Bottom Line Improvement: Techniques to Improve Profitability (Lean Concepts) author(s) Thorsten Consulting Group, Inc.

NASBA QAS field of study1, 2Finance level of study intermediate credits (50 min.hr.)1two (2) hours NASBA's QAS program1yes prerequisites Experience in finance, operations, or accounting description This course focuses on the application of Lean concepts as a means of improving the organization's profitability and provides numerous best practices for improving the efficiency and profitability of any organization. Objectives After completing this course, you should be able to

Develop a working knowledge and vocabulary of Lean concepts Learn how to create a Lean implementation plan for an organization Learn how to launch a Kaizen event in your organization Learn how to adapt Lean office concepts

Expiration 30 days from enrollment date, sometimes sooner if conditions warrant.

Introduction
One of the more interesting trends to impact profitability as well as the way in which companies address overall efficiency is the concept of "Lean". The dictionary defines Lean in the following ways:

Thin: lacking excess flesh; "you cannot be too rich or too thin"; "Yon Cassius has a lean and hungry look" - Shakespeare Containing little excess; "a lean budget"; "a skimpy allowance" Not profitable or prosperous; "a lean year"

When it comes to organizations, Lean has taken on meaning first within the manufacturing setting, second in the service setting, third in the office setting, and finally within the Accounting function itself. By studying Lean in these settings we will also improve our ability to increase profits by making our processes more effective and less wasteful. We will first explore Lean within the manufacturing setting, then progress to the service setting, and then finish with the office and Lean accounting setting.

Lean Manufacturing Overview

What is Lean manufacturing? Lean Manufacturing is a team-based systematic approach to identifying and eliminating wasteful or non-value-adding activities within the manufacturing environment. It is a whole new way of thinking, and should be considered much more than a series of programs or techniques. It must become a whole system approach in order to create a new operating philosophy, which focuses on eliminating all non-value adding activities from order entry to receipt of payment.

What are the Benefits of the Lean Philosophy?

When Lean is successfully implemented through effective planning and implementation the following will occur:

Reduce lead time Reduce work in process Improve quality Improve flexibility Reduce transactions Simplify scheduling Enhance communications Reduce costs Improve on-time deliveries Increase sales Improve space utilization

Major Areas of Emphasis

Within Lean there are major areas of emphasis which need to be understood:

5S Visual controls Kaizen Value streams

Pull

Mistake proofing Quick changeover Six Sigma Theory of Constraints

Let us consider each of these areas of emphasis.

5S
The 5S system has been labeled as a common sense approach to improvement within a facility or manufacturing plant that focuses on organization, cleanliness, and standardization to improve profitability, efficiency, service, and safety. The basis of a 5S System is not very complicated. What do the 5S's stand for?

Sort - Clearing the work area Set in Order - Designating locations Shine - Cleanliness and workplace appearance Standardize - Everyone doing things the same way Sustain - Ingraining the 5S's into the culture

Sort - Clearing the Work Area

Any work area should only have the items needed to perform the work in the area. All other items should be cleared (sorted out) from the work area.
Set in Order - Designating Locations

Everything in the work area should have a place and everything should be in its place.
Shine - Cleanliness and Workplace Appearance

Not only should the work area be clear, it should also be clean. Cleanliness involves housekeeping efforts, improving the appearance of the work area, and even more importantly, preventive housekeeping - keeping the work area from getting dirty, rather than just cleaning it up after it becomes dirty.

Standardize - Everyone Doing Things the Same Way

Everyone in the work area and in the organization must be involved in the 5S effort, creating best practices and then getting everyone to "copy" those best practices the same way, everywhere, and every time. Work area layouts and storage techniques should be standardized wherever possible.

Sustain - Ingraining the 5S's into the Culture

It is tough to keep a 5S effort, or any improvement effort for that matter, going. The 5S's involve a culture change. And to achieve a culture change, it has to be ingrained into the organization by everyone at all levels in the organization. Considering the terms above, it is easy to see how the system can be viewed as common sensed. Everyone would agree on the need for those items, yet a review of our organizations would most likely show a lacking in all areas. It seems like such a simple thing that does not cost very much, but implementing the Five-S System will improve profits, and at the same time improve both quality and safety.

The 5S's will impact the organization in the following areas:

Reducing wasted time and materials, Improving daily or shift startup times, Reducing maintenance and downtime, Improving efficiency and productivity, Improving employee morale, and Simplifying the work environment.

All types of business (manufacturing, service, for profit, not for profit, educational, health) can benefit from using the 5S's.

Visual Controls

Visual controls are documented methods and procedures. Typically, they include easy-to-follow visual cues for actions to be taken. A common example is the standardized work chart. By using visual controls, associates, and managers are more able to see the current status of the job site and determine if abnormalities exist. This also allows for all workers to see if items are not in the correct place and correct the situation through inspection by visual control. Standardized work charts are a typical and extremely effective visual management tool. These charts will result in improvements in safety, quality, and efficiency while improving cost effectiveness. In order to create work charts, workers will need to document the elements of each specific task in their basic work order. This should include equipment or tools used, work sequence, standard in-process stock, Takt time, cycle times, safety cautions, quality checks, etc.

Kaizen
A Kaizen Blitz is an intensive and focused approach to Process Improvement. Kaizen means "continuous improvement" and Blitz means "lightning fast." This continuous improvement methodology will incorporate all elements of Lean Manufacturing Tools such as the 5S's (covered above), Workplace Organization and Standardization, Cells, Pull/Kanban, Set-up Reduction, and Line Balancing. To be successful, each team will need to be empowered, they will need to have freedom to make changes and they will need to be good analyzers, creative, and problem solvers. This combination will allow teams to make rapid improvements to a specific product or process.

Value Streams
A value stream provides an integrated description of how a product passes through all stages of production. This process also establishes the value of each section of the value stream. Typically, the value stream will look like a flowchart which outlines all steps in the process or product's life. This is equally applied to service processes (even back office) as well as manufacturing.

Pull
Pull is a method for moving inventory in process through a production process. Traditional manufacturing incorporated batch processing. These batches were planned based on specific lot sizes. In the pull process, nothing moves forward until it is "called" for by the customer or the next processing step. In a pull system, an item that is sold immediately generates an order to produce another. This is often compared to a grocery store - where items are replaced on the shelves as they are used. In this fashion only the most current material is being processed. Pull production results in eliminating wasteful inventory buildups. Pull production also employs elements of just-in-time delivery, one-piece flow, etc.

Mistake-Proofing
Mistake-proofing, also known as "poka-yoke" (po-kay-okey), devices are used to prevent defects from passing on to the next process. This approach is an improvement over traditional quality approaches which evaluate for defects at the end of the assembly line. Mistake-proofing requires that process quality checks are built into the operations and the equipment has the appropriate sensors to detect errors and stop the process. Combined with other lean tools, mistake-proofing works to ensure that 100% quality is built into the process and product.

Quick Changeover
One of the biggest wastes of resources is the time when a machine is not in production. This time is created when production lines need to be adapted or adjusted to run a different type of product. The ability to rapidly change from one product to another is often a key to success for many companies. As customer lead times are continually being shortened and product mixes become more complex, the ability to change over rapidly and easily is a competitive advantage. Fortunately there are powerful, quick-change techniques that can be applied to any type of operation: from metal to wood, from food to plastic, etc.

The process to achieve quick changeover is

Identification of the total changeover time into two categories: o Internal changeover time - This is the interval of time during which the productive process must stop, or no setup could be made. This is the real and proper changeover time that begins when the current lot process finishes, and ends when the next lot process produces the 1st defect-free item. Throughout this time no value is added to products. There are 2 main components to internal changeover time: Replacement activities - In manufacturing, these include stripping previous process ancillary tools (moulds, dies, plates, guides, rollers....) and fitting the next lot's corresponding ones. Generally, there is a lot of bolting and un-bolting operations to be done, rather time consuming, and a number of moving activities, such as lifting, lowering, removing...The goal is to minimize these activities' duration by applying a number of dedicated techniques addressed to eliminating the need for bolts, nuts, and other fasteners, replacing traditional fasteners with faster-action fasteners, streamlining as much as possible the un-fastening/ fastening activities in order to cut drastically their duration, or many other similar initiatives.

