Article Contents:
What is Lean Manufacturing for SME's?
Lean manufacturing for small businesses is not simply about applying tools such as 5S, OEE or Value Stream Mapping.
It is about building a systematic approach to identifying and eliminating waste so the business can achieve more with its existing resources.
In my experience working with SMEs, I have seen businesses look for additional machines, manpower or shifts when the real opportunity was within their existing operations. Hidden losses in quality, breakdowns, changeovers, waiting, inventory and poor flow were consuming valuable capacity.
Lean is about achieving more with less.
It means achieving more with the given resources or with fewer resources.
Lean mainly focuses on eliminating or reducing waste.
Lean manufacturing can be understood by comparing it to the human body. When a person is said to be lean, it generally means they are free from unnecessary body fat and, therefore, free from side effects like high blood pressure, joint pain, and laziness. Such a person is perceived as healthy, flexible, and active.
Similarly, Lean manufacturing refers to a system free from unnecessary fats such as high inventory, rejection rates, breakdowns, or line stoppages. This results in a more flexible delivery system, shorter lead times, better quality control, lower manufacturing costs and better communication among people.
Lean System or Lean Organization means eliminating unnecessary waste throughout the entire value chain, from the extended supply chain to customer service and even after-sales service.
Lean System Thinking is more than the application of Tools and Techniques.
It is a culture, way of working, or mindset of everyone working for the organization that aims to continuously improve business processes for profitable growth.
What benefits can Lean Manufacturing bring to a Small Business?
From my experience in implementing lean system thinking in small organizations, the biggest benefit I have witnessed is “ Delivery performance improvement.”
In one of the small companies, before engaging in a lean transformation, delivery performance was less than 60%, and the company was running operations 24/7 without a break for equipment and plant maintenance.
Once we engaged in a lean transformation, we jointly identified that one particular piece of equipment was a constraint on delivery performance, and we also identified the following waste in and around the critical process.
- Machine frequent breakdown
- High changeover loss, more than 6 hrs
- High inventory at RM and WIP stages
- Actual cycle time is more than machine-specified standard time
- Rejection is more than 10 % in the process
- 3-shift operations, but still not able to deliver
- No Planning of product schedule
- OEE is less than 20 %
| Business Measure | Before | After |
|---|---|---|
| Delivery performance | <60% | 92% |
| Turnover | Base | 3X |
| Operating shifts | 3 | 1 |
| Rejection | >10% | 2% |
| Changeover | >6 hours | 30 minutes |
| OEE | <20% | 65% |
| Inventory | Base | 54% reduction despite 3X turnover |
My learning from this experience: The company did not primarily have a capacity problem. It had several hidden losses that were consuming the available capacity. Once those losses were systematically addressed, the same business achieved significantly more with fewer resources.
What are the misconceptions about Lean Manufacturing in SMEs?
- Lean means cost-cutting
No. Cost cutting means reducing expenses, whether required or not. Lean focuses more on reducing waste or unnecessary expenses, which does not add value to the customer and business.
- Lean is for manpower productivity
This is partially true. Lean focuses on eliminating or reducing waste in any form, such as man, machine, material, and method. By eliminating or reducing wasteful activities in format, manpower, material, machine, or process efficiency is improved. Hence, it does not focus solely on manpower productivity alone.
- Lean is applicable to manufacturing organizations only
No. As mentioned, lean is all about waste elimination. Waste will be present as long as activities are present in any organization. Wherever waste is there, Lean is applicable. It is not only applicable to manufacturing.
Concept of Lean can be implemented in any business processes and in any functions other than manufacturing.
- Lean can be implemented only in a large organization
No. One of the assumptions is that implementing lean requires investment and that only large organizations can afford it. Actually, understanding the lean concept, tools, and techniques is easy and requires no investment.
Lean thinking and practices can be implemented in any size organization. In fact, Lean can be easily implemented in small and medium-scale organizations because of its size and the activities involved.
- Lean is all about 5S and Visual Boards
No. Most people think doing Housekeeping (5S) and putting up display boards is lean manufacturing. Of course, a fundamental requirement for waste elimination is housekeeping, i.e., keeping the workplace in order, but that alone does not constitute a Lean system.
Lean is beyond implementing housekeeping. Of course, visual management is one of the elements of a lean system, and display and control boards are part of it.
