James Womack and Daniel Jones have collaborated on analyses of global industrial trends for more than twenty
years. They are coauthors of The Machine That Changed the World, Seeing the Whole, and The Future of the Automobile.
Womack is founder and president of the Lean Enterprise Institute (www.lean.org), a nonprofit education and research
organization based in Brookline, Massachusetts, dedicated to the spread of lean thinking.
Jones, Daniel : Lean Enterprise Academy, U.K.
Jones is founder and chairman of the Lean Enterprise Academy in the U.K. (www.leanuk.org), a nonprofit organization
affiliated with the Lean Enterprise Institute and pursuing the same objectives in English-speaking Europe.
Sample Chapter
Chapter 1
Value
A House or a Hassle-Free Experience?
Doyle Wilson of Austin, Texas, had been building homes for fifteen years before he got serious about quality. "In
October of 1991 I just got disgusted. Such a large part of my business was waiting and rework, with expensive warranty
claims and friction with customers, that I knew there must be a better way. Then I stumbled across the quality
movement."
He read Carl Sewell's book on car dealing, Customers for Life, and decided to test his claims by buying a car at
Sewell's Dallas dealership. ("I thought that if even a car dealer could make a customer feel good, it should
be easy for a homebuilder!") His purchase was such a positive experience that he asked Sewell for advice on
quality in home building and was told to read the works of W. Edwards Deming.
Doyle Wilson is the archetypical Texan and never does things halfway. By February of 1992 he had launched a wall-to-wall
Total Quality Management campaign at Doyle Wilson Homebuilder. Over the next three years he personally taught his
workforce the principles of TQM, began to collect and analyze enormous amounts of data on every aspect of his business,
got rid of individual sales commissions ("which destroy quality consciousness"), eliminated the traditional
"builder bonus" for his construction superintendents (who were qualifying for the "on-time completion"
bonus by making side deals with customers on a "to-be-done-later" list), reduced his contractor corps
by two thirds, and required the remaining contractors to attend (and pay for) his monthly quality seminars.
Customer surveys showed a steady rise in satisfaction with the homebuilding experience and sales grew steadily
even in a fiat market as Wilson took sales from his competitors. In 1995, Doyle Wilson Homebuilder won the National
Housing Quality Award (often called the Baldrige Award for quality of the construction industry), and Wilson set
a goal of winning the Baldrige Award itself by 1998. Yet he was not satisfied.
"I knew I was making progress in competing with other builders for the new-home buyer, but a simple fact,
once it lodged in my mind, wouldn't go away: 78 percent of the homes bought in central Texas each year are 'used'
or older homes. I've been making progress in increasing my share of the 22 percent seeking a new home, but what
about the 78 percent who bought older homes? Obviously, these buyers are the real market opportunity."
So instead of surveying people who were buying new homes, Wilson began to talk with people who were buying older
homes. What he discovered was obvious in retrospect but has required a complete rethinking of his business. Specifically,
he found that many buyers of older homes hated the "hassle factor" in negotiating for new construction,
the long lead times to get the job done and move in, the inevitable "to-be-done" list after moving in,
and the "phony choices" available from builders who promise custom homes but then load on as "standard
equipment" many features of little interest to buyers.
Wilson soon realized that that was exactly what he had been asking his customers to go through. By contrast, older-home
customers could clearly see what they were getting, buy only what they wanted, and, often, move in immediately.
"No wonder I was losing 78 percent of my potential customers!"
To create a hassle-free experience to go with the house itself (these together constituting Wilson's "product"),
it was necessary to rethink every step in the process. He has recently opened a one-stop sales center where the
customer can see and decide on every option available in a house (for example, the forty different varieties of
brick, the three thousand varieties of wallpaper, the four styles of built-in home office), customize a basic design
with the help of an Auto-Cad computer system, select features beyond the standard level (for example, extra-thick
carpet pads, additional outdoor lighting, and heavier-duty wiring), determine the exact price, work out the mortgage,
arrange for insurance, and arrange for the title search. For customers truly in a hurry this can be done during
one walk-through of the sales center.
To shrink the lead time from contract signing to moving in from six months to a target of thirty days, he has reorganized
his contract-writing and job-release process and is developing a system of pull scheduling for contractors who
are assigned new jobs as downstream jobs are completed.
He is also introducing standardized work statements, parts lists, and tool kits for every job. Eventually these
steps will eliminate the "to-do" list because the new system does not allow the next task to start until
the previous task is certified as complete with perfect quality.
