5 Principles to Characterize a Lean enterprise

The spotlight of any new concept is often on its application and results. In almost all successful concepts some fundamental assumptions and basic principles underlie the results. This holds true for Lean concept too. A copycat mentality without understanding the fundamentals behind lean can lead to phony gains and such a strategy will be ineffective. So this blog is focused on understanding the fundamental principles of a lean enterprise.

A set of five basic principles that characterize a lean enterprise are (as defined by Womack and Jones in their 1996 book Lean Thinking):

1. Define value precisely from the perspective of the end customer. The value should be defined in terms of a specific product, with specific capabilities, offered at a specific price and time.


2. Identify the entire value stream for each service, product or product family and eliminate waste. The value stream is all the specific actions required to bring a specific service or product through three critical activities in any business: Product/Service definition – from concept through detailed planning through launch Information management – from order taking through detailed scheduling to delivery Physical transformation – initial concept, to the receipt of the service/product by the customer Identifying the value stream almost always exposes enormous amounts of waste in the form of unnecessary steps, backtracking, and scrap, as the throughput travels from department to department and from company to company.


3. Make the remaining value-creating steps flow. Making steps flow means working on each design, order, and product continuously from beginning to end so that there is no waiting, downtime, or waste, within or between the steps. This usually requires introducing new types of organizations or technologies and getting rid of “monuments” – obstructions whose large scale or complex technology necessitates operating in a batch mode.


4. As flow is introduced let the customer pull i.e., to provide what the customer wants only when the customer wants it. Letting the customer pull the product/service from the value stream eliminates the following types of waste: designs that are obsolete before the product is completed, finished goods, inventories, elaborate inventory/information tracking systems, and “left overs” no one wants.


5. Pursue perfection. A lean thinking enterprise sets their sights on perfection. The idea of total quality management is to systematically and continuously remove the root causes of poor quality – with the ultimate goal of achieving Zero defects.

What is Lean Thinking?

John Krafcik, an MIT MBA student coined the term “Lean Manufacturing” to identify the Toyota methods, because the production system achieved more results with less resources. TPS, or lean production, was an after-effect of the competition in the Japanese automobile industry after World War II. The mass production techniques pioneered by Henry Ford were unsuitable for low volume production, so Toyota found it necessary to develop its own production system to build cars more cheaply with inbuilt quality. In essence, Lean production is the elimination of waste to produce more flexible and adaptable manufacturing processes. Lean Thinking extends lean production to go beyond manufacturing and to include the entire enterprise. Lean thinking extended the elimination of waste to include the creation of value at enterprise level.

This business philosophy goes by different names. Agile Philosphy, Just-In-Time (JIT), Synchronous Manufacturing and Continuous Flow are all terms that are used in parallel with lean thinking.The basic components and tools of the Toyota Production System (TPS) and lean production existed in literature much before publication of The Machine That Changed The World (Womack, et al., 1990). However advent of this book popularized the Lean concept and brought the ideas to masses. The key idea in the book (and one that is absent in earlier literature) is that of “Value.” Specifying value from customer's perspective (whether internal or external) is an important step in lean thinking. Lean thinking focuses on abolishing or reducing waste (or “muda”, the Japanese word for waste) on maximizing or fully utilizing activities that add value from customer’s perspective.

Value-Added: An activity that changes the size, shape, fit, form, of function of material or information to meet the customer requirement. The customer is willing to pay for it.

Non-Value-Added: Activities that take time and resources but do not add to customer requirements.

The value stream represents the end to end processes through the entire enterprise. The lean thinking focuses on every facet of the value stream by eliminating waste in order to reduce cost, generate capital, bring in more sales, and remain competitive in growing global market.