What is a lean business?
Lean means to do more with less, in other words, make the most of available resources and minimize waste. Toyota is well known for using the lean business model to improve the inefficiencies in its manufacturing operations. Today, lean business principles are used in several other sectors including health care, construction, and software development.
A lean business focuses on maximizing the value that it offers to customers by constantly improving its processes and eliminating bottlenecks. Implementing lean principles for your business can help minimize costs, reduce waste, improve product quality, and enhance productivity.
5 elements of a lean business
There are five principles that can assist in creating a lean business.
1. Defining customer value
Value is anything the customer is willing to pay for. Another way to define value is the benefits that the customer gets from using a product or service.
Use qualitative and quantitative research to help you understand what your customers want from a product like yours and how much they would be willing to pay for it. Quantifying what the customer values helps you determine the price of your products and services.
2. Mapping the value stream
The value stream includes the steps or activities your business will take to deliver the value – it is the “how” behind the value. Mapping the value stream allows businesses to visualize the actions required to deliver the final product or service to the consumer.
The value proposition is the benchmark that clarifies which activities directly contribute to delivering value. All other activities are classified as waste. The value stream includes the life-cycle of the product — from acquisition to disposal. Each stage should be thoroughly examined to identify and eliminate unnecessary waste. Value stream mapping is also referred to as process re-engineering.
3. Creating flow
Creating flow is all about eliminating the functional barriers in the process, so activities run smoothly and without delays or interruptions. Flow is essential to creating an efficient manufacturing process to meet increases in demand. Takt time is a German term meaning clock, bar, or beat. In lean manufacturing, it is the rate to complete a product to meet demand so that you do not have too many or too few products on hand. Takt time is a calculation:
Takt Time = W / D
D is the average daily demand for a product, and W is the total working time per day in seconds – where day is defined as production, not consumption or demand.
If the Takt time comes to around three minutes, but your actual production time is four minutes – it shows that your current pace won’t be able to fulfill the current demand. Understanding the Takt time helps you recalibrate the “flow” of production. In other words, Takt time helps in determining the benchmark sought after creating the flow. Considering the example, you need to create a flow that brings down the production time to three minutes.
To create an efficient workflow, businesses need to work closely with cross-functional teams Some other strategies to improve flow include breaking down and reconfiguring the production steps, leveling the workload, and cross-training employees.
4. Establishing pull systems
Knowing when to begin operations to meet customer demand can be tricky. On the one hand, products must be available when customer demand is high. On the other hand, no business wants to be stuck with excess inventory.
There are two models to consider: push and pull.
- Push system. A push system forecasts customer needs and produces products in advance to meet forecasted demands. But inaccurate forecasting can result in overproduction or underproduction.
- Pull system: The pull system relies on customers’ current needs rather than on forecasts. A pull system only initiates work when the customer demands it; for example, a restaurant only starts cooking after you place an order.
Inventory can account for a lot of waste in the production cycle. Inefficient production methods can lead to wastage of raw materials, and excessive production can lead to the piling up of massive unsold inventory that either needs to be discounted or written off (in case of obsolescence). Lean business models leverage the pull system to streamline their operations and ensure that there’s no inventory wastage.
A pull system uses just-in-time (JIT) delivery of the products. It ensures that products are created only when needed, and in the correct quantity, so there is less risk of overstocking, high storage costs, or obsolescence.
Continuous improvement is an essential aspect of a lean business. It encourages companies to strive for perfection by eliminating waste and regularly improving their products and processes.
Improvement is only possible if every team member takes ownership of their work and is held accountable. Workers need to have autonomy to do their jobs, so that management can focus on larger process issues.
Streamline your business with DEAR systems
If you’re interested in creating a lean manufacturing business, consider DEAR Systems. DEAR Systems’ cloud-based solution will give you real-time information about your company’s performance. You get a bird’s eye view of your production process, which helps identify inefficiencies.
DEAR System’s software solutions provide a robust package of inventory management features to make the best use of your inventory. Some of the features include automated reordering and tracking. Both of these features are pivotal in creating a lean business. The lean principles focus on eliminating wastage, so real-time inventory tracking will help gauge your inventory’s performance. Based on that, you can adjust your stock intake accordingly.
Another aspect is just-in-time, which can be fulfilled by automated reordering. As you aren’t hoarding any extra inventory, it is essential to timely replenish your stock. Manual reordering is prone to errors, and if you don’t order on time, you’ll suffer from stockouts.
Remember, the key point to creating a lean business is to use available resources efficiently. Book a call to learn how DEAR Systems can help your business with lean manufacturing.