Academic Journal of Research in Business & Accounting www.newscienceseries.com Vol. 2, No. 4, April 2014, 36-45 ISSN: 2311-326X Lean and its Basic Components Amir Reza Ramezani 1* and Mohammad Mahdloo 2 Abstract ean management philosophy must use all human, physical and time resources and facilities to maximize the wealth of the owners and beneficiaries. The basis of Lean management philosophy is that total performance of the organization should move toward a single and logical system that its sole purpose is to deliver value to customers and indicates that lean process alone cannot be the creator of all benefits. Studies show big differences between lean companies in terms of performance compared with traditional companies and it is necessary to note that lean procedures should be integrated with the overall organization system. Present article, deals with research and explanation of various aspects of Lean, based on theoretical principles and comprehensively with a certain look and a new perspective. The main findings of the present study are providing scientific principles, different aspects and tools used in lean. Abstract Keywords: Lean accounting, Lean manufacturing, Lean thinking 1* Corresponding author: Faculty Member of Islamic Azad University, Miyaneh Branch, arr_iau@yahoo.com. 2 Faculty Member of Islamic Azad University, Miyaneh Branch
37 Academic Journal of Research in Business & Accounting Vol. 2, No. 4, April 2014 Introduction The Lean term refers to production management approaches of companies and meets exactly what customers want namely minimum cost without loss and waste (McCarron, 2006). In fact, lean manufacturing philosophy (Lean) is based on the Toyota Production System (TPS) that is obtained over decades by engineers and leaders of this company like Eno and Shingo. Lean was the solution of Toyota for scarce resources and difficult economic conditions that Japanese companies faced after World War II. However, many authors such as Pettersen (2009) in an attempt to define the lean concluded that there is no clear definition of it. Some authors like Pettersen (2009) in the definition of lean focused on tools and efforts that were particularly used in lean companies. Others, such as the Bhasin and Burcher (2006( and Bhasin (2011) focused on its philosophical characteristics but most authors believe and agree on the combination of both. Lean essentially is a set of ideas and tools that make a system that has two visible and invisible parts. Its visible part includes procedures, tools, and principles, and its invisible part includes management of thinking and ways of thinking (Rother, 2010). Culture and Lean Thinking Lean thinking as a management principle means that managers and leaders need to think that there should be a possibility of process improvement, even if it is not obvious. In the 1980s, the main focus was on reducing waste and producing qualified products that lead to the cost management. The foundation of lean thinking state that organization resource should be focused on activities that will lead to the creation of value for all beneficiaries, delete activities without added value, and integrate parallel activities in the organization. In general, with this thinking, management must delete activities without added value, integrate parallel activities in the organization, and design and set up value-added activities. Lean thinking is an attitude to increase productivity, sustained value creation and minimum cost and waste. Two basic concepts in lean thinking are waste elimination and value creation. Waste elimination in lean thinking perhaps can be considered in a row with independence in auditing which is so important that overshadows all elements. According to Womack and Jones (1996) Lean thinking involves five stages. 5-stage process in the lean thinking book is named as a guide for managers to be through the lean transformation and they are also called lean principles: 1- Exact valuation of any given product or valuation from final customer's point of view, 2- Identifying the value stream of the product and value stream map of product, 3- Making uninterrupted movement in the value, 4- Make it possible for customers to stretch the value of upstream activities, and 5- Pursuit of Perfection. Value and Value Stream
Ramezani and Mahdloo 38 Womack and Jones (1996) define value as the ability and the capacity created for the customer at the right time and the right price. From the customer's perspective, Value is what the customer buys. Value has been basic starting point for lean thinking and can only be defined by the ultimate customer. Final customer is the consumer of product compared to other clients. Dimensions of valuation occur in value stream and value is meaning only when it can be expressed in terms of a specific product. The value stream in lean thinking is a set of specific activities required to design, set up and produce a specific product with the concept of setting up and delivering raw materials to customer. According to Womack s definition, value is defined by three main features of