Portrait of warehouse managers and worker working together in warehouse office
Francisco Salvador
By: fsalvador
Read in 18 minutes

What is Lean Management? How Can You Apply It to Your Business?

An expert in lean management explains the principles of this philosophy in clear terms and how you can apply it to your small business to eliminate waste, reduce costs, and improve the quality of your products or services. 

 

The first time I heard about lean management and the Kaizen philosophy was when I worked at the second company I co-founded. It was the father of one of my partners, a former manager of General Motors in Spain, who brought up the subject.

It sounded so distant, so detached from my reality. Huge strategies for huge companies, not for an entrepreneur who was just making his way in the business world. I was totally wrong. That brilliant retired manager, one of our family advisors, made me realize that I was mistaken.

The first question he asked me was “Do you have any strategy to run your business?” It still sounded weird. Apparently, it wasn’t enough with intuition and the tireless workdays we needed to run my small auditing company.

“Without any strategy, there is no continuous improvement,” he said with a smile on his face. And he began to patiently explain to me what that “lean” thing was about. A lean business is a business free from everything that is unnecessary. It looked like an interesting principle at first, but it still seemed unnecessary to me.

“Continuous improvement is for all types of companies: small, medium and large. We all have to improve costs, quality, and service. We all need lean management.” These phrases remained etched in my memory. I was gradually captivated by his conversation.

Using the whiteboard of our office, he told me the story of the world-famous Toyota Production System (TPS) and untangled the well-known Toyota’s 14 principles. And most importantly, he related them to my small business. That is what I am going to do too. I am going to explain the theoretical aspects and apply them directly to your business, no matter how small it is.

But before going to practice, let’s get started and see the principles, values, and history of lean management.

Where Does the Term “Lean” Come from?

The word lean, applied to business, was first introduced in 1988 by John F. Krafcik, an engineer from the Massachusetts Institute of Technology (MIT), to refer to Toyota’s production system. He used this term together with one of his professors, James Womack, who led a study on the automobile industry (International Motor Vehicle Program).

5 million dollars were invested in this study, which was carried out between 1985 and 1990, to explain why Japanese manufacturers outdid the European and American ones.

Krafcik was the first American engineer hired by Nummi, the manufacturing site of GM and Toyota. This allowed him to gain first-hand knowledge of Toyota’s production system.

The History of Toyota

The Japanese family Toyoda had been in the textile industry since the beginning of the 20th century but decided to try their luck in the automobile industry in 1933. Kiichiro Toyoda, the son of the founder Sakichi, changed their last name and called the company “Toyota”. This Japanese name is easy to pronounce and write, and its 8 characters are associated with a lucky number in Japan.

They started their automobile business with an interesting philosophy: “zero defects”. Toyota meant to manufacture cars with zero defects and their employees would embrace that mission. Owners, managers, and employees would all work for a common goal.

What was the ideal situation? That equipment, facilities, and people would combine to add value without causing any waste. Kiichiro created the Just In Time (JIT) concept to avoid overproduction in processes.

His nephew Eiji (president since 1967) was the man who improved JIT and implemented the Toyota Production System (TPS) based upon on-demand production and upon customer’s request.

In simpler terms, with lean management, Toyota could produce more with less, more quickly than their competitors and they could have more earnings and pay better salaries to their employees than their competitors.

Producing more with less. Can you imagine what it is like to have a strategy for your business which allows you to produce or render your service by using fewer resources and space, saving time and making fewer mistakes? You can do it starting today, regardless of the size of your business.

What did Toyota gain with this?

  1. Producing a top-notch product at the right time and at the right place focused on value from the customer’s perspective.
  2. Production at the lowest cost possible, by removing processes or tools that mean an obstacle or an additional cost. Thus, unnecessary expenses or problems in the production process are avoided (we remove waste to get a “lean” organization).
  3. And just in the amount requested, on the lookout for continual improvement.

Respect towards people and continuous improvement are the two pillars of this method.

