Lean and the Profit Equation

Posted on January 30, 2012 | in Baseball, Concession Stand, Inventory, Lean Wastes, Maintenance, Manufacturing, Sports, Tickets, Time Savings | by

Example of Investment and Return with Lean

To examine the impact lean implementation can have on a business, let’s look at the high-level super-simplified equation for profit.

PROFIT = REVENUES – EXPENSES

Components of the revenue term include selling price and the quantity sold (among other things, obviously). Expenses components include raw materials costs and overhead costs.

First, let’s focus on the expense term and how lean can make a difference. Give special attention to the lean wastes, as they can be found all over an operation’s expense sheet.

Do you carry raw material inventory and/or finished product inventory in a warehouse on-site or off-site? Lean can help you free up cash that is tied up in inventory you aren’t using right away, so that helps reduce some expense going forward.

Is any unused and/or broken equipment taking up space in your facility? Lean can demonstrate why repairing the equipment and applying proper maintenance can help you save money down the road. Lean can also show you well-established maintenance techniques that will make it easier to maintain the equipment.

How much of your expenses is tied up in a temporary/hourly workforce? By applying lean tools, time studies, and other tools lean can root out some process waste and possibly free up some expenses in extra operators not needed. (More on this in a moment.) By saving time spent on wasteful activities, you might be able to handle the same customer load with fewer expenses.

So right there, lean has impacted the facility space requirements, the need for operators, and inventories kept on hand.

Now let’s pay more attention to the revenues term. What can lean do to boost revenues?

Well, for starters, let’s take a look at the excess finished goods inventory. It’s product that’s already made but isn’t moving. It’s essentially cash that is tied up in non-liquid assets. What can be done to get more of it out the door? Will it expire/perish/become no longer relevant or useful? What resources do you need to convert these assets into revenue?

Which brings us to…those extra operators! You’ve optimized the operations in the concession stand or ticket office to eliminate the need of an operator or two. How about using those extra operators to open up operational capacity? Use those operators to sell the extra inventory. You wanna get those machines better maintained? Use the extra operators to handle some of the responsibilities. How about the operators keeping the facility/stadium cleaner and better organized so the fan experience is greater?

Seth Godin’s blog post from today examines the difference between what is promised and what is delivered. By using lean and opening up operational capacity, you can become more flexible to meet customer expectations…and even go above and beyond their expectations.

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