Lean Thinking

Banish Waste and Create Wealth in Your Corporation

By James P. Womack and Daniel T. Jones

Muda. Muda means “waste,” specifically any human activity which absorbs resources but creates no value: mistakes which require rectification, production of items no one wants so that inventories and remaindered goods pile up, processing steps which one place to another without any purpose, groups of people in a downstream activity standing around waiting because an upstream activity has not delivered on time, and goods and services which don’t meet the needs of the customer.

(Lean Thinking: Banish Waste and Create Wealth in Your Corporation 2003, 15)

“So, how do you make value flow? The first step, once value is defined and the entire value stream is identified, is to focus on the actual object – the specific design, the specific order, and the product itself ( a “cure,” a trip, a house, a bicycle) – and never let it out of sight from beginning to completion. The second step, which makes the first step possible, is to ignore the traditional boundaries of jobs, careers, functions (often organized into departments), and firms to form a lean enterprise removing all impediments to the continuous flow of the specific product or product family. The third step is to rethink specific work practices and tools to eliminate back-flows, scrap, and stoppages of all sorts so that the design, order, and production of the specific product can proceed continuously.

(Lean Thinking: Banish Waste and Create Wealth in Your Corporation 2003, 52)

The ideal compensation scheme would pay each employee in exact proportion to the value they add, as value is determined by the customer. However, actually doing this would present insurmountable technical problems and could in any case only be achieved with enormous, non-value-adding effort.

We have found that in a lean firm the simplest and cheapest method of calculating compensation is generally the best. This means paying a market wage to employees based on their general qualifications – for example whatever assembly workers or entry-level product engineers receive on average in the area of a facility – along with a bonus tied directly to the profitability of the firm. Because a lean firm should be substantially more profitable than average, the bonus should be a significant fraction of total compensation.