The old equation of part cost plus profit equals selling price is no longer accurate. Rather, a fixed or decreasing price less part cost yields profit. If manufacturers want to increase profits under this equation, controlling cost is key.
Increasingly, discrete manufacturers with blanket annual volumes are turning to lean-enabled concepts in an attempt to reduce waste (thus costs) to improve profitability. Some, however, have missed an important point: Lean manufacturing is not limited to waste reduction within pure manufacturing processes. It should also include all supporting activities, such as supporting ERP software. The entire organization should focus on eliminating inefficiencies wherever they occur, while continually improving quality.
The Japanese call waste Muda, which is defined as the opposite of value. Training employees to recognize and eliminate Muda can lead to reduced costs and, thus, improved profits.
There are eight types of Muda, motions that contain no value: motion, waiting, conveyance, correction, over-processing, overproduction, inventory and knowledge. (See sidebar) The goal is to eliminate activities that do not add value.
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Feature – Lean-Enabled ERP