LEAN

ENTERPRISE IN
THE
CONSTRUCTION
INDUSTRY
ABSTRACT
Construction firms need new business models
to meet the change in construction industry
environment
Lean enterprise model can be applied to any
industry
Derived from lean aerospace initiative in MIT
Matrix was created that suggested ways to
implement 6 lean tools in construction
industry
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Construction industry
First construction companies were responsible
only for technical aspects of design and
construction
Now they do maintenance and financing too
This paper has also included engineering design
firms, architecture studios, construction
management firms, suppliers and sub
contractors.
Every player that adds value to construction
supply chain is somehow included.
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Traditional core competences
The construction process involves delivery of
any type of facility or infrastructure to a
customer.
Architects produce a design for the owner
The contractor executes it with the assistance
of subcontractors and suppliers
The traditional process is cost driven
Owners select contractors on lowest price

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Cntd
They select suppliers and subcontractors on
lowest price
The temporary organization of firms expires at
the completion of the project.
Each firm has its expertise and do not cross
the boundaries
Conflicts arise between the parties due to
lack of details

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Relation between firms characterized
by
Low transition frequency
Uncertainty during construction process
Communication/ information problems
Win-loose relationship
Poor quality/ late completion
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Competences of current industry
Many changes took place
Project finance, project operation and project
maintenance are provided now.
Innovative delivery methods are adopted
General contract
client gives design and companies follow it
and do the job.
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Design-build(DB)
Both design and construction is done
only conceptual design is given
Turnkey(T)
Both design and construction is done
The company is not paid till work is done
Suitable for building factories

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Build-Operate-Transfer(BOT)
Legal right to operate for few years
Toll gates in high ways
Infrastructure that can give revenue
Build-Operate-Transfer-Maintain(BOTM)
they also do the maintenance work


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CHARACTERISTICS OF INDUSTRY
Construction makes its production through
projects.
As productive process, construction consists
on the design and assembly of objects in a
fixed position, therefore can be characterized
as site production of a customized product
organized with temperary project teams
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1.NO REPETITION
No two identical projects, characterized by
bring to order.
Not speculative in nature.
Speculative nature of the project adds to the
complexity.
Exceptional : wal-Mart stores
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2.ON SITE PRODUCTION
Production physically takes at the location
where the customer wants to have the
product.
Raw materials are delivered to the customer
desired location and assembled on the site.
Since the locations are different, introduces
complexity.
Lack of communication among the site
managers


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3.LONG LIFE CYCLE
Projects are delivered to function for a long
time
Lifecycle cost such as maintenance cost
becomes critical in design phase.
Unfortunately this is not always taken into
account as the end user differs.
Interests not aligned for cheaper design , as
the maintenance costs are very high.
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4.COMPLEXITY OF ORGANIZATION
Involves managing peoples from different
companies that dont know each other.
Not every one is expert together with time
and budget pressures.
New relationships for new projects(lack of
mutual understandings)
Lack of capacity for common learning from
experience.

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5.FRAGMENTED
Construction companies are overwhelming.
800000 companies exist in US, but 600000
have a work force of only one or two
employees.
Very smaller percentage of market share.
Works only on their regional area of influence
and rarely gets the project.
Lack of knowledge of regulations, unions and
contrctors.
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6.NEED FOR OUTSIDE FINANCING
Construction is a very capital intensive
industry.
Projects are always expensive and often need
to advance some cash flows to get start.
In some cases it has to arrange finance for the
whole project due to cash flow problems of
costomer.
Different kind of bonds need to be secured

