What have we learnt from 30 years of applying Lean in the West?

By Andrew Nicholson, Managing Director of Nicholson Consultancy Ltd

Lean works best when everyone in the company – from the chief executive to the most junior member of staff – buys in to the strategy, and benefits from it.

This is easier said than done as it is human nature to resist change and to want to hang on to the status quo.

For lean to succeed the entire workforce has to be involved from the very start.

People need to feel that they are central to the introduction and implementation of lean and that it is not merely a ‘pie in the sky’ diktat from above; another management initiative imposed without any employee involvement.

Many people’s first reaction is to ask – ‘what’s in it for me’. I have learnt that this sort of question should not be dismissed as a selfish response and should not be sidestepped with a ‘for the greater good of the company’ reply.

Tackling this question head-on is the best tactic. Show people how embracing the principles of lean will make their job easier; that it will be a case of working smarter, not harder in the future.

Employees should be encouraged to contribute and it must be shown that their ideas and suggestions will be listened, taken seriously and acted upon. Think about starting with some short, sharp ideas workshops. Use “Ease and Effect” to prioritise employee ideas and make sure you get some “quick wins” to show the benefits.
Another lesson is that one size does not fit all. Every firm has elements of individuality which have evolved due to its history and how its products have been refined and developed. This is often what helps it stand out in the market-place.

Just as a doctor would not give the same pill to different patients with different symptoms, the same applies to lean manufacturing.
An off-the-shelf lean package will not do – what works for Toyota might not work for you! Solutions have to be tailored to an individual company’s operation and relevant goals need to be drawn up.

Partnering with the right outside help is essential in the early days. Managers and employees have experience and knowledge about the way their company works and lean practitioners are experts in the principles of lean. Embracing a partnership approach ensures that a company uses the right lean tools and techniques that exactly meet its individual requirements, and that skills and knowledge are transferred into the business.

And last, but not least, it has become apparent during the last three decades that lean does not just apply to industrial giants, but can be relevant to and employed by small and medium enterprises in pretty much any sector who want to improve their processes and operations.

Lean Start-Ups: are they possible?

The short answer is “Yes” it is possible to start Lean and stay Lean. Here’s how:

It is important to keep it simple and stay organised. This can be achieved by adopting Lean 5S principles, which is a system to reduce waste and optimise productivity through maintaining an orderly workplace and using visual cues.

This includes making sure anyone can find anything quickly and easily. Keep things simple and visual – can people easily see at a glance what’s OK and what isn’t?

Focus on the following main three business areas:

• Sales – getting the work in / engaging with the customer
• Operations – getting the work done / delivering
• Finance – managing the cash, funding the growth

Employees should be made aware of how they fit into the company structure and what their contribution needs to be to make the business run smoothly, effectively and efficiently.

To achieve this:
• Write down each role and give it a name or a description
• Write down the main purpose of the role and exactly how its provides value to the customer
• Outline “what a good job looks like” – the best way / tricks of the trade, and pitfalls to avoid

Next draw up a grid with the roles along one side and people’s names along the other. For each job show with an R who is Responsible, with a D who Deputises, and with an A who Assists so employees know at a glance what their duties are.

Regular communication is key. For at least one hour each week talk about what’s going well, what’s not going well and what ideas you have to make things better.

By consensus, pick one improvement idea that is easiest to implement, has the highest impact and is affordable. Agree who will make it happen, and when, and get on with it.

Hire slowly, fire quickly. Be clear about values, expectations, Do’s and Don’ts. With new staff, have a one-to-one review for 15 minutes each day, then one hour per week, then one hour per month.

Make a conscious decision to retain or part company at the end of the first day, the first week, the first month. If it isn’t working in the first month, it probably never will. Let people take risks, make mistakes and fail, but expect them to learn and not to repeat their mistakes.

Do the absolute minimum required to add value for the customer – everything else is waste. Keep it simple, keep it electronic, and automate it.

Store data in only one place, share it and organise it so that anyone can easily find what they need.

