So You Want to Reduce Your Costs? Don't Focus on Cost Reductions

If the title of this article sounds odd, dont be surprised. The implementation of a lean initiative will teach you about a whole litany of paradoxes. There is the jidoka paradox: Shut down the system so the system will run continuously. There is the standard-work paradox: Standardize the work so you can change it. The production paradox: Slow down the machine so you can speed up the process. And my personal favorite, the Toyota success paradox: Toyota has been very successful because they tolerate failure.

Paradoxes abound and the one about cost reductions is particularly interesting. Most plant managers seek to reduce their operating costs and, regrettably, most of them go about it by implementing a cost-reduction program. And guess what? Two predictable things happen.

First, they reduce costs. Second, shortly after all the back-slapping and happy talk about the gains have been completed, and the managers have recalculated their bonuses, all the costs come back and usually with a vengeance.

Predictably, the smart manager then will find some market change or other external thing to blame for the rising costs. Or maybe, best of all, he or she will have gotten recognized and promoted for the cost-reduction success and their wonderful demonstration of leadership and will have moved on, leaving someone else to deal with the resultant fallout.

A Taiichi Ohno Lean Initiative

Well, if you dont implement a cost reduction program to reduce costs; what should you implement?

Simple. Implement a lean initiative -- a Taiichi Ohno-type lean initiative.

What is that? Thats a heck of a question, and I want to distill it to the essence of what its creator, Taiichi Ohno, said. I believe three quotes from him capture the essence and the spirit of his Toyota Production System, and hence lean manufacturing by extension. (All Ohno quotes are from Toyota Production System, Beyond Large Scale Production, Productivity Press, 1988)

Establishing the flow is the basic condition.

All we are doing is looking at the time line..And we are reducing that time by removing the non-value added wastes.

After World War II, our main concern was how to produce high quality goods After 1955, however, the question became how to make the exact quantity needed.