business management

Make Your Companies Leaner and More Profitable Using “Lean Manufacturing” Principles

Forget everything you know about kaikaku, pokayoke, and the tsurube system.
What’s that? You don’t know the Japanese terms for radical improvements, mistake proofing, and the system of working evenly despite interruptions?

No matter. Lean manufacturing experts delight in the history and language of the waste-eliminating work system pioneered by Toyota in post-World War II Japan, but home business owners can profit by understanding and implementing a few of its key principles.

Lean enterprise, as lean manufacturing has come to be known since its practitioners realized that waste drains time and money from all aspects of a business – not just the shop floor – is as much a way of thinking as a way of working. The first step is to re-think what you make or do from the point of view of the person paying for it.

“The problem all businesses have, including home-based businesses, is understanding what the customer wants,” says Beau Keyte, co-author of The Complete Lean Enterprise. “And what the customer wants isn’t always the same thing as what the business is good at providing.”

For example, no tax preparer wants a client to run the risk of an audit, but avoiding the IRS’s scrutiny isn’t the only thing a customer values. “Do they want to be bothered a dozen times to determine what a deduction is for or do they want to get everything taken care of in one visit?” asks Keyte. Naturally, customers want to make the unpleasant task of paying taxes as painless as possible. Accuracy is crucial, but ease is a big part of the customer-defined value of professional tax preparation.

When you know what your customer wants — and it’s a good idea to ask rather than guess — the next step is to create and deliver that value as efficiently as you can.

 Do It Fast And Do It Right
 When Shawn Smith came home to find hundreds of e-mails waiting for him one evening in December, 2002 after the online newsletter Daily Candy featured the stuffed characters he and his wife had been making and selling to friends for a year, the two decided it was time to try growing Shawnimals into a viable business. Since then, they’ve learned about doing work right the first time.
“We used to print out a pattern for each character and then trace around it by hand to cut the fabric,” explains Smith. “We cut wide to leave room for the seams. Later, when we were trying to figure out why we had to throw away 10 percent of what we made because of quality, we looked at the sewing machines, the designs, everything. Finally we saw that as we had traced around the patterns, we were off by up to a half an inch sometimes.” 

Now they’ve revised the process to cut several pieces from each pattern without inconsistencies, cutting mistakes to less than two percent. They also cut the cast of available Shawnimal characters down from more than 200 to around a dozen today. By keeping the designs uncomplicated — most characters are simple shapes with spare but expressive features stuffed and sewn so they’re nearly flat — they’ve been able to keep inventory low and use some shapes as a base for more than one character. 

The “fat” that lean enterprise eliminates is waste, or muda in Japanese. Taiichi Ohno, who pioneered lean at Toyota, defined seven types of waste: overproduction, waiting, transportation, motion, inventory, inappropriate processing, and defects. Not all of them are relevant to home-based businesses, but focusing on the ones that are can lead to dramatic improvements in efficiency. Shawnimals has successfully reduced the wastes of overproduction of characters, excess inventory, rework due to defects, and has introduced the lean concept of standardization in using a single pattern for multiple characters.

Megy Karydes runs World-Shoppe, an online retailer of fair-trade clothing, jewelry, home accessories and other merchandise. She began shipping her orders via UPS, attracted by the ease of integrating its services with her Yahoo Merchant Solutions e-commerce plan. Too many items, however, began coming back damaged. Now she’s switched to the United States Postal Service and returns are less than two percent of what’s shipped. The back-end cost of reprocessing orders and replacing merchandise is a key target any lean practitioner would go after, and Karydes has reduced the wastes of transportation and defects.

Let Customers Pull Demand; Don’t Push The Supply 
World-Shoppe is growing. Karydes started the business in August of 2004 and anticipated breaking even after four years. Current monthly sales of between $2,000 and $2,500 and a sales surge from a product appearing in Oprah Winfrey’s magazine put her on track to cutting more than a year off that time. But when businesses grow, some of the principles of lean seem counterintuitive and it takes a careful review of processes to avoid waste.

Karydes sends a card with each order that includes the customer’s name and a little about the background of the item. She used to print these cards when she packed an order, but now prints them in batches for when she and her husband do the packing and shipping in their basement.

“That’s natural,” says Keyte, “but it isn’t lean.” Pre-printing these cards may save time, but he wonders if that’s just because there were too many steps before. “She may be batching because set-up time is too high. Why doesn’t the card print out automatically when the order is processed?” Perhaps existing information could be integrated to eliminate even the extra mouse click or two printing entails.

Like standardization, decreasing set-up time reduces the waste of waiting, and it can apply to almost any area of a business. “How do you stay focused on tasks without getting interrupted?” Keyte asks. “Up to 30 percent of productivity can be lost due to interruptions. Getting the computer back up, remembering where you left off, all of those things add up.” He suggests scheduling to avoid this wasted time. “Promise yourself that from 3:45 to 4:15 p.m., you’ll do invoicing. Nothing else is more important during that time, so don’t answer the phone or do anything else.”

Always Get Better
Finally, lean enterprise seeks continuous improvement. You should always ask, “How can I do this better?” Look for activities that don’t directly add value for the customer and either streamline them or let someone else do them. It makes sense for a contractor to outsource billing and bookkeeping if those tasks take time away from revenue-generating activities. Consultants needn’t print and distribute their own training materials if it keeps them from seeing clients.

Make your business processes visual. Lean factories are replacing custom-designed inventory-tracking software with plastic baskets. When a basket’s empty, it goes to the next station to get filled. You can use color-coded folders or baskets instead of project management software when possible so that a project’s physical placement tells you what needs to be done next. Visual instruction and clues are at the heart of lean, because they help eliminate mistakes due to confusion and decrease skill and training needed to accomplish many tasks. 

“If you want to take a week off, can your cousin pick up where you left off or do you have to leave him 15 pages of instructions?” Keyte asks. After all, you’re not setting up a foolproof system for yourself. You’re setting it up for the next person you hire or for the person who’ll take over in an emergency. And in the meantime, you’ll be making it easier for yourself. HBM