Is Laying People off Really Anti-Lean?

Update: June 3 @ 7:33 PM CST Over the weekend, this post has had some good action (via comments and emails I have received).  I am modifying the original post ever so slightly to make the “assumptions” a bit more clear.  This modification comes after Mark and John have posted their comments.  Although I am making some changes this does not make their excellent thoughts any less relevant.

We often hear how companies “apply lean” and subsequently lay-off hundreds, even thousands, of people. Here is another example.  In this article we read:

Companywide, employment is down sharply. Telect now employs 747 people worldwide, down from about 830 a year ago and 2,300 at its peak in 2000. In the past year, it has implemented lean-manufacturing strategies at its plants in Texas, Mexico, and Poland and now can achieve the same production level with fewer people, he says.

So let me ask a hypothetical question.  Let’s say you, a Lean enthusiast, are named CEO of a mid sized manufacturing company. 

Let’s also assume your market has turned down and the constraint is clearly outside your plant.  Further, let’s assume you need to improve cash flow, reduce inventory, improve OTD, and most importantly improve employee morale. Next, assume the company you inherited was poorly managed before you came on and is not even a decent mass producer.  Lastly, let’s assume that the previous management (who the board fired) went on a massive hiring frenzy over the past few years in hopes of improving things by throwing bodies at the problem.

Now then, let’s imagine you come into this situation (as CEO) and immediately implement lean and six sigma principles.  On time delivery improves, inventory turns have doubled, cash flow is improving, and morale is on the way up. All is good with one exception. 

After calculating the optimal crew size for each area (leaving in the ability to meet some expected increased demand) you realize you have too many employees.  In fact, your calculations show you need 250 employees (including dedicated Black Belts and Lean Masters) to run the plant and you currently have 425. 

The reason you have so many employees is again due to the previous management who went on the massive hiring frenzy the past few years.

What would you do?

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22 Comments

  1. Mark Graban

    June 2, 2007 - 6:04 pm

    I think you’re confusing a few issues here.

    The main thing we preach about with Lean is not letting productivity improvements, that come about through Lean, drive layoffs. Or, we don’t let employee suggestions drive layoffs.

    Allowing employment levels to drop through attrition (not hiring to backfill) isn’t as bad on morale as doing active layoffs. It’s unlikely that 1600 people left the company through attrition, in the above case, in seven years.

    Falling demand is another issue altogether. If demand has fallen, you might have no choice but to layoff people — the alternative might be going out of business and EVERYONE losing their jobs. If you have a plan for gaining that business back (not just hope), then you might keep the “excess labor” in the short term if you can make use of those folks soon. This is easier to do if you’re a private company than public.

  2. Ron

    June 2, 2007 - 6:32 pm

    Thanks Mark. I don’t think I am confusing things though. While all my assumptions may not be the situation in this article they can be real which was my point. So let’s forget about this article for a bit. What would you do if presented with this situation? Would you let people go or stick it out since you wouldn’t want people to think your new lean process is the reason people are not needed anymore even though in actuality it may be. I mean if we make things flow and pull and our new optimal crew size (total CT / TT) says you only need 5 people in the new U-shaped cell and there are no more “support” positions available for the 10 other people that used to work in this “process village” what do you do? It’s a tough question… and one I would be happy to never have to deal with!

  3. Mark Graban

    June 2, 2007 - 6:43 pm

    To answer the question in your post title, laying people off isn’t necessarily “anti-Lean.” There’s times where we have to make tough choices since we are ultimately running businesses more so than we’re implementing Lean.

    That said, it’s ideal to NOT be in the position to have to do layoffs due to volume declines. I’d say that’s management’s responsibility to help chart out steady growth, as Toyota has.

  4. Ron

    June 3, 2007 - 4:04 pm

    Great take on this John. I always enjoy reading your thoughts.

  5. matthew

    June 4, 2007 - 4:20 pm

    If you lay off people off after lean improvements you may end any hope of future improvement. but keeping people on the payroll for the sake of a happy work place makes no business sense to me at all either. you are running a business after all, right?

  6. Ron

    June 4, 2007 - 9:56 pm

    Thanks for all the comments folks. And special thanks to John for his excellent posts on his blog. I want to be clear here… I am not a promoter of layoffs. In fact, I firmly believe (like Matthew) that the minute a kaizen event leads to layoffs your lean efforts are about to get really tough. However, I do think that it is important for all lean and six sigma practitioners to realize that things are not always as rosy as we read about in the workbooks we have all read. Sometimes, like in this crazy example I came up with, hard business decisions need to be made. So what would I REALLY do if I were in this situation as the new CEO? I would do my best and personally engage in an attempt to gain more business. My angle would be to show our customers how far we had come. I would do this genchi genbutsu style… meaning I would bring my customers to the floor where the action was. I would also tighten the purse strings big time. Everything from the amount of paper used in printers would be watched. Hopefully after all of this the business would come and the employees who saw me and my entire management team rally behind would be with us forever – mind and heart. Yeah, that’s what I would do!

  7. Lauren

    August 18, 2007 - 5:18 pm

    hi nice post, i enjoyed it

  8. lokimikoj

    September 21, 2007 - 11:49 am

    Hello

    Your site is very cognitive. I think you will have good future.:)

  9. Ninjas

    November 27, 2007 - 12:28 am

    I worked at a company that institutef ” Lean” for the specific purpose of increasing stockholder capital productivity as much as possible.

    This means their ideal company has one employee.

    Attrition has been very high after layoffs.

    I have never seen morale lower anywhere else.

