Small and medium sized manufacturing businesses often face growing pains that can lead to poor profitability and slow growth. Learn why Lean Manufacturing is the key to unlocking the growth potential of small and medium sized manufacturers. Learn the secrets for success when implementing lean manufacturing in a small and medium sized manufacturing business. This presentation is an extract of a workshop given at the AME USA Conference in Jacksonville Florida on 14 November 2014 by Tim McLean and Mike Beck. The presentation is based on Tim's forthcoming book, "Grow Your Factory, Grow Your Profit: Lean for Small and Medium Sized Manufacturing Enterprises" which will be released by Productivity Press on 18 December 2014

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LEAN MANUFACTURING AS A
LEVER FOR GROWTH FOR
SMALL AND MEDIUM SIZED
MANUFACTURERS
TIM MCLEAN
TXM LEAN SOLUTIONS

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OUTLINE
• The growth challenge for Small and Medium Sized Manufacturing
Enterprises (SMEs).
• Why SMEs fail to grow.
• Key success factors in a successful SME Lean transformation
• Developing your outline A3 Plan.
• Conclusions.
• Q&A

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PROCESS FOR THIS WORKSHOP
• Assumptions:
• This is a working session as well as a learning session.
• You are interested in growing your business.
• You have a working knowledge of lean .
• Process will include presentation of key concepts, with working group
sessions to develop an A3 action plan for application to your situation.
• Organizing principles for 2 person work groups – natural teams and interest.
• Key activities will include thinking, reflecting, and creating a document to
support your organizations growth.

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WORKING DEFINITION OF SME:
• Small or Medium Sized Manufacturing Enterprise (or site).
• Less than 200 Employees on one site.
• Sales less than $100M.
• “Small Manufacturer usually less than $5M sales and 30 people.
• May be privately owned business or stand alone operation in large corporate.
• Managers have multiple roles.
• Limited staff functions and support (e.g. no HR, Production Engineering,
Training, Lean departments).
• Often manufacture complex or customized products in low volume and/or a
complex product range.
• Strategic focus is on growing the business (not downsizing).

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IMAGINE YOUR BUSINESS
WITH DOUBLE THE SALES
WHAT WOULD YOUR BUSINESS BE LIKE?
WHAT IS STOPPING YOU FROM GETTING
THERE?

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WHAT TYPICALLY HAPPENS
WHEN AN SME GROWS?

7. ECONOMIES OF SCALE – WHAT SHOULD HAPPEN WHEN
YOU GROW
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100
7
80
60
40
20
0
Profit
Overheads
Variable
Costs
• Variable costs grow in line
with sales
• Overheads grow slower than
sales
• Profit margin (% and $) grows
faster than sales.

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100
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DIS-ECONOMIES OF SCALE – WHAT USUALLY
HAPPENS
80
60
40
20
0
Profit
Overheads
Variable
Costs
• Variable costs grow faster
than sales.
• Overheads increase with
sales or faster.
• Profit margin (% and $)
disappears

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WHY DOES THIS
HAPPEN??

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IN THE BEGINNING THERE WAS
YOU YOUR
CUSTOMER
SIMPLE – EASY TO MANAGE

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THEN YOUR BUSINESS GREW
YOUR
COMPANY
YOUR
CUSTOMERS

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AND GREW….
YOUR COMPANY YOUR CUSTOMERS

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AND GREW….

14. THE ANSWER TO
ALL THIS
COMPLEXITY IS
OCFO CMOUPRUSTEE…R….
SYOU START TO LOSE
CONTROL OF YOUR
BUSINESS
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THE CONSEQUENCES OF GROWTH = INCREASING
COMPLEXITY.
WITHOUT BETTER BUSINESS PROCESSES YOU WILL GET:
• Lead times increase.
• Batch sized increase to maximize
“efficiency”.
• Inventory increases.
• Demand for cash exceeds extra cash
from revenue.
• Insufficient cash to support growth.
• More people, more layers, vertical silos
more overheads.
• Labour efficiency falls
• More people harder to supervise.
• Defects and problems increase.
• Problems don’t get solved because
there are just too many to solve.
• Profit margins decrease.
YOU WILL STOP GROWING AND PROBABLY GO BANKRUPT

16. START WITH YOUR BUSINESS
RIGHT NOW
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DESCRIBE YOUR CURRENT STATE
WHAT DO YOU NEED TO CHANGE ABOUT
YOUR BUSINESS?

