Mar 2 2016
“It seems to be popular these last years and more recently to explicitly state that Lean is not (only) about cost reduction or cost cutting. See the recent posts by Mark Graban or Matt Hrivnak. So let me be somewhat controversial in this post (which I think is allowed to spark the discussion) and drop a bombshell: I think Lean is about cost reduction.”
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Michel Baudin‘s comments:
I know that much of the TPS literature is about “reducing costs,” but it never includes any discussion of money! Ohno is even quoted as saying “Costs are not there to be measured, but to be reduced.” On the face of it, it makes no sense, because cost is an accounting term intended to represent the monetary value of all the resources spent to achieve a result.
You convert the quantities of materials, energy, outsourced services, labor, machine time, transportation, etc., into money so that you can add them up. There are many different ways to do it, particularly when it comes to allocating resources that are shared or used over time, and plenty of arguments about which one is “right,” but the intent is always the same. And whenever you talk about reducing cost, it means making these amounts of money smaller.
But the TPS authors never discuss it in this fashion, which tells me that they mean something different when they say “cost.” The main reason we should never say that Lean is about cost reduction is that, just about anywhere other than Toyota, it will be immediately misunderstood as cutting every department’s budget by 5%, or similar measures.
I see the point of eliminating waste as concurrently improving all dimensions of performance. You cannot boil a process down to just what physically changes workpieces. There are plenty of necessary steps that don’t and they are not waste; overproduction, overprocessing, waiting, unnecessary stocks, etc., are unnecessary. Eliminating them makes no dimension of your performance worse, that is what makes them waste.
If improving your performance in terms of lead time, delivery, quality, safety, and morale does not translate to reductions in cost, there is something wrong with the way your accounting system keeps score.
In the discussion, Rob expressed surprise that I “evaluate something to be waste only if when you take it out it doesn’t deteriorate performance.” and added: “There are plenty of activities that are necessary and that you can’t take out but that are still waste.”
The Japanese word we translate as “waste” is muda, which strictly means “unnecessary.” And, if something is unnecessary, by definition, you are no worse off without it. In manufacturing, an activity is unnecessary if, and only if, no dimension of performance goes worse when you stop doing it.
If you look at all the listed categories of waste, they fit this criterion. On the other hand, I see no point in branding as “waste” something that you have to do anyway. Revision management in technical data does make a single hole in a piece of metal, but it can’t be dispensed with no matter what. So I am not going to tell the people who do it that it is waste!
I see all the discussions identifying “value added” with customers’ willingness to pay or physical transformation of materials as creating confusion. The only thing that matters is whether an activity is necessary or not. If it is, you must be effective and efficient at it; if not, stop doing it.