5.3. Lean Production and Quality Management (HL only)

Lean Production

Lean Production is a philosophy of production that aims to minimise the amount of resources used in all activities. It involves identifying and eliminating all non-value-adding activities. Lean Production or lean process improvement involves the systematic elimination of waste such as:

Characteristics of Lean Production

● Integrated, single piece continuous workflow

● Integration of the whole value chain through partnerships with suppliers and distributors

● JIT processing

● Short order-to-ship cycle times synchronized with small batch production

● Production based on orders rather than forecasts

● Minimal inventories at each stage of the production process

● Quick changeovers of machines and equipment

● Production layout based on workflow

● Active involvement by workers in problem solving to improve quality and eliminate waste

● Defect prevention by building quality into the process

● Team-based work with multi-skilled empowered to make decisions

Benefits of Lean Production

Supporters of lean production believe it enables a company to deliver on demand, minimize inventory, maximize the use of multi-skilled employees, flatten the management structure and focus resources where they are most effective.

● Waste reduction

● Production cost reduction

● Manufacturing cycle times decreased

● Labour reduction while maintaining or increasing throughput

● Inventory reduction while increasing customer service levels

● Capacity increase in current facilities

● Higher quality

● Higher profits

● Higher system flexibility in reacting to changes in requirements improved

● More strategic focus

● Improved cash flow through increasing shipping and billing frequencies

Criticisms of Lean Principles

1. In many situations, organizations supposedly using lean principles have not experienced the improvements in productivity and profitability expected
2. Real improvements require a change in thinking and in culture – which are difficult to achieve
3. There is often a high initial investment required to achieve lean production.
4. Many companies use lean manufacturing and Six Sigma techniques to reduce costs, rather than a fundamental commitment to eliminating waste and adding value.

Methods of Lean Production

1: Continuous Improvement or Kaizen

Kaizen looks for uninterrupted, incremental change. It can be implemented by improving every aspect of a business process in a step-by-step approach while gradually developing employee skills through training, education and increased involvement.

The principles of Continuous Improvement/Kaizen are:

a. People are the most important organisational asset

b. Processes should evolve by gradual improvement rather than radical change

c. Improvement should be based on statistical/quantitative evaluation of process performance

d. Resources, measurements, rewards and incentives all need to be aligned

e. Continuous improvement enables changing customer needs to be taken into account

f. Continuous improvement enables new technologies to be introduced.

2: Just in Time

Just in Time (JIT) is an approach to operations based on the idea that goods and services should produce only when they are needed – neither too early (so that inventories build up) nor too late (so that the customer has to wait). JIT is also known as ‘stockless production’ and may be used as part of a lean production process. In its extreme form, a JIT system seeks to hold zero inventories.

It is important that organisations which run a JIT system develop close relationships with their suppliers.

Three Key elements of the JIT philosophy

1. Element
2. Comment
3. Elimination of waste

Waste is defined as any activity that does not add value

● Overproduction

● Waiting time

● Transport – waste can be reduced by changing the layout of the factory so as to minimize the movement of materials

● Waste in the process – some activities might be carried out only because there are design defects in the product, or because of poor maintenance work

● Inventory – the target should be to eliminate all inventory by tackling the things that cause it to build up

● Simplification of work: simplifying work is an important way of getting rid of waste in the system because it eliminates unnecessary actions

● Defective goods – are quality waste.

Involvement of all staff in the operation

JIT is a cultural issue and its philosophy has to be embraced by everyone involved in the operation if it is to be applied successfully.

Continuous Improvement

The goal is to meet demand immediately with perfect quality and no waste. In practice, this ideal is never achieved. However, the JIT philosophy is that an organisation should work towards this ideal and continuous improvement is both possible and necessary.

