Strategy-Driven Lean Implementation

Last month we explored the relationship between a company's business strategy and the continuous improvement process. We advanced the idea that applying Lean tools and other improvement techniques – even a developing culture of excellence – can be more effectively focused by tying the improvement effort to the specific strategic needs of the business. Now let's examine how Lean, Six Sigma and other improvement practices can be used to fashion this sort of high powered competitive capability.

To do this, we must first define a business strategy in "Lean friendly" terms, then address the development of the manufacturing mission, and finally show how to employ Lean principles to help plan and execute a manufacturing strategy geared perfectly to the needs of the business (and its customers). Figure 1 (from last month) is useful in visualizing the relationships under discussion.

Business Strategy – The Lean Definition

Every strategic business plan begins with a two basic questions: "Who are we going to sell to?" and "What will we sell them?"

The "who" is typically called the target market or target accounts, which are clusters of companies we believe will buy our products or services. Though this seems simple enough, things immediately get complicated by the fact that, more often than not, every group of potential customers has a different set of requirements or expectations. Also, the competitive environment associated with different clusters of customers may be quite distinct. Understanding these differences is a key to shaping an extraordinary manufacturing strategy.

In the Lean world, we isolate a collection of customers with similar needs, analyze the resources that we deploy (or will deploy) to meet their needs, then map them as value streams. Careful identification and documentation of our value streams is critical in the strategic planning process because it sets the stage for everything that follows.

In strategic planning lexicon, "what we will sell them" is often referred to as our value proposition – an eminently appropriate terminology that encourages us to think in terms of the total value we will add to our customer's business. The relatively inadequate alternative is to think only in terms of supplying customers with goods and/or services in an ordinary manner that is easily duplicated by our competitors.

The strategic question is, "How can we delight the customers in this value stream by exceeding their expectations?" Exceeding expectations requires us to truly understand them and be prepared to wrap an array of value-added work around our core offerings of products and services. Remembering that customer expectation varies greatly from one value stream to another, it becomes clear that we must somehow isolate and focus our manufacturing resources in a way that positions a unique value proposition for each of the value streams we choose to serve.

Crafting the Manufacturing Mission

Before we start the process of planning the deployment of manufacturing resources, it is best to reduce the business strategy into very specific operations performance requirements that are spelled out by value stream. In doing this, we want to (1) find out what elements of our performance are most critical in each value stream and (2) recognize how well we will have to execute in these areas to significantly out strip our competitors. Critical performance factors are usually derived from the following list:

Value-added services such as special packaging and containerization, vendor managed inventory, participation in demand-pull replenishment programs, kitting programs, paperless billing and others may also be important.

Determining the rank order of priority is vital. A manufacturing value stream cannot be "all things to all people." It is not useful to say all performance factors are equally important and we must design our manufacturing capability accordingly. (That's like trying to design a 747 that can land on an aircraft carrier.) If we can determine what is truly most important to the customers in a given value stream, we can design a capability that perfectly matches the needs of those customers.

Now we can focus on ensuring the performance capability of our value streams is much better than the competition. This may be difficult and may require some creative, unique solutions. But the ability to do difficult things – and do them well – sets us apart from competitors.

The manufacturing mission is defined when we have a written statement of critical performance goals by value stream and words describing the value-added services we will bring to market. This is "The Name of The Game" for manufacturing – the driver of all activity, especially the improvement process.

A Lean Manufacturing Strategy

With the manufacturing mission statement in hand, we can begin the process of configuring or reconfiguring the manufacturing resource to meet the requirements we have documented. What we will change is confined to the basic components of our manufacturing resource, namely:
a) Process technology
b) Facilities
c) Systems (information technology)
d) People
e) Supply chain

Selecting appropriate process technology for the value stream can make or break the value proposition. For example, if the demand for highly repetitive product and cost is the dominant performance factor, we will likely opt for state-of-the-art, automated processes that minimize per-piece costs. On the other hand, if we must produce a wide variety of product on an infrequent basis and meet very short lead times, process equipment should be more flexible and general purpose in nature. There may also be many options between these extremes, so choosing the wrong technology can take you out of the game from a competitive standpoint.

The significance of our facilities lies in the layout arrangement that physically isolates the value streams which, in turn, enable the organization of people and the adaptation of systems to better support the unique requirements of each focused sub-set of the factory. The right physical layout also helps develop the culture of teamwork and continuous improvement. This setting enables the application of Lean and Six Sigma tools to elevate performance to those extraordinary levels needed to win in the marketplace. The corollary here is that continuous improvement and customer service are severely hampered when value streams are physically or organizationally de-coupled.

Manufacturing systems are too often set up around the functional characteristics of a piece of software. This results in an element of the manufacturing resource attempting a "one-size-fits-all" approach. In fact, the information needs for our value streams can be quite disparate. Carefully adapting the system to provide exactly the right information to each value stream management team (no more or less than actually needed), at just the right time, is an important contributor to world-class performance.

Very often, as we evolve to a value stream orientation in response to our business strategy, the kind of people we need will change. Let's say we have elected to set up the value stream mentioned above to deploy state-of-the-art automation. If automation is new to us, we must then develop or acquire people who can program, operate and maintain the equipment. Even the management of a value stream organization may require knowledge and skills we do not have. Moreover, the know-how required to effectively apply appropriate Lean and Six Sigma tools may be missing as the value streams develop and improvement needs arise. With this in mind, the selection, education, training and development of people take on a whole new dimension.

Finally, our supply chain must be configured to support the unique requirements of each value stream. We will need to identify and develop suppliers who are willing and able to meet this need. This process begins with a clear specification of the capabilities needed to support our lean operations. These expectations may include one or more of the following:

Once again, the needs and expectations vary by value stream. The challenge is to develop a cadre of suppliers for each value stream representing a world-class extension of our in-house capabilities.

Conclusion

The starting point for gaining more leverage from our improvement effort is to think about it in the context of a business strategy, i.e. what we must accomplish in the marketplace. This drives us to clearly define our target markets (value streams), develop a concise manufacturing mission statement, and integrate our manufacturing strategy. Applying Lean/Six Sigma concepts and tools will aid and guide the design process and eventually serve to fine-tune performance in the value streams once they are in place and operating. The objective – always – is extraordinary customer service.

One final note: Much of the process described here involves planning – creating the future on paper. If this stops at the planning stage, little will be gotten from the exercise. Success lies in execution. Making the plan a reality through determined leadership is the key.

David Dixon is the executive vice president of Technical Change Associates and a registered professional engineer with more than 35 years of experience in lean manufacturing, Six Sigma and other improvement initiatives. For more information, visit

www.technicalchange.com, or call 801-621-8980.