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
RELATED TERMS
  1. Enterprise Multiple

    Enterprise multiple is a ratio (the company's enterprise value ...
  2. Six Sigma

    A quality-control program developed in 1986 by Motorola. Initially, ...
  3. Manufacturing Cells

    Manufacturing cells are sets of machines that are grouped by ...
  4. Social Enterprise

    An organization that is directly involved in the sale of goods ...
  5. Enterprise Zone

    An enterprise zone is a geographical area where a government ...
  6. Cost Accounting

    Cost accounting is an accounting method that aims to capture ...
Related Articles
  1. Small Business

    A Guide To The Six Sigma Green Belt

    Curious about the Six Sigma Green Belt? Here's what you need to know.
  2. Small Business

    Should you get a Six Sigma Black Belt? Average salary: 99K

    Interested in the Six Sigma Black Belt but unsure whether you need one? Here's a guide to the quality improvement role and how it differs from other belts.
  3. Investing

    3 Reasons Enterprise Products Stock Could Rise (EPD)

    So far, 2015 has not been kind to shares of Enterprise Products Partners (NYSE: EPD). While the midstream energy specialist has routinely beaten the S&P 500 on a total return basis, its negative ...
  4. Investing

    Enterprise Stock Dip No Cause for Alarm (EPD)

    Enterprise Products stock dipped 1.5% after it reported 3Q earnings of 32 cents a share. How should investors interpret that?
  5. Investing

    Consulting Companies Look Promising

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

    GM Stock: Capital Structure Analysis

    Learn why GM's enterprise value increased, and get an update on the company's capital structure, including equity and debt capitalization.
  8. 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.
  9. Investing

    Why Buy Energy Companies with Negative Income?

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

    McDonald's Stock: Capital Structure Analysis (MCD)

    Learn about the importance of capital structure, and what equity and debt capitalization measures can tell us about the performance of McDonald's Corporation.
RELATED FAQS
  1. What is operations management theory?

    Historical and modern operations management theory can be used to benefit businesses. Read Answer >>
  2. Enterprise value versus market capitalization

    Learn the difference between market capitalization and enterprise value, and understand how these two common valuation tools ... Read Answer >>
Hot Definitions
  1. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  3. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  4. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  5. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  6. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
Trading Center