Adjustment activities - Centering, precision-positioning (for instance moulds and dies), measuring, calibrating, fine-tuning, and the like. This is done to ensure the

correct quality standards of the output product. All this is time consuming (also because of possible reiterations) and may require knowledge, abilities, and experience.
o

External changeover time - This is defined as that interval of time during processing (of previous and next lot) during which change-over-related activities (like transport, preparation, etc.) are implemented by various personnel (fitters, workers, operators, etc.). Part of this time may elapse before Internal Changeover Time, and part after it.

In the second step quick changeover looks for "wasteful" activities (unnecessary, redundant activities that need not to be there to begin with) and eliminates them. The third step is drastic reduction in time-duration of the necessary internal activities. The final step is streamlining of the necessary external activities.

Quick changeover is a very simple concept - to eliminate the need for any adjustment, by inventing ways of doing it once and forever with a permanent solution. This eliminates the need for any adjustment and for any particular knowledge/skill/experience. The target is to enable any operator with some decent industrial skill to "precision-replace" or "precision-set", without any need for measuring, calibrating, and checking.

Six Sigma
Six Sigma was developed during the 1980s as a highly structured program for improving business and manufacturing processes. It is a process to improve quality using specific methods and analytic tools. Six Sigma is a statistical measure of quality, 3.4 defects per million or 99.99966% good quality. Although zero defects is the goal, as a measure Six Sigma will drive a firm toward achieving higher levels of customer satisfaction and reducing operational costs. It is a robust continuous improvement strategy and process that includes cultural methodologies such as Total Quality Management (TQM), process control strategies such as Statistical Process Control (SPC) and other important statistical tools. It uses a structured systems approach to problem solving and strongly links initial improvement goal targets to bottom-line results.

Theory of Constraints
The Theory of Constraints (TOC) is a philosophy of management and improvement originally developed by Eliyahu M. Goldratt and introduced in his book, The Goal. It is based on the fact that, like a chain with its weakest link, in any complex system at any point in time, there is most often only one aspect of that system that is limiting its ability to achieve more of its goal. For that

system to attain any significant improvement, that constraint must be identified and the whole system must be managed with it in mind.

Major Concepts
To get a better handle on lean concepts, we will drill down deeper into some of the major concepts. Topics that will be addressed are

Value stream and value stream mapping. Pull Manufacturing. Kanban. One Piece Flow Manufacturing.

Value Stream and Value Stream Mapping

The value stream concept is integral within the lean framework. Only by understanding value as perceived by the customer can a company

Focus on value added activities or services; Minimize non-value-added activities that must take place due to regulatory, etc.; and, Eliminate all other non-value activities.

The value stream provides an integrated description of how a product passes through all stages of production. In this context, integrated means that both material and information flows are considered. Value Stream Mapping is an essential Lean technique to visualize your enterprise value streams and to continuously improve them. Value Stream Mapping offers a series of advantages and enables you to unlock the tremendous potential of your processes. Value Stream Mapping is an easy, fast, and goal-oriented method: Drawing the current state of your value stream is done directly in the workplace. A future-state model is designed for each current-state map of your value stream, pointing out the direction for continuous improvement.

Value stream mapping will yield benefits such as

Improved communication - Everyone will more clearly be able to understand the overall value stream and related components. Improved project execution - Value stream maps are constantly changing. As electronic files they are easy to store, different versions can be created, and they can be distributed and consolidated. Faster and more realistic assessment - Mean values are no longer adequate to describe scattering parameters. Simplified comparison of alternative solutions - The map will allow easier comparison of alternatives especially as components tie back to truly objective measurements.

Let us consider an example: Example 1

Pretend that you have been charged with value mapping the flow of customers through the state drivers' license office. You diagram the office above and learn the following:

Customers enter through the front door. The first thing the customer sees is the counter that has many different brochures and forms. There are no instructions at this point. Each customer serves themselves and there is no representative from the state at the counter. The customer then selects either line 1 or line 2. Each of the lines has a sign hanging from the ceiling that identifies the purpose of each line. Both of the signs have the following at the bottom of the sign - "The state does not accept credit or debit cards." If the lines are full of customers, it will take approximately 40 minutes to move all the way through the line. Line 2 customers will be served by Clerks 1 and 2. They have neither the training nor the authority to serve customers from line 2. When a customer approaches they will have their eyes tested. If they are applying for a first time license they will also move from clerks 1 or 2 to the testing area. From the testing area they will go back to clerks 3, 4, or 5 for their results and temporary license. If the customers in Line 2 only need an eye exam, they will move from clerks 1 & 2 to the "screen." Their picture will be taken and then they will move to the waiting area "W." Once their license is ready, they will move to clerk 6, pick up their license and leave. Customers in Line 1 will proceed through the line and be serviced by clerks 3, 4, or 5. If Clerk 2 has an opening, the clerk will not be able to service anyone from Line 1. If any customer does not have the correct information, they will typically not find out until they have met with one of the clerks. Unfortunately, the resolution is typically that

the customer is not serviced. The customer must go back home pick up the key information and restart the entire process. At the end of the day, clerks start closing their window without letting customers know if they will be served or sent home. Customers in the line will suffer uncertainty from not knowing if they will have to come back on another day.

Example 1 Questions 1. What are the value points to a customer? 2. From the perspective of the customer - what items add no value? 3. What recommendations would you make to improve the flow and to make the process more customer friendly? 4. This was a service example. What would you guess would be different if this was a manufacturing example? These are points to ponder and do not have exact answers.

Pull Manufacturing
Pull production is another method of eliminating wasteful inventory buildups. In a pull system, an item that is "sold" or completed immediately generates an order to produce another. This is often compared to a grocery store - where items are replaced on the shelves as they are used. Pull production also employs elements of just-in-time delivery, one-piece flow, etc. The traditional process of manufacturing used to be "push" production. Companies would set large production runs attempting to achieve economies of scale and create large amounts of inventory.

The pull concept is very much in harmony with Just-in-Time concepts. JIT is a business philosophy that focuses on reducing time and cost and eliminating poor quality within manufacturing and non-manufacturing processes. This is accomplished by only producing what is necessary to meet immediate demands. This is also known as short-cycle or Lean manufacturing. Let us compare traditional methodologies of production with JIT methodologies. Traditional Manufacturing Increases inventory to protect against process problems. Increases lead time as a buffer against uncertainty. Disregards setup time as an improvement priority. Just-in-Time Manufacturing Reduces inventory/Reduces lead time. Reduces setup time. Recognizes setup as an improvement opportunity.

Emphasizes product-oriented layout. Emphasizes work of individuals following manager instructions. Emphasizes push manufacturing. Tolerates defects.

Emphasizes process-oriented layout. Emphasizes team-oriented employee involvement. Emphasizes pull manufacturing. Emphasizes zero defects.

A huge benefit of JIT is that inventory levels should be reduced. If inventory levels can be reduced, problems that have been previously covered up will appear, such as

Poor quality Unreliable suppliers. Machine breakdowns. Untrained employees.

Demand/pull purchasing is not limited to the manufacturing industry. Although it has its roots in Just-In-Time (JIT) and Kanban philosophies, the concept can be applied to retail locations, with the point of consumer purchase becoming the trigger for replenishment up through the supply chain. Also, non-manufacturing organizations that use capital equipment might use demand-pull models to monitor and respond to wear, usage, and supply replenishment. Imagine a commercial fleet of vehicles or airplanes being constantly monitored for fuel consumption. As fuel is consumed, more is automatically purchased.

Benefits of Pull

Organizations that have utilized the pull concept properly have realized a number of benefits, including

Inventory reductions, Labor cost savings, and More efficient processes (purchasing and supply management).

Take the example* of a large equipment manufacturer which must coordinate the activities of suppliers, manufacturing locations, dealer locations, and final customers. Demand-driven procurement systems could be used so that final product sales are pulled through the supply chain. Dealer orders would always match what is in assembly if the system were used as a buildto-order model, but could also be used for automatic replenishment of component parts within

service facilities. Ideally, as orders are electronically entered, assembly line orders are automatically produced, and the individual component demand is determined. This information is then electronically transmitted to suppliers, who pull accordingly. The demand-pull system helps to maximize material velocity, which minimizes the amount of redundancy in the process. Manufacturing based on demand also means that organizations do not have to reconfigure product to meet specialized needs of customers. This improves quality and ultimately provides a great deal of customer satisfaction. * The Future of Purchasing and Supply: Demand-Pull Possibilities #7 Take the Initiative: Continuing coverage of the trends shaping the profession By Roberta J. Duffy, writer for Purchasing Today. January 2000 Purchasing Today, page 48.

