Lean Management

Following the early lead of Toyota, many industries have used the principles of lean
operations to improve performance in terms of cost, quality, and response time within their
plants and supply chains. During the 1980s, the Toyota Production System (TPS) garnered
increasing attention to understand the growing success behind Toyota’s and other Japanese
manufacturing industries in global markets. To generalize the principles behind TPS to other
manufacturing industries, the term lean was coined. Lean was chosen to highlight the
principles of limiting inventory, excess workers, or “waste,” as opposed to other auto
manufacturers’ “buffered” approaches.

Lean management aims to improve performance of a processing network that consists of

information and material flows of multiple products through a sequence of interconnected
processes.

Performance can be achieve at two different levels—plant and supply chain.

A plant is any singly owned, independently managed and operated facility, such as a
manufacturing site, a service unit, or a storage warehouse.

A supply chain is a network of interconnected facilities of diverse ownership with flows of

information and materials between them. It can include raw materials suppliers, finished-
goods producers, wholesalers, distributors, and retailers.

A lean operation has four ongoing objectives:

1. To improve process flows through efficient plant layout and fast and accurate flow of
material and information
2. To increase process flexibility by reducing equipment changeover times and cross-
functional training
3. To decrease process variability in flow rates, processing times, and quality
4. To minimize processing costs by eliminating non-value-adding activities such as
transportation, inspection, and rework

The first three goals improve process synchronization, and the fourth improves cost
efficiency.

1. The Process Ideal: Synchronisation & Efficiency

Customers want a wide variety of high-quality products from convenient locations at low
prices. Performance of an ideal process—a process that achieves synchronization at the
lowest possible cost—can thus be summarized in terms of two closely related operating
characteristics:

A. Process synchronization refers to the ability of the process to meet customer demand in
terms of their quantity, time, quality, and location requirements.

B. Process efficiency is measured in terms of the total processing cost.

C. The Four “Just Rights” of Synchronization

a perfectly synchronized process as one that is lean in that it develops, produces, and delivers
the following only on demand:

• Exactly what is needed (not wrong or defective products)

• Exactly how much is needed (neither more nor less)
• Exactly when it is needed (not before or after)
• Exactly where it is needed (not somewhere else)

Perfectly synchronized process always supplies just the right quantity of the right quality
product, at just the right time, and in just the right place—just as desired by customers. These
four “just rights” of synchronization form the core of the just-in-time (JIT) paradigm. Just-
in-time refers to an action taken only when it becomes necessary. In manufacturing, it means
production of only necessary flow units in necessary quantities at necessary times.

These four criteria define the ultimate in process quality, flexibility, capacity, and speed.
Producing any product without defects requires the process to be extremely versatile and
precise. The ability to produce any desired quantity requires flexibility to produce one unit at
a time. In order to satisfy demand arising at any time—without entailing inventories—a
process must have instant, complete, and accurate information on demand and must be able to
react by producing and delivering instantly as well. An ideal process can satisfy all these
requirements and do so at the lowest possible cost. In short, an ideal process is infinitely
capable, flexible, fast, and frugal.

Perfect synchronization of an entire network of processes requires precise matching of

supply and demand of various flow units at each processing stage. It means that each stage
must satisfy-precisely-the quality, quantity, time, and place requirements of the next stage.

2. Waste and its Resources

Lack of synchronization manifests itself in defective products, high inventories, long delays,
or frequent stockouts. waste means producing inefficiently, producing wrong or defective
products, producing in quantities too large or too small, and delivering products too early
or too late—that is, failing to match customer demand most economically. Taiichi Ohno,
the main architect of the Toyota Production System, classified seven types of waste in
manufacturing (1988):

• Producing defective products

• Producing too much product
• Carrying inventory
• Waiting due to unbalanced workloads
• Unnecessary processing
• Unnecessary worker movement
• Transporting materials

All this waste results in high costs, low quality, and long response times, ultimately leading to
customer dissatisfaction and loss of business to the competition.

3. Waste Elimination:
Cycle and safety inventories, processing in batch, safety capacity, and non-valueadding
activities including transportation, inspection, rework, and process control are short-term
tactical actions that process managers take in order to work with imperfect processes
suffering from inflexibility, variability, and inefficient logistics. All these measures,
however, increase total cost, inventory, and flow time, resulting in less-than-ideal
performance.
A long-term strategy is to improve the underlying process to make it more flexible,
predictable, and stable, which eliminates the need for such temporary measures as batch
processing, safety allowances, and process control.

