4 quantitative experiences in LEAN management in SME

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In this article, I would like to prove that the Lean Management Consultancy is not solely restricted to large companies, but is also suitable to SMEs.
Lean can be put in place with limited funds and within a timescale. It is however, disconcerting to observe that these projects are set up with a great many consultants, mostly on a full time basis and for a short period.

In order to “dispel the myth” for these SMEs, I wish to quantify the investments and the costs gained by my customers. I will show here four different projects’ results, then will explain the challenges encountered when setting up Lean Management in SMEs.

1. Space, performances in the workshop of a glasses’ manufacturer.

Original status :
- 10 demotivated staff members,
- The size of the batches has decreased on average from 1000 to 200 pairs,
- The workpace was reduced from 7000 to 3500 pairs per week over a 6 month period : hence, half of which is sub-contracted,
- High rate of rejects : 13%
- Lack of space.

Alternative considered by the M.D. was to double the production line:
- machinery purchases,
- staff hire.

Key action points :
- Eliminate non essential and outstanding stock:
- Location displays
- Seek deadlock areas
- Stations and equipment : SMED / AMDEC :
- Repairs, improvements and changes,
- Operation without tools,
- Training,
- Tools research :

  • visual layout,
  • Progress Indicators updated by the operators,
  • Work pace, Takt-time, Work balancing,
  • Rejects,
  • Independence / enhancement.

Results in 16 weeks :
- Generated volume nearing 7000 pairs per week: +100% !
- Levels of rejects almost: 5%.

A few pictures before / after :

Poste-production-avant / before 5S Organisation poste de travail production après / after 5S

Improved areas :
- organised tools,
- shelves preventing bending down : reduce Musculoskeletal disorder in the medium term,
- more practical storage of glasses,
- different type of equipment without tools.

Tools of Independence :
-Self assessment:
Operators’ self assessment performance. It is neither their manager or consultant’s evaluation or appraisal.
- Management table :

Quantitative return
- 18K€ investment:

  • Training/action costs: 15K€ env., (100% used on training budget),
  • Repairs investment: 3 K€.

- Sub-contractors’ costs eradicated : if 1€/pair = 3500 €/weekly saving.

Return: 18/3.5 = 5 weeks

If the option to double the production line had been chosen:
- Hire of 5 staff: 5 x 22 K€= 110 K€
- Purchase of 3 machines : 400 K€ ...

2. Distribution Company Performance

Original status: September A
- Linear staff and turnover increase,
- Decreasing profitability,
- Structure already finely tuned,
- Important IT Management.

Project Lean Structure:
- Diagnostic and training of action: Sept A-Jan A+1
- 5S Feb A+1 – Dec. A+1, " Phase 4": S38

Diagnostic and course of action summary:

- Cross-checking flows,
- Loss of parcels,
- Too much equipment at hand,
- Many trips,
- Delays and insufficient loads,
- Wasted time with unknown current value (packaging),
- Cluttered stations and workshops.

Course of action:
- Flow: movement changes,
- 5S
- Identify and eradicate idle stock,
- Reconciliation of frequent references,
- ERP modification: locations management: ledger card per quantity per location,
- Cost plan management at the time of order,
- Cost prices and purchases calculations per mixed quantities (by 1000 / 10000).

Results: + 15% to +25 % in 1 year for the quantity of delivery notes per person and per day.

Photographic results of a station:

Poste d'emballage après /after 5S Poste d'emballage avant /before 5S

- Project cost = approx. 15K€ over one year,
- T/O: 13M€ to 15.2M€ in 1 year (public data) : +15% of T/O
- The same number of individuals for 2.3M€ extra packaged sales; example : if half indicate the gross margin,
- The return on investment is : 15/1150 = upon completion of the process.

The basics of the procedure:
Self assessment by the operators of the progress indicators.
The difference between the manager’s assessment and their evaluation: The manager’s assessment is displayed on Excel board a week after the events, however, if the operators use coloured stickers every hour or at the end of their shift, they know why they chose the green or red colour, since they are responsible for their own performance assessment and compare it to their targets.

3. Another example of warranty cost savings in an electronic company (30 staff members):

Target : Reduce the warranty costs of the product ranges.

Launch of a collaborative development work procedure based on a method similar to ISO-TS “APQP” (Advanced Product Quality Planning).
3 days training/action of the procedure based on a product example ;
- evidence of benefits: the customer avoided launching a product remotely suitable for the clients;
- forecast investment: 40 K€ ;
- training/action cost: 4 K€.

Furthermore, whilst drafting the specification, a representative made an important statement:
- the products already launched were unsuitably sized for some customers, hence a portion of the business benefitted the competition.

4. Example of the increase of order-fill ratio in a textile manufacture (30 staff members)

Initial statement of analysis:
"“Reduction of the proposed delivery time to the customer by one week, excluding the supplier’s deliveries and manufacture” (experienced delay of 4 weeks)

Course of action:
- Identify loops and duplicated functions or voids:
Flow diagramm with current value: Gantt and Logical diagram
- Delay and order-fill ratio assessment:

  • 3 weeks delay,
  • Order-fill ratio: 62% +/-30 points,

More accurate diagnostic and other formulation of the analysis:
- " Consolidate the proposed lead time to the customer and control the supplier’s deliveries schedules",
- Identify the reasons for tardiness,
- Changes to the database system :
Setup lists of operations and BOM : "Know-how" to establish functional list of operations (the rones in place were unsuitable for this kind of problem, system operation training, use of new displays and statements.
- Process the scheduled functions and organisation of the company: ex: stimulus of suppliers’ statements,
- Clean database (Purchases and manufacturing orders not discounted).

Order-fill ratio results:
- Initial : 62% +/-30 points
- Accomplished: 85% +/-10 : superior and more secure:
more foreseeable commitment.

Return on investment:

- What is a service point worth?
- Probably one point of increase of the turnover (5M€) over 5 years,
- From 62 % to 85% = +23 points, i.e. 1.15M€/ 5 =230 K€per year,
- Project cost = 10 K€ -> immediate return.

This experience demonstrates that LEAN cannot manage everything:
if there are several manufacturing orders of very diverse range, a database system will be required.
Even an extremely efficient ERP is a vital tool to achieve targets and reliant on the data input: list of operations, BOM (Bill of Materials), lead time, quantities forecast.

It is apparent that a system setup relies on the formulation of the request and not on the operation cost (currently equal to the cost of a yearly new system: licence and training).

This is therefore why, with our procedures, Lean provides a realistic return on investment on a short and medium term.