• Market globalization and fast-paced technological change have raised customer expectations, and companies can succeed or fail depending on their ability to deliver the right goods at the right price, at the right time, via the right distribution channels.If getting it wrong can be costly, it right takes time. It means constantly evaluating every part of the production process to see where it can be made more efficient without a perceived drop in quality or sales. Henry Ford was the first industrialist to recognize the value of offering customers “more for less,” and made it his business to make improvements to his cars every year, while simultaneously dropping their price. Today, many use a “low cost, good quality” strategy to attract customers, especially during times of recession.
• One of the most effective ways of lowering costs while maintaining value is to reduce waste. Outside of a business context, ’lean’ means ’thin in a healthy way / ’no fat’. In a business context, it refers to an approach which tries to meet demand instantenously with perfect quality and no waste. Lean production developed from the ideas of Joseph Juran, a management consultant who developed innovative ways of improving quality and efficiency at the same time. In the 1950s, the Union of Japanese Scientists and Engineers invited him to lecture to hundreds of top-level executives, who quickly put his ideas to practical use. Toyota was among the many businesses who implemented his methods. The company’s approach ultimately grew into the “just-in-time” production system that is widely used today.
• Lean manufacturing:
  • ’Kanban’: using a ’pull’ system where production responds quickly to real, observed demand. This contrasts with a ’push’ system where production is based on forecasts of demand (which may not be accurate).
  • Flexible manufacturing: designing machines to do multiple tasks; reprogramming machine tools while they are running
  • Mass customization: tailoring products to meet the needs of a large number of individual customers.
• The techniques used for lean operations are often called ’just-in-time’ (JIT) techniques. These include:
  • Making every effort to eliminate waste
  • Developing working practices which support ’continuous improvement’ (often called by its Japanese name ’kaizen’).
  • Involving all staff in quality initiatives.
  • Improving the flow of work-in-progress around the plant by rearranging layout and using machines that are small, simple, robust and flexible.
  • Reducing set-up and change-over times.
  • Incorporating manufacturing considerations into the design process (reducing production costs by reducing design complexity).

Why use JIT techniques? Because materials, work-in-progress and finished goods that are not being used represent a waste ot time, space and money.

• The Toyota Production System (TPS)

a., History: TPS is the basis of modern manufacturing. It was developed at Toyota at the end of the 70s and during the 80s, but it is now used right across the industry. In the 1950s, Toyota was a relatively inefficient producer of cars. Like many other Japanese companies, Toyota was struggling to overcome the shortages created by an economy that had been devastated by war. Looking for ideas, Toyota sent a young engineer, Eiji Toyoda, to the US to visit Ford’s Rouge plant in Detroit, MI. Toyoda spent three months studying the mass-production technique pioneered by Ford at the Rouge. On his return, Eiji reported that he was impressed by the scale of production that Ford achieved— the Rouge was so big that it required its own railroad, hospital, and several fire stations. However, he also believed that the factory was riddled with muda—the Japanese term for wasted effort, materials, and time. Toyoda and his colleagues set about developing a new production system that sought to replicate the output and economies of scale achieved by Ford, but in a less wasteful manner.

b., Muda: TPS focuses on two things: adding value and eliminating waste. Value is defined as any item or feature for which a customer is willing to pay. Anything else is waste and has to be removed. TPS identifies seven categories of waste (muda):

a., overproduction: producing too much, or too soon, or too quickly. Overproduction is minimized by using a ’pull’ system; this means that work isn’t performed unless the part is required downstream

b., materials handling: inside and outside the plant

c., movement: performing tasks manually that could be automated.

d., waiting: idle time between work stations along the production line

e., over processing: doing more than the customer required or is willing to pay for (value analysis)

f., inventory: exceeding one-piece flow. One-piece flow (= continuous flow) is when items are processed one at a time and then moved directly to the next process.

g., defects: rework, repair, or waste in its simplest form. Defects are rigourously analyzed to make sure that they don’t happen again (ie. ’error-proofing’ the system).

c., Gemba: Gemba is a Japanese word meaning “the real place,” in a business context gemba refers to the place where value-added is created. Kaizen is founded on the conviction that the production-line worker is the gemba expert who knows where the problems are. Therefore, most of the ideas for kaizen change should come from the factory-floor workers, rather than from management. This is because difficulties and abnormalities can only be analyzed and fixed at the gemba, not from the desk. Kaizen philosophy recognizes that a company’s greatest resource is its employees. Kaizen is more likely to be effective if workers are asked to work as teams, rather than as isolated individuals. The process of coming up with good ideas and solutions is often the product of the synergy created by people that have different skill sets, qualifications, or ways of seeing the world. Working as a team on kaizen projects is known as being part of a “quality circle.” The quality circle consists of a group of people who usually work together—for example, on the same part of an assembly line—as well as individuals from other parts of the business who can bring different perspectives. For example, an engineer could provide advice on technical matters, while sales-team members can give the group an insight into the customer’s point of view.