Challenges to the Pull Concept

What are some of the concerns that a company will encounter when they move into a Pull manufacturing philosophy?

The fear of losing control. o Minimal human intervention. o Suppliers and other business partners have access to key and confidential information. The fear of inadequate information systems. Can the system adapt to handle this new process or is it too tightly integrated to prior manufacturing processes.

The fear of integration with all members of the supply chain. o Technology integration. o Cost of new technology. o Capability of staff to handle new technology. The environment must be relatively steady and have robust demand. They need to have some predictable degree of volume. Many organizations have found success with demand-pull concepts, but have come to realize that they cannot be used for every assembly line.

Kanban
Kanban is often seen as a central element of Lean manufacturing and is widely used as a type of pull signaling system. Kanban is a Japanese word that stands for Kan-card, Ban-signal. The system should provide "visual signals" to users which will communicate the need to "pull" more inventory into the process. It is important to remember that a Kanban is not a scheduling system, but rather a production control system. As previously described, a pull production system controls the flow of work

through a factory by only releasing materials into production as the customer demands them, i.e., only when they are needed. A push system on the other hand would release material into production as customer orders are processed and material becomes available, MRP (Material Requirement Planning/Manufacturing Resource Planning) systems are typically push systems. The Kanban cards or "two bin system" is not a new concept. In fact the " two bin system" was used in the UK long before Japanese manufacturing methodologies started to be come popular in the 1970s. One of the main benefits of Kanban is that the system is generally easy to understand, simple to visualize, and comparatively easy to set up. Kanban systems are commonly used within the automotive industry where there is a stable demand and flow. Any industry that has a stable manufacturing environment will benefit from a Kanban system.

Let us consider an actual example of Kanban. A manufacturing cell assembles a product. Each product requires a special metal housing. The housings are delivered by a forklift to the cell. Alongside the spot where the housings are delivered is a large board which can be seen from a long distance in the plant. It takes the cell approximately 15 minutes to assemble the product, at which point a new metal housing is required to start all over again. When one of the workers selects the last housing, the worker places a large red piece of paper over the board. Due to the visibility of the board, the red square can be seen from a great distance. This is the signal to the forklift driver to deliver another pallet of metal housings. The posting of the signal depends on the speed of the assembly, the length of time to replenish, etc. Therefore, the signal becomes the release order and authority to begin production or order a specified number of new metal housings to fill the requirement. Unfortunately, there will still be times when production must be expedited or an emergency arises. Kanban allows for rush jobs to be carried out. If a job is to be rushed through production then it has to be given priority in some way or another. This can be achieved with different colored Kanban cards, say Blue. This blue signal becomes the authorization to perform all necessary operations on this cell or process before any other work is begun or continued.

Rules to help control Kanban:

A Kanban signal is only issued when the material being used has been exhausted. If the Kanban signal has not been given, no parts should be issued/authorized. Only good parts are issued. Damaged materials and parts get caught earlier in the process. There should be no over-production. If there is, Kanban is not functioning in theory. Components are only manufactured in the order the Kanban cards are received (unless emergency signals as referred to above are issued). Components are only manufactured/issued in the number specified by the Kanban.

The number of Kanban cards should be reduced over time and the problems that are encountered by doing this should be tackled as they are exposed.

Kanban is a very simple and effective production control system that can be easily introduced in many production environments. Proper use of a 'Pull' system is often seen as a large step towards achieving true JIT (Just-in-Time) production.

One Piece Flow Manufacturing

When we considered our traditional manufacturing on a previous page, batch processing, long production lines, etc., were the norm. One piece manufacturing is going to challenge our former paradigms of how to produce goods. One Piece Flow refers to the concept of moving one work piece at a time between operations within a work cell. One piece flow items are moved to the next process step one piece at a time. Each step will complete its operation just before the next process needs it. In essence, all production is performed on one unit prior to moving in forward in the process.

Why should one piece flow be adapted and what are the benefits?

The main benefit of one piece flow is that it keeps WIP (Work in Process) to its lowest possible level - This will eliminate excess inventory and will have only one part loss if rejects occur compared to complete batch rejects in a batch build system. One piece will result in much shorter lead times - It will increase operator efficiency by assisting them to better handle continuously changing demands. This is because of the ability to quickly change the production to a different but similar assembly without unnecessary WIP inventory. Defective raw materials and production will be detected much quicker - Also, since the problem is identified, it will lead to a process correction quickly. One piece flow should prevent unnecessary backups in the system as the pull system since we will not push big batches into inventory. Capital requirements are lower as it does not have to be tied up in unneeded inventory for large batches. Workstation design will be at the minimum size due to having to house only one part at a time. One piece flow will encourage work balance, better quality, and improved efficiency.

One piece flow works well in an environment where work cells are designed for efficient use and flexibility. Once production starts up, the line can be set up on the fly following the first production step. This partially assembled part will be passed on to the next production step for

further assembly. The next step can however not be performed until the first step is completed. Therefore, the ability to react quickly and make adjustments is a key benefit (and requirement) to this approach.

Standard Work and Takt Time

Standard Work
Standard work is an agreed-upon set of work procedures that effectively combine people, materials, and machines to maintain quality, efficiency, safety, and predictability. Work is described precisely in terms of cycle time; work in process, sequence, takt time, layout, and the inventory needed to conduct the activity. Standard work begins as an improvement baseline and evolves into a reliable method. It establishes the best practices and sequence steps to maximize performance and minimize waste.

Takt Time
"Takt" is the German word for the baton that an orchestra conductor uses to regulate the speed, beat, or timing at which musicians play. So Takt Time is "Beat Time"? "Rate Time" or "Heart Beat." Lean Production uses Takt Time as the rate or time that a completed product is finished. If you have a Takt Time of two minutes, that means every two minutes a complete product, assembly or machine is produced off the line. Every two hours, two days, or two weeks whatever your sell rate is your Takt Time. The customer's buying rate establishes Takt Time. It is the rate at which the customer buys your product. So this means that over the course of a day, week, month, or year the customers you sell to are buying at a rate of one every two minutes.

You cannot predict when and how much a customer will buy. But if customer demand falls for an extended period of time, then the Takt time should change. This means that if you are producing at a Takt Time of one every two minutes and the customer's demand falls to a rate of one every 3 minutes, then your Takt Time should increase or become more. Your Takt Time should increase to 3 minutes and production staffing should be set accordingly. If the customers buy more, then Takt Time will decrease. Takt time would be lowered to make more products in a shorter amount of time. If your customer buys more than your 2 minute Takt Time produces, then Takt time would be lowered to match the sell rate and increase staffing accordingly. Producing to Takt Time with optimal staffing is the ideal spot. This is the point where the right amount of people produces the product within the established Takt Time. The Operator's cycle times are loaded to Takt Time. Imbalances in Takt Time, especially in older facilities, drive security inventories and buffer space. If you manage such a facility, one step on "the Lean Journey" is to monitor Summed Takt in order to move toward preventive (rather than reactive) quality measures. That is, if you can detect, contain, and correct a problem within Takt + Buffer Time (Summed Takt) then you have taken a step toward Error Proofing. This is no substitute for continuously improving a balanced Takt Time (thereby eliminating security inventory/buffering) but, rather, it is a first step which you can institute quickly and economically and which will help the people begin to "see" Lean.

Production Smoothing
Remember that one of the variables to help Kanban work effectively was a stable, robust demand. Since some variability occurs, Toyota decided to modify the demand with a method of production scheduling that, over a period of time, takes the fluctuation of customer demand out of manufacturing. This process is called production smoothing and means that the company would produce every part, every day. To quote Yasuhiro Monden from the Toyota Production System,
"The smoothing of production is the most important condition for production by Kanban and for minimizing idle time in regard to manpower, equipment, and work-in-process. Production smoothing is the cornerstone of the Toyota Production System."

The design behind this smoothing system was to level load production to the rate of demand by creating an inventory buffer and replenishing that buffer using a leveled schedule, pull replenishment, and the smallest lot sizes possible. This provides stability for upstream operations and keeps waste to a minimum while supporting customer demand variability.

