Top Reasons for Indian MSMEs to Adopt Lean Manufacturing

• 347 MSMEs saved over ₹98 crore, improved productivity by 27%, and reduced defects by 73% by adopting principles of lean manufacturing.
• Lean manufacturing focuses on eliminating waste and improving value across principles like continuous flow and pull systems.
• Despite clear benefits, adoption remains low due to cultural resistance, skill gaps, and operational constraints.
• MSMEs must adopt lean manufacturing, supported by leadership, training, and a shift in mindset toward continuous improvement.
  

Indian MSMEs have saved over ₹98 crore, improved productivity by up to 27%, and reduced defects by 73% across 347 pilot units under the government’s Lean Manufacturing Competitiveness Scheme (LMCS) ^[1]. The scheme is a systematic approach focused on maximizing value and minimizing waste in production processes. The above numbers demonstrate the potential of lean principles to transform small businesses into more efficient, competitive, and resilient enterprises. Furthermore, lean practices help reduce environmental impact by cutting down on energy, water, and material waste—making MSMEs a strong ally in India’s climate and sustainability efforts. However, despite the results, lean manufacturing is still far from being mainstream in India’s MSME landscape.

The principles require a deeper understanding and a practical roadmap for adoption to be successful. This article explores all the aspects of lean manufacturing and how small businesses can leverage it. 

What is Lean Manufacturing?

Lean manufacturing is a systematic approach that aims to improve efficiency by eliminating waste in every form. Its origins trace back to post-World War II Japan, a period of severe resource scarcity that compelled manufacturers to innovate and do “more with less.” This unique environment fostered the development of a production system that prioritized efficiency by rigorously eliminating waste and continuously improving processes. It is guided by five core principles:

1. Specify Value
   Understand what the customer values and is willing to pay for. This focuses all production efforts toward delivering that value without unnecessary steps or features.
2. Map the Value Stream
   Identify and document every step in the production process, from raw material to final product. This helps in spotting delays, bottlenecks, and non-value-adding activities.
3. Create Continuous Flow
   Design processes so that materials and information move smoothly without interruptions, backflows, or excess inventory. This enhances responsiveness and efficiency.
4. Establish Pull Systems
   Produce only when there is actual demand. Avoid stockpiling inventory by letting customer orders trigger production activities.
5. Pursue Perfection
   Build a culture of continuous improvement (Kaizen) where every employee is encouraged to identify and eliminate waste in small, daily actions.

Despite its structured framework and tangible benefits, the transition to lean has not been easy for many Indian enterprises. Implementation challenges continue to hold back its wider adoption, especially among small and mid-sized firms.

The State of Indian MSMEs and Lean Adoption

While lean has been proven effective, its adoption in India remains limited.

• Low Penetration: Most MSMEs are yet to implement lean practices despite evident cost and productivity benefits.
• Cultural Barriers: Fear of change, lack of awareness, and day-to-day operational firefighting often prevent MSMEs from investing in improvement methodologies.
• Skill and Knowledge Gaps: Many enterprises lack trained personnel or internal champions to drive lean.
• Time Constraints: MSMEs often focus on survival and short-term goals, making structured improvement programs seem secondary.

These behavioral and structural challenges highlight the need for targeted strategies that go beyond financial aid.

Government Support: The MSME Competitive (LEAN) Scheme

The LMCS, initiated by the Ministry of MSME, is designed to address some of these challenges.

• Scheme Objectives: Reduce defects, downtime, and raw material waste while improving space usage, worker safety, and overall efficiency.
• Financial Support: The government bears 90% of the consultancy and handholding costs for lean implementation. An additional 5% incentive is offered to SC/ST entrepreneurs, women-led businesses, and those in the Northeast or OEM-linked.
• Cluster-Based Model: Units are grouped in “mini-clusters” of 6–12 businesses to encourage collaboration and peer learning.
• Structured Implementation: The National Productivity Council (NPC) is the nodal agency, and each cluster follows an 18-month guided improvement plan.

Key Lean Tools and Techniques

Lean tools are the practical building blocks that bring the philosophy to life. These methods are simple, visual, and designed for everyday use on the factory floor. Here are some essential tools that MSMEs can begin applying right away:

• 5S: A method to organise and maintain a clean, safe, and efficient workspace. It builds discipline and consistency, starting with sorting what’s needed and standardising routines.
• Kaizen: This is about encouraging small, daily changes made by employees at all levels. Over time, these improvements build momentum and enhance workplace morale.
• Kanban: A simple visual system using cards or boards to track workflow stages. It helps avoid overproduction and ensures that tasks move only when capacity is available.
• Poka-Yoke: These are error-proofing mechanisms built into equipment or processes to prevent common mistakes. They reduce defects and improve product reliability.
• Just-in-Time (JIT): Produces or delivers items exactly when they’re needed—no sooner, no later. This reduces excess inventory and minimises storage costs.
• Total Productive Maintenance (TPM): Engages all employees in maintaining machinery. The goal is to reduce downtime and extend equipment life through shared responsibility.
• Standard Operating Procedures (SOPs): Written instructions that outline how to perform routine tasks. SOPs bring clarity, reduce variation, and support quality control.
• Visual Management: Involves using signs, labels, and colour codes to communicate information clearly on the shop floor. It improves coordination and reduces confusion.