Seriously consider scalable, cloud-based “pay as you go” systems. Use non-proprietary open systems where you can.

Similarly, do the absolute minimum that you need to do with a new product or process to see if it works. This is what Silicon Valley entrepreneur Eric Ries calls the MVP – the Minimum Viable Prototype.

Experiment quickly, fail early, learn as you go and keep on learning.

The key to Lean is the improvement cycle Plan-Do-Check-Act. In a start-up the most important thing is to get along the learning curve as quickly as you can.

Therefore, you need to cycle through these stages as quickly as you can. You’ll need some sort of plan to start with, but also be prepared to be flexible. This is because the reality is likely to be different from your original plan, so you have to learn as you go.

Have a tight control on costs by keeping fixed overheads to a minimum, outsourcing non-core tasks, “paying as you go” and avoiding long-term tie-ins.

Continually question the reasoning behind any action plan. Always ask yourself ‘does this add value for our customer’, ‘does it make us more profitable’, and ‘does it make things easier for us?’

Manage the cash every day, without fail. This can be easily one by using a simple spreadsheet.

The Lean process is all about keeping it simple, focusing on what matters, learning quickly what works and having the courage to ditch what doesn’t.

Business Growth Service (England)

On Friday 5 December, the UK Government announced the launch of the Business Growth Service which integrates the existing GrowthAccelerator and Manufacturing Advisory Service (MAS) programmes, along with the Intellectual Property Office Intellectual Property (IP) Audits and the Design Council Design Mentoring.

The Business Growth Service will make it easier for businesses with the potential, capability and capacity to improve and grow to access expert advice and support. Depending on the support they need, businesses will also be introduced by the Business Growth Service to experts from other Government services including UK Trade & Investment, UK Enterprise Fund, Innovate UK and local growth hubs.

Further details will be announced in the next few days but the following are important changes to names, brands and websites:

1. Introduction of new name and brand: Today the Government will make a formal announcement about our new brand name and look. As we move towards the full transition in April next year, this new brand will be used alongside our old brands in our marketing collateral. Next week you will receive further guidance about available marketing collateral.

2. New website address: As of today both the MAS and GrowthAccelerator websites have closed. The new website homepage is www.greatbusiness.gov.uk/businessgrowthservice and individual services have been relocated to www.greatbusiness.gov.uk/ga and www.greatbusiness.gov.uk/mas

Factory fortnight? I think we need it!

The annual closure of factories across Britain always arouses some interesting debate.

Do we all need the break, is it good for strategy planning… or is it an anachronism past its sell-by date?

Bearing in mind the latest manufacturing figures, maybe the timing this year has been a good thing.

A burst of energy in the three months leading up to July dragged us back into a positive figure – but well below what we needed and the headlines were all about bad news and how the smiling service sector was overshadowing gloomy manufacturing.

So maybe we should call a time-out. Take a deep breath, refocus, re-energise and crank up the country’s production lines to grab back the headlines and reclaim our place at the controls of the manufacturing powerhouse.

It’s a marathon, not a sprint, but this isn’t the Commonwealth Games. We’re not working hard month after month for one medal ceremony.

Our companies have their final dash for the line every day. They reach their performance peak and then have to do it again the next day. And again. And again.

It’s been a frenetic time – an exhausting and demanding responsibility for tens of thousands of workers.

So my advice would be: take that time out, use it wisely and then be prepared to rewrite the headlines when you’re back on the factory floor.

Manufacturing growth continues to drive economy

Figures released by the Office for National Statistics have given the UK manufacturing industry cause for optimism.

It has been revealed that factories far exceeded growth expectations for the month of February as the recovery continued to gather pace.

Manufacturing output expanded by 1 percent, its third consecutive monthly rise and its largest increase since last September.

Overall industrial production rose 0.9 percent and saw almost every sub-sector grow.

The strong performance provided hope for those who have been concerned that a recovery led by household spending would be unsustainable.

