You’d have to be living in a mountain cave or vacationing on the south coast of France to not know that world stock markets are being whipped around these past two weeks. The USA Today has attributed what’s been happening in the markets here in the U.S. along seven key elements, all of which is related more to external factors such as the European money woes, general investor fear and lack of policy direction from the federal government.
The general market fear and scurrying for shelter reminds me that when hikers are caught in a sudden storm, they often seek shelter in a “lean-to” or other protective cover until the skies clear.
I thought that in light of the economic body slamming that has been going on this past week, it’s worth reflecting on some efficiency-based ways that businesses can use to overcome (or at least buffer) some of the external factors that are causing such economic uncertainty. Like the hikers seeking shelter from the storm, there are some “lean-to”-like steps that company’s can take to exert some control and influence — and it all relates to a leaner, greener, smarter enterprise.
The Lean and Green Enterprise
Last winter I wrote about how importance a “lean and green” enterprise was in establishing a smarter, leadership position in a rapidly changing global marketplace. I noted then that a 2009 study suggested that “lean companies are embracing green objectives and transcending to green manufacturing as a natural extension of their culture of continuous waste reduction, integral to world class Lean programs.” Lean was more rapidly accomplished with a dedicated corporate commitment to continual improvement, and incorporating ‘triple top line’ strategies to account for environmental, social and financial capital. I also argued by looking deep into an organizations value chain (upstream suppliers, operations and end of life product opportunities) with a ‘green’ or environmental lens, manufacturers can eliminate even more waste in the manufacturing process, and realize some potentially dramatic savings
So I was reminded this past week that Lean in design, Lean in manufacturing, and Lean in inventory can individually or collectively be key success factors in managing waste in all its many forms. Collectively, this can have a measurably positive effect on a company’s financial, and hence, business performance. A couple of recent articles touched on this topic this week while you were watching your 401(K) equity or stock value tank. But first let’s touch on Lean Design.
I came across an older but very relevant article written in the aftermath of the Internet stock crash in the early 2000’s. The article described product development as involving “two kinds of waste: that associated with the process of creating a new design (e.g., wasted time, resources, development money), and waste that is embodied in the design itself (e.g., excessive complexity, poor manufacturing process compatibility, many unique and custom parts).” The article cautioned that because the design process is the cradle of creative thinking, designers needed to carefully watch what they “lean out” or risk cutting off the creative process to reduce waste. What has happened in the ensuing years has been an incredible emphasis on “green design” that focuses on full product life cycle value, such that “end of life management” considerations have taken on a more relevant and embedded nature in manufacturing.
A Lean Manufacturer Can be a Sustainable Manufacturer
In yet another recent article by manufacturing consultant Tim McMahon (@TimALeanJourney), he notes that “Lean manufacturing practices and sustainability are conceptually similar in that both seek to maximize organizational efficiency. Where they differ is in where the boundaries are drawn, and in how waste is defined”. He notes, as I have in my past posts, that Lean manufacturing practices, which are at the very core of sustainability, save time and money — an absolutely necessity in today’s competitive global marketplace.
The key areas to control manufacturing waste and resource use during the design and manufacturing cycle, can be broken down and managed for waste management and efficiency in the following five ways:
Reduce Direct Material Cost – Can be achieved by use of common parts, common raw materials, parts-count reduction, design simplification, reduction of scrap and quality defects, elimination of batch processes, etc.
Reduce Direct Labor Cost – Can be accomplished through design simplification, design for lean manufacture and assembly, parts count reduction, matching product tolerances to process capabilities, standardizing processes, etc.
Reduce Operational Overhead - Efficiencies can be captured by minimizing impact on factory layout, capture cross-product-line synergies (e.g. a modular design/ mass-customization strategy), improve utilization of shared capital equipment, etc.
Minimize Non-Recurring Design Cost – Planners and practitioners should focus on platform design strategies to achieve efficiencies, including: parts standardization, lean QFD/voice-of-the-customer, Six-Sigma Methods, Design of Experiment, Value Engineering, Production Preparation (3P) Process, etc.
Minimize Product-Specific Capital Investment through: Production Preparation (3P) Process, matching product tolerances to process capabilities, Value Engineering / design simplification, design for one-piece flow, standardization of parts.
