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04. Oct. 2018

Lean: Time Management vs. Cost Management

by Willie L. Carter

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Redesigning your organization around Lean thinking

What differentiates a lean-thinking organization from a traditional
one? Basically, the lean-thinking organization is grounded in the
answers to two simple questions: “What do my customers value?”
And, “What organization and work processes inside my company will
most directly deliver that value?” Answering these two questions
through a value-added perspective will help you determine how to

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Kaizen Blog - Lean: Time Management vs. Cost Management 5/19/20, 5:58 PM

structure your work, how to create and share information, and how to
measure the performance of the key elements of lean-thinking
organizational redesign.
The structure of work
Lean thinking demands that an organization look at work differently
than the traditional approach. Employees in Lean organizations think
of themselves as part of a linked chain of operations and decision-
making points that continuously deliver value to customers whenever
the customer requests it. In a Lean environment, people understand
how their work relates to the rest of the organization and to the
customer. They understand how work is supposed to flow, and how
to best utilize their time to minimize or eliminate nonvalue-added
activity—whether from policies, procedures, practices—so that it
does not slow down delivery to the customer.
Lean companies make the flow of work from start to finish visible to
all employees. They invest in this understanding with thorough
training and cross-training. Employees understand how policies and
procedures in one part of the organization influence work in other
parts.
The all-important metric in Lean thinking is time. A Lean organization
structures work for time reduction. Management concentrates on
flowing work continuously. By creating a smoother, uninterrupted
flow, a company can reduce the cycle time of the entire value stream,
thus increasing throughput capacity. Traditional organizations usually
manage only the cycle times of their bottleneck operations and
neglect the less obvious or hidden operations. These companies
allow decisions to pile up between phases, leaving open the
feedback loops that should customarily be closed. All of this
interrupts the flow of work and lengthens customer Lead Time. As a
result, time is wasted, and costs increase. Experience across both
manufacturing and service industries indicates that less than 5
percent of the total lead-time spent providing a product or service is
value-added.
Lean organizations consider where to place responsibility for results,
and how to co-locate or reposition people and resources to close the
white space common in big organizations. They think about
balancing the flow of work upstream and downstream, making
allowances for how changes in customer demand or product mix will
affect this workload balance.
Creating and sharing information
Lean thinking companies create more pertinent information and
data, and share it instinctively. A company seeking to respond
quickly to its customers creates fast response among its employees.

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Kaizen Blog - Lean: Time Management vs. Cost Management 5/19/20, 5:58 PM

Work of any kind, whether it’s in a financial services company or on

the shop floor, is essentially the same in terms of information
processing. People process and share information for the purpose of
taking actions. Then after seeing the results of those actions, they go
through the cycle again. These cycles of learning (creating
information, then acting, and acting again) are the heart of an
organization, and Lean organizations focus on sharing of information
to shorten these learning cycles.
Lean organizations work like a communication network, with each
process performing a particular task, and each sending and receiving
messages continuously. This communication network is usually
manifested in work cells—a group of interconnected employees co-
located to quickly cope with the variety and complexity of ever-
changing customer demand.
Traditional companies, however, instead of allowing the network to
speed up information flow, take the opposite approach in trying to
cope with variety and complexity. They rely more on adding
structure, which short-circuits the network. If, for example, new
technologies are emerging, traditional companies reorganize their
engineers by technology. If a product is becoming more complex,
and more employees are touching it as it moves through the
company, they will increase the number of formal control points.
And, when greater variation in the mix of orders shows up as these
companies try to increase product variety to the market, they
typically build inventories and add slack capacity into the system to
handle the overload.
All of this is costly and slows down the company, because additional
buffers and capacity are not the answers to meeting the demands of
the marketplace. In contrast, lean-thinking companies cope with
variety directly by building up their flexibility and capacity for
creating and sharing information.
Measuring performance
Lean organizations go back to basics when they decide how they are
going to measure and monitor performance. Time, throughput, and
team-oriented metrics are the most important performance
measures for the lean-thinking company. How do Lean companies
measure time? They follow two rules: keep the measure physical, and
measure as close to the customer as possible. Overall measures,
such as time from concept to launch of new products, or order Lead
Time, are good places to start. Lean organizations measure the cycle
times and Lead Times of all important activities. They start with cycle
times of major activities like new product development, or
conversion of raw materials to finished product.

