What to Expect From a Corporate Lean Program

What to Expect From a Corporate Lean Program

Research Feature June 03, 2014  Reading Time: 18 min

Torbjørn Netland and Kasra Ferdows

“Lean” programs have helped many manufacturers boost productivity. However, misplaced expectations of how quickly these programs can improve performance can make their implementation more difficult.

Often modeled after the Toyota Production System, corporate “lean” programs — by which we mean programs that find and eliminate unproductive activities while increasing value creation — can be powerful instruments for improving the performance of manufacturing plants. Successful lean programs help to emphasize parts of the production process that add the most value and eliminate those that don’t.

However, misplaced expectations of how quickly these programs can improve performance can make their implementation difficult — and reduce their benefits. We believe that if managers better understood the rates at which lean programs produce their improvements, then implementations would go more smoothly — leading, ultimately, to further increases in overall productivity.

A Growing Number of Lean Programs

Many multinational manufacturing companies have introduced their own lean programs. Their numbers have been growing, especially in the last decade. Caterpillar, DuPont, Electrolux, Heinz, Honeywell, Johnson Controls, Siemens, Volvo and Whirlpool are just a few examples.1 These programs are called by different names, but in the vast majority of cases, they are labeled with the company’s name followed by “production system.”

Typically, a production system is a collection of lean production principles, methods, tools and techniques.2 Its goal is to provide a clear and stable structure and a road map for instilling a culture of continuous improvement in every plant in the company’s production network. However, an inherent challenge in implementing these programs is that every plant is different — in location, size, history, process technology, labor situation and other circumstances. Furthermore, different plants in the company’s global network are likely to face different sets of competitive and market conditions. These differences tend to complicate the top-down implementation of a production system. Nevertheless, for the growing number of multinational manufacturers that have introduced, or are considering introducing, their own lean production system, the issue is not whether lean programs are useful. Instead, it is how to manage their implementation.

The Challenges of Implementation

A key issue in managing implementation is how to set targets that are appropriate for improvement as a plant moves along its production system journey. By considering this issue, senior managers can make informed decisions about how they should allocate resources and initiate specific action programs in each plant.

That begs a basic question: How does the performance of a plant typically change as it implements a production system? Does it improve at a low rate in the initial stages of implementation and then accelerate as the plant gains more experience? Or are initial gains at a high rate (plucking “low-hanging fruits”) that becomes smaller at later stages? Or does performance change according to a more complex pattern?

To help find answers to these questions, we studied the implementation of the Volvo Production System, or VPS. The Volvo Group, based outside Gothenburg, Sweden, is a leading manufacturer of heavy vehicles, such as trucks, buses and construction equipment. (The company sold its Volvo Cars unit in 1999.) The Volvo Group introduced the VPS in 2007, and since then, it has been implementing the VPS in its 67 factories, located in countries around the world. VPS is similar to lean production systems used in many other companies, and we believe the insights from this study can be usefully applied in other companies. We examined the five-year history of this program, visited 44 of the 67 plants and interviewed 200 managers. (See “About the Research.”)

About the Research

We investigated the implementation of the Volvo Production System (VPS) in the Volvo Group’s worldwide network of factories. The Volvo Group, based outside Gothenburg, Sweden, is a leading manufacturer of heavy vehicles. It has 67 production facilities in 19 countries and employs 110,000 people.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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