Cost Cutting vs Lean

Rick Bohan
lean vs. cost cutting
United Airlines cut costs by printing its in-flight magazine on thinner paper.

I’ve often said that lean is NOT cost cutting.  Maybe a better way to put it is, lean is one thing…cost cutting is another.  I found an article that provides a few good examples of cost-cutting that aren’t lean.  And that’s not a bad thing.
I found this LA Times article about an example of cost-cutting at United Airlines on Linked In.  (It’s short, so check it out. Thanks to Mark Graban for posting it there.) It reports that UAL saved a bunch of money, almost $300,000 annually, simply by printing its in-flight magazine on lighter paper.  Now, UAL had a net income of $2.1B last year, so this savings is about equal to what could be obtained by looking for change that spilled out of customers’ pockets onto the floor under their seats.  But that’s not the point, is it?  It’s a real savings and lots of these “real savings ideas” add up.  (The article also mentions that eliminating in-flight, duty-free sales has eliminated $2.3M in costs.  If you’re wondering, these savings come from reduced fuel requirements.  Even a few pounds makes a difference when you have thousands of flights each day.)  All to say, I’m a big fan of such savings (when they don’t compromise the delivery of value to the customer) and encourage all companies to promote them.  Smart organizations do a good job of getting employees at all levels engaged in developing and implementing such ideas.

But…such cost reductions, however beneficial aren’t to be confused with the effective application of lean concepts and methods.  They are cost-cutting projects, nothing more.  Some will say that such efforts are, in fact, good examples of “lean thinking” because they reduce or eliminate waste.  I wouldn’t agree.

The core question is, “Does the innovation improve the value delivered to the customer?”  In these cases, the answer is “no”.  And, again, I’m not saying that, therefore, such cost cutting is not useful.  It’s just not “lean”.

Some will respond, “But most lean methods don’t provide immediate value to customers!  How does a shadowboard help customers?”  Those folks don’t understand that the many tools that are comprised within the lean approach don’t stand alone but a part of an ecology of methods that, taken together, enable and enhance the processes that do provide value directly to customers.  That shadowboard allows the setup techs to find their tools more readily.  That means set up times are more consistent.  That, in turn, means the production schedule is more predictable and customers’ products get made and shipped on time.  At a lower cost.  But the shadowboard alone won’t provide all these benefits.  Other coordinated methods are needed.

At this point, I bet some of you are thinking,  “OK, but what’s the big deal?  Lean methods, properly implemented, reduce the overall cost structure of operations and many cost-cutting initiatives improve the company’s ability to serve customers.  Why be so persnickety about something that maybe just comes down to semantics?”

The point is that too many lean initiatives get launched simply as “cost cutting” projects.  Too many lean projects must show immediate savings.  Too many lean champions are mandated to show yearly cost reductions as a result of their efforts.  Too many managers are reluctant to adequately invest in lean implementations because they can’t reconcile spending money on something that they see as a “cost cutting” venture.  And all this leads to the eventual failure of such projects.

Yes, cost cutting and lean overlaps in many cases.  A successful lean initiative will focus on scrap, rework, delays, and costs of quality like expedited shipping, warranty claims for defective products and bad service.  But “cost cutting” and lean are not the same thing and shouldn’t be confused.


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