Want to cut through the jargon and find something that will provide you with a to-the-point, lean manufacturing explained guide? You’ve come to the right place. We’ll go through the basics and how lean works, as well as how it can transform a business.
Lean manufacturing explained: Lean allows you to offer more value to your customers, and do it at less cost and faster. It does this by focusing on eliminating waste across all processes, using the people in the business to do this.
The Benefits of Lean – Let’s Make Burgers
Imagine you run a gourmet hamburger restaurant, called Gourmet Co. You’ve been running it for years. And you’ve experienced some good levels of growth and success.
The hamburgers are pretty expensive. You also get some negative feedback, from time to time, where customers complain at the long wait times and poor quality meals. You’re doing pretty well, though. And besides, Every business has its detractors.
Let’s lift the cover and delve deeper into your operations, for a second….
Your Customers and Value
For gourmet burgers, what exactly do your customers see as value? To put it another way, what governs a good burger experience?
Well, there are three main factors that govern value in your gourmet burger industry:
- The fresh ingredients (including the meat!) – so customers have tasty, quality burgers
- Each gourmet burger is hand made and fresh – the same as above
- The speed of the service – Your customers don’t want to wait excessively long to be seen, served and finished.
If we look at how your business makes its burgers, we can see the following results:
- There’s about 1 minute to take an order from the customer
- It takes 2 minutes to prepare our burger
- It takes about 5 minutes to cook the burger
- There’s also about 1 minute to create the gourmet burger
- Another minute to serve the burger to the customer
As we can see, value isn’t an event. It’s a sequence of events.
Using this information, we can quickly see that the actual cost of time to make each burger is about $3.
The materials that go into making this burger equates to around $2.
The total cost to make a gourmet burger is $5.
Does your business sell its gourmet burgers for $5? No. Your business charges $13 for a typical gourmet burger meal.
That’s because there are other costs incurred in the business, like:
- The cost of burgers made in advance and thrown away at the end of the day, because they weren’t sold
- Excessive meat and salad thrown away
- The waiter’s time to take orders and constantly move between tables
- The replacement orders for uncooked burgers, poor taste, and defective meals
- Paying for a large team to keep things being pumped out of the kitchen
and so on…
Each one of the above increases cost to the business and reduces the capacity to make more burgers.
A New King in Town…
Continuing on with our example, let’s suppose a new competitor opens up in town. They’re called Gourmet King.
They seem a slick outfit. Everything in the restaurant is cleaner and more organised than yours.
- The décor looks fresh and modern
- Their gourmet burgers are getting raving reviews for taste
- The speed of service is fast and efficient – they can turn out a deliciously fresh meal in 6 minutes. Your business does it in 20 minutes.
- AND they are selling their burgers cheaper than yours – $9 to be exact…. with what appears to be less people working in the business, too.
“It’s Just a Flash in the Pan…”
You and your management team have an emergency meeting to discuss this new threat. And when the above pointers are highlighted, you all agree that there’s no way they can be making any money. It must be a gimmick.
You all agree that this level of service can’t be sustained; “They’ll soon go out of business.” Everyone agrees and goes back to work.
The plan is to carry on as normal and let things ride out until this gimmicky new business disappears.
6 months pass and there are no signs that Gourmet King are going out of business.
In fact, they’ve stolen more market share from you, and whilst their business is booming, yours is looking perilous. You now have half the sales you used to.
The only thing left to do is to cut costs.
You are forced to work with a skeleton crew: You make a number of waiters, bar staff and kitchen staff redundant.
You also try to cut costs on the ingredients too, opting for less quality and higher bulk. The problem is, the quality will inevitably suffer furthermore. But you manage to reduce your prices to around $10. It’s getting closer to Gourmet King, but not quite.
After making cuts, reducing the spend on ingredients, facing dwindling sales, and dealing with more complaints through a poorer quality service, you have no choice but to close your restaurant.
