Shayne Daughenbaugh  00:32

Hello, and welcome to this episode of the lean solutions podcast, led by your host, Shane and Catherine the fabulous Catherine. Thank you so much, Catherine, for coming on board with us here today. Can you tell me something you’ve learned this week?

 

Catherine McDonald  00:49

By saying, You know what, I haven’t learned a lot because I was away for the weekend. But I did learn to bring always to remind the people who you’re going to the airport with to bring their passport, otherwise you won’t get on your flight. That’s what I learned. So for the weekend I’ve had that’s just a little a little hint for everybody. Just remind remind people to break.

 

Shayne Daughenbaugh  01:12

Oh, man, that’s a painful lesson to learn. So today, Catherine, we have art burn on the show. And we’re going to be learning a little bit about Lean strategy. And lean strategy extends beyond manufacturing, which is what I love about about the conversations that we have with all the guests. It has the potential to transform any business enhancing overall operations by eliminating waste, delivering consistent customer value, stimulating growth, fostering a culture of continuous improvement. Lean principles enable companies to be more responsive to customer needs and increase the wealth of stakeholders if if an organization has those. But we have with us here, a great apt author, a lean practitioner, and one of the I would say one of the Guru’s of the lean world. And so, Catherine, tell us just a little bit about art burn. Yeah,

 

Catherine McDonald  02:11

Greg and Guru is exactly the right word. I’ll tell you why. Art burn began his Lean journey in 1982 as a general manager at GE leading the first just in time implementation there. And as a group executive, he initiated lean at the Danaher Corporation, and a CEO as the word of The Wiremold company, he led a lead transformation that increased enterprise value by nearly two and a half 1,000% in nine years and won a Shingo prize. As an operating partner at JW childs associates, he implemented lean across their private equity portfolio. Art authored the Lean turnaround and the Lean turnaround action guide, both Shingo prize winners. He is a member of the Shingo Academy, the industry week magazine manufacturing Hall of Fame and the am II Hall of Fame. Wow, that is just using guru. Indeed, Arthur, we are so happy to have you on the show. And I’m really looking forward to talking to you and welcome to the show. How are you today?

 

Art Byrne  03:15

Fine. Thank you. And thank thanks to both of you for having me. It’s, I’m looking forward to it.

 

Catherine McDonald  03:22

Yeah, we’re looking forward. So before, before we get into all the questions we have, I guess we what we’ve what we said to people listening is we’re going to talk about the Lean turnaround today. That’s sort of where we’re heading with this. I’d love to know, I was looking at the title. And I’d love to know, when you when we speak of the words lien turned around? What does that mean for you in terms of turning around an organization? What does it what does it really if you could boil it down? What does it look like?

 

03:52

Well, it really means how do you transform a company from the traditional kind of batch approach to a different through the Lean approach, really to have two a flow approach and a whole approach? That’s really what I’m talking about with that is how do you how do you take any company that’s been around in a traditional way, they they’re pretty similar. You know, everything is in different departments of funding functional departments, and everything batches as a result of that. And it was, anytime you find that, you’re also going to find tremendous amounts of waste on because the functional, the functional structure, all by itself creates a lot of waste. In fact, my experience is that if you find a traditionally run company that’s organized functionally, most of the time it has 25 to 40%, to many people, and as five to six times too much inventory and as overhead over 50% too much space and as long lead times. And it has quality problems that keep popping up all the time. I mean, just make it very hard to make them go away. So that just creates, when you start to that place, it just creates tremendous opportunity. By removing the the waste that’s there to, to lower your costs, shorten your lead times, and create better customer service and, and grow the company. So your opportunities from converting from a traditionally functionally organized company to lean, a very dramatic and it doesn’t matter what kind of business you’re in, it will focus on any kind of industry, any kind of company. Fact I, I like the definition of lean that just says Lean is the best strategic way to run any company. It’s very different than the way lean has been described historically. I mean, if you think about why don’t most companies start down the Lean path in the first place, I would say over 90% start down the Lean path for cost reduction, they think it’s a cost reduction. Or it’s some sort of problem solving problem program, or it’s a bunch of tools that will allow you to apply these tools to solve certain problems. Nobody thinks of it really strategically. And nobody thinks that well, oh, that’s a manual that was created by Toyota, the manufacturing people. So it must be a manufacturing thing. We don’t do manufacturing, and therefore it doesn’t apply to us. But my experience, the reality is that there’s more opportunity in non manufacturing companies, and there are manufacturing companies, because they’ve never really looked at the waste that they have. And when they do have a problem, the tendency is, let’s automate it. Let’s go get the computer guys. And we’ll write a new program. And we’ll automate it. And we’ll only wind up doing a course as automating the waste. And things just get worse and worse, instead of better and better. So I’ve done lean and in turn excuse me, insurance companies, hospitals, just distributed distributors, that kind of thing. And it applies anyplace. In fact, you know, hospitals in the United States have been pretty aggressive over the last maybe 10 to 15 years of trying to apply these principles there. Because, yeah, hospitals traditionally have been one of the worst run organizations you can possibly imagine. You know, they do great things for you health wise. But organizationally, structurally, cost wise, they’re just a mess. And they are because they have all these fiefdoms. You know, everything is a fiefdom, in a hospital, if you go in, let’s say, with a broken arm. That’s a minor injury, you’re gonna go home that night with a cast on maybe. But in the process, you’re gonna go through maybe 12 Different fiefdoms. You know, you gotta go to the petting fiefdom, you gotta go to the emergency room, fiefdom, etcetera, etcetera, etcetera. Oh, man, because, you know, and the crazy thing about a hospital is they have natural value streams, right? They have a natural, most hospitals of any size, have a natural value stream, regarding the heart, this probably 30 to 40% of their revenue. Because people have this a lot of heart problems. So that’s 30 or 40% of the revenue, they have another value stream, maybe about orthopedics. And maybe they have another b value stream, about babies or whatever. And yet, no one’s really in charge of these value streams, at least not as a business. Right. And so, if you don’t, if you can get somebody in charge of the heart value stream in a hospital, that can make decisions and focus on that, get everything working together, you’d have tremendous, tremendous gains. But that doesn’t happen. Instead, what happens is you have heart surgeons, you have heart, Pa bat of cardiologists, you have heart trained nurses, and they all report to different leaders. And none of those leaders have an overall leader that’s in charge of the value stream of the heart. And as a result, things are just kind of a mess. They just don’t work very well. Yeah. So

