Sub-Optimization: We’re ‘Lean’, but Where Are the Results? (Part 2/3)

Lean. A topic you increasingly hear under discussion in almost any business situation. Originally a manufacturing concept, the principals involved have seen it become increasingly relevant for any part of a company reliant on processes and their effective flow.

Why aren’t my lean ideas working!
It’s really about the bigger picture. The work floor can be set up with an optimal lean plan, but if the result is the end product going into storage then the operation as a whole is not lean. However efficient the majority of the processes may be in this scenario, no genuine improvements toward the customer are being realized.

On the same theme, streamlined production with short lead and takt times is all well and good, but if the office isn’t lean and administrative processes continually hold things up, then the overall lead time is still long and inefficient. The customer doesn’t care how quickly his product is made. He cares about how quickly he gets it in his hand once he’s placed the order.

Lean Office
When the lead times for a product come under the magnifying glass for careful analysis, it’s often the case that office processes are completely ignored. Looking at the total lead time, Rajan Suri noted that more than half of the entire time involved was spent on administrative activities like quotes, order processing and planning (See: “Beyond Lean: It’s About Time!” by R. Suri, 2011).

Suri also suggests that more than 25% of total product costs are directly related to these kinds of activities. As such, the term sub-optimization refers to businesses who have worked hard to get their machine operating and assembly times down, but are still struggling to make a real difference thanks to neglect of back office processes that also have a major influence on conversion of quote into cash.

The potential pitfall is that, with the organization’s enthusiasm for uncovering improvement areas, all sorts of ideas are thought up and actioned upon, a large number of small improvements the result. Unfortunately, the really big breakthroughs will only be realized if the team tackles more major issues like reduction of stock in the warehouse, flow of work in progress and the total processing time of the stream as a whole. Improving these more challenging areas will have the major influence on total processing time that’s required, eventually leading to the desired decreases in costs in increases in performance.

This problem is discussed in a clear and accessible manner in the book “The Goal” by Eliyahu M. Goldratt. Despite being written over 30 years ago, it’s still fully relevant. The story follows the struggles of a production manager in a manufacturing business desperately trying to reduce costs and drive increased efficiency in an operation that’s continually losing money. He does eventually manage to save his plant (and marriage) by identifying the blocks in the flow through the factory that are determining the output. By systematically removing them and re-energizing the flow, he creates the tangible improvements in output he’s looking for.

In part 3 of this series, we’ll look at what businesses can do to really achieve the results they set out to achieve.