For small and midsized businesses (SMBs), efficiency is crucial for success. SMBs operate with limited resources compared to their large-scale cousins, and wasting resources such as time, raw materials, and (obviously) money is simply not viable. One proven approach to achieving greater efficiency is through lean management. We're going to explore the principles of lean management and provide practical steps for SMB managers to implement these principles in their operations.
What is Lean Management?
Toyota's use of lean management has revolutionized business over the last 50 years.
Lean management is a system and method for minimizing waste within a manufacturing system without sacrificing productivity. The concept is derived from the Toyota Production System, which revolutionized manufacturing with its focus on reducing waste and improving quality. Lean management aims to create more value for customers with fewer resources by optimizing workflows, improving processes, and eliminating inefficiencies.
The core principles of lean management are:
Value: Define what is valuable from the customer's perspective.
Value Stream: Map all steps in the value stream and identify areas where waste can be eliminated.
Flow: Ensure that the value-creating steps flow smoothly without interruptions.
Pull: Produce only what is needed by the customer, reducing overproduction and excess inventory.
Perfection: Strive for continuous improvement in all aspects of the business.
Applying Lean Management Principles in SMBs
Define Value from the Customer's Perspective
The first step in lean management is to understand what your customers value. This might include high-quality products, fast delivery times, or excellent customer service. By clearly defining value, you can focus your efforts on activities that directly contribute to delivering this value.
Map the Value Stream
Mapping the value stream involves documenting all the steps required to deliver a product or service to the customer. This helps identify processes that add value and those that do not. Tools like value stream mapping (VSM) can be useful in visualizing these processes and pinpointing areas of waste.
Eliminate Waste
Waste, or "muda," is any activity that consumes resources without adding value. There are seven types of waste in lean management: defects, overproduction, waiting, non-utilized talent, transportation, inventory, motion, and extra processing. By systematically addressing these areas, SMBs can significantly improve their efficiency. For example, reducing excess inventory can free up capital and storage space, while minimizing motion can improve worker productivity.
Create Flow
Once waste is eliminated, it's important to ensure that the remaining value-creating steps flow smoothly. This might involve reorganizing the workspace, implementing standard operating procedures (SOPs), or using tools like Kanban boards to visualize workflow. The goal is to create a continuous and uninterrupted flow of work.
Implement Pull Systems
In a pull system, production is based on actual customer demand rather than forecasts. This reduces the risk of overproduction and excess inventory. SMBs can implement pull systems by using just-in-time (JIT) inventory practices, where materials and products are received only as they are needed in the production process.
Strive for Continuous Improvement
Lean management is not a one-time effort but a continuous process of improvement. Encourage a culture of kaizen, or continuous improvement, where employees at all levels are empowered to suggest and implement improvements. Regularly review processes, gather feedback, and make adjustments to drive ongoing efficiency gains.
The Story of Wood Works: Lean Management in Action
"We were literally able to watch our business become more efficient in front of our eyes"
-Brendan Harrison, WoodWorks
Let's take the case WoodWorks (name of company and employees have been changed), a midsized Georgia-based furniture manufacturer that produces wooden furniture such as tables and benches. WoodWorks has followed the path of many midsized businesses, growing from an after-work passion project in a garage to a well-known local manufacturer of furniture for hotels and restaurants in just over 10 years. Wood Works' pieces involve a great deal of hands-on craftsmanship from raw materials. Once coupled with rapid, unstructured expansion, this has created high production costs and long lead times.
"The process of creating wooden furniture pieces by hand is never going to be as fast or efficient as mass-producing furniture, but by applying lean management, we were literally able to watch our business become more efficient in front of our eyes", said Brendan Harrison, production manager and part-owner of WoodWorks. Brendan reports double-digit percentage improvements in delivery time without any decrease in quality. In addition, the efficiency improvements have helped decrease production costs and enable higher profit margins.
