Chapter 3

Operations Management
Introduction
This chapter provides a general overview of the basic expressions related to production
systems, processes and supply chain management, and the Toyota Production System.

Operations management plays a critical role in the success of any organization, particularly
when it comes to manufacturing and production. Efficient production systems and
processes are essential for delivering high-quality products, meeting customer demands,
and maintaining a competitive advantage in the market.

Operations, Marketing, and Finance are the three main functions of a business. Finance is
tasked with generating financial resources, capital, and funds through the sale of goods
and services in the marketplace and investments from stakeholders. The finance and
operations teams then collaborate to determine the best method for allocating these
resources and converting them into physical assets and material inputs. The operations
team then utilizes these inputs to create product and service outputs by the company's
strategic objectives. The marketing department ensures that the outputs are developed
and marketed in a way that aligns with the characteristics of the selected markets. The
revenue generated from these sales is returned to investors and used as capital to support
the operations of the firm. The accounting, information systems, human resources, and
engineering departments play a crucial role in providing essential information, services, and
support to enable the firm to function effectively. In Figure 1, we can see how these support
functions are connected within the company.

Figure 1: Location of production/service in the company

Source: Krajewski et al. (2016, p. 23.)

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Basics and definitions
Product vs. Service
Usually, the company does not provide a pure product or a pure service, but the dominant
type is worth paying more attention to.

Product characteristics: The main characteristics of a product revolve around its tangible
nature, as it is a physical item that can be touched and felt. The concept of deferred
consumption is taken into account, recognizing the need for customers to have access to
the product when desired. To ensure convenience, the product is designed for minimal
contact with the consumer, allowing for a hassle-free experience. The production process
is asset-intensive or capital-intensive, requiring significant investments in machinery,
equipment, and infrastructure. Nonetheless, the quality of the product is easily checked,
ensuring that it meets the highest standards and provides customer satisfaction.

Service characteristics: Services are different from tangible products in several ways.
Firstly, services are intangible, meaning they cannot be touched or held. Instead, they are
experienced through interactions and actions. Unlike tangible products, services are not
stockable. They are created and delivered in real time, often customized to meet the
specific needs and preferences of individual consumers. This immediate consumption
aspect emphasizes the on-demand nature of services, allowing customers to access and
utilize them promptly. Moreover, services involve an intensive relationship with the
consumer, as the service provider actively participates in the process. This interactive
dynamic enables personalized experiences, effective communication, and the opportunity
for feedback and adjustments in real time. Whether it is consulting, healthcare, or
entertainment, services thrive on this collaborative engagement, ensuring customer
satisfaction and value creation.

Figure 2: Continuum of Characteristics of Manufacturing and Service Processes

Source: Krajewski et al. (2016)

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Types of Processes

Quality Function Deployment (QFD): QFD aims to find out what will satisfy the customers’
needs. Design and launch the product/service ASAP, improve quality, and decrease costs.

The House of Quality (HoQ): is a tool to help marketing and operations functions to find out
what the customers want and how the company can ensure satisfaction.

When developing a new product or service, companies must make key decisions about
what to produce and how to produce it. The "what to produce" decision comes from the
marketing function and involves assessing customer needs, analyzing the competitive
landscape, and identifying a value proposition for the offering. Once the product or service
is defined, operations focus on the "how to produce it" question.

The line flow process is characterized by a linear, smooth flow of materials through
successive stations with no inventories between them. This process uses expensive but
highly productive special-purpose machines operated by less-skilled workers. It is well-
suited for high-volume, standardized products where efficiency and low unit costs are
critical. The entire process is optimized for maximum throughput. With standardized
workflows, the line can churn out finished goods in a continuous flow. As a make-to-stock
system, the first cash flow comes from selling the first completed item from the inventory.
The linear nature maximizes efficiency but lacks flexibility. High initial investments are
required to set up the specialized equipment, making it harder to enter the market. Overall,
line flow processes excel at producing standardized goods at low costs but lack the agility
to switch between products. The key is aligning demand volume and stability with the line
flow capabilities.

