Developing a Risk Management Plan for Your Lean Implementation – a Distribution Center Case Study

Managing risk in your planning and during the implementation of a lean initiative–or any other major change initiative for that matter–requires a great deal of careful consideration.

My company is assisting in a major rollout of lean practices in 20 facilities across the U.S. for a large retailer (identity concealed) in their distribution and repair operations. A key element of the initial deliverables I require at all levels of the organization in the implementation of lean concepts is risk-careful management assessment and countermeasure planning. Using this real company as a case study, let’s examine some of the required parts of the risk assessment and countermeasure planning process. Included here are the actual ideas and actions underway as we speak in a regional distribution center (DC) in the eastern United States.

Corporate sponsors and project management–risks to manage

Before arriving at the regional DC, we had previously defined key risks and responsibilities for managing risks at a high level. Some of the key risks to implementation success include:

• Failing to expend adequate resources at the facility level. Implementing lean is decidedly a “no pain, no gain” deal. If a measured effort is not expended, it is impossible to get the expected results.
• Failing to provide incentives to facility directors to drive change. This includes changing job descriptions, performance appraisal criteria and the bonus structure tied to results–both in expending the effort and in measuring quantifiable improvements.
• Failing to train and develop the middle managers and supervisors to adopt a team-based empowered culture, moving away from traditional command-and-control management styles.
• Failing to adequately answer the “what’s in it for me” (WIIFM) question for the entire workforce.

Facility directors and their management team–risks to manage

• Failing to adequately communicate, on a local level, the vision and action plan to the entire workforce is a major risk, requiring care guidance, training, and follow-up.
• Failing to require all facility staff members to participate in training and implementation.
• Showing favorites, allowing individuals or groups to opt out of full and unconditional support of changes.
• Failing to change job descriptions, performance appraisal criteria, and the bonus structure to be in line with the implementation of lean and other changes.

Facility steering committees and continuous process improvement facilitators–risks to manage

I’m a big fan of John Kotter and require all leadership teams to read his book, Leading Change. He outlines the top reasons for failing to implement a major change in businesses (which a lean implementation personifies!).  In a lean implementation, the key requirement for success is empowering the workforce. The reasons to empower our people are pretty easy to understand. On the contrary, understanding the reasons for failing to accomplish empowerment are less well understood and are listed below:

1. Failing to build an effective guiding coalition. (For more on this, see the Lean Culture department article in the November/December 2003 issue.)
2. Failing to create and convey a sensible vision: “Why change?”
3. Ineffective communication and the lack of planning and verification of effectiveness.
4. Inadequate and ineffective training. Failing to provide new skills for employees at all levels is deadly. Without skills, it is impossible to empower the workforce.

Note: One of my favorite quotes of late, credited to Woosley and Swanson, goes something like this: “People would rather live with a problem they cannot solve or overcome than accept a solution they cannot understand.”

5. Ignoring the “Grieving Cycle.” People naturally resist any kind of major change. Failing to understand the natural acceptance cycle people go through to be able to embrace change is foolhardy and shortsighted.
6. Not carefully answering for everyone, WIFFM?
7. Failing to create and celebrate quick wins and lose sponsor support.
8. Lack of measurements and metrics to drive behaviors. At the end of the day, the only common denominator that everyone can understand is money. Metrics and measures must somehow tie back in a measurable way to financial performance.
9. Failing to encourage and value risk-taking and challenging of old ideas.

The facility steering committee or guiding coalition that guides the implementation of major change initiatives has certain key roles as follows:

1. Participate in identifying and resolving change barriers and risk issues in the facility.
2. Assist with development of implementation plan deployment in the facility for change.
3. Assist in assessing project risks and developing a countermeasure plan of action, and continue in this role for the duration of the project.
4. Develop and assist in executing a comprehensive communications plan to support project progress and elevating issues to facility directors and corporate project managers.
5. Assist in assuring resources are provided in the facility for implementation–hours of training and CPI activities as defined in the project plan.
6. Provide support for facilitators who will champion facility implementation teams to resolve issues, break roadblocks to project success, etc.