George Buckley, UK economist at Deutsche Bank, said: “Were industrial production to remain flat in March, then output would be around 1 percent higher in the first quarter than the previous quarter. This in turn, would be the best quarterly performance of the sector since spring 2010.”

Samuel Tombs, of Capital Economics, added that the figures “provide reassurance that the economic recovery has remained strong and broad-based.”

Andrew Nicholson, Managing Director of business improvement consultants Nicholson Consultancy, commented: “We’re seeing a definite upturn with most of our manufacturing clients – in fact, we’re currently helping three UK manufacturers to cope with unprecedented levels of customer demand.

“Successful manufacturers are adopting the principles of Value-Driven Manufacturing – they’re using Lean principles not just to drive down costs but to get closer to their customers and to add more and more value to their overall offering. And in some sectors customers are actively seeking to bring back to the UK products that were previously outsourced to low-wage economies.

“From the point of view of the UK economy we still need to drive up levels of investment and exports but so far the signs are very encouraging”.

How to maintain a competitive edge as energy costs soar

By Andrew Diplock, Managing Director, UES Energy

In a poll of 300 of the UK’s biggest energy users, half thought a government commitment to keep energy costs at or below the EU average would be the biggest incentive for companies to increase manufacturing output.

Terry Scuoler, Chief Executive of the manufacturers’ organisation EEF, which commissioned the survey, said: “Rising energy costs represent a major threat to growth and could damage efforts to support and sustain long term recovery.”

Energy prices have risen dramatically in recent years and look set to do so for years to come. In addition to this, the UK has gone years without a robust energy policy and now businesses are literally paying the price as the government belatedly develops our energy infrastructure to cope with the demands of the 21st century.

Ahead of the Treasury’s 2015 Budget on March 19th, EEF is calling for a freeze and then a cut of the carbon price floor – a British tax on fossil fuels generating electricity.

But don’t hold your breath. Instead, there are steps UK businesses can take to minimise energy costs and remain competitive while the government puts together a framework for our long-term energy needs.

In short, businesses need their own energy strategy that simplifies energy management, allows optimisation of costs and a flexible and responsive approach to markets. There are four cornerstones to this:

  • Energy market dynamics
  • Energy supplier assessment
  • Site portfolio organisation
  • Energy contract management

Energy market dynamics

Energy markets are highly volatile because they are influenced by so many global and local factors, from unrest in oil producing countries to the Great British weather. This provides businesses with the opportunity to buy when prices are low but they must constantly monitor market trends.

Energy supplier assessment

There are numerous energy suppliers, each with a myriad of different contracts. Most of these are very complex and many are littered with pitfalls for those in unfamiliar territory. To get the best deal you must be fully aware of the contracts available and understand them.

Site portfolio organisation

Many businesses with multiple sites have numerous energy contracts which, if simplified, would not only save considerable management time but also provide valuable leverage when negotiating with energy suppliers.

Energy contract management

Understanding what needs to be done through the life of an energy contract and acting upon it is vital but sadly, it is perhaps the most frequently overlooked aspect of energy management.

Some larger businesses now employ specialist energy managers to run this increasingly complex area of their business. A better option for some may be to work with a team of energy purchasing specialists with skills and experience in the manufacturing sector, but if you choose this option here are three things you must do:

Do make sure any energy consultants you consider are truly independent; do avoid long-term contracts that tie you in to a consultancy and do make sure of their reputation.

And there’s also one final ‘Don’t’. Don’t do nothing.

For further independent energy advice for your business, contact UES Energy at info@uesenergy.co.uk or visit www.uesenergy.co.uk.

Industry comes back to Britain

According to an article in The Times this morning, a Government initiative to bring advanced manufacturing work back to Britain will create or safeguard nearly 4,000 jobs.

The Business Secretary, Vince Cable will announce tomorrow that spending from less than a quarter of the £245 million Advanced Manufacturing Supply Chain Initiative will create nearly 1,400 jobs and maintain a further 2,500.

The figures come as the engineering and manufacturing bosses’ trade body releases research that indicates more companies are bringing back production to the UK.