The flexible flow process uses general-purpose machines operated by skilled workers.
These machines are less expensive but not as productive as specialized equipment. This
enables unique, low-volume products to be made affordably but often with higher unit
costs. With flexible flows, the process must be redesigned for each new product, which is
time-consuming. Workstations see more wait time as production shifts between product
variants. The flexible nature requires workers with more expertise to set up processes on
the fly. Lower investments in general equipment mean it is easier for competitors to enter
the market. But production volumes are lower and unit costs higher. As a make-to-order
system, the first cash flow comes from customer advance payments rather than finished
inventory. Overall, flexible flows allow a wide range of custom or low-volume products but
lack the efficiency of standardized processes. The trade-off is market responsiveness
versus operational efficiency.

Cell flow process: is a hybrid approach that combines elements of line and flexible flows.
Rather than making all products on the same general equipment, product categories are
identified and cells are created for each family of products. Within each cell, the process
becomes linear like a production line, with smooth, streamlined flows. This eliminates
much of the waiting time inherent in flexible systems. More general-purpose machines are
dedicated within each cell compared to flexible flows. Workers in cell flow processes are
"T-shaped" - possessing broad skills to operate multiple machines as well as deep expertise
within their cell. Investments, product uniqueness, volumes, and unit costs fall between
flexible and line flow approaches. Cells can produce moderate batches of like products
efficiently through standardized workflows. Since some equipment is shared between
product families, cells retain more flexibility than line flow. Overall, cell flows represent a
compromise between market responsiveness and operational efficiency. The company
must balance product variety against volume to maximize the benefits.

Types of Production Systems

Job Shop: The job shop production system is characterized by its ability to customize and
produce products in small batches or on a one-by-one basis. This system is particularly
suitable for complex products that have unique specifications, as each order requires
different resources and processes to be applied. Job shop production is commonly utilized
by manufacturers specializing in low- to medium-volume production, where the focus is on
producing custom-made products rather than mass production. The processes employed
in a job shop are tailored to the specific requirements of each order, allowing for flexibility
and customization throughout the manufacturing process. They can measure capacity as
a number of machine hours. Example: project work, house construction.

Batch Production: Batch processes and job processes differ in terms of volume, variety,
and quantity. The key distinction lies in the higher volumes associated with batch
processes, as they involve the repeated production of the same or similar products or parts.
In batch processes, certain components may undergo pre-processing before being
incorporated into the final product. Production lots are handled in larger quantities or
batches compared to job processes. In a batch process, a group of products, including the
parts or other related products, is processed before switching to the next group. Eventually,
production is circled back to the initial product. Batch processes typically involve average
or moderate volumes, but the process divergence is significant enough to discourage
dedicating a separate process for each product. The flow of the process is flexible, but
more dominant paths emerge compared to job processes, and certain segments of the
process may follow a line flow. Example: producing sporting goods or soap.

Line flow: The line flow process occupies a position between batch processes and
continuous flow on the production continuum. It is characterized by high volumes and
standardized products, enabling efficient resource allocation focused on specific product
lines. In a line process, production is organized to achieve economies of scale and
streamline operations, resulting in optimized output and productivity. By standardizing
products, manufacturers can establish efficient workflows, minimize setup and changeover
times, and ensure consistent quality throughout the production line. Example: car
manufacturing.

Continuous flow: Continuous production systems are characterized by uninterrupted, high-

volume production that occurs in a continuous flow of materials and operations. This
production model is commonly employed in industries such as oil refining, chemical
manufacturing, and steel production. The key distinguishing factor of continuous-flow
processes is the negligible process divergence, meaning the production remains
consistent and uninterrupted throughout the entire operation. The name "continuous flow"
stems from the fact that materials, whether undifferentiated or discrete, move through the
process without any interruptions until the entire batch is completed. This uninterrupted
flow can span several shifts or even several months, depending on the specific production
requirements. Examples of industries that utilize continuous-flow processes include
petroleum refining, chemical processes, and paper manufacturing, as well as the
production of steel, soft drinks, and food products.

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Strategic fit: The process chosen should reflect the desired competitive priorities: cost;
quality; time; and flexibility. The process structure has a major impact on customer
involvement, resource flexibility, capital intensity, and the structure of the organization.

