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Lean Manufacturting

“The most dangerous kind of waste is the waste we do not recognize”

 

—Shigeo Shingo”

INTRODUCTION

It is a fact that achieving low cost and high quality no longer guarantees a business its success. In light of stiff global competition, companies are concentrating more than ever on reducing lead-times as a way of achieving operational flexibility. This is because as lead-times decrease, production time falls, quality improves and cost reduces. The methodology that an increasing number of companies are using to accomplish such a business strategy is the implementation of the Toyota production system (TPS), also called lean manufacturing, a strategy for lean supply chain.

Lean manufacturing initiative focuses on cost reduction and increase in turnover by planned elimination of non-value-adding activities. In today's competitive market, lean manufacturing is the solution for survival and success. Lean manufacturing helps organizations to achieve enhancement in productivity by introduction of the latest techniques and tools. It focuses on waste reduction and elimination of the same thereafter. Lean thus becomes part of organization culture and turns every process into a profit centre. Many leading companies across the globe have achieved tremendous productivity and ROI (return on investments) by adopting lean manufacturing practices and techniques. Indian industry has also a few success stories in automotive, process and other industries.

Lean manufacturing is best defined as a management philosophy that focuses on reducing waste in all business processes. It originated from a time when the Toyota of today was a manufacturer of power looms. In its modern form, lean was pioneered by Toyota Motor Co. in the 1950s, when it competed with the U.S.-based dominant and formidable automakers, in U.S. Automobile Market.

The National Institute of Standards and Technology (NIST) manufacturing extension partnership's lean network offers the following definition of lean manufacturing:

A systematic approach to identifying and eliminating waste through continuous improvement, flowing the product at the pull of the customer in pursuit of perfection.¹

The lean manufacturing can also be defined as a systematic approach to reduce and eliminate waste in the assembly line while manufacturing products. It involves continuous improvement with the help of process reviews to reduce costs by means of doing it right at the first time. The basic principles of lean manufacturing are less processing time, zero waiting time and zero inventory. The goal of lean manufacturing is to reduce or eliminate the wastes of the following items:²

• Underutilized workforce
• More processing time
• Overproduction
• Inventory
• Transportation delays
• Product/material defects
• Space
• Money, etc

In simple words, lean manufacturing eliminates waste by means of identifying non-value-adding activities which leads to poor product quality in the production process that will not be able to meet the customer's expectations in the marketplace. Thus, lean manufacturing is driven by five areas: cost, quality, delivery, safety and morale.

MANUFACTURING TRANSFORMATION

The manufacturing industry is witnessing continuous change over the years. The changes are due to many factors such as competitive pressure, changing needs of the customers, technological evolution, use of information technology and environmental regulations.

The two major factors which are playing a prominent role in bringing about changes in the manufacturing strategies of companies are the Internet and removal of global trade barriers. Companies are setting up cost-effective production facilities across the globe to serve global markets. They are going in for mass customization and are taking initiatives to reach the markets with new products speedily. They are achieving this through adoption of lean manufacturing processes, supply chain integration and collaborative design and development.

To face the changing environment and remain competitive, companies have resorted to lean manufacturing strategy. However, for the implementation of lean manufacturing, companies need to look into the following:

• Organizational structure
• Processes and systems to gain flexibility
• Production capacities for volumes
• Delivery lead-times
• Product quality
• Reduction in inventory

Lean strategy can be manifested in terms of localized manufacturing: cost economics, concepts of customization and postponement, flexible manufacturing systems and large production facilities based on economies of scale.

The new wave of ‘digital manufacturing (DM)’ is sweeping into industry. DM is an integrated information model spanning across the entire enterprise regardless of size, geography or complexity. DM has three tiers of applications in the manufacturing firm, as follows:

• Applications such as ERP, SCM, CRM, SRM, DRP, MRP, etc.
• Plant level systems of shop floor automation for WIP tracking, job scheduling, plant maintenance, etc.
• Plant automation and controls for tracking and monitoring of various process and equipment parameters.

