Most people think Lean processes are the same as cost cutting measures, but this is not correct! Understanding the difference between the two is critical. Lean processes eliminate waste from all aspects of operations while cost cutting focuses on reducing expenses. Let’s take a closer look at each:
· Delivers value to the customer
· Has a team centered approach
· Focuses on quality improvement
· Many small steps lead to big changes
· Focuses on continuous improvement
· Goal is to eliminate waste
· Focuses on the bottom line only
· Unilateral decision making
· Quality is rarely considered
· Targets large impact changes
· One opportunity to get it right
· Then what, if cuts were not effective?
The Effects of Cost Cutting
Consider the following scenario. A hiring freeze is implemented and new hires are not allowed. The loyal employees who remain fill in the holes while additional employees leave for other opportunities. Eventually, even the most loyal employees become dissatisfied and leave creating additional vacancies. The downward spiral continues.
Regular equipment maintenance is not performed in a timely manner in the cost cutting environment. Furthermore, complications occur when machines start to break. New equipment cannot be purchased because of spending freezes. Fewer products are shipped because of increased downtime. This ultimately leads to lost revenue.
Travel and training bans are becoming more common and attending conferences becomes less permissible. Training cancellations create a dearth of learning. Marketing and sales budgets are also curtailed, which impacts business development efforts. These tactics work for a short time on the balance sheet, but in the long-run they are more harmful than helpful.
Once these measures are implemented, a reduction in capacity eventually occurs due to fewer employees and poorly maintained or non-functioning equipment. Orders and shipments may be late or missed. Large customers may impose late fees or cancel their orders completely. Customers become angry and threaten to take their business elsewhere.
The sales team often counters by offering price breaks to stimulate product demand. Lower prices require further cost cutting measures. This new demand must be satisfied at a lower price further driving the need to cut costs. This ugly cycle can quickly bring a business to its knees.
What Happens When You Get Lean
Product quality improves because potential problems are identified before they can even occur. All resources are focused on producing quality products with maximum efficiency. Traditional manufacturing philosophies demonstrate little concern for cycle times and waste. Lean manufacturing philosophy focuses on creating greater production efficiencies by maximizing value-added activities and minimizing waste.
The elimination or reduction of waste occurs on all levels in a Lean operation. Where ever waste is identified, lean methods look to eliminate the source. Whether the waste is time, money inventory or motion all aspects of production are reduced to their most efficient forms. Reduced waste reduces costs and increases profitability.
Lean processes identify bottlenecks and wait times slowing the production process. Tools like value stream mapping identify the future state of production without bottlenecks. The goal is to be free of bottlenecks costing time and money. Efficient production reduces the need for excess inventory. Forecasting becomes easier and more reliable as a result.
Many differences exist between lean processes and cost cutting measures. Lean processes focus on efficient manufacturing improving quality and eliminating waste. Cost cutting seems like a desperate attempt to reduce spending to meet the bottom line. Once those cuts are made and the bottom line is still not realized Lean processes will be the only real option to pursue.
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