Maximizing production mode and lean production mode are both seeking to reduce costs and increase profits, but there are obvious differences in concepts and specific practices.

Lean cost management:

The products manufactured by enterprises are sold at a price higher than the cost, and the difference is the profit. The relationship between the three can be expressed by the following formula:

Price-cost = profit

For the purpose of profit, enterprises usually use the method of product cost plus appropriate profit to determine the sales price. It can be expressed by the following formula, which is called the cost plus formula:

Cost+profit = selling price

That is, it costs so much and these profits are equal to selling at this price. In this formula, the profit is the target of booking, which is fixed, and the cost determines the price. No matter how high the cost is, the excess cost should be passed on to the users to ensure the realization of the profit target. This practice can only be adopted in the seller's market where the product is in short supply, but it is not feasible in today's highly competitive buyer's market. Because in the case of the same use value of products, users first choose cheap products. If the price is too high, users will not buy your product. Not only can the enterprise not get the expected profit, but it will reduce the competitive strength of its products, which is counterproductive.

Lean production mode believes that the price of products is determined by consumers' correct evaluation of products, which is determined according to the market operation, rather than the actual cost of products. Therefore, it is suggested that the cost plus formula be reversed and converted into the selling price deduction formula:

Sales price-profit = cost

That is, subtracting the necessary profit from the price acceptable to users is equivalent to manufacturing only at these costs. In this formula, the selling price is determined by the market. When the selling price remains unchanged or needs to be reduced, in order to achieve the expected profit, we must find ways to reduce the cost, which is the real source of profit. The change from cost addition formula to selling price subtraction formula is the ideological change from "cost determines selling price" to "selling price determines cost". From this basic point of view, a series of changes in thinking mode and management system can be derived:

(1) When determining policy objectives, we should abandon the practice of increasing corporate profits simply by raising prices and shifting the burden of expenses, and focus on maximizing internal potential and reducing costs;

② In the content of cost control, we should extend the manufacturing cost of products in the production field to the target cost of new products in the development field, and control the cost from the source;

③ In the management organization, it is necessary to expand from relying solely on a few cost management professionals to the participation of all employees in the enterprise, and everyone is responsible for financial management, carry out various improvement activities to reduce costs and do a good job in deep-seated cost control.

To sum up, it is to carry out cost reduction activities throughout the production and business activities, and implement cost control for all employees, all time and all process. This is the essential requirement of lean cost management.