LeanROI» Lean ROI

Jerry Wright – Achieving ROI from Lean Acquisitions

David Drickhamer — Tue, 26 Jul 2011 19:52:05 +0000

For this LeanROI interview we spoke with Jerry Wright, Senior Vice President of Lean and Enterprise Excellence at DJO Global, an international medical device manufacturer with annual revenues of $1 billion. DJO has operations in 20 countries and sells products in more than 80 countries.

Jerry works out of the company’s headquarters in Vista, Calif. He joined DJO in 1997 and has held leadership positions in quality, engineering and operations. He has been one of the key change leaders that introduced lean thinking to transform DJO Global from a traditional batch-and-queue manufacturer to a world-class, lean enterprise.

In addition to his observations below, Jerry offers the attached Microsoft Excel lean assessment tool for evaluating progress at the site level.

LEAN ACQUISITIONS

We’ve been doing lean acquisitions for over 10 years and they tend to go the same way. We make rapid improvements, which starts to shift the acquired company’s culture to that .... Continue reading Jerry Wright – Achieving ROI from Lean Acquisitions

Lean ROI at Denver Health

David Drickhamer — Wed, 20 Jul 2011 15:48:28 +0000

Over the course of its lean transformation Denver Health has kept careful track of resources deployed and returns. As reported in this January 2011 article in Modern Healthcare (free registration is required), the hospital system uses value stream mapping to help prioritize improvement opportunities. Each value stream is owned by an executive sponsor. Cross-functional teams then tackle the areas of highest potential return using five-day rapid improvement events.

Denver Health monitors performance metrics for each project and at the value stream level to ensure sustainability. For example, as the article notes, the CFO owns the revenue cycle value stream. Her primary goal is to improve collections as measured by “cash collections per 100 discharges.” Since 2005 that indicator has increased 44% from $1.036 to $1.492 million per 100 discharges in October 2010.

Denver Health’s direct continuous improvement costs include a team of facilitators, a senior facilitator and a consultant “sensei,” who was .... Continue reading Lean ROI at Denver Health

Jerry Bussell – Lean ROI Comes Down to How It Helps You Grow Revenue Faster

David Drickhamer — Tue, 05 Jul 2011 16:43:50 +0000

Jerry Bussell recently retired as Vice President of Operational Excellence for Medtronic Surgical Technologies. He is currently President of Bussell Lean Associates, a lean advisory service for CEOs and their executive teams. Jerry is also Executive Adviser to Underwriters Laboratories’ Center of Continuous Improvement and Innovation.

First, leaders have to look at the overall mission of what the company is trying to do by starting with policy deployment. Lean is an enabling strategy that allows a company to execute all of its other strategies. What are you trying to do in the areas of business growth, customer service, new product introduction, financial performance, and development of people? You need to look at the strategic initiatives for every one of those categories, to look at the gap and determine where you want to get to in the current year and three years out.

Lean helps close the gap by improving .... Continue reading Jerry Bussell – Lean ROI Comes Down to How It Helps You Grow Revenue Faster

Ken McGuire – Lean Returns Really Take Off When Velocity Improves

David Drickhamer — Wed, 22 Jun 2011 20:30:16 +0000

We recently spoke with Ken McGuire about the lean ROI topic. Ken leads an independent consulting firm and is a long-time authority on leading manufacturing practices. A founding member of the Association for Manufacturing Excellence (AME), most recently he designed and manages the AME Institute’s leadership development initiative.

ROI is a really confusing term. It’s not transparent what it means. Financial returns are not always obvious in operational activities. But shorter lead times are obvious. Better quality is obvious. But is that a financial return? There are clear financial returns only when the improved velocity is leveraged to benefit the whole business.

Investment is the other question with ROI. Is that the cost you pay for something? Or is it the cost of time when you could have been doing something else? How do you know which is which?

To simplify things, the manufacturing cycle begins with the buying decision and ends with delivery and cash collection. .... Continue reading Ken McGuire – Lean Returns Really Take Off When Velocity Improves

Translating Lean Gains into Superior Shareholder Value

Bill Schwartz — Tue, 15 Jun 2010 18:25:06 +0000

Part 2 of 2. Previous: A Three-Step Process for Capturing the Financial Benefits of Lean

Make no mistake about it. The lean journey is all about generating shareholder value. It starts by focusing on the customer and responding to and serving customers well in order to grow. But in the end it comes down to generating maximum value. Lean enables superior value creation by both increasing profit and reducing the assets required to generate it.

