Insights on Excellence | "Insights" Archive

Just what is a lean enterprise?

by Stephen Hawley Martin
for Virginia Business
February 21, 2006

People who don't know about the lean movement and what it entails often assume it simply means doing more with less. They think this is accomplished by having everyone work harder. They are wrong. More is done with less by having everyone work smarter. According to published data, people who work in true lean enterprises are significantly happier with their jobs on average than those who work in traditional businesses. Why? A fundamental reason is they are empowered to make decisions rather than having to wait for someone higher up to pronounce judgment on the course of action to be taken. So people have more control over their jobs and their destinies.

Lean enterprises are distinguished by six key attributes:

1.) The workplace is safe, brightly lit, orderly and immaculately clean.
Ever seen a "clean room" in a computer chip factory or hospital surgical supply company? That's what lean manufacturers strive for. The grease and oil drippings have to go because a clean environment is not only more pleasant to work in, it helps produce a mind set that results in top quality products.

2.) Products are produced on a just-in-time basis, only to customer demand (not to forecast). Products are made in continuous flow production lines which are scheduled according to customer demand using pull-scheduling techniques. This means it must be possible to convert lines quickly from one product to another or to easily change configurations based on output requirements that can change daily or even hourly. This means the ability to perform quick setups and line conversions is a must.

3.) The highest quality possible (Six Sigma) is built into products and processes. Equipment is programmed to detect defects. Mistake proofing is used extensively. Root-cause problem solving skills are finely honed. Each person is responsible for his or her own work, making quality inspectors obsolete. They aren't needed because every employee is an "inspector." Also, design and process engineers build quality into the design of a product and into the process that makes it.

4.) The organization operates via empowered teams, not traditional management hierarchy. Teams on the shop floor and throughout a lean enterprise are empowered to make key decisions. When a problem is spotted, the team decides how to fix it. If a worker calls in sick, the production team decides how that job will be covered. There is no need to call in management. In an assembly operation, for example, workers are obligated to stop the line if they see a quality defect problem. The line remains shut until the problem is fixed. This would be unthinkable in most assembly plants where only the general manager could authorize such action.

5.) Feedback and other information are provided visually and intelligence is freely shared. A baseball player can look up at the scoreboard at any time and see exactly how the team is doing and what needs to be done to win the game. The same is true for a production team in a lean factory. Scoreboards positioned in easy view display goals for the day, and progress toward them is posted hourly. Intelligence on overall company performance is freely shared in meetings from boardroom to shop floor. The reason? If people don't have the foggiest notion how they are doing, how can they be expected to improve?

6.) The pursuit of waste reduction is never ending. "Simplify, simplify, simplify!" is the battle cry. The quest for improvement never ends. The core idea is that any and every activity or expense is to be eliminated that does not, in the view of the end user, add value. This includes all functions and processes wherever they may be, not just unnecessary or redundant work on the factory floor. Elimination of inventory, for example, is especially critical because inventory tends to hide manufacturing and distribution bottlenecks that need to be identified and opened up. Moving goods, parts and components in and out of storage is considered a waste of time and money.

Lean enterprises enjoy a number of strategic advantages over their mass manufacturing competitors. First, a lean producer is typically the low-cost producer in its industry. This allows it to set the market price, as lean-producer Dell Computer has done in the PC world. What makes a lean producer low cost? Lean manufacturing often requires half the space and 25 to 40 percent less direct labor than mass manufacturing. Inventory is often cut to two or three days supply, freeing up huge sums of money that would otherwise be tied up, along with enormous amounts of space previously required for storage. In the high-tech arena in particular, inventory that sits in a warehouse for any length of time before it is sold may end up being a worth a lot less than it was the day it was made.

The biggest strategic advantage of lean is speed. Speed is the hallmark of a lean enterprise in several ways: speed of delivery of product that's configured as customers want it, speed with new product introductions, speed in management decision-making because the organization is flat and bureaucracy almost nonexistent. Speed can be a critical factor in success because a nimble organization unburdened by inventory can take full advantage of changes in the marketplace as they occur. Meanwhile, non-lean competitors will be scratching their heads, wondering what happened.

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Stephen Hawley Martin is a former principal of The Martin Agency in Richmond and the author of more than half a dozen books including his newest, Lean Enterprise Leader: How to Get Things Done Without Doing It All Yourself. He is editor and publisher of The Oaklea Press, a book publishing business dedicated primarily to helping business executives increase productivity.