Process Structuring in Services: Customer contact is the extent to which the customer is
present, actively involved, and receives personal attention during the service process. Face-
to-face interaction is sometimes called a moment of truth or a service encounter, which is
essential in any service.

Manufacturing systems are based on two main characteristics – product customization

and process flexibility. Figure 3 shows the five general production systems presented
above along these two dimensions. On the vertical axis, production systems are organized
from low to high product customization. Flexible and linear process flows are mapped on
the horizontal axis.

Figure 3: Product-process matrix

Source: Own elaboration based on Dóra Longauer’s Operations Management presentation

Capacity measurement
Production processes refer to the specific methods and activities involved in transforming
inputs into outputs. They define how resources are utilized and how tasks are sequenced
to achieve the desired outcome. The choice of production process depends on the type of
product, production system, and organizational goals.

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Productivity is the value of outputs (services and products) produced divided by the values
of input resources (wages, cost of equipment, etc.) used:

Productivity =

Efficiency: How well the organization can perform relative to the average competitor using
a given amount of resources, assuming only the effective use of a given set of resources.

Product development: Product development is about getting a new product or service to

market as quickly as possible. The product or service should attract consumer attention and
increase consumer satisfaction by increasing quality and reducing costs.

Capacity planning: Capacity planning involves determining how much output can be
produced by a facility or process over a specific period. This helps ensure companies can
meet fluctuations in demand. Capacity planning involves the development of product and
process characteristics. Capacity is the amount of work that a production/service unit can
handle in a given unit of time. The most basic questions in capacity planning are what type
of capacity is needed, how much capacity is needed, and when and where capacity is
needed. Due to the importance of the decision, the stake is to satisfy the demand at the
appropriate time and volume. Good forecasting is key: accuracy depends on the nature of
the product and its life cycle. The decision has a decisive effect on fixed costs. Depending
on its nature, it can limit the company's scope for a longer period.

Measuring capacity utilization:

- Design capacity: the maximum amount of output or input that can be produced or
used during a certain period.
- Effective capacity: designed capacity, taking into account that maintenance is
required, quality problems and malfunctions may always exist, set-up time is
required at the start of the series, etc.
- Actual output: the amount of products produced during a certain period.

Designed capacity > Effective capacity > Actual output

Capacity cushion: The amount of reserve capacity a process uses to handle sudden
increases in demand or temporary losses of production capacity; it measures the amount
by which the average utilization (in terms of total capacity) falls below 100 percent.

The higher the degree of utilization, the higher the level of stocks lying in the system. The
high level of semi-finished products threatens the efficiency of the processes because it ties
up funds, i.e. it is costly. The presence of many semi-finished products hides production
problems.

Low utilization rate = high-capacity pad. With a high-capacity cushion, quality increases, and
operating costs decrease. But in this way, the utilization of capacities is reduced, which
means it is expensive. Capacity: how many products are made or how many customers are
served per unit of time.

Cycle time: reciprocal of capacity; how many minutes a product is made or how many
minutes we serve a customer.
Effective capacity planning provides several key benefits for operations
management:
- Through resource allocation it determines the required production capacity needed
to meet forecasted demand over a set timeframe. This specifies how much output
can feasibly be produced given current resources.
- It facilitates optimal resource allocation, indicating how labour, equipment, and
facilities should be utilized to maximize efficiency and throughput. This enables
managers to adjust assignments and scheduling to best meet demand.
- It informs investment decisions around new facilities, technologies, or capital
equipment. Evaluating capacity constraints guides strategic investments to expand
capabilities where needed.
- It identifies potential capacity bottlenecks or shortfalls in advance, allowing
managers to mitigate risks of disruptions. Proactive capacity planning enables
contingency planning to avoid issues meeting demand.
Overall, thorough capacity planning provides vital insights for aligning production capacity
with projected output requirements. This supports efficient operations, effective investment
strategies, and risk management across the organization's production system.

