While traditional companies usually rely on an ERP/MRP system to create a semblance of control within their organization, lean companies focus on first understanding the causes of the chaos and then using continuous improvement to eliminate the reasons for the chaos.
Why Are Our Process Out of Control?
What Lean companies really want to know is “Why?” What is the root cause of processes being out-of-control? In my experience with lots of companies on the Lean journey, the reasons can be legion.
- There is a lack of standardized work.
- Companies use large batches that take a long time to complete. These may be production batches or administrative batches such as month-end close.
- The people doing the work have no control over the work itself. They are merely told what needs to be done and blindly go off and do it.
- There is a lack of good planning. I was working recently with a company that had a production “planning” meeting every day but it was in reality only fire-fighting and chaos.
- Often, along with this type of ad hoc activity there is a lack of continuous improvement. Every day problems occur in the work area and these problems get fixed. But they are NOT solved permanently. In many companies there is no formal mechanism for eliminating the causes of the chaos. So every day one problem after another turns up.
How Traditional Companies Address These Issues
The traditional response is to track and monitor everything. This is the ERP paradigm. Track and record everything in the hope that all this data will enable you somehow to wrestle the problems to the ground. This is what I mean by “big data.”
When you take this approach you build waste on top of waste. The number of computer transactions increases and it rapidly becomes impossible for the people in the company to keep up with them, keep them accurate, and understand what they mean. Companies will automate data collection. This leads to more and more complex, automated methods to keep track of the data. As the data grows more voluminous and detailed, the business processes using the data become inflexible and hugely time consuming.
All transactions lead to reports. All reports lead to reconciliations. Reconciliations lead to meetings. And meetings lead to wasted time and little real problem resolution or continuous improvement. [i] And, worse, none of this adds an iota of customer value, which should always inform everything the company does.
Here’s a diagram that begins to show the complexity I’m talking about.
Take traditional cost accounting, for example. In the early industrial days accounting was done in a straightforward way. Later, in the early 20th century standard costing was introduced to help value inventory when a company makes diverse products. As industry revived after WWII, the cost accounting we know now developed and with detailed standard costs and variances.
Nowadays in many many companies – accountants create variance reports based upon tracking the so-called “actual” times and costs to make the products and the “actual” material usage. They then apply the incomprehensible absorption variances. The resulting reports provide spurious information but take people hundreds of hours of work to review, process, and explain these variances. Does this lead to real improvement and operational excellence? Clearly not! If it did, every plant, office, and hospital in America would have been thoroughly lean for many years. “Big data” in business operations is a failed idea. Taken to extremes it leads to catastrophe. Read my recent blog about absorption at GM & Chrysler again!!
How Lean Companies Address These Issues
The lean approach to this is to collect and use data so you can find and solve the root causes for why processes that are not working – find the reasons for problems and use continuous improvement standard work to fix them permanently. Improvement is everybody’s job. This is not a “quick fix”. It requires the people in every area to track their process, identify the problems each shift or day, and have the authority to make changes. Over time, the processes come under excellent control. In fact, what happens is that people build control INTO THE PROCESS itself. Even better.
In the final part of this blog mini-series, we will dig more deeply into how lean companies create excellent process control WITHOUT the need for “big data.”