December 11, 2012 Art Byrne

The Value-Adding Lean CEO

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The Lean Turnaround by Art Byrne

Available at lean.org/bookstore

Learn from:

Art Byrne

John Shook

More Speakers, Learning Sessions,

and Companies to be Announced!

$350 Early Registration Discount, register today

Team Discount: Send 4 people and the 5th person is free!

Register at lean.org/Summit

in Orlando, FL

Today’s Presenter Art Byrne

• Implemented lean principles in 30+ companies

• Began lean journey as a GM at GE

• As group exec. - helped launch lean at Danaher

• As Wiremold CEO - increased value by 2,500%

• Wiremold documented in Lean Thinking by Womack & Jones

• Now - Operating Partner, J.W. Childs Associates

.

MY LEAN JOURNEY

• Started in January 1982

• Always from a CEO Position

• Looked at It from a Business Perspective

A BUSINESS BOOK

. . . NOT A LEAN TOOLS BOOK

A BUSINESS IS:

• PEOPLE

• PROCESSES

• DELIVERING VALUE TO

CUSTOMERS BEST TEAM WINS

TRADITIONAL APPROACH

• Strategy – Create Shareholder Value

• Take Value-Adding Activities as a Given

• Get Customers to Conform to You

• Make the Month

LOOKING AT EVERYTHING BACKWARDS

VALUE IS CREATED BY

• Improving Your Value-Adding Activities

• Delivering More Value to Your Customers Than Your Competitors Can

• Conforming What You Do, to Your Customers Needs

THE OPPOSITE OF THE TRADITIONAL APPROACH

PRODUCTIVITY = WEALTH

PRODUCTIVITY = WEALTH

• Lean Strategy = Big Improvements in Your Value-Adding Activities

• This Creates Growth and Gains in Market Share

Lean is the Greatest Wealth Creator… Ever

BUT SOMEHOW WE TOOK:

Just-In-Time

and

Lean Thinking

AND TURNED THEM INTO . . .

Just-In-Time … Inventory

and

Lean Manufacturing

THIS IS A TRAGEDY

THE RESULTS

• Lean Focused on Manufacturing

• Lean Is Just a Minor Part of Strategy

• Lots of Companies Trying – Not Many Are Successful

LEAN TURNAROUND SHOWS THE WAY

LEAN TURNAROUND PREMISE:

If You Are Leading a Business and Don’t Want to Dramatically

Improve Your Results

Then, You Are in the Wrong Job

WHAT CAN YOU EXPECT?

• Lead Times Cut from Weeks to Days

• Inventory Turns Doubled in Two Years, Quadrupled in Four

• Annual Productivity Gains of 15-20%

• A 50% Reduction in Defects – Per Year

• A 50% Reduction in Space in Two Years

• A 4-8% Improvement in Gross Margins

• Working Capital as a Percent of Sales Cut in Half

• Increased Growth by Taking Market Share

• Creation of a Kaizen/Team Culture

WIREMOLD RESULTS

• Lead Times Dropped from 4-6 Weeks to 1-2 Days

• Productivity Improved by 162%

• Gross Profit Improved from 38% to 51% — Plus 82%

• Machine Changeovers Went from 3 per Week to 20-30 per Day

• Inventory Turns Went from 3X to 18X

• Customer Service Improved from 50% to 98%

• Sales More than Quadrupled

• EBITDA Grew from 6.2% to 20.8%

• Working Capital/Sales Fell from 21.8% to 6.7%

• Operating Income Improved by 13.4X

ENTERPRISE VALUE INCREASED BY 2,467%

WHY ISN’T EVERYONE DOING THIS?

“Tell You”

“Show You”

“Bet You Can’t”