Local DC-level risk management planning and countermeasures

Below are some of the risks that were brainstormed by this DC’s guiding coalition team to identifying success and suggesting countermeasures that will be pursued by the team going forward.

Failing to answer effectively: “why are we implementing lean?”

The body of knowledge on lean is slanted heavily toward manufacturing operations. For an in-depth examination of how lean tools apply in distribution, please see the cover article in the January 2005 issue of this magazine. With this information, people in distribution areas can more easily understand how these ideas work in their environment. After all, people would rather live with their current problems than accept solutions they can’t understand.

Generically, the reasons to implement lean are manifold, including improving customer satisfaction, reducing costs, reducing lead times and improving the work itself through the involvement of an empowered workforce. If we examine this from a stakeholder perspective, here are the “whys”:

• Customers–faster deliveries of benchmarked quality products and services at a fair market price.
• Owners–improvement in shareholder value in profitability, cash flow and positioning the business to grow though being globally competitive.
• Management and supervision–providing the basis for superior operational performance and literally making management and supervisory jobs easier through empowering everyone to think about adding value and eliminating waste in processes.
• The workforce–improved job security, safety and the work itself. Having a say in how things will be done in the future; being able to make a difference.

Allowing complacency and naysayers to hold sway.

If anyone is visibly opting out of involvement in your initiative―and allowed to get away with it―you may as well shoot yourself now. Few things are more demotivational to people than realizing they are working hard for something that is not expected from everyone equally. Very quickly, people will see that it’s ok to give the whole change initiative lip service.

The best solution for this problem is a strong commitment on the front end of the effort to establish team norms and actively change the structure that drives behaviors. One of the structural changes includes changing position descriptions to mandate involvement in the implementation of lean. These mandates include involvement in kaizen teams, actively providing ideas and measuring individual performance to standards set by the team.

Cost–not allowing enough budgeted resources to be able to make the changes happen; no pain, no gain.

This one is one of the most obvious, yet most often violated, requirements in a lean implementation. The gurus promise quick wins and will launch Kaizens to quickly make changes. The temptation is to give training and continuous practice of the principles of lean short shrift by “Kaizening” your way to prosperity. I recommend that the steering committee come up with a minimum level of effort required by all employees as part of the process. For example, at the major retailer’s distribution centers, we have committed to investing an average of 4% of this year’s working hours to training and involvement in implementing lean and kaizen circles.

Four percent of a forty-hour week works out to a little more than one and a half hours a week on average, per employee. Trust me on this one–the apparent paradox is that taking this much time out of the productive work week reduces output and efficiency. What is remarkable is the fact that case study after case study has proven that properly structured activities by workers who have been trained to practice practical problem-solving and error-proofing techniques always generate two to five times the investment in improved results.

Below are several more areas that I consider high-risk problems if they are not aggressively addressed in the risk assessment and action plan phase of planning a lean implementation:

• Shifting production volumes and requirements–takes us away from regularly making the effort to get things done to take care of customers.
• Training–failing to do enough to be effective, failing to train new hires in the future to effectively support the team.
• Allowing “Franks” to exist–supervisors who continue in their “command and control” ways, undercutting efforts to empower the workforce.
• Failing to develop the necessary soft skills to be effective in our implementation:

1. Facilitation
2. Conflict Resolution
3. Training
4. Communications
5. Answering WIIFM questions

• Failing to plan for the fact that we may see part of the workforce change or leave due to the changes required.

In my opinion, there is rarely enough effort expended in risk management at the onset of a lean implementation. By learning vicariously from the failures of those who have gone before, we can avoid the pitfalls and problems caused by a lack of careful risk assessment and countermeasure planning causes. My advice: err on the side of over-planning. You will be far better off in the long run.