What really is lean procurement? From some of the descriptions of lean procurement that I’ve seen, it seems to have morphed into something that is either myopically focused and/or totally unrecognizable as lean to me. Let’s start with myopically focused.  Yes, it is a good thing to do more with less, i.e., run procurement with fewer people. But what are the survivors doing? Are they focused primarily on transactions or are they focused on strategic activities? Reducing procurement headcount is much like reducing inventory in manufacturing. It is typically a byproduct of lean, not a focus.  It has to be done intelligently. Workflows need to become more efficient, and more importantly, the actual workflows and their underlying assumptions need to be questioned. When procurement asks: how would what I’m doing add value to the customer (both internal and external), then many exciting possibilities will open up.

Lean procurement can be viewed as a way to:

• Improve the procurement process and workflow, reducing time and eliminating waste
• Reduce/lower costs while improving the quality of products and services
• Improve the performance and responsiveness of suppliers
• Increase the focus on activities that add value to the firm
• Enhance procurement’s strategic rather than transactional focus

Many companies need to get beyond the notion that lean is primarily for manufacturing companies and the associates on the factory floor.  While manufacturing historically has led the lean charge, opportunities can and should go well beyond it. It’s natual to assume that lean means lean manufacturing, as it’s the area that has gotten the most focus and has shown the most dramatic transformations. Lean procurement is applicable to all industries, in the manufacturing and service sectors.

Lean procurement questions why particular activities are being done and how to increase procurement’s total value. Cost reduction is, of course, important. However, how lean helps procurement add value should remain foremost in mind. The lean mindset knows that adding value typically requires eliminating waste and cost. The approach to lean procurement should be holistic and not solely cost-focused.

Many tools in the lean toolset (value stream mapping, 5S, Kaizen, standard work) can apply. However, as in all lean practice, focus should be on the overall strategy, people and culture rather than primarily on the tools.

-Sherry R. Gordon

Several years ago I penned a rant for Spend Matters about tool heads. What are tool heads? I define them as those people who focus on the tools of continuous improvement such as lean tools and Six Sigma tools rather than on the big picture of what the organization is trying to accomplish and the people who need to accomplish the transformation. Tool heads love the tools of continuous improvement, as these are tangible and readily deployed: SWOT, histograms, value stream mapping, andons, SMED, etc.  They are concrete and not abstract. They are effective and dramatic at transforming chunks of a business. Tool heads can get mired in the tools and focus on the trivial many instead of the vital few, often missing the big picture.  Tool heads are rarely strategic thinkers. Many individual problems may get solved, but the overall issues don’t get addressed. Small processes may get optimized, but the overall business process may be sub-optimized. Culture and behaviors stay the same, as applying tools doesn’t address cultural and behavioral issues. However, tools are often simpler to use than bringing about real transformation, as they can be deployed in spite of the people whom they impact. Tool heads are more comfortable working with continuous improvement tools than with the folks who are impacted.

Tool heads are the folks who set up desert islands of excellence. As pilot projects in an overall enterprise improvement process, islands of excellence can help spark and inspire a successful improvement initiative. But too frequently they turn into desert islands of excellence when they become detached from the firm’s mainland of mediocrity and never spark real change or just optimize one chunk of the business, leaving the rest suboptimized. One of the most common manifestations of this phenomenon is putting in a “lean” cell on the manufacturing floor. A standalone cell is the beginning, not the ultimate goal. If all the processes surrounding the cell, particularly administrative and supply chain components, are not linked up and also optimized, you end up with a lean cell that is a desert island and limited in its overall impact to the organization. The rest of the company conducts business as usual, and looks at the cell as “we do lean manufacturing.”  And many firms really do believe that they are implementing lean as soon as the first cell is online, even if it’s just a desert island.  Real change is limited, and the tool heads have done their job.

Implementing change begins and ends with people. And that fact hasn’t changed.

