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Show Me the (Hidden) Money

Written By: Gabriel Gheorghiu
Published On: September 23 2009

Did you know that there is hidden money in your company? No, not in the safe, nor in some secret vault that you can access by pressing on a brick in the wall—it’s in your operations. At the 2009 APICS International Conference and Expo preview webinar series (session 4), Nicholas M. Testa (CEO Acuity Consulting Inc.) tried to answer the following questions concerning your company’s hidden money: How can you search for it? What tools can you use? How can you get results?

The answers to all these questions have something in common—the concept of lean manufacturing. Describing lean manufacturing is out of the scope of this blog post but I will share with you how Mr. Testa thinks you can find your company's hidden money using lean concepts.

In Mr. Testa’s opinion, the recent economic downturn is consumer driven, which means that people buy less, and therefore companies sell less. In the supply chain, the farther you move away from the customer, the worse it gets—here’s an example:

•    People buy fewer cars.
•    Car manufacturers produce less and will buy fewer components from suppliers.
•    Suppliers will make fewer components, therefore buy fewer raw materials.
•    Raw materials suppliers sell less, so mining and quarrying companies extract less.

Mr. Testa also mentioned that in order to respond to the challenges of the economic downturn, companies will have to adopt lean measures such as getting rid of non-essential inventory (which reduces storage costs), improving equipment and assets (when customers will start buying again the economy will improve), investing in people (training existing employees rather than hiring new personnel), and implementing lean tools (Theory of Constraints, Six Sigma, and value stream mapping).

(Re) thinking business processes and going lean is important during a time of crisis. Low levels of activity in a company allow management to review the way the company functions. This can improve work processes and reduce waste, and therefore reduce costs. Defining how much you really need to produce—depending on your customer’s needs—will allow you to understand how many components or raw materials you need from your suppliers. This will have a positive impact on the entire supply chain, starting with the customer, who will get better quality products and services, and ending with the last supplier in the chain, which will not produce more than it can sell.

Though not mentioned in the webinar, here are some challenges companies are faced with when trying to go lean:

•    Lean know-how is everywhere, yet very few people know what to do with it. There are hundreds of books on different lean methodologies, but the step from theory to practice seems impossible for many companies.
During a crisis, companies reduce personnel and struggle to survive, but when they recover, they are too busy to think about getting lean. Is it a Catch–22 or just an excuse?
•    Sometimes people think “why would I improve my processes and invest in people and equipment, when I can outsource everything and make more money?”
•    Long term vision is not something you should expect from end users. I often meet people who tell me that they are not paid to think, that they just “work there”, etc. This can work as an excuse for regular employees who fail to see the big picture but a manager without a vision has no excuse.

There is much more to say about lean, its challenges, and the tools to implement it. One of the learning paths of the 2009 APICS International Conference and Expo is all about lean. If you cannot attend, follow our blog posts because we’ll be there and we will surely have many interesting things to write about.
 
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