Introduction

Okay, good morning. My name is Jim McCallum from Glasgow, Scotland, and it’s my pleasure to be with you to kick off your Lean program. I’m really looking forward to working with you over the next few weeks and months.  

Lean started around the mid-1980s. I worked with a company called Coopers and Lybrand, whom you may have heard of. At the time, they were the world’s leading operations consultancy company, and I had been doing business rescue with them.

Right about this time, the UK had a prime minister called Margaret Thatcher. Some of you may remember her. And she took a very dim view of subsidizing industry. And at the time, British industry was being battered by competition from the Far East, particularly Japan, Taiwan, South Korea.

And she said, ‘Sorry guys, you’re big boys now. You’ve got to stand up to that competition yourself’. And of course, that was devastating for British industry at the time. So Coopers and Lybrand brought a team together. They brought a guy over from the US who had experience in Lean, trained up a number of us on how to do it, and the aim was to go into the main Coopers and Lybrand audit clients and really transform them very quickly so they could survive against this competition.

And so we developed a Lean program, which is, although I’ve changed it and developed it over the years, it’s still essentially the same as we did then. And it was hugely successful. We started in the electronics industry, then into engineering. And when we got these companies sorted out, we moved into other areas, food, drink, clothing, textiles. We even moved into banks, insurance companies, and eventually into pharmaceuticals and chemicals.

And my first experience of pharmaceuticals was with a US corporation that had a big plant in England. And they wanted to create world class manufacturing in pharmaceuticals. So we went in, did the same Lean program we’re going to do with you, and it was hugely successful. And as a result, we then rolled that around the world, the US, Caribbean, Europe, all their different plants, to bring them up to world class manufacturing.

So this is a start. We’re going to kick off with the Lean game, or Sticklebrick Game as its also known, and what I’d like to do is take you through a brief introduction.

So what we’ve done is we’ve set up a factory here in this room, and the factory is designed to make this product.

It’s making the product from stickle bricks. Some of you who have young children may be familiar with stickle bricks, and you may ask the question, ‘Hey, Jim, what does stickle bricks have to do with the real life making pharmaceuticals?’ Well, I can tell you that there are lots of parallels. And we’re going to pull out at the end the lessons learned and draw these parallels against real life in the pharmaceutical plant.

It is really practical, and it is realistic, and the core team will remember this as we go forward. Because we’ll be constantly referring back to this session. It really is simple. All you’ve got to do is put five stickle bricks together to form this product. But you’ve just got to think a little bit about what you’re doing.

It’s a team approach, and I’m aware that there are hierarchies in the room. Can we just agree that for the next three and a half hours or so, we have no hierarchies?

We have a group of people as one team trying to keep the customer happy. And the customer in this case is Nick. And Nick is like every other customer. He wants what he wants when he wants it, at the right quality, and at the right cost.

And if we could keep our cell phones off for the duration, that would be really helpful. Thank you very much.

Problem

So, the aim of the Lean game is to demonstrate that Lean is not just a quality improvement program, or a lead time improvement program, or a cost reduction program. It’s actually all of these at the same time.

I’m hoping to demonstrate that during this game. And this reflects what will happen in real life in the plant.

Solution

What we’ll do is I have allocated you each a role in this team.

Now, what I’ve tried to do is allocate you a role that’s as different as I can get from your everyday role to enhance the learning process. And what we’ll do when we have everybody in position, we’ll then just walk it through so that everybody understands where everything is, and so on. 

Then we’ll play the first round in which Nick will ask for batches of product. I’m the truck driver. So I will carry the parts from your outbox at work centre four to the customer. We’ll check how well you’re doing and mark your score at the end of the round here on the flip charts.

We’ll then get you to review the operation as a group, decide what you think you can do to improve the operation, and we’ll note that on the flipchart here. We’ll then ask you to select two of these ideas. You implement just two so we can track the improvements as you go forward. 

And then we’ll play round two. At the end of round two, measure your performance, review the operations, select another two improvements, and so on until we’ve completed five rounds. And then we’ll pull out a lessons learned session at the end to pull the whole thing together. Make sense?

Factory Setup

So what we have are five components that reflect the processes you have in real life.

The five components. The red rectangle is the base. That’s like your active ingredient. We have a white triangle, yellow window, a blue square, and a green disk that represent the processes you have to make your finished product. So these five come together, and our convention for manufacturing them is to say that when the white goes on at work centre one, that becomes subassembly one, S01.

Then the yellow goes on at work centre two, and that becomes subassembly S02. Then the blue goes on at work centre three, becomes subassembly S03, and then the green goes on to be the finished product at work centre four. So that’s the convention we’re using during the course of this game.

For each work centre, we have full instructions, kind of like your SOPs.

So we have instructions which gives a clear drawing of what you’ve got to do, assemble the bits together, what it is you’re doing, an S03 and a green disc coming together to form the finished product. And then we have instructions on the recommended batch size and reorder point.

