Cost Isn't Everything

Oct. 15, 2007
Best use of lean is when newly available capacity is used to grow business

Conventional wisdom says "getting lean" means cutting costs. But companies that target their lean efforts toward saving money might be missing out on the full benefits of lean, says James Womack, founder of the Lean Enterprise Institute (LEI).

"The biggest benefit of lean is that it frees resources by using less human effort, less space, less capital and less time to make a given amount of products and services and to make them with fewer defects to precise customer desires, compared with traditional management," notes Womack. "By freeing resources, lean management turns waste into available capacity. The biggest benefits come when management uses this capacity to grow the business, whether it is a service or manufacturing enterprise."

Apparently, many companies aren't heeding Womack's advice. An annual LEI survey released in August shows that 46.1% of nearly 2,500 businesspeople surveyed rate "reduced cost" as the greatest benefit of implementing lean management concepts. Coming in a distant second was increased customer satisfaction at 16.3%, while only 7.5% say they view reduced inventory as a primary lean advantage.

By focusing on cost, manufacturers can lose ground on the competition, says Dave LaHote, president, LEI's Lean Education unit. "Many organizations get some limited results because they have a sharper focus for their improvement efforts and some new tools to use, but few significantly change the way they make business decisions, develop future management talent, and lead the business," LaHote explains.

According to LaHote, "This may explain that while many organizations like the savings they get with a focus on lean tools and waste reduction, few significantly change their competitive position and even fewer break through to lead their industry in quality, value, innovation, growth and profitability, as Toyota has done in the auto business."

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