THIS IS LEAN: RESOLVING THE EFFICIENCY PARADOX by Niklas Modig and Par Ahlstrom
see also http://thisislean.com and [amazon]
Compare the results in a healthcare environment when patient goes through 42 days of doctor visits and testing procedures to get a diagnosis vs. patient goes to specialty center that does all the exams and testing and delivers a diagnosis in 2 hours -- 500x faster. This is the difference between organizing for resource efficiency and organizing for flow efficiency (lean)
1. FROM RESOURCE FOCUS TO CUSTOMER FOCUS
resource efficiency - focus on utilizing resources efficiently, action movie w/ camera mounted on shoulder of the doctor, ratio: value hours / total hours = low, maximizing value adding time of individual resources, measured as % of value adding time per time period
flow efficiency - focus on satisfying needs (delivering value), camera mounted on shoulder of patient, ratio : value hours / total hours = HIGH, maximizing value receiving time of customer, measured as % of value-receiving time per total throughput time
2. PROCESSES ARE CENTRAL TO FLOW EFFICIENCY
- process is defined perspective of the flow unit (materials, info, people, product)
- specification of system boundaries define total throughput time
- all activities classified as either value-adding or non-value-adding (waste)
- customer needs being satisfied defines value (emergency room delivers life-saving vs. doctor’s office or hospital room also needs to deliver comfort/sensitivity)
- decreasing total throughput time => increased value, unless indirect needs (e.g. comfort/sensitivity) take more time to deliver (wasted time in line can be converted to value-adding time if indirect needs can be met while waiting)
- flow efficiency is about density of value transfer and finding right balance of density and speed to fit customers and employees
3. WHAT MAKES A PROCESS FLOW?
- throughput time = # flow units X avg cycle time per unit
- resource efficiency wants a buffer queue (more # of units in line) to make sure that there’s always work for each resource. each buffer/queue increases throughput time.
- cycle time per unit is optimized when station/resource can’t work any faster
Law of Bottlenecks
- bottlenecks lengthen throughput time
- bottleneck = stage in process w/ the longest cycle time (slowest flow rate)
- always a line before the bottleneck
- always resources wait for work after the bottleneck, so they work slower and not being fully utilized
- bottlenecks removed cause new ones elsewhere
- lines at bottlenecks increase throughput time
- flow efficiency tries to eliminate bottlenecks
- bottlenecks appear because (1) the order of stages matters, (2) variation in each unit’s experience/needs
Law of Effect of Variation on Processes
- variation sources
- resources differ (people and even machines differ)
- flow units differ (needs, requests)
- external factors (arrival times, seasonality, batching/bunching)
- variation in time to process different flow units and in their arrival times at start of process
- variation in process time at one stage => variation in arrival time at next stage
- throughput time RISES as utilization (resource efficiency) RISES (as the process fills up)
- increases in variation => increases in throughput time as it creates more queueing throughout the process
- variation: increased variation, increases bottlenecks
- bottlenecks: increase lines, increase flow units
- little: increase flow units increase throughput time
- as total throughput time increases - general rule is that flow efficiency decreases cuz more waiting in lines (UNLESS somehow value-adding increases while units are waiting in line)
- high resource efficiency requires lines to keep resources busy but lines decrease flow efficiency
- very difficult to optimize for both resource and flow efficiency
How to improve flow efficiency?
- reduce total # flow units in the process by eliminating the causes of lines and waiting
- work faster, to reduce cycle time per unit
- add more resources to increase capacity and reduce cycle time
- eliminate, reduce, and manage different forms of variation
Focus on Resource Efficiency => decreases flow efficiency AND increases problems, creates extra work throughout process
4. THE EFFICIENCY PARADOX
Three Sources of Inefficiency cause secondary needs and extra work to snowball
long throughput times
- waiting time generates new needs
- waiting time misses opportunities, can’t respond => new needs and extra work
many flow units
- people can handle limited number of things/tasks at once
- inventory requires additional resources and costs
- info backlogs cause stress and confusion
- too much WIP => loss of control, big picture => secondary needs and extra work
many restarts per flow unit
- context switching, mental startup time wastes time/energy
- many handoffs => restarts, miscommunications, gaps, errors, frustration
- more secondary needs and extra work pop up as result
- loss of big picture overview, meaning, responsibility, sense of control
efficiency paradox = focus or resource efficiency automatically lowers flow efficiency => local optimization and whole process sub-optimization
inefficiencies, wasted time, energy, resources, on sub-optimal processes scales to societal level, implies huge losses across all organizations and countries.
