Countless companies try and fail with this proven strategy for increasing productivity and profitability. What’s the problem?
by Steven Beschloss // Illustration by Neil Webb
Within weeks after Paul Zwolan arrived to manage the Sapa Group’s aluminum plant in Mountain Top, Pennsylvania, in August 2011, the area was hit by torrential rains from Tropical Storm Lee. About 100,000 area residents along the Susquehanna River faced with the worst flooding in nearly half a century were forced to evacuate.
This was not the only setback that beset the plant’s workers. Several years before, the plant faced bankruptcy under a different owner, and there were lingering operation inefficiencies and delivery problems that created unhappy customers. One result: Many workers wondered how long they would have jobs. This turbulent environment was not exactly a welcome mat for Zwolan, but it had all the makings of an opportunity. He came bent on change, determined to make improvements—and quick.
It was a mindset that he describes as part of his DNA, embedded during his years working for General Motors (GM) and New United Motor Manufacturing Inc. (NUMMI), the renowned GM-Toyota partnership near San Francisco, California, which produced the Pontiac Vibe and the Toyota Corolla while he was there. Working closely with a Toyota mentor from 2000 to 2002, Zwolan first learned about Lean principles, maximizing customer value, increasing efficiency and profitability by systematically identifying and eliminating waste, and striving for continuous improvement. Or, as the Japanese put it, pursuing kaizen, which means change for the better.
These principles have been a source of inspiration in a number of American industries, including manufacturing, financial services, logging and health care. But succeeding with Lean requires more than writing snappy Japanese phrases on white boards and counting on the team to get with the (new) program. To be sure, beyond the slogans are impressive results. Businesses that successfully develop Lean programs achieve double-digit, continuous improvements in productivity and profitability. But the recent history of American business is littered with attempted programs that fail to yield those results.
While there is a dearth of hard data on success rates, one 2011 survey by consulting group AlixPartners reported that nearly 70% of senior manufacturing executives believed Lean efforts reaped less than 5% in cost reductions. In addition, 60% of respondents doubted that half of their expected savings would be realized and sustained.
You’ve no doubt heard all the Lean slogans and the intriguing promises they offer. Forward set out to explore why so many Lean programs fail to fulfill those promises and what it takes to make success happen.
Although every organization faces its own unique challenges, there are a general set of characteristics that failed attempts share. Too often, top management fails to grasp what Lean is about:
1. Changing culture and the overall approach to business.
2. Acknowledging that the wrong people may be in place to carry out the change.
3. Accepting that many Lean initiatives are driven by middle-level people, not senior leadership.
4. Making sure that every aspect of the business gets engaged, not just the manufacturing operation.
5. Actively integrating suppliers and customer demand into the process.
6. Committing to incremental, long-term change, even when the results are not immediately apparent.
Lean is sure to fail when top management expects quick home runs and loses interest when they don’t come. Just because Lean looks right and provides a language for pursuing improvements does not mean your company has the drive and stamina to sustain change when the going gets tough.
“The challenge is change management,” says Panos Kouvelis, director of The Boeing Center for Technology, Information and Manufacturing at Washington University in St. Louis, Missouri. “Are you willing to undertake the change? This is a serious thing. Do you have the appetite for it? It’s not one guy coming in—it’s a whole culture that has to change.”
The term “Lean production” was first popularized in The Machine that Changed the World, the 1990 book co-authored by James Womack, founder of the Lean Enterprise Institute. But the Lean production philosophy was pioneered by Toyota Motor Company in Japan in the 1950s, catching the attention of U.S. manufacturers involved in high-volume, repetitive manufacturing by the early ’80s. By the ’90s, Lean thinking expanded to smaller operations with batch processes and greater variety. In the last decade, Kouvelis notes, the “state of the art” is the Lean Enterprise, which focuses on virtually any and every process to improve the supply chain, including working closely with external suppliers and customers to implement Lean practices. Today, firms that ignore this full range of elements across the enterprise limit their chances to secure sustained improvement.
At Boeing, for example, the world’s largest aerospace company and a high-profile Lean advocate, Lean principles are employed nearly everywhere—from suppliers and procurement to engineering and design to manufacturing and delivery. This commitment dates to the early ’90s when Boeing executives traveled to Japan to learn about concepts such as just-in-time delivery, error-free production and continuous flow to cut costs and improve quality.
