Is Lean Worth the Investment?

November 30, 2011

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In a recent survey of manufacturing executives, the majority said lean initiatives failed to cut costs by 5 percent, the typical minimum threshold for successful productivity programs. Most also admitted that any savings were temporary. Are the benefits of lean still worth the investment?

Despite significant investments in lean or Six Sigma as part of their overall retrenchment efforts, most large manufacturers fail to reach — or even come close to — their cost-savings targets, according to business process consultancy AlixPartners.

In a recent survey of C-level and senior-level manufacturing executives across a range of industries, nearly 70 percent of manufacturing leaders said their manufacturing-improvement efforts led to a reduction in manufacturing costs of less than 5 percent, the researchers' minimum benchmark for productivity improvements to be deemed successful. Among the manufacturers AlixPartners surveyed, 47 percent had hoped to achieve savings in excess of 5 percent by implementing lean manufacturing and operational improvement practices. Yet only 31 percent actually reached that mark.

According to the findings, 36 percent of respondents said their cost savings from such efforts were 3 percent to 4 percent of total manufacturing costs, while 19 percent of respondents reported their savings were 2 percent or less. Moreover, 14 percent of manufacturing executives said they didn't even know how much they were saving through their productivity-improvement efforts.

Meanwhile, 59 percent of respondents said they anticipate less than half of expected savings to be realized and sustained. Only 14 percent said they could sustain more than three-quarters of the identified savings.

"Most continuous improvement initiatives focus too much on implementing a particular 'checklist' of program tools and processes, rather than on basic execution," Steve Maurer, managing director and leader of AlixPartners' Manufacturing Practice, said in an announcement of the findings. "Many traditional lean and Six Sigma programs also tend to fail to institutionalize the improvements that they do generate. As a result, the cost benefits often aren't sustainable."

For companies in which the lean or Six Sigma initiative did not deliver the expected benefits, the top five reasons cited for failure were:

  • The program took longer than expected (36 percent);
  • The program was not well planned and managed (34 percent);
  • Resources were lacking to implement the project (33 percent);
  • There was poor cross-functional cooperation (30 percent); and
  • They had the wrong targets, goals or objectives (29 percent).

Despite a poor — or unknown — ROI reported, executives' responses indicated a significant gap between industry perception and reality: 91 percent of respondents described their improvement efforts as "very effective" or "somewhat effective."

"What's good about 'lean' and 'Six Sigma' manufacturing is the emphasis on process control, defect prevention and the elimination of waste," according to Steve Pfeiffer, director in AlixPartners' Manufacturing Practice. "But such programs come up short when companies decide to implement techniques without the prerequisite process discipline. And companies that have relied too heavily on investing their capital in automation find that such projects are often expensive and slow to implement."

For all of lean's emphasis on efficiency and waste reduction, lean proponents argue that cost containment is not the primary focus.

"Lean is the story of 'obliquity' — we can get greater cost reduction by not focusing primarily on cost reduction," consultant Mark Graban writes on his Lean Blog. "That's hard to get your head around until you see it in practice. Traditional cost-cutting often results in worse service and worse quality (and it usually harms morale, which leads to worse service). Lean allows us to 'have it all' — it's a 'no tradeoffs' system, if you will."

In fact, starting a lean initiative from the position that it's all about cost reduction is often a recipe for failure.

Related

Is Your Lean LAME?

Lean or Six Sigma: Which is More in Demand?

Expert's Corner Q&A: Lean Enterprise Institute's Mark Graban

Better Lean Through Better Behavior

7 Ways to Avoid Deep-Sixing Six Sigma

Resources

Manufacturing-Improvement Programs: Effective? AlixPartners, Sept. 28, 2011

Manufacturers are Failing to Garner Long-Term Productivity Benefits... AlixPartners, Sept. 28, 2011

Cost Containment is not the Primary Focus of Lean - But Costs Go Down by Mark Graban Lean Blog, Oct. 27, 2011

Lean Manufacturing: Not Worth Its Weight? by Chris Chiappinelli Managing Automation, Nov. 7, 2011

Lean Manufacturing's Oversized Claims by Michael McCullough Canadian Business Network, Oct. 20, 2011

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