Lean manufacturing management: the relationship between practice and firm level financial performance
Year: 2004
Type: article
Abstract: The relationship between lean manufacturing management practices and business financial performance is examined through the use of empirical surveys and archival accounting data from Compustat and stock return data from CRSP.A sample frame of small to medium sized discrete product and process manufacturing companies reporting participation in only one four-digit SIC was identified as the sample frame.The five-year (1998)(1999)(2000)(2001)(2002) financial performance for these companies was analyzed at the operations and business levels using a median z-score comparing median firm performance with the median performance of a matched portfolio of firms.Operations measures included asset and employee productivity, gross margin ratio and two measures of aggregate cycle time.Business measures included return on equity (ROE), sales growth, and stock return.A web-based survey was used to collect data on seven lean practices including just-in-time production management, statistical process control, total productive maintenance, group technology, employee involvement, supplier communication, and customer involvement.Forty-two responding firms were classified as being either lean or non-lean based on a cluster analysis of factor scores.The results demonstrated that lean practices act as a synergistic, mutually supportive set rather than linearly additive individual practices iii in affecting operations financial performance.Lean classification was associated with better total and cash-to-cash cycle times, but was not related to either better or worse asset or employee productivity.Lean firms also tended to have narrower grow margins than non-lean firms.With respect to business level performance, lean firms tend to have better ROE, but no relationship was found with respect to either stock return or sales growth.Of all the lean practices tested only employee involvement demonstrated a significant relationship to business level performance.Firms with high ROE tend to have high employee involvement.A literature review topology is presented to demonstrate the need for studies combining empirical survey data and archival measures of performance.Opportunities for future research are outlined.Dedicated to Dawn, Kaitlin, and Skylar; whose love and support has made all the difference.
Author: Eric Olsen
Institution: The Ohio State University
Language: English
Subfield: Management Information Systems
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2580083989