Saturday, March 20, 2010

Increase Cash Flow - Lean Manufacturing Principles

Cash is the key to survival in business and its lifeblood.  Recently I have applied lean principles in a manufacturing environment.  These basic principles can be utilized throughout the cycle of the business to eliminate waste and create value.

1.  Identify the Value - Cash management value is derived from optimizing funds, investing in positive return on investment (R.O.I.) projects, and reserves are in place to fuel future growth.
2.  Map the Value Stream - the value is derived from the optimizing the return to the shareholder via investment, credit, and balance sheet management.  The key value is the time from expenditure to receipt.
3.  Create Flow - Incoming receipts less outgoing payments.  Evaluate each piece of incoming/outgoing cash and understand the opportunities that can be improved upon. 
4.  Establish Pull - The formula is simple - more incoming with less outgoing cash - key is to reduce the time from manufacturing to cash receipt.  This would include reduction of receivable collection time, extend vendor terms, and mitigate inventory.
5.  Seek Perfection - Continuously increase the cash available for investment and return on investment (R.O.I.).  Challenge and review the cash flow cycle to move the business to greater return.

As a consumer, I want high value in a purchase.    As Peter Drucker states, "The purpose of a business is to create and keep a customer."  Companies that apply lean throughout the organization will win in the marketplace.  


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