The benefits of Production Smoothing and Stable Demand are

Reduced lead times (which increases agility). Increased scheduler productivity. Increased inventory turns. Reduced overtime (e.g., from missed pitches). Reduced premium freight costs (inbound and outbound). More consistent customer service (approaching 100% on-time delivery). Higher utilization of assets and capital (by higher throughput). Reduced raw materials costs in negotiated supplier contracts. Increased shipments per labor hour. Sustained continuous improvement.

Kaizen
Kaizen means "continuous improvement." A Kaizen Blitz (Blitz = lightning fast) is an intensive and focused approach to Process Improvement. This continuous improvement methodology combines Lean Manufacturing Tools such as the 5S's of Workplace Organization and Standardization, Cells, Pull/Kanban, Set-up Reduction, and Line Balancing. Each tool incorporates team empowerment, brain-storming, and problem solving to rapidly make improvements to a specific product or process. The word Kaizen itself is derived from two different Japanese words, kai and zen. Kai, meaning: to change or modify; and Zen, meaning: to improve. When these two words are brought together, its meaning becomes: gradual and orderly, continuous improvement. The interesting thing is that there is no equivalent word to Kaizen in the English language. The history of Kaizen goes back to the 1950s when Toyota first implemented quality circles (checks) within the production process itself. In doing so, quality was inspected at every stage of production rather than checking the completed product for defects. Taiichi Ohno, former Executive Vice President, Toyota Motor Company and a distinguished graduate of Nagoya Institute of Technology, pioneered the development of Toyota's unique Production System, commonly referred to as the Toyota Production System, which is now used throughout the world.

How does a company begin the journey of implementing Kaizen?

Discard conventional fixed ideas. Think of possible solutions (without limitations).

Question current practices (policy, we have to, etc., are unacceptable). Do not seek perfection. Do it right away, even if only for 50% of the target. If you make a mistake, correct it immediately. Do not spend money for Kaizen, use your wisdom. Wisdom emerges in the face of adversity. Seek the root cause of the issue. Seek the wisdom of the group as opposed to the wisdom of one. Kaizen ideas are limitless.

When a company begins the Kaizen journey, a specific product or process is selected to focus on. This is known as a "Kaizen Event." The timeframe for the event is going to be short. Begin with simple processes to build success quickly. Too large of an event may result in failure and distrust in the Kaizen process. An organization should obtain immediate improvements in their process and will most likely highlight other improvement opportunities for further Kaizen Events. The Kaizen Event will provide your company with immediate tangible results and motivation for ongoing continuous improvement within your company.

What are the Benefits of a Kaizen Event?

Immediate results Involvement of the workforce Visual, action orientation Can use ongoing, once-learned concepts Fosters communications Creative vs. capital investments People think from "business" perspective Implementation smooth due to TEAM concept

Let us consider what a one week process might look like on a day-by-day basis.

Day 1 - The first day is spent on a quick review of Lean concepts and strategy. All of the individuals involved will be instructed in Lean concepts. A map of the current process is developed to determine the path of parts or raw materials. Day 2 - Training continues. Then team members, using a stopwatch, do time studies and collect data on how long each part of the process takes. A work sampling is conducted to determine which steps add value, and which do not. For example, how much time is spent drilling a hole in the part vs. carrying it around? Team goals are written on Day 2 and an opportunity chart is compiled. Day 3 - The opportunity chart is completed, and solutions are developed to key issues. A floor plan is created. Equipment is moved where necessary to create a better flow.

Day 4 - Improvements are finished, and operators are trained on new processes. Production using the new methods begins. Another work sampling is done and measurements are taken. Day 5 - A 5S/visual workplace activity makes sure the workplace is well organized and tools, cabinets and storage areas are labeled. Standard operating procedures are updated. A summary report is prepared for upper management. It includes team goals, floor plan before and after, key results, and savings.

When an organization begins a Kaizen Blitz, it must be prepared to deal with specific roadblocks. All of these roadblocks can be traced back to two major areas: leadership and employee empowerment. In addition, to these 2 major areas, roadblocks will also occur in the following: training, culture, supervision, unions, and informational roadblocks. Typical roadblocks to organizational quality improvement include the following:

Unclear goals - Initiatives are often undertaken without setting realistic or measurable objectives. Without clear, shared goals it is difficult to plan implementation, track progress, change direction if necessary, document results, recognize or reward contributors, or modify behavior where people are not contributing. Unfortunately, too many initiatives are perceived as "programs of the month" as opposed to longstanding changes in the way an organization does business. This is too often the result of unclear goals. Unassertive leadership - In order for organizational change to be effective, management needs to be committed to the implementation. Just as individuals reject change due to "fear of the unknown," organizational improvements require clear management vision and direction, as well as tenacious support in order for effective implementation. Ineffective management processes - Without effective management processes (e.g., quality processes, performance management processes, information systems, financial processes, feedback systems, etc.), no organizational improvement can be sustained for the long term. Negative climate - No initiative can succeed in a hostile or overly negative climate. Without cooperation, trust, and everyone's willingness to consider new ideas, organizations cannot achieve long-term improvement. Inappropriate structure - If an organization is not structured effectively, improvement can be difficult, if not impossible. Excessive layers of management, systemic redundancies, turf battles, or overly bureaucratic reporting policies can dramatically reduce - or in some cases, destroy - the results of improvement initiatives. Unbalanced power - The only way company-wide improvements can prosper is if there is equal input and representation from all parts of the organization in the design, planning, implementation, and assessment of an improvement initiative. If one department or other part of an organization has too much influence over the effort, it will typically fall short on results, either due to a drop-off in commitment or lack of support from the other areas.

Undeveloped individuals - The best-planned initiatives can only succeed if all the players have the necessary skills to pull it off. Team skills, technical skills, and other job skills are essential in order for change to be effectively implemented. Ineffective teamwork - Long-term improvement requires more than clear goals, effective structure, equal representation, and highly skilled employees. If people cannot work together, or if business units are not organized for effective teamwork, success will often be compromised.

Activity Based Costing and Lean Accounting

When traditional cost accounting systems are analyzed, they often are criticized for not being useful. One of the main reasons for this complaint is that traditional cost systems seek to allocate and attribute costs as opposed to creating a cost structure that can be used to maximize profitability. This allocation of costs sometimes results in costs being attached to products that have no value (as determined by the customer). Consequently, pricing decisions can be made based on inappropriate cost information.

Activity Based Costing and Lean Accounting

One of the main culprits is the allocation of overhead costs. If a company uses the full absorption method of costing, all costs are distributed among all products. For example, let us suppose that a plant with $100,000 of depreciation and $150,000 of overhead is being utilized at 100%. These costs will typically be allocated to all of the products produced. However, if the company loses a major customer (say 30% of revenues) it may still be tempted to allocate the depreciation and the overhead to the remaining 70% of business. From one perspective this makes sense - all costs should be allocated. However, if the remaining 70% of sales picks up the additional costs, the sales may become unprofitable. An unsophisticated manager may look at the 70% and determine that a price increase is necessary. A sophisticated manager will look at the situation and realize that the additional depreciation and overhead have absolutely nothing to do with the pricing structure of the remaining 70% of sales. In fact, the sophisticated manager will even look at the

remaining cost basis and determine what costs still add no value from the customer's perspective. Therefore, the cost analysis needs to be more refined if both strategic and tactical decisions are to be based on the best information. Computer technology has provided the capability. Activity Based Costing has gradually developed in response to this need and capability.

ABC seeks to help businesses gain competitive advantage, in a rapidly changing business world, through better overhead cost attribution:

To enable better marketing and investment decisions as a consequence of more accurate and reliable product costs; To enable better control of overhead costs, and thus enhancement of value for money, through greater understanding of the factors that drive them.

ABC has brought a return, albeit more sophisticated, to absorption costing. ABC seeks to discover the causal factor, known as the cost driver, which determines the demand for each separate overhead activity, i.e., causes the activity to occur. Each activity will be a discrete area of work contributing to an inter-departmental process. For example, order processing may be identified as a discrete activity and the number of orders raised as the key driver of the costs of that activity.

