Friday, September 12, 2014

How can Lean help us during crisis time?

This is the million € question, right?
However there is a very simple answer.
What do everybody when their incomes are reduced?

Reduce their expenses, right? But companies think that this is very complex, therefore they take the easy way, dismissing people, freezing salaries, etc.
However the most logical and simple way is completely different.
Companies have been created just for one thing, EARN MONEY, if not are not companies, are volunteers organizations.
How can we earn money?
Selling products, collecting money and reducing the expenses.

But customers demand cheaper prices, so how can we save money?
If we check the sales price, has two components, cost and margin.
Margin can´t be reduced as is what keeps the company alive, then we must reduce the cost.


Cost have several components, raw materials plus operations costs, plus amortization costs. So in simple words, Raw materials + operations.
Raw materials cost is dificult to reduce as may depend of global markets as petrol or iron, so we have no much power to negotiate prices.
So, we can reduce the operations costs.


Becoming more efficients, and here is where Lean philosophy can help.
Lean is just looking for one thing, as his inventor Taichi Ohno explained:
 “From the moment a customer sends and order till we collect his money, all what we have in the middle are wastes and stops, our goal is to reduce them as much as posible to reduce the time between them.
Then, what we need to do is check the quantity of waste (In japanese MUDA) in the processes from the beggining till we deliver to customer the required product.

If we reduce the waste, our operations costs will be reduce in a high percentage, sometimes over 50%
Some people think that this is imposible or can be done only in huge plants with many robots as the automotive plants.
Not at all, can be done everywhere, and specially in logistics (where I have been working during the last 20 years), that normally have been the place where people with no much qualification were working.

“Mr X is not good, ok, send him to the warehouse and may be he can do something”, is one of the typical sentences.
But is quite interesting that warehouses and logistics are the áreas in any company with higher costs (stock and machinery) and where managers normally don´t check in deep.

If we consider that 95% of operations are really waste (MUDA) and only 5% give value added, there are many things to do and improve.
In many companies after few years of crisis, there is the perception that we have done everything we could, and there is nothing else to do.

But this is not true, this is the time to think again, not about what else to do, but to re-invent your own business, and forget about short time solutions as dismiss people, reduce prices again and pray for the end of the crisis.
In the old good days, the strategy was to grow anyway, and now we are paying the bill because we don´t know what to do and how to solve the situation.
Therefore we need to take complete different solutions, that may permit give value added to our customers with so good quality, service and efficiency that our competitors can´t copy.

May be you can say, looks good, but how can we do that?

Solution is in the Lean philosphy is not easy or comfortable, but the companies that started using it for years have had outstanding results than rest and even they earn money during the crisis.
Here you have some examples I know:
A car dealer, improved so much their operations, that they could do a preventive maintenance for a customer in just 26 minutes. 

What did they do?

The customer care representative called the customer to know what kind of works did the car need (change oil, brakes replacement, etc) and with that information they prepared the spare parts to be used. Parts and instructions were ready to be used, and therefore the operator didn´t waste time looking for them.

Then they ask the customer to come over at certain time during the day (for instance at 11 AM) and they propose him to drink a cofee, read the newspaper and leave with his car in just 30 minutes.

It seems they have no competitors with that policy.

A Telecomunications company.

The first year reduced the temporary people in 25%, reduced the overtime cost in 100.000€ and saved in total 676.000€

Furthermore they reduced the space used in 6.000m2 that meant 100.000€ as they used a logistics partner for the warehouse.

In total 776.000€ in savings, 4 years later they saved 3.216.000€ that means a 30.4% of the previous cost.
A food company reduced the stock days from 14 to 2 and the lead time from their suppliers from 18 days to 3.

They had 5.000 references and increased them to 40.000, their delivery time passed from 92% to 98.5%

A door manufacturing company.

Passed in 9 months from 2.500 units per day to 4.100 but at the same time their delivery lead time passed from 14 days to just 2.

Due to buildings crisis they reduced their sales in 50% but also their cost in 50%, keeping the same marging.

An automotive company, reduced their cost in 20% in 4 months, and an  electronics repairing company improved their delivery lead time in 35% in just 3 months.

All these examples are real, not theory.

How could they do it?

As lean founder Taichi Ohno said:

“All what we do is looking from the momento a customer sends and order till the moment we collect the money. And we reduce that time by eliminating anything that don´t add value”

So Lean just deliver the right part, at the right time and in the right quantity.

Lean power is that permits to be reactive everyday to customer demand.

Is not easy, but if it would be, everybody would do it, right?


Luis Perona.

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