LEAN PRODUCTION AND LEAN SUPPLY
The concept of lean production was introduced in The Machine that Changed the World (Womack, Jones and Roos, 1990), the result
of a five-year project that benchmarked the global automotive industry.
Lean production was identified as the successor to mass production. Lean producers had a marked competitive advantage over their
mass producing counterparts. The benchmarking survey found that lean producers could produce more automobiles, with shorter
product life cycles, with a higher quality and lower resources, than corresponding mass producers. Although it was not made explicit at
the time, it is now clear that the archetype of lean production was the Toyota Production System created by its chief engineer, Taichi
Ohno.
The Toyota Production System is built around the belief that the organisation should strive to attack waste in its production processes.
Taichi Ohno identified seven wastes, comprising:
overproduction
waiting
transporting
inappropriate processing
unnecessary inventory
unnecessary motions
defects.
Under the Toyota Production System, these wastes are attacked systematically through the adoption of formal approaches to methods
of manufacturing which require the active co-operation of the entire workforce. Though rooted in common sense, they are often ‘counter-
intuitive’ when first perceived.
Those manufacturing approaches seek to identify and eliminate all activities that are deemed to be ‘non-value adding’. Many
commentators have argued that in most organisations, activities that add value in the eyes of the final consumer account for only a small
percentage of total activity.
Research would indicate that it is not unusual for 95% of all production costs to be associated with non-value adding activities, with only
5% of all production costs incurred in conducting value-adding activities. This particularly applies to organisations where little attention
has been focused on improving this ratio.
Clearly this value ratio of 95% presents a major opportunity for improving the cost effectiveness of supply chains. So much so that
recognition of the level of waste in supply chains by procurement departments can radically alter their approach to cost reduction.
For example, in the past it was often taken for granted that the most effective method for reducing a purchase price was to persuade the
supplier to reduce their margin. This might be accomplished by friendly persuasion or more aggressive negotiation or coercion. Of-
course the problem with this approach is that suppliers are likely to resent the customer. The customer might become less attractive to
the supplier who might then decide to reduce the priority accorded to that customer or even find alternative customers. In addition, the
supplier will hopefully use part of their margin to invest in their processes and people. Reducing a supplier’s margin reduces their ability
to invest in their processes, which comprise part of your supply chain!
The alternative approach under lean supply is to agree an appropriate level of margin. The focus then shifts to customer and supplier
working together to reduce supply chain costs by attacking non-value adding activities within the supply chain.
Authorities on the subject of lean publication have identified four key elements.
Jidoka
Jidoka is the Japanese name give to intelligent machines or production lines. However, be warned! In referring to intelligent machines,
we are not describing robotic production lines. Rather the term ‘intelligent’ refers to machines which have the ability to sense when they
are producing a defective product and to cease production under such circumstances. Intelligent weaving machines were first designed
by Toyota in the early part of this century in their textile production arm. Since then these have been a cornerstone of all Toyota’s
production facilities. The concept of the intelligent machine ceasing production is mirrored in the fact that when a production line
operative finds his machine is producing defective material, he can pull a cord which stops not just his own machine but the entire
production line. Under the lean production system, it would be almost impossible for one machine to stop without stopping the entire
production line. Jidoka is widely credited with forcing lean producers to confront the issue of quality, as it is very difficult to sweep
quality problems under the carpet.
Just in Time (JIT)
The second element of lean production is the ‘just in time’ principle. Remember that this is not simply just in time delivery from supplier
warehouses, but just in time manufacture where stock is removed from the entire supply chain.
Classical lean production JIT is made up of at least three components. These are:
· synchronised single piece flow
· pull of upstream material regulated by kanban
· standard work sequence and Takt time.
Heijunka
Heijunka (yet another Japanese term), describes the levelling of production volume. Rather than producing large batches to maximise
production efficiency, Heijunka emphasises the need to produce products at the rate the market demands them. For example, if you sell
200 cars of a particular model in a month and there are 20 working days per month, rather than producing 200 cars of a particular model
in the first week, Heijunka would mean that you produce 10 cars a day. If your production line works for 10 hours per day, adhering to
the Heijunka principle means that you should further produce one car per hour.
Heijunka also requires the lean producer to pass orders down the supply chain in a smooth fashion. If you were placing orders on the
engine plant for the above example you would also place the order for 10 engines per day and if delivery conditions allowed, for one
engine per hour. In this way the production of the entire supply chain is levelled and at the same time brought into synchronisation with
the requirements of the market.
Kaizen
Kaizen is the philosophy of continuous improvement and underlies all the activities of the lean producer. In particular Kaizen is
dedicated to the eradication of muda (the Japanese word for waste)
LEAN SUPPLY
Lean supply might be defined simply as the act of supplying lean producers. However, this would be trite and misleading. A
fundamental aspect of lean production is the importance attached to the supply chain and the collaboration of customers and suppliers.
This emphasis on the capability of suppliers places greater responsibilities on suppliers than would normally be expected under
traditional production paradigms. The supplier's role is expressed not only in the very different relationship between the members of the
value stream, but also in the way that suppliers are brought within an integrated system of production and new product design.
The supply chain comprises a series of organisations that trade with each other to turn raw materials into finished products that can then
be sold to consumers. Much of what you can do for your customers is determined by what your suppliers can do for you. This is true in
terms of price, quality, innovation and service as your organisation's ability to serve the consumer is highly dependent on the capabilities
of the organisations that supply you. In other words, it is the supply chain’s capabilties that count.
This is exactly the situation that faced Toyota and which still faces a great number of organisations today. Toyota’s reaction was to
realise that they needed to optimise the performance of their entire supply chain rather than individual functions or organisations within it.
