What Is Lean Manufacturing, and What Has It need to Do with Small and Medium-Sized Manufacturers?
After World War II, there was a very small car company in a small country town making very bad cars. Most of the employees were former farmers, and the company’s production facilities were very basic. The company had major cash flow issues. Like any company in that situation, it lived hand-to- Mouth, ordering the exact materials needed to fulfill requirements and trying really hard to assemble the cars quickly, sell them, and use cash from the sales to pay for more raw materials for the next cars on the production schedule.
This is a scenario not uncommon to a lot of struggling small businesses. Most in this situation do not survive, and those that do make sure that they never operate hand-to-mouth again. They order plenty of stock and make sure that they have lots of materials and parts on hand to meet any order that might come along. This presents its own problems of buying excessive quantities of parts and materials.
However, the car company in my story took a different approach. As it crawled its way out of financial stress, it reflected on the experience. Company executives realized that by keeping materials to a minimum and by constantly striving to reduce the cash-to-cash lead-time (from payment of cash for materials to receipt of cash for sales of finished goods) that they could maximize their return and liberate working capital that could then be used to invest and grow, while concurrently providing maximum flexibility to meet customer demands.
This company made living hand-to-mouth its way of life. Their executives realized that the important activities in their business were the ones that added value to the product. Those were the activities that customers paid for when they purchased their cars.
They realized, however, that most of what happened in their plants did not add value to the customer, and they defined this as waste and were relentless in trying to eliminate this waste.
Rather than hand-to-mouth, their way of operating was called just-in- Time. But they soon realized that operating “just-in- time” gave them little margin for error. The materials and subassemblies had to have perfect quality. Quality had to be ensured at every point in the production and assembly process and in the supply chain. Production machinery had to be reliable and processes consistent, so effective systems for maintenance and for standardizing the work of workers were created.
Gradually, the company built its system of management as it grew. Unlike many companies that focus on holding people accountable for mistakes and hiring and firing, it excelled at learning from its mistakes and developing its employees through this newfound knowledge.
Eventually, this very small maker of very bad cars started to grow rapidly. In 2008, it overtook General Motors to become the world’s largest car manufacturer, producing around 10 million cars a year in every market of the world. The company I am referring to, of course, is Toyota. And the system of management it developed came to be known as the Toyota Production System. When Western companies realized that they were rapidly losing market share to Japanese manufacturers, a number of US and European academics were sent to study the differences between Toyota and the US and European manufacturers (most famously Womack and Jones1). From these studies the term Lean manufacturing was coined to explain Toyota’s relentless focus on eliminating waste and lead-time.
I tell this story to illustrate the fact that Lean manufacturing, or the Toyota Production System, was in fact a very practical solution developed by a medium-sized manufacturer to address its cash flow problems. While small manufacturers could also be daunted by the dimensions of automotive assembly plants and see them as a unique working environment that has little in common with their business, the reality is that the underlying principles of Lean manufacturing are simple, sensitive, and may be applied in every manufacturing business, no matter how small.
So, what are those underlying principles?
Value and Waste
As mentioned, Toyota realized that most of what happened in their factories did not add value to the merchandise and thus was waste. It classified this waste into seven categories. In recent years, others have added more waste categories but I think the original seven is a good place to start. These seven wastes are
Inventory has value on the balance sheet of a company but having more inventory does not add value to your customers. The customer will not pay you more for your product if you hold more inventory, and will also not pay you less if you manage to satisfy his delivery expectations with less inventory. While inventory will often be necessary (e.g., as a buffer to compensate for variation in customer demand), it should always be considered waste and be minimized.
Waiting time is the unproductive time spent by employees waiting for something to happen. Often, they will be waiting for
another employee to complete a task or waiting for a machine to complete its cycle. While waiting, the worker isn’t adding value to the product, and therefore waiting is waste.
In many tasks, employees will spend a lot of their time walking. Walking from one a part of an assembly line to a different, walking back and forth to gather or deliver materials, or walking around their work cells. While walking, employees aren’t adding value to the customer, so motion is waste
Closely related to motion is transportation time. This is the time spent moving materials and products around the plant or from location to location—a necessity if you have a large site or multi-site operation, but it does not add value to the product and is therefore categorized as waste.
Ask most manufacturing people about waste and they will talk about scrap or defects. Making scrap and defects does not add value to the customers’ products and obviously should be considered waste. Over-processing: Production processes frequently incorporate processes that do not add value to the product, and we should consider those processes wasteful and try to eliminate them altogether. Examples of this kind of waste include excessive inspection steps, packaging of work in progress or subassemblies that need to then be unpacked later in the process, and deburring parts (when the drilling or cutting process that caused the burr can be redesigned to prevent the burr in the first place).
Overproduction is the opposite of just-in-time. Overproduction is producing more than is needed sooner than needed. Overproduction usually manifests itself as a work-in-progress inventory. Overproduction is usually caused by big batches and unbalanced processes and is in some ways the worst form of waste as it is associated with increased inventory, more transportation of materials, and often with over-processing.