Finally, Wilson has created a wide range of basic house designs with a minimum construction standard and asks the
customer to specify all materials and systems upgrades (using the computer design system) to a selected base design
so the customer only pays for exactly what she or he feels is really needed.
Doing all of this will not be easy, as we'll see when we return to this example in Chapter 3 on fiow, but Doyle
Wilson has already made the key leap. Instead of concentrating on conventional markets and what he and his contractors
were accustomed to making in a conventional way, he has looked hard at value as defined by his customers and set
off down a new path.
Start by Challenging Traditional Definitions of "Value"
Why is it so hard to start at the right place, to correctly define value? Partly because most producers want to
make what they are already making and partly because many customers only know how to ask for some variant of what
they are already getting. They simply start in the wrong place and end up at the wrong destination. Then, when
providers or customers do decide to rethink value, they often fall back on simple formulas -- lower cost, increased
product variety through customization, instant delivery -- rather than jointly analyzing value and challenging
old definitions to see what's really needed.
Steve Maynard, vice president for engineering and product development at the Wiremold Company in West Hartford,
Connecticut, was trying to deal with these very problems when he reorganized Wiremold's product development system
in 1992. For many years previously, Wiremold had developed new products -- consisting of wire guides for office
and industrial users and surge protectors for PCs and other business electronics -- through a conventional departmentalized
process. It started with marketing, which commissioned surveys comparing Wiremold's products with the offerings
of competitors. When an "opportunity" was identified, usually a gap in the market or a reported weakness
in a competitor's offering, a design was developed by product engineering, then tested by the prototype group.
If it worked according to specification, the design proceeded to the engineers designing the machines to make the
products and eventually went into production.
This system produced designs which lacked imagination and which customers often ignored. (The designs also took
too much time and effort to develop and cost too much to make, but these are a different type of problem we'll
discuss in Chapter 3.) Simply speeding up this process through simultaneous engineering and then broadening product
variety would just have brought more bad designs to market faster. Pure muda.
Steve Maynard's solution was to form a team for each product to stick with that product during its entire production
life. This team -- consisting of a marketer, a product engineer, and a tooling/process engineer -- proceeded to
enter into a dialogue with leading customers (major contractors) in which all of the old products and solutions
were ignored. Instead, the customer and the producer (Wiremold) focused on the value the customer really needed.
For example, traditional Wiremold wire guides (which channel wiring through hostile factory environments and provide
complex arrays of outlets in high-use areas like laboratories and hospitals) had been designed almost entirely
with regard to their ruggedness, safety, and cost per foot as delivered to the construction site. This approach
nicely matched the mentality of Wiremold's product engineers, who dominated the development process and who found
a narrow, "specification" focus very reassuring.
As the new dialogue began, it quickly developed that what customers also wanted was a product that "looked
nice" and could be installed at the construction site very quickly. (Wiremold had never employed a stylist
and knew relatively little about trends in the construction process.) Customers were willing to make substantial
trades on cost per foot to get better appearance (which increased the bid price of construction jobs) and quicker
installation (which reduced total cost).
Within two years, as all of Wiremold's product families were given the team treatment, sales for these very conventional
products increased by more than 40 percent and gross margins soared. Starting over with a joint customer-producer
dialogue on value paid a major dividend for Wiremold quite aside from savings in product development and production
costs.
While Wiremold and Doyle Wilson Homebuilder and every other firm needs to be searching for fundamentally new capabilities
that will permit them to create value in unimagined dimensions, most firms can substantially boost sales immediately
if they find a mechanism for rethinking the value of their core products to their customers.
Define Value in Terms of the Whole Product
Another reason firms find it hard to get value right is that while value creation often fiows through many firms,
each one tends to define value in a different way to suit its own needs. When these differing definitions are added
up, they often don't add up. Let's take another nightmarish (but completely typical) travel example.
One of us (Jones) recently took his family on an Easter holiday in Crete from his home in Herefordshire in the
United Kingdom. What was wanted was a total, hassle-free package of transport to the airport, a fiight to Crete,
transport to the villa in Crete, and the villa itself. What was available instead was a product pieced together
by the user and involving nineteen different operating organizations:
The travel company (to book the air tickets and the villa), the taxi firm (which doesn't deal with the travel company)
handling the long trip from Hereford to London Gatwick -- no airline fiies nonstop between Birmingham (the nearest
airport) and Crete at Easter time, the ground staffs at both airports (independent contractors to the airline),
the security staffs at both airports (more independent contractors), the two customs staffs (to check your documents
at both ends and to keep themselves occupied doing so), the two airport authorities (who love long layovers because
spending per passenger goes up), the airline (which has been deintegrating and performs less of the support activities
for its operations itself), the air-traffic authorities in five countries along the route of fiight (who follow
the standard form for governments by being undercapitalized and optimized for delays), the bank exchanging currency
at Gatwick airport, the bus company to convey the family to the villa in Crete, and the villa.
