Industry Market Trends

Lean Credited for Operational Savings

April 28, 2009

Increasingly more companies are citing lean and other operational improvement initiatives for helping them respond to the market downturn.

Today's economic crisis has created much havoc, but it has also led operations managers to rethink the fundamentals of a number of things in their organizations. One notion getting credit, with increasing frequency and emphasis, is that of manufacturers streamlining business, manufacturing and supply chain operations by applying fewer resources without affecting the quantity or quality of goods produced.

In a recent survey of more than 500 operations leaders, a majority of companies credit operational improvement initiatives for helping them respond to the market downturn over the past six months.

Based on 524 responses from senior operations leaders across a wide range of manufacturing and business sectors, the Stiles Associates LLC's spring 2009 Lean Leadership Survey offers insight into current trends in lean leadership, from lean priorities and spending plans to staffing levels and training hours.

Lean manufacturing, in its simplest form, means minimizing waste and adding value in every area of production to produce more with less. If recent analysis from MIT indicates that manufacturing methods are "spectacularly inefficient in their use of energy and materials," it should come as little surprise that companies are looking to introduce lean principles into their organization.

In response to sharp revenue declines, U.S. operations managers are overwhelmingly focused on cutting costs, according to executive recruiting firm Stiles Associates' new findings. More than 70 percent of business leaders surveyed anticipate a revenue decline in the first half of 2009. It is no surprise, then, that cutting costs seems to be everyone's top priority today, particularly at large firms.

Spending on improvement initiatives is holding steady or increasing at two-thirds of companies surveyed: One-third of companies are maintaining past spending, and one-third are increasing spending. The remaining one-third of companies surveyed are lowering their lean investments. Because budget line items rise and fall with the top line, the companies anticipating revenue declines are the ones more likely to cut spending on their lean programs.

The Stiles Associates report found that long-term commitment pays off. A higher percentage of companies that have been pursuing operational improvement for four years or more rate their lean programs as "effective" or "very effective" compared to those that rate it as "not effective" or only "somewhat effective." Those that have been pursuing lean for three years or less rate their programs the least effective by a wide margin. This reinforces the long-term commitment required to realize the benefits and returns of such initiatives.

Faster returns on lean programs "go hand in hand with higher visibility of lean programs within the corporate suite," the Stiles Associates found. "After all, when the opportunity to grow revenues becomes limited, executive attention always returns to cost cutting."

As one IMT reader once wrote: "Lean manufacturing is only as good as the folks leading and implementing it."

To that end, corporate visibility of operational improvement initiatives has increased in almost half (47 percent) of firms. "Lean program visibility increases or decreases based on projected changes in lean program funding. Perilous economic times aside, this implies that if lean leaders increase the visibility of a program's results, and communicate it to all levels, they are more likely to get additional funding."

Indeed, when facing economic turbulence such as today's, corporate managers are often more focused on survival and stemming the revenue decline and less on offsetting such declines with process improvement cost savings. Yet when it comes to operational improvement of any type, everyone — line workers, middle management and upper management — must focus on common goals.

In fact, part of the foundation of lean in action is respect for people, which means "you hold people accountable to the system, following it and improving it (the notion of "kaizen" or continuous improvement)," as Mark Graban at the Lean Blog defines it.

"Recessionary times tend to expose an organization's true commitment to operational improvement. Some are abandoning the pursuit of process excellence while others are doubling down," Jake Stiles, president and COO of Stiles Associates, said in a statement. "When consumer confidence and spending bounce back, companies that have continued to invest in their people and lean manufacturing programs will have the resources in place to meet customer demand and grab market share."

The Lean Enterprise Institute's e-letter subscribers in March reported that their lean efforts are getting more attention during the recession.

Despite the overwhelming emphasis on cost cutting, more than one-third of companies surveyed are either maintaining the size of their process improvement staff or actually hiring more people.

This may have something to do with the consensus of satisfaction with the lean culture and philosophy in recent years.

"Almost nine out of 10 operations and corporate business leaders whose companies have deployed lean believe that their initiatives have helped them achieve their objectives over the past three years," Stiles Associates determined.

An even greater proportion of respondents — over 90 percent of companies — believe that such initiatives have helped them to manage their operations effectively over the most recent six months, the spring survey concluded.

Recent/Related

How Inefficient are Modern Manufacturing Methods?

Make Operational Improvements Stick in the New Year

How Manufacturers are Coping with Economic Turbulence

Is Your Lean LAME?

Resources

Spring 2009 Lean Leadership Survey (Register to Download Report)

Stiles Associates LLC, March 18, 2009

Lean Companies Gain Even Greater Edge in Recessionary Times

Stiles Associates LLC, March 31, 2009

Lean Transformations Getting More Emphasis in Recession, says Survey

Lean Enterprise Institute, March 2009

Strategies to Run a Lean Supply Chain

Ventana Research, January 2007

What Is Lean? A Lean Definition

by Mark Graban

Lean Blog, May 13, 2005



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