Improve your bottom line – remove waste and pursue customer value

– By Academy Team

Our third tip last month read “Regularly review what you do. Remove unprofitable or outdated activities. Think lean in all that you do.” In this article, I intend to put some substance behind that tip. Thinking lean isn’t just about eliminating waste in your business- though it will do that and that will improve your bottom line – it is also about adding value to the very people who pay your wages, your customers.

Lean Thinking has been around for a while. It is generally accepted to have been developed within Toyota after the second world war and came to prominence in the West in the 80s and 90s after it was publicised by two influential academics – Professors James P Womack and Daniel T Jones of MIT in their book “The Machine that Changed the World, a study of Japanese car makers”. Professor Jones now runs the Lean Enterprise Academy based in Hertfordshire, UK.

Whilst developed at Toyota, Lean is applicable to companies of all sizes and types and is being used by them to cut cost and focus their customer offerings on true value. Smaller companies can make changes more easily and the benefits will come more quickly as a result.

Womack and Jones came up with five principles of lean. They centre around a focus on what will produce value for customers. They are

• Understand what adds value for your customer.
• Understand the value stream – how that value is delivered to the customer
• Make improvements to the flow of the processes that deliver that value eliminating bottlenecks and constraints as you do so
• Allow the customer demand to pull – creating value on demand and
• Drive for continuous improvement to those processes

Whilst originally conceived around manufacturing, it is possible to apply these principles to any form of product or service, including public sector and healthcare applications. In some applications, especially in service sectors, there may be multiple customers, so it is important to identify who the customer is and to be able to prioritise the potentially conflicting customer types in the process.

Lean offers the idea of there being key areas where waste arises in business. Waste is defined as “non value adding activities where business time and resource is tied up in what are unnecessary activities from the customer perspective”. Some of those activities translate directly to the bottom line when reduced or removed. Ask yourself the following questions (and act on the answers) –

• Are you producing more than is required?
• Are you holding more stock than is required?
• Can you produce on demand or reduce cycle times and produce less more often?
• Is time spent waiting for things to happen, finish or start?
• Can you organise your process flows better?
• Are you moving and handling materials and items more than is needed?
• Is there unnecessary movement of equipment and people in the process?
• Are you having to repeat tasks or correct errors? Can you get closer getting things right first time?
• Do you undertake activities that are not required

Dealing with the waste in the process follows these steps.

• Can you eliminate the process without affecting value?
• If it cannot be eliminated, can you reduce the size, cost or impact of the activity?
• Finally can you combine it with another activity and save time and effort on both?

Many commentators would now add an 8^th waste, – the waste of human talent. Are you playing your key people in the right positions? Do they – or you – find themselves working in roles and taking decisions that could be delegated?

Talking of delegation, much of the activity we are discussing here takes place at an operational level. It is unlikely to be something that the Chief Executive will do. However, the CEO has a role and it is vital to success.

Eliminating waste were it exists will save you money. Money that you can use to provide even better customer service and to expand the business to serve more customers. It is relatively easy to identify where changes can improve service. The people you employ know where they waste time and they can probably document the changes that are needed in your business right now. What they lack is the support and encouragement to go out there and make the changes happen. Change can be scary and it can cross boundaries.

Your role as CEO is to sponsor and encourage the elimination of waste in your business, publicly recognizing successes when they happen to encourage even more improvement on a continuing basis.

If this was only an exercise in waste removal, then it probably would pay for itself. Where it adds extra value is that by concentrating on what adds value to customers, you cannot help but add value for those customers. And, as we also discussed last time, happy customers give you more of their business and refer their network as well. So what starts as an efficiency exercise ends by delivering you more business and happier customers. What could you do today to start this process?