Five Years into Lean
posted on August 16, 2012
Where should an organisation be five years into its lean journey? In my view it’s lean progress should be rewarded with a vision of how the organisation is going to use the new capabilities of their staff and their value streams to exploit new opportunities that competitors will struggle to follow. By then I would expect top management to be setting the direction for lean, middle management to be focused on streamlining their value streams and the front line to be deeply engaged in problem solving. At this point it should be possible to rebuild the IT architecture of the organisation to mirror and support their lean processes. Then it is time to look ahead.
Five years into their lean journey Tesco had already grown sales through better product availability, saved cash from less inventories, cuts cost from improved store and warehouse productivity and less wastage and saved £400m by postponing their warehouse building programme by four years. They then realised their rapid response supply chains could also supply local convenience stores at almost no additional cost to supplying its supermarkets, opening a whole new retail format now being copied by others. They also realised they could quickly establish national coverage for their home shopping channel tesco.com at little extra cost by picking orders in slack times in hub stores, instead of building dedicated fulfilment centres which its competitors were doing.
While the lean supply chain was the enabler, the vision for new ways of serving customers came from their intense focus and deep understanding of customer needs. In his outstanding new book Management in 10 Words, Sir Terry Leahy describes how Tesco pioneered new ways of collecting data and opinions from its customers that drove its strategy. Through Customer Panels and analysing their loyalty card and home shopping order data they understand exactly who their most loyal customers are and what they buy, how their lives are changing and how well Tesco actually serves their needs. This in turn is leading to new innovations like mobile ordering systems in commuter stations, pick-up points and stock-less stores.
Amazon has followed a similar path, building on their web platform and their distribution system also modelled on Toyota's example, to expand well beyond books and consumer goods into industrial supplies. More recently they have been experimenting with pick-up points in cities and building local distribution centres to offer within the day availability to customers. This brings Amazon into direct competition with Tesco as the world of clicks and bricks converge. It will be fascinating to see what emerges from this contest. My guess is that it will be the organisation that best understands how customers' lives and needs are changing and is best able to flawlessly deliver on its promises.
This is just one example of lean capabilities opening new business opportunities in a sector where things move really fast. But even manufacturing businesses with long product cycles the next investment cycle provides the opportunity to radically rethink the design of the product and it's production system in the light of the experience of leaning the current generation. It is also the chance to reconfigure global supply chains to make and deliver products to customers in days rather than many, many months. The same is true for services like banking and insurance, where streamlining back office transactions processes is opening up the possibility of customising bundles of products and services for key customer groups and building a completely new relationship with them.
It goes without saying that all the existing lean activities need to continue and be deepened all the time. However if organisations are not also systematically learning from these to think about their future they are missing what is probably the biggest lean opportunity of all, designing new lean business models that will redefine their industry. The challenge is to think beyond existing assets and channels and the inspiration and direction will be spurred by an intense curiosity about their core customers and how to help them to create greater value in their increasingly busy lives.