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Continuous improvement CURRICULUM TOPICS

within an organisation • Improving productivity

• Planning, controlling and
reporting
• Business activity
Introduction • Decision making

Some business improvements involve a giant leap forward. An example of this would be the
development of a revolutionary new product such as the bicycle or, more recently, the iPod or
modern wind turbines to create green energy. However, of more importance to most
businesses is ongoing small step improvement. This case study shows how Leyland Trucks
continually makes improvements to everything it does based on the Japanese principle GLOSSARY
of Kaizen.
Small step
Leyland Trucks manufactures trucks under the DAF brand in Leyland near Preston, Lancashire. improvement: little
As well as production in the UK, DAF manufactures in Eindhoven in Netherlands and ongoing developments to
Westerlo in Belgium. Leyland and DAF are both part of the North American company, products and processes.
PACCAR Inc.
Kaizen: a Japanese word
In 2006 DAF’s three manufacturing plants in Europe, including that at Leyland, produced a meaning ‘continuous
improvement’.
record 56,700 trucks of between 7.5 and 44 tonnes (the heaviest vehicles on the road). One
Improvements happen by
in every four trucks sold in the UK is by DAF. New truck registrations in Europe were almost
slow and steady change
268,000 in 2006 and DAF currently has a 15% share of this European market. and are maintained at that
level until the next
The current business objective is to increase the market share to 20%. When a company improvement step takes
wants to achieve its objective, it needs to have a plan to get there – this is termed the strategy. place.

DAF’s strategy for Leyland to achieve this objective has two main elements: Objective: the end result
• continuous improvement that an organisation or
• increasing production capacity from 18,000 to 25,000 units. individual is working
towards.

Market share: the

Target Strategy percentage of the overall
market that has been won
To increase market
Continuous improvement by a particular business.
+ This can be measured in
share to 20% increasing production capacity
terms of numbers of
products sold or by value of
sales revenue.
Continuous improvement or Kaizen
Strategy: the plan or
The Japanese term ‘Kaizen’ means continuous improvement. It comes from the words ‘kai’ – means to achieve an
continuous – and ‘zen’ – good or for the better. We use the term ‘Kaizen event’ for any action objective.
that is an improvement to an existing process.
Production capacity: the
number of units that can be
Kaizen events usually involve bringing together operators, managers and the owners of a
physically produced in a
particular event to discuss possible improvements. A flowchart illustrates the process and given production plant.
people discuss how they can improve the flow of work.
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Flowchart: a diagram
The great thing about the Kaizen process is that people who really understand manufacturing setting out the relationship
at a nuts-and-bolts level can get involved in introducing improvements. Someone who between items such as
assembles part of the truck suspension will have a reasonably good idea about how the processes using arrows,
processes they work on could be improved. Leyland therefore encourages everyone to be numbers and joining lines.
involved in decision making. Lots of small steps can rapidly become a giant leap forward in
the creation of new ideas.
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A good example of how Kaizen is implemented at Leyland relates to the introduction of a

robotic paint spray booth for the truck chassis. This was a huge leap forward – Leyland was
the first assembly plant in the world to use robots on a moving conveyor to paint its chassis.
It planned to implement this over the summer shutdown of the plant – this is where Kaizen
came in. One of the first steps was to look at the successful introduction of a production line
the previous year. The purpose of this was to identify all the lessons that could be learned
from the earlier project and to apply them to the new chassis spray booth. Everyone was able
GLOSSARY to put forward their views and all appropriate ideas for improvement were considered.

Robots: automatic Combining Kaizen with a major leap forward

machines or control
devices that oversee and The giant leap
carry out production Introduction
processes. of the robotic
chassis paint
Key Performance
Indicators (KPI):
measures of main areas of
business or individual
performance. These can be
The supporting Kaizen
used to establish targets as
Lessons learned from everyone involved in the previous
well as to monitor and line installation. Lots of small improvements.
report on progress.

There are a number of major reasons why Leyland Trucks practises continuous improvement:
• to meet the production and sales growth plans
• to meet customer demands for more reliable trucks
• to stay ahead of the competition. For example, there is always a risk that rival manufacturers,
e.g. in China and other European countries, might merge (this happens when two companies
join together). This could lead to a threat from these bigger competitors
• to offset rising labour costs. Wage costs rise every year. Leyland is not able to raise prices
because of competition, so any increase in wages has to be compensated for by more
efficient production
• to protect jobs in the UK. If operations at Leyland Trucks were considered inefficient, there
would be a danger that senior managers at global headquarters might want to move
production to a location with lower wages.

Setting and monitoring Continuous Improvement goals

Businesses seek to ‘measure what is measurable’. These measures are usually set out in what
are referred to as Key Performance Indicators (KPIs). In order to check on the success
of continuous improvement, it is important to have a number of measures in place. In this
way, the company can see where improvements have been made.

The measures that Leyland Trucks uses are clustered into a number of themes – these are
areas of business results that are similar. For example, one theme is Health and Safety. Useful
measures under this theme are the number of accidents at work, and illness-related issues.

The main themes used are:

• on-time performance (meeting deadlines)
• productivity (how much is produced from given resources in a certain time period)
• quality (for example, the numbers of defects – ideally zero)
• financial (for example, costs)
• inventory (the quantity of stock held)
• health and safety (reportable accidents, minor accidents)
• continuous improvement (Six Sigma – see below).

One or more KPIs are used to measure each of these themes. For example, the measure of
productivity calculates the number of labour hours required to manufacture each truck
(known as ‘truck hours’).

