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The Impact of Lean on Consumer Product Manufacturers

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Dedication to Lean requires a focus on change, the identification of areas of improvement across the enterprise and a commitment to monitor continuously. The real challenge to Lean, however, requires …

Dedication to Lean requires a focus on change, the identification of areas of improvement across the enterprise and a commitment to monitor continuously. The real challenge to Lean, however, requires this first change, a shift in the culture. Consumer products manufacturers are early on in their Lean journey compared to companies across industry, with 56% less than a year to 3 years into it.

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  • 1. Manufacturing February 01, 2007 The Impact of Lean on Consumer Product Manufacturers Market Segment Dedication to Lean requires a focus on change, the identification of areas of improvement across the enterprise and a commitment to monitor continuously. The real challenge to Lean, however, requires this first change, a shift in the culture. Consumer products manufacturers are early on in their Lean journey compared to companies across industry, with 56% less than a year to 3 years into it. By leveraging external expertise and taking small steps in their Lean programs, these manufacturers are setting their sights on reducing cost, driving down inventory, and sustaining a culture of Lean throughout the enterprise. But success is being found by those Best in Class consumer products manufacturers that go the next step by tying their Lean objectives into business opportunities, and by measuring the impact of the Lean program. These companies are placing more emphasis on monitoring the metrics that are tied with success, including inventory and on- time delivery, to truly maximize the competitive advantage to be responsive to the customer. Key Findings The turning point for Lean is in the adoption of core principles within each plant, and an understanding of individuals within the organization of how going “Lean” will affect their responsibilities. To ensure a successful transition this message is best delivered from senior management, who can communicate the value a Lean environment will have to the enterprise. Consumer products manufacturers may be early on in Lean, but 52% have already set the priority to reduce non-value added manufacturing and supply chain costs with 48% also setting goals to implement continuous improvement culture and methods, while reducing inventory and assets (41%) However, their relatively recent adoption of Lean means consumer products manufacturers still face the challenges of adapting to cultural changes, with 91% citing this as their top challenge to Lean (Figure 1). Surprisingly though only 34% report that getting top management engaged as an issue, versus 42% of companies across industry, perhaps an indication that the blush has not yet faded from the early excitement generated by the possibilities available from “Leaning” out processes and inventory. Yet, interestingly enough, 39% are finding it difficult to quantify the business value of Lean versus 29% of companies overall. By deciding early on what the key areas of focus should be for a Lean program, it will make it easier to not only set targets and goals, but also sustain backing of all levels of the organization as well. Announcement Special announcement with AberdeenAccess link.
  • 2. The Impact of Lean on Consumer Product Manufacturers Sector Insight Page 2 Figure 1: Lean Implementation Challenges 80% Significant culture change required 91% 42% Top management commitment 34% 29% No straight-forward way to quantify the business value of Lean 39% Need to integrate other organizations (beyond 31% manufacturing)/suppliers 36% 25% Maintaining customer delivery performance without costly buffers 23% 29% Risk of business disruption 18% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Consumer All Others Source: AberdeenGroup, February 2007 Overcoming Lean Challenges To keep pace, consumer products manufacturers are taking small incremental steps to become Lean (72%) while seeking the aid of external consultants for support of their Lean programs (47%, Figure 2). However, consumer products manufacturers are falling behind all other companies for looking at the business impact of Lean, with only 32% setting their sights on this objective, and another 30% trying to identify and quantify Lean opportunities. Best in Class consumer products manufacturers however, are not only more likely than other consumer products manufacturers overall to leverage external resources to enable their Lean program (56% versus 47%), these top performers are twice as likely to have already measured the business impact of Lean initiatives (67% versus 32%). These top performing consumer products manufacturers are not only overcoming the initial cultural issue by bringing in external Lean experts to ease the transition, they have successfully managed to tie initiatives into larger business objectives to truly gain the best benefit from their Lean deployment. © 2006 AberdeenGroup, Inc. Telephone: 617 723 7890 260 Franklin Street Fax: 617 723 7897 Boston, Massachusetts 02110-3112 www.aberdeen.com