  10. John Asher

    December 11, 2007 - 8:04 pm

    Great post, and certainly a tough decision. However, Lean manufacturing, six sigma, or any other continuous improvement initiative should build morale and empower employees to grow the business.
    If the business was in poor shape, transformation experts should be brought in first under that name to “rightsize” the company first, then improve it further with lean and six sigma and put those extra few people into improvement teams until the business can utilize them directly. Actually this is a good training ground for workers.
    The post is thought provoking, but laying off people as a result of any improvement initiative is not good. There are times when it must be done, but it is normally management that implemented lean prior to doing what they should have done all along.
    Chances are, if this management couldn’t rightsize the company before lean, then the lean probably wouldn’t be successful enough to have that decision.

  11. Russell

    January 13, 2008 - 1:12 pm

    The key to this is previous management did not make effective business decisions, Board fired him or her. The Lean process identified the mis management with solid data to drive smart business decisions. I have been in this situation and it was a painful experience but the people who eventually lost there jobs understood it was previous poor management decisions that drove the down sizing not the Lean methodology.

  12. Jorge

    February 10, 2008 - 3:25 pm

    I truly believe that the core of Lean is the respect for people and partners. Use technology to support people, not to replace them!

  13. Chris

    April 3, 2008 - 2:08 pm

    It’s simple really; you have to follow and implement the guiding business principles and match the right number of people to get the jobs done. You can explain to the remaining folks that it is the company’s mantra to ‘take better care of fewer people’. Then, go about doing so. Reward the remaining employees for high levels of performance; ie based on a set ROA figure or some other measureable outcome.

  14. Mark

    January 20, 2009 - 6:07 am

    … and what better illustration of this article than now. The automotive world for certain is in turmoil. Some manufacturers have made ‘drastic’ cuts already, and more are to come. Meritocracy and performance related pay are ideas… but the unionized workforce has the above question very much on their minds. Hang on, it’s going to be a heck of a ride.

  15. Steve

    July 15, 2010 - 7:42 am

    I agree with Russell’s statement. It wasn’t the lean improvements that led to the lay offs but the poor management prior to them. I worked for a company that had a similar situation with having a lot of employees due to the increase in demand, but then when demand suddenly dropped, we were left with a lot of people doing nothing. The organization ended up laying a lot of employees off just to need a lot more the following year for a drastic increase in demand. I wonder if the amount spend on lay offs, hiring & training was more or less than it would have been to keep them on…

    In a sense, layoffs are anti-lean in that they work against lean because people will see lean improvements lead to improved efficiency and a decrease in the number of people needed thereby putting their job at risk. However, rather than going out and hiring a bunch of people when demand spikes, if lean is implemented, the company wouldn’t face such a dilemma. Lay offs should be a last resort for drops in demand…

  16. Ronald N. Cooke

    August 14, 2010 - 1:59 pm

    We could think about alternatives, rather than absolutes. The excess labor might be redirected to these activities:
    Increasing sales, domestic.
    Increased sales, international. Look to emerging markets.
    Explore production of different products.
    Plant maintenance; landscaping, signage.
    Crosstraining.
    Job sharing, with reduced hours. Reduced income for all may beat the total loss of income for those who might be laid off.
    Product evaluation. Is the slowdown permanent?
    Forecasting. Can employees be carried until the market recovers?

    It could be that some manufacturing people have education that is underused. Some might be more properly repurposed to work in sales, marketing, or design.

    Ronald N. Cooke

  17. Ron Jacques

    November 26, 2010 - 8:50 am

    I can certainly sympathize with the ideas that layoffs eventually lead to the death of many lean efforts. I have lived to see far to many times in both public as well as private organizations. This stems from the fact that senior management often hears about lean as a tool to cost reduction (better profits) and thereby benefits the company (as well as their own pockets via bonuses) with little regard for those who are reduced or eliminated (bad for their pockets).

    Lean as much as it is a tool for improvement also carries a great deal of social obligation (respect for people). Much of senior management would do well to learn and respect this tenant. In organizations where I have seen people redeployed to increase improvement instead of laid off, the rate of return and increase in customer value (speed, quality and value) took off in huge double digit returns. This then put the burden on the sales force (who in the past always complained about late orders, poor quality and other reasons why they couldn’t sell more) to go out and do their jobs and actually create an find customers. Nothing could be so satisfying for a “manufacturing guy” then to shift the burden back to the sales side of the equation and take the heat off “operations”.

    More organizations need to adopt the culture, but like our own ethnic backgrounds, there are reasons, beliefs, rituals and celebrations that are centuries old that are passed from generation to generation. So it needs to be with Lean, we need to understand this culture and use it to better ourselves instead as a weapon that is inflicted upon others.

  18. Mikkel Smith

    February 25, 2011 - 11:15 am

    Hi All,

    Great post!

    For me Lean is all about staying competitive – staying in business!

    This means that successful implementation of Lean can lead to too many employees – like if sales doesn’t grove at the same speed as Lean increases the productivity.
    Here comes the tricky thing with Lean. The tools in Lean demand a great level of involvement from the organization. Therefore laying off people can shut down the Lean process very fast.

    I normally recommend managers in tough businesses (no growth) to set their “first team” all the time. This means that if they work with Lean they should continuously focus on “who is in my first team”. This way they should layoff people “before the next Lean loop” instead of after where things can be connected. I know it is tough – but it is all about staying competitive in business!

    Have a great day!

    Br
    Mikkel Smith
    Denmark

  19. Gajanan K

    November 24, 2011 - 6:40 am

    Under such condition it can be a duty of human resource manager to develop the skills of employees and refer their names for other organisations or consultancy services.