Chapter 1

Introduction

The underlying concept of lean management is a customer-driven philosophy for organizationwide continuous or ongoing improvement and waste elimination. Improvement and waste elimination efforts have often been referred to as kaizen. Kaizen roughly translates as good (zen) change (kai). Kaizen is a learning approach based largely on evaluating past experiences through questioning and observation. Following a lean management ­philosophy, all activities should eventually lead to enhancing customer value. If an activity does not enhance customer value, the activity should be eliminated.

Whether the setting is manufacturing, service, administration, health care, education, politics, or something else, it must be understood that lean management must possess a systems perspective. A survey of practitioners suggested that the single most important lean skill, knowledge, or expertise item is the possession of a systems view and thinking.¹ Over many years, this result has maintained its consistency in conversations with practitioners. Companies that have implemented successful lean programs have commonly taken into account the entire enterprise, ranging from suppliers to customers and everything in between.²

Lean must be viewed as a comprehensive system consisting of leadership, culture, team, and practices and tools. A system is simply a set of integrated parts sharing a clearly defined goal. In a system, if changes are made to optimal values for only a few elements, the system will not likely come close to achieving all the benefits that are available through a fully coordinated move and may even have negative payoffs.³ A firm must implement lean as part of a systematic and comprehensive transformation of production and operation procedures. If only a select few of the system elements reach optimal levels, then the full benefits of change might be diminished.

Lean management must be viewed as an integral system of four, interdependent elements: leadership, culture, team, and practices and tools. Each of these necessary components affects the effectiveness of the other components. For example, lean leaders must be able to rely upon a supportive organizational culture. Lean leaders are responsible for creating that culture. In order for a transformation process to produce and to eliminate waste, it takes an immediate response from every functional discipline, accounting, finance, purchasing, and so on, when opportunities or issues arise. It takes a coordinated effort of a team to achieve goals. Respect for team, people, and their ideas for improvement are a necessary component of lean management.

In the survey of practitioners, the second-most important ranking lean system element was “human relations skills,” which was identified as consisting of leadership, change management, and team problem solving.⁴ This was followed by real-world knowledge and experiences, lean culture, and then lean practices and tools among many others.

The remainder of this chapter explores lean management and its historical development. First, a phased approach to effective lean management is described. This is followed with a brief exploration of the four lean elements. These four integral elements are explored in more depth in Chapters 2 through 5. The chapter ends with a historical exploration of lean and some of the most significant contributions to the lean body of knowledge.

Lean Management Phases

Effective lean management possesses a systematic, disciplined, as well as a hierarchical orientation. Lean management consists of planning phases, which first establish goals (or objectives), followed by strategies, and then tactics in chronological order. Long-term goals must be established first as these give guidance for strategic choices. Strategies are the means for achieving the goals. Strategic choices have a long-term (longer than one year) duration, involve significant risks (strategic, financial, compliance or regulatory, reputational, safety, and others), and are guided in their development by higher-level management, but in a participatory manner, which includes lower management. In turn, tactics or operational choices possess a shorter-term (less than one year) duration, involve less risk as these decisions may be revisited (e.g., a decision regarding the extent of inventory for an item may be reconsidered next week or month), and are often guided primarily by a lower level of management.

Long-term goals and strategies must recognize the company’s relative competitive strengths and determine how these can be used to create a sustainable advantage.⁵ Therefore, prior to establishing the goals and strategies of an organization, a formal SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis should be performed. An organization should be aware of its strengths, weaknesses, opportunities, and threats. This knowledge makes it more likely that organization members will understand the factors that are likely to impact future performance. This SWOT analysis is simply an organizationwide current state analysis.

Although it represents a complex undertaking, there is a simple reason a SWOT analysis is desirable. Charting a course of improvement requires change; it is the pursuit of an ideal state from the baseline current state. A SWOT analysis is similar to taking stock. It is a broad assessment of an organization’s current state, which will offer credible arguments for the necessity for change. Before being able to address a future state, a gap analysis between the current and future states must be conducted. ­Knowledge of the current state allows it.

