Lean Manufacturing and Just-in-Time Production

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Lean Manufacturing and Just-in-Time Production

HISTORY OF LEAN MANUFACTURING/JIT
MANUFACTURING
TEN STEPS TO LEAN/JIT PRODUCTION
SIX SIGMA AND LEAN SIX SIGMA
BENEFITS OF LEAN/JIT PRODUCTION
BIBLIOGRAPHY

Associated with Japanese management techniques, just-in-time production (JIT) is a set of principles and practices based on the philosophy that firms should hold little or no inventory beyond that required for immediate production or distribution. That is, a manufacturer should receive raw materials or parts from its suppliers perhaps just hours before they will be used in production, and the firm's output should be shipped to its customers as soon after completion as possiblewithout holding onto a stock of either raw goods or finished products.

In practice, JIT has often been expressed as a holistic management system aimed at reducing waste, maximizing cost efficiency, and securing a competitive advantage. Thus, a number of additional conditions are considered necessary for the successful implementation of JIT. These include small lot sizes, short setup and changeover times, efficient and effective quality controls, and perhaps most of all, designing the whole production process to minimize backups and maximize the efficiency of human and machine labor.

Lean manufacturing encompasses a number of things. It essentially is a Westernized version of JIT and Japanese kaizen, or continuous improvement. Lean manufacturing is a process for measuring and reducing inventory and streamlining production. It is a means for changing the way a company measures plant performance. A knowledge-based system, lean manufacturing takes years of hard work, preparation, and support from upper management. Lean manufacturing is so named because it purports to use much less of certain resources (space, inventory, workers, etc.) than is used by normal mass-production systems to produce comparable output. The term came into widespread use with the 1990 publication of the book The Machine That Changed the World by James P. Womack, Daniel T. Jones, and Daniel Roos. The book is based on the MIT five-year International Motor Vehicle Program's study of the auto industry in fourteen countries. This seminal study of the automobile industry explains the concept of lean production to a North American audience for the first time.

The APICS Dictionary defines lean manufacturing as a philosophy of production that emphasizes minimizing the amount of all resources (including time) used in various enterprise activities. It involves identifying and eliminating non-value-adding activities in design, production, supply chain management, and customer relations. Lean producers employ teams of multi-skilled workers at all levels of the organization and use highly flexible, increasingly automated machines to produce volumes of products in potentially enormous variety. In effect, they

incorporate the advantages of both mass production (high volume, low unit cost) and craft production (variety and flexibility). Quality is higher than in normal mass production. Compensation and rewards are based on meeting the total cost equation rather than on labor, overhead, or individual quality measures.

Lean manufacturing and JIT (lean/JIT) share most of the same characteristics, goals, and philosophy. In fact, the terms are often used interchangeably.

HISTORY OF LEAN MANUFACTURING/JIT

Since Japan is a physically small country with minimal resources and a large population, the Japanese have always been careful not to waste resources such as time, labor, and space. Waste is seen as abhorrent to the Japanese because they have so little space and so few natural resources. Hence, it has been necessary for the Japanese to maximize the yield from minimally available resources. Also, dense population has made it necessary for the Japanese people to maintain mutual respect in order to work and live together.

Under this wa (harmony) culture, everyone tries to maintain the best possible human relationship and is reluctant to be involved in any confrontations. Additionally, most Japanese firms have a rentai relationship, which entails maintaining a joint responsibility between management and workers. Under this relationship, management should treat all workers equally. In exchange, each worker respects management's leadership position and follows orders exactly without mistakes, cooperates with coworkers, and generates ideas and creativity to improve the firm's competitiveness. This type of culture reinforces the basic tenets of lean/JIT: waste minimization, continuous improvement, and respect for all workers.

