Lean 4.0, what return on investment for the industry of the future?
Recent years have shown the importance of rethinking industrial processes from design through production to distribution. Industrial companies need to be more and more efficient in order to keep jobs in the country and to face competition . It is essential for French manufacturers to be able to estimate their return on investment in relation to the capital invested.
We can see the acceleration of this change when we study the four industrial revolutions. The first three took place at intervals of a century, while the interval between the third and fourth is only 50 years.
In the 1950s, Toyota theorised the fundamental principles of Lean, which were quickly adopted by manufacturers. Today, it is a question of bringing digital technology into the factories so that the world of manufacturing can reinvent itself. The digital transformation coupled with the principles of Lean will enable the acceleration of operational efficiency and the growth of companies, we speak of digital lean management or Lean 4.0. The new digital tools known as "industry of the future solutions" will help to increase the performance of factories.
What is lean management?
Before we go any further into the gains of Lean 4.0, it is necessary to define each of the terms. Lean has its roots in the Japanese automotive industry. Lean, which literally means "lean", is composed of a number of principles aimed at limiting waste (the 7 "Mudas") and thusincreasing productivity.
They can be applied to any process environment in any industry. The objective is to identify and eliminate or remove all non-value added process steps. This allows for greater resilience and adaptability, as well as speed and robustness of production processes.
Digital will not bring new principles but will increase the impact of lean through more accurate and accessible information and much faster communication flows between teams. shopfloor data more accessible and much faster communication flows between teams.
Digital lean requires 3 key factors:
- Data recovery through integration of IT and operational data,
- standardisation of processes and recovery of process indicator data
- making this data available to operational teams and decision-makers
How to calculate the ROI of digital lean?
First of all, it is important to understand that the return on investment will be different for each manufacturer and will not be uniform. It will depend on your lean and digital maturity, your business model and the investment made. To get the full potential of digitalisation and these investments, it is necessary to adopt an integrated approach.
For example, if we want to make production data available in real time, it will be necessary to invest in sensors to collect the data. Then in business intelligence tools to make this data usable and finally in information visualisation and sharing tools to capitalise on this data. With an integrated approach, the Return on Investment (ROI) will be much higher than with the implementation of projects in siloed ways, with no link and no communication between the data.
Similarly, the ROI will be higher and faster over time with the implementation of flexible solutions, which meet specific needs and do not require heavy investments in terms of time and money. The implementation of digital solutions must be done in an agile manner and by iterations. Fabriq is an online solution in the form of a subscription (SaaS), which means that you do not have to manage the maintenance of the software and always have the latest updates. Moreover, this limits the amount of your investments and the launch of the application in the factory is done very quickly in less than 3 weeks.
When calculating the return on investment of digital solutions, a distinction must be made between hard savings or green dollars and soft savings or blue dollars.
Hard savings are gains that will have a direct impact on the company's cash flow, for example, improving Overall Equipment Effectiveness (OEE). Soft savings are non-value added time savings. We can of course put a financial figure on these savings by linking the hourly cost of employees to these time savings, but this will not have a direct and immediate impact on the cash flow. If we refer to the seven mudas, we can consider that the savings linked to movements, over-processing and waiting times are soft savings, while those linked to defects, stocks, overproduction and transport are hard savings.
However, they can be transformed into hard savings over time in several ways. The first is that the time savings will allow employees to focus on higher value-added tasks. For example, for a team leader, using a tool such as Fabriq for daily performance meetings means that he or she can spend less time administering problems (retrieving data, entering information, updating indicators, communicating information to the right levels of decision-makers, etc.) and more time on resolving them (identifying the root cause, leading problem-solving meetings, updating standards). A workshop manager will be able to spend more time on Gemba, i.e. spending more time in the field meeting with production teams to identify problems and understand their origin.
We can then observe an improvement in the key performance indicators and therefore financial gains. On the other hand, the time savings will enable employees to absorb an increase in production without impacting on their working time, once again transforming soft savings into hard savings.
