Book Notes from 'This Is Lean' By Niklas Modig
The Efficiency
Matrix
- The plethora of definitions
and usages of lean provides a rather confused picture of what lean
actually is.
- A new framework that we call
the efficient matrix
- The efficient matrix
- Many definitions of lean are
made at a low level of abstraction.
- The fact that organizations
in many different industries are now starting to work with lean makes it
necessary to have a definition of lean that is on a sufficiently high
level of abstraction to ensure its applicability outside of large volume
manufacturing
- The efficiency matrix
depicts four different operational states in which organizations find
themselves.
- Efficient Islands
- Resource efficiency is high
and flow efficiency is low
- Efficient utilization of
resources comes at the expense of efficient flow.
- Flow efficiency for every
individual flow unit is low
- Products spending much of
its time as inventory.
- Efficient Ocean
- Flow efficiency is high but
resource efficiency is low
- The focus is on the
customer and meeting their needs as efficiency as possible.
- Flow is efficient at the
expense of an efficient use of resources.
- Wasteland
- The organization is unable
to use its resources efficiently or create an efficient flow.
- This is not a desirable
state to be in because it wastes resources and creates less value for
the customer.
- Perfect State
- Organizations that achieve
this state have both high resource efficiency and high flow efficiency.
- It should be clear by now
that it is difficult to reach the perfect state.
- Variation limits possible
positions in the matrix
- In order to understand what
positions an organization can achieve in the efficiency matrix, its
critical to understand variation and its impact on the organization.
- In order to reach the star
and organization would need two things.
- Perfect access to all
information regarding the customers present and future needs
- Require perfectly flexible
and reliable resources -
- Variation in demand prevents
organizations from reaching the star.
- The first prerequisite for
being able to reach the star is perfect predictability of demand
- What is demanded
- When it is demanded
- Which amount is demanded.
- A demand pattern is
extremely difficult to predict.
- Variation in supply prevents
organizations from reaching the star.
- Reaching the star would
require perfectly flexible and reliable supply
- First of all - resources
must be perfectly flexible.
- The organization needs
perfectly flexible resources in terms of
- What is supplied
- When it is supplied
- Which amount is supplied
- Perfect flexibility and
reliability of the organizations resources would allow it to adapt to
any situation.
- Level of variation
establishes the efficiency frontier
- It is the level of
variation in demand and supply that determines which operational states
an organization can achieve.
- The existence of variation
limits the possible operational states and organization can achieve.
- The main point to
understand here is that it is impossible to reach an operational state
beyond the efficiency frontier.
- Whether the organization
prioritizes resource efficiency or flow efficiency -
- The efficiency frontier
has been pushed in as the level of variation increases.
- Examples of organizations
facing high variation are those in which the main flow unit is people.
- We cannot standardize or
control people in the same way we can material or information.
- It is often possible to
become better at eliminating, reducing or managing variation.
- Strategy decides position in
the matrix
- Many definitions of lean
define it as a means rather than a goal.
- Be clear about the
difference between a business strategy and an operations strategy
- A Business strategy defines
what type of customer need the organization wishes to satisfy
- An operations strategy
defines how the organization will meet this need.
- A business strategy defines
what:
- Defines the value the
company will offer the customer.
- A fundamental idea is the
literature on business strategy is the importance of choosing between
differentiation and cost.
- When devising a business
strategy - the level of differentiation that will be offered to the
customer at what cost.
- Business strategies - are
about understanding and choosing which objective to prioritize.
- What the customers value,
what competitors do, what the organization is good at doing.
- An Operations Strategy
defines how:
- Helps realizes the business
strategy and defines how value is produced.
- Operations strategy answers
the question - 'how shall we product value'
- How will we product a
product given our business strategy
- An operations strategy can
be broken down into operational objectives.
- Lean 2.0
- The efficiency matrix serves
as a foundation for understanding what lean is at the 'fruit level'
- We want to define lean at a
sufficiently high level of abstraction for it to apply to all kinds of
organizations
- The matrix highlights the
importance of strategic choice
- Organizations have a choice
regarding where to position themselves and how to move within the matrix.
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