Supply-chain management
A supply chain refers to a collaborative group of companies that collectively participate in
various stages of production and delivery to provide products or services to consumers.
Supply chain management involves developing and executing a strategy to align the actions
of network participants to maximize overall profitability. Within the chain, financial flow
originates from the final consumer and is distributed among the various actors. Effective
management of the production network entails ensuring that the synchronized activities of
these actors generate higher profits compared to their individual, independent, and
uncoordinated efforts. Supply chain management is a very important skill in a business. The
purpose of supply chain management is to synchronize the processes of suppliers and
customers with the processes of the company, in such a way that the flow of materials,
services, and information is adjusted to the demand.

Decision-making areas related to supply chain management:

- Selection of suppliers,
- delivery (logistics) partners,
- banks, financiers,
- the determination of the configuration of the production network,
- capacity locations,
- determination of warehouse bases,
- the organization of outbound logistics, and the distribution of finished goods.
Typical supply chain actors

The smooth flow of raw materials, components, finished and semi-finished products,
information, services, and money is crucial for the efficient functioning of any supply chain.
In the production sector, demand typically originates from the end consumer, while
production begins with suppliers. Thus, effective coordination becomes essential to bridge
the geographical and logistical distances between these two ends. By establishing efficient

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communication channels, implementing robust logistic systems, and fostering collaborative
relationships among stakeholders, organizations can ensure a seamless flow of resources
and information, enabling them to meet consumer demand effectively and optimize their
production processes. Figure 4 shows a simplified version of the supply chain in the
production sector.

Figure 4: Supply chain in production

Source: Vörös (2018)

The supply chains in the manufacturing industry are generally longer than those in the
service sector. This is because services have a unique feature where production and
consumption processes often coincide. When production is almost parallel to consumption,
there is no need for distribution, wholesale, or retail activity between the producer and the
consumer, as we can see in Figure 5.

Figure 5. Supply chain actors in service

Source: Vörös (2018)

Efficient operation within the supply chain yields significant cost savings for the entire
network. When each stage of the supply chain is optimized, it reduces wastage, minimizes
delays, and enhances overall productivity. These improvements translate into tangible cost
reductions, such as lower inventory holding costs, decreased transportation expenses, and
improved utilization of resources. Moreover, proper management of the supply chain goes
beyond cost savings; it also creates a substantial competitive advantage. Organizations that
effectively coordinate and manage their supply chains gain the ability to respond swiftly to
market demands, offer shorter lead times, ensure consistent product availability, and deliver
superior customer service. This competitive edge can result in increased customer
satisfaction, higher market share, and improved profitability, positioning the organization as
a leader in its industry. Since a company can belong to several supply chains, we can
typically speak of a network.

The ideal supplier is a business that:

- Deliveries are made on time, in the quality and quantity agreed upon in the contract.
In other words, the supplier can perform supplier activities consistently and
continuously.
- Supplier prices are competitive, and the company is able to continuously reduce
production costs.

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 - Continuously improves the product and service.
- It can react quickly to changes, reducing and increasing the volume, as it always
happens in real life.
- Selflessly shares the available information with the members of the chain.
Strategic alignment is crucial in the dynamic landscape of supply chain management.
Organizations must align their competitive priorities with the overarching goals of the supply
chain, recognizing that success relies on more than just individual profit maximization. It
requires considering the intricacies of geographical, cultural, and administrative distances
that exist within the supply chain network. To effectively navigate these challenges,
organizations must develop robust supply chain capabilities that balance efficiency and
responsiveness. By leveraging accurate knowledge of consumer needs and employing
effective demand forecasting techniques, organizations can align their operations to meet
consumer expectations while minimizing the risk of excess inventory or stockouts.
Additionally, understanding consumer tolerance levels becomes vital in managing inventory
levels, production volumes, and lead times, ensuring that the supply chain operates
optimally and delivers products or services that align with consumer preferences.

Strategic decisions: When considering cooperation and integration in the supply chain,
companies have various options to explore. Horizontal integration involves collaborating
with or acquiring a similar company within the industry, which can lead to economies of
scale, reduced competition, and increased market share. Vertical integration, on the other
hand, entails partnering with or acquiring a company within the industry that operates either
closer to the consumer (forward integration) or closer to the raw materials (backward
integration). Forward integration allows the company to take control of distribution channels
and enhance customer proximity, while backward integration provides control over the
supply of raw materials, ensuring stability and potentially reducing costs.

