warehouse workers
Lean ManufacturingTips for Lean Managers

Pockets of Improvement

Avatar photo By Jon Miller Updated on March 22nd, 2023

We had the opportunity recently to give a Lean Enterprise overview presentation to the parent company of a client. The parent company had recently purchased our client, and they were interested in what Lean could do for them. Our client has achieved a 61% improvement in throughput (dollars shipped per employee) over two years through kaizen.

Avoiding Pockets of Improvement

The management team from the parent company had questions about Lean and its relevance to them. One particularly insightful question was how they could avoid having “pockets of improvement” and ensure that improvements had a positive impact on the bottom line. This question arose because our client, a small furniture manufacturer producing low volumes of both standard and custom products, had initially experienced this problem. Although they had seen improvements in all aspects of their production and products, it took some time for the financial results to reflect these changes. The company aimed to achieve four objectives during its Lean Transformation:

  1. improving quality
  2. reducing inventory
  3. increasing productivity
  4. reducing lead times

They set and achieved aggressive targets in each area, so why did it take so long to see results?

Improvement Objectives and Impact on Company Performance

Initially, the company’s focus was on quality improvement, with the goal of preventing field failures and reducing warranty costs. The previous year had been marred by significant quality issues, and the company needed to identify the root causes and rectify them. The objective was to avoid costs, and while the company successfully achieved this goal, the resulting effect was to bring the quality back to the pre-crisis level. For the following two years, the cost of quality decreased, but the only visible impact was the absence of expenses related to warranty.

The second objective was to reduce inventory, which would result in a shift from inventory to cash in the balance sheet. The company’s actual carrying cost of inventory was low because it did not borrow from the bank to purchase inventory, had a small warehouse that it owned outright, and used wood, a raw material that was less prone to obsolescence. Although there were short-term savings in carrying costs, the impact was not significant.

Third, productivity did improve but because the years 2001-2003 were very slow years, the company was not able to take advantage of the increased productivity right away. Some savings were realized by attrition as people left the company and they did not need to be replaced as the remaining crew could do the work needed. However, much of the attrition was in the entry-level positions and the senior workers who were higher paid remained. The impact of labor cost reduction was seen in a limited way.

Fourth, lead time is tracked by very few companies as a financial metric. In some cases, lead time is tied to on-time delivery, which can have a financial component in terms of late charges. Another way that lead time impacts bottom-line performance is by allowing you to capture short lead-time business and increase throughput. If a company can enhance its capacity and flexibility to respond to quick turnaround orders and secure sales that it would not have obtained otherwise, this could result in not only productivity savings but also a larger contribution margin to profits for those quick-turn sales.

Quick Delivery and Short Lead Time

In the case of this company, this is precisely what happened when their lead time was reduced from weeks to days. In a tight market, the furniture dealers were offering quick delivery and promising short lead time in order to capture sales. When word got out that this company would reliably deliver custom products even with extremely short notice, sales started to roll in and the productivity gains were realized.

To better address our client’s parent company’s concerns about avoiding “pockets of improvement” and delayed impacts of Lean, there is one more aspect to consider.

Normally, improvements are focused on Value Streams rather than on scattered products and processes. By identifying and increasing the speed at which you create value through a specific series of processes, you can ensure that the results are reflected on the bottom line more quickly. Because our client was small and had a high mix, we determined early on that this approach would not be practical. Even though we identified the Value Streams, we ultimately discovered that there were two highly mixed streams. These two streams shared a significant amount of equipment and processes, making it impossible to streamline them separately. Our approach with this company was to start near the end of production and go backward from process to process, eliminating bottlenecks and improving how they served the customer downstream.

Wrap Up

In conclusion, we have found that in order to create flow in a high-mix Value Stream with a lot of shared resources, it is sometimes necessary to create “pockets of improvement” to maintain the momentum of the improvement effort. However, it is important to have a long-term vision of how these pockets will be connected to deliver bottom-line performance, and management must be able to take advantage of the opportunities presented by the Lean shop.


Have something to say?

Leave your comment and let's talk!

Start your Lean & Six Sigma training today.