logo

Expert: Firms should measure return-on-investment of lean manufacturing

By: Bill Bregar

March 5, 2012

TAMPA, FLA. (March 5, 12:15 p.m. ET) — Lean manufacturing and Six Sigma programs are certainly popular, but manufacturers often don’t measure their bottom-line effectiveness — measured in dollars-and-cents payback, according to a speaker at the Plastics News Executive Forum.

“We ultimately believe that lean and Six Sigma should be treated like any capital investment,” said Andrew Csicsila, a Chicago-based director in the business consulting firm AlixPartners LP.

Csicsila presented results of the firm’s survey last year of 100 respondents. Eighty-five percent of them had some type of formal program.

A key finding: Most companies are getting a poor return on investment from lean and Six Sigma, and a surprising number of executives don’t even know the ROI or even have a specific target.

“One thing that we feel is the benefit of lean and Six Sigma is actually the return on investment in these programs,” he said. “Where’s the cash?”

Csicsila outlined several findings from the survey. Expectations were very low at more than half of the companies, where officials targeted savings of 5 percent or less per year from lean or Six Sigma—and most companies failed to meet even those low targets.

Only one fourth of the respondents realized a payback in a year or less. Surprisingly, Csicsila said, more than 40 percent were unsure of the ROI.

When it comes to Six Sigma and lean, Csicsila said the survey showed there is a “large perception gap and a lack of understanding of return on investment.” He reported a big disconnect, as officials reported widespread satisfaction with their efforts. At the same time, nearly 60 percent of people responding to the survey said that less half of any reported savings shows up on the bottom line and is sustained over time.

Csicsila gave suggestions on how to improve performance. Measuring the payback in cash—not the number of black belts—is the way to gauge the effectiveness of money spent, he said.