| Abstract: | Mesmerized by the cost-reduction opportunity, many manufacturers and other businesses are missing the true benefit of lean practices. |
| Keywords: | Lean manufacturing, lean production, cost cutting, eliminate waste, Lean Enterprise Institute, James Womack, grow revenue, growth opportunities, reduce inventory, lean shop floor |
Although lean has been a popular management discipline for decades and has gained followers across industry sectors, it is being mistaken as primarily an engine of cost reduction, a new report from the Lean Enterprise Institute has found.
In a survey of nearly 2,500 businesspeople — mainly manufacturers — study author and institute founder James Womack, Ph.D., uncovered an overwhelming bias toward cost containment. Conducted earlier this summer and released in conjunction with the nonprofit lean advocacy group's 10th anniversary, the survey found that 46% of respondents considered "reduced cost" the biggest benefit of their lean initiatives.
There's no doubt that lean helps lower costs, according to Helen Zak, chief operating officer at the Lean Enterprise Institute. But companies grappling with competitive pressures tend to see that aspect alone, and that can turn lean into a shortsighted endeavor. "They just look at half of the equation, not all of it," Zak said in an interview with Managing Automation.
Instead, Womack said, lean practitioners should aim for growth. The biggest return on lean, he said in a prepared statement, "is that it frees resources by using less human effort, less space, less capital, and less time to make a given amount of products and services and to make them with fewer defects to precise customer desires, compared with traditional management."
Survey participants could choose from 10 selections in identifying lean's biggest benefit. Cost reduction garnered more responses than all nine of the remaining answers combined. The second most-popular benefit was increased customer satisfaction, at 16.3%, followed by reduced inventory, at 8.5%, and increased product quality, at 6.4%.
Companies interested in growth would likely have selected "customer satisfaction," Zak said, indicating that some respondents did indeed have growth in mind. But the other selections that a company using lean to grow would likely have chosen — "increased capacity" and "reduced lead times" — received only 1.2% and 0.2% of the votes, respectively.
An unwavering insistence on improving the bottom line can distract companies from nurturing the business through top-line, or revenue, growth, analysts say. Colin Masson, a research director at AMR Research, told Managing Automation this spring that companies striving to implement lean production often do not integrate demand planning into those efforts. Without a better grasp of the market demand for their products, those manufacturers are unable to create healthier revenues from their efforts.
In a study of 250 global manufacturers earlier this year, analyst firm Manufacturing Insights discovered that those with relatively mature lean initiatives enjoyed much higher rates of growth and profitability than companies without lean practices.
Other research has suggested that manufacturers have as much difficulty instilling a lean mentality in the first place as they do focusing on the most beneficial aspects of lean after a plan is in place.
In a 2006 AMR survey of 208 manufacturers, 43% of respondents said they used lean manufacturing practices. Of that group, the research firm noted, few had extended lean throughout the factory, instead limiting its practice to specific work cells, for example.
"A perennial issue [with lean] is focus and alignment. Lean in many cases gets adopted only in certain areas of the company, and not company-wide," Zak said. "It gains momentum and dies out as other priorities in the business take hold and become the program of the month."
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