According to Lee Hopley, Chief Economist at EEF, manufacturers are bringing back work to the UK because the speedy delivery of products to high customer specification is outranking output sourced from lower-cost economies.

Ms Hopley said “It is for some a question of flexibility and responsiveness against having a supply chain thousands of miles away.

On another positive note, it was great to read that UK manufacturing grew faster than expected in February, with employment in the sector expanding at its fastest rate since May 2011.

Rob Dobson, senior economist at Markit, said the sharp rise in job creation should also support the broader economic recovery.

“We should expect another quarter of robust economic growth in the opening quarter of the year,” he added.

Automotive sector drives manufacturing growth

Following on from a previous post highlighting the slower than expected growth in the manufacturing industry, it was great to read today that output growth has accelerated.

A report from The CBI Industrial Trends Survey has revealed that manufacturing order books remain positive and growth has gained momentum over the last month.

The automotive sector was singled out as the largest contributor to the improved outlook and has resulted in growth at one of the fastest rates since 1975, with predictions looking their best since September.

Anna Leach, CBI head of economic analysis, said: “The manufacturing sector shows continued signs of improvement, with demand high and steady and output growing strongly.

“Growth is increasingly broad-based and firms’ growth expectations are the highest for several months. As the UK and global economies continue to strengthen, we expect conditions to improve.”

UK Manufacturing Growth Slows

Recent figures published by the Office for National Statistics have revealed that the UK manufacturing industry has experienced slower than expected growth.

Although the 0.3% increase in manufacturing between November and December 2013 was welcomed it had been expected to be much higher, after a poll carried out by Reuters had predicted growth of 0.6%.

The main contributors to the growth in the sector came from pharmaceutical products and preparations, the manufacture of refined petroleum products, food, beverages and tobacco.

Even with the Bank of England keeping rates at a record low and the economy expanding at the fastest rate since 2007 the manufacturing sector is set for steady rather than rapid growth.

This combined with output for the overall industrial sector underperforming means that the industry is unlikely to be the driving force of the UK’s economic recovery.

Key economists have raised concerns over a unsustainable recovery led by household spending and government schemes such as Help to Buy, more so at a time when is has been suggested that it will take six years before real wages return to their 2009 peak.

It is vital to the economy’s recovery that the manufacturing sector performs and using methods such as lean manufacturing to make efficiency gains could go a long way to help stifle the slowdown.

However key figures in the manufacturing sector have expressed their optimism despite the slowing growth. Lee Hopley, Chief Economist at the EEF Manufacturers’ Organisation has said that growth will continue and expects an expansion of 0.6% in the first quarter of 2014. He also  added that as the year progresses demand for exports will increase and in time the data will represent this.

From BRICs to MINTs – the Second Round of Emerging Market Growth Begins

The BRIC (Brazil, Russia, India and China) countries have seen significant growth over the last decade since the group of countries were defined as emerging markets in 2001.

Brazil is currently experiencing significant growth in its manufacturing industry thanks in part to high import taxation laws imposed by the government.  These laws were introduced to try and encourage companies to manufacture goods in Brazil rather than import them into the country.  The government policy of high import taxes has worked, especially as far as the automotive industry is concerned and the high tech industry is growing quickly as well.  In fact I would argue that next to China, Brazil is seeing more inward investment, from a manufacturing investment point of view, than many other countries at the moment.  Whether it is to take advantage of a growing economy or leverage the country as a stepping stone into the North American market, you cannot deny that Brazil is on a roll at the moment.

Russia has also seen significant growth over the past decade, thanks in part to a reduction in government imposed restrictions and red tape. Traditionally many companies have chosen markets other than Russia to invest in but those that have taken the plunge and invested in Russia have seen huge growth in their own market share.  The automotive industry is a prime example, many Russian car plants look as though they have just come out of the stone age due to tight government control and lack of investment, but St Petersburg Port has become an unlikely investment hub for the global automotive industry.  Renault-Nissan made a significant investment in the government controlled automotive manufacturer Avtovaz, which has resulted in the alliance controlling a significant market share. Like a Phoenix, the whole automotive industry in Russia is now rising from the ashes and it is just a matter of time before millions of consumers start to spend their money on new cars.

