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Kaizen Accelerates Value Creation

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December 7, 2008

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E-bits

ISSUE#2

A soundly implemented Kaizen-event is a sure-fire way to accelerate value.

“Kaizen” is a compound Japanese word meaning to take-apart and rebuild, roughly transliterated into “continuous improvement.” A wide body of concepts and tactics now falls under the Kaizen umbrella and when they are implemented as a set, through a defined event, a step-function shift in performance can be realized.

Remember, the primary driver of a business’s value (how much it is worth) can be stated in terms of its Return On Invested Capital (ROIC). When I talk about accelerating value (ROIC), I am referring to the simultaneous improvement of EBIT and Invested Capital. By driving EBIT up coupled with a concurrent reduction in Invested Capital, ROIC actually improves at a rate faster than if improvements are made in one or the other. A soundly implemented Kaizen does this!

Did you know that a hidden workforce of 20% can typically be found when cycle times are balanced to takt time? If physical assets are not a constraint, this means that the Sales line of the ValueTree™ could go up 20% with no increase in the Labor line. Add to this reductions in Overheads coming from such areas as 50-90% improvements in Scrap, Rework and Repair, elimination of Warehouse expenses, reduced Utilities, reductions in Workers Compensation rates and reduced Waste disposal and one experiences accelerating EBIT performance.

But that’s not all. A Kaizen also attacks the Invested Capital side of the equation especially through reductions in Inventory and improvements in equipment utilization. Voila! Accelerating ROIC performance.

Check out our Blog http://bossknots.blogspot.com/ and add a story anytime you want.

Keep adding value! Alden B. 1-860-748-3780

 

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