Turn Waste into Wealth
How to Find Cash in Every Corner of the Company
By Mark C. DeLuzio – Foreword by Jeffrey J. Fox
• Author is a pre-eminent thought leader in Lean management
• Engaging, easy-to-read introduction to Lean aimed at CEOs and senior leaders
• Presents hard-hitting advice to leaders on how to improve every facet of their organizations
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“Mark DeLuzio’s readable and mind-opening book on how to become a lean company is simple, understandable, and . . . actionable. He makes lean easy. Read any chapter – nearly any sentence – and get an instant idea on how to improve your organization.” — Jeffrey J. Fox, bestselling author of How to Become a Rainmaker
Cash is lying around everywhere in companies. It’s piled to the ceilings in warehouses and on shelves, hiding in plain sight as inventory. It litters administrative offices, disguised as incorrect invoices, late billings, incomplete forms, input errors, sloppy requests from salespeople. It languishes in the countless places a customer’s order can hide as it crawls from order entry to production and shipment. It sits in company lobbies waiting for sales calls to start.
All that cash is retrievable, gettable, bankable – available for re-investment and dividends. Turn Waste into Wealth will help you get that cash by becoming a lean company.
Mark DeLuzio, principle architect of the vaunted Danaher Business System that has led companies to world-class performance, presents hard-hitting tips and numerous case histories that will help you make your company lean. You’ll learn:
- Why Lean is the modern way to run any organization
- Eleven steps to transform your organization to a lean culture
- What leaders must do to insure a successful lean transformation
- Lean accounting practices that promote Lean behaviors
- The lean rules for capital expenditure decision making
- How to identify and deal with lean naysayers
- Why LEAN does not mean “Less Employees Are Needed”
- What and why to benchmark
- The kaizen rules for success
- The lean formula for setting prices
- How to deploy strategy in a lean environment
- And much more
Great companies continuously, relentlessly improve everything they do to increase shareholder returns. Whether you’re new to lean or already using Lean practices, Turn Waste into Wealth will help you make your company great.
About the Author
Mark DeLuzio is the CEO of Lean Horizons Consulting. Prior to founding Lean Horizons in 2001, Mark was Corporate Vice-President of the Danaher Corporation, where he was the principle architect of the Danaher Business System, the primary reason for that company’s decades-long, world-class performance.
Mark is the pre-eminent thought leader in the lean industry. His many lean innovations include designing and implementing the first lean accounting system in the United States; value stream mapping for information; pioneering the linkage of strategy deployment to policy deployment; waste mapping; and the Lean Horizons Sustainability System.
Mark was mentored by Toyota’s Autonomous Study Group, which was created by Taiichi Ohno, the father of the Toyota Production System. Mark’s mentoring included several study missions to Japan, where he implemented various aspects of the Toyota Production System in world-class companies.
In 2007 Mark was inducted as a Life Member of the Shingo Prize Academy (essentially the Lean Hall of Fame).
Mark is on the board of Directors of Hillenbrand Inc. (NYSE). He holds a BS in Marketing and a BS in accounting from Central Connecticut State University. He has an MBA in operations management from the University of Hartford. He is a Certified Management Accountant (CMA) and holds a Certificate in Production and Inventory Management (CPIM).
Mark is a popular speaker sought by corporations, conferences, and noted higher-learning institutions such as MIT’s Sloan School of Management, Northwestern University’s Kellogg School of Management, and the Rensselaer Polytechnic Institute.
Mark is a Gold Star Parent.
Table of Contents
Foreword by Jeffrey J. Fox
Part One: Lean Purpose
- Mountains of Money
- The Lean Journey
- The Lean Transformation
- Lean’s Good Numbers
- The New Cost Reduction Frontier: Using Lean to Cut Administrative Waste
- How to Enhance Your Culture with Lean
- Change from Problem Hiding to Problem Solving
- The 10%-80%-10% Population Rule
- How to Identify a Naysayer
- Ours Not to Reason Why, Ours But to Waste and Die.
Part Two: Lean Principles
- The Eight Deadly Sins of Waste
- The Leadership Rules of Lean
- Lean Transformations Are Not Pain Free
- LEAN Does Not Mean Less Employees Are Needed
- Never Tie Headcount Reductions to Lean
- Continuously Grow with Continuous Flow
- Customer Will Not Pay for Non-Value Activity
- Accounting for Lean
- How Traditional Accounting Promotes Accounting Waste and Costly Behaviors
- Don’t Employ Purchase Price Variance
- New Lean Rules for Capital Expenditures
- You Can Teach an Old Dog New Tricks
- What and Why to Benchmark
Part Three: Lean Process
- The Five Whys: Too Much Pigeon Poop
- Standard Work is the Gold Standard
- TAKT Time is Money Time
- She Walked from San Diego to Saint Louis in One Year and Never Left the Factory Floor
- The Blue Parts Cart: Or, Minutes Mean Big Money
- Don’t Blame Manufacturing: Three Days Process Time, Eighteen Weeks Lead Time
- A Hospital Without Waste
- Don’t Cherry-Pick Lean Tools
- Kaizen Event Rules
- Lean Trumps Six Sigma
- The Problems with Kanban
Part Four: Lean Profits
- The Lean Profit Formula
- Lean Distribution
- The Wallet
- The High Cost of Carrying Inventory
- Cross-Functional or Dysfunctional: There is No Choice
- Waste Mapping: Where to Deploy Value Streams
- Strategy Deployment
- Using Strategy Deployment to Save the Shad (a Metaphor)
- The Difference Between Strategy Deployment and Policy Deployment . . . And Why It Matters!
