Diminishing Returns On Lean Manufacturing

Diminishing Returns On Lean Manufacturing

In practice, though, some managers find themselves getting into trouble by trying to cut too close to the bone. After trimming all the low-hanging fruit, like complicated workflows and overflowing warehouses, the remaining inefficiencies are often very minor. Unfortunately, the downtime for adopting new systems remains the same. This leads to diminishing returns. You get less output (increased efficiency) for your input (managerial research, training, and downtime).

When changes towards lean manufacturing start to yield diminishing returns, you’re on a plateau. There are two ways to look at it: either accept that you’ve reached to top of the mountain, or try to push towards the next plateau. There are advantages to both approaches.

The Top of the Mountain

Your time is money. Even if you find a new approach to make your production even leaner, it’s not guaranteed to make up for the opportunity cost associated with your time.

In truth, efficiency is only part of a manager’s job. You also need to identify and retain talent, improve training modules, manage the company’s image, and keep everyone on-task and motivated. That’s a fulltime job, and any time you take away trying from it trying to chase a new efficiency level could cause problems elsewhere in your business.

Take a few years with your current process. Monitor other companies’ efficiency as well as new advances in equipment and process design. As technology advances, a higher plateau will eventually open up without needing to be forced.

Seeking a Higher Plateau

On the other hand, if you want to go boldly where no manager has gone before, you can try to find out how to push past diminishing returns and go back into meaty, meaningful, efficiency improvements.

The best thing is to start from scratch to build a new company- on paper. If you could do it all again, liquidate everything and build it from the ground up, would it be more efficient? If yes, then that efficiency level is your new plateau. Work out how to bridge the gap between fantasy and reality while causing the least disruption to your process.

The “law of diminishing returns” is not an unbreakable law of business. Sometimes you just need to re-examine the technology and processes out there and your ideals of how your company should run to find the way forward.