This concept was originally developed in Japan in the mid-1970s by the Toyota Motor Corporation. In fact, many firms continue to refer to lean/JIT as the Toyota system. The concept emphasized the avoidance of waste of materials, space, and labor. Significant attention was paid to identifying and correcting potential problems that could lead to any form of waste. Operations were constantly being improved and fine-tuned so as to further eliminate waste and thereby increase productivity and yield. In addition, equal respect was paid to all workers, while minimizing the trappings of status. As a result, by using lean/JIT, Toyota was able to reduce the time needed to produce a car from fifteen days to one day.

In the June 2008 issue of the Harvard Business Review, Hirotaka Takeuchi, Emi Osono, and Norihiko Shimizu examine The Contradictions That Drive Toyota's Success. Two characteristics of the Toyota Corporation that are thought to be germane to the company's success are the setting of vague goals and the company's eagerness to experiment. Toyota President Katsuaki Watanabe tells his employees that his goal is to build a car that makes the air cleaner, prevents accidents, makes people happier and healthier when they drive it, and gets you from coast to coast on one tank of gas. The philosophy is that by assigning broad goals, researchers are allowed the freedom to explore innovative paths to improve the product. Toyota's commitment to constantly improving their operations requires a steady stream of new ideas and concepts. By encouraging employees to try new things in order to gain knowledge from their successes and failures, Toyota has turned the management process of Plan-Do-Check-Act process into the Toyota Business Practices (TBP), which outlines a routine for experimentation that encompasses eight steps:

  • Clarify the problem
  • Break down the problem
  • Set a target
  • Analyze the root cause
  • Develop countermeasures
  • See countermeasures through
  • Monitor both results and processes
  • Standardize successful processes

Vague goals and routine experimentation are two of the ways in which Toyota has been able to implement the principle of continuous improvement successfully.

United States. In 1924 Henry Ford's Highland Park plant, and later the River Rouge operation, mass-produced Model T parts just-in-time for assembly while assembly lines pulled work forward to the next assembly stations just-in-time. One hundred freight cars of material were unloaded daily, with materials flowing through fabrication, subassembly, final assembly, and back onto the freight cars. The production cycle was twenty-one days. At River Rouge the cycle was only four days, and that included processing ore into steel at the on-site steel mill.

Unfortunately, this just-in-time type manufacturing soon gave way to the large lot sizes and lengthy cycle times dictated by the economies of scale of mass production, mass markets, and standard designs with interchangeable parts. U.S. manufacturers held on to this paradigm until the early 1980s, when the development of the Toyota production system caused it to shift. U.S. manufacturers initially greeted lean/JIT with a great deal of ambivalence, thinking that the concept would never work in the United States due to its reliance on the cultural aspects of the Japanese work environment. However, this view changed when firms such as Hewlett-Packard and Harley-Davidson yielded significant benefits from its use.

MANUFACTURING

The idea behind lean/JIT is a concept called ideal production. Simply produce and deliver finished goods just in time to be sold, subassemblies just in time to go into subassemblies, and purchased materials just in time to be transformed into fabricated parts. The goal of lean/JIT is to find practical ways to create the effect of an automated industry that will come as close as possible to this concept of ideal production.

While the prevailing view of lean/JIT is that of an inventory control system, lean/JIT goes much further. It is an operational philosophy that incorporates an improved inventory control system in conjunction with other systems. These systems include:

  • A setup improvement system
  • A maintenance improvement system
  • A quality improvement system
  • A productivity improvement system

Inventory Control System. When larger quantities are ordered or produced, average inventory obviously is larger. This larger inventory results in increased inventory-carrying charges. If a reduction in carrying costs is desired, smaller quantities should be ordered and orders should be placed more often. However, the practice of ordering smaller quantities can have the side effect of increasing ordering costs. To balance these two costs, the concept of economic order quantity (EOQ) was developed. The EOQ formula derives the point, or order quantity, where inventory carrying costs and ordering or setup costs are the same. An order of this quantity will minimize the sum of the two costs.

However, the EOQ formula is flawed. While carrying costs and ordering/setup costs are obvious, other costs that can significantly affect lot size are not considered. The user of the formula often fails to consider quality, scrap, productivity, and worker motivation and responsibility. In addition, the EOQ formula user frequently fails to consider that even though setup costs are significant, they are not unalterable. American manufacturing managers traditionally considered setup costs as a necessary evil and made little or no effort to reduce them.

