Lean KaiKaiku
- 1. Aviation, Aerospace, and Defense So You Want to Get Lean Kaizen or Kaikaku? The “lean” model is delivering huge operational improve- ments in a range of industries. But there are several ways to implement lean tools and techniques, each with its own benefits and drawbacks. Choose carefully before embarking on the lean journey.
- 2. W ith the half-life of business designs growing shorter, improvements to oper- ations can make a huge impact on the return a constant calibration. Others are iterative processes that drive waste out of the system and deliver continuous improvement. Still firm earns on its investment in a particular others nurture the lean culture. business design. One of the most effective While it spread first throughout manufac- approaches to operational improvement has turing sectors, the lean model has since been been to use “lean” tools and techniques. But taken up by a variety of service companies as there are different ways to implement the lean well, ranging from utilities to aircraft mainte- model, and taking the wrong path can severely nance to financial services. disrupt an organization without yielding an Most managers contemplating organiza- appropriate return. In short, managers need to tion-wide lean methods are aware of only one decide: Should they embrace Kaizen or Kaikaku? implementation approach—the Kaizen For those new to the lean model, this is a busi- approach popularized by Toyota, Pella, ness philosophy pioneered by Toyota after World Maytag, and other leading manufacturers. War II. It harnesses a set of standard tools and Kaizen roughly translates to “continuous techniques to design, organize, and manage incremental improvement.” It is most suitable operations, support functions, suppliers, and when applied tactically to a product line, a customers. Compared with the traditional function, or an entire organization that is rel- system of mass production, the lean model atively mature and stable. meets or exceeds customer requirements while Kaikaku, which translates to “radical using less labor, space, capital, and time. Lean improvement or change,” is a more transforma- techniques cut costs by eliminating waste— tional process. It starts with customers’ priori- those items and process steps the customer ties and links directly to the business strategy. doesn’t value. These reductions paradoxically Correct application of Kaikaku can help an increase quality as production problems become organization move ahead of competitors by more visible and root causes more easily identi- dramatically reducing the time required for fied and remedied in simplified work processes. major improvements in quality, cost, and Lean implementation benefits from a delivery. It is suited to companies facing merger holistic approach that addresses all elements and integration issues, intense cost pressures, from operational strategy to the shop floor. major new growth opportunities, a turnaround Some of these steps, such as objective-set- situation, or other cases demanding an enter- ting, need to be performed annually to ensure prise-level transformation (Exhibit 1). Exhibit 1 Two approaches Kaizen Kaikaku Continuous incremental Large-scale, radical change improvement • Lean initiatives or events with • A lean initiative or event with cumulative planning and exe- a planning timeline of weeks cution timelines of hours to to months and an execution weeks timeline of hours to weeks • Smaller project scope (value stream dependent) • Small to medium staff and • Larger project scope resource allocation • Medium to large staff and • Quicker results with small, resource allocation individual contributions to the • Results realized more slowly bottom line of the organiza- but with larger, concurrent, tion or value stream multiple contributions to the • Tactical bottom line of the organiza- tion or value stream • Strategic 2
- 3. Kaikaku encompasses more activities and Weighing the Tradeoffs addresses systemic waste, whereas Kaizen is Deciding which approach to take will more tactical and addresses process waste. depend on a firm’s cultural readiness, tech- Accordingly, Kaikaku requires more planning, nical readiness, and degree of management as shown in Exhibit 2, though the magnitude engagement. Each methodology also has par- of the gains typically justify the additional ticular challenges. resources. When executed well, Kaikaku cre- To succeed with Kaizen, managers must ates a momentum that transforms the entire address several issues: “value stream” of material, information, people, and actions required to bring a Linking islands of excellence. A Kaizen event product from concept to launch to delivery, can apply to a single work center or even a step by step, whereas Kaizen does not neces- single machine. Efforts that are small in sarily afford that momentum. scope do not address the entire value While Kaikaku may seem at first blush sim- stream, so there will be sub-optimal areas ilar to business process redesign (BPR), there of the value stream. Linking these islands are significant differences. Kaikaku applies of excellence is the logical step to create a lean principles and tools to change a value truly lean value stream or enterprise. stream based on the pull of customer demand or customer requirements, whereas BPR tends Moving quickly up the learning curve. Because to start at the beginning of a value stream and of the narrow scope and short time-frame push through the system. Moreover, Kaikaku of Kaizen, organizations may struggle to tends to have a cultural component, whereas accept lean methodologies into daily rou- BPR focuses strictly on operations and the tines. Employees must be able to find per- physical infrastructure of the business. sonal value in these efforts, which comes Exhibit 2 Kaikaku proceeds in phases 1-3 months 6-12 months Ongoing Cultural and Lean Lean strategy Diagnostic Lean technical readiness Lean design transformation deployment and planning implementation assessment support • Develop • Conduct rigorous, • Determine event • Define lean produc- • Execute design • Change systems and high-level value company-wide lean schedule based tion system that will improvements to structures to