-Sherry R. Gordon

One of the guiding principles in continuous improvement methodologies such as lean enterprise and total quality management is employee involvement: those who do the work know it best and will be able to make improvements. In other words, management is not close enough to the work to understand them enought to improve work processes. Employee involvement in continuous improvement was at one time a big change from traditional command and control management and the philosophy that management, like a parent, always knows best. While some managers and supervisors find this difficult to implement in practice and cannot restrain themselves from providing the answers, lean and continuous improvement leaders and practitioners continue to espouse this philosophy and find it successful in bringing about improvements in the workplace.

How about using this approach in the area of marketing? or product development? Sound crazy? Well that’s exactly what a company called Crowdcast is doing. Their product works on this very premise: that the people who do the work know best — even the answers to predicting what products and product features customers will buy. An article in MIT’s Technology Review explains how this approach works. Basically, employees within a company play the Crowdcast game, complete with play money, to compete in predicting marketing outcomes. In the case of one company cited in the article, their employees, video game developers and testers, were actually 32 percent more accurate than higher level employees. In fact, the accuracy of predictions was in inverse proportion to a person’s level in the corporate hierarchy. That is, the higher level the person, the less accurate their predictions. So what else is new? many of you would say.

This came as no surprise to me, given my involvement in this area, both as a lean practitioner and a software company founder. When I was running my previous software company Valuedge (a supplier evaluation  software solution acquired by Emptoris), our methodology was based on a very similar premise. In assessing a supplier’s performance, we would provide employees from multiple functions and at both management and non-management levels, a series of detailed questions about their company’s business practices and processes. What we found most interesting was the discrepancies among how management and non-management personnel answered the very same questions. In fact, we had a management vs. non-management report that highlighted those differences. This was one of the more insightful tools we provided. We found that if you asked only management people process and performance-related questions, you often got a much different picture than the lower-level associates would give you. Being lean enterprise experts, we were looking for the insights of the rank-and-file employees, since they were closest to the processes.

Now the firm Crowdcast has turned this approach into a clever and successful prediction methodology. It affirms the validity of the approach.

-Sherry R. Gordon

As part of the public flogging of Toyota for its massive quality problems and recalls, some are calling lean and the Toyota Production System into question. A recent WSJ article, How Lean Manufacturing Can Backfire, describes how Toyota’s use of common parts wreaks havoc during a recall. Part simplification is considered a lean practice. Many companies, especially GM, did not strive for part commonality and ended up with part proliferation, which is a costly and inefficient. GM didn’t have an integrated product team to design a vehicle, but a different design group for each system in the vehicle.  GM has paid for this inefficiency or rather the U.S. taxpayers are paying for it.  Why design a different braking system for every model? A common platform makes more sense.  However, when it comes to an auto recall, part proliferation means that fewer vehicles will contain the exact same part. That doesn’t mean that part proliferation is safer for the consumer, even if it is far more costly and inefficient. To say that lean has backfired because of this one practice is to throw out the lean baby with the media bathwater.  Ford, by the way, has adopted a common platform and common parts strategy for the Focus. Should Ford go back to the old platform proliferation approach? Probably not.

Toyota’s reputation for quality is now badly tarnished. And how they will get out of this mess is still not clear. But is this an indictment of lean? One of Toyota’s problems may be cultural. They kept known issues secret for far too long, possibly to save face, but in the long run making the situation more devastating. In lean, people are supposed to be rewarded, not punished, for uncovering problems as part of continuous improvement.  I think that lean at Toyota has in fact been lean manufacturing, confined to the manufacturing floor, and not lean enterprise, which encompasses all employees, including senior management and indirect employees.  Many companies think lean is just for the blue collar folks, not for management. It seems to have been counter-culture for Toyota to expose problems outside the factory walls.

I also wonder whether Toyota rested on its lean laurels and did not continue to evolve and improve its own system. In an AME discussion group, it was noted (and I have observed this myself) that Toyota employees are rarely seen at the many lean workshops and conferences that AME runs. If they do show up, it is only to present and then leave.