Today, most of the companies are having IT applications in their infrastructure processes. However, very few are having tier-to-tier connectivity. IT tools or softwares are used for collecting, analysing and distribution of information to decision-makers. The IT brings in speed for on-time information availability. IT applications thus support strategic, tactical and operational decision-making across the extended supply chain. IT-enabled information model supports plant automation, production execution and other enterprise process applications. This helps to have planning and execution together as there is no time gap in the two processes because of speedy information flow in the integrated supply chain. Due to IT enablement, data sharing and exchange is done on real-time basis.

Companies are today shifting to the digital manufacturing model. This model enables efficient exchange of information between multiple manufacturing applications through an integrated information flow system. Digital manufacturing provides information infrastructure for data movement across the various process in the enterprise. The data inputs are from various systems such as forecasting, inventory, plant maintenance and many others. The other advantage of digital manufacturing is its support in scaling up of more applications through minimal interfacing needs.

‘Digital manufacturing’ works on an IT platform, supporting all the functions of manufacturing of an organization from product conceptualization to after-sales service to the customers. Digital manufacturing helps in creation of a knowledge management infrastructure that would facilitate learning and reuse, internal and external business process automation through business process workflows, collaboration and informational exchange through EDI with supply chain partners and operational excellence through a synchronization of planning and execution to have a supply chain with agility and leanness.

PRINCIPLES OF LEAN MANUFACTURING

The lean principles are basically customer value driven and suitable for manufacturing environments. There are five basic principles of lean manufacturing:

• Customer value: Understanding the value perceived by the customer and the same should be externally focused.
• Value stream analysis: Mapping the business process and analysing the steps to determine which ones actually add value. The non-value-adding steps should be modified or removed from the process.
• Continuous flow: Production should flow continuously from raw materials to finished goods.
• Demand pull: Make products only if is required by customer.
• Waste elimination: Eliminate waste (time, material, space, mistakes) from processes and allow flow of inventory continuously according to the market demands.

GAINING COMPETITIVENESS

Lean supply chain is the operational and strategic management philosophy that utilizes IT enabling to effect the continuous regeneration of supplier and service partner networks. A lean supply chain network is designed to deliver differential customer value at the lowest cost. This is achieved through the collaborative, real product/service transfer, demand priorities, real-time marketplace information and logistics delivery capabilities. The continuous regeneration of networks of supply chain partner concept implies that companies succeed by generating constantly from new networks of supply chain partners to achieve specific objectives. In general, the continuously evolving networks can respond to the dynamic nature of customer demand. This can be done through new forms of customer/supplier collaboration and scaleable product and information delivery flows.

The lean initiatives can be implemented manually. However, lean initiative would be more effective through IT application. IT would improve data visibility in the areas of problem resolution, design changes, quality issues and customer demand. There are three main functional areas, wherein software supports lean manufacturing initiative.

Managing Performance

The performance matrix is designed on a software platform. It maps the current processes in relation to the benchmarked ones. The right matrix helps in minimizing the wastes and enhances manufacturing system efficiency and its overall effectiveness. It also helps the enterprise to integrate processes and people leading to differential performance for gaining competitive edge.

Planning and Execution

The planning process is initiated followed by necessary steps for the execution as per the schedules.

Waste Reduction

Waste is commonly defined as non-value-added activity, as follows:

• Overproduction: It means the enterprise produces more than the market demands. In some cases, the goods are ready very much in advance of the demand or before need arise. The effect of overproduction is building up excess inventory blocking, the money which otherwise would have put to productive use.
• Delays: It means waiting resources such as materials, tools, information, equipment, etc. The reasons may be poor planning, late deliveries by suppliers, lack of communication, overbooking of equipment or erratic demand.
• Transportation: The movement of material from and to processes is a non-value-added activity which involves incidence of costs. The movement should be minimal otherwise it is a waste.
• Inventory: The money is blocked in inventory. Hence, storing more material is a waste in terms of space and cash.
• Undesirable processing: The inspection and reworking is nothing but doing more work on a part than is necessary. This results in waste of time and money.
• Defects: Defects consume precious resources. To fix the defects extra labour and machine time are required.
• Excess motions: The undesirable or non-value-added motions of employees in picking parts, getting tools or moving from place to place makes the worker tired, resulting in loss of productivity. This may be because of poorly planned work layout and workflow.

