lean leads to competitive and strategic  advantages in inventory costs, lead times, quality and overall operations.    But you can’t count on “lean” to be competitive against the Chinese for one simple reason… the Chinese can be as lean as you can!!

Some (corrected) excerpts from my comment on the Evolving Excellence post:

The comparison cited above (and many like it) assume that the only choices are “lean” on one side and “outsourced” on the other. This is a false dilemma. What happens when you compare “lean domestic” sourcing cost with “lean China” sourcing costs?

My experience in China tells me that the China-based factory can be operated in a lean manner, mitigating the costs of longer transportation lead times, and not incurring the prohibitive costs associated with support functions and poor quality. If that’s the case, then the cost savings associated with low-cost production will in many cases (but not always!!)  be enough to ensure profitability, even though long-distance transportation costs and transportation lead times are an offsetting factor.

By all means if you’re  a manufacturer  go lean… it’s good for you, your shareholders, your employees, your vendors and your customers.  And if you are considering outsourcing, do ensure that you are taking into account total cost when you make your decisions.   But don’t assume that going lean (or buying from lean sources) will offer you a competetive advantage against aggressive pricing in the long run, because the competition has access to the same advantages you do.

: Change Leadership
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Q&A: Waste Reduction: Where to Start?

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I recently answered another question posed by a Linkedin user. Below is the question and my answer (designated as “best answer”).

The question:

What are the specific waste elimination projects you have identified in your business? Please provide details of strategy of waste identification, tools used and results achieved.

In this turbulent economic times, waste elimination should get required priority in each business. I am looking for some ideas to be shared to all.

My answer:

I’m involved in manufacturing in China, and my comments below may be relevant to that enterprise, and not to yours. But here’s my experience for your reference.

In starting waste reduction projects, I like to concentrate on a limited number of measurable results which:

  • Are easily measured
  • Can be obviously seen as succeding
  • Have the most positive immediate effect on the organization

In my experience (and others may have differing experiences) an early concentration on WIP vs. Output, inventory turns, and manufacturing turnaround times (from reciept of order to shipment) are helpful. While these are not the only items to measure, I believe that getting these metrics “on track” will lead to benefits in other areas.

As for a few of the tools used:

  • VALUE STREAM MAPPING (to identify waste in the process, and more importantly to teach the team how to identify waste)
  • ONE-PIECE FLOW (to ensure that lines are balanced and bottlenecks can be easily identified, elevated, and optimized.)
  • PRODUCTION FLOOR KANBANS (showing planned production quantities, actual production quantities and production yields)
  • CDC or IN-LINE INSPECTION (where each operator is responsible for (C)hecking previous operators work, (D)oing his/her own process step, and (C)hecking his/her own work prior to passing the workpiece on to the next step.

Once you have gotten the low-hanging fruit out of these, you can move on to others.

Hope this helps
David

It is easy to disagree with my advice, as I advocate stressing the practical implementation up front, and choose to “backfill” the cultural or theoretical components of lean after the initial jumpstart. In my experience, it’s best to jump right into the lean strategies after one or two training sessions (so that everyone knows how we identify waste, and how to map a value stream). This way, the early “wins” speak for themselves, and help sell the concept much better than hours and hours of brainwashing/cheerleading.

The cultural aspects are extremely important and should not be disregarded, I only advocate that give a taste of things to come before the immersion in theory.

: ALL
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Going Lean: How to Start

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Early in my China experience, I had mentioned to several friends that I was taking my factory “lean” as part of a turnaround strategy. My European and American friends laughed, called me a dreamer and promised I’d be sorry I tried it. The (racist and incorrect) thinking then was that Chinese people were incapable of assimilating new ideas.

After achieving some initial success (yes, Chinese assimilated the new ideas and even implemented them!!!!), I was told that it wouldn’t last, and that I’d go back to the “old way” to ensure cost effectiveness in operations.

After several successes, I am now being asked how to do it. Here are the steps I’ve taken to implement lean in several facilities:

  1. Choose the right team
    You could start by giving large lectures on what lean is, what are the the benefits, and how reaping those benefits are necessary for your organization’s health and ultimate survival. Those who are interested enough to ask questions, even those who are initially opposed to the change, will make good team members. Those who are uninterested or unable comment will probably not make good team members. While everyone will ultimately be involved in some respect, there may be a core team of evangelists whom you can count on to support the overall effort.
  2. Limit expectations
    I would usually choose benefits such as improved inventory and throughput, as these highly visible results. There can be many, many more benefits, but in the early days I like to limit them to just a few as it helps to focus the group’s attention on the deliverables.
  3. Flowchart existing processes
    Have your people prepare a flow-chart, with cycle times, tracing the flow of materials from purchasing through-to shipping.
  4. Map the value stream (critical!)
    Teach them what a Value-stream Map is, and let them map the same value streams they previously flow-charted. Revise the map if necessary reflect any waste the team overlooked, then compare the map to reality and revise with the team. Utilize the Theory of Contraints in balancing the processes.
  5. Work together to identify waste
    Work with them to determine which are value-added process steps and which are waste.
  6. Strategize & implement
    Formulate strategies which can be employed to eliminate or at least reduce the waste. Make elimination of waste a project (or multiple projects, as appropriate) and use standard project management techniques to make it happen.
  7. Repeat as necessary

Some hints:

  • Start the journey by identifying low-hanging fruit. You might want to have some quick and visible “wins” early on. Make sure you celebrate those wins.
  • You may wish to assign some project leaders who have a stakeholding in the process improvement.
  • Show the math… how reducing waste in the process, end to end, will improve inventory and delivery performance. Make sure “wins” are celebrated as quickly as possible.
  • I assigned the Chinese translation of “The Goal” as required reading to all my managers and some staff. It helped get them to easily understand the Theory of Constraints.
  • Don’t be afraid to take risks… if you don’t, your team certainly won’t. You do not achieve change without risks, and no one will take risks if the costs are deemed too high. (Drive out fear).
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