The “strengths” of a SWOT analysis refer to internal capabilities that are performed well. These should be identified because one wants to leverage these capabilities. Consider, for example, how one company’s products compare with a competitor’s products. “Weaknesses” refer to internal characteristics that deter a company from performing well. These too should be identified because they should be addressed. Consider, for example, the possibility that one company uses technology inferior to a competitor’s technology. Either additional resources should be allocated to strengthen the weakness or the activity should be eliminated in some fashion if it is an unnecessary, non-value-adding activity. “Opportunities” refer to external trends, forces, events, ideas, or possibilities that a company may capitalize on. These should be identified so that an organization can prioritize how and when they will be addressed. As an example, consider the possible opportunity to offer services surrounding an existing product line. “Threats” refer to external potential events, trends, or forces typically beyond a firm’s control. Threats should energize an organization into action in order to mitigate their influence. As an example, consider the prospects of rising costs such as health care or educational costs. There are approaches, which may be taken to mitigate these expenses such as group insurance programs or educational savings accounts.

Conducting a SWOT analysis is not an onetime event. An ­organization should continually keep abreast of its current state. Therefore, a SWOT analysis should be conducted as part of an ongoing activity. It should be performed in order to assist a gap analysis between the current and future states and prior to establishing objectives. It must also be objective, so internal and external organizational stakeholders should provide input.

Once the current state is well understood, transformation process goals should then be considered. There should be six goals for every ­transformation process: (a) lower cost, (b) higher quality, (c) greater speed, (d) improved employee safety, development, and morale, (e) improved flexibility, and (f) enhanced sustainability. In a world of global competition, consumers differentiate among competitors along these six goals of a transformation process.

The first three of these goals are easily agreed to and understood. All things being equal, achieving a lower cost of production, a higher level of system output quality, or a faster order response time each affords a competitive advantage. The fourth goal of improved employee safety, development, and morale represents a moral obligation of management to provide a safe working environment for all employees. Most agree the most important asset of any firm is its employees. Effective lean leaders should invest in this asset.

Less well understood and more recent is the fifth goal of flexibility. Flexibility refers to the quick adaptation to changing customer and ­market requirements. Flexibility has different dimensions, including volume, product, and process. Volume flexibility is the ability to operate profitably at varying output levels. Lean often seeks simple, inexpensive solutions. For example, manual operations are often preferred over automation because they often possess characteristics of being simpler, less expensive, and being more readily adapted. Product flexibility refers to the ability of a transformation process to introduce new products or services quickly. Process flexibility refers to an ability to produce a wide variety of existing products or services. Manual processes typically offer less adoption resistance as well as faster adaptation speed and therefore enhance both product and process flexibility.

The sixth and most recent goal is sustainability. It addresses how processes and operations can last longer and have less impact on ecological systems. It is the conservation of resources, natural or otherwise, through sustainable activities and processes across a value chain. Sustainability has economic, social, and environmental components. It is an emerging frontier of lean and extends lean principles externally across a value chain.

Although each of these objectives should be pursued, they are not necessarily equally important. For example, a consumer’s budget may not allow him or her to consider quality to a greater extent than cost when purchasing a vehicle. It should be evident that these objectives are interdependent. Namely, lowering cost may impact quality through altered material specifications if allowed.

Achieving these goals will help to promote the long-term viability of the organization. Lean management pursues improvement in these goals endlessly. Before an organization embarks on its lean journey, everyone in the organization must understand why these objectives are essential. The saying, “You can lead a horse to water, but you can’t make it drink” comes to mind. The message must convey the essential need for a voluntary pursuit of these six goals. In order for lean to be successful, the most important asset of an organization, its people, must agree with it. This is another fundamental reason why the leadership is so important. It is the leaders of the system who must convey the message and create the conditions so that it is understood, agreed to, and aligns the efforts of all.

Lean Management Components

Lean must be viewed as a comprehensive system consisting of leadership, culture, team, and practices and tools. These four key elements, shown in Figure 1.1, are similarly interdependent. Each of these elements impacts the others, but it must be clear, leadership is the keystone. A fundamental principle of any system comprising multiple elements is that if changes are made to only a few select elements at a time, even to their optimal values, system performance may not come close to achieving all the benefits that are available through a fully coordinated or centralized move.⁶ In fact, it may even have a negative payoff, which underscores the argument of leadership’s paramount importance.

