Lean strategy in SMEs: Inventory leanness, operational leanness, and financial performance

Abstract

Lean strategy, aimed at optimizing resources, minimizing energy usage, and achieving zero waste in the production process, has been increasingly embraced to reduce systemwide costs in manufacturing. However, practitioners in small and medium-sized enterprises (SMEs) often lack the necessary expertize to implement lean strategies successfully. This study systematically examines the impact of lean strategy on the financial performance of Chinese SMEs. Specifically, we categorize lean strategy into two components: inventory leanness and operational leanness. We introduce a novel measure, the empirical production leanness indicator (EPLI), to quantify systematic production practices aimed at waste reduction. Drawing on a large sample of SMEs, our empirical findings suggest that both inventory leanness and operational leanness exhibit an inverted U-shaped relationship with an SME’s financial performance. In conclusion, this study contributes to the lean literature and offers significant practical implications for SMEs seeking to benefit from adopting lean strategies.