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Lean Manufacturing As A Competitive Strategy (Part 2)

Posted by vietnamwcm trên 3 Tháng Mười Một 2008

Is It Worth It?

By R. Michael Donovan (

Developing the most responsive and dependable operation can be the difference between winning or losing. This by itself should be enough to at least initiate a thorough investigation of a lean strategy. A number of companies, large and small, representing many different industries have very successfully adopted lean manufacturing as a business strategy with astounding results. Your business case may point to improvement potential that may seem so dazzling, they are beyond incredible. For example,

• Costs down 20-50%

• Lead-time decreased by 50-90%

• Overall cycle time decreased 60%+

• Inventory down 50% or more

• On-time performance of 99+%

• Cost of quality reduced by 60%

• Floor space reduced 30-70%

• Material costs down 5-10%

Certainly, improvements such as 99- plus percent on-time performance, a 50-plus percent reduction in process and lead time, and a 10-plus percent increase in throughput would be more than enough for any top management team to certify lean as one of the most worthwhile of strategic objectives.

Think for a moment about the potential of just a 10 percent increase in throughput. If overhead is fully absorbed at the current rate of output, then usually the only significant additional cost to manufacture is direct material. With cycle times reduced by 60 percent or more and on-time delivery exceeding 99 percent, most sales executives should agree that the market share increase will occur. If the increased output is truly saleable, then

230-60 percent of every additional sales dollar is increased profit because the only additional expense is direct material. The effect of a saleable throughput increase could be as much as a 5 percent profit on sales or $500,000 of profit increase for every $10 million of sales. As one client company president once told me, “I will be happy with half that” and understandably so.

There are numerous other valid justification viewpoints to examine as well. For example, a substantial amount of overhead activity costs are a direct result of a company’s inability to consistently and dependably respond in meeting customer requirements. The amount or degree of schedule misses and changes creates an exponential overhead activity cost behavior as the organization ineffectively scrambles in an effort to meet customer requirements. Without an effective capability to consistently meet customer-requested schedules, overhead activity costs increase rapidly with the organization’s inability to meet plans and schedules. Most cost accounting systems have these costs buried in a category labeled “overhead.” The fact is, if these cost do exist they are unnecessary.

A large part of these unnecessary costs is often the true and unknown cost of expediting, an overhead activity with a ripple effect that ultimately impacts the income statement and balance sheet. How? Think of the resources consumed, missed shipments, lost sales, higher production costs, quality problems and sales expense among other things.

The question “Is it worth it?” is, in the vast majority of cases, easy to answer with an overwhelming yes. The consequences of not adopting lean manufacturing as a business strategy are so costly that it should become a high priority strategic objective.

What Should You Do?

As executives learn more and more about lean manufacturing and lean supply chain management as a competitive strategy, understanding and acceptance of the improvement potential from lean evolves. Consequently, management will want to determine and understand how good their company could really perform if the old agreed-upon operating logic was changed to a lean strategy. At that time, management should consider an expert-guided focused assessment of the “as-is” condition versus what will be required to achieve a “could-be” state of lean manufacturing. This focused assessment should have the objective of quickly evaluating what improvements are needed when and what is the potential impact on overall business performance. The end product of this assessment should be a game plan that specifies the improvement actions and measurable performance improvements. Certainly, nothing drives the adopting of a new and better way of doing business than very compelling performance improvement potential.

Once management’s understanding and acceptance evolves to setting your company on a lean strategy course, the real work begins. Introducing the technology of flow, while challenging, will be easily superseded by the challenge to change the old mind-set. Long established value and belief systems are going to be “upset” as the long management- endorsed rules and operating logic are challenged to be unfit and “scheduled” to be discarded. This is the critical point in the lean adoption cycle where only management’s leadership and dogged persistence will assure that lean actually happens.


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