JIT Techniques

JIT is a collection of management techniques. Some of these relate to basic working practices.

a) Work standards – should be established and followed by everyone at all times

b) Flexibility in responsibilities – the organization should provide for the possibility of expanding the responsibilities of any individual to the extent of their capabilities. Grading structures and restrictive practices should be eliminated as far as possible.

c) Equality of all people working in the organization – equality should exist and be visible

d) Autonomy – authority should be delegated to the individuals responsible directly in the activities of the operation. Management should support people involved in production, not direct them.

e) Development of personnel – individual workers should be developed and trained

f) Quality of working life – the quality of working life should be improved through better work area facilities, job security and involvement of everyone in job-related decision-making.

g) Creativity – employees should be encouraged to be creative in devising improvements to the way their work is done

h) Use several small, simple production units – small machines can be moved around more easily, and so offer greater flexibility in a shop floor layout. The risk of making a bad and costly investment decision is reduced, because relatively simple small machines usually cost much less than sophisticated large machines.

i) Machine cells – machines or workers should be grouped by product or component instead of by the type of work performed. The non-value-added activity of materials movement between operations is therefore minimized by eliminating space between work stations.

j) Work floor layout and work flow – Work can be laid out to promote the smooth flow of operations. Work flow is important because the work needs to flow without interruption in order to avoid a build-up of inventory or unnecessary down-times

k) Total Productive Maintenance (TPM) – seeks to eliminate unplanned breakdowns and the damage they cause to production and workflow.

l) JIT Purchasing – with JIT purchasing, an organization establishes a close relationship with trusted suppliers, and develops an arrangement with the supplier for being able to purchase materials only when they are needed for production. The supplier is required to have a flexible production system capable of responding immediately to purchase orders.

m) Close relationship with suppliers

n) Uniform loading – all parts of the productive process should be operated at a speed which matches the rate at which the final product is demanded by the customer. Production runs will therefore be shorter and there will be smaller inventories of finished goods because output is being matched more closely to demand.

o) Set-up reduction – machinery set-ups are non-value added activities which should be reduced or even eliminated.

p) Kanban system – A Kanban, or signal, is used to ensure that products/components are only produced when needed by the next process.

q) Preventative maintenance – production systems must be reliable and prompt, without unforeseen delays and breakdowns. Machinery must be kept fully maintained.

Problems associated with JIT

● It is not always easy to predict patterns of demand

● JIT makes the organization far more vulnerable to disruptions in the supply chain

● Wide geographical spread makes the JIT system difficult.

3: Kanban - https://en.wikipedia.org/wiki/Kanban

4: Andon - https://en.wikipedia.org/wiki/Andon_(manufacturing)

Task 2: The following videos go into more depth about three of the elements mentioned in the Toyota Production System - Kaizen, Kanban and Andon. You will get into three groups, take one of the videos and make notes of how some of the CEUGIS concepts are evident.

Task 3: Kaizen thinking fires productivity

Mike Brookes, co-owner of Ambi-Rad, when asked why he failed for many years to introduce new ideas aimed at increasing competitiveness, gives a simple answer: he was too busy expanding. His Midlands engineering company is a European leader in gas-fired, ‘radiant tube’ heating systems. But Mr Brookes found little time to think about how to increase quality and productivity. ‘We were a top- down company with all the new ideas coming from the directors,’ explains Mr Brookes. The government minister for industry is particularly keen that smaller manufacturers should take on board ‘Kaizen’, or continuous improvement programmes of the kind initially introduced by Japanese firms in the past 20 years. The competitiveness problems were highlighted in a recent EU report, which put Britain in 11th position out of 15 in the EU productivity league table.

At Ambi-Rad, Mr Brookes decided to take action and implement ‘Kaizen’ thinking under which workers in the company hierarchy are given more control over deci-sions and encouraged to come up with suggestions for quality and efficiency improvements. Most of the 150 workers at Ambi-Rad’s main plant in the UK are divided into eight groups, each one responsible for specific aspects of production. Team leaders encourage new ideas and link the shop floor and senior managers. One recent idea came from Jean Cox, an assembly worker at Ambi-Rad for 13 years. She suggested punching holes in a piece of metal in a different place to shorten the overall production process. The proposal was implemented, leading to a small but worthwhile productivity improvement. ‘I feel I am much more involved,’ says Ms Cox. ‘As a problem occurs, rather than carry on regardless, we are now encouraged to think of a way round it.’

