Kaizen | Six Sigma | Lean Management | Training & Consulting | Operational Excellence

Global Leader & Pioneer in Kaizen/Lean/Operational Excellence domain


Leave a comment

Benchmark Tours: A journey to discover real kaizen

The benchmark tours is an integral part of the Continual Improvement journey of any organization committed to excellence. Teams are motivated by visiting world class companies and seeing best practices. The host companies are often honored with awards in their respective sectors by various bodies. These tours offer a “behind the scenes” view into the operational, management and people development aspects of the tour partner’s company.

Image

 

Two themes that will be integral to Operational Excellence in the near future are – Lean and Green. Both are focused on reducing/ eliminating waste – while Lean focuses on the classical eight wastes (muda), Green focuses on five environmental wastes (hazards).

Tour Features & Highlights

These benchmark tours are tailored for each group and are designed with a specific objective in mind.  Typical tours focus on:

  • 5S (office or shop floor)
  • Poka Yoke (error proofing)
  • Visual management
  • One-piece flow
  • Value Stream Mapping
  • Employee Empowerment/Engagement
  • Waste Identification
  • Kaizen Training

To read more please click here

Advertisements


Leave a comment

Inventory management: time to revisit the rules

Inventory management is a very simple concept – don’t have too much stock and don’t have too little. Since there can be substantial costs involved in straying above and below the optimal range, careful inventory management can make a huge difference in the profitability of a business. Although the concept is simple, the process of getting the right balance can be quite a complex and time consuming task without the right technology.

Excess inventory generally weakens business competitiveness by increasing operating costs & decreasing the margins. It can also lead to quality problems such as degradation and potential obsolescence. Therefore it is crucial to have the right balance of inventory and managers must decide on an inventory level that balances the risk of running out of products with storage costs and the other negative aspects of holding too much inventory.

Quick primer: 10 golden rules of storage

  1. Air free storage
  2. FIFO
  3. Bend free
  4. Count free
  5. Search free
  6. Heavy material at ground
  7. Fast consumables near entrance
  8. Climb free
  9. Adequate lightening
  10. Adequate ventilation

Image

Image

Image

Image

Image

Image

Where to keep?

Image

Image

It is very important for any organization to move from FAT to LEAN. Therefore having visibility and control over inventory requires both a tactical and strategic lean approach. We can save time by not moving product to storage, and we can cut costs by not having to pay for a storage facility, and by increasing inventory turnover. There are few fundamental questions that must be answered, in order to manage the inventory of any physical item –

  • When to order?
  • How much to order?
  • Why gain better inventory control?
  • Know what you have?
  • How to understand warning signals?
  • How to practice change?
  • How to improve inbound processes?
  • How to deal with replenishment?

Focus on improving on picking & returns

While you focus on improvement process, it’s vital to keep in mind that the essential factors that helps improving inventory management are having appropriate policies and procedures; top management commitment; motivating and training staff; developing & having effective cross functional teams; realizing accurate data; maintaining good WMS analytics capabilities; and putting in a lot of hard work.

The ultimate goal of any organization should be to achieve inventory optimization to minimize overall cash investment without increasing the risk. All the factors have to be reviewed on a regular basis as it influences the actual inventory investment need. Therefore overall inventory levels should be adjusted & managed according to the changing demands and with the aim getting rid of obsolete or excess inventory.

 To visit our website click here

 

 


Leave a comment

Realizing the potential of VISUAL MANAGEMENT in Healthcare industry

There are various challenges faced by Healthcare industry today. Increasing demand on services, shortages of doctors, specialists & other supporting staff, Lack of self-discipline, Poor infrastructure in many centers, Opportunities for mistakes increased as procedures became even more complex, increasing cost of equipment’s& material, increased dissatisfaction from patients, etc. Therefore it has become very important to train & engage healthcare staff, to have workplace hygiene & organization, to focus on improving the processes, etc.

There many proven, efficient and powerful improvement tools those are relevant to Healthcare industry. The leaders should realize & understand the importance of each tool and start using it to deliver what is expected out of them. Visual management is one of the tools that help to make the job easier. By creating a visual work environment we can breathe life into the processes and make them come alive. But what is visual management?

Visual managementis set of tools & techniques that make operation standards visible so that employees can follow them more easily. These tools & techniques expose Muda (waste) so that it can be prevented and eliminated. Various scoreboards, control charts, team communication boards, or other types of visuals are used to keep vital information flowing between individuals, cells & departments.

Visual management allows communication quickly and effectively in a non – verbal way. This can also quickly highlight any problems allowing them to be fixed rapidly rather than developing. Few example of visual management applications include goal setting & performance tracking, Scheduling, Ideas sharing & team communication, report kaizen results & awards, etc.