How Can I Apply This to My Business? The 14 Toyota Principles with Examples for Your Business

Before getting down to these principles, I recommend you to read The Toyota Way. It contains the 14 management principles from the world’s greatest manufacturer, by Jeffrey K. Liker.

The 14 principles are organized into four sections:

  1. Long-term philosophy.
  2. The right process will produce the right results.
  3. Add value to your organization by developing your people.
  4. Learning, problem-solving, and continuous improvement.

Section 1. Long-term philosophy (Principle 1)

Principle 1: “Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals

I always insist that we should have in mind the long-term benefits, although this may mean going through short-term losses sometimes. As an entrepreneur, I recommend focusing on your long‑term goals and on the combination of people, tools and necessary processes to make your small business work as an efficient system.

Have you visualized the people, tools, and processes that make up your business? Are you all clear about your goals and how to achieve them? You should devote some time to visualizing this on a map. Remember: if you visualize this, you will be able to identify what works and what should be improved. A goal setting plan can help you reach your goals.

Section 2. The right process will produce the right results (Principles 2-8)

Principle 2: “Create a continuous process flow to bring problems to the surface”

If you visualize your processes, you will be able to spot waste (muda in Japanese, “the unnecessary”).

Let me give you some examples of your business:

  1. How is your inventory doing? What products have you run out of and what do you have plenty of? How do you know what you need when you need it? How many times you stressed because you bought too much raw material… or too little? I encourage you to learn about inventory management for small business. The cash flow of your business will appreciate it. An accountant can help you with that and you could also use the best inventory management software for small businesses.
  2. Do you know your own talent and your team’s talent in depth? Do you know if you all are contributing as much value as possible? You know the processes better than anyone else. Therefore, you can improve them. Hold periodic process improvement sessions for yourself and for all your team too. Wasted talent causes holes in your business.

Principle 3: “Use PULL to avoid overproduction”

How does your business adapt to daily changes (sometimes unexpected) in customer demand? Remember that you need to build a deep relationship with your customers to bring the highest possible value, and that will only happen if you know your customer demand in-depth. Your customers should be part of your strategy. That is the only way to add maximum value.

Let’s say you have a bakery. How can you know which cakes you need to bake in larger quantities? By getting to know your customers like the back of your hand. And that involves a first step: talk to your customers constantly.

Principle 4: “Level out the workflow (Heijunka). Work like the turtle, not like the hare”

Are there times in your business in which you are overloaded with work, and others with no activity at all? Does your team alternate between stress and inactivity after a great effort? It is better to be a slow and steady turtle than a hare, which sprints and barely rests.

Go through the processes with your team and try to eliminate peak workflows. Always look for constant effort.

Learn more about time management here.

Principle 5: “Build a culture of stopping to fix problems, to get quality right the first time”

What do you do when you spot a problem? Do you keep going and put off solving it, or do you stop immediately and work it out? How do you smooth problems out?

I suggest that you and your team invest some time in daily problem solving and deal with any difficulties openly. If you take responsibility, you will be able to fix most of the problems from the get-go. As a result, quality will increase (remember what you read about “zero defects” above).

Stop whenever it is necessary. It is much better to stop and solve a problem than to face the consequences. The problem could take the proportions of an avalanche.

Involve your customers in problem solving: ask them for help frankly if your processes get stuck. They will appreciate it: they are the ones most interested in an improvement of your products or services.

Principle 6: “Standardized tasks and processes are the foundation for continuous improvement and employee empowerment”

Are your team and you clear about your work methods? How do you improve them? Can your team do it?

Whatever is standardized can be improved. I insist: draw your ideas, visualize them! If they are just in your mind, work methods will not be able to be upgraded and conveyed.

Principle 7: “Use visual controls so no problems are hidden”

Which visualization tools do you use at your company? If I were you, I would start exploring visual thinking. Having boards where you can visualize the processes of your business will help you improve them. I know it may sound difficult, but, if you are eager to learn, you will soon get the hang of it. Trust me.