Moving across to India, the country is still seeing significant growth in its economy, thanks in part to a decade of setting up one of the world’s largest markets for outsourcing companies to invest in and it has become the offshoring destination of choice for many companies around the world. Consumer wealth in India is growing significantly and many consumers are making the switch from two and three wheeled vehicles to cars. India’s manufacturing industry has grown around its ability to produce high quality goods from a relatively low cost but highly skilled workforce. Most goods manufactured in India are for export but increased consumer wealth is likely to slow down the rate of export as manufactured goods are sold into the domestic market instead.  So some interesting dynamics at play here which has helped companies such as Tata invest in overseas luxury brands such as Jaguar Land Rover (JLR).  In fact in 2013 JLR sold more cars than any previous year thanks in part to the significant investment from Tata who has a strong belief in the future of the luxury brand.

Ten years on and China is still referred as an emerging market by some analysts but out of the four countries China has seen the largest growth in its economy when compared to the other three countries. As consumer wealth has grown in the country, so has the consumer desire for luxury goods such as cars.  In fact China is the largest car market in the world and it continues to grow. Strict government laws, namely establishing  joint manufacturing ventures, around how western companies can establish a presence in the country, has helped its own domestic manufacturing industry to flourish. However times are changing in China as the government tries desperately to spread the wealth across the country rather than have it all focused along the East Coast.  Large tax based incentives are now seeing more western investment in central and western China and this trend is likely to grow over the next ten years.  Today, companies are finding they have a choice, either to put up with the increasing wage rises in Eastern China or move their operations to lower cost regions of the country.  In some cases companies, even Chinese ones, are looking at other emerging markets around the world to invest in.

Increased wage costs, labour strikes and a desire to exploit other growing markets has led to the emergence of a new wave of emerging economies, thirteen years after the BRICs were defined. Hold on tight, the second wave of emerging markets is vying for inward investment, say hello to the MINT countries!  This new acronym refers to Mexico, Indonesia, Nigeria and Turkey and was coined by Jim O’Neill, the former chief economist and head of asset management at Goldman Sachs.  Interestingly Jim was also credited with introducing the BRIC term back in 2001, so you could say he has expertise in identifying key growth economies around the world.  So let me now explore why these countries are likely to take over from the BRICs as the economic growth engine of the world.

One of the common things that three of the MINT countries share is that they all have geographical positions that should be an advantage as patterns of world trade change.  For example, Mexico is next door to the US and also Latin America. Indonesia is in the heart of South East Asia but also has strong connections with China.  The BRIC countries have certainly helped boost the profits of many logistics providers around the World as they ship manufactured goods from China and India to all corners of the world.  Given that the MINT countries are geographically better positioned next to key economies then I would expect the dynamics of the logistics industry to change given the shorter distances that goods will have to be shipped to reach their point of distribution or sale. As for Turkey it can be regarded as being in both the West and East however Nigeria is the odd one out here as it is located in a part fo the World that has traditionally seen little development, at least by Western standards but it could be a key country once other countries stop fighting with each other and trade finally opens up across the Continent.  Given that Nigeria has been included in the MINT definition it could lead to the country being accepted as a member of the G20 as the other three countries are already members.

Economically three MINT countries, Mexico, Indonesia and Nigeria are commodity producers and only Turkey isn’t.  This contrasts with the BRICs where two, Brazil and Russia are commodity producers and the other two countries aren’t.  In terms of wealth, Mexico and Turkey are at about the same level $10,000 per head, this compares with $3,500 per head in Indonesia and $1,500 per head in Nigeria which is roughly the same as India.  They are slightly behind Russia at $14,000 per head and Brazil on $11,300 but still a bit ahead of China on $6,000.  As part of the research for this blog I found a great set of infographics which dives deeper into each of the MINT countries, click here for the article.

