Organizational Change through Lean Methodologies

A Guide for Successful Implementation

A. Heri Iswanto

• Publisher: Productivity Press
• Year: 2020
• ISBN:
  9781000209921
• Edition: 1
• Topic: Business
• Subtopic: Organisational Development
• Index: Business

Lean is a type of organizational change brought about through improvement methods based on cost reduction mechanism. The assumption is that by reducing costs, the organizations can work better and more efficiently. All changes in lean-based organizations are directed at reducing these costs by identifying and eliminating waste. The thinking is that cost reduction will increase efficiency since, basically, it removes process inefficiencies and decreases cycle time.

Why are targets directed at cost reduction? Because costs are a crucial factor for sustainable business organization. Lean thinking cuts the value of scale production by looking at the existing waste in a process. Production remains the same, but the costs of goods production are reduced due to the elimination of waste in the process. As a result, companies do not have to increase their production if it is not required, giving companies an increase in average profits due to lean and the elimination of identified waste. The focus on cost reduction can be included in the overall lean concept since cost wasting is only a part of the existing waste. In other words, other waste can be converted into costs or perceived as a value.

This book starts the mental process of organization change through lean thinking. It provides the background and history of lean, and then gets into how the lean process works. The author also discusses why an organization should implement lean as a method to increase quality and engage workers in the process, thereby increasing efficiency and, ultimately, profitability. Through case studies and examples from Indonesia, the author describes how to create a value stream to identify waste and discusses the concept of a pull system and its impact on the process.

Chapter 1

What is Lean?

Lean is a type of organizational change brought through improvement methods based on a cost reduction mechanism. It is based on the assumption that by reducing costs, organizations can work better (Achanga, Shehab, Roy, & Nelder, 2006). All changes in lean-based organizations are directed at reducing the costs. Cost reduction will increase efficiency since, basically, it removes process inefficiencies and decreases cycle time (Näslund, 2008).

Why are targets directed at cost reduction? Because costs are a crucial factor for sustainable business organizations (Achanga et al., 2006). The sustainability of an organization can be achieved by either internal method of cost reduction or external method by getting as many customers as possible. External method is more difficult than internal method because the external world has a greater uncertainty than the internal world. In the internal environment, we know how the process occurs and what happens in a running process. However, these factors cannot be perfectly tracked in an external environment. There are so many factors that rise and fall in the external world. It is certainly better if some efforts to achieve sustainability are made by balancing internal and external aspects. However, let the internal aspects are under the management of marketing team. So, lean will only focus on the internal aspects of cost reduction.

Nevertheless, the external world has an effect on the internal environment. The customers, government, the wider community, trading partners, business competitors, all affect costs in many ways. Customers demand a more representative price with good quality, so the company must add costs to pursue quality, which ultimately reduces profits. The government poses limits on the price and production practices that often require additional investment to be in line with the government regulation. The societies and Non Government Organization (NGO) pay attention to company’s compliance with the government and community needs. Trading partners, for example, suppliers, also pose price limits. The competitors will issue more affordable products with the same quality if the company is making too much profit.

The rapidly changing contemporary environment with new inventions and lifestyles makes the problem of cost reduction more complex than before, not to mention the sustainability of the organization. If the organization manages to survive, it will grow bigger; receive more customers; operate in more countries; deal with more suppliers, competitors; and so on. Lean is directed at the efforts to deal with the problem of cost reduction in this rapidly changing contemporary environment. Lean has gained a status of being the most effective business improvement technique so far (Näslund, 2008).

So, what is lean actually? Womack and Jones define lean as “a systematic elimination of waste by all organization members from all fields of value stream”. Value stream is “all activities needed to manufacture products” (Näslund, 2008). It is defined as value stream because these activities reflect a flowing stream from the input to the expected product output. This stream is certainly not as simple as a river’s flow. Value stream has a number of interacting fields. Some of the steps in these fields may be inefficient, so they are wasteful. Lean removes this waste systematically by involving all organization members.