You’ll find that I try to be as helpful as I can over the course of the game. And to that end, I’ve got some ground rules here that are designed to help you.

Now some teams get a great idea. They’ll buy in the blue and the yellow subassembled. Now, it may be a great idea, but for the purposes of this exercise, let’s just stick to the sequence: white, yellow, blue, and green.

Because that way we keep consistency, and I can pull out stronger lessons learned at the end. So that’s the first ground rule.

The second one is that just occasionally you deliver parts to the customer that aren’t right. They’re rejects. If that happens, we’ll place the rejects on the QC table, and those of you who are playing the part of QC, quality control, will have to look at the reject, identify what the problem is, and then go to the operator that caused the problem and show them what the mistake is so that they can correct it in future.

All the good parts you deliver will go back to the stores and be broken down to keep the game going, because we only have a limited number of stickle bricks. So, the good parts get broken down in the stores. Any rejects, should there be any, have to be looked at by the QC people and resolved by the operators. You don’t break them down and recycle them.

And then lastly, this ground rule is that there are two finished products here which are perfect. And they will go to the two people playing a part in QC. You should hold them as your reference points. Sometimes what happens is the production guys put you under pressure because they’ve got to deliver batches when required.

So they say, ‘Let’s add them in. We’ll give you more to replace them.’

The QC people should not allow that to happen. They should hang on to these, because they are the only references you have. So don’t let the production guys persuade you to give them up to make up a batch. Any questions? You all happy with that?

Right, so let me allocate the roles and the team. 

Game Round 1

I think we’re ready to start, Nick. So, whenever you’re ready call for the first batch.

(Nick) Okay, five please.

(Jim) Five. One, two, three, four, five. I’ve got five. So we need five S03s and five green discs. And I’ve checked the five, and the five are all good.

So five good ones. That’s a good start. So these come back to the stores.

Where’s the Line Feeders? Colin needs eight S02s and eight blue squares.

Did you get five? Yeah. Eight S02s and eight blue squares to Colin. Meanwhile, you’ve got to start making because David’s going to be looking for S01s.

David’s looking for eight S01s and eight yellow windows.

Right. We’ve got five, Nick.

One reject. Four good ones. 
Right. one reject.

Okay. So let’s sort out what’s wrong here QC.

(Colin) Eight S02s and eight blue squares.

(Jim) Are you a line feeder?

Yes.

(Nick) I want seven, please.

(Jim) Seven? Sorry. We don’t have any.

So that’s a zero delivery.

What’s happened to our production? We need S03s.

Where’s the line feeders? We need S03s.

We’re building up big back orders here, guys.

You’re way behind. What’s the total backlog now, Nick?

Thirty backlogs. We’re way behind. Five, one, two, three, four. We only get four, Nick. Okay.

So that’s it, Nick?

Stop. Stop, guys. Okay?

All right. So let’s see how you did in terms of your performance. 

How many times did the team deliver what we asked for? 

Three times, yeah? So delivery performance is thirty percent. 

And the quality performance is twenty percent. Quality was pretty much a disaster, frankly.

Now what we have here is raw material, work in progress and finished products. So raw material, How many red blocks do you have in store there?

Zero. Oh, there’s a thing. So there’s no raw material.

Finished goods, we have three finished goods. So that means then we have seventy-nine reds. We’re only counting the red blocks. So we have seventy-nine reds in play. So that means there are seventy-six in work in progress.

In order to calculate our manufacturing lead time, it’s directly proportional to the work in progress.

So I’m going to divide the work in progress figure by five. It gives us a near enough estimate of a lead time. So if I divide seventy-six by five, I get fifteen point two. So that’s the average number of minutes it’s taking from releasing a red in the stores to go through the four work centres and be delivered to the customer.

Now, I have a lead time target here. But you know, I think we’ll just leave it there for the moment. There are times when you want stretch targets. But if you have a target that’s really too far out, it just becomes a turnoff. And I think in this case, our target is way ahead of where you’ve got to. So let’s just leave it on the table and see how close we get towards the end of the game.

Backorders, Nick. How many backorders do we have? Fifty.

Fifty backorders.

Rework. We measure as low, medium or high. I think in this case it was actually very high. I mean, it was pretty disastrous towards the end.

In terms of the number of staff we’ve got? Fourteen staff to start, and we have six tables.

So there you go. Do you think you can do better?

Do you think you can do better?

I’m sure you can. But just before we start talking about what we might do, let me just check the other aspect of your performance, which is the costs that you’ve created in this factory.

How many poor quality items did we get, Nick?

Twenty-three bad quality. Now that was the bad quality that came through to the customer. So it really costs you a lot when that happens. So in this case, it costs you two hundred dollars per unit. You have twenty-three of them, so that’s four thousand six hundred dollars. 

