What is "Lean"? What are Lean initiatives? Is it about reducing headcount? Sometimes! Will it save my company time and money? Absolutely! Can any company apply Lean principles? Of course! From survival technique to techniques to sustain profitability, read what four industry experts have to say about what it means to be Lean. Process improvement Working more efficiently Driving continuous improvement Learning by doing.

As Published In August 2005

Championing Lean
By Katheryn Potterf

Whatever your sector or size, these guys are in your corner.

Talk with the folks at the Association for Manufacturing Excellence (AME) for about five minutes, and you realize that it must be the passion that drives them. They can't be in it for the money—they are volunteers from academia and business. And their enthusiasm for helping companies excel at Lean initiatives borders on the, well, evangelical.

Although not as widely known as it should be, this not-for-profit has flourished for two decades. Based in Wheeling, Illinois, the AME conducts an annual conference and holds more than 50 other educational events in the United States, Canada, Australia, and the United Kingdom. The 6,000-member association has influenced—directly or indirectly—almost every major U.S. company that is successfully applying Lean principles. The list of Lean luminaries includes Baxter International, Boeing, Caterpillar, Dell Computer, Eastman Kodak, GE Industrial Systems, HON, Lockheed Martin, Nypro, and Raytheon—among many others. To get the lowdown on Lean, Profit held a roundtable with four of AME's top people: Keith Syberg, vice chairman; Jack Ward, vice president of development; Robert W. Hall, editor-in-chief of AME's magazine, Target; and Ken Rolfes, director of marketing for the 2005 AME conference.

Profit: What are the business and operational challenges leading organizations to adopt Lean strategies?

Rolfes: The global marketplace is driving every company to find a way to become more competitive and achieve better financial results. Driving Lean practices across the enterprise results in better balance sheets, higher asset velocity, greater productivity, and better customer service. The challenge is heightened by the internet, along with all the logistics capabilities of the world today, with fewer trade barriers among countries. Now you can buy anything from anywhere in the world.

Profit: Can Lean principles be applied to any organization or any industry sector?

Hall: The short answer is yes.

Syberg: Although the AME is certainly focused on the manufacturing world as it relates to these kinds of issues, it's gone beyond that. Insurance companies are trying to figure out how to process claims faster, and hospitals want to move patients more effectively through their treatment process. Lean is really well suited to any business that wants to reduce waste, reduce costs, improve efficiency, and compete better.

Rolfes: Lean can be applied to any organization, and we're seeing it take root in various arenas. At our 2005 AME conference, we'll have people from banking, healthcare, and several other industries. At the 2004 conference, we had military, government, and aerospace companies, among others. Lean works for small and large companies in every industry.

Ward: Lean came out of the 1970s, when it was about competing with the Japanese and improving the ability to put products on the market. Into the 1980s, the focus of Lean was still on production efficiencies and capabilities. In the 1990s, you started to see Lean jump from just being a survival technique into being a technique to sustain a company in the global environment. So it's been a natural evolution, and today the Lean approach has spread throughout the enterprise, from the production floor all the way into the accounting department and the boardroom. Even beyond that, it's stretching out to the community, to the people you do business with.

Profit: What are some common misconceptions about Lean?

Hall: There is an infinite number of ways to misunderstand Lean. One of them is the accounting illusion, where companies say, "We want to be Lean, so let's just get our suppliers to put the inventory on consignment and—presto—we're there." That doesn't work, because the cost is still there. You haven't taken the cost out of the supply chain at all. You've just moved it from one person's balance sheet to the other's. Lean is a cultural change for the company, and it's an improvement in real processes.

Rolfes: In the automotive industry—and this applies to other industries as well—Lean has been viewed as a production thing. If you want to talk about organizational structures, the area that's generally the most resistant to any kind of Lean process thinking has been product development, which is viewed as a creative, rather than process-oriented, activity. Interestingly, Toyota has been driving the product development process and the cycle time to market quite dramatically.

Syberg: Another misconception about Lean, even to the point that some companies are hesitant to use the word, is that Lean means reducing the number of employees, cutting head count. That may, in fact, be the result at times, but that is not necessarily what companies initially intend to do. There are so many companies that are drastically in need of even more good employees. They're not trying to cut their head count—they're trying to make better use of it. That's a real cultural education companies have to undertake when they embark on the Lean journey.

Rolfes: One misconception is that Lean is a cost reduction program, which leads people to think, "Let's hire some engineer to come in here and make us Lean. Let's put some stuff in place here, and we're done." So it creates this conception that it's a program for head count reduction or cost reduction. But fundamentally, the whole goal of Lean is to build a culture and a supportive structure around driving continuous improvement. When the leadership understands that this is a cultural thing and builds the company, you start getting big results. If you view it as a cost reduction, you're probably not going to get the results you need and, consequently, many people say there are better ways to get cost reduction.

Profit: Is there a misconception that going Lean means that you have to sacrifice product quality to cut corners?

Hall: Yes, there is—when actually it's a quality program.

Ward: You're hitting a critical point. People think that Lean is about eliminating things. In reality, what's inherent in all the tools of Lean is this focus on quality and product improvement—to the point that it's engaging people to be quality engineers of what's going out the door.

Syberg: The concept of improving quality to dramatic levels in manufacturing with Six Sigma is finally taking hold in product development as well. So we are moving in the right direction, but we have a long, long way to go. [Editor's note: Six Sigma, which stands for six standard deviations from the mean, is a disciplined methodology for eliminating errors or defects from any process. The goal is to achieve fewer than 3.4 defects per million.]

