Manufacturers pursuing lean are already well on their way to achieving competitive differentiation by satisfying customers and driving operational improvements. AberdeenGroup's new "Roadmap to Lean Success: Measurement and Control" study characterizes some of the lean efforts already under way:
- 92% of best-in-class companies are pursuing lean for operational excellence
- 69% of best-in-class are looking to improve profitability
- 39% of companies have improved schedule attainment by over 40%
- 29% have boosted first-time quality results by 40% or more
- 14% enjoy at least a 6% uptick in bottom-line profitability
Given the successes achieved by companies overall, it's not surprising that best-in-class performers are gravitating to lean for operational performance improvements and bottom-line results, and have the highest expectations for their lean initiatives. Of those best-in-class companies that have started lean initiatives, 100% expect to recoup their investment within one year; 59% are even more ambitious, setting their sights on breaking even within six months.
Value Stream Management
Best-in-class lean companies are dedicated to pleasing their customers, and this philosophy is reflected in their organizational structures and business models. As shown in Figure 1, 54% of best-in-class companies have appointed business leaders to manage their value streams and emphasize a customer-focused approach to processes.
Such operational efforts begin with cross-functional teams dedicated to developing an accurate picture of processes -- one that stretches from the customer through the organization and the supply chain. Resulting value stream maps depict the resources, product flows, and metrics required to deliver value-added products and services to meet specific customer requirements.
As business managers, value-stream leaders are responsible for setting goals, managing performance, and delivering profits to the company. Measurements and controls must be set so that the enterprise achieves quality and on-time delivery metrics for the ultimate goal of customer satisfaction. It is imperative that value-stream leaders take into account both value-added and non-value-added efforts in their measurements in order to contain and eliminate waste as part of any best-in-class lean initiative.
On the other hand, 80% of laggard organizations restrict lean efforts to departmental silos and have few plans to change. These companies may have specific, low-level efforts toward lean philosophies and techniques within individual areas of manufacturing operations, but those efforts will not achieve the desired outcomes or get the needed recognition by senior management without the appropriate investment in value-stream mapping and the associated definition of measurements and controls that lead toward operational excellence. Lean "spot" solutions, both manual and technology-enabled, are only a small first step toward leaning out the enterprise.
Improved Control and Visibility
While all lean manufacturers seek to leverage proven techniques that eliminate waste, support pull-based processes, and promote continuous improvement, the definitive driver for best-in-class distinction appears to be the desire to improve visibility and control over operations. Aberdeen's study results confirmed that an overwhelming majority of best-in-class companies are placing a priority on technology-enabled systems to analyze root cause and effect and to immediately take corrective action (see Figure 2).
Most manufacturers operate on a reactionary model. As soon as a production cell underperforms or finished-product QA inspections begin to drift outside of tolerance, technology-enabled processes kick in to notify management. Ideally, more predictive monitoring would send warnings in advance, enabling a more preventative response.
The second-highest technology priority is the ability to "drill down" into data that resides across a variety of systems including data historians, statistical processors, and execution systems -- a capability critical to driving continuous improvements and supporting Six Sigma efforts. Better performers are leveraging such drill-down capabilities not only to improve manufacturing performance, but also to support customer requirements, industry legislation, and Sarbanes Oxley. This data is critical to granularity of measurement and control. The ability to integrate lean production KPIs with financial scorecards is directly dependent on these drill-down capabilities.
The Heart of Lean Measurement
Aberdeen's research methodology is a structured approach to facts-based information, which includes interviews with survey respondents to ascertain survey feedback and also to gain unique insights. For this benchmark study, these insights came from a broad spectrum of industries, ranging from a tier-one automotive supplier to a publishing company to an industrial testing and measurement equipment manufacturer.
Certain themes and strategies coming from these companies were consistent with lean philosophies and resonate across most industries. They include the importance of senior management involvement and support across the enterprise as a key success factor, as well as the importance of mapping multiple value streams across enterprise entities as a primary stepping stone toward properly defined measurement and control. Also important is maintaining a constant and pervasive eye on waste and other non-value-added activities. Measuring and eliminating them should be at the heart of continuous improvement.
Almost every company surveyed used some form of lean consultancy, and extended oversight of external consulting through to measurement and control. While lean value streams must adhere to the ultimate goal of customer satisfaction, it was noted that the levels of granularity and accountability of defined measurements and controls were a differentiation between best-in-class and laggard companies.
Align Goals, Measure Frequently
Many companies have moved toward synchronizing plant-level and financial results for corporate-level decision-making. Best-performing companies establish broader and tougher metrics than their competitors. In addition to tracking traditional operational metrics such as defects, set-up time, and cycle time, they also develop value-stream metrics that incorporate financially oriented measures such as schedule attainment, profitability, and cost per unit.
Moreover, although placing priority on key metrics is a given, the study revealed that frequency and granularity of measurement are more directly linked to performance improvements. It is up to the value-stream mapping managers who oversee the intersection of corporate and operational metrics to continuously measure and communicate performance. Coordinated scorecarding of metrics programs across corporate finance, plant operations, and value streams is another characteristic of best-in-class performers.
Accountability to Action
By keeping management focused on maintaining the bridge between corporate functions and manufacturing operations and investigating improved process methods, better-performing companies are already meeting the mark for operational goals, and intend to add to their lean successes in the near term.
By holding value-stream managers accountable for enterprise-wide goals and tying value and processes back to the consumer, companies will outperform the competition and continuously deliver results. Driving the business toward sustained profitability is clearly the bellwether goal of companies pursuing lean throughout the enterprise. Individual production measures are not enough. The alignment of plant productivity measures with specific financial statement measures is the best way to achieve operational excellence.
Maura Buxton is a research analyst at AberdeenGroup.