Executive Briefings

Road Map Details Three Phases in Building a Truly Lean Enterprise

Today's manufacturers have reaped an abundance of operational rewards, made possible by information technology. Owing to large-scale successes, the drive for continuous improvement through lean Six Sigma is moving from the shop floor to improve all aspects of business. From product lifecycle management, supply-chain management, manufacturing and service and support to such back-office administrative functions as human resources and finance - all are creating a "lean enterprise."

The lean enterprise has come of age, in large part through the maturity of web and information technologies that enable company executives - by way of real-time business analytics - to analyze business operations such as cycle times, quality and customer service and leverage Six Sigma tools to reduce variability and sustain continuous improvements across all functions of the business.

While ultimately a stimulus for growth and competitive advantage, the lean enterprise journey is not painless. For most companies, it requires radically changing daily operations, manufacturing practices and work culture. Like the Chinese proverb about the longest journey beginning with a single step, "lean" is best achieved in stages. The first and arguably most difficult phase is the switchover from the old push manufacturing model to a pull-based flow manufacturing. The second phase is embracing operational kaizen: a commitment to continuous improvement. The third and last phase takes lean Six Sigma principles to a logical conclusion - extending the information value chain to customers, partners and suppliers. This final stage of the lean evolution is where most industry experts believe the greatest benefits lie.

The following is a "lean road map," focusing on three sequential phases in building a lean enterprise, and the technologies that enable and "fast-track" a company's transformation.

The evolution into a lean enterprise will take a company 18 to 24 months on average to progress from migrating to flow manufacturing to extending the information value chain to partners and suppliers. While the majority of companies today still are in Phase I and II, the early adopters are now entering Phase III.

Change on this scale takes leadership, vision and, in some cases, friendly coercion. When going lean, upper management support and sponsorship is critical. Managers and line operators, steeped in the old ways and culture, will not accept the new model without scrutiny and pressure from the top. Lean must be a corporate priority.

The first step in making a case for lean is to articulate the need for improvement. This due-diligence phase requires mapping existing manufacturing procedures and processes for the entire product line to identify pockets of waste and inefficiency. Lean pioneer Taiichi Ohno defined the "seven wastes" most common to production, including: overproduction, delays between processing steps, unnecessary transportation of products/parts due to poor planning, over-processing of parts, over-stocked inventories, needless movement by employees in performing tasks and the production of defective parts.

The challenge of Phase I is the rebuilding of a company's manufacturing operations around a radically different set of principles. The traditional model is based on forecasted market need, for example, anticipating manufacturing volume and warehousing inventories of finished product. Built around departmental, task-specific silos (i.e., painting in one area, welding in another), the model is rife with waste and inefficiencies: product moves, en masse, through a series of discrete steps, and each station does not release any completed product until the entire batch is done.

A lean enterprise is structured around a flexible, demand-sensitive model. Instead of forecasting demand and pushing product or information onto the shop floor, production is geared to customer orders. With a pull system, customer orders enter the manufacturing process sooner, without waiting for a planned lot. Component inventory is held in a generic state to lower costs and enable greater customization. In fact, customization is integrated into the first-run production process. Product flows from one process step to the next, one piece at a time, and is custom-built according to customer orders.

Basically, all the process change detailed in the first phase is grist for operational kaizen: setting the company up for success through ongoing self-analysis.

In addition to implementing operational changes, a company must change its culture. Managers must understand the new system and its goals: maintaining a lean enterprise is never ending. This change is more progressive than simply throwing out the old maxim - "Don't fix it if it's not broken" - in lieu of a new one - "Even if it's not broken, it can be better!"

Employees Empowered
The significance of adopting a new operational culture is paramount, especially when proceeding into this second phase. Within the cultural change, employees have to feel empowered to make suggestions without the fear of being penalized. By embracing and implementing ongoing reviews such as a kaizen event, managers can address this issue along with producing meaningful results. With a kaizen event, a cross-functional team zeroes in on a specific step or problem. Usually, the group spends a week or less studying a problem and implementing the best solution. A kaizen event can be as simple as adding wheels to a piece of machinery to increase its mobility or adding an electronic kanban system at an unloading dock to signal the arrival of a shipment. Generally speaking, the solutions require more common sense than capital funding.

Once companies reap the benefits of lean manufacturing, the natural inclination is to enjoy the rewards and call the initiative a success. This is where too many companies fail to capitalize on the lean concept. In this third phase, the most promising of the three, companies must recognize that to make their business "lean," they must coordinate and synchronize activities internally across departments and locations. Manufacturing - the hub of product creation - depends on a range of ERP services, such as human resources, finance and IT support. To anticipate and meet fluctuating market demand, the lean life cycle processes must link to customer-facing departments, specifically sales and marketing, customer service and support.