Do a Waste Walk
Try training yourself to see waste in your business. Find a place in your plant where you can observe the production process. Turn off your mobile phone and any other distractions and just observe what is happening. Write down each example of waste that you can see. Now observe a single worker. Time his cycle with your watch and try to see how much time he spends adding value to the product and how much time is spent moving or waiting. Does his process really add value to the customer?
Is he producing or overproducing? Write down the examples.
Think about why the waste is occurring and what could be done to eliminate it. Tell the worker what you are doing and ask him what he thinks about your observations and solutions, and what waste reduction ideas he can see in his job. You will find that employees are more than willing to point out ways in which waste can be eliminated, as few enjoy waiting for work or walking back and forth all day. Just by this exercise, you are likely to identify waste savings that you can implement immediately.
Four Rules of the Toyota Production System
Many businesses over the past 30 years have experimented with the tools of Lean manufacturing. Most of you have heard of methods such as 5S, Kanban, single minute exchange of die (SMED), and total productive maintenance (TPM).
Despite implementing these tools, many companies did not see the improvements in performance they had expected. Further study of the Toyota Production System revealed some basic principles that supported it. These were described in 1999 in an excellent Harvard Business Review article by Spear and Bowen.2 They identified four rules that were integral to everything Toyota did. Again, these rules are simple, practical, and applicable to every manufacturing business. They are essentially the basic principles that Toyota (and other Lean companies) apply to eliminate the seven wastes.
The four rules are
Rule 1: All work is specified in terms of content, sequence, timing, and outcome.
This is described as standard work and means that, to the extent possible, there is a standard method for every task. This standard work is usually developed with the production team rather than remotely by industrial engineers. It becomes the agreed-upon method that everyone follows to complete a task. As such, it becomes the basis for training employees. In essence, the standard method means that workers can complete a task and achieve consistent quality outcomes in a specified time, every time. It also provides the basis for improvement. The first question asked by a Toyota improvement coach (or Sensei) is always: What is the standard? They rightfully argue that if you do not have a standard, then you do not know the capability of your current process and therefore you cannot measure improvement or detect deterioration.
Rule 2: Every customer-supplier connection must be direct, and there must be an unambiguous yes-or-no way to send requests and receive responses in the supply chain.
Every employee at Toyota is a customer and a supplier. Assembly lines are the customers of material handlers, material handlers are customers of parts and materials stores. Each assembly line worker is the customer of the worker upstream of him and the supplier of the worker downstream. Production is the customer of maintenance. Crucially, the team is the customer of the team leader, and the team leaders are customers of their supervisors. In every case, customers and suppliers have clear agreed-upon expectations of supply and response. When an assembly worker empties a bin of parts, it is the job of the material handlers to replenish that bin with another bin of quality replacement parts in an agreed-upon time to ensure that the worker does not run out of needed parts. Each assembly worker has to complete his task at a specified time and to specified quality and then hand the product on to the next worker on time and without defects. When a worker highlights a problem by pulling his alarm cord (called an Andon cord), the team leader is expected to arrive and support the team member within a specified time. Equally, however, if the worker does not pull the cord, the team leader knows there is not a problem and does not need to offer help to the worker. He can focus instead on other tasks. This clarity greatly simplifies operations. Expectations are clear, and employees are empowered to make decisions and take
Rule 3: The pathway for every product or service is simple and direct.
Every process flow and every business process must be analyzed and unnecessary complexity eliminated. This means that for any given product or part, there is one simple routing rather than many alternative routings. Plant layouts are designed to have a simple end-to-end flow for products and ideally a single production cell where all production steps are completed in one location.
Rule 4: Improvements are made using the scientific method under the guidance of a teacher, at the lowest possible level of an organization.
When we study science or engineering in school or at university, we learn the scientific method. Problems are solved by analyzing the root causes, developing hypotheses, performing experiments to test hypotheses, measuring the results of the experiments, and then if successful, recording and documenting the results and adding them to the body of scientific knowledge. After starting work in business, we usually forget all this. When we have a problem, we usually jump to a solution and tell employees to implement it. Chances are that we know the solution because the problem has happened before (and
will happen again), and chances are that we will just address the symptoms of the problem (e.g., by reworking defective product) rather than finding the root cause. It is also likely that problems will be handed up the line to managers to solve.
Key take aways from this blog:-
- Lean manufacturing is not some arcane system developed by big automotive companies for big automotive companies; rather, it is a simple, practical system of business improvement developed originally
by a small company that used that approach to become a very big company—Toyota.
- Lean manufacturing defines waste as anything that does not add value to the customer’s order. Waste is typically classified into eight categories: transportation, inventory, motion, waiting, overprocessing, overproduction, defects, and underutilized employees. Lean manufacturing is the relentless elimination of that waste
- Beyond all the fancy visual tools such as Kanban cards and 5S, the Toyota Lean manufacturing approach is built on four commonsense principles: (1) standardize the work, (2) make every customer–supplier connection direct and unambiguous, (3) simplify the flow of material and information, and (4) get everyone to solve problems using the scientific method.
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