What’s the ROI of a 5S Program?

A 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…

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