Backorders? We had fifty backorders. Fifty back orders at forty dollars a piece is two thousand dollars. I think that’s right.

Inventory, we have seventy-nine red blocks. We’re only counting the reds. So seventy-nine red blocks at twenty dollars a piece is fifteen hundred and eighty dollars

Space, we have six tables in place. So that’s twenty-four hundred dollars.

And we have fourteen staff, which is twenty-eight hundred dollars.

So the total of that, Nick, thirteen three eighty.

And you actually produced only sixteen good units over the course of the game.

So what’s thirteen three eighty divided by sixteen, Nick?

(Nick) Eight three six.

(Jim) So eight three six dollars per unit.

And what is the productivity? So that’s sixteen divided by fourteen. One point one. Okay.

So our productivity is one point one units per person.

And our cost, what it’s costing you. And these are the main cost drivers of the business. What it’s costing you is eight hundred and thirty-six dollars per unit. 

Now, when we started using you as a supplier, the agreement was that we would pay you the same price as we pay our existing supplier. Now, our existing supplier’s in Japan. Oops, what’s this, Nick?

What’s this? We have a fax from Japan confirming the price we’re paying. So this is the price we pay the Japanese. And this is the price we’re paying you. (Holds up the fax).

Seventy dollars a unit. And your cost is eight hundred and thirty-six dollars a unit. At the moment, therefore, you’re losing seven hundred and sixty-six dollars a unit. Can you do better?

(Group) Yes.

(Jim) Of course. You’re absolutely right, yeah. So let’s see what we can do better. So we’ll gather the ideas from you on … where’s Fiona? Fiona, what do you think we could do to improve the operation of this factory?

(Jim Voiceover) Well, at the end of round one quality was a disaster and costs were sky high. How can the Japanese competitor sell so cheaply and still make a profit?

The team here had some good ideas for improvement and decided to redo the layout and introduce operator training.

(Jim) Okay, so you should have ten reds and ten white. You’ve already preassembled them.

So we now have a new layout, and the operators have been trained by the quality team, so we’re now ready to start round two.

Game Round 2

Five? We’ve got five.

Okay. Five good ones. We’re off to a good start.

Have all these been approved, Jane?

(Jane) They’re all good to go.

(Jim) Okay. Good stuff.

Watch the blues, please, quality.

This is really a lot better this time.

(Nick) Six, please.

(Jim) Six? Okay. We got six, Nick.

Six are good. Another good batch. We’re doing very well here.

Okay. So just get back up to your original stock levels. That’s you. You’re okay, Colin.

Right. Another ten reds here. That’s about it. Okay. That’s it.

Okay. That was really good, guys. Well done. Really good.

Now what about that for a result?

Delivery, one hundred percent. Quality, one hundred percent. Yeah!

One hundred percent one hundred percent on the second round?

That is amazing. Very, very few teams ever hit that.

So look what’s happened now.

We’ve now reduced our manufacturing lead time from fifteen minutes to ten minutes, which is a big, big improvement. That’s part of the improvement we achieved from getting the tables in line.

So what does that mean in terms of cost? It means there’s no cost there, no cost here. We’ve still got fifteen hundred and eighty, twenty-four hundred. And we’ve still got twenty-eight hundred. So look what’s happened now.

Can you see that, you guys, at the back? We’ve now increased our productivity from one point one units per person to four point seven. We’ve increased the productivity four times already. And our costs have come down from eight thirty-six dollars a unit to one hundred and three 

Oops, what’s this? A fax from Japan? What are these guys saying now?

They’ve heard there’s another supplier, so they’re just confirming where they’re at.

Nothing if not consistent, the Japanese. They’re still at seventy dollars. So that means we’re still paying you seventy dollars. And your costs are one hundred and three dollars. So you’re now losing thirty-three dollars a unit. You’re still losing. So what can we do to improve the operations?

One of the things I noticed looking at it was the batch size was causing difficulties. The batch size at the front end is ten, then it goes to eight, then it goes to five, then it goes to five. It would be much easier if we had a standard batch size all the way through. Is that right? So we could make it a uniform batch size of say five. And that would then mean that we have a nice even flow running through, which would make it a lot better. Yeah?

Now the flow was interrupted from time to time. So that indicates there was some sort of bottleneck. How would we find out where the bottleneck is?

How would we find out exactly where the bottleneck is?

(Group) Where the inventory stacks up?

(Jim) That’s true. Inventory gives you a good indication of where the bottleneck is. Because at the bottleneck, the inventory packs up in front of it. Yeah? However how would we find out exactly where the bottleneck is?

(Group) Time it?

(Jim) So timing is right. So we should time the operations. We could get our industrial engineer, Fiona, to time the operations. And that would give us an accurate measure of what the cycle time is at each operation. And it would then identify where the bottleneck is. Does that make sense?

