The Lean Business System & Shortening the Time to Profit A Conceptual Presentation Authored by Max Harbert

Time Ohno Model Time Line 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 Order Cash Easy!... Right?

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. Order t=profit Delivery t=0 Standard Business Time Line Product DevelopmentManufacturingDistributionWarranty Cash 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. 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) Notice that Profit is not recognized in this model until all business liabilities for the product have expired (think Volkswagon) 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. Inventory 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.

Vision of Lean Business Model Lean businesses Strive to produce one piece flow at the time and rate of customer consumption. Order t=profit Delivery t=0 Standard Business Time Line ADJUSTING FOR JUST IN TIME (JIT) Product DevelopmentManufacturingDistribution Warranty Cash Inventory Delivery Orders $$ Profit $$$$ Cash $$ Warranty Inventory 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 JIT Reduces inventory decreasing working capital, increasing ROI, and Free Cash Flow

Vision of Lean Business Model JIT Time Line Progressing to the Lean Business Model t=0 Product Development Inventory t=profit $$ Cash $$ Manufacturing Distribution Warranty Orders $$ Profit $$ Delivery Warranty  t=takt time Inventory As the Lean Business model progresses to ideal state, products are developed and refined on shorter cycles. This is a direct result of the weaving effect the Lean model creates between customers and suppliers. (Foundation for PDCA Loop. The Lean model creates high frequency interactions, and codependency, further reducing the time to profit. The Batch environment creates point interactions, hostile bargaining, for price, and adversarial relations regarding warranty service. The Lean Model maximizes wealth through strict monitoring of margin, volume, velocity, and customer feedback. The manufacturing block can be replaced with services, or processes and Inventory becomes work in process when adapting the model to service organizations.

Vision of Lean Business Model Additional Leverage t=0 Product Development t=profit $$ Cash $$ Manufacturing Distribution Warranty Orders $$ Profit $$ Delivery Warranty  t=takt time Inventory 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. Warranty