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Posted by Ed Morley - 18 October, 2018

Increase Your Profit Margin by Applying Lean Manufacturing Principles

Though the term “lean” has become somewhat of a buzzword in recent years, the concept behind the term has been around for centuries - primarily when referring to the production of goods and other consumable items.

The term “lean production” mostly refers to a method of creating the maximum amount of product possible by using the smallest reasonable amount of materials and resources - without sacrificing quality, of course. In colloquial terms, when applying lean production to your processes, you’re looking to get the most bang for your buck out of your resources.

The benefits of lean are numerous:


  • It helps you focus on streamlining and optimizing workflows
  • It enables you to minimize overhead, meaning you’ll use less space, materials, and labor throughout normal operations
  • It also reduces the amount of waste you produce overall (either regarding byproduct or unused product)
  • It requires a mindset shift toward continuous quality improvement, ensuring you always look for a “better way to do things.”

All of this, of course, leads up to your company running like a finely-tuned machine - in turn leading to an increase in your profit margin in the long run.

Now, even if your company is strictly a wholesale or retail business (i.e., you only sell products, not manufacture them), you can still use the concepts and principles of lean manufacturing to increase your productivity - and generate more profits in the process. 

In this article, we’ll discuss some of the most important principles of lean manufacturing, and explain how implementing them throughout your company can help you skyrocket your business.

Applying Lean Manufacturing Principles to Your Retail Business

As we said, the principles of lean manufacturing can apply to much more than the process of creating products to be distributed. 

At its core, the concept of “lean” centers on a shift in mindset and philosophy concerning a given process - no matter what that process actually entails.

For our purposes, we’ll be looking at how the concept of lean applies to the process of distributing items as well as manufacturing them. 

The main principles we’ll address are:

  • Levelized Production
  • Just-In-Time Production
  • Continuous Quality Improvement

Let’s get started.

Levelized Production

In traditional wholesale and retail companies, the products being sold are stockpiled in the backroom or warehouse until the customer purchases them.

While this method ensures that items are always available when a customer asks for them, the downside is that the company must allocate a ton of space to storing the pieces until they’re needed. Additionally, it requires excess manpower, time, and other resources to be utilized upfront (in ordering and stocking the items within these storage areas) - without a guarantee of the items actually being sold.

The Levelized production aims to mitigate these issues by enabling your company to predict how many items you’ll sell on a given day - ensuring you don’t waste resources upfront and that the products you order don’t merely end up collecting dust sitting in storage.

Applying levelized production principles requires that you consider your past sales history in conjunction with current trends to determine an “average” daily amount of product needed. While it may seem like this could lead to a product shortage (if, for example, you make a record amount of sales on a given day), the idea is that you’ll have stocked away just enough product on the days in which your sales numbers were rather low.

As a slightly simple illustration, let’s say you sell an average of ten products per day. On the first day of the week, you only sell three items - meaning you have seventeen prepared to be shipped the next day. So, even if the following day shows a massive 70% increase above your average sales numbers, you’ll still be able to fulfill these orders. 

The idea is that, though you probably will end up stockpiling a small amount of your product, you almost certainly won’t be holding onto unsold items for as long as you would by ordering in bulk in a rather non-strategic manner. In turn, as we said, you’ll end up spending less on both products and storage space.

Just-In-Time Production

Going along with levelized production, just-in-time production refers to the notion of only purchasing that which you (or, in our cases, your customers) will actually utilize or require.

In lean manufacturing, just-in-time production means you’ll focus the use of resources and materials on products that your clients will ultimately purchase. So, for example, say Widget A and Widget B both require the same materials (and the same amount of materials). But, recent trends have shown that your clients are in dire need of Widget A, while demand for Widget B is in substantial decline. It would make more sense, then, to allocate your resources toward heavy production of Widget A for the time being.

From a retail perspective, this may seem like a no-brainer: Of course you’d only want to purchase products that you’ll quickly be able to sell for profit. 

Still, it may feel like a gamble to put this plan into action (“What if Product B suddenly becomes the next big thing?”). 

As mentioned in the section above, a switch to the “lean” way of thinking requires you to dig into your sales history and industry forecasts to determine your next move. In doing so, you’ll alleviate those pesky “what if” thoughts, and adopt a much more realistic approach to stocking your shelves.

Continuous Quality Improvement

Ask any entrepreneur or business owner what their primary goal for their company is, and they’ll almost certainly refer to growth in some way or another.

But, it can be easy to become somewhat complacent in this venture - especially once your company has reached a level that you consider to be “good enough.”

The problem, of course, is that today’s “good enough” is tomorrow’s “obsolete.” 

So, it’s all but essential that you adopt a mindset focused on continuous quality improvement - one of the most essential tenets of the lean mentality.

As the name implies, CQI refers to the idea that there is always room for improvement in every aspect of your company. Whether this means improving the efficiency with which you utilize resources, adopt new purchasing and pricing strategies, or simply tweak minor aspects of your business, you should never think of your company as a finished product.

By focusing on continuous quality improvement, you’ll inherently ensure that your company always provides top-notch services to your customers as time moves forward. In turn, you’ll all but guarantee that your brand remains a relevant competitor within your industry. 

Conclusion

While the term “lean” has, unfortunately, become a somewhat overused buzzword in many circles, the principles behind the word remain as relevant and valuable as ever. 

In our modern, capitalistic world - in which excess waste is, for some reason, seen as unavoidable - many companies might not even entertain the idea of adopting a lean approach to running a business. However, in doing so, you’ll all but certainly find that your processes will run more smoothly, and your resources will be used more efficiently. Ultimately, this will all result in a higher profit margin for your company as a whole.

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