Searching around for lean success stories to write up is not an easy task because there are truthfully very few of them. It may come as a surprise to some, but among the publicly traded manufacturers, Ford, GM and Harley Davidson are the best the U.S. has to offer – by far. Danaher, Wiremold, Esterline, Masco, Boeing? Not even in the same league.
The fundamental measurement of lean manufacturing is cycle time. It doesn’t matter how many kaizen events a company held, or six sigma projects. Value stream mapping does not make a company lean, nor does implementing pull systems. Cycle time is to lean what weight is to a dieter. You can measure inches you lost or reduction in calorie intake, or whatever else you want, but the bottom line is determined when you step on the scales.
Let’s look at some numbers. In particular, let’s look at how many times some of these companies turn their Raw/Purchased and In Process Inventory (RIP Turns):
To understand those numbers, simply convert them to days by dividing 365 by the RIP turns figure. Masco, on average, takes about 23 days to convert raw and purchased material into finished building products, like faucets and kitchen cabinets. Danaher takes 33 days, or a little over a month, to convert material into tools, test equipment, medical equipment, and the other things they make. Esterline is at 36 days for airplane parts and Wiremold is at 52 days (or at least their parent company Legrand is) for electrical fittings and cables.
Toyota turns RIP inventory 45 times – material and purchased components into a finished car in 8 days. While Masco – the best of the four companies listed – is a fine company, making money, no doubt deploying the whole lean tool kit, and doing well, no one should kid themselves into thinking that a manufacturing system that takes 23 days to make a faucet is anything remotely close to a system that makes a car in 8.
Ford turns its RIP inventory about 37 times and GM and Harley-Davidson both come in at about 30. That’s a car in 10 days at Ford, and a car or a motorcycle in 12 days at GM and Harley. Keep that in perspective the next time you read an article blasting the auto companies and praising the darlings of the lean communities. Even pathetic Delphi turns RIP 18 times – better than any of the four ‘lean’ examples I listed.
Comparisons can be dangerous because the cycle time of the factory, which is what RIP turns essentially measures, is driven by the nature of the product and the complexity of the manufacturing process, as well as the effectiveness of the manufacturing system. To compare Boeing’s measly 5 RIP turns to drug maker GlaxoSmithKlineSmith’s 5 RIP turns is a bit unfair. Boeing is making airplanes in 73 days, while GlaxoSmithKline is making pills and putting them in blister packs in the same amount of time. GlaxoSmithKline, by the way, along with fellow pharmaceutical maker Johnson & Johnson who can make a pill and package it in only 52 days , will be glad to explain the inner workings of their lean strategies at a big confab on Applying Lean Six Sigma Techniques to Optimize Productivity & Profitability next month.
GM and Ford are taking a ferocious beating because they happen to be in the same business as Toyota. If Toyota were making faucets and windows, it would be Masco in junk bond status, or if they were making motorcycles, it would be Harley-Davidson feeling the pain.
Cycle time is not the only measure of lean manufacturing, just the most important one. The quality of the product coming out the end of the process, and the cost along the way are the other key ingredients. By all quality measures, Toyota beats Ford and GM by anywhere from 10-30%, depending on which of the controversial measures you want to use. According to the Harbour Report out today, it takes Toyota 29 labor hours to make a car, while it takes GM 33 hours and Ford 36.
It is not a coincidence that Toyota has the lowest cost, best quality and the shortest cycle time. Before Six Sigma was hijacked by people wearing multi-colored belts launching projects – back when it was originally conceived at Motorola – the driving principle was that "The best quality producer will be the shortest cycle time producer, and the shortest cycle time producer is always the best cost producer." Or, as Taichi Ohno put it, "All we are doing is looking at the time line, from the moment the customer gives us an order to the point when we collect the cash. And we are reducing the time line by reducing the non-value adding wastes."
That cycle time compression is the driving force of lean cannot be denied. And there is no way that a company can take a month or more to make wire cables, kitchen cabinets or airplane parts and profess to have mastered the principle of cycle time compression. The numbers speak for themselves. There is no doubt the companies I have cited are doing many things well, and that they are sincere in their belief that they are ‘lean’. But there is also little doubt that none of them have yet been able to wrap their minds around the fact that lean manufacturing is a fundamentally different economic model. It is managing and executing manufacturing at an entirely new level – not just getting very good at the old level. What they have done is used lean tools and techniques to wring the most they can out of the old management paradigm. They have yet to break out of that paradigm into the thought world where Toyota lives.
Ford and GM are trying hard to push through that last barrier and enter the realm of Toyota. Wall Street, the UAW and almost 100 years of entrenched management thinking are pushing back at them hard. Be certain, however, that the manufacturing management at Ford and GM, with all of their failings and foibles, is out-manufacturing, out-managing, and out-performing just about any company you will hear boasting of their lean prowess at some lean conference.
Cycle time compression is a tough sell in the U.S. and Europe. Cycle time and inventory are synonyms. Toyota says inventory is waste, which means excess cycle time is waste, which drives them to 45 RIP turns, which drives out labor, defects and facility costs. But inventory is not waste in the Western financial world – it is an asset – which means excess cycle time is not a problem. So we simply minimized it in our lean equation. It is like a 300 pound guy memorizing all the Richard Simmons sayings and religiously ‘Sweatin’ to the Oldies’ every morning, but still ordering pizza every night and topping it off with a slab of chocolate cake and a quart of ice cream – never giving a thought to his weight or to stepping on a scale. What would be the point? I guess he is better off than he would have been had never sweated to anything, but he will never reach the brass ring.
We have inundated our managers with philosophy and techniques, but missed the fundamental point of lean manufacturing. The first part of the old Motorola mantra – "The shortest cycle time producer is always the best cost producer" – conflicted with our financial beliefs, so we simply dropped it. The Six Sigma folks are out running wild with remaining pieces of the principle – ‘the best quality producer should somehow be the best cost producer.’ but they can’t prove it and they are stymied by the fact that their efforts have a hard time showing up on the bottom line. Without the cycle time element the financial model in which they work has blinded them.
Perfect quality by itself does not really add much to the bottom line. What perfect quality does – getting to the point that no one has to be concerned about defects – is that it enables all of the inspectors and reworkers to be eliminated, and all of the buffer inventories to be wiped out, floor space and material handling can be reduced, and parts can begin moving freely throughout the plant at a radically lower cycle time – like 45 RIP turns. That’s when quality pays off. If a plant has a 2% defect rate, an army of black belts cutting that in half, but not converting it into cycle time improvement, or more appropriately, a plant that does not deploy its black belts to the areas of greatest cycle time improvement opportunity, is not going to see much benefit.
The bottom line to all of this: I suppose a plant can achieve a high level of RIP turns without being lean, but there is no way for a plant or a company to be lean if they are not driving to and achieving a high level of RIP turns. The benchmark metric most critical to lean manufacturing – RIP turns, or cycle time – is the one least emphasized in the lean literature. To most of the companies out there proclaiming their leanness, unless you are putting up some radically better RIP turns numbers than you used to, you need to find a new book, a new consultant, go back to school. You’ve got more work to do.
And I think I’ll skip the big pharmaceutical manufacturing conference where those who have achieved ‘leanness’ are going to explain how they can make and pack a pill in only two months.