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Lean manufacturing catches on with small businesses

On June 5, 2009 a factory worker assembles Prius hybrid vehicles along the assembly line at Toyota Motors' Tsutsumi factory in Toyota, Aichi prefecture.

Tess Vigeland: The federal government isn't the only one talking about cutting waste and tightening belts. Corporate America's been doing that a lot over the last several years. But one phrase is popping up enough to turn buzzy: "Lean manufacturing." It's changed the way many manufacturers operate -- and not just the big guys. Small businesses are also adopting the management strategy.

Chicago Public Radio's Tony Arnold reports from Northbrook, Ill.


Tony Arnold: Matt Lovejoy's small metal shop, called Acme Alliance, was in financial trouble in the early 2000s. Acme provided big telecommunications companies with small metal parts, like latches and face plates for circuit boards. But when its biggest client -- Lucent -- struggled financially, Acme lost a lot of business. Lovejoy had to scramble to find new customers.

He remembers trying to impress one potential client who came all the way from Sweden. But after just 10 minutes at the plant:

Matt Lovejoy: He turned to me and said that he needed a taxicab back to O'Hare; that the meeting was over, the audit was finished and there was no way he was ever going to buy anything from a factory like this.

In Lovejoy's words, his shop was dirty, dingy and Dickensian. It was clear he would have to make some changes. One evening, he started venting to a client, who told him about a concept he should consider: lean manufacturing.

Lovejoy: We were at a restaurant. Literally, turned over his placemat and got out a Sharpie and drew a value stream map for me.

That map shows every point of the manufacturing process, and what can go wrong along the way. Rearranging the flow of how products are made got Lovejoy excited, so he took the idea and ran with it. And when you hear Lovejoy talk about going Lean now, it's almost as if he found religion.

Lovejoy: It was like being struck by a bolt of lightning. It just made so much sense.

The philosophy of Lean boils down to exactly what it sounds like: cutting excess waste. That can mean anything from supplies that never get used to workers and equipment with too much downtime. For Lovejoy and Acme Alliance, it meant reprioritzing internal operations.

On the factory floor, Lovejoy explains how things are different. Simple things, like organization.

Lovejoy: We don't buy big batches of hydraulic fluid anymore and then figure out where to store it. We know precisely where it goes.

In terms of efficiency, the employees have a more diverse knowledge of the whole shop.

Lovejoy: Here's an example of one operator who's making three different parts.

And giving new powers to all staff.

Lovejoy: Management and line workers, there's very little distinction any more.

One of the most famous examples of a company going Lean is Toyota. It went so far as to give workers the power to stop the assembly line if something went wrong.

James Schrager is a professor of entrepreneurship at the University of Chicago. He says Lean strategies have really taken hold in the auto-making industry.

James Schrager: When the Germans -- the best car builders in the world -- called the Japanese to teach them, you know it's the shot heard round the world.

Schrager says Lean ideals have been gaining popularity among a variety of companies, from the big to the small.

Schrager: It's the present of manufacturing and the future at the same time. What's happening is that the very large companies have had to do it and it's now flowing through the whole system.

But there are instances of Lean ideals being disruptive to the manufacturing process. Daniel Holland analyzes manufacturing companies for Morningstar. He says if a company decides to embrace Lean, it shouldn't do it halfway.

Daniel Holland: The biggest flaw or the biggest issue that you'd come across is perhaps somebody that's doing it and calling it that and they're not really actually doing lean manufacturing or they're not truly adopting the principles.

For Matt Lovejoy at Acme Alliance, he says company sales are holding strong. It now does about $50 million in sales each year -- about 25 percent more than a decade ago. Lovejoy says if that potential client from Sweden were to come back for a tour of the plant, he wouldn't be rushing off to the airport so fast.

In Northbrook, Ill., I'm Tony Arnold for Marketplace.

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