When considering Lean Improvements, it is a very good exercise to think about whether your improvements will improve your Fixed Costs picture or the Variable Costs Picture. It can also provide some insights into what the net effects of these improvements will be on the company. This kind of analysis also provides insights into ALL the aspects you can improve!
To begin with, let’s start with Lean improvements to things that can be attributed to Fixed Costs. Let’s say you are trying to improve the Manufacturing process in the automobile industry. Say you are trying to see if a Car Seat’s manufacturing can be improved and you are working with a supplier on this. This points not only the manufacturing process but may also to the design of the seat with better, less expensive, and greener materials! The payoffs need not be in just dollars and cents but also some eco-friendly improvement like usage of greener materials. These days greener materials may not only be ecologically friendly but give the company potent marketing weapons against competitors!
Once the design of the car seat is improved then you can get into the improvement of the manufacturing process itself! Improvements in Fixed Costs lead to interesting expansion of existing capacity, something you did not realize you had before! Less manufacturing time, less physical movements of people all lead to the same people and the assembly capacity being available for more production! This is what we mean by capacity that you did not realize you had before!
Lean improvements to Variable Costs can easily be done by Value Stream Mapping. If a variable cost component adds value to the end customer then it is a candidate for improvement. If it is really a non-value adding component, then it is a good candidate for elimination, rather than improvement!
Lean improvements of both Fixed and Variable costs is an interesting way to analyze the range of improvements you may be looking at. It provides you insights into their net effects on the company and where and how they affect the company’s capacity, utilization of people and even value added analysis!
Efficiency is doing things right; effectiveness is doing the right things – Peter F.Drucker
