Want to Succeed at Lean? Forget Cost Cutting

A focus on cost reduction above and beyond other, more important benefits, risks getting no benefits at all.

Heres a quick exercise for you. It will just take a minute at your computer. Do a search on the phrase lean cost cutting. Do a quick scan of the articles that are listed. Notice how closely lean and cost cutting are seen to be?

Now try lean manufacturing definition and check some of them out. Not so much about cost cutting per se, but almost all of them mention waste elimination. Id wager that most managers hear cost cutting when they see that term waste elimination.

My point is that lean methods and concepts have come to be seen primarily as cost-cutting tools. But this is wrong. An emphasis on cost reduction risks the success of the lean initiative. A focus on cost reduction as the primary objective of a lean program creates the following barriers to the success of the initiative:

  • Employees believe that cost cutting, in the long run, wont end with simply waste reduction. They come to believe, rightly or wrongly, that the ultimate goal is head count reduction. This makes it very difficult to get them committed to the programs success.
  • When managers look only for cost cutting, they overlook the other substantial benefits and gains from the implementation of lean. In fact, they can actually undermine the success of lean by keeping traditional approaches to cost reduction even as they implement lean methods. For example, managers might view set-up-time reductions simply as reductions in machine downtime rather than as improvements in the ability to respond to customer demands. Costs could actually go up if the new capacity is used to run even more product thats just put on warehouse shelves.
  • Cost accounting methods dont do a good job of capturing the benefits of lean tools. The performance of the shop floor can be much improved without showing sharp cuts in costs. Some important lean tools can actually increase costs in the short run. 5S initiatives will often increase repair and maintenance budget, but the benefits arent likely to show up in terms of reduced costs. Further, full and effective implementation of some lean tools can require significant investments. Reducing setup and changeover times can sometimes require modifications to tooling and equipment. Seeing immediate cost increases, managers get frustrated and go back to traditional manufacturing methods.

Many of you reading this likely are thinking: Whats wrong with playing up the cost reduction advantages of lean methods? After all, lean methods really do reduce the costs of doing business. And thats not a bad thing.

Risk is Getting No Benefit

True enough. But a focus on cost reduction above and beyond other, more important benefits, risks getting no benefits at all.

Lets look at a sports example to illustrate my point. We all know that speed is important to any major league pitcher. Just about every major league ballpark now posts the speed of every pitch on the score board. Those watching the game at home see the speed of every pitch at the bottom of the screen. Major leaguers who throw hard and fast tend to make a lot of money. So, if you are teaching a young boy or girl how to be a pitcher, you have them throw as hard as they can every time they have the ball in their hands. Even if they get the ball over the plate, if it isnt fast, you tell them, Thats OK but what we really need is speed. You gotta throw harder. You gotta throw faster. Right?

Those of you who have taught young boys and girls how to pitch (and probably most of the rest of you) know that this is precisely the wrong way to coach. It risks wearing out the youngsters enthusiasm at least and injuring him or her at worst. You know that constant attention to and improvement of fundamental pitching mechanics is the best way to get a good pitcher. And by the way, those fundamentals are also the best way to increase a pitchers speed, safely and effectively.

The overemphasis on cost cutting when implementing a lean manufacturing initiative has the same effect as the overemphasis on speed when teaching a young pitcher. It risks getting exactly what you dont want. Lean has to be implemented as a means to creating capabilities that can be leveraged to take market share away from competitors, capabilities that can allow you to enter markets that may have been closed in the past. Your goal is to be able to do things your competitors cant do rather than simply to offer the same products and services at a lower cost.

The capabilities that translate into more sales are shorter lead times, more flexibility, faster response, better quality, shorter new product development times and quicker quotes, all provided at the same or lower cost than competitors. Your competitors cant easily match these sorts of capabilities. They provide a sustainable competitive advantage in the market place.

Dont be persuaded by those who promise only cost cutting as the primary advantage to lean. Focus, instead, on creating sustainable capabilities others cant easily match.

Rick Bohan, principal, Chagrin River Consulting LLC, has more than 25 years of experience in designing and implementing performance improvement initiatives in a variety of industrial and service sectors. Bohan has a bachelor's in psychology from the University of North Carolina at Chapel Hill and a master's of science in organizational development from Case Western Reserve University in Cleveland. He has published articles in National Productivity Review, Quality Progress and ASTD's Training and Development Journal. He is also co-author of People Make the Difference, Prescriptions and Profiles for High Performance. Bohan can be reached at [email protected].

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