3M - Muda Mura Muri

Part 1
 BUSINESS MODELS
Cost Plus Model (Traditional Corporate Finance)

Most organizations believe and build their models based on the following model:
𝑪𝒐𝒔𝒕 + 𝑷𝒓𝒐𝒇𝒊𝒕 𝑮𝒐𝒂𝒍 = 𝑺𝒂𝒍𝒆𝒔 𝑷𝒓𝒊𝒄𝒆
This describes, in general, the corporate finance worldview. The main assumption
and emphasis in the traditional corporate finance worldview are the following:
• Costs is fixed (not controllable)
• Price is determined by the company policy or profitability goal

The corporate finance worldview might be

illustrated as a traditional cost plus model:
 BUSINESS MODELS
Lean Thinking Model (Costs are Controllable)

In contrast to the traditional corporate finance worldview, the Toyota Production

System or lean views the model differently and with a different emphasis:
𝑷𝒓𝒐𝒇𝒊𝒕 = 𝑺𝒂𝒍𝒆𝒔 𝑷𝒓𝒊𝒄𝒆 – 𝑪𝒐𝒔𝒕
In the Lean Thinking model, the belief and emphasis are the following:
• Costs are controllable and can be reduced through the application of
lean manufacturing methods
• Sales Price is determined by what customers are willing to pay, not by
company profitability policies (EBITDA Goals)
The Lean Thinking model might be illustrated
like this:
 PRODUCTION METHOD AND COST
There are 2 kinds of cost.
1st – the cost that every company has to bear to produce the same product
2nd - the cost that differs among companies by production method.
The production method cost can be reduced by operator creativeness and
strong efforts

Cost which differs due

MUDA
to production method
Purchased parts

depreciation &
Material Cost

Energy Cost
Cost

Equipment
Labor Cost

other cost
Cost which every
cost

company incurs
 REDUCING COSTS VS. CUTTING COSTS
There can be a view that cost can be reduced by cutting but there is a
difference in Cost Cutting and Cost Reduction
Cutting costs
• Temporary measure
• Reversible
• Painful/drastic
Reducing costs by “Waste Elimination”
• Genuine cost reduction(Not just reduction of expenses)
• Irreversible
• People acceptance
• Impacts both top and bottom line
 3M – MUDA, MURA, MURI
3M stands for MUDA, MURA, MURI – three enemies
of productivity. MUDA is waste, MURA is
unevenness and MURI is overburden.
The goal of Lean is to deliver increased value to the
customer through eliminating wasteful processes.
When one talks about waste in this sense, often they
refer to the seven wastes in manufacturing or Muda
from the 3M model. Mura and Muri are often excluded from the picture but
knowing these two is crucial as they are more likely to have caused Muda to appear
in the first place. They are all interrelated and are all considered wastes. One does
not look for Muda alone and hope to solve a process problem completely. It would
be more likely that you need to sort out Mura and Muri first to eliminate Muda.
This will ensure that the risk of Muda returning to your process is mitigated.
A good understanding of all three will surely help any business in
streamlining their processes.
 INTERRELATION OF 3M
Let’s take some examples to understand how these
three are interrelated. MUDA
Suppose a company’s manufacturing department is
rated based on the units they produce monthly. This
leads them to constantly increase their output month-
on-month to depict an uplift in their production. By the MURA MURI
last week of the month, the department realizes they
are still short of their target units, and so they ramp up
production before the month closes off. This sudden peak in production (Mura)
leads to the employees and machines operating more than their full capacity
(Muri). Not necessarily backed by customer demand data, the increase in units
produced also leads to overproduction (Muda).
 Concept of 3M- Truck Example
A firm that needs to transport 6 tons of materials to a customer has several options
Option #1 – all 6 ton boxes in 1 truck

MURI
1T 1T 1T

1T 1T 1T Overburdened

Option #2 – all 6 ton boxes in 2 truck but unevenly

1T

1T 1T 1T 1T 1T
MURA
Unevenness
 Concept of 3M- Truck Example
Option #3 – all 6 ton boxes in 3 trucks but evenly

1T 1T 1T 1T 1T 1T

MUDA
Waste

Option #4 – all 6 ton boxes in 2 truck but evenly


MURI
1T 1T 1T 1T 1T 1T Overburdened

MURA
Unevenness
MUDA
Waste
 UPCOMING SERIES
Upcoming post will address following for each of the M in 3M
What is Muda, Mura, Muri?
Examples
Their interrelations
How to identify and reduce/ eliminate
Thank You!!!
Journey Continues...