It has been a brutal past 18 months for American manufacturers. Some parts of the economy, like real estate, were able to slide through the recession with little effect, but manufacturers were hit hard. Product demand slowed, inventory stacked up and jobs were cut back. The recession has made crystal clear that some companies were better prepared for a downturn than others.
In my frequent travels across the United States for my employer and the Association for Manufacturing Excellence, I talk with many manufacturers, and the shops more able to keep their heads above water have all done the same thing - they've adopted lean manufacturing principles to streamline operations.
The world automotive market, for example, has been in a tailspin since last year, especially if we ignore sales that automakers generated by offering zero percent financing after Sept. 11. But some vehicle makers haven't slumped; Toyota and motorcycle manufacturer Harley Davidson have been doing well. Why? Because each company is running a lean enterprise. Both had already gone through their production lines and eliminated waste long before the recession started. Toyota was one of the trendsetters in lean manufacturing. It uses what it calls the Toyota Production System, which means carrying almost zero inventory. Compared with its competitors, when the economy slows, Toyota has very few parts waiting in storage. This means less cash tied up in dusty warehouses.
On the flip side of this issue is Solectron, one of the world's largest original equipment manufacturers of electronics parts. It's a two-time winner of the Baldrige Award and rocketed its sales up to $30 billion before encountering difficulty last year. The recession hit Solectron incredibly hard because it wasn't a lean shop. Under normal circumstances, Solectron turns inventory five to six times a year. When the economy slowed, its parts stayed on the shelf and that meant capital tied up in product. That caused a shortage of available capital and pressure on the whole system, reflected in sharp downturns in Solectron's stock value.
To be successful in manufacturing today, all activities must be directly tied to actual demand and then pulled through the system.
In my industry - plastics injection molding - lean initiatives have reduced the time to create a mold and generate a new product: What took six months 10 years ago now takes four to six weeks. Finished goods are now pulled daily, in some cases four or five times daily.
I work with some great examples. Dell Computer Corp. has embraced lean manufacturing and turns its inventory six times a day. Its primary order acquisition model is the Internet, which also streamlines the process. As a result, Dell has been able to lead the computer price wars and capture market share.
Nokia is another great example. This year it will unveil twice as many products as it did last year. It has been able to do that because it has streamlined its processes to make it easy to bring new products to market. Its high-velocity systems have allowed Nokia to increase its market share to 35 percent, from 20 percent, because it's now at the cutting edge of cellular technology. It remains the only major profitable player in the wireless market.
There are also examples of nonmanufacturing companies that have fared better than their competitors because of lean techniques.
Southwest Airlines adopted a form of lean manufacturing years ago. It realized that it didn't have the cash to buy more planes, but if it could turn planes around on the ground quickly, it would reduce waste and avoid more airplane purchases. Now, when other airlines are crying for government loans to stay in the air, Southwest continues flying. It prides itself on having the shortest turnaround time on the ground - 20 minutes with four service/handling ground crew members and two gate attendants, compared with 35 minutes with 12 ground crew members at other major carriers.
It only makes sense that the companies that are running the tightest ships are the ones in the best shape when troubles arise. Lean manufacturing helps bring products to market faster, which allows companies to capture more market share, and it results in better asset velocity, which drives cash-cycle conversion, and we know that in all business cycles ``cash is king.''
This November in Chicago, AME is holding a conference on how to implement lean initiatives. Attendees will hear from experts how to operate with a 50 percent or more reduction in inventory and still get a 50 percent increase in output. More than 25 Chicago-area companies have agreed to open their doors to let attendees see how it can be done.
It has been demonstrated over and over that lean strategies work. We're lucky if the United States gross domestic product increases at a rate of 3-5 percent a year. But companies using lean manufacturing principles can gain 15 percent year after year. How? It's a matter of changing principles and attacking waste in your value stream. It means totally changing the way you look at things, but once you learn, you will become more competitive.
The economic cycle will always mean ups and downs, and we'll always be at the mercy of economic forces. Companies running lean have an extra insurance policy.
Brian Jones is president of Nypro Inc., a Clinton, Mass., injection molding company, and president of the Association for Manufacturing Excellence.