How the Best Companies Apply Lean Manufacturing Principles to Shatter Uncertainty, Drive Innovation, and Maximize Profits
Author: Stephen A. Ruffa
Pub Date: June 2008
Print Edition: $34.95
Print ISBN: 9780814439531
Page Count: 288
e-Book ISBN: 9780814410622
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Introduction: Solving the Mystery of Success
THIS BOOK IS FOUNDED on one simple but enduring truth: Excellence is best seen in a crisis.
In 1973 when oil shortages compromised the profitability and stability of the global automotive industry, the excellence of one corporation stood apart. Its booming operations fueled continued profit and competitive advantage just as others were clinging to survival. Its sustained success ultimately catapulted this firm—the Toyota Motor Company—to market prominence, and has made its unique approach to management the envy of the business world.
This very same phenomenon can be seen again today.
In the wake of disaster—from September 11th and into war, to economic downturn and then hurricane Katrina—American business throughout this decade has been thrust into crisis. Corporations everywhere have been hard hit from lost sales, disrupted by shifting customer demands, sent reeling from new uncertainties rippling from customers to suppliers. Once-unquestioned leaders found themselves in a terrible struggle, one by one driven into financial turmoil or even bankruptcy. But a few firms—Toyota, Wal-Mart, and Southwest Airlines—remained strong, even thriving amid the chaos that crippled their peers.
What makes these corporations different? How do they seemingly defy gravity, extending their edge in a business environment that should have dragged them down?
The answer is simple. While others insist on managing their businesses just as they had done in the past, these companies took a different path. They saw that the world has dramatically changed, that uncertainty and crisis are no longer the exception but are now the rule. And they adopted a set of principles and practices I call lean dynamics—thus preparing themselves long beforehand to meet this head on.
Those who read this book will learn what years of success followed by decades of struggle should have taught managers everywhere: What marks excellent companies is not how efficiently they operate when demand is stable and conditions are optimal. Rather, those who apply lean dynamics continue to thrive—sustaining strong profitability, growth, and innovation—even when unpredictability is constant and change is normal.
Lean dynamics goes beyond tweaking existing operations and organizational structures—quick fixes that offer uncertain benefit to the bottom line. It goes further than simply finding and removing today’s most visible problems—the focus of so many of today’s improvement efforts. Instead, it is transformational—a new way of managing that corporations of all types and sizes can put in place to create the tangible, sustainable, bottom-line results they need to compete.
Throughout the last century, corporations struggled to refine a system of management that was never originally intended to accommodate the business needs of today. Founded by Henry Ford as an answer to the unsolved problem of bringing his new innovation—the Model T—to the mass markets, America’s management system quickly spread to become the gold standard for much of the world. Its basic premise—that tremendous efficiencies can be derived from managing jobs by their most basic steps—permitted managers to drive out hidden variation and waste, streamlining work and making complex products widely affordable. Yet, their system for keeping such a myriad of independent tasks moving together in lock step brought with it a new problem: Its effectiveness demands stability—a condition that has become increasingly hard to find.
For years, new strategies and techniques arose to hold chaos at bay. As expanding mass markets gave way to fragmented, variable customer demand, managers came to rely on buffers and quick fixes to protect their way of doing business. And with bouts of change increasingly driving disruption and crisis, corporations continued to do what worked so well for them in the past: Struggle harder until conditions once again stabilize.
A few have come to understand the losing proposition of demanding stability from a world that over the last several decades has become increasingly driven by disorder. Advanced technology and heroic effort can no longer overcome the shortfalls of a system that has reached its limits. What was once a manageable gap has grown to a chasm, one that can no longer be bridged through the methods of the past.
The solution is clear. Corporations can no longer thrive on a system that is built on the presumption of stability. Instead, they must prepare for change.
Going Lean challenges how companies have learned to think about the way they do business. It sets aside the notion that efficient operations and innovation are only possible when business is steady and demand is growing; that disruption and loss are the price that must be paid each time change is introduced. Instead, it shows how a new breed of companies has demonstrated a powerful yet unexpected weapon in the battle against uncertainty. Their lessons strike to the core of what is perhaps today’s greatest mystery of success: how one firm’s adversity can become another’s competitive advantage.
