Lean is about eliminating waste. Waste is defined as any activity the customer doesn’t want to pay for. The obvious wastes in a business are things like rework, reprocessing and scrap. But in many organisations there are hidden wastes too. 

Typically, there are eight types of waste:

1. Overproduction
2. Waiting (queuing, time when things aren’t happening)
3. Unnecessary handling and transportation
4. Over processing or incorrect processing
5. Excess inventory
6. Unnecessary movement
7. Defects
8. Unused employee creativity.

When thinking about waste it is useful to distinguish between what is and isn’t value adding activity.

What are value adding and non-value adding activities? Liker (2003) uses questions to create the following distinctions:

• Value adding activities – what is the actual transformation process core to the service that the customer is paying for?
• Non-value adding activities – what is pure waste?
• Non-value adding, but required activities – what is required but not always valued by the customer? (E.g. quality control). 

The Lean approach to improvement typically follows the five step model described next.

Step 1

Identify Value– value is always seen through the eyes of the customer.

• What does the customer want and what will they pay for?

Step 2

Map the Value Stream – Identify all the steps in the process that currently deliver the product or service to the customer and identify the non-value adding processes and try to eliminate them

• What are the steps in the process?
• Are all the steps necessary?
• Which processes can be eliminated (non-value adding)?
• Which processes are non-value adding but essential?
• Can these processes be eliminated or refined?

Step 3

Create Flow – arrange the process so the elements are closely linked and so there is a natural flow towards the customer.

• How closely are the process steps linked?
• How can the process steps be more closely linked?
• Do the process steps create a natural flow?
• How could the process steps be modified to improve flow?

Step 4

Establish Pull – link the process steps so that the customer pulls the product though the process and so that each step of the process pulls the product from the preceding step.

• How does customer demand pull product through the process?
• How does each step pull product from the proceeding step in the process?

Step 5

Seek Excellence or Perfection – perfection is achieved when total customer value is created with no waste. This is delivered by going around the steps above, continuously working to improve the process until perfection is achieved.

• Have we totally satisfied the customer with no waste?

• It is a structured approach to improving performance in the organisation.
• The approach is engaging and so builds staff buy-in to the process.
• It focuses the whole organisation on the needs of the customer.

Lean has a bad reputation in some quarters. It is seen purely as a means of taking out costs, when in reality it is much more about exploring how the customers’ needs can be delivered efficiently and effectively. Be prepared for this backlash if you are thinking about implementing a Lean approach.

Lean can be overdone; people have talked about organisations becoming anorexic. To make changes and improve, you have to have slack resources and Lean is designed to remove resources not dedicated to delivering value to the customer. So just beware that you don’t take Lean too far in your organisation.

Some wastes are far easier to identify than others, start with the easiest waste to remove, but don’t stop there. The hidden wastes are often significant and the additional improvement is well worth having.

Look at systems as a whole and don’t be tempted to apply Lean in a single department or function. It is difficult to understand the real need of the customer if you restrict your approach in this way and it is often at the interface between functions and departments that the greatest wastes and misalignments occur.

Lean and Six Sigma are often used together and they do complement each other. Lean removes waste and Six Sigma ensures that performance is still delivered.

• Nickolas Modiq & Par Ahlstrom, (2013), This is lean: resolving the efficiency paradox, Rheologica Publishing.
• Jeffery Liket & James Franz, (2011), The Toyota way to Continuous Improvement, McGraw-Hill Inc.

• Finance & Management Faculty special report

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Further reading on lean management is available through the resources below.