 

Catherine McDonald  09:33

yeah, sorry, Shane. Yeah, I was just going to say we’ve all been in hospitals is a great example. Because it’s something it’s an institution we all go through, unfortunately, from time to time, and I remember even bringing my mom in when she had cancer. And I remember going in and I remember having to go through the same set of questions and her giving the same answers to like five different departments while we were waiting there for about 10 hours and then That’s I think when you talk about the traditional way of doing things, that’s what’s what strikes me as the traditional way, it’s these silos. It’s no joined up thinking, you know, the strategy is there, but the strategies and words, it’s not in actions, and it’s not joined up thinking. So I completely, you know, I understand the need in terms of those sectors and the need for turnarounds there, and I know exactly what you mean, and chances are, you are going to say some No,

 

Shayne Daughenbaugh  10:26

no, I mean, right along the same lines, but I’ll spin off just a little different direction, then. So aren’t you have written a lot about this in regards to silos and breaking those down value streams? You know, and you seem to love this word turnaround, because you wrote the Lean turnaround, you wrote the Lean turnaround action guide. And now most recently, the third book that you have is the Lean turnaround answer book. And I’ve perused some of the content and that, and there’s a ton of information. Or I should say, suggestions and and options in working with value streams in seeing things differently from the value stream. With with all the information that you’ve put out, you know, ask are on lean.org. What prompted, you know, this, this this last, the latest book that you have? Is, was there anything in particular that you’re like, man, I’ve written about this before, but people still aren’t getting it? So let’s try again, or I think

 

11:30

the simplest way to answer that is, let me take you through the sequence of the books, because I wrote the first book, The Lean turnaround, just to pass on all the knowledge that I had learned over 3040 years of doing Lean in different different companies. And I’ve done it in a lot of different industries, a lot of different companies, a lot of different products, etc. And, of course, the way that all of us learn lean in the first place, was we learned it from somebody else, visiting other companies, etc, etc. So I always felt kind of an obligation to pass on whatever I had learned to other people so that they could benefit from, from moving to lean. And doing what I titled the Lean turnaround, if you will, someone so that book was, was quite successful, actually, it was aimed at it was aimed at the CEO, and the C suite, if you will, the upper executives, so they can start to understand what what this was all about, and why it would work anyplace. And it was very successful. So I got a lot of people saying, gee, we really, we really loved your book. But how do you really do? Well, yeah, I mean, you told us all the theory and all that but up, I mean, actually, how do you do it. So that prompted the second book, The Lean turnaround action guide. And the Lean turnaround action guide is really, if you will, it’s like a case study like a business case study. We took a we took a company, and we gave you a five year forecast of what it will look like as a traditionally run company. And then we bought the company and then we took it step by step through the turnaround part. We had a management team that could talk back to us, we had employees that could talk back to us. So had a lot of dialogue. We had a chapter on with three chapters, just on Kaizen, we had a chapter on setup reduction, Kaizen and we had a chapter on creating flow, we had a chapter on an office Kaizen, because those were very, very important in terms of showing people how you do this stuff, what’s what’s involved in a Kaizen, etc. So that that book was also quite successful. But that led to more questions. Unfortunately, the Lean Enterprise Institute gave me a spot on their, what they call the a lean post. And this is something they publish every week. And for the past over eight and a half years, I’ve been writing kind of a monthly article for the lien post, le eyes lien post. And it’s under the heading of ask R. And so I just took all these questions that people were asking me, and I responded to them. And of course, that stretched over eight years, eight and a half years, and it was 100 articles that we created over that time. I say, Well, you know, people might have read, you know, two or three of them here and there. But no one’s spent the whole eight years reading these things. And I thought it would be very good to put it all in one place where someone could use it as a reference book, etc. And so we took 70 of the 100 articles, and we packaged them into the Lean turnaround answer book. And I think that lean turnaround answer book is a very important book because it basically answers just about every question that people have about Lean. And if you think about a traditional company, is thinking about going down the Lean path. They have a lot of questions. Well, what about this? What about that, how to do this? How do I do that? It also applies to people who started down impasse, maybe had some success. And then it just stalled out. And they want to get back on track when they have they have different questions. But they want to know, okay, we did this and we did this, what do we do next? How do we do? How’s the next what’s the next thing we should do? And so the answer book serves as a resource for anybody that’s thinking about Lean really, you can read the whole book, you’re gonna get an awful lot of Lean knowledge out of that. Or you can just go to the index and pick out the questions that you have about it, and read those articles. And you’re going to learn a lot from that. So the whole idea of all these books really, is just to help more and more companies start down the Lean path, because, as I mentioned earlier, I think that Lean is the best strategic way to run any business. Therefore, I’m just trying to encourage more and more companies to do that. Because it’s gonna really help them it’s going to help, that really helps their employees and helps the community it helps society, etc, etc, etc. There’s no downsides to it. Yeah.