What I find typical in this situation is the lean bashing that ensues. Remember when this happened to the MBNQA (Malcolm Baldrige National Quality Award)? As soon as an award winner runs into trouble, as happened to the Wallace Company, critics pile it on and pronounce the whole system a failure. Wallace Company was a family-owned pipe and valve distributor received the Baldrige Award in 1990 and then filed for Chapter 11 bankruptcy protection in January of 1992. According to one observer, a consultant brought in to turn the company around said, “Instead of shoring up, officials spent time leading tours through the firm and on the lecture circuit.”  

It seems that Toyota was better at listening to its internal customers than its external customers.  It is better at fixing problems that associates find on the factory floor than the ones brought to its attention by its customers who drive the vehicles. The Toyota quality disaster will continue to be examined and written about for some time to come. And perhaps the causes of the problems will become clearer. But I believe that it wasn’t a failure of lean, but a failure of Toyota to follow the very system that made it successful in the first place. Toyota has the tools and the know-how to improve its quality and avoid quality and supplier glitches and potentially dangerous product failures. As I said when I wrote about its Tundra recall in November, Toyota had better reaffirm its commitment to quality and strengthen its resolve to fix underlying problems or suffer a decline like a couple of its American automaker brethren.

-Sherry R. Gordon

Yesterday Toyota announced that it is recalling 110,000 Tundra trucks built in 2000-2003 due to rust on the frames that is causing the spare tire to break off. Toyota is blaming a supplier, Dana Corporation, manufacturer of the cross member that holds the tire to the bottom of the truck, for the problem, and Dana is cooperating in the investigation.  This comes on the heels of a 3.8 million-car recall of Toyota and Lexus cars due to an alleged floor mat problem that is supposed to be causing unexplained acceleration. Of course, Toyota immediately suspected the floor mat supplier.  The actual cause of unexplained acceleration is still not definitively attributable to the floor mats. By the way, as an owner of one of the cars in question, a Toyota Prius, I find it hard to believe that the floor mats are causing any problems. On my car, there is a huge clearance between the floor mat and the gas pedal. No way could the floor mat be causing a problem on my car. I personally believe that there is some other root cause and hope that Toyota can get to the bottom of this one.  

These are dark days for the exemplar of quality and the acclaimed Toyota Production System. Its image is beginning to rust a bit, just like those cross members. In each case, the company suspected a supplier problem. The supplier is typically the whipping boy in automotive recalls, as big automakers do not actually make most of the parts that go into a car. But suppliers build to customer specification. It is the customer’s responsibility to ensure the accuracy and robustness of its specs and the supplier’s responsibility to build to these specs. If the specs are a problem, a good supplier should alert the customer and the customer should be open to listening to the supplier’s concerns.  All the more reason to revisit and tune up the practices of supplier relationship management, supplier qualification and supplier evaluation, collaborative product design, and quality control processes. In theory, Toyota practically invented the concept of lean suppliers, the lean supply chain and supplier development. In practice, something has been going awry.

To paraphrase the Bible, “Toyota, heal thyself.”  Toyota has the tools and the know-how to improve its quality and avoid such quality and supplier glitches and potentially dangerous product failures. They had better reaffirm their commitment to quality and strengthen their resolve to fix underlying problems or suffer a decline like some of their American automaker brethren.

-Sherry R. Gordon

Several weeks ago I had the opportunity to tour Fidelity Investment’s Cincinnati operations as one of the lean tours at the AME Lean Conference. If you’re a Fidelity customer, you may have noticed that most of your mailings including statements, checks, prospectuses, etc. come from Cincinnati and also that much of your paperwork to Fidelity goes to that center. I never even considered the incredible amount of paperwork that Fidelity has to process until I visited the incoming mail processing area in their Cincinnati facility. We’re talking mountains of mail and paper and billions of dollars. Not only does the mail need to get processed perfectly, without losing track of any piece of mail or check, but the operation has to meet required daily posting deadlines for incoming checks. How the heck do they do this?

