Last Updated on March 12, 2024 by Lukas Rieder
Lean Management
Lean management refers to the totality of thinking principles, methods, and procedures required for the efficient operation of the value chain. As such, lean management supports the ideas and processes of holistic management advocated for in this blog.
Try to avoid waste everywhere
Through innovative changes in the value-added process, customer benefits can be increased while at the same time improving a company’s own cost position and competitiveness. All areas of the company should strive to achieve faster, safer, more cost-effective and standardized process handling while avoiding, or at least reducing, the wasting of resources.
Initially companies focused on lean production. However, since resources are wasted in all areas additional approaches have now been developed in line with the functional areas, such as lean sales, lean logistics, lean maintenance, lean development, lean administration and lean healthcare.
Waste is defined as the consumption of resources that does not create value for the customer or the company. Up to nine types of waste can be distinguished:
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- Overproduction: More units are produced than ordered by customers or by inventory planning.
- Circulating and warehouse inventories: All inventories take up space, tie up money, cost interest, lead to write-downs when they are no longer in demand or become obsolete. Often they are located throughout the whole production area.
- Transportation: Basically all transportation is waste. Only for logistics companies is transportation value-adding.
- Waiting and idle times: Machine downtime, unavailable personnel, stock transfers and waiting for work reduce efficiency and thus increase fixed costs.
- Unnecessary movements: These are mostly the result of impractical workplace design (including poor ergonomics), searching for documents, materials, supplies or information. They also do not add value.
- Inappropriate means and procedures: They are the result of unclear or incomplete orders or information, insufficiently maintained work plans, inappropriate tools, or insufficient training.
- Errors/rejects: These are largely the result of inadequately maintained systems or uncertainties in process flow, as well as quality deficiencies in input materials (raw materials).
- Non-utilization of employee knowledge: Employee skills, abilities, and application knowledge are insufficiently recognized and utilized.
- Demanding normal performance: Agreeing on objectives as results to be achieved and learning on the job, monitoring adherence to deadlines, encouraging employees.
The types of waste can be divided into obvious and necessary waste. The former are caused by the types of waste listed above. The necessary wastes do not generate any added value for the customers or the company but arise because regulations and specifications (mostly of an external nature) have to be fulfilled.
Less waste = higher profit
Lean projects increase productivity
By reducing waste in the direct value-added area as well as reducing necessary and obvious waste costs, profits increase compared to the starting position or, if demand is present, existing personnel and machine capacities can be better utilized while maintaining value-added costs, thus generating higher net revenues. In both cases the input/output ratio improves, i.e. productivity increases. Also, in both cases the company’s competitiveness increases because the better cost position allows it to cushion price cuts by competitors and still make a profit.
Lean management is therefore an indispensable element of sustainably successful corporate management.
To be able to plan the effects of lean management efforts and measure their success at the appropriate level, they must be represented in management accounting in terms of quantity, activities, capacity and monetary values.