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Lean Leadership
Workshop
Introduction
The Waste Eliminators
847-919-6127
info@quantumassocinc.com
quantumassocinc.com
Thought Leadership
Series
Burning Platform for Change
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Lean Enterprise
• Lean is a business system focused on managing
processes. and improving them by compressing time, rather
than sweating assets
• Every business is a collection of processes- primary
processes that create value- and secondary processes
that support them
• Processes are sequences of steps that must be carried out
to create value for customers and managed as a whole, not
separately
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What is Lean?
• Lean emphasizes the prevention of waste: any extra time,
labor or material spent producing a product or service that
doesn’t add value to it.
• A lean system’s unique tools, techniques, and methods can
help you reduce costs, achieve just-in-time delivery and
shorten lead times
• Lean fosters a culture in which all employees continually
improve their skill levels and processes
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What is Lean?
• Because lean systems are customer focused and
driven, products and services are created and
delivered in the right amounts, to the right location,
at the right time, and in the right condition
• Products and services are produced only for a
specific customer order rather than being added to
inventory
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Goals of the Lean Enterprise
• Improve Quality
• Eliminate Waste
• Reduce Lead Time
• Reduce Total Costs
• Why are these goals important?
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Four Main Goals
• Improve Quality
– Quality is the ability of your product or services to
meet or exceed your customers’ requirements
• Eliminate Waste
– Waste is the activities that take up time, resources
and space but does not add value to a product or
service—customers do not pay for non-value-added
activities
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Four Main Goals
• Reduce Lead Time
– Lead time is the total time it takes to complete a series of
tasks within a process. Some examples:
• Period between the receipt of a sales order and the time payment
is received
• The time it takes to transform raw materials into finished goods
• The time it takes to introduce new products after they are first
designed
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Four Main Goals
• Reduce Total Costs
– Total costs are the direct and indirect costs associated
with the production of a product or service
• You must continually balance your products’ and services’ prices
and your operating costs to succeed.
• If your prices and operating costs are too high you will lose market
share and profits
• To reduce total cost a Lean Enterprise must eliminate waste and
reduce lead times.
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The Cost Reduction Principle
• Traditional thinking dictates that you set your selling
price by calculating your cost and adding on a
margin for profit
• In today’s competitive market the customer sets the
price and you don’t have the luxury of adding a profit
margin
• The only way to remain profitable is to eliminate
waste from your value stream, thereby reducing
costs—cost reduction principle
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The Cost Reduction Principle
• Determine the price customers are willing to pay,
and subtract your cost to determine what your profit
will be
• Eliminating waste is important because customers
not only set the price, but they also demand price
reductions
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The Cost Reduction Principle
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Cost
Profit
Price
Price
Traditional Thinking
Cost + profit = price
Cost
Profit
Price Price
Lean Thinking
Price – cost = profit
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Why Are These Goals Important?
• Implementing lean tools and techniques will enable your
company to meet customer demand for a quality product or
service at the time they need it and for a price they are willing
to pay.
• Lean Management methods create agile and efficient
business and manufacturing processes.
• Lean practices will help your company manage its total costs
and provide a fair ROI to its stakeholders.
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Value-Add & Non-Value Add
• Track the flow of work in your processes to
determine the activities that add value in the eyes of
your customers
• A value add percentage of less than 10% indicates
that the process is “Fat.”
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“Fat” Processes
• Most processes are “Fat”—that is have a VA time of less than 10%
• In Service and back office processes at least 50% and often more of the
work is non-value added
• Reduce WIP by converting from a “Push” to a “Pull” system
• Typical VA times in service/office processes run about 5% meaning that
the work spends 95% of it’s in process time just waiting
• A lean process is one in which the VA time is more than 20% of the total
cycle time of the process
• Experience shows that in any process with a VA time of 10% or less, 80%
of the process time is chewed up by less than 20% of the activities
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“Fat” Processes
• In manufacturing one can physically see and trace the flow of
work. You can walk down a production line and follow the
WIP as raw materials or products are turned into finished
goods. This flow is usually documented in a “router”, which
shows the path of the value-add work.
• In a service or office environment you have to be more
creative when trying to identify the work flow and judge the
amount of work-in-process. We have to make it visible.
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Waste
• Waste is anything—time, cost or work that adds no
value in the eyes of the customer
• All organizations have some waste because of how
their processes operate to compensate for internal
weaknesses
• Lean management shows us how to recognize and
eliminate waste and not simply accept it as the “way
work is done around here”
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The Seven Deadly Wastes
Seven Deadly Wastes
Overproduction
Value adding
5%
Defects
Motion
Inventory
Overprocessing Transport
Waiting
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The ultimate lean target is the total elimination of waste. Waste, or Muda, is
anything that adds cost or time without adding value. Seven deadly wastes
have been identified over the years.
