The Lean Business System
&
Shortening the Time to Profit
A Conceptual Presentation Authored by
Max Harbert
Vision of Lean Business Model
“All we are doing is looking at the time line from the moment the
customer gives us an order to the point when we collect the cash.
And we are reducing that time line by removing the non-value
added wastes”
-Taichi Ohno
Easy!. . . Right?
Ohno Model Time Line
Order
Cash
Time
Vision of Lean Business Model
Ohno’s model is simple and easy to understand, but it does not communicate all
things necessary for collecting cash, and making a profit. Let’s add some detail, and
establish the idea of a Standard Business Timeline.
Standard Business Time Line
Inventory typically accumulates as a function of
economies of scale, and customer order size. This
type of thinking consumes working capital and
contributes to the creation of business cycles and
economic bubbles.
First, Let’s establish the duration of the
business timeline as the time between
the business decision to satisfy a
market demand, (t=0) and the time that
the business earns a profit.
Inventory
t=0
Order
Product Development
Manufacturing
Second, Let’s establish the activities that
fundamentally create value that the
customer is willing to pay for:
Product Development, Manufacturing,
Distribution, Warranty
Third, Lets Identify the bilateral
communication events between a business
and its customers after t=0, Order, Delivery,
Cash (payment), and Warranty (But we really
don’t want to hear from our customers during
warranty)
Distribution
Delivery Cash
Warranty
Orders can be placed at any time between t=0 and delivery.
Some businesses can collect cash prior to delivery, or at the point
of sale, Traditionally payment is made in the month after receipt
of goods.
Notice that Profit is not recognized in this model until all business
liabilities for the product have expired (think Volkswagon)
t=profit
Vision of Lean Business Model
Lean businesses Strive to produce one piece flow at the time and rate of customer
consumption.
Standard Business Time Line
ADJUSTING FOR JUST IN TIME (JIT)
When batch Manufacturing transitions to JIT a part
is made for every part delivered
This has a net effect of shortening lead time and
the time required to make real profit
Inventory
t=0
Order
Delivery Cash
t=profit
Inventory
Product Development
Manufacturing
Orders
Distribution
JIT Reduces inventory
decreasing working
capital, increasing ROI,
and Free Cash Flow
Delivery
Warranty
$$ Cash $$
Warranty
$$ Profit $$
Vision of Lean Business Model
JIT Time Line
Progressing to the Lean Business Model
t=0
• As the Lean Business model
progresses to ideal state, products
are developed and refined on
Inventory
shorter cycles.
Inventory
• This is a direct result of the
Orders
Product Development
weaving effect the Lean model
creates between customers and
Manufacturing
suppliers. (Foundation for PDCA
The manufacturing block can be
Loop.
replaced with services, or
Distribution
• The Lean model creates high
processes
and Inventory becomes
frequency interactions, and
work in process when adapting the
codependency, further reducing
modelDelivery
to service organizations.
the time to profit.
•
The Batch environment creates
Warranty
Warranty
point interactions, hostile
for price, and
$$ Profitbargaining,
$$
$$ Cash $$
adversarial relations regarding
warranty service.
Dt=takt time
• The Lean Model maximizes wealth
through strict monitoring of
margin, volume, velocity, and
customer feedback.
t=profit
Vision of Lean Business Model
Additional Leverage
t=0
t=profit
Inventory
Product Development
• Feedback from the customer
drives relentless improvements to
quality building brand equity.
• As Brand equity increases,
Warranties can be tapered due to
the strong reputation of product.
• Time to profit is further reduced.
Orders
Manufacturing
Distribution
Delivery
Warranty
Warranty
Warranty
$$ Cash $$
$$ Profit $$
Dt=takt time
Warranty