In business, going lean has been all the rage for the past two decades.  I’m going to challenge the status quo, and identify potential pitfalls in the school of Lean Management.  So what is the goal of lean thinking?  Variation reduction & defect elimination by identifying and eliminating waste lies at the forefront.

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What are the wastes lean thinking wants us to unearth and eliminate?

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Sounds great, right?  In theory, because these inefficiencies are eliminated, the cost of doing business decreases, driving profits higher.  The extra moolah can be re-allocated to other functions of the business, i.e. R&D, or passed along to shareholders in the form of dividends and customers in the form of reduced costs.

There are countless benefits in applying lean concepts to your organization and life.  Some silly everyday personal examples include:

  • Finding the best route to work to minimize commute time and costs (T – Transportation)
  • Having more by owning less – avoiding clutter and carrying costs (I – Inventory)
  • Calling and ordering food ahead of meal time (W – Waiting)

Unfortunately, it’s not all rainbows and unicorns.

The hidden cost of lean practices lies in the lack of ability to pivot on a dime in a tumultuous and inter-connected world.  With major companies going lean to bolster the bottom line for the next earnings beat against guidance, and many following suit, thus creating a supply chain with less buffers in each individual node, should lean management be reconsidered?

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Imagine a whole chain of these nodes (companies) for Widget X:

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Notice how every single node brings their own process risks to the party.

As more companies shift towards lean thinking for their own processes, the potential risk of disruption from an end to end viewpoint will increase.  I believe as more individual nodes move towards lean thinking, the probability of a disruption will increase.  The star represents a bottleneck wedged into the supply chain caused by a disruption to that node.  Because that node is engaged in lean practices, the organization will then have less of a buffer in times of distress.  The nodes downstream (towards the right to the final customer) will feel this, as one of their suppliers will be out of commission for the next foreseeable future.  Upstream, raw material suppliers may end up planning for too much inventory, as the starred node has not been up and running.

The issues may stem from the following:

  1. Fragmented supply chains in a globalized world [1] – Through globalization, value added activities are now divvied up by the core competencies among the nodes.  These fragmented supply chains end up becoming “brittle” which means a disruption has a greater potential to impact critical operations that will affect everyone, including the final customer.  i.e. Ordering a part only to have it back ordered for weeks because the manufacturing process is made to order (lean), does not keep enough safety stock (lean), does business with only one supplier in the name of lean, etc.
  2. “Mis-conception of fashionable paradigms” [2] – Lean Thinking should not be synonymous with cost cutting, but rather “adding value and stream lining a process”. [2, 407]  Remember the definition at the beginning of the post?  “Identifying and eliminating waste” can be easily misinterpreted.  The bottom line may have increased this quarter or year, but what about the potential cost of re-work, loss of goodwill, loss of public trust, and decreased safety levels that could arise from an obsession with cost-cutting?

What Can We Do?

Auditing not only your own organization’s processes, but your suppliers’ processes also  will illuminate potential risks that can impact your daily operations.  Take McDonald’s, KFC’s, Starbucks’, and Pizza Hut’s ex-meat supplier, Husi, who recycled expired meat and repackaged them for resale with a new expiration date.  Despite periodic audits, Husi still engaged in malpractice and negligence and potentially could be still doing it today if not for a few brave whistle-blowers. [4]  How do you bounce back from such an event where your main supplier goes down, which is going to happen more often due to companies going lean?  In business, having a cushion is not always a bad thing; a variation of this business continuity plan (BCP) may help create such a buffer.

Regardless of the positives and negatives, clearly defining what senior management values, identifying single-point-of-failures, weighing potential risks, and implementing a BCP will increase an organization’s overall resilience and chance of success. [3, pg 25]    The vision, however, may morph over time as the company, people, and business landscape change.

Success occurs when opportunity meets preparation – Zig Ziglar


Sources:

[1] Azadegan, Arash Dr. “Supply Chain Risk & Disruption Management.” Week 1-2, Lectures and Slides. Lecture.

[2] Labib, Ashraf, and Martin Read. “Not Just Rearranging the Deckchairs on the Titanic: Learning from Failures through Risk and Reliability Analysis.” Safety Science 51.1 (2013): 397-413.

[3] Engemann, Kurt J., and Douglas M. Henderson. “Ch1 + Ch2.” Business Continuity and Risk Management: Essentials of Organizational Resilience. Rothstein Associates, 2012. Print.

[4] Li, Zoe. “China’s Tainted Meat Scandal Explained.” CNN. Cable News Network, 30 July 2014. Web. 29 Jan. 2017.