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Lean Leadership
Workshop
LMS Planning
The Waste Eliminators
LMS Roadmap
Plan
Build
Implement
Sustain
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Planning For Implementation
Leadership Alignment
Vision
Business
Outcomes
Short-term
Objectives
Long-term
Objectives
Culture Values
• The leadership team must treat LMS
implementation as a strategy for
business success
• The Leadership team must craft a
compelling vision that clearly states
the outcomes expected from the
LMS implementation
• The leadership team must clearly
define the long-term and short-term
objectives expected from LMS
implementation
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Planning For Implementation
Current State Future State Ideal State
Vision
Lean Management
Short-term Objectives Long-term Objectives
Before embarking on the Lean journey top management develops
current state, future state and ideal state financial and non-financial
metrics that will provide a holistic overview on progress
System
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Planning For Implementation
• Identify value streams for product families
– The value stream is always identified with a product family
– A product family refers to a group of products that broadly follow the
same process steps
Product
s
Proces
s
Step 1
Proces
s
Step 2
Proces
s
Step 3
Proces
s
Step 4
Proces
s
Step 5
Proces
s
Step 6
Product A X X X X
Product B X X X X
Product C X X X
Product D X X X X X
Product
Family
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Planning For Implementation
• All value streams follow six basic steps
• When implementing the LMS the entire value stream
must be considered to deliver the desired impact
New Product
Development
Customer
Acquisition
Order
Administration
Order
Fulfillment
Customer
Service
Collections
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Planning For Implementation
• Form Implementation Team
– Appoint individuals who can lead and facilitate building the
Lean Management System
– Members of the implementation team include
• Value stream owner
• Chief Improvement Officer
• Lean experts
• Process owner
• Lean project mangers
• Others as required
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Planning For Implementation
• Develop Implementation Charter
– A directional road map for implementation of the lean office
management system in the organization—provides the business case
for LMS
– Separate charters are prepared for the entire organization and the
respective value streams
– Clearly state the benefits expected from the implementation of the
LMS
– Chief Improvement Officer creates corporate charter
– Value Stream Owners create the charters for their respective value
streams
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Planning For Implementation
• Redesign the Organizational Structure
– Structure the organization around product families or
value streams
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Planning For Implementation
• Install Anchors
– Building blocks that support the architecture of the lean
office management system
– The five anchors of the LMS
• People
• Processes
• Partners
• Promotions
• Problem solving
– They are closely linked and work in tandem to deliver the
specific results and sustain the LMS
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Planning For Implementation
• List All the Processes in the Value Stream
• Four Types of Processes in an organization
– Value-creating processes—directly help in the achievement of business
results, contribute to customer satisfaction and facilitate output delivery
i.e. Business acquisition
– Value-enabling processes—work closely with value-creating processes,
but do not directly impact business results, customer satisfaction or
output delivery i.e. Market research
– Support processes—Support the value-creating and value-enabling
processes. They are similar across the organization and cut across
functional silos and SBUs i.e. Recruitment
– Management processes—help hold the above processes together by
making them function flawlessly. They help in the governance and
maintenance of a process management framework i.e. document
control
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Planning For Implementation
• Value Creating Processes and Key Process Loops
– Value-creating processes typically form key process loops in a value
stream
– Key process loops must function flawlessly in unison to enable
consistent value stream performance
Sales Collections
Customer
Service
Credit
Business
Results
Key Process Loops of a Value Stream
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Lean Leadership
Workshop
Building the LMS
The Waste Eliminators
Building The LMS
• Build Relevant Capabilities
– Key capability-building training programs
• Awareness programs—creating awareness among the employees
• Leadership programs—required for developing alignment and
buy-in of the leadership team
• Technical programs—build specific capabilities for subsequent
applications
• Certification programs—validates the specific capabilities
possessed by an individual
• People programs—manages the people dimension of the LMS
implementation. Produces a motivated and passionate workforce
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Building The LMS
• In LMS implementation the LMS office is responsible
for developing the technical content and providing
required support for training delivery
• The LMS office focus is on creating trained
resources within the value streams and functions
• The accountability for capability-building rests with
the value streams
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Building The LMS
• Select the Value Stream to Focus On
– Prioritized the value streams based on their impact on
the organization’s overall strategy or customer
satisfaction
– The processes to be selected typically would be
dependent on related business pain and the
requirements of the organization
– Initially the focus should be on the value –creating
processes
Instead of beginning lean implementation across the entire organization consider targeting a business
unit or small area of the organization to completely transform. The benefits should be so visible that
they create a pull among other employees.
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Building The LMS
• Ensure all Value Stream Stakeholders are on Board
– Conduct a value stream stakeholder analysis with the product family
leadership team
– Value stream stakeholder matrix—a tool used to identify and list all the
stakeholders who impact a value stream
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Building The LMS
Principal
Stakeholders
Product
Policy Legal
Risk
Technology Ops
Market
Research
Sales Marketing
Product
DMA
Phone
banking
Valuers
Credit Legal
Field
Invest.
Risk Policy
Ops. Risk
DSA
Courier t
Storage
Vendor
Phone
Banking
Legal
Sales
Ops. Product
Collection
Ops.
Customer
Service
Collection
Agency
Legal Policy
HR
Man
Power
Provider
HR
Facility
Admin
Accounts
Infra-
structure
HR
Facility
Admin
Risk
Internal
audit
Technol.
text
Technol. HR
text
text text
Credit HR
Technol.
Facility
Admin.
Technol. HR
Enabling
Stakeholders
Principal Stakeholders Inside
Company
Principal Stakeholders outside
Company
Enabling Stakeholders inside
Company
Enabling Stakeholders outside
Company
Product
Development
Business
Acquisition
Order
Administration
Order Fulfillment Customer Service Collections
New Product
Development
Sales Credit Assessment Operations Customer Service Collections
Value Stream Stakeholder matrix- Four Types of Stakeholders
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Building The LMS
• Identify Customers and Determine What They Value
– Improvements have to be targeted at meeting the requirements of the
customer
– Use the SIPOC-Requirements diagram to determine suppliers, inputs,
customers and requirements of the process.
• Before completing the SIPOC-R diagram it helps to take a 10,000 foot
view of the process to help determine the macro steps
• To capture end to end visibility of the process look at the needs of both
the customers of the process and the end customer who buys or
consumes the service
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Building The LMS
SIPOC-R Diagram
Supplier Input Process Output Customer Requirements
Macro process steps of a process for which value stream
map has to be created
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Building The LMS
SIPOC-R Diagram For Auto Loan Disbursement Process
Consumer
Supplier
Application form,
address proof,
bank details,
Photo ID,
agreement, deal
slip, auto
insurance,
invoice, car docs.
