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Jeff Liker

Daniel T Jones: Lean and Productivity

By Jeff Liker, - Last updated: Wednesday, February 6, 2013 - Save & Share - Leave a comment

Let me add another perspective to the excellent posts by my Lean Edge colleagues. For me the lean approach to productivity is distinguished by a wider as well as a deeper perspective, reaching beyond the shop or department to the whole value stream, ideally all the way from raw materials to the end consumer. This engages everyone in thinking about customer value and how their work contributes to delivering that.

But we are missing a trick if we just look inwards as lean folk often do at the metrics and actions that improve the quality and physical productivity of internal processes. Indeed I think the lean movement will only survive if top management can see how improvements in physical productivity translate into solid business results. And society at large will only pay any attention if these business results feed through into increasing living standards.

Top management is of course interested in physical productivity if it can be turned into money, and into growing market share and bottom line profits. There are in principle four ways of turning physical productivity into money. First lean folks can demonstrate a strong correlation between productivity and quality. Executing the work right first time and being able to respond to customer orders more accurately and quickly should enable sales folks to generate more sales. (The same argument can also be made for better product designs and shorter time to market from a lean product development process.)

Second removing inventories and compressing order to cash time through the process can be turned into cash savings. Third removing unnecessary variation in demand, linking activities directly through pull systems and standardising the basis for improving the work enables an organisation to align capacity more closely with real demand and cope with additional sales. Fourth a more precise understanding of the limitations of the current product, process, tooling and system design will reveal opportunities to save capital expenditure on the next generation product or service.

Using the right additional metrics with physical productivity will help to lead to the right actions to make all of these savings happen. It is top management’s responsibility to understand the strategic and financial opportunities of lean and to make sure these additional steps are implemented. They will not happen on their own!

A a national level economists aggregate the output less purchased inputs of all organisations to calculate the “value added” per head or per hour. This is largely distributed as wages and profits and is one of the important determinants of living standards. Economists have for years tried to explain the factors that determine the relative productivity levels and growth of different countries. This is indeed a very long way from measuring productivity on the shop floor, but these are the major inputs into debates about government policy. Lean folks need to find a way to show how their efforts to improve physical productivity can contribute to debates about on-shoring, redesigning healthcare systems or minimising resource use.

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