All of this information is set out on a chart, which is monitored each week. In the chart
opposite, you can see examples of productivity-related KPIs for a week at the end of 2006.
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Productivity- Average per week Goal for Average for

related theme in 2005 2006 Year to Date

Truck hours 53.7 52 52.4

Trucks per employee 14.9 15.6 15.6

In the first measure of this fictional example, the goal for truck hours for 2006 is 52. For the
GLOSSARY
year to date, results are above the annual target. In the second, you can see that in 2005
each employee produced an average of 14.9 trucks per week. The goal for 2006 was to
Visionary target: a
raise this to 15.6. For the year to date, the average truck production numbers are on target. target for the future;
something to work
An important KPI for continuous improvement is Six Sigma. This is a measure of quality that towards.
strives for near-perfection. To achieve Six Sigma, a process must produce no more than 3.4
defects per million opportunities. Six Sigma uses statistical tools and data as a base for Benchmarked: using an
analysis. It can be used to improve existing processes or develop new ones. It involves the index, standard or point of
systematic identification of defects and deficiencies within any product, system or process, with reference to measure or
a view to eliminating them. A defect is anything that is outside customers’ expectations. judge a quality or value.

With its disciplined and logical approach, Six Sigma enables decision-takers in Leyland Trucks
to improve their understanding of business and operational processes. This results in major
cost savings and the development of best practices.

Leyland Trucks sets targets to create a vision for staff to work towards. In other words, it gives
a clear picture of what can be achieved through high performance. In 2001, the Managing
Director (MD) of Leyland set a visionary target for quality in the company based on a
Quality Index. Quality relates to such areas as the number of breakdowns within 90 days and
mechanical defects.

In 2001 the value of this index was running at 13.2. In order to drive a reduction in these
breakdowns and defects, the MD set the visionary target of 5.0. Leyland has achieved
this target.

Progress is benchmarked across PACCAR’s nine manufacturing plants. Leyland is well

ahead of its ‘sister’ plants.

A culture for continuous improvement

The culture of an organisation is the typical pattern of behaviour and way of doing things.
It is usually quite easy to get a feel for the culture of a company. For example, does the
business look after customers?

The culture at Leyland Trucks is based on trust. It involves everyone in the continuous
improvement process. The company’s culture relies on a set of values. A value is something
that an organisation and its people believe in. Values determine the way we behave.

Leyland’s values support continuous improvement and include:

• training for everyone – for example, identifying ways in which people can contribute to
continuous improvement such as by eliminating errors and waste
• team-building for Kaizen
• involving everyone from top to bottom in decision-making
• empowerment – giving responsibility and power to everyone in the organisation,
encouraging them to make decisions and to take on responsibility for continuous
improvement
• innovation – encouraging everyone to be prepared to think of, communicate and try out
LEYLAND TRUCKS

new ideas.

These values are translated into practical action – this is referred to as ‘living the values’.
They are put into practice through:
• day-to-day sharing of ideas between team members
• weekly briefings where team leaders inform members of new developments, issues,
problems and successes
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• quarterly newsletters for all employees

• teamwork sessions
• celebrating achievement of individuals and teams every three months
• whole-team sessions led by the managing director every six months.

Continuous improvement in action

Leyland Trucks has clear targets for continuous improvement and clear processes for building
teams and encouraging involvement. Kaizen describes all those processes that involve
Leyland’s people in day-to-day small step improvement.

A good example of this process occurred in May 2006 at the vehicle finishing part of the
plant. This involved a High Impact Kaizen Event (HIKE) where six pairs of project leaders were
chosen to work with employees in this area. Each member of the HIKE team wore a brightly
coloured ‘high visibility jacket’ and they examined every area of work, talking to everyone on
the section in an informal but systematic way. They encouraged everyone to identify work-
based problems and possible solutions. Staff got together at working lunches to discuss work
issues. Overall, the idea was to involve everyone so there would be no surprises. A senior
manager was also on hand to work as a coach, helping and supporting the HIKE team.

The HIKE was an outstanding success because of the improvement culture at Leyland. At the
end of the project the team leader stated that ‘the culture at Leyland in terms of the pride that
the employees take in being the best is unique. You only have to spend a week at Leyland to
see why they are number one: the employees.’

More than 200 ideas for improvement were suggested by ground-level employees. The
changes they suggested led to:
• a reduction in truck hours of over 17%
• 20% reduction in line-side materials (inventories)
• 23% reduction in walking (the distance that employees had to cover to carry out their work –
57 miles per day in total).

At Leyland, over 10% of the 1,000 workforce consists of qualified continuous improvement
practitioners. These people run and monitor progress through Six Sigma.

Conclusion
Continuous improvement helps a business to keep ahead. It is a process that involves all
employees within an organisation and is based on a culture of trust and empowerment.
The results for Leyland Trucks in its full range of KPIs have been staggering. For example, in
2006, there have been:
• muliti-million pound savings resulting from Six Sigma
• a rise in on-time delivery to over 95%
• 10% reduction in mechanical defects per unit
• 45% reduction in reportable injuries and 10% in minor injuries in the same period.

The important thing to remember about continuous improvement is that, as the process improves,
the targets in the KPIs will also advance. This delivers an ongoing cycle of improvement.

Questions
1. What is Kaizen? How is this different from a one-step leap forward?

2. How is Kaizen expected to help Leyland Trucks to increase its market share?

3. How does Leyland Trucks measure its continuous

improvement? Can you suggest KPIs for another
type of business organisation e.g.
a retailer or a leisure centre?

4. Why is continuous improvement most likely to

be achieved in a company with a culture of
trust? Start your answer by explaining what is
meant by a culture of trust. www.paccar.com