The New Lean Manufacturing Enterprise

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By Thomas R. Cutler

Manufacturing executives often possess exception manufacturing, engineering, and production expertise, yet lack management knowledge. Many of these manufacturing owners run organizations with 50 to 500 employees; more than half report feeling overwhelmed which leads to the creation of every organization’s largest competitor: Waste. The manufacturing business owners are often shocked to learn, not only how much is wasted, but the real effect it has on the enterprise.

Paul Rauseo, managing director at George S. May International, a small business management consulting firm, says 95% of their clients experience some form of inefficiency. While business owners are experts in their particular industry, the reality of the day-to-day operations often overwhelms them. Too often they get caught up in the short-term details and lose sight of the big picture…the real role of a business owner.

Rauseo identified some of the characteristics of an owner who is nearly paralyzed from being overwhelmed:

Wasted Assets: Human Resources (poor employee hand book and job training, inadequate job description/responsibilities, irregular employee evaluation, high turnover, including improper record keeping.)

Wasted Profits: Finance/Accounting (credit losses, refunds, poor budgeting, excessive expenses, slow collections, and idle money.)

Wasted Business: Sales (neglected customers, uncalled prospective customers, lack of sales, dissatisfied customers, high pressure tactics, rash and unreasonable promises.)

Wasted Products/Services: Operations (unused capacity, wasted labor, poor training and absenteeism, slow work pace, outdated methods/ equipment.)

Wasted Actions: Marketing and communications (old marketing plan, ineffective advertising, no publicity, public relations, lack of ROI and measurement, uninformed plans about company, employee communication lacks credibility.)

Wasted Effort: Administration (outdated technology, lack of policies and procedures, poor tracking costs and expenses, lost files, inadequate reports, facilities inefficient for operations.)

What is most ironic is that the lean manufacturing technologies often implemented on the plant floor have yet to be transitions to these other aspects of the enterprise. In a lean manufacturing environment, even with a progressive lean initiative and active process improvement team there is too often an unwillingness to look beyond the plant floor…beyond immediate kaizen event results in automation and production improvements.

Rauseo does draw a distinction between Lean manufacturing and his firm’s Planned Profit Model. Rauseo suggests, “Lean manufacturing is a variation on the theme of efficiency based on optimizing flow; the old adage of how efficient a company can be when they are out of business looms in every lean environment. The assumption that a company that adopts the principles of lean will be profitable does not always hold true. The Planned Profit Model is a company wide initiative that incorporates the principles of lean, ISO9000:2000, Six Sigma and adds a finance model whose function it is to measure - from a profitability standpoint - the effectiveness of the lean initiative. That coupled with individual performance goals is a recipe for success.”

The Planned Profit Model: Revenue – Profit = Expenses

The equation is a basic assessment of the three major components of any business: expenses, revenues, and what is left over. In the past, this model placed profit as the outcome number, and many times it is negative or lower than expected. With profit as a fixed input variable, the amount is decided upon and controlled in advance. Too many businesses use an old model, with profit as the result, and do not realize how much money they have generated (or lost) until the accounting period ends. The model is simple, but it can be the critical factor in whether or not a small manufacturing enterprise is profitable.

New technologies such as C.E.O. (Continuous Experiential Optimization) are focusing the enterprise to examine how manufacturing and industrial businesses can identify these wasted opportunities and cut costs as well as a quasi-kaizen methodology that identifies the top three areas where the most benefit can be gained. From tips for passing costs along to the consumer to methods for avoiding extending credit; from specific methodologies for North American manufacturers to stay profitable in this economy to making sure an organization uses a planned profit model, the identification and examination of waste drives immediate results to overwhelmed manufacturing owners.

Cyndi Liggett, who has managed hundreds of professional coaches across a wide number of small to midsized enterprises teaches, Continuous Experiential Optimization (C.E.O.) training because, “It capitalizes on former training and takes what the group already knows; it then utilizes optimized communications tools and resources through experiential learning. This type of learning allows a lean team to leverage best practice knowledge and apply it, experientially to their work situations. By learning while doing, the team learns to create the intended business results, consciously and as a team.”

Diane Lippman, a Six Sigma Master Black Belt, suggested that, “The combination of the core components of Continuous Experiential Optimization allow for a cross-section of approaches which are all quantifiable rather than conceptual.”

The core C.E.O. elements include:

  • Lean, Six Sigma, and Lean Six Sigma Training
  • Transactional Process Improvements
  • Newly defined Success and the related Metrics
  • Performance Standards based in reality and real metrics
  • Leadership Development based on the individual and team performance
  • Organizational Assessments
  • Instructional Design, Development and Delivery
  • Curriculum and Course Development
  • Blended Learning
  • Change Management
  • Employee Surveys
  • Assessments and Validations

The profitability approach is vital, however the ability to design, develop, and utilize the concept requires there is buy-in throughout the organization. Too often egos are driving the manufacturing enterprise. Change resistance stands in the way of process improvement in favor of stagnancy and the status quo. Only when the status quo is no longer acceptable does it change. Change is a constant, yet whether it comes easily or with fierce resistance depends on how manufacturing executive present the opportunity. Eliminating waste is much more than a concept; it is a practice routed in the pursuit of ongoing excellence.

Author Profile:

Thomas R. Cutler is the President & CEO of Fort Lauderdale, Florida-based, TR Cutler, Inc, Cutler is the founder of the Manufacturing Media Consortium of three thousand five hundred journalists and editors writing about trends in manufacturing. Cutler is a member of the Society of Professional Journalists, Online News Association, American Society of Business Publication Editors, Committee of Concerned Journalists, as well as author of more than 300 feature articles annually regarding the manufacturing sector. Cutler is also the developer of lean technology C.E.O (Continuous Experiential Optimization). Cutler can be contacted at [email protected]