Saturday, July 22, 2006

Lean Critical Success Factors

I am often asked why some companies are so successful at implementing lean while others struggle and often give up. While there is no magic bullet, I will attempt to lay out a few critical success factors to lean implementation.

1. Focus on the goal. The ultimate goal is to increase long term profitability and cash flow. Many people think that the ultimate goal is customer or employee satisfaction. While both of these are important to successfully implementing lean, you can have happy employees and customers while not making profits. Thus, to implement lean, you must understand one of the most fundamental equations: Profit = Price - Cost. You must understand that the market determines price (for the most part); cost is the controllable aspect. So, while its true that lean is not a cost-cutting program per se, it is true that costs will decrease if lean is implemented successfully.

2. Focus on the long term. Management has the tendency to focus on short term profitability. "Making the numbers" for the quarter is what matters most. The main reason for this is that incentive programs drive them to do this. To be successful, the long term must be the focus. Much lip service is paid to "long term planning;" however, in practice, most managers will sacrifice the long term for short term success. In order to change the focus to the long term, metrics and incentives must change.

3. Involve and value employees at all levels of the organization. How many times have you heard this before? Every company claims to value its employees at all levels, but few actually do it. Many lean efforts are industrial engineering initiatives driven from the supervisor and engineer level with little employee input and involvement. Lean requires a fundamental change in culture. Each employee must be given the tools/training and must be given the opportunity to provide input as to how his/her job should be done.

4. Involve customers and suppliers in the process. Most successful companies recognize that they are one piece of a value chain. Suppliers and customers must be involved in the implementation effort. Lean requires a change in the way supplies are bought and final product is sold. More frequent deliveries, less inventory, and less lead time cannot be had without supplier and customer involvement.

What does success look like? If you have been implementing lean successfully, you should have more profits and better cash flow as a result of shorter lead times, less inventory, better quality, and more productivity.

Please share your thoughts and experiences with successful and unsuccessful lean transformations.

2 comments:

Jon Bennett said...

Darren,

You Totally miss the purpose of lean. Consider Toyota's first principle of TPS. It's to add value to people, customers, employees, and society as a whole.

You put profit ahead of people.
This is why so many lean projects fail and why lean has a bad name.

Jon
jonbenn@gmail.com

Darren Dolcemascolo said...

Jon,

Thanks for your comment, but I must respectfully disagree with you. Toyota's purpose in developing TPS was to "catch up with the Big 3," not to add value to people, customers, etc. Toyota discovered that adding value to people, customers, employees, and society helped them achieve their goal.

Furthermore, it might be of interest to you, that one of the first things Toyota teaches their employees during employee orientation is that Profit = Price - Cost. Thus, Toyota does have a focus on profitability. Their approach to it is a long-term approach rather than the short term approach that leads to the bad name that lean has (as you mention) and the failed lean projects.
The purpose of lean is to make money. The principles of lean include adding value to people, customers, employees, etc. Toyota understands that this is what it takes to achieve sustainable long term profitability.