quality, cost of ownership and time. Slack (1998) argued that according to Womack s definition, equal to the ideal Value is without wasting and permanent conditions that costumer is sensitive to his needs in a whole range of market and compares similar products with each other. He also studied two other features of value related to lean principles including beneficiaries value and staff value in addition to costumers value. Three types of activities in value stream are as follows (Womack and Jones, 1996): 1- Added value are activities that cause value without any ambiguity, 2- The first type of Muda are activities that do not create any value but are inevitable with technology or current tools of production, 3- A second type of Muda are activities that do not generate any value and can be avoided. Lean literature has mostly been focused on losses and wastes (Muda) that can be easily differentiated in processes and removed using various lean approaches. But focusing on the elimination of losses and wastes in processes leads to other problems like manpower and equipment (without reason) surplus (Muri) and development of unstable processes (Mura). Muri can be seen at the extreme front of Muda range. Elimination of Muda from processes can lead to greater pressure on workers and the creation of Muri (Liker, 2004). Pulling and Pushing System Fourth principle in lean concept is pulling. This principle is useful in the whole of value stream and this means that upstream should not apply to produce until downstream demand any goods or services. This principle enables companies to design, plan and produce goods and services at the request of the customer and what the customer wants while reducing inventory (Womack and Jones, 1996). While in pulling system, each station takes the product of the previous station according to its needs. Results of final operations are done based on customer demand or comprehensive planning. So, pulling system is carried out in response to the demand of the next process. In pulling system for efficient monitoring on pulling process, kanban is used. description Table 1: Differences of pulling and pushing systems Pull system Push system Signs of production increase According to customer demand According to schedule
39 Academic Journal of Research in Business & Accounting Vol. 2, No. 4, April 2014 Scheduling Planning horizon Demand balance Negative points of system visibility Pressure to improve In time of need Very short-term Usually yes Lack of prior planning, lack of attention to customer demand at the beginning of the product life cycle, Excessive inventory at the end is visible. Visible Many Source: (Panero, 2011: 27). Before need Relatively long no Excessive inventory, The lack of visual control, long term timing and planning need to much information. Not visible Few Kanban, is a small marker board that has been main control tool for JIT manufacturing and has services such as instructions for production and transport, means for visual control, control of extra production, outside processing speed detection criteria and tools for kaizen. In fact, Kanban is a card attached to the box of parts that transfers signals and marks of requests and demands of pulling stream of work from one section to the downstream sector. In other words, is a method to maintain a regular stream of materials, identifying the material order points, the amount of material needed, places that materials ordered and where materials must be delivered. Kanban is visual cues or signals that takes place through transfer of a set of instructions to withdraw or production parts. Generally, kanban is a card which moves between processes and transfers data to figure out what parts need materials and components. Value Stream Costing Value stream costing involves easier collecting methods of costs and reduced number of cost centers. Total cost of value stream is considered as direct cost. Cost of value stream includes manufacturing pay, manufacturing materials, manufacturing support, machinery and equipment, operational support, maintenance and other costs of value stream. Value stream costing (VSM) is the process of allocating actual costs of an organization to value stream instead of products, services or departments. In the early stages of lean manufacturing application, backflush costing (delayed) is used to calculate product cost without tracking products while they are manufactured that this process can gradually be removed and replaced with VSM because it has provided relevant information for decision making that its understanding and application is simple. Lean Production and thinking violate the assumptions of mass production. Overhead cost is related to whole value stream and is not related to time and work required for manufacturing and profit maximization leads to maximization of manufacturing stream by value stream in a pulling system of costumers. Cost of each specific product, in the first place depends on its stream rate through value chain especially in the operational bottleneck
