For thousands of managers curious about lean thinking in the 1990s, Lantech was the first glimpse of a new world. Cross-functional improvement teams at Lantech dramatically transformed operations, creating better flow, removing batch processing, and freeing up millions of dollars in inventory. Made famous in the seminal book Lean Thinking, company leaders became the kings of kaizen.
Years went by before Lantech's managers saw troubling signs. Promised savings after the initial lean leap were not hitting the bottom line. Kaizen improvements fell apart easily and often.
The company passed from founder Pat Lancaster to son, Jim Lancaster, who tells the story here of how Lantech triumphed and then stumbled badly, before finding the key to sustainable improvement in a daily management system.
In the Deep South a couple of weeks later, I was in a factory at the end of a long gravel road that made conveyors. The owner was hoping to retire and spend more time squirrel hunting, so he was happy to show me around. Again, I found mountains of inventory and spare parts, a classic push system that acted without regard for the customer, and they were making 10% on gross income and had more than $10 million in cash.
With our capabilities, Lantech should have been in the top quartile of the capital equipment industry in terms of financial performance. We should have had double-digit revenue growth and made at least 10% bottom-line profit as a percentage of gross revenue and even more EBIDA (earnings before interest, depreciation, and amortization). Since we had a profit-sharing bonus program with our employees, everyone had a keen interest in our revenue and profit performance. But Lantech was realizing half its potential even while becoming famous as a powerhouse of lean production methods.
I would pose this dilemma—If we're so good, how come we aren't leading the industry financially?—to my executive team and get the same responses every time. Operations would say that we could not fully standardize and stabilize the process until we stopped changing the product so much. Service would complain that operations was sending out so many quality problems that they could not keep up with the field-fix demand. Sales would agree that we were making a lot of customers angry, requiring us to discount machines to keep customers. Pat in product development (aka my dad) would say his team had great new ideas and, if we could just start building machines incorporating them, customers would be thrilled and demand would grow with good margins.
I was stuck. I knew it was wrong to let the department heads all point angry fingers at each other, but I couldn't stop it. Everyone's argument made sense. I did not know how to get out of the trap.