Doing things efficiently is pointless if they are the wrong things. Here, we interview Keivan Zokaei of the Lean Enterprise Research Centre about how the best organisations, such as Toyota and Tesco, are adaptive to the market’s needs whilst maintaining both quality and efficiency within their business processes.
After completing a degree in polymer engineering, Keivan Zokaei began to take an interest in management issues, which saw him take a post-graduate business degree. Discovering Lean and sustainability whilst researching his dissertation, Keivan subsequently began working at the Lean Enterprise Research Centre (LERC) with Professor Daniel T. Jones.
During his five years at LERC he has had the opportunity of working with many of today’s foremost business thought leaders such as Dan Jones, John Bricheno, Peter Hines, John Seddon and many others, and has completed a PhD.
Keivan’s role now is to direct an MSc in Lean Operations Management for service industry. His main area of interest is applications in the service industry and also Supply Chain Management. As part of his role he has worked with companies such as Unilever and some large automotive companies by training executives and continuous improvement managers.
During your time at LERC, how would you say management thinking has evolved?
Thinking has changed from efficiency-focused paradigms to being effectiveness-focused. Efficiency is doing things right and effectiveness is doing the right thing. There are many companies that are “doing the wrong thing righter”. I don’t think we have to move on from Lean, on the contrary I think lean thinking and the lean community are fundamental to this paradigm shift.
We recently completed research in the area of effective vs. efficient management. For example, in the Fast Moving Consumer Group industry and retail we learnt that there are a lot of fairly efficient supply chains. We mapped 33 different supply chains, end to end and in detail; I took a sample of 23 of these chains and found out that 19 of them, although being very efficient, are completely ineffective. Some of these chains are doing things along the chain (at several points) that are meeting targets in terms of efficiency, but which are completely disconnected from what the customers want. As such it’s easy to make silly mistakes because there are targets which completely disregard the customer.
We have to advance our lean management very quickly and continuously adapt, which is what Toyota and other very good companies do. Toyota do standardise their processes, but they are also looking to make everything adaptive and agile if you like. So on the one hand this sounds contradictory but in fact it’s not: standarisation is there to make sure they deliver improvement very flexibly. That’s the nature of good continuous improvement and that is why we have to move away from the rigid / tools focused paradigms of the past.
You have to be able to adapt and react quickly, ahead of the competition.
And that’s where innovation comes in?
Absolutely, its all about innovation. At the same time you need to be like Toyota. Steven Spear recently published a new book called “Chasing the Rabbit” where he talks about his experiences with Toyota and other companies and he talks about why they are ahead of the game. It is the nature of their adaptive continuous improvement. This is a very good book that I recommend.
They standardise everything because unless you standardise it, you cannot be sure that the best improvement will stick. That ensures that they don’t get into the trap of ‘thinking tools’; they think systems and that’s the difference.
They are moving into systems thinking?
Yes. I think systems thinking is where effectiveness and efficiency converge together.
How do you define the system? Where does it begin and where does it end?
Of course a system doesn’t really “exist”, it’s how you define it, and that’s the point; it’s how you conceptualise it. The system needs to be defined according to the purpose. If you understand your purpose, that’s how you can define and draw the boundaries of the system. Often within organisations when you ask the ‘Continuous Improvement’ department what their key measure of success is and how they know they are delivering their purpose they answer “number of hours internal consultancy sold or delivered”. They will have targets against this measure. Lets sit back and ask what is the purpose of the system? With continuous improvement for instance it is making sure there is an improvement system, that all improvements stick and that you are responsive to change. It is surely not right to measure “number of hours” internal improvement advice delivered. Such ways of measurement are fixated in efficiency thinking forgoing effectiveness.
Are there still traditional toolsets that are applied or do you need to use and find new tools?
You can still use the old tools, but the point is not to be bogged down in thinking tools. There’s nothing wrong with the tools, we just need to understand exactly why we are applying them and ensure we are applying them for the right reasons rather than just applying them because they are accessible. Sometimes, by putting some tools and rigidity within the system you could take away the ability to react to customers needs. By giving the people the right authority by means of suitable system design to understand customers needs and to adapt to it, you have created a better system. And that’s why effectiveness is very important as opposed to efficiency. You can put in lots of productivity measures – for example how many claims are turned around per hour – but that’s not the purpose of the system. The purpose of the system is to satisfy the customer, for example not to turn around ten claims per hour.
Systems Thinking in service and effectiveness and efficiency thinking in supply chain management arguably are convergent. I think they are very similar, as is the management thinking of David Snowden and the work of Steven Spear on decoding the secret of Toyota’s success. I think we are at the beginning of understanding and realising some of these things. It’s still early days though.
Are Toyota a lot further down the road than everyone else?
