Academic journal article Management Accounting Quarterly

Cycles of Lean: Findings from the Leanness Studies-Part 2

Academic journal article Management Accounting Quarterly

Cycles of Lean: Findings from the Leanness Studies-Part 2

Article excerpt

Cycles of Lean: Findings from the Leanness Studies-Part 1" showed that leanness, as measured by long-term inventory turnover trends for more than 1,500 companies, rises and falls in multiyear cycles and, lately, distressingly downward. Part 2 extends the studies to leanness rankings by industrial sector; Lean's tendencies to focus inwardly on operations as opposed to external flows; how sales, general, and administrative (SG&A) costs are affected by Lean or its lack; and the value that the mergers-and-acquisitions community places on Lean successes.

In Part 2 of the leanness research, I use scored and graded long-term inventory data from Part 1 but sorted and combined with additional data in support of four special-topic studies. For each of the four, there appears to be a paucity of relevant academic research and hypotheses. Rather, the basis for the studies is more in the nature of reasonable assumptions, some of which have been advanced in connection with case studies or consultants' propositions. My intention is for the results to advance Lean theory and applied management decision making. This article discusses the four studies in the following order: long-term leanness trends by industrial sector; components of total inventory; effects on, or related to, SG&A costs; and how leanness is valued for companies that are delisted from stock exchanges.

LEANNESS BY SECTOR

At least annually for some 15 years, I have sorted the full set of leanness data not only by region but also by industry sectors, 32 of which generally include sufficient numbers of companies to be treated as a sector for study and ranking purposes. Early on, sector-based mean scores on long-term inventory trends were found to be highly divergent, suggesting that sectors with higher scores (Lean-exemplar sectors) have been competing, in part, on value-chain leanness, and those with lower scores have untapped opportunities to gain competitively by becoming lean. Table 1 is a ranking as of March 2016 of the 32 sectors, best to worst, along with sample sizes and mean scores.

Over the years, rankings have shifted a good deal for all but three of the industry sectors. It is no surprise that the Pharmaceuticals industry, which has long been known for having such high profit margins that companies have had low concern for costs, has been near the bottom in every iteration. Perhaps its ranking will rise in the future. The reason is that in various countries the toughened healthcare cost controls should elevate the emphasis on cost management, including through application of Lean methodologies.1 Textiles has usually joined Pharmaceuticals near the bottom-its current rank is 29th-and it has never ranked above fifth lowest. Pump/hydraulic/pressure's high rank has been relatively stable, staying between third (its present rank) and 13th.

Of the other sectors, Chemicals, near the bottom in all the early years' rankings, began climbing the ladder in 2008 and now is above the median at 13th. Electronics, however, ranking near the top in some years, has plunged to 31st, which may be due in part to massive outsourcing of production, thus greatly lengthening Electronics's value chains. And Paper-converted products, ranked second in some of the early rankings, has tumbled to 11th.

Six of the sectors have particularly small sample sizes and thus are susceptible to large shifts in mean scores as the companies making up the sectors change: Furniture, Wire/Cable, Forest products, Paper, Personal-care products, and Vehicles (light, meaning vehicles other than Heavy Industrial). For example, Wire/Cable, now 24th and made up of just 34 companies, has ranked as high as third and as low as 30th.

The wide range of scores might be viewed as a trimodel distribution.

High. Scores for ranks 1 through 8 are from 0.56 to 0.41.

Middle. Scores for ranks 9 through 25 are from 0.38 through 0.20 and straddle the grand average of 0.30 for all 1,531 companies. …

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