Should we centralize or decentralize our function?

Matt Wrye is my guest blogger for today. Matt has his own acclaimed blog, Beyond Lean, and I'm honored to share his insights on Lean Reflections. Matt takes up a perennial issue -- one that's not easily decided -- whether to get some process or service under one big umbrella, or get it closer to users by giving them their own resources to do it themselves. Here are Matt's thoughts...

Centralized vs. Decentralized

Should we centralize or decentralize our function?

Have you ever heard this question come up?  I bet so.  It is a very common question.  The discussion could be around any area of service like procurement, IT, HR or many other functions that I haven't mentioned.

I always seem to get the follow up question of "So what does lean say we should do?"

My simple answer is "Whatever makes the best sense for your company and your situation today."

Most hate hearing this, but it is the truth.  There is no lean perspective on this question. Both sides have good points and bad points to them.

Centralizing a function can help to reduce the number of people doing a the function. This can create fewer points of contact and less confusion in the organization as to who to contact.  A centralized team allows for tighter control on policies and procedures and their adherence to them.  The people in the centralized role will perform the function more often and that can help to really make the process efficient.

Decentralizing a function creates less handoffs in a process.  People in one area aren't asking for people in another area to do the work.  This can cause more errors and add lead time to a process.  People doing the function can be located closer to the customer and be able to understand the needs of the customer better.

As you can see, both options have some great benefits.

What you have to do is understand which one of these options best fits the need of what you will be doing.  If you want tight control over data entry then maybe a centralized group.  If you want everyone to be able to purchase what they need in a timely fashion then maybe decentralizing purchasing is the answer.

Lean doesn't tell you what to do.  If just gives you the lens to look at situation and evaluate what is best to do.

What is culture, and why is it so hard to change?

We talk about culture all the time. Somehow we decide that one company’s culture is bad, that lean can never succeed there, or that a bad culture in another company became a lean one.

I’ve always struggled to understand the basis for how the lean community defines culture. It seems to include a lot of opinion, anecdotal evidence, and judging.
 
In his writings about culture, Dr. Joseph Juran often cited a book that anthropologist

Margaret Mead edited in 1953. Mead was one of the founders of modern anthropology, and as did her colleagues, studied distinct and relatively isolated cultures in Africa, Pacific Islands, and the Americas. They observed in detail how technological changes affected cultures and the people within them.

From its post-World War II beginnings, the United Nations saw one of its missions as bettering the lives of people suffering because they lacked Western technologies that. Many cultures seemed to resist positive change, however. Efforts to introduce vaccines, plows made of iron rather than wood, pest control, or outboard motors often failed. People who sincerely wanted to help solve problems felt frustrated by having their improvements rejected. That led the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the World Federation for Mental Health to ask Margaret Mead to oversee a study of what caused technological change to succeed or fail. They were to find out what the psychological and sociological barriers to improvement were. How did technology affect the mental health of individuals? What would open people to the benefits of change?

As advocates of lean transformations, we are in the same situation. Lean is a technology, a science of how to do things. Company cultures seem to resist changing for the positive.

Do we have the right definition of culture? The anthropologists’ used this working definition:

“Culture is an abstraction from the body of learned behavior which a group of people, who share the same tradition, transmit entire to their children, and, in part, to adult immigrants who become members of the society. This definition includes the system of technology accepted and used in that group.”

I think these are some of the lessons for us of that definition:

1. It is an abstraction. Abstractions are concepts, ideas, invisible, hard to put into words, and not always easy to recognize. To make change, it is necessary to first observe and try to understand the culture from the perspective of the people. To change ideas, it is necessary to know what the existing ideas are, and how they function to make the society work. In addition, labeling an abstraction “good” or “bad” and oversimplifying what happens in an organization doesn’t tell us what to do differently to introduce lean where we think it will do good.

2. Behavior is the source of a culture. Changing what people do every day and how they do it will change culture -- reasons for the importance of standard work and continuous process improvement in lean. But an individual can’t change the pattern of daily life when it supports a sense of personal and community well-being. If the new behavior would violate a taboo, however unreasonable the taboo may seem to an outsider, the old one must remain unchanged.

3. Behavior is learned. It can be unlearned. A new way of doing things can be taught, practiced, and adopted. If individuals see it benefits themselves, their families, and their communities, they may decide to change.

4. Culture is transmitted to individuals as a whole, a system. Changing a part of it can cause unexpected and unintended results, some of them unpleasant or even disastrous.

