If you’re looking to enhance your business efficiency, you need to try an exercise in Lean Manufacturing. By identifying and focussing on activities that actually create value for your customer and minimizing or eliminating the processes that don’t, you can enhance efficiency, focus on value creation and increase your profits.
There are whole books on lean manufacturing, so obviously we won’t be able to take a very in-depth look at the concept in this blog post, but we can outline the broad principles and in doing so, we hope to equip you with the basics of a skill that can really make a difference to your small enterprise.
Determine Value From Your Customer’s Point of View
This may sound like an easy question to answer, but your answer could change your perception of your business. Obviously, from a consumer perspective, value is all about products or services that they:
- Want and are
- Ready to pay for
Simple? Not as easy as you may think. Why do people choose smartphones? It’s not because they want a smartphone at all. Surprised? What they really want is portable internet access. That’s the kind of thinking you need to apply in determining what adds value. Don’t think in terms of your products, think about the needs that your product fulfills.
Now ask yourself just how much time you spend creating the value your client is looking for. Experts say that most businesses spend as little as 5% of their time on creating value for their clients. So how do we spend our time? We’re busy enough, aren’t we?
Yes, we’re busy, alright, but the time we’re spending on storing items moving them from A to B, re-processing and so on doesn’t add anything to the price your client is willing to pay. We’ll look more closely at wastes later on, but you can already see where this is going.
Your Value Stream or Value Chain
In analyzing your value chain, you need to forget about different departments and zone in on the processes your product goes through before it reaches the consumer. It’s vital that you list every single step your product goes through including wasteful processes like movement or storage along with the processes that actually add value from a consumer perspective.
For example, product assembly clearly adds value. Your customer will prefer to buy a ready to use product than a bunch of spare parts. Obviously, you also keep production records. How much value do they add? None at all. You may find them useful later on, but many businesses keep extensive records that are never accessed or analyzed. You can’t just stop keeping all records because it isn’t a value-adding an activity, but the more time that can be saved in doing so, the better!
Determine the Ideal Flow of the Value Stream
The more smoothly value-adding processes can flow from one to the next, the more efficient your business will be. Now that you know which steps actually add the value, you can begin analyzing your business processes in order to achieve the most efficient flow from one process to the next. Value adding steps shouldn’t have to wait for steps that don’t add any value at all. In investigating this, you may benefit from reading up on the principles and tools that underlie the theory. Remember, Lean manufacturing is not an esoteric theory, it has been applied by some of the most successful businesses in the world today.
Overproduction and Inventory
Overproduction and inventory are eating up your money! Think about it: warehousing and shop space cost you money. The goods that are stored in it are doing what? Waiting! That’s not a value add and it costs you money.
The amount of inventory you really need to keep depends on a lot of factors individual to your business. To keep inventory to a minimum, you need to be able to react and come up with the goods as soon as someone asks for your product. You need reliable suppliers who can deliver raw materials quickly according to your needs and projections and so on, but the more you can minimize inventory and overproduction, the less money you’ll have tied up in inventories and the less potential for loss, waste, damage or obselence.
Investigate the ‘Just in Time’ model for inventory and decide to what extent it can be applied to your business. Big businesses like Dell Computing and McDonald’s have successfully implemented JIT systems. Could you?
Strive for Perfection
Every time your staff or business has to re-do something, re-work something or re-process an item, you are losing out. In order to implement lean manufacturing principles, every staff member has to be involved in finding ways to achieve perfection the first time, every time! Involve your employees at every level in being alert for the seven wastes:
- Transport: moving things from place to place.
- Inventory: that ties up your money and then sits around and waits.
- Motion: people, processes or parts are moved around without adding value.
- Over-Processing: your product takes longer to be ready, but has no additional value.
- Overproduction: it costs you to store goods and they might end up becoming worthless.
- Defects: not good for you, your client or your business.
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Invest in Lean
Once you’ve determined the ideal value flow for your business you may have to invest in its implementation. Your facilities may need to be modified, you may need equipment to complete processes quickly and efficiently or you may even need to restructure your business from scratch.
The good news is that lean businesses generally require less staff, less investment in production inputs and less money tied up in products that may or may not sell. All the same, you need to plan your transition carefully and determine whether you will have additional financing needs to begin with if you need a startup business loan.
It may seem like a big step for you, but in an increasingly competitive market, the leaner you can be, the more mean you’ll be in optimizing the profitability of your business model.
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