Lean Management Effects - An Empirical Evidence from Machine Building Industries in Europe

This paper investigates planned and side effects from Lean Management implementations. Case studies from machine building industries in Europe were used as an empirical base. The focus of presented research is to provide a relevant data, that could help to explain, why the side negative effects of Lean Management implementations take place. The empirical evidence presented herein with regard to the issue, is wider than in any available publication. Also the way of analyzing effects in this paper goes beyond the existing literature.


Introduction
Lean Production or Lean Management is often and worldwide used by companies nowadays. From successful Lean enterprises significant results can be reported, which makes Lean Management interesting for many business sectors. Toyota is often named as the benchmark, which reports 60-90% lead time reductions, decrease of inventory levels by 10-50%, or improvements of productivity by 5-25% [1]. Toyota considers Lean as a philosophy, following the principle of just reducing the time line from receiving a customer order to customer delivery, by removing any waste [2].
Lean Management is fuzzy understood by Western, who modified the original intention of the original Japanese concept and tend to understand it like a top-down driven restrictive framework for short or medium term projects, typically targeting localized or punctual improvements. The responsibility for success is normally assigned to project managers who are set in charge of expected improvements. Aimed Lean effects are commonly linked to cost savings, growth targets and utilization improvements. However, the sustainability of expected gains is not surely protected. Negative side effects become visible, which typically appear in a form of additional costs, decreased quality of products or services, customer dissatisfaction and others [3]. The above mentioned misperceptions of what Lean Management is and how it should be implemented and managed, seem to corrupts sustainability and long-term success of implemented Lean Management initiatives. This paper provides an extended empirical evidence of Lean effects, including the side negative effects. It is based on a broad basis of case studies, which were aiming a detailed and multi-perspective evaluation of Lean Managements projects.

Existing knowledge
The Japanese approach to implementation of Lean Management is often described in five steps [4]: (i) identify a change agent; (ii) find a teacher to facilitate learning; (iii) build a challenge to motivate organization; (iv) map the entire value stream of products; (v) start removing waste at a point that quickly makes an impact and continue then with the rest. The Lean Management in Western world allows various modes of implementation, caused by literature and influence of consulting, which modifies the original Japanese concept of Lean Management [6]. Instead of thinking in terms of value streams and flows, Western managers and executives often focus on short-termsavings, or functions and departments which are in charge of implementation. Managers and project leaders receive bonuses to achieve targets, while the value stream perspective is avoided due to complexities. This is in line with tradition of management control based on standard costs accounting and common focus on utilization of machinery and workers as a major performance indicator [5]. Researchers sometimes describe today interpretation of Lean Management as "considerable variation in scientific and grey literature" being either applied as "philosophy, toolbox, strategic goal or a change process", or even considered as a multidimensional-concept compromising hybrid models, which lead to more vague Lean thinking.
Away from the Lean Management original intentions, the Lean Enterprise Model proposed by the Lean Enterprise Institute introduces a different sequence for implementations: identification of a problem, devising processes to be improved, develop people to continuously improve, allocate managers with right thinking to drive correct leadership, to finally embed the Lean thinking in the company [7]. It is questionable how to combine typical Western approaches with the ideas of Toyota and align the company in long term with Lean thinking, where typically waste in selected processes from value stream analysis is removed i.e. by applying Kanban, Just in Time, Single-Piece-Flow, Levelling, 5S, Kaizen, TPM and diverse other principles.
Many Lean Management publications focus on advantages [5] and suggest that its implementations surely lead to improved performance [8,9,10,11,12,13]. Some papers even state that "the research question of primary interest in the literature is no longer whether lean can benefit performance" [14]. Interestingly all reviewed papers report the effects of Lean Management implementations which were targeted, while eventual side effects are not considered. This exhibits at methodological failure. If one does not look at the side effects, which can be observed elsewhere, they are just not seen at all. The recent empirical evidence neglects the unilaterally positive outlook of Lean by a multi-perspective assessment confirms the existence of side negative effects [3].
The danger of side effects of Lean Management implementations is possibly manifested in spectacular ways. Volkswagen recently reported shortages of components resulting in shutdown of plants. Mercedes and other carmakers report long customer lead times in Europe and USA. BMW extended shipping costs budget for aircraft carriage for urgent deliveries [15]. Bosch established internal task forces to cope with material shortages. ZF Friedrichshafen claims that a many of their strategic suppliers face a difficulty to cope with demand. In USA million car recalls in 2013-2014, caused by faulty airbags or other quality issues were reported [16]. Unfortunately no single publication has systematically identified or quantified the root causes of above listed observations. Although the unwelcome effects were not deeply explained, from the described circumstances they seem to be rooted in some particular Lean Management implementations, like e.g. leaning the supply base.
The above exhibits both, the practice gap and the research gap, and calls for extended empirical evidence and further methodological research.