Input Process
Loan
amount
credited to
customer’s
account
Output
Consumer
Customer
•Turnaround time
of less than
3days
•99.99% first time
error free credit
•Less hassle for
customer
Requirements
Dealer Sales
Credit
appraisal
Field
Investigation
Risk
Assessment
Loan
Approval
Amount credited to
customer Acct
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Building The LMS
• Map The Current State and Baseline the Process
– In the implementation of the LMS, processes have to be
viewed from two levels:
• From 10,000 feet—getting a macro view of the end to end process
and capturing all relevant data pertaining to material and
information flow
• From five feet—detailed process analysis to make improvements
in areas that have problems to help achieve the future state
– Create the current state value stream map
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Building The LMS
• Benefits of Value Stream Mapping
– Unseen waste are revealed
– Depicts both material and information flows
– Clearly shows improvement opportunities in the process
– The process becomes visible to everyone
– Indicates where time can be removed from the process
– Determines the cycle time versus actual value-added time
in the process
– Can be used as a strategic planning, change
management, and communication tool
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Building The LMS
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Building The LMS
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Building The LMS
• Baseline the Existing Value Stream
– Capture the key data points
• First-pass yield (FPY)—Effectiveness measure—the percentage of the
product that leaves the process without defects and without having to be
reworked
• Productivity levels—Efficiency measure—measurement of the process
rate, i.e. transactions processes per hour, number of engineering
drawings per FTE (full time equivalent), etc.
• Customer satisfaction—Effectiveness measure—establishes whether the
attributes of the product or service meet the requirements of the
customers (internal and external) of the process
• Customer complaints—Effectiveness measure—number and type of
complaints being reported
• Demand—the rate at which customers orders the product or service from
an organization
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Building The LMS
• Baseline the Existing Value Stream
– Capture the key time elements
• Takt time—the measure of the pace of customer demand
• Pitch—a multiple of takt time—the rate at which work units can be flowed through
the process. It is adopted when items can’t be flowed at the takt time rate and is
often used in high volume transactional environments
• Lead time—end-to-end time required for execution of a process. It starts when the
customer places the order and ends when the customer receives the product or
service
• Throughput time—time taken to complete a process
• Process time—the time taken to complete the activities of a process without any
delay
• Query time—time spent addressing queries in the process. It is quite common in
office/service processes and is a symptom of a process bottleneck
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Building The LMS
• Baseline the Existing Value Stream
– Capture the key time elements
• Waiting time—time that items spend waiting in the process. Waiting time in a value
stream map is calculated by the days of inventory of materials, physical
documents, and information.
• Travel time—time spent moving items, materials, documents, and information
• Transit time—calculated by adding waiting time and travel time in the value stream
map
• Cycle time—time taken to complete the smallest work unit ( a task). The time taken
by an associate to complete one task before it can be repeated again
• Hassle time—time spent by customers interacting with the organization for not
getting the product or service right the first time
• Process efficiency—the value-added ratio– ratio of time spent on value –adding
activities to the total time of the process
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Building The LMS
• Visualize the Future State
– While developing the future state map apply all the relevant lean
principles, i.e. flow, pull, takt time, supermarket, and Kanban
– Clearly mark on the future state map where lean breakthrough
improvements need to be implemented
– Develop an action plan for implementing the improvements
– Decide on the type of methodology to be used to implement the
improvements, i.e. Kaizens, Six Sigma, Seven QC tools, lean tools
and techniques
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Building The LMS
• Dissect Process– the Five Feet View
– Walk the process—physically follow the materials and information flow
to get to know exactly what is happening in the process and identify
waste.
– Conduct cycle time observation study—capture the time taken to
complete a task
– Value-added versus non-value-added analysis—segregate the types
of wastes in the process into value-added, non-value-added or
business-non-value-added
– Verify time consumption activities—focus on the following times: wait
time, travel time, rework time. Most of the problems in office/service
processes are related to wait and travel times.
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Building The LMS
• Deploy Lean Solutions
– Develop lean solutions for the desired future state to create
continuous flow and pull
– The benefits of continuous flow are:
• Major reduction in lead times
• Drastic reduction in WIP inventory levels
• Process
• Process paced at the rate of customer demand
• Proper workload distribution among workers
• Process can adjust to variations in customer demand
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Building The LMS
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Lean Leadership
Workshop
Implement and Sustain the LMS
The Waste Eliminators
Implement The LMS
• Decide on Measurements and Dashboards
– Metrics should reflect …
• Voice of the process—metrics that capture process performance
• Voice of the customer—outcome metrics of the customer’s view of
process performance
• Voice of the business—metrics that capture the overall
performance of the business value stream
• Voice of the employees—metrics that measure the engagement of
the employees in the implementation of the LMS
• Voice of LMS implementation—holistic measurement of the health
of the LMS in the organization
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Implement The LMS
• Create a Balance of Leading and Lagging Indicators
– Leading indicators—metrics that are tracked while the
process is being executed. They help predict the outcome
of the process
– Lagging indicators—metrics that are measured after the
process has been executed. They measure the
results/outcomes of a process
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Implement The LMS
• Implement and Institutionalize the Process
– Once the measurements have been decided upon, the
organization should begin implementation of the new lean
processes and the management processes that help
sustain the gains
– Two broad types of processes need to be implemented
• Processes that have been improved using lean techniques
• Management processes that help support the improved processes
and the LOMS implementation, i.e. root cause analysis, CAPA,
change management, performance management, etc.
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Sustain The LOMS
• Assess and Audit the LMS
• Launch Continual Improvement Regimens
– Large improvement projects—improvements that impact
the entire organization—fundamentally modify the way the
business is run
– Local improvement projects—improvements carried out by
local workplace teams to solve localized problems—helps
build a continual improvement culture
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Lean Leadership
Workshop
Lean Metrics
The Waste Eliminators
Lean Metrics To Drive Results
• What are They?
– Measurements that help you monitor your organization’s
progress toward achieving the goals of your lean initiative
• What do they do?
– Lean metrics help employees understand how well your
company is performing
– They also encourage performance improvement by
focusing employee’s attention and efforts on your
organization’s lean goals
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Lean Metrics To Drive Results
• Why use them?
– Lean metrics enable you to measure, evaluate, and
respond to your organization’s current performance in a
balanced way without sacrificing the quality of your
product or service in meeting demand
– They enable you to consider the important people factors
necessary for your organization’s success
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Lean Metrics
• Lean metrics are measurements that help you
monitor your progress toward achieving your lean
transformation goals.
• Metrics can fall into three categories:
– Financial
– Behavioral
– Core processes
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Financial Metrics
• You improve your company’s financial performance
by lowering the total cost of operations and
increasing revenue.
• If your company can become a lower cost producer
without sacrificing quality or service performance it
can enhance its market position.
