WHAT IS LEAN PRODUCTION?

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1 CONTENTS: What is lean production? Minimising waste Just in time production (JIT) Kaizen (continuous improvement) Cell production The benefits of lean production Activity Lean production and the NHS

2 What is lean production? Lean production is an approach to operations that seeks to maximise the creation of value for customers while working towards the elimination of waste. Value is any action or process that a customer will be willing to pay for. Waste is any part of the production process that does not add value. Lean production encourages managers to look at how customers and goods flow through their systems to unlock bottlenecks and inefficiencies. Consider this very simple example. Imagine a burger bar. In principle, it should produce great burgers because it uses succulent, quality meat and delicious bread. But the reality is that five staff rush around a great big kitchen in a disorganised way. In one corner of the kitchen a huge and untidy pile of burgers and sausages hosts a party for local flies. Periodically, one member of staff gathers together dirty plates and disappears upstairs to do the washing up. Although the burger bar is rarely busy, a bank of three huge industrial freezers is used. The manager buys in bulk, to obtain the best possible price, so he feels he needs three freezers, though if he had smaller deliveries he could get rid of at least one freezer. Re-read this simple story and consider ways in which there is waste within the burger bar. It is not difficult to see that costs are too high due to waste and inefficiency: Stock is wasted. Some of the meat the flies are eating will have to be thrown away. The cost of stockholding may be too high. Why run three big freezers if only one or two are needed? This also involves waste. Will the high power costs offset the saving made by bulk purchasing? Labour costs are probably too high as staff are poorly organised. Why do staff have to take washing-up upstairs? Why do staff have to waste time disentangling burgers from sausages? There are a number of interrelated concepts within lean production. These are as follows: Minimising waste Just in time production Kaizen (continuous improvement) 2

3 Cell production Minimising waste Reducing waste is a valuable way of improving profitability. The pioneers of lean production were Toyota, the Japanese car manufacturer. Toyota s chief engineer, Taiichi Ohno, identified seven issues to think about when seeking to reduce waste. A good way to remember the seven wastes is TIMWOOD Transportation Inventory Motion Waiting Overprocessing Overproduction Defects Transportation (also called travel time) Every time a product is moved it stands the risk of being damaged, being lost or causing delay. In addition, the effort involved represents a cost incurred for no added value, as transport of itself does not add anything from the consumer s perspective. Inventory (stock) Holding stocks of raw materials, work in progress or finished goods represents an outlay that has not yet produced an income for either producer or consumer. Holding some stock may be unavoidable, but the less stock is held, the more waste is reduced. Motion Motion refers to the unnecessary movement of workers or equipment. This decreases the benefit obtained from resources and increases production costs without adding value. A worker constantly walking up and down stairs is not doing anything productive. 3

4 Waiting In traditional production processes, a significant part of an individual product s life is spent waiting to be worked on. No value is gained from this waiting time and it should be minimised. Over-processing If complex or expensive tools are used to perform a task when a simpler or less expensive tool would do the job just as well there is a waste of resources. Overproduction Overproduction means making more products than are needed to meet existing orders. This is considered the worst kind of waste as it generates other forms of waste. For example, overproduction leads to excess inventory. Defects Whenever product defects occur, extra costs are incurred in reworking the product or making replacement products. Just in time production (JIT) Just-in-time production focuses on reducing inventory waste. This is achieved through minimising stockholding, using just-in-time stock control and utilising production capacity to respond flexibly to levels of demand. Products are produced just-in-time to meet orders, not stockpiled. Just in time production can be contrasted with less flexible production systems, where it is only possible to meet demand by overproducing so that large reserves of stock are held. There are a number of advantages to only holding the minimum possible level of stock. It reduces the need for working capital and helps with cash flow, reduces waste associated with the storage of stock and it reduces the risk of stock being damaged while in storage. Having small but frequent deliveries of materials and components reduces the size of the premises required and therefore reduces fixed costs such as rent and energy costs. 4

