Lean Production’s Next Frontiers and How CEOs Can Benefit

Lean is one of the biggest management ideas of the past 50 years, says McKinsey’s Ewan Duncan and Ron Ritter in the current issue of the McKinsey Quarterly. It may have started in assembly plants and other factory settings but it has moved into services ranging from retailing and healthcare to financial services, IT, and even the public sector. How might CEOs outside of manufacturing apply some of these insights to their companies?

February 23 2014 by ChiefExecutive.net


The opportunities available to CEOs in other industries are considerable, according to the article. For example, powerful new data sources are becoming available, along with analytical tools that make ever more sophisticated frontline problem solving possible. Similarly, leading-edge companies are discovering that lean can supply strong insights about the next frontiers of energy efficiency. Toyota itself is pushing the boundaries of lean, rethinking the art of the possible in production-line changeovers, for example, and bringing customer input more directly into factories. Leading service-based companies such as Amazon.com are extending the value of lean further still, into areas beyond manufacturing

In addition to new technologies and new analytical tools, there are new ways of looking at customers that are making it possible, with greater precision than ever before, to learn what companies truly value. The implications are profound because one of the primary constraints on the ability to design a perfect lean system in any operating environment has always been the challenge of understanding customer value, say the McKinsey experts.

They point to retail banking, hospital management and airlines as just three obvious examples of how services have adopted lean production insights. Banks have transformed their handling of checks and credit-card slips in processes that are not unlike an assembly line, removing downtime and improving efficiency. The faster a bank moves checks through its system, the sooner it can collect its funds and the better its returns on invested capital. Hospitals are clearly not factories and people aren’t auto parts. Nonetheless, there are discrete stages through which patients can be processed in ways that decrease variability much as manufacturers do. Similarly lean techniques help airlines reduce turnaround times from hours to minutes allowing for huge savings.

“We expect [this] to further permeate service environments around the world, say the McKinsey principals. “In the past few years alone, we’ve observed lean’s successful application to mortgage processing in India, customer-experience improvements in a Colombian pension fund, better and faster processing of political-asylum requests in Sweden, and the streamlining of business services in the United Arab Emirates.”

“In the years ahead, “ they say, “service and product companies alike will increasingly be able to reach their long-term goal of eliminating waste as defined directly by customers across their entire life cycle—or journey—with a company. For example, an unprecedented amount of product-performance data is now available through machine telematics. These small data sensors monitor installed equipment in the field and give companies insights into how and where products are used, how they perform, the conditions they experience, and how and why they break down. A number of aerospace and industrial-equipment companies are starting to tap into this information. They are learning—directly from customer experience with their products—about issues such as the reliability of giant marine engines and mining equipment or the fuel efficiency of highway trucks in different types of weather.”

The next step, they argue, is to have companies link customer information back to product design and marketing—for example, by tailoring variations in products to the precise environmental conditions in which customers use them. “Savvy companies will use the data to show customers evidence of unmet needs they may not even be aware of and to eliminate product or service capabilities that aren’t useful to them.

“Information about customers won’t be coming only from sensors and databases. The understanding of what makes people tick has been improving dramatically, and companies are starting, more and more, to apply psychology to their operations. Disney, for example, recognized that visitors in its theme parks respond to different emotional cues at different times of the day and embedded this realization into its operations in precise ways. In the morning, for example, Disney employees are encouraged to communicate in a more inspirational style, which resonates with eager families just starting out their day at the park. In the late afternoon (when children are tired and nerves become frayed), employees aim for a more calming and supportive style of communication. The integration of these psychological insights with Disney’s operating philosophy allows the company to eliminate waste of a different sort: employee behavior that would not be desired by customers and might inadvertently alienate them at certain times of the day.”

The future of applying these techniques will be to incorporate scientific insight into products and services in ways companies can add more value. When companies enhance their process in such ways they can integrate information companies can gather about customer behavior to increase the value of the marketing insights that can be integrated with operations.

CEOs may be interested in connecting with a dynamic group of manufacturing CEOs including Caterpillar’s Doug Oberhelman, the National Association of Manufacturers (NAM) president Jay Timmons and other experts at The Smart Manufacturing Summit II to be held in partnership with Caterpillar in Peoria,IL on May 20 & 21. This extraordinary event, which includes an exclusive tour of one of Caterpillar’s manufacturing plants, brings together the thinkers and doers who are forging American manufacturing’s comeback story. (See http://smartmanufacturingsummit.com/agenda/

Read: http://www.mckinsey.com/insights/Manufacturing/Next_frontiers_for_lean?cid=manufacturing-eml-alt-mkq-mck-oth-1402

Read: http://www.mckinsey.com/insights/health_systems_and_services/hospitals_get_serious_about_operations

Read: http://www.mckinsey.com/insights/financial_services/first_national_toyota

Read: http://www.mckinsey.com/insights/operations/lean_cuisine