d., Asa-ichi and fish-bone diagram: fish-boneIn 1964, Toyota established quality circles at its factory in Toyota City, Japan. The quality circles still meet regularly, at least once a week, to discuss any of the problems they have noticed on their section of the production line. Each morning employees are expected to attend an asa-ichi (morning) meeting with a positive attitude, before the regular working day begins. At this meeting they discuss quality problems and possible solutions to those problems. One of the main tools used by Toyota’s quality circles to generate kaizen ideas is the “fish-bone” diagram. This is a graphic device that uses the outline of a fish skeleton to plot all the various aspects of a problem and then explore a number of solutions. Quality circle members are asked to identify possible causes for the problem, and each suggestion is classified into one of six categories: Manpower, Methods, Machines, Materials, Measurement (inspection), and Mother Nature (environmental factors). Solutions to each of the possible causes of the problem are evaluated by the circle using the “five Ws,” which are the five questions: Why, When, Where, Who, and What.

e., Practical implementation of kaizen (continuous improvement) / The Five Ss

• Principle: a place for everything, and everything in its place
• Key ideas: discipline, simplicity, pride, standardization and repeatability
  • S1: Sort: Review everything in the work area, separating what is needed from what is not. Remove anything unnecessary
  • S2: Set In Order: Arrange everything in a neat, tidy and easy-to-use manner
  • S3: Shine: Once the work area has been sorted and set in order, clean it up so that everything shines! Clean the area itself, as well as equipment and tools
  • S4: Standardize: Create clear, simple and visual standards for S1-S3
    • a., shadows on work surfaces and inside storage boxes show which tools should be where
    • b., a re-order card (called a ’kanban’) is attached to an item and placed somewhere after the item is used. This gives a visual signal when a new item is needed.
  • S5: Sustain: Continue to operate and improve S1-S4
• Stock control plays a large part in the “just-in-time” system, and is vital to a balanced cash flow. Too much stock in the warehouse represents money that is doing nothing; if there is not enough stock to meet demand, customers may search out alternative suppliers. Most firms hold buffer stock – stock that exceeds the amount needed to meet current deamand.

The most important idea of lean operations is that of minimizing inventory kept on the premises – both stock and work-in-progress (WIP). So parts, components, raw materials and other supplies are delievered to the factory just as they are needed. And once delivered, the throughput (= rate at which work goes through the system) is fast.

• Note that with lean operations the capacity utilization (= ratio of actual output to potential output) is often low. This is a difference with traditional approaches. Note also that the need to carry inventory doesn’t disappear – it just shift to suppliers.
• Cost reduction is the holy grail of production managers, and one way to achieve this is to simplify production methods. This involves removing unnecessary and costly steps, or innovating so that stages become faster or less wasteful.

• Innovation can come from any part of the business. The Japanese idea of kaizen—meaning continuous improvement—is an ancient philosophy, but it was first used in an industrial setting by Toyota in the 1950s. Founder Elji Toyoda expected all employees—from the factory floor to senior executives— to constantly come up with ideas for improving products or production. This idea took hold around the world. Companies recognized value in setting up teams to increase creativity. However, large companies often limit innovation—or at least the testing of its validity—to an R&D (research and development) department. They can focus on the changing needs of markets and respond appropriately, making sure they benefit from the premium price of innovative products, and build a brand loyalty. More recently, companies have also begun to value the creativity of their customers. Using an approach known as “open innovation,” new ideas are welcomed from all sources, and customer feedback is valued in the product-development process. The opportunity for customers to post product ratings and reviews online allows ready access to customer feedback. Some even use online crowdsourcing to refine the design of products.
• Computer systems can collect and yield vast amounts of accurate data, which can translate into valuable information about employees, production lines, and markets. Data collected about customers is often referred to simply as “big data.” Customer buying preferences and habits can now be tracked with incredible accuracy—from their movements around a website, to where and how they like to buy products and services, both online and in stores. This gives an accurate picture of their overall market, while also targeting individual customers, offering them products in tune with their preferences.
• Companies aim to satisfy customers to get repeat business and good “word-of-mouth,” which can hugely boost sales. Those that operate in the fast-moving-consumer-goods (FMCG) market, selling such things as chocolate, beer, and cereals, rely on quality for creating customer loyalty. In the service industries, following this “added-value” approach can be problematic. If competing companies raise the quality of their product or service to a level that would be unprofitable to match, this would signal the need for new strategic thinking. However, high-quality goods can last for a long time without needing replacement, and this was problem addressed by industrial designer Brooke Stevens. He suggested that companies could increase sales by creating in consumers the “desire to own something a little better, a little sooner than necessary.” This seems especially true today, when new models of products such as smartphones are produced regularly—well before their predecessors are defunct. For a smooth, fast route to a high-quality product, companies need to make best use of time and resources. This has led to the development of a way of working known as “timebased management,” which involves utilizing time in the same way as raw materials. It is often used with critical-path analysis, which identifies all the stages of a project and puts them into a logical order, saving companies time and money. 

 Video 1: Just In Time

  Exercise 1: JIT QUIZ

 Video 2: Taiichi Ohno on the Toyota Production System

How would you describe Mr Ohno and his methods?

 Exercise 2: Logistics and Warehousing