You can’t sustain the costs. Your’re not making any profit now and there’s nothing else you can do.
All those years of hard work have gone. The good times are now just memories. It was Burger Co. who went out of business, while Gourmet King just got stronger and better at what they did.
“What went wrong? How did they pull it off?” You wrestle with these questions every day after closing your beloved business.
Lean Manufacturing Explained: Let’s Take a Look at Gourmet King
Gourmet King understood that your Burger Co. was doing the following:
- Making in batches. Sure, burgers had to be fresh but if you made a few more at a time, they’d probably get consumed during the day and you can get ahead
- You threw some of these unsold burgers away each day
- The waiters were not as efficient as they could be when placing orders and servicing you quickly
- As you made burgers in batches, Gourmet King rightly assumed you’d be ordering too many ingredients and throwing the unsold stuff away, too.
The Lean Way
Gourmet new in order to win the race, they’d have to come to the table with something new. For this reason, they analysed their complete value creation processes and designed new ways of working. They created:
- A standard and fast way for waiters to welcome the customer and take their orders within 5 minutes
- Made to order – They had zero finished burgers
- They designed the layout and tasks, so the burger was produced like an assembly line
- They controlled their ingredients by having daily drops from their suppliers, built around the number of burgers they’re selling.
- The processes were timed and tracked on the following, so they could constantly improve how they satisfy their customers:
- Average Burger Creation Time
- Average Customer Lead Time (From seat to delivery of their burgers)
- Number of returns
Your business didn’t do any of this. It got left behind in:
- Efficient burger processing
- Efficient ordering
- Better quality
- Faster delivery
- Reduced costs
Improve Burger Co. Using Lean
Our Gourmet King business and all other lean businesses follow the 5 principles of lean.
These form the foundations of all lean businesses. Although the output may vary based on the type of business and the market, the principles remain the same.
Your business could and should have followed them to remain competitive.
Here’s what they are, in order:
Principle 1: Understand what your Customer Values
Before you can improve your business and create lean processes, you must first understand what it is your customers want. Also, if you could be more competitive, what additional value could you offer that will wow them?
When you start to peel this away, you’ll be able to identify both existing and new value. Both will mean a customer experience that’s second to none.
In our gourmet industry, the existing value was:
- Fresh ingredients and outstanding taste
- Freshly cooked, by hand
- Fast delivery
Additional value could be some of the following ideas:
- More choice – a wider selection of gourmet burger meals
- Create your own gourmet burger
- Price (a point to note: you don’t and shouldn’t compete on price alone, but value for money may mean that you can reduce the price slightly, still offer more and make higher margins than your competitors.)
Once you’ve found this value, it’s time to map your end to end processes…
Principle 2: Understand your Value Stream
A value stream is all the sequence of processes that come together, which form this value to the customer. They include the non value added (wasteful steps) and the value add steps.
Think of a value stream as being similar to a stream of water. In lean, we want our processes to flow optimally and as fast as possible. The product and information that flows through our processes is the equivalent to the water in our stream.
When we map these processes, we create a value stream map (VSM) of how the processes work together, right now. It looks something like this:
By mapping our processes we get an overview of what happens in our burger making process.
Principle 3: Make the Value Stream Flow
Once we’ve developed our current state map, we need to identify the wasteful steps and remove them.
Returning to our mountain stream example, we can see debris in our photo. These barriers (rocks, Branches, etc) prevents the water from flowing as efficiently as it could. And the more debris, the less flow in our stream.
The same is true for our value stream. Think of the debris as wasteful activities and practices. Each one hampers flow and efficiency.
Here’s an example of some of the debris in our stream:
By firstly seeing this waste, you can then take action to remove it.
And by removing it, you make the product and information passing through your processes, flow faster.
In our example, we need to do some of the following:
- Link our burger creation process steps together, so they flow and that there’s no build up of work in progress.
- Reduce the amount of ingredients we have stored. The customer wants fresh ingredients, so we need to have more frequent deliveries. This will allow us to throw less away!
