What's the ROI of a 5S Program?



By Jon Miller | Post Date: January 11, 2010 5:49 AM | Comments: 8

ROI of 5S program.jpgA reader asked, "What's the ROI of a 5S program?" She explained that she had read on another blog that it was impossible to calculate an ROI for a 5S program and that this was troubling for her. She has been leading 5S efforts in her office and now that some of her colleagues and fellow managers have read the aforementioned blog post, opponents are coming out of the woodwork and some managers are questioning the value of 5S.

Although it is highly practical to implement a lean management system piece by piece instead of all at once, it is very dangerous to break apart what is a whole and integrated system and apply it piecemeal. If we start asking "What is the ROI of ___" and look for parts of our operating system we can turn off without losing any benefits, disaster can follow. A typical case is to create work cells but not document standard work, or run a kaizen event but not the follow-up sessions. The effects would be similar to me going into the Windows system folder and deleting any files that weren't running at that moment. I wouldn't be very happy the next time I booted up my computer. The perfect example is the daily morning or shift start meeting. What's the ROI of that? Let's say it's zero. Do you think it's safe to turn off that component of a lean management system?

The best way to answer this ROI question is to put 5S within the context of a larger lean transformation that results in a sustainable culture change. The 5S activities should be enabling and supporting other ROI-driving lean activities such as SMED to reduce time lost to changeovers or reducing lot sizes and therefore WIP), TPM to reduce machine downtime, or to simply improve productivity by reducing time spent searching for items. Each of these can have as direct an ROI calculation as our flawed accounting and measurement systems will allow, but that is another discussion separate from "the ROI of a 5S program". As much as a 5S program has input costs and resulting benefits, I don't see why an ROI calculation would be difficult.

In the less than ideal situation that the "5S program" is done as a stand-alone management initiative, the ROI calculation may be harder. The logic and math itself is not hard at all, but actually tying the time and material spent on 5S to a direct benefit will be hard because the gains made through 5S are best picked up by implementing other lean systems. A cleaner workplace may reduce accidents, quality losses and even free up valuable space which can be leased or sold. But these are often happy surprises and not the reason an organization starts 5S. When the reason for starting 5S is because it's clearly the right thing to do, because it is supposedly the first thing to do in a lean implementation, or because the place just needs a clean up, measuring the ROI be harder.

The countermeasure to that situation is to do a 5S scan, some basic cause and affect or root cause analysis of losses in the areas safety, quality and space cost for example, and link any 5S-related root causes to future savings. Most companies go about this the other way, red tagging like mad without thoroughly documenting the "before" condition and then struggling to justify the daily cleaning efforts that are required to sustain these gains. It's too late if you've already started, but a 5S program should be begun with the end in mind.

I know of a small, successful electronics company who did nothing but thoroughly throw out what they didn't need, put back everything needed in it's proper place, and shine the floors and machines for one first year. As a result has developed discipline, good work habits, quality awareness and have turned a loss-making business into a profit-making one. The profit delta was about $2 million and their cost was cleaning liquids, wash cloths and idle labor that they chose to retain instead of layoff. It would have been a fairly easy question to answer, but their President never asked, "What will be the ROI of this 5S program?"

If anyone doubts that 5S can have an ROI, they don't understand 5S, and here are a few articles on the 5S that may help. It's not appropriate to make definitive statements that "a program" can or cannot have an ROI. "What is the ROI of a 5S program," is not really a well-formulated question in the first place. The definition of "program" is too vague; by this do we mean a comprehensive multi-year no-ground-too-sacred management-led initiative, or do we mean a 60-day project to tag and tape the factory? Or are we talking about a human system that runs in the background of our company operating system, like a software program we turn on periodically to defragment the files on our computers?

Giving something a name such as 5S and calling it a "program" can make people feel more comfortable with it. However the scope and purpose should be clearly defined upfront, and that includes any expected benefits. The human capacity for resistance to change should never be underestimated. "What's in it for me?" and "What's in it for my company?" need to be clearly communicated any time we ask people to invest their time and attention in a new way of working. The human capacity for learning should never be underestimated, and 5S is a great way to get total engagement in workplace improvement. If you have to ask, "What the ROI?" on that...

Nice post - brings up a lot of points.

A few weeks ago there was some blogging about ROI, getting caught up in it, etc. Typical of American managers who have little foresight, patience, and have to see $$$ before having any faith. But, if people want to measure ROI on a 5S initiative, here are a few things that could be measured: productivity, cost reduction, distance/time saved, space saved, defect reduction, safety. With baseline measures on each of these some nice returns could be shown, in all likelihood. Probably my favorite one of all is time saved just searching for items. I've seen it estimated in office environments that people on average spend 30 - 45 minutes a day just searching for items - be they physical or electronic (searching through various drives for the right documents/applications).

