There isn’t much would-be lean manufacturers can learn from lawyers. The old joke … What is the difference between a lawyer and a carp? One of them is a scum sucking bottom feeder, while the other one is a fish … is based at least partly on the truth and the lawyer culture is about as far as one can get from the lean culture. But you can learn something very important from the economics of lawyering.

The business end of the law profession revolves around ‘billable hours’. I know something about it because it is the same for all professionals – doctors and consultants measure the business primarily on the basis of billable hours the same as lawyers. It’s a pretty simple concept: If I work 50 hours a week, the idea is to have as many of them as possible be hours that are paid for by a client – billable hours. The more of my time is billable, the more profitable my consulting practice is.

I can’t make 100% of my time billable, however. If I don’t spend some time learning and sometime marketing I won’t have any work when the gigs I am working on wind up. So there is a bit of a balancing act, but the time I spend that is not billable but not marketing or learning is absolute waste and I have to minimize it – time spent doing my accounting, planning travel, sitting in airports, waiting for a phone call and the like.

Manufacturing should view itself in precisely the same manner. The goal is not to work fewer hours. In fact, the goal is to work as many hours as possible. The aim is to have as many of the hours be billable hours. If 30 of my 50 hours are billable, and ten are invested in learning and marketing and the remaining ten are waste, I don’t want to eliminate the waste and simply work 40 hours. I want to replace the waste with billable time. I want to keep working 50 hours but have 40 of them billable, rather than 30.

This is precisely the economic principle behind lean. If you have 100 employees working 40 hours a week you are paying for 4,000 hours. Some of it is billable – value adding, hours customers will pay you for, essentially your direct labor. Some of it is invested – product engineering and process improvement. And much of it is waste – sitting in meetings, shuffling papers, feeding computers, sorting defects or moving inventory around.

Your goal isn’t to eliminate the waste and cut the total hours – get rid of people. Rather, it is to keep the same 100 people on the payroll but have a greater percentage of the 4,000 hours doing things that are billable – things that create value for customers.

This is why the value ratio is the fundamental measure of your leanness. What percentage of your spending was on value creation – activities and resources that enable you to sell more stuff, or to charge higher prices for the stuff you sell; and what percentage was wasted. (And in between was some you invested in the business but you better be sure it was invested in things that are going to pay off in greater value adding eventually.)

Of course, for the lawyers, consultants and doctors time is about all they have to sell so they talk in terms of billable hours only. For manufacturers the same principle extends to all spending – purchased materials, outside contracts – everything. What percentage of it went to creating customer value – what percentage is billable? And what percentage of it went down the rat hole?

Anyone looking for a simple understanding of the economics of lean need not look any further.  And anyone looking for the most accurate measure of just how lean they are need not look any further