What else could we do to make the operator’s life easier? Is there anything else we could do?

(Group) Align the components.

(Jim) Absolutely right. What was interesting was that, certainly at operations two and three, which I happened to see, the line feeders were just putting the components down. Whereas if these components were pre-orientated to be correct, then the operator would just have to pick it up and put it on. Dead easy. So that sounds like a great idea.

(Jim Voiceover) Every team plays the game differently.

In this game it was extremely unusual that the team mastered both the delivery and quality issues in round two.

Normally we would expect to still have some quality problems in round two, and sometimes even into round three before they get it right. So for that reason, this game is not typical of the majority of games. 

Okay are we all set? Because the tables in this particular game were so long, it gave the team the opportunity to half the number of tables at this stage. This again is very unusual.

In most games the tables would be smaller, and the team would probably not have taken any tables out by this stage.

In addition, in this game, the team also cut staff numbers. Again, this is very unusual at this stage in the game.

You will note that Gail, who was the planner, the nearest thing to a boss here, had no hesitation about redeploying some staff to reduce costs.

So the team has now decided to introduce three improvements. To pre-orientate the parts for the operators, to go for a uniform batch size of five units, and to time the operations.

Let’s see how they get on in round three. 

Game Round 3

(Jim) I think we’re all set Nick. Just whenever you’re ready.

(Nick) I’ll take five.

(Jim) Got five. Five are good.

This looks a lot better. Nice and calm.

Okay so come back to your stock levels. And good. Well done. That was really good guys. Really, really good So what we have this time, of course, is one hundred percent, one hundred percent.

So forty-five plus five is fifty, so that leaves twenty nine. So that means our lead time is now five point eight minutes. How about that? 

Lead time has now gone from fifteen minutes, down to ten minutes, now down to five minutes. That’s a huge reduction in lead time. It’s really brilliant.

So our back orders are now zero. Rework zero. We now have twelve people, and we now have three tables. So let’s look at what this means for our costs.

Zero, zero. We still have fifteen hundred and eighty. Three tables. So that’s twelve hundred dollars. Twelve people. And that’s twenty-four hundred. 

Five one eighty divided by sixty-six? That’s seventy-eight dollars per unit.

So there you go. We’ve increased our productivity again up to five point five units per person. 

Oops, what’s this? Fax from Japan.

Consistency is the watchword in Japan. Seventy dollars How can they do it so cheap and make money? That’s an amazing thing, isn’t it? However, you’re now down to seventy-eight dollars. So you’re only losing eight dollars a unit.

So can we do better do you think? Can we do better? Yes. Okay good. That’s a good result so far. So let’s just gather over here and see what we can do to improve things even more. 

(Jim Voiceover) The team maintained the perfect delivery and quality from round two, which was great. This team are doing particularly well at this stage.

(Jim) So Fiona timed the operations. And what you said to me is work centre one took three seconds on average, work centre two took four seconds on average, work centre three took five seconds, and work centre four took three seconds. Okay?

So what does that tell you about the capability of the factory? Given that information on the times for each operation. What does that tell you about the capability of this factory in terms of making product?

So how many is that per minute? Twelve.

So that means the factory can produce twelve per minute.

Twelve per minute. So why is it important to know that? Why is it important?

For planning, yeah?

For costing, yeah. Any other reason?

Why is it important to know the capability of the factory?

Customer!! Someone said ‘customer’. Great. Yeah, exactly.

So let’s see how it compares against the customer demand rate. So we know what the customer demand rate is? From our planner? Do we know what it is? No, it’s not five.

What? So we haven’t timed how long that is? Oh, no. Can you work it out?

So from the chart, we’ll get sixty-six in total. You’re right, Colin. There’s sixty-six. In what timescale?

Any ideas on timescale?

(Group) Ten minutes?

Ten minutes is right, yeah. So that gives you an average customer demand rate of?

Six point six. That’s right. So your customer demand rate is six point six per minute.

So you can see here that the factory is capable, well capable, of meeting the customer demand rate. And we saw that actually in that last round, because you were building up stocks. Okay?

Good. Anything else that could help you improve the operation of the factory? You can still readdress any of them. You could change the layout again. You can reallocate staff if you want.

I’d like to see you reducing some of the stocks?

Reduce stocks.

Is there anything else that would help you to get this right? What else would help you?

Well, you could reallocate staff, that’s for sure, yeah.

Right, you’re free to do that. 

What happened actually when I was observing, you had started with a batch size of five and you were working with a batch size of five. At times that broke down, and there was only one passing through from place to place. Now, if we thought about using a batch size of one, what’s the benefits of a batch size of one?

Mmm. That’s true. So yeah. That’s right. Any other benefits of a batch size of one?

Any other benefits you get?

(Group) I don’t have to call for the things.

(Jim) Continuous flow. That’s right. Any other?

(Group) Less work in progress.

