Question

As a new senior accountant of Ferndale Rugs, Inc., an exotic rug manufacturer, you have taken on the new responsibility of variance analysis for the company. During your monthly analysis, the company’s current performance report reveals a relatively large and unusual sales volume. This is considering the past three quarters of operating in a deficit, the sales volume is favorable but the sales price variance is unfavorable. Now the CEO has asked for a recommendation on how the organization can become a lean organization and whether the theory of constraints can be implemented.

• What recommendations would you give the CEO on how to become a lean organization and how the theory of constraints could be implemented?

Answer 1

1. 6 Steps to Become a Lean Organization

STEP 1: FIND YOUR WHY

The first step to becoming a Lean organization is determining why you want to adopt Lean practices in the first place.

• What are your goals and objectives?
• What do you hope to achieve from becoming a Lean organization?
• Why are you personally interested in Lean principles?

Perhaps you’re interested in Lean because you’re tired of feeling overwhelmed at work. Or, maybe you want you and your team members to accomplish more in less time, so you feel less overwhelmed and more connected to the organization, delivering value that matters. There are a number of great reasons to introduce Lean to your organization, but if you want to stay committed to your Lean practices, you need to have at least one personal reason that motivates you.

STEP 2: BECOME A LEAN CHAMPION

Getting people to change old habits and adopt a new work management philosophy is tough. Most people are set in their ways and don’t want to change. If they’re not constantly encouraged to follow Lean principles, workers will probably slip back into the old way of doing things. This is why we encourage you to identify personal reasons to introduce Lean, because if you’re the Agile leader, you’re the Lean champion who pushes everyone to constantly improve.

Of course, if you’re tasked with creating an entire Lean organization from the grassroots level all the way to the boardroom, you’ll need some help. We recommend finding an executive champion—someone in a C-level leadership position who supports your initiatives and can help you implement Lean at the company level.

Just how important are executive champions? Very. We surveyed 3,000 Lean practitioners and found that 69% of the teams working under the guidance of an executive leader outperformed teams without Lean-friendly executives.

For this reason, it’s essential that you find someone in the upper ranks who supports your initiatives and will build a Lean-driven organization.

STEP 3: LEARN AND APPLY LEAN PRINCIPLES

Lean may be a collection of simple, easy-to-understand concepts, but actually following those principles is challenging. If you’re creating a Lean organization, you must lead by example. You must do more than simply memorize Lean concepts—you have to actually understand and apply them. And this isn’t a one-time thing, either. Learning Lean should be an ongoing endeavor, so that you’re able to apply Lean to an ever-changing professional landscape. You can do this by reading popular Lean blogs, listening to podcasts and webinars, and reading books exploring new areas of Lean theory.

STEP 4: MAP YOUR VALUE STREAM

After you’ve learned Lean principles and begin to feel comfortable applying it in practice, the next step is to map your value stream. If you’re new to the whole process, value stream mapping is when you create a flowchart-like map that illustrates the steps in your production from start to finish. Value stream mapping does more than create a visual representation of your product’s development, however. It’s also a powerful tool for analyzing and improving various steps within the operation, as well as understanding how value flows through the different teams within your organization.

STEP 5: PUT YOUR VALUE STREAM INTO A KANBAN BOARD

Thanks to your value stream map, you now have a visual representation of all the steps involved in your process. Your next task is to take those steps and turn them into lanes in a Kanban board. This will allow you to see tasks and items move through the value stream in real-time, making it easier to identify and correct any issues as they arise.

An essential tool for Lean organizations, Kanban boards enable teams to analyze and optimize processes for maximum value creation. You can use a Kanban board to:

• Pinpoint bottlenecks and stoppages preventing teams from completing a task
• Record and assess time spent on each step in the workflow
• Prioritize tasks, ensuring that teams stay focused on reaching their goals

Basically, Kanban makes it easier to complete value delivery more effectively. If you’d like to learn more about Kanban and how you can use it in your Lean organization, take a look at our Kanban Roadmap ebook.

STEP 6: CREATE A CULTURE OF EXPERIMENTATION

It’s common for most people to have a fear of failure.