To improve process synchronization, we need to do the following:

• Synchronize flows of material and information
• Increase resource flexibility
• Reduce process variability

To improve process efficiency, we need to do the following:

• Reduce processing cost and flow time
These improvements at the plant and supply chain level require a long-term investment in the
process, including equipment, technology, workers, and suppliers

4. Improving Flows in a Plant: Basic Principles of Lean Operations

Various methods like just-in-time production, zero inventory program, synchronous

manufacturing, agile manufacturing, and the Toyota Production System (TPS) have been
assigned as the ways to achieve efficiency and synchronisation..

TPS uses two pillars - “just-in-time” (synchronization) and “autonomation” (automation or

machines that can prevent problems autonomously)- to eliminate waste and drive continuous
improvement. TPS, for example, strives to make small but constant changes and
improvements (called kaizen) by continuously identifying and eliminating sources of waste.

A. Improving Process Architecture: Cellular Layouts (plese see earlier notes to read this
topic)

Various plant layout like process focused and product focused have their advantages and
disadvantages. A plant’s process architecture (the network of activities and resources) has a
significant impact on both the flow of work through the process and the ability of the process
to synchronize production with demand.

In a conventional functional layout (process focused), resources (“stations”) that perform

the same function are physically pooled together.

A major advantage of the functional layout is that it pools all available capacity for each
function, thereby permitting a fuller utilization of the resource pool in producing a variety of
products. It also facilitates worker training and performance measurement in each well-
defined function. Most important, it benefits from division of labor, specialization, and
standardization of work within each function, thereby increasing the efficiency of each
function.

In terms of synchronization, however, the functional layout has several drawbacks. Flow
units often travel significant distances between various resource pools, so their flow times are
longer and it is harder to move them in small lots. The result is an intermittent jumbled flow
with significant accumulation of inventories along the way. In addition, because each worker
tends to be narrowly focused on performing only a part of the total processing task, he or she
rarely sees the whole picture, leading to narrow, technology-focused process improvements.
An alternative to the process-based functional layout is the product-focused cellular layout,
in which all workstations that perform successive operations on a given product (or product
family) are grouped together to form a “cell.” In order to facilitate a linear, efficient flow of
both information and materials, different workstations within the cell are located next to one
another and laid out sequentially. A cell is focused on a narrow range of customer needs and
contains all resources required to meet these needs.

Advantages of Cellular Layouts: Physical proximity of stations within a cell reduces

transportation of flow units; makes it feasible to move small batches quickly; facilitates
communication; targeted improvements can be made to balance them; defective unit can be
reported to the supplier station immediately; the cause of the defect can be determined more
easily.
In short, the cellular layout facilitates synchronized flows and improved defect visibility,
traceability, and accountability - which, in turn, leads to fast detection, analysis, and
correction of quality problems.

It also encourages cross-functional skill development and teamwork among workers, leading
to more satisfying jobs; Because the entire team works on the same product, workers can
experience a sense of ownership of the total product and process. Finally, a cross-trained
workforce improves synchronization by making it possible to adjust production volume to
conform to changes in demand.

Disadvantages of Cellular Layouts Because resources are dedicated to specific cells,

they cannot be used by other cells. Consequently, we lose the advantage of resource
pooling that a functional layout enjoys. The stronger interdependence of cellular stations also
means that worker incentives have to be based on team - rather than individual - performance.

Thus, there are advantages and disadvantages to both functional and cellular layouts. Ideally,
cellular structure is appropriate for products or product families with similar work-flow
patterns and sufficiently high volume, as in automobile and electronic-goods manufacturing.
In some cases it may be appropriate to set up a cell of very flexible resources that is assigned
a large variety of low-volume parts. The focus of the cell is then on flexibility, and it
produces all low-volume parts so that the rest of the plant can focus on producing the high-
volume parts efficiently.

B. Improving Information and Material Flow: Demand Pull

There are two approaches to managing information and material flows: push and pull.
In the push approach, input availability triggers production, the emphasis being on
“keeping busy” to maximize resource utilization as long as there is work to be done.

This push operation synchronizes supply with demand at each stage only under the following
conditions:
• If all information (about the bill of materials, processing lead times, and parts
inventories) is accurate
• If forecasts of finished goods are correct
• If there is no variability in processing times
Failure to meet any one of these conditions at any stage disturbs planned flow and destroys
synchronization throughout the process, which then experiences excess inventories and/or
shortages at various stages. Because each process bases output not on demand but on input
availability, it is not surprising that production often fails to synchronize with demand.
An alternative method for ensuring synchronization is pull, where demand from a customer
station triggers production so that each station produces only on demand from its customer
station.
Work at an upstream station is initiated by actual downstream demand from its customer
station. Flow units are “pulled” from each process by its customer process only as they are
needed rather than being “pushed” by the supplier process on to the customer process as they
are produced. Under pull, the supplier does not produce or deliver anything until the customer
really needs it and thus avoids inventories of unwanted outputs by refraining from processing
inputs even if they are available.