VALUE STREAM ANALYSIS

Value stream mapping is an excellent method to study and find scope for lean implementation in the business enterprise. The value mapping is studying of the existing process to know the value-added and non-value-added activities performed. The process of mapping starts right from product design phase to delivery of product to the customer. In the mapping process, the manufacturing company gets a clearer picture of the place of waste and sources of waste. With this background information, the firm can create the roadmap of a desired future state of the company. This is an interactive process. The value mapping is not a one-time activity, but it is a continuous process to find out ways of improving the flow of material and information.

ESSENTIALS OF LEAN SUPPLY CHAIN

To achieve objective of leanness in supply chain, the organization should have a major focus on its manufacturing operations and follow the following:

1. The organization should eliminate the wastes generation, that is, anything that consumes material or labour and that does not add value to the end customer. The waste includes rework, less productivity, overtime, slow motions, bottleneck in material flow and over capacity.
2. The manufacturing facility should have the equipments which are reliable to run when production requires it to run. The down time should be low. The manufacturing process should be latest and be capable of always making defect-free parts. The flow of the inventory needs to be continuous. This is possible when the defects are reduced, adequate process capability introduced and lead time is reduced for raw material and components.
3. The manufacturing process should be designed to prevent the product from being built incorrectly.
4. The system should be such that the production line would be stopped when bad quality is being produced.
5. The use of Kanban technique in the production system ensures leanness in the supply chain. In Kanban, the material is pulled through the production process by customer demand. Kanban involves use of cards to move material along the value stream.
6. Adoption of standard work system is one of the key elements in lean supply chain which is a system of organizing work steps and documenting them.
7. Achieving leanness in supply chain, each workstation should have the information and equipment for the worker to inspect and produce good quality parts.
8. The requirement is levelling the production to the customer demand. This is possible with quick change over from one product to another one.

SUCCESS FACTORS FOR LEANNESS

The lean manufacturing techniques will help the manufacturing organization to cut cost and gain a competitive advantage. It may also help the organization remain viable for survival. The benefits with lean manufacturing are reduction in work-in process, increased inventory turns, release from tied up unproductive capacity, reduction in cycle-time and improved customer satisfaction. In general, with the lean techniques the following improvements are possible:

1. Operational improvements such as reduction in production cycle time, increase in productivity, reduction in work-in-process inventory, improvement in quality and reduction in space utilization.
2. Administrative improvements such as reduction in order processing errors, streamlining of customer service functions so that customers are no longer placed on hold, reduction of paperwork in office areas, reduced work force requirement, documentation and streamlining of processing steps, reduction in turnover and the resulting costs of attrition, implementation of job standards and pre-employment profiling.
3. At the strategic level the improvements are: reduction in working capital, reduction in costs. This provides opportunities for marketing to gain market share from competitors.

To achieve leanness in the supply chain, the following are the key elements.

Proper Information System

Lean SCM is a supply chain operational and strategic management philosophy that utilizes Internet-enabling technologies to effect the continuous regeneration of supplier and service partner networks. A lean supply chain network generates unique customer-winning value at the lowest cost through the collaborative, real product/service transfer, demand priorities, vital marketplace information and logistics delivery capabilities.

Information gathering, tracking, monitoring and harnessing process should use IT platform. The prime driver of SCM is information—then the faster information can be gathered, analysed and disseminated through the channel network. Internet technology provides the means to make real-time demand management, manufacturing, logistics and storage data visible to all trading partners. Getting timely information about actual consumer sales electronically from the point-of-sale systems enables companies to truly move towards a demand-driven environment.

Supply chain partners need visibility on internal and external logistics functions so that they can allocate resources to meet a specific demand flow. Logistics planners need accessible real-time information in order to configure a value network. To be successful, planners will require web-based applications that enable cross-channel system to provide information on the status of production capacities, storage capabilities, inventory availability, velocity, replenishment processes and transportation resources at each node in the supply network.

