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Lean production is the term given to a range of measures traditionally used by Japanese businesses in an attempt to reduce waste and costs in production.
This is a method of manufacturing products which aims to minimise:
- the production time
- the production costs
- the amount of stock held in the factory.
Raw materials and supplies arrive at the factory as they are required, and consequently there is very little stock sitting idle at any one time. Each stage of the production process finishes just before the next stage is due to commence and therefore the lead-time is significantly reduced.
With a just-in-time production system, the level of production is related to the demand for the output (i.e. the number of orders) rather than simply producing finished goods and waiting for orders. This means that raw materials and stock only needs to be ordered from suppliers as required - this reduces the amount of money tied up in stocks, and leaves more money available for investment elsewhere.
The advantages of a just-in-time production system are:
- Cashflow is improved, as less money is tied up in raw materials, work-in-progress and finished goods.
- Less need for storage space for raw materials and finished goods.
- The business builds up strong relationships with its suppliers.
- Communication and co-operation between the marketing and the production departments are improved.
The disadvantages of a just-in-time production system are:
- The business may struggle to meet orders if their suppliers fail to deliver the raw materials on time.
- The business is unlikely to 'bulk-buy' its raw materials and, therefore, it may lose the benefit of achieving economies of scale.
- Buffer stocks are minimal and this may lead to the business having to reject customer orders requiring delivery immediately.
This method of manufacturing an item organises workers into 'cells' within the factory, with each cell comprising several workers who each possess different skills.
Each cell is independent of the other cells and will usually produce a complete item, and each cell will usually have an output target to achieve for a given period of time.
It is often argued that if the group of workers in each cell can see the completion of the finished product, then their work will have more meaning and therefore their levels of motivation and job satisfaction will be greatly enhanced.
This method of production is often combined with the just-in-time approach.
The advantages of cell production are:
- Improved job satisfaction and motivation.
- Improved quality as the group of workers take responsibility for the output.
- Multi-skilling of workers means that job rotation can occur.
- Stockholdings are reduced (leaving less money tied up in stocks).
- The factory space can be used more efficiently.
- Lead-times are reduced.
The disadvantages of cell production are:
- Output may not be as high as a 'flow' production system.
- Different 'cells' may work at different speeds (leading to conflict and tension).
- The business may need to invest heavily in new machinery and equipment, as each cell will require the same capital items.
This refers to a business finding the best methods and processes that are used by other businesses, and then trying to emulate these in order to become more efficient in its operations.
Benchmarking can be used in all areas and processes in a business, not just for production.
For example, it can be used to improve customer service, advertising campaigns, Human Resource Management, and budgeting procedures.
Data for benchmarking is collected and used with the full co-operation of the other businesses, and often the results will help both businesses to improve their systems and procedures.
There are several stages involved in implementing a benchmarking system:
- Researching the areas in a business which need improving.
- Deciding how an improvement in these areas can be measured.
- Identifying 'best practice' in other businesses.
- Agreeing the exchange of information with other businesses.
- Comparing the 'best practice' with the existing processes, systems and procedures in the business.
- Altering the processes, systems and procedures in order to improve performance.
- Evaluating how successful the changes have been.
In order for benchmarking to be successful, the business must ensure that firstly every employee is committed and involved in the system, (from senior management to shop-floor employees), and secondly that sufficient time and finance is available for the gathering of data and the implementation of new procedures.
Benchmarking will fail to deliver improvements to the business if there is a lack of willingness by other businesses to disclose information, or if the systems and procedures used by the 'best practice' businesses are not appropriate for the business in question.
In summary, benchmarking can help a business identify those areas in its operations which need improvement, as well as considering alternative processes and procedures for achieving its objectives. 'Best practice' can be emulated and the competitiveness of the business should improve as it strives to improve and become more efficient.
Time is a very valuable resource and time-based management is concerned with reducing both the length of time taken to produce the product and also, therefore, reducing the lead-time (the time lag between the customer placing an order and the business delivering the finished product).
In order for a business to successfully operate a time-based management system, it is important that machinery is flexible and production runs can be shortened or lengthened at short notice, in order to produce more of an existing product or to start the production of an alternative product.
It is also essential that staff are multi-skilled and can rotate between different tasks, as they may be required to perform a number of different jobs in a short space of time.
Time-based management makes it easier for a business to implement other lean production techniques (such as just-in-time and cell production), and since these techniques require less time and fewer stocks of raw materials than more traditional mass production techniques, then the business will save money.
However, it is often argued that the move away from mass production and lengthy production-lines will reduce the chance of the business benefiting from economies of scale in its manufacturing techniques.
It is also likely that a business will be able to implement the time-based management philosophy to its R&D processes, as well as to the production-line.
A business which can develop and launch more products in a shorter time than its competitors will benefit from a number of advantages:
- If the business is the first to launch a product on the market, then it can charge a premium price to reflect the innovative nature of the product.
- Premium prices help to quickly recoup R&D costs, as well as earning the business a significant profit-margin per unit sold.
- Brand loyalty is likely to develop - enabling the business to use this strong customer base as a 'launch pad' for new products in the future.
- The diversity of products that are on sale will increase the product portfolio of the business, as well as reduce the risk of business failure should one or two of the products prove unsuccessful.