cement stream maps of key strategy planning on AIPs achieve objectives flows of material, change products/services session people, and informa- • Identify teams and • Identify and address – Adjust organiza- tion using lean • Evaluate facility and – Determine 3- to define timelines organizational tion design as techniques shop-level flow 5-year goals system shortfalls needed • Define tools and • Implement rapid • Understand current – Define break- training necessary • Create detailed plans – Ensure metrics response protocols operational and through objectives to communicate drive the desired financial measures to achieve goals changes • Deploy focused behaviors product teams • Determine areas – Develop annual • Provide awareness – Create a rewards of opportunity improvement pri- training • Communicate and awards system orities (AIPs) to progress • Conduct interviews • Celebrate successes establish one-year and surveys to estab- • Provide training to plan • Drive continuous lish the organiza- workers on the floor improvement tion’s readiness for – Determine and in the office change resources necessary to achieve AIPs • Iterate until an achievable plan is established • Determine progress measurement process 3
- 4. from understanding not just what to do, Exhibit 3 Integrating the two but also why to do it. Increasing system inventories. When a firm cannot physically link its islands of excel- lence, it may rely on inventory buffers. This undercuts the overall effort. Sustaining the effort. To continually improve by executing a series of events, Kaizen requires a intense discipline and accounta- bility among employees; without that effort, it will be difficult to permanently change systems and structures. Kaikaku brings different challenges, notably a much greater commitment of time stream. This integrated approach not only and resources: played a central role in Toyota’s steady rise in automotive manufacturing, it also impacted Ensuring dedicated resources. Serious the hundreds of Toyota suppliers and other organizations permanently dedicate companies in the West that, with a 10- or 20- resources to lean efforts, including the year lag, began to rethink and change their engagement of senior managers, because manufacturing processes. of the major implications for strategy. Kaikaku in Practice Committing capital. “Creativity before cap- For a sense of what Kaikaku looks like in ital” is a popular mantra in lean circles, but practice, consider the case of an aviation sometimes a firm must expend capital. maintenance, repair, and overhaul (MRO) Since both the scope of the project and the provider. Because of increased fleet usage and residual benefits are large with Kaikaku, a desire to keep current and overflow work in- you can realize high returns on investment house that was being done by a supplier, this or assets in a reasonable period. MRO firm faced a large productivity challenge that could not be addressed through incre- For companies that have some experience mental improvement. The firm decided to use with the lean model, it is also possible to Kaikaku to catalyze the lean transformation, selectively apply both Kaizen and Kaikaku, and it accomplished the project in phases: as shown conceptually in Exhibit 3. Toyota, for instance, has used both methods suc- 1. Diagnostic, planning, and lean design. The cessfully. Taichii Ohno, who pioneered the team defined several value streams that lean model at Toyota, recognized that incre- deliver the product groups, then undertook mental improvements would not be enough extensive data collection and analysis to char- to allow Toyota to compete in the U.S. He acterize the state of each product group value applied Kaikaku to make radical, strategic stream. Where possible, the team defined areas changes, and then moved to Kaizen events for of flow and designed operational layouts that continuous improvement. When introducing could meet the customer demand rate. a new car line or creating a new factory, Operating capacities, demand, and staffing Toyota still uses the Kaikaku-like production levels were determined through mixed model preparation process (3P); Kaizen events follow calculations. Where different products with to improve individual areas along the value different work content run through the same 4
- 5. facility at once, mixed model calculations force worked on by one dedicated team “cell.” All of some semblance of predictability. the inventory required for that product family Also during this phase, a cross-functional was located at the cell. These changes dra- team initiated a communication and training matically reduced the amount of work in program for key people within the organiza- progress. tion. Training included production simula- To avoid production interruption, physical tions, which helped to promote discussion moves were made on nights and weekends. and lower resistance to the new methods. Next, the cells were linked by material distri- bution and visual management systems, 2. Lean implementation. This phase involved which place in plain view all the tools, parts, major physical changes to the MRO shop. The activities, and indicators of performance, so plant had been laid out as functional process that the status of the system can be under- centers—all products were routed through stood at a glance by everyone involved. disassembly, then through cleaning, and so on Standard work combinations were deter- through the various process steps. As a result, mined by working with the hourly associates. lead times were quite long and large amounts Once physical changes began, despite prior of work in progress would pile up between training, some employees started to resist processes. changing how they do their jobs. Their con- The team changed that layout to group prod- cerns were further addressed through tar- ucts that previously were spread throughout geted education, participation, and joint the plant into logical families, with each family problem-solving. Exhibit 4 Kaikaku in aircraft maintenance Bottom line impact Beginning of project Current % change Standard labor 247 hours 151 hours -39% Footprint 2,011 sq. ft. 634 sq. ft. -68% WIP 46 units 7 units -85% Overhaul cycle time 95 days 9 days -91% Units produced 27 per quarter 105 per quarter 74% 5
