Definition: A process for measuring, understanding, and improving the flow and interactions of

all related tasks in order to keep the cost, service and quality of an organization's products and
services as competitive as possible.

Definition of Lean Cost Management: An approach to financial measurement that makes waste
and the costs it creates visible, and hence actionable, wherever and whenever it occurs in an
organization.

Lean manufacturing is a methodology that focuses on minimizing waste within

manufacturing systems while simultaneously maximizing productivity. Lean manufacturing is
based on a number of specific principles, such as Kaizen, or continuous improvement.

The primary purpose of lean management is to produce value for the customer through the
optimization of resources and create a steady workflow based on real customer demands. It seeks to
eliminate any waste of time, effort or money by identifying each step in a business process and
then revising or cutting out steps that do not create value. The philosophy has its roots in
manufacturing.

Lean management focuses on:

Defining value from the standpoint of the end customer.
Eliminating all waste in the business processes.
Continuously improving all work processes, purposes and people.

Difference b/w lean manufacturing and lean management: Lean

management and manufacturing deals with 2 different segment. Lean manufacturing refers
to a manufacturing process where a minimum amount of waste is generated. Lean
management, however, is to tweak minute points in an organisation's management policies for
better efficiency and quality production

Five critical success factors for implementing lean programs

Two out of three lean programs fail to achieve their initial objectives. My latest
research asked 432 practitioners from 83 factories in two multinational
corporations what they see as critical factors for succeeding with lean
implementation. The research summarized five critical success factors for
implementing lean programs that managers must get right. Is your organization on
track?

#1 Commit to the lean program

It is beyond question that practitioners think that managerial commitment is

the most important success factor—irrespective of differences in plant size,
corporation, location and other factors. But it is not enough to just “lead
from the office;” the managers must also participate personally on the shop-
floor. This involves ongoing communication, listening to suggestions and
questions from employees, and explaining why lean means change for the
better.
#2 Train the workforce

A second critical success factor is to provide training and education in lean

production for the whole workforce. Without knowledge in lean, a plant is
not likely to succeed with its implementation. Importantly, managers are
the first who need training and education. Learning by doing is a superior
way to learn, but requires local coaching by trained managers or staff. In
the early stages of lean implementation, external consultancy firms or
internal corporate resources can help build the needed knowledge. Another
quick way to learn is to benchmark other organizations that have
implemented lean. On the whole, accumulating local knowledge is
considered much more important than the continued use of consultants.
#3 Have a plan and follow it up

A third critical success factor is to have a plan and follow it up. Perhaps a
good idea is to have a proper lean program in the first place, and a vision of
where you want your organization to be. The plan should be broken down
into defined steps. Clearly defined performance targets should be set and
monitored. Regular meetings must be held in order to follow-up the
implementation of specific projects. Managers must seek to integrate lean
in everyday business, rather than run it as a separate, temporary project on
the side of operations.
#4 Allocate resources and share the gains

Allocating the necessary resources to assist implementation and then share

the gains with all employees is also critical for success. It is difficult for
organizations to turn lean without a coaching and supporting local “lean
team,” or a distributed task force in the organisation. It is also necessary to
dedicate a budget for the transformation. Gains won through improvements
should be shared. Reward and recognition schemes can be effective in the
early stages, but managers should take care when designing reward and
recognition schemes because the effects of such schemes seem particular
sensitive to differences in cultural traits.
#5 Use lean tools and methods

Finally, the application of lean tools and methods is important. The specific
lean tools and methods most frequently mentioned in the survey were waste
reduction, visualization, problem solving, team concept, continuous
improvement, daily management, value stream mapping, and 5S. These are
all well-known methods from the lean production philosophy. Tools and
methods are effective and necessary for succeeding with the
implementation of lean in a plant, but they are not sufficient on their own;
the four other success factors must complement the tools and methods.

Applying lean manufacturing to your business operation:

The term “lean manufacturing” means different things to different people. However, it can generally be
agreed upon that lean manufacturing represents a management philosophy that emphasizes the
elimination or reduction of waste in order to increase company profitability. In other words, doing more
with less.
Lean manufacturing is often associated with the Toyota Production System (TPS) that helped catapult
the car-maker into worldwide prominence. But some industry experts trace its roots back to the
Industrial Revolution and Eli Whitney’s systemization involving interchangeable parts. Others link lean
manufacturing with the Six Sigma set of practices designed to improve processes. In any event, the TPS
is often cited as a successful model for implementation of lean manufacturing principles.
Keeping that in mind, consider the following eight steps for applying lean manufacturing to your
business operation:

1. Start by eliminating waste. This is one of the core principles of lean manufacturing.
Typically, you may use a value stream analysis to identify wasteful activities occurring at the
plant. At the same time, you can intensify efforts to find more efficient ways to add value to
the company’s product line. (See right-hand box for examples of waste.)
2. Reduce unnecessary inventory. The cost of maintaining excess inventory generally
outweighs the potential benefits you might realize. It can tie up resources, slow down
response time and complicate quality-control issues. Overstocking may become particularly
problematic if some of the inventory eventually becomes obsolete-which is often the case.
3. Shorten production cycles. What used to take days or even weeks to complete can now
often be accomplished in a matter of hours. Utilize the technological capabilities currently at
your disposal. Disciples of lean manufacturing preach the production of small batches where
you can add “bells and whistles” to later product versions.
4. Speed up response time. For years, manufacturers emphasized the need for making
accurate forecasts of market requirements. However, this is not always the optimal approach
in a fast-paced environment. Alternatively, it may be preferable to develop a system that can
react swiftly so you can capitalize on market changes.
5. Ensure that all product components have been quality-tested. Develop testing
procedures and controls at several check-points in the process to detect problems at the
earliest possible stage. Fine-tune the system to identify problems, make the necessary
corrections or improvements and move forward.
6. Extend employee autonomy. Give more employees authority to make decisions and
provide them with the tools and methodology for doing so. You can take this step even
further by establishing teams to measure work progress and improve techniques.
Frequently, companies find that viable solutions may be presented by employees below the
management level. Plus, this kind of involvement can improve morale and performance.
7. Solicit customer feedback. After developing core product features, use a systematic
approach for obtaining input from customers. The system should be designed to adapt to
changes over its lifespan. Taking this step can enable you to satisfy customer needs within
your basic framework
8. Reach out to suppliers. When it is appropriate, make suppliers “partners” in the lean
manufacturing process. By combining cooperation from suppliers with implementation of
lean manufacturing principles, benefits can be realized by all parties. This also helps
strengthen existing relationships vital to your manufacturing operation.

Five principles of lean manufacturing or five lean principles:

1. Identify value from the customer's perspective. (Or another heading can be: Define Value)
Value is created by the producer, but it is defined by the customer. In other words, companies need to
understand the value the customer places on their products and services, which, in turn, can help them
determine how much money the customer is willing to pay.
The company must strive to eliminate waste and cost from its business processes so that the customer's
optimal price can be achieved at the highest profit to the company.
(To better understand the first principle of defining customer value, it is important to understand what
value is. Value is what the customer is willing to pay for. It is paramount to discover the actual or latent
needs of the customer. Sometimes customers may not know what they want or are unable to articulate
it. This is especially common when it comes to novel products or technologies. There are many
techniques such as interviews, surveys, demographic information, and web analytics that can help you
decipher and discover what customers find valuable. By using these qualitative and quantitative
techniques you can uncover what customers want, how they want the product or service to be
delivered, and the price that they afford).
2. Map the value stream. This principle involves recording and analyzing the flow of information or
materials required to produce a specific product or service with the intent of identifying waste and
methods of improvement. The value stream encompasses the product's entire lifecycle, from raw
materials through to disposal.
Companies must examine each stage of the cycle for waste -- or muda in Japanese. Anything that does
not add value must be eliminated. Lean thinking recommends supply chain alignment as part of this
effort.
(The second Lean principle is identifying and mapping the value stream. In this step, the goal is to use
the customer’s value as a reference point and identify all the activities that contribute to these values.
Activities that do not add value to the end customer are considered waste. The waste can be broken
into two categories: non-valued added but necessary and non-value & unnecessary. The later is pure
waste and should be eliminated while the former should be reduced as much as possible. By reducing
and eliminating unnecessary processes or steps, you can ensure that customers are getting exactly what
they want while at the same time reducing the cost of producing that product or service).
3. Create flow. Eliminate functional barriers and identify ways to improve lead time to ensure the
processes are smooth from the time an order is received through to delivery. Flow is critical to the
elimination of waste. Lean manufacturing relies on preventing interruptions in the production process
and enabling a harmonized and integrated set of processes in which activities move in a constant
stream.
(After removing the wastes from the value stream, the following action is to ensure that the flow of the
remaining steps run smoothly without interruptions or delays. Some strategies for ensuring that value-
adding activities flow smoothly include: breaking down steps, reconfiguring the production steps,
leveling out the workload, creating cross-functional departments, and training employees to be multi-
skilled and adaptive).
4. Establish a pull system. This means you only start new work when there is demand for it. Lean
manufacturing uses a pull system instead of a push system.
With a push system, used by manufacturing resource planning (MRP) systems, inventory needs are
determined in advance and the product is manufactured to meet that forecast. However, forecasts are
typically inaccurate, which can result in swings between too much inventory and not enough, as well as
subsequent disrupted schedules and poor customer service.
In contrast to MRP, lean manufacturing is based on a pull system in which nothing is bought or made
until there is demand. Pull relies on flexibility and communication.
(Inventory is considered one of the biggest wastes in any production system. The goal of a pull-based
system is to limit inventory and work in process (WIP) items while ensuring that the requisite materials
and information are available for a smooth flow of work. In other words, a pull-based system allows for
Just-in-time delivery and manufacturing where products are created at the time that they are needed
and in just the quantities needed. Pull-based systems are always created from the needs of the end
customers. By following the value stream and working backwards through the production system, you
can ensure that the products produced will be able to satisfy the needs of customers.)

5. Pursue perfection with continual process improvement, or kaizen. Lean manufacturing rests on the
concept of continually striving for perfection, which entails targeting the root causes of quality issues
and ferreting out and eliminating waste across the value stream.
(Wastes are prevented through the achievement of the first four steps: 1) identifying value, 2)
mapping value stream, 3) creating flow, and 4) adopting a pull system. However, the fifth step of
pursuing perfection is the most important among them all. It makes Lean thinking and
continuous process improvement a part of the organizational culture. Every employee should
strive towards perfection while delivering products based on the customer needs. The company
should be a learning organization and always find ways to get a little better each and every
day.)

Difference between traditional manufacturing versus lean manufacturing:

Traditional Manufacturing Lean Manufacturing

Production driven by a sales forecast (Push). Production is driven by customer demand;
items are only produced when an order is
placed (Pull - one of the 5 principles).

Problems are viewed as just that, problems. Problems are viewed as opportunities for
improvement often through root cause
analysis.

Work in process (WIP) is viewed as a normal WIP is a sign that a process needs to
part of operations. improved and is considered a type of waste
that should be reduced or eliminated (the
same is true for inventory).

Improve system (disregarding all of the types Improve system by 1) Eliminating waste and 2)
of waste in the process). Improving current processes.

Management is the primary driver of change. Everyone is empowered, trained in the

principles of lean and encouraged to look for
ways to improve processes.

If a process is working (if it ain't broke) don't fix Always look for ways to improve processes.
it.
 Standardized work (people performing the Everyone performs the same task the exact
same task the same way) only exists in same way until a better way is discovered;
documents like SOPs, rarely in reality. then everyone performs the task the new and
improved way.

Focuses on training and relies on people to Focuses on building processes that are error
not make mistakes. proofed (a person cannot make a mistake or it
would be difficult to do so).

Systems thinking (views the organization as a Views the organization as a series of

whole), often ignoring or unable to see the interrelated processes that can and should be
enormous opportunities for improvement. improved.

Benefits and drawbacks of Lean Cost Management:

Originating from the Japanese automotive industry, lean manufacturing

has made a name for itself and revolutionized manufacturing around
the world. This method of manufacturing is able to efficiently optimize
production within your facility through waste minimization and
production time reduction. Before implementing lean manufacturing
into your production facility, analyzing the advantages and
disadvantages of the system is a must.
Advantages of Lean Manufacturing
 Waste Minimization - Arguably the most significant benefit of the system, lean
manufacturing can efficiently minimize waste within a production facility. As companies
sit on large sums of inventory and waste, this process eliminates outdated or aged
inventory. Along with waste minimization, the process also reduces cost within the
operation as well.

 Enhanced Customer Relationships - Instead of solely focusing on the needs of all

consumers, lean focuses mainly on loyal consumers. This is how you are able to build
strong and reliable relationships with trusted customers and keep a steady flow of
revenue coming in.
 Lean Infrastructure - A lean infrastructure means only dealing with several
components: building, tools, supplies, equipment, and labor to fulfill near-term
inventory demand. The facility does not waste any space within the operation and
enables the facility to come as close as it can to production efficiency.

Disadvantages of Lean Manufacturing

 Equipment Failure - Lean has very little room for error. Equipment or labor failure can
lead to major inconsistencies within lean and can make the entire operation fall behind.
In other mass production facilities, employees could just move over to another machine
if one went out. In lean, there are not many other places for employees to move to,
because everything within the operation is being utilized.

 Delivery Inconsistencies - In correlation with equipment failure, this drawback in

production enables delivery inconsistencies. This disadvantage of lean can hinder
customer relationships, push consumers toward competitors, and cost you revenue.

Lean Manufacturing Pros and Cons:

Many managers of manufacturing companies face the challenge of determining whether to employ
Lean Manufacturing or Mass Production methods in their processing plants. While most of them
prefer lean manufacturing, it is important to consider its benefits and drawbacks in order to make an
informed choice.

Introduction to the phenomenon

Lean manufacturing is an approach that seeks to produce tailored products that suit the actual
demand from end users. Companies eliminate waste by using less effort and manpower while
producing quality items. The idea aims at less manufacturing space, less storage space and fewer
tools and equipment.

It deviates from the phenomenon of mass production of goods for storage in warehouses. Since
the idea saves costs of storage management and losses incurred when goods do not move, its
popularity has greatly grown over years.

PROS
It saves costs
Whether your business or company is small or large, your biggest aim is to manufacture quality
products at the least possible cost. You will achieve this with lean manufacturing solutions, such as
the WinMan ERP software. You will not only save the space for storage, but also arrive at reduced
raw materials.
It saves time
Employing efficient machinery to produce larger amounts of products reduces time spent. Although
this can be a demerit to your workers, it is an advantage to your business. With less time required to
accomplish the same task, you can dismiss several employees and maintain a lean workforce.

It saves on cost of fuel

Lean manufacturing implies that you will invest in more energy-efficient machines and equipment. In
addition, the saved time means you will run your machines for fewer hours than before. This
translates to huge savings on fuel and electricity. In addition, eco-friendly machines save you the
cost of air conditioning.

Easier monitoring
The implementation of Enterprise Resource Planning solutions such as WinMan ERP software seals
all loopholes of wastage. You will monitor your company functions easily. In fact, with mobile
integrated solutions, you can do so at the comfort of your car or living room.

Improved customer relationship management

The lean functions of a manufacturing department can positively influence a company’s relationship
with its customers. Since it ensures your goods are always available, you will establish and maintain
a healthy relationship with end users. At the same time, the supply of raw materials is efficiently
controlled.

Other advantages of lean manufacturing include:

 Less interruptions
 Increased sustainability of the business
 Pleasant working atmosphere

CONS
Negative perception by staffs
As lean manufacturing emphasizes efficient human resource management, your workers may feel
frustrated. Since you aim at using less manpower, workers may be against it. More importantly, do
not place the burden to cut costs entirely on them. Instead, lead by example. Implement the lean
strategy across all departments in your company. For the change to be well effected, it must gain
support from everyone affected.

Unbalanced economies
As you implement the strategy, be careful not to go to the extremes. For example, you may import a
machine that manufactures double the number of products that you currently make in a day. From
the look of it, the machine seems to cut costs of production. However, the finished goods will go to
waste if you lack demand for them.
Conclusion
The operations of the lean strategy should be so balanced and reasonable that your company does
not become counterproductive. Evidently, the pros for lean manufacturing surpass the cons,
making it an ideal approach to modern manufacturing.

Lean Production:

Advantages Disadvantages

 Lead times are cut.  The business may struggle to meet orders
if their suppliers fail to deliver raw
 Damage, waste and loss of materials on time.
stocks/equipment are lowered.
 The business is unlikely to 'bulk buy' its
 A greater focus on customer needs. raw materials and, therefore, it may lose
the benefit of achieving economies of
 Improved quality through the introduction scale.
of kaizen and quality circles.
 Buffer stocks are minimal and this may
 Lower costs and contribute to improved lead to the business having to reject
profits. customer orders requiring delivery
 Staff are more involved and potentially immediately.
more motivated.  Equipment failure: Lean has very little
 Working environments are safer and room for error. Equipment/labor failure can
cleaner. make entire operations fall behind.

 Enhanced customer relationships: Lean  Delivery Inconsistencies: In correlation

focuses only on loyal customers instead of with equipment failure less stock of raw-
all because of which they are able to build materials, etc. this drawback in production
reliable relationship and keep a steady enables delivery inconsistencies which
flow of revenue coming in. can hinder customer relationships push
customer towards competitors & cost your
revenue.