How does lean operations interact with how workers are treated? That is the question behind an article in Stanford Business (Lean manufacturing benefits workers and the bottom line, Autumn 2016). Here’s the story in a nutshell. Nike began working with its apparel suppliers to implement lean operations at the suppliers’ factories. This entailed bringing in managers to train them and then supporting them as they began implementing lean assembly lines.
While one side of Nike is doing that, another is going out and auditing suppliers for how well they maintain labor standards. This team is monitoring compliance with local labor laws as well as Nike’s own standards. They are passing out letter grades. Suppliers that are doing well get As and Bs. Those with major violations are getting Cs and Ds.
And, of course, both Nike teams are collecting data: Who has implemented a lean line? Who has cleared up their problems with overtime pay and so on? Some academics get a hold of that data and start to look at whether lean moves the needle on labor standards. (You can find a link to the academic paper here.)
Here is what they found.
[B]y looking at the scores for the years before, during, and after a factory adopted lean practices — and controlling for other factors — the researchers were able to pinpoint its effect on labor compliance. Adopting even a single lean production line was associated with a labor compliance improvement of nearly a third of a letter grade, while a 100% lean factory saw an improvement of over half a letter grade. Overall, lean adoption reduced the probability of serious labor violations by 15 percent. The researchers also found a statistically uncertain but still positive effect on health, safety, and environmental compliance. “I didn’t expect to see much of a difference,” Hainmueller says. “But the effect was quite sizable.”
What’s more, he says, introducing lean techniques didn’t just dramatically bump up compliance grades — it also helped factories cross a critical divide. “It typically occurs in this crucial transition between the C-to-D grades, where you see the more serious violations, to the A-to-B grades,” Hainmueller says. In other words, the gulf that marks the difference between an unacceptable and an acceptable factory in Nike’s eyes.
I should acknowledge some limitations on these results. In particular, improvements varied by country with (notably) Sri Lanka and China showing relatively little improvements. For the former, apparently labor standards were already generally high so there was not much opportunity for improvement. Why China did not show much improvement, however, was a bit of a mystery. Still, these are intriguing results. Why then might they hold?
A reason discussed in the article is that implementing lean requires investing in the workforce. For example, lean often involves more cross-training so that workers can move between different tasks as needed. Having a worker get fed up and quit over excessive overtime or delays in getting paid then becomes more expensive. Management then has an incentive to be more attentive to such issues in order to reduce turnover.