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Financial Metrics
• Costs
– Cash flow
– Direct and indirect
labor costs
– Direct and indirect
material costs
– Inventory carrying
costs
• Revenue
– Sales
– Gross margins
– Return on assets
– Return on investment
– Warranty costs
Some Examples…
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Financial Metrics
• Hard-cost Savings
– Actually produce cash savings or increases in profit
– Directly affect your P&L
• Soft-cost Savings
– Assets that are freed up so they can be used for another
purpose
– Contributes no positive change to your P&L
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Financial Metrics
• Cost shifting
– Moving costs from one account to another without creating
any real savings
– Often hides waste rather than eliminating it
Goal: Reduce both your hard and soft cost savings for
the benefit of your organization.
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Case Example
A manufacturing company decides to implement quick changeover for one
of its fabrication lines. This enables the company to reduce batch sizes by
a full 65% and its inventory investment by 35%. These are hard-cost
savings.
Before the company implemented its cost reduction efforts. Employees
were responsible for all aspects of inventory and stocking. Now the
company requires its suppliers to inventory and stock all raw materials at
their site. By doing this the company frees up nearly 50% of the storage
space, for which it has no plans for other uses. This is a soft-cost saving.
By requiring one of its suppliers to stock raw materials the company has
shifted the cost of stocking raw materials to its supplier.
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Financial Metrics
• Implementation Tips
1. Introduce financial metrics to employees as a way for
them to understand the impact of their lean efforts on
operations as well as on the company’s bottom line.
2. Encourage the use of financial metrics in your lean
improvement activities. Provide training when
necessary.
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Behavioral Metrics
• Behavioral metrics are measurements that help you
monitor the actions and attitudes of your employees.
• Employees’ commitment, communication, and
cooperation all have a significant impact on the
success of your lean transformation.
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Behavioral Categories & Metrics
• Category: Commitment
– Performance Metrics
• Adherence to policies and procedures
• Participatory levels in lean improvement activities
• Availability and dedication of human resources department
• Efforts to train employees as needed
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Behavioral Categories & Metrics
• Category: Communication
– Performance Metrics
• Customer/employee surveys regarding quantity and quality of
company communication efforts
• Elimination of service or production errors caused by ineffective
communications
• Error reporting accuracy and timeliness
• Formal recognition of employees’ communication efforts
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Behavioral Categories & Metrics
• Category: Cooperation
– Performance Metrics
• Shared financial risks and rewards
• Effective efforts toward reporting and resolving problems
• Joint recognition activities
• Formal recognition of employees’ cooperation efforts
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Behavioral Metrics
• Implementation Tips
1. Implement techniques to gather project feedback,
meeting evaluations, employee appraisals and peer
evaluations
2. Conduct teamwork and facilitation training to improve
cooperation and communication within your organization
3. Make sure your reward and recognition system is
aligned with your lean goals
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Core-Process Metrics
• Allow you to measure the performance of your core
processes
• Product life cycle metrics
– Include the identification of market potential, product
design, new product launches, model extensions, product
use, and product obsolescence
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Core-Process Metrics
• Order Fulfillment Metrics
– Include activities related to sales, engineering,
procurement, production planning and scheduling, the
production process, inventory management. Warehousing,
shipping, and invoicing.
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Core Process Metrics
• Results Metrics
– First-time through (FIT)
quality
– Rolled-throughput yield
(RTY)
– On-time Delivery (OTD)
– Dock to Dock (DTD)
– Order fulfillment lead time
OFLT)
– Invoicing errors
– Turnaround time
• Productivity Metrics
– Inventory turnover rate
(ITO)
– Overall equipment
effectiveness (OEE)
– Value-added to non-value-
added (VA/NVA) ratio
Some specific examples…
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Core Process Metrics
• Implementation tips
– Measure all your core processes in the value stream for
both productivity and results
– Track the results and compare them to your desired
outcomes
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Core Process Metrics
• First-time through (FTT)
– Measures the percentage of units that go through your
process without being reworked.
– Applicability to service processes- For example you can
use it to measure the number of sales orders processed
without error the first time they go through your order
fulfillment process
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Core Process Metrics- FTT
• Why use it?
– Increased process output quality reduces the need for
excess production inventory, which improves your dock-
to-dock time
– Improves your ability to build-to-schedule
– Improves your overall equipment effectiveness ratio
– Your organization’s total cost improves due to lower
warranty, scrap, and rework costs
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Core Process Metrics- OTD
• Why use it?
– Measures if you have met your customers’ delivery
requirements
– Tracks deliveries at both the order level and the line item
level.
– Alerts you to internal process issues at the line item level
and shows their impact on the customer at the order level
– Ensures that you are meeting optimum service levels
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Core Process Metrics- DTD
• What is it?
– A metric that measures how long it takes raw materials or
sub-components coming into your organization to be
converted into finished goods.
• Why use it?
– Improves your ability to make on time deliveries
– Improving DTD, lowers your materials handling,
obsolescence, and inventory carrying costs
– Decreased inventory levels leads to less storage and
handling
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Copyrights of all the pictures used in this presentation are held by their respective owners.
