Magazine Summer 2014 Research Feature

What to Expect From a Corporate Lean Program

“Lean” programs have helped many manufacturers boost productivity. However, misplaced expectations of how quickly these programs can improve performance can make their implementation more difficult.

Torbjørn Netland and Kasra Ferdows Reading Time: 18 min 

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Volvo Truck Corporation

Image courtesy of Volvo Truck Corporation.

 

Often modeled after the Toyota Production System, corporate “lean” programs — by which we mean programs that find and eliminate unproductive activities while increasing value creation — can be powerful instruments for improving the performance of manufacturing plants. Successful lean programs help to emphasize parts of the production process that add the most value and eliminate those that don’t.

However, misplaced expectations of how quickly these programs can improve performance can make their implementation difficult — and reduce their benefits. We believe that if managers better understood the rates at which lean programs produce their improvements, then implementations would go more smoothly — leading, ultimately, to further increases in overall productivity.

A Growing Number of Lean Programs

Many multinational manufacturing companies have introduced their own lean programs. Their numbers have been growing, especially in the last decade. Caterpillar, DuPont, Electrolux, Heinz, Honeywell, Johnson Controls, Siemens, Volvo and Whirlpool are just a few examples.1 These programs are called by different names, but in the vast majority of cases, they are labeled with the company’s name followed by “production system.”

Typically, a production system is a collection of lean production principles, methods, tools and techniques.2 Its goal is to provide a clear and stable structure and a road map for instilling a culture of continuous improvement in every plant in the company’s production network. However, an inherent challenge in implementing these programs is that every plant is different — in location, size, history, process technology, labor situation and other circumstances. Furthermore, different plants in the company’s global network are likely to face different sets of competitive and market conditions. These differences tend to complicate the top-down implementation of a production system. Nevertheless, for the growing number of multinational manufacturers that have introduced, or are considering introducing, their own lean production system, the issue is not whether lean programs are useful. Instead, it is how to manage their implementation.

The Challenges of Implementation

A key issue in managing implementation is how to set targets that are appropriate for improvement as a plant moves along its production system journey. By considering this issue, senior managers can make informed decisions about how they should allocate resources and initiate specific action programs in each plant.

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About the Authors

Torbjørn Netland is a senior researcher at SINTEF and a postdoc at the Norwegian University of Science and Technology in Trondheim, Norway. Kasra Ferdows is the Heisley Family Chair of Global Manufacturing at the McDonough School of Business at Georgetown University in Washington, D.C.

References

1. See T. Netland, “Exploring the Phenomenon of Company-Specific Production Systems: One-Best-Way or Own-Best-Way?” International Journal of Production Research 51, no. 4 (2013): 1084-1097.

2. See, for example, J.P. Womack and D.T. Jones, “Lean Thinking: Banish Waste and Create Wealth in Your Corporation” (New York: Simon & Schuster, 1996); and J.K. Liker, “The Toyota Way: 14 Management Principles From the World’s Greatest Manufacturer” (New York: McGraw-Hill, 2003).

i. For more details, please see T.H. Netland and K. Ferdows, “How Do Company-Specific Production Systems Affect Plant Performance?,” unpublished manuscript, February 2014.

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Comments (6)
Leslie Brokaw
Hi David Croson -- I'm responsible for the sloppy Tweet that edited (poorly, even at that) the quote from the Corporate Lean Program article -- and then kept the modified statement in quotation marks. You're absolutely right -- everything about that Tweet was poorly executed. It came from working way too fast, and I'm grateful that you sent in a note flagging it.  

I've removed the Tweet from our feed (although, of course, I know it's still out there in the world). I'll do a better job for you and our readers and the scholars whose work we're lucky enough to publish. Thank you for taking the time to write in.

...
Leslie Brokaw -- lbrokaw@mit.edu
Contributing Editor, Digital Media
MIT Sloan Management Review
sloanreview.mit.edu
David Croson
The inflammatory "quote" used in Twitter: 

“One of the worst things senior mgmt can is to use the gains from improved productivity to lay off workers"

 (aside from being ungrammatical) is not really a quote -- the article says "at this stage."  Driving traffic is important, but please don't sell your birthright for a pot of message.  That's for journalists, not scholars.

Downsizing is far from the worst thing that a corporation can do in the long run, as part of a process of dynamically balancing investment in growth and division among stakeholders -- although I'd certainly agree that an adjustment in firm size and employment ought to be a result of a strategic plan to sharing the gains from productivity, rather than a reflex action.
Torbjorn Netland
Dear Lolla, Reich and Bhattacharya. Thanks for your comments to our article. We're happy you enjoyed it. Your points are well taken. I wonder if any of you--or anyone else--have further data or experiences supporting the S-curve (or another pattern) of performance improvement when  implementing a lean program in a factory?
Rabindranath Bhattacharya
Dr. Rabindranath Bhattacharya, India

To become lean any organisation has to remove activities which add to cost and take up activities which add to value (VALUE ADDITION). This is the fundamental principle on which lean program is built up. I fully agree with the author that   the implementation of such program always follow a S-Curve. However we must understand that low hanging and high hanging fruits both are important while implementing such programs. Quick results could be achieved by plucking low hanging fruits but should we neglect the high or medium hanging fruits for fear of investment totally? Certainly not. Break through innovations as well incremental innovations should move simultaneously if the organisation has to survive in a fiercely competitive scenario. Your customers would definitely ask for price reduction every year to the extent of 5% average and this could be compensated only by following such straegy. Organisations can always set the limit for ROI of the investment  for approving the projects related  to high or medium hanging fruits. 
While implementing such program with Mckinsey in an Indian company I was able to sustain the tempo by following this strategy. Some of the examples are given below for reference
1> Sale of steel scraps in grade
2> Nitrogen generation plant instead of Nitrogen cylinders for use in heat treatment shop
3> Procurement of selected steel bars and coils from China
4> Shot blasting of scraps and runner and risers before feeding into furnace in Foundry
5> Reduction of cycle time in CNC machining centres
6> Use of C.I. scraps (solid pcs and borings) generated in other plants for use in own foundry.
A limit of ROI as one year was set initially for all the projects which required investment.
However building the trust of the people you  are dealing with is very important as we used bottom up approach for ideas.  Management  set the goal for savings only after a consensus was reached. Surplus people, if any, should be put in another section or plant where there skills could be utilized rather than laying off. 
Organisations must understand there is no end of improvement and I do not think tempo would be lost in stage three or four. It all depends on the leader who is driving the whole thing.
Chris Reich
Going LEAN? Set clean, realistic goals. Be very flexible. And, most important of all: Do not put efficiency ahead of innovation. Ever improving productivity is the path to doom. So many companies cut R&D as part of lean initiatives in order to show profit boosts. Bad move. Innovation---product improvements, service improvements and new offerings are far more important than any part of a lean program.
shridhar lolla
It is interesting at the same time intriguing to know about the S-Curve. For a while, if we think about a company that has just a few plants or say just one plant... then is it wise to think that the performance of a business will also follow S-Curve. In reality, performance of a sustainable business follows an Exponentially growing Curve. It may then become important to establish a link between S-Curve of a plant and Exponential Curve of a business.