LRN2006/1 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne An evaluation of the implementation of Lean Manufacturing by the North East Productivity Alliance Chris Hicks and Tom McGovern, University of Newcastle upon Tyne Business School Colin Herron, One NorthEast

LRN2006/2 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne Productivity (GVA per job) vs. Participation (jobs per population of working age) Regional policy seeks to increase productivity and participation

LRN2006/3 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne Lower than average manufacturing sector performance NE sectoral performance, sector growth and regional significance UK manufacturing has relatively low GVA growth NE has high reliance on manufacturing Increasing manufacturing productivity is a regional priority

LRN2006/4 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne North East Productivity Alliance (NEPA) The aim is to increase productivity by transferring Lean Manufacturing from the automotive industry to other sectors. Methodology based upon Nissan/Industry Forum supplier development initiatives. This paper reports on 30 interventions at 15 companies.

LRN2006/5 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne Industry Forum model Hands-on training using ‘Common Toolkit’ comprising –The Building Blocks 5C/5S, Standardised Work and Visual Management, and 7 Wastes –Supporting tools, data analysis, problem solving, set up improvement and line balance Trainees receive NVQ in Business Improvement Techniques on successful completion of training.

LRN2006/6 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne Diagnostic Tools NEPA sponsored the development of a three stage diagnostic tool to select participating companies: –Productivity Needs Analysis, general information (sector, size, turnover), DTI 7 measures (floor space utilisation, value added per operator, stock turn ratio, OEE, not right first time, schedule achievement and operator productivity) and other measures. –Manufacturing Needs Analysis, records information on manufacturing processes and framework for selecting Lean tools. –Training Needs Analysis Tool applied by independent consultants before and during Lean interventions.

LRN2006/7 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne PNA Metrics Turnover gives a measure of overall activity Stock turn ratio indicates how effectively inventory is utilised GVA per direct employee, absenteeism and staff turnover relate to the effective use of labour The breakdown of labour into indirect, direct and temporary indicates the significance of manufacturing. Breakdown of costs helps identify labour intensive companies that are particularly vulnerable to competition from low cost economies.

LRN2006/8 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne PNA Metrics OEE and floor space utilisation relate to the effective use of plant and buildings Delivery schedule achievement and not right first time are measures of customer satisfaction.

LRN2006/9 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne MetricIncreasedUnchangedDecreasedNo data Turnover £M10032 Profit/loss £M00015 Profit margin %00015 Order success rate %12012 Stock turn ratio7143 Productivity / direct employee 8016 GVA / direct employee9024 Absenteeism %5352 Staff turnover %7332 Direct employees5082

LRN2006/10 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne MetricIncreasedNo changeDecreasedNo data Indirect employees8061 Temporary labour5352 Total employees30111 Direct labour %30111 Temporary labour %5352 Turnover / employee £ Material content %7512 Labour content %2364

LRN2006/11 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne MetricIncreasedNo changeDecreasedNo data Overhead content%2445 Turnover / floor space £/M Delivery schedule achievement % 4533 Not right first time %3534

LRN2006/12 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne Summary of results 10 of the companies had increased turnover (2.5-35%) Stock turn ratio improved in 7 cases – 4 showed dramatic improvements of 18, 23, 92 and 100% 8 companies improved productivity (105% in the best case) Number of employees reduced in 11 companies and increased in 3 companies Turnover per employee increased in 11 companies, 7 companies with less employees increased turnover.

LRN2006/13 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne Conclusions (1) There were some dramatic improvements in performance, but some companies had not been particularly successful. Some of the companies with implementation difficulties have started to address barriers, but the benefits have yet to be realised. Many of the measures lag actual improvements. There is substantial anecdotal evidence that the impact has been more positive than the quantitative data suggests. A further study of 50 companies with improved data collection methods will provide more insight.

LRN2006/14 © Chris Hicks, Tom McGovern & Colin Herron University of Newcastle upon Tyne Conclusions (2) Manufacturing productivity particularly important in the North East. Total savings to date are £4.36 million with an average saving per intervention of £149,000. With the Industry Forum evaluation method, which ignores the highest an lowest cases the average saving was £106,000 Total returns were eight times the cost. NEPA supported lean manufacturing are an effective way of addressing regional productivity problems.