DETROIT (Sept. 28, 2011) – Most large manufacturers last year failed to reach their cost-savings targets, despite significant investments in “lean manufacturing,” “Six Sigma” and other productivity programs as part of their overall retrenchment efforts in this tepid economy. Nearly 70% of manufacturing executives say that their manufacturing-improvement efforts led to a reduction in manufacturing costs of less than 5%, the typical minimum threshold for successful productivity programs. That’s according to a survey of manufacturing executives conducted in May and June by AlixPartners, the global business-advisory firm.
According to the survey, 36% of respondents indicated that their cost savings due to productivity efforts were 3-4% of total manufacturing costs, while 18% said their savings were less than a paltry 2%. Fully 14% of manufacturing executives said they didn’t even know how much they were saving through their productivity-improvement efforts. Yet, illustrating a gap between industry perception and reality, 91% of the respondents described their improvement efforts as “very effective” or “somewhat effective.”
The survey also found that companies previously recognized for their “lean” manufacturing programs perform no better than their industry peers. According to AlixPartners’ research, winners of The Shingo Prize for Operational Excellence have, after three years’ time, generated revenue growth and gross profits just on par with, or even weaker than, their peers’.
“Most continuous improvement initiatives focus too much on implementing a particular ‘checklist’ of program tools and processes, rather than on basic execution,” said Steve Maurer, managing director and leader of AlixPartners’ Manufacturing Practice. “Many traditional Lean and Six Sigma programs also tend to fail to institutionalize the improvements that they do generate. As a result, the cost benefits often aren’t sustainable. That was reflected in our survey, where some 60% of the respondents believe that half of the savings that they generated last year will be unsustainable. Only 13% said they could sustain more than three-quarters of the identified savings.”
AlixPartners’ Senior Executives Survey on the Effectiveness of Manufacturing-Improvement Programs encompassed a range of industries, including automotive, aerospace, consumer products, industrial, chemicals and electronics. 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.
“What’s good about ‘lean’ and ‘Six Sigma’ manufacturing is the emphasis on process control, defect prevention and the elimination of waste,” said Steve Pfeiffer, director in AlixPartners’ Manufacturing Practice. “But such programs come up short when companies decide to implement techniques without the pre-requisite process discipline. And, companies that have relied too heavily on investing their capital in automation find that such projects are often expensive and slow to implement.”
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% cited a full payback in under a year. Four in ten simply aren’t sure when it comes to an expected ROI.
“At their core, continuous-improvement programs must include clear priorities based on the expected financial impact,” said Andrew Csicsila, director in AlixPartners’ Manufacturing Practice. “Yet, there remains a pervasive misunderstanding that simply focusing on ‘lean’ and ‘Six Sigma’ processes alone will be the magic fix. Ultimately, it’s not about chasing a process or philosophy. It’s about the cash.”
About the Survey
The AlixPartners Senior Executives Survey on the Effectiveness of Manufacturing-Improvement Programs was conducted among C-level and senior-level manufacturing executives across a range of industries to assess their perspectives on approaches, prioritization, and effectiveness of manufacturing optimization programs; determine their approach to manufacturing improvement initiatives; understand priorities for manufacturing improvement; rate effectiveness of various improvement approaches; and, compare savings created by manufacturing improvement programs. The survey was completed in June 2011.
About AlixPartners
AlixPartners LLP is a global business-advisory firm offering comprehensive services in four major areas: enterprise improvement, turnaround and restructuring, financial-advisory services and information-management services. The firm has offices around the world, and can be found on the Web at www.alixpartners.com.