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Lean principles:
The economy is cyclical. There are periods of
high growth followed by recessions.
Experience confirms this phenomenon.
Many fail and default but very few manage to
go through without being affected that much.
We can design a company that is more robust
to business cycles on the basis of lean thinking
as it is behind some of these successfulstories
in bad times.
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Lean principles:
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Lean means eliminating waste, lean means
being flexible to change and lean means doing
continuous incremental improvements.
It probably is all those three at the same time
and much more.
Lean principles:
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Toyota Production System:
Mass production system led to an incredible reduction
in costs. It worked pretty well while demand was much
higher than production capacity and every car
produced had a customer ready to buy it
Taiichi Ohno, one of the plant engineers in Toyota at
that time, started to experience and put into practice
some new ideas of production with the goal of
improving efficiency without increasing production
volume (that they were not able to sell).
The result of that work is what we call today the Toyota
Production System (TPS) which was finally
implemented in Toyota in 1962.
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TPS's goal is to reduce costs without
increasing production volume. The basis to
achieve it is the absolute elimination of waste
(Ohno, 1978).
The two pillars that support the system are:
Just in Time
Autonomation
Toyota Production System:
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APICS Definition of JIT
A philosophy of manufacturing based on
planned elimination of waste and continuous
improvement of productivity. ...
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APICS Definition of JIT
The primary elements of Just-in-Time are to:
have only the required inventory when needed,
improve quality to zero defects,
reduce lead times by reducing setup times, queue
lengths, and lot sizes,
incrementally revise the operations themselves,
and
accomplish these things at minimum cost.
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JIT Synonyms
IBM - Continuous Flow Manufacturing
HP - Stockless Production
Repetitive Manufacturing System
GE - Management by Sight
Boeing - Lean Manufacturing
Motorola - Short Cycle Manufacturing
Japanese - The Toyota System
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Time-Based Competition
It is not enough for firms to be high-quality
and low-cost producers.
Today, they must also be first in getting
products and services to the customer fast.
To compete in this new environment, the
order-to-delivery cycle must be drastically
reduced.
JIT is the weapon of choice today to reduce
the elapsed time of this cycle.
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Kanban
Manual information system to control
production. Material transportation, and
inventory
Literally means visible record or card
In the the broad sense it is a communication
signal from a downstream process (customer)
to a upstream process (producer)

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Pull Systems
Material
Information
Withdrawal of
material triggers
production
Production schedule is issued only to final assembly line.

Production schedule for each of the preceding process is
determined by transfer of parts

Parts are pulled through the system from the end of the line
to the start
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Kanbans and Other Signals
There are two types of Kanban cards:
a conveyance card (C-Kanban)
a production card (P-Kanban)
Signals come in many forms other than cards,
including:
an empty crate
an empty designated location on the floor
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Autonomation:
Use of "intelligent" machines that can automatically stop
production as soon as products are being produced with
defects.
This means that you don't need an operator for each
machine, watching it work, in case products start being
defective.
Instead you can have several machines controlled by a
single worker who will act only when a machine has a
problem
Division of activities within the
production process

Work is divided in value-added and non-value added
activities.

Value-added activities involve some kind of processing
or transformation of the materials towards a next step
in the process.
Non-value added activities do not add value to the
product but have to be done under the present
working conditions.
Waste is activities that can be eliminated without
affecting production at all. They just use resources.
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VA or NVA?
Counting - once?
- more than once?
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Advent of pull production system
In an industry where demand is higher than supply the mass
production system works well because manufacturers can "push"
their products into the customers (e.g. products are scarce so
whatever you produce you will sell).
As soon as the market becomes saturated and low growth appears
the industry has to accept orders from each customer and make
products that differ according to individual requirements.
In this situation customers are empowered and can "pull" whatever
they want from manufacturers.
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Implementation of TPS:
Although the principles of TPS were defined in
the early 50s by Taiichi Ohno, the
implementation took almost 10 years to reach
the whole company
It took further another 10 years to become
common practice among its suppliers.
It takes strong leadership commitment to be
able to migrate from mass production to a
lean production.
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Lean thinking
Customer-focused: customer needs and expectations "pull"
enterprise activities. The customer provides an orientation ("true
north") for the full enterprise.
Knowledge-driven: critical role of people in effectuating value (full
input from the entire workforce). Draws upon knowledge and
innovation from everyone (workers, suppliers, ... ).
Eliminating waste: stresses elimination, not just reduction, of all
types of waste
Creating value: puts premium on "growing the pie", not just
reducing costs, to benefit all stakeholders.
Dynamic and continuous: Pursues on-going systemic as well as
incremental improvement - both innovation and continual
improvement.
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Lean across fields
Lean is not just a matter of applying
some tools or procedures.
It is really a change of mindset, a
change in how people think and
what they value, thus a change in
how people behave.
Because lean is about beliefs and
behavior, it is applicable beyond the
factory floor to encompass the
entire enterprise, hence lean
enterprise is born.
We must recognize the fact that
greater benefits can be obtained
when changing the whole
enterprise towards lean principles
than just applying some practices in
the production side of business.
If you concentrate only in
production you will get partial
benefits of the full potential.
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Transition to Lean:
The outcome of Lean Aerospace Initiative s many years of research efforts
can be summarized in the development of a lean framework that could be
applied to any given industry.