(Jim) Absolutely. A lot less work in progress. Anything else?

(Group) You see errors in more easily.

(Jim) You absolutely see errors right away. Okay. 

What’s the downside of a batch size of one then?

(Nick) A fault immediately stops the whole system?

(Jim) Yep. Just the point. So you have to get it right every time in order to make it happen. But you’re doing that.

So what do you say? We could actually move to a batch size of one, really, couldn’t we? Because that’s what was happening for a lot of the game. So if we change that to one, then that would be a really good move, because that would allow you to, as Nick says, to get rid of some stock, reduce your work in progress, etcetera. Move towards continuous flow. Ideal.

What else could we do to help you?

(Group) Pre-orientate the components earlier?

(Jim) That’s a good point. So instead of just the line feeders pre orientating, we could get the stores to pre orientate the parts to help get them right. So in other words, what we’re saying is our support functions can actually contribute to the production area by synchronizing what they do with production.

(Group) We could reduce more people.

(Jim) Well, we need Gail to address that. So anyway, what else can I give you? What else can you do to improve the operation of the factory? What else would help you?

(Group discussion)

(Jim) So if you had a customer forecast, that would help you? Is that what you mean? Yes. Okay, good stuff. That’s a great idea. So we’ll put a customer forecast in place.

(Jim Voiceover) The team now understand their capability in relation to customer demand rate.

In addition, they have reduced their tables and staff again.

They have also decided to reduce their inventory by taking some red bricks out of the game.

We will now give them a customer forecast as requested and they have also decided to reduce the batch size to one.

So let’s see how they get on in round four.

Game Round 4

(Nick) Okay. I’ll take eight. Next order will be four.

(Jim) Okay. Eight are good. Nick.

(Jim to Fiona) Can you just do a quick check on the times to see if there’s any difference?

(Nick) The next order will be eleven.

(Jim) Four are good, Nick. Okay.

Seven are good Nick.

Okay. Well done guys. That was a really good round.

Excellent job. Well done.

So what have you got here? One in and one out. One in and one out. Okay.

Right. So what we have is one hundred percent one hundred percent again. This is absolutely amazing. You got lead time down to zero point eight of a minute. Really fantastic.

No back orders. No rework.

So if we look at the cost for that. Zero, zero. We’ve got forty reds left. That’s eight hundred dollars We’ve got space. It’s two tables at eight hundred dollars. And we’ve got nine staff, which is eighteen hundred dollars So that’s a total of thirty-four hundred dollars divided by sixty-six. Fifty-two each.

And sixty-six units divided by nine people is seven point three.

Look at this. Our productivity is now up to seven point three units per person. Real big leap. And our costs are down to fifty-two dollars per unit. Oops, what’s this? Fax again from Japan?

No, still consistent at seventy dollars a unit. So you’re now making money guys! 

(Jim Voiceover) Again the team has maintained perfect delivery and quality which is really great. 

(Jim) Last round, I’m going to introduce a new concept to you in this last round.

So this last round is your last chance to take as many stickle bricks out as you want, people out, tables out, etc. How good can you be? How good can you really, really be? Okay? That’s the question.

Can you gather round just to demonstrate what we’re going to do here?

We’re going to introduce a new concept into the group. It’s called Kanban. It’s the Japanese word for signal. And a lot of these principles that we’re dealing with here started life in Japan. 

Where do you put your first assembly? Is it going here? Between the two of you? So what we’re going to do is we’re going to put a square on the table, a red square on the table, and that’s your Kanban. That’s the signal of whether to make or not make. So if there’s one in that square, you stop because it’s clearly not required.

If that square is empty it means you make one and fill it. So if the Kanban square is filled, stop. If empty, you make another one and fill it. Okay? David where do you put yours?

(Jim Voiceover) The team have now reduced everything to the minimum they are happy with. I’ve introduced Kanbans, so let’s see how they get on in round five. 

Game Round 5

(Jim) So okay, guys. Let’s see what you can do this time.

(Nick) Next order will be for eight. 

(Jim) Eight. Okay. So I’ll take eight onto my truck. Four six seven eight.

So alright. Remember, hundred percent, hundred percent. No pressure on you.

Remember the rules of the Kanban. If there’s one there, you stop.

Really good guys. Well well done. Very well done. Wonder if we’re close to a record here.

One hundred percent, one hundred percent. You’ve three in work in progress, okay? And you have eight finished goods. And we have thirty in total, so there must be nineteen somewhere.

That’s you got a lead time of zero point six. Remember we, at the beginning, when we had fifteen minutes, we said, ‘I can’t give you the target because it’s just way too far ahead’. You can’t even dream of what it is. Let’s just look at what that target was, and just see if you’ve actually achieved it. 

(Jim opens envelope) Because at the time, this was the target, a lead time of less than one minute.

And so you’ve achieved that. Well done, guys. Really good job.