Synchronization

Synchronization of demand/supply information minimizes work-in-process and finished goods inventories up and down the channel. This reduces the impact of ‘bullwhip effect’. A synchronized supply chain will consist of a unified business strategy, common measurements for product and performance excellence, and the selection of enabling technologies.

Collaboration

The most critical component of lean SCM is the willingness of channel members to engage in and constantly enhance collaborative relationships. Many companies have come to realize that short-term benefits brought about by logistics optimization and technology automation are incapable of producing the radical competitive breakthroughs that can be attained when channel partners strive to build long-term collaborative relationships. As a supply network, the dominant characteristics of lean SCM are collaboration and synchronization. Collaboration is essentially the ability to share and interact upon critical data. Synchronization means possessing the channel intelligence to access the right product and the right service in the supply chain to satisfy the customer.

Optimization

Optimization requires the pursuit and merger of three levels of improvement. First is focus on eliminating waste and engineering ‘perfect’ processes on the company level. It aims to reduce costs while at the same time providing for the establishment of new sources of customer value. Second is the pursuit of optimization across trading partner relationships and systems. This initiative is much harder to accomplish. Channel nodes must closely collaborate, synchronize and integrate processes. The goal is to bring about value in chain-wide processes that promote cost savings, efficiencies and productivities that make the entire supply chain ecosystem more competitive. Finally, lean SCM optimization requires the standardization and rationalization of all supply channel processes.

Operations Excellence

The foundation for effective lean SCM lies in the ability of entire supply chain networks to achieve collaborative operations excellence. The SCM standard of excellence requires trading partners to coordinate technology and processes in order to provide the highest level of customer fulfilment and service, while managing multiple levels of external relationships. Establishing both the framework and content of channel synchronization requires commitment, trust, and willingness and capacity to acquire and expand new skills.

Connectivity and Networking

Connectivity and networking are lean supply chain fundamentals. Connectivity presupposes the availability of a technical infrastructure that links computer systems and people. The word commonly used for this process is integration—a term often erroneously used as a synonym to connectivity and interfacing. The second fundamental technology dimension is networking, that is, connecting different computers and their databases together in a peer-to-peer network. Networked systems enable people to communicate directly both within the enterprise and across the entire value chain. Connectivity is the process of linking business functions together and networking activates those links.

Kanban

The word ‘Kan’ means ‘visual’ in Japanese and the word ‘ban’ means ‘card’. So Kanban refers to ‘visual cards’. Kanban system is used for continuous supply of components, parts and supplies to production assembly line. Kanban reduces inventory, product obsolescence, waste and scrap. With Kanban, products and components are only manufactured when they are needed. This eliminates overproduction. In Kanban, the raw materials are not delivered until it is required. Thus, it reduces waste and storage costs. Kanban gives firms the flexibility to rapidly respond to a changing demand with regards to product mix. In Kanban, the supply of raw materials and components is eliminated as a bottleneck.

In this system, the material flow will stop if there is a production problem. This makes problems visible immediately to take corrective actions. Thus, Kanban reduces total cost by preventing overproduction, reducing waste and scrap, minimizing wait times and logistics costs, reducing stock levels, etc.

Kaizen

In Japanese ‘Kaizen means continuous improvements in product, process and procedures. The improvements may be in all areas of the enterprise such as quality, technology, processes, company culture, productivity, safety and leadership. The word Kaizen is a combination of two Japanese words ‘kai’ meaning ‘change’ or ‘to correct’ and ‘zen’ means ‘good’. Kaizen can be applied in every aspect of business processes.

In ‘Kaizen’ initiative, employees of all levels of management are involved. They are encouraged or motivated to come up with small improvement suggestions on a regular basis. Japanese companies, Canon and Toyota are the pioneers of the concept of Kaizen in Japan. In Kaizen, they could get 60 to 70 suggestions per employee per year which were written down, shared and implemented. These suggestions are ideas for changes in product, process and procedures on a regular basis. These small changes help in improving productivity, safety and effectiveness resulting into waste reduction.

Kaizen in Japan is considered as the road to business success. Kaizen also covers quality circles, automation, suggestion systems, just-in-time, Kanban and 5S for running a business. Kaizen sets and supports standard. In Japan, Toyota is well-known as one of the leaders in using Kaizen. In 1999, at one U.S. plant, 7,000 Toyota employees submitted over 75,000 suggestions, of which 99 per cent were implemented.

