Name an organization and it has likely done something over the past few years to “lean” out some process, be it purchasing, transportation, case man- agement, product development, or customer relations. Lean thinking does not just involve efforts to reduce waste and inefficiency, however. It also involves a kind of organizational “triage” designed to sort products and pro- cesses into different categories that can be managed with the appropriate discretion and incentives.
John Deere did it in the mid-1990s by strengthening its relationships with suppliers based on the characteristics of the products it buys. Low-risk, low-value products such as nuts and bolts are defined as generics, and are pur- chased through standardized, automated systems using simple selection cri- teria to govern relatively short-term contracts, while low-risk, high-value products such as tractor tires are defined as commodities, and are purchased through longer-term contracts among a smaller base of suppliers.
In turn, high-risk, low-value products such as axles are defined as unique, and purchased through longer-term contracts with a small number of partners with whom it shares both information and expertise, while high- risk, high-value products such as transmissions and engines are defined as critical, and involve a tighter relationship. Because they significantly affect profitability, the company invests in its relationships. “It severely limits the number of providers for each product, sometimes moving to sole sources,”
RAND’s study notes. “It purchases extensive data exchange and devolves considerable responsibility to these sources.”
These strategic alliances assure a long-term relationship that depends on shared incentives, not competition for success. They also reflect a triage among providers into four classes: non-preferred, approved, key, and part- ner. “Until a supplier can demonstrate otherwise, Deere manages it as non- preferred,” RAND’s team writes. “Deere’s long-term goal is to mature its providers over time….If things go well, trust accumulates between buyer and seller and they can enter into a deeper relationship that generates more value for both of them.”
Setting priorities is only part of lean logistics, however. Many com- panies have reduced the number of suppliers dramatically. According to RAND, Allied Signal cut its supplier base from 10,000 in 1992 to fewer than 2000 in 1997; Boeing cut its 31,000 suppliers to less than 20,000 by 2004; 85 percent of IBM’s purchases are now concentrated among 50 sup- plies; Intel has adopted a “n+1” benchmark in determining the maximum number of suppliers (n) needed in each commodity area; Merck cut its sup- plier base from 40,000 to 10,000 during the 1990s; and Whirlpool cut its supplier base by 50 percent in the late 1990s and early 2000s.
RAND has used these and other lessons from private firms to design and promote lean logistics and purchasing in all of the armed services. It has also explored the potential savings from lean manufacturing in the air- craft industry, where nearly all manufacturers had embraced the concept, if not the practice of lean thinking by the late 1990s. After summarizing the potential gains from lean thinking in engineering, tooling, manufac- turing, quality control, manufacturing, administration, and even human resource management, R AND asks why so few firms have actually suc- ceeded in wall-to-wall reform. “One answer lies in the difficulty of enact- ing any large-scale organizational change, especially one where the benefits to the companies are mixed with costs (as is the case in defense manufac- turing, where more efficient production in cost-plus or cost-based contracts means lower profits for the manufacturer,” RAND answers. Moreover, it can take years to build a truly lean factory. “And this transition does not
just happen but requires a significant commitment and level of effort by the organization, its suppliers, and even its customers.”
Thinking lean does not just apply to logistics and manufacturing, however. It also applies to basic strategy. As RAND’s research on lightning over water suggests, organizations must also make whole units lean by giv- ing them the training and equipment to deploy faster. If light forces are to be the instrument of choice in fighting limited engagement across the world, the Army must decide how to give them greater survivability and firepower.
Toward this end, RAND maintains that the Army has three choices.
• It can take current light forces such as the 82ndAirborne, and give them better and heavier equipment, including its own precision weapons that can be brought to bear against heavier adversaries.
• It can make current light forces smaller and more dispersed.
Instead of using large numbers of light forces to contain an adversary in traditional head-to-head combat, the Army could create very small, highly dispersed, virtually independent teams that would move independently of each other, but come together in occasional swarms.
• It could make current light forces more maneuverable, and therefore more survivable. The maneuverability would require new, somewhat heavier equipment, as well as the ability to target heavier forces with coordinated air support.
R AND’s research shows that the Army cannot continue with its
“come as you are” force, especially if adversaries decide to stand and fight.
Using simulations of light forces arrayed against the kind of heavier forces they faced in the 1991 Gulf war, RAND found that the current generation of light forces simply does not fare well against a powerful, armored oppo- nent that decides to fight. Following the first choice outlined above would improve overall effectiveness in today’s world, but not the increased need for anywhere, anytime responsiveness. Following the second choice increases responsiveness, particularly by reducing cargo weight, but reduces firepower and the ability to sustain a battle with heavier opponents. Fol- lowing the third choice actually decreases responsiveness, but increases fire- power and the ability to take on heavier opponents.
Whatever the Army decides, it must become more agile. Although the overall magnitude of threat faced around the world may have declined since the Cold War, the number and diversity of threats will most certainly increase. As RAND argues, “the threat has ‘globalized,’ meaning that the
U.S. Army may need to deal with a much broader range of opponents, in many diverse locations, and through many kinds of missions, perhaps more so than at any other point in its history.” As a result, the American must rely on light forces that can be airlifted quickly, and a streamlined supply process that go to the farthest point on the globe with equal agility. Doing so requires the ultimate application of lean thinking.
Thinking lean even applies to research and development, a point well made in RAND’s research on Xerox, which has been working for more than a decade to align its technology investments more closely with customer demand. Given the unpredictable markets it faced in the early 1990s, Xerox adopted a much flatter organizational structure, gave its product divisions greater responsibility for all steps in the product delivery process, and cre- ated a strategy council to formulate a strategic vision of customer needs and emerging markets. In the early 2000s, Xerox also called on General Elec- tric Capital to fix its billing process, which had come unhinged in an admin- istrative consolidation.
GE Capital also helped Xerox implement “Lean Six Sigma,” which blends total quality management with Toyota’s lean-manufacturing philos- ophy. Together the two approaches have helped Xerox reduce the number of research cycles needed to bring a product to market, shaving time and money from the design process, while reducing waste and environmental costs. Xerox not only used the system to develop its new DocuTech print- on-demand copiers, it has created its own fledgling consulting business to teach other companies how to move from being consciously incompetent to unconsciously competent.15