- 6. 3. Lean transformation support. To support more discipline throughout the process. the physical changes, the MRO firm redefined By deploying a rigorous Kaikaku approach, its organizational structure by creating focused this MRO provider was able to achieve a sus- product teams that could help align support tained 39% labor productivity improvement, a personnel. These teams of salaried employees reduction in work-in-process inventory by moved their desks onto the shop floor in order 85%, a 91% reduction in overhaul lead time, to interact more immediately and effectively and a 68% reduction in floor space used with a with the production group. Supervisors and 74% improvement in throughput (Exhibit 4). line managers went through training that Kaikaku was the right choice in this case helped improve their management skills in the because it brought more process discipline new environment. QCDS (quality, cost, and integration to the firm. delivery, and safety) boards and 5S systems Companies in other industries as well have (workplace systems conducive to visual con- used Kaikaku with great success. For instance, trol) measured staff performance and instilled one precision manufacturing firm tackled an Kaikaku Addresses Construction Problems at a Utility A major electric utility needed to reduce oper- Oliver Wyman redesigned the process, including ating and maintenance (O&M) costs and lead time new work standards and a master schedule and associated with construction projects. In particular, capacity loading model that would improve the the company aimed to improve O&M direct and use of support resources and distribution and indirect labor productivity, reduce overtime and service crews. Many of the recommendations contractor utilization, and shorten the lead time for aimed to streamline the hand-offs between sales, preparation of construction project work packages. engineering, technical services, and field opera- Oliver Wyman started the project by character- tions and maintenance personnel. The utility also izing current processes in sales, technical services, installed a structured management review process engineering, distribution, and service. The team with scorecard to ensure that the initial effort also measured work streams relative to industry would be sustained over time. benchmarks in the areas of engineering, planning, Over the subsequent 18 months, this Kaikaku and scheduling. What we found were crew produc- effort yielded a 15% improvement in crew labor tivity levels of less than 40% and lead times greater productivity, a 37% reduction in work order than 50 days for the preparation construction package processing lead time, and a cycle time project work packages. reduction of 40%. Exhibit A streamlined process 6
- 7. organization-wide supply chain challenge by reductions and a 40% reduction in overall using Kaikaku. Over the course of 18 months, work order process cycle time. the firm was able to reduce the number of Kaizen may initially feel like the safe choice plants by one-third and customer lead time by for many managers. Yet Kaikaku may in fact half, and it increased the number of units per be the better choice in situations that shift by half. demand a major transformation. And in At an electric and gas utility, the distribu- some cases, Kaikaku leading Kaizen will tion, service, and engineering functions were lead to the greatest improvements in consistently rated in the lowest quartile of quality, cost, and delivery—moving beyond the utility’s peer group. Kaikaku methods the incremental to make a noticeable impact help lay the roadmap to 15% overall cost on the bottom line. Improving Performance at a Fashion Eyewear Manufacturer In 2002, a U.S. eyewear manufacturer was oper- Quantify facility requirements for each ating well below its peers along such dimensions reconfiguration option from a lean design as cycle time, productivity, and cost. Oliver standpoint Wyman helped the firm apply the Kaikaku Simulate the benefits associated with each approach to determine the current configuration option of work and provide reconfiguration options that Transfer knowledge and application of would improve performance across the board. lean principles to employees Sustain the efforts by implementing quality, The project proceeded along these steps: cost, delivery and safety metrics to ensure that all employees, from production floor through Assess and characterize the current state con- senior management, work to the same figuration of work, policies, assets, and orga- strategic objectives nizational structure by mapping the value stream of representative parts The Kaikaku approach delivered strong oper- Develop recommendations to reconfigure ating results, including a 23% reduction in overall work in ways that dramatically reduce the costs, a 33% to 70% reduction in cycle time amount of assets and labor required depending on product family, and a 30% reduction in headcount and facility space. Exhibit Costs look better at the eyewear plant 7
- 8. www.oliverwyman.com Oliver Wyman Oliver Wyman’s Aviation, Aerospace, and Defense practice helps passenger and cargo carriers, OEM and parts manufacturers, aerospace/defense firms, and MRO and other service providers develop value growth strategies, improve operations, and maximize organizational effectiveness. Oliver Wyman has completed hundreds of engagements for aviation, aerospace, and defense industry clients in the past five years alone and has consulted to nearly three-quarters of the Fortune 500 firms in these sectors. Oliver Wyman serves these firms worldwide with consultants in the Americas, Europe, Asia, and the Middle East. This white paper was prepared by John Seeliger, a Dallas-based director, Ketan Awalegaonkar, a Chicago-based principal, and Christopher Lampiris, a Dallas-based associate of Oliver Wyman. Greg Bellomo, a Chicago-based associate of Oliver Wyman, contributed to this article. For more information on Oliver Wyman’s lean expertise within the Aviation, Aerospace, and Defense practice, please contact: John Seeliger john.seeliger@oliverwyman.com Ketan Awalegaonkar ketan.awalegaonkar@oliverwyman.com