2019

Is Lean Management still relevant in the factory of the future and Industry 4.0 environment?

06/12/19

The industrial revolution and the subsequent steps have repeatedly led to the economy and society having to adapt. How will industry 4.0 impact – and what opportunities will it bring? An article from Yannick Schilly, President and CEO of Altix Consulting Inc.

We live in an incredible and fascinating time! Never before in the history of mankind has the pace of innovation and technological acceleration been faster than today. We are in the midst of the fourth industrial revolution, or industry 4.0. Digitalization and the connectivity of things will profoundly change industry and create completely new dimensions, solutions and opportunities. Robotics and automated systems are becoming intelligent; machine learning and artificial intelligence are no longer nice science fiction ideas or academic concept papers, but the new reality in a fast-paced global manufacturing and supply chain industrial world. Today new factories are being built with the latest of these technologies – not only in advanced economies, but also in emerging industrial countries – for mass production environments. The best example is China.

It took humans thousands of years to go from an agriculture-driven society to an industrial, technical and scientific society. In just 300 years, our world’s population grew from less than 700 million people to 7 billion; that is a 10X development that was supported by technology and innovation. Mass production had to be invented in order to support that development during the second industrial revolution. About 100 years ago, Ford and Taylor, together with the first management consulting firms, invented the principles of scientific management and industrial engineering. In just a little over 100 years, our world went from thousands of factories to millions. Competition became global, and the survival of the fittest concept became a metaphor and a new paradigm shift for the corporate world. In 1982, Peters and Waterman published their best-selling book In Search of Excellence. An updated edition today would have to be called Forced to Excellence.

Why so? Corporate fitness is no longer a nice-to-have, but a must-have. Like athletes and champions, weak companies can’t win in a global permanent ultracompetitive environment; only the strongest will be prepared for changes of the political, economic, technological and social fast-paced evolution. The health level of the organization is measured not only in terms of financial strengths, but also in terms of process maturity, innovation capacity, sales and operational performance, customer orientation, market leadership and brand recognition, people culture and change, and evolution ability. Over the past 100 years, all management tools and methods were designed to reduce costs (sales costs, design costs, production costs, etc.) and time (lead time, delivery times and cycle times), while increasing quality, reliability and product features – quality management systems, production systems, research and development (R&D) architectures and systems, information technology (IT) systems, Lean Management and Six Sigma, to name just a few. Those trends will not stop; they will continue to challenge companies, requiring them to permanently innovate and disrupt not only their competition, but also themselves. The bar continues to be raised!

The factory is becoming digital, automated and smart, partially gaining increased autonomy through massive computing power, machine learning and artificial intelligence. Technology will be a terrific enabler to increase productivity in our manufacturing and supply chain processes and can’t be ignored. If your technology and smart factory roadmap are not yet established, please start; it’s in your own best interest.

Which role do traditional methods and philosophies like Lean Management or Lean Six Sigma play in the factory of the future?

While evolving to Lean 4.0 principles and methods, they will play an even more critical and essential role, as they build the foundations for operational and business excellence. The workforce 4.0 needs to be educated and trained, but also prepared to adopt a lifelong learning and continuous education mind-set; training and education academies or in-house training departments will support that. But beyond preparation, every employee needs to actively participate in corporate performance programs. As a matter of fact, they will enjoy doing that and will get actively involved, as long as the culture and environment are right.

Operational excellence and business excellence ambitions don’t drive up costs, as I sometimes observe executives fearing; they drastically reduce costs, through permanent elimination of waste and by driving continuous improvement. Once you have the best machines and the best manufacturing equipment, you want them to run at 100% efficiency, like a Formula 1 racecar. But this requires that the entire system around them performs at 100% as well; the supply chain provides components on time and in full; maintenance ensures machine availability through perfect monitoring and preventive interventions; people are trained, skilled and reliable and; processes and methods are optimized and reflect high maturity levels.

Best-in-class industrial manufacturers and companies are able to generate return on sales in impressive >20% ranges. Excellent companies are between 10 and 20%, depending on the year, but averaging 15%. Wherever you are today, aim for more, but through fitness programs will sustain. Financial strengths will help invest in the future including modern and smart buildings, innovations and R&D, news technologies, best in class employee training, and M&A.

A great sports coach pushes champions to leave their comfort zone, exposing weaknesses, thus showing the way to fast and sustainable improvements. Qualified third parties can play a critical role in accelerating process and system design and implementation, offering and sharing best practices from best-in-class companies. The best example is my very own experience in 2010, when I started my mission in China for a global German industry champion in the factory automation sector. My company sent me to China to integrate a newly acquired company, with the goal to accelerate the development of the Greater China supply chain and operation footprint, as China was a strategic focus market for future growth. The acquired company was in a very different league and maturity level. Besides new buildings, enterprise resource planning (ERP) implementation, new technology implementation, and product and production transfers, we had to completely transform the company culture, management principles, and performance and management systems. Besides the width and depth of my project roadmap, we decided to implement Lean Management as a philosophy, along with all of the related tools and methods to ensure a sustainable continuous improvement culture. Tackling this alone, relying solely on internal resources, would have been overwhelming, as it required sustained involvement and commitment to training, coaching and education.

“Operational excellence and business excellence ambitions don’t drive up costs, as I sometimes observe executives fearing; they drastically reduce costs, through permanent elimination of waste and by driving continuous improvement.”

We had 1,000 employees in the factory, and Lean is really about involving everyone in the company to drive continuous improvement every single day. My boss at that time recommended a coach and Lean expert with an impressive 30-year track record in successfully turning around poorly performing operations, supply chains and suppliers. The project turned out to be a great success; the Lean expert, Liam C., knew exactly how to push and challenge me and my team; and we were open to learning and embracing his coaching, as we understood that it would equip us professionally for all future challenges. The team embraced it as we took the time to develop a solid narrative and storyline. (People want and need to understand the journey and where the organization is headed.) The project was so successful that the plant is still delivering double-digit annual productivity increases, averaging 15% nearly a decade later. (Just do the math for your operation and estimate what this could mean for your company, in terms of competitiveness.) Our people embraced the Lean culture, and the pride in their eyes was evident when they reported improvements to the executive team. Making each and every person in the company part of the journey and part of the competition will make a huge difference, while a modern production system will help to structure and organize the activities. We transformed a poorly performing company into one of the best performing plants in the entire supply chain network.

In conclusion, outpacing competition is not impossible, but becomes more challenging by the day. Do not wait to embrace new technologies. Be smart and purposeful, and embrace holistic approaches and industrial systems architectures. Invest in employee training and continuous education; drive your operation and business through business excellence programs. Be obsessed about it, because the winner takes it all!

The team performing at a combined 90% performance level will beat the competitor performing at 85% combined performance level. Nowadays the next competitor might not yet be known, but may outpace all others in a matter of a few years (e.g., Amazon). Do not take that risk for your business. Be that champion and disruptor yourself, and aim for 100% or a Six Sigma level at all times!

Like in sports, train to compete and to win – like a champion. As an organization, don’t be afraid to leave the comfort zone. It needs to hurt a little, in order to progress! Many Lean implementations fail. While there are multiple reasons why, leadership commitment and long-term commitment are critical to its success. Finding the right partners with the right experience is essential. Investing in Lean Management is a substantial investment into the future, preparing for long-term health, wealth and organizational fitness. Best of luck with your business transformation!


An article by Yannick Schilly, President and CEO, Altix Consulting Inc.