It didn’t look like it when you had fifteen minutes, I have to say. But that was great. We have zeros there. We’re now down to five people, and we’re down to one table.

So if we look at our costs, zero, zero. We’re now down to thirty reds, so six hundred dollars. Space is one table, so that’s four hundred dollars. And staff is five, is one thousand dollars So that’s two thousand in total divided by sixty-six. Thirty dollars per unit. Wow, that’s a terrific score. 

What’s sixty-six divided by five? Thirteen point two.

So our productivity has gone from one point one units per person to thirteen point two units per person. That’s what? Pretty much twelve times higher, isn’t it?

Twelve times greater productivity. And our costs are down to thirty dollars a unit.

And the price that we’re paying you is seventy dollars Still the same.

So you’re now making forty dollars a unit. It’s a good profit. That’s how they get it so cheap.

(Jim Voiceover) The team did really well in this round. A final lead time of zero point six minutes and a productivity improvement of more than ten times compared with round one are great results.

The final cost of thirty dollars is excellent.

I regard a final cost of less than fifty-five dollars is good, less than forty-five dollars is very good, and less than thirty-five dollars is excellent.

So now let’s look at the lessons learned presentation.

Lessons Learned Presentation

Did you enjoy that? Yes. Good stuff.

So let’s look at the lessons learned that we’ve got from this game. And we’ll try to draw the parallels with real life. So what we have here is the first lesson learned is this. 

Over the whole game, the customer demand remained constant. It didn’t change. It averaged six point six units per minute for the whole game. All five rounds. Yet look at the difference. How you handled that between the first round and the last round. The first round, you had massive inventories, absolute terrible quality, poor delivery record, costs that were sky high.

Here’s the cost, eight thirty six dollars. And by the end, you had very, very little inventory, perfect quality, perfect delivery, and cost right inside the target area. Really, really good performance.

And yet, that was it. The customer demand rate remained the same.

So how did we achieve that?

First thing we did is we improved responsiveness. That’s our ability to respond to customer changes and customer demand. And we did that by focusing on our value adding activities. Now let me introduce value adding as a concept to you because we’re going to spend quite a bit of time talking about this later today and over the next few weeks.

Value adding is defined as changing the raw material closer towards what the customer is paying for. So in this case, the red sickle brick is the basic raw material. So the only steps that added value were putting the white on, then putting the yellow on, then the blue, then the green. There were only four value adding steps. Everything else was non-value adding. None of the waiting, the moving, checking. None of that added value.

And so to improve our responsiveness, we really eliminated most of the non-value adds, the waiting, moving, storing, checking as we’ve got up here, and focused on the value adding activities.

We re-layed out the facility, which made a huge difference. And that’s not unusual. Many, many times in real life we go in and we re-lay out the facility because departments are in the wrong place. And we have to do that sometimes.

The Kanban got our flow moving towards the continuous flow model that Colin mentioned earlier. And so we got our inventories down. And when inventories come down, our working capital comes down. So that gives us our first Lean objective for our work program.

First one is to minimize throughput time.

Minimizing throughput time is our first Lean objective we have in all projects. And that improves our responsiveness, reduces our lead time, reduces our inventories.

In a non-manufacturing process such as quality or invoicing or some of our admin processes, the value adding is defined the same way, but it’s an information factory you’re looking at. 

So in real life, if you’re making pharmaceuticals, there’s a material flow. And here we had the material flow, reds running all the way through.

In a non-manufacturing process, what we have is basic information, which is analogous to the red sickle brick. And that information is then moved through the process. And value adding on the information is gathering information for the first time and processing it for the first time.

The next lesson was we dramatically improved productivity from one point one units per person to thirteen point two. Wow. That sure is a big change. We did that by focusing on the rate limiting step, making sure that we improved the effectiveness of that rate limiting step, and we also moved to create this continuous flow. Now Lean is always challenging you. Why isn’t the batch size one? That’s a challenge that Lean always has. Why isn’t the batch size one?

And in this case, we were able to move towards a batch size of one. Sometimes it’s not always possible because of certain processes that demand accumulation. Heat treatment in engineering, for example, usually only works if there’s a bigger batch in it. And some of your processes are the same. You need bigger batches. But the challenge is always to minimize that batch size and, if possible, move towards continuous flow.

We got the right measures of performance in here. We started measuring. Fiona got the times right. So we were able to establish the times. In real life, we use a measure called OAE, Overall Asset Effectiveness. And that’s a real harsh measure of how productive you are in your key assets. And we’ll be seeing that as we work with the core team over the course of today and tomorrow.

And of course, we got the demand / supply relationship right. We knew where we were on that, so it worked really well. 

So that gives us our second Lean objective, maximize throughput rates. So we identified where our blockage was, we proved the effectiveness of it, and we were then able to dramatically improve our productivity and improve our throughput rate. And of course, by improving our throughput rate, getting more throughput for less resource, we were able to reduce unit costs. 

