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10/21/2011 02:38 PM
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An interesting article appeared in SME"s "The e-newsletter of Lean Manufacturing" , titled, "Survey: Lean/Six Sigma programs seen as a poor investment for most companies"
http://www.sme.org/cgi-bin/get...utm_campaign=oct-2011
The article has statements such as:
"Nearly 70% of manufacturing executives say that their manufacturing-improvement efforts led to a reduction in manufacturing costs of less than 5%, the typical minimum threshold for successful productivity programs."
"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'."
"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% cited a full payback in under a year. Four in ten simply aren't sure when it comes to an expected ROI."
This article doesn't paint a very good picture of Lean Manufacturing. What's going on?
Sam Tomas
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10/22/2011 04:23 PM
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To me, this is a classic example of companies that say "Ya, we're doing Lean", when in reality they didn't focus on the entire value stream, did Kaizen events but didn't do the follow-up, or just plain backslid.
Secondly, I didn't see anything about the most important measurement: Are their customers happier?
Third, and the Finance guys will be all over me for this, but this is the kind of answers you get if you are zeroing in on ROI. Instead of asking "What is the ROI?", ask "What do we want our performance to look like, and how will we get there"? Now the conversation changes from having to justify improvements, to concentrating on problem solving.
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10/22/2011 04:23 PM
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Very interesting.
The survey stuff seems to be right in line with the kind of numbers we see in every survey about lean. 70% of executives basically believe that their "improvement initiatives" have low payback. It seems like every survey comes back with the same type of feedback. It's right in line with an industry week survey that said 70% of lean initiatives are failing. I have two responses to this:
1) Look in the mirror. Do executives realize that when they say their "manufacturing-improvement efforts" are failing, they are actually saying that they are failing? I absolutely believe that this disjoint of accountability is the root cause of the failures. It's always "those improvement guys" that are not getting the executives any savings instead "I" am not getting the savings I should. Instead of blaming themselves, they blame the systems. It always seems very convenient considering that every survey ever done of failing lean programs always sights lack of leadership buy-in as the number one cause of failure. It's a frustrating catch-22.
2) It's the wrong question. If an executive can distinguish it's lean manufacturing "program" from the rest of his/her business, then they aren't really adopting a enterprise lean initiative. They are assigning the lean program to be a cost saving initiative which is shoe horning lean into something it is not. The Toyota Production System is a description of Toyota's overall business philosophy, not a description of a program Toyota has. When I get asked how much money did I save from lean this year, my response is all of it. Every dollar we make is from the application of a sound business philosophy and strategy.
The survey of Shingo Prize winners was very interesting. I'm really curious to see how that study was conducted. It is kind of surprising considering that Shingo uses "results" as one of the criteria for winning the prize. So these companies have to show a track record of strong performance to win. My speculation on the subject is pretty negative so stop reading if you don't want to feel depressed...
Corporations always hit their projections. The fact is, lean isn't the only way to generate revenue and profits. In fact, lean might be the hardest way for an executive to affect those numbers. If you are a multi-billion dollar company like the ones surveyed, creating more revenue and profit is actually fairly simple and the formula is fairly well known to every executive. Cut costs in Company A by eliminating everything that isn't going to pay off in the next 2-3 fiscal years (ie sell your future). Profits go up. Use the profits to buy Company B that is "fat" (ie it hasn't sold it's future yet). Revenues go up. Cut the "fat" from Company B. Profits go up. Buy Company "C". etc. etc. After a few years, outsource most of company A because it isn't creating any more profits and they haven't had a new idea in 3-5 years (hmmm, wonder why?). 10-15 years down the road the corporation will be on CEO#4 and the paint is falling off of the walls at Companies A through E. CEO #4 is thinking that it wouldn't be so bad if there was a merger or even a takeover to inject some cash into the business and give their personal stocks a big bump. The company is on it's way to a bank buy out where it will be torn to pieces and sold on the auction block. This inspite of making billions for investors over the course of more than a decade by continuously hitting projections quarter after quarter.
The whole time the executives keep telling themselves every step of the way that they are the ones making the "hard" decisions and that's why they deserve the money they are making. Meanwhile, the revolving door keeps moving because there are a thousand companies just like their's running their business on the same destined for economic failure business plan and all you can hope for is to spend the next 5 years with a business on the upswing of the cycle instead of the down.
