UNDERSTANDING BUSINESS BENEFITS
It is
very important that senior management recognises the business benefits of lean
and how they relate to the overall business strategy. Depending on a particular
business model, excellence in operations can be either a driver for business
strategy or a prerequisite for that strategy, see figure 24. Lean manufacturing
is a driver for business strategy when acquired excellence in operations
produces a strategic advantage. An example can be in a mature market where one
company develops the capability to manufacture and convey a product
Just-in-Time. This gives the company a distinct advantage over its competitors,
so a strategic advantage may result for the company. Lean manufacturing is a
prerequisite for business strategy if excellence in operations is required for a
company to maintain its competitive position. An example is a firm that draws
its demand from internet sales and has little forward visibility of customer
demand. Thus, the manufacturing system must be as lean and flexible as possible
to satisfy the customer demand.
Either
acquired or necessary, excellence in operations enhances overall business
strategy and helps increase the overall profitability of the business. The
profitability increase is realised through:
·
Tangible business benefits
·
Intangible business benefits
Tangible business benefits
The tangible business benefits of the lean transformation can be grouped into
Quality, Cost and Delivery.
·
Quality
-
Increased yield from processes. Defects are detected and
solved at their source, rather than just being detected at downstream processes.
- Reduced scrap and rectification costs. Material and
labour requirements are limited through increased yields of individual
processes.
·
Cost
- Higher return on assets. Asset intensity is reduced as
space and transportation requirements should diminish. Also, equipment is
right-sized to maximise value-added work, often extending the life of the
investment beyond its original book value.
-
Improved cash flow. The number of inventory turns should
increase through the introduction of a pull system, which prevents
overproduction and links production to actual customer demand.
-
Reduced conversion costs. Improved yields and a continual
focus on increasing value-adding work for an operator reduces these costs.
Also, the number of indirect or peripheral activities necessary for production
should diminish.
·
Delivery
- Shortened, more consistent Production lead time. A Quicker
response to changes in customer demand and the ability to guarantee delivery
schedules.
-
Increased flexibility in operations. The efficient use of
manpower can easily adapt to changing volume and product variety fluctuations.
Intangible business benefits
·
Increased rate of continuous improvement
- The company should become committed to the ongoing identification and
elimination of waste as a way of life, consistently reducing product cost.
·
Strengthened problem solving skills
- Previous recurring problems should be eliminated as the company begins to
attack the root cause of problems.
·
Improved customer satisfaction
- The greater fulfilment of Quality, Cost and Delivery benefits can help
foster customer loyalty.
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