Sunday, July 7, 2013
Some Economics of a Lean Strategy
As a lean leader, as you spend more and more time with the people on the floor who do the value added work, you realize people are often "stressed out" for reasons that have absolutely nothing to do with work. Money and relationship problems are most often cited as the most common energy leaks. Not much I can do about the wife or husband problems, but let's talk about money.
At some point in our lives, most of us find ourselves behind the 8-ball from a money standpoint. For me, it was when my wife and I were in our first home, we had 2 of our 3 kids, and our mortgage payment was 2+ weeks pay. Pizza and a rental movie was a big night out. It is real easy as a leader to tell people that money doesn't equal happiness when you happen to have all you really need. My salary grew, and I didn't really need to think about money much, but some of the folks in the plant were driving to work in cars held together with duct tape. Overtime wasn't a luxury for people, but a necessity. As these same people slowly bought into our lean strategy, as a company, we began to rely less and less on overtime to meet demand. But THEIR reliance didn't change. But, we didn't need people to stay late or work Saturday using inventory to make inventory.
The biggest benefit to going through hell and doing lean is to increase productivity. Grow your business without throwing new bodies at demand. Methodically remove the 8 wastes so the same number of people can do much more value-added work (the work your customer will pay for). The slow part of this idea is the rate at which people buy-in and help. It takes persistence on behalf of leadership. As processes get better, that 500 lb gorilla in the room, overtime, becomes less and less needed. Also, my goal was not to have people spend most of their waking hours at the plant. I wanted them to enjoy the fruit of their labor. With their families. But some people budgeted their lives around it! Our dashboard productivity metric no longer justified overtime. So, not being the sharpest pencil in the case, I promised people that if they bought into our lean strategy (which included not working OT just to get paid more), they would take home the same amount of money in 40 hours they were now taking home with 40 hours plus 8-12 hours of OT within 2 years. (talk about a leap of faith on both of our behalfs! This lean stuff better work!). Some threatened to quit. One guy told me he would have to deliver newspapers at 4 am.
Fast forward 2 years. Demand (sales) had increased ~37%, and the body count was slightly reduced. Fast forward 4 years. Demand had increased ~81%, and the body count for direct labor was exactly the same. What does this mean to the folks who took the leap of faith? More money! Higher pay rates. Profit sharing bonuses. The company University had been established, and one of the "elective" courses was personal finance. During this 10 week course, our comptroller taught people how to budget and how to establish credit. (Many had never opened a checking account). How to do their taxes. Some of the people who drove duct tape cars were moving from apartments to homes with their families. I never again had to hang a sign saying "No Overtime without Management Approval". When demand was spiked, they worked a little extra, when it was normal, they went home. Three other benefits were less turnover (a higher sense of loyalty), and people no longer hit up the company for personal loans to get them out of money jams. And newer cars, no duct tape.
Bill's company was cited as "One of the Best Companies to Work in Connecticut" four times during their "lean journey."