With the Lean approach, however, organizations embrace failure and what you learn from failing fast. After all, a core part of the Lean methodology is driving innovation, and failure is a part of the innovative process. When we discourage people to take risks and fail, we discourage innovation as well.

In other words, Lean organizations understand that experience is a great teacher. When teams fail quickly, they have an opportunity to learn what went wrong. That way, they can approach problems differently based on previous experiences, experimenting with different approaches until they come up with a solution that works.

While celebrating failure might sound like a strange approach, it’s actually an integral part of the Lean’s drive for continuous improvement. Remember, one of your primary goals under the Lean approach is to decrease the time between production and feedback. Every time you make adjustments after feedback, you’re experimenting with your product to make it better. You’re removing the elements that were considered a failure, creating a better product as a result. For this reason, Lean organizations believe it’s important to fail early and fail often. That way, they can learn from their mistakes, experiment, and improve their product to better meet the customer’s needs and expectations.

BUILDING A LEAN-FRIENDLY ORGANIZATION

Adopting Lean practices is one of the most effective ways to transform your business. Lean adds value, simplicity, and clarity to your organization. Instead of focusing on specific tasks at hand, Lean asks that employees and management focus on one primary objective: continuous improvement.

Innovative software solutions like Planview LeanKit®, with its built-in Lean-friendly tools like Kanban Boards, work-in-progress (WIP) limits, and enterprise scalability features, make it even easier to become a Lean organization that values flexibility and continuous improvement. That way, you can focus on what really matters—driving innovation.

2.How to apply the Theory of Constraints within your business

5 steps in the Theory of Constraints

1. Identify the constraint
2. Exploit the constraint
3. Subordinate and synchronize to the constraint
4. Elevate the performance of the constraint
5. Repeat the process

In 1984, an Israeli businessman named Eliyahu M. Goldratt wrote a novel called The Goal: A Process of Ongoing Improvement as a way to introduce a management methodology he called the Theory of Constraints. Goldratt’s novel centers around a manager who oversees a manufacturing plant that has three months to turn things around or it will be shut down.

With the help of an acquaintance, the manager recognizes that there will always be constraints in manufacturing—and that the key is to identify and address those constraints early.

Now many businesses around the world have adopted this methodology to better understand the factors that could be keeping them from their goals. Learn more about the Theory of Constraints and see what tools you can use to optimize your processes.

What is the Theory of Constraints?

Goldratt’s Theory of Constraints (TOC) is a process improvement methodology that recognizes that there will always be at least one factor that will constrain processes or manufacturing.

Theory of Constraints in 5 steps

The following five steps are designed to help you discover constraints early in order to minimize or eliminate them.

1. Identify the constraint:Identify the specific part of a process that is keeping you from meeting desired goals. Constraints can come from internal factors, such as lack of training or poorly designed processes, or external factors, such as a shortage of materials.

2. Exploit the constraint:Determine how you can work with existing resources to reduce the impact of the constraint. For example, if the constraint is an overworked employee, redistribute assignments to get the work done.

3. Subordinate and synchronize to the constraint: The parts of the process that are not constraints need to align with and support the constraint. For example, a construction worker can only use one tool at a time. You wouldn’t keep trying to hand him wrenches or screwdrivers while he is using a hammer.

4. Elevate the performance of the constraint: If the constraint still exists, you will need to make it a higher priority. For example, you may need to hire more people to increase the workflow in the area where the constraint exists.

5. Repeat the process as needed: TOC is an ongoing process that allows you to continually find ways to improve. You will need to repeat these steps to ensure that you are getting the work done and meeting goals.

Benefits of using Theory of Constraints

Much like other management processes such as Lean manufacturing and Six Sigma, TOC keeps you focused on what needs to be improved so you can eliminate the things that impede progress and don’t work. TOC can lead to:

• Increased profit
• Faster process improvement
• Capacity to manufacture more products
• Reduced lead times
• Reduced inventory

Thank you. I hope this answer is correct. And sorry for any mistakes. If you have any doubts please ask me.