Predicting the benefits of “Lean Actions”

In the TPS + 1 ENGINEERING group on LinkedIn, Hela Hassine asked  “How can we predict and quantify the profit of lean actions before implementing them?”

I see three types of what Hela Hassine call “actions”:

  1. For some, you can do a complete discounted cash flow analysis before implementing. Cellularizing a job-shop falls into this category.
  2. For others, you cannot calculate the benefits ahead of time, but you can measure them afterwards. When you improve quality, first you can’t tell ahead of time by how much it will actually improve, and second, you can’t tell how much good this improvement will do to your business. After you have improved quality, you know by how much, and you can also measure the market impact of the improved quality, which is its dominant benefit. There is no way you can justify quality improvement ahead of time through cost-of-quality analysis.
  3. For the rest, the benefits are too diffuse to be measurable. 5S falls is in this category.

This has obvious consequences on implementation sequencing, that are often overlooked. Projects that lend themselves to a-priori justification are easiest to sell to management, and success in such projects gives you the credibility you need to undertake others with less tangible benefits. In other words, you are better off starting with cells than with 5S.

6 comments on “Predicting the benefits of “Lean Actions”

  1. The impact of targeted projects should be quantifiable within certain parts of the P&L (labor costs, materials, etc) more easily than the flow through to the bottom line. The danger is in the limitations that puts on what the real project potentials are.
    As for not starting with 5s, it was never sold as a cost cutting methodology. It is hard, time consuming and sometimes expensive but if done right is the visual manifestation of lean that allows breakthroughs to occur.
    If you haven’t changed the culture, you haven’t laid the ground work to get the smaller projects to stick.

    • How exactly do you propose to change culture?
      As I see it, small projects with high, tangible improvement potential that can be undertaken within the current culture are the groundwork with which you initiate the culture change

  2. Hi Michel,

    One my experiences in this respect is that of a reputable, high-level ops person one day asking me about the benefits of changing the planning approach from a day-to-day, part number level approach focused on generating manufacturing orders, to a period-by-period, family level approach focused on determining takt and verifying capacity. This, as changing the planning approach would mean making some investments in changing the planning system.

    I then asked him whether he would also ask me about the benefits case for the hundreds of thousands of plastified kanban cards that we made to make our pull flow system work (as the planning approach for me was part of the pull flow strategy)…

    In general I think you should ask yourself about the business case at the business/strategy level. Beyond the strategy you should focus on deployment and only ask one question continuously while deploying: we should do it, but can we do it cheaper than the way we think we can deploy it now?

    So get on with making strategy work instead of losing time creatively making irrelevant business cases.

    Bien cordialement,
    Rob

    • You bring up a relevant concern: at what level should you raise the issue of economic justification. Your answer is that it is at the level of business strategy. In general, I agree, but with the caveat that this level changes along your Lean journey.

      At the very beginning, providing it at the level of individual project builds credibility. Two years later, you should be able to get support for projects for which benefits are not easily quantifiable but that are part of the overall strategy.

      Even at the start, justifying a project does not mean justifying every item within it. On its own, spending $10K on a drill press that will have a 10% utilization may not sound like a good idea. It may, however, be necessary as part of a line redesign or cell project with a payback period of three month and net benefits of $1M/year.

      By the way, if you have more than 100,000 Kanbans in circulation, I suspect that is too many and there is a problem with the design of the application… But that is a different discussion.

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