  • 3. The Impact of Lean on Consumer Product Manufacturers Sector Insight Page 3 Figure 2: Overcoming Lean Obstacles Took small, pragmatic steps 44% 63% to become leaner 72% Engaged/committed top 56% 58% management 53% Acquired external Lean 56% 37% domain expertise 47% Implemented a Lean value 33% 42% methodology 36% Measured the business 67% 37% impact of Lean initiatives 32% Qualified or quantified Lean 33% 37% opportunities 30% 0% 10% 20% 30% 40% 50% 60% 70% 80% Consumer All Others Consumer Best in Class Source: AberdeenGroup, February 2007 Automating Lean Early proponents suggested that no technology was required to implement Lean techniques. Predicated on the “go out and look” principle, these early disciples evangelized against the use of automation. Yet as supply chains become more complex and competition becomes more global, companies seeking significant performance ”We’ve historically been improvements have begun to look more and more to monitoring the business impact technology and automation (Figure 3). ERP, of Lean initiatives but offline in Custom/Homegrown applications and spreadsheets Excel spreadsheets. We want to represent the lion’s share of technology applied to move to full integration by using Lean today, with specialty applications for specific functionality such as e-Kanban beginning to grow in our SAP platform in tandem with adoption rates. Best in Class performance today the SAP business intelligence however requires continued adoption through tool instead of offline reporting specialized ERP or Supply Chain functions. to eliminate room for error. If it’s Because of the dynamic environment within in an online system you can consumer industries, finding an automated means of almost guarantee accuracy.” tracking KPIs becomes essential. One such CPG (consumer packaged goods) company, National -Ross Martin, Business Foods in Australia, has made significant progress Transformation Program over the years in regards to their Lean program but is Director, National Foods looking to streamline the process to lead to greater efficiencies and enhanced visibility. The company will soon be implementing an SAP platform company-wide in part to further facilitate the growth of their Lean program, in addition to an SAP business intelligence tool to monitor critical KPIs. © 2006 AberdeenGroup, Inc. Telephone: 617 723 7890 260 Franklin Street Fax: 617 723 7897 Boston, Massachusetts 02110-3112 www.aberdeen.com
  • 4. The Impact of Lean on Consumer Product Manufacturers Sector Insight Page 4 “We’ve historically been monitoring the business impact of Lean initiatives but offline in Excel spreadsheets. We want to move to full integration by using our SAP platform in tandem with the SAP business intelligence tool instead of offline reporting because that leaves too much room for error. If it’s an online system you almost guarantee accuracy. ”We are also prioritizing We have made considerable progress with inventory forecasting within the context of reduction, but we want to take it to the next level. We our Lean program because we want to be able to centralize that and that’s how we are operate in a very short shelf life looking to optimize our program. Centralized control, environment…if you don’t plan centralized visibility and centralized process so we don’t have a lot of duplication within each of our accurately you can end up with manufacturing locations,” says Ross Martin, Business either lost sales or huge waste. Transformation Program Director. -Ross Martin, Business Because of the risk of waste due to poor planning and Transformation Program scheduling, National Foods also views the ability to Director, National Foods have enhanced forecasting capabilities as another essential to their new implementation. “We are also prioritizing forecasting within the context of our Lean program because we operate in a very short shelf life environment with high inventory turnover. So if you don’t plan accurately you can end up with either lost sales or huge waste. So the better predictability will allow us to optimize waste reduction and optimize our sales performance. We will be