5 A key advantage of JIT is that firms with minimal stockholding are more flexible. They can act more quickly when they feel there is a need to make adaptations or improvements to products and the production process, as they do not have lots of stock to use up before changes can be implemented. Requirements of a just-in-time system Strong relationships and communication with suppliers about what is expected from them, especially in relation to delivery times, is crucial. The obvious danger of holding the smallest possible levels of stock is that the firm cannot cope with an unexpected rise in demand. This can lead to problems with customer service (late delivery) or even lost sales. Suppliers need to deliver with the minimum possible lead time and reliably on time. A flexible workforce that is able to respond to the need for output levels to be increased or decreased to match demand is also needed. A key aspect of having a flexible workforce is the terms of employment contracts. The use of temporary and part-time workers is a way of increasing flexibility within the workforce. Having multi-skilled workers is another way of improving flexibility. A third requirement of JIT is having production equipment and systems that enable the business to quickly implement changes to the product or customise products to meet customer demand. Kaizen (continuous improvement) Kaizen involves both managers and the workforce continuously striving to improve production. This requires a decentralised organisation structure and giving teams the opportunity to meet regularly to decide how they can improve. Sometimes workers are given the power to halt production where they see a problem that needs addressing. Workers are given training to help them in this more analytical and problem solving approach to working life. Where they are successful in making improvements in quality, employees will receive recognition and reward. The philosophy of kaizen relies on gradually making small, often quite simple, improvements to operation processes and activities. These improvements aim to reduce waste, improve productivity and improve quality. The ideas for these improvements can come from any member of the workforce, regardless of whether or not he or she has management responsibility. Over time, a series of small changes to how activities are carried out can lead to significant improvements in efficiency. 5

6 Cell production Cell production involves looking at a production process as a series of separate but interlinked parts rather than one single process. Production workers are grouped into teams or cells. Each cell is delegated responsibility for a particular part of the production process. For example, in the assembly of a bus, one cell may have responsibility for the floor and luggage racks, another cell for seats, a third for interior lighting and so on. Why is cell production different? Each cell is allocated real responsibilities to achieve output and quality targets specific to what their cell does. Cell production involves more self checking, and less close supervision by management. Each team has to produce something ready to pass on to the next team. Teams are treated as internal customers or suppliers. So in our bus factory, the team that work on putting in the floor of a bus are suppliers. Members of the floor team have to provide a good product at the right time to their customers the team fixing seats to the floor. If the seat team sees that there are problems with a floor, it has the power to stop the assembly line and require the floor team to address these problems. Cell production is helpful in isolating where an overall process is working well and where it is not. The focus on measuring the performance of each cell, rather than looking at the whole operation can also enable managers to get the most out of their staff. People are expected to work for their team and realise why what they are doing matters. They have to think more about the task in hand and use a greater range of skills to solve everyday operational problems than in a less team-based approach. As with kaizen, cell production can lead to job enrichment. In addition, it is more likely that individual effort and problem-solving skills will be recognised and praised. Cell production can therefore have a positive effect on motivation. The benefits of lean production Probably more than anything else, lean production methods enabled Toyota to move, in fifty years, from being a little known car producer to a global brand and the biggest car manufacturer in the world. The lean production philosophy that Toyota developed has been much admired and emulated all over the world by all kinds of businesses, but especially manufacturing companies. What are the potential benefits of adopting a lean production approach? These are summarised below. Improvements to labour productivity are made, stemming in particular from a rigorous focus on the seven principles of waste (TIMWOOD). 6