Yoshiki Iwata

EASY TO SAY, HARD TO DO

A LEAN STRATEGY CAN TURNAROUND ANY BUSINESS

• You Need a Proven Approach

• Three Management Principles

• Four Lean Fundamentals

Leadership—The Key Ingredient

THREE MANAGEMENT PRINCIPLES

• Lean Is the Strategy

• Lead from the Top

• Transform the People

WITHOUT THESE—YOU WILL FAIL

LEAN IS THE STRATEGY

• Focus On Process, Not Results

• Better Value Adding = New Strategic Options

• Lean Is a Time-Based Growth Strategy

IMPROVING YOUR VALUE ADDING ACTIVITIES IS

THE FOUNDATIONAL CORE OF YOUR STRATEGY

LEAD FROM THE TOP

• People Are Resistant to Change

• Lead by Example

• Commit to Becoming a Lean Expert

• Learn by Doing

THE LEADER IS THE KEY

TRANSFORM THE PEOPLE

• The Only Asset That Appreciates—People

• Respect Your People—Best Ideas

• Create a Learning Environment

• Invert the Organizational Pyramid

LEAN/CONTINUOUS IMPROVEMENT = CULTURE

LEAN FUNDAMENTALS

• Work to Takt Time

• One-Piece Flow

• Standard Work

• Pull System

THE BUILDING BLOCKS OF YOUR TURNAROUND

SOME UP FRONT WORK

• Articulate Your Lean Vision

• Obtain the Lean Knowledge

– Kaizen Promotion Office

– Lean Consultant

• Add Some Lean Expertise to Your Board

WIREMOLD STRATEGY

Be the leading supplier in the industries served and one of the top ten time-based competitors globally

1) CONSTANTLY STRENGTHEN OUR BASE OPERATIONS

100% On-Time Customer Service

50% Reduction in Defects—Per Year

20% Productivity Gain—Each Year

20X Inventory Turns

Visual Control and the 5S’s

2) DOUBLE IN SIZE EVERY THREE TO FIVE YEARS

Pursue Selective Acquisitions

Use QFD to Introduce New Products Every Month

BOARD-DRIVEN KAIZEN RESULTS

AMERICAN SAFETY RAZOR

Item Result % Change

Inventory Turns 2.5X to 6.2X + 148%

Working Cap./Sales 34% to 15% - 50%

Customer Service 85% to 98% + 15%

EBITDA Margin 17% to 23% + 35%

Cash Freed From W/C $65 Mil n.a.

Realized 3.5X Return On Investment

GETTING STARTED

• You Can’t Drop Lean on a Traditional Organizational Structure

• Everything Has to Change

• Create a Value-Stream Organization Up Front

• Consider a Reduction in Force Before You Begin

EVERYONE MUST BE ON BOARD

FULL SPEED AHEAD

• CEO Should Make the Announcement and Do the Initial Training

• CEO Should Pick the Early Kaizen Events and Set the Stretch Goals

• Kaizen Is Full-Time Job for the Week

• Cut Set-Up Time

• Free Up Space

• Create Flow and Pull

INVENTORY IS THE ROOT OF ALL EVIL

TYPICAL RESULTS—ONE WEEK KAIZEN

• Cut Lead Times 90%

• Reduce Staffing From 10 to 5

• Reduce Inventory by 70%

• Reduce Floor Space by 50%

• Reduce Defects by 60%

• Reduce Travel Distance by 90%

• Reduce Set-Up Time by 90%

• Connect the Customer to the Shop Floor—Pull System

LEAN LEADERSHIP

• Make the Case for Change—Unfair Competitive Weapon

• Get Everyone on Board or Let Them Go

• Implement Policy Deployment

• Establish Disciplined Daily Management at the Point of

Value-Adding

• Take the Leaps of Faith—Overcome the “Lore”

• Push Through the Problems that Will Pop Up

• Create Your Future Leaders

BE THE COMPANY’S

LEAN ZEALOT

DUMP THE STUFF THAT WILL HOLD YOU BACK

• Standard Cost Accounting System

• Traditional Measurements

• Tickets, Tickets, Tickets

• Big End-of-Month Financial Reviews

• Major Capital Appropriation Request Processes

LEAN APPLIES TO ANY BUSINESS

• Lean Gains Are Bigger in Nonmanufacturing Companies But Harder to Get

– Hospitals

– Life Insurance

– Distributors

VIRGINIA MASON MEDICAL CENTER

• Nurses spend 90% of Time w/ Patients vs. 35% Average Hospital

• Time to Report Lab Tests Down 85%

• Cost of Supplies Cut $1 Million per Year

• Hospital Liability Costs Down 48.9%

• Accounts Receivable Days >90 Days: Down 74%

• Spine Clinic: Space Down 78%; Headcount Down 29%; Margin Up 56%

• Surgery Center: Case Time Down 39%; Turnover Time Down 50%; Cases Per Day Up 60%

• Pharmacy: Order-to-Available Cut 93%

MARGIN DOLLARS

FROM: $0.7M in 2000

TO: $40.9M in 2010

SUMMARY

“Byrne-san, If You Don’t Try Something,

No Knowledge Will Visit You”

Chihiro Nakao

LEAN PROVIDES UNFAIR

COMPETITIVE ADVANTGE

The Lean Turnaround by Art Byrne

Available at lean.org/bookstore

Learn from:

Art Byrne

John Shook

More Speakers, Learning Sessions,

and Companies to be Announced!

$350 Early Registration Discount, register today

Team Discount: Send 4 people and the 5th person is free!

Register at lean.org/Summit

in Orlando, FL

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