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(AlixPartners: Detroit) -- 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 percent of manufacturing executives say that their manufacturing-improvement efforts led to a reduction in manufacturing costs of less than 5 percent, the typical minimum threshold for successful productivity programs. That’s according to a survey of manufacturing executives conducted in May and June 2011 by AlixPartners, the global business-advisory firm.
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According to the survey, 36 percent of respondents indicated that their cost savings due to productivity efforts were 3-to-4 percent of total manufacturing costs, while 18 percent said their savings were less than 2 percent. Fully 14 percent 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 percent of the respondents described their improvement efforts as “very effective” or “somewhat effective.”
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Comments
Efforts to strengthen links other than the weak link are wasted
The study findings are not very surprising. In fact, it is predicted that unfocused efforts would disappoint.
Parts of organisations are interlinked. Total output (Throughput) produced by an organisation is outcome of these interconnections.
Late Dr. Eliyahu Goldratt gave an analogy of chains for viewing functioning of organisations. There are two possible ways at looking for improvements in a chain.
If we look for improvement in weight of the chain then every improvement in all the links would add up to the total improvement.
But, if we look for improvement in strength of the chain, the above additive feature does not hold true. The strength of the chain is governed by the strength of the weakest link. So only the improvement efforts to increase the strength of the weakest link would result in improvement in the strength of the chain.
The efforts put into increasing strength of links other than the weak link would be totally ineffective.
Working on weight of the chain is equivalent to working on COSTS. Cost reduction efforts are additive in the first glance.
Where as working on strength of the chain is equivalent to working on THROUGHPUT. Throughput improvement efforts need aligning the entire organisation to focus on a very few things which are important.
An organisation not having a mechanism to focus its improvement efforts courts two dangers:
I agree with Andrew Csicsila, director in AlixPartners’ manufacturing practice. Ultimately, it’s not about chasing a process or philosophy. It’s about the CASH.
Expect results only when the efforts are focused on the above GOAL
Deepak Nagar
Prinicipal Consultant
Avenir Management Services Pvt Ltd
www.avenirco.com
dnagar@avenirco.com
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