Make-or-buy: Another aspect to consider is the make-or-buy decision, where companies

evaluate whether to produce goods or services in-house or outsource them to external
actors. This decision depends on factors such as cost efficiency, expertise, capacity
utilization, and strategic focus. By carefully assessing these factors and aligning them with
the company's objectives, organizations can determine the most suitable cooperation and
integration strategies for their supply chain.

Outsourcing: Outsourcing is cooperation with an external party aimed at carrying out

certain business processes, functions, or production activities. Many companies choose to
outsource part of their production process for various reasons:

- Lack of capacity: The primary driver is a lack of capacity – by outsourcing certain

production activities, companies can supplement their existing capacity to meet
demand.

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 - Lack of internal expertise: Outsourcing is also used when there is a lack of internal
expertise in some production areas. Working with an experienced external partner
allows companies to benefit from their knowledge and capabilities.
- Learning from the other company: Additionally, outsourcing enables learning when
the other company has mastered innovations or efficiencies.
- Focusing, on releasing internal resources: Other reasons include focusing internal
resources on core competencies rather than supporting functions, and addressing
internal capacity bottlenecks. By outsourcing non-core business functions,
companies can focus their resources on core competencies and activities that drive
competitive advantage.
- Sharing risks with external partners: outsourcing converts fixed costs into variable
costs, providing financial flexibility and freeing up capital for other business
priorities.
Overall, the outsourcing part of the production process can provide companies with
flexibility, cost efficiency, knowledge transfer, and access to new technologies or expertise.

The Bullwhip Effect: The bullwhip effect refers to the phenomenon where demand forecast
variability tends to increase as you move upstream in the supply chain from retailers to
wholesalers to distributors to manufacturers. It is characterized by each upstream supply
chain stage exaggerating or amplifying orders to the next level. Small deviations in the
demand curve cause very big fluctuations throughout the chain. The proportion of
overstocking and understocking increases.

Inventory management
Inventory is the amount of money invested in any commodity bought to be sold with or
without processing. Inventories provide a selection of goods for anticipated demand and to
separate the firm from fluctuations in demand.

Inventory management involves planning and controlling stock levels to balance the trade-
offs between competing priorities. The objective of inventory management is to strike a
balance between inventory investment and customer service. On one hand, maintaining a
high inventory ties up working capital, increases carrying costs, and risks obsolescence.
However, stockouts from inadequate inventory can result in lost sales, backorders, and poor
customer service. The goal of effective inventory management is to strike the right balance
that supports the organization's competitive strategy in a cost-efficient manner. This
requires aligning inventory policies and controls with the business priorities of cost, quality,
speed, dependability, and flexibility. By optimizing inventory to meet demand across these
metrics, businesses can maximize their overall supply chain performance. Inventory
optimization models weigh the costs of holding and stocking out inventory given demand
variability and lead times. Such data-driven analysis helps businesses determine
appropriate reorder points, safety stock levels, and order quantities that best serve their
competitive priorities.

Maintaining inventory comes with additional costs. Warehousing inventories require

investment in buildings, equipment, and employees to handle storage and logistics.
Inventory also runs the risk of expiring or becoming obsolete before use, turning assets into
liabilities. Insurance and other measures are needed to protect against damage, spoilage,
or theft. Excess inventories can hide underlying problems like production inefficiencies or
forecasting errors. Capital is tied up in inventory that could be better utilized elsewhere.

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Holding costs represent on average 20-40% of the total cost of a product. This includes
expenses related to warehousing, expiration, shrinkage, insurance, and capital. Businesses
must optimize their inventory levels to balance the benefits of buffering against stock-outs
with the carrying costs.