5. Toyota Production System (TPS) Story
Post WWII scarcity in Japan drove focus:
A. Doing/Making? THE RIGHT THINGS, investment in right equipment and making right products... required seeing and optimizing the whole, big picture
- what (which products) does the customer want?
- when do they want it?
- how many do they want?
- simple tools and equipment
- pull system producing for actual orders
- whole production process = flow system w/ each stage having an internal customer and supplier
B. Doing THINGS RIGHT
- maximize flow of order info up the chain and product flow back to the customer
- all forms of inefficiency and waste were eliminated
- waste of overproduction - at each stage min inventory
- wasted of time on hand (waiting) - for machines and people
- waste in transportation - changed layout to min transport distances
- wasted of processing itself - avoid doing any more work than the customer requires
- wasted of inventory - throughout system, min set-up times
- waste of movement - organized to min worker movement, e.g. carrying distances
- waste of making defective products - produce fault-free parts
- QC and QA becomes embedded in every step of process
- anyone can stop the production line (cord pulled hundreds/thousands times per day)
- problems identified quickly and fixed immediately -- and permanently
- mistakes should never reach the customer
6. WILD WEST – MANY DEFINITIONS OF LEAN
Ohno: All we are doing is looking at the timeline from the moment the customer gives us the order to the point where we collect the cash.
- Productivity ≠ economics of scale and advanced technology
- Productivity = low inventory, low buffers and simple technology (=> high productivity AND high quality)
- Krafcik calls it “Lean”
Four Core Principles (accdg to Womack, Jones, Roos: Machine that Changed the World)
- efficient use of resources + elimination of waste
- continuous improvement
Lean Thinking (Womack, Jones)
- specify value from the view of teh customer
- identify the value stream + eliminate all steps that don’t add value
- make the remaining value steps flow smoothly toward the customer
- when flow is established, let the customer pull value upstream from the next upstream activity
- rinse + repeat => perfection, perfect value w/ no waste
Evolution of Manufacturing Systems at Toyota (Fujimoto)
- level one - routinized mfg capability
- level two - routinized learning capability (kaizen)
- level three - evolutionary capability - capability-building capability
Decoding DNA of TPS (Spear, Bowen) - one of most frequently quoted views of tacit Toyota knowledge
- all work shall be highly specified in terms of content, sequence, timing, outcome
- every customer-supplier connection must be direct and there must be unambiguous yes/no way to send requests and receive responses
- the pathway for every product and service must be simple and direct
- any improvement must be made in accordance with the scientific method, under guidance of a teacher, at the lowest possible level of the organization
TOYOTA WAY (is only sixteen pages long, illustrated with a testimonial for each point from Toyota employees)
- Continuos Improvement
- Challenge - we form a long-term vision and meet challenges with courage and creativity to realize our dreams
- Kaizen - we continuously improve our business operations, always striving for innovation and evolution
- Genchi Genbutsu (GEMBA) - we practice ‘’genchi genbutsu,’’ we go to the source to find the facts to make correct decisions, build consensus, and achieve goals at our best speed
- Respect for People
- Respect - we respect others, make every effort to understand each other, take responsibility, and do our best to build mutual trust
- Teamwork - we stimulate personal and professional growth, share the opporutnities of development, and maximize individual and team performance
FOURTEEN PRINCIPLES (Liker)
I. long-term philosophy
- base your management decisions on a long-term philosophy, even at the expense of short-term financial goals
II. the right process will produce the right results
- create a continuous process flow to bring problems to the surface
- use “pull” systems to avoid overproduction
- level out the workload
- stop the process if necessary to fix problems in order to get the quality right the first time
- standardize tasks and processes for continuous improvement and for employee empowerment
- use visual control so that no problems are hidden
- use only reliable, thoroughly tested technology that serves your people and processes
III. develop your people and your partners
- grow leaders who thoroughly understand the work, live the philosophy, and teach it to others
- develop exceptional people and teams that follow the company’s philosophy
- respect your partners and suppliers by challenging them and helping them improve
IV. continuously solve root problems to drive organizational learning
- go and see with your own eyes in order to understand the situation thoroughly
- develop exceptional people and teams that follow the company’s philosophy
- become a learning organization through relentless reflection and continous improvement
===> No single, solid, common definition of Lean. Successfully applied at...
