How can I estimate the savings from using visual management boards?

Dear Gemba Coach,

I work on a lean team and I was asked to estimate the savings resulting from using visual management boards. The current estimate is that we save about 5% of people’s time as a result of realigning resources and driving performance. Would you know of any studies in this area?

Ah, no I don’t – never asked myself the question to be honest, so that’s an interesting one. I’m not sure we’re on the same page with the way we understand visual management, so it seems like a good topic to get into step-by-step.

First, where would I look for savings? On the gemba, the four savings opportunities I see in almost every company I visit are the following:

1. Revenue loss from annoyed customers: Poor delivery and poor quality cheese off customers, and even when they don’t actually switch to a competitor (whether because of loyalty or high switching cost), they purchase less.
2. Cost of dealing with internal quality problems: Catching quality defects before they reach customers and correcting them typically adds up to percentage points of sales, from 2% of sales to 4% in places I know – and that’s the hidden part of the iceberg since it doesn’t take into account all the issues created by dealing with poor quality. Compared to the margin most businesses make, this is often significant.
3. Cash: used to sustain inventories because of low flexibility and flow precisions. If you’re a $100 million company and you turn your inventories five times a year, improving to six corresponds to a cash savings of $6 mil, which is considerable compared to the hoped for savings of cost cutting efforts.
4. Better use of capital: Inventory has to be housed, powerful machines often hide overcapacity, both of these features create lots of unnecessary work for people, and hence a huge drain on productivity.

I’ve seen many efforts to calculate savings from specific tools, practices and projects and, to my mind, first, this is a fiction because how realistic are the actual calculations, and second it’s a fiction that hides a much deeper problem: senior management is not seeing the true potential of lean to accelerate flows, liberate cash and reinvest the cash in customer value to satisfy a broader base of users.

The only case I can think of where productivity can be measured with some degree of confidence is when an industrial process, whether it be making widgets or typing information in computers in back office processes has clear production cells. In this case, yes, we can measure output in terms of jobs/person/hour, and solve problems and better balance the lines and so on, but here again, the real gain is understanding what is wrong with the process rather than productivity per se.

3 Key Areas for Visual Management

Where does visual come in? Well, the improvement dynamic to achieve these large-scale gains rests on the daily confrontation of long-term challenges (better service, better quality, better flexibility, better security, etc.) with day-to-day activity. Since senior execs can’t be present on every workplace every day, lean managers teach visual management to their teams so that teams autonomously work on improving their performance through problem solving and kaizen. Visual management focuses on three main areas:

• Planning the work: Teams learn to plan their day in hourly chunks and, most importantly, plan activity changes. Changeovers are a huge part of planning in any situation. A pull system with kanban cards will visualize the work queue in front of every cell, and thus the takt at which the cell must work in order to respond to demand. Even working from home, I will have to plan both when I switch from one activity to another as well as the output I expect from every activity. The question then becomes simple: will I finish writing this Gemba Coach column until I have to go leave for a gemba visit? If not, why? What happened?

• Distinguishing OK from not-OK: In the course of the work, creating visual markers that distinguish OK from not-OK, taking care of them, and improving them constantly. Everyone at any time should be able to see whether they’re doing good work or bad. On some issues this is easy, on others, not so much. For instance, as I write this, the spellcheck tells me on the spot when I make spelling or grammar errors. What the spellcheck doesn’t do is tell me whether I write nonsense or not. If I knew how, I would invent a sense-checker telling me right way whether I’m true to the lean thinking spirit or not, which is why I’m so fortunate to have great senseis because they will tell me when I’ve lost my way, but after I’ve published, not before I go to print. Visual markers to tell employees on the spot whether they’re doing OK or not are a hugely important part of visual management.

• Improving the work: Improvement is never easy and visual management can be used to sustain kaizen both in “audit” form, such as kamishibai to regularly check whether processes are performing to standards, or in the form of kaizen boards, visual analysis methods, and so on that bring people together around a problem so that they learn to (1) see the improvement potential, (2) analyze how they work and make hypotheses on the causes of their problems, (3) come up with new ideas, (4) plan, try and see to (5) deepen their understanding of their work and learn. Kaizen often involves a lot of head-scratching and visual boards are very useful to support thinking together. In writing this column I have in mind that I always write too long so I try to improve by making the same points in less words – and often fail, but keep working at it.

Visual management is a key tool for a fundamental change in management thinking. Rather than trying to control every one’s actions minute by minute by ever more detailed procedures or IT processes, visual management focuses on:

1. The intent of the mission: What we’re trying to achieve for customers;
2. The obstacles we encounter: The grains of sands in the works that stop us from reaching our objectives;
3. The new ideas that the tension between ideal state and current state trigger: There is no question of solving every problem. But using specific problems as a way to better understand what we do, helps teams themselves think about their activities and come up with new ideas. Visual management is the essential method to create involvement in the company’s success and engagement in solving problems. Visual management shifts the management relationship from “in your face” frontal conversation to being together and looking at issues together, shoulder to shoulder. Finally, visual management translates company level challenges into every day, hourly issues, to give frontline teams the opportunity to take greater care in their work and come up with new initiatives.

To answer your specific question, I confess I don’t know any specific studies of the impact of visual management on spot performance. I do know, however, that lean as an approach doesn’t make much sense without visual management (a system of local visual control tools). At the risk of dodging the question, I’d answer your question by a question: how does your company interpret visual management? Are we talking about increased control of how people work, or about the careful and continuous development of visual tools to help teams develop their own autonomy?