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DO NOT BE
AFRAID, MY
FRIEND
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Lean Leadership

  • 1. Lean Leadership Workshop Introduction The Waste Eliminators 847-919-6127 info@quantumassocinc.com quantumassocinc.com Thought Leadership Series
  • 2. Burning Platform for Change All Rights Reserved QAI 2023 2
  • 3. Lean Enterprise • Lean is a business system focused on managing processes. and improving them by compressing time, rather than sweating assets • Every business is a collection of processes- primary processes that create value- and secondary processes that support them • Processes are sequences of steps that must be carried out to create value for customers and managed as a whole, not separately 3 All Rights Reserved QAI 2023
  • 4. What is Lean? • Lean emphasizes the prevention of waste: any extra time, labor or material spent producing a product or service that doesn’t add value to it. • A lean system’s unique tools, techniques, and methods can help you reduce costs, achieve just-in-time delivery and shorten lead times • Lean fosters a culture in which all employees continually improve their skill levels and processes 4 All Rights Reserved QAI 2023
  • 5. What is Lean? • Because lean systems are customer focused and driven, products and services are created and delivered in the right amounts, to the right location, at the right time, and in the right condition • Products and services are produced only for a specific customer order rather than being added to inventory 5 All Rights Reserved QAI 2023
  • 6. Goals of the Lean Enterprise • Improve Quality • Eliminate Waste • Reduce Lead Time • Reduce Total Costs • Why are these goals important? 6 All Rights Reserved QAI 2023
  • 7. Four Main Goals • Improve Quality – Quality is the ability of your product or services to meet or exceed your customers’ requirements • Eliminate Waste – Waste is the activities that take up time, resources and space but does not add value to a product or service—customers do not pay for non-value-added activities 7 All Rights Reserved QAI 2023
  • 8. Four Main Goals • Reduce Lead Time – Lead time is the total time it takes to complete a series of tasks within a process. Some examples: • Period between the receipt of a sales order and the time payment is received • The time it takes to transform raw materials into finished goods • The time it takes to introduce new products after they are first designed 8 All Rights Reserved QAI 2023
  • 9. Four Main Goals • Reduce Total Costs – Total costs are the direct and indirect costs associated with the production of a product or service • You must continually balance your products’ and services’ prices and your operating costs to succeed. • If your prices and operating costs are too high you will lose market share and profits • To reduce total cost a Lean Enterprise must eliminate waste and reduce lead times. 9 All Rights Reserved QAI 2023
  • 10. The Cost Reduction Principle • Traditional thinking dictates that you set your selling price by calculating your cost and adding on a margin for profit • In today’s competitive market the customer sets the price and you don’t have the luxury of adding a profit margin • The only way to remain profitable is to eliminate waste from your value stream, thereby reducing costs—cost reduction principle 10 All Rights Reserved QAI 2023
  • 11. The Cost Reduction Principle • Determine the price customers are willing to pay, and subtract your cost to determine what your profit will be • Eliminating waste is important because customers not only set the price, but they also demand price reductions 11 All Rights Reserved QAI 2023
  • 12. The Cost Reduction Principle 12 Cost Profit Price Price Traditional Thinking Cost + profit = price Cost Profit Price Price Lean Thinking Price – cost = profit All Rights Reserved QAI 2023
  • 13. Why Are These Goals Important? • Implementing lean tools and techniques will enable your company to meet customer demand for a quality product or service at the time they need it and for a price they are willing to pay. • Lean Management methods create agile and efficient business and manufacturing processes. • Lean practices will help your company manage its total costs and provide a fair ROI to its stakeholders. 13 All Rights Reserved QAI 2023
  • 14. Value-Add & Non-Value Add • Track the flow of work in your processes to determine the activities that add value in the eyes of your customers • A value add percentage of less than 10% indicates that the process is “Fat.” 14 All Rights Reserved QAI 2023
  • 15. “Fat” Processes • Most processes are “Fat”—that is have a VA time of less than 10% • In Service and back office processes at least 50% and often more of the work is non-value added • Reduce WIP by converting from a “Push” to a “Pull” system • Typical VA times in service/office processes run about 5% meaning that the work spends 95% of it’s in process time just waiting • A lean process is one in which the VA time is more than 20% of the total cycle time of the process • Experience shows that in any process with a VA time of 10% or less, 80% of the process time is chewed up by less than 20% of the activities 15 All Rights Reserved QAI 2023
  • 16. “Fat” Processes • In manufacturing one can physically see and trace the flow of work. You can walk down a production line and follow the WIP as raw materials or products are turned into finished goods. This flow is usually documented in a “router”, which shows the path of the value-add work. • In a service or office environment you have to be more creative when trying to identify the work flow and judge the amount of work-in-process. We have to make it visible. 16 All Rights Reserved QAI 2023
  • 17. Waste • Waste is anything—time, cost or work that adds no value in the eyes of the customer • All organizations have some waste because of how their processes operate to compensate for internal weaknesses • Lean management shows us how to recognize and eliminate waste and not simply accept it as the “way work is done around here” 17 All Rights Reserved QAI 2023
  • 18. The Seven Deadly Wastes Seven Deadly Wastes Overproduction Value adding 5% Defects Motion Inventory Overprocessing Transport Waiting 18 The ultimate lean target is the total elimination of waste. Waste, or Muda, is anything that adds cost or time without adding value. Seven deadly wastes have been identified over the years. All Rights Reserved QAI 2023
  • 21. Planning For Implementation Leadership Alignment Vision Business Outcomes Short-term Objectives Long-term Objectives Culture Values • The leadership team must treat LMS implementation as a strategy for business success • The Leadership team must craft a compelling vision that clearly states the outcomes expected from the LMS implementation • The leadership team must clearly define the long-term and short-term objectives expected from LMS implementation 21 All Rights Reserved QAI 2023
  • 22. Planning For Implementation Current State Future State Ideal State Vision Lean Management Short-term Objectives Long-term Objectives Before embarking on the Lean journey top management develops current state, future state and ideal state financial and non-financial metrics that will provide a holistic overview on progress System 22 All Rights Reserved QAI 2023
  • 23. Planning For Implementation • Identify value streams for product families – The value stream is always identified with a product family – A product family refers to a group of products that broadly follow the same process steps Product s Proces s Step 1 Proces s Step 2 Proces s Step 3 Proces s Step 4 Proces s Step 5 Proces s Step 6 Product A X X X X Product B X X X X Product C X X X Product D X X X X X Product Family 23 All Rights Reserved QAI 2023