- Use fresh ingredients: we’ll probably increase customer quality and reduce rework and complaints
- Eliminate “batching”and making ahead, to making one at a time, and only to orders
By adopting the above ideas, we’re well on the way to becoming super efficient and giving Gourmet King a run for their money.
Principle 4: Create Pull
Another waste in lean is producing too much too soon. In the case of our hamburger business, you opted to push work through and make ahead, before anything was ordered.
This creates wasted resource in time, people and money. Your team are literally spending this vital resource making something that’s not needed right there and then!
The lean ideal (and it’s what our Gourmet King restaurant did) is to make and process what’s needed, only when there is a demand for it.
A big part of this is to use Kanban. Kanbans release work to the next stage only when something has been consumed. This consumption could be some of the following examples:
- Providing certain amount of work (in accordance to a time increment). E.G. every 2 hours
- Raw materials when they need replenishing
- The next load of paperwork to process
- The next item to make
By pulling work through, you reduce the work in progress and wasted time producing things you don’t need. You also link processes together, to improve flow.
In terms of pull, here’s what we will do for our Hamburger Co:
- We’re now making to order. In view of this, we’ll create an assembly line approach to making our burgers. This means that we won’t be spending much time preparing, as everything will be in place for us to create the burgers from the minute there’s an order.
- We’ll link our daily orders with our raw material supplier to a kanban trigger. We’ll order only what we’ve consumed the previous day.
Here’s our new value stream map of our Burger Company.
A Summary of Our New Burger Co. System
Here are the improvements we’ve identified when implementing these principles:
- We’ve agreed daily supplies from our ingredients supplier. This will ensure that everything is fresh
- We’ve created a kanban system to act as a trigger to order only what we need each day
- We’ve brought the burger processes together and will make burgers using an assembly line approach
- We’ll look at our burger making process to improve the productivity, so we can make more with less resource and in less time.
- We’ll only make when an order is placed
Principle 4: Continuously Improve
Just like our Gourmet Burger competitor, we always aim to improve to keep ahead of the competition. We do this using the employees of the business to drive these improvements.
In continuous improvement, we repeat these principles over and over again. In doing this, we continuously challenge how we work, to drive further waste out of our processes, and add even more value.
Our business will develop a culture of continuous improvement.
A Lean Process – What Does it Look Like?
In order to be lean. you need to improve your lower level processes. As we saw in our gourmet burger example, the main goal of a lean process is to move from one value add step to the next with as little waste in between.
If you achieve this then you’re more efficient than before.
A lean process is measured in terms of how the same process performed before and after improvement. If it’s better, it’s leaner.
It can also be measured against your competitors.
- Can you respond faster?
- Are you more productive?
- Can you offer more value (think speed,variation, quality, additional services)
- Is your lead time quicker?
If you are, then you have a lean(er) process than the competition.
A lean process holds the following characteristics:
- There’s no over processing
- No excessive stock
- No batching of work
- A standard way of working – everyone works to the same process standards
A Lean Process Typically Follows These 3 Rules:
- All work is highly specific in its content, sequence timing and outcome. This means that there is a standard way of working, which is time bound, stating the best way to work and what the outcome of the process should include.
- Each person knows who to provide what to him or her, and exactly when. This means that processes are linked using visual triggers. These triggers tell the previous step to supply more work to the next process.
- Every product or service flows along a simple and specified path. There is no over processing or complex path. This in turn means that product or information flows more efficiently.
We can use these ideals in our burger creation process, so everyone knows:
- What to process and when
- How long it should all take to process
Our Lean Improvements Combined
Using lean in this guide, and by following these examples, we could have transformed our Burger Company to not only stay in touch of the Gourmet King, but to out compete them.
We could offer more innovative ideas to create value and design our entire business processes to consistently provide this value without any compromise on quality, cost and more importantly delivery to our customers.