Hence, Lean is beyond 5S and visual boards or even it is beyond any lean tools and techniques.
It is a philosophy of improvements and way of conducting daily management.
- Lean is for during lean seasons
One of the most common misconceptions is that lean implementation is NOT for peak season, as everyone is busy with activities, and lean is for the lean season.
Lean has nothing to do with people’s busyness, either during peak or lean periods. Lean is for waste elimination or reduction. Implementing and practicing lean concepts during peak periods may yield more savings.
- Lean can be useful during recession
Same as the above assumption. There is no right time for a recession or a booming economic environment.
If lean thinking is understood well and implemented internally, external factors will not affect the organization much.
The people will have capability to face the external challenges’ with lean system thinking.
- Lean is only for the automobile and mass production environment
No. Lean is not specific to any industry. Wherever there are activities involved, Lean can be implemented. It is popular in the auto and ancillary industries because the lean concept was first developed and tested in the auto industry. Lean system thinking can also be applied in batch and low-volume production environments.
Most of my clients’ businesses operate on batch production and project-based systems, where we have seen the positive impact of lean systems thinking.
- Lean implementation is time-bound
No. No organization can claim that it implemented lean system thinking because the fundamentals of lean are zero waste, zero accidents, and zero defects. This is impossible to achieve, and thus, it calls for a continuous improvement or excellence journey.
Lean implementation is a process or journey. It is not a destination. However we can have some milestones of lean implementation.
Which Lean Tools & other management concepts are most useful for Small Businesses?
Tools to improve Flow & Delivery
Flow Manufacturing
One of the key concepts of lean manufacturing is the idea of converting raw materials into finished goods with minimal or no delays in the production process. This is known as single piece flow, and it is an ideal measure of manufacturing efficiency.
To achieve this level of efficiency, it is important to focus on improving factors such as production rate imbalances, rejection control, equipment utilization, and work standardization, as well as making improvements to plant layout and communication processes.
Ultimately, the success of the business can be measured by the speed of order fulfillment, from the time an order is received to the time it is delivered to the customer.
Value Stream Mapping
This technique is called lean visualization, which helps to map the entire supply chain process from end to end. It enables the identification of the current state of the material flow, process flow, and information flow across the organization. Furthermore, it can help to identify opportunities for waste reduction or elimination at a higher level.
This can be used as a blueprint for future improvements in organizational supply chain activities. Before starting any lean initiatives in the organization, this is the basis for understanding the current state.
Line Balancing
One of the techniques used in flow manufacturing is to balance the production line or cell with respect to Takt Time or customer demand.
Takt Time
Takt time refers to the expected time within which a customer anticipates their product to be produced. For instance, if the takt time is 1 minute, then the customer expects one product to be manufactured every minute.
Therefore, to meet the customer’s expectations, you need to ensure that your entire manufacturing process is internally balanced and can produce products within or equal to 1 minute.
Lead Time
Lead time refers to the time taken by the system to deliver a product or service to the customer, starting from the moment the order is received.
It includes both value-added and non-value-added activities. Reducing the lead time should be one of the essential performance indicators as it reflects the overall efficiency of the system.
Cycle Time
This is the amount of time it takes to create one item, including value-added time. Your goal should be to reduce the process cycle time if it is constraining delivery.
Product Vs Process Layout
The organization of plant equipment and processes, whether by process or product layout, has a significant impact on material flow, lead time, and information flow.
The plant layout must be reconfigured based on product variety and volume.
Ergonomics Principles
One of the micro-productivity tools is the application of ergonomics. This discipline mainly concerns the relationship between humans and work.
It addresses the fatigue of people in the workplace due to work nature, posture, tools and working conditions.
The ergonomics principles are focusing on optimizing four factors: the person, the tool, the work, and the environment.
Tools to improve Equipment Productivity
Overall Equipment Effectiveness
This is one of the performance measures to assess the effectiveness of your critical equipment or manufacturing line. Through this one measure, you shall holistically understand the product’s utilization, people’s efficiency, and quality. One of the powerful operational excellence measurements.
Quick Changeover Techniques
One of the inefficiencies in any manufacturing or service system is the loss of time that occurs during the changeover process from producing one product type to another.
This changeover loss can occur in a machine during processes such as die setting, tool settings, or component replenishment in assembly, among others.