  • 24. Planning For Implementation • All value streams follow six basic steps • When implementing the LMS the entire value stream must be considered to deliver the desired impact New Product Development Customer Acquisition Order Administration Order Fulfillment Customer Service Collections 24 All Rights Reserved QAI 2023
  • 25. Planning For Implementation • Form Implementation Team – Appoint individuals who can lead and facilitate building the Lean Management System – Members of the implementation team include • Value stream owner • Chief Improvement Officer • Lean experts • Process owner • Lean project mangers • Others as required 25 All Rights Reserved QAI 2023
  • 26. Planning For Implementation • Develop Implementation Charter – A directional road map for implementation of the lean office management system in the organization—provides the business case for LMS – Separate charters are prepared for the entire organization and the respective value streams – Clearly state the benefits expected from the implementation of the LMS – Chief Improvement Officer creates corporate charter – Value Stream Owners create the charters for their respective value streams 26 All Rights Reserved QAI 2023
  • 27. Planning For Implementation • Redesign the Organizational Structure – Structure the organization around product families or value streams 27 All Rights Reserved QAI 2023
  • 28. Planning For Implementation • Install Anchors – Building blocks that support the architecture of the lean office management system – The five anchors of the LMS • People • Processes • Partners • Promotions • Problem solving – They are closely linked and work in tandem to deliver the specific results and sustain the LMS 28 All Rights Reserved QAI 2023
  • 29. Planning For Implementation • List All the Processes in the Value Stream • Four Types of Processes in an organization – Value-creating processes—directly help in the achievement of business results, contribute to customer satisfaction and facilitate output delivery i.e. Business acquisition – Value-enabling processes—work closely with value-creating processes, but do not directly impact business results, customer satisfaction or output delivery i.e. Market research – Support processes—Support the value-creating and value-enabling processes. They are similar across the organization and cut across functional silos and SBUs i.e. Recruitment – Management processes—help hold the above processes together by making them function flawlessly. They help in the governance and maintenance of a process management framework i.e. document control 29 All Rights Reserved QAI 2023
  • 30. Planning For Implementation • Value Creating Processes and Key Process Loops – Value-creating processes typically form key process loops in a value stream – Key process loops must function flawlessly in unison to enable consistent value stream performance Sales Collections Customer Service Credit Business Results Key Process Loops of a Value Stream 30 All Rights Reserved QAI 2023
  • 31. Lean Leadership Workshop Building the LMS The Waste Eliminators
  • 32. Building The LMS • Build Relevant Capabilities – Key capability-building training programs • Awareness programs—creating awareness among the employees • Leadership programs—required for developing alignment and buy-in of the leadership team • Technical programs—build specific capabilities for subsequent applications • Certification programs—validates the specific capabilities possessed by an individual • People programs—manages the people dimension of the LMS implementation. Produces a motivated and passionate workforce 32 All Rights Reserved QAI 2023
  • 33. Building The LMS • In LMS implementation the LMS office is responsible for developing the technical content and providing required support for training delivery • The LMS office focus is on creating trained resources within the value streams and functions • The accountability for capability-building rests with the value streams 33 All Rights Reserved QAI 2023
  • 34. Building The LMS • Select the Value Stream to Focus On – Prioritized the value streams based on their impact on the organization’s overall strategy or customer satisfaction – The processes to be selected typically would be dependent on related business pain and the requirements of the organization – Initially the focus should be on the value –creating processes Instead of beginning lean implementation across the entire organization consider targeting a business unit or small area of the organization to completely transform. The benefits should be so visible that they create a pull among other employees. 34 All Rights Reserved QAI 2023
  • 35. Building The LMS • Ensure all Value Stream Stakeholders are on Board – Conduct a value stream stakeholder analysis with the product family leadership team – Value stream stakeholder matrix—a tool used to identify and list all the stakeholders who impact a value stream 35 All Rights Reserved QAI 2023
  • 36. Building The LMS Principal Stakeholders Product Policy Legal Risk Technology Ops Market Research Sales Marketing Product DMA Phone banking Valuers Credit Legal Field Invest. Risk Policy Ops. Risk DSA Courier t Storage Vendor Phone Banking Legal Sales Ops. Product Collection Ops. Customer Service Collection Agency Legal Policy HR Man Power Provider HR Facility Admin Accounts Infra- structure HR Facility Admin Risk Internal audit Technol. text Technol. HR text text text Credit HR Technol. Facility Admin. Technol. HR Enabling Stakeholders Principal Stakeholders Inside Company Principal Stakeholders outside Company Enabling Stakeholders inside Company Enabling Stakeholders outside Company Product Development Business Acquisition Order Administration Order Fulfillment Customer Service Collections New Product Development Sales Credit Assessment Operations Customer Service Collections Value Stream Stakeholder matrix- Four Types of Stakeholders 36 All Rights Reserved QAI 2023
  • 37. Building The LMS • Identify Customers and Determine What They Value – Improvements have to be targeted at meeting the requirements of the customer – Use the SIPOC-Requirements diagram to determine suppliers, inputs, customers and requirements of the process. • Before completing the SIPOC-R diagram it helps to take a 10,000 foot view of the process to help determine the macro steps • To capture end to end visibility of the process look at the needs of both the customers of the process and the end customer who buys or consumes the service 37 All Rights Reserved QAI 2023
  • 38. Building The LMS SIPOC-R Diagram Supplier Input Process Output Customer Requirements Macro process steps of a process for which value stream map has to be created 38 All Rights Reserved QAI 2023
  • 39. Building The LMS SIPOC-R Diagram For Auto Loan Disbursement Process Consumer Supplier Application form, address proof, bank details, Photo ID, agreement, deal slip, auto insurance, invoice, car docs. Input Process Loan amount credited to customer’s account Output Consumer Customer •Turnaround time of less than 3days •99.99% first time error free credit •Less hassle for customer Requirements Dealer Sales Credit appraisal Field Investigation Risk Assessment Loan Approval Amount credited to customer Acct 39 All Rights Reserved QAI 2023