The reason for the UNESCO study is to assess the effect of change on the mental health of individuals in the group being changed. In introducing lean, could we be traumatizing some people, making them depressed or angry? We are pulling the rug out from under their feet. In our culture, people won’t tell us when we cause psychological harm. Or we won’t listen when their complaints or silence are clues to take more seriously. Perhaps they are not just being unreasonable.

Nobody comes into an organization with the purpose of causing pain and suffering. If we could change our own behavior and approach, would starting a lean transformation be more successful?

In upcoming posts, I’ll be looking at what principles, explanations, and recommendations emerged from the study.

If you want to read along, look in the used book websites for Margaret Mead (editor), Cultural Patterns and Technical Change, UNESCO, Holland, 1953. A 1956 paper by Dr. Juran based on the lessons from the book, “Improving the Relationship between Staff and Line: An Assist from the Anthropologists,” can be downloaded from the Juran Institute.  Registration may be required. A Juran paper published in 1957, Cultural Patterns and Quality Control, is also available.

Dan Gilmore speaks for the supply chain - let's do better on out-of-stocks

I don't often base one of my posts on someone else's article, but Dan Gilmore in Supply Chain Digest this week pretty much hit the nail on the head -- at least in describing the problem. Out-of-stocks are rampant and supply chains aren't executing well enough. Let me share some of Dan's analysis: 

A Unified Theory of Out-of-Stocks?
...it is obviously to me that the OOS problem is getting worse for many retailers of late. Anyone else go to certain stores and see as much as 75% of the pegs on a wall display empty these days? Amazing, really, here in the 21st century supply chain...
E-commerce has added a wrinkle to the retail OOS challenge, as now the issue isn't just products not being on the store shelf, but now potentially "not in stock" at the e-store as well. An OOS there likely has an even bigger impact in terms of lost sales than it does at brick and mortar retail.
s part of the research I did on OOS in the last few weeks, I found an article from 2010 in the International Review of Retail, Distribution, and Consumer Research from several European academics titled "Forty Years of Out-of-Stock Research - and the Shelves are Still Empty."That about says it all. The paper documents that despite study after study, and retail initiative after initiative, the needle has not really moved... 

Here's why this issue is so complex: it is an equation that involves forecasting, "long tail" management, retail in-store execution, uncertain and/or difficult to calculate financial impacts, different impacts depending on product category, different impacts on retailers versus manufacturers, the Bullwhip Effect, the Perfect Order, vendor variability, store inventory accuracy, overstocks, collaboration, etc...
...there is an equal and opposite reaction in terms of overstocks - too much inventory - either from the same issues that cause OOS or as a tactic to minimize the level of out-of-stocks...

Here's some data from a Gruen study Dan cited: When a customer's choice is out of stock, 9% do not purchase the item, 31% buy the item at another store, 15% delay purchase, 19% substitute [item from] same brand, 26% substitute another brand.

But my research and listening to some of these experts convinces me that we can better tie the store side issues with the supply chain issues, and move the OOS ball further down the field in a more integrated and mathematical way. More soon.
Why haven't we done a better job improving out-of-stocks? Is there an opportunity to do a better job of connecting all the dots? 

I submitted my comment about how lean manufacturing principles, properly understood, encompass supply chain speed and accuracy. The growing expertise and published information about lean supply chain answers Dan's questions. The lean literature explains why systems based on push systems and long range forecasts get stuck and why pull systems are customer responsive. And speed up cash flow.

Dan's editorial is here -- read it and add your perspective to the debate.

Tracing the evolution of strategy deployment

In his excellent Beyond Lean blog, Matt Wrye is hosting a Hoshin Kanri week and asked me to be one of the guest bloggers. Be sure to check out more posts from knowledge leaders. When Matt started up his blog, I immediately recognized it as top notch. He stands out as a blogger because he has a "real job" implementing lean in a large company. (Nothing against consultants, but the stakes are higher for guys like Matt.)

As I wrote in Part One of this two-part article, Tracing the evolution of strategy deployment: Japanese manufacturing leaders listen to Dr. Juran, in the 1950s Dr. Joseph Juran began to develop a process for deploying a statistical quality control (SQC) policy that, I believe, was the foundation for hoshin kanri. Japanese companies began to apply the deployment method to more than just quality policy.