Activity costs, and the instances of cost driver occurrence, are measured and are used to determine overhead absorption rates. These are then used to attribute costs to products, i.e., overheads are shared on a basis which is related to the demand that products place on these resources. In the example of order processing, the number of orders raised for each separate product would need to be known for the related overhead to be shared. The costs of activities with the same cost driver can be pooled. In summary, ABC is a five-stage process: 1. 2. 3. 4. 5. Identify the various activities within an organization. Determine the key cost driver for each activity. Create cost pools to collect activity costs having the same cost driver. Measure the incidence of each cost driver for each product/service. Attribute the cost of each pool (and activity) to products/services based on the cost drivers.

ABC is founded on the premise that it is activities that cause costs, not products. Producing and selling products creates demand for activities, driven by various factors. Undeniably, demand for some production overhead resources is directly related to short-term changes in production volume (traditionally termed variable overheads), such as the demand for power to run machines. Thus, ABC systems still use some output volume-related absorption rates. However, changes in the demand for some resources are caused by non-volume-related production changes. Also, where a volume-related absorption rate is relevant, in ABC the most appropriate one would always be used. Under traditional methods, and using the example of power costs cited above, absorption on direct labor may actually be used because of the overall labor intensity of the production department.

Using ABC (in contrast to traditional overhead attribution methods):

Costs are identified by activities, which can be linked in processes across departmental boundaries, rather than by cost center (traditionally a department in a hierarchical organization structure). There are potentially many more activities (and cost pools) than there normally are cost centers. All activities are potentially linked directly with products in contrast to traditional methods where facility and service cost center overheads are transferred to production cost centers prior to absorption into product costs. There is a clear cause and cost effect, in contrast to traditional methods where, even if facility and service cost center apportionments to production cost centers have a causal relationship; this may well be lost when output volume-based methods (often based on direct labor) are used to absorb these overheads into product costs.

There is no doubt that the application of ABC principles to overhead costs provides potential for improved decision-making and better cost management. The extent of the improvement, ultimately to business profitability, will be influenced, and may be limited, by a number of factors:

The cornerstone of ABC is data; data which does not have to be precise but only accurate enough to help managers take the right decisions. However, management judgment and experience remain key ingredients in the process. Management information supports the exercise of judgment; it can never replace it. For judgment to be exercised, data must be converted to information. This requires analysis and presentation in an understandable form and correct interpretation (and willingness to interpret) on the part of management. Nothing happens until decisions are taken to change things. ABC systems utilize, and produce, data/information which is largely historic and in a format, however flexible, which cannot suit all purposes. Decisions need to be based on future expected cash flows, with cost relevance determined by the particular situation of each decision. A particular cost element may be relevant in some decisions but not others.

Also, just because a causal relationship is established between a cost driver and an activity does not mean that the cost pool will increase or decrease in direct proportion to the cost driver activity change. This puts even more priority onto the exercise of judgment and the utilization of experience. For many businesses, especially those that have adapted traditional overhead cost attribution methods to changing circumstances, ABC is just a refinement of these traditional methods. For example, a business may already use multiple absorption rates in each production cost center. The potential for improved accuracy in product costs may be limited, especially if output volume remains a key cost differentiator. Many illustrations in the literature, of ABC systems and their potential benefits, have used examples where the conventional methods have been extremely crude. Most of the problems encountered by traditional methods remain. For example, many facilities' costs (e.g., rent, rates, insurance, heating, and lighting) still need to be apportioned to activities, in the same way as to cost centers using traditional methods, because there is no direct link between them and individual products/services provided to customers. This weakens the causality and raises questions about whether such costs should be excluded from the ABC analysis. Similar problems may apply to other costs, e.g., maintenance or materials handling. The key driver of an activity's costs may be clear, and also measurable, but the measure may not be capable of differentiating between one product and another, e.g., the handling of material which is used in the manufacture of several different products. Analysis difficulties may also arise as a result of inter-servicing between service cost centers/activities. While ABC provides potential for much more sophisticated analysis (i.e., there is potential for a very large number of separate activities and different cost drivers), consideration needs to be given to whether sufficient resources are available, not just to collect and process the data (especially cost driver data by product), but to digest, understand, and utilize the ensuing information. In practice, it has been found that benefits are best obtained, but at the same time limited, by relatively simplistic analysis. There is a trade-off between accuracy/detail and system cost/manageability. Priority needs to be given to areas of expenditure offering the greatest potential versus conventional systems of overhead analysis. It may be difficult to establish causality for a particular activity. Also, even if the key driver is fairly obvious, there will be a number of other factors effecting cost occurrence for the activity, with varying impacts in the short term as opposed to the long-term. There is a lot of muddy water in each cost pool. The selection and measurement of cost drivers is seen as a common problem amongst those who have considered implementing ABC systems.

A team of dedicated people is required to develop and implement an ABC system, along with regular consultation with, and involvement of, relevant staff throughout the organization. Substantial investment is thus involved. Such a system also generates on-going costs, not just in maintaining and running the system, but also to make effective use of the information that it provides. The time, effort, and expense involved is cited, by those who have considered but not implemented ABC, as the most common problem.

It needs to be recognized that ABC systems are not generally replacements for traditional overhead attribution systems which will still be required to be maintained, within the manufacturing environment, for stock valuation and financial reporting purposes. ABC systems should rather be seen as more occasional, one-off, and largely strategic exercises involving considerable additional resources.

Activity Based Costing and Lean Accounting

There is no doubt that ABC is an approach to product costing and cost management which has wide applicability to business organizations right across the industry spectrum and to all areas of overhead expenditure. However, claims about its potential, and about its novelty, have almost certainly been exaggerated, and it remains much talked about but little practiced. The potential to impact upon an organization's profitability is dependent upon the particular situation and is influenced by a number of factors. Research indicates a positive response from those who have recognized the potential in their own organizations and been prepared to exploit it through the implementation of ABC systems, and who recognize that it is not a panacea. Competitive pressure has frequently been the spur, and especially in situations where existing information was recognized as being seriously deficient.

Total Productive Maintenance

The Lean concept indicates that the organization will be more productive, run smoother, and be more efficient. However, this will fail miserably if the plant and equipment infrastructure is not maintained to meet the needs of a Lean system. Total preventative maintenance is a critical element in the Lean enterprise. When you accomplish minimal inventory amounts and base your production on a pull system - producing only when you receive an order - a breakdown of a machine or element of your production process could be catastrophic. TPM refers to the constant care and upkeep of your machinery to avoid a costly breakdown.

Major Pillars of TPM

Autonomous Maintenance

Autonomous maintenance emphasizes the importance of people and specifically the importance of the machine operator. Historically, maintenance has been done by dedicated, highly skilled employees. But machine operators are around the equipment all of the time, and should be the first to identify oil and air leaks and vibrating motors. This can be accomplished in 3 major ways:

They can alert maintenance people. They can provide excellent information. They can perform routine maintenance.

Autonomous Maintenance

As operators grow in their knowledge of their respective machines, they will be expected to share a larger responsibility for their equipment in areas, such as

Performing an initial cleaning and inspection. Establishing countermeasures for the causes and effects of dirt and dust. Establishing cleaning and routine maintenance standards (checklist). Conducting a "standards and inspection" training. Carrying out an autonomous equipment inspection. Organization and standardization of the workplace. Continuous improvement of policies, standards, and equipment.

Equipment and Process Improvement and Overall Equipment Effectiveness

Equipment and process improvement and overall equipment effectiveness is the process whereby managers become sensitive about all aspects of equipment and manufacturing operational costs. This is also known as "OOE." Properly implemented it can

Reduce equipment downtime and maintenance costs, plus improve management of the equipment life cycle. Increase labor efficiencies and increase productivity by improving visibility into operations and empowering operators. Increase productivity by identifying and removing bottlenecks. Increase rate of quality, thereby reducing scrap.

Planned Maintenance

Planned maintenance is a proactive maintenance operation employing planned and scheduled maintenance activities using maintenance strategies by empowered (self-directed) action teams using the 5S process and Kaizen improvement events. It is a combination of the operators using

autonomous maintenance as well as multi-skilled, maintenance technician-performed maintenance.