  • 40. Building The LMS • Map The Current State and Baseline the Process – In the implementation of the LMS, processes have to be viewed from two levels: • From 10,000 feet—getting a macro view of the end to end process and capturing all relevant data pertaining to material and information flow • From five feet—detailed process analysis to make improvements in areas that have problems to help achieve the future state – Create the current state value stream map 40 All Rights Reserved QAI 2023
  • 41. Building The LMS • Benefits of Value Stream Mapping – Unseen waste are revealed – Depicts both material and information flows – Clearly shows improvement opportunities in the process – The process becomes visible to everyone – Indicates where time can be removed from the process – Determines the cycle time versus actual value-added time in the process – Can be used as a strategic planning, change management, and communication tool 41 All Rights Reserved QAI 2023
  • 42. Building The LMS 42 All Rights Reserved QAI 2023
  • 43. Building The LMS All Rights Reserved QAI 2023 43
  • 44. Building The LMS • Baseline the Existing Value Stream – Capture the key data points • First-pass yield (FPY)—Effectiveness measure—the percentage of the product that leaves the process without defects and without having to be reworked • Productivity levels—Efficiency measure—measurement of the process rate, i.e. transactions processes per hour, number of engineering drawings per FTE (full time equivalent), etc. • Customer satisfaction—Effectiveness measure—establishes whether the attributes of the product or service meet the requirements of the customers (internal and external) of the process • Customer complaints—Effectiveness measure—number and type of complaints being reported • Demand—the rate at which customers orders the product or service from an organization 44 All Rights Reserved QAI 2023
  • 45. Building The LMS • Baseline the Existing Value Stream – Capture the key time elements • Takt time—the measure of the pace of customer demand • Pitch—a multiple of takt time—the rate at which work units can be flowed through the process. It is adopted when items can’t be flowed at the takt time rate and is often used in high volume transactional environments • Lead time—end-to-end time required for execution of a process. It starts when the customer places the order and ends when the customer receives the product or service • Throughput time—time taken to complete a process • Process time—the time taken to complete the activities of a process without any delay • Query time—time spent addressing queries in the process. It is quite common in office/service processes and is a symptom of a process bottleneck 45 All Rights Reserved QAI 2023
  • 46. Building The LMS • Baseline the Existing Value Stream – Capture the key time elements • Waiting time—time that items spend waiting in the process. Waiting time in a value stream map is calculated by the days of inventory of materials, physical documents, and information. • Travel time—time spent moving items, materials, documents, and information • Transit time—calculated by adding waiting time and travel time in the value stream map • Cycle time—time taken to complete the smallest work unit ( a task). The time taken by an associate to complete one task before it can be repeated again • Hassle time—time spent by customers interacting with the organization for not getting the product or service right the first time • Process efficiency—the value-added ratio– ratio of time spent on value –adding activities to the total time of the process 46 All Rights Reserved QAI 2023
  • 47. Building The LMS • Visualize the Future State – While developing the future state map apply all the relevant lean principles, i.e. flow, pull, takt time, supermarket, and Kanban – Clearly mark on the future state map where lean breakthrough improvements need to be implemented – Develop an action plan for implementing the improvements – Decide on the type of methodology to be used to implement the improvements, i.e. Kaizens, Six Sigma, Seven QC tools, lean tools and techniques 47 All Rights Reserved QAI 2023
  • 48. Building The LMS • Dissect Process– the Five Feet View – Walk the process—physically follow the materials and information flow to get to know exactly what is happening in the process and identify waste. – Conduct cycle time observation study—capture the time taken to complete a task – Value-added versus non-value-added analysis—segregate the types of wastes in the process into value-added, non-value-added or business-non-value-added – Verify time consumption activities—focus on the following times: wait time, travel time, rework time. Most of the problems in office/service processes are related to wait and travel times. 48 All Rights Reserved QAI 2023
  • 49. Building The LMS • Deploy Lean Solutions – Develop lean solutions for the desired future state to create continuous flow and pull – The benefits of continuous flow are: • Major reduction in lead times • Drastic reduction in WIP inventory levels • Process • Process paced at the rate of customer demand • Proper workload distribution among workers • Process can adjust to variations in customer demand 49 All Rights Reserved QAI 2023
  • 50. Building The LMS 50 All Rights Reserved QAI 2023
  • 51. Lean Leadership Workshop Implement and Sustain the LMS The Waste Eliminators
  • 52. Implement The LMS • Decide on Measurements and Dashboards – Metrics should reflect … • Voice of the process—metrics that capture process performance • Voice of the customer—outcome metrics of the customer’s view of process performance • Voice of the business—metrics that capture the overall performance of the business value stream • Voice of the employees—metrics that measure the engagement of the employees in the implementation of the LMS • Voice of LMS implementation—holistic measurement of the health of the LMS in the organization 52 All Rights Reserved QAI 2023
  • 53. Implement The LMS • Create a Balance of Leading and Lagging Indicators – Leading indicators—metrics that are tracked while the process is being executed. They help predict the outcome of the process – Lagging indicators—metrics that are measured after the process has been executed. They measure the results/outcomes of a process 53 All Rights Reserved QAI 2023
  • 54. Implement The LMS • Implement and Institutionalize the Process – Once the measurements have been decided upon, the organization should begin implementation of the new lean processes and the management processes that help sustain the gains – Two broad types of processes need to be implemented • Processes that have been improved using lean techniques • Management processes that help support the improved processes and the LOMS implementation, i.e. root cause analysis, CAPA, change management, performance management, etc. 54 All Rights Reserved QAI 2023
  • 55. Sustain The LOMS • Assess and Audit the LMS • Launch Continual Improvement Regimens – Large improvement projects—improvements that impact the entire organization—fundamentally modify the way the business is run – Local improvement projects—improvements carried out by local workplace teams to solve localized problems—helps build a continual improvement culture 55 All Rights Reserved QAI 2023
  • 57. Lean Metrics To Drive Results • What are They? – Measurements that help you monitor your organization’s progress toward achieving the goals of your lean initiative • What do they do? – Lean metrics help employees understand how well your company is performing – They also encourage performance improvement by focusing employee’s attention and efforts on your organization’s lean goals 57 All Rights Reserved QAI 2023
