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AlixPartners

Quality Insider

Survey: Lean Manufacturing Programs Seen As Poor Investment for Most Companies

Respondents say improvement efforts are effective, but numbers disagree

Published: Friday, September 30, 2011 - 10:08

(AlixPartners: Detroit) -- Most large manufacturers last year failed to reach their cost-savings targets, despite significant investments in lean manufacturing, Six Sigma, and other productivity programs as part of their overall retrenchment efforts in this tepid economy. Nearly 70 percent of manufacturing executives say that their manufacturing-improvement efforts led to a reduction in manufacturing costs of less than 5 percent, the typical minimum threshold for successful productivity programs. That’s according to a survey of manufacturing executives conducted in May and June 2011 by AlixPartners, the global business-advisory firm.

According to the survey, 36 percent of respondents indicated that their cost savings due to productivity efforts were 3-to-4 percent of total manufacturing costs, while 18 percent said their savings were less than 2 percent. Fully 14 percent of manufacturing executives said they didn’t even know how much they were saving through their productivity-improvement efforts. Yet, illustrating a gap between industry perception and reality, 91 percent of the respondents described their improvement efforts as “very effective” or “somewhat effective.”

The survey also found that companies previously recognized for their lean manufacturing programs perform no better than their industry peers. According to AlixPartners’ research, winners of The Shingo Prize for Operational Excellence have, after three years’ time, generated revenue growth and gross profits just on par with, or even weaker than, their peers’.

“Most continuous improvement initiatives focus too much on implementing a particular ‘checklist’ of program tools and processes, rather than on basic execution,” says Steve Maurer, managing director and leader of AlixPartners’ manufacturing practice. “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. That was reflected in our survey, where some 60 percent of the respondents believe that half of the savings that they generated last year will be unsustainable. Only 13 percent said they could sustain more than three-quarters of the identified savings.”

AlixPartners’ Senior Executives Survey on the Effectiveness of Manufacturing-Improvement Programs encompassed a range of industries, including automotive, aerospace, consumer products, industrial, chemicals, and electronics. Most of the respondents worked at companies or divisions with annual revenue of more than $500 million, with some two-thirds of the participants based in the United States. Nearly half of the respondents oversaw operations that generated more than $2 billion in annual revenue.

“What’s good about lean and Six Sigma manufacturing is the emphasis on process control, defect prevention, and the elimination of waste,” says 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.”

The survey also found deep skepticism that productivity-improvement investments would be recouped quickly. When asked to identify their average annual return on their continuous improvement investments, only 15 percent cited a full payback within one year. Four in 10 respondents simply aren’t sure when it comes to an expected return on investment.

“At their core, continuous-improvement programs must include clear priorities based on the expected financial impact,” says Andrew Csicsila, director in AlixPartners’ manufacturing practice. “Yet, there remains a pervasive misunderstanding that simply focusing on lean and Six Sigma processes alone will be the magic fix. Ultimately, it’s not about chasing a process or philosophy. It’s about the cash.”

About the survey
The AlixPartners Senior Executives Survey on the Effectiveness of Manufacturing-Improvement Programs was conducted among C-level and senior-level manufacturing executives across a range of industries to assess their perspectives on approaches, prioritization, and effectiveness of manufacturing optimization programs; determine their approach to manufacturing improvement initiatives; understand priorities for manufacturing improvement; rate effectiveness of various improvement approaches; and compare savings created by manufacturing improvement programs. The survey was completed in June 2011.

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About The Author

AlixPartners’s picture

AlixPartners

AlixPartners is a global firm of senior business and consulting professionals that specializes in improving corporate financial and operational performance, executing corporate turnarounds, and providing litigation consulting and forensic accounting services when it really matters—in urgent, high-impact situations.

Comments

Efforts to strengthen links other than the weak link are wasted

 

 

The study findings are not very surprising. In fact, it is predicted that unfocused efforts would disappoint.

 

Parts of organisations are interlinked. Total output (Throughput) produced by an organisation is outcome of these interconnections.

 

Late Dr. Eliyahu Goldratt gave an analogy of chains for viewing functioning of organisations. There are two possible ways at looking for improvements in a chain.

 

 

  • Improvement in weight
  • Improvement in strength.

 

If we look for improvement in weight of the chain then every improvement in all the links would add up to the total improvement.

 

But, if we look for improvement in strength of the chain, the above additive feature does not hold true. The strength of the chain is governed by the strength of the weakest link. So only the improvement efforts to increase the strength of the weakest link would result in improvement in the strength of the chain.

 

The efforts put into increasing strength of links other than the weak link would be totally ineffective.

 

Working on weight of the chain is equivalent to working on COSTS. Cost reduction efforts are additive in the first glance.

 

Where as working on strength of the chain is equivalent to working on THROUGHPUT. Throughput improvement efforts need aligning the entire organisation to focus on a very few things which are important.

 

An organisation not having a mechanism to focus its improvement efforts courts two dangers:

 

  1. If it fails to improve the weak link, then it is deemed UNRELIABLE. It does not live up to the promise of delivering the projected improvements.
  2. If it fritters away the resources in strengthening links other than the weak link, then it is deemed INEFFECTIVE. It wastes away costly resources.

 

I agree with Andrew Csicsila, director in AlixPartners’ manufacturing practice. Ultimately, it’s not about chasing a process or philosophy. It’s about the CASH.

 

Expect results only when the efforts are focused on the above GOAL

 

Deepak Nagar

Prinicipal Consultant

Avenir Management Services Pvt Ltd

www.avenirco.com

dnagar@avenirco.com