Demand Signaling In a push system, input availability is sufficient to trigger production.

In a pull system, however, the customer needs a signaling device with which to inform the
supplier of its need.

Toyota has formalized its signalling kanbans, a device that allows the customer to inform the
supplier of its need. It is a card attached to an output flow unit in the buffer between
customer and supplier processes and lists the customer process, the supplier process, parts
description, and production quantity.

C. Improving Process Flexibility: Batch-Size Reduction

In addition to knowing what and when to produce, each station in a processing network
needs to know how much to produce at a time.
Consider, for example, an automobile assembly line that produces two different models—say,
sedans and station wagons. Suppose that monthly demand for each model is 10,000 units.
One way to meet this demand is to spend the first half of the month producing 10,000 sedans
and the second half producing 10,000 station wagons. This pattern of production will not
synchronize supply with demand because actual monthly demand is unlikely to look like this.

Level Production At the other extreme, we can achieve perfect synchronization if we

alternate sedan and station wagon production one at a time. This results in level production
(heijunka in TPS terminology) where small quantities are produced frequently to match with
customer demand. If monthly demand called for 10,000 sedans and 5,000 SUVs, a level
production system calls for producing two sedans followed by one SUV and then repeating
the sequence. If the demand pattern is stable, level production achieves perfect
synchronization, producing flow units on demand and in the quantity demanded. Moreover,
level production places an even workload on both the production process itself and all
supplier processes feeding it.

Changeover Costs and Batch Reduction Level production in a multiproduct setting

requires reducing the batch size produced of each product. This reduction is economical only
if the fixed cost associated with producing each batch can be reduced.

D. Quality at Source: Defect Prevention and Early Detection

Synchronization means more than just supplying correct quantities at correct times as
required by customers: It also means meeting their quality requirements. Supplying defective
flow units increases average flow time and cost because it necessitates inspection and rework.
It requires planning and controlling quality at the source rather than after the fact (in final
inspection) and can be accomplished in two ways:
1. By preventing defects from occurring in the first place
2. By detecting and correcting them as soon as they appear

Defect Prevention
Two techniques used by TPS to guard against defects are mistake-proofing (poka yoke) and
intelligent automation (“autonomation” or jidoka).
Under poka yoke, for example, parts are designed to minimize chances of incorrect assembly.
Under jidoka, machines are designed to halt automatically when there is a problem (deviation
from the standard operating procedure).

Defect Visibility Fast detection and correction of quality problems requires constant
vigilance and monitoring of feedback

In summary, poor quality disturbs flow synchronization through a process. The basic strategy
of lean operations, therefore, is threefold:
1. Preventing problems through better planning
2. Highlighting problems as soon as they occur
3. Delegating problem solving to the local level

E. Reducing Processing Variability: Standardization of Work, Maintenance, and Safety

Capacity
Variability in processing often results from imprecise specification of the work, equipment
malfunction, and breakdown. The first step in reducing processing variability is to
standardize work at each stage and specify it clearly

The advantage of this standardization is threefold. First, the standardization reduces

variability that arises from changing personnel. Second, the standardization reduces
variability from one production cycle to the next. Finally, standardization makes it easier
to identify sources of waste that can be eliminated.
It is much harder to identify waste if the process itself is not clearly specified.
Summary
 The River Analogy

Figure 10.2 illustrates the concept of waste and its sources by using a river analogy that has
been popularized in the literature on the Toyota Production System. Visualize process
imperfections—defective materials, machine breakdowns, long setup times, unreliable
suppliers, inefficient layouts—as rocks lying on a riverbed. The water level in the river
represents waste in the form of short-term measures such as excess cycle and safety
inventories, safety capacity, time allowance, safety quality, inspection, rework, and process
control. They provide an operating cushion to facilitate smooth sailing for the process
manager despite underlying problems.

The appropriate long-term response is to uncover and remove these rocks so that we can sail
smoothly even in shallow water (which symbolizes lean operations). Three factors, however,
impede us from achieving the long-term solution: (1) a high water level covers up rocks,
reduces problem visibility, and clouds the root causes on the bottom; (2) smooth sailing
because of the safety cushion dampens our incentives to look for root causes; and (3) lack of
problem-solving skills makes it difficult to eliminate the root causes. The challenge of
process management is to overcome these three obstructions and bring actual performance
closer to the ideal. The river analogy suggests lowering the water level slowly until the top
rocks are visible. Eliminating these rocks now provides smooth sailing with a lower level of
water. The pressure for improvement is maintained by lowering the water level further until
more rocks become visible. As rocks are constantly eliminated, a low level of water is
sufficient to provide smooth sailing.