Fidelity has developed a paperwork processing operation that has adopted many lean enterprise tools such as: kanbans, andons, standard work, multi-skilled, flexible work groups, flexible tools and equipment, supplier partnering. Cost, quality and service delivery are monitored continuously at every level, from the overall department down to scorecards for individual associates.  Here are a few of the many interesting practices in this center:

• Kanbans (visually signals the need for more work) — When an associate completes about an hour’s worth of work, they put up a sign indicating that they are near completion. Someone then delivers another hour’s worth of work, which is measured in pounds of mail.
• Andons — If an associate anticipates that he or she will not meet the daily processing deadline, they put up a colored indicator (different colors for different levels of severity) so that associates from other areas can be dispatched to help (multi-skilled workforce). Remember, missing the paper processing deadlines costs the company a lot of money.
• Associates who are able to answer questions and cross-train others have a sign up at their workstation indicating this.
• Flexibility — All desks and workstations are on wheels so that teams and subgroups can be easily moved around and reconfigured. The floor contains electrical hookups to accomodate this. Since mail needing to be processed arrives around the clock weekdays and on Sundays, the workforce is supplemented with part-time and contract workers who get the opportunity to become full-time employees depending on the company’s resource requirements. The workload is evened out as much as possible in order to avoid backups and missing posting deadlines.
• Supplier partnering — The company has set up 4 mail deliveries per day, including during the night in order to spread out the workload. Manifests are electronically synchronized with the delivery companies to ensure all mail (remember those checks) and packages are tracked and accounted for.

This incoming mail area has been working on lean implementation since 2003 and has made large and measurable improvements in cost, quality and service delivery metrics — and continues to pursue many more opportunities for improvement. While the mountains of paperwork were somewhat disconcerting from a green standpoint, this area was an impressive example of the lean office in action.

-Sherry Gordon

I recently gave a workshop on supplier evaluation in a lean environment as part of the AME Lean Conference. Because the attendees of my workshop already had a working knowledge of lean principles and practices, they were quite different from many audiences I have presented to and interacted with on the subject of supplier evaluation and supplier performance improvement. They wanted to find ways to improve their suppliers performance AND they were already familiar with a proven continuous improvement methodology — Lean.  These folks have the means but needed to understand the how to.

Too often I have seen procurement people who want and need improved performance from suppliers but aren’t sure how to make it happen. They may use scorecards to diagnose problems and opportunities, but find the next steps challenging — how to get at the underlying causes of performance issues and how to help or lead suppliers to addressing them. High performance and continuous improvement systems such as lean can provide the tools and the path. Improving supplier performance is very challenging. It requires both hard skills (continuous improvement methodologies and skills) and soft skills (communications and relationship building skills).  But having capabilaities in a proven methodology can provide a huge advantage.

Attending the annual AME Lean Conference was energizing and inspiring. The conference delegates are a different crowd. They are practitioners of the lean enterprise. This is apparent if you spend any time with these folks.

You know you’re at a lean conference when delegates:

• Complain that the buffet layout is not lean and discuss ways to improve the flow
• Admonish a colleague who is eating lunch quickly that he should switch from batch processing of their food to one-piece flow
• Brainstorm ways to turn dinner dishes cleanup at home into one-piece flow without alienating their families
• Buy a book to give to their dentist to make his/her office more lean (and by the way, the book is Follow the Leader by Sami Bahri)
• Discuss how to break it to their internist that the medical practice needs a major lean transformation so that it focuses on the patient, not the doctor
• Go on plant tours and give the plant a list of continuous improvement suggestions
• Discuss how a lean manufacturing sector will rescue the economy
• Brainstorm ways to make their suppliers lean
• Eat lots of conference food that is certain to make everyone fat, not lean — and joke about how un-lean the food is
• Discuss plans to make a shadow board (usually done for tools) for their kitchen utensils when they get home

The above bullets are representative of some of the conversations and activity taking place among the attendees, and I’m sure there is much that I missed. Lean is about elimination of waste and improving the flow of the business and making more money while respecting and empowering people. People become passionate about lean and its power and potential to transform and improve businesses and, in some cases, their homes.

