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.
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