Another definition is proposed by Kilpatrick. According to Kilpatrick, lean is “a systematic approach to identify and remove waste through continuous improvement that flowing products based on customer attraction to pursue perfection” (Sunder, 2013). This definition is more complex. He also includes the identification of waste as a lean form. It means that lean starts as soon as the waste is identified. This is different from Womack and Jones’s definition stating that lean starts from a waste removal process. This definition does not contain the implementation component by all organization members, but the concept of value stream remains. The value stream is indicated in the term “flowing the product”. Furthermore, this definition mentions how to identify and eliminate these wastes by continuous improvement based on the customer’s attraction. Identifying and eliminating unsustainable waste or based on encouragement from the company, rather than attraction from the customer, does not include lean. This definition also emphasizes lean goals. The aim of lean is to pursue perfection. Perfection here is 100% efficiency. This perfection causes lean to be sustainable. In addition, 100% efficiency cannot be achieved instantly. It requires an iterative process, which is continuously improving on the details; thus, even the smallest waste is finally eliminated.

Actually, Womack has another broader definition of lean. It says, “an approach which requires a commitment of technical, social, and human capital from an organization to conduct continuous improvement, with the purpose of identifying different ways to create value as determined by customers and eliminate waste based on in-depth examination of root causes” (Flumerfelt & Green, 2013). This definition was proposed earlier than Kilpatrick’s. It has a sustainability concern by asserting that lean is conducted continuously. It has also considered the problem of attraction from customers by stating that it is determined by the customers. This definition does not talk about systematic approach, identification of waste, or value stream. However, this definition adds some new points. In this definition, lean requires not only commitment from all organization members but also technical and social commitment. He also adds that lean does not only facilitate the value stream but also creates new values. Indeed, new values can also be interpreted as values arising due to value stream efficiency. It is a covered old value and seen when inefficiencies are removed. This definition is also more practical. He emphasizes how waste is removed by examining deeply the root causes of waste.

Lean has more definitions among the practitioners, educators, and thinkers (Martichenko & Taylor, 2006). Here are the five definitions given by Martichenko and Taylor (2006):

1. Lean is an organizational methodology designed to create a learning organization through the culture of focusing on problem-solving and continuous cooperation.
2. Lean is a philosophy based on the reduction of lead time from customer orders to product/service delivery.
3. Lean is a manufacturing method based on production which relies on customer’s demand and focuses on one-piece flow.
4. Lean is an operational model that cuts economic value of scale and focuses on cost reduction as a result of small incremental improvements continuously.
5. Lean is a set of tools to reduce waste, where waste is defined as processes that do not add value.

Let us have a look at these definitions of lean one by one. The first definition is highlighting the effects of lean. However, since lean process works by leading to continuous improvement, it will certainly have an impact on the organization habits. It is a learning habit as it produces improvement from identification and roots of waste. These habits will in turn be deeply rooted as the lean effort becomes a learning culture. Furthermore, because this learning culture is at the organizational level, it can be said that it produces learning organization. As a result, it can be said that lean creates a learning organization.

Is lean then said to aim at creating a learning organization? It could be, if we look at it from a long-term perspective. Cost reduction is a short-term perspective and often criticized for creating a superficial thought and less exploiting lean. If we want to truly obtain the greatest benefits of lean, we must raise it to a broader level, which is the organizational changes toward learning organization. After all, not all organizations are oriented to costs and business profits. Non-profit organizations or organizations with an unlimited supply of costs may not care about costs. Long-term options for creating learning organization are very promising offers of lean implementation.

The second definition, that lean is a philosophy based on the reduction of lead time, is a bit confusing. Philosophy is very deep and abstract, while lead time reduction is very practical and operational. This definition could have been more proper if it talked about the philosophy or lead time reduction only. If we raise philosophical issue, this can be relevant if there is a long-term target, rather than reducing the costs. The goal of transforming an organization into learning organization requires an in-depth, comprehensive, and strategic thinking, so that it will become feasible to use this philosophical concept as a foundation.

If we raise the lead time reduction issue, the result will be contradictory, as lean deals with time and cost reduction. Time reduction can increase the cost and vice versa. If time reduction is included as one of the lean goals, cost reduction must also be included. Otherwise, there is a dilemma and the problem will develop into an optimization problem, instead of management problem. Optimization means maximizing one side to the point that it can be tolerated by the other side. If optimization is directed at cost reduction, then optimization means an effort to minimize costs to the point where customers can tolerate extended time due to cost reduction. If optimization is directed at time reduction, then it is an attempt to minimize waiting time to the extent where the company can still tolerate the increasing costs due to the waiting time reduction. This point has been covered by the problem of eliminating waste or the concept of customer attraction. In further discussion, we will find that there are many types of wastes, including waste of time, money, and other wastes.