Ramezani and Mahdloo 40 of value stream. Managers of value stream are very interested in the description of value stream instead of using resources, efficiency of individual and collection of overhead (Baggaley & Maskell, 2003). Value stream costing is one of the essential elements of lean organizations and collects cost by value chain. Lean Accounting Several studies in relation to lean accounting in a JIT environment is published during the 1980s, before the advent of so-called lean organization and lean accounting. Accounting system in a JIT environment focuses on direct traceability cost, reducing number of cost centers, less emphasis on traditional materials, labor and overhead variance and reduction of number and detail in reporting of sales. In addition, cost planning and cost reduction is started and emphasized before production, and simplification of all Activities. Lean accounting includes simple accounting, visual and observational performance measurement, value stream, value stream costing, Target costing, Visual Management, score box of decision making, implementing Hoshin s policies and procedures 3p (providing production process for planning and stronger internal controls. Lean Accounting as a philosophy can provide a powerful context to measure results of lean processes (Maskell & Kennedy, 2007). If lean accounting is used, it is rarely needed to know cost of a product unit because the importance of reporting and decision-making process is done at value stream level rather than the product level. Product stream rate is the primary stimulus of conversion cost. In lean accounting, accounting systems should be lean themselves. In fact, lean accounting transactions, as inventories are for lean production and should be reduced as much as possible. That is all accounting transactions are waste and should be eliminated systematically. Therefore, as in lean production that waste should be reduced by minimizing inventories, also in lean accounting should be moved towards lean accounting processes by reducing and minimizing accounting operations. Lean production Lean production is a multi-dimensional approach that includes a wide range of operations like just-in-time manufacturing, quality systems, working systems, cellular manufacturing, supply management and other cases wholly (Shah & Ward, 2003). Lean production is made based on the principles of lean thinking and five principles of lean thinking are applied in the implementation phase of the lean manufacturing and lead to fundamental changes in the organization. To progress towards lean manufacturing, organizations must take steps to simplify and make efficient production process not according to the forecast, but it is done according to customer demand. Basic principles of lean manufacturing include the elimination of waste and focusing on customer (Darabi, 2011). Lean production has integrated the benefits of a manual system and mass production and avoids high cost of the former and flexibility of latter, and uses machine that are automated and flexible. Using JIT,
41 Academic Journal of Research in Business & Accounting Vol. 2, No. 4, April 2014 emphasis on the prevention of defective product, responding to customer needs, Kaizen, horizontal communication system, increasing integration of tasks, Total Quality Management (TQM) and collaborative workforce and six-sigma are characteristics of lean manufacturing. But the most important difference between mass production and lean production are differences in final goals of lean manufacturing and mass production. Mass production target is limited to well-being, namely acceptable number of defects, the highest level of the acceptable inventory and certain range of similar products, but the idea of lean manufacturing is perfection; that is continuous decline in prices, zero inventories, and endless product variety (Farrokh, 2001). Also, the learning curves of lean manufacturing systems are steeper than learning curves in mass manufacturing firms. In order to assess the changes toward lean production, following components should be considered: 1- Waste elimination (Namely anything that a customer will not pay for it), 2- continuous improvement by the quality circles and proposed system, 3- Zero defect which is required for quality, 4- pulling system instead of pushing system, 5- multi-functional teams, being up-date, 6- Decentralized responsibilities and integrated tasks, 7- Quality control during processing, 8- Quick adjustment of devices, 9- supply network, 10- Comprehensive preventive maintenance system, 11- Flexible Resources, 12- Customer Satisfaction, 13- JIDOKA Systems, and 14- Cellular settlements. Hoshin Kanri Hoshin Kanri means a way to determine the direction of policy, strategy or arrangement and was created as part of total quality management which roots in Japanese Deming Prize for quality measures in 1950. In other words, Hoshin Kanri is a strategic planning approach which integrates leadership and management procedures. Lean planning begins with Hoshin s policy of arrangement and continues with the process of sales, operations and financial planning (SOFP). Hoshin Kanri is planning