Lean Construction

What is it and why do so many companies fail in implementing it?

Lean Construction is a continuous improvement system that has been implemented at hundreds of the highest performing construction firms around the globe. This system is derived from Lean Enterprise which came from Lean Manufacturing, and both are outgrowths of the Toyota Production System that is used in nearly every top manufacturing company. Fortunately, these same processes translate directly to the construction industry.

Perhaps the easiest way to think about it is this: once you implement Lean Construction, the company performs in a manner similar to an Indy 500 pit stop. You have probably marveled at their ability to change 4 tires, add fuel, and make other modifications to the car in a matter of seconds. Conventional construction is more like changing a tire on a car for the first time in your life. The “Lean Construction” pit stop eliminates as much waste, especially wasted time, from the process as possible. Conventional tire changes don’t follow much of a process, and take much longer. Lean Construction can easily add 5 to 10 percentage points to the net income of your construction company and make the lives of you and everyone in your company much easier and less stressful.

So why isn’t everyone doing it? It isn’t because it’s hard to do—it’s not. But it does require (i) the guidance of someone experienced in implementing it successfully and (ii) a business owner with the sheer will to implement these new processes in their company.

What is Lean Construction?

There’s an old saying that goes…

“Every day in Africa, a lion wakes up. He knows he must run faster than the slowest gazelle or he will starve.
Every day in Africa, a gazelle wakes up. He knows he must run faster than the fastest lion or he will be killed.
Either way, when the sun comes up, you’d better be running.”

The point is that there are no innocent bystanders in business. Business people, certainly including the leaders of construction companies, cannot go on automatic pilot thinking that the future will be like the past. You can’t be a mere spectator, focusing on the urgent but non-strategic, without risking waking up to find a lion about to make a meal of you. You’re either a lion or a gazelle—a hunter or a hunted. There is no in between. Lean Construction is all about being the hunter.

The working definition of Lean is:
“A process to provide ever greater value to customers by continually eliminating waste from the value delivery stream.

In construction, your value delivery stream consists of all the tasks your company performs for your customer between the time you become aware of a project opportunity and the time you’re through the warranty period and have collected all the receivables.

When we conduct a value stream analysis with a construction client—we use big sticky notes on a 20’ x 4’ sheet of drawing paper—they are usually shocked to find out what everyone is doing and at what point in the process they are doing it. Frequently, before we’ve even completed the “as-is” map, the client starts changing the way they want to do things, creating the “to be” map because they see so much waste. Usually, they see the wasted time first.

Value delivery streams which have never been scrutinized are typically 80% to 90% waste. Our clients often don’t believe this statistic until they work through a Value Delivery Stream exercise for their company. Then it becomes very apparent. It’s like the difference between the 5-second pit stop and the novice taking 45 minutes to change a tire. At Indianapolis, they’ve made the elapsed time approach the actual task time.

Eight Types of Waste to Expose and Eliminate from the Construction Value Delivery Stream

  1. Waiting – When people or equipment stand idle waiting for a previous task, materials, information, equipment, maintenance etc.
  2. Overproduction – Performing work ahead of schedule, out of sequence, causing interference with other planned tasks. Additional material ordered because supplier doesn’t provide 100% quality.
  3. Unnecessary Transportation – Moving material from one staging area to another.
  4. Motion – Trips to the materials supplier to pick up things we forgot to order (failed to plan). Orders to our warehouse to pick up equipment or tools not available at the jobsite.
  5. Over or Incorrect Processing – Expediting material orders, excessive emails or calls with the GC or owner to make sure we have the right information.
  6. Excess Inventory – Material and equipment acquired too far in advance of when it’s needed. It gets moved multiple times or disappears.
  7. Defective Construction – Inspecting or reworking tasks because the drawing or design was wrong, or the task wasn’t done right the first time.
  8. Reacting – If we spend all of our time reacting (to the latest string of emails, phone calls, or GC or owner yelling at us), there’s no time or energy left over to think about how we ought to be doing things.

Where Did It Come From?

As shared earlier, Lean was born at Toyota back in the 1950s, decades before anyone called it “Lean.” And, as you would suspect, they first applied this system for removing waste to their own manufacturing plants. Later they figured out that if Toyota was going to become more efficient, their suppliers and subcontractors needed to eliminate waste from their value streams as well. So, they started teaching Lean (then simply the Toyota Production System) to all of their suppliers, subcontractors, and anyone who wanted to learn.

Eventually, people running service businesses, e.g., insurance companies, figured out that they could easily apply these principles for exposing and eliminating waste to their own value delivery streams and make a lot more money. Thus, Lean Enterprise was born. In the 1990s, a few construction companies discovered there were huge amounts of waste in their value delivery streams that they could remove using Toyota’s principles—and make a lot more money. Lean Construction was born.

Since then, companies of all types have tried to implement Lean with varying results. Some, like Toyota, have become fierce lions and gobbled up lots of gazelle competitors. Others didn’t really comprehend the value of Lean, didn’t have the sheer will to implement it, and soon reverted to being gazelles—disappointing many of their employees (who when they started the Lean process thought something really great was going to happen, but then realized their leaders were not committed to change).

