Manufacturers in Canada and around the world are facing new obstacles as we head into 2023. Exports have contracted by almost 2.5%, labour and skill shortages have caused cost Canada’s economy almost $13 billion, and global conflicts have created supply crises that have pushed prices for resources like oil up 137.5%.
To deal with these challenges, Canadian manufacturers need to adapt to new methods that will reduce their costs with Canadian government grants, improve their outputs, update their equipment, and upskill new and current employees.
This article is a part of a series which will outline how Canadian manufacturers can adapt to the challenges that are facing this key Canadian sector. One of the most effective ways for manufacturing companies to adapt to the changing economic landscape, is by adapting a lean manufacturing approach. Below, we will provide a general overview of this approach by discussing:
- What is Lean Manufacturing?
- Why Implement Lean Manufacturing Methodologies?
- How Lean Manufacturing Makes Business More Profitable
- How Lean Manufacturing Reduces Waste
- What is Six Sigma?
‘Lean’ is a word often used to imply a mindset or strategy towards process improvement.
When viewed through this lens, lean can refer to a variety of projects in almost any industry – manufacturing or otherwise. Ultimately, lean aims to apply a systematic approach for long-term business improvement.
Why should an organization instinctively adopt lean practices? For the two reasons exist in the first place – to make money and satisfy the needs of customers. Lean is a customer-focused change implementation strategy that will help improve business processes, delight customers, and drive accelerated business growth.
Lean is such an effective method of implementing change because it helps identify weaknesses or processes that no longer add value. By targeting and reducing these problematic areas, businesses can dramatically increase their competitiveness.
For over 50 years, ‘lean operations’ has been increasing in popularity among businesses because of its proven benefits on profitability and competitiveness. Improving operational efficiency is not always an easy task but using methodical approaches like Lean Six Sigma can standardize and simplify the process. Lean operations have been successfully adopted/adapted by thousands of businesses worldwide, leading to improved customer satisfaction and higher profits.
Lean Six Sigma methodologies are a systematic way of improving value-adding processes over time.
Implementing these methodologies can be radically different from one organization to another; depending on the business’ industry, complexity, supplier network, each business will find their own way to improve processes and deliver higher value.
The goals of lean initiatives are always consistent – complete processes in a controlled way that reduces waste and cost.
Implementing lean strategies will enable businesses to become more competitive while delivering an assortment of spin-off benefits such as:
- Higher customer satisfaction;
- Enhanced intellectual capital within the organization;
- Identification of waste and inefficiencies;
- Higher employee engagement;
- Improved organizational culture; and
- Removal of process silos where communication is minimal/inexistent.
While these benefits are all qualities that improve the function of a business, how does lean relate to sustained business growth? Lean has a direct impact on the revenue and profitability of all businesses; this makes implementing lean activities critically important.
Although lean activities typically seek to make a business more efficient and profitable, they can also lead to increased revenue over time. Improving the internal processes that drive value to customers will almost undoubtedly result in sustained revenue growth.
This comes from the philosophy that increasing customer satisfaction, even marginally, can lead to benefits like increased order size and market share. Performing lean activities will help to identify the processes within a business that drive value versus the ones that do not, ultimately creating a value proposition that is more enticing to potential customers.
Management teams using lean are also much more likely to develop new products and processes on their own, leading to sustained competitive advantages. By offering a unique product and superior internal processes, companies will be able to drive revenue at an accelerated pace.
Lean Manufacturing’s Impact on Profitability
Lean’s real impact is on the bottom-line, which is why leaders are so quick to embrace it. The very essence of lean relies on continuous improvement of processes so that every element has been optimized to its fullest extent. When lean is supported across the organization, it can vastly improve business performance. Imagine reducing operational expenses by:
- Improving production yield rates;
- Reducing rework through defects/variation; and
- Improving time to market.
These are all outcomes of well-executed lean projects, which can be implemented by all Canadian businesses. Lean isn’t reserved solely for manufacturers; it can benefit any organization seeking the above outcomes with processes that can be standardized.
