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The purpose of Lean is not cost reduction

“The Lean Philosophy has been around for many years, but unfortunately it is not always understood, often because Lean is thought to be a cost reduction exercise. Nothing could be further from the truth,” said Mike Karle of Inform Consulting Group.

“The Lean Philosophy is fundamentally a continuous process of identifying, from the customer’s perspective, the value added and non‐value businesses processes, and then reducing or eliminating the non‐value adding activities, i.e. the extra time, labour and materials spent producing the product or service.

The non‐value adding activities are those that the customer doesn't value and doesn’t want to pay for, commonly called waste” added Mike.

The first stage of any Lean process analysis is to analyse the business process from the customer’s perspective, and then to categorise the various activities as:
•    value added components, i.e. those that the customer wants and is prepared to pay for
•    non‐value added components, i.e. what the customer is not prepared to pay for
•    necessary non‐value added components, i.e. those activities that are essential in any organisation to ensure it functions effectively, e.g. administration, accounts, planning, etc.

In the second stage, Lean tools are used to reduce or eliminate the non‐value added components. By reducing the non‐value added components (waste), capacity is increased.

“By increasing capacity, the organisation then has the resources to add greater Customer Value (VA), and/or increase Output. Cost reduction is a natural consequence of Lean, but not its purpose,” said Mike.


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