Taiichi Ohno described the Toyota Production System this way: "All we are doing is looking at the time line, from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value added wastes."
No great bit of news, that. A lot of people have read it, yet somehow most folks gloss over it and want to get to the specifics – the details, the nitty-gritty ‘implementation’ steps. You can’t skip this part, however. It is right at the heart of the whole deal.
Now there is a lot not to like about Jeff Bezos and the way he runs Amazon. It is hardly what anyone would call a lean company with its obsession with technology and scorn for employees, but there is no denying the fact that Bezos gets the fundamental economic premise of Ohno’s statement.
Said Bezos in USA Today, "Percentage margins are not one of the things we are seeking to optimize. It's the absolute dollar free cash flow per share that you want to maximize. If you can do that by lowering margins, we would do that. Free cash flow, that's something investors can spend."
The supremacy of cash flow as the financial goal and the key financial metric. That’s what Bezos believes, what Ohno was talking about, and what drove Henry Ford to put manufacturing on steroids. Driving to financial objectives other than cash is what causes GM and the like to endlessly meander without ever reaching sustained success. If you miss that, you have missed the whole point.
Production flow and cash flow are merely two sides of the same coin. Reduce the time from the receiving dock to the shipping dock and inventory goes down, cash flow improves. Flip the coin and focus on cash flow; it drives you to look for ways to reduce inventory, which takes you to smaller lot sizes, and the pursuit of one piece flow.
When people skip over the whole ‘reducing the time line from order to cash’ thing they all but assure failure to reach the lean promised land. The problem with accounting – the BIG problem with accounting – is that it separates profits from cash. So when you skip over the cash flow part and use just about any other metric with a ‘$’ sign in front of it you are defining goodness in some way other than how Ohno defined it.
That is what Bezos was talking about. Goodness is cash – period. Continuous Improvement is continuous increase in cash flow. Define it any other way and you are simply heading down the worn out path of those who apply lean tools to old objectives and wonder why they can’t see the results on the bottom line.
You can’t spend margins, ratios or formulas. Take a look at any bank deposit slip and you will see the truth in this. Nowhere on it will you find a place to write in a Return On Investment, Return On Sales or EBIT number. They only take real money.
One piece flow means turbo-charged cash flow. When it comes to lean, cash is, in fact, king.