Grant had been with the company for only one month. He was the new Production Manager of PW Fabricators, a family run, Metal Fabrication Company. His boss, the Works Manager had set him the task of preparing the departmental budget for the new financial year.
As he pored over various figures from previous years he was surprised to see that maintenance spend on spares had been approximately £2,500 per month every month over the past 2 years. It was uncanny, most of the months were within only a few pounds of each other.
Grant decided to go and talk to Stan, the Senior Maintenance Supervisor to further understand the situation. When he arrived in the maintenance area the three maintenance technicians were having their lunch. When the maintenance team saw Grant approaching they pretended to read their newspapers.
“Stan, can I have a word with you when you get a minute”, said Grant.
“Yeah, ok, I was just about to finish my lunch so we can do it now if you like”, said Stan as he quickly put the lid back on his plastic sandwich box.
“Ok, cool, I am pulling together budgets for next year and as part of the process I have been taking a look at what we have spent over the past 12 months. It would appear we have spent almost £2,500 on maintenance spares per month every month – is that right?
Stan smiled and looked at the other maintenance guys who gave him a knowing look.
Stan said, “Grant, the boys and I have been here for over 20 years and it has always been the same. Without being rude, you have to understand how the system works, we get a budget, we divide it by 12 and we need to spend it because if we don’t it will get taken off us next year. It’s just the way it is. It’s always been the same.
Grant looked flabbergasted. “Hold on, just so I understand what you are telling me, you get an annual budget and you divide it by twelve to see how much you can spend a month. What happens if you don’t need to spend anything because none of the equipment has broken”?
“We spend it anyway on things we might need because the other thing is that it is so hard to get anything signed off around here that when we want one of something I normally order two. Do you realise it takes three signatures just to order a new set of Allen keys?
As Grant was taking this all in, he surveyed the maintenance area, seeing the place for the first time with ‘kaizen’ eyes. All around the perimeter of the maintenance room were six feet tall metal cabinets. He approached one and opened the doors. It was totally full of maintenance spares.
“Stan, do all of these cupboards have spares in them”, said Duncan.
“Yep, I’ve also got a container in the yard for the larger parts”, replied Stan.
“Wow, you could set up a shop. This situation is crazy, we need to give you a better process for ordering spares”, Grant said whilst shaking his head.
“That is what the last guy said, best of luck”, said Stan.
Grant walked back to the office block and knocked on the Works Managers door.
“Come in”, said Jim, a pleasant man who had been with the company man and boy.
“Jim, can I ask you a question”, enquired Grant. “Sure, fire away”, said Jim.
Do you release the maintenance guys are sand-bagging the spares figures because they believe if they don’t spend what is in this years spares budget monies will be taken off them next year.
“Yeah, Yeah”, said Jim. One year about five years ago we under spent by about £50k so when budget time came around next time, I was told to reduce the budget by £50K. It’s just not worth all the hassle so I have told Stan that he can spend whatever is in the budget provided he doesn’t over spend and he buys things we are likely to need. It all near enough works out in the end. It makes for an easy life as I have more important things to worry about like trying to meet these Production Schedules.
“But Jim”, said Grant. With the greatest of respect, this can’t be right, we are encouraging the wrong type of behaviour. Stan has so many spares in the maintenance area he could literally start a shop, surely we need to find a better way. There are thousands of pounds tied up that could be used elsewhere not to mention the amount space they all take up, he has even got a container in the yard. Hasn’t Stan been hassling you to buy a new Lathe where is that going to go, there’s no room in the maintenance area.
Will you give me permission to go and speak with the Managing Director to see if we can find a better way? “I would rather you didn’t “, said Jim, “don’t rock the boat and make it worse for all of us”. Grant reluctantly agreed but as he left Jims office he was already hatching a plan which he thought would be acceptable to all.
Over the next few days Grant pulled together the facts regarding spares usage and spares stock holding. The facts left him gob smacked. The company had over £275K worth of spares on site but had actually consumed in the order of £70-90K each in the previous 3 years.
