Lean Manufacturing as a Growth Creator
July 31, 2008
As a lean practitioner and consultant, I need to be a salesman, selling the idea of lean manufacturing and kaizen principles to potential customers. This part of the job is not as fun as guiding my clients through their lean journeys. But it isn’t difficult to sell the concept of lean; I simply explain how it contributes to growth. Lean is a business strategy, and strategies usually give you ways to improve your company financially and aid in its future growth.
Lean is a companywide approach to continuous improvement, and as time goes on, increasing numbers of employees are involved in the process. Organizations that truly embrace lean manufacturing and continue to fight through the battles of cultural change find ways to return the favor to the people in the company who made it happen. Operators, line leads, production supervisors, engineers and managers represent about 90% of the people who do the hands-on work of lean implementation. As the company begins to see the return on its lean investment, there should be a way to trickle some of the profit back to the employees.
Although adding product lines and the processes to manufacture them contributes to growth, giving back to your internal change agents is also critical. I’m going to outline a variety of approaches for offering lean incentives and the structure that should be in place to encourage this program.
Lean Goals
Implementation of lean manufacturing can have a positive effect on an organization’s costs. The rate of return differs from one company to the next because every approach is unique. Some companies have seen savings of $50,000 to $1 million in the first year of lean manufacturing and as great as $500,000 to $4 million after five years. The smart ones put some of that savings back into the company and in employees’ pockets in the form of bonuses.As a company decision maker, you want to create an exciting energy in your lean program. Part of this excitement is generated when you create goals that everyone will strive to meet. When employees achieve these goals, you should reward them financially. These goals are the key shop floor metrics outlined in the company’s strategic purpose:
- Productivity
- Quality
- Inventory or WIP
- Floor space use
- Throughput time
My point here is that productivity, quality, inventory, floor space use and throughput time have much more definable parameters. These five shop floor metrics are directly connected to cost, quality and delivery, so you can make incentives or bonuses contingent on meeting or exceeding the goals for each metric.
To implement lean principles in manufacturing and assembly processes, you will create kaizen teams and schedule multiple kaizen events. Because of the incentive program, employees will be encouraged to participate in kaizen and try to better themselves and their way of working. The kaizen teams will be aggressive in their approach. Continuous improvement efforts will accelerate because employees know that there is an incentive at the end. You can use these goals as the catalyst to accelerate your lean journey.
Although lean manufacturing will become your new way of conducting business and employees must be engaged, I would like to see a payback. If an organization books a cost savings of $500,000 in the first year, then it should return some of that to the people who made it happen. It starts with targets and goals, and you must make sure to raise the bar a little higher every year.
Pay-for-Skill Program
I am an advocate of employee training. When meeting with clients during strategic planning sessions, I schedule time to talk with the line operators and get their opinions about the journey ahead. The most common topic that is raised during this session is training-specifically, formal training for new employees. Any good employee training program must be backed by what is called a pay-for-skill program.It’s true that financial incentives are not the only incentives needed. Recognition and appreciation of employees’ lean contributions are also important. The suggestion box, the kaizen newsletter, the communication boards, participation in kaizen events, and kaizen event reports provide incentives on a non-monetary level.
Beyond that, pay-for-skill programs provide financial incentives for workers to learn new jobs in the company. It is, in essence, a career advancement program for production workers to encourage cross-training on the production floor. For the company, it helps encourage operators to become more flexible and skilled so that the organization can adjust to differing seasonal demands and changes in volume. For the worker, it outlines a clear path for advancement and growth in the organization.
Each process, assembly line or work cell should have its own pay-for-skill structure. Although some processes may be similar, there may be subtle differences in the jobs and work in each process that warrant a custom program. The cross-training matrix for each process is one of the guides in establishing this type of program, but a lot of detail is involved.
The number of progression levels in a pay-for-skill program will vary and depend on the process. As you develop your levels, I recommend using the following criteria:
- Number of certifications
- Years of experience
- Attendance
- Kaizen and kaizen event participation
- Quality errors
Each pay-for-skill level should contain a certain number of jobs that each operator must be certified in. For instance, to fulfill this criterion, an operator might need to be certified in three workstations. Becoming certified in only one workstation does not satisfy the criterion. If an organization follows the rules for new-employee training and cross-training, then the company knows that the operator is experienced. Three workstations is a suggestion; I have seen some companies require certification in five or seven. It’s up to the company and the complexity of the manufacturing process.