 

Catherine McDonald  16:08

Yeah, yeah, definitely go on chain yet.

 

Shayne Daughenbaugh  16:10

So, you know, when it comes to starting down that path, one of the articles of yours that I read, I picked out this quote, and it you said, I always begin by looking at the balance sheet. Right? You know, so tell me explain how does the balance sheet inform how you approach lean implementation?

 

16:32

Well, of course, most people just take the balance sheet for granted, right? I mean, it’s just that that’s just a reflection of where our assets are, at this point in time, etc. Nothing we can do about that. I look at it the other way, I think the balance sheet is the most important thing to look at. Because when I look at a company, one of the first things I look at is inventory turns. Alright, if I see a traditionally one company, that’s turning inventory about three times, which most of them are, if you’re I’ve traditionally run, to me, that’s a goldmine. Because there’s all kinds of sleeping money out there, it’s just the money is just sitting around the shop floor, not doing anything, you know, three times inventory turns, that means that everything that you buy, has to sit on your shop floor for four months, before it can do something else. Why? I mean, you know, if you were in the business of a lettuce, you couldn’t do that the stuff will go bad, right, but anything else, it’s no problem. And so I look at first at that, because I think inventory turns is one of the most important measurements that you can have as you go forward in the Lean turnaround. In fact, you could run your company off a two measurements, you could run it off of customer service, and inventory turns, if customer service and inventory turns are both going up. Everything else has to fall in line, right? But if you look at the balance sheet and think well, okay, here’s a low inventory turn company, this is this, there’s a lot of money laying here, we learned worm all that we bought a lot, we bought 21 companies and almost all of them were turning inventory three times. So we knew that we could take that inventory turns from three to six in the first year from six to eight, the next year, eight to 1010, to 12, etc. And so each time we did that, that’s just generated a lot of cash, freed up a lot of space, made things a lot easier, a lot cheaper, quality, got better, everything better. So then, the next thing you can look at as, as accounts receivable, you know, if you look at a company, and this is stated sales terms are net 30. In other words, you’re going to pay me in 30 days, and the days outstanding are 55. Whoa, what’s what’s what’s happening? What why is that? Is that because they’re afraid of the customers? Is it because the customers have a lot of leverage on them? Why why if you have net 30 terms, or you have 55 days of accounts receivable, again, another pile of money is just sitting there. I mean, I sold you something, your only obligation is you have to pay me, right? My obligation is I have to have good quality, I have to have low cost, I have a lot of obligations to you as my customer, you only have one, you got to pay me. If I’m allowing you not to pay me that’s shame on me. So there’s a lot of another chunk of money that’s sitting there from that. So if you if you just look at some of the key factors on the balance sheet, it’ll tell you what the opportunities really are with a company. It’ll tell you three times inventory tells you what you’re going to see. When you go there. When you go to the company, you should understand what you’re going to see by looking at the balance sheet. Okay, so that’s what I mean when I I’d say that.

 

Catherine McDonald  20:01

And I agree with all of that. One of the problems that I see, I suppose, as a consultant working with organizations myself is when you go into an organization and you see something like you’ve just described you, you look at the balance sheet, you look at the accounts, and I see something. And I wonder why the company, let’s say, hasn’t seen it. And this is not, you know, rocket science stuff. But, and I’m not very good with accounts, I have to say, it takes me a long time to go through and figure it out. But I wonder sometimes is the whole and I think this is you referenced this, in some of your writing that the whole area of accounts and ABS is is again, done in a very traditional way that makes it actually difficult for the organization to use. And the hope I suppose one of the the ideas around the Lean Accounting, is that we need to be able to make accounts easier to use and to make decisions from and that’s something I read in some of your articles. And I don’t know, is it would you agree, am I on the right track? And if so, how do we do that art? How do we make this a whole idea area of a department easier to work with easier to take information from?

