Lean Enterprise

Lean Enterprise

Investopedia / Julie Bang

What Is Lean Enterprise?

Lean enterprise refers to a production principle stating that any component of a business enterprise that fails to directly benefit a final product is superfluous. Lean enterprise focuses on value creation while eliminating waste and non-essential processes.

The most valuable elements of a product or a service are largely decided by consumers, based on the discretionary income they are willing to pay for an item.

Key Takeaways

  • Lean enterprise is a business term describing the practice of reducing or eliminating inefficiencies in the production process.
  • The underlying principles behind lean enterprise were originated by Toyota Motor Corporation's Toyota Production System (TPS) and by Motorola's Lean Six Sigma program, both of which stress removing wasteful production elements.
  • The main goal is to recognize and increase the value of products or services for customers, whose perspectives and consumer habits ultimately dictate lean enterprise directives.

Understanding Lean Enterprise

Lean enterprise is sometimes simply referred to as "lean." Although both terms came into popular usage in the 1990s, the concept itself was devised by Toyota Motor Corporation when it introduced the Toyota Production System (TPS).

Developed by Eiji Toyoda and Taiichi Ohno, the Toyota Production System (TPS) integrated socio-technical management philosophy and was practiced between 1948 and 1975. The lean enterprise philosophy was also inspired by telecommunications giant Motorola, which implemented a manufacturing principle known as Lean Six Sigma in 1986.

This quality-control methodology uses a data-driven review to limit mistakes and defects in the production process. At its core, a company that adopts lean enterprise combines these two disciplines in order to maximize value for customers while slashing the money and resources spent on creating the products and services in question.

Lean Enterprise Principles

According to Lean Thinking: Banish Waste and Create Wealth in Your Corporation, co-written by economists James Womack and Daniel T. Jones, lean enterprise is characterized by the following five chief tenets:

  • Value: This pertains to the manner in which end customers value a certain product or service as it relates to their wants or needs.
  • Value stream: This breaks down the life cycle of a product or service, including the acquisition of raw materials, the manufacturing of goods, the sale and delivery of inventory, and the ultimate consumption of items by end-users.
  • Flow: If any iteration of the value stream is stagnant or inefficient, it is considered wasteful and antithetical to creating customer value.
  • Pull: This is a directive stating that nothing should be produced until there is clear demand or official purchase orders from customers.
  • Perfection: This tenet states that in order for Lean Enterprise to be successful it needs to become part of the company culture, where every employee plays a role in implementing and perfecting the Lean Process.

Lean Enterprise and Lean Six Sigma

By heavily borrowing ideals from Lean Six Sigma principles, lean enterprise seeks to eliminate "muda," a Japanese term that roughly translates to "waste" and refers to the inefficiencies that can be radically reduced or jettisoned.

Specifically, the following eight discrete categories comprise muda, easily memorized by the acronym "DOWNTIME," for Defects, Overproduction, Waiting, Non-Utilized Talent, Transportation, Inventory, Motion, Extra-Processing.

Article Sources
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  1. Toyota. "Total Production System Timeline." Accessed Jan. 5, 2021.

  2. Toyota. "Toyota Production System." Accessed Jan. 5, 2021.

  3. Motorola Solutions. "Motorola Solutions Celebrates Its 85th Anniversary." Accessed Jan. 5, 2021.

  4. The American Society of Mechanical Engineers. "5 Lean Principals Every Engineer Should Know." Accessed Jan. 5, 2021.