CFO Insight LLC
Lean Business – Key to Profitability
Common buzzwords and clichés… Lean Business … but what does the term “Lean” really mean. Lean does not necessarily refer to cost cutting or reductions in staff. I believe that originally the term Lean was associated with the Toyota Manufacturing Method that is a comprehensive process to continuous process improvement. While I have studied the Toyota Manufacturing method, the Theory of Constraints, various JIT (Just in Time), and MTQ (Managing Total Quality) methods, and read dozens of books on these topics, I am not an expert. Yet I have applied the “Lean Principles” in companies ranging in size from $5 million to more than a billion dollars in annual revenue; industries ranging from inexpensive consumer products to million dollar capital goods; across the globe … Europe, Asia, Latin America, and throughout the US.
Lean is a universal solution to profitability that should be used in any highly competitive business organization. From my personal experience, I can assure you that Lean is not an all or nothing business proposition. As a neophyte, I have used the analytic techniques described in the LeanBusiness section of this website. As you review the templates, in its simplest form you will see that it is a practical process that can be completed by anyone – from an administrative assistant to a VP of Operations… to the CEO.
The basic concept - only perform value added work. The process requires a candid – perhaps ruthless – analysis of each business process. Each element must be challenged to determine if the activity is worthwhile. If not, the activity should be eliminated. Once all non-value added activities have been eliminated, optimize the remaining activities.
Document … train … implement … measure … improve….
Adopting the Lean Business process requires strong leadership, confidence in your skills, dedication, and a commitment to the process. When you identify waste, eliminate the waste. When you have been wasting time on non-value added activities, stop the activity.
As a finance executive, I like to think of the Lean Business process as a means to increase competitive resources without any additional cost. I often estimate that up to one-third of all corporate activity can be redeployed to more valuable activities. When you think about it, free resource!
Try it in the finance operation … redeploy those free non-value-added resources to more competitive activities that improve profits, reduce capital expenditures, and accelerate cash flow. Will a 5-Day reduction in accounts receivable equal the year’s capital expenditures? Free resource!
In one application of Lean, we eliminated 20,000 hours of non-value-added tasks… redeployed these free resources to improve business forecasting; improved customer pricing analysis; accelerated accounts payable and T&E processing; eliminated thousands of hours of overtime; eliminated hundreds-of-thousands of pages of reporting; reduced the workload of operations management so they could perform their primary function - manufacture and distribute product to the customers.
Even if you consider adopting Lean as a defensive mechanism, Lean is a good alternative. What if your competition adopts Lean, and improves vendor and customer relationships… accelerates the cash flow and reduces working capital needs … pays for the year’s capital expenditures by reducing accounts receivable investment…? Lean is a great competitive tool… try it.