 

21:10

Well, if you move to lean, and try and stay at most companies, traditional companies use some sort of a standard cost accounting, and which which, which uses absorption, etc, etc. And if you move to lean, and try and keep standard cost accounting, you just they’re gonna fight each other. So you have to get rid of standard cost accounting in order to move to lean in my opinion. But if you think about standard cost accounting and how it works, first of all, it’s pretty complicated. You have all these variances, you know, the standard cost variance, this purchase price variance, this variance that for all those are just created at budget time when you put the budget together. And it’s variance from the way you put the budget together. But it’s also that makes things very complicated. In fact, I think that standard cost accounting can’t be understood by humans. In fact, even even the finance guys that afford they don’t really understand they pretend that they do, but they don’t really understand it. Mark de

 

Shayne Daughenbaugh  22:17

Lucia said the same thing going

 

Catherine McDonald  22:21

on, I feel so less. Thank you.

 

Art Byrne  22:26

But as a result, it, it doesn’t give you very good information, right? Think about one of the one of the things that most standard cost accounting companies do is they want to have a cost, detailed cost for every SKU every item out to four decimal points, right. And in order to do that, there’s so many allocations and other things that they throw in there, that it just gets very complicated and very confusing. And I’ve done this a lot of times, and I’ve given speeches on lean and stuff. I’ll ask for a show of hands, how many people believe that the standard cost of every one of your items is correct. Up to four decimal points, you don’t get any hands go up, because no one believes it. Only the finance guys believe it. But that’s because they have to. So so if you got you got bad information. And if you got bad information is going to you’re going to make bad decisions. And what happens when you go to lien, of course, is one of the things that we’re doing, as we just talked about with the balance sheet, is we’re dropping, we’re increasing inventories turns really fast. And what that means is that the standard cost absorbing overhead up into inventory, which only occurs when inventory stays the same or goes up. doesn’t work anymore. I mean, we’re dropping inventory. So you’re getting a double shot of overhead coming into this, this month’s p&l. So are the earnings might look really bad, even though everything you’re doing is very, very good. So the standard cost really fights with lean in that regard. And if you think about the absorption part. Most operators they understand fairly quickly, what products in their department that they make. Now, these are functional departments, and they’re making a complete product that making components, but they also understand which components in their department carry the most absorption hours, right? And so say three weeks into the month. If they’re not making budget, they’re not on on track. The one thing that they’ll do is they’ll make all the products that have the most absorption hours because they don’t want to get yelled at and they know that if they get the absorption that was made their earnings are going to look pretty good. Now, they don’t really care at that point, whether you have any orders for those parts. They’re just trying to make absorption hours. So now you know you’re making 200 bases and 3000 covers if you don’t understand what I’m saying. So everything is out of whack because we’re not making product for the customer to serve as demand. We’re making absorption ours, and standard cost system drives that behavior. And with Lena, cause we don’t want that at all, we want to sell one make one, you know, we don’t have an audit don’t make one. And with standard costs, the opposite is true. For example, if if you are the standard cost accountant and we come in today, we had to make a product to make product A, we need 10 machines, but one of those machines is broken today, it won’t doesn’t work. That means that I cannot make one single product today that I can sell. Because one of the machines is broken, I can’t make anything I can sell. But the accounts will stay, run all the other nine machines full blast and get the absorption hours, right. And so they do. And at the end of the day or end of the month or a week or whatever they say, Well, we had a pretty good week, you know, because we’ve made the assumption, it didn’t make a single thing that you could sell, or you made, all you made was more sleeping money, more inventory, right. But the standard cost point of view, hey, things are pretty good. Now, if that’s good, then that’s scary. It’s really frightening if that’s considered good.

 

Shayne Daughenbaugh  27:12

So we’re talking about about Lean Accounting. It one of the one of the other things that I read from you and I wrote this down as well, to become a Lean Enterprise, everything must change, every part will have to change to adopt the lean way of thinking. So my question in regard to this, so we have, you know, accounting and all the other parts components of, you know, or as we talked about, before, you know, in the hospital setting, all of those other value streams must adopt, where in the world would you start with organization, you know, if it’s a small business, that makes a little more sense, and it’s a little easier, but if you’re wanting to have that turnaround that you talk about, you know, something big like that, you know, where should they what’s the first step for an organization to decide, you know, to adopt that Lean thinking, you know, where would you suggest? All right, well,

 

