Lean Is About Adding Value...Not Cost Cutting

This article was co-authored with Ron Jacques.

Smart lean managers don’t ask how lean can help them reduce costs. They ask how lean can help them deliver more value to customers faster.

Much has been written about lean’s ability to help manufacturers cut costs. There’s no question that a manufacturer that has effectively implemented lean principles and methods will have lower costs than one that hasn’t. On the other hand, organizations that see “cost-cutting” as the primary goal of their lean initiatives are likely to fail. Implementing a successful lean initiative requires a significant investment; if the organization is looking for quick cuts in costs, it won’t make those needed investments. Successful lean implementations have as their primary goal just one thing: the creation and delivery of customer value. 

Add Value or Cut Costs?

Co-author Ron was recently asked whether cost reductions were the primary goal of any lean initiative. The person posing the question indicated that was how his own senior management viewed things.  

Ron's response was that customers don’t always place a high priority on cost. Rather, they’re most interested in getting value for what they pay. In fact, customers may be willing to pay a premium for the value they receive.  Lean is all about figuring out ways to increase that value to the customer. Lean practitioners do this by making the flow of material, information, and product smoother and quicker.

The Parable of the Lens Maker

Years ago, Ron worked for the maker of optical lenses. His company serviced smaller, local opticians and optical laboratories. The opticians and labs couldn't compete with “big-box” providers on price. Ron’s employer knew that the value it provided to its customers was personalized and trusted service, a quick turnaround time on orders, and reasonable pricing, in that order. 

Orders placed by east coast customers before 4 pm were shipped in time for receipt by 10 am the next morning. Those customers asked if they could place their orders later in the day (as late as 7 pm) and receive them even earlier the next day. Their techs started work at 7 am; having them idle until 10 am wasn’t efficient. 

Many suppliers would consider this demand to be beyond what they should be expected to deliver. Still, Ron and his team challenged themselves to develop an order fulfillment process that could meet their customers’ demands without being overly expensive.

The team found a private courier service that operated along the eastern seaboard, covering 90% of the company’s East Coast clientele. This courier service would pick up as late as 8 pm. (Their vans would go to New Jersey where they would sort orders and “cross-dock” in a parking lot!) The courier could reach all of the lens maker’s customers by 6:00 am the following morning, well in time for their 7 am starts.

Because of the added value, customers were happy to pay a premium to get their products delivered before the start of the shift. The lens maker’s customers saw their own revenues increase due to increased throughput and improved on-time delivery to their patients. Their operating costs decreased as they utilized their employees more efficiently. It was a win for both the lens maker and its customers.

But...Is It "Lean"?

But...Is It Lean?

Some might ask, “It’s not clear that waste was removed. No costs were removed; in fact, costs may have increased if the new courier charges more for its service. How is this a good example of ‘lean’?”

The premise of the question is wrong. The attention to “cost reduction” has managers thinking that lean is focused on getting rid of something that hurts the organization. The very nomenclature “lean” connotes “reducing” or “getting rid of”. It is our view that lean has been misunderstood in this country. Lean is about improving the flow of value to the customer. Anything that gets more value to the customer or gets value to the customer more quickly is “lean” even if cost is not reduced. (As this example shows, when manufacturers work with their customers to identify what they value, they may be able to increase their pricing.)

Smart lean managers don’t ask how lean can help them reduce costs. They ask how lean can help them deliver more value to customers faster.