The framework consists of three key interrelated products:

LEM (Lean Enterprise Model) integrates the lean principles and practices~
it addresses the issue of "what" defines a lean enterprise.
TTL Guide (Transition to Lean Guide) addresses the issues of
implementation. It defines "how" to transition to a lean state.
It provides an organizing agenda for achieving a lean transformation.
LESAT (Lean Enterprise Self-Assessment Tool). Lean transformation is a
long journey.
This tool provides enterprise leaders a way of assessing their progress once
they follow the TTL Guide. It helps answer the question: how much further is it to
lean?
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Ohnos implicit teachings
These concepts are, as waste, evils to avoid and eliminate

Inflexibility: the enterprise has to be able to adapt to
what customers want.
Variability: flow can not be synchronized without
maintaining stability. The enterprise must decide its pace.
Leadership has the key role of supporting employees and
controlling the demand variability so the company keeps
learning in a stable and safe environment.
Ultimately how fast can you learn should drive how fast
you can grow.
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Key concepts within the lean
enterprise framework:
Enterprise. Any corporate or business-unit
organization with a distinct mission, market
segment, suit of products or services,
customer base, profit/loss responsibility and
set of competitors
Stakeholder. Any group or individual who can
affect or is affected by the achievements of
the organization's objective..
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Value stream. The specific activities required
to design, order, and provide a specific
product, from concept to launch, order to
delivery, and raw materials into the hands of
the customer.
Extended enterprise. In the lean enterprise
context enterprise is understood in a holistic
way. All business along the value stream that
contributes to providing value to a customer.
Key concepts within the lean
enterprise framework:
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Fundamental principles for creating lean
enterprise value are summarized by LAI:
Principle 1: Create lean value by doing the job right and by
doing the right job.
Principle 2: Deliver value only after identifying stakeholder
value and constructing robust value propositions.
Principle 3: Realize lean value only by adopting an enterprise
perspective.
Principle 4: Address the interdependencies across enterprise
levels to increase lean value.
Principle 5: People, not just processes effectuate lean value
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The importance of value:
Value is not fixed- it evolves with stakeholder changes in
priorities.
Understanding stakeholder value is not easy.
Stakeholders can be identified in most cases but not their
view of value which may not be in line with the value of the
product, service or improvement provided to end users
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Reaching extended enterprise:
A generic lean enterprise process architecture
gathers processes in three groups:
Enterprise Leadership Processes: guide and provide
direction to the enterprise.
Life Cycle Processes: define the product life cycle
Enabling Infrastructure Processes: support other
organizational units whom they serve as internal
customers (traditional corporate support functions).
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Overarching lean principles:
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Construction vs Lean
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WHY?
To investigate how close the construction
industry is to the lean enterprise concept.
How lean enterprise principles can be applied
to any construction industry.
How compatible is each of the construction
characteristics with each of the lean principles

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Key construction characteristics

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Key lean enterprise principles

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Construction vs. Lean matrix

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ALIGNED PRINCIPLES

The first thing that we can notice if we look at
the top left side of the matrix is that several
lean principles are already quite aligned with
some of the construction characteristics.
These principles are customer pull, delivering
value to all stakeholders and seeking stability
of demand.
This alignment is especially strong at the
project level(long lifecycle, site production and
build to order).

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This implies that due to the nature of the
product that the construction industry delivers
those lean principles can be easily applied and
in some cases are already satisfied (e.g. the fact
that the construction industry is build to order
means that the lean principle of customer pull is
already satisfied).
In other words, the construction industry is
really a services business (as opposed to a
product business) where most revenues come
from special products or projects(customization)
tailored for new and existing customers.

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NON ALIGNED
Finally we can say that some of the lean
principles, waste minimization and continuous
improvement, synchronizing flows and mutual
trust relationships) are not aligned at all in
any level.
These will be difficult to apply in this industry
basically because learning takes a long time
and there are too many adversarial
relationships.

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Lean in construction

Lean construction is aimed at improving construction
performance by eliminating wastes that do not add
value to the customer.
operation and project levels.
In conjunction with a concrete contractor, actual
concrete construction projects were observed, and
problem areas contributing to delay and other wastes
were identified.
At the project level, the lack of coordination among
subcontractors was cited as one of the major factors
contributing to schedule delays.

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At the operation level, a systematic approach
of waste identification, operation re-design,
and employee training was applied to reduce
wastes found in the field operation.
A case study of bulkhead installation was
used to demonstrate this approach, and a 3D
animation was created for employee training.


Lean in construction
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3D Animation:

Some of the lean principles that are related to
the construction industry are improvements
such as the construction planning process,
construction supply chain, and downstream
performance (Howell, 2007)
Lean in construction
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Lean Construction at the Operation
Level
Observations work procedures,resources and
monitoring
Case study- bulk head framework installation
and removal
A case study to demonstrate the process of
identifying waste, redesigning work
procedures, and retraining employees

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A bulkhead is a temporary formwork strip
Generally used by the carpenters and general
laborers
Carpenters install as one piece to reduce the
processing time
However, this makes bulkhead removal
difficult and time consuming
In other words there is a coordination issue
between the two teams.