This leg of the lean journey requires companies to extend the operational flexibility and visibility to partners and suppliers. As any manufacturer knows, one missing part can hold an entire assembly line hostage. Therefore, lean practitioners who have entered this stage of development are getting key suppliers, partners and customers on board. Faster processing by computers and the availability of tools such as inventory optimization and postponement allow manufacturers to optimize movement and strategic location of kanban inventory within their own four walls, as well as at strategic points within the supply chain, which spans customers, suppliers and suppliers' suppliers.

A lean enterprise allows executives to align corporate objectives and drive cultural change, which can only happen in an organization that has eliminated information barriers.

The easiest means to achieve the required infrastructure is to standardize on a single data model across the organization, thereby establishing a "single source of truth." In many ways, it is a perfect match-up. By automating processes and using consistent data throughout the organization, a company can monitor and coordinate activities, enterprise-wide, in real time - a critical capability in reducing cycles, optimizing resource and staff management, improving customer service levels and support. Moreover, advanced analytics and business intelligence tools enable management to stay on top of pull-based demand.

Moreover, collaborative supply-chain planning and execution tools have matured to the point where manufacturers may extend the value proposition to help trading partners calibrate supply with actual demand. This increases visibility up and down the chain boosting on-time delivery, eliminating processing waste and accelerating production.

Evolving Role of IT
For most mid-to-large companies, a great deal of the lean-enabling infrastructure is in place. Over the last decade, as companies implemented enterprise application solutions, they moved their organizations to a common web platform and centralized data sources. With visibility across the enterprise, they began to standardize and automate processes to enable workflows across departments and offices. To reap the benefits of integrated enterprise solutions - customer relationship management, inventory optimization and postponement, self services (i.e., e-procurement with pre-approved supplier lists) - companies had to extend knowledge-sharing capabilities and automation to their supplier network.

The role IT has played in transforming the manufacturing industry is evolving, morphing from the relatively straightforward automation of traditional operations into a critical role of helping change processes to make production better meet exact demand. Manufacturers have grown weary of operating within the parameters of conventional IT wisdom. Among the select few are leading-edge companies that are reengineering how technology can be utilized to support business operations and exploit the ideas of lean to their benefit.

Don Klaiss is senior vice president, Applications Development, Manufacturing & Supply Chain Products, Oracle Corp. He joined the Redwood Shores, Calif-based company in 1990. Prior to that he held positions at ASK Computer Systems, NCA Corporation, Covalent Systems Corporation, and Hewlett-Packard Co.

Today's manufacturers have reaped an abundance of operational rewards, made possible by information technology. Owing to large-scale successes, the drive for continuous improvement through lean Six Sigma is moving from the shop floor to improve all aspects of business. From product lifecycle management, supply-chain management, manufacturing and service and support to such back-office administrative functions as human resources and finance - all are creating a "lean enterprise."

The lean enterprise has come of age, in large part through the maturity of web and information technologies that enable company executives - by way of real-time business analytics - to analyze business operations such as cycle times, quality and customer service and leverage Six Sigma tools to reduce variability and sustain continuous improvements across all functions of the business.

While ultimately a stimulus for growth and competitive advantage, the lean enterprise journey is not painless. For most companies, it requires radically changing daily operations, manufacturing practices and work culture. Like the Chinese proverb about the longest journey beginning with a single step, "lean" is best achieved in stages. The first and arguably most difficult phase is the switchover from the old push manufacturing model to a pull-based flow manufacturing. The second phase is embracing operational kaizen: a commitment to continuous improvement. The third and last phase takes lean Six Sigma principles to a logical conclusion - extending the information value chain to customers, partners and suppliers. This final stage of the lean evolution is where most industry experts believe the greatest benefits lie.

The following is a "lean road map," focusing on three sequential phases in building a lean enterprise, and the technologies that enable and "fast-track" a company's transformation.

The evolution into a lean enterprise will take a company 18 to 24 months on average to progress from migrating to flow manufacturing to extending the information value chain to partners and suppliers. While the majority of companies today still are in Phase I and II, the early adopters are now entering Phase III.

Change on this scale takes leadership, vision and, in some cases, friendly coercion. When going lean, upper management support and sponsorship is critical. Managers and line operators, steeped in the old ways and culture, will not accept the new model without scrutiny and pressure from the top. Lean must be a corporate priority.

The first step in making a case for lean is to articulate the need for improvement. This due-diligence phase requires mapping existing manufacturing procedures and processes for the entire product line to identify pockets of waste and inefficiency. Lean pioneer Taiichi Ohno defined the "seven wastes" most common to production, including: overproduction, delays between processing steps, unnecessary transportation of products/parts due to poor planning, over-processing of parts, over-stocked inventories, needless movement by employees in performing tasks and the production of defective parts.

