The Economics of Lean Production

Quality Digest has just ran my recent paper, The Economics of Lean Production (http://www.qualitydigest.com/inside/quality-insider-article/economics-lean-production.html)

A few additional comments to that paper are in order. First, lean adherents don’t like to position lean as a cost reduction exercise. Rather, they like to think of it as increasing a firm’s ability to add value. Yet, the economics of lean are truly grounded in improving profitability by reducing a firm’s average total cost of production, as my paper shows.

Lean adherents get confused by equating adding value with eliminating waste. reducing or eliminating the non-value adding activity in a process or system does not necessarily improve its ability to create additional value. Value is a strategic concept, not an operational one.

Secondly, I’d add that the danger with approaches like lean is that fundamentally every lean initiative is an attempt to copy what someone else (Toyota) has done. This goes against thinking, inquiry, and learning. The tools and techniques of the Toyota Production System (TPS) are solutions that Toyota developed to address a specific business problem. If you don’t have that problem, those tools and techniques may not be applicable in the same way as they were for Toyota.

Having said this, lean as a philosophy and set of principles is valuable – provided it is approached in the right way. Organizing your business around value and the capabilities needed to create value can point in the direction of appropriate lean tools to use. But let’s not confuse strategy and tactics.

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