You’re Calculating Lean Savings Wrong – a Lesson from Boeing

posted on: Tuesday June 6, 2017

site-1696713_640Every manufacturer is familiar with the term “Lean.” Toyota’s colossal success has most of the US trying to copy some aspect of it. However, despite the clear evidence that Lean Manufacturing works, when it comes time to cut spending, lean programs are often the first to go. According to a Purdue case study by Bryan Jones, “Identifying Real Cost Saving in Lean Manufacturing,” the reasons this happens are:

“…management is not seeing or feeling the actual cost savings reported on continuous improvement projects or that the true cost savings is realized as additional capacity not cost savings.”

To that point, Jones outlines the objective of his case study, which is on Boeing Company’s Integrated Defense Systems. These are two vital questions to ask when considering starting or ending any Lean program:

“First, what types of cost savings should be counted as part of an improvement project; and second, which area of the company reaps the benefit of those cost savings if they are true cost savings?”

In Boeing’s case, the lean efforts were very successful. However, because of where the savings actually transpired, the customer didn’t see the dollar savings they expected, and the plan was deemed a failure. Here’s what happened.

It’s 2008. The production line for the Missile Defense Program at Vandenberg Air Force Base (VAFB) had a 44-day cycle time producing one integrated interceptor. The customer’s goal was 30 day cycle time for each unit built. The customer (US Army) pressured Boeing continually until management agreed to task its Employee Involvement (EI) Team with developing a plan to make the 30 day goal.

In an Accelerated Improvement Workshop, the EI focused on five key issues:

  • Identifying waste
  • Cellular production
  • Scheduling
  • Production line processes
  • Production line support

Using Value Stream Mapping, the team identified 23 individual Kaizen improvements to reach a 30 day cycle time. Using an excel spreadsheet, the team evaluated each improvement and concluded that 14 were valid and doable. The future state values stream map showed a cycle time of 23 days and a cost savings of $2.3M per interceptor.

After working out the kinks, the plan produced these real-world results:

  • 45% reduction in cycle time
  • 28% reduction in labor costs
  • 60% reduction in time lost due to anomalies
  • 24% reduction in Non-Conformances
  • 89% efficiency rate

Anyone can see these results are excellent. And at 2.3 million saved per interceptor, one of which is manufactured every month, the Army expected to see a $24 million cut from Boeing’s budget the next year. However, there was only a $1.7 million total reduction in cost for the year.

Why?

As Jones wrote, “Boeing’s lean team created mostly additional capacity and cost avoidance with their cycle time reduction not true cost savings. To truly realize the total cost savings Boeing would have to find additional work to fill the void created by the reduced cycle time. Boeing had to pay their employees between interceptors no matter how long it took and the government did not want more than 12 interceptors per year, so Boeings actual cost to the customer went down very little. As a result, Boeings overall labor costs stayed the same. The real value from this lean event is meeting the customer’s need of 12 interceptors per year but at little actual cost savings.”

So we have a great example of a misrepresentation of lean cost savings. In Boeing’s case, Jones notes that they would have had better success if they’d understood the baseline cost of the contract and then categorized their savings into three groups: cost savings, cost avoidance, and indirect savings.

Other manufacturers can learn from this study. When assessing the savings produced by Lean, be specific about what kind of savings they’ll be and where they will show up. When investing in equipment, the manufacturer may be able to help you understand those metrics for the product. For example, Load Mover Inc. makes battery-powered tugs that catapult safety and productivity for manual material handling. Their experts help their clients understand where the equipment will make the greatest impacts and also how to evaluate ROI. If you’re looking to replace manual pushing/pulling, or you want to replace forklifts, contact them at 952-767-1720; info@loadmoverinc.com.