This discovery did not come as the result of a single project or event. Rather, it grew from the combined experiences of innovators from diverse industries striving to gain the quality, flexibility, and cost structure they needed to compete.
More than a decade ago I first saw the need to pull these lessons together. Immersed in the furious problem solving that marked the development, production, and fielding of military aircraft, I found that this industry—a beacon of American ingenuity and achievement—was not at all as it seemed. Manufacturing inefficiencies were high, flexibility low, and quality came at a tremendous price. Simply stated, the management of its operations stood in stark contrast to the technological prowess that characterized its products.
How could this be?
This is the question I spent much of the next dozen years exploring. Fortunately, as my passion for gaining this understanding grew, so did my ability to study and report on it.
My first opportunity arrived with my study of seventeen aerospace facilities across a dozen major aerospace firms—from GE to Boeing—who granted me and my team of researchers tremendous access to scrutinize their factories.1 We traced their improvement initiatives from beginning to end, looking to see what had worked and what had not, across practices ranging from lean manufacturing to statistical process control and Six Sigma.
I quickly found that things were not as I had imagined. As an engineer I had been trained to use a straightforward, logical approach to problem solving. I came to believe that finding a solution lies in isolating those steps where problems are most evident and then targeting them for action. What I found to be true was quite the contrary. While most struggled, those who managed to make substantial gains did not do so by giving greater attention to the disruption they could readily see or those problems already at hand. Instead, these companies had reached beneath the surface, taking steps that addressed the underlying conditions that had led to their occurrence in the first place. In doing so, many of the problems they once faced simply went away.
By taking a range of internal actions, these firms had made great strides in overcoming the substantial constraints of their external environments. They had been able to mitigate many of the effects of their variability, overcoming huge amounts of waste that had long been seen as a standard and accepted part of doing business.
I searched for the means to study this closer. Could these same methods be extended for even greater advantage? Were the steps they had taken transferable to other industries; and could they be applied across broad enterprises? How could companies avoid risk to their operations as they put them in place?
Then opportunity struck again. As I set out in a different management position, I was immediately confronted head on with many of the very same problems that plagued those whom I had previously studied. Charged with leading efforts aimed at mitigating the Defense Department’s risk in obtaining a wide range of critical supplies during sudden demand surges—particularly those seen in times of war—I had to find a way to help overcome the effects of the tremendous uncertainty faced by those who produced them. From aircraft spare parts to medical and pharmaceutical supplies, I searched for ways to demonstrate how the techniques I had discovered could help.
The result? Through a series of initiatives using internal measures for mitigating external conditions, I was able to show tremendous, tangible results. Lead times for critical items dropped by as much as two-thirds; availability of hard-to-get spare parts skyrocketed even during extreme, unforeseen circumstances (including a demand spike to more than one thousand percent of normal levels).2 In all, these succeeded in driving down the risks of supply disruptions while eliminating the need to hold as much as a billion dollars of inventory.3
I had proven that this new way of thinking could quickly achieve what many did not seem to believe was possible. Still, one question remained: With such great potential, why weren’t America’s leading businesses using this approach already?
Or were they?
To answer this, I looked to retailers, airlines, manufacturers—businesses of all types. I focused my research on those who managed to profit amid the terrible uncertainty and crisis that shook American business since September 11th; on those industries—retailers, manufacturers, and especially airlines—that were the most hard-hit from lost sales, reeling from skyrocketing fuel prices, and then struck by the ill effects of Hurricane Katrina. A few firms had indeed yielded very different results. Had they also applied the tools and practices that I had shown to be so successful?
I was astounded by what I found. As I anticipated, these firms had taken a range of internal measures to overcome tremendous change and uncertainty, but they had gone much farther. Each turned out high-quality, low-cost products and services using a fraction of the effort—but not just when conditions were steady and predictable.4 They had demonstrated something new—the set of principles and practices of lean dynamics—turning what should have been overwhelming circumstances into tremendous advantage.
And in doing so they were changing the rules of business for all.
For much of the last century, sudden change and uncertainty affected everyone in much the same way. It was widely understood that periodic shifts in the economy would temporarily create disruption, drive down profits, and lead businesses to stagnate. All were impacted; no one was immune. Thus, these dynamic factors did not favor one firm over another—so long as the same management system remained the standard for all.
