Principles of Lean Manufacturing

1. Pull Processing

2. Perfect Quality

3. Waste Minimization

4. Inventory Reduction

5. Production Flexibility

6. Established Supplier Relations

7. Team Attitude

Principles of Lean Manufacturing

• Pull Processing

• Perfect Quality

• __: products are pulled from consumer end (demand), not pushed from production end (supply)

• __: pull processing requires zero defects in raw material, WIP, and FG inventories

1. Waste Minimization

2. Inventory Reduction

• __: activities that do not add value or maximize use of scarce resources are eliminated

• __: hallmark of lean manufacturing

  • Inventories cost money

  • Inventories can mask production problems

  • Inventories can precipitate overproduction

• 
  

• Production Flexibility

• Established Supplier Relations

• Team Attitude

• __: reduce setup time to a minimum, allowing greater diversity of products without sacrificing efficiency

• __: late deliveries, defective raw materials, or incorrect orders will shut down production since there are inventory reserves

• __: each employee must be vigilant of problems that threaten continuous flow of production line

Lean Manufacturing Model

• Achieve production flexibility by means of:

  • Changes in physical organization of production facilities

  • Employment of automated technologies: CIM, AS/RS, robotics, CAD, and CAM

  • Use of alternative accounting models: ABC and value stream accounting

  • Use of advanced information systems: MRP, MRPII, ERP, and EDI

Physical Reorganization of Production Facilities

• Inefficiencies in traditional plant layouts increase handling costs, conversion time, and excess inventories

• Employees tend to feel ownership over their stations, contrary to team concept

• Reorganization is based on flows through cells which shorten physical distance between activities

• This reduces setup and processing time, handling costs, and inventories

1. Islands of Technology

2. Computer Numerical Controlled (CNC)

• __Stand-alone islands which employ computer numerical controlled (CNC) machines that can perform multiple operations with less human involvement

• __Machines:

  • Reduce complexity of physical layout

  • Arranged in groups and in cells to produce an entire part from start to finish

  • Need less setup time

• Computer Integrated Manufacturing (CIM)

• Automated Storage and Retrieval Systems (AS/RS)

• __: completely automated environment which employs automated storage and retrieval systems (AS/RS) and robotics

• __:

  • Replaces traditional forklifts and their human operators with computer-controlled conveyor systems

  • Reduce errors, improve inventory control, and lower storage costs

Computer-Integrated Manufacturing (CIM) System

• Design Phase

• Execution Phase

• [Diagram: Engineering → CAD Software → Design Database → CAM Software → Manufacturing Work Centers / CELL]

• Robotics

• Computer-Aided Design (CAD)

• __: use special CNC machines useful in performing hazardous, difficult, and monotonous tasks

• __:

  • Increases engineers' productivity

  • Improves accuracy

  • Allows firms to be more responsive to market demands

  • Interfaces with CAM and MRPII systems

Computer Aided Manufacturing (CAM)

• Uses computers to control physical manufacturing process

• Provides greater precision, speed, and control than human production processes

What's Wrong with Traditional Accounting Information?

• Inaccurate cost allocations: automation changes relationship between direct labor, direct materials, and overhead cost

• Promotes nonlean behavior: incentives to produce large batches and inventories, and conceal waste in overhead allocations

• Time lag: data lag due to assumption that control can be applied after the fact to correct errors

• Financial orientation: dollars as standard unit of measure

Activity Based Costing (ABC)

• Information system that provides managers with information about activities and cost objects

• Assumes activities cause costs and products (and other cost objects) create demand for activities

• Different from traditional accounting system since __has multiple activity drivers, whereas traditional accounting has only one, e.g. machine hours

ABC: Pros and Cons

• Advantages:

  • More accurate costing of products/services, customers, and distribution channels

  • Identifying most and least profitable products and customers

  • Accurately tracking costs of activities and processes

  • Equipping managers with cost intelligence to drive continuous improvements

  • Facilitating better marketing mix

  • Identifying waste and non-value-added activities

• Disadvantages:

  • Too time-consuming and complicated to be practical

  • Promotes complex bureaucracies in conflict with lean manufacturing philosophy

• Value stream:

• __ all steps in a process that are essential to producing a product

• ___s cut across functions and departments

• Captures costs by value stream rather than by department or activity

• Simpler than ABC accounting

• Makes no distinction between direct and indirect costs

• Including labor costs

• Manufacturing Resources Planning (MRP):

• 
  

  • Ensures adequate raw materials for production process

  • Maintains lowest possible level of inventory on hand

  • Produces production and purchasing schedules and other information needed to control production

• An extension of _

• More than inventory management and production scheduling

• System for coordinating activities of entire firm

• Enterprise Resource Planning (ERP) Systems

• :

  • Huge commercial software packages that support information needs of entire organization, not just manufacturing functions

  • Automates all business functions along with full financial and managerial reporting capability

• Electronic Data Interchange (EDI):

• External communications with customers and suppliers via Internet or direct connection