This clearly places significant responsibilities on those responsible for the procurement process. The essential aspect of lean supply is
to ensure that each member of the supply chain is a lean producer. When this has been achieved, then the supply chain becomes what
Womack and Jones have referred to as a ‘lean enterprise’.
RELATIONSHIPS, NEW PRODUCT DEVELOPMENT AND INTEGRATED PRODUCTION SYSTEMS
The practical differences between lean supply and traditional supply can be thought of in terms of three broad areas: relationships, new
product development and integrated production systems.
Lean relationships
The relationship between customer and supplier within the lean paradigm is very different from that between customer and supplier
under traditional systems of production. In the past the supplier/customer relationship could be thought of as competitive. Suppliers and
customers would compete with each other around the price of the goods they were to exchange. This system was inevitably short-term
and was founded on a win-lose or zero sum mentality. In contrast, lean relationships are long term and are based on collaboration.
Competition is not absent, but rather than competing with each other, the organisations of one supply chain compete with the
organisations of another.
Lean relationships are characterised by exchange. This may be exchange of cost information, or of technological information. Both cost
transparency and supplier/customer development are usual in lean relationships. This openness is highlighted by the practice of creating
supplier associations and exchanging members of staff (guest engineers) between supply chain organisations. Another characteristic of
the lean relationship is the high level of mutual dependence. Very often, customers are dependent on the capabilities of their suppliers
to a far greater extent than is usual under the traditional paradigm of mass production.
Practical expressions of the lean relationship are looked at below as we examine the important phenomenon of new product
development, integrated production systems, pull and flow.
New product development.
New product development is another area where lean supply is different from traditional methods of production. In the past new product
development was driven by the customer. Very often the customer would design the new product and simply pass the new drawings or
specifications to the supplier. In contrast, lean supply involves suppliers from the early stages of new product design. The customer will
usually inform the supplier of the performance it requires of a new component. To take an automotive example, a final assembler may
require a supplier to design a brake which will be capable of stopping a car of a particular weight travelling at a particular speed in a
particular distance on a particular number of successive occasions. The customer will also give the supplier the dimension of the new
component so that it fits within the new product. After this information has been given, it is the supplier’s responsibility to design the new
component, based on his own expertise. Under the lean system of new product design suppliers bear a greater amount of responsibility
than would be normal under traditional paradigms.
Integrated production systems.
The cornerstone of lean supply is the creation of the lean enterprise, that is the diffusion of lean production to every organisation within a
supply chain. When the lean enterprise has been created the supply chain will effectively be a single integrated system of production.
The bases of such a unified system are the phenomena of pull and flow, discussed below. However we can give an example which
helps explain what we mean by an integrated production system.
In the early 1980s when JIT was an innovative topic in many UK business schools, it was common to hear the following mistaken
argument:
‘It is all very well for a company to operate on a JIT basis and reduce its stock, but someone, somewhere in the supply chain has to
carry stock.’
Think about this statement for a moment. Do you agree with it? If you don’t, then congratulations because you have begun to think in a
lean manner. Under the traditional paradigm, there were great discontinuities between the production process of suppliers and
customers. This meant that it was almost impossible to institute JIT manufacturing. All that was possible was JIT delivery and suppliers
of JIT customers did sometimes hold very large amounts of inventory. In developing an integrated production system between
customers and suppliers, the separate organisations are tying their production processes together. This makes it possible to operate full
JIT manufacturing and JIT can be achieved throughout the supply chain, with the result that total supply chain inventory is reduced.
Pull
Traditional organisations have tended to push production through their system. Production schedules are driven by forecasts which
sometimes have a tenuous link to market realities. Built around the concept of pull, lean supply is driven by downstream events, so that
actual sales in the market drive production. Market sales create a force which pulls the product through the production process. Thus
the organisation only makes what the market requires. The pull system is characterised by use of the Kanban system, which essentially
means that when a product is consumed by a particular step in the production process, an instruction is given to the immediate
upstream workstation to produce one more item. In this way the production of a particular process step is controlled by the demand of
the next production process downstream. The ultimate Kanban, and the fundamental driver of the entire system is, of course, the
consumer.
Flow
Most organisations operate a batch and queue operation. Products are produced in large numbers (the batch), resulting in individual
products spending a lot of time queuing while they wait to undergo value adding processes. It has been estimated
that a product is sitting in a non value adding queue for 95% of the time. Lean supply is founded on a repudiation of traditional batch and queue methods in
favour of flow production. This is the same as the batch and queue system, except that the batch size is one!
The key concepts of lean supply
LEAN PRODUCTION AND SUPPLY.
The key elements of the Lean Production System as summarised by Dan Jones of Cardiff Business School are:
1. It is customer driven - not driven by the needs of manufacturing.
2. All activities are organised and focused on a product line basis led by a product champion, with functional departments playing a
secondary, servicing role.
3. All activities are team based and the organisation is horizontally and not vertically oriented.
4. The whole system involves fewer actors all of whom are integrated with each other.
5. There is a high level of information exchanged between all the actors and a transparent and real cost structure
6. The activities are co-ordinated and evaluated by the flow through the team or plant, rather than by each department meeting its plan in
isolation.
7. The discipline necessary for the system to function and expose problems is provided by JIT and Total Quality in the plant and supplier
and dealer performance evaluation.
8. Wherever possible responsibility is devolved to the lowest level possible, in the plant or the suppliers.
9. The system is based on stable production volumes but with a great deal of flexibility.
Relations with employees, suppliers and dealers are based on reciprocal obligations.
