2015-08-04 00:00:00Cash FlowEnglishThe Lean Manufacturing process applies to more than just physical manufacturing. Find out what it is and how to implement it into your...https://quickbooks.intuit.com/global/resources/row_qrc/uploads/2015/08/2015_7_27-small-am-lower_your_production_costs_understanding_and_implementing_lean_manufacturing.jpghttps://quickbooks.intuit.com/global/resources/cash-flow/lower-your-production-costs-implementing-lean-manufacturing/Lean Manufacturing to Lower Production Costs | QuickBooks

Lower Your Production Costs: Implementing Lean Manufacturing

6 min read

Lowering your production costs can be one of the best ways to increase revenue and make your company more profitable. It also allows you to maintain your current salary levels—or perhaps raise them—while limiting your worry about fixed costs.

One method that many product manufacturers use to lower their production costs is called lean manufacturing. This method of manufacturing aims to cut out the “fat,” or waste, associated with the manufacturing processes. In this case, waste is defined as anything that doesn’t add value to the customer. In this article, we’ll review the main principles of lean manufacturing and how you might implement it for your small business.

The Origins of Lean Manufacturing

Lean manufacturing was formally introduced by Japanese automaker Toyota in the early-to-mid-20th century, but the principles of reducing waste and increasing efficiencies are as old as the hills. To help address different types of waste, Toyota defines it in three broad categories: muda, muri and mura.

Muda is defined below, but basically refers to the seven identified types of waste associated with the lean manufacturing system. Muri refers to the changes that can be made to a process or system proactively, or within the initial design to eliminate waste. Mura refers to steps that might be taken retroactively or in response to the completion of a process when unforeseen waste is identified.

The Basics of Lean Manufacturing

Learning how lean manufacturing works begins with getting to know the seven distinct types of waste (muda) most commonly found in product manufacturing processes.

1. Overproduction

This type of waste is twofold. If a product is produced…

  • …that cannot be sold or must be sold at a reduced rate, it impacts the company’s bottom line.
  • …before a customer needs it, then money must be spent to store the product.

2. Inventory

Having excess inventory on hand means that additional money must be spent on storing it until it can be sold. It also means that money has been spent on supplies before there is any guarantee of a return on the investment.

3. Conveyance

Unnecessarily moving a part during the manufacturing process can cause undue damage to the part and also cause delays. Both constitute unnecessary costs.

4. Correction

This can refer to correcting work that has already been done, repeating a process or inspecting parts to make sure they have been manufactured correctly. The belief is that perfecting the preceding process should eliminate errors, which should increase efficiency and reduce waste.

5. Motion

This refers to the actual motions made by manufacturing workers. Processes or routines that contain awkward motions can cause stress on the body, leading to possible injury. It can also add unnecessary time to the process. Both of these are types of waste.

6. Processing

Having an unclear picture of what the customer wants—or what is needed to complete the process—results in waste.

7. Waiting

Delays in the manufacturing process waste time and cause workers to be idle. The idea is that the worker can wait on the machine to complete its process, but a machine should not have to wait on a worker to complete his or her process.

Benefits of the Lean Manufacturing System

For the most part, businesses that actually produce or manufacture products will benefit the most from implementing lean principles. It is possible, however, for service-oriented organizations to find value in the lean method by examining their own internal processes.

Being lean also espouses flexibility, which is an important tenet for any business aiming to eliminate waste. Flexibility allows for changes to the process within the normal workflow, making it possible to keep redundancies down and implement changes quickly.

To successfully implement lean practices, you must be adept at measuring your processes and outputs. Getting measurements to compare against each other can help you understand what is currently happening and how it could be improved—or better controlled in the future.

How to Implement Lean

The first and biggest hurdle for many in the manufacturing business is to reevaluate what they view as waste. Typically in the manufacturing world, waste is the label given to leftover scraps or unusable or defective products. While these are two of the areas of waste identified in a lean system, you need to recognize that the idea of waste encompasses much more.

One way to readjust your perception of waste is to focus on the specific steps that can be implemented to achieve a lean system. These steps typically are:

1. Design a Simple Manufacturing System

One of the tenets of a simpler system is the need to only use and handle product or materials when they are needed. This decreases the amount of inventory you need to keep on hand, increases productivity since workers are not juggling more product than they need and increases your process efficiency. If you can’t design a new one from scratch, you can also reassess your current system to make it simpler.

2. There Is Always Room for Improvement

This means that “good enough” must be stricken from your vocabulary. Remember that anything that doesn’t add value to the customer—not the product—should be labeled as waste and be eliminated or reduced. Chances are that there are always steps in the process that can be eliminated to reduce waste.

3. Improve the System Continuously

A mindset that values continuous improvement and innovation is essential to making the lean system work. By constantly evaluating and reevaluating internal and external processes and procedures, organizations can make large and small improvements in a variety of ways that will ultimately impact their bottom line.

While these three steps may seem (pardon the pun) simple, actually adhering to them is the easiest way to think and go lean.

Implementing the Five S’s

The next step of implementation involves the 5S system, named because each of the Japanese words begins with the ‘s’ sound. These are five specific areas that effectively prep your organization for the changes it’s getting ready to make, each of which makes lean implementation easier to do. The 5S methodology consists of:

  • Clearing, or Seiri: Getting rid of clutter in the workplace, ensuring you only keep what’s truly necessary.
  • Organizing, or Seiton: Once you’ve gotten rid of clutter, make sure that you organize your remaining tools and materials in the order of what you use most often. Make them easy to access.
  • Cleaning, or Seiso: This refers to the physical act of cleaning your area as well as cleaning up any chronic problems that need to be resolved.
  • Standardization, or Seiketsu: In order to maintain the first three steps, you need to integrate steps into your process that will force you to keep things cleared, organized and cleaned.
  • Discipline & Training, or Shitsuke: Training must be conducted at every level of the organization for smooth implementation.

Next, it is important to train all members of your organization in the principles of lean to ensure a successful implementation. Just as with any new process, everyone in the organization must be willing to commit to a new way of doing things. This is especially important for upper management. Managers lead by example and need to understand the changes being made in order to anticipate any problems. This way, they can help foster the process through the challenges it will face.

The implementation of lean manufacturing practices will take time, patience and commitment. The benefits your organization will reap from eliminating waste and recommitting to making products your customers value, however, will far outweigh this initial outlay of time and talent.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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