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Having explained that the application of lean made a significant difference to internal audit within AstraZeneca, this chapter sets out some background about lean: where it came from, its key principles and the benefits that are likely to result from putting it into practice.

ORIGINS OF LEAN AND THE BENEFITS IT DELIVERS

Some argue that the story of lean can be traced back to boat construction in 16^th Century Venice, but I suspect we could go back further to road building techniques and weapons manufacture in Roman times. However, the story of lean as a holistic set of principles, tools and techniques is widely understood to centre around Toyota’s achievements after World War Two.

Influenced by developments in the US and elsewhere, for a period of over a decade Toyota developed various production line techniques into a complete management system, called the Toyota Production System (TPS). TPS comprised a range of product and process development techniques, supply chain management techniques, new approaches to problem solving (such as root cause analysis), improved approaches to customer service and new approaches to leadership and teamwork. In 1965 the Deming prize for quality was granted to Toyota for TPS.

As a result of TPS, Toyota became capable of making cars at a significantly lower cost than a number of major US motor manufacturers, despite their scale advantages. Toyota, alongside many other Japanese car companies (who were using similar approaches), therefore gained increasing success across the world.

The label “lean” for the techniques developed and applied by Toyota was first used in 1987 by John Krafcik, a student at that time of the Massachusetts Institute of Technology (MIT) International Motor Vehicle programme. Krafcik observed that Toyota’s systems and processes:

• Required less investment for a given production capacity;

• Went from concept to delivery with less time and effort;

• Delivered products with fewer defects.

He observed: “It needs less of everything to create a given amount of value, so let’s call it lean.”

After this came a series of important books from key players in the MIT International Motor Vehicle programme:

• The machine that changed the world by Womak, Jones and Roos, that gave an account of the techniques employed by Toyota and other Japanese manufacturers and demonstrated the superior performance of this approach;

• Lean Thinking by Womak & Jones, which sets out the key principles of lean and also noted the successes of a number of other organizations in the US and Europe as a result of implementing lean techniques.

Typical benefits obtained from lean ways of working include:

• Reductions in: defects, lead times, cost, inventory and waste;

• Improvements in: customer satisfaction, productivity, capacity, responsiveness and quality.

Since then extensive research has been undertaken to deepen our understanding of the power of lean and numerous other lean books have been published. Lean techniques have been successfully applied in a range of sectors outside of motor manufacturing (e.g. in white goods and pharmaceuticals manufacturing) and, increasingly, in service sectors (e.g. airlines, healthcare). Lean has also been successfully applied in a range of support and service areas (including finance and administration).

KEY LEAN PRINCIPLES, TOOLS AND TECHNIQUES

The overall philosophy underpinning lean is to maximize customer value whilst minimizing waste. The Lean Institute states that lean means: “creating more value for customers with fewer resources.”

The Five Key Principles of Lean

The five key principles of lean can be summarized as:

Specify Value from the Point of View of the Customer

The aim is to have a deep and ongoing understanding of exactly what the customer is looking for and what they value. A common question in lean circles is “What is the ‘Voice of the Customer’ saying?” Lean asks us to be wary of giving the customer simply what is convenient for the producer, though it recognizes the place for offering new and innovative products/services (even if they were not requested), if they are going to be valued by the customer (e.g. the Apple iPod).

Identify the Value Stream

Having understood what is valued, the goal is to understand, in detail, the sequence of processes and activities that deliver this value, all the way from raw materials (if applicable) to the final customer. Lean asks us to critically appraise the purpose of each of these steps: what value is added by each step (in the eyes of the customer) through the whole process, from end to end.

Flow

Based originally on a production line mindset, but extended to a more general principle, lean encourages us to make value flow. Lean asks us to look out for waste in any form, such as rework, delays or other interruptions to delivering value. Other issues (such as overburdening or underutilization) should also be noted and addressed. This lean principle also requires close attention to the supporting or preparatory activities that underpin customer delivery.

Pull

The lean goal is to deliver customer demand at the time it is needed –not too early (since that can be inefficient and wasteful) or too late (since that will normally not be what the customer wants), but “just in time.”

Seek Perfection in Ways of Working

Lean asks us to seek the ideal way – delivering exactly what the customer wants, when it is wanted, at a fair price and with minimum waste. This lean principle goes deeper than just being in line with competitors and what others are doing, (e.g. taking a benchmarking approach). Lean is a way of working that looks for maximum customer value with zero waste – at least as a goal. Linked to this principle is the “Kaizen” notion that one should strive for ongoing improvement, since few processes, if any, will achieve the goal of perfection.

The lean principles set out above should not be viewed as a linear step-by-step checklist, but rather as a set of underpinning principles informing all ways of working.

Other Schools of Lean and the Neutral Approach of this Book

Associated with lean is the field of product quality and six sigma (which is used to drive a very low rate of deviation from required standards). This has led to Lean Six Sigma, which is useful for the manufacture of products that need to be made to a high product quality specification.

In addition, lean has been combined with systems thinking (which is concerned, amongst other things, with the ways different parts of an organization are interrelated), resulting in the lean systems approach.

Other approaches to lean also exist, but I take an open-minded approach to the various “flavours” of lean. I think each lean approach has something interesting to say, but I do not believe internal audit should be wedded to a specific lean approach. I have spoken to some CAEs who have been through a lean review (often as part of a wider organizational programme), but have found this has offered limited benefit. This can happen when those driving the lean review are mostly focused on looking for cost savings, or outsourcing opportunities, or do not have a deep understanding of the unique role of internal audit.

My experience suggests success in implementing a lean auditing approach is often about recognizing the context of specific organizations and adapting what should be done to deliver workable results, whilst staying true to the overall spirit of lean.

Cost Reduction and Lean

It is worth writing a few words about lean in relation to cost reduction, since this is one of the key reasons lean attracts attention. Indeed, as mentioned earlier, when I was CAE of AstraZeneca cost management was one of the reasons I was interested in lean. However, lean ways of working should not simply be equated with cost cutting. John Earley (Partner, Smart Chain International) explains:

“Lean is not simply about cost reduction. Managing and reducing cost is a by-product of lean, it’s not a driver for it.

Cost cutting measures may buy you time, but often they won’t have transformed the business, and as a result the consequences of cost savings will pop up as costs somewhere else. They’ll arise in customer complaints, or in other areas that might hit your reputation, or your bottom line. In other words, one part of the business might cost less, but the business as a whole suffers, and so often it becomes a negative spiral.

Lean takes a different approach looking at value as well as efficiency. Will lean reduce cost? Yes it will, but the idea behind lean is if you take care of the value the cost will take care of itself.”

I think one of the reasons I enjoy working on lean auditing is that, whilst it supports productivity it does not do this in some bleak and heartless manner. To my mind, lean is as much about building added value and developing staff to do this, as it is about productivity and cost management.

References and Other Related Material Of Interest

Bicheno, J. & Holweg, M. (2008) The Lean toolbox: the essential guide to Lean transformation.

Lean Enterprise Institute (2009) A Brief History of Lean. http://www.lean.org/WhatsLean/History.cfm

Lean Enterprise Institute (2009) Principles of Lean. http://www.lean.org/WhatsLean/Principles.cfm

Lean Systems Society (2014) http://leansystemssociety.org/

Morgan, J. & Brenig-Jones, M. (2009) Lean Six Sigma for Dummies. John Wiley & Sons, Chichester.

Womack, J. & Jones, D. (2003) Lean Thinking (Revised & Updated).

Womak, J., Jones, D. T. & Roos, D. (2007) The Machine That Changed the World. Simon & Schuster Ltd