To ROI or not ROI... I understand the point, but to people who truly understand lean and how 5S is just one of the foundations for the Toyota House, 5S is a no-brainer. Not so for those who see it as a project and demand ROI. Clearly these people haven't been enlightened.

Poster: Mark Welch | Post Date: January 11, 2010 8:24 AM

Interesting thoughts Jon. My 2 cents. It can be difficult to capture some of the return on 5S because many of those costs are hidden. We often don't calcute the lost productivity of looking for stuff. What about reworking product or waiting. And then there are numerous intangible benefits from changing a culture of an organization. I guess what I am saying is there is a return on the investment. Will you see it on the P&L probably not with all the other waste. Is it difficult to caputre all the numbers. Yes. It is worth doing? Absolutely. Do you need to measure every activity by ROI. That is the difference with Lean Thinking. Watch the process with 5S. Is it better? Then why not continue. Manage the process as a journey making adjustments not an end result of some program like it is an asset to be depreciated.

Poster: Tim McMahon | Post Date: January 11, 2010 9:07 AM

Hi Jon,

I think eventually the question that needs to be answered is Why do we need to do 5S? If the answer is to have an ROI linked with the project, then we might be setting ourselves for failure.

It seems like the application of A lean tool rather than lean thinking.

-Harish

Poster: Harish | Post Date: January 11, 2010 12:45 PM

Great points on how "is there ROI?" shouldn't be the primary decision behind "should we do 5S?" I do, however, like how one local Boston hospital has measured the impact of 5S on nursing in terms of how much time was spent walking and searching for items in a shift before the first 5S implementation and after (knowing that 5S is never "done" although the initial heavy lifting might be). The financial ROI? They have no idea. The measurable impact on staff? They have some good idea.

If a company's leaders are going to refuse to do 5S without a hard ROI calculation, then they're probably better off not starting, since I doubt they'd have the process focus or discipline to make it work or sustain anything, anyway.

Poster: Mark Graban | Post Date: January 11, 2010 1:09 PM

Thanks for the thoughtful comments. Mark's example from healthcare is a great one and reminds us that the "return" of a lean transformation must a balance of the triple bottom line items.

Poster: Jon Miller | Post Date: January 11, 2010 2:51 PM

Good points, but the one I think you overlooked is that the reason to do 5S is the same reason as any standardization - make waste visible. Your argument is still valid, that is, how do you place an ROI on making waste visible, but phrasing the 5S process in that light usually gives opponents pause, if not acceptance.

Poster: John W. Smith | Post Date: January 15, 2010 10:53 AM

Great points and totally agree with the perils of standalone 5S and ROI focus. However just to share one method to satisfy managements focus on 5S and ROI. We recently facilitated a 5S Lean pilot in a hospital in Ireland and performed an activity shadow of a nurse over a 12 hour period and this showed up that 30% of their shift was spend on value added patient care. The remainder was consumed by system induced waste such as walking and searching - lavish targets for 5S! Post 5S the value added care incresed by 15% or almost 2 hours per day per nurse. Again this was verified by a rerun of the activity shadow. Again ROI not the reason for 5S, but this helped gain support for further lean proof of concept building.

Poster: Andy Brophy | Post Date: January 26, 2010 2:53 PM

One issue I see is people referring to 5S as a project or program when in fact it is a tool to be used either for an activity, a process or a whole system. I face a similar problem with people trying to say we have to do this because ISO says so; I have to remind them that we do what we say we are going to do and its our system. When I implement continuous improvement that's what it is a CI project using 5S, VSM or other tools.
That being said, any tool that is used should be able to be linked to ROI. For example, if you use a screwdriver to drive screws you can determine the costs and time involved; then you can compare that to using a drill (assuming a drill can be used) and then compare the two. If you look at certain area to be improved and 5S is the tool of choice, you should be able to show some metric for before implementation of 5S and the level of that metric for after implementation. This assumes you start small, and you will not be able to capture the whole benefit. Another example, we have a subassembly that takes xhrs to build with the current method which can be measured. Then, 5S is used to create a small assembly line and the number hours it takes to build it can be measured; thus, there is some ROI shown. The whole impact, such as employee's attitude, confidence, improving overall performance of employee and production, etc. will not be caught. That's no different than doing something nice to someone today; you never know how far it will go and who it will impact.

Poster: Steve | Post Date: July 20, 2010 11:36 AM
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