28:08

first of all, the idea that everything must change, which is true, scares the heck out of almost every CEO. Because they’re all starting out saying, Well, this No, no, no, this is the cost reduction program, I don’t need to change anything else, why should I do that? You know, I’m just trying to get my costs down. I’m just gonna assign that to the VP of Operations and let him do it. But think about this, when I first went to Wiremold, one of the first I was, you know, I said, alright, well, we’re going to, we’re going to really have an aggressive lien program here. So we’re going to try and try and level load the factory, so that everything, you know, it can be more efficient, and etc, etc. My first question was, what percentage of our sales ship in the last week of the month, you can ask that for any kind of manufacturing company and maybe even some service companies as well? And of course, the answer was 50%. So I said, Well, gee, how am I going to level load the factory, if somehow I gotta ship 50%, in the last week of the month, I don’t have the capacity to just ramp up and do that. And besides, if I have to deal with being being staffed for 50%, in the last week of the month, I’m way over staffed the other three weeks of the month, so the whole thing makes no sense. So then you say, Well, why why is this happening? Why is 50% going in the last week of the month? Well, it turns out, it’s our sales terms. Well, gee, let’s change the sales terms. And so that’s what I mean by everything must change. You can go like crazy, implementing Lean, but if you don’t change the sales terms, or whatever it is that’s causing 50% to go in the last week of the month and almost always, what’s causing that is something that you did All right, it’s something that you created yourself, man, it’s kinda like, you remember when the automotive companies that used to have the they would build inventory like crazy, then, oh, we got too much now we’ll have to have these big sales. And so people, you know, they were trained, let’s just wait to have the big sales, why should we buy it on a regular day?

 

Shayne Daughenbaugh  30:20

Oh, yeah, true. So you’re actually training to train the trainer

 

30:25

to do something that you don’t want them to do? Right? So what I’m saying is, is that, when you look at 50%, in the last week of the month, you’re gonna find that the reason for that is something that you did, you created that, okay. And it’s the same is true for everything else, you can’t have all of your computer systems in batch, when you’re trying to shift to lean when you’re trying to shift to a pull system. And then you want to run the factory on an MRP system, which is all batch and, you know, you want to, you want to continue to have the the information on long setup times, even though you’re trying to reduce setup times, you know, you your product development has to change such that, you know, it’s more responsive, it’s faster, etc. So if you know, in Accounting has to change so that you don’t have standard costs fighting the Lean implementation. So to your question of what we’re okay, that’s nice, where would you start? I always recommend that you start with the biggest product line, a product family that you have, right? I mean, first of all, the first thing you have to do, of course, is you’ve got to create a lean structure and get rid of the functional structure. I think that’s really first we did that, before we did any kaizen. And before we started moving anything, we created a value stream structure, and the value stream structure. We, in our case, we did that based upon product family. So we had about seven product families, and we needed a product team leader for each product family. And then we were going to give that team leader all the equipment necessary to make that product family complete from raw material to finally in the box, right. And that meant we were gonna have to move a lot of equipment around to get those product families together and make that happen, because they were all in all the equipment was in functional departments. But so before we can even start doing that we had to create the structure. So the first thing we did was we created the value stream structure. The next thing we did was we created a Kaizen promotion office that was focused on doing nothing but Kaizen all the time, that was a full time job. And we couldn’t go out and hire anybody into the cause and promotion office, because at the time we were doing this, there wasn’t anybody out there, we had to, we had to train them ourselves. So what we did is we picked our high potential people, people that we thought could go up two or three more levels in the company, and stuck up in the cars and promotion office didn’t matter what the background was. But we thought that was the best training ground that we could possibly have was put him in the Kaizen promotion office for two years. And after two years of doing nothing, because in all the time, then we could promote them to team leader or plant manager, whatever other thing we want them to promote them to. So that was the I think that’s the first fundamental thing is you got to create the value stream structure to receive the Kies ends. And you got to create the Kaizen ability with a Kaizen promotion office. And we, we match that cause and promotion office up with some external consultants. In our case, we use Shinji Jitsu, which were, you know, X Toyota guys, all of whom would work for che Giono creating the Toyota Production System in the first place. So we were, we were very lucky to have access to them. But that was that was what we started with. The next step, I would say, would be to focus on your biggest product line and the product line that you make the most money from this the most important to you fix that first. Get that into a flow. Get that into one piece flow, reduce the setup times and all the other things that are causing you problems in that product family, and then go to the next product family and the next product family, etc, etc. So it’s a pretty logical approach. It’s a step by step approach. Yeah, but you’re trying to go from, from structural organization, functional structural organization, to a value stream flow organization, might as well start by creating the value stream flow organization. I mean, you gotta get there anyway. Might as well start off the bat and we we did that with all of seven product family leaders. Only two of them are people that have experience in manufacturing, which is very different than most people would think we could say. They’re going to be responsible for making the product for some raw materials in the box, they should have manufacturing background. We had a lady from inside sales, we had a lady from quality control, we had somebody from marketing, we had our auditor, the company auditor, we put him in to be a team leader. And we had another young engineer from someplace. Anyway, we did it based upon who were the people that we thought could run a small business. They had the ability someday to run a small business, because that’s what we were gonna give them, we’re gonna give them a small business, right. And we also as part of creating that structure, we also got rid of our purchasing department and our production planning department. That’s pretty shocking, sir. Why would you do that? You moron. So, well, we did it for a very simple reason. Because when you looked at it, and you looked at it, historically, production planning was always planning to make something that purchasing wasn’t planning to buy, or vice versa, because they weren’t talking to each other. So he said, you know, they got to work together, they got to talk to each other. So all we did is we created, we got rid of the two departments. And we created the position of buyer planner. And so every team leader had a buyer planner, and they were responsible for production planning, and purchasing, etc, for that particular product family. Now, like most companies, they were like five commodity, things that we bought steel, plastic thing, big things like that, that we buy them big volume, etc, we could negotiate the price for those at a high level, let’s say at the level of my VP of operations. And then we could let the team leaders in the buyer planner, release, release product release things under the contract we had created for those, everything else, all the small things that just pertain to the product family, that by our planner, they were responsible for doing negotiation, purchasing, releasing all that kind of stuff, right? So and then we put the product man at the product family manager, and the buyer planner, we sat them out on the shop floor next to their equipment. They didn’t like that too much. Because in our particular case, it was very noisy. Yeah, machines would noisy the punch presses, rolling mills, that kind of stuff. So but all of a sudden, everybody understood things are going to be very different. All of a sudden, we got a very, very different structure, right? Everything is going to change and, and then then we started moving the equipment around to give each product team leader, the equipment, they needed to make the stuff complete. So for the first two or three years that wormhole, machinery, if he walked in machinery was moving around all the time, he had to watch out, you didn’t get hit by it. Right. But everybody understood, okay, things are gonna be very, very different. We’re going away from these functional departments, we’re going, you have to ask yourself, why do people create functional departments? Right? We put all the milling machines in one department, we put all the punch presses in one machine, one department, we put all the drilling machines in one department. Why don’t we do that? Do we think that the machines are going to be happier? If they’re near other machines? Just