Profit: What's the first step a company should take when it decides to go Lean?

Ward: There are a lot of textbooks on Lean. But to validate whether it can be applied, you need peer-to-peer contacts. You need to see it in operation on a tour or in a workshop with people who have been doing it for several years. Some think that if you get an expert from the outside, that person can change your business. The reality is that you're going to be changed, to sustain yourself in the world culture. You need mentoring, some peer relationships, and some shared learning with people who are doing it.

Hall: That's what AME attempts to do. It's quite significant that of all the books on the Toyota Development System and all the books on Lean, none are written by Toyota. That company's approach to Lean is that you are mentored in it. You don't learn by reading about it. You learn by doing.

Profit: What about the role of information technology?

Rolfes: Interestingly enough, you'll find numerous Lean consultants who will walk into a factory and say, "We don't need computers here." But that doesn't work. What you need is information, and the correct use of IT today should support a Lean culture, because if you want people in your organization to be continuously driving improvement, they need to understand the business, and they need information about the business in real time. You need to marry IT with a Lean process.

Hall: To go beyond that, if you have an information system that consumes a lot of energy just to operate and it doesn't tell you very much, that's a waste in itself. If the information system gives you faster feedback on something that has real value, it's a help to the process. So, the Lean thinking, so to speak, is to guide how to use and develop IT. The process improvement comes first, and IT supports it. Then IT may be part of the process.

Profit: How many manufacturing companies have adopted Lean resources?

Hall: A lot of such surveys involve self-reporting, and you don't know whether people always understand what they're reporting on. Perhaps a third of all U.S. manufacturers are just unaware or confused, thinking it doesn't apply to them. By the latest survey, more than 40 percent consider Lean to be their primary path of process improvement. Of those, probably half are using bits and pieces and parts, sometimes because they get forced into it by a customer. Maybe two or three percent of manufacturers are reasonably well along the Lean path.

Profit: What are some of the barriers to the successful implementation of Lean principles?

Hall: The No. 1 issue is that the senior management and the supporting business institutions don't get it. So, if the board doesn't get it, the CEO doesn't get it, the bankers don't get it, and the auditors don't get it, then anything you do with Lean will collapse pretty fast.

Ward: I think it's very sad to see an operation become very Lean and engage its people around Lean, then there's a decision made offline about reducing, and, because of tax considerations, the organization is moved someplace else. It all boils down to the fact that leadership has to go first and understand what's going on. Leaders have to abandon their command-and-control outpost in the hierarchy and get down there, engage with the people who are pioneering Lean, and show some commitment and integrity. Probably the most important thing for AME as a group right now is to help leaders develop these skills and a different paradigm for evaluating their own companies and expressing their own commitment and vision of where they want to go, particularly in terms of sustaining their organization.

Rolfes: Leadership is what it's all about. That's why we're calling our 2005 conference "Leading the Revolution." I believe that until you get into this, you don't know how significant the results of Lean can be. But most companies and leaders are satisfied with mediocre results, especially when compared with Lean business models. For example, how long was Dell, with its Lean, direct-to-consumer business model, chided and ignored by the rest of the PC industry? Now, the remaining players in the PC industry are looking at Dell and saying, "Oh, gee, I guess we ought to do that." The difference Lean can make is incredible.

Syberg: I don't think leaders give their employees enough credit. They frequently think that the employee base won't want to do it, can't understand it, or will fight it. And certainly all of that happens. But I have walked into once-traditional companies that have made significant progress on the Lean journey. And if you were to say to that workforce, "We're going back to the old way," the employees would run you out of the building. They get it, they understand it, and they see its value—if there's a leader who will give them credit for their ability to take the journey.

Get the Skinny on Lean Meet the visionaries of Lean at the 2005 AME Conference, "Leading the Revolution," in Boston, October 31 to November 4. For more conference details, go to www.ame.org.

Profit: What are the differences in the way smaller companies implement Lean strategies, as opposed to larger companies?

Hall: The small companies don't have much in the way of resources, whereas the bigger ones will set up some corporate university or big office. But it's easier to transform a small company than a large one—and that's a big advantage.

Ward: Yes, you're not fighting as many belief systems and value systems that may be geared to serving groups inside a big company. Smaller companies can see the wolf at the door, and they react in survival mode. They adopt Lean, and some people become such fervent and passionate creatures of Lean that they want to share it with everybody. They understand that the techniques of Lean can produce a quality product on time. In fact, I think it is with these small-to-middle-tier companies that AME will make the biggest inroads over the next 10 years.

Rolfes: If you look at U.S. manufacturers, 90 or 95 percent of them have 20 people or fewer. In an organization of that size, everything is important. Toilet paper is important. So, a leader understands that, hey, there are Lean tools that can help put toilet paper in the john. The leader can drive improvement in the effectiveness of resources.

Profit: Any other tips on how to start implementing Lean techniques?

Hall: The technology changes over time, but a lot of the basic ideas are the same. They've just been reinvented or forgotten many times. People start out thinking that Lean is a set of techniques, but they find out that it's a gut-level philosophical change. If you try to start out with too much philosophy, however, you never will get there from here. People learn as they go—and that's pretty much it.

Syberg: You can't talk about changing the culture this week—that's too big an elephant to attack. You can start with some of the easier techniques that anybody can undertake.

Ward: It's incremental success, and you keep building on that.