The Economics of Lean – Part 4 of 4

The Economics of Lean Part 4

Lean companies recognize that its supply of resources creates & delivers customer value. A company’s resources are its people, machines and facilities. These resources work in the value streams and other business processes. The number one objective for every value stream is to maximize the amount of time it spends on creating customer value. The primary issue is that every value stream and every business process contains waste, and waste prevents value from being created.

Lean companies want every value streams to do 2 things very well, all the time: flow demand through the value stream as quickly as possible and relentlessly eliminate waste. In order to accomplish these 2 objectives, value streams need to be able to manage flow and waste. This requires a fundamental change in the measurement of operations away from traditional cost-based measurement systems. Measuring flow and waste will result in tremendous gains in productivity. The Lean CFO must quickly move the company away from traditional cost-based measurement systems in the early stages of lean. It’s vital that everyone in the organization learns quickly how to properly execute a lean business strategy and the best way to do this is with new measurements.

For a lean strategy to work, everybody, everywhere, all the time must focus on creating value. This is the principle of empowering employees. The primary objective is for people to take action – deliver value, improve flow and eliminate waste. Lean measurement & management systems need to focus on actions and outcomes, not simply reporting numbers. These systems need to be simple & easy-to-use for everyone in the companies. The right information needs to be reported as frequently as necessary to ensure the right actions are being taken. Measurement and management systems need to be redesigned with the users in mind – every employee. The traditional approach to measurement & management systems is to increase the dependence on ERP systems. Lean takes the opposite approach and the Lean CFO needs to lead the company away from complex measurement systems that no one understands to a lean-focused measurement system. A measurement system that enables people to control their processes, understand their performance, and drives lean improvement.

The Lean CFO must take action

The economics of lean forms the foundation for all the changes that need to be made by the Lean CFO. There is a tremendous amount of money to be made from a lean business strategy but most people can’t see this because existing measurement & management systems are not designed with lean economics in mind. The Lean CFO must redesign all measurement & reporting systems to unlock the financial potential of lean.