Kaizen is a critical concept in lean manufacturing. Kaizen differs from what most companies implemented in the United States as continuous improvement in the 1990s. Kaizen is often linked with the word ‘event’, to signify a short time period. Kaizen events are often just a few days long, with a specific group of employees working on a very specific challenge.

The implementation of Kaizen involves all employees in solving real problems. As per Kaizen philosophy, ‘Instead of making large changes that may require significant amounts of investment and risk, small incremental changes are better options’. Thus Kaizen advocates the small incremental improvements that have a large positive impact over time. Kaizen is one of the best concepts to involve employees in the business and help them to feel part of the reason for the success of the business and the lean manufacturing system.

LEAN—ROADMAP TO SUCCESS

The manufacturers in general do not built their entire supply chains to respond in a synchronized way to variability in customer demand. This means production is centred on making products to forecast. These products inventory is then pushed into the supply chain to manage variability. These companies push products through pricing discounts or promotional campaigns to create demand to move the excess inventories. Real-time demand information coupled with real-time inventory visibility and availability for production is the biggest hurdle to lean production system. However, solutions are needed to manage and optimize the changes in customer demand to transaction in the most effective way for making the lean enterprise.

In today's increasingly fast-moving and highly-complex environments, enterprises must continually manage large amounts of data while executing complex workflows within and outside the enterprise. These supply chains require enabling software and a robust service-oriented technology platform. Without IT, extended enterprises cannot be truly lean or Six Sigma enabled.

Leading manufacturers will need interdependent supply networks which combine back-end business planning and operations in conjunction with lean methodology and practices across the supply chain. Traditional pull systems and ERP fall short when applied to a networked supply chain model for the following reasons:

• Lack of visibility across the entire network.
• Rigid, slower and error-prone ERP systems.
• Legacy systems which are not scalable and unable to be supported by customers, suppliers and partners.
• ERP and legacy systems struggle in managing continuous demand variability or sudden spikes in demand.

In conclusion, lean supply chain with support from lean manufacturing will help organization to gain competitive advantage through cost leadership.

REVIEW QUESTIONS

1. Explain the principles of lean manufacturing.
2. Explain the role of ‘information technology’ in lean supply chain.
3. Compare and contrast the ‘lean’ and ‘agile’ supply chain designs.
4. Discuss the key factors contributing to the success of lean supply chain.
5. Explain ‘Kanban and ‘Kaizen’ and their role in lean supply chain.

INTERNET EXERCISES

1. The lean supply chain blog discusses lean manufacturing topics, including articles, links to articles, and discussion. Visit http://lean-supply-chain.blogspot.com/ to study concepts of lean supply chain and its applications.
2. Visit, http://www.newvectors.net/…/pdfs/esd_LeanSupplyChainGuideBook.pdf, to read “Developing Lean Supply Chains” —A Guidebook, December 2002, Developed by T. Phelps, Altarum, T. Hoenes, Boeing M. Smith, Messier-Dowty.
3. Ultriva is the leading provider of Lean software solutions. With over 100 successful deployments under them they guide to make the transition to lean and help the firms to realize substantial savings. Visit http://www.kanban.com/ to study the various aspects of lean manufacturing. Ultriva helps the firms to move Kanban in practical and incremental steps.

VIDEO LINKS

1. Introduction to Lean Manufacturing, http://www.youtube.com/watch?v=ZdHGTC×cJQUfeature=fvw
2. Lean Supply Chain Basics, http://www.youtube.com/watch?v=8RlA0D6cjDc
3. Boeing 737 Lean Manufacturing, http://www.youtube.com/watch?v=r5pgKKiNORA&feature=related

PROJECT ASSIGNMENT

1. Many leading companies in India like Siemens, Maruti Motors, M&M adopted Japanese techniques in their lean manufacturing initiatives. Choose a company and study how they have put the lean initiatives in practice, right from planning to implementation stage, problem faced and finally the benefits accrued.