Changeover loss refers to the time gap between producing the last pieces of product A and the first good piece of product B. This loss can be significant in certain manufacturing or service systems.
Fortunately, there is a structured way of organizing the changeover process known as the quick changeover technique.
Single Minute Exchange of Dies (SMED) and One Touch Exchange of Dies (OTED) are concepts that fall under this technique.
Tools to improve Quality
Root Cause Analysis
When trying to solve a problem, it’s important to identify all the different factors that could be causing it. This is where root cause analysis comes in. The process involves listing all potential causes in an organized way and then validating each one to determine which are most likely contributing to the issue.
This helps to narrow down the possible causes and identify the true root cause of the problem. Some common tools and techniques used in root cause analysis include brainstorming, cause and effect diagrams, and why-why analysis.
Total Employee Engagement
This concept involves engaging all employees to contribute towards the organizational goals. Every employee has different engagement and motivation levels, so their contributions towards the same goal may differ.
To achieve this goal, companies must design and execute various engagement initiatives, such as suggestion schemes, small group activities, cross-functional team participation, rewards, and recognition programs.
Structured Problem Solving Methodologies
When it comes to problem-solving, the tendency is often to find a quick fix and move on, only to have to deal with the same problem again later on. This reactive approach is not ideal and can lead to a lot of wasted time and resources. Instead, a structured problem-solving methodology can help to ensure a more systematic and effective approach.
This typically involves a series of steps including problem definition, data collection, prioritization, cause analysis, root cause analysis, action planning, implementation, results checking, and countermeasures as needed until the desired solution is achieved.
There are several different methodologies and approaches available, such as Six Sigma, 8D, and traditional problem-solving using QC tools and techniques, but fundamentally, they all rely on the PDCA cycle (Plan-Do-Check-Act).
Pareto Principle
The 80/20 rule, also known as the Pareto principle, suggests that roughly 80% of the effects come from 20% of the causes. This rule can be applied to any problem, such as maximizing revenue, reducing costs, or improving quality.
Mistake Proofing Techniques
It is possible for humans to make mistakes in any kind of work. Mistake-proofing techniques aim to prevent errors from happening at the source or at least detect them after they have occurred, so they are not passed on to the next stage or customer.
These techniques consist of various ideas to prevent or detect errors at the source. They can be applied in any environment where there is a possibility of human error.
Quality Assurance
This statement emphasizes the importance of ensuring quality throughout the entire product development and manufacturing process, rather than simply controlling quality at each stage. It underscores the value of engineering, problem-solving at the source, fostering a culture of continuous improvement, and proactive management over reactive management.
Failure Mode Effect Analysis (FMEA)
One useful tool for quality assurance is risk analysis, which can be employed for both new and existing designs and processes. Essentially, this tool involves evaluating the potential risks associated with a design or process from the customer’s perspective, with a focus on quality and safety.
Risk analysis can be applied to design, process, and service areas.
Statistical Process Control (SPC)
Statistical process control (SPC) is a quality control method that leverages statistical techniques to observe, monitor, and regulate a process.
It can be used in any manufacturing process where the process parameter can be measured against the desired specification.
By educating operating personnel on SPC, quality can be managed at the source level.
Control Charts
Control charts are a statistical process control (SPC) tool that helps determine whether a manufacturing or business process is in a state of control or not. There are different types of control charts available depending on the observation type of the process, such as variables and attributes. This technique can be taught to the operating personnel, enabling them to control quality at the source level.
Why Why Analysis
One technique for finding the root cause of the problem is why why analysis. In this method, each probable cause is questioned to a deeper level to determine the root cause of the problem.
Gantt chart
A simple visual tool that shows the plan vs. actual status of any activity at any given time.
It can be used to track the progress of actions in a project or operational environment.
Tools to improve Daily Management
Small Group Activities
As a part of employee engagement, small group activities encourage employees to form teams and solve organizational problems. These teams are recognized for planning and executing solutions to the problems and then dissolved.
The primary focus is on front-line operators and administrators to resolve issues related to their work areas. The majority of small group activities involve the use of simple, structured problem-solving methodologies, tools, and techniques under the guidance of a leader.
Key Performance Indicators (KPI)
We engage in and observe many activities throughout the day. However, only a few truly matter when it comes to an organization’s profitability and growth.