Common inventory types: A key aspect of inventory management is classifying inventory

into relevant categories. Common inventory types include raw materials consisting of the
basic inputs to production, purchased components and parts used in assembly, work-in-
process including half-done products at various stages of completion, finished goods which
are products completed and ready for sale, and equipment spare parts for maintenance and
repairs. Categorizing inventory enables tailored management of each type to optimize
quality, costs, and availability. For example, raw materials require careful monitoring of
supply and demand to avoid shortages that could halt production. Meanwhile, finished
goods need distribution planning to ensure adequate supply across retail locations.
Managing spare parts requires balancing availability for equipment uptime with holding
costs. Overall, segmenting total inventory into raw materials, components, work-in-process,
finished products, and spare parts allows businesses to gain visibility and implement
targeted inventory management policies for each type to meet their competitive strategy.

- Raw material: Purchased input to be processed

- Work-in-process (WIP): Undergone some changes but not completed

- Maintenance/repair/operating (MRO): Necessary to keep machinery and processes

productive

- Finished goods: Completed product waiting for shipment

The EOQ (Economic Order Quantity) model: The economic order quantity (EOQ) model aims
to determine the optimal order size that minimizes total inventory costs. It makes several
simplifying assumptions, including constant known demand, and there is no lead time.
Setup (ordering) cost arises at the beginning of every cycle. Receipt of inventory is
instantaneous and complete. There are no stockouts. Additionally, quantity discounts are
not possible. Given these conditions, the EOQ balances order setup costs against holding
costs to optimize inventory asset efficiency.

This model works best in high volume, make-to-stock situations with stable demand and
known, fixed ordering expenses. It is less applicable for make-to-order, low-volume
environments or where order sizes are constrained.

Further types of inventory models:

ABC analysis: Classifies inventory into groups (A, B, C) based on the value they represent.
“A” items are very important for the business. “B” items are important but of medium value.
“C” items are low-value items. ABC analysis allows tailoring inventory controls and metrics
toward higher-value items.

Economic Production Quantity (EPQ): Manufacturer with continuous production. Goods

arrive at the warehouse continuously, not in batches. EPQ finds the optimal production size
that minimizes total setup and inventory holding costs for efficient inventory management.

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Backlogging: Penalty cost for stockouts. Backlogging refers to delaying order fulfilment
when faced with inventory stockouts or shortages. Rather than lose the sale, the order is
kept open or "backlogged" to be filled when inventory becomes available.

Quantity discount: Reduced purchasing price due to buying in bulk, holding cost decreases
due to the lower price. A quantity discount is a reduced unit price offered by suppliers to
incentivize larger volume purchases. The unit price decreases as the quantity purchased
increases.

Toyota Production System

Toyota Motor Corporation is one of the largest vehicle manufacturers worldwide, its
reliability is well known. Its success is due to its unique production system and philosophy.
Their basic concept is to provide the customer with exactly what s/he wants, when s/he
wants it just in time (JIT), so there is no waste, and no unnecessary inventory. Toyota is
often regarded as the pioneer of Lean manufacturing, with its Toyota Production System
(TPS) serving as the foundation for many Lean practices. Toyota focuses on continuous
improvement, waste reduction, and employee empowerment. By implementing Lean
principles, Toyota has achieved remarkable results, such as reducing production lead times,
minimizing inventory levels, and improving overall efficiency. The company's success has
inspired numerous other organizations to adopt Lean manufacturing principles.

Quality control involves inspection, testing, and analysis to ensure products meet
specifications and customer expectations. Statistical process control, Six Sigma, quality
circles, and total quality management (TQM) are key quality control techniques.

Lean manufacturing principles can significantly improve supply chain management by

reducing waste, enhancing efficiency, and increasing responsiveness. Here are some ways
in which Lean manufacturing helps organizations improve their supply chain management:

The Toyota Way has 2 pillars: The Toyota Production System is built on two key pillars
known as the Toyota Way - continuous improvement and respect for people.

• Continuous improvement: The first pillar focuses on constantly striving for

innovation and optimization. Toyota sets ambitious long-term visions to challenge norms
and then achieves them through continual kaizen or incremental improvements. Genchi
genbutsu, meaning "go and see for yourself," empowers employees to identify waste and
opportunities through direct observation and analysis.
• Respect for people: The second pillar recognizes that people are the heart of any
system. Toyota fosters an environment of mutual trust and teamwork. There is deep respect
for the unique perspective and contributions of each employee. Toyota makes an earnest
effort to understand employees' ideas and needs to unlock their full potential. By bringing
these two pillars together, Toyota has demonstrated how empowering people to innovate
within a supportive organizational culture can lead to operational excellence.