 

Shayne Daughenbaugh  38:22

like they flock together? Yeah.

 

38:25

What do they know? You know, why would we do that? Because it doesn’t make any sense at all, in terms of how you make the product. Right? Putting all the machines that are similar in one department makes no more sense at all, in terms of how a product gets actually made. So there has to be some other reason maybe, because the machines are happier, maybe because we think we can have one guy run two machines or something like that. But anyway, that’s how most people organized and that creates all the ways to create the long lead times it creates the long work the waste, creates the quality problems, it creates the cost problems, inventory problems, everything is created by that simple structural, functional, functional structural organization. So you say where do you start, get rid of that?

 

Catherine McDonald  39:12

Your your approach art is you already used the word, it’s so logical. It’s amazing. It’s just so logical. It’s so structured. And that is a huge part of I guess, transforming to be a lean organization. Organizations need to have this structure, problem solving, structure, innovation, structure, proper budgets, proper planning, and all of this that you’ve talked about. And you’ve touched on, you know, the need to have strategic skills. Leadership obviously comes heavily into this. One element I’m really interested in which we kind of talk about a little bit on every show, because it’s such a I suppose a large part of a Lean transformation or lean in any sense is the people side so engaging the people doing the work in Do I suppose transforming and becoming a lean organization? And you’ve given us so many good examples of what we need to do, you know, in a very logical way. And I’d love to hear your thoughts on how do we bring people in? And all this? How do we engage people’s hearts and minds in this to make it, I guess, not just a transformation, but a transformation that everyone’s proud of, that they’re involved in, that helps with their organizational commitment and engagement? And all of these things? How do we do that? Do you think?

 

