Continuous Improvement: It Separates the Winners from the Losers

Dec. 27, 2011
Continuous improvement drives not only operational benefits but also financial gains.

Do continuous-improvement initiatives drive financial benefits for manufacturers? And if they don't, why bother with them?

The answer to the first question is an unequivocal "yes," according to recent research, which renders the second question moot.

The survey, conducted exclusively for IndustryWeek and TBM Consulting, looked at the impact of continuous-improvement programs on three financial metrics -- anticipated revenue growth and operating income growth, and cash flow over the past year. Across the board, companies with no continuous -improvement programs performed worse across all three measures.

For example, more than 50% of survey respondents that have no continuous-improvement program reported they expect revenue growth to be 3% or less in 2012. This response compares with fewer than 20% of companies with mature continuous-improvement programs anticipating revenue growth of 3% or less in the coming year.

The same disparity holds true for operating income growth. Nearly half of survey respondents with no continuous-improvement program anticipate operating income growth of 3% or less in the upcoming year. Less than half that percentage of respondents from firms with mature continuous-improvement programs expected operating income to grow at that low a rate.

And cash flow for companies with continuous-improvement programs clearly has been a bright spot compared with firms that don't have continuous-improvement programs. Indeed, more than 50% of survey respondents with mature continuous-improvement programs reported that their cash flow had improved over the past year. Among companies with no continuous-improvement programs? Slightly greater than 20% report an increase in cash flow over the past year.

The results beg the question of how continuous-improvement programs, particularly more mature ones, drive financial gains. It's a topic TBM Consulting's Ken Koenemann, vice president of business development and marketing, discussed during a recent web conference.

In short, he said, improved productivity and reduced lead times generate improved profits, while better inventory management (removing excess inventory) improves cash flow. Finally, leveraging the improved measures to gain market share leads to faster revenue growth.

Interestingly, companies with continuous-improvement programs also were far more likely to employ forward-looking resources in their strategic planning process. Such resources include competitive analysis, market focused business analytics and information about customers' forward-looking strategies.

Not that historical information isn't important, Koenemann said, but "looking at history is not always the best indicator of what will happen in the future. We need to look forward."

The TBM Consulting vice president also pointed out an area of opportunity for manufacturers with continuous-improvement programs -- that of replicating successful models in new markets or at new sites. Approximately 28% of executive-level respondents in companies with mature continuous-improvement programs are pursuing this opportunity.

To hear greater detail about the tie between continuous improvement and financial gains -- as well as the critical role alignment and an external focus play in driving the financial gains -- go online to Closing The Gap Between Breakthrough Objectives and Continuous Improvement Efforts.

About the Author

Jill Jusko

Bio: Jill Jusko is executive editor for IndustryWeek. She has been writing about manufacturing operations leadership for more than 20 years. Her coverage spotlights companies that are in pursuit of world-class results in quality, productivity, cost and other benchmarks by implementing the latest continuous improvement and lean/Six-Sigma strategies. Jill also coordinates IndustryWeek’s Best Plants Awards Program, which annually salutes the leading manufacturing facilities in North America.

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