  • 58. Lean Metrics To Drive Results • Why use them? – Lean metrics enable you to measure, evaluate, and respond to your organization’s current performance in a balanced way without sacrificing the quality of your product or service in meeting demand – They enable you to consider the important people factors necessary for your organization’s success 58 All Rights Reserved QAI 2023
  • 59. Lean Metrics • Lean metrics are measurements that help you monitor your progress toward achieving your lean transformation goals. • Metrics can fall into three categories: – Financial – Behavioral – Core processes 59 All Rights Reserved QAI 2023
  • 60. Financial Metrics • You improve your company’s financial performance by lowering the total cost of operations and increasing revenue. • If your company can become a lower cost producer without sacrificing quality or service performance it can enhance its market position. 60 All Rights Reserved QAI 2023
  • 61. Financial Metrics • Costs – Cash flow – Direct and indirect labor costs – Direct and indirect material costs – Inventory carrying costs • Revenue – Sales – Gross margins – Return on assets – Return on investment – Warranty costs Some Examples… 61 All Rights Reserved QAI 2023
  • 62. Financial Metrics • Hard-cost Savings – Actually produce cash savings or increases in profit – Directly affect your P&L • Soft-cost Savings – Assets that are freed up so they can be used for another purpose – Contributes no positive change to your P&L 62 All Rights Reserved QAI 2023
  • 63. Financial Metrics • Cost shifting – Moving costs from one account to another without creating any real savings – Often hides waste rather than eliminating it Goal: Reduce both your hard and soft cost savings for the benefit of your organization. 63 All Rights Reserved QAI 2023
  • 64. Case Example A manufacturing company decides to implement quick changeover for one of its fabrication lines. This enables the company to reduce batch sizes by a full 65% and its inventory investment by 35%. These are hard-cost savings. Before the company implemented its cost reduction efforts. Employees were responsible for all aspects of inventory and stocking. Now the company requires its suppliers to inventory and stock all raw materials at their site. By doing this the company frees up nearly 50% of the storage space, for which it has no plans for other uses. This is a soft-cost saving. By requiring one of its suppliers to stock raw materials the company has shifted the cost of stocking raw materials to its supplier. 64 All Rights Reserved QAI 2023
  • 65. Financial Metrics • Implementation Tips 1. Introduce financial metrics to employees as a way for them to understand the impact of their lean efforts on operations as well as on the company’s bottom line. 2. Encourage the use of financial metrics in your lean improvement activities. Provide training when necessary. 65 All Rights Reserved QAI 2023
  • 66. Behavioral Metrics • Behavioral metrics are measurements that help you monitor the actions and attitudes of your employees. • Employees’ commitment, communication, and cooperation all have a significant impact on the success of your lean transformation. 66 All Rights Reserved QAI 2023
  • 67. Behavioral Categories & Metrics • Category: Commitment – Performance Metrics • Adherence to policies and procedures • Participatory levels in lean improvement activities • Availability and dedication of human resources department • Efforts to train employees as needed 67 All Rights Reserved QAI 2023
  • 68. Behavioral Categories & Metrics • Category: Communication – Performance Metrics • Customer/employee surveys regarding quantity and quality of company communication efforts • Elimination of service or production errors caused by ineffective communications • Error reporting accuracy and timeliness • Formal recognition of employees’ communication efforts 68 All Rights Reserved QAI 2023
  • 69. Behavioral Categories & Metrics • Category: Cooperation – Performance Metrics • Shared financial risks and rewards • Effective efforts toward reporting and resolving problems • Joint recognition activities • Formal recognition of employees’ cooperation efforts 69 All Rights Reserved QAI 2023
  • 70. Behavioral Metrics • Implementation Tips 1. Implement techniques to gather project feedback, meeting evaluations, employee appraisals and peer evaluations 2. Conduct teamwork and facilitation training to improve cooperation and communication within your organization 3. Make sure your reward and recognition system is aligned with your lean goals 70 All Rights Reserved QAI 2023
  • 71. Core-Process Metrics • Allow you to measure the performance of your core processes • Product life cycle metrics – Include the identification of market potential, product design, new product launches, model extensions, product use, and product obsolescence 71 All Rights Reserved QAI 2023
  • 72. Core-Process Metrics • Order Fulfillment Metrics – Include activities related to sales, engineering, procurement, production planning and scheduling, the production process, inventory management. Warehousing, shipping, and invoicing. 72 All Rights Reserved QAI 2023
  • 73. Core Process Metrics • Results Metrics – First-time through (FIT) quality – Rolled-throughput yield (RTY) – On-time Delivery (OTD) – Dock to Dock (DTD) – Order fulfillment lead time OFLT) – Invoicing errors – Turnaround time • Productivity Metrics – Inventory turnover rate (ITO) – Overall equipment effectiveness (OEE) – Value-added to non-value- added (VA/NVA) ratio Some specific examples… 73 All Rights Reserved QAI 2023
  • 74. Core Process Metrics • Implementation tips – Measure all your core processes in the value stream for both productivity and results – Track the results and compare them to your desired outcomes 74 All Rights Reserved QAI 2023
  • 75. Core Process Metrics • First-time through (FTT) – Measures the percentage of units that go through your process without being reworked. – Applicability to service processes- For example you can use it to measure the number of sales orders processed without error the first time they go through your order fulfillment process 75 All Rights Reserved QAI 2023
  • 76. Core Process Metrics- FTT • Why use it? – Increased process output quality reduces the need for excess production inventory, which improves your dock- to-dock time – Improves your ability to build-to-schedule – Improves your overall equipment effectiveness ratio – Your organization’s total cost improves due to lower warranty, scrap, and rework costs 76 All Rights Reserved QAI 2023
  • 77. Core Process Metrics- OTD • Why use it? – Measures if you have met your customers’ delivery requirements – Tracks deliveries at both the order level and the line item level. – Alerts you to internal process issues at the line item level and shows their impact on the customer at the order level – Ensures that you are meeting optimum service levels 77 All Rights Reserved QAI 2023
  • 78. Core Process Metrics- DTD • What is it? – A metric that measures how long it takes raw materials or sub-components coming into your organization to be converted into finished goods. • Why use it? – Improves your ability to make on time deliveries – Improving DTD, lowers your materials handling, obsolescence, and inventory carrying costs – Decreased inventory levels leads to less storage and handling 78 All Rights Reserved QAI 2023
  • 79. Copyrights of all the pictures used in this presentation are held by their respective owners. 79 All Rights Reserved QAI 2023
  • 80. DO NOT BE AFRAID, MY FRIEND All Rights Reserved QAI 2023 80