Methodology and findings
The problem stated evidently requires for a sound empirical evidence. It is due to the unilateral view of Lean Management effects presented in the literature, as well as because of the potential difficulties to explain why side negative effects occur. After the literature review, which could help to identify side negative effects of Lean Management implementations, a series of case studies was considered. All together 16 machine building companies were approached, which are listed in Table 1. The case studies are grounding the research plan, which is presented in Table 2. The professionals from approached companies have been involved in semi-structured interviews and later in expert panels. Results of the two series of meetings compose the baseline of research. All interviews were centered on three key issues. Firstly, the intention to identify the field of project in devised environment. Secondly, the targeted effects as planned before the project. Thirdly, the actual effects -appearing after project. All the three issues have been based on a multi-perspective viewing of the potential side effects. This was crucial for their identification and further assessment. The applied approach is fundamentally different to published researches of that kind. Due to confidentiality, companies and performance indicators remain unnamed or being published in a synthetic way. Using this basis, some statistical analysis of the gathered data could be provided.
All investigated case studies exhibited seven common characteristics of implementations. All of them were following a common management control structure, which is illustrated below: (I) Planning (1) Financial business plan (2) Steering committee, consisting of: -Minimum one executive manager -Controlling associates -Project Manager -Member of interfacing departments (3) Milestone plan for implementation (4) Basic risk assessment (II) Control (5) Regular project meetings, including: -Progress of implementation -Financial results review, mainly cost and benefits -Coaching from steering committee to achieve aimed targets (6) Budget conformity according to annual budget plan (7) Verification of financial results The case studies enabled to identify both, the planned effects of Lean Management implementations, as well as the side negative effects. All of them are listed in Table 3. The project based setup within companies indicates that planning and control are essential for Lean Management projects. The five most common scopes of targeted effects can be categorized as follows:  Slimmed waste in different departments, along exact processes or within functions  Reengineered products to minimize costs of goods sold  Reduced fixed costs or minimized other expenditures by outsourcing  Improved performance/competitiveness by investment in technology or automation  Ensured cash flows due to increased sales by high or steady order entries All investigated cases targeted single elements or hybrids of the above shown scopes of effects.
The most frequent side negative effects resulting from the reviewed projects can be categorized as: 1. additional costs, i.e. unplanned costs, which in some instances even outranked the planned benefits (in nearly all projects); 2. quality issues (in more than every second project); 3. fall-outs and/or resulting penalties (in every third project); 4. higher stock or loss of competencies (in every fourth project).
The quantification of these effects is illustrated below in Fig.1.

Fig. 1. Absolute quantification of Lean Management target and side effects
In order to illustrate the impact of side negative effects, i.e. in contrast to planned positive effects, a weight scale from zero to seven has been applied, where 0 is the minimum rank and 7 the maximum. The findings provide a proof that negative effects exist and often outrank the planned targets. In first instance the above shown absolute quantifications of effects [ Fig.1] have been broken down to major categories of side effects, as illustrated in Table 4.  The main impact of side effects results from unplanned "extra costs" of different nature, i.e. higher than assumed project related investments or capex related costs (43%), followed by costs of "Fall Outs", e.g. customer penalties or cancelled orders (24%). The third highest effects can be linked to "Competence Loss" (12%), which is described as unplanned leave of experts or specialists, carrying on unplanned costs. Fourth ranked category is "Quality Issues" (9%), mainly appearing during project implementation or after project. Second last category is "Higher Stock" (6%) consisting of increased stock levels, extended costs for warehousing, and additional staff for internal or external logistical efforts. The last category "Others" (5%) summarizes other costs involved, i.e. cost of reorganization, recruitment or administration costs.