40:28

Well, I think you have to start with the mentality of understanding that moving to lean is all about people. It’s not about anything else, it’s about people. Because if you think about any organization, doesn’t matter what industry you’re in, or whatever, it’s only made up of three things, right? It’s a bunch of people, and a bunch of processes, trying to deliver value to a set of customers. That’s all, there’s nothing left out in that, right. So if you want to change the way that you treat your customers, and the way that you give them bring more value to your customers, you got to change the processes, right? Because the processes that you have today are giving you the results that you have today. They’re giving you the customer service problems that you have today, or whatever it is that you have. So you’ve got to focus and change those processes. But it’s the people that created the processes, right. And so, in order to change this, we’re going to have to change the people and I don’t mean, throw them all out and get new ones, I mean, to teach them how to teach them how to see things differently, how we’re going to change this, how we’re going to get rid of the waste in our processes, in order to deliver more value to our customers. Well, the way we’re going to do that is by teaching our people how to see the waste in the first place, and then how to go about removing it. And to me, and through my experience, that’s all really done through Kaizen Kaizen Kaizen Kaizen kaizen. And to your question of how do you change the people? How do you get them to do things differently? It’s a result of making sure everybody’s on a lot of Kaizen, it’s because the learning that you get on a Kaizen is tremendous. And it changes people’s attitude, it changes your culture over time. And so the way that you’re going to train and train people or teach people, is to put them on a lot of kaizen. And so whenever we ran a Kaizen and we ran a lot of cases, we always staff, the team with Half Salary people and half hourly people. That’s very different than the way most companies go about solving problems. Most companies, when they go to solve problems, they create a team of all seven people, they come up with a solution, and then they impose it on the hourly people. Well, that doesn’t mean they’re going to be right off the hourly, people are going to be happy with it. It’s just that’s the way they do it and just shut up and just do what we tell you to do, right. But if it’s the hourly people that are big, a big part of the Kaizen, and I can almost guarantee you, they’ll come up, your people that are doing the work will always come up with the best ideas of how to improve the work. Because they’ve been dealing with these issues for a long time. They’ve tried to raise their hand and say, Hey, we should do this. Nobody listens to him. And after a while, they say, Well, I’m not going to throw any suggestions, because no one listens to me anyway. Right? But now, now they’re on a Kaizen team. We’re listening to him. We’re doing what they’re saying that they used to suggesting that we should do. You know, we, I’ll give you some examples of this from a point of view of setup, setup time, right? And other wrong. One of my favorite ones is when I first went to Wiremold, went out on the shop floor, and we had a lot of equipment, different equipment. I had never seen some of it like rolling mills, I never seen a rolling mill. So here I am wandering around and I said, Well, how long does it take to change over that rolling bill? And they said, Oh, 14 hours. So I looked at and I said, Oh, 14 hours? No, no, we can’t do that. You got to get that under 10 minutes. Now, of course, they look at you and they say well, why don’t we get how do we get this crazy man to be our CEO? He obviously doesn’t know anything. We just told him it took 14 hours and his ridiculous responses to get it 110 minutes. Right now, it wasn’t ridiculous to me but to them it was I mean his for the last 10 years. It took him 14 hours. And if I had just gone back in my office and said okay, get it under 10 minutes and keep me posted. Nothing would have happened. It wouldn’t it would have stayed at 14 hours. But we didn’t do that we started some cars and another cars and other cars. Machine was very busy. We had to make some alterations. So the machine, nothing very expensive, but it took some time. So it took us quite a while, but 18 months later, we could change that machine in six minutes. Now, what do you think the people reaction to that is? I mean, first of all, we’re gonna say, Gee, that was interesting. What’s his next Stupid idea gonna be like, right? But, but beyond that, my experience is, is one of the it’s one of the most rewarding things I’ve ever, to me personally, is if you challenge a team, to do something that they are convinced cannot be done. And then you help them and show them a way to change and make it happen. Like the example I just gave you. They are so excited at the end, they are so pumped up and excited, because the other ones that didn’t I didn’t do what they did that right, they made that change. And, and you know, so step by step, that’s how you’re gonna get people to convert, that’s how you’re going to change people. They’re gonna say, Well, gee, I guess we could do things differently. Now, I guess we’re gonna have the right way to do things. I mean, think about what Toyota did. When, in the past, all the big automotive companies, they had one real mantra, right, which was don’t stop the line, never stopped the line to edit comes along and says, no, no, no, we want to stop the line. In fact, we want to give the ability to stop the line to the hourly people working on the line, we created these and on cool as you pull the cord stops the line. And when you stop the line, there’s people run to that location to find out what’s the problem, they get a solution. And that’s kind of a permanent solution. And then they go. So what you’re really doing in that instance, is you’re creating a learning organization, right? a learning organization for everybody, every time you stop the line, this learning is going to occur, you’re going to solve a problem, you’re going to see what happened and why you don’t want to do that, again, we learn something but learn something new. And so I think Kaizen really does the same kind of thing. It creates learning because Kaizen is a it’s not a planning, it’s not you’re not planning something, it’s a doing activity, not a planning activity, it’s a doing activity. So we start on a Monday by Friday, we have a whole new, whole new sell a whole new layout, everything’s different. You know, it’s, it’s, you’ve done something and that creates, that starts to change your culture, people are like, wow, look what we did in a week. Because you can’t spend you can’t spend a lot of money in a week, right? I remember when we first started doing cars, and I forced all of my direct reports to be on the first Kaizen teams. And my finance guy who was terrific guy, but he his first reaction was, I wanted to be on a set of reduction team. All right, I don’t know anything about setup. I’m the finance guy. And besides, we’re closing the books this week, the auditors are coming in bla bla, bla, bla, you had all these excuses, the whole long list? I said, No, no, no, I want you to be on the setup routine, and I want you to learn something. So eventually, he’s okay. And he goes out there now. You know, just like anybody who’s frankly, you say, well, if we’re gonna reduce setup, it’s going to be capital intensive, we’re gonna have to spend a lot of money to reduce setup. So as a good finance guy, he decided he was going to keep track of how much money we spent that week to try and reduce the setup. So his setup team went from 90 minutes to change it over to five minutes in the week, and they spent 100 bucks. Nice, boom, converted, it was the best conversion I ever had. And he helped me so much, because he not only understood how valuable that was, but he understood that well, gee, if for no money, we can go from 90 minutes to five minutes. What about what happens when we do that across the whole plant? What if what if we reduce all the setups like that our flexibility, our ability to respond to the customer is going to be better our costs are going to go down, our quality is going to be better, it’s going to be a safer, all these things. And he understood that immediately, just being on that one kaizen. Right. So, you know, when he asked me, How do you get people to learn things and do things? Those are just some examples, right? Learn, learn by doing learn. Yeah,

 

Catherine McDonald  49:21

that’s and I think that is the key difference between lean and traditional management and traditional management, top down, here’s what we want you to do go off and do it. People are expected to do it, then maybe they fail and get in trouble. Maybe they don’t know how to do it. But with Lean it’s about leaders working with people. It’s about collaboration teams working together. That’s it’s such a key element of of lean, I’m so glad that you were able to tell us about it and give us such brilliant examples are there’s so so much value in that. And Shane, I think we’re probably nearly at the end. Time to wrap up. Yeah, yeah, yeah, unfortunately. And

