When compared to the experience of my colleagues, my knowledge of continuous improvement programs such as Lean and Six Sigma is nascent. But, over the past six years that I have been working in the manufacturing industry, I have quickly learned about the importance of reducing waste by operating Lean. Lean thinking is almost a religion, given the focus, passion and intense conversations and philosophies that surround the topic. One of the hot conversation items in the past had been the role that an IT system plays in Lean. Some Lean proponents believe that there is no place for an IT system as it is adding work / complexity / etc. to the process, thereby creating waste.
IDC Manufacturing Insights recently published a report on Manufacturing Operations Technology that suggests otherwise. You can access it here. In the report there were some observations and conclusions about Lean that I found very interesting. First, it really does pay to be Lean. IDC Manufacturing Insights conducted research on 800 manufacturers that are part of an index that they regularly cover. Lean companies really do achieve greater profitability than “non-Lean” companies – on average they earn higher net profit margins that are nearly two percentage points higher. So, if you are considering a Lean program of your own, here is a good benchmark to include as part of your Return on Investment calculation.
After the financial crisis of 2008 and the natural disasters that hit Japan in 2011, companies have taken a less aggressive stance on inventory levels. Supply chain disruptions can be quite painful when operating with razor thin inventory levels, offsetting any possible efficiency gains from Lean manufacturing if customer orders can’t be filled. Despite operating with higher inventories today, Lean companies are still more profitable than “non-Lean” companies. This is attributed to the lower overall operating costs that have been achieved by taking a highly detailed, methodological examination of how all business processes are executed. It turns out that having lower inventory levels is just one component of Lean – the bigger picture is that performance improvement can come from many areas of operations, such as productivity gains, a lower cost of quality and less warranty and recall costs.
What was really interesting is the link that IDC was able to connect between how IT was used to drive Lean practices. IDC gave some examples of how this was a reality:
- IT integration (e.g. implementing a Manufacturing Execution System) that supports process automation to avoid manual entries, overlapping requirements and achieving a more paperless environment
- Centralizing master data management to reduce redundant and inconsistent data that leads to inaccurate reporting and inefficient business processes
- IT enabled business process re-engineering projects for process analysis and optimization to improve performance
I would add another IT-based enablement – the replication of process improvement to multiple locations across the enterprise. These types of improvements simply can’t be realistically achieved without the benefit of an IT system to standardize the process and accurately replicate.
In closing, it would appear that the verdict is now in – IT is a key component of Lean programs, helping to further the spread of waste reduction and process variability to achieve performance improvement. Anyone suggesting otherwise might want to take a moment to consider reading the research that is now available validating this concept.