 Image

Manufacturing has focused on visual management for a long time, but how does it apply in Lean Healthcare?  The key objectives of visual management are: 

  • Make the work visible and more obvious
  • Make the current performance against patients requirement visible
  • Make waste jump out at you, etc. 

Visual management is one of the most fundamental and necessary elements to success or to sustain the improvements happening within the gemba (real place).  

The five step process of establishing good visual management.

    1.  Define what it is that you are trying to communicate
    2.  Determine who needs to have this information
    3.  Determine who needs to collect or disseminate the information
    4.  Determine the actual control method
    5.  Train everyone that is affected by the new visual control method

 Image

Image 

Before Visual management

Image

  • Empiric management
  • Process dependent on human experience
  • Long process
  • Process with faults and variation
  • Money “blocked“

After

Image

  • Standard process
  • More consistent process
  • Muda elimination
  • Variability elimination Kanban

Image

  • Standardized supermarket
  •  Easy management
  •  Zero shortages
  • Unidose A references always available 

But you should not forget that there are also barriers to good visual management. Visual management is often an area that people shy away from. Below given are the few barriers:

  • It is simple to understand but difficult to execute well
  • It takes efforts & discipline
  • It takes consistency
  • Everyone needs to be involved in maintain the momentum 

Finally, visuals need to be built bottom up to be more effective.  There are many examples of leaders trying to build visual systems and then trying to cascade them down to the front line level.  It is essential that over time you adjust your systems to support the teams where value added work is taking place as opposed to the other way around.  

Click here to visit our website


2 Comments

Why Don’t the CFOs Support Kaizen®?

While speaking at the Machine Tool Industry Summit in Goa the other day, I was asked a question. The question went something like this, “Kaizen teams calculate and show financial benefits when they complete their projects. They look logically correct, but the benefits don’t seem to show up on the balance sheets. Where is the disconnect?” That was a brilliant question – obviously from a sufferer! I wish more people would come up with such questions, and challenge the Kaizen®/ Lean community.

Image

I gave a truncated answer due to constraints of time. It left me dissatisfied & I am sure it only provided a partial answer to the questioner. This is an extremely important question for all Kaizen®/ Lean practicing organizations & as Kaizen®/ Lean professionals it is our duty to try and provide a satisfactory answer.

Let us focus our attention on manufacturing & let us start from the beginning:

Kaizen®/ Lean is all about identification, step by step reduction & (eventually) elimination of muda from processes (or Value Streams). As we reduce muda’s of motion, transportation, waiting, inventory, rework, over-processing & overproduction – we end up with some improvements, which typically result in the following benefits:

  1. Lower inventory
  2. Higher manpower productivity
  3. Lower space
  4. Lower rejections
  5. Lower Lead times

In a nutshell, for the same output we end up using reduced inputs. Hence, output remaining the same, we release some resources. Some released resources lead to a one-time benefit& others lead to recurring benefits.

One-time benefits occur in some cases. Examples:

  • After Seiri, surplus material becomes available for sale
  • Improved OEE eliminates the need to invest in a new equipment
  • Released space eliminates the need to invest in some area of new land & building

The first example provides some cash in hand. Therefore, it is visible in the balance sheet as ‘other income’. The other two ‘prevent’ investments, but are invisible in the balance sheet!

Recurring benefits can be classified into three categories:

CATEGORY ONE – 

CAPACITY(release of these resources will not show up in P&L until the released capacity is put to use productively)

1.1  Manpower:We always strongly recommend that manpower released from Kaizen® projects should never be let go/ laid off (that is suicidal since it would hit morale & kill Kaizen® straightaway). As the still manpower remains on the rolls, its’ cost remains within the balance sheet & does not show up in the P&L.

1.2  Space:           Space is a costly resource. But empty space has no entry in the balance sheet & will not show up in P&L

1.3  Equipment:  Often, during stabilization phase, we also end up improving OEE of equipment, because unstable equipment obstruct flow in a cellular layout or a line. Once again, machine capacity is freed up. While it is a tangible improvement, it will not show up anywhere in the P&L (This cost is a sunk cost, & appears in the balance sheet as ‘depreciation’. As we all know, depreciation does not change with better or worse utilization of equipment!)

Traditional accounting systems do not recognize how efficiently or how inefficiently these resources are used! That is a fact of life. However, common sense does tell us that none of the above resources are free!

When will any benefit show up?

Answer – Only when the freed up resources are utilized to produce & sell more products, the increased revenue will show up as a higher top-line & increased bottom-line! (Please refer to ‘IMPORTANT’ at the end of this write-up).