We estimate the ratio to be applied to transform blue dollars into green dollars at 70%, i.e. if we have a gain of 100€ in soft savings we estimate that this will amount to a gain of 70€ in hard savings.
Hard savings & Green dollars
Generally speaking, we observe according to several studies that digital will increase all the gains obtained through lean. Arthur D. Little has classified the lean life cycle into three phases and determined the annual growth rate of automotive companies in each phase.
Using a key productivity indicator, the number of hours required to produce a vehicle, they analysed the correlation between the evolution of this indicator and the implementation of lean methods.
The improvement in the productivity indicator can be seen as a function of the three phases of lean maturity, and if we take into account the implementation of digital solutions to improve and support the lean approach, productivity can gain between 15 and 20 points .
The same orders of magnitude are estimated by Mckinsey in its study on the digitisation of team collaboration on the shop floor: a productivity gain that can exceed 20% in maintenance or problem-solving processes for manufacturers whose activities require a high degree of team collaboration on the shop floor.
According to the consulting firm Bain&Co, the implementation of digital lean is based on three catalysts:
- IoT and sensors to provide real-time data;
- Robots that automate repetitive tasks;
- And finally, the data analysis, simulation, collaboration and visual management tools that make the data issued usable and promote feedback.
The scope of lean 4.0 according to Bain is larger than that of A.D. Little, so the solutions implemented would allow double the benefits of traditional lean.
Another study, this time by BCG, overlaps with that of Bain&Co. It shows that the implementation of lean alone allows a cost reduction of 15% to 20% and that the implementation of an industry 4.0 solution allows a cost reduction of 10% to 15%. While the fusion of the two, by adopting an integrated approach, allows a 40% reduction in costs.
Soft savings & Blue dollars
As mentioned earlier, the gains are not only in terms of productivity but also in terms of time and involvement. The availability of real-time data (whether production data or all the information previously communicated on whiteboards or verbally) will enable teams to react more quickly and to share this information directly with the teams concerned, who will be able to work in sync.
When processes are not digitised, there are many stages of copying and retrieving information, whether it be during the preparation of meetings, field rounds or in the management of action plans or problem solving.
Digitalisation will enable these steps to be automated. For the Fabriqapplication alone, time savings of 15 minutes per operator and 30 minutes per manager per day have been observed in the management of each problem and in their reporting.
There is also a 30% improvement in the time taken to resolve actions, which has two direct impacts: on the one hand, the problem is resolved more quickly and therefore its impact on the company's performance is reduced, and on the other hand, there is a time saving for the employees.
A digital solution will also help to set the standards for lean. It will make it possible to obtain data on processes that were previously inaccessible and that will be essential for continuous improvement. One of the advantages of a SaaS solution such as Fabriq is that it allows processes, managerial rules, standards or good practices, which until now have been scattered on whiteboards or powerpoints, to be transcribed into code. The interweaving of the digital tool and the lean process gives new impetus to the operational excellence approach because it improves the involvement of teams, facilitates their daily life and gives them more autonomy without going beyond the standard.
We can only improve what we measure, and in this case, access to this data will enable us to improve all processes related to performance management. For example, shared and digitised action plans will increase the number of actions carried out within the set deadlines by 20% and the completion rates of field trips by 30% to 40%. It is therefore necessary to determine the impact on your performance of the poor follow-up of your lean processes in order to determine the financial impact on your company.
Our solution will allow us to give the same level of information in real time to all the teams in a factory, from the operators to the management, including managers and support functions. This information can be indicators, whether they come from external sources such as BI tools or whether they are entered directly from the application.
But also all the data coming from the field such as Gemba Walks and action plans. All this allows the teams to be informed in real time of problems and to work synchronously on their resolution so that the whole factory is at the service of production
Our study is based on an analysis of data that we have conducted on more than 100 factories from all industrial sectors as well as on studies from consulting firms (Arthur D Little, Deloitte, BCG, Bain&Co, McKinsey)