3 basic principles
JIDOKA: Jidoka is part of the quality at the source philosophy. It is a visual
management technique that makes the status of safety, quality, delivery, and cost
readily visible to floor workers against performance goals. It highlights abnormalities
so they can be addressed promptly by line workers. Stop production if ANY problems

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are seen by pulling the Andon card, and then other team members help to solve the
problem.

KAIZEN: Continuous improvement stems from the Japanese concept of kaizen - the
philosophy of constantly striving to make processes better. It involves setting
benchmarks for excellence and cultivating employee ownership. The focus is on
reducing waste in all forms - be it time, materials, or incidents. The core belief is that
any process can be improved, and those closest to it are best positioned to identify
changes.

HEIJUNKA: Levelling out the work schedule. Heijunka is used to eliminate

unevenness in production output and overburden on workers/machines. Production
is levelled out into a consistent mix and volume over a period of time, often a day or
shift.
Process Considerations: Push or pull

Push Method of Workflow (NOT LEAN): A method in which production of the item begins in
advance of customer needs.

Pull Method of Workflow (LEAN): A method in which customer demand activates the
production of the service or item.

The main elements of TPS:

• Just-in-Time (JIT) Inventory Management: Lean manufacturing promotes the

practice of JIT inventory management, where inventory is replenished only when needed, in
the right quantities. This approach helps organizations reduce inventory carrying costs,
minimize storage space requirements, and mitigate the risk of obsolete or excess inventory.
By having the right inventory levels at the right time, organizations can respond more
effectively to customer demands and reduce supply chain disruptions.
• Six Sigma: is a five-step procedure that leads to improvements. Define: As a first
step, the scope and boundaries of the process to be analysed are determined. Measure: It is
important to have good performance measures to evaluate a process for clues on how to
improve it. Analyse: Use the data on measures to perform process analysis to determine
where improvements are necessary. Improve: Using analytical and creative thinking, the
design team generates a long list of ideas for improvements. These ideas are then sifted

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and analysed. Control: After the implementation, monitor the process to make sure that high-
performance levels are maintained.
• Waste Reduction: focuses on identifying and eliminating various types of waste in
the supply chain, such as excess inventory, transportation inefficiencies, waiting times, and
overproduction. By reducing waste, organizations can streamline their supply chain
processes, minimize costs, and improve overall efficiency.
• Value Stream Mapping: Value stream mapping is used to analyse and optimize the
flow of materials and information throughout the supply chain. It helps identify bottlenecks,
non-value-added activities, and opportunities for improvement. By mapping the value
stream, organizations can identify areas of waste, streamline processes, and enhance
overall supply chain efficiency.
• The Kanban system: is a production and inventory control system developed by
Toyota. Kanban means cards/visible records in Japanese. It uses visual cues such as cards
or signals to trigger action, such as ordering more materials or producing the next item. The
Kanban system aims to create an efficient workflow by limiting work in process and avoiding
overproduction or accumulation of excess inventory.
• Continuous Improvement: Lean manufacturing promotes a culture of continuous
improvement throughout the supply chain. By involving employees at all levels in identifying
and implementing process enhancements, organizations can tap into their knowledge and
expertise to drive improvement initiatives. Continuous improvement efforts help optimize
supply chain processes, reduce lead times, enhance quality, and increase customer
satisfaction.
• Supplier Collaboration: Lean manufacturing encourages close collaboration and
partnerships with suppliers. By working closely with suppliers, organizations can enhance
communication, improve coordination, and streamline the flow of materials. Lean principles
such as supplier quality management, supplier development, and collaborative planning can
help organizations build stronger relationships with suppliers, resulting in improved supply
chain performance.
• Lean: Lean system is a demand-driven approach, a method in which customer
demand activates the production of the service or item. By synchronizing supply with
demand, organizations can minimize the risk of overproduction, reduce lead times, and
improve customer satisfaction.
In summary, Lean manufacturing helps organizations improve their supply chain
management by reducing waste, implementing JIT inventory management, utilizing value
stream mapping, fostering a culture of continuous improvement, promoting supplier
collaboration, standardizing work processes, and adopting a demand-driven approach. By
implementing these Lean principles, organizations can achieve greater efficiency, cost
savings, and customer satisfaction in their supply chain operations.