tying these Lean KPIs within the SAP business intelligence tool. This will enable the advanced capability to accurately extract information for the KPIs that we establish ongoing.” Monitoring Performance While consumer products manufacturers have taken significant advantage of ERP to manage inventory both within the plant and across the supply chain, they are not monitoring metrics frequently enough. Currently 29% of consumer products manufacturers are monitoring their Lean programs on an ad hoc basis, with another 24% reporting monthly, in spite of the fact that daily or weekly reporting is required for best performance. Table 1 looks at two of the top Lean Key Performance Indicators (KPIs) currently being monitored across consumer products manufacturers, Best in Class consumer product manufacturers and companies overall. This identifies a lack of focus from these manufacturers, despite their desire to gain better control over inventory. Only 39% of consumer product manufacturers are currently monitoring inventory turns, while a little less than half (46%) pay attention to on-time delivery, perhaps the most critical of all customer-facing metrics. Best in Class consumer products manufacturers meanwhile are keeping close watch on both (67% inventory turns, 89% on time delivery). © 2006 AberdeenGroup, Inc. Telephone: 617 723 7890 260 Franklin Street Fax: 617 723 7897 Boston, Massachusetts 02110-3112 www.aberdeen.com
  • 5. The Impact of Lean on Consumer Product Manufacturers Sector Insight Page 5 Figure 3: Lean Automation Supplier Integration 7% 14% 29% 24% 26% (Kanban) Customer Integration (Order 12% 10% 28% 32% 18% Management) Plant/Line Scheduling 26% 6% 23% 32% 13% (Heijunka) Factory Planning 38% 2% 30% 28% 2% Supply Chain Planning 55% 2% 26% 15% 2% Factory Inventory 63% 7% 19% 7% 4% Supply Chain Inventory 59% 6% 22% 13% 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% ERP/SCM Lean specialty Custom/Homegrow n Excel Pencil/Paper Source: AberdeenGroup, February 2007 Table 1: Top Lean KPIs Consumer Best in Class Consumer All Others On-time Delivery 89% 46% 64% Inventory Turns 67% 39% 47% Source: AberdeenGroup, February 2007 © 2006 AberdeenGroup, Inc. Telephone: 617 723 7890 260 Franklin Street Fax: 617 723 7897 Boston, Massachusetts 02110-3112 www.aberdeen.com
  • 6. The Impact of Lean on Consumer Product Manufacturers Sector Insight Page 6 Aberdeen Conclusion While consumer products manufacturers are relatively recent adopters of Lean programs, they are already achieving value through a firm commitment to understanding how Lean will affect business processes. External consultants that can help in the transition and this sector seem to be receptive to using the accumulated knowledge of experts. Consumer product manufacturers eager to begin the Lean journey should follow the lead of better-performing consumer products manufacturers by prioritizing the metrics that matter and following suit with frequent measurement to monitor the effectiveness of the program. Recommendations for Action √ Clearly identify goals – specific areas of improvement to be addressed by your Lean program. √ Gain top management approval and backing, and communicate the goals of the program to all levels of the organization. √ Set priority on measuring the business impact of Lean initiatives, focusing first on customer-facing metrics such as on- time delivery performance. Establish Key Performance Indicators (KPIs) that will reflect the success of the program. √ Look to external consultants to help ease the transition into a Lean-enabled manufacturing environment. Related Research The Lean Benchmark Report; February Roadmap to Lean Success: Measurement and 2007 Control Benchmark; July 2006 The Lean Supply Chain Benchmark Report; September 2006 Author: Maura Buxton, Manufacturing Research Analyst, maura.buxton@aberdeen.com Founded in 1988, AberdeenGroup is the technology- driven research destination of choice for the global business executive. AberdeenGroup has over 100,000 research members in over 36 countries around the world that both participate in and direct the most comprehensive technology-driven value chain research in the market. Through its continued fact-based research, benchmarking, and actionable analysis, AberdeenGroup offers global business and technology executives a unique mix of actionable research, KPIs, tools, and services. This document is the result of research performed by AberdeenGroup. AberdeenGroup believes its findings are objective and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by AberdeenGroup, Inc. and March not be reproduced, stored in a retrieval system, or transmitted in any form or by any means without prior written consent by AberdeenGroup, Inc.