Lean report detects solid gains, common obstacles

Nearly three-quarters of lean production efforts are reporting solid progress and the national economy appears to be benefiting, according to the First Annual State of Lean Report compiled by the nonprofit Lean Enterprise Institute (LEI).

The report consists of an annual survey of the lean community and inventory turns calculated from data compiled by the U.S. Census Bureau.

Seventy-four percent of survey respondents reported positive progress from lean implementations, a 4 percent increase over 2003. Inventory turns for the U.S. economy hit an estimated 8.7 last year, a record, and up from 8.6 in 2003. Inventory turns are calculated by dividing sales to customers for a given period by the sum of the average inventories of raw materials, work-in-process, and finished goods on hand during the same period.

"This is the highest level of turns on record,” said James Womack, LEI president and founder. “If you follow the census data back to their beginning in 1958, you find no improvement trend until the end of the previous recession in 1992, which is just the point at which American companies began to take lean thinking seriously. In almost every manufacturing industry, and in wholesale and retail as well, something good is happening as lean techniques are applied."

The rebound in turns after the latest recession is impressive. After a dip in 2001 caused by the recession, turns in 2003 climbed back above their previous peak recorded during the bubble economy in 2000. Turns always decline in recessions in an economy dominated by traditional mass producers.

“This is because the front end of the economic train goes off the track long before the back end hears about it,” Womack said.

The push production systems of traditional mass producers continue moving products toward the front of the train at a steady rate long after output should be reduced to correspond to reduced demand. This can't happen to anywhere near the same extent in a truly lean economy because each production step pulls only what it needs from the previous step and the previous step replenishes only what has been consumed.

The change in turns is most dramatic in the auto industry, where they have increased from 15 to more than 20 since 1992. This is not surprising since lean methods were pioneered in this industry by Toyota, and all car companies felt the need to respond in the 1990s. The LEI report tracks turns in automotive, electronics and aerospace industries. It also measures turns for manufacturing, wholesale, retail and the economy as a whole.

Womack called inventory turns "the measure that can't lie, particularly over a period of years" because all companies must count them in a similar way for their balance sheet.

"They are an output, and one critical to business success, while many other measures, such as the amount spent on improvement activities or the number of employees receiving training, are inputs that may or may not lead to strengthening business," he said.

Common obstacles
In the survey, a combined total of 74percent of respondents reported positive progress. Forty-six percent characterized their lean implementation efforts as early, consisting of pilot project with some positive results. Twenty-eight percent characterized their efforts as extensive with many areas applying lean concepts and tools, and reporting solid progress. Last year, the responses for these two questions were 39 percent and 31 percent, respectively, for a total of 70 percent

Only 4 percent of respondents this year said their efforts were at an advanced stage and 18 percent described them as being in a planning phase with no implementation occurring yet. Last year, the responses for these questions were 5 percent and 15 percent, respectively. Seven percent had no answer this year compared to 12 percent last year.

Among other questions, the survey asked the lean community to rank some of the most common obstacles to implementing lean.

The results were:
• backsliding to the old ways of working, cited by 36 percent of respondents;
• lack of implementation know-how, 25 percent;
• lack of a crisis to create a sense of urgency, 24 percent;
• a traditional cost accounting system that doesn't recognize the financial value of shop-floor improvements, 22 percent;
• resistance by middle management, 21 percent;
• regarding lean as the flavor-of-the-month, 19 percent;
• failing to remove anchor draggers who oppose change, 18 percent;
• resistance by hourly employees, 11 percent;
• resistance by supervisors, 10 percent; and,
• failure of past lean projects, 6 percent

The survey was based on 999 responses to a January 2004 questionnaire distributed electronically to members of the Lean Community. See the report.

Based in Brookline, Mass., USA, the Lean Enterprise Institute is a nonprofit training, publishing, and research organization founded by James Womack in August 1997. It developed simple but powerful tools for implementing a set of ideas known as lean production and lean thinking, based initially on the Toyota Production System and now extended to an entire Lean Business System. For more information visit the LEI News page.

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