Lean means “using less to do more” by “determining the value of any given process by distinguishing value added steps from non-value added and eliminating waste so that ultimately every step adds value to the process” (Miller, 2005).

In short, Lean is about reducing waste.

• Transport: Identify and reduce avoidable transportation of inventory (Raw, WIP and Finished Goods). This would include transportation within and outside the factory. This can be done by reorganizing factory layout and simplifying supply-chain.
• Inventory: Holding inventory is expensive as it is essentially money sitting idle (without earning interest). Moreover, relying on excessive inventory hides other problems like excessive scrap in your process or inefficient order-scheduling. From a cost-accounting perspective, the problem is even worse if your DSO (Days Sales Outstanding) is more than your DPO (Days Payable Outstanding).
• Motion: This refers to motion of personnel and material within a process (work-center). Excessive motion means work-station operators spend less time monitoring the equipment. If the motion is repetitive and not ergonomic, it may also lead to occupational injuries. Identification of excessive motion can be done using "Spaghetti diagrams". Reduction of excessive motion can be done using point of use tooling and cellular layouts.
• Waiting: Intra-process (within a work-center) waiting can happen due to unscheduled maintenance, early and unpredictable tool-wear, frequent equipment setups due to product-switching etc. Inter-process waiting happens when a process is waiting for input-materials from a preceding process.
• Over-Production: Over-production can result from three causes (1) Producing product-versions that are not needed (2) Producing products before they are needed and (3) Producing more products than are needed. In each case, over-production results in higher inventory. It also incurs opportunity cost as the time and resources could have been sent on producing products that were actually needed by the customer at that time. Over-production can be reduced by working in smaller batches and accurately forecasting the product demand.
• Over-Processing: Over processing can result from (1) Poorly designed manufacturing process i.e. having more steps in your process than actually needed (2) Lack of customer needs i.e. delivering more features than actually needed by the customer or (3) Re-work due to poor initial quality
• Defects: Every single defective part represents (1) Waste of capex (equipment usage), (2) Waster of raw material and labor hours, (3) Opportunity cost, (4) Increased market risk (from decreased customer satisfaction) and (5) Over-processing (due to warranty or rework efforts). As can be seen, defects represent cumulative wastage.

The lean philosophy specifies some commonly used tools to reduce waste. This is not an exhaustive list of tools and organizations can come up with their own set of tools.

These are 5 lean principles for organizing a workplace.

• Sort: Sorting through all items in a location and removing all unnecessary items from the location. This principle encourages minimal but functional layout of the work-center.
• Set in order: Putting all necessary items in their optimal place. The optimal place should be visually marked. This principle encourages point-of-use tooling.
• Shine: Cleaning and inspecting the workplace, tools and equipment on a regular basis.
• Standardize and Sustain: This involves developing procedures, visual controls and process audits to maintain 5S gains.

Overall Equipment Efficiency is a metric that summarizes the operational health of your factory, process or work-station. OEE also makes it easy to zoom-in on the actual root-causes of operational inefficiency. OEE is calculated by,

OEE = Performance x Uptime x Quality

Where,

Performance the ratio of the actual parts produced to the theoretical maximum parts that could have been produced in the given operating duration.

Performance (Productivity) = (Parts Produced * Ideal Cycle Time) / Operating time

Uptime is the ratio of actual operating time (the time an equipment is running) to the scheduled operating time.

Uptime = operating time / scheduled time

Quality is the ratio of good parts produced to the total parts produced in the given operating time.

Quality = (Units produced - defective units) / (Units produced)

Consider a manufacturing company StarBanners Products Co. The company has a paint-shop that paints car doors. The company has two shifts of 10 hour each. The painting is done by robots that operate continuously throughout the shift. On a given shift, work-station #8 had an unscheduled maintenance which resulted in the paint-shot robot being idle for 2 hours. The robot manufacturer markets the robot as capable of painting 80 car-doors per hour. For the given shift, the work-station #8 robot painted 480 doors out of which 6 were tagged as being unacceptable upon inspection. What is the OEE of work-station #8?