07 Oct Lean Management in the COVID-19 Era
by Wayne Forster July 2020
It’s now been approximately six months since the first COVID-19 case was confirmed in Canada. While the curve of the infection has been flattened to some extent, the virus is still with us, and most health officials expect a second wave, likely in the fall. It’s quite possible, therefore, that COVID-19 may be with us for some time to come.
For businesses, the virus has triggered unprecedented changes in the way they operate. For those who have been willing and able to stay open during the pandemic, or who have re-opened following the lifting of government restrictions, COVID-19 has necessitated the implementation of social distancing measures, enhanced safety procedures for staff, and adjustments to product/service delivery to customers.
All of these changes have come at a cost, whether it’s plexiglass partitions at checkouts, more PPE and testing for employees, or investments in technology for on-line shopping. And these added costs have coincided with a significant decline in revenue for many businesses, also as a consequence of the virus.
Looking ahead, business leaders and commentators expect that many of the changes made as a result of COVID-19 will become permanent. Even once COVID-19 has disappeared, or a vaccine has been developed, fears of future pandemics may cause businesses to continue to invest heavily in health and safety measures for both employees and customers. And they are unlikely to roll back any technological changes that have been made, as these will be required to remain competitive.
In the post-pandemic world (or should we call it the “permanent-pandemic” world), this much seems certain. For many, if not most businesses, costs will increase, and revenues will decline.
So, how should businesses respond? What can they do to stay profitable – or at least stay afloat – until things start to turn around?
If businesses hope to survive in a permanent-pandemic economy, the increased structural costs resulting from the pandemic need to be offset by reductions in other structural costs.
On the revenue side, options are limited. They can try to capture market share from their competitors, but the overall size of the market is likely to be considerably smaller, and they can’t do much about that. Consumer confidence will have to rebound, and pandemic fear dissipate.
That leaves the cost side.
The first place businesses will look for cost savings is their wage costs, because employee wages represent the single largest expenditure for the vast majority. But cutting staff is really about adjusting scale to match revenue. In that sense, wages are a non-structural cost. However, the costs resulting from COVID-19 will be new structural costs, meaning that for a given level of revenue, costs will be structurally higher. As a result, margins will be lower, profits will drop, and in some cases the viability of the business may be in question.
If businesses hope to survive in a permanent-pandemic economy, the increased structural costs resulting from the pandemic need to be offset by reductions in other structural costs. If a business decides to stockpile PPE, or conduct regular testing of employees for viruses, or set up an e-commerce site, it will need to find savings elsewhere to pay for it.
That’s where Lean can come in. With its emphasis on eliminating waste and improving efficiency, a comprehensive Lean initiative can significantly reduce structural costs while at the same time improving product/service quality.
At a health care provider in Nova Scotia that I worked with a few years ago, one simple suggestion made at a Lean session resulted in an annual reduction of $5,000 in cleaning services provided by an outside contractor.
In another case, a manufacturing client saved $36,000 in material costs for a single customized product when it revamped its manufacturing process as a result of a Lean value-stream mapping exercise.
On a tour of a lean construction project in Red Deer, Alberta in 2017, I learned of a savings of $54,000 when a design flaw was discovered as a result of discussions at a 15-minute Lean huddle.
These are just a few examples from my own personal experiences of cost savings that can be achieved through the application of Lean principles and tools. Some savings are small, others can be quite substantial. But even the small savings add up. And in the permanent-pandemic era, businesses will need to find as many places as possible where they can reduce costs.
Their very survival may depend on it.