Can a Lean Inventory Management Drive Sustainable Resource Consumption?
Business Colleague Julie Urlaub from Taiga Company (@TaigaCompany) summarized a post in a recent Harvard Business Review by green sage Andrew Winston (@GreenAdvantage). The article, Excess Inventory Wastes Carbon and Energy, Not Just Money describes how the global marketplace “ is sitting on $8 trillion worth of ‘for sale’ inventory [the U.S. maintains a quarter of that inventory]. These idle goods not only represent a tremendous financial burden but an enormous environmental footprint ” that was generated in the manufacturing of those goods. Mr. Winston maintains that “If we could permanently reduce the amount of product sitting idle, we’d save money, energy, and material.” The problem is predicting and managing inventory in such fickle times. Winston went on about new predictive tools being advanced by companies that hold promise in nimbly driving inventory demand response up the supply chain. For instance, he noted that “ using both demand sensing software and good management practices, P&G has cut 17 days and $2.1 billion out of inventory. All that production avoided saves a lot of money in manufacturing, distribution, and ongoing warehousing. It also saves a lot of carbon, material, and water.”
What Mr. Winston found shocking though (me too!) was that “even with the fastest-selling, most predictable products, the estimates are off by an average of more than 40 percent. Imagine that a CPG company believes that 1 million bottles of a fast-turning laundry detergent will sell this week. With 40 percent average error, half the time sales will actually fall between 600,000 and 1.4 million bottles. And the other half of the time sales will be even further off the mark.” The process becomes self perpetuating and the inventory racks up along with the parallel environmental footprint, unless somehow the uncertainty can be better predicted. While companies like to have on hand what Mr. Winston referred to as “safety stock”, I have come to know as reserve inventory driven by “just in time” ordering . But that process was shown to have its own flaws such as when orders for goods dried up overnight in 2008 and when it came time to ramp up in early 2010, part counts were insufficient to meet the rising demand.
I really pity the supply chain demand planner, who like the weatherman is subject to the fickle nature of an unpredictable force. Winston wrapped up his article by stating that “ reducing the inventory itself could be the greenest thing [logistics executives] can do”. I had the chance to speak and attend the 2010 Aberdeen Supply Chain Summit where demand response planning was discussed at length and where green supply chain issues were recognized as one of many key attributes in effective supply chain management. In such a volatile economy, its vital that companies keep inventory management in mind as a way to leverage its costs and simultaneously look toward environmental improvements that can reduce waste.
Partnering for Progress
A relatively recent pilot program in the State of Wisconsin just shows how partnering to create a lean focused sustainable manufacturing cluster can have enormous dividends. According to a recent article in BizTimes.com, the Wisconsin Profitable Sustainability Initiative (PSI) was launched in April 2010 by the Wisconsin Department of Commerce and the Wisconsin Manufacturing Extension Partnership (WMEP). The goal according to the article is “to help small and midsize manufacturers reduce costs, gain competitive advantage and minimize environmental impacts”. Forty-five manufacturers participated in over 87 projects evaluated. These projects focused on “evaluating and implementing a wide range of improvements, including reducing raw materials, solid waste and freight miles, optimizing processes, installing new equipment and launching new products. The initial results show that the projects with the largest impact do not come from the traditional sustainability areas such as energy or recycling. Instead, outcomes from the initial projects suggest that transportation and operational improvements are places where manufacturers can look to find big savings, quick paybacks and significant environmental benefits.”
The program is projected to generate a five-year $54 million economic impact, including: $26.9 million in savings, $23.5 million in increased/retained sales and $3.6 million in investment.
Lean design, Lean manufacturing, Lean inventory management – a Waste Containment and Efficiency “Trifecta”
Together, lean design, lean manufacturing and effective, lean inventory management offer a “trifecta” approach for industry to identify, reduce or eliminate and track waste. Effective use of these tools cannot only drive both in how the product is designed and produced but offers opportunities all the way up the supply chain to manage effective inventory and resource consumption. As the University of Tennessee studied concluded, the implications of lean strategies are 1) Lean results in green; and 2) Lean is an essential part of remaining competitive and maintaining a quality image. Put the two together and a company can virtually be unstoppable…or a least a bit more recession-proof and “shelter from the storm”.