Thursday, June 6, 2013

Lean as a Growth Strategy

By Al Norval

There is a common misconception about Lean that I hear over and over again. In fact it’s so common I see it getting baked into the strategy of organizations. That is – Lean is all about waste reduction and by reducing waste we can meet our cost objectives. As always, there is some truth in this statement but I like to take it deeper and go to the next level which is what strategy should really be doing.

True Lean is about waste reduction but the purpose is to provide more value to our Customers. To do this we need to understand what Customers truly value.

Here’s a simple example. I know a company that had loads of finished goods inventory. The common thinking in Lean was that inventory is a waste and so it needed to be reduced. The problem was the company also had a 1 day lead time to service customer orders. Customers placed a lot of value on this and it was a distinct competitive advantage. Cutting inventory would mean longer lead times which could take away the marketplace advantage the company had and lead to lost sales.

The real answer is of course, to reduce the inventory but not by just cutting it, by reducing the causes of the inventory while still maintaining the 1 day customer lead time.

As the company improved the efficiency of their mfg lines by reducing unplanned delay, reducing change-over times and improving the yield they discovered a lot of unused capacity which they turned into shorter replenishment lead times from mfg.

This is the secret behind Lean. Waste reduction frees up capacity in the resources of the organization. Rather than cash out these freed up resources, this unused capacity needs to be turned into value for customers. Providing more value to customers, leads to growth.

Providing more value to customers and growing sales with the same resource base while making the work easier for Team Members is a formula that can’t be beaten.

Lean is really a growth strategy. Organizations grow to success, they don’t shrink to success. Think about this the next time someone asks “How do we cash out our Lean activities?”.


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