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Kaizen Blog - Lean: Time Management vs. Cost Management 5/19/20, 5:58 PM

Time is more useful as a management tool than cost. Cost is, by and
large, a lagging indicator, a symptom, a set of accounting activities
after the fact. Cost is tracked through a set of accounts
corresponding to what money is spent on—payroll, inventory
holding costs, and so on. Some costs add value to customers, while
others are not value-added. Adding cost in the form of better-quality
raw materials for example, may add value to the customer, but many
overhead items like rework, inventories, or the cost of other idle
assets add cost but no value.
Managing time, on the other hand, opens up the organization for
analysis. Time is an objective measure of current flow, not a
calculation based on an accounting chart of accounts. A manager
can measure and quantify the flow of activities directly and ask with
respect to each whether it is value-added. For example, inventories
are idle materials, just as in-boxes contain idle information.
Reworking is doing something over. Holding up a decision because
of a delay in data arrival is response time lost. As these examples
demonstrate, time is a common, direct measure.
Time’s major advantage as a management tool is that it forces
analysis down to a physical level. Developing a timeline of activity of
what happened every hour of every day to an order, or to a project,
or to whatever you want to monitor, tells you exactly what goes on in
your company. Once physical activity is revealed, the right questions
can be asked: Why are these tasks done sequentially and not in
parallel? Why do we do this step twice? Why does this process work
only 50 percent of the time? Why do we invest resources to speed
this process up, and then let its output sit and wait on the next
process? Answers to these questions lead managers to where the
cost and quality problems of the company actually are.
Of course, all Lean companies use both time and cost measures.
Cost is the key to knowing financial performance and to controlling
the expenditure of resources. But looking at the organization
through a physical lens gives management more insight and power
to find ways to improve results than cost analysis typically can. In
most organizations the less time it takes to deliver a product or
service, the less it should cost.
Lean-thinking organizations reduce cost indirectly by squeezing time.
When a company attacks time directly, the first benefits achieved are
usually shorter cycle times, and faster inventory turns. Lower
overhead costs usually follow, as the cost of dealing with breakdowns
and delays begin to vanish. Lean companies know that if they reduce
time, they also reduce costs.
Conclusion

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Kaizen Blog - Lean: Time Management vs. Cost Management 5/19/20, 5:58 PM

The redesign of an organization in harmony with Lean thinking helps

it identify value and deliver that value to the customer without
interruption whenever the customer requests it. In order to deliver
this value, lean-thinking organizations must make the flow of work
from start to finish visible to all employees by investing in
comprehensive training and cross-training. A Lean organization
structures work to reduce time. Management concentrates on
flowing work continuously. By creating a smoother, uninterrupted
flow, they can reduce the cycle time of the entire value stream, thus
increasing throughput capacity. Lean-thinking companies create
more pertinent information and data, and share it instinctively. They
cope with variety directly by building up their flexibility and capacity
for creating and sharing information.
Time is a very important metric for lean-thinking organizations
because they know they can reduce cost indirectly by reducing time.
By attacking time directly, the first benefits achieved are usually
shorter cycle times, and faster inventory turns. This is usually followed
by lower overhead costs because the cost of dealing with
breakdowns and delays are minimized or eliminated.
This article (https://www.qualitydigest.com/inside/customer-care-
column/lean-time-management-vs-cost-management-
020518.html) first appeared online on May 9, 2018, at Quality Digest
(https://www.qualitydigest.com/), a Kaizen Institute Online partner.

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