- The Dees and Rees
Appendix A. The Lean Horizons Lean Sustainability System (LSS)
Appendix B. The Lean Horizons Wealth Creation Process
Appendix C. Lean Horizons Benchmarking
About the Author
FROM CHAPTER 6: THE NEW COST REDUCTION FRONTIER
Using Lean to Cut Administrative Waste
Although widely accepted for improving procedures on the factory floor, the fact that Lean can dramatically reduce waste in administrative functions is less well known. Administrative costs dwarf manufacturing costs. As a percentage of revenues, administrative costs are two to ten times greater than direct production costs. (Production can be manufacturing a part, making a TV commercial, baking donuts, harvesting apples, and so on).
Consider administrative costs to be any cost not associated with marketing, selling, or manufacturing. Thus, accounting, clerical, legal, tax, insurance, utilities, management salaries, order processing, document processing, IT, human resources, and so on are all administrative costs.
Administration has various names: front office, back office, central office, white collar, bureaucracy, overhead, and G&A (general and admin costs). Administrative functions, unlike production processes such as turning a lathe, are typically invisible. Transactions and improper direction may lie deep within databases, policies, or software. For example, the root cause of late shipments may be due to a poorly engineered customer demand oversight process. Flaws in product design, weak forecasting, cumbersome forms, redundant paperwork, endless approval systems are examples of administrative waste.
Lean administration reduces waste, errors, processing time, and back office delays. Back office problems are particularly common in an organization’s accounting and finance functions. Back office problems are endemic in insurance, banking, and paperwork-generating industries such as residential real estate sales. Every company is undoubtedly losing money in its back office, or whatever the administrative function is called.
Mis-billing, late billing, and non-billing cost industry millions of dollars a day.
Late ordering of fresh seafood robs $1,000 from the restaurant’s evening revenues. Mis-ordering the correct grade of cement delays the building completion by two days, causing $200,000 in lost time. Mis-forecasting part requirements triggers a line shutdown or expensive, expedited emergency shipments. Mis-handling insurance escrow accounts costs the mortgage bank millions of dollars a month in redundant mailings, overnight express mailings, unnecessary interest payments.
Getting it right the first time, and every time, is the most worthy of wealth-creating missions.
White collar waste is the white whale of opportunity for companies that deploy Lean administration.
FROM CHAPTER 28: SHE WALKED FROM SAN DIEGO TO ST. LOUIS IN ONE YEAR AND NEVER LEFT THE FACTORY FLOOR
The company makes electrical components. The machine operator is a woman who spends her workday assembling parts. Let’s call her Kay. Prior to a Lean solution Kay routinely walked from here to there to fetch parts, to bring the parts to her assembly machines, to deliver the parts to the next operation, to find tools and maintenance supplies.
Kay walked and walked. Based on careful pedometer readings, measuring her every step in a ten-day test period, Kay walked 1,549 miles in one year. San Diego is 1,549 miles from Saint Louis.
Kay walked close to three quarters of a mile every hour (1,549 miles divided by an annual 2,000 work hours). Even if she ran at Olympic gold medal speeds, Kay spent seventy minutes a day, every day, walking and not working. Every second she walked was a second she did not make a part, and every unmade part was unmade money.
If Kay’s total direct cost was $30 an hour, then her employer, the electronics-part maker, paid her $35 every day just to walk around. If Kay worked 250 days a year, her endless wandering to find things cost her employer a wasted $8,750 per year.
The machines were moved. The necessary parts were placed adjacent to Kay’s work bench. The tools were labeled and organized for instant access and usage. The parts were now in an economically efficient, continuous, one-piece flow.
Kay’s walk time was reduced by 98%. Instead of walking five to six miles a day, she now walks about 100 feet a day. Her production rate is up 75% per day. Based on the selling price of her company’s products, Kay’s cell now generates an additional $1,200 in revenue per day.
Kay’s operation is immensely more profitable and truly lean.
But poor Kay. She had to join a gym.
Praise for Turn Waste into Wealth
Mark DeLuzio’s readable and mind-opening book on how to become a Lean company is simple, understandable, and . . . actionable. He makes Lean easy. Read any chapter – nearly any sentence – and get an instant idea on how to improve your organization.
— JEFFREY J. FOX, bestselling author of twelve business books including How to Become a Rainmaker
The author’s words match his methods: hard hitting, simple, direct, and to the point . . . in very compelling short chapters, the purpose, the principles, and the process are explained, and the resulting profits of Lean are delineated.
— BOOKLIST (Barbara Jacobs)
Mark DeLuzio’s insightful book is an essential addition to the world of Lean. It is concise, punchy, and illuminating. Importantly, Mark communicates precisely the difference between Lean tools and Lean culture, a nuance missed by many Lean experts. His book is a blueprint for CEOs in any industry who want to turn certain waste into inevitable wealth.
— CLIFFORD F. RANSOM II, President and Founder, Ransom Research, Inc. (“The Way of Lean Investing”) and Life Member of the Shingo Prize Academy
I know something about Lean. In fact, I wrote a book about my experience as CEO of the Wiremold Co., where we used lean to quadruple the company’s size and increase its enterprise value by 2,500 percent in ten years. Mark DeLuzio’s Turn Waste into Wealth is an absolute “must read” for transformative managers around the world.
— ART BYRNE, CEO (Ret.), Wiremold Company, author of The Lean Turnaround
Mark DeLuzio presents advice and tips on Lean management that his company used in their unique approach called the Financial Process Optimizer, enabling us to dramatically reduce the lead times and cycle times in our closing and forecasting processes. This provided us with a powerful competitive edge while also building the foundation for a Lean continuous improvement culture throughout our South American finance operations.
— CARLOS ZARLENGA, Chief Financial Officer, General Motors South America (GMSA)