Key Performance Indicators (KPIs), as the name suggests, help identify important parameters at the business and functional levels. These parameters are defined with the right unit of measurement, current level, and desired target level.
Visual Management
Visual management is a powerful management concept that involves visual display, visual metrics, and visual controls. When implemented effectively, it can improve communication, facilitate timely problem-solving, and increase engagement across the organization. It can be applied in both manufacturing and service industries.
Housekeeping Principles
The fundamental of operational excellence is keeping the house in order.
The important principles of housekeeping are as follows.
• Keep what you really need
• Provide a location for each part
• Provide identification for each part
• Establish the process for cleaning and sustaining.
An SME does not need to implement every Lean tool. The right approach is to first identify the business problem or waste and then select the appropriate tool.
What types of Waste should SME Founders look for ?
Definition of Waste:
Any resources that are consumed without any use or adequate return are called waste.
From a Lean perspective, it is called Non-Value Added activities. That is, from the customer’s point of view, they are not willing to pay for those activities.
The resources could be Manpower, Money, machines, and Materials.
For example,
You are machining a component for changing its shape for which customer is willing to pay for it. But if you machine it incorrectly and rework it using your manpower, the customer won’t pay for it. That is a waste from the customer’s perspective.
Typically, waste is classified into 7 categories (and the categories are increasing now!).
When I ask the participants about the types of waste they encounter in their operations during my “Awareness to Lean” Training programme, they list many types of waste as follows. I think those wastes are real and easy for everyone to relate to.
- Movement of material
- Walking by the operators
- waiting for material
- waiting for schedule
- waiting for decision
- waiting for people deployment
- Machine idle due to changeover or setting
- Machine idle due to breakdown
- over processing to please customer
- Producing more or earlier than due date
- Storage
- Work in progress Inventory
- Rework
- Rejection handling process
- Unnecessary human body motions.
How should a Small Manufacturing Business start its Lean Journey?
- Quick assessment of current business management practices
- Form a cross-functional team along with senior leadership team
- Involve CEO / Business head in all reviews and to drive the initiative
- Develop Business / Functional KPI’s which are important for business
- Create awareness to the team to look at wastes in the system through VSM workshop
- Education on selection of right tools to eliminate or reduce waste.
- Also educate the team on the application of lean tools and techniques with case study examples to relate with
- Make priority list along with the team to focus on waste elimination or reduction
- For the identified waste, apply suitable lean tools starting from housekeeping (2S), Visual management, SMED, Flow manufacturing concepts and techniques, Best Maintenance practices, Daily work management like tracking hourly, daily output/quality issue tracking and reporting
- Create forums for review meetings with operating team, cross-functional meeting among heads and weekly review meeting with CEO or business head
- Review, Update KPI and tracking the progress.
- Make it a culture of continuous improvement to deliver value to customer.
Becoming a lean organization is not a one-time event, it is a continuous journey.
Why do lean initiatives fail in small business?
In my experience working with small business, not all the business succeed in lean initiatives.
Many organizations struggle to sustain the learnings and implementation post my engagement. Even some organisations do not cope in the initial engagement itself.
The main reasons i observe as follows
- Lack of time and support from the business head
- Looking at lean initiatives as standalone initiatives rather than linking with business pain
- Lack of communication and awareness among all levels of employees
- Expecting quick solutions and not spending time on standardizing the process
- Not focusing on sustaining the results with a standardized process
- Expecting external push from consultants as they experienced during engagements.
What is the role of the Founder or CEO in Lean Transformation?
In my experience working with SME’s in implementing a Lean system, I used to urge the founder and CEO on the following to make the transformation successful and sustainable.
1. Connect Lean with a real business problem.
Don’t start Lean because somebody recommended 5S or VSM. Start with delivery, quality, inventory, productivity, margin or capacity.
2. Make functional leaders own the improvement.
Lean should not become the responsibility of a consultant or separate Lean team.
3. Review the right business and operational KPIs.
The founder doesn’t have to become a Lean expert but should regularly ask whether the losses are reducing.
4. Build capability rather than dependence.
The objective should be to make the internal team capable of identifying and eliminating waste continuously.
How can SMEs sustain Lean Improvements?
Sustaining lean thinking and improvements is a challenge for many small businesses.