7 The quality of output is improved due to a focus on continuous improvement. Toyota built its success through acquiring a reputation for reliability and product quality, far more than innovative design. Improvements to cash-flow arise from lower stockholding costs (due to JIT) and reduced waste. Production can respond more quickly to changes in what customers want, whether this means customising existing products or introducing new products. One reason for this is that a lean business will avoid investing in machinery that has only a limited range of uses as it leads to over-processing. Lean production tends to favour the use of labour over capital (machinery) as labour is more adaptable and flexible. Introducing kaizen and cell production implies job enrichment and greater delegation. There is a greater involvement of workers in operational decision making. This enables a business to benefit more from all the skills and ideas of its production workers, not just the narrower range of skills they generally utilise in a business with a more centralised organisation structure. As a consequence of being more involved in the business, being given more responsibility, receiving recognition for suggesting improvements and achieving teambased targets, employee motivation can be improved. This also helps improve labour productivity. 7

8 Activity Lean production and the NHS The philosophy of lean production was first developed by Toyota in the 1950s to improve the efficiency of car production. It was used to make sure that the thousands of separate components needed to make a car were ready at the right time, in the right place on the production line. This speeded up the car assembly process. Lean encourages a business to look at how orders and goods flow through systems so that bottlenecks and inefficiencies can be unlocked. It seeks to eliminate activity within an organisation that adds no value. It combines elements of Taylor s scientific management with later management thinking by people like Herzberg. In recent years, lean production methods have been used by organisations as diverse as Tesco, the Royal Navy and even the National Health Service. In the NHS, a major source of waste is wasted time. Time is money, so wasted time is wasted money. An example of motion time is a doctor visiting his or her patients. When all the patients under the care of the same doctor are on the same ward then the motion time is less than if the patients were dispersed around the hospital on many different wards. Travel time and motion time can also lead to the inefficient use of other resources such as trolleys and porters. Different value-adding parts of the hospital are forced to queue for those resources. Work (patients) waits at one place and resources lie idle at another. One solution to this problem is to bring work and resources physically closer together to eliminate transport and motion waste as much as possible. Take for example the movement of a patient and the nurse preparing him for his operation. The nurse is phoned to collect the patient from reception; escorts the patient to his bed; collects the equipment to perform tests; returns to the patient to complete the tests; then goes back to the nursing station to record the findings; the patient moves to the changing room to get changed, then returns to his bed; and finally the nurse escorts the patient to theatre. Simple changes to the physical layout of a ward can save a considerable amount of time. For example, equipment can be kept beside each bed and the nursing station should be situated in the middle of the ward. The Royal Bolton Hospital has used lean to redesign its pathology department. The role of the pathology department is to test blood, urine and other samples. These tests are requested by doctors on the wards and the results are fed back to them. In Bolton Hospital, delay in producing test results led to unnecessary delays in the treatment of patient. What was causing the delays in the pathology department? An investigation showed that too much time was spent by pathology lab staff moving about the hospital 8

9 because equipment was located in different rooms. Blood samples were waiting to be tested because staff had a policy of waiting for a reasonable sized batch before sending them off to be tested. Accumulating batches in this way is to be avoided in lean it creates a bottleneck in the value stream. The hospital took simple measures to improve the situation, such as moving equipment to a better place, analysing samples as they came in instead of accumulating a batch and knocking adjoining rooms together. The changes meant that the time taken to process blood samples was cut from 24 hours to 3. Lean production expert Daniel Jones said that the NHS needs to alter the way it looks at care. The problem is that the NHS looks at the patient/doctor interaction when it is designing services. But really it is a whole series of different departments and what is important is the interaction between the departments as the patient goes through the system. Gill Morgan, Chief Executive of the NHS Confederation, which represents health service managers, is very impressed with the techniques of lean production. She said that the NHS needs to cut waste out of the system if the government is to be persuaded to provide extra money. But she said that lean works, Because it is based on doctors, nurses and other staff leading the process and telling us what adds value and what doesn t. (Source: adapted from BBC News website, Making the NHS into a lean machine, 14th June 2006.) TASKS 1. Use the case study to explain what is meant by lean production. (5) 2. With reference to the seven principles of waste, how has Bolton Hospital reduced waste? (6) 3. Explain how lean production can be said to combine the ideas of Taylor and Herzberg. (8) 9

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