Though viewed as successful, most programs are actually falling short of targeted goals.
Despite significant investments in “lean manufacturing,” “Six Sigma,” and other productivity programs, most large manufacturers failed to reach—or even come close to—their cost savings targets over the last 12 months.
According to the AlixPartners Senior Executives Survey on the Effectiveness of Manufacturing-Improvement Programs1; nearly 70% of manufacturing executives reported their manufacturing-improvement efforts led to a reduction in manufacturing costs of 4% or less—below the typical minimum threshold for successful productivity programs.
Low Expectations, Lower Results
More than half (53%) of respondents cited an average targeted savings of 4% or less per year (as a percentage of total manufacturing costs), or did not have defined targets. Those that targeted more ambitious savings were more often than not disappointed (figure 1).
To make matters worse, 59% indicated that they anticipate less than half of expected savings to be realized and sustained (figure 2).
In fact, only one quarter of respondents realized a return on investment within a year or less, with over 40% unsure of the benefit brought by their program. Still, despite these poor or unknown returns on investment, more than 90% of executives surveyed considered their programs to be somewhat or very effective, indicating a substantial perception gap in this area.
Planning a New Approach
When a manufacturing-improvement program fails, it is usually the result of poor project planning and management. The top three reasons cited for program failures are: (1) the project takes longer than expected, (2) the project was not well planned and managed, and (3) resources were lacking to implement the project (figure 3).
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Survey results indicate that the approach to these projects is often too slow and “bottom-up,” with incremental targets and a focus on implementing a process rather than getting results.
To improve these programs, management must:
Focus on Cash Management. Set aggressive targetsto stretch thinking and then achieve them through a combination of rigorous analysis and ruthless prioritization based on financial impact.
Be Practical. Management should start with the big-gest opportunity and then choose the best tool for that opportunity—not the other way around.
- “Institutionalize” the Improvements. Ultimate responsibility must lie with management rather than the implementers of the program. Improvements must be incorporated into corporate standards and planning so that any back-sliding will be readily apparent and addressable. And, going forward, basic management processes and discipline must be strongly emphasized.
Manufacturing improvement programs should be held to the same standard of financial return as any other major investment. Programs should be built around clear goals and priorities, executed with discipline and consistency, and focused on the end result—cash—rather than the process or the tools used to get there.
1The survey was conducted in June 2011 among C-level and other senior-level manufacturing executives across a range of industries globally.