Armed with his facts he made his way to the budget preparation meeting with Jim, the Works Manager. “Jim, I think I have found a solution to the maintenance spares problem which will be acceptable to everyone. I might even change Stan’s behaviour but it does need all of us to think in a different way. It might even allow us to buy that lathe you want without over-spending on budget”.
“Go on”, said Jim, seemingly interested for the first time.
“Firstly, we need to inform Stan that if he doesn’t spend the allocated budget it won’t be taken from him next year unless the company’s financial situation dictates otherwise. Secondly, I would like to issue Stan with a company credit card and agree a maximum figure with him he can spend per month without authorisation”.
“What”, exclaimed Jim, “that won’t be possible, I mean I don’t even have a credit card and I am a senior manager”.
“But Jim, said Grant, with respect you don’t need one but Stan does. If you look at what Stan spends his money on and I have, it’s invariably lots of little spends with the occasional big spend. If we give him a credit card and let him spend up to say £1,000 per month without either of us signing it off it will also reduce the amount of work accounts have to do as they will only get one invoice per month rather than lots of little ones. It’s a win all round, what do you think”?
“The Managing Director will never go for it”, said Jim.
“It’s up to us to persuade him, just think if Stan doesn’t spend as much as he has been spending because he knows he can have access to funds you are more likely to get some of that other plant you need. The crux of this is that we have to persuade the MD to go along with our new process, are you prepared to change the process Jim”?
Jim pondered for a few seconds, then turned to Grant and said, “I know you are right but it has been too easy to just to go along with the current process because it creates no aggravation for me. OK, let’s do it. I will propose it at the monthly management meeting next week”, said Jim.
The next week dragged for Grant, he couldn’t wait for the management meeting. He was careful to produce some data for Jim to present at the meeting which showed the absurdity of the current system. Finally the day of the management meeting arrived. Grant was excited and nervous at the same time. If the MD agreed to the changes proposed Grant had a chance to show how creating lean processes which were simple and logical to follow, could change the behaviour and a culture.
Grant went about his daily routine whist the meeting got underway but couldn’t really concentrate. Two hours went by without any word. Then suddenly he heard the loudspeaker system in the factory ask him to report to the board room. Grant walked nervously to the board room and knocked on the door.
“Come in Grant”, said Frank, the MD. “Jim has been telling me about your idea to issue Stan with a credit card”. In all of my years I have never ever considered doing that”. Grant’s heart sank. “But on reflection, I actually like the idea and wonder why we have never thought of it before. I am prepared to do it on one proviso, I would like to see maintenance spend reduce legitimately. Do you think your new process can make that happen”? “I am quite sure it will do that Frank”, said Grant. The new process will allow Stan to spend appropriate amounts when he needs to without the encumbrance of bureaucracy and will also mean that he can hold less on site because he knows he can get it quickly if he needs it.
“Let’s give it a three month trial and if it works we will make it permanent”, said Frank.
One week later Grant and Jim strode purposely into the maintenance area. Firstly Jim explained to Stan that monies would not be taken off him if he did not spend them unless there were extreme extenuating circumstances. Secondly, Grant explained the new spares purchasing process and handed over the credit card with Stan’s name on it. Stan looked genuinely dumbstruck.
Stan was to be allowed to spend up to £1000 per month without authorisation provided he submitted his credit card statement to Grant each month for review.
These events all happened some time ago and I bet you would like to know the outcome of this new process.
What actually happened?
Well, in the first month after implementation, Stan only spent £23.47 in total. The main reasons were that he had so many spares in his cupboards but he also knew he could go out and get all but the most expensive spares if he needed them very quickly. Within three months the new process was formalised and implemented permanently.
Six months after the introduction of the new process Stan had not spent £2,500 in total. The number of cupboards storing spares had started to reduce freeing up valuable floor space and the savings made had allowed the purchase of a new lathe.
These events are now several years old and Stan has now retired but in the last year of his employment he made a statement to me which resonates to this day. He said, “I treat the credit card like my own money now, before it was just a game”.
Get your business processes right and you will drive the right lean behaviour.