Managerial Accounting
Managerial Accounting
7th Edition
ISBN: 9781260247886
Author: Wild
Publisher: MCG
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Chapter C, Problem 1DQ
To determine

Lean Business Model:

Lean Business Model is a strategic approach to business where the thrust is on eliminating wastes from the processes and products of the business without compromising on the satisfaction of customer needs.

The three key principles of lean business model

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Answer to Problem 1DQ

The three key principles of lean business model are identification and addition of value, creating the value stream and eliminate waste.

Explanation of Solution

Lean business model is a business strategy where the focus is on meeting the needs of the customers while reducing the waste to the most minimum level. The model focuses on reducing the waste by continually improving the processes, improving the quality and reducing the inventory levels to minimize waste and damage. The three main principles of the model are:

  1. Identification and addition of value − Here, the business strives to identify which process creates the value for the customers. What is the customer expectation in terms of price, delivery, features etc. must be understood to analyze what is the value in the product/service provided by the company
  2. Creating the Value Stream − Once the value has been identified, the next key thing is to create or align the processes to achieve the value from the product. This alignment must be in each stage starting from raw material to final material delivery to the consumers. A flow diagram or map of the entire value chain is the objective here.
  3. Eliminating Waste − This is the last and the most important principle, which strives on reducing waste at each level of production process by continually improving the processes and quality.

All these together helps the company achieves quality products which are valuable to the consumers with minimum level of waste in the environment.

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