system which helps organizations in strategic classification and high-level action plan. Japanese term Hoshin means shining metal, compass, or goniometer and Connery means to manage or control. In Hoshin Kanri, organizational goals are updated and revised annually by senior management. Akao (1991) knows Hoshin Kanri as the planning, implementation and evaluation of systems change management. In the late 1980s, western companies, including Hewlett-Packard and Xerox started to use their own versions of Hoshin Kanri. Nowadays, Hoshin Kanri s planning as established techniques can help organizations to focus on the efforts and goals. Hoshin Kanri does not replace other management strategies but it connects continuous improvements and developments. Hoshin Kanri and Japanese style of TQM are naturally related to each other. In fact Japanese believe that Hoshin Kanri show us anything we're going to do it, and TQM means a device for close relationship between current performance and target performance. Hoshin Kanri has four components:
Ramezani and Mahdloo 42 HO means movement direction; SHIN refers to focus; KON means Settings; and RI means Reason and Logic (Hutchins, 2008). JIDOKA JIDOKA or automation with the human senses is another concept that is an integral part of lean manufacturing. Toyota Production System model is often a cell with two columns that one of these columns shows just-in-time manufacturing and the other is the concept of JIDOKA and cell without these columns will not stay stable. But there are still many that regardless of this mechanism are related to columns which hold the whole system, focus on the mechanism of using one part of stream, pulling production and standard work. JIT system is relatively well understood, but many unsuccessful applications can be traced in the second pillar of this building. In JIDOKA which is also called autonomation, Machine diagnoses the problem and instead of continuing to produce a bad product, stops production. Basic principles of JIDOKA return to the year 1902 that Toyota provided a simple but clever mechanism which diagnoses problem and turns off devices automatically. This invention allows operators to monitor up to 12 devices, while maintaining excellent quality. Of course, this system has progressed and exceeded. If the JIT and JIDOKA are used together, they will be like a Kaizen engine which causes the system work better. In fact JIDOKA is automation with a human element and describing design characteristics of machine under the influence of JIDOKA principles is called autonomation. Autonomation means automation with human senses and its origin returns to the ability of a device to stop, when the standard condition exists, and over time, it has taken a broader meaning and often refers to ease of diagnosis. Diagnosing abnormal situation requires identifying normal conditions. In ancient Japan, JIDOKA has been a term for autonomation, and related to the principle of automatic stop in difficulties. The main purpose of an autonomation process is to eliminate the human element and replace it with a system that allows all line to work automatically or with minimal human involvement which in result, number of production line labor are reduced and workforce does the work of more than one station at the same time. Andon system is one of the constituent elements of the JIDOKA concept. Andons are like traffic lights that are installed in each production line of Toyota and are part of the Toyota visualization. When production path is smooth, the light is green; but when a worker works in a production line, status can even be changed to yellow; and when the problem is diagnosed, the condition can even be modified to Red and Line is stop. Andon is a type of visual control which indicates the current status of the work, for example, unusual circumstances, the structure of the work, and progress information. In fact, Andon is one of the main tools of JIDOKA which is in the form of electronic boards containing lights to show the status of the current operations.
43 Academic Journal of Research in Business & Accounting Vol. 2, No. 4, April 2014 Cellular manufacturing system Cellular manufacturing system which is often called lean manufacturing has developed in recent years in the global production processes. Nowadays the most common cellular manufacturing system or lean production system is Kaizen system. Kaizen uses cellular technology and manufacturing to reduce wasted time, labor, money and resources in the production process. Cellular production design is in contrast with the traditional production line. In traditional production line, many workers require services of a single production line that receives raw materials and deliver finished products and any problem in workforce or machinery in any part of the line usually leads to stop of whole process until fixing the determined problem in production line. In cellular manufacturing, products are divided to groups or cells of workers or production machines, therefore any problem in a cell due to equipment defects or workforce problems, does