The challenge of Phase I is the rebuilding of a company's manufacturing operations around a radically different set of principles. The traditional model is based on forecasted market need, for example, anticipating manufacturing volume and warehousing inventories of finished product. Built around departmental, task-specific silos (i.e., painting in one area, welding in another), the model is rife with waste and inefficiencies: product moves, en masse, through a series of discrete steps, and each station does not release any completed product until the entire batch is done.

A lean enterprise is structured around a flexible, demand-sensitive model. Instead of forecasting demand and pushing product or information onto the shop floor, production is geared to customer orders. With a pull system, customer orders enter the manufacturing process sooner, without waiting for a planned lot. Component inventory is held in a generic state to lower costs and enable greater customization. In fact, customization is integrated into the first-run production process. Product flows from one process step to the next, one piece at a time, and is custom-built according to customer orders.

Basically, all the process change detailed in the first phase is grist for operational kaizen: setting the company up for success through ongoing self-analysis.

In addition to implementing operational changes, a company must change its culture. Managers must understand the new system and its goals: maintaining a lean enterprise is never ending. This change is more progressive than simply throwing out the old maxim - "Don't fix it if it's not broken" - in lieu of a new one - "Even if it's not broken, it can be better!"

Employees Empowered
The significance of adopting a new operational culture is paramount, especially when proceeding into this second phase. Within the cultural change, employees have to feel empowered to make suggestions without the fear of being penalized. By embracing and implementing ongoing reviews such as a kaizen event, managers can address this issue along with producing meaningful results. With a kaizen event, a cross-functional team zeroes in on a specific step or problem. Usually, the group spends a week or less studying a problem and implementing the best solution. A kaizen event can be as simple as adding wheels to a piece of machinery to increase its mobility or adding an electronic kanban system at an unloading dock to signal the arrival of a shipment. Generally speaking, the solutions require more common sense than capital funding.

Once companies reap the benefits of lean manufacturing, the natural inclination is to enjoy the rewards and call the initiative a success. This is where too many companies fail to capitalize on the lean concept. In this third phase, the most promising of the three, companies must recognize that to make their business "lean," they must coordinate and synchronize activities internally across departments and locations. Manufacturing - the hub of product creation - depends on a range of ERP services, such as human resources, finance and IT support. To anticipate and meet fluctuating market demand, the lean life cycle processes must link to customer-facing departments, specifically sales and marketing, customer service and support.

This leg of the lean journey requires companies to extend the operational flexibility and visibility to partners and suppliers. As any manufacturer knows, one missing part can hold an entire assembly line hostage. Therefore, lean practitioners who have entered this stage of development are getting key suppliers, partners and customers on board. Faster processing by computers and the availability of tools such as inventory optimization and postponement allow manufacturers to optimize movement and strategic location of kanban inventory within their own four walls, as well as at strategic points within the supply chain, which spans customers, suppliers and suppliers' suppliers.

A lean enterprise allows executives to align corporate objectives and drive cultural change, which can only happen in an organization that has eliminated information barriers.

The easiest means to achieve the required infrastructure is to standardize on a single data model across the organization, thereby establishing a "single source of truth." In many ways, it is a perfect match-up. By automating processes and using consistent data throughout the organization, a company can monitor and coordinate activities, enterprise-wide, in real time - a critical capability in reducing cycles, optimizing resource and staff management, improving customer service levels and support. Moreover, advanced analytics and business intelligence tools enable management to stay on top of pull-based demand.

Moreover, collaborative supply-chain planning and execution tools have matured to the point where manufacturers may extend the value proposition to help trading partners calibrate supply with actual demand. This increases visibility up and down the chain boosting on-time delivery, eliminating processing waste and accelerating production.

Evolving Role of IT
For most mid-to-large companies, a great deal of the lean-enabling infrastructure is in place. Over the last decade, as companies implemented enterprise application solutions, they moved their organizations to a common web platform and centralized data sources. With visibility across the enterprise, they began to standardize and automate processes to enable workflows across departments and offices. To reap the benefits of integrated enterprise solutions - customer relationship management, inventory optimization and postponement, self services (i.e., e-procurement with pre-approved supplier lists) - companies had to extend knowledge-sharing capabilities and automation to their supplier network.

The role IT has played in transforming the manufacturing industry is evolving, morphing from the relatively straightforward automation of traditional operations into a critical role of helping change processes to make production better meet exact demand. Manufacturers have grown weary of operating within the parameters of conventional IT wisdom. Among the select few are leading-edge companies that are reengineering how technology can be utilized to support business operations and exploit the ideas of lean to their benefit.

Don Klaiss is senior vice president, Applications Development, Manufacturing & Supply Chain Products, Oracle Corp. He joined the Redwood Shores, Calif-based company in 1990. Prior to that he held positions at ASK Computer Systems, NCA Corporation, Covalent Systems Corporation, and Hewlett-Packard Co.