Shareholder value can be expressed as a simple equation of profit over assets, or return on assets (ROA). Profits consist of revenues minus costs; and assets consist of net working capital plus fixed assets (see chart below). This may be obvious to most business managers, but it’s important for the management team to think about these factors when marrying their lean journey to financial performance. The actions, process improvements and investments that they decide to pursue .... Continue reading Translating Lean Gains into Superior Shareholder Value

A Three-Step Process for Capturing the Financial Benefits of Lean

Bill Schwartz — Mon, 07 Jun 2010 14:21:10 +0000

Part 1 of 2. Next: Translating Lean Gains into Superior Shareholder Value

We hear the question all of the time. “We see the immediate benefits from our lean projects and events. We understand the power of the process. Why don’t we see it on the P&L statement?” The CFO, who frequently isn’t participating directly, might even put it more bluntly, “On that kaizen event you say you improved productivity in that work cell by 50%. But next week’s payroll will be the same as this week. Where’s the return?”

At the tactical level, whether it’s a kaizen event, a lean project, or an A3, translating such ground-level activity into financial gains follows a three-step process in which the ultimate responsibility for capturing the benefits depends on management action. The first step is making the process improvements by applying the lean tools and methodology to eliminate waste, improve productivity, reduce inventory, and improve flow. .... Continue reading A Three-Step Process for Capturing the Financial Benefits of Lean

Lean ROI Calculator: If Only It Was So Easy

David Drickhamer — Wed, 19 May 2010 17:59:16 +0000

From total interest payments for a loan to how much longer you can expect to live, you can find an online calculator for almost anything that can be quantified, and many things that can’t. There’s even a calculator on a Swedish manufacturing website for estimating ROI from total productive maintenance (TPM) and lean manufacturing.

To estimate the return on investment of your TPM or Lean Manufacturing project, first calculate the current OEE (i.e., today). Next estimate how OEE will increase over the years, and then exchange the default values in this form. All figures in millions of dollars.

Applying 5S in year 1, TPM in year 2, kaizen in year 3, and so on, the sample posits an Overall Equipment Effectiveness (OEE) increase of 5% per year (from 50% to 85%). Any productivity gains are applied to boost output and sales. With a cost payback of less than one year, the net .... Continue reading Lean ROI Calculator: If Only It Was So Easy

Government Subsidy Aids Lean Returns for ARC Technologies Inc.

David Drickhamer — Mon, 12 Apr 2010 18:41:35 +0000

In general the reporters for local newspapers put out an incredible amount of copy on tight deadlines for fairly low pay. I have nothing but admiration for the work they do. When it comes to telling stories about companies that adopt lean business methodologies, such reporters frequently become lost in Japanese jargon and generalities about waste-elimination. That’s not to say that reporters from the national daily papers like The New York Times or The Wall Street Journal do a much better job.

That said, Lynne Hendricks from The Daily News of Newburyport, Mass., does a decent job of turning a press event into a story with some real lean insights, Local company a model for staying competitive the ‘lean’ way. The beneficiary of some funding ($111,000) for training from long-time lean champion Mass-MEP, ARC Technologies Inc. has improved quality (reduced non-conformances by 13%), and increased on-time delivery by 18%.

For a company .... Continue reading Government Subsidy Aids Lean Returns for ARC Technologies Inc.

Lean ROI at WIKA, CIRCOR and Alstom Transport

David Drickhamer — Mon, 05 Apr 2010 19:46:39 +0000

I had a great opportunity several months ago to talk to the CEOs and Managing Director of WIKA, CIRCOR and Alstom Transport about their lean improvement efforts. That story has now been published online by Chief Executive magazine, “Lean Manufacturing’s Next Life.”

Overall I was impressed by several things during these interviews. First, the level of understanding of what lean can be—an enterprise-wide improvement methodology and not just a few management tools confined to the shop (or depot) floor—was exceptionally high among these business leaders. Second, I was encouraged by the very deliberate way, though not without hiccups, that they are implementing changes and achieving big returns across these diverse and globally dispersed organizations. As I wrote, “the end results are not only a lower cost structure, but operational advantages that customers notice, care about and, most importantly, are willing to pay for.” Here are some highlights from the lean ROI .... Continue reading Lean ROI at WIKA, CIRCOR and Alstom Transport

Lean ROI in Administrative Processes at Fokker Aerotron

David Drickhamer — Fri, 02 Apr 2010 13:15:41 +0000

A March IndustryWeek magazine story reports dramatic returns from lean work in administrative areas after two years at Fokker Aerotron, a provider of jet part maintenance, repair and overhaul services based in LaGrange, Ga. The text is a touch self-promotional for the consulting service provider but the underlying results are there:

“After two years of applying lean to administrative processes, Fokker Aerotron’s gross profit margins are up by 5%, late delivery penalties have dropped by 93%, warranty repairs have been reduced 50%, work-in-process (WIP) is down 72% and inventory has been pared 39%. Moreover, the company now has excess capacity in facilities and staff, which enables future growth and expansion without additional capital outlay.”

Whether the profit margin increase is five points or 5%, with such hard results after a relatively short period of time during an economic recession, I’m looking forward to hearing how Fokker Aerotron’s journey unfolds, and how .... Continue reading Lean ROI in Administrative Processes at Fokker Aerotron