Figure 1.1 Lean management components

Further evidence of the importance of leadership is offered by the observation that the failure of most lean initiatives can be attributed to a failure to change leadership practices.⁷ Lean leadership establishes the culture or environment necessary to achieve the improvement and waste elimination. Lean leadership identifies, develops, and promotes the team required to achieve the multidisciplinary objectives of lean initiatives. It is lean leadership that is ultimately responsible for the practices and tools that are used in the discovery processes leading to improvement and waste elimination. Leadership is paramount for lean initiatives.

Leadership is commonly viewed as interpersonal influence, exercised in situations and directed through the communication process, toward the attainment of a specified goal or goals.⁸ It is often regarded as the single most critical factor in the success or failure of institutions.⁹ Leading entails aligning the efforts of resources to bring about improvement through change. Continuous improvement is typically achieved through small incremental change. Less often is improvement achieved through abrupt innovation. Lean leadership is explored in Chapter 2.

Leaders must create the environment that stimulates change. Organizational culture refers to workplace environment, which consists of ­values, beliefs, attitudes, practices, behaviors, norms, and habits. It is the principled atmosphere of the system. Culture develops from behaviors that leaders reinforce. Organizational culture can either promote or ­hinder change. Lean culture is explored in Chapter 3.

The third system component is lean team. This refers to a team-based approach, which promotes system goals. A team-based approach recognizes that group outcomes may be enhanced more so than any individuals could achieve acting independently. Lean team is explored in Chapter 4.

The final lean system element is various practices and tools. Lean practices and tools can help to reduce variation and eliminate waste as well as serve as a microscope for identifying improvement opportunities. Lean practices are planning approaches used throughout the transformation process. Lean tools are specific analytical methods and problem-solving approaches. Some of the more common practices and tools are examined in Chapter 5.

Lean Development

A driving force behind the historical development of lean has been globalized commerce. Globalization of commerce has reduced producers’ ­control over prices. The intensification of competitive forces due in part to a larger, more global business environment has limited the ability of companies to mark up prices based on input cost increases. Information access has provided consumers knowledge, shifting leverage away from individual firms that no longer possess the pricing power they once enjoyed. Cost control, rather than pricing power, has become a significant driving force behind corporate profit margins and earnings growth.

Businesses must increasingly rely upon the simultaneous achievement of competitive advantages. Cost cutting alone no longer suffices. Rather, speed, waste elimination, productivity improvements, quality, and flexibility enhancements simultaneously serve as strategic means to achieve profit objectives. Lean management methods address these advantages and do work.¹⁰

It should be recognized that the lean body of knowledge has evolved considerably over the past several decades. It is not surprising how the challenging financial circumstances in the mid-1950s led Kiichiro Toyoda, Taiichi Ohno, Shigeo Shingo, and others at Toyota to pioneer the frequently cited seven lean principles shown in Table 1.1.¹¹ The term lean itself was originally suggested in 1988.¹² Since the 1980s, lean has been a prominent business strategy gaining popularity with the comparative performance examination of global automotive plants.¹³

Table 1.1 The seven lean principles

Although it may seem that lean is a relatively recent development, many ideas have simply been redeveloped throughout history. Most of the earliest contributions focused on lean practices and tools. One must actually go back to the origins of recorded history to identify the possible origin of the first practice that comprises today’s lean body of knowledge. For example, the Egyptians used an assembly line (flow) practice and divided labor to enhance productivity and speed in the building of the pyramids.¹⁴ It is estimated that as early as 1104, the Venetian Arsenal utilized a vertically integrated flow process consisting of dedicated workstations to assemble standardized parts into galley ships. The practice of a vertically integrated flow approach combined with standardized parts enhanced productivity in ship assembly.

