In most companies sales and manufacturing are two distinct and seperate – often opposing – entities. The sales folks are physically, intellectually, organizationally and every other way set on one side and tasked with increasing sales – growing the top line – by any means at their disposal. Their efforts fall under the umbrella of marketing and brand management, and while some of it is legitimate, most of it is smoke and mirror based. P&G is the universally acclaimed master of this particular art.
On the other side is manufacturing, tasked with reducing costs by any means at their disposal. Lean manufacturing is viewed as one of those means, and seen as an alternative to good old fashioned pounding on direct labor and suppliers, or as an alternative to outsourcing. Lean proponents compete with the proponents of those methods – usually senior managers who come from the headcount and supplier pounding school of thought and accountants who run numbers that make outsourcing – especially offshore outsourcing – look good.
Senior management sits in between the two camps, putting pressure on each side independently to do better at their assigned task, and often acting as the arbitrator of disputes as the sales and manufacturing camps bicker. Manufacturing demands better forecasting, sales has to have lower costs, and both spend a lot of time making the case for senior management to support their particular strategy and want more than their fair share of scarce investment money. In some cases, where the top dog came from the operations side, manufacturing gets the edge in the disputes and lean initiatives are supported, but in most cases these days, the big guy came from sales or finance and the brand management or outsourcing proponents win the day.
Accounting sits at the right hand of the executives, serving the role of impartial official scorekeeper. They are neither for nor against anything – and therefore unaccountable for anything. They merely measure the results and determine winners and losers and when there is failure it in no way reflects on them.
It is from the leaders of such enterprises that articles such as the one we have cited previously are written, in which lean is viewed as a cost cutting 'program' that more often than not comes up short. As simply a manufacturing cost cutting program – an alternative to people bashing and outsourcing – those techniques are usually more effective than lean at reaching a quick 5% cost reduction threshhold that the article cites as the measure of success for such efforts. Occasionally a company achieves the 5% cost reduction through lean – or better – but fails on the sales side of the business. They are the Whirlpools and Delphis – winners of prizes and the subject of glowing articles – but not winners at the bottom line.
And then there are the few who understand and deploy lean as in integrated enterprise wide strategy aimed at neither the top line nor cost reduction, but at the bottom line …
"Compared to our direct competitors, we are the only company that really grew over the last seven or eight years,' reports Alexander Wiegand, CEO of WIKA Alexander Wiegand SE…. WIKA has made the financial connection that some lean adopters have found elusive. 'Since 2002 we have improved our EBIT margin every year by about 1 percent,' says Wiegand. Given the company’s high percentage of sales in the U.S., that margin improvement is even more impressive when you consider the devaluation of the U.S. dollar that occurred over that time period. 'That’s the bottom line,' says Wiegand. 'It’s not all coming from lean, of course, but more than half of that improvement is the result of our lean activity.'"
"From 2007 to 2008 the division’s sales grew by 29 percent. During this period of dramatic growth, lean manufacturing efforts freed up space and other resources, allowing CIRCOR to not only meet the increased demand, but consolidate facilities. [Chairman and CEO Bill] Higgins also credits customer recognition of lean driven performance improvements for helping the company win new contracts. From 2004 through 2008, CIRCOR’s average on-time delivery climbed from 77 percent to 87 percent. During this same period, revenues increased at a compound annual growth rate of 20 percent, and earnings per share grew by 56 percent per year."
"One of the goals that Alstom’s managers set was to grow the business by 20 percent over a three-year period while keeping the number of employees constant. 'We’ve just had our internal review and we’re certainly on target, so we’re pretty chuffed,' reports [Roy] Sullivan. 'With the old way of working we'd probably have been looking at 1,200 people, instead of where we are, which is at around 900. So we’re going in the right direction.'”
If the CEO thinks that operations should simply use lean, headcount pressure and outsourcing to keep costs under control as it follows sales along whatever curve sales' brand management strategy does to the top line, I highly recommend China or Mexico as a better course of action than lean. If the top guy wants to grow the business by 20%, however, with a radically lower cost structure, it seems lean is the proven method to do so. Another alternative would be the academic/Wall Street strategy of waiting, hoping and praying for engineering to come up with a game changing, black swan, whiz bang innovation. The choice is up to him.