5 Ways Lean can help a manufacturer’s bottom line

When talking to different leaders across manufacturing businesses, I often come across a lack of urgency for implementing improvements in their businesses. As I reflect on this, I wonder the reasons. One thing is clear: Doing nothing should not be an option in an increasingly competitive environment.

If you are in manufacturing and recognize the need for culture change and pursuing continuous improvement, please read our blog: 5 Consequences manufacturers face when accepting poor performance.

There are always timing, budget, costs, too many initiatives or other business issues preventing leaders from committing. However, in my experience,

“I have never walked into a manufacturing business that didn’t have abundant opportunity for improving or was not dealing with the issues I just mentioned”.

This unwillingness to commit boils down to manufacturing leaders having an inaccurate perception of Lean; many see Lean as a program rather than a business management philosophy.

“When you say NO to an initiative, you are saying YES to another; and when leaders delegate the lead on the initiative, they effectively have reduced the level of importance with which the rest of the organization perceives the initiative. If a lack of commitment and understanding exists at the very top, we are doomed to fail in the long term”.

I wanted to give manufacturing leaders something to reflect on when it comes to delegating or shelving the idea of implementing Lean. These benefits are not exclusive to one industry or another, whether your organization delivers a product or a service, please consider the following:

Growth

Lean manufacturing allows you to increase velocity. Depending on your business strategy and market, reducing your lead times, or having faster product rollouts might prove to fuel growth. Also, this allows for the lowering of prices to increase sales.

Shorter cash to cash cycles will allow you to fund increased volumes. As the adage goes,

“If a manufacturing business is not growing, it’s dying,” well you could say Lean is a lifeline to growth.

Lean manufacturing provides a framework for the development and deployment of your business strategy, and this framework allows you to engage your entire team on the short list of initiatives that will move the needle for your business.

Finally, the establishment of reliable and predictable processes allows for scaling as you introduce new products, new team members, new markets, and new customers. This phase of the business lifecycle can prove to be challenging; these processes will provide guidance and stability in the face of change.

Cash

When manufacturers don’t function in a Lean manufacturing environment, they foster behaviors that create unnecessary waste in the form of excess inventory. Manufacturers create these problems by enforcing metrics such as pricing for purchasing, utilization of machinery, to name a few examples. This excess inventory ties up significant amounts of cash that could be otherwise spent. As Lean manufacturing removes overproduction, batching, and encourages metrics such as inventory turns, this cash is freed up, and the business can utilize it to fund more beneficial activities. Another related benefit, as you will read shortly, lower costs will lead to higher profitability and thus higher levels of cash.

Profitability

Depending on the cost structure of the manufacturer, direct labor costs can represent a significant portion of your business. As waste is eliminated, manufacturers can reduce costs significantly. In case you are not aware of this fact:

Typically, 95% of the lead time of a manufacturing product is waste. The opportunity to reduce costs, as you can imagine, is normally tremendous.

Lean manufacturing also has a framework for product development in which product or service designs can be improved proactively and thus reduce capital expenditures, direct material, and labor costs to improve customer experience.

Operational Performance

Implementing Lean manufacturing will have a direct impact on the operational execution of the business, as shown in the following aspects:

• Safety: Workplace organization, as created by the 5S methodology, results in a safer workplace, which leads to fewer safety incidents.
• Quality: The adoption of problem-solving as part of the day to day using your employee’s knowledge in addition to less time handling of orders lead to higher levels of quality.
• Service: Shorter manufacturing lead times allow you to process orders faster and thus increase your ability to fulfill your orders on time.
• Cost: As you read above, direct manufacturing costs can be reduced through waste elimination.

Operational excellence provides for customer satisfaction that fuels higher levels of profitability and growth.

Employee Retention

Employees are an important part of your organization’s success. Empowerment, solving their problems, and unleashing creativity, are a great source of pride and reward for your employees. In this environment, employees’ talents flourish, and a healthy environment is created. As a side benefit, you reduce staffing costs due to reduced turnover.

“So many other initiatives seem to take precedence to improve the business. However, there are very few initiatives that will give you the benefits above”.

Any significant change you make in your manufacturing business will require resources and effort, and more than likely, it will be a tough road. Manufacturing leaders should not see this as a detriment, rather than as a challenge to lead their organizations to a better place.