Some of the ideas are very simple, but suggestions from people like Ms Cox have taken $600000 a year off the company’s costs. The Kaizen scheme has enabled Ambi-Rad to maintain profits at a time of severe difficul- ties in the engineering business. In the past two years, many comparable UK companies have seen orders and earnings hit by the economic recession and weak demand in important markets.

‘Partly because of the new manufacturing ideas we have kept pre-tax profits at 10 per cent of sales, which is really excellent by the standards of other engineering companies,’ Mr Brookes says. This year Ambi-Rad expects to have sales of £18 million, more than twice the figure five years ago, and exports roughly a quarter of its turn- over. Mr Brookes wants savings from Kaizen-based ideas to reach £1 million annually over the next few years.

Questions

1 Explain how Kaizen groups can help reduce costs for businesses such as Ambi-Rad. [6]

2 Identify and evaluate the benefits for three stakeholder groups in Ambi-Rad from the firm adopting Kaizen. [12]

3 Examine the conditions that are necessary for the Kaizen philosophy to be successful at businesses such as Ambi-Rad. [8]

4 Using the case study as a starting point, assess the possible relationship between the use of Kaizen groups and the leadership style of an organisation. [10]

Source: Business and Management for the IB Diploma

Cradle to-Cradle Manufacturing

https://greenlivingideas.com/2015/08/31/cradle-to-cradle-manufacturing/

Task 5: The following videos demonstrate how Cradle 2 Cradle Design and Manufacturing is making manufacturers (Trigema & Shaw) more sustainable but equally more strategically competitive. You will get into three groups and assess how Cradle 2 Cradle Design and Manufacturing is applied in one of these organizations.

Features of Quality Control and Quality Assurance

Quality is ‘the totality of features and characteristics of a product or service which bears on its ability to meet stated or implied needs’ (Holmes 1992). Quality Management is concerned with controlling activities with the aim of ensuring that products or services are fit for their purpose, and meet specifications. Quality management encompasses quality assurance and quality control.

● Quality Assurance focuses on the way a product or service is produced. Procedures and standards are devised with the aim of ensuring defects are eliminated (or at least minimised) during the development/production process.

● Quality Control is concerned with checking and reviewing work that has been done. Quality control therefore has a narrower focus than quality assurance.

Quality as a concept

Throughout this chapter, the following four themes reappear in relation to quality management

a. Commitment

b. Competence

c. Communication

d. Continuous improvement

Quality Control and Quality Assurance

Traditional approaches to quality were focused on inspection. Modern approaches to quality focus on the prevention of defects through quality standards and processes.

Quality control involves establishing standards of quality for a product or service, implementing procedures that are expected to produce products of the required standard in most cases and monitoring output to ensure sub-standard output is rejected or corrected.

Quality Assurance

The demand for better quality has led to the acceptance of the view that quality management should aim to prevent defective production rather than simply detect it.

Quality assurance emphasizes the processes and procedures used to produce a product or service – the logic being that if these are tightly controlled and monitored the resulting product and service will be high quality. As quality has been built-in, the need for inspection after production should be eliminated.

Methods of Managing Quality

Quality Circles

A quality circle is a team of workers from within the organization which meets at intervals to discuss issues relating to the quality of the product or service produced. Suggestions are encouraged regarding how the product or service produced could be made better, and how processes and working practices could be improved.

Ishikawa (Quality Circles)

Ishikawa (1985) stressed the importance of people and participation to improve quality. He is often credited with the idea of quality circles, and their use to achieve participation and overcome resistance to quality initiatives.

• Rewarding the circle for suggestions that are implemented
• Providing a budget and support to run the quality circle in terms of room provision, refreshments, staff to take minutes
• Ensuring management are supportive and prepared to act on useful suggestions from the circle
• Providing an explanation as to why suggestions not implemented were rejected
• Management asking the circle for suggestions and comments on specific issues and problems facing the company, without anticipating the outcomes.

Benefits

a. Employee involvement improves morale

b. Practical improvements/solutions are likely as workers know the processes involved

c. Organization unity is fostered as the circle includes all levels

d. Suggestions can result in valuable savings

Drawbacks

a. Employee power is hard to control

b. The scope of influence can become very wide

c. Rejected suggestions may cause resentment

d. Business practicalities (cost) may not be fully understood.