Kaizen

"Kai" means change, and "Zen" means good (for the better). Basically Kaizen is for small improvements, but carried out on a continual basis and involve all people in the organization. Kaizen is opposite to big spectacular innovations. Kaizen requires no or little investment. The principle behind it is that "a very large number of small improvements are more effective in an organizational environment than a few improvements of large value." This pillar is aimed at reducing losses in the workplace that affect our efficiencies. By using a detailed and thorough procedure we eliminate losses in a systematic method using various Kaizen tools. These activities are not limited to production areas and can be implemented in administrative areas as well.

Kaizen Policy:

Practice concepts of zero losses in every sphere of activity. Relentless pursuit to achieve cost reduction targets in all resources. Relentless pursuit to improve overall plant equipment effectiveness. Extensive use of PM analysis as a tool for eliminating losses. Focus of easy handling of operators.

Kaizen Target. Achieve and sustain zero loses with respect to minor stops, measurement and adjustments, defects, and unavoidable downtimes. It also aims to achieve 30% manufacturing cost reduction.

Tools used in Kaizen:

PM analysis Why - Why analysis Summary of losses Kaizen register Kaizen summary sheet

The objective of TPM is maximization of equipment effectiveness. TPM aims at maximization of machine utilization and not merely machine availability maximization. As one of the pillars of TPM activities, Kaizen pursues efficient equipment, operator, and material and energy utilization, which is extremes of productivity and aims at achieving substantial effects. Kaizen activities try to thoroughly eliminate 16 major losses.

Loss 1. Failure losses - Breakdown loss 2. Setup/adjustment losses 3. Cutting blade loss 4. Start up loss 5. Minor stoppage/Idling loss 6. Speed loss - operating at low speeds 7. Defect/rework loss 8. Scheduled downtime loss 9. Management loss 10. Operating motion loss 11. Line organization loss 12. Logistic loss 13. Measurement and adjustment loss 14. Energy loss 15. Die, jig and tool breakage loss 16. Yield loss

Category Losses that impede equipment efficiency

Loses that impede human work efficiency

Loses that impede effective use of production resources

Process Quality Management

Process quality management is aimed towards customer delight through highest quality through defect free manufacturing. Focus is on eliminating non-conformances in a systematic manner, much like Focused Improvement. We gain understanding of what parts of the equipment affect product quality and begin to eliminate current quality concerns, and then move to potential quality concerns. Transition is from reactive to proactive (Quality Control to Quality Assurance). QM activities are to set equipment conditions that preclude quality defects, based on the basic concept of maintaining perfect equipment to maintain perfect quality of products. The condition is checked and measured in time series to verify that measure values are within standard values in order to prevent defects. The transition of measured values is watched to predict possibilities of defects occurring and to take countermeasures beforehand.

Policy:

Defect free conditions and control of equipments. QM activities to support quality assurance. Focus of prevention of defects at source. Focus on Pokayoke (fool proof system). In-line detection and segregation of defects. Effective implementation of operator quality assurance.

Target:

Achieve and sustain customer complaints at zero. Reduce in-process defects by 50%. Reduce cost of quality by 50%.

TPM in Administrative and Support Departments

Office TPM should be started after activating four other pillars of TPM (JH, KK, QM, and PM). Office TPM must be followed to improve productivity, efficiency in the administrative functions, and identify and eliminate losses. This includes analyzing processes and procedures towards increased office automation. Office TPM addresses twelve major losses. They are
1. Processing loss. 2. Cost loss including in areas such as procurement, accounts, marketing, and sales leading to high inventories. 3. Communication loss.

4. 5. 6. 7. 8.

Idle loss. Set-up loss. Accuracy loss. Office equipment breakdown. Communication channel breakdown, telephone, and fax lines.

9. Time spent on retrieval of information. 10. Non availability of correct on line stock status. 11. Customer complaints due to logistics. 12. Expenses on emergency dispatches/purchases.

TPM in Administrative and Support Departments How to Start Office TPM?

A senior person from one of the support functions, e.g., Head of Finance, MIS, Purchase, etc., should be heading the subcommittee. Members representing all support functions and people from Production & Quality should be included in subcommittee. TPM coordinates plans and guides the subcommittee.

Providing awareness about office TPM to all support departments. Helping them to identify P, Q, C, D, S, and M in each function in relation to plant performance. Identify the scope for improvement in each function. Collect relevant data. Help them to solve problems in their circles. Make up an activity board where progress is monitored on both sides - results and actions along with Kaizens. Fan out to cover all employees and circles in all functions.

Kaizen topics for Office TPM:

Inventory reduction. Lead time reduction of critical processes. Motion and space losses. Retrieval time reduction. Equalizing the work load. Improving the office efficiency by eliminating the time loss on retrieval of information, by achieving zero breakdown of office equipment like telephone and fax lines.

Office TPM and its Benefits:

Involvement of all people in support functions for focusing on better plant performance. Better utilized work area. Reduce repetitive work. Reduced inventory levels in all parts of the supply chain. Reduced administrative costs. Reduced inventory carrying cost. Reduction in number of files. Reduction of overhead costs (to include cost of non-production/non capital equipment). Productivity of people in support functions. Reduction in breakdown of office equipment. Reduction of customer complaints due to logistics. Reduction in expenses due to emergency dispatches/purchases. Reduced manpower. Clean and pleasant work environment.

Education and Training

Education and training are aimed to have multi-skilled revitalized employees whose morale is high and who are eager to come to work and perform all required functions effectively and independently. Education is given to operators to upgrade their skill. It is not sufficient to only "Know-How" by they should also learn "Know-Why." By experience they gain, "Know-How" to overcome a problem and know what has to be done. This, they do without knowing the root cause of the problem and why they are doing so. Hence, it become necessary to train them on knowing "Know-why". The employees should be trained to achieve the four phases of skill. The goal is to create a factory full of experts.

The different phases of skills are as follows:

Phase 1: Do not know. Phase 2: Know the theory but cannot do. Phase 3: Can do but cannot teach. Phase 4: Can do and also teach.

Policy:

Focus on improvement of knowledge, skills, and techniques. Creating a training environment for self learning based on felt needs. Training curriculum/tools/assessment, etc., conducive to employee revitalization. Training to remove employee fatigue and make work enjoyable.

Target:

Achieve and sustain downtime due to "want men" at zero on critical machines. Achieve and sustain zero losses due to lack of knowledge/skills/techniques. Aim for 100 % participation in suggestion scheme.

Steps in Educating and training activities:

Setting policies and priorities and checking present status of education and training. Establish of training system for operation and maintenance skill up-gradation. Training the employees for upgrading the operation and maintenance skills. Preparation of training calendar. Kickoff of the system for training. Evaluation of activities and study of future approach.

Safety and Environmental Management

Target:

Zero accident. Zero health damage. Zero fires.

In this area, focus is on creating a safe workplace and a surrounding area that is not damaged by our process or procedures. This pillar will play an active role in each of the other pillars on a regular basis. A committee is constituted for this pillar which comprises representatives of officers as well as workers. The committee is headed by Senior Vice President (Technical). Utmost importance to Safety is given in the plant. Manager (Safety) is looking after functions related to Safety. To create awareness among employees, various competitions like safety slogans, Quiz, Drama, Posters, etc., related to Safety can be organized at regular intervals.

TPM Benefits
The successful implementation of TPM should help to

Decrease the number of defects and rework. Decrease the amount of time for setup and adjustment. Increase the running speed of the equipment or productivity.

Decrease the amount of time required for startup. Reduce the number of minor stoppages. Reduce the number of breakdowns.

All of the above items will translate into higher productivity and higher profitability.

Implementing a Lean Program in Your Organization

Every company will create its own unique journey. However, the following outline will help move a company in the correct direction.

Step 1: Lean Awareness Training - To develop an understanding of what Lean manufacturing is, and why Lean principles should be practiced at the company. Step 2: Assessment - To determine high impact improvement areas and to prioritize subsequent activities. Also, an assessment provides a snapshot or benchmark of current conditions. Step 3: Lean Implementation Training - To provide the tools and detailed understanding necessary for a team to analyze and know how to design improvements. (Cellular, Set-up Reduction, etc.) This step is usually linked to step 4, "Implementation," and delivered Just-InTime - training followed by immediate action and application. Step 4: Implementation - The team analyzes, designs, and implements improvements. Step 5: Continuous Improvement

Applying Lean Concepts to the Office

Now that we have looked at a production setting, is it possible to utilize the same concepts within our office settings? Absolutely! Many times there are great efficiencies to be gained by reviewing the office for Lean opportunities. Also do not forget that a culture typically goes throughout the company. If Lean has been implemented in the plant and there has been considerable savings, you can bet the office will yield similar results.

