The Economics of Lean – Part 1 of 4

Lean is a Money Making Strategy

I always ask the question “What is Lean?” when I work with a company or present a seminar. I ask everyone to give an answer. I always get a wide variety of responses. Lean usually means different things to people, and this is often based on their role in the company or the department they work in. Some say eliminating waste. Others cellular manufacturing, or just-in-time inventory, or kanban. Rarely get the answer I am looking for. Lean is a business strategy to make a lot more money.

Lean is a Business Strategy

For lean to successfully become a money-making machine, it must be THE strategy of the business. Some companies understand this but other companies think lean is “part” of a business strategy. This distinction may not seem that important, but it has a dramatic impact on what a company thinks it can accomplish with lean.

If a company thinks lean is “part” of a business strategy, then it will selectively implement certain lean practices. The usual approach in these companies is to think that lean applies strictly to operations, and they see it as a cost cutting method. The end result is some limited improvements in operations, but for the most part it’s business as usual.

Lean is a business strategy that impacts every part of the company. Every person from the CEO to the shop floor operator to the marketing manager to the accounting clerk will have to change the way they think about and do their work. Every business process will be analyzed the same way and re-built to better serve its customers. Adopting lean practices, tools and methods cannot be avoided. Excuses such as “lean doesn’t apply to us” or “we are different” are not accepted. And this of course includes the CFO. In fact, the role of the Lean CFO is vital if lean is to fulfill it’s financial potential.

Lean Every Day

Companies that adopt a lean business strategy are successful because they practice lean everyday and everywhere. On a daily basis, the lean company focuses on 3 things: providing more value to the customers, flowing all business processes faster and better, and eliminating waste in every process.

Lean is not a project that is implemented, and (fortunately) it doesn’t happen all at one time. Lean change and improvement is done everyday throughout the entire company by everybody. Lean is often called a journey because you adopt a lean business strategy, forever.