A few weeks ago I read an article titled; 'Is there a formula to predict or evaluate the success of a lean implementation?' written by Art Byrne. He has led Lean transformations in the US for 30 years at very senior levels, so he has a few ideas about what process improvement goals are realistic. Read on to explore this further...
The amazing results of Wiremold
Byrne cites the example of Wiremold: (he was CEO at the time until it was sold to a large competitor)
After 9 years we more than quadrupled sales, increased operating profits by 13.4 times and increased enterprise value by 2,467%.
A number of books and articles have referenced the Wiremold transformation, starting with Lean Thinking.
Let’s examine what they did and see if it would be realistic for a China-based manufacturer.
What process excellence goals did they set?
- 100% On-Time Customer Service
- 50% reduction in defects - - each year
- 20% productivity gain - - each year
- 20x inventory turns [we started at 3x]
- Visual Control and the 5S’s everywhere
What did they do in order to get close to those objectives?
Our focus was on the customer. To serve the customer better, we reduced our lead times from 6 weeks to 1-2 days. That let us provide better customer service and gave us a significant strategic advantage over our competitors, who still had 6-8 week lead times. We did this by focusing on setup reduction. Machines that used to changeover 3 times per week were being changed 20-30 times per day. Customer service went from 50% to 98+%. Inventory turns, a major focus for us, went from 3x to 18x, freeing up lots of cash and space and taking working capital/sales from 22% to 6.7%. Gross profit increased by 13 points. All driven by our focus on the five operational excellence targets shown above.
Are these process improvement goals realistic for any manufacturer?
In The Lean Turnaround, a book published a few years ago, Byrne gave a list of business results that can be expected:
My experience and that of many others, would suggest that for manufacturing companies you could achieve at the least, the following results:
- Lead times cut from weeks to days.
- Inventory turns doubled in two years and quadrupled in four.
- Annual productivity gains of 15 to 20 percent.
- A 50 percent reduction in floor space in two years.
- A 4 to 8 percent improvement in gross margins.
- Working capital as a percentage of sales cut in half.
- Increased growth by taking market share.
- The creation of a team culture in which each person can learn and create personal wealth.
Can this be expected of a factory based in the US, buying materials and components locally, and selling products to other US companies? Yes. We have heard of many factories that achieved it.
It does take strong leadership, good direction, and protection from departments that might sabotage the efforts (e.g. accountants show ratios that deteriorate, purchasers are unhappy because they can’t buy large batches and possibly get a nice kickback, etc.)
Are these process improvement goals realistic for a China-based factory?
Let’s look at issues that many Chinese factories face:
- Some key components have to be imported, which is common. And those components are quite expensive. For example, the superconductor wire used in MRI machines has to be imported – no local supplier can make it at the right quality level (at the moment). It means overall inventory turns can often not get under 10x.
- Customers often want to keep a certain level of finished goods inventory at the factory. This is common when a customer ships products to different countries. Working with the customer on a forecast, and shortening the production lead time should help a lot as customers realize they need less of a “safety cushion.”
- Nobody in production and engineering has even been trained in conducting a root cause analysis or in 5S. Nothing special to China here. Many companies in Europe and North America are just as bad. With the right leader and possibly a significant organizational shakeup, this can change quickly. Bring manufacturing consultants in for external support.
- Nobody in the offices has ever planned production, managed inventory, or worked with suppliers to change the way of working. This is a serious impediment until a few qualified employees are hired. Again, consultants can help. We have found that with some external help and with top management support, a few focused actions can deliver strong results in 3-4 months.
Overall, reducing inventory below a certain level is difficult, but many of the usual excuses against profound changes don’t stand scrutiny.
If we take Byrne’s list of 5 goals, what should they be for an average China-based factory?
- 100% On-Time Customer Service → No reason not to get to 100%.
- 50% reduction in defects each year → No reason not to get there (and that will probably imply working a lot with suppliers)
- 20% productivity gain each year → No reason not to achieve this (with a small budget for some semi-automation).
- 20x inventory turns → I believe this is often too ambitious. Many factory general managers here in China are happy with 10-11 turns. In some cases, it could get up to 20 turns.
- Visual Control and the 5S’s everywhere → This is entirely doable in China.
What about the Chinese factories in your supply chain? Have they achieved this level of excellence? Have they tried, and what happened? Do they not believe they can improve markedly and in a sustainable manner? What have you done to convince them? Get in touch with us by leaving a comment below!