Manufacturing companies that have achieved a level of maturity in implementing continuous improvement programs, such as lean and Six Sigma, enjoy significantly higher growth rates and profitability than their non-lean counterparts, according to a recent study issued by Manufacturing Insights, an IDC research company.
Companies with relatively mature lean processes recorded 68% faster revenue growth over the past 20 quarters than non-lean companies, Manufacturing Insights reports. At the same time, lean manufacturers enjoyed net profit margins that averaged 26% percent higher than profit margins reported by manufacturers that haven't pursued lean practices.
The study's findings were based on Manufacturing Insights' Global Performance Index, a group of 250 global manufacturing companies that allow the research company to track their financial performance. Manufacturing Insights compared results from Global Performance Index companies that use lean techniques with those that do not.
The report states that lean companies generally report better financial results because they are structured to respond to demand, a capability that lets these manufacturers adjust more rapidly to market changes. Also, lean companies in the Manufacturing Insights Index generate greater profit margins because they are better at eliminating waste from their processes.
Manufacturing Insights predicted that lean manufacturers in its index, for the immediate future, will continue to enjoy revenue growth rates that are at least 50% greater than non-lean manufacturers in the index. Lean manufacturers, however, did not record better financial performance in all measures studied by Manufacturing Insights. Lean and non-lean manufacturers had almost identical inventory efficiency performance, for example. Non-lean companies, on average, had an 89% inventory-to-revenue ratio compared with 90% percent for lean manufacturers.
The Manufacturing Insights study attributed the lack of an inventory efficiency advantage for lean companies to inconsistent implementations of lean principles across manufacturing vertical industries. In the aerospace & defense, automotive, and high-tech industries, for example, where many companies have mature lean implementations, lean companies have significantly better inventory efficiency, the report says. In the chemicals, paper, and metals industries, for example, where lean tends to be less mature, non-lean companies actually have more efficient inventory processes, according to the report.
This article originally appeared in the June 2007 issue of Managing Automation.