Principle 8: “Use only reliable, thoroughly tested technology that serves your people and processes”

Technology helps us improve our work. Start by thinking which processes you do manually and then decide what technology can help you, and not vice versa. Do not search for technology and force it into your business.

Always ask your team how technology can add value to the whole company. If technology is not an ally or if it hinders your value, we should think about improving or replacing it.

On that note, you might want to learn about the best customer relationship management systems (CRM).

Section 3.  Add value to your organization by developing your people (Principles 9-11)

Principle 9: “Grow leaders who thoroughly understand the work, live the philosophy and teach it to others”

You are the leader of the business. Set a good example. Represent your values and be consistent with your philosophy. Look for leaders in your team who know the processes, the people and the tools, and trust them. They deserve it.

Principle 10: “Develop exceptional people and teams who follow your company’s philosophy”

Your team must behave in an exemplary manner. This applies to all the members of your company, with no exceptions. All of them (partners, suppliers, advisors, and customers) should work together and keep a transparent flow of communication.

Revise your internal and external communication. Think of how you can make it better. Ask everybody and do not take anything for granted. For some tips, I highly suggest you read the top 10 business Apps for internal communication.

Principle 11: “Respect your extended network of partners and suppliers by challenging them and helping them improve”

Help your suppliers. They also need to improve, just like you. Share with them your knowledge and experience. Have periodic improvement meetings with them. You will see the results. You are all in the same boat. Make the most of your time and call them!

Section 4. Learning, problem-solving, and continual improvement (Principles 12-14)

Principle 12: “Go and see for yourself to thoroughly understand the situation”

Do not let others tell you about the problems. Do not try to interpret them. Go and see the problem for yourself. Base your decisions on objective data, not on opinions and feelings. Help your team to do the same. Use data and only data!

Principle 13: “Make decisions by consensus, thoroughly considering all options, and implement decisions rapidly”

Once your team has weighed alternatives and come to a decision, act immediately. Do not wait.

How are decisions taken in your business? If I were you, I would analyze different decision‑making processes and adapt them to your business.

Principle 14: “Become a learning organization through relentless reflection (hansei) and continual improvement (kaizen)”

If you know where the failures of your business are (again, visualize processes!), you will be able to take measures to avoid making the same mistakes. You will constantly improve yourself and your business.

So What Now?

Are you still there? Are you horrified at the thought of having to do a long list of things to implement Lean Management? No need to stress out. You are a professional, eager to learn and apply what you learned to your business. Take one step at a time. Do not try to become a hare, act like a turtle.

At Camino Financial we are true to our motto: No Business Left Behind. We are here to add value to your business by sharing our experience and knowledge. I am an entrepreneur too and I once said “I don’t need either help or a strategy”, but I was totally wrong. I have learned my lesson and I know now that expert advice is a key factor on the road to business success.

Anyway, you should start by getting to know your business. Are your strategy and action plan visualized somewhere or on a chalkboard? Remember: Without visualization first, there is no possible improvement. You can do this:

  1. Define the philosophy and values of your company. Make them explicit.
  2. Visualize your work methods on boards and encourage your team, suppliers, customers, and advisors to improve themselves continually. The drawings are made to be used, not for decoration.
  3. Set slight improvements in costs, quality, and service. Keep them in time.
  4. Have a meeting with your suppliers, customers, advisors (read what a financial advisor can do for you), and all your team NOW. Get to know each other and talk about potential solutions. This is the first step if you want to improve yourself.
  5. Revise the 14 principles. I am sure that they will help you get a better picture of the improvements and help you need.

At Camino Financial we can provide your business with the funds it needs, but first, we need to get to know you. Moreover, one of our goals is to provide you with continuing education. That’s why we invite you to subscribe to our weekly newsletter. It contains valuable and free information to improve your financial performance and business management, so your company can grow and thrive.

 

 

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