The field of ergonomics contributes to important lean practices. The foundation of ergonomics appears to have emerged in ancient Greece. Evidence indicates that the Hellenic civilization in the fifth century BC used ergonomic principles in the design of their tools, jobs, and workplaces.¹⁵

In the late 1700s and throughout the 1800s there were a number of individuals who advanced lean practices with significant advancements in the management of processes. In 1776, Adam Smith published The Wealth of Nations in which he advocated that the division of labor provides managers with the greatest opportunity for increased productivity. In approximately 1778, Honoré Blanc is attributed with first introducing interchangeable parts for firearms.¹⁶ In the United States, Eli Whitney introduced interchangeable parts in approximately 1798. Interchangeable parts must be seen as a major breakthrough as it is a precursor to the assembly line in the Industrial Revolution.

The existing railway infrastructure in the American Midwest during the 1870s has been attributed with influencing the industrial meatpacking to develop mass production disassembly technologies. This model was later followed encouraging industrialists in other industries to develop the moving assembly line, including Henry Ford.¹⁷

During the scientific management era of the late 1890s and early 1900s, several industrial engineers such as Frederick Taylor and Frank and Lillian Gilbreth contributed practices such as standardized work, time and motion studies, and process charting.¹⁸ Starting in about 1910 through the 1920s, Henry Ford extended these practices by marrying interchangeable parts with standard work and moving conveyance as well as incorporating vertical integration and behavioral concepts such as worker motivation in order to design a more comprehensive lean system.¹⁹

Only during the middle and later 1900s came the contributions of some of the recognized founders of the Toyota Production System. Toyota expanded upon Henry Ford’s ideas by including elements such as quality at the source, which encouraged workers to be more responsible for producing quality vehicles and teamwork.²⁰ It was not until the mid-1800s and later that the lean leadership and motivational contributions were first made. More recent contributions to the lean body of knowledge have focused on lean culture and lean team contributions.

Summary

This chapter has offered significant points to be remembered for the rest of the manuscript. The key points include the following:

1. The underlying concept of lean management is a customer-driven philosophy for organizationwide continuous or ongoing improvement and waste elimination.
2. Lean is applicable in all types of environments.
3. Regardless of the environment, lean management possesses a holistic systems perspective consisting of leadership, culture, team, and practices and tools.
4. The effectiveness of the four lean management components is interdependent.
5. Lean management consists of three, chronological planning phases: goals identification, strategy development, and tactical choices.
6. Contributions to the lean management body of knowledge date back many years, well beyond the contributions of Henry Ford and various individuals at Toyota.

The remainder of this book examines each of the four integral elements of lean management. Chapter 2 begins with the most important lean management component, lean leadership. Chapter 3 looks at lean culture. This is followed by a discussion of lean team in Chapter 4. ­Chapter 5 presents common lean practices and tools that are used to identify improvement opportunities and eliminate waste. Lean’s inseparable companion, total quality management is examined in Chapter 6. Chapters 7 through 10 examine content that is particularly relevant to the entire body of lean knowledge. Chapter 7 explores how technology is being applied to further the objectives of lean efforts. This ­exploration considers a variety of industries with numerous example applications and supporting data that demonstrates the benefits of technology. Chapter 8 takes an in-depth look at the application of lean concepts and practices and how these are being extended across the entire supply or value chain. This includes the three common supply chain elements of procurement, transformation, and distribution or logistics. Chapter 9 examines the management philosophies, constructs, or paradigms of “flexibility,” ­“agility,” and “lean.” Taken as a whole, the preponderance of the research for the three constructs suggests there are differences among them; yet there exists confusion and inconsistency associated with their use, which leads to difficulty differentiating among them. Finally, Chapter 10 introduces an emerging accounting concept, lean accounting. This chapter focuses on identifying various metrics lean practitioners use to assess firm performance and on the accounting practices that underlie the determination of some of these metrics. The content of this chapter is not to suggest a better means of accounting but rather to identify potential shortcomings of current accounting practices, which may lead to future improvement efforts.

It is the intent of this book to offer a fairly current and comprehensive examination of the current state of lean knowledge. A comprehensive lean model based on a sound framework is offered. A historical ­timeline of ­significant lean contributions is identified. The book ends with an ­extension of lean with a glimpse into its future. This book can serve as a core lean reference book if its intent is achieved.