The lean/JIT philosophy suggests that a firm should eliminate any reliance upon the EOQ formula and seek the ideal production quantity of one. Of course, a lot size of one is not always feasible, but it is a goal used to focus attention on the concept of rapid adjustments and flexibility. Naturally, a reduction in inventory levels means an increase in setups or orders, so the responsibility rests with production to make every effort to reduce setup time and setup costs. It should be noted that this assumes setup time and cost are positively related. This is not always true because the cost to reduce setup time could be very high if retooling or equipment redesign are involved.

Setup Cost Reduction System. Toyota began a campaign to reduce setup times in 1971. Five years later, the time required to set up presses to form fenders and hoods had fallen from 1 hour to 12 minutes, while U.S. manufacturers needed 6 hours to perform the same task. As the company continued to emphasize reduction of setup times, its operations became capable of one-touch setups, which take less than 1 minute.

Setup time can be divided into two phases: external time and internal time. External time includes activities that can take place while the machine is running, such as transporting dies between storage and the machines. These items are external to the run time and do not interrupt it. Internal time includes activities that can only be conducted when the machine is stopped, such as mounting and removing dies. These are items that will interrupt the run time. Ensuring that appropriate tools are ready before changeover begins can eliminate external time. Internal time can be reduced by addressing the question, How can operations be quickened? Appropriate responses could include the use of locating pins and hand levers to replace bolts, the standardization of any remaining bolts, permanent installation of wrenches for adjusting nuts, and the use of an air driver instead of a ratchet.

Management tends to analyze the large, obvious costs such as direct labor, but then treats setup as an inherent cost that must be accepted. However, only by reducing setup time and costs can lot sizes be reduced toward the ideal lot size of one.

Preventive Maintenance System. Most arguments against preventive maintenance (PM) suggest that PM programs are more expensive than programs that only repair broken equipment. The flaw in this line of thought arises from the unpredictable nature of equipment breakdown. This reaction mode of maintenance usually means that the maintenance personnel must temporarily patch the equipment and defer the substantive repair until time allows. Unfortunately, since the equipment already has suffered lost time due to the initial breakdown, the likelihood of finding repair time decreases. The result often is a circular process of adjust and tinker, with an increased risk of unexplained defects in the output.

A proposed requirement for lean/JIT is that machinery be in top running condition at all times. When using small lot sizes, management can ill afford unexpected downtime in production flow. Equipment must be in condition to produce whatever is needed, whenever it is needed. Therefore, a little time should be scheduled each

day to ensure that machinery is capable of producing top quality results. Preventive maintenance is necessary for continuous, long-term improvement in the quality of the production process.

Quality Improvement System. In order for companies to successfully produce goods while receiving only minimum deliveries, no room can be allowed for poor quality. This requires an overhaul in the thinking of management, which traditionally sought the so-called acceptable quality level (AQL). After receipt, delivered goods are randomly inspected to see how many defective parts there are within a predetermined sample size. If the number of defects exceeds a certain amount (the AQL), the entire batch is rejected. No such provision is made under lean/JIT; all parts must be good. The Japanese use the term zero defects to describe this philosophy.

Zero defects certainly cannot be obtained overnight, nor can it be expected from all of a firm's current suppliers. To facilitate the receipt of high quality goods, a firm must offer more than the usual short-term contract or purchase order to the lowest bidder. A firm also may have to eliminate or decrease the use of multiple sourcing, or purchasing the same part from several sources as a backup in case one source experiences quality or delivery problems. By issuing long-term contracts to a single source, the lean/JIT firm gives its supplier the confidence and incentive to spend time and money on ensuring near perfect quality while constantly improving the product. Frequently, this makes for a captive supplier who must maintain the required quality in order to survive. The lean/JIT firm should then work constantly and directly with the supplier to monitor quality and provide technical support.

