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Chapter 1: Lean Enterprise as Business StrategyLet's say you're a CEO, or perhaps a business owner. Imagine your company is the leader of its industry with market share that comfortably exceeds your nearest competitor. You have the industry's shortest manufacturing lead time for your products-five weeks; you have 99% good quality; and you hardly ever miss a delivery date that you told a customer you'd achieve. You make a pretty good profit. Though you aren't necessarily the lowest-cost producer, no one can deny you hold the top position in the market. All in all, life is good.
One day, your head of marketing tells you that the Number Two competitor ("Yes," you think, "that distant Number Two") has just been acquired. The new owners, you are told, have had some success with their acquisitions in other industries-touting something called "lean enterprise." They are new to your industry, so naturally, you feel secure in believing these upstarts are not to be taken seriously. For several months, you don't hear much about the "new" company, which strengthens your conviction that your initial instincts were correct. Then one day (a Friday afternoon, naturally) your head of marketing bursts into your office with the news that you have just lost a critical customer order to Number Two. The upstart has lowered its prices 10`x, below yours, quoted one-week lead time to the customer's desired delivery date, and guaranteed 99.9% quality!
You're appalled, of course, that this company would buy business like this. You decide not to match the price, knowing that your competitor cannot sustain a loss-making business. You console your marketing chief, andgo back to business as usual.
A few more months go by. Things are not so comfortable as they used to be. Your company is now losing customer orders left and right. Prices have eroded 5-10%>, cutting deeply into margins; your factory is in chaos because of shorter lead times being demanded by the customers; and your once-vaunted quality levels have slipped terribly. As if this weren't bad enough, Number Two has just reduced order lead times to a single day, and is touting "six sigma" quality (essentially zero defects). You hear that it is about to gobble up the Number Three competitor and combine that business into its original plant. In addition, they're now introducing new products every six months compared to your 12 to 18 month cycle. Does this scenario sound far fetched? It isn't. It is standard fare for a competitor that successfully implements lean enterprise. Your competitor has been transformed from a sleepy snail into something more like a sleek and cunning jaguarstealthily approaching its prey, and then bringing it down with a ferocious, lightning-fast attack.
What if you indeed have a truly world class competitor on your hands? This is a company with a manufacturing lead time of four hours, virtually defect-free products, and rarely missed delivery. This competitor is fiercely price competitive and has new product development and introduction times that are measured in months. Not possible? Most of Toyota's leading suppliers have performed at this level for years.
The question is, would you be able to compete? Probably not if you continue using traditional mass production methods of operation. This is why we say that lean enterprise is strategic; it is not a tactical operations improvement program. Lean enterprise is an alternative approach your company can take that will make life extremely difficult for your competition. You could be the first in your industry to become a truly lean producer-and to reap the benefits of the success this will bring, rather than allowing someone else to do so. Imagine what you could do if your productivity went up by 25-40%, and if you could free up nearly half the floor space in your factories...