CATEGORY TWO-

INVENTORY(Release of these resources will show up in P&L with a time-lag)

When inventory is reduced, in the first years of Lean implementation it shows up in the Balance Sheet as consumption & gets included in ‘Cost of Goods Sold’ (if they are sold, & not scrapped!). In traditional accounting system inventory is an ‘asset’ & the value of inventory held is used by banks as one of the inputs to determine an organization’s ‘credit limit’ for financing working capital. When the inventory gets reduced, banks threaten to reduce your ‘credit limit’.

That makes the CFO very unhappy.

                      If the CEO & CFO are on board with the Kaizen®/ Lean journey, they will know that reducing credit limit is not an unmitigated disaster, because that reduction will result in reducing ‘interest costs’ on the next balance sheet! But this years’ P&L shows no benefit at all! It only shows additional cost burden of the ‘Consultant’s Fees’!

                     Unfortunately, the CFO is mostly not on board. He finds this the second strong reason to become very unhappy!No wonder the CFO’s don’t support Kaizen®/ Lean!

The benefit will appear in P&L ONLY WHEN working capital loans from the bank are reduced (interest rates remaining the same!). However, sometimes these benefits get offset by some other invisible increases (that the Kaizen® teams are unaware of) –

  • increase in interest rates or
  • increase in accounts payables due to market conditions/ competition or
  • inflation.

If this be the case, and the CFO has never been on board, we have an anti-Kaizen® CFO for life! Nothing you say or do will convince him otherwise!!

When will any benefit show up?

Answer – Only when the working capital bank loans are reduced. That can start happening, say 2 years after the kaizen® projects have been successful& have an adequate cumulative effect!

CATEGORY THREE-

MATERIAL YIELD:(This benefit shows up on P&L almost immediately)

Yield can improve by reducing material waste or reducing scrap generation. Such improvements reduce effective material consumption directly.

When will any benefit show up?

Answer – Immediately! In the very first P&L – but only if it is substantial enough!

So, if we want friendly CFOs, we have two options:

  • Keep them on board from inception of the Kaizen®/ Lean journey
  • Get substantial returns from projects of category three (which is not always practical!)

The good news is that Kaizen®/ Lean practitioners have recognized these problems/ infirmities globally. The entire body of knowledge covered by ‘Lean Accounting’ addresses these issues & has come up with simple, elegant solutions that will not let us go astray. It is strongly recommended that CFOs of practicing companies are exposed to these practices early in the Kaizen® journey. Help is available. In November 2013, a colleague of our friend Brian Maskell published a new book:

The Lean CFO:Architect of the Lean Management System by Nick Katco.

IMPORTANT:
Before I conclude, there are two secrets that the entire Kaizen®/ Lean community should be aware of:

ONE – All of the above that we discussed, is based on the assumption that market demand is static. While that is true for some industries, we are operating in growing economies in India, Africa & Middle East. Released capacities can quickly be used to meet increased market demands in terms of volumes & variety of products. Financial returns from increased output (from the same resources) would be far in excess of pure savings accruing from Kaizen® projects!

TWO – Even if the demand is static in some cases, there are opportunities to in-source (reverse of out-source) some inputs currently bought out & try to use up the released capacity to leverage the calculated Kaizen®/ Lean benefits.

CONCLUSION: The objectives of Kaizen®/ Lean practices & the CFOs are aligned. We need to co-opt CFOs as natural partners in this journey.

By Mr. Vinod Grover

click here to visit our website

 


2 Comments

Financial benefits of lean improvements

“We see wonderful result in operations but, they don’t show up in the financial statements. If lean is so great why doesn’t it hit the  bottom line”?

Image

What happens in early phase of Lean …

Image

What Lean improvements bring …

Image

Image

So what to do?

Image

Three Choices:

  1. Eliminate the resource
  2. Use the freed up Resource to expand the business
  3. Otherwise, do some combination of the above two

True analysis of lean improvements can only come by giving due consideration to the freed up resource and by setting up a strategic team to “find the best option” for the free resources.

Acknowledgement: Practical lean accounting by Brian Maskell

Click here to visit our website


2 Comments

Now announcing PUBLIC TRAINING program

Image

Kaizen College is pleased to announce its public training program in India. The training programs are going to be launched in Pune and Ahmedabad first. The objective of the training programs is to enhance the professional skills through practical learning.

Kaizen College is a global executive education & training arm of Kaizen Institute Consulting Group, global leader & pioneer in Operational Excellence domain.

Pune

Topic: Mizusumashi, Kanban & the Supermarket – Lean “in-factory” Logistics

Duration: 2 days

Ahmedabad

Topic: Manage Visually, Manage Wisely

Topic: No Shortages, No Surpluses – Art & Science of Managing Inventories

Duration: 1 day each

To know more or to register please click here.