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THE KEYS TO LEAN SUCCESS
IN A SMALL AND MEDIUM
SIZED MANUFACTURER

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LESSON 1: HAVE A CLEAR STRATEGY

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WHAT IS YOUR STRATEGY?
DESCRIBE YOUR FUTURE
STATE

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LESSON 2: ALIGN YOUR MANAGEMENT TEAM

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ALIGNING FOR LEAN SUCCESS

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WHAT ARE SOME OF THE
CULTURAL AND LEADERSHIP
BARRIERS IN YOUR
BUSINESS?
WHAT ARE THE OBSTACLES
THAT STAND BETWEEN YOU
AND YOUR FUTURE STATE?

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LESSON 3: MAP YOUR VALUE STREAMS

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DEVELOP A PRODUCT FAMILY MATRIX

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LESSON 4 – SET AND MAINTAIN HIGH
STANDARDS

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LESSON 5 - DEVELOP YOUR FRONT LINE LEADERS

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LESSON 6 SIMPLE SOLUTIONS ARE BEST

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VISUAL CONTROLS

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WHAT KIND OF
COUNTERMEASURES MIGHT
WORK TO OVERCOME THE
OBSTACLES TO CHANGE IN
YOUR BUSINESS?

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LESSON 7: ESTABLISH SIMPLE AND RELEVANT
MEASURES
• Aim for measures that can be
“counted” on the shop floor.
• Record hourly or daily.
• Recorded by front line leaders.
• Consider safety, quality, output,
delivery, cost.
• There is no perfect metric..

31. WHAT ARE THE KEY SHOP
FLOOR METRICS FOR YOUR
BUSINESS?
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WHAT IS YOUR CURRENT TARGET AND WHAT
DO YOU NEED TO ACHIEVE?

32. MANAGEMENT
WORKLOAD
BUSINESS AS USUAL
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LESSON 8 – ITS HARD – BUT STICK WITH IT
Reprinted from Grow Your Factory, Grow Your Profits: Lean for Small and Medium-Sized Manufacturing
Enterprises.
Time
Total Workload
Firefighting
Workload
Improvement
Impact
TIME

33. HOW WILL YOU RESOURCE
AND CARRY OUT YOUR
CHANGE?
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COMPLETE YOUR ACTION PLAN

34. ECONOMIES OF SCALE – THE IMPACT OF LEAN
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80
60
40
20
0
Profit
Overheads
Variable
Costs
• Productivity increase means
variable costs grow slower
than sales – gross margin
improves.
• Improved processes and
employee empowerment
mean overheads grow slower
or stay fixed.
• Profit margin (% and $) grows
faster than sales.

35. INCREASE
SALES AND
PROFITS
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VIRTUOUS
IMPROVEMENT
CYCLE
LEAN
PRODUCTION
SYSTEM
INCREASED
CAPACITY-PHYSICAL
AND HUMAN
MORE
RESOURCES
INVEST IN
MORE
GROWTH
AND
INNOVATION

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KEY POINTS
• Small or medium size manufacturers are usually focused on growth. Many
stall because of poor process.
• Most manufacturing SMEs we see suffer diseconomies of scale – profit margin
and cash flow goes down when sales go up.
• Lean can change this paradigm for SMEs.
• Align lean with your strategy and get your leadership team on board first.
• Map your value streams and engage your people.
• Lean is hard – but stick with it – IT WORKS.
• Increased productivity leads to higher margins, lower inventory and more cash
to support growth of your business.

37. LEARN MORE
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CASE STU
• Contact Us at TXM
www.txm.com.au/contact-us
• Read More in “Grow your Factory –
Grow Your Profits: Lean for Small and
Medium Sized Manufacturing
Enterprises
• http://txm.com.au/store/products/grow-factory-grow-profits-
lean-small-medium-sized-manufacturing-enterprises
• Read and Watch Case Studies
www.txm.com.au/case-studies