What is 'Lean Enterprise'

Lean enterprise is the production and management philosophy that considers any part of the enterprise which does not directly add value to the final product to be superfluous. Lean enterprise focuses on value creation and the elimination of waste and non-essential processes. Foremost, it considers the product or service from the consumer's perspective to determine what is of value (i.e. what the consumer is willing to pay for), then examines at the process with the aim of reducing all of its aspects except for the value-adding ones.

Breaking Down 'Lean Enterprise'

Lean enterprise is sometimes simply referred to as "lean." Both of these terms came into use in the 1990s, but the approach itself originates in Toyota Production System — a management philosophy developed by Eiji Toyota and Taiichi Ohno between 1948 and 1975. Those principles gave birth to lean manufacturing and Six Sigma, and their melding in Lean Six Sigma manufacturing principles.

Lean enterprise put another way is the maximization of customer value while also minimizing waste in the production process. At its essence, lean enterprise is the creation of maximum value for the consumer while using fewer resources. Its goal is to perfect the delivery of value to the consumer by way of perfecting the production and delivery process as exemplified by creating no waste.

Lean Enterprise Principles

According to Lean Thinking: Banish Waste and Create Wealth in Your Corporation by James Womack and Daniel T. Jones, lean enterprise is characterized by five main principles as per the lean manufacturing ethos:

  • Value: This pertains to how end customers value a certain product or service as it relates to their wants or needs.
  • Value stream: An understanding of the full arc of the life cycle of a product or service (from the acquisition of raw materials, production of a good, sale and delivery to the customer, use by the customer, and the end of the product's life cycle).
  • Flow: If any part of the value stream is stagnant it is considered wasteful for not providing customer value.
  • Pull: This is the directive that nothing should be produced until it is demanded or ordered by the customer.
  • Perfection: This is the ethos that all causes of sub-par quality should be eliminated from the manufacturing process.

Lean Enterprise and Lean Six Sigma

Lean enterprise also borrows eight directives based on lean six sigma principles. These address the elimination of waste from the production, transportation and delivery process, known as "muda," which form the acronym "DOWNTIME."

  • Defects
  • Overproduction
  • Waiting
  • Non-utilized talent
  • Transportation
  • Inventory
  • Motion
  • Extra processing
  1. Lean Startup

    The lean startup is a method used when founding a new company ...
  2. Social Enterprise

    A social enterprise is a commercial organization that has specific ...
  3. Investment Philosophy

    An investment philosophy is a set of guiding principles that ...
  4. Productize

    "Productize" refers to the process of developing or altering ...
  5. Zero Capital Gains Rate

    The 0% capital gains tax rate charged to those selling properties ...
  6. Multiples Approach

    The multiples approach is a valuation theory based on the idea ...
Related Articles
  1. Investing

    How Lean Six Sigma Works

    Based on both lean management and Six Sigma, Lean Six Sigma helps companies create a management system that promotes perfection through efficiency.
  2. Small Business

    A Guide To The Six Sigma Green Belt

    Curious about the Six Sigma Green Belt? Here's what you need to know.
  3. Investing

    What the Enterprise Multiple Tells Value Investors

    Learn how the enterprise multiple which looks at company debt and cash levels, in addition to its stock price, can be taken advantage of in investing.
  4. Investing

    Consulting Companies Look Promising

    It might be time to start investing in the business of guiding business.
  5. Investing

    3 Waste Management Stocks That Outperformed Since 2010

    A look at three stocks in the environmental and waste management industry that have outperformed the market for the last five years.
  6. Investing

    Better Buy: Enterprise Products or Kinder Morgan (EPD, KMI)

    Today, Kinder Morgan (NYSE: KMI) and Enterprise Products Partners (NYSE: EPD) are far and away the largest companies in the pipeline and processing business under one corporate entity. These ...
  7. Investing

    Tyson Foods Responds as US Labor Market Tightens

    The meat processing giant may offer increase worker pay as unemployment hits a 17-year low.
  8. Investing

    Why Buy Energy Companies with Negative Income?

    MRO and FANG are among the stocks investors are buying despite some evident flaws.
  9. Investing

    Verizon Stock: Capital Structure Analysis (VZ)

    Investigate Verizon's capital structure, and understand how debt and equity capitalization and enterprise value interact with each other.
  10. Investing

    Understanding Verizon's Capital Structure (VZ)

    Verizon has a highly leveraged capital structure, and this debt capitalization and the company's equity have affected its enterprise value.
  1. How is it possible for a company to have a negative enterprise value?

    Enterprise value is greatly influenced by a company's stock share price. If the price falls below cash value, a negative ... Read Answer >>
  2. How should a change in accounting principle be recorded and reported?

    Learn about changes in accounting principle and why businesses make them, as well as the reporting and recording requirements ... Read Answer >>
Trading Center