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Why Lean Fails

Why Lean is Hard / How to Screw it Up

If Lean is so obvious, why do so many people screw it up?

Lean Manufacturing is surprisingly simple, yet also surprisingly easy to screw up. It doesn't usually "fail" so much as never produce anything other than extra work for the participants and then die a slow death. Here's how I've seen it die:

  1. Lack of Commitment

    The whole organization has to be committed to Lean, starting at the top. Starting a Lean efforts creates extra work for everyone. If the top management at a site doesn't buy into the effort, the worker-bees who actually do it will tire of the effort before the results appear. Lean doesn't necessarily have to be important to Headquarters, but the top guy on site has to be fully committed, even if the Lean effort has to become a local insurgency.

    Adopting Lean is like getting religion: it has to change your whole outlook on life. The cliche about Lean not being the latest "program" is absolutely true. Since many of the benefits of Lean are difficult to objectively quantify, they have to be taken on faith (and later, experience).

    If the pointy-haired boss just read about Lean in the latest issue of Industry Week, and wants to try "that Lean stuff", you're doomed.

  2. The Accountants Lie to You

    Traditional standard cost systems often work against Lean. They do several bad things, including:

    1. They consider inventory as an asset, while we know unsold inventory is a liability
    2. They place little emphasis on cash flow, and greatly undervalue the cost of money
    3. They completely ignore delivery cycle time
    4. They allocate fixed costs rather than considering the differential costs of business activities, etc, etc.

    Good Lean accountants (yes, they do exist!) understand that "Standard Costs" are an accounting fiction which (sometimes) helps make good business decisions. Lean looks at the total waste of a business and maximizes added value. Accountants need to keep the big picture in mind.

    My favorite accounting tool is the pro-forma.

    When a major financial decision has to be made (such as a major capital expenditure),

    two pro-formas need to be created: 1) the business with the investment, and 2) the business without the investment.

    Then it is a simple matter of picking the most advantageous business result of the two pro-formas.

  3. It Takes a Big Chunk of Work Up-Front

    Implementing Lean takes a lot of work. Worse, the resulting improvements are difficult to trace to specific Lean activities. Lean requires good plant organization and planning, which takes a significant amount of time to accomplish.

    When you're up to your butt in alligators, it's hard to take the time to drain the swamp. Even if you believe lowering the water will make your life easier someday, it's hard to consider drainage canals when there are teeth chomping on your leg. And if you're not convinced that lowering the water is a good idea, it's easy to forget about that canal plan for a while.

  4. The Improvement Are Mistakes You Don't Make

    Some of the biggest benefits from Lean are the mistakes that you don't make. No business plan would ever have built in allowances for these mistakes, so you never see the "gain" to the plan. For example:

    • Reduced Work In Process (WIP) let's you find problems faster, so when you have to re-work product, you re-work less. This saves a pile of money, but the accountants will never know it.
    • 5S keeps your equipment cleaner and better maintained, so you find that critical loose bolt before it shuts down the machine for hours.
    • Procedures are generally obvious, so associates make fewer mistakes.

  5. Cash Costs Too Little

    With interest rates at historical lows, the accountants value cash too lightly (see item #2 above). But like gasoline to the motorist stranded on the side of the road, cash can be very very valuable when you don't have any.

    I once worked for a company that was solidly profitable, but went bankrupt with millions of unsold inventory sitting peacefully in a warehouse. Cash is very expensive!