The trip was reasonably routine but look at what the Jones family did to "process" itself through the
system:
1. Call the travel company to make the booking.
2. Receive the tickets by mail.
3. Call the taxi company to make the booking.
4. Wait for the taxi.
5. Load the luggage (8:00 A.M. GMT).
6. Drive to the airport (three and a quarter hours), arriving two hours before the scheduled fiight time as required
by the airline.
7. Unload the luggage.
8. Wait in the currency exchange queue (to change English pounds into Greek drachma).
9. Wait in the check-in line.
10. Wait in the security line.
11. Wait in the customs line.
12. Wait in the departure lounge.
13. Wait in the boarding line.
14. Wait in the airplane (two-hour air-traffic delay).
15. Taxi to the runway.
16. Fly to Crete (three hours).
17. Wait in the airplane (taxi and deboarding).
18. Wait in the baggage-claim line.
19. Wait in the immigration line.
21. Wait in the customs line.
22. Load luggage onto the bus.
23. Wait in the bus.
24. Travel by bus to the villa (almost forty-five minutes).
25. Unload luggage and carry to villa.
26. Wait to check in at the villa (9:00 P.M. GMT).
The box score:
Total travel time: 13 hours
Time actually going somewhere: 7 hours (54 percent of the total) 3
Queuing and wait time: 6 hours
Number of lines: 10
Number of times luggage was picked up and put down: 7
Number of inspections (all asking the same questions): 8
Total processing steps: 23
The problem here is not that there were too many firms involved. Each was appropriately specialized for its current
task. The problem instead is that each firm was providing a partial product, often only looking inward toward its
own operational "efficiency" while no one was looking at the whole product through the eyes of the customer.
The minute the focus is shifted to the whole as seen by the customer, obvious questions emerge:
Could one person at check-in handle the security, customs, and check-in tasks? (Letting you walk past them into
the boarding area or even onto the plane.) Better yet, could the ticket sent by your travel agent include your
baggage tags, boarding passes, taxi voucher, bus tickets, and villa registration, so you just drop these off as
you walk through each point? (Or perhaps travelers could create their own ticket using their personal computer
linked to reservations systems. They could simply swipe their credit card through a card reader at each point,
eliminating paperwork altogether along with the travel agent.) Could the customs authorities in Crete have your
passport scanned at check-in in London and use the hours you are en route to figure out whether you ought to be
admitted? (Then, unless there is a problem, you could just walk off the plane without visiting immigration and
customs at all.) And why (does anyone know?) do you need to arrive at the airport two hours before departure? In
short, the appropriate definition of the product changes as soon as you begin to look at the whole through the
eyes of the customer.
The Critical Need for Lean Firms to Rethink Value
If you take a few moments to refiect on almost any "product" -- a good, a service, or more likely both
in combination -- you will begin to see the same issue of the appropriate way to define it. Doing this will generally
require producers to talk to customers in new ways and for the many firms along a value stream to talk to each
other in new ways. (We'll see many more examples of this need in the pages ahead -- for example, the need for car
companies to stop selling a product and car dealers to stop selling services, both to be replaced by a new product
[personal mobility] provided jointly to the user.)
It's vital that producers accept the challenge of redefinition, because this is often the key to finding more customers,
and the ability to find more customers and sales very quickly is critical to the success of lean thinking.
This is because lean organizations, as we will demonstrate shortly, are always freeing up substantial amounts of
resources. If they are to defend their employees and find the best economic use for their assets as they strike
out on a new path, they need to find more sales right now. Beginning with a better specification of value can often
provide the means.
Then, once the initial rethinking of value is done (in what might be called kaikaku for value), lean enterprises
must continually revisit the value question with their product teams to ask if they have really got the best answer.
This is the value specification analog of kaizen which seeks to continually improve product development, order-taking,
and production activities. It produces steady results along the path to perfection.
The Final Element in Value Definition: The Target Cost
The most important task in specifying value, once the product is defined, is to determine a target cost based on
the amount of resources and effort required to make a product of given specification and capabilities if all the
currently visible muda were removed from the process. Doing this is the key to squeezing out the waste.
