First, what is Lean Thinking anyway? As the name implies, it is really a mindset – a way of viewing the world. Lean is about focus, removing waste, and increasing customer value. Lean is about smooth process flows, doing only those activities that add customer value and eliminating all other activities that don’t.
Adding value is another way of saying generating revenue. If it doesn’t generate revenue then it must add cost, not value. Sounds easy doesn’t it, I mean after all, this is what we do every day; or is it? Let’s see.
There are five basic steps in assessing lean operations:
For example, let’s take a look at the most fundamental cycle within a lean operation, the order-to-delivery cycle. The top level activities, in sequence, are taking an order, building the order, and delivering the order. The activities that do not add value are such things as: order entry, backlog, inventory, and shipping delays.
In a lean operation, we could have the customer enter their own orders; products made on demand, so we would have no backlog or inventory, and then product could be shipped overnight for minimal shipping delay (or downloaded in the case of software).
Companies with very short order-to-delivery cycles (and not using inventory as a buffer) are lean operations. Lean operations have a strong cash cycle. In general, the shorter the cycle the leaner the operation. Do you know any companies like this?
Internet business are like this. They carry very little inventory, customers enter their own orders via the web, make product on demand, and ship within 24 hours. Therefore, the order-to-delivery cycle is very short (within 24 hours).
Another important tool used in lean thinking is the 5S system of organization. The idea is that a messy workplace, desk, or manufacturing cell makes it hard to find things, easier to get distracted, and can introduce accidents or mistakes. The 5S’s stand for:
Note the visual nature of lean. Lean Thinking is very visual, picturesque, even Zen like. It is definitely a state of mind. Clean, clear, and focused at the task at hand and nothing else. It does not require a lot of mathematical analysis, unlike Six Sigma.
Six Sigma is problem focused with a view that process variation is waste. Lean Thinking, on the other hand, is focused on process flow and views any activity that does not add value as waste. Six sigma uses statistics to understand variation. Lean uses visuals: process mapping, flow charting, and value stream mapping, to understand the process flow.
|View of Waste||Variation is waste||Non-value add is waste|
|Focus||Problem focused||Process flow focused|
Taiichi Ohno is credited with creating the Toyota Production System (TPS), which is one of the better known implementations of Lean Thinking anywhere in the world. The concepts of lean were born out of the severe resource constraints in postwar Japan, which leads us to next week’s process improvement program – Theory of Constraints.
Lean Thinking is ideal for mature (energy), slow growth (automotive), low transaction industries (small business) or an organization where mathematical tools are not common. Lean begins to use systems thinking and considers all of the process interactions.
But lean is still a reductionist approach focused on eliminating waste (cutting costs). What is needed is to balance the resources released through Lean or Six Sigma improvement programs with an increase in throughput and need for resources. Otherwise you enter a cost cutting, job losing cycle and your process improvement program will grind to a halt.
If you are in a mature, slow growth, low transaction, or non-math business then Lean Thinking will work real well for your organization. So what’s left? Six Sigma and Lean use two different approaches to get the same end result – process improvement. The Theory of Constraints (throughput improvement) takes the concepts of Lean Thinking to another level of systems thinking.
A great place to learn about the application of Lean Management and Accounting in manufacturing, healthcare, financial services, government, and other lean organizations. Whether you are just beginning lean accounting or if you have been on the journey for many years, this community will provide you with a place to get answers, give help to others, share your experiences, and grow your practical knowledge of Lean Management Systems.
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