Lean webinar
3. Locked Wallet
Can we make lean changes without spending money? submitted by Francisco Cabaco
Jeremy Praud: “The answer to that rather depends on what you think counts as spending money. Lean, fundamentally, is about reducing costs. It’s usually phrased differently (reducing waste, understanding value, etc.), but that all ultimately means spending less money. However, as with many things, before the benefit comes an investment. That investment can take many forms; it might simply be the time taken for your people to do the improvement activity instead of something else. It might be modifications to equipment, or it could be in training to make both of the previous more effective than they would otherwise be.
“One rule of thumb is that the better the problem solving, the cheaper the solution. There is always some internal investment, although whether that counts as spending money is more a question of perspective.
“Spending money on external support is useful if it allows faster results and quicker payback than relying on internal investment only. The great thing about a programme aimed at reducing cost is that it is easy to make the linkage between investment and return, and whereas payback for capital equipment projects are often around two years, lean programmes should be giving cash payback in around six to nine months. That means that depending on when in your financial year you start, investment in lean programmes can be cash positive – although not all businesses have sufficient opportunity available to make external support worthwhile.
“So, in summary, there is always some requirement to spend money. But you can always limit that to internal spend on time and minor modifications and there is absolutely no need to spend money externally to make lean changes, although the reason you would do so is to save even more.”
Simon Spanyol: “If businesses adopt the right approach they can be cash neutral within the first year and then cash positive after that. The biggest problem which exists is the difference between fixed (overheads) and variable (manufacturing controlled costs).
“In general training budgets are part of fixed costs and lean savings are part of variable cost. You need to find an enlightened finance manager or accountant who can do the maths which shows total cash flow for the lean programme.”