- mfg, banking, retail, insurance, consulting, media, entertainment, healthcare, medicine, telecom, IT,
- purchasing, product dev, logistics, service, sales, accounting
7. WHAT LEAN IS NOT
“Lean” suffers from fragmentation at level of abstraction makes “lean” more or less applicable to other areas/organizations beyond manufacturing, matters greatly for success or failure of adoption
- lean as philosophy, values, culture, way of living, way of thinking
- lean as way to improve, quality system, production system
- lean as method, tool/toolbox, elimination of waste
“Lean” mischaracterized as means rather than an end
- means = how, end goal = why
- means and goal get confused
- focus on how Toyota does TPS vs why they do it
- when lean defined as methods => (1) use of methods becomes the goal, (2) overlooks why doing them, (3) never reach the goals
“Lean” generalized to mean everything good and all good is “lean”
- lean becomes buzzword/methods to fix all problems
- trivializes actual knowledge and practice required
- need to understand what it is for and what not, how it works and how not
- lean should be a CHOICE at a crossroads, an investment you make for a set of results, rather than unquestioned magic wand no one could/would resist
8. THE EFFICIENCY MATRIX
high | => perfection
res eff |
=> efficient islands |
res eff | => efficient ocean
=> wasteland |
low flow eff high flow eff
- efficient islands = high local optimization, utilization but low flow efficiency
- efficient oceans = high flow effeciency but low resource efficiency (expensive)
- wasteland = low+low: think startups before standardizing processes, procedures, roles, etc
- perfection = upper right unattainable point, but target direction
- variation (in demand and in supply) limits positions in the matrix and also movement within it, keeps organizations from reaching peak perfection
- efficiency frontier = line ( \ ) FROM flow efficiency at peak resource efficiency TO resource eff at peak flow efficiency
- organizations/strategy chooses point/movement ALONG the frontier, chooses the balance between resource and flow efficiency
- variation shifts the frontier: more variation, frontier (of all possible choices/mixes) shifts back and down toward wasteland, less variation shifts frontier toward perfect state
Strategy for Moving within the Matrix
- business strategy: what needs will we satisfy, what value we will offer (why we do our work) - can focus on differentiation or cost, often a trade-off, need to choose or get stuck in the middle, business strategy chooses level and types of differentiation and at what cost
- operations strategy: how we’ll satisfy (what we do) - operations strategy linked to biz strategy, broken down into operational objectives, resource and flow efficiency are two operational objectives, that can be further deconstructed into underlying/supporting objectives
examples: ryan air - low cost and high resource efficiency (planes flying all the time, barely on ground) vs. luxury hotel with high flow efficiency (personalized service) and fire department (excess capacity, always ready)
Movement within the matrix, examples
- startups move from wasteland toward upper right by standardizing roles, procedures, processes
- bathroom refinisher decides to charge a premium for faster service, shifting to more flow efficiency, swarming workers
- manufacturing company transformed production processes/layout, shifted from specialization to teams, moved up and right
- luxury hotel shifted from 5 stars to 4 stars, lowered rates, increased utilization/occupancy traded flow for resource efficiency to increase profitability
resource efficiency can be shifted up or down. flow efficiency, same. no best solution. depends on competitive environment, customers’ needs, employees skills, business strategy
9. THIS IS LEAN?
Lean is the operations strategy that prioritizes flow efficiency over resource efficiency, to move UP and RIGHT in the matrix.
Example: auto inspection service. Move from perceived efficient islands, to realizing wasteland, to efficient ocean toward perfection.
- FIRST increasing flow efficiency. main driving forces in the move: teamwork, specialized equipment, standardization, and visualization. the speed of value-adding activities was increased and non-value-adding activities were eliminated.
- THEN increasing resource efficiency. standardization of tasks and creating routines removed extra work, new layout and tools.
- flow efficiency was built into the new routines and resource efficiency was achieved by combining new routines.
- in resulting state, resource efficiency less than 100% creates resilience to respond to unexpected events.