Yes, they are quite adaptive. They have been through a few crises over the years and have survived. This one that we’re in right now is starting to be one of the worst yet, and Toyota – like everyone else in the automotive industry – is making big losses. There are lots of reasons for this. Toyota has got the cash reserves to cope with it. Although they have been expanding very aggressively (and maybe they were too ambitious); they are facing new markets that they don’t have the right experience for. Arguably, they have been expanding too quickly and have maybe lost some of their principles; for example their inventory levels have been rising steadily over the last few years. Part of that is because they have been expanding range and into new markets; they have the largest range of all the manufacturers. And bear in mind this is a very specific crisis affecting credit, which is a big part of the automotive industry. Also the Yen has been soaring affecting their exports.
By the very nature of the volume auto sector, the level of asset specificity is very high. Toyota and other volume car makers are not able to make anything else other than automobiles,it is more difficult for Toyota to adapt. Although they are already trying to manufacture more economic models and offer better value (as in new improved models) to customers. Unlike Tescos who can sell TVs and computers as well as food; they can quickly adapt to compensate, particularly in terms of in-store range and assortment they have been adapting to a falling economy. They launched their Discount range not long ago. Tesco offers different range according to the local consumer needs, very quickly. They are the only retailer in the world that has this ability. This has made them very profitable too as it costs them less to deliver it. Whereas Tesco has used the clubcard scheme to become very close to their shoppers, Toyota has invested in collaboration with their suppliers upstream and does not have the same level of ability as Tesco in understanding their consumers and to rapidly adapt to their ever changing requirements (maybe partly due to the nature of their sector).
So how difficult is it for organisations to move into this adaptive flow, systems thinking way of working?
It’s very very easy and I think it can be achieved very quickly. If you define your improvement project as a large initiative with huge goals, then maybe it will take years and years. That’s not a very clever approach. By making it a part of everyday job you can radically improve things in a short time, particularly in supply chains.
I recently walked the supply chain of a wine-making company. When the recession hit and you have a large warehouse full of bottled wine, this is not a clever situation to be in. What about keeping wine in bulk and then bottling it to order? You can do it; of course you have to take food science and quality issues into account, but as management problem its a lot better to postpone your bottling until firm orders are received. This company has 170 days inventory for a single Stock Keeping Unit in the UK alone. Only 5 to 10 days is at the retail end (in other words are paid for by the retailer), as the sellers do not want a big inventory.
If we look at our supply chain, improvements are everywhere, and a lot of it is very logical to implement. It’s just that we are unfortunately driven by efficiency ways of thinking: measures and targets which in many cases prevent us from improvements. Improvements don’t need to be enormous tasks; it’s something to be achieved very quickly by everyone in the organisation.
Can you explain to me the term ‘mega mura’?
‘Mura’ is the Japanese for ‘uneveness’, if you like, and Taiichi Ohno started looking at why there is an uneveness in demand, and asked their customers and dealers. The fact is when you look at the end of demand, it is often very smooth, it is more or less constant. That is the actual requirements we get from the end customer, the end user. However, when it is passed up the supply chain it becomes amplified. This is known as ‘demand amplification’ which is well known in all supply chains.
Small changes in the end customer orders can be amplified twenty fold when you travel up several echelons along the supply stream. Customers changing demand by 5% can easily lead to changes of 50 or 60% three or four echelons up the stream. This can be devastating. You have certain capacity, and when you are faced with these changes it is disastrous both in terms of capability and capacity. You can guard against this by various Lean techniques, for instance keeping inventory low or Just-in-Time.
As an example, let’s take the laptop. There are companies who supply materials for the components of a laptop who are three tiers away from the end customer. When the recession hit and the first tier demand went down in Comets and Currys and places like that, the components manufacturer won’t know till a month or so later. By the time they can react, it is now two months later, and so on and so forth, so the situation becomes amplified and also delayed. That’s why companies like Corus, who are steel manufacturers, suffered so much. And that’s what Jim Womack called the ‘mega mura’ caused by plummeting demand in a recession period.
‘Mura’ is the natural day-to-day fluctuation in demand between these companies. If it is not eliminated, and you are far up the chain like Corus, you suffer very quickly and greatly, especially if the people you supply have inventory, as they will try to save cash by depleting that inventory.
If we had industries that were all lean, a lot of the lagged recession effects wouldn’t happen. Bear in mind that economics is an empirical science and difficult to, for example, use econometrics modeling to accurately predict such phenomena on a macro-scale. Recession is exacerbated by ‘Mega Mura’ but also there are the financial and credit cycles, etc.
So what you are talking about is that you have to be aware not only of your own supply chain, but also that of your customers and your suppliers as well?
Absolutely. You understand exactly where you stand then. If you know that your customer does not have a lot of inventory, then you know they can’t put a lot of pressure on you by not ordering for long periods (unless going out of business) and you can plan accordingly. On the other hand, if you know they do, and that therefore they can deplete own inventory gradually over a long period, you have to do something to guard against ‘Mura’.