Lean and Six Sigma are so closely aligned that it can be difficult to distinguish them at times. Most organizations use elements of each to improve operational efficiencies.
Many areas for improvement identified in lean projects will concentrate on the reduction or elimination of waste. All waste forms a hidden operating cost that a business must incur; therefore, as waste is lessened, costs go down.
Lean’s systematic approach to reducing waste will improve your ability to deliver goods and services in a more efficient way.
The 8 Wastes of Lean
Since lean strategies often seek to reduce waste, it’s important to understand what waste looks like within an organization. Consider the following types of waste, conveniently summarized through the acronym TIM WOODS:
T – Transport: Moving people, products, or information not actually required to perform the task.
I – Inventory: All components, work in progress, and finished product being stored ahead of a required date.
M – Motion: People or equipment moving, reaching, lifting, or walking more than is required to perform the task.
W – Waiting: Waiting for the next step in the process, for parts, information, or shift changes.
O – Over-Production: Production ahead of demand, leading to increased inventory levels.
O – Over-Processing: Using higher-grade inputs or production methods that are more advanced than required.
D – Defects: The effort involved in inspecting for and fixing defects.
S – Skills: Underusing the capabilities of skilled employees, or delegating tasks to employees lack sufficient skills.
‘Inventory’ and ‘waiting’ are the main forms of waste that lean seeks to eliminate. Both are similar in their effects to a business; generally, they limit cash flow and extend cycle times. The concept of ‘leaDern’ suggests companies should perform tasks in a simple, structured way that moves from the first phase to the final one as smoothly as possible.
Six Sigma then becomes important once waste has been discovered because it provides a set of tools and techniques to eliminate waste and improve value-added services.
While ‘lean’ provides a mindset for organization culture, Six Sigma delivers the framework to apply change. It’s an empirically-driven, statistical method for analyzing and improving processes over time. A well-integrated Six Sigma strategy can also be used in real-time to continuously make improvements to business processes.
Six Sigma is also a term used to describe processes which have reached a defect-free rate of 99.99966% or 3.4 defects for every million opportunities.
This is one of the reasons why Six Sigma is popular among manufacturers; its relatively easy to gain statistical evidence of defects in production and track it over time.
Manufacturers are intuitively connected to Six Sigma because of the industry’s production-oriented nature. Production repeatability is something that all manufacturers strive for, but to develop defect-free products, standardized processes must be implemented. This includes frequent training and evaluation of employees, efficient resource planning, and value stream mapping.
Non-manufacturers can also apply Six Sigma if the business can define what a ‘defect’ looks like within their organization.
For service-oriented businesses, it’s possible to build repeatability into processes; there’s just a lot of internal systemization that needs to be done first. It can be helpful to look at the ways clients are spoken to on the phone, how internal communications are processed, and how payments are processed. Is there a standardized way of doing things? What does success/failure look like?
Reduction of Defects
Six Sigma defines a method for systematically finding and eliminating waste from business processes. All waste forms a hidden operating cost that a business must incur; therefore, as waste is lessened, costs go down.
Six Sigma’s systematic approach to reducing defects will improve the ability to deliver quality goods or services with less scrap or rework.
Lean Six Sigma Improvement Process
The ongoing process of Lean Six Sigma will help drive positive results, but how exactly is it performed?
There are 5 steps that should be considered:
- Specify Value;
- Map the Value Stream;
- Establish Flow;
- Implement Pull; and
- Work to Perfection.
Lean and Six Sigma can form a powerful toolkit for any organization to use. However, applying these concepts does not need to be a complicated process. Through a strategic, methodical process, proactive business leaders can quickly develop a culture of continuous improvement.
A Six Sigma-based approach to operational improvements can take many forms, however, they must all involve a systematic approach to change. The most commonly deployed methodology for leading this change is the adaptable DMAIC framework.