What’s in it for Metals?
In a recent study of Lean best practices, Kouvelis and his team from Washington University’s Olin Business School describe waste from inventory, motion and over-processing as most critical to the metals industry. They note “tremendous waste” in these areas stemming from such challenges as large equipment that is difficult to rearrange, the need to produce in large batches, the bulkiness of products limiting transportation options and the tendency to stockpile raw materials to avoid running out.
But they insist that Lean can offer better inventory management, reduce lead time and costs, and improve responsiveness to customers. Getting there depends on pursuing the fundamentals. As they put it in a research report titled “Lean Best Practices in the Metals Industry”: “The key to Lean is creating a culture that recognizes the different forms of waste, works in cross-functional teams, and provides an environment where each employee has the ability to change company practices to increase the value to the customer. Once a company successfully creates a Lean culture, the employees will find solutions to specific problems unique to each company and ultimately provide a competitive advantage.”
Easier said than done, of course. And rarely as swift a fix as any manager may hope for. “It really takes time,” Kouvelis acknowledges. “The more you do it, the more problems you find.”
Consider the case of Sapa’s Mountain Top plant, which manufactures aluminum extrusions, specializing in close tolerance extruding, fabricating and in-house anodizing. It is one of 16 North American plants of the Sapa Group, which is headquartered in Sweden, and the largest producer of extruded aluminum profiles in the world.
Plant manager Zwolan, who previously worked at another Sapa plant, moved quickly in the fall of 2011 to implement new practices and processes in Pennsylvania. “The plant had done well financially, but it was not known for continuous improvement,” Zwolan recalls. There were expansion opportunities in solar and automotive, but he soon heard from unhappy customers who were considering dropping their business because of missed deadlines and poor communication.His agenda: Align the operation, engage the employees with a “rhythm of improvement” and establish a customer focus.
The Importance of Being Heard
This meant creating a process and atmosphere for teamwork—and breaking down the centralized leadership that typically limited communication and engagement from the shop floor. Zwolan wanted every employee—all 263 of them—to feel empowered. “Some people like to have the control,” Zwolan says. “It was very top-down leadership [before], and it is a culture I’ve been trying to change here.”
He asked department managers to identify key drivers to improve productivity and profits, ultimately devising a “master action plan” for 2012. He implemented weekly meetings for each department head to articulate to shop-floor workers the top actions to be accomplished. He also instituted daily meetings with key personnel to sustain the pace of change and create more consistent and coordinated dialogue. Previously, “no one really paid attention to each other. It was very loud on the shop floor and there was not a lot of dialogue,” Zwolan explained. So, he created a centralized room where the department managers could meet and discuss the day’s issues with each other. They focused on goals such as reducing their scrap rate and customer return rate, implementing a corrective action system and establishing a new product development team.
Within a year, fabrication volume had increased 25% and profits were up 32%. One solar customer who said he was “fed up with Sapa” and was prepared to drop his business was now calling the Mountain Top operation one of his most reliable suppliers: “We are impressed with the change in culture you have enacted in a short period of time,” he wrote to Zwolan, adding that “making each of your work center owners accountable and aware of how their actions impact the customer was a complete departure from what we had seen before.”
Talk to Zwolan and you can tell he’s pleased by the progress. But, in a sign of that embedded Lean DNA, he’s determined to push ahead and not let inertia take over. “We’ve made progress, but not fast enough,” he says. “There is still opportunity—there are still more strong leaders that are reluctant to give up control and involve the people on the shop floor. I tell them, ‘If we have to wait for you, we can’t get as much done.’”
Making it Happen
What does it take to create a change culture and the foundations for success? John P. Kotter, in his best-selling book Leading Change, suggests an eight-step process to create major change. This includes establishing a sense of urgency, creating a guiding coalition, developing a vision and strategy, communicating that change vision, empowering a broad base of people to take action, generating short-term wins, consolidating gains and producing more change, and institutionalizing new approaches in the culture. Kotter, a Harvard Business School professor of leadership, insists that skipping any of these steps or approaching them out of sequence can lead to problems.
