According to a survey of manufacturing executives conducted in May and June 2011 by AlixPartners, the global business-advisory firm.
- Most large manufacturers last year failed to reach their cost-savings targets, despite significant investments in lean manufacturing, Six Sigma, and other productivity programs.
- 70 percent of manufacturing executives say that their manufacturing-improvement efforts led to a reduction in manufacturing costs of less than 5 percent, the typical minimum threshold for successful productivity programs.
- 36 percent of respondents indicated that their cost savings due to productivity efforts were 3-to-4 percent of total manufacturing costs, while 18 percent said their savings were less than 2 percent.
- Fully 14 percent of manufacturing executives said they didn’t even know how much they were saving through their productivity-improvement efforts.
- Illustrating a gap between industry perception and reality, 91 percent of the respondents described their improvement efforts as “very effective” or “somewhat effective.
- 60 percent of the respondents believe that half of the savings that they generated last year will be unsustainable.
- Only 13 percent said they could sustain more than three-quarters of the identified savings.
- Most of the respondents worked at companies or divisions with annual revenue of more than $500 million, with some two-thirds of the participants based in the United States. Nearly half of the respondents oversaw operations that generated more than $2 billion in annual revenue.
- 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 percent cited a full payback within one year. Four in 10 respondents simply aren’t sure when it comes to an expected return on investment.
The study findings are not very surprising.
In fact, it is predicted that unfocused efforts would disappoint.
Parts of organisations are interlinked. Total output (Throughput) produced by an organisation is outcome of these interconnections.
Late Dr. Eliyahu Goldratt gave an analogy of chains for viewing functioning of organisations. There are two possible ways at looking for improvements in a chain.
- Improvement in weight
- Improvement in strength.
If we look for improvement in weight of the chain then every improvement in all the links would add up to the total improvement.
But, if we look for improvement in strength of the chain, the above additive feature does not hold true. The strength of the chain is governed by the strength of the weakest link. So only the improvement efforts to increase the strength of the weakest link would result in improvement in the strength of the chain.
The efforts put into increasing strength of links other than the weak link would be totally ineffective.
Working on weight of the chain is equivalent to working on COSTS. Cost reduction efforts are additive in the first glance.
Whereas, working on strength of the chain is equivalent to working on THROUGHPUT. Throughput improvement efforts need aligning the entire organisation to focus on a very few things which are important.
An organisation not having a mechanism to focus its improvement efforts courts two dangers:
- If it fails to improve the weak link, then it is deemed UNRELIABLE. It does not live up to the promise of delivering the projected improvements.
- If it fritters away the resources in strengthening links other than the weak link, then it is deemed INEFFECTIVE. It wastes away costly resources.
I agree with Andrew Csicsila, director in AlixPartners’ manufacturing practice. Ultimately, it’s not about chasing a process or philosophy. It’s about the CASH.
Expect results only when the efforts are focused on the above GOAL.