The effectiveness of lean manufacturing utilizing the above-mentioned tools has been validated across the world. From aerospace to automotive, and electronics to garments, businesses have reported significant reductions in cost, time, and waste. For instance, Boeing achieved a $1.5 billion reduction in inventory and a 41% reduction in manufacturing space after lean implementation^[2].

Closer to home, Indian MSMEs that participated in the government’s Lean Manufacturing Competitiveness Scheme (LMCS) have shown equally impressive results. These were achieved despite limited resources, underscoring how even modest interventions can yield high impact when guided correctly. A study of nine brass component manufacturing units in Jamnagar, Gujarat, revealed challenges such as an uneducated and uninterested workforce, high waste, and disorganized operations. Implementing lean tools like 5S, Kaizen, Visual Management, and SOPs, along with improved inventory and plant layout, led to a 40% reduction in inventory and 70% drop in material transportation. Similarly, the garment sector cluster witnessed a 26% improvement in on-time deliveries and significant lead time cuts. Food & Packaging Clusters also achieved higher product quality and space optimization using lean layouts. 

These examples make it clear: lean is not just for large corporations with extensive financial bandwidth. With the right tools and mindset, small enterprises can unlock significant value, both operationally and financially. 

Why MSMEs Shouldn’t Ignore Lean Manufacturing 

In an environment defined by tight margins, rising input costs, and evolving customer expectations, MSMEs cannot afford to remain inefficient. Lean is not just a theoretical framework but a strategic toolkit that supports day-to-day performance and long-term survival.  

Here’s how it affects different aspects of a business: 

1. Competitive Edge 

• Cost Efficiency: Lean reduces waste and unnecessary processing, helping MSMEs control costs. 

• Better Quality: A culture of quality and prevention leads to fewer customer complaints and rework. 

• Faster Market Response: Reduced lead times and inventory cycles make MSMEs more responsive to market changes. 

2. Sustainability and Scalability 

• Resource Optimization: Lean drives energy, water, and material savings, aligning well with ESG goals. 

• Green Manufacturing: By reducing overproduction and waste, lean makes operations more sustainable. 

• Scalable Framework: Lean methods work for 10-worker units as well as larger enterprises, making it scalable. 

3. Strategic Alignment 

• National policy environment: Government initiatives like Make in India and Atmanirbhar Bharat promote efficiency and local value addition.  

• Clean operational baseline: For businesses exploring automation or digital upgrades under Industry 4.0, lean helps avoid digitising wasteful or broken processes. 

Role in Environmental Impact 

Besides the above-mentioned benefits for MSMEs, lean manufacturing also helps address environmental concerns. Reducing material waste, energy use, emissions, and water consumption allows MSMEs to operate in a cleaner, more sustainable way—making it a green as well as a growth strategy. These efficiencies not only benefit the planet but also reduce input costs, creating a win-win for business and the environment. 

Even when the benefits are well established, the shift to lean thinking needs concerted efforts. It’s shaped by external pressure, internal necessity, and the right support ecosystem. MSMEs today are being pushed—and pulled—towards lean adoption by a set of strong, converging forces: 

• Market Demand: Buyers now expect high-quality, defect-free products delivered on time. Lean helps MSMEs meet these standards reliably. 

• Operational Pressure: Rising raw material prices and fluctuating demand require tighter control over processes and resources. 

• Government Support: With LMCS covering up to 90% of consultancy costs, financial entry barriers are significantly lowered. 

• Employee Power: Employee-led improvements form the core of lean success. When teams are empowered to solve problems, the benefits compound over time. 

Practical Roadmap for MSMEs 

For many MSMEs, the challenge lies in where and how to begin. Fortunately, lean doesn’t demand a complete overhaul from day one. It thrives on small, practical steps that build over time. This section outlines a clear path forward for MSMEs ready to take that first step toward operational excellence. 

Foundational Steps 

1. Define Customer Value 

• Clarify what the customer pays for. 

• Eliminate features or processes that don’t add value. 

2. Map the Value Stream 

• Diagram each step of the process. 

• Identify delays, inefficiencies, and handover issues. 

3. Create Continuous Flow 

• Rearrange workflow for uninterrupted production. 

• Eliminate long idle times or bottlenecks. 

4. Establish Pull Systems 

• Produce only when there is actual customer demand. 

• Use visual signals (like Kanban cards) to trigger actions. 

5. Build a Kaizen Culture 

• Encourage daily improvements from workers. 

• Implement small changes and track results. 

Implementation Tips 

Even after committing to lean, many MSMEs struggle with execution. What’s needed is a simple, hands-on approach that helps them ease into new practices without disrupting daily operations. These tips can help turn intention into sustained action: 

Train Employees Across Levels 

• Conduct basic lean training for everyone. 

• Build internal lean champions. 

Start Small

• Pilot lean on one product line or shift. 

• Pick quick wins to build confidence. 

Use LMCS Support 

• Apply through the Udyam Portal. 

• Partner with NPC-accredited consultants. 

Leadership Matters 

• Senior management must drive the lean vision. 

• Set targets, track progress, and communicate wins. 

Lean manufacturing is not a tactical fix but a strategic mindset, and its full potential can only be realised through cultural transformation, leadership commitment, and continuous learning in the following manner. 

• MSME Leaders: Start with one product line or workflow. Involve the team from Day 1. 

• Policymakers: Continue financial aid, but also address behavioral and cultural inertia. 

• Industry Bodies: Share success stories and organise cross-learning sessions. 

When adopted with clarity and commitment, lean is not just a cost-saving tool—it is a growth strategy.