 

Shayne Daughenbaugh  49:59

we’ve had had a fantastic journey, though aren’t you know, talking from the beginning, you know, your example of the value stream and everything having the value stream to, you know, changing things over, you know, accounting, you know how we produce things, or how we structure things, moving things around even physically moving things around. Going over to the, you know, the last part in answering Catherine’s question about, you know, bringing people along how to teach them to think and act differently, all of those things, I imagined that there’s so much more to be had. And if people want a, you know, a, an out an opportunity, or a resource to be able to learn more about this, where can they pick up this book of yours? Oh,

 

50:51

well, it’s available in hardcover on Amazon, and also on Amazon as an ebook. Okay. And that’s really, really where it is. If I can leave you with, you have a few more minutes. We, we talked about us about how do you go about this. And I said, you know, you got to start with a value stream structure and all that kind of stuff. There’s, there’s, there’s one other two other things that I would recommend here. One is, first of all you need, you need, you need some, you’re going to compete on your operational excellence is what you’re trying to do with Lean right. And so you need to define what operational excellence is, you needed to find that upfront. And in our case, we said, we’re going to focus on five things, just five things 100%, on time customer service, not 96.3, or something like that. But 100%, we wanted to have a 50% reduction in defects every year, we want to have a 20% productivity gain. Every year, we wanted to have 20 times inventory turns as the baseline target, we were at three, by the way. So that was like everybody’s crazy. And then we wanted visual control and the five s everywhere in the in the plant Office, Office shop floor everyplace. So those were the five key things that we said we wanted to do. Now, none of them are traditional measurements, they’re not. Most companies say I want to increase my margin by two points are I want to grow sales by three points or something like that. Those Those to me are results measurements. That doesn’t tell you how to get there. The things that we said those are all those, these were all sort of functional or process kind of measurements, they dealt with the processes that we were dealing with, right. So then what we did, we took those five measurements, and we gave them to all these value stream team leaders after we created the value stream team leaders. Now the value stream team leaders had about 80 85% Of all the people in the company working for them. So now I’ve got all 80 85% of the people doing nothing but focusing on these five things. Because we said to the various Dream Team leaders, we want to know how you’re doing on those five things. And instead of having a monthly review of financial numbers of something that already happened last month, which we can no longer do anything about anyway. So let’s not do that. Let’s focus on looking forward. So we took the product team leaders, and we said, you’re going to report every week on the progress you’re making on those five things. So every week, we had a meeting with the seven product family team leaders, and myself and my staff, they each had 10 minutes to tell us how they were doing on those five things. And then they also had to tell us what Kaizen they were planning for the next week. So that’s how we ran the company may think about how simple it is. But how profound it is because you’ve got five things you’re focusing on, that everybody thinks is outrageous. But if you ever, when you get to those things, you’re going to be a pretty, pretty good company, you’re going to be hard to beat. So if everybody’s focusing on those things all the time and reporting on that, that means the company is looking forward, not backwards. When you’re a make the month company, and you spend a lot of time at the end of the month closing the books and then having a big financial review. To me, you’re looking backwards, you’re always looking backwards at something that already happened. Nothing you can do about that. But if I focus instead on my processes, and on these five things, I’m looking forward, I’m looking forward to when I get to 20 inventory turns, I can’t get there right away. I’m gonna go from three inventory turns to 20 It’s gonna take me, you know, five or six, seven years to get there. I just have to be making steady progress. I’m gonna have to know everybody’s doing that. And so by doing that, and have an 80% of your people focusing on the things you really want to do. I think it’s a totally different way to run a company.

 

Shayne Daughenbaugh  54:58

Yeah, totally. Yeah. I appreciate that little bonus right there. All right way to bring us in with with that little bonus content there. For those that are still listening to, you know, that stuck with us this whole episode, they got they got a whole pocket full of stuff right there to add to I can

 

55:17

guarantee you nobody will do that. Even though even though it makes a lot of sense, it’s just really hard to break away from make the month and the way you’ve always done to go into something is different as that. But I’ll tell you, if you do it, you’re gonna beat the heck out of all your competition.

 

Catherine McDonald  55:37

Difficult just takes intention and structure as you say break it down. And and good leadership because that’s obviously coming through as well. You know, you good leadership and all of this and helping people to see the right path. I think that’s really come strongly true for me as well, you know, you’ve done this before, you know, you go in an organization doesn’t know where to start. You do. It’s about you know, being able to guide an organization to set up these structures and management systems to be able to all do all of this as well. So it’s, it’s obviously that’s very, very important. So just thank you so much. There’s so much I think I need to just listen back over this and go through it. It’s like a whole course in 50 minutes. It’s amazing. So thank you.

 

56:19

All right. Well, nice to be with you guys. Thank you for having me.

 

Shayne Daughenbaugh  56:22

Thank you art. Have yourself a great day. And ladies and gentlemen. Thank you as well, and we’ll see you on the next episode. Thanks