Lean Manufacturing: Not Worth Its Weight?

A new study reveals some significant shortcomings in Lean manufacturing and other operational excellence practices, begging the question of whether Lean still works for manufacturing.

Is Lean manufacturing bankrupt?

In some circles, that question stirs a reaction similar to dropping a bank CEO into an Occupy Wall Street demonstration. Proponents of Lean manufacturing and related principles of operational excellence such as Six Sigma are often strident in their belief that the practices deliver significant business advantages. Some take on the sheen of religious fanatics when they promulgate Lean.

What if they’re wrong?

Yes, I’m poking a sacred cow. But you can’t always tell a sacred cow from a sick one unless you look closely. The business process consultants at AlixPartners recently did just that. They turned an empirical eye to the world of operational excellence and Lean manufacturing, polling senior executives on the effectiveness of such efforts. The opening statement of the resulting study might read like blasphemy to some:

Despite significant investments in “lean manufacturing,” “Six Sigma,” and other productivity programs, most large manufacturers failed to reach—or even come close to—their cost savings targets over the last 12 months.

Consider some of the study’s findings. Among the manufacturers AlixPartners surveyed, 47% had hoped to achieve savings in excess of 5% of their manufacturing costs by implementing Lean manufacturing and operational excellence practices. Only 31% actually achieved that mark. Thirty-six percent realized 3%-4% savings, while 19% reduced costs by 2% or less. Fourteen percent couldn’t quantify their results.

Not a rousing endorsement. “Still,” reads the AlixPartners’ report, “despite these poor or unknown returns on investment, more than 90% of executives surveyed considered their programs to be somewhat or very effective, indicating a substantial perception gap in this area.”

For companies in which the operational excellence program did not deliver the expected benefits, 23% of respondents said the culprit was an “inaccurate opportunity analysis.” Which makes me wonder if the original opportunity analyses were swayed by dogma. That is, have the backers of Lean manufacturing and operational excellence so colored our views that we can no longer tell a sacred cow from a sick one?

Apologists will say that the manufacturers who found little benefit in Lean manufacturing came up short not because the philosophy is flawed, but because their execution was. But if failure is such a common result of Lean manufacturing efforts, maybe there’s something wrong with the system. If it works swimmingly on a diagramed process flow but fails in real factories, maybe Lean manufacturing methods aren’t suited to real-world manufacturing. Maybe it’s a bridge too far to expect the principles honed in one industry to apply to all others. Maybe today’s manufacturing reality is too volatile, too fast, for Lean manufacturing to keep up.

What do you think?

(See the Canadian Business Journal for a good analysis of the AlixPartners’ findings.)

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  1. Posted November 7, 2011 at 5:41 pm | Permalink

    Like every drug, every gadget, every piece of software the benefits of Lean strategies has been oversold. As a practitioner and trainer in the area of Lean Maintenance I work to lower expectations.

    I’m project oriented. The best Lean projects in maintenance are cheap, high ROI, high probability of success, use existing resources (tools, spares, materials, etc.).

    The power of Lean is involvement of the work force. Waking people up and tapping their potential makes them happier, more effective and “smarter”! I invite anyone interested to come to a Lean Maintenance class in Orlando December 15-16, 2011. Contact me at JDL@Maintrainer.com for all details. Thanks Joel Levitt

  2. Posted November 7, 2011 at 6:05 pm | Permalink

    Rather than look at these numbers as a sign of decline, perhaps its a sign of success and maturity. It could be time to start applying Lean techniques to new areas of the supply chain and to different resources.

    In my discussions with manufacturers, they are finding success applying Lean to workforce management processes and extending the populations practicing Lean to the back office.

    For ideas on how to continue to Lean success, my book Lean Labor provides case studies of real companies that have adopted Lean principles to more effectively manage their workforce.

    Gregg Gordon

  3. Posted November 7, 2011 at 6:23 pm | Permalink

    The study lack sufficient sample scope to render a truly meaningful conclusion.
    It fails to:
    * Consider various size organizations from sub-$10MM to the “large” business profile which is the focus of the study.
    * Considers success to be measurable only on the basis of specific “cost” saving without defining and attributing as beneficial shorten lead times, faster turn-around (e.g. ability to be more fleet and adept at rapid production reconfiguration, etc.)
    * Fails to measure improvements in Customer satisifaction and resulting increased business from existing customers and added ability to secure new business opportunities brought about by factors other than specific cost saving.
    Lean Manufacturing techniques and methodologies have been repeatedly demonstrated to yield ALL of these benefits when implemented using a top-down approach causing the associated business (production and other business organization departments) function to operate more effectively. In my own business experience involving the participation of more more than 300 employees, metrics indicate improvements as follows:
    * 40% increase in production efficiency
    * corresponding increase in total production throughput (which also translates to real cost saving as the velocity associated with converting purchased goods to revenue is shortened)
    * increase in total capacity without requirement to increase either overhead or production direct labor or supervision
    * 30%+ reduction in learning curve time requirements for new product introductions.