Lean Office Approach

The steps to be followed for Lean office implementation mirror the same steps used for the plant. Lean Office utilizes theses basic Lean Tools:

Office value stream mapping Office waste identification and elimination Standardized work for the office Spaghetti diagramming Visioning Paradigm changing Project implementation planning Kaizen improvement

The steps to begin the Lean office implementation follow: 1. Begin with education and training of teams so that the basic tenants of Lean are understood. 2. Take a Value Stream focused approach. a. It is common for Kaizen to begin with Value Stream analysis. Typically Kaizen efforts will focus on optimizing one product flow, or Value Stream, at a time. In an Office Kaizen, there are often many small, intersecting value streams rather than clear "product flows". Although some transactional office processes are similar to mass production, some information processing is comparable to custom or job shop manufacturing. This is a great opportunity to lighten up the process by identifying some of the absurd processes and then creating a game out of them. For example, if you are about to study a very cumbersome document that travels all around the company, have people guess how far the document travels. There are multiple flows of customer demand and need across each desk, service person, and computer which must be identified and sorted out. The steps to begin the Lean office implementation follow: 1. Begin with education and training of teams so that the basic tenants of Lean are understood. 2. Take a Value Stream focused approach. a. It is common for Kaizen to begin with Value Stream analysis. Typically Kaizen efforts will focus on optimizing one product flow, or Value Stream, at a time. In an Office Kaizen, there are often many small, intersecting value streams rather than clear "product flows". Although some transactional office processes are similar to mass production, some information processing is comparable to custom or job shop manufacturing. This is a great opportunity to lighten up the process by identifying some of the absurd processes and then creating a game out of them. For example, if you are about to study a very cumbersome document that travels

all around the company, have people guess how far the document travels. There are multiple flows of customer demand and need across each desk, service person, and computer which must be identified and sorted out. 1. 2. 3. 4. b. Specific actions: Map the information processing work flow. Identify internal and external customers. Define the value that each transaction creates in the customer's terms. Determine or assign the quality, labor, and inventory costs.

3. Make fact-based decisions. a. The challenge with Lean Office is that often organizations do not collect good data on information transaction processes. Compared to manufacturing, much of the information flow is hard to see or practically invisible. Compared to manufacturing, it may also be harder to collect data by watching, timing, and measuring the operations. Much of the information flow is not visible because it happens electronically, and many types of information transactions are seen only infrequently. b. Specific actions: 1. Define "knowledge work" versus "transactional" work. 2. Create Pareto analyses of volume and frequencies of the types of work. 3. Identify similarities in process flow using process matrixes. 4. Group services and transactions into process families whenever possible. 5. Define "units of customer demand" and develop Takt Times.

4. Make the process visible. a. In this day and age we have removed physical walls from many factories and retail environments and yet office areas have high cubicle walls preventing smooth, defect-free information flow. b. Specific actions: 1. Use Value Stream Mapping to understand the high-level connections of workflow and information. 2. Use mapping to track the detailed movement of information and tasks between individuals and departments. 3. Walk through the process and see what is actually happening. 4. Put status boards and performance metrics up in the office areas and use these areas for daily stand-up meetings.

5. Focus on the process, not the person. a. Improvement is change, and change is difficult for people. This is especially so when it is "knowledge work" such as engineering. The focus of waste elimination activity must always remain on the process, not the person, in order to make change less confrontational. However, in many cases for office and administrative processes the person is the process. b. Specific actions: 1. Provide training and develop understanding of Lean principles. 2. Keep the process owners involved at all stages of Lean implementation. 3. Create a blame-free environment so that individual mistakes are not hidden.

6. Tear down the walls! a. This step is perhaps the most difficult for many organizations implementing Lean in the office. The resistance will come not only from the people who are used to having 100 square feet of personal space in their cubicle, but from the managers who feel entitled to their large offices. These entitlements are at a tremendous cost to the organization as well as the effectiveness of the individuals working there.

b. Specific actions: 1. Remove cubicle walls. 2. Make "work cells" specific to the types of jobs that flow through the area. 3. Create "open room" project areas where teams can co-locate to work on projects, communicate, and make project status visible. 4. Establish one or more "quiet zones" where people can go when they need to concentrate for short periods of time. 5. Reduce scheduled meetings in conference rooms and replace with multiple daily ad hoc meetings.

Lean Office Impact

Properly implemented, Lean will have the following impact within the organization:

Simplifies and speeds up Order Entry, Accounts Payable/Receivable Processing, Customer Service, Procurement, Product Development, and other functions that touch the customers and suppliers. Streamlines and improves communication between key processes in administrative and support areas (Human Resources, Engineering, Purchasing, Information Systems, etc.) by clarifying the "pull" of value from the internal customer. Reduces "fire fighting" within functional departments by measuring progress to Takt Time, creating Flow to reduce hand-off limbo, implementing Pull and Kanban, and establishing Visual Management to identify abnormalities. Reduces paperwork, manual entries, and errors using Standard Work, poka-yoke, 5S, and Open Room layout concepts. Improves job satisfaction as processes that are broken or not fulfilling the needs of internal and external customers are fixed. Just as with Kaizen in the factory, Office Kaizen places great emphasis on data-driven decision making, empowerment, and education of everyone in the organization. Focus on a vital few waste elimination opportunities in the key processes that will bring a financial impact and bring job enrichment. Alignment through education in a common vocabulary of improvement and Office Kaizen principles. Integrate the approach to breakthrough improvements and daily management that to support customers and internal value-added functions. Response to feedback on the effectiveness of information technology and daily management practices in place to sustain improvements.

The following best practices for the accounting and finance department may shortcut some of the analysis that will be done above. Compare your department practices to the following best practices outlined here:

Budgeting Best Practices o Automatically link the budget to purchase orders o Budget by groups of staff positions o Clearly define all assumptions o Clearly define all capacity levels o Create a summarized budget model for use by upper management o Establish project ranking criteria o Establish the upper limit of available funding o Identify step-costing change points o Include a working capital analysis

o o o o o o o o o

Issue a budget procedure and timetable Link to performance measurements and rewards Reduce the number of accounts Simplify the budget model Store budget information in a central database Use activity-based budgeting Use flex budgeting (use cost drivers) Use online budget updating Use video conferencing for budget updating

Commissions Best Practices o Automatically calculate commissions in the computer system o Calculate final commissions from actual data o Construct a standard commission terms table o Include commission payments in payroll payments o Lengthen the interval between commission payments o Only pay commissions from cash received o Periodically audit commissions paid o Periodically issue a summary of commission rate o Post commission payments on the company Intranet o Show potential commissions on cash register o Simplify the commission structure

Costing Best Practices o Audit bills of material o Audit labor routings o Eliminate high-leverage overhead allocation bases o Eliminate labor variance reporting o Follow a schedule of inventory obsolescence reviews o Implement activity-based costing o Implement target costing o Limit access to unit of measure changes o Review cost trends o Review material scrap levels o Revise traditional cost accounting reports Filing Best Practices o Add digital signatures to electronic documents o Adopt a document-destruction policy o Archive canceled checks on CD-ROM o Archive computer files o Document imaging o Eliminate attaching back-up materials to checks for signing

o o o o o o o

Eliminate reports Eliminate stored paper documents if already in computer Extend time period before computer records are purged Extend use of existing computer database Improve computer system reliability Move records off-site Reduce number of form copies to file

Finance Best Practices o Access bank account information on the Internet o Automatic 401(k) plan enrollment o Avoid delays in check posting o Centralize foreign exchange management o Consolidate insurance policies o Grant employees immediate 401(k) eligibility o Install a treasury workstation o Negotiate faster deposited check availability o Optimize cash management decisions through the Internet o Use Internet-based cash flow analysis software o Use Internet-based options pricing services o Use Internet-based risk measurement services o Use Internet-based technical analysis services o Use Internet-based treasury management services o Use web broadcasting for public reporting