Years of Experience
The experience criterion should be similar to the timeline for becoming a certified operator after completing the novice portion of the cross-training program. Because there is a time frame during this phase of development (including the number of jobs required in the level), there should be no question about the experience level of the worker. The guidelines for experience are already part of the cross-training program.
Attendance
Absenteeism, tardiness and turnover problems can create major problems for a company. It is important to develop a criterion for attendance in the pay-for-skill program, not only to encourage people to come to work but also to provide an incentive for doing so. This kind of incentive is sometimes difficult for management to swallow, because they consider good attendance simply an aspect of holding a job. I once worked for a company that had 55% turnover among production workers, and that number did not include those who often missed work or showed up late.
Most organizations have defined guidelines for attendance, generally based on a point system. For example, operators might be allowed 10 points every year, and as they miss work, arrive late or call in sick, points are deducted. A missed day might cost 1 point. Showing up late could warrant a quarter-point deduction, and calling in sick might be worth a half-point. If an employee exhausts all of his points before the end of the year, he is given a verbal warning. The operator is essentially on probation and cannot miss any more days; if he does, he receives a written warning. Any infractions after this point result in termination. Attendance point systems differ from one company to the next.
When you develop the attendance criteria in a pay-for-skill program, you should consider tighter rules. To move to the next pay level, workers should maintain nearly perfect attendance, with some exceptions. Simply staying within the provided points does not warrant promotion. Missing work without advance notice or failing to explain an absence is not acceptable, at least in a pay-for-skill program. Although people can progress by giving advance notice, points are taken from their totals. Another approach is to allow a reduction in points up to 20%, notice or not, and still allow a worker to move up. The point is that you should create a structured guideline for attendance so that the organization moves operators through the pay-for-skill program when it is truly deserved.
Kaizen and Kaizen Event Participation
Kaizen involves everyone in the company, and the organization should encourage active participation in the continuous improvement initiatives. As the company develops its lean culture, employees should be allowed to make improvements to their work areas as often as possible.
In 2006, I worked with a new client, a small family-owned machine shop with gross revenues of about $1 million. The manufacturing floor was about 50,000 square feet, and the company had been implementing 5S for about a year. On my second visit, I took a tour with one of the production supervisors. Computer numerical control (CNC) machines, lathes, deburring stations and inspection areas had been combined into individual work cells. Each cell did a variety of work while staying within a family of products and similar processes.
The production supervisor managed cells 5 and 6. We were walking through cell 5 and watching the action. I had a lot of questions for him, because this cell was scheduled for another kaizen event to help decrease setup times and organize the fixture and jig inventory. He was discussing the flow of the cell when he stopped in his tracks and began to stare down at a desk. This desk was used by the cell’s line lead, who gave the machine operators their schedules and day-to-day tasks. (The production supervisors managed the line leads.)
I became curious and asked the supervisor what had caught his eye. He pointed to a small cardboard pen holder taped to the desk. The holder was clearly made from a corrugated box that came from a supplier. This makeshift pen holder contained three highlighter pens: green, yellow and red. The production supervisor explained to me that the holder had not been there the preceding day, and items like that stood out since the company had embraced 5S. Basically, a new item had appeared on a desk that had everything clearly labeled and identified.
We approached the line lead and asked her why she had made the box. She told us that every morning she received the work orders from the office and it was difficult to see which orders had to be worked on first. Some jobs could be done much quicker than others, and some had longer delivery dates. The line leads were empowered to distribute work as needed to ensure that all orders were complete on time while minimizing wait times and imbalances between machines.
After she received the work orders, the line lead spent about 30 minutes each morning sorting through them before handing them out to the line workers. The line workers then prepared their work areas as needed. The purpose of the three highlighters? She used them to color-code the work orders to quickly show their order of importance: Green indicated rush or fast jobs, yellow identified orders with longer completion dates, and red indicated the least urgent work orders of the day.
