Continuous improvement can be tricky. There are examples abound of companies applying all the tools and methodologies to perfection and still failing in the market. But how can this be? you ask. Isn’t Continuous Improvement supposed to give a company a significant competitive edge in the market?
Well the fact is that CI can be used to do whatever you want it to do. It can be used to increase profitability, reduce operating cost, or improve quality, morale, or safety. But winning in the market is a little bit different. To do this, Continuous Improvement must be coupled with strategy. Toyota called this Hoshin Kanri, where strategy is used to focus any improvement effort on making gains in the market.
This is a stark difference from the way many companies approach Lean and Continuous Improvement. Many tend to consider Lean an approach to eliminate waste and drive cost savings. Often, they never stop to consider if these areas of focus will actually help make gains in the market.
Market-driven Continuous Improvement might look at the few strategic imperatives needed to increase sales, market share, or even customer retention. For example, company XYZ might be getting a signal from the market that customers want suppliers to provide products in much shorter lead times. In this case, the company realizes that it could increase sales, market share, profitability, or some other key area of performance by being the supplier with the shortest lead time. The company can then deploy its limited Continuous Improvement resources against cutting lead time down as low as possible in order to win in the market.
In the absence of a clear strategy, improvement efforts are more random, which can be wasteful in itself. Even when using prescribed Lean tools as flawlessly as can be done. This is what can create a dynamic of succeeding at Lean and failing at business, which can be counterproductive.
In today’s CPG business landscape where retail is gradually moving online and brand loyalty is waning, companies are competing in three key areas:
1) Product fit – this means the more flexible or agile factory wins
2) Quality – the factory with the most consistent and reliable processes wins
3) Price – the factory with the lowest operating cost (and ultimately best value for the price) wins.
The market is changing toward more of a direct-to-consumer model where big box retailers have less influence over which manufacturers get more exposure to the customer. Smaller companies are growing at 6% year over year and larger ones are at less than 1% growth in CPG. The game is changing – so make sure you’re in position to win.
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