The use of lean/JIT improves the quality of suppliers, as well as the lean/JIT firm's internal quality. When lot sizes are drastically reduced, defect discovery is naturally enhanced. If a worker produces a lot size of one and passes it to the next station, the quality of feedback will be immediate. In this way, defects are discovered quickly and their causes can be corrected immediately. Production of large lots with high defect rates is avoided.

U.S. manufacturers traditionally allowed lot sizes and inventory levels to remain high just in case a quality problem, an equipment problem, or a delivery problem should arise. This just in case inventory, commonly called buffer stock, allowed the firm to maintain its production flow while the problem was being corrected. When a quality problem emerged and inventory was ample, the search for the source of the problem was postponed until a more suitable time. This suitable time may have never occurred. When lot sizes are minimal, one worker's problem threatens to bring subsequent processes to a halt. This means that all production workers and management must collaborate to find an immediate solution. The benefits here are twofold. First, the firm avoids the production of large quantities of defective parts. Secondly, good managers will be able to use this as motivation for unity of purpose within the workforce.

Productivity Improvement System. Productivity can be defined as good output divided by required input. The productivity facet of lean/JIT has been described as nothing sitting idle, which wastes time. If equipment is operated only for productive purposes, then energy waste is eliminated. If all inventory is converted into product, then material waste is eliminated. If errors are not allowed, then rework is eliminated.

A number of productivity improvements may result from lean/JIT implementation. Among these are lower inventory levels, lower scrap rates, reductions in rework costs, reductions in inventory carrying costs, smaller floor space requirements, reduced material handling, simpler inventory accounting, and more positive inventory control. All of these lower the input component or increase the good output of the productivity ratio.

Reductions in idle inventories allow the firm to reduce internal lead timesfrom the purchase of raw materials to the shipping of finished goodsallowing quicker changes in product mix and production quantities. Furthermore, the firm's ability to forecast is enhanced because the forecast horizon is shortened.

TEN STEPS TO LEAN/JIT PRODUCTION

Steve L. Hunter lists ten steps to implement a lean/JIT production system:

  1. Reengineer the manufacturing system
  2. Reduce setup
  3. Integrate quality control
  4. Integrate preventive maintenance
  5. Level and balance the system
  6. Integrate a pull system
  7. Control inventory
  8. Implement a vendor program
  9. Utilize computer integrated manufacturing (CIM) benefits

SIX SIGMA AND LEAN SIX SIGMA

Six Sigma is a management process that shares many characteristics with just-in-time manufacturing and lean production. Developed by Motorola in the 1980s, the strategy encompasses a set of practices inspired by other

management methods such as quality control and zero defects. Six Sigma aims to identify and correct constraints on manufacturing and other business processes in order to achieve a specific financial objective. In Six Sigma, defects include any attribute of the business that could result in customer dissatisfaction.

The termSigma refers to a scale for measuring quality. Processes that operate at Six Sigma quality produce fewer than 3.4 defects per million opportunities (DPMO). The management system aims to reduce the frequency of defects in all processes to this level. According to the Motorola University, the Six Sigma improvement methodology has four focuses:

  1. Understanding and managing customer requirements
  2. Aligning key business processes to achieve those requirements
  3. Utilizing rigorous data analysis to minimize variation in those processes
  4. Driving rapid and sustainable improvement to business processes

The Six Sigma management system is a framework for creating clear objectives and aligning improvement efforts with the overall business strategy. Six Sigma is applied from the top down of an organization. Martial arts rankingsfrom green belts through to champion black belts, who work directly under the executive leadershipare used to establish a hierarchy of business functions.

When principles of Six Sigma and lean manufacturing are used together, it is called Lean Six Sigma. This methodology yields process improvement through the use of quantitative analysis and rigorous cost reduction through the elimination of waste.

