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Orry Fiume

Orry Fiume: Lean is a Business Strategy

By Orry Fiume, - Last updated: Tuesday, June 1, 2010 - Save & Share - Leave a comment

The way we approached it at Wiremold was to realize that what we call Lean is not an improvement program, not a manufacturing tactic, not a cost reduction tool, but is a strategy.  The purpose of any strategy (lean or otherwise) is to createsustainable competitive advantage. Lean does that by allowing an organization to differentiate itself in the market place through operational excellence.  We realized that if we could reduce the lead time in the market for giving quotes, delivering product, introducing new products, etc, so that we were substantially better than our competition (90%+), we could achieve a competitive advantage…and that showed up in market share gains, price premiums, etc.

Our investors benefited by an increase in their Return on Investment (1900-2000 our ROI to shareholders was 34.7% vs the S&P500 ROI of 15.5% for the same period.

Our board members and leaders benefited because (a) our pay was quite attractive because of our superior performance and (b) we actually had fun achieving what we were getting paid to do.

Our banks benefited because as we acquired companies (20 of them) we borrowed more money…but because we educated them as to the benefits of Lean we borrowed at very attractive fixed rates and WITHOUT assets as collateral.  Our only loan covenants were cash flow covenants.  In effect they realized they could lend us more money at lower risk because of our Lean strategy.

Our employees benefited because we shared 15% of our pre-tax profits with them, in cash, every quarter (thus answering their question of “what’s in it for me?”).  The constant theme of our communication with our employees was “Productivity = Wealth” and they realized that through our profit sharing plan.  In addition, we promised them that no one would lose employment as a result of productivity gains…and kept that promise even though the dot.com bust of 2000-2001 which resulted in a 20% sales decline for us.

I believe that we must make the case that Lean is business strategy and therefore applies not only to manufacturing but to all the support processes (product development, IT, accounting, etc) and administrative policies (sales, compensation, etc) that surround manufacturing,  Otherwise those processes and policies will continue to conflict with the principles of Lean and reduce, if not eliminate, it’s effectiveness.  In addition we must become better communicators with each of our stakeholders as to why Lean is good for them.  There is a positive for each one of them. Unless we do so we will continue to have limited impact on the way business is done.

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