not make essential effect on other production parts. Technically, concept of cellular manufacturing is simple basically, obtaining manufactured product from raw materials in an efficient form which is profitable. Cellular manufacturing design and system necessarily divides production line to sections and cells that sometimes is called measure or module. Each cell includes workers and machines which is allocated to a certain part of manufactured product. Primary goal of cellular manufacturing is to reduce cycles and inventories in order to respond market at required time. Other benefits of cellular manufacturing are space reduction, quality improvement, reduced labor cost, and using appropriate machinery. A cell is a combination of people, equipment and organized work stations to flow processes to whole production or part of production units (Wilson, 2009). In addition to above tangible and evident advantages, cellular manufacturing has other important benefits to line stream model. With regard to adjacency of machines management chain, functions of cellular environment are familiar with other functions and have a good understanding of each other. This issue causes relation improvement between functions and helps to productivity. Conclusion It can be said that, lean is a management philosophy which has originated from car industries and its practical solutions have expanded to nonproduction processes and at the present according to its situation, it has application in other levels such as information technology, client services and administrative operations. Main idea of lean is maximizing costumers value with minimum waste. In other language, lean means making more value for costumers with minimum resources. In other words, lean is a manufacturing philosophy that focuses on added value activities or waste removal processes with the aim of better responding to customer needs. Lean provides companies responding to what costumers exactly need in a complete response approach with minimal use of resources (Womack & Jones, 1996). The most important element of the lean system is communication with customers (Farrokh, 2001). It is said that lean concept deals with 3 main drivers of people, processes and technology, namely the primary drivers of lean thinking and employee involvement, uninterrupted
Ramezani and Mahdloo 44 processes or stream in production chain and resource waste elimination, and finally technology which is a tool in service of people and processes. Finally, the implication and direction of these drivers are toward customer satisfaction as a basic principle (Saffar, 2008). Lean is a commitment. Continuous improvement process which can influence the competitiveness of organization significantly. Lean has been a strategic tool for solving different problems of organization and can change running priorities of business environment. Lean must be influenced by culture not imposed (Womack & Jones, 1996). In other words, lean is not a tool but a way of thinking. Lean approach influences in broad circles of operation and leaks into it and stops in best procedures and changes into warp and woof of business (Corbett, 2007). References Baggaley, B. and Maskell, B., 2003. Value Stream Management for Lean Companies, Part I. Journal of Cost Management. (March/April), 23-27. Bhasin, S. and Burcher, P., 2006. Lean Viewed as a Philosophy. Journal of Manufacturing Technology, 35(1). 56-72. Bhasin, S., 2011. Measuring Leanness of an Organization, International Journal of Six Sigma. 2(1), 55-74. Corbett, S. 2007. Beyond Manufacturing: The Evolution of Lean Production. The McKinsey Quarterly. 3, 95-105. Darabi, R., 2011. Lean Accounting Establishment and The Problems of Traditional Accounting System: Accounting science and research, 25, 36-81. Farrokh, A., 2001. Lean manufacturing. Tadbir, 118, 43-48. Hutchins, David., 2008. Hoshinkanri: The Strategic Approach to Continuous Improvement. Gowerpublishing, www.gowerpublishing.com/isbn/9780566087400 Liker, J. K. 2004. The Toyota Way 14 Management Principles from the World s Greatest Manufacturer. McGraw-Hill. Maskell, B. H. and Kennedy, F. A., 2007. Why Do we Need Lean Accounting and how does it work?. The Journal of Corporate Accounting and Finance, 59-73. McCarron, Brendan., 2006. Introduction to Lean Thinking CIPFA, Performance Improvement Network, Rendan. McCarran@ipf.co.uk. Paneru, N. 2011. Implementation of Lean Manufacturing Tools in Garment Manufacturing Process Focusing Sewing Section of Men s Shirt. Master s Thesis Degree Programed in Industrial Management, Oulu University of Applied Sciences, Autumn. Pettersen, J., 2009. Defining Lean Production: Some Conceptual and Practical Issues. The TQM Journal. l. 21(2), 127-142. Rother, M. 2010. Toyota Kata: Managing People for Improvement, Adaptivness, and Superior Results. McGraw-Hill. Saffar, M. J., 2008. Lean Accounting, Accountant Magazine, 203, 23-29. Shah, R. and Ward, P. T., 2003. Lean Manufacturing: Context, Practice Bundles, and Performance. Journal of Operations Management. 21, 129-149.
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