By making improvements to her area, the line lead was practicing kaizen. It is this type of mentality that is needed. In regard to the pay-for-skill progression, a company could document this kind of small improvement throughout the plant and keep records of those operators or other floor personnel making the changes. Each level in the program might require a certain number of small implementations as part of the required progression into a higher-paying level.
The company kaizen program encourages workers to offer improvement ideas by using the suggestion form. Advancement to another level could simply require production workers to submit a certain number of suggestions.
Probably the most important part of the kaizen and kaizen event participation portion of the program is the number of kaizen events in which the operator has participated. This part of the pay-for-skill program is somewhat difficult, because scheduling the events and selecting the teams may differ from one year to the next. If an organization conducts only five kaizen events in a given year, the chances are good that some production workers may not get the opportunity to be selected.
Ideally, a company should strive to have at least one kaizen event each month; the reality is that the number of events could be lower. It depends on how aggressively you are pursuing the lean journey. When you have achieved consistency in scheduling kaizen events, then you can make it a requirement for progression to the next level in the program.
Quality Errors
Production workers are responsible for quality and for the implementation of quality at the source. An organization can easily track line errors, but it is wise to remember that operators are human. They are faced with challenges every day that can make it difficult for them to do a perfect job. However, if production workers repeatedly make mistakes, the process needs to be analyzed further to reduce the occurrence.
I am a firm believer that the company must effectively design and set up its processes so that the production workers have all the tools they need to be successful. Once the process is in their control, errors should be minimized. If a production worker continues to make mistakes, it should be tracked and reviewed. One of the requirements for advancement in regard to quality might be the number of mistakes made in the process. The goal here is not to point fingers at people but to encourage strong performance and reward workers for meeting certain performance standards.
Table 1 shows an example of a pay-for-skill program. It outlines the requirements for workers to advance to each level. As you can see, the requirements become stricter and require more work and dedication from the operator as advancement occurs. Table 2 shows the pay increase opportunities that are available when an operator completes the requirements.
Providing Incentives for Good Ideas
Some companies that I have helped have taken their incentive programs to a higher level. Although acknowledgment and praise are best in the long term, you can add yet another monetary incentive program. As a lean company, you want to continue to encourage production workers to come up with continuous improvement ideas all the time. This is kaizen.As I’ve mentioned, the suggestion form is a great way to garner fresh ideas from the production floor, but there is another way to get workers to make changes. These improvements may take some time, because they are implemented as the days and weeks progress. If an operator sees an opportunity to make an improvement to a process, implements the improvement, and it reaps a financial savings or gain for the organization, you should award her with a check of some value.
For instance, suppose that a production worker sees a better way to package products to reduce time and material. The recommendation should be reviewed by management and engineers to see whether it is feasible from a product specification perspective. After approval, the idea goes through an engineering change request process, and then the new process change is initiated. After a given period of time, the improvement can be measured to see whether it has made a positive impact on productivity and material cost. You can amortize the savings over a year to calculate its annual cost savings. If the improvement saved the company, say, $20,000 annually, the employee might receive a check for $500.
In the beginning, this kind of program will be slow to encourage workers, but after the first or second idea turns into a paycheck, more workers will be excited and will begin their own improvement projects. These projects, of course, involve other employees, but idea generation is the start. In addition, with a program in place to encourage the behavior, more production workers will become engaged in the process. Each company must establish guidelines for the program in regard to annual savings, time frames for implementation and the amount of money to be paid to the worker. This is another approach to soliciting continuous improvement ideas from factory floor workers.
Wrap-Up
Financial incentives in a lean journey are not the sole approach to thanking people for becoming multi-skilled and contributing to continuous improvement efforts. Because lean manufacturing is a business approach, it essentially is a job requirement for working in a lean organization. But one of the reasons lean implementations fail on the shop floor is that the company does not recognize the contributions that can come from production workers.Many organizations are taking major steps to reward their best production workers and provide incentives for them to assist in implementing a lean program. Because lean manufacturing is truly a growth creator, you have numerous options to reward those who help you in your lean endeavors.
