News Articles

What lean can mean to midsized companies
RSM McGladrey Advantage Newsletter
October 2005
Volume 2 Issue 6

When officials at Southern Vinyl, a midsized fence manufacturer in North Carolina, began producing a new product last April, they were frustrated with the results. While company leaders knew there was a market niche for vinyl porch railing kits, and that their business was well-positioned to produce them, all early attempts to get the new product line off the ground fell flat.

"Products were going out incomplete, not packaged right, not labeled right," says Dean Ervin, co-owner of the eight-year-old company. "We really stumbled on how to do the process."

To help solve the problems, Ervin's partner, Rod Matthews, suggested the company explore lean manufacturing, a concept first conceived by Toyota Motor Co. in the 1970s to improve efficiency and eliminate waste in automotive production. As defined by the Lean Enterprise Institute, a not-for-profit education and research organization, lean manufacturing, or lean production, is defined as a business system that requires less human effort, space, capital and time to make products with fewer defects than typically found in a standard manufacturing setting.

Ervin and Matthews arranged for an onsite "Lean Enterprise Event" –- a full week of consulting, process design and companywide training led by local lean concept experts. During that time, the experts worked with Southern Vinyl employees, collaborating on how to optimize the company's manufacturing capabilities to handle the new product. In the end, they implemented a system that not only solved the production problems, but also created a more efficient work environment. They felt the $10,000 cost of the lean consulting services was well worth the investment.

Today, less than two years later, Southern Vinyl has become a poster child for lean manufacturing success in the midsized market. Approximately 40 percent of sales at the multimillion-dollar company come from the now-thriving vinyl porch railing product line.

"We now have two guys doing the work of four, our flow of raw materials is at a bare minimum, the quality of our product has improved, and the accuracy of our packaging is 99.9 percent," Ervin says. "The initial cost is kind of scary, but that fear is erased after you start getting calls from customers complimenting you on your product and your process."

While Southern Vinyl's success story is enviable, experts warn there is no single recipe for lean manufacturing that works for every firm. That's because all industries, companies, processes and products must be evaluated individually to determine where waste or redundancies may exist. A full exploration of lean concepts means wading into a dizzying array of philosophies and tools, such as kaizen (Japanese for "continuous improvement"), kanban (Japanese for "sign" or "signal"), value stream mapping and cellular manufacturing — just to name a few.

What is lean manufacturing?

James Womack first coined the term "lean manufacturing" in his 1990 book, The Machine That Changed the World, which examined automobile production in Japan, the United States and Europe. Lean ideals have since been applied to a multitude of other industries beyond manufacturing, including electrical engineering, mechanical engineering and software development.

According to the Production System Design Laboratory at the Massachusetts Institute of Technology, lean production is designed to eliminate waste in every area of manufacturing. This may include customer relations, product design, supplier networks and factory management. In addition to benefits previously mentioned, experts say effective lean production can reduce obsolescence, improve market response time, create greater change flexibility and heighten employee satisfaction.

Still, not every company is a good fit for going lean. For example, a midsized company that has little leverage with large vendors, or that has customers dictating their processes, may find themselves blocked from streamlining all or part of their production processes.

Determining your level of leanness

While there's no industrial equivalent to the human body mass index to determine whether your business is less lean than it should be, there are warning signs. These include:

Inventory insurance.

If your company keeps significantly more inventory on hand than required as insurance against backorder problems or shipping breakdowns, going lean may help you streamline your processes so you make only what you need, when you need it.

"Spaghetti" production processes.

If a diagram of your company's production process would resemble a plate of spaghetti, you're most likely not as efficient as you could be. Lean processes can be easily mapped with just a few straight lines.

Wasted time or materials.

Any process that includes downtime, excess or redundant motion, unnecessary transportation, or other activity not directly supportive of production is wasteful and a good candidate for trimming.

Getting lean, staying lean

As anyone who has ever tried to lose weight knows, recognizing that you need to trim down and doing so are two very different things. Trimming excess fat in your organization is no different. Without a detailed plan, buy-in from all levels of the company and a commitment to make necessary changes, your lean initiatives will most likely fail.

But there is no downside to asking yourself whether your company could be leaner, or to investigating how lean concepts could benefit your organization. Companies can hire contractors to help them assess and implement lean strategies. The cost of going lean may be mitigated by a staged implementation rollout or by training internal resources to act as your lean process experts. Additionally, some business development organizations offer grants to midsized companies looking to implement lean concepts. Finally, it's important to conduct a careful cost-benefit analysis of your plan to determine whether the potential rewards justify the risks.

Like any fitness regime, you shouldn't expect overnight results. Likewise, once you get lean, you'll need to continually evaluate your processes to ensure you stay there. But the work you put into making sure your company is lean and efficient today can only help preserve your business's financial health in the future.

Would you like an RSM McGladrey consultant to contact you? Contact us toll-free at 1.888.349.3100

RSM McGladrey offers a broad range of business services to midsized companies, including business and tax consulting, wealth management, retirement resources, employer services, corporate finance and financial process outsourcing.

RSM McGladrey and McGladrey & Pullen, a CPA firm, have an alternative practice structure. Though separate and independent legal entities, RSM McGladrey and McGladrey & Pullen work together to serve clients' business needs. They are members of RSM International, an affiliation of separate and independent legal entities.
See RSM McGladrey description and legal disclaimer.
© RSM McGladrey Inc. All rights reserved.