5.3 lean production

stages of production

product design → delivery of raw materials from suppliers → production → delivery of finished product to customers→ customer service and after-sales service

lean production

• streamlining operations to increase efficiency and reduce waste but not compromising quality of product

• attempts to reduce waste at all stages of the production process. (waste includes materials, space, human effort etc.)

methods of lean production

• continuous improvement (kaizen)

• just-in-time (JIT)

kaizen

• employees encouraged to make many small, incremental improvements over time (continuous) → collectively significant impact

• responsibility of all employees, not just senior management

kaizen advantages

• need to empower employees at ground level so that they suggest how work can be done better → hands on experience so they know better

• giving autonomy to make decisions → increases motivation + faster implementation (meets esteem needs: recall maslow’s hierarchy of needs)

• teamwork: kaizen groups meet regularly to discuss improvements and suggest to management/implement on own → requires volunteers, time and training

kaizen disadvantages

• needs to be adopted throughout organisation, otherwise will cause bottlenecks and thus no improvement to efficiency

• short-term costs of staff training / lost output of meeting time

• resistance from managers due to existing culture

• some changes cannot be introduced gradually, need radical and expensive solution

just-in-time

• delivering raw materials right before production starts + shipping of finished product right after to reduce amount of stock and stock-holding costs

  • no room for error: depends on reliability of suppliers

  • need reliable suppliers, place small regular orders

  • need ensure quality: do right first time around since there is no buffer stock to re-make product

  • need stock control systems

JIT advantages

• buffer stocks not required, reduces costs of stock management and waste

• avoids opportunity cost of stockpiling (cost of storage, maintenance, damaged, obsolete)

• improves liquidity (current ratio)

• flexible, quicker response times to changes in consumer demand

• if workforce is multi-skilled and adaptable, will have increased motivation

JIT disadvantages

• no purchasing EOS since small quantities ordered at regular intervals

• high delivery costs since more frequent

• risk of running out of stock if sudden increase in demand

• total reliance on third party suppliers to deliver right products at the right time. need to be reliable and preferably local. → reputation will be affected by third party

• may not be suitable if

  • small startup: high admin/implementation costs of stock control

  • cost of production delays > cost of holding stock: more risk of unexpected circumstances delaying production → increased cost

  • inflation: prices of raw materials + oil for transport increase, cheaper to buy large quantity now than small quantities in future

just-in-case

• order more then stock up

• minimise risk by giving buffer, overstaff, overorder, overproduce

cradle-to-cradle design

• uses materials that, when no longer needed, become the basis for future materials OR are decomposable without toxic waste

• able to reuse raw materials indefinitely without compromising quality of product

  • contrast to cradle-to-grave: take responsibility for disposing goods but not putting constituent components back into production process

C2C advantages

• reduces environmental impact

• reduces costs

• can repeat indefinitely as long as biological/technical nutrients are available and correctly sourced

C2C disadvantages

• variation by any supplier will affect C2C plan because may be less recyclable

• impossible to find alternative suppliers → affected significantly by supply chain disruptions

• less flexible, difficult to vary/adapt the final product → less variety

quality

product is fit for purpose (meets/exceeds expectations) → leads to customer satisfaction

why need quality?

• prevent substandard output from reaching consumer → improves customer satisfaction

  • reduces costs of complaints, compensation, replacement and loss of customer loyalty

• reputation as reliable gives competitive advantage → less need for advertising since can use the performance of products to establish quality brand image

• customer loyalty

• longer product life cycles

• can charge premium prices for high quality

quality control

• inspection and testing of end product

  • traditional method

  • done at the end (systematically done in mass production eg every 100th product)

  • emphasis on end product

  • prevention, inspection, correction and improvement

QC advantages

• experts checking so fewer mistakes

• cheaper since fewer workers need training

QC disadvantages

• reactive: does not prevent mistakes

• there is an accepted reject rate since cannot check every unit of output

• expensive: need to hire external specialist inspector, also involves damaging the product to see if it works afterwards

• only checked at end → larger volume of substandard products + more resources already wasted + wastes more time to pinpoint source of fault

• product recall is expensive: spent on production, transportation, marketing + need compensate consumer

• sampling is used → cannot guarantee every product meets the quality standards

• negative culture of inspectors looking for faults → resentment among workers

• tedious for inspectors → inspectors demotivated and don’t do job properly

• workers do not feel responsible for quality

quality assurance

• workers self-check their output against the standards

  • lean method

  • inspection throughout the process

  • emphasis on getting it right the first time around: products designed to be manufactured without faults

  • agreed standards at all stages of production

QA advantages

• proactive and preventive unlike QC

• improve motivation since given responsibility to produce and

• employee participation generates new ideas

• reduced cost of wastage/reproducing substandard products

• cheaper since no need hire external specialist inspector

QA disadvantages

• expensive since need train all workers

• only works if all employees are committed

• not all products can go through QA (eg mass produced because large quantity so cannot check and inspect every individual product)

methods of managing quality

• quality circles

• benchmarking

• total quality management

quality circles

• small groups of volunteers from different departments, meet regularly to discuss how to improve processes/solve problems

• can gain different perspectives/suggestions

quality circles advantages

• promotes teamwork (hr employee motivation, maslow social needs) and cohesiveness, improves employee morale because staff feel valued

• all businesses can use it

quality circles disadvantages

• not cost effective since need to be trained in identifying problem and making feasible solutions

• need to be fully supported by senior management: if suggestions rejected/not enough funding, will lose motivation

• employees uncomfortable with such level of responsibility, argue that senior managers are paid to do it

benchmarking

• comparing products process and performance to…

  • intra-firm comparison: compare between years

  • inter-firm comparison: learn from competitors

benchmarking advantages

• can benchmark anything that is measurable: defect rates, budgets, labour turnover, market share etc

• encourages continually learning from competitors to improve

• can determine strengths and weaknesses compared to competitors (recall swot)

benchmarking disadvantages

• only identifies areas for improvement, not how the problem should be solved

• not always done in a meaningful/objective way: eg customer feedback

• requires time and money to make comparisons

total quality management

• it encompasses all other aspects of lean production: kaizen/jit, whether have done qc/qa, other methods of managing quality

• main aim is customer satisfaction through zero defects

• all workers responsible for maintaining standards throughout production process, need empowerment

• aims for zero defects (in all areas) by preventing mistakes – getting it right first time round

TQM advantages

• reject rate zero, reduce reworking costs by doing everything right the first time →production cost reduced since less wastage

• brand image improves

• staff motivated because feel valued and empowered since they part of the TQM process and culture

TQM disadvantages

• expensive since cost of training + ensure they uphold the philosophy of TQM

• benefits are long-term: time lag between implementing TQM and when benefits are experienced

• only works if all staff are fully committed

international quality standards

• international organisation for standardisation (ISO)

  • specifications developed through global agreement

• ISO 9000

  • award given to firms if they have QA in place that allows quality to be measured regularly + corrective systems in place if quality falls below standards

  • indicates there are quality targets and that firm is ready to deal with quality problems

international quality standards advantages

• forces business to establish a QA framework that is monitored externally (QC)

• consistency between national standards

• makes industry more efficient/effective

• breaks down barriers of international trade

international quality standards disadvantages

• doesn’t mean that all products are good quality, just a guideline

• costs of preparing for inspection + form-filling to gain certificate