Third one is we improved our quality.

Now this improved dramatically. The first round was a disaster. It’s amongst one of the worst I’ve ever seen, frankly. It was really bad.

But how did we do that? First of all, we got the operators trained properly on making sure we get the stickle bricks right. Now, we had four really bright people playing the part of operators, and it took them a while to learn how to get one stickle brick on top of the other and get it right first time, every time.

That doesn’t compare to the processes we’ve got back in the plant. These processes are much more complex than putting one stickle brick on top of another. We grossly underestimate the amount of training we need to get these processes right first time. 

So we spent time getting our processes under control. We pre orientated the parts so that we could eventually just lift them and put them on.

The material was arriving defect free in other words. It was pre oriented. It was the right way. And of course, if you’re going to automate a process then the trick is to simplify it to that level before you automate. If we had introduced automation at the first round, we’d have conveyors going all over the place. Automating in the last round, where you’ve got a simple process, it would become pretty much a pick and place robot could have done that.

That’s where automation comes in. Simplify first and then automate. And of course, you remember at the first round it was total chaos, everybody running around. I was shouting five S03s, five green disks, etc.

Last round, quiet, organized, really, really effective, encouraging environment for everybody to do a quality job. And so that gives us a third lean objective that we have on every Lean job: get it right first time.

And all of our Lean projects follow these three Lean objectives. These are the three fundamental objectives that we have on every Lean project.

Next lesson, well, in fact, in some games we introduce a different disc. Instead of the green disc, we introduce a red disc to see how well you cope with that. We didn’t actually do that this time. But in terms of flexibility, we achieve flexibility in real life by reducing changeover times. And that’s going to be a key part of the work we’re going to do with the core team to reduce our changeover times on the major items of equipment.

We improved our people, and our organization. We did that by having clear roles and responsibilities. Gradually it became clear what we were doing.

Our support functions became synchronized, so the line feeders were pre-orientating the parts. And then eventually there was a move towards the stores, pre-orientating the parts so that we had the support functions actually synchronized with production. And that also is a key element. And so it becomes one of our key enablers on our Lean projects.

We have, against these objectives, we have a series of key enablers.

And for the key enablers, first of all, we synchronize support functions.

And in your case, the main support function that we will be synchronizing is the QAQC support function. We’ll spend quite a bit of time working with you on that, okay?

We improved our communications with our Kanban because we no longer needed somebody to say stop, speed up, no slow down, no stop, or we’ve got enough. Because the Kanban actually told you that. So the communications became much clearer through the chain.

Finally, the organization structure became much, much simpler compared to what it was. So we have the other two key enablers: planning and scheduling, and what we call a Lean organization.

Next area was costs. Now look at this This is remarkable.

We went from eight thirty-six dollars a unit to thirty dollars. Now, you could argue and say, ‘Well, hang on a minute, Jim. That first round is artificial’.

I don’t agree with that. But even if you take the first round out, you still went from one hundred and three dollars down to thirty. It’s still a huge improvement. But that first round is not artificial.

Many, many companies that I go into have operations at different corners of the factory. All trying to feed into each other. It’s not that unusual. What we often do is we take these different departments and put them into cells or flow lines where we can get the benefit of continuous flow. Where possible, we do that.

And so that’s part of the move towards improving our costs and improving our productivity.

And of course, by improving productivity, you get the reduced unit costs.

If you work out what your unit costs were, thirty dollars a unit is an awful lot cheaper than eight thirty six. And what we need to do in this business is reduce our unit cost because we’ve got more and more competition coming in on us. We’ve got to get these unit costs down so that we can fend off the competition. Kind of like what I said to you before back in the days when we were working with the electronics and engineering companies. Really getting their costs down. Really getting their productivity up so they could beat off the competition from the Far East. And it’s just the same message today. It hasn’t really changed.

And of course, you can apply exactly the same principles in your other business areas. The non-manufacturing areas. You do exactly the same principles. It’s the same way. Except the value adding is defined slightly differently. Other than that, it’s the same.

And then lastly, we have a strategic planning capability.

At the first round, we didn’t know what we were doing really, it was all over the place. But in the last round, we knew exactly how much we could make. Jane was sitting at the end. She knew how many had still to go.

In that case, in real life, what we would have done is gone out and got another customer in to bring in more business because we could have done it. We knew what our strategic capability was as a factory. And that mirrors real life.

So we had a much clearer view of our competitive strengths, and we dramatically improved our profitability.

Where we had our value adds in the stickle brick game as a white, yellow, blue, and green, our value adds in real life are mixing, filling, labelling, and packing. These are the four operations that add value.

So that’s the main lessons learned.

So let me answer the question that you haven’t asked. I know you want to know the answer, but you haven’t asked it yet. So let me answer the question you haven’t asked.

