More on metrics...
As you might imagine, it's the sort of article that drives me (and, I'm sure, most practitioners) nuts. Here's the first sentence of the article:
"Lean manufacturing principles, widely touted by companies as an effective way to eliminate waste and boost the bottom line, often do not achieve targeted cost savings, according to a study to be released on Wednesday."Right away, we know something is amiss. "Widely touted"? Touted? As if there were no evidence that lean principles and methods work? Please. OK, we'll allow for some journalistic license. Let's go on.
"Analysts at New York-based consulting firm AlixPartners LLP found that about 30 percent of companies surveyed achieved a 2010 goal of cutting at least 5 percent of manufacturing costs by employing lean practices such as those championed by Six Sigma, Kaizen or Value Stream Mapping.
Nearly half the 100 executives surveyed were targeting savings of 5 percent or more. The majority of executives reported savings in the 1 percent to 4 percent range, which AlixPartners views as being below the optimal range.
In addition, nearly 60 percent of the executives surveyed do not expect they can sustain at least half of the savings they did make over the long term."
Nowhere in the article will you see anything further about what "costs" means to the survey takers. Nowhere will you see anything about why these companies set cost reduction targets. Or how they picked the targets they did set. Or whether there were other gains that might have mattered more to customers than cost savings at their supplier.
If a company, say, reduces downtime by 50%, scrap by 75%, overtime pay by 90%, increases inventory turns by 50% to 100%, while improving delivery performance to just about 100%, improves market share, and increases sales per employee by, oh, 5%...do you think anyone gives a damn if costs only went down by 4%?
Why does the survey assume that cost savings are the only benefit that derives from an effective lean implementation?
Do you suppose the CEO's actually know what cost savings can be attributed to their lean initiatives? How could they given all the variables that affect a company's cost structure?
I get just as impatient with articles that claim cost savings. Here's one I found with a quick web search of "lean cost savings" that claims that one company's setup reduction efforts led to a $30,000 savings. Really? Where did those savings come from? Fewer workers? Less scrap? Less overtime? Reduced working capital? The article doesn't say. It does go on to say that the annual savings realized by the company are about $30,000 a year...probably way less than a 5% cost reduction for a $7M company. And who knows if even that is "hard" savings.
Any company that implements lean only for "cost savings" will be disappointed. Not because lean doesn't lead to substantial savings but because most companies don't do a good job of measuring costs and their sources.
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