Lean manufacturing, nonfinancial performance measures, and financial performance

Purpose The purpose of this paper is to examine how utilization of nonfinancial manufacturing performance NFMP measures impacts the lean manufacturingfinancial performance relationship. Designmethodologyapproach A structural equation model SEM is estimated using data provided by 121 US manufacturing...

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Bibliographic Details
Published in:International journal of operations & production management 2009-02, Vol.29 (3), p.214-240
Main Authors: Fullerton, Rosemary R., Wempe, William F.
Format: Article
Language:English
Subjects:
Financial performance
Lean production
Mathematical modeling
Performance measures
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Summary:Purpose The purpose of this paper is to examine how utilization of nonfinancial manufacturing performance NFMP measures impacts the lean manufacturingfinancial performance relationship. Designmethodologyapproach A structural equation model SEM is estimated using data provided by 121 US manufacturing executives. In addition to examining direct effects, the study examines whether NFMP measurement mediates or moderates the lean manufacturingfinancial performance relationship. Findings The results provide substantial evidence that utilization of NFMP measures mediates the relationship between lean manufacturing and financial performance. Research limitationsimplications The study's findings regarding NFMP measurement suggest that the mixed results of prior studies of the lean manufacturingfinancial performance relationship may be due in part to a failure to account for NFMP measurement. Limitations of the study are the nonrandom sample and its small sample size, relative to the SEM estimated. Practical implications Managers who implement lean manufacturing without utilizing supportive NFMP measures may experience disappointing financial results. Originalityvalue This is the first known study that adopts a SEM framework to examine how NFMP measurement affects the relationship between lean production and profitability the direct relationship between NFMP measurement and firm performance and the impact of lean manufacturing on externally audited, objective measures of firm performance.
ISSN:0144-3577
DOI:10.1108/01443570910938970