inventory turns

Inventory Turns Continued – Has Lean Progress Stagnated?

In the previous blog post, I stated, “What may surprise you even more is that it has become exceedingly difficult to find examples of companies that have demonstrated sustainable progress with lean.”

Hopefully that piqued your interest.   Again, before proceeding, please review the article I listed in the previous post, The Impact of Inventory Turns on Speed, Quality, and Costs to understand why the trend of inventory turns can be used a proxy to measure a company’s level of “leanness.”

Now that that’s been established, let’s look at how some of the companies are doing that are best known for their lean efforts.   If you do a Google search on “Top Lean companies” or similar words, you typically will get names that include the following:

Hewlett Packard
Wal-Mart
Caterpillar Inc.
Intel
Illinois Tool Works
Textron
Parker Hannafin
John Deere
Ford
Toyota

These companies are usually the ones you find listed as examples of what a successful Lean program would look like.   In the article that I wrote on the state of Lean in the pharma industry, I listed HP and Wal-Mart as examples of companies that Pharma could learn from.  Let’s revisit how things were at that time in these two specific cases:

  • HP has successfully applied Lean concepts with a number of case studies you can find online.  In the time period from 2000-2009, HP displayed significant improvement in inventory trends – inventory turns improved at an average rate of 6.9%.  HP’s upward trend translated directly into growth of free cash flow at a rate of 6.9% percent, with interest on the cash compounded over the 10 year period of lessening funds tied up in inventory.
  • At Wal-Mart, from 2000 to 2009, inventory turns improved at an average rate of 2.6% which translates directly into free cash flow improvement of the same rate.    Wal-Mart was able to transform an entire industry via their Lean improvement approach and dictate the requirements to successfully compete.

Now let’s take a look at the trend of inventory turns for HP and Wal-Mart, along with the other companies in the list above, in the period from 2009-2016.   All data was taken from Morningstar.com so blame them not me for any accuracies.

Inventory Turns Inventory Turns Inventory Turns Inventory Turns Inventory Turns Inventory Turns Inventory Turns Inventory Turns
Company Name 2009 2010 2011 2012 2013 2014 2015 2016
Hewlett Packard 12.50 15.26 13.98 13.38 13.97 13.62 12.19 7.15
Wal-Mart 8.79 9.00 9.08 8.70 8.34 8.08 8.11 8.06
Caterpillar Inc. 3.16 3.81 3.61 3.13 2.89 3.20 3.08 3.09
Intel 4.66 4.52 5.16 4.57 4.76 4.80 4.38 4.33
Illinois Tool Works 6.04 7.05 7.06 6.94 6.04 7.15 6.96 7.30
Textron 3.12 3.78 3.98 3.92 3.57 3.31 2.72 2.63
Parker Hannafin 5.95 6.47 7.27 7.08 7.26 7.41 7.23 7.13
John Deere 6.11 6.50 5.93 5.26 5.11 5.45 5.06 5.14
Ford 14.22 18.38 19.18 17.45 17.00 16.21 15.63 14.70
Toyota 11.27 11.58 12.19 11.20 11.17 11.52 10.83 10.77
Average 7.58 8.64 8.74 8.16 8.01 8.08 7.62 7.03

What do you notice in the data above?   Does ANY company show an upward trend in this time period?   Not one of them does.   It’s clear that lean progress has stagnated, and sometimes even regressed at these “lean leaders.”

Why has this happened?  More on that in the next post.   In the interim, please leave comments if you think you have any insights.

 

 

Posted by r.spector@comcast.net in Lean and Six Sigma

Starting with Lean – Inventory Turns

I’m going to start this blog with a post on the topic of “lean.”  The reason why I’m starting here is that I’m currently writing an article on this topic for an upcoming issue of “Pharmaceutical Manufacturing.”  This article will be a sequel to two published articles that I wrote some years ago:

The Impact of Inventory Turns on Speed, Quality, and Costs

How Lean is Pharma?: A 10-Year Progress Report

Before going any further, I recommend reading these two articles to better understand why inventory turns are a reliable indicator to measure a company’s leanness.   The trend of inventory turns over time indicates how well a company is progressing in terms of becoming more Lean and improving its processes.

The upcoming article will be a sequel to the second article listed above, and will look at how much progress the Pharma industry in the years since the article was published in 2010.    The article will review the data and provide some insights as to what is happening and why.   A follow-up article will be published that discussed what can be done about the situation.   It may surprise you to learn that little progress has been made in the pharmaceutical industry.

What may surprise you even more is that it has become exceedingly difficult to find examples of companies that have demonstrated sustainable progress with lean.   More on that in the next post.

 

 

 

Posted by r.spector@comcast.net in Lean and Six Sigma