I have observed that sustaining progress can occur in the following way, based on my experience with successful clients.
- It’s important to connect the business KPIs and lean initiatives every year. Encourage the team to follow the learnings from previous initiatives.
- The lean initiative should be an integrated activity and not just a standalone drive led by one senior person and a small team. The core functional head, such as the operations head in the case of manufacturing, must own the initiative and drive it every year.
- The business head should review the business and operational performance regularly. They should ask relevant questions on issues related to lean tools.
- Lean thinking is a way of working and problem-solving. Until the organization reaches maturity in this area, the business must drive their team to adopt and implement it.
How does Lean manufacturing contribute to Profitable Growth?
Lean is not the final objective. Profitable growth is.
Less waste
→ better productivity
Better productivity leads to
→ more capacity from existing resources
Lower rejection + inventory
→ lower cost and better cash flow
Better flow
→ better OTD and shorter lead time
Better delivery brings
→ stronger customer confidence
All together
→ healthier and more profitable growth.
Does your Business need Lean System Thinking?
Five or six questions are sufficient to decide:
- Is sales growing but delivery performance still inconsistent?
- Are you adding manpower or shifts without a proportional improvement in output?
- Is inventory increasing faster than sales?
- Are breakdowns, rejections and changeovers consuming capacity?
- Are the same operational problems recurring despite regular reviews?
- Does meeting customer commitments depend on firefighting?
If several of these situations are familiar, the first solution may not be adding more resources. It may be identifying and eliminating the waste already present in the business.
This is where a holistic Lean System Thinking approach can help.
Frequently Asked Questions About Lean Implementation in SMEs
Definitely. Whether the business is small or large, Lean System Thinking is all about continuously identifying, eliminating or reducing waste in manufacturing and business processes. Hence, Lean manufacturing is equally relevant and suitable for small businesses.
Not significant..The cost can be on educating the team and handholding till they get the cababilities of using lean tools and techniiques to eleimnate and reduce the waste in the system.
It depends on the size of organization and processes involved.Typically,in my client organization with turnover less than 100 cr and people with less than 100 people, they start seeing the significant improvements on manufacturing cost reduction and delivery improvement within 9 to 12 months.As mentioned, waste reduction is a contiuiousn improvement journey.
Small organizations often struggle to implement lean manufacturing practices due to their limited resources, such as manpower and finances. Unlike larger organizations, they may not have the luxury of assigning a dedicated team to spearhead the initiative. This is a genuine challenge that many small businesses face.
This resource constraint needs to be looked at and solved from a different perspective, as I have done in my client organizations.
Lean initiatives should not be delegated to a specific team as a special task. Instead, the initiative should be owned by the existing team, which I refer to as the core team. The core team should receive training and awareness on the concept of lean and its benefits. They should be encouraged to take ownership of this initiative. In fact, the success of the lean initiative comes from the extent to which people in the core function own it and execute it, rather than someone doing it in isolation and transferring it to the core team.
The core team needs to be made aware that lean should be seen as a solution for their pain points, rather than an ornamental initiative by the company. By making people aware of the core benefits and how individuals benefit from the lean initiative, we can avoid the need for additional resources.
It is a common misunderstanding that lean initiatives require capital or investments. In fact, lean is all about eliminating unnecessary expenses from the system. Therefore, it does not require any investment, except in cases where the team believes that the plant or equipment requires technological upgrades. In such cases, investing in them becomes necessary.
Hence, the resource constraint is manageable concern and can be solved without requesting additional resources.
One of my observations is that some leaders treat Lean as a short-term initiative to be implemented under a consultant's guidance. As long as the consultant is involved, there is focus, review and momentum. Once the engagement ends, the initiative gradually loses priority.
Lean should not be treated as a consultant-driven initiative. It should be connected to the real business pain and objectives, such as improving delivery, productivity, quality, inventory, cost or profitability.
During the engagement, the consultant should not only implement improvements but also transfer the required capabilities to the internal team. At the same time, the founder or business leader should personally engage in the transformation and ensure the team takes ownership.
After the consultant leaves, leadership involvement becomes even more important. Regular reviews, continued focus on business and operational performance, and continuous problem-solving should become part of the organisation's normal way of working.
The consultant can facilitate the Lean transformation, but the organisation must build the capability to sustain it.