Lean Manufacturing and the Current Economy

As I write this article, most of the television, internet, and print media are focused on the financial crisis. The Dow Jones Industrials is a virtual roller-coaster, and most financial experts are referring to this time as one of a “credit crunch” or a “liquidity crisis.” Credit is very difficult for businesses to obtain. Without the availability of cash, businesses will have difficulty making payroll, purchasing inventory, and growing in general. Thus, people will lose their jobs. The result could be a deep and long-lasting recession.

I have been asked many times over the past few weeks how lean relates to the current financial crisis. Can businesses use lean principles to help them navigate this difficult time?

The five principles of lean as defined by Womack and Jones (Lean Thinking, 1996):

  1. Specify Value.
  2. Identify the Value Stream.
  3. Create Flow.
  4. Let the Customer Pull.
  5. Seek perfection.

What are the results of applying these principles? I believe the effects of lean implementation can be summarized as follows:

  • Lead-Time and Inventory Reduction. Lean compresses the value stream. That is, it shortens the time between receiving a customer order and being paid by that customer for the finished product. This results in less inventory and quicker response to the customer.
  • Productivity Improvement. Lean eliminates waste, activities that consume resources but do not create value for the customer. As wastes such as wasted motion, transportation, and waiting are reduced or eliminated, productivity increases. Increased productivity results in lower costs.
  • Quality Improvement. Lean thinking forces problems to the surface. As problems are solved to their root causes and eliminated, product quality improves, resulting in lower costs and increased sales.

All of these effects have the benefit of increased cash flow. As an organization applies lean principles, it is able to realize a net decrease in inventory. This results in a net increase in cash. As a company improves product quality, it will be able to outsell its competitors. As a company improves productivity, it will be able to support additional sales with the same size workforce. Lean principles will enable any organization to navigate the credit crunch by freeing up cash, improving product quality, and reducing costs while growing as a company. In short, it will help a company become self-reliant in its growth and less reliant on the availability of credit from financial institutions.

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About EMS Consulting Group, Inc.
EMS Consulting Group is a management consulting firm designed to create value for manufacturers, service providers, and product developers. Our clients include organizations from the industrial and consumer products, defense/aerospace, healthcare, biotech, and medical device sectors. Providing lean manufacturing and lean six sigma training. lean healthcare training, and lean manufacturing consulting services; we can help you achieve lower costs, improved productivity and quality, and decreased time-to-market.

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