I've visited a few Shingo Prize winners and I have visited a couple of their competitors. I have even glanced at their quarterly reports. There isn't a whole lot of difference when it comes to the reports and the numbers they are throwing out there from quarter to quarter. So it doesn't really surprise me when a report says that the Shingo winners aren't outperforming their peers. When you walk out on the floor, the difference between the shingo winner who is building an onsite clinic and investing in better training for their associates and the lean faker who is cutting benefits and preparing to outsource is obvious to anyone other than a stock broker. The difference is that one company has a heart and the other doesn't.
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10/22/2011 04:23 PM
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The article referred to answers some of the questions you ask - most Lean improvmetn are focussed on a checklist of tools and processes. This is 'Innovation Kaizen' which is making some things better, as opposed to 'Survival Kaizen' - which is making a real difference where it counts. This last one was Master Ohno's key to real improvement.
Here is a true story: One day after we started our lean journey, the Controller came to the head of manufacturing and asked 'what is going on? something has changed'
'Is that good or bad?" was the cautious reply.
"Its good - we're making the same stuff, but it's costing us less. Damn thing is, I can't put my finger on why. Its just a little bit of everywhere'
That is the lesson. Lean is not an ROI project - although many good projects originate in a Lean fashion. The real sustainable gains come when everyone everywhere does their part every day. Its a culture, which cannot be captured on a balance sheet. If "lean' is measured in profits, or revinue, it will not be sustainable.
Our facility has had no price increase in 12 years! Quality and Delivery and especially Safety are way above the norms, and continually getting better. Our employees and customer are happy. That's success.
Lean Manufacturing" is only one part of a larger concept. Mike Morrison, former head of Toyota University, says it needs to be Leading with Culture which will internalize your goals not just make them numbers to hit.
http://learnplando.com/Content...ingThroughCulture.pdf
Let me know if this answered your querey, please.
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10/22/2011 04:23 PM
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Truth hurts
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10/22/2011 04:23 PM
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We live in inflationary times, and now combined with a poor economy. Flawed keynesian economic theory destroys productive activities
No matter how efficient you become, if you have real competition you can not raise prices, and the increase in commodity prices due to inflation outweigh improvements. Just cant get ahead.
JohnPodlasek
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10/22/2011 04:23 PM
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The results of the survey appear to be valid and not surprising in the least. The traditional manufacturing approach has tended toward the outsourcing option when it comes to Lean implementation programs, outsourcing does not work. If a Lean culture is not adopted the cost saving associated with Lean will be marginal and not sustainable. If top management does not lead from the front there will be no sustained performance improvement. This requires going to the Gemba.
The manufacturing culture in America is strong and based on the mass production approach. Moving away from a paradigm that brought the USA so much success over the last 100 years is difficult and will take decades. Toyota's performance but more importantly their longevity in the automobile industry is all the proof you need that the Lean principles are sound. When in doubt study Toyota, their performance as a globally successful company speaks for itself.
We know Lean is able to provide a performance advantage in manufacturing. Cost is a metric, one that is generally still calculated using traditional accounting systems that were designed to fit the mass production approach. Time and improvements in manufacturing time are better metrics when measuring manufacturing performance. Executives feel they don't have the time to understand the manufacturing process... that's why they hire engineers... they want to see "the numbers". Again, you know very little unless you have paid a visit to the Gemba.
The study highlights the lack of understanding with regards to the principles of Lean and thus a lack of understanding of how to create a Lean culture through effective implementation.
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10/22/2011 04:23 PM
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Sam, just guessing, but I'd say that what's going on is the following. The majority of manufacturing companies never truly "get" lean and so their improvement efforts purportedly using lean tools are no more successful than those of "non-lean" peer companies. Until a company truly transforms their company into one with a true lean culture, use of lean tools alone will not result in transformational improvements.
But the 5% or so of companies who truly "get it" with Lean, will leave the other 95% wondering why Lean doesn't work..
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10/25/2011 11:09 PM
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I believe Morrison's point is that to suceed in business, a company needs to have an appropriate culture, which he then goes on to describe his interpretation of what it should be. Consequently, companies not achieving lean improvements do not have appropriate cultures. I would suggest that that's a little difficult to accept as valid deductive reasoning.