Why Do It?

Again, we gave it away at the beginning. Properly implementing Lean Construction can easily add 5 to 10 percentage points to the net income of your construction company. So, if you’re a $500 million construction company, you have the opportunity to capture an additional $25 to $50 million if you have the will to do it. It’s not hard. It just requires a clear vision of what an additional $25 to $50 million annually could do for your company.

And why learn from Toyota? Let’s review a few facts.

  • Toyota has risen from virtually no market share in the 1970s to becoming a global leader in 2019 with about the same global market share as Ford and Chevrolet put together.
  • Toyota’s 2019 net profit was nearly twice that of General Motors and more than twice that of Nissan and Honda combined.
  • Toyota’s 2019 market capitalization (value of its outstanding stock) is greater than its three nearest competitors (Volkswagen, Mercedes, GM) put together.

In addition to the financial incentives, implementing Lean Construction removes much of the excess stress and aggravation from a construction project. Think for a moment about a hockey game. While the players are proactively trying to execute their game plan, they spend most of their time reacting to where the puck is going next.

Now think about a concert orchestra.

  • Everything needed is there
  • Everyone knows where everything is
  • Everything they need is optimally pre-positioned
  • Everyone is trained
  • Everyone has practiced
  • Everyone knows their tasks
  • Everyone knows the sequence
  • Everyone knows the timing constraints

It has a lot in common with an Indy 500 pit crew. Both are far from stress-free, but the excess stress has been removed because most of the waste has been removed.

Are your construction projects more like hockey games or orchestral performances, more like someone changing a tire for the first time or like Indy 500 pit stops?

Your life and the lives of everyone in your company can be a lot easier.

Why Do So Many Construction Companies Fail When They Try to Implement It?

In our experience, out of every 100 people you meet who have “Lean” on their resumes or who claim to understand Lean, there are perhaps 3 to 5 who actually understand it well enough to walk into a company and make it happen. So, there is an abundance of “false prophets” you could waste your time on.

And Lean requires a process. As you have probably deduced, Toyota is not a company run by a bunch of “seat-of-the-pants” managers, for whom every day is a brand new day. Toyota is a process-driven company where the over-arching process is to expose and eliminate waste of all sorts.

Many middle market and family owned construction companies are not and never have been process-driven companies. They have succeeded because the founder(s) or original core group of managers were really good seat-of-the-pants construction managers. They made good decisions most of the time and, thus, a successful construction company was born. If they hired well, they brought on board many more good seat-of-the-pants managers and the company continued to prosper.

However, every growing construction company eventually reaches the point where that style of management starts to fail, and you need a company way of doing things that everyone understands and follows. The leader of the company can’t be everywhere at once and can’t make every decision. If you have more than seven direct reports, you’ve probably reached that point.

So why do companies fail in trying to implement Lean Construction? First, they don’t have anyone to guide them around the rookie mistakes that are so easy to make, someone who understands exactly how to implement Lean, and has done so in many construction companies. Second, they don’t understand that they need to become a process-driven company, a construction company that has a company way of performing critical tasks—frequently because they don’t know which tasks are causing the most waste.

The “Secret” Toyota Formula

In the late 1990s, academics at Harvard Business School became interested in why companies so often failed to duplicate Toyota’s success in driving out waste, in making their manufacturing processes look more like Indy 500 pit stops.

What Professors Spear and Bowen reported in Decoding the DNA of the Toyota Production System was that most companies got caught up with all the shiny new tools available in the Lean toolbox. Tools with exotic Japanese names like kaizen, kanban, and poke yoke. And, what happens when you give a child a hammer? Suddenly everything needs hammering.

Companies frequently became so consumed in using the tools with the code-like Japanese names, they applied them to a lot of problems that did not improve customer satisfaction, increase revenues, or reduce costs. So, nothing valuable happened. And unfortunately, they lost interest and gave up.

Implicitly, Toyota knew that when you give someone a toolbox full of tools they’ve never used before, you need to provide them with a set of processes that allow them to choose where, when, and how to use the tools. Toyota had a set of simple rules they followed, in addition to the tools.

The FortéOne Formula

FortéOne combines our Six Factor approach to assessment and implementation with the tools and rules of Lean Construction to dramatically improve the competitiveness of your company in a way that just works.

  1. Strategies to win – with a Critical Few priorities
  2. Organizational design and development – the right people in the right seats on the bus
  3. Financial and data management – without Situational Awareness, you’re a gazelle
  4. Operations and supply chain – processes to make sure safety comes first, performing quality work, on schedule, cost effectively and prepared for more growth.
  5. Marketing, sales, and innovation – more processes to make you a hunter
  6. Technology and systems – processes that work for you

Our implementation experience steers you around the lurking pitfalls and tailors implementation to a pace appropriate to you and your company. There is no “one size fits all” with us.

And our construction clients know this works because they are now reaping the financial benefits.

Join the ranks of construction companies who have decided to become hunters. Give us a call, and let’s begin the process of putting another 5 to 10 percentage points on your firm’s bottom line.

Contact us at our office, or through the web at info@forteone.com.

 

Contributor: Doug Spitler