Part Two: Toyota takes the lead in deploying business strategy

When Toyota’s executives went to Dr. Juran’s classes, they couldn’t take pride in the quality of its post-war products. By 1961, although Toyota had implemented SQC, they had still failed to produce cars with acceptable overall quality. Toyota kept learning, now working toward total quality control (TQC) and by 1965, won their Deming Prize. They also passed Nissan as an industry leading company. Nissan had won its Deming Prize in 1960, and advanced into TQC but had treated it as a superficial cheerleading campaign. Toyota took TQC to heart and began transforming products, processes, and the organization.

In 1969, Bridgestone was striving to rotate the plan-do-check-act cycle, with all employees involved. They called its strategy “hoshin kanri.” One of the early writers on hoshin kanri, Yoshio Kondo saw its essence as the process of fully involving people through practices like catchball. He says:

Why do companies expend so much time and effort on “catchball”? It is because the discussion that takes place among the people taking part at the various different levels of the organization deepens their understanding of the policies and enables them to think about both the “necessity” and “possibility” aspects of the proposed targets. Through this process, companies hope to effect a qualitative change in top-down mandatory targets, turning them into bottom-up voluntary targets. I hardly need to repeat that this is an extremely effective way of motivating people to achieve their targets.

Both Juran and Kondo saw hoshin kanri’s purpose as deploying quality in manufacturing. Juran was more product and process oriented. Kondo emphasized the human side of hoshin kanri.

Behind the scenes, Toyota was enlarging the scope of policy deployment. In addition to quality, Toyota integrated customer satisfaction, productivity, cost, delivery, morale and other factors into strategy that they deployed in the manner described by Juran, They incorporated refinements from hoshin kanri. They approached all their business, corporate citizenship, and other goals through PDCA, scientific thinking, and a culture of learning.

Since Juran’s and Kondo’s writings were published, dozens -- if not hundreds -- of books, lectures, and workshops professing themselves to teach hoshin kanri have followed. In addition to the macro-level concepts, managers need to see the nuts and bolts level of applying it to a business. To choose one example, Tom Jackson’s approach is very practical, using examples and step-by-step guidance. Nested PDCA wheels, A3s, X diagrams, value stream maps, the role of six sigma, problem-solving -- all there. There’s no cookbook for hoshin kanri -- Tom Jackson would be the last to say there is -- but now we have explicit descriptions based on the experience of many Western companies.

I’ve talked about three stops along hoshin kanri’s evolutionary path. From Juran’s focus on product quality to Kondo’s emphasis on people, to having Jackson’s help in understanding and applying tools. By taking them together, while doing some extrapolating and thinking, you should be on your way toward understanding hoshin kanri.

References:

• Joseph Juran, Quality Control and Inspection, Publication L51-94, Industrial College of the Armed Forces. 1951.

• Joseph Juran, Juran on Leadership for Quality: An Executive Handbook, The Free Press, division of Macmillan. 1998.

• Takahiro Fujimoto, The Evolution of a Manufacturing System at Toyota, Oxford University Press. 1999.

• Yoshio Kondo, Hoshin kanri -- a participative way of quality management in Japan, TQM Magazine, American Society for Quality Control, 1998.

• Thomas L. Jackson, Hoshin kanri for the lean enterprise: developing competitive capabilities and managing profit, Productivity Press. 2006.

In business improvement, the small stuff = BIG DEAL

My guest blogger today is Antonio Ferraro. He talks about the benefit of starting small to get big results...

If you’re like many others out there, you’re probably familiar with the phrases “Don’t sweat the small stuff” or “There are bigger rocks to climb.” While in some situations these concepts still ring true, when it comes to business and improvement they are quite the opposite. It tends to be the small things that lead the way to the biggest impact and offer the most valuable changes. If you think about it, it is pretty hard to accomplish big tasks when there are so many small details that need to be resolved.

Accomplishing the small stuff with lean

The concept of lean focuses on eliminating waste while also improving customer value. When implementing lean, many businesses look inward at their practices and processes and search for areas in need of improvement or streamlining. It is in this stage that the brainstorming starts -- how to make processes more efficient while also reducing waste. Many small objectives are put into place in order to save time, money, resources, etc. This is where accomplishing the small stuff will start to make a big difference. In the lean mindset, it really is about implementing minor changes and the minor changes eventually snowball into big changes with larger rewards.

Making a big impact with small changes

To really understand the potential benefits of making small and lean changes to a business practice, let’s discuss an example. The owner of an auto shop is tired of losing valuable employee work time and necessary tools for the job because of tools being routinely misplaced by mechanics. It is common for the mechanics to use a tool for a job and set it down, so others cannot find it when they need it. Mechanics have been complaining about losing up to twenty minutes of work time in search of just one basic tool.