But this was not to be. The Toyota Motor Company was the first to visibly defy this standard three decades ago.5 While other automobile manufacturers buckled under the tremendous pressures of a global oil crisis, this company reaped the fruits of a management system it had been honing for years. And with its ability to consistently create value when others could not—across a wide range of expected and unexpected circumstances—Toyota was able to overcome the tremendous advantage once held by the “Big Three,” as it was now on the verge of becoming the world’s largest automobile producer.
Consider the case of Southwest Airlines. In an industry that found itself at -ground--zero in the weeks and months following September 11th, Southwest continued to advance. The company extended its low prices and superior service into new markets—even expanding into competitors’ traditional strongholds. It continued as the only major airline to remain profitable, extending a streak now more than thirty years long while its competitors announced multibillion dollar losses and bankruptcy. For Southwest, the rules of business had clearly changed.
How was this possible? The company’s founder, Herb Kelleher, had prepared the firm well. He never learned what most corporate leaders have come to accept: that business is generally predictable and stable. Instead, he came to see that “reality is chaotic,” and built his system of management around it.6
Wal-Mart exhibited much the same phenomenon. During the economic downturn that began after September 11th, this firm pressed forward, posting strong profits just as it had done during downturns before. In fact, Wal-Mart seemed to thrive on these downturns, each time expanding into new territories and new markets. Again and again Wal-Mart defeated long-established leaders within the most challenging sectors, taking commanding positions in everything from consumer electronics to toys and even food.
Even more astounding was how Wal-Mart smashed conventional thinking by setting the standard for rapid response in its relief efforts following hurricane Katrina. Rather than exhibiting the sluggishness normally associated with such enormous scale, the company showed tremendous agility, overcoming vast damage to its stores and unprecedented destruction to the region’s infrastructure, quickly reopening to hand out truckloads of water and other critical supplies in hurricane-ravished areas. Aaron F. Broussard, president of New Orleans’ Jefferson Parish, praised the firm in his captivating “Meet the Press” interview, saying that, if relief efforts “. . . would have responded like Wal-Mart has responded, we wouldn’t be in this crisis.”7
Today, Wal-Mart, Southwest Airlines, and others are reaffirming what Toyota showed years ago: Sudden shifts or unpredictable conditions need not undermine a company’s ability to efficiently operate. Instead, these firms continue to thrive despite some of the most severe circumstances, setting the new standard for value.
Moreover, this ability to sustain steady value underlies what is perhaps their greatest strength: their ability to innovate. The same flexibility that lets their operations smoothly adapt to the turmoil around them also streamlines their introduction of new products or services, making possible updates or changes that others might deem too costly and unrealistic. Equally critical is their ability to sustain a low-cost structure no matter what conditions they face. This helps create a stable stream of capital to invest in new development—the kind that offers real value to their customers, inspiring them to buy the company’s products or services in the first place.
These companies came from different industries and businesses; each met with different barriers and constraints. Yet each had followed much the same path—letting go of the prevailing methods of management in favor of something very different. Knowingly or not, they adopted a common philosophy and a new set of rules.
And each achieved the same result: excellence in the face of crisis.
Going Lean shows how corporations can make the shift from a system of management that has served America well to one that will serve it better. It lays out the path paved by those who have succeeded despite today’s harsh conditions and the hazards uncovered by those who have not. It demonstrates how producers of goods and services alike have abandoned the tried and true and embraced lean dynamics to achieve the seemingly impossible.
But it is not simply about applying such cases directly to other businesses. It is not about chasing anecdotes—a strategy that itself leads to disruption and crisis. Instead, this book shows how companies of all sizes—and across disparate industries—are applying their underlying lessons to achieve sustained excellence.
I began this study by examining an industry steeped in innovation—one whose continued success has depended on its ability to turn advanced technology into new products. As I look again at aerospace and then to other industries I see that even this lead is beginning to decay. What has worked well in the past is no longer enough; corporations must see that only in conjunction with a broader management shift can they preserve the effectiveness of this long-standing advantage.
For managers to succeed, they must begin by rethinking their business right down to the very goals of their organizations. They must cease striving for simply lowering costs or improving quality within the environment in which they prefer to operate. Instead, they must become broadly effective in creating and sustaining value within the one that now exists.
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