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Abbreviation Expression Hungarian
BOM bill of materials anyagjegyzék
CAD computer aided development számítógéppel támogatott fejlesztés
CAM computer aided manufacturing számítógéppel támogatott termelés
CPM Critical Path Method kritikus útvonal módszere
DBR drum-buffer-rope dob-ütköző-kötél modell
EDLP everyday low prices minden nap alacsony ár
EOQ Economic Order Quantity gazdaságos sorozatnagyság (GSN)
ERP Enterprise Resource Planning vállalati erőforrás-tervezés
FMS flexible manufacturing system rugalmas gyártórendszer
HOQ House of Quality minőségház
JIT Just-In-Time karcsúsított termelési rendszer
MPS Master Production Schedule termelési vezérprogram
MRP Material Requirements Planning anyagigény-tervezés
MRP II Manufacturing Resource Planning termelési erőforrásterv
POM Production and Operations termelés menedzsment
Management
POQ Period Order Quantity periodikus rendelési tételnagyság
QFD Quality Function Deployment minőségfunkciók telepítése
RFID Radio Frequency Identification rádiófrekvenciás azonosító
SCM Supply Chain Management ellátásilánc-menedzsment
SKU stock-keeping unit készletnyilvántartási egység
UPC Universal Product Code egységes vonalkód
TPS Toyota Production System Toyota Termelési Rendszer (TTR)
TPT Throughput time rendszerben töltött idő, megmunkálási
idő
TQM Total Quality Management teljeskörű minőségirányítás
VMI Vendor Managed Inventory beszállító által menedzselt készletek
L4L Lot-for-Lot igény szerinti rendelés
FOQ Fixed Order Quantity fix rendelési tételnagyság
IR Inventory Records készletnyilvántartás

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Key expressions

Expression Meaning (Hungarian) Expression Meaning (Hungarian)

aggregate aggregált tervezés house of quality minőségház
planning idle time állásidő, tétlen idő
batch production kötegelt termelés, inventory készlet
sorozatgyártás
job shop műhelyrendszer
bottleneck szűk keresztmetszet
layoff elbocsátás
bullwhip effect ostorcsapás hatás
line process szalagszerű termelés
capacity kapacitás
lead time leszállítási idő, átfutási idő
capacity cushion kapacitáspárna
level-utilization kapacitásszintező stratégia
capacity kapacitástervezés strategy
planning
line balancing lineáris folyamelrendezések
centre of gravity gravitációs központ telepítése
chase strategy keresletkövető stratégia locating létesítmények telepítése
continuous folyamatos gyártás, nem facilities
process megszakítható folyamat lot size gyártási egység,
cycle time ciklusidő sorozatnagyság
decision tree döntési fa maintenance karbantartás
demand kereslet mixed strategy kombinált stratégia
direct labour közvetlen élőmunka- multifactor többtényezős termelékenység
content ráfordítás/igény/tartalom productivity
direct labour közvetlen munkaerő- overtime túlóra
utilization hasznosítás possibility valószínűség
eight-hour shift nyolcórás műszak processing time gyártási idő
economies of volumengazdaságosság, production plan termelésterv
scale skálahatás,
productivity termelékenység
méretgazdaságosság
rectilinear derékszögtávolság
economies of választékgazdaságosság
distance
scope
regular time alapműszak
efficiency hatékonyság
safety stock biztonsági készlet
employee alkalmazott
setup cost átállítási költség
efficiency hatékonyság
Euclidean setup time átállási idő
euklideszi távolság
distance supply chain ellátási lánc
forecast előrejelzés staffing plan munkaerőterv
flow shop szalagszerű termelés throughput time rendszerben töltött idő,
megmunkálási idő
hiring workforce munkaerő felvétele
transportation szállítási tábla
holding cost készletezési költség
table

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