Conventional firms set target selling prices based on what they believe the market will bear. They then work backwards
to determine acceptable costs to ensure an adequate profit margin, and they must do this any time they begin to
develop a new product. So what's different here? Lean enterprises look at the current bundles of pricing and features
being offered customers by conventional firms and then ask how much cost they can take out by full application
of lean methods. They effectively ask, What is the muda-free cost of this product, once unnecessary steps are removed
and value is made to fiow? This becomes the target cost for the development, order-taking, and production activities
necessary for this product.
Because the target is certain to be far below the costs borne by competitors, the lean enterprise has choices:
reduce prices (another way to increase sales volume and utilize freed-up resources); add features or capabilities
to the product (which should also increase sales); add services to the physical product to create additional value
(and jobs); expand the distribution and service network (again increasing sales, although with a time lag); or
take profits to underwrite new products (which will increase sales in the longer term).
Once the target cost is set for a specific product, it becomes the lens for examining every step in the value stream
for product development, order-taking, and production (this latter being called operations in the case of a service
like insurance or transportation). As we will see in the next chapter, the relentless scrutiny of every activity
along the value stream -- that is, asking whether a specific activity really creates any value for the customer
-- becomes the key to meeting the aggressive cost target.
Summary
Expanded, updated, and more relevant than ever, this bestselling business classic by two internationally renowned
management analysts describes a business system for the twenty-first century that supersedes the mass production
system of Ford, the financial control system of Sloan, and the strategic system of Welch and GE. It is based on
the Toyota (lean) model, which combines operational excellence with value-based strategies to produce steady growth
through a wide range of economic conditions.
In contrast with the crash-and-burn performance of companies trumpeted by business gurus in the 1990s, the firms
profiled in Lean Thinking -- from tiny Lantech to midsized Wiremold to niche producer Porsche to gigantic Pratt
& Whitney -- have kept on keeping on, largely unnoticed, along a steady upward path through the market turbulence
and crushed dreams of the early twenty-first century. Meanwhile, the leader in lean thinking -- Toyota -- has set
its sights on leadership of the global motor vehicle industry in this decade.
Instead of constantly reinventing business models, lean thinkers go back to basics by asking what the customer
really perceives as value. (It's often not at all what existing organizations and assets would suggest.) The next
step is to line up value-creating activities for a specific product along a value stream while eliminating activities
(usually the majority) that don't add value. Then the lean thinker creates a flow condition in which the design
and the product advance smoothly and rapidly at the pull of the customer (rather than the push of the producer).
Finally, as flow and pull are implemented, the lean thinker speeds up the cycle of improvement in pursuit of perfection.
The first part of this book describes each of these concepts and makes them come alive with striking examples.
Lean Thinking clearly demonstrates that these simple ideas can breathe new life into any company in any industry
in any country. But most managers need guidance on how to make the lean leap in their firm. Part II provides a
step-by-step action plan, based on in-depth studies of more than fifty lean companies in a wide range of industries
across the world.
Even those readers who believe they have embraced lean thinking will discover in Part III that another dramatic
leap is possible by creating an extended lean enterprise for each of their product families that tightly links
value-creating activities from raw materials to customer.
In Part IV, an epilogue to the original edition, the story of lean thinking is brought up-to-date with an enhanced
action plan based on the experiences of a range of lean firms since the original publication of Lean Thinking.
Lean Thinking does not provide a new management "program" for the one-minute manager. Instead, it offers
a new method of thinking, of being, and, above all, of doing for the serious long-term manager -- a method that
is changing the world.
Table of Contents
Preface to the 2003 Edition
Preface to the First Edition: From Lean Production to Lean Enterprise
PART I: LEAN PRINCIPLES
Introduction: Lean Thinking versus Muda
1. Value
2. The Value Stream
3. Flow
4. Pull
5. Perfection
PART II: FROM THINKING TO ACTION: THE LEAN LEAP
6. The Simple Case
7. A Harder Case
8. The Acid Test
9. Lean Thinking versus German Technik
10. Mighty Toyota; Tiny Showa
11. An Action Plan
PART III: LEAN ENTERPRISE
12. A Channel for the Stream; a Valley for the Channel
13. Dreaming About Perfection
PART IV: EPILOGUE
14. The Steady Advance of Lean Thinking
15. Institutionalizing the Revolution
Afterword: The Lean Network
Appendix: Individuals and Organizations Who Helped
Glossary
Notes
Bibliography
Index