What is Lean production? • Lean production is a Japanese approach to management that focuses on cutting out waste, whilst ensuring quality. • This approach can be applied to all aspects of a business – from design, through production to distribution.
What is Lean production? • Lean production aims to cut costs by making the business more efficient and responsive to market needs. • This approach sets out to cut out all activities that do not add value to the production process, such as holding of stock, repairing faulty product and unnecessary movement of people and product around the plant.
Lean production • Lean production, as the name suggests involves producing goods and services while stripping out waste. • As a result there is no 'fat' involved in production. • Lean production is efficient and hence likely to be profitable.
Jaguar example • At the Jaguar car production plant in Castle Bromwich near Birmingham the production line has been designed using the principles of lean production. • In the 'old days' Jaguar production took up much more factory space because a lot of stocks and supplies were kept on the factory floor. Nowadays all stocks are kept in a separate storage area where they are delivered just-in-time to feed the production process. • On the production line operative's work with the minimum required quantity of stocks. When more are needed, production line workers use a 'kanban' signalling system to inform the stores that they need more supplies.
Lean Production includes… • The most important aspects of lean production are as follows: • Just in time production (JIT) • Cell production • Kaizen (Continuous improvement) • Quality Circles • Total Quality Management (TQM) and zero defect production - see notes on quality management • Time based management • Simultaneous engineering
Just in Time • Just in time is a ‘pull’ system of production, so actual orders provide a signal for when a product should be manufactured. Demand-pull enables a firm to produce only what is required, in the correct quantity and at the correct time. • This means that stock levels of raw materials, components, work in progress and finished goods can be kept to a minimum. This requires a carefully planned scheduling and flow of resources through the production process.
JiT technology • Modern manufacturing firms use sophisticated production scheduling software to plan production for each period of time, which includes ordering the correct stock. Information is exchanged with suppliers and customers through EDI (Electronic Data Interchange) to help ensure that every detail is correct. • Supplies are delivered right to the production line only when they are needed. For example, a car manufacturing plant might receive exactly the right number and type of tyres for one day’s production, and the supplier would be expected to deliver them to the correct loading bay on the production line within a very narrow time slot.
Advantages of JIT • Lower stock holding means a reduction in storage space which saves rent and insurance costs • As stock is only obtained when it is needed, less working capital is tied up in stock • There is less likelihood of stock perishing, becoming obsolete or out of date • Avoids the build-up of unsold finished product that can occur with sudden changes in demand • Less time is spent on checking and re-working the product of others as the emphasis is on getting the work right first time
Disadvantages of JIT • There is little room for mistakes as minimal stock is kept for re-working faulty product • Production is very reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed • There is no spare finished product available to meet unexpected orders, because all product is made to meet actual orders – however, JIT is a very responsive method of production
Time Based Management • Time-based Management is an aspect of Lean Production. • It is a general approach that recognises the importance of time and seeks to reduce the level of unproductive time in an organisation. • As with other aspects of Lean Production, Time-based management also calls for flexible, multi-skilled staff, and a culture of mutual trust between workers and managers.
Benefits of Time Based Management • Quicker response times (reduced lead times) to meet changing market and customer needs • Faster new product development • Reduction in waste, therefore greater efficiency • For a firm to operate time-based management effectively, it needs to have flexible production facilities that enable it to make changes easily. For example, it may need to be able to switch production quickly between different products and to alter the length of production runs as needed.
Simultaneous Engineering • Simultaneous Engineering is part of the Time-based Management approach. It is a project management approach that helps firms develop and launch new products more quickly. • All of the areas involved in a project are planned together. Everything is considered simultaneously (together, in parallel) rather than separately (in series).
Simultaneous Engineering • Product teams are set up to include people in all areas that are relevant to the new product – design, development, production, marketing etc. • Suppliers are involved in the new product development so that potential delays in resourcing of raw materials, components and services can be anticipated and avoided • A teamwork approach is used, with all areas involved in the project working on the project at the same time.
Simultaneous Engineering Issues • The new product is brought to the market much more quickly • The firm may be able to charge a premium price that will give a better profit margin and help recoup R&D costs • There is less likelihood of a need to modify the product later due to unforeseen problems • A greater sense of involvement across business functions improves staff commitment to the project. • This can therefore be a source of competitive advantage (‘first mover advantage’) for the firm if it can get a reliable new product into the market and build brand loyalty before its competitors.