How to Calculate Lean Value Added

The lean manufacturing principles developed by Toyota have become worldwide industry standards.

Lean manufacturing is a production system founded on the principle that any aspect of production that does not lead directly to consumer value should be eliminated. It originates in the Japanese Toyota Production System, which identifies seven primary wastes: overproduction, unnecessary transportation, languishing inventory, motion (of the worker or equipment), defects, over-processing and excessive waiting. Computing the value added to a company by lean manufacturing is a simple three-step process.

Instructions

1. Calculate the costs saved by eliminating an item of waste from the company. If you eliminated excess from the inventory, for example, add the cost of that inventory item to the cost of maintaining that inventory (climate control, storage space, etc.) to find the total saved cost.

2. Determine how those saved costs can be redirected to create value for the customer. You can use the money saved by reducing inventory, for example, to upgrade your transport fleet and provide faster service. Estimate how much more customers would be willing to pay for this faster service.

3. Calculate the amount of value directly added to the customer by your reduction in waste. You can add value either by redirecting saved costs toward a customer benefit or by a waste reduction that directly impacts the customer. Perhaps by eliminating a communication midpoint in your company, you were able to reduce wait times for the customer. Estimate the monetary value of this reduced wait time, and add it to the customer value estimate from step two to find total added value from lean manufacturing.

References

• "Lean Production Simplified: A Plain Language Guide to the World's Most Powerful Production System"; Pascal Dennis and John Shook; 2007