Benchmarking

Benchmarking is the process of identifying "best practice" in relation to both products (including) and the processes by which those products are created and delivered. The search for "best practice" can take place both inside a particular industry, and also in other industries (for example - are there lessons to be learned from other industries?). The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to "best practice" and to identify areas and means of performance improvement.

The Benchmarking Process

Benchmarking involves looking outward (outside a particular business, organisation, industry, region or country) to examine how others achieve their performance levels and to understand the processes they use. In this way benchmarking helps explain the processes behind excellent performance. When the lessons learnt from a benchmarking exercise are applied appropriately, they facilitate improved performance in critical functions within an organisation or in key areas of the business environment.

Application of benchmarking involves four key steps:

(1) Understand in detail existing business processes

(2) Analyse the business processes of others

(3) Compare own business performance with that of others analysed

(4) Implement the steps necessary to close the performance gap

Benchmarking should not be considered a one-off exercise. To be effective, it must become an ongoing, integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice.

See - https://www.oshatrain.org/notes/2fnotes04.html

Task 6: Benchmarking is key to efficiency

Lord Simon is former chief executive of BP, and was responsible for introducing benchmarking to the oil company. ‘Knowing the opposition and where it is making better profits is one of the most crucial bits of information you can get in business,’ says Simon. ‘In BP we faced the fact that American companies always achieved a higher return on capital than UK equivalents. Why should this be? We set ourselves a target to equal or exceed Exxon, at that time the best performer, within five years. It was a great way of focusing the mind.’ Simon now promotes the benefits of benchmarking to all firms, especially to small and medium enterprises. ‘They need clear data on where competitors are extracting greater profit margins, whether in production, marketing or distribution. Such data can change, enabling better decisions about how to allocate resources.’

Benchmarking also improves the focus and motivation of everybody in the company. ‘When managers talk to staff about the need for change it can seem like just another demand,’ says Simon. ‘But if staff look at a benchmark and see the competition is doing better, they say, if they can do that, so can we.’

Closing the Gap, a DTI (Department of Trade and Industry) report, has indicated startling variations in performance. The top 25% of companies achieve profit margins five times greater than those in the bottom quartile. They achieve 98% supplier accuracy and delivery reliability against 60% accuracy and 85% reliability for bottom quartile companies. Spending on training is ten times greater and staff absenteeism rates up to 75% lower than in the bottom quartile.

Questions

1. Explain ‘benchmarking’. [3]
2. Analyse three benefits to small and medium-sized enterprises of adopting benchmarking. [9]

Source: Business and Management for the IB Diploma

The importance of national and international quality standards

International Organisation for Standardisation

ISO issue standards are applicable to many types of organisation and they are updated periodically.

a. ISO 9001:2000 contains ISO’s current quality management system requirements. This is the standard you need to use if you wish to become certified (registered)

b. ISO 9000:2000 and ISO 9004:2000 contain ISO’s quality management system guidelines. These standards explain ISO’s approach to quality management presenting definitions and a set of guidelines for improving performance, but they are not intended to be used for certification purposes.

c. ISO 19011: covers quality auditing standards

d. ISO 14001 relates to environmental management systems. It specifies a process for controlling and improving an organisation’s environmental performance. Issues covered include:

I. Planning

II. Policies on the environment

III. Implementation and operation

IV. Reviews by management

V. Checking and taking corrective action.

ISO certified/registered or ISO compliant?

When a company claims that they are ISO 9000 certified or registered, they mean than an independent registrar has audited their processes and certified that they meet the ISO requirements.

When an organisation says that they are ISO 9000 compliant, they mean that they have met ISO’s quality system requirements, but have not been formally certified by an independent registrar. In effect they are self-certified.

The ISO 9000 standards are process standards, not product standards. Organisations are granted certified or compliant status on the basis that their processes rather than their products and services meet ISO 9000 requirements. The logic is that high quality processes ensure high quality output.

Criticisms of quality accreditation

● Documentation is expensive (in terms of time) to produce

● Policies and procedures encourage management by manual, discourage innovation and initiative

● The schemes encourage bureaucracy

● Formal methods may conflict with working practices in small and medium sized organisations.