Recently, I was invited by my business coach—who runs the entrepreneur group I’m in—to go to a workshop on “LEAN” that was being hosted by the DVIRC (Delaware Valley Industrial Resource Center). To be quite honest, I knew almost nothing about the DVIRC or LEAN for that matter. For all I knew, LEAN was the name of a breakfast cereal or a granola bar.
So, What is LEAN?
The idea of LEAN is the concept of constant or continuous improvement. It’s a pretty simple concept that’s been around for a long while, from before Benjamin Franklin’s time, but it came to the forefront largely from Dr. Deming, who tried to show this production practice that considers the expenditures of resources for any goal, other than the creation of value for the end customer, to be wasteful. And thus, these need to be eliminated. He first demonstrated this to the automotive industry in Detroit. Money was flowing, and this was in the 1950′s. Post-war auto production was at its peak, and he was literally laughed out of Detroit. The now famous Dr. Deming, who is studied in almost every business school today, headed off to Japan (where he’s now considered a hero) to help them rebuild, and the concept of a LEAN warehouse design was later developed by Toyota, the company that’s best known for originating LEAN Manufacturing. The actual term was eventually coined by John Krafcik (Toyota Quality Engineer and MIT Researcher) in his 1988 article, “Triumph of the Lean Production System.”
This concept of LEAN is no longer just being applied to manufacturing; it is now being spread to broader applications in the retail and service industries, and as seen in the latest book by Womack and Jones, “Lean Solutions,” these lean principles apply to logistics and distribution as well. You’re probably thinking, “What does this have to do with me?” But, the Lean Philosophy can apply to all of us.
At my workshop that day, approximately 25 CEOs took up positions in a makeshift warehouse and manufacturing plant. We were making circuit boards, and they literally had us run a production line. We had a sales department, a warehouse with raw materials, managers, a union, inventory, distributors, accounting, etc. It was very intriguing. We first ran our production line for 20 minutes, produced six completed circuit boards, and were deemed unprofitable. We went back to regroup to talk about our bottlenecks and inefficiencies. Then we ran our second production line, after rearranging some of our methods, staff, positioning of our raw materials, and replacement parts. We even used pictorial instructions to streamline our existing resources and processes. We ended up producing 32 circuit boards and suddenly became profitable. By the end of the full day, we could produce a completed circuit board every 10 seconds, with little leftover inventory and minimal defects.
Hopefully, you’ll start to see my point. For me that day, there were several “Ah Ha” moments.
One of these moments was when we discussed the eight main wastes that impact the way we work, which can be easily remembered with the mnemonic “DOWNTIME”:
- Non-utilized Talents
- Extra Processing
Now, depending on your business or business model, these will mean different things to different people. We all have some waste. Office wastes, for example, can be a big one: order entry errors (Defects), printing paperwork too soon or too much (Overproduction), system downtime (Waiting), limited functional responsibilities (Non-utilized Talents—we all have underutilized people or vendors), movement of paperwork (Transportation), filled inboxes (Inventory), walking to central files or copiers (Motion), or reentered data (Extra Processing).
This example struck a chord with me, as I have learned recently that there are always things we can rearrange or do differently, especially as our business grows.
But, What are the Applications for a Real Estate Investor?
It’s a little tougher sometimes to try to develop a whole new culture, especially for folks who don’t work directly for you. We actually did what is called “Value Stream Mapping” that day, where you map out a process in your organization and look for areas to improve. Say, for example, you’re renovating a house, is there anything you can do to improve the process? Does the end buyer of your flip really care how many days of love you put into the property? Hell no. Did you really get more money for all the upgrades you put in? Maybe you did but also maybe not. I do know that I’ve used OPM (other people’s money), and if the project took longer than expected, I lost money.
All I’m saying is that it’s a great time of year to think about how we can all improve some of our systems and processes, not just our goals, in the upcoming year. Luckily, I was fortunate enough in my younger years to work for some really efficient builders and property managers, so I know amazing things can be done. One builder would turn around up to 30 apartments in two weeks after move outs, with a waiting list of new tenants to fill them. Another builder would complete a four bedroom, 2 1/2 bath, two-story colonial in 60 days, involving up to 30 subcontractors. That’s pretty efficient.
I’m sure some BiggerPockets folks can top this stuff…
So, what are you doing to be lean in your business in 2014?
Photo: Scania Group