Panos Kouvelis of The Boeing Center suggests that change management techniques like these are necessary for Lean processes to be effective. While there is no uniform set of strategies or solutions for every organization, Bob Speed, vice president of Lean enterprise for St. Louis-based Belden Inc., a global producer of cable and other networking products, is quick to praise the transformational power of Lean. “It’s one of the foundations of our business,” Speed says. “Lean is not just something we do. It’s the way we approach everything.”
This includes the use of metrics to assess improvements in five areas: safety (incident and lost-time rates), quality (customer-reported problems in parts per million), delivery (percent of on-time delivery of customer requests), cost (pieces produced per hour) and inventory (inventory velocity). These five areas are looked at hourly in every plant, Speed says, and monthly by senior management.
Although Belden measured performance prior to beginning its “Lean journey” about seven years ago, Speed credits Lean for why the metrics are so well-defined and effective. He believes that inventory is the most important measure, often symptomatic of problems to be fixed. He considers inventory a liability and uses this as a driver to ask where there may be additional waste throughout their processes.
Belden’s company-wide focus on Lean was initiated by CEO John Stroup when he arrived in 2005. This included creating a Lean road map to define the company’s goals and what needed to be changed to accomplish those goals. Its key question: What waste can be reduced or eliminated? They looked at over-processing, overproduction, excess movement, waiting time, transportation, reworking or corrections, excess inventory, unused creativity, variation.
As Stroup told a class of business students at Washington University, this Lean focus led to substantially shortened production lead times, which reduced the dependence on an inventory stockpile of finished goods while maintaining or improving customer satisfaction. Getting there meant assessing and tracking every area of the enterprise: identifying the current state, detailing the desired goals and gaps, and creating an overall graphic plan for change.
While the emphasis can include changing tools or equipment, the leading change makers are people, teamwork and establishing a buy-in for change. “People say, ‘We need to do things right,’” says Ray Keefe, the former vice president of manufacturing for global manufacturing and technology company Emerson and a longtime Lean expert who has trained Lean principles in more than 100 business units at Emerson and elsewhere. “But they need to do the right things right.” That requires doing the hard work of assessment to know what changes can be made.
And that includes “letting a broad group of people be involved in decision-making,” adds Belden’s Speed. “If the head coach won’t let the assistant coach or others make any decisions, changing the team won’t happen quickly.”
What Change Can Yield
After three months of Lean training followed by another three months of implementation, employees at Colorado-based O’Neal Flat Rolled Metals Inc.’s metal services plant in Garland, Texas, began to make substantial improvements in set-up times, lead times, inventory and employee scheduling. “I don’t know if we expected to see changes as significant as we did in the first year,” says Phill Cavender, former general manager of O’Neal’s Garland plant and current vice president of sales.
He credits the shift from an ad hoc “trial by fire” problem-solving approach to a more methodical one. Primarily, he cites the switch to change management, where workers throughout the plant were included in the decision-making process. “They were given a voice and that became infectious,” he says. “Teams quickly realized, ‘Hey, they value my opinion—they are listening to what I think needs to be improved. That’s empowering.’”
Not everyone was on board with the changes, which included cross-training workers so they could handle more than a single job and reducing the number of shifts from three to two. It also involved embracing 5S, a method designed to help eliminate waste and create organization and effectiveness in the workplace [see sidebar], and regular team meetings to engage workers at every level. “We lost an operations manager who didn’t believe in this—he was more used to command and control,” Cavender says. But during the team sessions, “titles and authority went away. Everyone is equal. If you do command and control, you are not going to get buy-in.”
In fact, the plant experienced improved morale, safety and attendance. It cut the finished goods inventory by 75% and raw inventory by 60%, reduced set-up times from 30 minutes to 10 minutes, decreased the required floor space by 30%, cut lead times by 76%—and now boasts one of the lowest operating costs among all of O’Neal’s operations. The changes also provide direction for hiring by selecting customer-minded staff who grasp that “you are not just selling a product—you are selling a service.”
In true Lean style, Cavender acknowledges that the ongoing challenge is sustaining the improvements and continuing to find new ones. “As you get further down the path, the changes are smaller in magnitude,” he says. But he remains optimistic, focused on kaizen. “We’ve found improvements we hadn’t even targeted.”
Steven Beschloss is an award-winning editor, journalist and filmmaker. His work has been published in TheNew York Times, New Republic, Chicago Tribune, Village Voice, Wall Street Journal and Parade Magazine.