Earlier this week our friend Mark Graban over at the Lean Blog penned what I consider to be a very important post on "measuring leanness." In it he has the gall, and guts, to take on one of the major players in the lean movement, Richard Shonberger. I have tremendous respect for what Richard has accomplished. I also firmly and passionately believe Mark is right.
In his IIE article, Shonberger highlights and focuses exclusively on a single reported financial number, inventory, as his measure of "leanness." I think this is a huge error. I am hesitant to criticize Shonberger, as he deserves much credit for the spread of Lean and Just in Time principles in the U.S. But, this narrow laser focus on inventory numbers does little to help others be successful in their Lean efforts, I believe. It would be like looking at data that shows that teams that win the Super Bowl tend to commit fewer penalties than other teams (I’m making that up, but it could be true) and then assuming that the key to winning the Super Bowl is to avoid committing penalties (and focusing on that almost exclusively as a goal or a metric).
Lean companies, such as Toyota, Danaher, or others might tend to have to have low inventory, compared to their peers, but low inventory isn’t the primary goal of a business. That goal should be long-term profitability. That’s how we should gauge the success of a company. Not the short-term profit this quarter, but long-term profitability.
Bingo. I would even take it a couple steps further. Lean, and especially TPS, is about two things: creating value from the perspective of the customer and respecting people. It is not about stellar implementations of 5S, kanban, hoshin kanri… or inventory reduction. Those are just tools and metrics that in a very general sense can usually help create value for the customer. But we must not lose sight of the focus on value creation.
I learned that lesson a few years ago while touring a medium-sized medical device company in southern California. They were, and continue to be, an exemplary example of lean. But their products have hundreds of different configurations, have long raw material and processing lead times… and customers consider it critical that the products arrive within two days of the order. Being able to achieve that lead time creates tremendous value for the customer, and also considerable inventory. While touring their facilities we saw amazing examples of 5S, visual controls, empowered people, kaizen, and the like. Then we peeked through the double doors and saw a warehouse filled with inventory. It made our eyebrows rise a bit until we thought about customer value.
That company does work very hard to reduce that inventory by changing designs to allow for later and later final configuration and working with vendors to truly reduce raw material lead times (instead of the fake "just in time" practiced by the Detroit 3 who have trucks circling their factories). But there’s still value in that inventory. They wouldn’t be considered lean by Schonberger’s metrics, but I’d put them up against pretty much any of the top lean companies in terms of delivering value to their customers.
Lean is not a metric or a tool. It is a passionate focus on delivering value by leveraging the knowledge and creativity of people.