And that is, ‘Jim, what do these letters stand for above the columns? They’ve been there right from the start’.

I A U C E. What do these letters stand for?

The Path to Excellence

What they stand for is our Path to Excellence. They stand for Innocence, Awareness, Understanding, Competence and Excellence.

Innocence.

Innocence at the beginning. Mark, are you happy? Oh yeah. David, are you happy? Yeah. Colin? Yeah. Jane? Yeah. Everybody was happy. Quality? Yeah. They were happy. Everybody was happy. Total innocence.

And then gradually, as we moved along. Oh, hang on a sec, these stickle bricks are different on the opposite sides. We became aware of what was required. Then came an understanding of what we were trying to do. Get our deliveries really right. Get our lead times down, etcetera. And then by round four, you’re really working highly competently. And then round five. That’s what we really mean by excellence.

Now, the problem you have is, if you ask most consultants, what does excellence mean, they’ll say, well, it means the best quality, it means the lowest cost, best deliveries, etc. That doesn’t mean anything.

What I have is a series of benchmarks that tell you what excellence really means. So let me just go through them for you.

The first one we have is our responsiveness.

We measure your excellence of responsiveness as a ratio. That’s the ratio between the manufacturing lead time against the actual value adding time.

Now you remember when Fiona did the timing. She timed the operations as, at the time when she did it, as three, four, five and three seconds.

So that’s a total of seven, twelve, fifteen seconds.

So the only value adding time was fifteen seconds.

It was always fifteen seconds. Even in round one it was fifteen seconds. But you just couldn’t see it because of all the chaos. And what we did was, if we take the ratio lead time to fifteen seconds, here we have lead time in the first round as fifteen point two minutes.

So that ratio of fifteen point two minutes compared with fifteen seconds value add is more than sixty times.

And what are we saying here? Innocence is around fifty times.

So you were really innocent. You had a ratio of sixty there. By round five you get to zero point six of a minute. That’s thirty-six seconds.

Compared to fifteen seconds value adding, it’s something like two point five. Well below the less than five times we’re talking about here.

So that’s what we mean by excellence. That’s what I mean by excellence. And that’s what I want you to think about as excellence. Trying to get that ratio down towards less than five times the value adding time. 
In terms of OAE, we measure this OAE. It’s a really harsh measure of productivity.

Some of you may have heard of OEE, which is a different measure based on time. OAE is based on output and is a much harsher measure.

OAE is the proportion of the total available time that your equipment is running productively. And in this case, what we’re saying is we really want it up towards the eighty percent mark. In order to get that, you’ve got to cut out a lot of the areas where it’s not running productively. Things like changeover time. So we dramatically reduce our changeover time. Things like stoppages. We’ll show you how to reduce the stoppages on lines.

In reliability we’re really not interested in being better than five percent or two percent or even one percent. We’re really looking for defect rates in single figures per million transactions. So we’re really talking about Six Sigma here. That’s what we’re looking for. And by getting things right first time and managing the processes better, then you’re really capable of improving the reliability to that sort of level.

In terms of flexibility, what we’re really looking for is trying to get at least ninety five percent of our changeovers done in less than thirty minutes using the operators. We don’t need technicians. We don’t need maintenance guys. We’re trying to get the operators to do the changeover in less than thirty minutes.

Customer service levels. Nobody’s going to argue with that. We’re looking at better than ninety-nine percent on time by volume and line item.

And lastly, stock turns. Stock turns is a ratio of cost of sales to inventory.

And what we’re really looking for is trying to get into double fingers.

Most industries we’re able to get that. In your industry, it becomes more difficult for a number of reasons. But at the moment you’re probably around here somewhere. (Indicates left of centre).

So in fact, if we look at that spectrum and try to plot your position on it, because you’re entitled to ask me, if I come into your business and say I think you can do better, you’re entitled to ask me, on what basis are you saying we can do better? And that’s the basis I look at. As I look at that basis, I would assess you, I can see that in some areas you’ll be better than others. So it’ll be a sort of wavy line through there.

Where do you think you stand on the spectrum? It’s probably somewhere around maybe the centre, maybe left of centre perhaps.

The job we have as a core team is to develop changes in the business using Lean principles in order to move you right up to that right hand side of the spectrum. To get as close as we can get to this area. And that’s what the job of the core team will be. To transform the business. We’ve done it elsewhere. We can do it here as well.

Okay, that finishes the formal part of the session.

I really hope you enjoyed it. It has actually been a real pleasure working with you because your results have been tremendous. And I really appreciate everything that you put into this. Because the more you put in, the more you get out of it.

And so this afternoon, after lunch, the core team and myself will be working together, and then we’ll give you feedback on a regular basis.

For overseas visitors, I hope you enjoyed it and learned something from this that you can take back to your respective organizations.

That finishes the formal session, so thank you very much indeed. Well done to you all.