Lean Six Sigma has been used to streamline IT operations at Bank of America Corporation, Sara Lee Corporation, Xerox Corporation, General Electric, and Seagate Technology. Sara Lee required that all of its IT employees become certified in Lean Six Sigma before the company began the implementation of SAP software. By making Lean Six Sigma the educational standard in the IT department, Sara Lee was able to obtain strategic alignment. CIO Mark Brewer of Seagate used Six Sigma to solve what was believed to be a bandwidth problem. Six Sigma processes were used to calculate server response times, and when the discrepancies between them were analyzed, the IT department realized that the problem was not with the bandwidth. This discovery ended up saving the company from a huge expense that would not have addressed the initial problem. Brewer claims that once he began thinking of IT operations as a factory, Six Sigma immediately became relevant.

BENEFITS OF LEAN/JIT PRODUCTION

While it was noted that inventory reduction is not the sole goal of lean/JIT implementation, it is a very obvious benefit. Less workspace is now needed due to the use of smaller lot sizes and reduced inventory levels. Much of this inventory was stored between and within work centers. By reducing inventory, firms have been able to actually move work centers closer together, freeing up space and reducing material handling distances. This results in a neater, more organized facility that provides for speedy identification of bottlenecks and fewer lost parts.

Additionally, this reduction in inventory and lot sizes promotes rapid feedback from downstream work centers when there is a quality problem. This feedback results in a reduction in scrap and rework, and ultimately a higher level of overall quality.

Reduced inventory and lot sizes also result in increased inventory turns. Inventory turn increases have been noted at Haworth, Hewlett-Packard, Richardson-Vicks Home-care Products, IBM, Raleigh (a fourfold increase), and Harley-Davidson.

The introduction of preventive maintenance and the use of smaller, more flexible machinery combine to yield increased equipment utilization. One major firm was able to change from three lines running three shifts to two lines running one shift with no change in output.

The next phase of lean manufacturing is lean product development, where companies seek a competitive advantage by shortening the time-to-market cycle. At Toyota, engineers and manufacturers collaborate in the development process with the goal of designing a product that facilitates lean manufacturing.

The lean/JIT producer combines the advantages of craft and mass production, while avoiding the high cost of the former and the rigidity of mass production. Lean/JIT producers set their sights explicitly on perfection: continually declining costs, zero defects, zero inventories, and endless product variety. Lean/JIT manufacturing is the new paradigm for manufacturing, replacing a mass-production system that has existed for more than seventy years.

SEE ALSO Cellular Manufacturing; Continuous Improvement; Flexible Manufacturing; Japanese Management; Poka-Yoke; Quality and Total Quality Management; World-Class Manufacturer

BIBLIOGRAPHY

Cox, James F., III, and John H. Blackstone, Jr. APICS Dictionary. 9th ed. Falls Church, VA: American Production and Inventory Control Society, 1998.

Hayes, Bruce. Manage IT Projects and Resources the Six Sigma Way. Six Sigma. 2008. Available from: http://software.isixsigma.com/library/content/c080507a.asp

Hunter, Steve L. The 10 Steps to Lean Production. FDM 76, no. 5 (2004): 2225.

Kerri. DMAIC Versus DMADV. Six Sigma. 2008. Available from: http://www.isixsigma.com/library/content/c001211a.asp

Stevenson, William J. Operations Management. 8th ed. Boston: Irwin/McGraw-Hill, 2005.

Takeuchi, Hirotaka et al. The Contradictions That Drive Toyota's Success. Harvard Business Review. June, 2008. Available from: http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?articleID=R0806F&ml_action=get-article&print=true&ml_issueid=BR0806

Teresco, John, Toyota's Real Secret: Hint, It's Not TPS. Industry Week 1 February 2007. Available from: http://www.industryweek.com/ReadArticle.aspx?ArticleId=13432

Womack, James P., and Daniel T. Jones. Lean Thinking: Banish Waste and Create Wealth in Your Corporation. New York: Simon & Schuster, 1996.

Womack, James P., Daniel T. Jones, and Daniel Roos. The Machine That Changed the World: Based on the Massachusetts Institute of Technology 5-Million Dollar 5-Year Study on the Future of the Automobile. New York: Rawson Associates, 1990.