Lean Construction at the Operation
Level
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Waste can be reduced by revising the process
of the upstream team,
This new procedures involves cutting of
bulkhead into two parts
Significance is that though time for installation
is increased,time required for removing is
drastically reduced
damages to concrete are reduced.
Lean Construction at the Operation
Level
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Training in the Construction industry :
EFFECTIVE TRAINING
Effective training is very important to reduce
the resistance to change by improving
employees understanding of new work
procedures.
The 3D animation was used to train
construction workers on the new work
procedure, and this training method proved to
be very effective in explaining new ideas and
encouraging changes.
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INDUSTRY EXAMPLES
Challenges present in implementing lean
philosophy.
Examples give the perspectives of contractor,
developer and the owner.
Global contractors reduce costs by organizing.
Real estate companies trying to create value.

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SKANSKA USA BUILDING Inc
Giant Swedish contractor.
Puts into practice some concepts close to the
lean enterprise.
Creates value to all its stakeholders.
We respect the diversity of our backgrounds
as we work together to support the success of
our clients, the growth of our company, the
empowerment of our people and the interests
of our shareowners.
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CONTINUED
The company is organized in a decentralized
and integrated approach.
The rational is conspicuous as construction is a
local business.
The concept of integration helps them in
establishing a strong brand name.
The organization of its USA building also
follows this principle.

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ORGANIZATIONAL STRUCTURE
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CONTINUED
Vertically,
Composed of 14 operational divisions across the US.
Operate quite independently.
Horizontally,
Composed of several functions.
Enable infrastructure processes.
Human resources, legal, communications.
These activities lead by headquarters with a minimum
number of people.
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CONTINUED
Accounting and IT are centralized in a separate
company.
Centers of excellence enabling the expertise of the
company to be shared by employees.
Availability of virtual networks with employees for
communication.
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EMPOWERMENT OF THE INDIVIDUAL
Inline with lean principles.
Employees encouraged to have individual
initiative to call other divisions to satisfy
customer requirements.
Eg allowing an employee at CBE to contact his
counterpart in MAS directly.
Ensures the maintenance of client focus.
Very fast communication.

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KNOWLEDGE SHARING
Organizational structure enables the flow of
technical knowledge through COE.
Assigning of employees to primary and
secondary virtual networks.
Primary networks contribute instantly to
secondary networks.
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THE NEENAN COMPANY
Based in Colorado.
Major real state developer, contractor.
Competitive pricing, on-time delivery and high
quality.
Manage site selection and land acquisition.
Collaboration of architects with construction
teams to ensure value to customers.
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DEFINING VALUE TO THE CUSTOMER.
Collaborative design process to identify scope,
price and needs.
Consultations with all the stake holders.
Neenan can conceptually design and estimate an
entire project from start to finish.
Guaranteed costs and timelines in just 21 days
unique approach to design and construction
which is to work together as one team to satisfy
the goals of the integrated real estate team.
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CONSTRUCTION PROCESS FLOW
Neenan Reliability Planning System (NRPS).
Specifically designed to identify and avoid
potential break downs, speed progress and
eliminate wasted effort.
Contains all the major project milestone
phases and activities.


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BAA
Based in United Kingdom
Considered as the world's leading airport
company.
It owns and operates 7 airports in UK
All their airports serve around 120 million
passengers.
UK's principal developers of infrastructure
One of the construction industry's largest
customer.
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CONTINUED
Have revolutionized the way they spend their
money and the construction industry
Made the construction companies to adopt
sweeping changes in the way that major
projects are handled.

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CONCLUSION
Two approaches for applying lean to the
construction industry, at the
project level and
the enterprise level.
Greater benefits can be achieved by applying
it at the enterprise level.
The lean enterprise model allows construction
companies to operate with very limited
overhead.

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CONTINUED
The construction industry is a service business
where most revenues come from special
projects (customization)
Tailored for new and existing customers.
The key is to understand specific customer
needs as opposed to general customer needs.
Lean implementation requires strong
leadership.
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CONTINUED
Lean has a weak tie to the bottom line from
the top management.
Companies top management only has a
superficial view of lean.
Their continuous support and commitment to
lean is absolutely essential for the
transformation to happen.

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CONTINUED
Lean imposes a tremendous culture change on
Contractors.
Identification and elimination wasteful internal
processes.
With an uncertain economy, contractors
pressurized to do things better, faster, and
smarter.
Creating an efficient organization can mean the
difference between success and failure for a
construction company.

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