From an infrastructure point of view, these countries have some significant catching up to do, especially in Indonesia and Nigeria. Jim O’Neill recently completed a trip to each of the MINT countries on behalf of the BBC and he found out some amazing facts.  One of the most interesting was that about 170million people in Nigeria share the same amount of power that is used by about 1.5million people in the UK.  Almost every business has to generate its own power.  So this begs the question, how has Nigeria grown at a rate of 7% with literally zero power!  If Nigeria is able to sort out its utilities infrastructure then it is estimated that Nigeria could grow at 10-12% per year and become a key economic hub for the African continent.

Indonesia faces both political and infrastructure challenges and Turkey has its politics and a desire to do things the Western way which when combined with the Muslim faith in the country is certainly a challenge but they are determined to see their economies grow over the next decade. It is no surprise that Turkish Airlines is currently the fastest growing airline in the world.

From a manufacturing point of view, Mexico is grabbing most of the MINT related headlines in terms of levels of manufacturing inward investment.  Over the past two years it has established itself as a key automotive manufacturing hub, thanks in part to its relative proximity to the huge North American market and significantly reduced labour rates. Nissan, Daimler and VW have all announced multi-billion dollar investments in new production plants in the country.  Indonesia is seeing significant investment from both Western and Chinese companies looking to get out of the increasingly more expensive Chinese labour market.  Just as Mexico stands to become a leading automotive hub, then it is possible that Indonesia could become a leading high-tech investment hub over the next decade. High Tech goods have been manufactured in Indonesia for many years but I would expect exponential growth to now continue given that the country has now been identified as a significant growth economy.

From a B2B perspective it has been interesting to watch how technology has been adopted across the BRIC countries in recent years as it provides clues on B2B adoption levels across the MINT countries.  Out of all the BRIC countries and from a communications point of view, China has placed a lot of emphasis on improving its legacy telecommunications and network infrastructure.  It has also been keen to develop its own XML based message standards due to the increasing importance placed on internet based trade around the world.  However what has actually happened over time is that Western companies entering the Chinese market have brought in their Western ways of working and this includes their best practices for deploying B2B, ERP and other IT infrastructures that are key to operating a business today.  Also, China has huge global expansion plans and if they are to establish further operations in North America and Europe they will have to adopt Western B2B message and communications standards such as EDIFACT and AS2.  For this reason I believe that EDI messaging is here to stay and in fact the growing success of the emerging markets and their global expansion plans could lead to a growth in EDI traffic around the world.  Who thought that would happen back in 2000 when XML was touted as the replacement for EDI messaging!

Since the BRICs were identified as growth economies in 2001, technology has moved on very quickly and I think we will see the MINT countries move straight to new telecommunications infrastructures such as mobile networks.  After all reliable, fixed line internet connectivity is not widely available in many of the MINT countries.  Given that it is far quicker to install a mobile network when compared to a fixed line telecommunications infrastructure then I would expect mobile commerce or M-Commerce to grow faster in the MINT countries than the BRIC countries over the next few years. Here is a great SlideShare presentation that I found highlighting how a local telco provider, Vodacom, plans to support the mobile communications market in Nigeria, click here for more information. China will probably be implementing more mobile networks across the Western parts of its country but collectively I think mobile network adoption will be faster across the MINTs.

If companies are able to get access to reliable mobile and utilities infrastructures then we will see levels of B2B adoption increase quickly as the MINTs look to utilise more cloud based B2B integration services.  Given the relatively low IT skills that exist in some MINT countries, a cloud based approach to rolling out B2B infrastructures will help these countries grow their economies far more quickly than the BRICs were able to achieve in their early days on the world stage.

International expansion is an area that I have covered in numerous blog posts over the past few years, but this particular one encapsulates most of the areas that companies have to be aware of when entering a new market for the first time.  I have discussed Mexico extensively in an earlier blog post and future blog posts I will cover the other three MINT countries in more detail. So in summary, an interesting time for Western companies, should they invest in BRICs or MINTs ? As I have a sweet tooth I think I know where my money would go!