In order to combat this situation, the owner investigates a lean concept known as 5S (a Japanese-derived concept which focuses on maintaining a neat and organized workspace). The shop owner thinks keeping tools in place could help solve the issue of lost production time. It will also help save money by not having to keep ordering duplicate tools.

One of the first 5S tactics employed within the shop is the use of a foam tool organizer, these are often customizable and able to help establish a clear landing location for tools so they are not misplaced. The owner shows employees how it works so they can see how it may make their work easier by keeping tools where they are needed. However, it is important to remember that even though the tactic of using a tool organizer was put into place, it doesn’t mean that it will be completely successful. A very important component of lean is striving for continuous improvement, so the owner and employees agree to try out the organizer, monitor changes in lost work time, and evaluate its success for both employees and the business.

The possibilities are endless

When you really stop and take the time to think about the small changes that you could make in your own life you will be able to take note of the larger payback that will come afterwards. For instance, something little such as flossing your teeth each day will help prevent tooth decay. Eating healthier may help prevent a heart condition. And in the industrial world using something simple such as a foam tool organizer will not only help save lost time looking for tools, but also save the cost of buying extra ones. The small stuff really does make a big deal, and when you start with the small stuff the possibilities are truly endless.

About the author

Antonio Ferraro says, “I believe for positive change to happen, we must actively seek out areas in need of improvement. I strive to provide helpful information about 5S, Six Sigma, Kaizen, and the Lean mindset to create safer and more efficient industrial work environments. An organized, safe, and well-planned workspace leads to increased productivity, quality products and happier employees.” Website: www.creativesafetysupply.com

Long-distance collaboration can spark innovation

My Manufacturing Trend Watch column -- Innovation thrives in digital workspaces -- on Manufacturing Pulse is out, with an answer to bans on telecommuting starting with Yahoo. I'm all in favor of face-to-face meetings. I don't think they always need to happen every day for innovation to grow. With Facebook moving us to daily chats with distant friends (and games), the manufacturing world is growing its own connections in the so-called Cloud.

As I wrote in the article, I keep getting stuck in the Local-Motors website browsing the open-source design projects uploaded by members, and the discussions that create little circles of advisors and collaborators. There's even an offshoot being developed by DARPA, GE, and other partners.

The new Domino's Pack project, winner of the challenge to create the ultimate delivery vehicle, is currently claiming my attention.

There are lots of ways companies can use the cloud. I commented on that a while ago in Choosing online collaboration tools for teams. Posted in 2010, it's bound to be out of date, but the idea is the same.

"Made in ..." campaign not realistic in global economy

I wrote a while ago (Manufacturing Trend Watch on Manufacturing Pulse) about too much focus on "Made in the USA" in products and supply chains. 

My friend Dan McDonnell is VP of Operational Excellence at a global manufacturer of large industrial equipment and similar products. Dan tells us how this company's supply chain strategy reflects the global nature of markets today. 

We are trying to practice a realistic and winning strategy to business growth.

First it recognizes that the biggest growth opportunities in the world over the next decade are not in mature markets but rather in emerging markets. To not try to participate in those markets is a huge opportunity miss. We are living in a global economy, the winners will be the organizations who are the best global traders and operators.

Second, it recognizes that the idea of time and speed is critical and so we have an in-region-for-region strategy. If we have a big market in the US, we prefer to make product in the US for that market and to build a local/regional supply chain around it. If we have a big market opportunity in China we prefer to manufacture in China with a local/regional supply chain around that base.

Third, it recognizes that there needs to be an optimal level of good “buy” or outsource decisions. We are not tending to total vertical integration but high levels of integration. Through this we are recognizing that there are non-core materials, components and assemblies we willingly want to reach out to a strong external supply chain to provide.

Fourth, we do not believe in a uni-dimensional supply chain strategy that is either all local or all low cost region based. Rather, we seek the right mix of local, regional, and global supply around our manufacturing hubs. We want predominately local and regional strategies while recognizing that, depending on commodity and supplier capability and reach, some items are better sourced globally from extremely competitive regions. For example, for some small, light, standard, items with very high labor content, even with the best technologies and processes in the region, there might be low cost regions of supply that are the best competitive choices even with the longer time component of supply and its inherent issues.

In the end common sense, business smarts, and not evangelism should rule the day always.

Dan, thanks for contributing to the debate with some real-world thinking.