For years, complexity and volatility have been increasing for manufacturing companies. Cost pressures increase the need to cut costs elsewhere, specifically through productivity gains. The triumph of lean methods has its origins here.
This also means that whoever succeeds to pioneer the next productivity leap has an advantage in an environment with high complexity and volatility. But what can this leap look like? In early 2020, we explored this question in our “Lean meets Digital” study. One key finding was that the digital transformation of manufacturing companies builds on productivity gains realized with Lean methods. That was before Corona.
A year and a half after the outbreak of the pandemic, we re-analyzed the study results. And as much as the crisis has rippled through other areas of the economy, as in e.g., our core business of global supply chains: The core findings of our study about further productivity increases through Lean methods and digitalization remain unaffected.
What we are seeing are impacts and learnings on the topic of resilience. We will address these in a subsequent article. In this article I will re-present the key findings of our study.
High effort for improvements beyond maturity level 3
The study “Lean Meets Digital” collects data on the Lean management maturity level of the manufacturing companies, and deduces the actions needed to achieve further productivity gains in operations. A key finding is that beyond maturity level 3 called “system development”, only a marginal benefit for improvements occurs. From here on, the productivity gains achieved are significantly smaller in comparison to the effort expended than at a lower maturity level.
This relation shows when comparing operations performance and Lean maturity. Both values increase almost linearly up to a Lean maturity level of 3. Here, the teams are working directly on improvements. A closer look shows that study participants still have some catching up to do in the area of methods and tools as well as in transparency of performance. Methods and tools include tools such as value stream mapping and 5S, as well as extended lean management, for example with Six Sigma or optimized replenishment strategies.
From a value of 3.5 on the maturity scale, operations performance stagnates or even declines. This effect is explained by the new volatility and complexity of the business environment. The more companies optimize inventories, delivery times and capacity resources by increasing their lean maturity, the more difficult it is to counter volatility. There is simply a lack of flexibility to absorb deviations. Lean management tools, some of which are analogous, also do not provide the transparency and real-time tracking necessary to address increasing volatility. This makes it difficult to address changing factors within business processes.
As a result, the impact of lean management on operations performance is stagnant, and in some phases even declining. The leap to system maturity (maturity level 4) or even system excellence (maturity level 5) becomes very costly, with significantly lower productivity increases at the same time. This is particularly noteworthy as at the time of the study, the by far largest proportion of participants (60 percent) reached maturity level 3.
Digital enablers help leverage the potential of Lean
These findings suggest that for many manufacturing companies, further investments based on the Lean model alone do not pay off. For these companies, we develop a scenario in which the Lean value contribution is extended by digital enablers and thus continues to increase productivity consistently. Other industry experts share similar assessments as, for example, Fraunhofer IPA in this article (Link) or Dr. Gunter Beitinger (Vice President Manufacturing at Siemens) in this article (Link)
“With digital methods, the lean vision could really become true due to virtual implementation of efficient and proved concepts of machines, lines and processes that enable a fast ramp-up and line utilization in the real world.”
Next to the productivity increases, we can draw another conclusion from our experience with our customers: Digital enablers can be introduced much more cost-effectively if production has reached at least Lean maturity level 3. This is because essential preliminary work has already been done, such as reducing waste.
The lean digital scenario also addresses the highly volatile and complex market environment of many manufacturing companies. The ideal time for transformation varies from company to company. We will explore this in the follow-up article in our series.