Here's a quick summary of how WoodWorks created a drastic shift in their business by adopting lean management principles:
Value Definition: WoodWorks identified that their highest-ticket customers valued high-quality products and quick delivery times above all else. They found their customers would gladly pay a premium for reduced and dependable turnaround.
"As craftsmen, we had incorrectly identified certain details as prime customer 'wants'", says Brendan. "It's like with any art or handiwork: there are some things that the artists thinks are important that most customers could care less about. We literally sat our craftsmen and customers down together and figured out what was important to us and the customer and what really wasn't so important. That gave us food for thought."
Value Stream Mapping: By mapping the production process, WoodWorks identified bottlenecks and areas of waste, such as excess inventory and unnecessary motion.
Waste Elimination: Implementing a 5S workplace organization method helped reduce clutter and improve efficiency. Additionally, switching to a JIT inventory system reduced excess stock and freed up working capital.
WoodWorks created a relationship with a Florida-based company that manufactures and warehouses table bases who effectively became their JIT partner; eliminating the production time needed for in-house table base production for large orders. It was important to WW that their partner was local and responsive, and that there were "backup" suppliers in place to avoid bottlenecks from supply chain issues.
Flow Creation: Reorganizing the production floor and implementing standard work procedures ensured a smooth flow of materials and work.
Pull System: Introducing Kanban cards allowed the company to produce items based on actual customer orders, reducing overproduction.
Continuous Improvement: Regular kaizen events and employee feedback sessions led to ongoing process improvements, further enhancing efficiency. "It's going to be important for us to continue receiving feedback from customers and employees alike. We're aware that although we're offering 'classic' products, peoples wants and needs change over time" chimed Brendan.
The Ever Given obstruction of the Suez Canal in 2021 amplified worldwide supply chain issues; many of which were caused by worldwide adoption of lean management.
Implementing lean management in small businesses, while beneficial, can comes with certain challenges. Initially, the process can be costly and time-consuming, requiring investments in training and potential reorganization. Small businesses are likely to face resistance from employees who are hesitant to change established routines and processes. This resistance can be mitigated by involving employees in the planning stages and clearly communicating the benefits of lean management. Additionally, there is a risk of focusing too much on cost-cutting, which could compromise product quality and customer satisfaction. Balancing efficiency improvements with maintaining or enhancing value for customers is crucial.
In addition, sustaining lean efforts over the long-term can be difficult, especially given the limited resources typical of small businesses. There is a tendency to revert to old habits if immediate results are not seen. Lean initiatives may also inadvertently overburden employees, leading to stress and burnout. It is important to monitor workloads and ensure that efficiency improvements do not lead to unrealistic demands. Simplifying the approach, providing ongoing support, and setting clear, measurable goals can help small businesses navigate these challenges and successfully implement lean management principles.
It's important to monitor employee workloads for stress when shifting to a Kaizen system.
Lastly, we would be remiss to not mention that adapting lean management principles without buffering for shocks is a proven way to play with fire. It's clear now that widespread adoption of lean principles was a exasperated many of the supply chain issues businesses faced in 2020 and beyond (remember the Ever Given issue in 2021?). This wasn't only thanks to delivery holdups, as was commonly reported at the time, but was a result of multiple businesses within the supply chain adapting JIT to save money, creating multitiered supply issues. For example, company A couldn't receive the raw materials necessary to make their consumer product because company B, their supplier, had no extra materials on hand. In addition company B needed a small component from company C to even begin processing their raw materials, and that component had to be manufactured from scratch. Businesses can mitigate by holding strategic inventory reserves of essential products or materials, diversifying their suppliers, and considering flexible supply chain strategies that will create agility.
Further Resources and Reading
The sum of this article is this: implementing lean management principles can transform small and midsized businesses by maximizing efficiency and reducing waste. Embracing lean management not only boosts productivity but also enhances customer satisfaction and drives long-term business success.
For further reading and resources on lean management, consider these sources:
