I recently encountered a situation that is not so uncommon when implementing lean. Working with a client, we found some quickly implementable process changes that resulted in a 60% increase in capacity (production rate). Since the company was meeting current demand with only slight constraints during infrequent peak demand periods (one employee would come in on a weekend to meet the excess demand requirement), the question was posed – what is the value of improving efficiencies in excess of demand?
Three possible alternatives quickly come to mind:
1) An obvious solution that I do not think advisable is to reduce total costs by eliminating staff based on the newly decreased labor requirement. This tempting solution is not advisable since lean implementation is an ongoing process. Once employees see that implementation of lean results in lost jobs, implementation becomes difficult, if at all possible. With potential risk of job loss in future lean implementation, employees have incentive to passively or aggressively sabotage ongoing efforts.
2) Reallocate labor if employee capacity can be diverted to other areas that may be capacity constrained. The reduction of labor cost in the impacted product (or a percentage of the decrease in labor cost for that product) can be passed on to the consumer; raising barriers to entry for potential new competition and improving your competitive position relative to current competitors, thereby improving your competitive edge in the marketplace potentially creating increased demand which your newly increased capacity can meet.
3) My preferred recommendation (perhaps in conjunction with Item 2) is to utilize the freed up labor capacity to continue your process improvement objectives: improvement in quality; improvement in capacity; improvement in safety; improvement in design; cross training to improve labor skill sets and build redundancy into your system for business continuity planning; exploration of new products and markets. This may require additional training and changing skill sets for employees, but what a great way to increase the quality of your labor force using the gains from your lean implementation. Bringing your employees into the process, improving theirs skill sets, and empowering them to help make positive change can only lead to a stronger presence in the marketplace.
The final thought — use your gains in efficiency wisely and reinvest in your continued improvement.