The combined brainpower, energy, and lean thinking of the AME International Lean Conference was incredible. And they are correct that a robust manufacturing sector is not only an engine for growing the economy, but a clear path to help the U.S. can maintain and improve its standard of living in the future. As one presenter said: Do the math. Service jobs that pay less than half of what manufacturing jobs pay can’t improve our spending power or standard of living.

Meanwhile, I’m wondering how the newly energized attendees will re-integrate into their family lives and not alienate them with lean transformation projects at home.

-Sherry Gordon

I am in Covington, Kentucky attending the AME International Lean Conference, Journey to Greatness. Attendance is excellent despite the economy and its adverse impact on other conferences this year.  This may be due to various lean journeys presented by practitioners and couldn’t be more relevant in a down economy.  AME (Association for Manufacturing Excellence) puts on a great lean conference, and this one seems to be continuing the trend.

I will be writing about some of the companies whose presentations and stories I’ve had a chance to hear. For example, today I attended session in which a huge retailer and a manufacturer recounted a story of their unparalleled collaboration together.

On Friday, October 23, I’ll be presenting a workshop, “Managing and Improving Supplier Performance in a Lean Environment”. AME allows people to go to the pre and post-conference workshops without signing up for the conference. The learning objectives for this interactive workshop include:

• Align supplier performance expectations and criteria with the needs of your business
• Develop a supplier evaluation process that fits your company
• Create an understanding of what a lean supplier is in your company’s environment
• Develop strategies for developing lean suppliers
• Manage critical suppleir relationships to maximize value to your company
• Get from strategy to evaluation to action to lean supplier development and performance improvement

This workshop can be delivered on-site, too.

If you are attending the conference, drop me a note at sgordon at valuechaingroup dot com.

-Sherry Gordon

I was reading an article in the recent issue of AME Target, “Looking Forward,” excerpted from Doc Hall’s new book, Compression, due out this month from Productivity Press. The article is very thought-provoking as it looks at the future of manufacturing. One idea really struck me and is something I’ve always wondered about in the back of my mind. Successful companies focus on what customers really want. Waste is something that a customer does not want and is not willing to pay for, according to lean thinking. Companies that lose focus on customer desires can go out of business. This is a basic tenet of lean thinking and lean enterprise. But what if what the customer wants is not green? What if a product is bad for the earth, the sustainability of the planet and our way of life?

Doc cites the Hummer as an example. It may have lean, efficient manufacturing. And the product is what many customers want. But the product itself is very bad for the planet, leaving a massive carbon footprint in its wake of high fuel consumption.

Another example (mine) is bottled water. The whole process of bottling and shipping water, from the reduction of ground water near some bottling plants to the energy required to make plastic bottles and then ship them to distant customers illustrates the conundrum of customer focus without sustainability.

There are numerous examples of successful companies and customer satisfaction built on the basis of earth-destructive products.

If the developed world is to continue to maintain our standard of living and improve it for others on the planet who are currently living at much lower levels and whose plight they will eventually not allow the rest of us to ignore, what do we do? Our resources will not last forever if we consume instead of recycle and resuse.

The answers are not easy. The impending sustainability crisis is and will be the mother of invention.  It will change “what the customer wants” to be more in sync with green.  Out of necessity our culture of individuality and freedom needs to transition to one of community and to a point where satisfying individual desires does not destroy the planet. But how? And how soon? 

I’ll be interested to hear more from Doc Hall at the upcoming AME Lean Conference in Kentucky.