When you look at companies that won the Shingo prize, for example, companies such as Solectron, Raytheon and Baxter healthcare, my opinion, which is only one man's opinion, is that these companies have indeed developed the appropriate cultures that made them as successful as they are today. But yet the original article I referenced indicated that Shingo prise winning companies in general generated revenue growth and gross profits just on par with, or even weaker than, their peers'. One might conclude from this that while an appropriate culture is necessary, it is not necessarily the total answer to improved Lean performance.
Rather than talk about reasons for failures in lean implementations, perhaps some foruum members might offer their thoughts on what it takes to succeed in implementing lean improvements.
Sam Tomas
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10/28/2011 01:08 PM
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Kris,
To quote Lonnie Wilson - "Nothing really changes until management REALLY changes"
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10/31/2011 04:09 PM
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Originally posted by: DMcGan
But the 5% or so of companies who truly "get it" with Lean, will leave the other 95% wondering why Lean doesn't work..
See this is what I found most interesting about this report. I have studied the Shingo Prize quite a bit and have looked pretty closely at the companies who win it. I think that what Shingo is measuring should be doing a very good job of distinguishing the 95% from the 5% (at least in the last 3-4 years after they made some significant changes). The companies who win the Shingo prize "get it". So why aren't they outperforming their peers in profit and revenue growth?
I gave my speculation on the topic but honestly it was just a shot in the dark (and a rather pessimistic one at that). I'd like to hear some other people's speculation on the subject. Is there a positive spin to this? I have a couple questions about it:
1) Does winning a shingo prize force your competitors to stand up and make some huge changes that would result in them catching up fairly quickly?
2) Shingo prizes aren't won by corporations. They are won by factories within companies. A single factory winning the shingo prize does not mean that the corporation has fully adopted lean. Did the survey compare companies profit and revenue growth or did it compare factories? If it is comparing companies, what percentage of the company was evaluated by the shingo prize?
What are the other explanations for this part. The fact that shingo prize winners aren't more successful than their peers is a little disturbing to me.
I think that the survey of executives portion of this article is pretty overdone and it means very little to me. This survey is a little like doing a survey of a diet that I am supposed to be on. Whenever I am on the diet it works well. The problem is that I don't have the discipline to make the diet an integral part of my life. It's just a program that I go on for periods of time when it is convenient. It's not the diets fault that when things get difficult, I drink pop and eat chocolate. I just can't get it through my head that when things are difficult, that's when I need the diet the most.
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11/04/2011 11:01 AM
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The study, to me is flawed. Let me explain.
The success of a company is not entirely based on shop floor activities alone. Sales/Marketing, Customer Service, Suppliers, there are several other aspects to a business than manufacturing alone. Most companies that have a lean "program" have it for processes that directly apply to the shop floor. Value is in the entire Supply Chain and all activities that branch off this supply chain; Companies that have to and can separate their "lean activities" from others basically don't have it ingrained in their organization which is the key to it's impact.
I ackonolowdge that Singo Prize claims to looks at the entire supply chain, but again a robust process alone will not assure financial results.
Also to assume, lean is the only way to be successful is the same as someone in the 70's making a statement about mass production as the only path to success.
Historical consumer perception is also important. Reputation of a company is not built in a few years, KIA can have the leanest and meanest assembly lines and lineup of cars, you will still think 5 times before buying one over a Toyota or Honda, it takes time for consumers to see value.
Product design is very critical too, Just because Dell has a very efficient Supply Chain and Lean assembly lines, does not mean it will make more money than Apple! Apple has publicly quoted that they do not believe in Customer feedback when designing products, which is completely against the basic principle of lean product design. To my knowledge, no Apple supplier has ever won a Shingo Prize!
In today's globalized economies, you can be extremely lean in US, but still may not beat the price and quality of a company is India or China. An engineer in India @ USD 10,000 per year vs an engineer in US @ USD 70,000; the math is simple. On top of that government subsidies, local tax breaks; there are so many factors that can't be changed easily by a company.
Shingo Prize rewards operational excellence, which means it certifies a company having good operations. Good operations will not always translate to financial success
And lastly, you have to apply for Shingo Prize. Not all companies will do this! So to look at the winners, and claim they were outperformed by peers has no real significance to me.
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