  4. Posted November 7, 2011 at 6:37 pm | Permalink

    My interpretation of the same numbers is this: 67% of those surveyed saved at least 3% of their manufacturing costs by implementing Lean manufacturing and operational excellence practices (31% achieved 5% or greater manufacturing cost reductions and 36% achieved 3% – 4% savings, while 19% reduced costs by 2% or less)

    This is nearly 66% of the target group who saved in excess of 5% of their of their manufacturing costs by implementing Lean manufacturing and operational excellence practices (31% / 47% = 66%)

  5. Posted November 7, 2011 at 6:53 pm | Permalink

    My experience is that companies don’t get a good return on lean and 6-sigma because they get bogged down in training and spend too little time actually doing anything significant. We need fewer black belts and more money belts in the process. The savings are there, and there is no easier way to manage manufacturing. The process, however, must be strategic rather than a backwater for a detached quality organization.

  6. Terry Dean
    Posted November 10, 2011 at 8:47 am | Permalink

    I agree with David that there are many instances of companies talking about Lean more than focusing on executing. There are two other considerations to consider here. One is that Lean is also about addressing what customer’s value, so increases in revenue is also a metric influenced by Lean. The other is that even these slight decreases in cost, have a much greater impact on profit. At a 20% original margin, a 5% reduction in costs results in a 20% increase in profit. At a lower 10% margin, that cost reduction leads to a 45% increase in profit. That would imply considerable success in most books.

  7. Posted November 10, 2011 at 9:46 am | Permalink

    ‘Lean’ was coined as a generic term to describe manufacturing companies operating in a particular way, in contrast to ‘traditional’ ways of manufacturing. Over the past 20-odd years the word has been applied to all sorts of things and become debased. Even as originally used, there were different ‘flavours’ depending on different circumstances: type of industry, product, market etc. There are many different types of -say- coffee, on the supermarket shelf, but I wouldn’t dismiss them all because I didn’t happen to like a chicory-flavoured liquid variety. I would object if I found some ersatz variety made out of roasted acorns labelled ‘coffee’ though.
    I would also observe that Lean Manufacturing is as much -if not more- about operating to very clear standards for QCDSM on a day-to-day basis than just seeking to strip out cost, short-term.
    …and further observe that if you have a great lean Manufacturing System but are making the wrong products, you’re not going to do as well as a company designing and manufactring what customers are prepared to pay for.

  8. Posted November 10, 2011 at 9:56 am | Permalink

    Furthermore – is this article political? The ‘traditional’ way of improving a process is to throw money at it and automate it.
    When I first started to ‘see the light’, improvement came about from first understanding the process, and making it perform reliably and consistently through standardisation. Then kaizen was applied to make the best use of existing resources and make the process lean.
    Automation might have been appropriate in some circumstances, but there were more where automation over-complicated things and was discarded!

  9. Posted November 10, 2011 at 10:14 am | Permalink

    Thanks, everyone, for sharing your thoughts.

    I’ll stir the pot a bit and say that I’m tired of hearing that lean efforts are not best measured by metrics such as cost savings and revenue enhancement. At the end of the day, whatever is done to improve the business is done to improve the business’ financial standing. Lean must pass that kind of bottom-line scrutiny if its proponents expect it to earn the executive sponsorship that’s critical to its success. The study at the heart of this blog post indicates that in too many cases lean doesn’t pass that business test.

  10. Rick Bohan
    Posted November 10, 2011 at 4:16 pm | Permalink

    Chris, if you read a study showing that most people who go on a medically good diet don’t actually lose weight in the long run, would you conclude that increased exercise and reduced intake of high fat/high sugar foods is ineffective as an approach to lose weight? That’s kind of what you’re doing here.

One Trackback

  1. [...] More Flak on Lean Based on the Same Study Managing Automation published another response to the same study that claims to show that Lean does not work: Lean Manufacturing and Operation Excellence: Not Worth Their Weight?  [...]

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