Financial Statements Best Practices o Assign closing responsibilities o Automate recurring journal entries o Automate the cut-off o Avoid the bank reconciliation o Complete allocation bases in advance o Conduct daily review of the financial statements o Conduct transaction training o Continually review wait times o Convert serial activities to parallel ones o Create a closing schedule o Defer routine work o Document the process o Eliminate multiple approvals o Eliminate small accruals

o o o o o o o o o o

Move operating data to other reports Post financial statements in an Excel PivotTable on the Internet
Reduce investigation level Restrict the level of reporting Restrict the use of journal entries Train the staff in closing procedures Use cycle counting to avoid month-end counts Use internal audits to locate transaction problems in advance Use standard journal entry forms Write financial statement footnotes in advance

General Best Practices o Avoid over-auditing of internal audits o Complete all internal audit workpapers in the field o Consolidate all accounting functions o Continually review key process cycles o Create a contract terms database o Create an ongoing training program for all accounting personnel o Create an on-line internal audit library o Create an on-line tax policy listing
o o o o o o o o o o o o o o o o

Create a policy and procedure manual Create computer-based training movies Implement cross-training for mission-critical activities Implement process-centering Issue activity calendars to all accounting positions Issue activity calendars to all accounting positions Outsource the internal audit function Post the policies and procedures manual on the company Intranet site Scan data with modified palm computing platform Scan fingerprints at user workstations Schedule internal audits based on risk Sell the shared services center Switch to a limited usage application service provider Switch to online reporting Track function measurements Use balanced scorecard reporting

General Ledger Best Practices o Construct automated interfaces to software that summarizes into the general ledger o Create general ledger drill-down capability o Eliminate small-balance accounts o Modify account code structure for storage of ABC information

o o o o o o o o o o o o o o

Overlay the general ledger with a consolidation and reporting package Reduce the chart of accounts Restrict use of journal entries Subsidiaries update their own data in the central general ledger
Use automated error-checking Use data warehouse for report distribution Use forms/rates data warehouse for automated tax filings Use identical chart of accounts for subsidiaries Use the general ledger as a data warehouse Use automated error-checking Use data warehouse for report distribution Use forms/rates data warehouse for automated tax filings Use identical chart of accounts for subsidiaries Use the general ledger as a data warehouse

Payroll Best Practices o Automate fax-back of payroll forms o Automate vacation accruals o Avoid job costing through the payroll system o Consolidate payroll systems o Disallow pre-payments o Eliminate personal leave days o Give employees direct access to deduction data o Link payroll changes to employee events
o o o o o o o o o o o o

Link the 401(k) plan to the payroll system Link the payroll and human resources databases Minimize payroll cycles Outsource the payroll function Prohibit deductions for employee purchases Send remittances as e-mail messages Switch to salaried positions Use bar-coded time clocks Use biometric time clocks Use direct deposit Use honor system to track vacation and sick time Use web-based payroll outsourcing

Lean Example within the Postal Services of the World

Postal Service Provides Model for Lean Government

[By Jon Miller - September 10, 2005, 09:18 AM. ] It would be easy to point out how non-Lean the U.S. government has been at city, state, and federal levels these last few weeks. We've seen examples of lack of decision making, poor logistics, lack of alignment of goals, poor communication between functional areas and poor planning, to name just a few, resulting in terrible consequences.

Postal Service Provides Model for Lean Government

Instead let us keep it positive and look at the practical problem of Lean government and how to get started. One of the ways to change culture through Kaizen is to start where there are easy wins to be had. There are many customer-oriented, repetitive, simple production type processes in government that can benefit immediately from the application of Kaizen principles. A good example of this is the postal service. Rather than tackling the biggest, most complicated problems (such as healthcare, social security, etc.) and being bogged down in politics, real change will come through Lean government if we fix one small thing at a time. As people learn that this is successful, this will change attitudes. As citizens and taxpayers see that cutting out government waste is possible, hopefully we will vote for more of that type of government.

Speaking of the postal service there are several notable successes through Lean implementation. For instance at the postal service in Denmark they began in the year 2000, focusing on standardization in order to improve productivity, reduce lead times, and improve delivery service quality. The use of Value Stream Mapping, cross functional Kaizen teams, employee suggestions, key performance indicator (KPI) boards, and improvement meetings while "being in Gemba (shop floor)" resulted in reduction of costs by 20% and stable service performance at 95% was achieved. The article notes that changing the way they work was not easy, and changing behavior was even more difficult. Successful Lean implementation is almost always about creating a Kaizen culture

and the public sector is no exception. A revealing comment in the article is that the results were almost too good and too easy, meaning there are probably further gains to be had.

Closer to home, Canada Post has received some publicity for their thorough application of Lean principles. Andre Ouellet, the President and CEO of Canada Post, said the following during as speech in April 2003 in Montreal: The concept of value streams has been introduced at Canada Post, with leaders focused on improving the end-to-end processes. Employees work in small workgroups, and rotate through different jobs within the value stream. This makes for more interesting work, teamwork and relationship building, and better ergonomics. The Canada Post achieved a national on-time delivery of 96.7% for letter mail in 2002. Canada Post has been profitable eight years running. Employee satisfaction continues to improve. Through reductions in operating cost over the past five years Canada Post has repaid $274 million dividends and capital to the Canadian government. Full details of Lean implementation at Post Canada can be had in the case study at Lean Enterprise Institute website. In Japan there is an upcoming election which has large implications for government waste in Japan, as well as the Japanese postal service. Prime Minister Koizumi called this election when his bill to privatize the postal service was defeated. He would like to cut off the large amount of public works infrastructure to rural areas in Japan. He is trying to structurally eliminate some large portions of "pork barrel spending" in American terms.

Growing up in rural Japan I was always frustrated as a kid when they would pave the rivers with concrete blocks, ruining the fishing for quite some time. It made no sense to me when the adults explained that the river was "safer" for us with paved blocks running along the bottoms of these shallow rivers, instead of the natural river stones. Doubtless some local politicians must have run out of legitimate things for his "construction vote" buddies to pave after years of funneling public works tax dollars to them. Even if the spending on rural development is legitimate, Japan cannot continue down this path. Japan's national debt is 163% of GDP (Gross Domestic Product) and this is higher than any major industrialized nation. Compare this with 66% of GDP for the United States according to the OECD (Organization for Economic Cooperation and Development). A combination of

declining and aging population, an increasingly urbanized population, and low economic growth make this spending unsustainable.

It made news in Japan a few years ago when the postal service received help from Toyota managers with their Kaikaku effort. By implementing the Toyota Production System the postal service was able improve productivity and reduce costs by 30 billion Yen (approximately $250 million) according to the minutes of the April 7, 2004, meeting of the Japanese government's Economic & Public Finance Inquiry Committee. Productivity improved by 20% and this extra capacity was used to make further improvements and cost reductions, as well as gain more business, resulting in greater revenue than projected by about $120 million. The losses in 2002 were about $200 million, and this turned around to profits of $100 million in 2003. With results like these, and Japan's debt-to-GDP number, it is a shame the Japanese postal service did not implement TPS sooner. Let that be a warning to the rest of us. Lean government now.

Course Review

You have completed your study of the course content. You will now proceed to the 10-question course review. After completing the review, you can take the course exam (also 10 questions). On passing the exam, you can print your certificate as evidence of successful completion. You can review and print your certificate at any time from your transcript.

1. What is not stated as a Benefit of the Lean philosophy?

Improve quality. Improve absenteeism.

2. What is not one of the principles of 5S? Set in Order: Designating locations. Supply: JIT to every machine.

3. Kaizen is a Japanese word that means: 'Continuous Improvement 'Card' or 'Visible Record

4. What are visual controls? Line of sight supervisory management Visual cues to generate action

5. What is 'Pokayoke'? Mistake proofing devices are used to prevent defects from passing on to the next process. The last stage of a Kaizen Blitz

6. A statistical measure of quality based on specific methods and analytical tools is: Theory of Constraints

Six Sigma

7. Theory of Constraints is a Lean technique used to visual the enterprise's value streams and to continuously improve them. True. False

8. Pull manufacturing or production involves setting large production runs and attempting to achieve economies of scale and creating large amounts of inventory. True. False

9. What is the last step in Lean Office implementation? Tear down the walls. Eliminate bureaucratic processes.

10. What is not a best practice of payroll? Use honor system to track vacation and sick time. Use honor system to track hours worked.