The traditional view of Manufacturers and Service Providers was that they should decide the sales price of a product by adding profit margin to its costs (Mark-up pricing).

Traditional View: Cost + Profit = Sales Price
In the above scenario, the cost to bring your product to market plus profit dictates the selling price of a product. Particularly in our global economy this model is rarely reflective of current practices. Competition and customer demand will often set selling prices.

By controlling your costs through eliminating non value-added activities, a lean manufacturing environment will directly affect your bottom line.

Lean View: Profit = Sales Price - Cost

Lean thinking is that When you implement and follow a lean path you should see direct cost savings by driving out waste. This scenario is termed as Non-Cost Principle. This principle dictates us to work on two prime strategies to improve the profitability.

1. Cost reduction;
2. Increase sales price through value addition (Robust Design, Content Quality, Better Service etc.)
Today the customer is not prepared to pay for the inefficiencies of Manufacturers or Suppliers. Therefore we need to take every possible action to reduce wastes and provide a better price for our customers.
It means that lean manufacturing is customer focused and the success of your business as a whole is due in a large part on satisfying customer demands.

Lean consu-zmption
Lean production or manufacturing system is a unique way of management that was invented by Toyota over the last 20 years. When you analyze it deeply, you can understand that making a business process lean means reducing consumption of materials and time.
There are six simple principles of lean consumption, which provide a new definition of value for today's consumer: the voice of the customer.

• Solve my problem completely
• Don't waste my time( minimize my total cost of consumption, which is the price I pay plus my time and hassle)
• Provide exactly what I want
• Deliver value where I want it
• Supply value when I want it
• Reduce the no of decisions I must make to solve problems

None of these focus on specific attributes of a product. Today the product is not the major problem.
The problem is the timeline of service or manufacturing process which consumes the materials and the time.

If the provider is in a position to improve the timeline of customer's process and reduce hassle and time, they are prepared to pay for the value created by the provider. Once Norman Bodek, Chairman of Productivity, inc. questioned the Taiichi Ohno, (Creator of the TPS) what is Toyota doing now, his answer was very simple.

"All we are doing is looking at the timeline"; 'from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that timeline by removing the non-value added wastes.

D.M.A. Kulasooriya, ISL - Certified Six Sigma Black Belt.