- flow efficiency is always the first priority, to move right and then up in matrix
- focus on whole value stream, prioritize flow efficiency, removing waste and superfluous work, ultimately improves resource efficiency at the system level, rather than as isolated efficiency islands
- variation is root obstacle. essence of lean strategy is always striving to remove, reduce, manage variation
Lean is... highest level focus on flow efficiency over resource efficiency.
- various means not applicable in every environment. how it’s realized depends on context.
- START... with your business strategy and ask, “what value do we want to create, and how should we compete?”
10. REALIZING A LEAN OPERATING STRATEGY
- start with values. out of those derive principles. from those develop/standardize methods, as patterns of actions emerge, and notice which ones work best in which situations. then create tools and activities.
- THEN... notice that standardization is itself a method. a meta-practice for choosing best practices, which also needs to be developed and refined, in context/environment.
- at toyota, serving customer needs, delivering customer value was most important value
- two principles emerged from that
- just-in-time - this is about creating flow - to deliver what is wanted, when it's wanted, and in the quantity wanted
- jikoda - this is about creating visibility, big picture for everyone - so that anything that hinders flow can be seen and addressed immediately by anyone who can help
- methods realize principles, at daily practice/management level
- visual planning is one method for realizing jikoda, one way to make sure everyone sees the big picture.
- the andon cord to stop the line is another method.
- standardization is itself a method - a standard for making/adjusting standards
- tools and activities - nouns and verbs - how methods are realized... the method of standardization might rely on a template as tool and filling it in as an activity
...today's organizations are built like a soccer field covered in hundreds of small tents, where matches are played with many different balls at the same time. the players are rewarded for kicking the ball as many times as they can, and think they score a goal when they succeed in kicking the ball out of their own tent. they play at different times and barely know the names of the other players. no one sees the big picture. no one hears the whistle.
- values define how we should be, regardless of the context or environment. values are the basis for our very existence and the state towards which we continually strive.
- principles define how we should make decisions and what we should prioritize. just-in-time and jidoka define the direction in which our operations should develop. toward the customer!
- methods define how we should perform different tasks. methods are the motors that propel us in the right direction.
- tools are what we need to have and activities are what we need to do to realize a specific method.
- everything is connected to a system that, continuously and in small steps, develops our business into a very beautiful form/flow
- can realize lean strategy by addressing any or all levels at one time, depending on context/environment
- values, principles, methods, tools – ARE NOT LEAN – but merely ways of realizing a lean operations strategy
- anything that helps us eliminate, reduce and/or manage variation in an organization is a good means to realize a lean operations strategy
- all organizations already have values, principles, methods and tools - the questions are what do they include, how explicit are they, how widely accepted they are
- values serve to reduce variation in how employees are - informing behavior, things like respect, teamwork, customer needs... supports the dependencies inherent in flow efficient teams
- principles serve to reduce variation in how employees think - about increasing flow efficiency, to guide everyday decision-making. just-in-time (flow) and jidoka (visualization) are common principles
- methods serve to reduce variation in what employees do - value-stream mapping, 5s (sorting, structuring, shining, standardizing, sustaining) are common but not required methods in lean operations
- tools serve to reduce variation in what employees use - visual planning board is a common tool to see and control the status of work flowing through processes
no fixed methods. every organization has to learn and develop its own way.
11. ARE YOU LEAN? LEARN TO FISH.
- lean is not a static state or end state that can be finished or achieved. it is a dynamic state characterized by continuous improvement.
- "when are we lean?" is the wrong question. try instead, "when is a lean operating strategy realized?"
- the goal of a lean operating strategy is to improve flow efficiency without sacrificing resource efficiency – and ideally improving it, too.
- there are two extreme ways to define lean operating strategy: static and dynamic
- static view is wrong one -- IF that's the only view taken. yes, take small steps, define, do, measure... but keep going, make improvement dynamic, ongoing, ordinary
- in the dynamic view, no one milestone, measure or absolute level is the goal, but rather the continuous improvement of flow, the right-upward trajectory in the efficiency matrix
- only way to know "are we lean?" is to compare two points in time, to look for dynamic improvement over time
- not enough to just improve flow, need to improve improving, too. need to be learning continuously.
- not enough to create improvement projects for "catching the big fish," it's about everyone in the organization learning to fish, learning to improve -- becoming "self-fishing" organization