How Going “LEAN” May be Able to Help You or Your Business

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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”:

  1. Defects
  2. Overproduction
  3. Waiting
  4. Non-utilized Talents
  5. Transportation
  6. Inventory
  7. Motion
  8. 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

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


    • Dave Van Horn on

      Hi Adam,
      Thanks, and I agree. I was actually able to shrink my inbox, by having my email come in through the company’s database. That way certain inquiries can be routed and responded to by staff members. I also have set ways to communicate with certain parties (for example, students/notebuyers can log a question on our website).
      Best of luck!

  1. Enjoyed this article, especially the quick explanation on Value Stream Mapping. I’ve put it on my to-do list.

    I think one place where a lot of successful people get bogged down is in implementing too many systems, which can be a time suck. Thanks for the great read.

  2. Thanks Dave. Great blog post. I’m intrigued by systems and steps to greater efficiency and my procrastinating self needs reminders like this to get these in place!

    • Dave Van Horn on

      Hi Tom, thanks for the positive feedback! Writing this article also acted as a reminder to myself to get these types of systems and steps in place. Best of luck, Dave

  3. It is kind of funny with systems.
    They are really important for efficiency so you aren’t plodding along aimlessly wasting time and resources getting things done haphazardly (Even when you are working only on things that are in fact important, if that would ever happen! 🙂 ).
    At the same time as pointed out above to many systems or ones that get you good at doing things you don’t need to do kill your efficiency too.

    Taking that step back to figure out what you actually need to do then figuring out the best systems to do them, while eliminating no value add activities, is a real holy grail for our work.

    • Dave Van Horn on

      Shaun, I definitely agree. In reference to the LEAN concept, that’s where value stream mapping comes in–to evaluate your processes and determine what areas need to be improved in order to provide value to the end user. Everything you mentioned makes sense because sometimes we do need to cut out goals that not only don’t contribute to that value but also eat up our resources. Thanks for sharing!

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