So, the second definition does not provide enough input for actual meaning of lean. The third definition introduces a new concept, the one-piece flow. However, this is actually a term that is closely related to customer attraction. One-piece flow means the flow of product when the customer demands it. It will minimize inventory which becomes a waste of its own. In fact, this definition also includes customer demand as the basis of lean. As a result, the third definition only talks about customer attraction.

The fourth definition addresses three points: cutting economic value of scale, focusing on cost reduction, and small incremental improvement in a continuous manner. Economic value of scale means that value increases as the amount of goods produced increases. This is an old-fashioned way of thinking that it is ignoring the aspects of efficiency. This mindset believes that to obtain profits, the amount of goods production should be improved. This is problematic, since sometimes, if the addition is an overload, the price will decrease. Consequently, the average profit per product also decreases. Even if the price does not fall, there will be a large stockpile because the number of buyers will be fewer than the goods sold. Lean cuts the economic value of scale by orienting not on how the biggest production is possible. In fact, in the concept of customer attraction, goods are only produced when customers exist. It means, there is no inventory at all. It is said to be almost nothing, not nothing at all, because the manufactured products are nearly 100% impossible to be the same as the number of customers’ demand. Absolute equality only occurs in the industries that are producing their products by the customer request. Most of them are industries with a large production and a large number of dynamic customers, such as products sold in minimarkets.

Lean cuts the value of scale production by looking at the existing waste. Production remains the same, but the cost of goods production is lesser due to the loss of waste. As a result, companies do not have to increase their production if it is not required, yet the companies have gained an increase in average profits due to lean. It becomes the second part of the fourth definition which focuses on cost reduction. The focus on cost reduction can be included in the overall lean concept, since cost wasting is only a part of the existing waste. Actually, other wastes can be converted into costs or, in other words, perceived by the money value.

The third component of the fourth definition is a continuous, small incremental improvement. It has been discussed in the concept of continuous improvement. However, the term “small” in that definition is controversial. If major improvement is more profitable, why we have to make the small improvement. That is why the term “improvement” better captures the lean concept than the term “small improvement”.

Then follows the fifth definition which sees lean as a set of tools to reduce waste. Waste is defined as a process that does not add value. This definition is quite precise and simple. Whether lean is a set of tools, philosophy, a systematic approach, or the like depends on the point of view. If we take a broad and general perspective, lean is a philosophy. If we look at it from a short-term perspective, it is a systematic approach. If we look at it from a very practical point of view, then it is a set of tools.

Let us have a look at other definitions. Wang et al. (2012) proposed the following definition: lean is “the pursuit of perfection by removing waste, aligning with the inclusion of practices that are contributing to the reduction of costs and schedules while improving the performance of product, process, and organization as a whole” (Wang, Ming, Kong, Li, & Wang, 2011). This definition addresses the ultimate goal, the pursuit of perfection. They talk about how lean is conducted, which is by removing waste and aligning with the inclusion of practices that are contributing to cost reduction and schedules. Costs and schedules are two short-term goals. Wang et al. compromised the view that lean must reduce costs or lean must reduce lead time. We have mentioned that time is only one form of waste among many other types of wastes. All types of wastes can be cashed in, so waste reduction can also mean cost reduction. Actually, cost reduction does not need to be included in the lean definition.

If we take a glance at the phrase “aligned with the inclusion of practices”...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Acknowledgments
• Author
• 1 What is Lean?
• 2 History of Lean
• 3 Focus of Lean
• 4 What is Lean Process?
• 5 Why Should Organizations Use Lean?
• 6 Consequences of Poor Quality
• 7 Lean Implementation
• 8 Focus on Process
• 9 Involving the People
• 10 Lean Principles
• 11 How to Define Values
• 12 What is Stream?
• 13 Pull Concept
• 14 Pull Impact
• 15 How to Pursue Perfection
• References
• Index