The Value of Cash Flow in the Pursuit of Lean

Posted by on Jun 6, 2011 in Lean | 0 comments

The beginning of lean can be traced back to Henry Ford and the Ford Motor Company from about 1910 to about 1915.  It was not so much Ford himself, but his leadership and sponsoring of projects that led to their mass production accomplishments.  Ford created the environment that drove many on his team to dream up and implement those projects.
Just about every change in the flow came from the bottom of the organization.  A common saying among the workers in the shop at the time was, “Everyone takes the hardest way first.”  They understood that however work was done, there was an easier, better, faster way that it could be done.
Ford and his management team understood that mass production required three elements:  Quality, cycle time and synchronization.  His financial system was driven by cash flow rather than any measure of profitability.  Typical supplier terms called for payment averaging 25 days after the receipt of material at the plant.  The manufacturing cycle was a week or less and shipping time another week or so.  Payment terms to dealers were C.O.D.  The result was that Ford had the money from the sale of a car in the bank a week or more before the payment for of the parts were due.
As you can imagine, it was very important that the quality of manufacturing the parts and assembly be as good as possible.  Process waste and cycle times were continuously being reduced and flow was always being improved.  Being driven by  cash flow lead to these advancements.  Other automobile companies at the time were using the Alfred Sloan model of maximizing shareholder Return on Investment or ROI.
When Henry Ford II took over the company after WWII, his family brought in a GM experienced management team.  The cash flow and market share goals were replaced with the objective of maximizing shareholder ROI.  Almost immediately, lean ideas and implementation ceased.

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