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Lean

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        IMPROVING PROFITS USING LEAN


Why   LEAN?
The overall productivity and efficiency of an organization can be measured through increasing returns. In order to achieve this, companies will have to ensure that  effective management, sustainable methodologies and skills management are in place. These are significant in a company’s profit margin since they are critical factors which directly affects cost and quality production. Understanding the importance of practicing lean quality procedures and efficient risk strategies have great impact to the overall cost and financial performance of an organization. Therefore, a lean and sustainable methodology is vital and should be implemented in order to achieve production efficiency and significant improvements in your margin profits.


What is LEAN?
1. Lean is a Proven Strategy: Lean is proven. It has produced significant improvement for thousands of companies. It is not necessary to reinvent the wheel, only adapt a proven and existing system which is readily available, easy to understand, and then apply it to your own business.
2. Lean is Focused on the Customer: The foundational principle of lean is to focus all value added activities on your customer, and to remove or mitigate, all non-value activities. This customer focused approach is critical to a high growth technology company, and all other activities should be aligned with the customer including financing, product development, and administration.
3. Lean Is A Culture not a Tactic: Companies which have successfully implemented lean thinking fully embedded it into the culture, so it is pervasive at all levels of the company across all activities. Like innovation or entrepreneurship, Lean is something a company is, not something a company does.
4. Lean Makes You Money: By focusing on the customer and by stripping away non-value added activities, your precious capital is precisely deployed and significantly levered. This improves sales, gross margins, and cash flow, which will mitigate the need for external financing.
Where to use?
Lean management may be a useful approach to process improvement where individuals:
 
• Chase information to complete a task (there is an ‘information shortage’)
 
• Deal with multiple decision loops
 
• Are interrupted while trying to complete a task
 
• Focus on ‘expediting’ reports, purchases, or similar outcomes
 
• Do work in batches, collecting a certain amount of work before starting the task
 
LEAN ON PROFITS
Only 5% of your peoples time was spent on doing something that your customer was paying you to do you would probably make you to think  that I was speaking rubbish! But this is exactly what most studies show, around 95% of our time is spend doing non-value adding tasks. So why don't we try to increase profit through waste elimination, waste reduction or even waste prevention!
We spend the majority of our time conducting wasteful activities, moving stuff around, waiting for product or information, chasing suppliers, dealing with quality problems, trying to fix breakdowns and so on. The minority of our time is spent on actually doing something that the customer is happy to pay us for, adding value to the product or service that they want.
 
What difference will it make to your business if these wasteful activities can be reduced, if people spend more time doing what the customer really wants? It will very simply reduce your costs and therefore increase your profits.
Profit = Selling Price - Your Costs
Many companies work on the premise that their selling price is derived from their costs plus their profit and they maintain their profits by increasing the selling price when costs increase. This can be looked at as;
Selling Price = Your Profit + Your Costs
However as Taicii Ohno of Toyota was fond of telling people the selling price was actually fixed by the consumer. If we try to sell at a price that the consumer believes is to high they will go elsewhere and you will lose business. The only way to look at your companies profit is through the following equation;
Profit = Selling Price - Your Costs.
The selling price is set by the market, so the only way you can make or improve your profit is by reducing the costs within your business. This is why it is so important to remove the wastes from your business.
VALUE ADDED ACTIVITIES
The goal of Lean is to have a steady, even flow of work in the unit or for the individual while also providing what the recipients want in a timely manner.
 To do this it is necessary to:
 
 Determine the value of the product or service to the recipient(s), who may be:
- a customer,
 
- the immediate recipient
- the stakeholder, a person who has an interest in the product or service
 
- students, parents or others from outside the organization
 
- faculty or staff working within the organization who are ‘downstream’ receiving the product or service of another internal unit, and
 
 Identify resource use and activities that do not contribute to the value of the product or service. 
LEAN PRINCIPLES
While implementing lean management process improvement can be quite involved and detailed. The following are some basic principles that should be respected:
1. Focus on your customer.
2. Figure out how the work gets done.
 3. Remove inefficiencies and waste.
4. Track numbers and manage by evidence.
 5. Empower the people operating the process. The best person to improve a process is the person who carries out the process. Utilize employee’s full skillsets—can someone be doing more? If the process is improved, they will likely have time to take on higher level work.
6. Go about all this in a systematic way. Your process is not perfect and if by some miracle it is, it won’t stay that way for long. Changes will occur that will demand changes in the process..
 
Reduce Cost by Removing the Seven Wastes
One of the Major principles of lean manufacturing is about reducing or eliminating waste. Waste is generally classified as being one of the Seven Wastes, most people when you talk about waste only consider the scrap that gets thrown in the scrap bin, but waste is much more than this;
The Seven Wastes:
Transportation; The movement of product between different operations and locations. Required due to the production of large batches requiring fork trucks and the like to move it within the factory, made worse by the tendency to organize the factory floor into functional silos (machining, moulding, assembly, painting, etc.)
Inventory: The usually vast amounts of material held as both finished product and work in progress (wip), driven by traditional manufacturing’s tendency to run large batches to make machines more efficient and to insulate against problems.
Motion; The unnecessary movement of man or machine, for instance picking up heavy items at floor level to bring to a workable height or machines that have to travel excessive distances before actual work is undertaken.
Waiting; People or machines sat idle waiting for previous operations, material delivery, information, problems to be solved and a host of other potential reasons!
Overproduction; The tendency to make product that the customer does not want or before the customer wants it leading to large amounts of Inventory.
Over-Processing; Doing work that the customer does not need, such as polishing surfaces that are never seen, specifying excessively tight tolerances etc.
Defects; The products that are created incorrectly, leading to rework, scrap, delays, paperwork, investigations etc.

 

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