Can Lean Manufacturing Encourage Revenue Growth?

According to management consulting firm R. Michael Donovan & Co. Inc., lean manufacturing is much more than cost reduction – it can help companies achieve revenue growth and market share objectives.

“The most common view of lean manufacturing at the executive level is that lean tools are for tactical cost reduction by middle and lower management levels,” said R. Michael Donovan, a management consultant.

When manufacturers strategically adopt lean thinking, Donovan explained, they can improve their business performance, including revenue growth. But he added that more than 95 percent of lean initiatives do not achieve their potential business performance improvements.

Donovan offered five ways lean manufacturing can help a company grow revenue:

• More free cash flow to develop new products, make acquisitions and/or increase marketing activities;
• Lean manufacturers are highly flexible and quickly respond to customer needs faster, better and cheaper than the competition yielding upward momentum in market share;
• Current customers give the best suppliers more orders and often earn sole source status;
• Develop a “cost to produce” advantage that provides more pricing flexibility to gain more sales; and
• When the marketplace heavily weighs quality, dependability and quick response, the sales organization develops the “lean value proposition” and perspective customers listen and act accordingly.

“Lean manufacturing is often thought of in terms of just cost reduction rather than as an overall business strategy that can assist with revenue and many other goals,” Donovan said. “Revenue growth from current or new products is earned from present customers, by obtaining new customers and/or through acquisitions.”

Jack Rink, a lean consultant and lean training specialist with R. Michael Donovan & Co., added, “Lean manufacturing is about building an agile, flexible enterprise that can produce high-quality products using the least amount of resources in a cycle time short enough to manufacture to customer demand. Lean manufacturing, when done right, easily pays for itself and very quickly.”