A Lean Production Concept from Germany

Executive Overview

Multinational corporations are continually looking for best practices to implement at

their facilities throughout the world. Ideally such companies would implement the same

practice throughout their facilities worldwide. Too often they run into difficulties and

sometimes even outright failures. Some problems in implementing such practices crossnationally

can be linked to differences in institutional environments. Hence, executives

need to be keenly aware of how distinct institutions in various national settings

potentially impact the viability of a particular strategy. This article examines the effect of

such institutions on best practices through a case study of a German multinational that

implemented the same lean production program at one facility in Germany and one in

the United States. It finds that the heavily regulated environment in Germany proved

conducive to the success of this program there, while the liberal environment in the

United States contributed to its failure at their U.S. facility. Particular attention is paid to

how labor laws and training institutions influenced the outcome at each facility.

Implementing Lean Production

This article analyzes the impact of institutions on the

ability of firms to realize lean production based on a

case study of a German multinational, hereafter referred

to as German Multi, which implemented this

program at one facility in Germany and one in the

United States.' This company chose this particular

best practice because of its ability to radically speed

up production and reduce the time needed for research

and development. Although new organizational

charts were drawn up at their facility in the

United States, the actual manner in which work was

done did not change. Hence, the German Multi's lean

production program failed to reduce either production

or research and development times at the U.S.

facility. In stark contrast to that, the manner in which

work was organized at their German facility was

dramatically altered, enabling the firm to reduce

product development times from seven to three years

and to cut production times by half. At least part of

the relative success of any lean production program

seems to depend on the institutional environment

within which a firm is operating. This article argues

that lean production functions best when a training

system provides workers with a high level of broadbased

analytical skills. It also contends that labor

laws that engender the retention of employees and

facilitate their integration into the decision-making

process provide the best environment for the success

of this form of production. Before discussing the details

of lean production at both facilities, this article

provides a basic overview of lean production to clarify

what this form of production entails and to show

how it can enable firms to be competitive in the 21^'

century.

The Benefits of Lean Production and How It

Works

Lean production should enable firms to boost their

competitiveness by enabling them to substantively

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reduce production and development times, thereby

increasing the speed at which firms react to

changes in the global marketplace. Although lean

production does lead to a reduction in costs

through the elimination of positions in middle

management, such savings are minimal compared

with the potential savings that can arise from improvements

in production and product development.

Cost reductions in these areas arise from

workers actively participating in developing

means for reducing costs and speeding up production

processes. Reductions in product development

times occur through cross-functional teamwork between

workers on the production line and their

colleagues in research and development. If workers

have the proper skills, they can provide critical

feedback about whether a particular product actually

fits the existing capabilities of their facility. In

fact, lean production programs generally envision

further cost savings arising from cross-functional

teamwork between all areas of a firm, not just

between workers on the shop floor and their colleagues

in research and development.

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